SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K/A No. 1
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): October 11, 1995
INFODATA SYSTEMS INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Virginia 0-10416 16-0954695
-----------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
12150 Monument Drive
Suite 400
Fairfax, Virginia 22033
--------------------------------------- ---------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (703) 934-5202
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K,
dated October 11, 1995, as set forth in the pages attached hereto:
Item 7(a) - Financial Statements
Item 7(b) - Pro Forma Financial Information
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
INFODATA SYSTEMS INC.
December 26, 1995 By:/s/HARRY KAPLOWITZ
-------------------
Harry Kaplowitz
President
<PAGE>
The Current Report on form 8-K of Infodata Systems Inc. (the
"Registrant"), dated October 11, 1995 and filed on October 27, 1995, reported
the purchase by the Registrant of substantially all of the assets and the
assumption of certain liabilities of Merex, Inc. ("Merex") in consideration
for the issuance of up to 125,000 shares of common stock, par value $.03 per
share (the "Common Stock"), of the Registrant, with 100,000 shares of Common
Stock being issued to the Merex shareholders at the closing of the acquisition
on October 11, 1995 and with the remaining 25,000 shares of Common Stock being
held in escrow until the satisfaction by Merex and its shareholders of certain
post-closing conditions on or before December 31, 1995. Item 7 of the report
stated that the following financial information would be filed not later than
60 days after the date on which the Form 8-K was required to be filed: (i) the
financial statements required under Item 7(a) of Form 8-K and Rule 3-05(b) of
Regulation S-X and (ii) the pro-forma financial information required under
Item 7(b) of Form 8-K and Article 11 of Regulation S-X. The purpose of this
amendment is to file such financial information.
Set forth below is a summary of the preliminary purchase price
allocation:
SUMMARY OF PURCAHSE PRICE ALLOCATION
Infodata common shares issued: 105,000 shares $236,000 (a)
Direct costs of acquisition 66,000 (b)
---------
Total purchase price 302,000
Less fair market value of
Merex net assets acquired (4,000) (c)
Less identifiable intangibles:
Non-compete covenants (25,000) (d)
Software tool kits (35,000) (d)
Add purchase accounting adjustments:
Primarily acquired lease close out costs 21,000 (e)
---------
Goodwill $259,000 (f)
=========
(a) Represents $3,000 to common stock and $233,000 to
additional paid in capital.
(b) Primarily legal costs and included in accrued
liabilities on the pro forma balance sheet.
(c) Represent acquired assets reduced by $31,000 to
reflect fair market value offset by assumed
liabilities.
(d) Capitalized in other assets on the pro forma
balance sheet.
(e) Primarily related to closing of Merex office and
included in accured liabitlites on the pro forma
balance sheet.
(f) Goodwill will be amortized over a 10 year life.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
a. Financial Statements of Merex. The following historical financial
statements of Merex are attached hereto:
1. Balance Sheet, dated September 30, 1995.
2. Statement of Operations for the Nine Month Period Ended
September 30, 1995.
3. Notes to Financial Statements.
4. Report of Arthur Andersen, L.L.P..
5. Balance Sheets, dated March 31, 1995 and December 31, 1994.
6. Statement of Income for the Year Ended December 31, 1994.
7. Statement of Stockholders' Equity for the Year Ended
December 31, 1994
8. Statement of Cash Flows for the Year Ended December 31,
1994.
9. Notes to Financial Statements.
b. Pro Forma Financial Information. The following pro forma
financial information is attached hereto:
1. Pro Forma Consolidated Balance Sheets, dated September 30,
1995, and notes thereto.
2. Pro Forma Consolidated Statement of Operations for the Nine
Month Period Ended September 30, 1995, and notes thereto.
3. Pro Forma Consolidated Statement of Operations for the Year
Ended December 31, 1994, and notes thereto.
2
<PAGE>
Merex, Inc.
<TABLE>
Balance Sheet
September 30, 1995
<S> <C>
Cash $ 86,237
Accounts receivable-
Billed accounts receivable 210,887
Unbilled accounts receivable 113,159
---------
Total accounts receivable 324,046
Other current assets 19,133
---------
Total current assets 429,416
---------
Property and equipment:
Computer equipment 316,912
Office equipment 84,962
Furniture and fixtures 18,051
Leasehold improvements 3,000
---------
422,925
Accumulated depreciation and (306,292)
amortization
---------
Total property and equipment 116,633
---------
Deposit 12,216
---------
Total assets $558,265
=========
Current liabilities:
Notes payable, current $159,226
Obligation under capital leases, current 20,054
Accounts payable 74,553
Accrued liabilities 200,001
Deferred contract revenue
Deferred officer salaries 41,666
---------
Total current liabilities 495,500
Obligation under capital leases, net of
current 27,344
---------
Total liabilities 522,844
---------
Stockholders' equity
Common stock 23,056
Retained earnings 12,365
---------
Total stockholders' equity 35,421
---------
Total liabilities and
stockholders' equity $558,265
=========
</TABLE>
3
<PAGE>
Merex, Inc.
<TABLE>
Statement of Operations
For the nine months ended
September 30, 1995
<S> <C>
Contract revenues $1,826,843
Operating expenses:
Direct costs 808,790
Indirect costs 710,728
General and administrative 341,128
-----------
Total operating expenses 1,860,646
-----------
Operating loss (33,803)
Other expenses:
Interest expense 18,686
Other income (590)
-----------
Total other expense 18,096
-----------
Net loss $ (51,899)
===========
</TABLE>
4
<PAGE>
Notes to Condensed Financial Statements
Note A -- Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accurals) considered necessary for a fair
presentation have been included. For further information, refer to the audited
financial statements of Merex, Inc. for the year ended December 31. 1994.
5
<PAGE>
[MEREX GRAPHIC]
Merex, Inc.
Balance Sheet
As of March 31, 1995, and
Financial Statements
As of December 31, 1994,
Together With Auditors' Report
6
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
Merex, Inc.:
We have audited the accompanying balance sheets of Merex, Inc. (a Maryland
corporation), as of March 31, 1995, and December 31, 1994, and the related
statements of income, stockholders' equity and cash flows for the year ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Merex, Inc., as of March 31,
1995, and December 31, 1994, and the results of its operations and its cash
flows for the year ended December 31, 1994, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a net working capital deficiency and has
suffered operating losses and has had difficulties meeting cash flow
requirements that raise substantial doubt about its ability to continue as a
going concern. The Company has entered into an agreement with Infodata
Systems, Inc. ("Infodata"), under which Infodata will acquire substantially
all of the assets of the Company. However, there can be no assurance that the
Company will be able to close under this agreement.
Management's plans in regard to these matters are also described in Note 1.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable
to continue as a going concern.
/s/Arthur Andersen L.L.P.
----------------------
Washington, D.C.,
June 27, 1995
7
<PAGE>
Merex, Inc.
Balance Sheets
As of March 31, 1995, and December 31, 1994
Assets
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
<S> <C> <C>
Current assets:
Cash $ 56,716 $ 30,716
Accounts receivable-
Billed accounts receivable 348,487 420,744
Unbilled accounts receivable 90,760 89,426
---------- ----------
Total accounts receivable 439,247 510,170
Other current assets 8,064 21,228
---------- ----------
Total current assets 504,027 562,114
---------- ----------
Property and equipment:
Computer equipment 322,160 322,160
Office equipment 76,473 60,241
Furniture and fixtures 18,051 18,051
Leasehold improvements 3,000 3,000
---------- ----------
419,684 403,452
Accumulated depreciation and amortization (265,923) (244,939)
---------- ----------
Total property and equipment 153,761 158,513
---------- ----------
Deposit 12,216 10,450
---------- ----------
Total assets $ 670,004 $ 731,077
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
8
<PAGE>
Merex, Inc.
Balance Sheets
As of March 31, 1995, and December 31, 1994
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
<S> <C> <C>
Current liabilities:
Notes payable, current (Note 3) $170,017 $175,070
Obligation under capital leases, current 20,471 16,948
Accounts payable 69,726 38,854
Accrued liabilities 183,129 186,852
Deferred contract revenue 25,807 148,857
Deferred officer salaries 48,249 48,249
-------- --------
Total current liabilities 517,399 614,830
Obligation under capital leases, net of
current portion (Note 4) 36,835 28,927
-------- --------
Total liabilities 554,234 643,757
-------- --------
Commitments and contingencies (Note 4)
Stockholders' equity (Note 5):
Common stock, no par value; 1,000 shares
authorized, 600 shares issued and out-
standing as of March 31, 1995, and
December 31, 1994 23,056 23,056
Retained earnings 92,714 64,264
-------- --------
Total stockholders' equity 115,770 87,320
-------- --------
Total liabilities and
stockholders' equity $670,004 $731,077
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
9
<PAGE>
Merex, Inc.
Statement of Income
For the Year Ended December 31, 1994
<TABLE>
<S> <C>
Contract revenues $2,173,737
Operating expenses:
Direct costs 961,170
Indirect costs 624,056
General and administrative 350,469
----------
Total operating expenses 1,935,695
----------
Operating income 238,042
----------
Other expenses:
Interest expense 24,327
Other expense 28,619
----------
Total other expense 52,946
----------
Net income $ 185,096
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
10
<PAGE>
Merex, Inc.
Statement of Stockholders' Equity (Deficit)
For the Year Ended December 31, 1994
<TABLE>
<CAPTION>
Common Stock Total
--------------- Retained Stockholders'
Shares Amount Earnings Equity (Deficit)
------ ------- -------- ----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 500 $ 4,626 $(120,832) $(116,206)
Issuance of common stock 100 18,430 - 18,430
Net income - - 185,096 185,096
------ ------- -------- ---------
Balance, December 31, 1994 600 $23,056 $ 64,264 $ 87,320
====== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
11
<PAGE>
Merex, Inc.
Statement of Cash Flows
For the Year Ended December 31, 1994
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 185,096
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 77,823
Changes in assets and liabilities:
Increase in accounts receivable (278,401)
Increase in other current assets (9,132)
Decrease in accounts payable (72,910)
Increase in accrued liabilities 13,639
Decrease in deferred salaries (22,753)
Increase in deferred contract revenue 148,857
Decrease in deferred rent (6,896)
---------
Net cash provided by operating activities 35,323
---------
Cash flows from investing activities-
Additions to property and equipment (6,636)
---------
Net cash used in investing activities (6,636)
---------
Cash flows from financing activities:
Payments on notes payable (30,173)
Payments on obligation under capital leases (10,326)
Issuance of common stock 18,430
---------
Net cash used in financing activities (22,069)
---------
Net increase in cash 6,618
Cash, beginning of year 24,098
---------
Cash, end of year $ 30,716
=========
Supplemental disclosure of cash flow information-
Cash paid during the year for interest $ 25,192
=========
</TABLE>
The Company acquired certain office equipment valued at $27,785 under capital
lease agreements in 1994.
The accompanying notes are an integral part of this financial statement.
12
<PAGE>
Merex, Inc.
Notes to Financial Statements
As of and For The Year Ended December 31, 1994
and As of March 31, 1995
1. Operations, Liquidity and Risk Factors:
Merex, Inc. (the "Company"), is an information management and technical
support consulting company incorporated in Maryland in 1989. The Company
provides systems, publications, and administrative support for government
agencies and commercial entities.
The Company has a net working capital deficiency and has historically suffered
operating losses and difficulties meeting cash flow requirements resulting in
deferral of payments due on various current obligations. The Company redefined
its market during 1993 and 1994 to diversify its services to the government
and to expand its commercial contract base. Management worked to reduce costs
and expenses during 1994, and has replaced lost government contract business
with sales to commercial entities. For the year ended December 31, 1994,
approximately 50 percent of the Company's revenues were from the U.S.
government. In May 1995, the Company entered into an agreement with Infodata
Systems, Inc. ("Infodata") where by Infodata will acquire substantially all of
the assets of the Company, in exchange for shares of Infodata voting common
stock. There can be no assurance that the Company will be able to close under
this agreement. Or that cash flows from projected contract backlogs or from
any alternative financing sources will be available to the Company to pay its
operating expenses. In the event that the Company is unable to continue as a
going concern, amounts realized upon the liquidation or disposition of its
assets may be substantially less than the amounts recorded in the accompanying
financial statements.
2. Summary of Significant Accounting Policies:
Contract Revenues
Contract revenues are derived from fixed price, time and materials, and
cost-plus-fixed-fee contracts with agencies of the U.S. Federal government and
commercial entities. Revenue for fixed-priced contracts is recognized on the
percentage-of-completion basis and is based on the proportion of contact value
equal to costs incurred to total estimated costs to be incurred. Revenue for
time-and-materials contracts is recognized as services are performed based on
contracted labor and material rates. Revenue on cost-plus-fixed-fee contracts
is recognized on the basis of direct and indirect costs incurred plus fee
earned. Losses on uncompleted contracts are recorded when they become known.
Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is computed on the straight-line method over their estimated useful
lives of 5 years. Amortization of equipment under capital leases is recorded
on the straight-line basis over the shorter of asset useful life or the lease
term.
13
<PAGE>
Income Taxes
The Company elected "S" Corporation status as defined in the Internal Revenue
Code. Under the "S" Corporation election, no provision for income taxes is
included in the financial statements as income, deductions, gains, losses and
credits are reportable on the tax returns of the stockholders.
3. Notes Payable:
Notes payable consist of the following at March 31, 1995, and December 31,
1994.
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
<S> <C> <C>
Line of credit bearing interest at prime
(9.0 and 8.5 percent at March 31,1995,
and December 31, 1994, respectively),
interest payable monthly, principal
payable on demand, collateralized by
present and future accounts receivable,
guaranteed by principal stockholder $ 155,322 $ 155,322
10 percent note due in monthly installments of
$678, including interest, through December
1995, collateralized by computer equipment 6,782 8,003
Prime plus 2 percent (11.0 and 10.5 percent
at March 31, 1995, and December 31, 1994,
respectively) note due in monthly
installments of $1,313, including interest,
through April 1995, collateralized by
computer equipment 1,406 5,238
6 percent unsecured note payable past due
as of July 1994 6,507 6,507
--------- ---------
170,017 175,070
Less- Current portion (170,017) (175,070)
--------- ---------
Notes payable, net of current portion $ - $ -
========= =========
</TABLE>
4. Commitments and Contingencies:
Leases
The Company is obligated under a noncancelable operating lease for office
space, which expires during 1996. In addition, the Company is obligated under
various capital leases for certain equipment. Total rent expense recorded
under operating leases for the year ended December 31, 1994, was $128,000.
Amortization of the office equipment under the capital leases amounted to
approximately $8,000 in 1994. Net book value of equipment held under capital
leases totaled approximately $42,400 as of December 31, 1994.
14
<PAGE>
Future minimum lease payments under noncancelable operating and capital lease
payments as of December 31, 1994, are as follows.
<TABLE>
<CAPTION>
Capital Operating
Year ending December 31, Leases Leases
------------------------ ------- ---------
<S> <C> <C>
1995 $21,825 $125,388
1996 18,864 41,796
1997 14,057 -
------- ---------
Total minimum lease payments 54,746 $167,184
========
Less- Interest (8,871)
--------
Principal portion of obligations
under capital lease $45,875
=======
</TABLE>
Future minimum lease payments under noncancelable operating and capital lease
payments as of March 31, 1995, are as follows.
<TABLE>
<CAPTION>
Capital Operating
Year ending December 31, Leases Leases
------------------------ ------- ---------
<S> <C> <C>
1995 $20,880 $ 94,041
1996 25,584 41,796
1997 20,777 -
1998 6,720 -
-------- ---------
Total minimum lease payments 73,961 $ 135,837
=========
Less- Interest (16,655)
--------
Principal portion of obligations
under capital lease $57,306
========
</TABLE>
Government Contracts
The Company recognizes revenue based upon actual costs incurred to perform
contracted services. These costs are subject to audit by the Defense Contract
Audit Agency ("DCAA"), and ultimate realization of revenues recognized is
contingent upon the outcome of such audits. In the opinion of management,
adjustments resulting from the completion of such audits are not expected to
have a material impact on the Company's financial position or future results
of operations.
5. Stockholders' Equity:
Sales of the Company's stock are restricted by the provision that the Company
and its stockholders will have first right to buy said shares at a price
provided for by a formula in a stockholder buy-sell agreement dated May 1,
1990.
15
<PAGE>
Upon stockholder termination of employment, death or disability, the Company
will purchase the stockholders' shares at a price equal to the Company's
per-share book value as of year-end immediately preceding the purchase. The
purchase percentage will be determined based on the number of years the
stockholder has been employed by the Corporation as of the date of the event
giving rise to the buy-sell obligation.
16
<PAGE>
<TABLE>
Pro Forma Consolidated Balance Sheets
September 30, 1995
(in thousands)
<CAPTION>
Infodata Pro Forma Adjustments
Systems, Inc Merex, Inc. Debit Credit Consolidated
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $1,939 $ 86 159 (a) 1,866
Short term investments 82 82
Accounts receivable, net 663 324 987
Other 166 19 185
------------------ -------
Total current assets 2,850 429 3,120
Property and equipment, net 382 117 31 (b) 468
Goodwill 259 (b) 259
Software development costs, net 165 165
Other assets 12 12 60 (b) 12 (b) 72
------------------ -------
Total assets $3,409 $558 4,084
================== =======
Liabilities and shareholders' equity
Current liabilities:
Current portion of capital lease $ 104 $ 20 124
Current portion of notes payable 159 159 (a) -
Accounts payable 179 75 254
Accrued expenses 549 242 75 (b) 866
Deferred revenue 947 947
Current portion of deferred 33 33
Preferred dividend payable 30 30
------------------ -------
Total current liabilities 1,842 496 2,254
Capital lease obligations 74 27 101
Deferred rent 60 60
------------------ -------
Total liabilities 1,976 523 2,415
------------------ -------
Shareholders' equity
Preferred stock 134 134
Common stock 18 23 23 (b) 3 (b) 21
Additional paid-in capital 7,836 233 (b) 8,069
Treasury stock, at cost (2) (2)
Retained earnings (deficit) (6,553) 12 12 (b) (6,553)
------------------ -------
Total shareholders' equity 1433 35 1,669
------------------ -------
Total liabilities and shareholder's $3,409 $558 4,084
================== =======
<FN>
Notes to Pro Forma Balance Sheet
(a) To reflect the payoff of the outstanding Merex line of credit
and associated accrued interest.
(b) To reflect the fair market value of the identifiable assets acquired and liabilities
assumed with the associated goodwill and elimination of Merex equity.
</FN>
</TABLE>
17
<PAGE>
<TABLE>
Pro Forma Consolidated Statements of Operations
Nine months Ended September 30, 1995
(in thousands, except per share data)
Infodata Pro Forma Adjustments
Systems, Inc Merex, Inc. Debit Credit Consolidated
<S> <C> <C> <C> <C> <C>
Revenues $4,893 $1,827 $6,720
Cost of revenues 3,077 1,520 4,597
------- ------- -------
Gross profit 1,816 307 2,123
Operating expenses:
Research and development 206 40 246
Selling, general and administrative 1,673 301 19 (a) 2,006
13 (b)
------- ------- -------
Total operating expenses 1,879 341 2,252
Operating income (loss) (63) (34) (129)
Interest income 95 7 (c) 88
Interest expense (18) (18) 11 (c) (25)
Other income (expense)
------- ------- -------
Income (loss) before income taxes 14 (52) (66)
Provision for income taxes - - -
------- ------- -------
Net income $14 ($52) (66)
======= ======= =======
Per share data:
Net income 14 (52) (66)
Preferred stock dividends (90) - (90)
------- ------- -------
Loss applicable to common shares (76) (52) (156)
======= ======= =======
Net loss per share ($0.12) ($0.23)
======= =======
Weighted average shares outstanding 606 (d) 685
<FN>
Notes to Pro Forma Statements of Operations
-------------------------------------------------------------------------
(a) Amortization of goodwill over a 10 year life.
(b) Amortization of non-compete covenants and acquired
software over 4 and 3 years, respectively.
(c) Reduction of Infodata interest income and Merex
interest expense associated with assumed payoff of
Merex line of credit.
(d) Increase in weighted average shares outstanding
assuming the 105,000 shares issued in the merger were
outstanding for the period.
</FN>
</TABLE>
18
<PAGE>
<TABLE>
Pro Forma Consolidated Statements of Operations
Year Ended December 31, 1994
(in thousands, except per share data)
Infodata Pro Forma Adjustments
Systems, Inc Merex, Inc. Debit Credit Consolidated
<S> <C> <C> <C> <C> <C>
Revenues $7,502 $2,173 $9,675
Cost of revenues 4,512 1,585 6,097
------- ------- -------
Gross profit 2,990 588 3,578
Operating expenses:
Research and development 408 141 549
Selling, general and administrative 2,057 209 26 (a) 2,310
18 (b)
------- ------- -------
Total operating expenses 2,465 350 2,859
------- ------- -------
Operating income 525 238 719
Interest income 46 9 (c) 37
Interest expense (42) (24) 12 (c) (54)
Other income (expense) (29) (29)
------- ------- -------
Income before income taxes 529 185 673
Provision for income taxes (11) - (3)(d) (14)
------- ------- -------
Net income $ 518 $ 185 $ 659
======= ======= =======
Per share data:
Net income $ 518 $ 185 $ 659
Preferred stock dividends (120) - (120)
------- ------- -------
Income applicable to common shares $ 398 $ 185 $ 539
======= ======= =======
Net income per share $ 0.63 (e) $ 0.73
======= =======
Weighted average shares outstanding 658 (f) 763
<FN>
Notes to Pro Forma Statements of Operations
(a) Amortization of goodwill over a 10 year life.
(b) Amortization of non-compete covenants and acquired
software over 4 and 3 years, respectively.
(c) Reduction of Infodata interest income and Merex
interest expense associated with assumed payoff of
Merex line of credit.
(d) Tax effect of pro forma adjustments.
(e) The historical earnings per share calcualtion was
performed using the treasury stock method which
resulted in an addition to net income of $17,000
in assumed interest income, net of tax.
(f) Increase in weighted average shares outstanding
assuming 105,000 shares issued in the merger were
outstanding for the period.
</FN>
</TABLE>
19
