<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 28, 1996
COMMISSION FILE NUMBER 0-19207
QUARTERDECK CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4320650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13160 MINDANAO WAY, MARINA DEL REY, CALIFORNIA 90292
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 309-3700
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS (AS PREVIOUSLY STATED IN FORM 8-K
FILED ON APRIL 12, 1996)
On March 28, 1996, Quarterdeck Corporation (the "Company") consummated
the acquisition of Datastorm Technologies, Inc. ("Datastorm"), pursuant to the
terms of the Agreement and Plan of Reorganization, dated as of March 28, 1996
(the "Reorganization Agreement"), by and among the Company, DTI Acquisition
Corporation, a wholly-owned subsidiary of the Company ("Acquisition Sub"),
Datastorm and the shareholders of Datastorm (the "Shareholders"). The
acquisition of Datastorm was effectuated by way of a merger (the "Merger") of
Acquisition Sub with and into Datastorm. As a result of the merger, Datastorm
became a wholly-owned subsidiary of the Company. The merger is being treated as
a "pooling of interests" for accounting purposes. Pursuant to the Reorganization
Agreement, the Shareholders received an aggregate of 5,200,000 shares (the
"shares") of common stock, $.001 par value of the Company ("Quarterdeck Common
Stock"). Pursuant to the terms of the Reorganization Agreement and the Escrow
Agreement, dated as of March 28, 1996, by and among the Company, American Stock
Transfer and Trust Company, as Escrow Agent, Acquisition Sub and the
Shareholders, 520,000 of the Shares were placed in escrow to satisfy potential
indemnification obligations of the Shareholders under the Reorganization
Agreement.
The Shares were issued pursuant to an exemption under the Securities
Act of 1933, as amended. In connection with the Merger, the Company and the
Shareholders entered into a Registration Rights Agreement, dated as of March 28,
1996, by and among the Company and the Shareholders, pursuant to which the
Shareholders are entitled to certain registration rights with respect to the
Shares. Pursuant to the Registration Rights Agreement, the Company has agreed to
file a registration statement with the Securities and Exchange Commission by
April 28, 1996 to register the resale of up to 50% of the Shares, and to keep
such registration statement effective through March 28, 1997.
Datastorm develops and publishes a data communications package called
Procomm Plus which runs on personal computers utilizing Microsoft Windows 95 and
3.1. Datastorm's product includes an integrated fax package, a Winsock-compliant
TCP/IP stack and a complete set of graphical applications for accessing the
Internet, all of which are designed to enable the user to more effectively and
efficiently communicate with users at other computer sites.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS
QUARTERDECK CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
(a) Financial statements of Datastorm Technologies, Inc.
Consent of Independent Accountants....................................................... 5
Report of Independent Accountants as of December 31, 1995................................ 7
Balance Sheets as of December 31, 1995 and 1994.......................................... 8
Statements of Income and Retained Earnings for the years
ended December 31, 1995 and 1994......................................................... 9
Statements of Cash Flows for the years ended December 31, 1995 and 1994.................. 10
Notes to Financial Statements - December 31, 1995 and 1994............................... 11
Consent of Independent Accountants....................................................... 17
Report of Independent Accountants as of December 31, 1993................................ 20
Balance Sheets as of December 31, 1993 and 1992.......................................... 21
Statements of Income for the years ended December 31, 1993 and 1992...................... 22
Statements of Retained Earnings for the years ended December 31, 1993
and 1992................................................................................. 23
Statements of Cash Flows for the years ended December 31 1993 and 1992................... 24
Notes to Financial Statements - December 31, 1993 and 1992............................... 26
(b) Unaudited Pro Forma Financial Information.
Basis of Presentation.................................................................... 33
Unaudited Pro Forma Condensed Combining Balance Sheet as of
September 30, 1995....................................................................... 34
Unaudited Pro Forma Condensed Combining Statements of Operations for
the fiscal years ended September 30, 1995, 1994 and 1993................................. 35
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
Notes to Unaudited Pro Forma Condensed Combining Financial Statements.................... 38
The accompanying unaudited pro forma condensed combining financial statements of
Quarterdeck Corporation and Datastorm Technologies, Inc. give retroactive effect
to the acquisition which is being accounted for as a pooling of interests and, as a
result, the unaudited pro forma condensed combining balance sheets and statements
of operations are presented as if the combining companies had been combined for
all periods presented. The unaudited pro forma condensed combining financial
statements will become the historical financial statements of Quarterdeck
Corporation. These unaudited pro forma condensed combining financial
statements may not be indicative of the results that actually may be obtained in the
future. The unaudited pro forma condensed combining financial statements,
including the notes thereto, should be read in conjunction with the historical
consolidated financial statements of Quarterdeck Corporation and Datastorm
Technologies, Inc.
SIGNATURE......................................................................................... 39
</TABLE>
4
<PAGE> 5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 1, 1996, relating to the balance sheets of Datastorm
Technologies, Inc. as of December 31, 1995 and 1994, and the related statements
of income and changes in retained earnings, and cash flows for the years then
ended, included in the Form 8-K/A of Quarterdeck Corporation dated May 24, 1996,
into the previously filed registration statements (No. 33-96064 and No.
333-4606) on Form S-3, the registration statement (No. 333-03723) on Form S-4
and the registration statements (No. 333-01766 and No. 333-4602) on Form S-8 of
Quarterdeck Corporation.
\s\ Arthur Andersen LLP
- ------------------------
St. Louis, Missouri,
May 24, 1996
5
<PAGE> 6
ARTHUR ANDERSEN LLP
DATASTORM TECHNOLOGIES, INC.
FINANCIAL STATEMENTS AND SCHEDULE
AS OF DECEMBER 31, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
6
<PAGE> 7
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
DATASTORM Technologies, Inc.:
We have audited the accompanying balance sheets of DATASTORM Technologies, Inc.
(a Missouri corporation) as of December 31, 1995 and 1994, and the related
statements of income and changes in retained earnings, and cash flows for the
years then ended. These financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule 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 DATASTORM Technologies, Inc.,
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying Schedule of Operating
Expenses and Other Income is presented for purposes of additional analysis and
is not a required part of the basic financial statements. This information has
been subjected to the auditing procedures applied in our audit of the basic
financial statements, and in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
\s\ Arthur Andersen LLP
- -----------------------
St. Louis, Missouri,
March 1, 1996
7
<PAGE> 8
DATASTORM TECHNOLOGIES, INC.
BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 95,293 $ 3,804,988
Marketable securities 15,688,916 9,875,607
Receivables 808,780 1,032,353
Inventories 630,718 671,137
Notes receivable from affiliate 469,427 30,000
Prepaid expenses and other current assets 121,171 135,418
----------- -----------
Total current assets 17,814,305 15,549,503
EQUIPMENT 2,543,816 2,296,996
CAPITALIZED SOFTWARE COSTS 115,054 89,422
----------- -----------
Total assets $20,473,175 $17,935,921
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 2,674,830 $ 4,045,906
Accrued royalties 2,464,155 969,217
Accrued vacation 1,124,636 876,440
Accrued payroll and related taxes 454,700 589,589
Accrued profit sharing 713,187 450,528
Accrued bonus 375,000 --
Deferred revenues 398,250 625,000
Other accrued liabilities 397,429 895,753
----------- -----------
Total current liabilities 8,602,187 8,452,433
LOANS PAYABLE TO AFFILIATE 1,015,411 527,315
----------- -----------
Total liabilities 9,617,598 8,979,748
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock-
Common stock, $10 par value; 3,000 shares authorized; 1,020 shares issued and
outstanding 10,200 10,200
Retained earnings 10,706,229 8,945,973
Unrealized gain on marketable securities 139,148 --
----------- -----------
Total stockholders' equity 10,855,577 8,956,173
----------- -----------
Total liabilities and stockholders' equity $20,473,175 $17,935,921
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
8
<PAGE> 9
DATASTORM TECHNOLOGIES, INC.
STATEMENTS OF INCOME AND CHANGES IN RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
NET SALES $ 38,829,101 $ 42,401,969
COST OF SALES 16,356,073 11,507,352
------------ ------------
Gross profit 22,473,028 30,894,617
------------ ------------
OPERATING EXPENSES:
Selling 2,950,830 2,029,655
General and administrative 13,061,897 12,659,635
------------ ------------
Total operating expenses 16,012,727 14,689,290
------------ ------------
Income from operations 6,460,301 16,205,327
OTHER INCOME (EXPENSE):
Interest income 607,739 280,762
Other income (expense) 129,717 (243,370)
------------ ------------
Total other income, net 737,456 37,392
------------ ------------
Net income 7,197,757 16,242,719
RETAINED EARNINGS, beginning of year 8,945,973 4,330,756
DIVIDENDS (5,437,501) (11,627,502)
------------ ------------
RETAINED EARNINGS, end of year $ 10,706,229 $ 8,945,973
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE> 10
DATASTORM TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,197,757 $ 16,242,719
Adjustments to reconcile net income to net cash flows provided by operating
activities-
Depreciation and amortization 1,199,787 917,630
Commission expense 488,096 527,315
Loss on sale or abandonment of assets 37,801 270,773
Changes in assets and liabilities-
Receivables 223,573 (378,321)
Inventories 40,419 10,122
Prepaid expenses and other current assets 14,247 8,794
Accounts payable (1,371,076) 3,732,112
Deferred revenues (226,750) 625,000
Accrued liabilities 1,747,580 936,863
------------ ------------
Net cash flows provided by operating activities 9,351,434 22,893,007
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,388,068) (1,500,817)
Proceeds from sale of equipment 9,158 4,391
Additions to capitalized software costs (131,130) (108,212)
Additions to notes receivable from affiliate (976,867) (30,000)
Payments of notes receivable from affiliate 537,440 167,252
Purchases of marketable securities (70,833,024) (30,532,059)
Proceeds from sale of marketable securities 65,158,863 23,841,441
------------ ------------
Net cash flows used in investing activities (7,623,628) (8,158,004)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on loan payable -- (450,000)
Payments of dividends (5,437,501) (11,627,502)
------------ ------------
Net cash flows used in financing activities (5,437,501) (12,077,502)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,709,695) 2,657,501
CASH AND CASH EQUIVALENTS, beginning of year 3,804,988 1,147,487
------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 95,293 $ 3,804,988
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE> 11
DATASTORM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. DESCRIPTION OF BUSINESS:
DATASTORM Technologies, Inc. (the Company) is a Missouri S Corporation. The
Company's products include communications software and related manuals. The
software and manuals are reproduced by unrelated companies and are packaged by
the Company at its facility in Columbia, Missouri. The Company sells its
products to major software distributors for resale through software dealers
throughout the world. In 1995 and 1994, sales to two distributors accounted for
approximately 74% and 82%, respectively, of total net sales.
Periodically, the Company introduces major new products and enhancements of
existing products that can have a significant impact on the Company's net sales.
In February 1996, the Company introduced a major new product PROCOMM PLUS for
Windows 3.0.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers cash on hand and deposits in commercial banks or brokerage
houses to be cash and cash equivalents.
Marketable Securities
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities," on
January 1, 1994. All of the Company's marketable securities are classified as
"available for sale" and are carried at fair value with the unrealized gains and
losses reported as a separate component of stockholders' equity.
The amortized cost of available-for-sale debt securities are adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in other income (expense). Realized gains and losses
are included in other income (expense). The cost of securities sold is based on
the specific identification method. Interest and dividends on securities
classified as available-for-sale are included in other income.
Inventories
Inventories consist primarily of software and manuals for resale and shipping
materials, and are stated at the lower of cost (first-in, first-out) or market.
Equipment
Equipment is carried at cost. Depreciation and amortization are computed using
both accelerated and straight-line methods over the estimated useful lives,
generally ranging from three to seven years.
Income Taxes
The Company is an S corporation and files its income tax return on an accrual
basis. As an S corporation, taxable income flows through to the owners of the
Company; and, therefore, no provision for income taxes is provided.
11
<PAGE> 12
- 2 -
Revenue Recognition
The Company recognizes revenue from the sale of software products upon shipment.
Revenue from technical support agreements bundled with the initial licensing fee
is deferred until the period in which the related services are provided. Certain
limited rights of return from customers exist. Sales returns are recorded as
reductions to net sales and totaled $1,951,893 in 1995 and $999,586 in 1994.
Reclassification
Certain reclassifications were made to the 1994 financial statements to conform
to the 1995 presentation.
3. RECEIVABLES:
Receivables consists of:
<TABLE>
<CAPTION>
December 31
------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Due from customers $ 1,212,720 $ 969,038
Interest receivable 109,521 38,873
Miscellaneous 63,516 31,244
Allowance for sales returns (576,977) (6,802)
----------- -----------
$ 808,780 $ 1,032,353
=========== ===========
</TABLE>
4. MARKETABLE SECURITIES:
The amortized cost and estimated market values of marketable securities as of
December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Municipal bonds and municipal bond mutual
funds $15,549,768 $142,210 $3,062 $15,688,916
</TABLE>
As of December 31, 1994, estimated market values of marketable securities
approximated amortized cost.
The amortized cost and estimated market value of available-for-sale securities
as of December 31, 1995, by contractual maturity, consisted of the following:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less $15,549,768 $15,688,916
Due in one to five years -- --
Due in five years or greater -- --
----------- -----------
$15,549,768 $15,688,916
=========== ===========
</TABLE>
12
<PAGE> 13
- 3 -
5. EQUIPMENT:
Equipment consist of:
<TABLE>
<CAPTION>
December 31
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Furniture and fixtures $ 803,996 $ 587,576
Computers and other equipment 3,669,082 2,731,974
Vehicles 52,986 35,656
Purchased software for internal use 709,725 630,779
Leasehold improvements 99,114 99,114
----------- -----------
Total 5,334,903 4,085,099
Accumulated depreciation and amortization (2,791,087) (1,788,103)
----------- -----------
$ 2,543,816 $ 2,296,996
=========== ===========
</TABLE>
Depreciation and amortization expense totaled to $1,094,289 for 1995 and
$801,453 for 1994.
6. CAPITALIZED SOFTWARE COSTS:
The Company accounts for software costs in accordance with Statement of
Financial Accounting Standards No. 86. Costs related to establishing the
technological feasibility of software are charged to operations as incurred.
Costs incurred after establishing technological feasibility are capitalized
until the product is available for general distribution or is abandoned.
Capitalized costs are reported at the lower of unamortized cost or net
realizable value and amortized on the straight-line method over the shorter of
estimated useful life or one year. Software development costs capitalized and
related amortization were as follows:
<TABLE>
<CAPTION>
December 31
------------------------
1995 1994
--------- ---------
<S> <C> <C>
Beginning of year, net $ 89,422 $ 341,339
Additions, at cost 131,130 108,212
Amortization expense (105,498) (360,129)
--------- ---------
Capitalized software costs, net $ 115,054 $ 89,422
========= =========
</TABLE>
Research and development costs charged directly to cost of sales were $4,053,214
and $1,955,346 in 1995 and 1994, respectively. During 1994, the Company charged
$251,072 to other expense relating to software costs for abandoned technology.
13
<PAGE> 14
- 4 -
7. RELATED-PARTY TRANSACTIONS:
DATASTORM Ltd.
The Company sells products to DATASTORM Ltd., a foreign company affiliated
through common ownership. Sales to DATASTORM Ltd. totaled $2,016,458 and
$1,413,383 in 1995 and 1994, respectively. As a result of these sales,
outstanding receivables from DATASTORM Ltd. as of December 31, 1995 and 1994,
totaled $674,220 and $409,902, respectively.
Three Guys With a Building
The Company leases office and warehouse space from Three Guys With a Building
partnership, a company affiliated through common ownership. The lease expires on
December 31, 2001, however, upon completion of a new office building currently
under construction for the Company, the existing lease may be terminated in
exchange for the Company entering into a long-term lease on the new building.
Lease expense for 1995 and 1994 totaled $685,703 and $666,948, respectively.
At December 31, 1995, the Company has a $469,427 note receivable from Three Guys
with a Building partnership. The note bears interest at the applicable federal
midterm rate (5.91% as of December 31, 1995), and is payable on demand.
Intersoft, Inc.
The Company owed Intersoft, Inc., an Interest Charge Domestic International
Sales Corporation ("IC-DISC") affiliated through common ownership, $1,015,411
and $527,315 as of December 31, 1995 and 1994, for commission expenses and
interest related to international sales. Loans are entered into at the end of
each month for each month's commission expense. Simple interest is accrued at
the applicable federal midterm rate (5.91% as of December 31, 1995). The loans
and related accrued interest are due on December 31, 1998. Intersoft, Inc. was
formed on December 31, 1993. An election to treat Intersoft, Inc. as an IC-DISC
was made effective January 1, 1994.
Employment Contracts
The Company has employment contracts, with each of the three officers of the
Company, that define the officers' responsibilities, annual compensation,
vacation and fringe benefits, means of termination, and covenant-not-to-compete.
The contracts are effective until the agreement terminates as defined within the
contract.
8. 401(k) AND PROFIT SHARING PLAN:
Employees of the Company participate in the DATASTORM Technologies, Inc.,
Integrated Profit Sharing Plan and Trust (the Plan). Annually, the Company
contributes to the Plan an amount determined by the Board at its discretion.
Profit sharing expense totaled $713,187 and $450,528 for the years ended
December 31, 1995 and 1994, respectively.
To participate in the Plan, an employee must complete six months of service with
the Company and attain the age of 20.5 years. To qualify for the Employer
Contribution to the Plan, participants must complete 1,000 hours of service
during a plan year and be employed by the Company on the last day of the plan
year. For each plan year the Employer contributes to the Plan, the Trustees will
allocate this contribution to the separate accounts maintained for participants.
An employee-participant may (but is not required to) contribute to the Plan.
Participant accounts are invested among five investment funds as directed by the
participant.
14
<PAGE> 15
- 5 -
9. COMMITMENTS AND CONTINGENCIES:
The Company leases facilities and equipment under leases expiring through 2011.
Rent expense under these agreements totaled $871,456 and $758,953 in fiscal
years 1995 and 1994, respectively.
Future minimum lease payments under all noncancelable operating leases are as
follows:
<TABLE>
<S> <C>
1996 $ 821,676
1997 713,326
1998 706,874
1999 704,211
2000 702,171
Thereafter 7,723,881
-----------
Total minimum lease payments $11,372,139
===========
</TABLE>
Cross Stock Purchase Agreement
The Company has a cross stock purchase agreement with all of the stockholders of
the Company that provides for the repurchase of common stock in certain
situations. The circumstances under which the Company would repurchase the
shares would be in the event of a stockholder's death, the permanent disability
of a stockholder, retirement of a stockholder or voluntary sales of shares
during the stockholder's lifetime. The price to be paid for the shares and the
payment methods and terms are set forth in the agreement.
Line of Credit
The Company has a $500,000 line of credit with a bank that is secured by
accounts receivable and is charged interest at prime rate, adjusted quarterly.
The Company did not use this line of credit during 1995 or 1994.
Software License Arrangements
The Company enters into development and license arrangements with individuals or
other companies relating to software technology. Certain agreements call for
minimum guaranteed license fees and advance royalties that are recoupable
against future royalties. Royalty expense was $3,069,450 and $4,761,685 in 1995
and 1994, respectively. Future minimum guaranteed license fees due under these
agreements totaled $1,694,735 as of December 31, 1995, and are reflected as
accrued royalties on the balance sheet.
15
<PAGE> 16
DATASTORM TECHNOLOGIES, INC.
SCHEDULE OF OPERATING EXPENSES AND OTHER INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
SELLING EXPENSES:
Product advertising $ 2,082,686 $ 1,384,808
Marketing salaries 833,991 598,457
Delivery expense - net 26,651 57,561
Bad debts 7,502 (11,171)
------------ ------------
Total selling expenses $ 2,950,830 $ 2,029,655
============ ============
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries $ 5,750,714 $ 6,855,002
Payroll taxes 830,250 584,707
Employee benefits 1,376,932 805,789
Contract labor 1,947 37,176
Equipment rentals, maintenance and repairs 194,200 62,282
Vehicle insurance, maintenance and repairs 3,474 578
Building rentals, maintenance and repairs 893,102 820,645
Utilities 360,198 295,188
Depreciation and amortization of equipment 1,094,289 801,453
Professional service fees 607,385 772,691
Travel and entertainment 368,289 328,324
Office supplies and expenses 474,853 400,895
Postage 149,112 160,385
Insurance 159,322 118,915
Other taxes 92,548 48,410
Interest 51,968 17,267
Donations 12,226 24,075
Miscellaneous 641,088 525,853
------------ ------------
Total general and administrative expenses $ 13,061,897 $ 12,659,635
============ ============
OTHER INCOME (EXPENSE):
Interest income $ 607,739 $ 280,762
Abandoned technology -- (251,072)
Loss on disposal of equipment (37,801) (19,701)
Miscellaneous 167,518 27,403
------------ ------------
Other income, net $ 737,456 $ 37,392
============ ============
</TABLE>
16
<PAGE> 17
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the following registration
statements:
Forms S-3; Nos. 33-96064, and 333-4606
Form S-4; No. 333-03723
Forms S-8; Nos. 333-01766, and 333-4602
of Quarterdeck Corporation of our report dated February 25, 1994, with respect
to the balance sheets of Datastorm Technologies, Inc. as of December 31, 1993
and 1992 and the related statements of Income and Retained Earnings and
statements of Cash Flows for each of the years in the two year period ended
December 31, 1993, which report appears in the Form 8-K/A of Quarterdeck
Corporation dated May 24, 1996.
\s\ Williams-Keepers
- --------------------
Columbia, Missouri,
May 24, 1996
17
<PAGE> 18
REPORT OF
DATASTORM TECHNOLOGIES, INC.
COLUMBIA, MISSOURI
December 31, 1993
18
<PAGE> 19
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT ACCOUNTANTS' REPORT 20
FINANCIAL STATEMENTS
Balance sheets 21
Statements of income 22
Statements of retained earnings 23
Statements of cash flows 24
Notes to financial statements 26
SUPPLEMENTARY INFORMATION
Schedule of operating expenses and other income 32
</TABLE>
19
<PAGE> 20
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of
Datastorm Technologies, Inc.
Columbia, Missouri
We have audited the accompanying balance sheets of Datastorm Technologies, Inc.
as of December 31, 1993 and 1992, and the related statements of income,
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of Datastorm Technologies, Inc.'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 audits 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 Datastorm Technologies, Inc.,
as of December 31, 1993 and 1992, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying information on page 12
is presented for purposes of analysis and is not necessary for a fair
presentation of the basic financial statements in conformity with generally
accepted accounting principles. The accompanying information has been
subjected to the auditing procedures applied in the audit of the basic
financial statements, and in our opinion, is stated fairly in all material
respects in relation to the basic financial statements taken as a whole.
\s\ Williams-Keepers, LLP
February 25, 1994
20
<PAGE> 21
DATASTORM TECHNOLOGIES, INC.
BALANCE SHEETS
December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,147,487 $2,924,629
Accounts receivable (Notes 2, 6 and 8) 654,032 779,911
Notes receivable (Notes 2 and 6) 167,252 401,475
Inventories 681,259 716,004
Prepaid expenses 144,212 180,813
---------- ----------
Total current assets 2,794,242 5,002,832
INVESTMENTS (Note 9) 3,192,109 1,643,966
FURNITURE, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET (Note 3) 1,621,724 1,080,859
NOTES RECEIVABLE (Notes 2 and 6) - 565,743
SOFTWARE DEVELOPMENT COSTS, NET (Note 4) 341,339 845,255
---------- ----------
Total assets $7,949,414 $9,138,655
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 313,794 $ 406,672
Accrued payroll and related taxes 116,461 120,652
Accrued vacation 275,850 356,420
Accrued profit sharing (Note 7) 429,240 352,006
Accrued other liabilities 2,023,113 728,580
Accrued dividends payable - 1,875,000
Accrued bonus payable - 625,000
Notes payable - current portion (Note 5) 450,000 -
---------- ----------
Total current liabilities 3,608,458 4,464,330
NOTE PAYABLE (Note 5) - 450,000
---------- ----------
Total liabilities 3,608,458 4,914,330
---------- ----------
STOCKHOLDERS' EQUITY (Note 8)
Capital stock
Common $10 par value; authorized 3,000
shares; issued and outstanding 1,020 shares 10,200 10,200
Retained earnings 4,330,756 4,214,125
---------- ----------
Total stockholders' equity 4,340,956 4,224,325
---------- ----------
Total liabilities and
stockholders' equity $7,949,414 $9,138,655
========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
21
<PAGE> 22
DATASTORM TECHNOLOGIES, INC.
STATEMENTS OF INCOME
Years Ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
SALES $ 26,769,386 $ 24,983,348
COST OF SALES 6,549,039 6,282,083
------------ ------------
Gross profit 20,220,347 18,701,265
------------ ------------
OPERATING EXPENSES
Selling 2,215,254 2,660,368
General and administrative 8,968,765 7,764,667
------------ ------------
Total operating expenses 11,184,019 10,425,035
------------ ------------
Income from operations 9,036,328 8,276,230
OTHER INCOME (LOSS) - NET 268,982 (4,657)
------------ ------------
Net income $ 9,305,310 $ 8,271,573
============ ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
22
<PAGE> 23
DATASTORM TECHNOLOGIES, INC.
STATEMENTS OF RETAINED EARNINGS
Years Ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Balance, beginning of year $ 4,214,125 $ 2,667,534
Net income 9,305,310 8,271,573
Dividends (9,188,679) (6,724,982)
----------- ------------
Balance, end of year $ 4,330,756 $ 4,214,125
=========== ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
23
<PAGE> 24
DATASTORM TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 9,305,310 $ 8,271,573
Adjustments to reconcile net income to
net cash flows provided by operating activities:
Depreciation and amortization of fixed assets 475,368 324,596
Amortization of software technology 509,083 533,423
Loss on disposal of fixed assets 3,326 184,976
Adjustments for (increases) decreases in
operating assets and increases (decreases)
in operating liabilities:
Accounts receivable 125,879 115,403
Inventory 34,745 (159,353)
Prepaid expenses 36,601 (125,502)
Accounts payable (92,877) 337,472
Accrued payroll (4,191) 63,404
Accrued vacation (80,570) 210,078
Profit sharing payable 77,234 158,335
Accrued bonuses (625,000) 625,000
Other accrued liabilities 1,294,532 342,537
------------ -----------
Net cash flows provided by
operating activities 11,059,440 10,881,942
------------ -----------
Cash flows (used) by investing activities:
Purchases of furniture, equipment and
leasehold improvements (1,019,559) (868,626)
(Increase) in software development costs (5,167) (647,581)
(Increase) decrease in notes receivable 799,966 (515,572)
(Increase) in investments (1,548,143) (1,643,966)
------------ -----------
Net cash flows (used) by
investing activities (1,772,903) (3,675,745)
------------ -----------
Cash flows (used) by financing activities:
Increase in note payable - 450,000
Payments of dividends (11,063,679) (4,849,983)
------------ -----------
Net cash flows (used) by financing
activities (11,063,679) (4,399,983)
------------ -----------
Net increase (decrease) in cash and
cash equivalents (1,777,142) 2,806,214
Cash and cash equivalents, beginning of year 2,924,629 118,415
------------ -----------
Cash and cash equivalents, end of year $ 1,147,487 $ 2,924,629
============ ===========
Supplementary information:
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
24
<PAGE> 25
DATASTORM TECHNOLOGIES, INC.
<TABLE>
<S> <C> <C>
Interest paid $ 16,530 $ 19,270
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
25
<PAGE> 26
DATASTORM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Cash and Cash Equivalents:
For the Statement of Cash Flows, the Company considers cash on
hand and deposits in commercial banks or brokerage houses to be
cash and cash equivalents.
Investments:
Investments are accounted for at cost and adjusted for unamortized
premiums and discounts.
Inventories:
Inventories consist primarily of goods for resale and shipping
materials and are stated at the lower of cost (first-in first-out)
or market.
Prepaid Expenses:
Prepaid expenses are carried at cost and consist primarily of
advance deposits for product purchases. Prepaid expenses will be
realized within one year.
Furniture, Equipment, and Leasehold Improvements:
Furniture, equipment, and leasehold improvements are carried at
cost. Depreciation is computed using both accelerated and
straight-line methods for both tax and financial statement
purposes using the following estimated useful lives.
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Furniture and fixtures 7
Equipment 5
Van 5
Software 5
Leasehold improvements 18
</TABLE>
Cooperative Advertising Credits:
The Company grants certain distributors credits to be used for
future advertising. The credits are generated based on the volume
of distributors' purchases of the Company's products. At
December 31, 1993 and 1992, respectively, the estimated amount of
outstanding credits was $248,800. These have been recorded as
accrued other liabilities.
26
<PAGE> 27
DATASTORM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
Note 1. Summary of Significant Accounting Policies - Continued
Income Taxes:
The Company is an S corporation and files its income tax return on
an accrual basis. As an S Corporation, taxable income flows
through to the owners of the Company and is reported on their
personal income tax returns; thus, no provision for income taxes
is reported at the corporate level.
Revenue Recognition:
The Company recognizes revenue from the sale of software when the
product is delivered.
Reclassification:
Certain balances for 1992 have been reclassified for comparative
presentation.
Note 2. Accounts and Notes Receivable
The net accounts receivable balance consists of:
<TABLE>
<CAPTION>
December 31,
1993 1992
<S> <C> <C>
Due from customers (see Note 6
regarding related parties) $ 630,665 $ 764,191
Estimated bundling receivables 3,819 45,000
Employee notes receivable 6,351 2,876
Allowance for bad debts - -
Allowance for sales returns - (70,697)
Allowance for sales discounts (260) (1,161)
Interest and other receivables 13,457 39,702
--------- ----------
$ 654,032 $ 779,911
========= ==========
The notes receivable balance consists of: December 31,
1993 1992
Unsecured note receivable from an
affiliated company, interest at 7.5%.
No specified maturity date. (Note 6) $ - $ 143,007
Unsecured note receivable from an
affiliated company, interest at 6%.
Monthly principal and interest payments
of $25,074, amortizing principal balance
by July 1, 1994. (Note 6) 167,252 824,211
--------- ----------
167,252 967,218
Current 167,252 401,475
--------- ----------
Long term $ - $ 565,743
========= ==========
</TABLE>
27
<PAGE> 28
DATASTORM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
Note 3. Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements consists of:
<TABLE>
<CAPTION>
December 31,
1993 1992
<S> <C> <C>
Furniture and fixtures $ 477,164 $ 305,247
Equipment 1,676,350 1,196,583
Van 15,470 15,470
Software 448,970 89,413
Leasehold improvements 42,311 41,246
---------- ----------
Total 2,660,265 1,647,959
Accumulated depreciation (1,038,541) (567,100)
---------- ----------
$1,621,724 $1,080,859
========== ==========
</TABLE>
Depreciation and amortization expense amounted to $475,368 for
1993 and $324,596 for 1992.
Note 4. Software Development Costs
The Company accounts for software development costs in accordance
with Statement of Financial Accounting Standards No. 86. Software
development costs related to establishing the technological
feasibility of software are charged to operations as incurred.
Software development costs incurred after establishing the
technological feasibility are capitalized until the product is
available for general distribution, and are amortized over twelve
months. Software development costs capitalized and related
amortization were as follows:
<TABLE>
<CAPTION>
December 31,
1993 1992
<S> <C> <C>
Software development capitalized costs $ 850,422 $1,378,678
Amortization of capitalized costs (509,083) $ (533,423)
---------- ----------
Capitalized costs, net $ 341,339 $ 845,255
========== ==========
</TABLE>
Amortization of software development costs totalled $509,083 and
$533,423 for the years ended December 31, 1993 and 1992,
respectively.
Note 5. Note Payable
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Demand note payable to a bank, interest
computed at a rate of 4.4%. Principal
and interest are due on March 5, 1993.
Secured by real estate owned by an
affiliated partnership. On March 5, 1993,
the Company paid the accrued interest and
renewed the note with a new maturity date
of March 5, 1994, at 4.0% interest. $ - $ 450,000
</TABLE>
28
<PAGE> 29
DATASTORM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
Note 5. Note Payable - Continued
<TABLE>
<S> <C> <C>
Demand note payable to a bank, interest
computed at a rate of 4.0%. Principal
and interest are due on March 5, 1994.
Secured by real estate owned by an
affiliated partnership. $ 450,000 $ -
--------- ---------
$ 450,000 $ 450,000
========= =========
</TABLE>
Note 6. Related Party Transactions
Datastorm Ltd.
The Company sells products to Datastorm Ltd., a foreign company
affiliated through common ownership. Sales to Datastorm Ltd.
totalled $1,382,529 and $584,337 in 1993 and 1992, respectively.
As a result of these sales, outstanding trade receivables from
Datastorm Ltd. at December 31, 1993 and 1992, totalled $479,251
and $320,157, respectively, and are included in the Due From
Customers totals disclosed in Note 2.
The Company had a note receivable from Datastorm Ltd. with
interest at 7.5%. Principal outstanding at December 31, 1993 and
1992, totalled $-0- and $143,007, respectively (See Note 2).
Three Guys With A Building
The Company leases office and warehouse space from Three Guys With
A Building partnership, a company affiliated through common
ownership. The lease terminates in December 1994, with two year
renewal options through December 31, 1998, and right of first
refusal options thereafter. The agreement also has a provision
that allows the lessor to adjust rent in January 1994, and every
12 months thereafter, based on the Consumer Price Index. Lease
expense for 1993 and 1992 totalled $631,725 and $575,214,
respectively.
Minimum required lease payments as of December 31, 1993 are:
<TABLE>
<S> <C>
1994 666,948
----------
Total $ 666,948
==========
</TABLE>
The Company has a note receivable from Three Guys With A Building
partnership. Interest accrues at 6% of the unpaid principal.
Payments of principal and interest of $25,074 are required
monthly, paying off in July 1994. Principal outstanding at
December 31, 1993 and 1992, totalled $167,252 and $824,211,
respectively. (See Note 2.)
GarvinSoft, Inc.
The Company owed GarvinSoft, Inc., a foreign sales corporation
affiliated through common ownership, $100,000 and $98,421 at
December 31, 1993 and 1992, respectively, for commission expenses
related to international sales. The expense is included with
accrued other liabilities.
29
<PAGE> 30
DATASTORM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
Note 7. Profit Sharing Plan
Employees of the Company participate in the Datastorm
Technologies, Inc., Integrated Profit Sharing Plan and Trust (the
Plan). Annually, the Company contributes to the Plan an amount
determined by the Board at its discretion. Profit sharing expense
totalled $429,240 and $352,006, for the years ended December 31,
1993 and 1992, respectively.
To participate in the Plan, an employee must complete 1,000 hours
of service during a Plan year, attain age 20 1/2 and be employed
by the Company on the last day of the Plan year. An employee -
participant may (but is not required to) contribute to the Plan.
The Plan is an integrated profit sharing plan, which means the
Plan takes into account contributions the Employer makes for
employees under the Federal Social Security Act in making Employer
contribution allocations. For each plan year the Employer
contributes to the Plan, the Trustees will allocate this
contribution to the separate accounts maintained for participants.
Participants prior to September 1, 1989 became 100% vested in
their account balance after two years of service. Participants
joining the plan after September 1, 1989 become 100% vested after
six years of service. Regardless of length of service a
participant becomes 100% vested in his/her account balance when
separating employment on or after normal retirement age, upon
permanent disability, or upon death.
Note 8. Contingent Liabilities
Cross Stock Purchase Agreement:
The Company has a cross stock purchase agreement with the
shareholders of the Company which provides for the repurchase of
currently outstanding shares by the Company. The circumstances
under which the Company would repurchase the shares would be in
the event of a stockholder's death, the permanent disability of a
stockholder, retirement of a stockholder, or voluntary sales of
shares during the stockholder's lifetime. The price to be paid
for the shares and the payment methods and terms are set forth in
the agreement.
Line of Credit:
The Company has a $500,000 open line of credit with a bank that is
secured by accounts receivable and is charged interest at prime
rate, adjusted quarterly. The balance outstanding was $0 at
December 31, 1993 and 1992, respectively. The Company did not use
this line of credit during 1993 or 1992.
30
<PAGE> 31
DATASTORM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
Note 8. Contingent Liabilities - Continued
Software Licensee Arrangements:
The Company, as a part of ongoing efforts to remain at the leading
edge of software technologies, in the normal course of business
enters into arrangements with individuals or other companies
relating to software technology license or purchase rights. These
arrangements may call for lump sum or royalty payments to be made
by the Company if certain products or product derivatives are sold
to customers of the Company.
Note 9. Investments
Investments at December 31, 1993 and 1992 consist of:
<TABLE>
<CAPTION>
Approximate
1993 Carry Value Market Value
<S> <C> <C>
Municipal bonds $ 3,192,109 $ 3,179,158
----------- -----------
$ 3,192,109 $ 3,179,158
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1992
<S> <C> <C>
Corporate Notes $ 1,639,966 $ 1,624,386
Other 4,000 4,000
----------- -----------
$ 1,643,966 $ 1,628,386
=========== ===========
</TABLE>
31
<PAGE> 32
DATASTORM TECHNOLOGIES, INC.
SCHEDULE OF OPERATING EXPENSES AND OTHER INCOME
For the Years Ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Selling expenses:
Product advertising $ 496,401 $ 1,324,284
Technical support 1,155,662 991,309
Marketing salaries 449,107 338,726
Delivery (income) expense - net 77,411 (7,103)
Bad debts 36,292 12,515
Miscellaneous 381 637
----------- -----------
Total selling expenses $ 2,215,254 $ 2,660,368
=========== ===========
General and administrative expenses:
Salaries $ 5,344,538 $ 4,284,459
Payroll taxes 339,324 239,347
Employee benefits 687,121 513,226
Contract labor 32,763 105,001
Equipment rentals, maintenance and repairs 25,941 21,050
Vehicle insurance, maintenance and repairs 1,014 720
Building rentals, maintenance and repairs 677,521 625,066
Utilities 219,763 198,698
Depreciation and amortization of fixed assets 475,367 324,596
Professional service fees 233,813 245,679
Travel and entertainment 197,784 312,718
Office supplies and expenses 256,319 212,525
Postage 78,759 293,028
Insurance 123,016 74,558
Other taxes 33,625 7,533
Interest 14,630 22,520
Donations 15,660 19,265
Miscellaneous 211,807 264,678
----------- -----------
Total general and administrative expenses $ 8,968,765 $ 7,764,667
=========== ===========
Other income (loss):
Interest income $ 241,046 $ 156,483
Royalties 31,262 23,836
Loss on disposal of equipment (3,326) (184,976)
----------- -----------
Other income (loss) - net $ 268,982 $ (4,657)
=========== ===========
</TABLE>
32
<PAGE> 33
QUARTERDECK CORPORATION AND
DATASTORM TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combining Balance Sheet as
of September 30, 1995 and the Unaudited Pro Forma Condensed Combining Statements
of Operations for the fiscal years ended September 30, 1995, 1994 and 1993, have
been prepared giving effect to the acquisition of Datastorm Technologies, Inc.
("Datastorm") by Quarterdeck Corporation ("Quarterdeck"). On March 28, 1996,
Quarterdeck acquired 100% of the common stock of Datastorm in exchange for
5,200,000 shares of Quarterdeck Common Stock. This transaction has been
accounted for as a pooling of interests, and, as a result, the unaudited pro
forma condensed combining financial statements are presented as if the combining
companies had been combined for all periods presented.
Datastorm had a calendar year end and accordingly, the Datastorm
Statements of Operations for the years ended December 31, 1995, 1994 and 1993
have been combined with the Quarterdeck Statements of Operations for the
fiscal years ended September 30, 1995, 1994 and 1993.
The Datastorm historical amounts included in the accompanying unaudited
pro forma condensed combining financial statements include the results of
operations, for the year ended December 31, 1995 and financial position as of
December 31, 1995, of an entity under common control with Datastorm which was
acquired as part of the Datastorm acquisition, Datastorm Technologies Limited, a
registered United Kingdom Company. Intercompany transactions have been
eliminated in the consolidation of Datastorm. The results from this entity are
immaterial for all periods prior to January 1, 1995 and are, therefore, not
included. Certain other amounts have been reclassified to provide consistent
presentation.
The historical financial statements of Quarterdeck as of September 30,
1995, and for each of the years in the three year period then ended, reflect
the acquisition and pooling with Inset Systems, Inc. ("Inset") as reported
in the Current Report on Form 8-K dated January 11, 1996.
33
<PAGE> 34
QUARTERDECK CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF SEPTEMBER 30, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
QUARTERDECK DATASTORM
HISTORICAL HISTORICAL PRO FORMA
SEPTEMBER 30, DECEMBER 31, ADJUSTMENTS PRO FORMA
1995 1995 (NOTE 5) COMBINED
------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and short-term investments $ 23,369 $ 16,300 $ 39,669
Trade Accounts receivable 12,607 1,014 13,621
Deferred tax assets 2,178 -- 2,178
Inventories 1,964 317 2,281
Note receivable from related party-building 469 (469) --
Other current assets 3,636 370 4,006
-------- -------- -------- --------
Total current assets 43,754 18,470 (469) 61,755
Note receivable from related party-building 469 469
Equipment and leasehold improvements 5,731 2,604 8,335
Capitalized software costs 2,692 115 2,807
Other assets 3,318 15 3,333
-------- -------- -------- --------
$ 55,495 $ 21,204 $ 76,699
======== ======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable $ 8,051 $ 5,531 $ 13,582
Accrued liabilities 10,029 3,929 1,015 14,973
Current portion of long-term obligations 255 255
Accrued acquisition, restructuring and
other charges 3,455 3,455
-------- -------- -------- --------
Total current liabilities 21,790 9,460 1,015 32,265
Loan payable - affiliate 1,015 (1,015) --
Long-term obligations, less current portion 164 -- 164
-------- -------- -------- --------
21,954 10,475 32,429
Stockholders' equity: (see Note 5)
Preferred stock (authorized: 2,000 shares) --
Common stock (authorized: 50,000 shares) 26 10 (5) 31
Treasury stock (559) -- (559)
Additional paid-in capital 29,269 -- 10,724 39,993
Retained earnings 5,359 10,719 (10,719) 5,359
Foreign currency translation adjustment (554) -- (554)
-------- -------- -------- --------
Total stockholders' equity 33,541 10,729 44,270
-------- -------- -------- --------
$ 55,495 $ 21,204 -- $ 76,699
======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed combining balance sheet
34
<PAGE> 35
QUARTERDECK CORPORATION
UNAUDITED PRO FORMA CONDENSED
COMBINING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTERDECK DATASTORM
12 MONTHS ENDED 12 MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, PRO FORMA
1995 1995 COMBINED
--------------- --------------- ---------
<S> <C> <C> <C>
Net revenues $77,107 $40,499 $117,606
Cost of revenues 18,848 16,036 34,884
------- ------- --------
Gross margin 58,259 24,463 82,722
Operating expenses:
Research and development 10,106 4,180 14,286
Sales and marketing 25,128 5,496 30,624
General and administrative 12,424 8,280 20,704
Restructuring and acquisition costs 7,409 -- 7,409
------- ------- --------
Total operating expenses 55,067 17,956 73,023
------- ------- --------
Operating income 3,192 6,507 9,699
Interest income, net 1,283 601 1,884
------- ------- --------
Income before income taxes 4,475 7,108 11,583
Provision for income taxes 213 118 331
------- ------- --------
Net income $ 4,262 $ 6,990 $ 11,252
======= ======= ========
Net income per share:
Primary $ 0.16 $ 0.35
======= ========
Fully diluted $ 0.15 $ 0.34
======= ========
Shares used to compute net income per share:
Primary 26,857 5,200 32,057
======= ======= ========
Fully diluted 27,798 5,200 32,998
======= ======= ========
Additional unaudited pro forma data:
Income before income taxes $ 4,475 $ 7,108 $ 11,583
Pro forma income taxes 918 2,488 3,406
------- ------- --------
Pro forma net income $ 3,557 $ 4,620 $ 8,177
======= ======= ========
Pro forma net income per share:
Primary $ 0.13 $ 0.26
======= ========
Fully diluted $ 0.13 $ 0.25
======= ========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
35
<PAGE> 36
QUARTERDECK CORPORATION
UNAUDITED PRO FORMA CONDENSED
COMBINING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTERDECK DATASTORM
12 MONTHS ENDED 12 MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, PRO FORMA
1994 1994 COMBINED
--------------- --------------- ---------
<S> <C> <C> <C>
Net revenues $ 42,313 $ 42,402 $ 84,715
Cost of revenues 16,667 10,736 27,403
-------- -------- --------
Gross margin 25,646 31,666 57,312
Operating expenses:
Research and development 4,963 2,557 7,520
Sales and marketing 23,143 3,964 27,107
General and administrative 11,722 9,186 20,908
Restructuring costs 13,478 -- 13,478
-------- -------- --------
Total operating expenses 53,306 15,707 69,013
-------- -------- --------
Operating income (loss) (27,660) 15,959 (11,701)
Interest income (expense), net 811 283 1,094
-------- -------- --------
Income (loss) before income taxes (26,849) 16,242 (10,607)
Provision (benefit) for income taxes (5,982) -- (5,982)
-------- -------- --------
Net income (loss) $(20,867) $ 16,242 ($ 4,625)
======== ======== ========
Net income (loss) per share: ($ 0.87) ($ 0.16)
======== ========
Shares used to compute net income (loss) per share: 23,995 5,200 29,195
======== ======== ========
Additional unaudited pro forma data:
Income (loss) before
income taxes ($26,849) $ 16,242 ($10,607)
Pro forma income taxes (5,109) 5,685 576
-------- -------- --------
Pro forma net income (loss) ($21,740) $ 10,557 ($11,183)
======== ======== ========
Pro forma net income (loss) per share: ($ 0.91) ($ 0.38)
======== ========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
36
<PAGE> 37
QUARTERDECK CORPORATION
UNAUDITED PRO FORMA CONDENSED
COMBINING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1993
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTERDECK DATASTORM
12 MONTHS ENDED 12 MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, PRO FORMA
1993 1993 COMBINED
--------------- --------------- ---------
<S> <C> <C> <C>
Net revenues $56,780 $26,798 $83,578
Cost of revenues 16,829 7,705 24,534
------- ------- -------
Gross margin 39,951 19,093 59,044
Operating expenses:
Research and development 2,589 -- 2,589
Sales and marketing 24,715 1,060 25,775
General and administrative 11,747 8,969 20,716
------- ------- -------
Total operating expenses 39,051 10,029 49,080
------- ------- -------
Operating income 900 9,064 9,964
Interest income, net 903 241 1,144
------- ------- -------
Income before income taxes 1,803 9,305 11,108
Provision for income taxes 639 -- 639
------- ------- -------
Net income $ 1,164 $ 9,305 $10,469
======= ======= =======
Net income per share: $ 0.05 $ 0.35
======= =======
Shares used to compute net income per share: 24,521 5,200 29,721
======= ======= =======
Additional unaudited pro forma data:
Income before income taxes $ 1,803 $ 9,305 $11,108
Pro forma income taxes 720 3,257 3,977
------- ------- -------
Pro forma net income $ 1,083 $ 6,048 $ 7,131
======= ======= =======
Pro forma net income per share: $ 0.04 $ 0.24
======= =======
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
37
<PAGE> 38
QUARTERDECK CORPORATION AND DATASTORM TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINING BALANCE SHEETS AND UNAUDITED PRO FORMA CONDENSED
COMBINING STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C>
1. These unaudited pro forma condensed combining balance sheet and
statements of operations reflect the financial position and results of
operations of Quarterdeck Corporation ("Quarterdeck") and Datastorm
Technologies, Inc. The financial position and results of operation of
Datastorm Technologies Ltd. are included for the year ended and as of
September 30, 1995.
2. The pro forma condensed combining statements of operations of
Quarterdeck and Datastorm were prepared as if the acquisition occurred
as of the beginning of the periods presented and are not necessarily
indicative of operating results which would have been achieved had the
acquisition been consummated at the beginning of such period and should
not be construed as representative of future operations.
3. The pro forma condensed combining financial statements should be read
in conjunction with the 1995 Annual Report on Form 10-K of Quarterdeck,
the Quarterly Report on Form 10-Q of Quarterdeck for the period ended
March 31, 1996, the current report on Form 8-K regarding Quarterdeck's
acquisition of Datastorm filed with the Securities and Exchange
Commission on April 12, 1996 and the audited financial statements of
Datastorm included in this Form 8-K filing.
On March 28, 1996, Quarterdeck acquired Datastorm in exchange for
5,200,000 shares of Quarterdeck common stock in a transaction which was
accounted for as a pooling of interests. Accordingly, all financial
information has been restated to reflect the combined operations of
Datastorm and Quarterdeck. Due to differing year ends of Datastorm and
Quarterdeck, financial information related to Datastorm's fiscal years
ended December 31, 1995, 1994 and 1993 were combined with financial
information related to Quarterdeck's fiscal years ended September 30,
1995, 1994 and 1993, respectively.
4. Adjustments have been made to reflect the exchange of Datastorm's
common stock for Quarterdeck common stock.
5. Certain adjustments and reclassifications have been made to the
Datastorm financial statements in the unaudited pro forma condensed
combining financial statements to conform to Quarterdeck presentation
and to reflect the reclassification of undistributed earnings of
Datastorm to additional paid in capital upon termination of Datastorm's
S corporation status. These reclassifications and adjustments have been
made to all periods presented.
Other pro forma adjustments include the reclassification of the note
receivable from related party from current to long term and the
reclassification of the Loan payable to affiliate from long term to
current. The note receivable from related party represents advances
made by Datastorm, prior to being acquired by Quarterdeck, to a
partnership, whose partners were Datastorm shareholders, which the
partnership used to commence the construction of a new building which
is planned to house Datastorm. At March 31, 1996 the partnership
still owned the building and the partners are now shareholders and
employees or consultants of Quarterdeck. In connection with the
acquisition, the Company is obligated to acquire the building from
the partnership. The Company plans to complete the acquisition of
the building in the near future. It is planned to be acquired in
exchange for, among other things, cancellation of the Note receivable.
The Loan payable to affiliate represents sales commissions due from
Datastorm to a related party which were paid in entirety prior to
March 31, 1996.
6. In order to conform to evolving financial reporting practices by the
software industry, Quarterdeck is reporting revised statements of
operations for the periods presented classifying the amortization of
capitalized software costs and technical support costs as costs of
revenues for all periods presented. Quarterdeck had previously reported
amortization of capitalized software as research and development
expense, and technical support costs as sales and marketing expense.
7. The Company recorded acquisition and related restructuring costs
amounting to $7.3 million for financial advisory, legal, accounting
services, personnel severance and benefits, and other related expenses
in connection with the acquisitions of Datastorm and Inset. These
costs have been reflected in the condensed statements of operations
and balance sheets of the combined companies for the period ended
March 31, 1996 as filed with the Securities and Exchange Commission
on May 15, 1996.
8. The additional unaudited pro forma data is based upon historical
combined income before taxes adjusted to reflect a provision for income
taxes as if Datastorm had been a C corporation for all periods
presented.
</TABLE>
38
<PAGE> 39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
QUARTERDECK CORPORATION
(REGISTRANT)
Date: May 24, 1996 \s\ Gaston Bastiaens
--------------- -------------------------------------
Gaston Bastiaens
President and Chief Executive Officer
Date: May 24, 1996 \s\ Frank Greico
--------------- -------------------------------------
Frank Greico
Sr. Vice President and
Chief Financial Officer
39
