SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
CURRENT REPORT
(Amendment No. 2)
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 3, 1995
Dataguard Recovery Services, Inc.
(Exact name of registrant as specified in charter)
Kentucky 0-21662 61-1064606
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) No.)
10301 Linn Station Road
P. O. Box 37144
Louisville, Kentucky 40233-7144
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (502)426-3434
N/A
(Former name or former address, if changed since
last report.)
Dataguard Recovery Services, Inc. ("Dataguard") is amending
its Current Report dated February 3, 1995 to reflect the issuance
of a revised auditors' report covering the financial statements of
Twinsys, S.A., the business acquired by Dataguard on February 3,
1995, and a revision to Note 1 of Notes to Consolidated Financial
Statements. The financial statements of Twinsys were originally
included in an amendment on Form 8-K/A filed April 19, 1995.
Item 7. Financial Statements, Pro Forma Financial Information, and
Exhibits.
(a) Financial Statements of Business Acquired.
Twinsys, S.A. and Subsidiaries
Report of Independent Auditors
Consolidated Balance Sheet as of December 31, 1994
Consolidated Statements of Operations and Accumulated Deficit
for the Years Ended December 31, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994 and 1993
Notes to Consolidated Financial Statements
Report of Independent Auditors
The Board of Directors and Shareholders
Twinsys, S.A.
We were engaged to audit the accompanying consolidated balance
sheet of Twinsys, S.A. as of December 31, 1994, and the related
consolidated statements of operations and accumulated deficit and
cash flows for each of the two years in the period ended December
31, 1994. These consolidated financial statements are the
responsibility of management.
The accompanying consolidated financial statements have been
prepared on the basis of accounting principles applicable to a
going concern. As discussed in Note 1, on November 10, 1994, the
Company was placed in receivership as it did not have sufficient
cash resources to meet current operating obligations. On February
3, 1995, the Company sold its fixed assets and its customer base.
The Company subsequently entered into liquidation proceedings. The
consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets or the amounts or classifications of
liabilities that may result from the liquidation proceedings, and
therefore are not in conformity with generally accepted accounting
principles.
Management declined to provide written representations as to the
completeness of the accounting records, the adequacy of provisions
for contingent liabilities and whether all relevant information
known to management was made available to us in order for us to
form our opinion; nor were we able to satisfy ourselves by other
auditing procedures as to these matters.
Because management did not provide us with written representations
and we were not able to apply other auditing procedures to satisfy
ourselves as to these matters, the scope of our work was not
sufficient to enable us to express, and we do not express, an
opinion on the accompanying consolidated financial statements.
ERNST & YOUNG Entrepreneurs
Department d'E&Y Audit
s/Any Antola
Paris, France
March 17, 1995
<TABLE>
TWINSYS, S.A.
CONSOLIDATED BALANCE SHEET
YEAR ENDED DECEMBER 31, 1994
(Amounts in thousands of French francs, except per share amounts)
<CAPTION>
ASSETS 1994
<S> <C>
Current assets:
Cash and cash equivalents 421
Accounts receivable 6,343
Prepaid expenses 1,740
Other current assets 232
______
Total current assets 8,736
Property and equipment 90,126
Less accumulated depreciation and amortization (47,556)
________
42,570
Deposits and other noncurrent assets 6,548
_______
57,854 =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable 15,251
Accrued expenses and other current liabilities 6,850
Amounts due to shareholders 7,286
Deferred revenue 6,579
Current installments of capital lease obligations 44,068
______
Total current liabilities 80,034
Capital lease obligations, less current installments 21,126
Shareholders' equity (deficiency):
Common stock, FRF.100 nominal value. Authorized,
issued and outstanding: 40,000 shares 4,000
Accumulated deficit (47,306)
_______
Total shareholders' equity (deficiency) (43,306)
57,854
=======
See accompanying notes.
</TABLE>
<TABLE>
TWINSYS, S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
YEARS ENDED DECEMBER 31, 1994 AND 1993
(In thousands of French francs, except per share amounts)
<CAPTION>
1994 1993
<S> <C> <C>
Service revenue 34,188 53,723
Operating expenses:
Cost of services 46,341 58,635
Selling, general and administrative 8,465 1,891
expenses _______ _______
54,806 60,526
_______ _______
Loss from operations (20,618) (6,803)
Interest expense 7,016 4,765
Other expense 785 388
______ _______
7,801 5,153
______ ______
Loss before income taxes and (28,419) (11,956)
extraordinary items
Income taxes - _
______ ______
Loss before extraordinary items (28,419) (11,956)
Extraordinary losses of fixed assets (5,864) -
______ ______
Net loss (34,283) (11,956)
Accumulated deficit at beginning of year (13,023) (1,067)
______ ______
Accumulated deficit at end of year (47,306) (13,023)
======= =======
See accompanying notes.
</TABLE>
<TABLE>
TWINSYS, S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
(In thousands of French francs)
<CAPTION>
1994 1993
<S> <C> <C>
Cash flows from operating activities
Net loss (34,283) (11,956)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Extraordinary losses 5,864 -
Depreciation and amortization 30,987 21,272
Changes in assets and liabilities:
Accounts receivable 2,593 565
Prepaid expenses and other assets (1,825) 1,682
Accounts payable 9,342 (996)
Amounts payable to shareholders 4,729 2,567
Deferred income and other liabilities 4,150 4,728
Other (2,305) (2,714)
_______ _______
Net cash provided by operating
activities 19,252 15,148
Cash flows from investing activities
Purchase of property and equipment (3,566) (3,161)
Acquisition of boat - (2,071)
Proceeds from sale of equipment - 3,100
_______ _______
Net cash used in investing activities (3,566) (2,132)
Cash flows from financing activities
Principal payments under capital lease
obligations (15,451) (14,586)
________ ________
Net cash used in financing activities (15,451) (14,586)
________ ________
Net increase (decrease) in cash and
cash equivalents 235 (1,570)
Cash and cash equivalents at beginning
of period 186 1,756
_______ _______
Cash and cash equivalents at end
of period 421 186
======= =======
Supplemental disclosure of cash flow information
Interest paid 4,399 3,863
Income taxes paid - -
See accompanying notes.
</TABLE>
TWINSYS, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
1.1 BASIS OF PRESENTATION
Twinsys, S.A. (the "Company") was incorporated in Paris, France in
October 1992. The Company was created to provide back-up recovery
services to large French companies as part of such companies'
information systems contingency plans. The Company operates in one
industry segment.
The consolidated financial statements have been prepared on the
basis of principles applicable to a going concern. This basis
presumes the realization of assets and settlement of liabilities in
the ordinary course of business. However, on November 10, 1994,
the Company was placed in receivership as it did not have
sufficient cash resources to meet its current operating
obligations. On February 3, 1995, the Company sold its fixed
assets and its customer base to a wholly-owned subsidiary of
Dataguard Recovery Services Inc. ("Dataguard") for a total of
FRF.1,050,000. The Company subsequently entered into liquidation
proceedings. While presentation of the financial statements on a
liquidation basis would be more appropriate in most circumstances,
the Company has prepared these financial statements on a going concern
basis since the financial statements are being prepared in connection
with the acquisition of certain of the Company's assets by Dataguard,
and that such financial statements are more meaningful under the
circumstances.
1.2 PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, which commenced operations
in October 1993. All significant intercompany accounts and
transactions have been eliminated.
1.3 CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
an original maturity of three months or less to be cash
equivalents.
1.4 DEPRECIATION AND AMORTIZATION
Depreciation of equipment is computed on the straight-line method
over the estimated useful life of the asset. Leasehold
improvements and equipment under capital leases are amortized on
the straight-line method over the terms of the related leases or
over the estimated useful life of the asset, if shorter.
1.5 REVENUE RECOGNITION
Service revenue from contracts is recognized on a straight-line
basis over the life of the contract.
2. EXTRAORDINARY LOSSES
On November 10, 1994, the Company was placed in receivership. The
receiver performed a physical count of the fixed assets held by the
Company and discovered that several pieces of computer equipment
recorded on the Company's books were not physically present. The
net book value of the lost equipment, which totalled approximately
FRF.4,480,000, has been charged to expense in 1994 and is shown as
an extraordinary item in the consolidated statement of operations.
The Company is currently investigating the apparent diversion of
these assets to the personal benefit of a former officer.
Also in November 1994, the boat owned by the Company's wholly-owned
subsidiary disappeared and is believed to have sunk. The Company
had no insurance coverage for a boat; the net book value of
FRF.1,384,000 has been charged to expense in 1994 and is shown as
an extraordinary item in the consolidated statement of operations.
3. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and consist at December
31, 1994 of the following (amounts in thousands of French francs):
Leasehold improvements 235
Office equipment 375
Equipment 89,516
______
90,126
======
4. LEASES
The Company is obligated under various equipment capital leases
that expire over the next four years. Property and equipment at
December 31, 1994 include FRF.83,554,000, with associated
accumulated amortization of FRF.44,548,000, under capital leases.
The Company acquired FRF.4,832,000 and FRF.76,708,000 of equipment
in exchange for capitalized lease obligations during 1994 and 1993,
respectively.
Future minimum lease payments under capital leases are as follows
(amounts in thousands of French francs):
1995 48,204
1996 15,175
1997 12,688
1998 396
______
Total minimum lease payments 76,463
Less amount representing interest (at rates ranging
from 8.40% to 15.16%) (11,269)
______
Present value of future minimum lease payments 65,194
Less current portion 44,068
______
Noncurrent obligations under capital leases 21,126
======
The Company also leases certain office facilities under operating
lease agreements. Such leases have terms of nine years, but may be
cancelled without penalty on each three-year anniversary with a six
months' notice. Annual minimum rental commitments under these
leases are as follows (amounts in thousands of French francs):
1995 2,148
1996 2,148
_____
4,296
======
Total rent expense for 1994 and 1993 was approximately
FRF.4,426,000 and FRF.3,731,000, respectively.
5. TRANSACTIONS WITH MAJORITY SHAREHOLDER
DKI Exigence ("DKI"), which held 49% of the Company's shares at
December 31, 1994 and 1993, provided management services to the
Company during 1994. These services, performed by four DKI
employees, were reinvoiced to the Company in 1994 for a total of
FRF.1,929,000. In addition, the Company leased office space from
DKI for FRF.320,000 in 1994. In 1993, no rent expense was charged
by DKI although the Company occupied the office space. This lease
was terminated at the end of 1994.
During both 1994 and 1993, the Company purchased computer equipment
from DKI for amounts totalling FRF.1,079,000 and FRF.5,567,000,
respectively.
During both 1994 and 1993, the Company's wholly-owned subsidiary
provided services to DKI which were invoiced for amounts totalling
FRF.450,000 and FRF.225,000, respectively.
None of these transactions was negotiated on an arm's-length basis.
Had these transactions been negotiated with unrelated third
parties, the amounts paid and received might have been different.
6. INCOME TAXES
Due to the Company's tax losses since inception, no current tax
expense has been recorded.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's deferred tax
assets (computed at the statutory rate of 33.33%) as of December
31, 1994 are as follows (amounts in thousands of French francs):
Net operating loss carryforward 15,769
Capitalized leases 2,462
______
Deferred tax asset 18,231
Valuation allowance (18,231)
______
Net deferred tax asset -
=======
At December 31, 1994, the Company had operating loss carryforwards
amounting to approximately FRF.43,000,000 for tax purposes. The
tax losses expire as follows (amounts in thousands of French
francs):
Year of expiration Amount
1998 9,810
1999 28,190
No expiration 5,000
7. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company markets its products principally to large French
companies.
In 1994 and 1993, one customer accounted for more than 10% of
consolidated service revenue (FRF.9,222,000, or 27%, in 1994;
FRF.6,144,000, or 11%, in 1993). There were no amounts receivable
from this customer at December 31, 1994.
The Company performs on-going credit evaluations of its customers'
financial condition, and generally no collateral is required. The
Company maintains provisions for credit losses, and such losses
have been within management's expectations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to the report
to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: May 15, 1995 By /s/ Richard W. Smith
Richard W. Smith, President
