<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NUMBER 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 5, 1997
----------------
JETFAX, INC.
(Exact name of registrant as specified in charter)
Delaware 0-22561 77-0182451
-------- ------- ----------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
1378 Willow Road, Menlo Park, California 94025
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 324-0600
--------------
_______________________________________________________________________
(Former name or former address, if changed since last report)
<PAGE>
FORM 8-K/A
DOCUMAGIX ACQUISITION
The Registrant hereby amends Item 7 of its Form 8-K Report filed December 22,
1997 as follows:
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired
The audited financial statements of DocuMagix, Inc., for the years ended
June 30, 1997, 1996 and 1995.
(b) Pro Forma Financial Information
Unaudited pro forma condensed combined financial statements of JetFax, Inc.
and DocuMagix, Inc. for the years ended March 31, 1996 and 1995 and the nine
months ended September 30, 1997 and December 31, 1996.
<PAGE>
DOCUMAGIX, INC.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
____________________________________________________________________________________________________________________
PAGE
<S> <C>
DocuMagix, Inc. - Financial Statements for the Years Ended June 30, 1997, 1996 and 1995:
Independent Auditors' Report - Deloitte & Touche LLP F-2
Report of Independent Accountants - Price Waterhouse LLP F-3
Balance Sheets F-4
Statements of Operations F-5
Statements of Shareholders' Deficiency F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8
JetFax, Inc. and DocuMagix, Inc. Unaudited Pro Forma Condensed Combined Financial Statements: F-15
Unaudited Pro Forma Condensed Combined Balance Sheet - September 30, 1997 F-16
Unaudited Pro Forma Condensed Combined Statements of Operations:
- Nine Months Ended September 30, 1997 F-17
- Nine Months Ended December 31, 1996 F-18
- Year Ended March 31, 1996 F-19
- Year Ended March 31, 1995 F-20
Notes to Unaudited Pro Forma Condensed Combined Financial Statements F-21
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
DocuMagix, Inc.:
We have audited the accompanying balance sheet of DocuMagix, Inc. (the Company)
as of June 30, 1997, and the related statements of operations, shareholders'
deficiency and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of DocuMagix, Inc. at June 30, 1997, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
As discussed in Note 11, on December 5, 1997, all the outstanding shares of the
Company's common and redeemable convertible preferred stock were acquired by
JetFax, Inc., in exchange for shares of JetFax, Inc. common stock.
DELOITTE & TOUCHE LLP
San Jose, California
December 12, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
DocuMagix, Inc.:
In our opinion, the accompanying balance sheet and related statements of
operations, and shareholders' deficiency and of cash flows present fairly, in
all material respects, the financial position of DocuMagix, Inc. at June 30,
1996, and the results of its operations and its cash flows for the two years
then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Jose, California
October 25, 1996
F-3
<PAGE>
DOCUMAGIX, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
JUNE 30, 1997 AND 1996 (DOLLARS IN THOUSANDS)
________________________________________________________________________________
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 138 $1,777
Accounts receivable (net allowances of
$93 and $225) 394 891
Inventories 52 37
Prepaid expenses and other assets 94 121
------- ------
Total current assets 678 2,826
PROPERTY AND EQUIPMENT - Net 85 129
OTHER ASSETS - 13
------- ------
TOTAL $ 763 $2,968
======= ======
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIBALITIES:
Short-term borrowings $ 250 $ -
Convertible notes payable 800 -
Accounts payable 634 573
Accrued liabilities 437 585
Deferred revenue 75 -
------- ------
Total current liabilities 2,196 1,158
------- ------
REDEEMABLE CONVERTIBLE PREFERRED STOCK
-No par value, 18,552,182 shares authorized;
shares outstanding: 1997 - 17,913,130;
1996 - 17,763,130 7,413 7,201
COMMON SHAREHOLDERS' DEFICIENCY:
Common stock - no par value; 25,000,000
shares authorized; shares outstanding:
1997 - 3,405,088; 1996 - 3,018,505 39 24
Retained deficit (8,885) (5,415)
------- ------
Shareholders' deficiency (8,846) (5,391)
------- ------
TOTAL $ 763 $2,968
======= ======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
DOCUMAGIX, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
________________________________________________________________________________________________
1997 1996 1995
<S> <C> <C> <C>
REVENUES $ 2,199 $ 2,709 $ 345
------- ------- -------
COSTS AND EXPENSES:
Cost of revenues 615 735 124
Research and development 1,012 1,069 676
Selling and marketing 2,789 2,509 886
General and administrative 1,219 902 603
------- ------- -------
Total costs and expenses 5,635 5,215 2,289
------- ------- -------
LOSS FROM OPERATIONS (3,436) (2,506) (1,944)
OTHER INCOME (EXPENSES), NET (32) 11 (51)
------- ------- -------
LOSS BEFORE INCOME TAXES (3,468) (2,495) (1,995)
PROVISION FOR INCOME TAXES 2 - -
------- ------- -------
NET LOSS $(3,470) $(2,495) $(1,995)
======= ======= =======
</TABLE>
See Notes to financial statements.
F-5
<PAGE>
DOCUMAGIX, INC.
<TABLE>
<CAPTION>
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
____________________________________________________________________________________________________________________________________
REDEEMABLE
PREFERRED STOCK COMMON STOCK
-------------------------- -------------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT DEFICIT
<S> <C> <C> <C> <C> <C>
BALANCES, June 30, 1994 3,300,000 $ 648 3,387,833 $ 20 $ (925)
Issuance of common stock for services - - 25,000 1 -
Issuance of Series B convertible
preferred stock, net of issuance
costs of $5 1,519,019 451 - - -
Issuance of Series C convertible
preferred stock, net of issuance
costs of $6 3,030,190 1,206 - - -
Net loss - - - - (1,995)
---------- ------ --------- ---- -------
BALANCES, June 30, 1995 7,849,209 2,305 3,412,833 21 (2,920)
Issuance of common stock for cash,
at $0.03 per share - - 175,672 5 -
Issuance of common stock under
stock option plan - - 30,000 1 -
Repurchase of common stock - - (600,000) (3) -
Issuance of Series C convertible
preferred stock, net of issuance
costs of $1 1,402,788 560 - - -
Issuance of Series D convertible
preferred stock, net of issuance
costs of $35 6,567,951 2,458 - - -
Issuance of Series E convertible
preferred stock, net of issuance
costs of $7 568,182 243 - - -
Issuance of Series F convertible
preferred stock, net of issuance
costs of $15 1,375,000 1,635 - - -
Net loss - - - - (2,495)
---------- ------ --------- ---- -------
BALANCES, June 30, 1996 17,763,130 7,201 3,018,505 24 (5,415)
Issuances of Series G preferred
stock for acquired technology,
net of issuance costs of $13 150,000 212 - - -
Issuance of common stock - - 386,583 9 -
Sale of warrants - - - 6 -
Net loss - - - - (3,470)
---------- ------ --------- ---- -------
BALANCES, June 30, 1997 17,913,130 $7,413 3,405,088 $ 39 $(8,885)
========== ====== ========= ==== =======
</TABLE>
See notes to financial statements.
F-6
<PAGE>
DOCUMAGIX, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
_______________________________________________________________________________________________________________
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,470) $(2,495) $(1,995)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 106 66 41
Write-off of purchased technology 225
Changes in:
Accounts receivable 497 (806) (85)
Inventories (15) (15) (22)
Prepaid expenses and other assets 27 (51) (69)
Accounts payable 61 454 109
Accrued liabilities and deferred revenue (73) 480 90
Other assets (23) (13) -
------- ------- -------
Net cash used in operating activities (2,665) (2,380) (1,931)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (26) (112) (38)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank line of credit borrowings 250 - -
Proceeds from issuance of Series A - Series F
convertible preferred stock, net - 4,125 50
Issuance costs for Series G convertible preferred stock (13) - -
Proceeds from issuance of common stock 9 6 -
Repurchase of common stock - (3) -
Proceeds from issuance of convertible notes 800 - 1,969
Proceeds from issuance of warrants 6 - -
------- ------- -------
Net cash provided by financing activities 1,052 4,128 2,019
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (1,639) 1,636 50
CASH AND EQUIVALENTS, Beginning of year 1,777 141 91
------- ------- -------
CASH AND EQUIVALENTS, End of year $ 138 $ 1,777 $ 141
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING AND INVESTING ACTIVITIES:
Conversion of notes payable into Series B preferred
stock (including accrued interest) $ - $ - $ 401
======= ======= =======
Conversion of notes payable into Series C preferred
stock (including accrued interest) $ - $ - $ 1,206
======= ======= =======
Conversion of notes payable into Series D preferred
stock (including accrued interest) $ - $ 771 $ -
======= ======= =======
Issuance of Series G preferred stock for technology $ 255 $ - $ -
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION -
Cash paid during the year for:
Interest $ 13 $ - $ -
======= ======= =======
Income taxes $ 1 $ 1 $ 1
======= ======= =======
</TABLE>
See notes to financial statements.
F-7
<PAGE>
DOCUMAGIX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
________________________________________________________________________________
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - DocuMagix, Inc. (the Company) was incorporated in California
in May 1993. The Company develops, markets and supports personal computer
software.
CASH AND EQUIVALENTS - The Company considers all highly liquid investments
purchased with a remaining maturity of 90 days or less to be cash
equivalents.
INVENTORIES are stated at the lower of cost (using the first-in, first-out
method) or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and
depreciated over their estimated useful lives (three to five years) using the
straight-line method.
LONG LIVED ASSETS - On July 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS 121 requires long-lived assets to be evaluated for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company's policy is to review the
recoverability of all long-lived assets based upon undiscounted cash flows
whenever events or changes indicate that the carrying amount of an asset may
not be recoverable. Adoption of SFAS 121 did not have a material effect on
the Company's financial statements.
REVENUE RECOGNITION - The Company sells its software products through direct
mail catalogs, retail distribution and original equipment manufacturer
bundles. Revenue from the sale of software products is recognized when the
software has been shipped, the Company has the right to invoice the customer,
collection of the receivable is probable and there are no significant
obligations remaining. Allowances for estimated future returns and exchanges
are provided at the time of sale based on the Company's return policies and
historical returns experience. The Company provides a limited amount of free
telephone technical support to customers. These activities are generally
considered insignificant post contract customer support obligations and are
accrued when the revenue is recognized.
SOFTWARE DEVELOPMENT COSTS - In accordance with Statement of Financial
Accounting Standards No. 86 " Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed," software development costs
incurred prior to the establishment of technological feasibility are expensed
as incurred. Software development costs incurred subsequent to the
establishment of technological feasibility through the period of general
market availability of the product are capitalized, if material. Capitalized
costs are then amortized on a straight-line basis over the estimated product
life, or on the ratio of current revenues to total projected revenues,
whichever is greater. Based upon the Company's product development process,
technological feasibility is established upon completion of a working model.
Costs incurred by the Company between completion of the working model and the
point at which the product is ready for general release have been
insignificant and accordingly have not been capitalized.
F-8
<PAGE>
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109), which requires an asset and liability approach. Under SFAS 109,
deferred tax liabilities are recognized for future taxable amounts and
deferred tax assets are recognized for future deductions net of a valuation
allowance to reduce deferred tax assets to amounts that are more likely than
not to be realized.
STOCK-BASED COMPENSATION - As permitted under Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation" the Company accounts for stock-based awards to employees using
the intrinsic value method in accordance with APB No. 25, Accounting for
Stock Issued to Employees. See Note 5.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash equivalents and
accounts receivable. Cash is primarily on deposit at a financial
institution. At June 30, 1997, three customers accounted for 46%, 28% and
13%, respectively, of accounts receivable.
2. SIGNIFICANT TRANSACTIONS
In October 1996, the Company entered into an agreement with Open Market, Inc.
to license software from Open Market, Inc. (OMI) in exchange for preferred
stock. The Company exchanged 150,000 shares of Series G convertible
preferred stock at an estimated fair value of $1.50 per share. Also, in
exchange for consideration of $6,000, the Company issued to OMI a warrant to
purchase 600,000 shares of Series G convertible preferred stock at an
exercise price of $2.50 per share. The warrant expires in October 2001.
During fiscal 1997, the Company determined that the carrying value of this
license was not recoverable, and it was written off.
3. PROPERTY AND EQUIPMENT
Property and equipment as of June 30 consist of (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Computer equipment $ 241 $ 214
Furniture and fixtures 37 37
----- -----
Total 278 251
Accumulated depreciation and amortization (193) (122)
----- -----
Property and equipment - net $ 85 $ 129
===== =====
</TABLE>
F-9
<PAGE>
4. ACCRUED LIABILITIES
Accrued liabilities at June 30 consist of (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accrued compensation and benefits $ 157 $ 257
Other accrued liabilities 278 328
----- -----
$ 435 $ 585
===== =====
</TABLE>
5. SHAREHOLDERS' EQUITY
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Redeemable convertible preferred stock consists of the following at June 30,
1997 (dollars in thousands):
<TABLE>
<CAPTION>
SHARES INITIAL PRICE
---------------------------------------- --------------------------- LIQUIDATION
DESIGNATED OUTSTANDING PER SHARE AGGREGATE PREFERENCE
<S> <C> <C> <C> <C> <C>
Series A 3,300,000 3,300,000 $0.20 $ 660 $ 713
Series B 1,521,000 1,519,019 0.30 456 492
Series C 4,438,000 4,432,978 0.40 1,773 1,964
Series D 6,600,000 6,567,951 0.38 2,493 2,695
Series E 568,182 568,182 0.44 250 270
Series F 1,375,000 1,375,000 1.20 1,650 1,775
Series G 750,000 150,000 1.50 225 225
Issuance costs - - (94) -
---------- ---------- ------ ------
Total 18,552,182 17,913,130 $7,413 $8,134
========== ========== ====== ======
</TABLE>
Significant terms of redeemable convertible preferred stock are as follows:
. The preferred stock is convertible at the option of the holder into fully
paid and nonassessable shares of common stock. The conversion prices for
Series A, Series B, Series C, Series D, Series E, Series F and Series G
preferred stock were initially set at $0.20, $0.30, $0.40, $0.38, $.044,
$1.20 and $1.50, respectively, and are subject to adjustment for anti-
dilution. Each share of preferred stock will automatically convert into
common stock in the event of the closing of an underwritten public offering
of at least $10,000,000 or a minimum price of not less than $1.00 per share
of common stock.
. Each share of preferred stock has voting rights equivalent to the number
of shares of common stock into which it is convertible.
. Holders of Series A, Series B, Series C, Series D, Series E and Series F
preferred stock are entitled to receive cumulative dividends of $0.016,
$0.024, $0.032, $0.0304, $0.0352 and $0.096, respectively, per share per
annum in preference to any dividends on common stock or Series G preferred
stock when and as declared by the Board of Directors. The dividend rate
for Series G preferred stock is $0.12 per share per annum. No dividends
shall be paid with respect to the common stock or the Series G preferred
stock unless dividends for all outstanding shares of Series A through
Series F preferred stock shall have first been paid or declared and set
apart for payment. No dividends have been declared by the Board of
Directors through June 30, 1997.
F-10
<PAGE>
. In the event of liquidation, the holders of Series A, Series B, Series C,
Series D, Series E, Series F and Series G preferred stock are entitled to
receive, prior to and in preference to any distribution of assets or
surplus funds to common shareholders, $0.20, $0.30, $0.40, $0.38, $.044,
$1.20 and $1.50, respectively, per share, plus all unpaid cumulative
dividends.
. At any time five years after the original issue date of the Series A,
Series B, Series C, Series D, Series E, Series F and Series G preferred
stock, the Company is required, upon the request of not less than two-
thirds of the holders of the then outstanding Series A, Series B, Series C,
Series D, Series E, Series F and Series G preferred stock, to redeem all
outstanding preferred stock, to the extent funds are legally available.
The Company shall redeem a minimum of one-third of the then outstanding
preferred stock within one month after receiving notice and each year
thereafter until all such shares are redeemed or converted into common
stock. The redemption price shall be equal to the issuance price of the
preferred stock.
STOCK OPTION PLAN
Under the Company's 1993 Stock Option Plan (the Plan), incentive and
nonqualified stock options to purchase up to 3,367,430 shares of common stock
of the Company may be granted to key employees, directors and consultants.
Options are generally granted at fair value (as determined by the Board of
Directors) at the date of grant and are generally exercisable over four years
and expire up to ten years from the date of grant.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
OUTSTANDING PER SHARE
<S> <C> <C>
Balance, June 30, 1994 466,000 $ 0.03
Granted 1,421,430 0.03
Terminated (100,000) 0.03
--------- ------
Balance, June 30, 1995 1,787,430 0.03
Granted (weighted average fair value of $0.01) 1,448,400 0.07
Exercised (30,000) 0.03
Terminated (157,333) 0.03
--------- ------
Balance, June 30, 1996 3,048,497 0.05
Granted (weighted average fair value of $0.08) 568,000 0.20
Exercised (393,583) 0.04
Canceled (829,084) 0.12
--------- ------
Balance, June 30, 1997 2,393,830 $ 0.06
========= ======
</TABLE>
At June 30, 1997, 550,017 shares of common stock were available for future
grant under the Plan.
F-11
<PAGE>
Additional information regarding options outstanding as of June 30, 1997 is
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- ----------------------------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
Range of OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
Exercise AT JUNE 30, REMAINING EXERCISE AT JUNE 30, EXERCISE
Prices 1997 LIFE PRICE 1997 PRICE
<S> <C> <C> <C> <C> <C>
$0.03 1,965,930 7.87 $0.03 1,170,100 $0.03
$0.20 427,900 9.34 0.20 79,150 0.20
- ------------- --------- ----- ----- ---------- -----
$0.03 - $0.20 2,393,830 8.66 $0.06 1,249,250 $0.04
============= ========= ===== ===== ========== =====
</TABLE>
The Company uses the intrinsic value method specified by Accounting
Principles Board Opinion No. 25 to calculate compensation expense associated
with issuing stock options and, accordingly, has recorded no such expense
through June 30, 1997, as such issuances have been at the fair value of the
Company's common stock at the date of grant.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," (SFAS 123) requires the disclosure of pro forma net
income and earnings per share had the Company adopted the fair value method
as of the beginning of the year ended June 30, 1997. Under SFAS 123, the
fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate
the fair value of freely tradable, fully transferable options without
vesting restrictions, which significantly differ from the Company's stock
option awards. These models also require subjective assumptions, including
future stock price volatility and expected time to exercise, which greatly
affect the calculated values. The Company's calculations were made using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected life, 24 months following vesting; no stock volatility,
risk-free interest rates of 5.76% for the years ended June 30, 1997 and 1996;
and no dividends during the expected term. The Company's calculations are
based on a multiple option valuation approach and forfeitures are recognized
as they occur. If the computed fair values for the fiscal year ended June
30, 1997 awards had been amortized to expense over the vesting period of the
awards, pro forma net loss would have been $3,489,000 and $2,498,000 for the
years ended June 30, 1997 and 1996, respectively. However, the impact of
outstanding non-vested stock options granted prior to July 1, 1995, has been
excluded from the pro forma calculation; accordingly, the pro forma
adjustments for the year ended June 30, 1997 are not indicative of future
period pro forma adjustments, when the calculation will apply to all
applicable stock options.
6. INCOME TAXES
No provision for taxes (other than minimum state taxes in 1997) has been
recorded for any period presented due to the Company's net operating losses.
At June 30, 1997, the Company had federal and California net operating loss
carryforwards of approximately $8.3 million and $3.4 million, respectively,
available to offset future taxable income through 2012 for federal purposes
and through 2002 for California.
Sections 382 and 383 of the Internal Revenue Code and the applicable
California law impose limitations on the use of net operating loss and tax
credit carryforwards if there is a change in ownership, as defined, within
any three-year period. The change of ownership discussed in Note 11 caused
such an annual limitation.
F-12
<PAGE>
At June 30, 1997, deferred tax assets of approximately $3.6 million were
generated primarily by the carryforwards mentioned above and by temporary
differences related to reserves. These deferred tax assets have been fully
reserved due to the uncertainty surrounding the realization of such benefits.
7. SHORT-TERM BORROWINGS
The Company has $250,000 outstanding at June 30, 1997 under a bank line of
credit with an original maturity date of December 9, 1997. Borrowings bear
interest at the bank's prime rate (8.25% at June 30, 1997) plus 1.75%, are
secured by substantially all assets of the Company. The bank agreement, as
amended, requires that the Company's losses not exceed $500,000 for each of
the quarters ended June 30, 1997 and September 30, 1997. In exchange for
amending the agreement, the bank received a warrant in July 1997 to purchase
36,585 shares of Series E convertible preferred stock at an exercise price
of $0.41 per share. The line of credit was paid in full in December 1997.
8. CONVERTIBLE DEBT
In fiscal 1997, the Company issued $800,000 of convertible notes with an
expiration date on the earlier of (a) December 31, 1997; (b) upon the closing
of an underwritten public offering of shares of Common Stock of the Company;
or (c) immediately prior to the closing of an acquisition of the Company by
merger or otherwise. The notes bear interest at a rate of 7%. The holder of
the notes may elect at any time prior to payment in full to convert all
outstanding principal and interest due into shares of New Preferred Stock at
a conversion price of $1.20 per share. (New Preferred Stock shall mean a new
series of preferred stock of the Company to be sold in the next financing of
the Company.) In connection with this financing, warrants to purchase
1,800,000 shares of the New Preferred Stock were issued at an exercise price
of $1.20. These warrants expire after the earlier of: (a) February 27, 2002;
(b) upon the closing of an underwritten public offering of shares of Common
Stock of the Company; or (c) immediately prior to the closing of any
acquisition of the Company by merger or otherwise.
In August 1997, the Company issued an additional $200,000 of convertible
notes with similar terms.
9. LEASES AND COMMITMENTS
The Company's primary facility is leased under an operating lease expiring in
November 1999. In addition, the Company leases certain equipment under
capital lease arrangements. Future minimum annual payments under operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal year ending June 30:
1998 $215
1999 206
2000 68
----
Total minimum lease payments $489
====
</TABLE>
Rent expense was $170,000, $104,000 and $63,000 in 1997, 1996 and 1995,
respectively.
10. MAJOR CUSTOMERS AND RELATED PARTY TRANSACTIONS
In fiscal 1997, three customers accounted for 27%, 18% and 13% of the
Company's total revenues. In fiscal 1996, three customers accounted for 27%,
20% and 12% of the Company's total revenues. In fiscal 1995, three customers
accounted for 34%, 13% and 11% of the Company's total revenues.
F-13
<PAGE>
As of June 30, 1997, the Company owes $7,000 to a director.
In February 1996, the Company repurchased 600,000 shares of common stock for
$3,000 from a founder of the Company.
In June 1996, the Company issued 125,000 shares of Series F preferred stock
for $150,000 to a member of the Board of Directors.
11. SUBSEQUENT EVENT
On December 5, 1997, the Company was acquired by JetFax, Inc. (JetFax) in a
merger transaction accounted for as a pooling of interests pursuant to an
Agreement and Plan of Reorganization (Agreement) entered into with JetFax on
November 12, 1997. Under the Agreement, the Company exchanged all
outstanding shares of common stock and preferred stock into a total of
793,957 shares of common stock of JetFax and all rights with respect to
DocuMagix common stock under outstanding options were converted into rights
with respect to JetFax common stock using the common stock exchange ratio of
0.004572. Outstanding DocuMagix warrants (see Notes 2, 7 and 8) were
canceled in exchange for an aggregate of 2,190 shares of JetFax common stock.
In addition, the $1,000,000 of convertible notes outstanding at the merger
date were canceled in exchange for 103,853 shares of JetFax common stock.
* * * * *
F-14
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements give
effect to the merger of JetFax, Inc. (JetFax) and DocuMagix, Inc. (DocuMagix) on
a pooling-of-interests basis. JetFax changed its fiscal year end from March to
December beginning with the nine-month period ended December 31, 1996 while
DocuMagix has used a June fiscal year. The pro forma combined statements of
operations assumes the merger was consummated as of the beginning of the periods
presented and combine JetFax's consolidated statements of operations for the
nine months ended September 30, 1997, the nine months ended December 31, 1996
and the years ended March 31, 1996 and 1995 with DocuMagix's statements of
operations for the nine months ended September 30, 1997, the nine months ended
March 31, 1997 and the years ended June 30, 1996 and 1995, respectively. This
presentation is in accordance with the rules and regulations of the Securities
and Exchange Commission (SEC) which require that the fiscal periods combined in
the unaudited pro forma condensed combined statements of income be within 93
days of the Registrant's fiscal period ends. As a consequence, the results of
DocuMagix for the three-month period ended March 31, 1997 are included in both
the nine-month periods ended September 30, 1997 and December 31, 1996.
DocuMagix revenues and net loss for the three months ended March 31, 1997 were
$438,000 and $999,000, respectively. The unaudited pro forma condensed combined
balance sheet at September 30, 1997 combines the balance sheets of JetFax as of
September 30, 1997 and DocuMagix as of September 30, 1997.
These unaudited pro forma combined financial statements should be read in
conjunction with the historical consolidated financial statements and the
related notes thereto of JetFax for the nine months ended December 31, 1996,
included in its Form S-1 as amended and on file with the SEC, and the audited
financial statements of DocuMagix for the year ended June 30, 1997, included in
this filing.
The unaudited pro forma statements of operations are not necessarily indicative
of the operating results which would have been achieved had the merger been
consummated as of the beginning of the periods presented and are not necessarily
indicative of future results.
F-15
<PAGE>
JETFAX, INC. AND
DOCUMAGIX, INC.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------------
JETFAX DOCUMAGIX
SEPTEMBER 30, SEPTEMBER 30, PRO FORMA PRO FORMA
1997 1997 ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,412 $ 31 $ - $ 10,443
Accounts receivable, net 4,296 154 - 4,450
Inventories 3,659 68 - 3,727
Other current assets 288 94 - 382
-------- ------- --------- --------
Total current assets 18,655 347 19,002
Property and equipment, net 952 78 - 1,030
Other assets 1,000 175 - 1,175
-------- ------- --------- --------
TOTAL $ 20,607 $ 600 $ - $ 21,207
======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
LIABILITIES:
Current liabilities:
Accounts payable $ 1,363 $ 541 $ - $ 1,904
Accrued liabilities 664 759 (31) 1,392
Deferred revenue 25 - 25
Short-term borrowings - 1,250 (1,000) 250
-------- ------- --------- --------
Total current liabilities 2,027 2,575 (1,031) 3,571
SHAREHOLDERS' EQUITY
(DEFICIENCY):
Capital stock 34,203 7,458 1,000 42,661
Accumulated deficit (15,623) (9,433) 31 (25,025)
-------- ------- --------- --------
Total shareholders' equity (deficiency) 18,580 (1,975) 1,031 17,636
-------- ------- --------- --------
TOTAL $ 20,607 $ 600 $ - $ 21,207
======== ======= ========= ========
See notes to pro forma condensed combined financial statements.
</TABLE>
F-16
<PAGE>
JETFAX, INC. AND
DOCUMAGIX, INC.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA
JETFAX DOCUMAGIX ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
REVENUES $15,603 $ 1,721 $ - $17,324
COST OF SALES 8,838 465 - 9,303
------- ------- ----- -------
Gross margin 6,765 1,256 - 8,021
------- ------- ----- -------
OPERATING EXPENSES:
Research and development 3,034 621 - 3,655
Selling, general and administrative 3,943 2,479 - 6,422
Crandell acquisition expense 1,681 - - 1,681
------- ------- ----- -------
Total operating expenses 8,658 3,100 - 11,758
------- ------- ----- -------
LOSS FROM OPERATIONS (1,893) (1,844) - (3,737)
INTEREST INCOME (EXPENSE)
AND OTHER - Net 81 (60) 31 52
------- ------- ----- -------
LOSS BEFORE INCOME TAXES (1,812) (1,904) 31 (3,685)
PROVISION FOR INCOME TAXES 77 2 - 79
------- ------- ----- -------
NET LOSS (1,889) (1,906) 31 (3,764)
LESS CUMULATIVE DIVIDENDS ON
SERIES P REDEEMABLE PREFERRED
STOCK (68) - - (68)
------- ------- ----- -------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS $(1,957) $(1,906) $ 31 $(3,832)
======= ======= ===== =======
Net loss per share - basic and diluted $(0.22) $(2.23) $(0.39)
======= ======= =======
Shares used in computation 8,882 856 9,738
======= ======= =======
See notes to pro forma condensed combined financial statements.
</TABLE>
F-17
<PAGE>
JETFAX, INC. AND
DOCUMAGIX, INC.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------------------------------------------
JETFAX DOCUMAGIX COMBINED
<S> <C> <C> <C>
REVENUES $12,862 $ 2,011 $14,873
COST OF SALES 8,495 462 8,957
------- ------- -------
Gross margin 4,367 1,549 5,916
------- ------- -------
OPERATING EXPENSES:
Research and development 1,709 845 2,554
Selling, general and administrative 3,608 3,330 6,938
------- ------- -------
Total operating expenses 5,317 4,175 9,492
------- ------- -------
LOSS FROM OPERATIONS (950) (2,626) (3,576)
INTEREST INCOME (EXPENSE)
AND OTHER - Net 13 (15) (2)
------- ------- -------
LOSS BEFORE INCOME TAXES (937) (2,641) (3,578)
PROVISION FOR INCOME TAXES 105 - 105
------- ------- -------
NET LOSS (1,042) (2,641) (3,683)
LESS CUMULATIVE DIVIDENDS ON
SERIES P REDEEMABLE PREFERRED
STOCK (116) - (116)
------- ------- -------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS $(1,158) $(2,641) $(3,799)
======= ======= =======
Net loss per share - basic and diluted $(0.16) $(3.38) $(0.46)
======= ======= =======
Shares used in computation 7,421 782 8,203
======= ======= =======
See notes to pro forma condensed combined financial statements.
</TABLE>
F-18
<PAGE>
JETFAX, INC. AND
DOCUMAGIX, INC.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------------------------------------------
JETFAX DOCUMAGIX COMBINED
<S> <C> <C> <C>
REVENUES $13,187 $ 2,089 $15,276
COST OF SALES 11,102 587 11,689
------- ------- -------
Gross margin 2,085 1,502 3,587
------- ------- -------
OPERATING EXPENSES:
Research and development 1,249 1,069 2,318
Selling, general and administrative 3,460 3,408 6,868
------- ------- -------
Total operating expenses 4,709 4,477 9,186
------- ------- -------
LOSS FROM OPERATIONS (2,624) (2,975) (5,599)
INTEREST INCOME (EXPENSE)
AND OTHER - Net (270) 11 (259)
------- ------- -------
LOSS BEFORE INCOME TAXES (2,894) (2,964) (5,858)
PROVISION FOR INCOME TAXES 35 - 35
------- ------- -------
NET LOSS $(2,929) $(2,964) $(5,893)
======= ======= =======
See notes to pro forma condensed combined financial statements.
</TABLE>
F-19
<PAGE>
JETFAX, INC. AND
DOCUMAGIX, INC.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------------------------------------------
JETFAX DOCUMAGIX COMBINED
<S> <C> <C> <C>
REVENUES $7,752 $ 345 $ 8,097
COST OF SALES 5,249 124 5,373
------ ------- -------
Gross margin 2,503 221 2,724
------ ------- -------
OPERATING EXPENSES:
Research and development 1,118 676 1,794
Selling, general and administrative 2,071 1,489 3,560
------ ------- -------
Total operating expenses 3,189 2,165 5,354
------ ------- -------
LOSS FROM OPERATIONS (686) (1,944) (2,630)
INTEREST INCOME (EXPENSE)
AND OTHER - Net (68) (51) (119)
------ ------- -------
LOSS BEFORE EXTRAORDINARY ITEM (754) (1,995) (2,749)
EXTRAORDINARY ITEM - GAIN ON EXCHANGE OF
STOCKHOLDER DEBT AND RECEIVABLES FOR
NOTES PAYABLE 349 - 349
------ ------- -------
NET LOSS $ (405) $(1,995) $(2,400)
====== ======= =======
See notes to pro forma condensed combined financial statements.
</TABLE>
F-20
<PAGE>
JETFAX, INC. AND
DOCUMAGIX, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS NINE MONTHS
ENDED SEPTEMBER 30, 1997, NINE MONTHS ENDED DECEMBER 31, 1996 AND YEARS ENDED
MARCH 31, 1996 AND 1995
________________________________________________________________________________
1. On December 5, 1997, the Company completed the acquisition of DocuMagix, Inc.
(DocuMagix) pursuant to the Agreement and Plan of Reorganization (Agreement)
entered into with DocuMagix on November 12, 1997. The Agreement provides for
the merger of DocuMagix with and into JetFax, with DocuMagix becoming a
wholly-owned subsidiary of JetFax. In connection with the Agreement, the
Company issued 793,957 shares of common stock in exchange for all of the
issued and outstanding DocuMagix common and convertible preferred stock and
all outstanding options to purchase DocuMagix common stock were converted
into options to acquire JetFax common stock at the common stock exchange
ratio of 0.004572 shares of JetFax common stock for each share of DocuMagix
common stock. Outstanding DocuMagix warrants to purchase common and
preferred stock were canceled in exchange for an aggregate of 2,190 shares of
JetFax common stock. In addition, DocuMagix outstanding convertible notes
payable of $1,000,000 were canceled in exchange for 103,853 shares of JetFax
common stock. The unaudited pro forma condensed combined financial
statements reflect the combined operations of the two companies as if the
merger was consummated as of the beginning of the periods presented on a
pooling of interests basis.
2. The unaudited pro forma combined net loss per share, basic and diluted, is
based upon the weighted average number of common shares of JetFax (and for
periods presented prior to its June 1997 initial public offering (IPO),
common equivalent shares from convertible preferred stock, which converted
upon the IPO, on an "if converted" basis) and common and convertible
preferred shares outstanding of DocuMagix. DocuMagix common and convertible
preferred shares are included using the applicable merger exchange ratio.
Pursuant to the rules of the Securities and Exchange Commission, in
connection with JetFax's initial public offering of its common stock in June
1997, the Company presented pro forma net loss per share data for the nine
month period ended December 31, 1996 and subsequent periods. Per share data
for earlier periods has not been presented.
3. The pro forma adjustments in the unaudited pro forma combined balance sheet
at September 30, 1997 and the unaudited condensed combined statement of
operations for the nine months then ended give effect to the issuance of
JetFax common stock in exchange for cancellation of the $1,000,000
convertible note payable and the elimination of the related interest expense
(see Note 1).
4. JetFax expects acquisition-related costs of approximately $425,000 to be
included in operations for the quarter ended December 31, 1997. These costs
include:
. Direct transaction costs of approximately $311,000 consisting primarily of
legal, accounting and regulatory filing fees and other related costs; and
. Restructuring costs of approximately $114,000 consisting primarily of
estimated lease termination costs.
In addition, JetFax is required to pay a retention bonus of $396,000 to
DocuMagix employees which will be included in operations for the quarter
ended December 31, 1997.
* * * * *
F-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
JETFAX, INC.
Date: February 20, 1998 By: /s/ Allen K. Jones
-----------------------------
Vice President and Chief
Financial Officer
