<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
------------------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported):
JANUARY 18, 1995
------------------------------
MIDISOFT CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 000-22172 91-1345532
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
SUITE NO. 205
1605 NORTH WEST SAMMAMISH ROAD
ISSAQUAH, WASHINGTON 98027
(Address of principal executive offices)
(206) 391-3610
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
On January 18, 1995, Midisoft Corporation (the "Company")
purchased certain assets from Knowledge Engineering, Inc. ("KEI"). Such assets
consisted primarily of software programs and related intellectual property
rights (collectively, the "Assets").
The Company did not file a Form 8-K containing separate
financial statements for KEI or pro forma financial information giving effect
to the purchase of Assets. The Company subsequently determined that it may be
required to file such financial statements and information by Item 7 of Form
8-K. The financial statements and pro forma financial information listed below
are therefore filed with this report.
(a) Financial Statements of Knowledge Engineering, Inc.:
Report of Jaillett & Company;
Balance Sheets at December 31, 1992, 1993 and 1994;
Statement of Losses and Accumulated Deficit for the years
ended December 31, 1992, 1993 and 1994;
Statement of Cash Flows for the years ended December 31,
1992, 1993 and 1994; and
Notes to Financial Statements for the years ended
December 31, 1992, 1993 and 1994.
(b) Pro Forma Financial Information:
Unaudited Combined Condensed Pro Forma Balance Sheet at
December 31, 1994;
Unaudited Combined Condensed Pro Forma Statement of
Income for the year ended December 31, 1994; and
Notes to Unaudited Combined Condensed Financial
Information.
(c) Exhibits:
Exhibit Number Description
-------------- -----------
23 Consent of Jaillett & Company.
-2-
<PAGE> 3
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.
MIDISOFT CORPORATION
Date: May 9, 1996 By: /s/ Melinda Bryden
-----------------------------------
Melinda Bryden, Chief Financial
Officer
-3-
<PAGE> 4
JAILLETT & COMPANY
Certified Public Accountants
1200 Ashwood Parkway, Suite 230
Atlanta, Georgia 30338
Telephone: (770) 698-0022
Fax: (770) 698-0097
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Knowledge Engineering, Inc.
We have audited the accompanying balance sheets of Knowledge Engineering, Inc.,
as of December 31, 1994, 1993, and 1992, and the related statements of losses
and accumulated deficit and cash flows for the years 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 audits.
Except as discussed in the following paragraph, 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.
We did not observe the taking of the physical inventories at December 31, 1994,
1993, 1992, and 1991 (stated at $56,992, $74,727, $77,823, and $12,795,
respectively), since those dates were prior to the time we were initially
engaged as auditors for the Company. We were unable to satisfy ourselves about
inventory quantities by means of other auditing procedures.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to observe the physical
inventories taken as of December 31, 1994, 1993, 1992, and 1991, the financial
statements referred to in the first paragraph present fairly, in all material
respects, the financial position of Knowledge Engineering, Inc., as of December
31, 1994, 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 supplementary schedules of
operating expenses on page 13 is presented for the purpose of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audits
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/ Jaillett & Company
November 7, 1995
-4-
<PAGE> 5
KNOWLEDGE ENGINEERING, INC.
BALANCE SHEETS
December 31, 1994, 1993 and 1992
- ASSETS -
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Current Assets
--------------
Cash $ 1 173 $ 417 $ 13 891
Accounts Receivable 7 385 113 442 511 588
Inventory 56 992 74 727 77 823
Prepaid Expenses - 0 - - 0 - 3 300
--------- --------- ---------
Total Current Assets 65 550 188 586 606 602
--------- --------- ---------
Fixed Assets
------------
Computer Equipment 99 642 96 762 96 762
Software 20 573 20 573 20 573
Office Furniture and Fixtures 14 335 14 335 14 335
Automobiles 13 972 31 972 31 972
--------- --------- ---------
148 522 163 642 163 642
Less: Accumulated Depreciation 138 174 131 578 105 475
--------- --------- ---------
Net Fixed Assets 10 348 32 064 58 167
--------- --------- ---------
Other Assets
------------
Software Development Costs 90 000 90 000 90 000
Less: Accumulated Amortization 45 000 36 000 27 000
--------- --------- ---------
Net Other Assets 45 000 54 000 63 000
--------- --------- ---------
TOTAL ASSETS $ 120 898 $ 274 650 $ 727 769
========= ========= =========
</TABLE>
The accompanying Notes to the Financial Statements are an integral part
of this report.
-5-
<PAGE> 6
- LIABILITIES -
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Current Liabilities
- - -------------------
Overdraft Payable $ - 0 - $ 25 784 $ - 0 -
Accounts Payable 26 204 15 641 9 514
Line of Credit 149 876 149 876 150 000
Current Portion of Long-Term Debt 191 237 69 335 7 758
Shareholder Notes Payable 206 693 154 193 50 190
Advances Against Accounts Receivable 650 160 721 167 409
Other Payables 41 358 - 0 - 115 195
Accrued Payroll Taxes 18 455 20 752 83 185
Accrued Interest Payable 40 764 16 931 4 128
----------- ----------- -----------
Total Current Liabilities 675 237 613 233 587 379
----------- ----------- -----------
Long-Term Debt, Net of Current Portion - 0 - 19 879 24 214
- - -------------------------------------- ----------- ----------- -----------
Total Liabilities 675 237 633 112 611 593
----------- ----------- -----------
Commitments and Contingencies (See Notes to
- - -----------------------------
Financial Statements)
- STOCKHOLDERS' EQUITY -
--------------------
Capital Stock
- - -------------
Common stock ($.10 par value;
5,000,000 shares authorized;
2,288,379 shares issued and
outstanding) 228 838 228 838 228 838
Paid-In Capital 1 535 562 1 535 562 1 535 562
- - ---------------
Accumulated Deficit ( 2 318 739) ( 2 122 862) ( 1 648 224)
- - ------------------- ----------- ----------- -----------
Total Stockholders' Equity ( 554 339) ( 358 462) 116 176
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 120 898 $ 274 650 $ 727 769
=========== =========== ===========
</TABLE>
-6-
<PAGE> 7
KNOWLEDGE ENGINEERING, INC. INC.
STATEMENTS OF LOSSES AND ACCUMULATED DEFICIT
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Sales $ 379 137 $ 310 639 $ 1 039 146
- - -----
Cost of Sales 135 692 200 750 452 711
- - ------------- ----------- ----------- -----------
Gross Profit 243 445 109 889 586 435
- - ------------
Operating Expenses 380 347 511 390 760 116
- - ------------------ ----------- ----------- -----------
Loss From Operations ( 136 902) ( 401 501) ( 173 681)
- - -------------------- ----------- ----------- -----------
Other Income (Expense)
- - ----------------------
Depreciation ( 19 502) ( 26 103) ( 34 581)
Amortization ( 9 000) ( 9 000) ( 9 000)
Interest Income 5 010 402 4 922
Interest Expense ( 46 895) ( 38 436) ( 67 173)
Gain (Loss) on Disposal of Assets 11 412 - 0 - ( 8 124)
----------- ----------- -----------
Total ( 58 975) ( 73 137) ( 113 956)
----------- ----------- -----------
Net Loss ( 195 877) ( 474 638) ( 287 637)
- - -------- ----------- ----------- -----------
Accumulated Deficit, Prior Year ( 2 122 862) ( 1 648 224) ( 1 360 587)
- - ------------------------------- ----------- ----------- -----------
Accumulated Deficit, Current Year ($ 2 318 739) ($ 2 122 862) ($ 1 648 224)
- - --------------------------------- =========== =========== ===========
</TABLE>
The accompanying Notes to the Financial Statements are an integral part
of this report.
-7-
<PAGE> 8
KNOWLEDGE ENGINEERING, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities
- - ------------------------------------
Net Loss ($ 195 877) ($ 474 638) ($ 287 637)
Adjustments to Reconcile Net Income to Net
Cash Flows From Operating Activities:
Depreciation 19 502 26 103 34 581
Amortization 9 000 9 000 9 000
(Gain) Loss on Disposal of Fixed Assets ( 11 412) - 0 - 8 124
Increase (Decrease) in Cash Due to
Changes In:
Accounts Receivable 106 057 398 146 ( 406 649)
Inventory 17 735 3 096 ( 65 028)
Prepaid Expenses - 0 - 3 300 ( 3 300)
Deposits - 0 - - 0 - 2 195
Overdraft Payable ( 25 784) 25 784 - 0 -
Accounts Payable 10 563 6 127 430
Other Payables 41 358 ( 115 195) 115 195
Accrued Payroll Taxes ( 2 297) ( 62 433) 67 847
Accrued Interest Payable 23 833 12 803 4 128
--------- --------- ---------
Net Cash Used by Operations ( 7 322) ( 167 907) ( 521 114)
--------- --------- ---------
Cash Flows From Investing Activities
- - ------------------------------------
Acquisition of Fixed Assets ( 2 880) - 0 - ( 37 730)
Proceeds from Sale of Assets 16 506 - 0 - - 0 -
--------- --------- ---------
Net Cash From (Used By Investing
Activities) 13 626 - 0 - ( 37 730)
--------- --------- ---------
Cash Flows From Financing Activities
- - ------------------------------------
Proceeds (Payments) on Line of Credit - 0 - ( 124) 150 000
Proceeds (Payments) on Long-Term Debt 102 023 57 242 ( 101 255)
Proceeds (Payments) on Shareholder
Notes Payable 52 500 104 003 50 190
Proceeds (Payments) on Advances
Against Accounts Receivable ( 160 071) ( 6 688) 167 409
Proceeds from Common Stock - 0 - - 0 - 208 600
--------- --------- ---------
Net Cash From Financing Activities 5 548 154 433 474 944
--------- --------- ---------
</TABLE>
- continued -
The accompanying Notes to the Financial Statements are an integral part
of this report.
-8-
<PAGE> 9
KNOWLEDGE ENGINEERING, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ------------
<S> <C> <C> <C>
Net Increase (Decrease) In Cash 756 ( 13 474) ( 83 900)
- - -------------------------------
Cash at Beginning of Year 417 13 891 97 791
- - ------------------------- --------- --------- -----------
Cash at End of Year $ 1 173 $ 417 $ 13 891
- - ------------------- ========= ========= ===========
Non-Monetary Transactions
- - -------------------------
Conversion of Debt to Equity:
Shareholder Notes Payable $ - 0 - $ - 0 - ($ 1 553 000)
Common Stock - 0 - - 0 - 207 178
Paid-In Capital - 0 - - 0 - 1 345 822
Supplemental Disclosures
- - ------------------------
Interest Paid $ 23 062 $ 25 632 $ 63 045
</TABLE>
The accompanying Notes to the Financial Statements are an integral part
of this report.
-9-
<PAGE> 10
KNOWLEDGE ENGINEERING, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1994, 1993, and 1992
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Knowledge Engineering, Inc. (the Company) was incorporated March 5,
1987 for the purpose of developing and marketing educational software
on compact disks.
Method of Accounting
The Company utilizes the accrual basis of accounting for both
financial reporting and tax purposes. Product revenue is recognized
when the product is shipped to the customer.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments with a maturity of three months or
less to be cash equivalents.
Inventory
Inventory, consisting of completed educational compact disks, related
instructional booklets and computer peripherals such as diskettes,
tapes, headsets, and computer speakers, is stated at the lower of cost
or market. Cost is determined using the average cost method.
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided using
accelerated methods over the established useful lives of the assets,
typically five (5) years.
Software Development Costs
The Company capitalizes the direct costs and allocated overhead
associated with the development of the educational software once
technological feasibility has been established. Costs incurred
subsequent to the software release and research and development costs
are charged to operations in the period incurred.
Capitalized software development costs are being amortized on the
straight line basis over the useful life of the product, estimated to
be five (5) years.
Concentration of Credit Risk
The Company sells its educational software primarily to school
districts throughout the United States. Concentration of credit risk
with respect to accounts receivable are limited due to a large number
of customers comprising the Company's customer base and their
dispersion across different geographic areas.
-10-
<PAGE> 11
KNOWLEDGE ENGINEERING, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1994, 1993, and 1992
NOTE 2 - INVENTORY COMPONENTS
The components of inventory at December 31, 1994, 1993 and 1992 are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Software $ 21 630 $ 16 260 $ 27 238
Instructional Booklets 33 202 55 395 47 386
Peripherals 2 160 3 072 3 199
-------- -------- --------
$ 56 992 $ 74 727 $ 77 823
======== ======== ========
</TABLE>
NOTE 3 - LINE OF CREDIT
The Company maintains an unsecured line of credit with a bank. The line is
renewed each year and has an interest rate of prime plus 1.5% which
approximated 10%, 7.5%, and 7.5% at December 31, 1994, 1993, and 1992,
respectively.
NOTE 4 - SHAREHOLDER NOTES PAYABLE
The shareholder notes payable represent several individual demand notes with
interest rates ranging from 9% to 12%. Each of the notes is unsecured.
NOTE 5 - LONG-TERM DEBT
Long-term debt of the Company at December 31, 1994, 1993, and 1992, was as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
Auto loan payable to a bank in
60 equal installments of $368.22,
including interest at a rate of
8.25%, maturing December 25, 1997. $ - 0 - $ 14 977 $ 18 000
Auto loan payable to a bank in
48 equal installments of $298.10
including interest at a rate of 10%,
maturing on November 22, 1996. 6 213 9 237 13 972
Subordinated loan payable to an
individual maturing on November 28,
1999, with interest at a rate of 6%. 65 000 65 000 - 0 -
</TABLE>
- continued -
-11-
<PAGE> 12
KNOWLEDGE ENGINEERING, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1994, 1993, and 1992
NOTE 5 - LONG-TERM DEBT (continued)
<TABLE>
<S> <C> <C> <C>
Loan payable to an individual on demand,
including interest at a rate of 18%. 30 024 - 0 - - 0 -
Loan payable to a Foundation on demand,
including interest at a rate of 18%. 37 000 - 0 - - 0 -
Loan payable to an individual on demand,
including interest at a rate of 9%. 53 000 - 0 - - 0 -
--------- -------- --------
191 237 89 214 31 972
Less: Current Portion 191 237 69 335 7 758
--------- -------- --------
$ - 0 - $ 19 879 $ 24 214
========= ======== ========
</TABLE>
The subordinated loan payable to an individual has a provision whereby anytime
after October 1, 1993, the individual may request repayment of the loan at a
discounted price of $27,500. See Note 11 - Subsequent Events.
NOTE 6 - COMPANY RECAPITALIZATION
In January, 1992, the Company converted 9% subordinated convertible notes
totalling $1,043,000, 12% convertible notes totalling $310,000, 12% promissory
notes totalling $200,000, stock options for 86,214 shares of $.10 par value
common stock and $208,000 in cash into 2,235,379 shares of $.10 par value
common stock. In addition, the Company issued an additional 45,000 shares to
an individual for his help in securing the $150,000 line of credit. This
conversion of debt to equity is shown as a non-monetary transaction in the
statement of cash flows for the year ended December 31, 1992.
NOTE 7 - ADVANCES AGAINST ACCOUNTS RECEIVABLE
During December 31, 1994, 1993, and 1992, a number of individuals advanced
funds to be used for marketing and production. These advances were secured by
accounts receivable and bore interest on the outstanding advances at a rate of
1.5% per month. Interest paid on such advances for the years ended December
31, 1994, 1993, and 1992, amounted to $8,000, $11,200, and $7,900,
respectively.
-12-
<PAGE> 13
KNOWLEDGE ENGINEERING, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1994, 1993, and 1992
NOTE 8 - INCOME TAXES
For tax years ending December 31, 1991 and prior, the Company was taxed under
the provisions of Subchapter S of the Internal Revenue code. In lieu of
corporation income taxes, the shareholders of an S corporation are taxed on
their proportionate share of the Company's taxable income.
Effective January 1, 1992, the shareholders consented to a revocation of the
Company's election to be treated as an S corporation. Consequently, the
Company adopted the provisions of SFAS No. 109, "Accounting for Income Taxes"
effective January 1, 1992. SFAS No. 109 changes the criteria for measuring the
provisions for income taxes and recognition of deferred tax assets and
liabilities on the balance sheet.
At December 31, 1994, the Company had net operating loss carryforwards of
approximately $958,000 which expire from 2007 to 2009. Deferred taxes are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- ---------- ----------
<S> <C> <C> <C>
Deferred Tax Assets
Net Operating Losses $ 380 003 $ 302 318 $ 114 077
Amortization of Software
Development Costs 412 561 412 561 412 561
--------- --------- ---------
792 564 714 879 526 638
Deferred Tax Liabilities
Amortization of Software
Development Costs ( 247 530) ( 165 020) ( 82 510)
--------- --------- ---------
545 034 549 859 444 128
Less: Valuation Allowance ( 545 034) ( 549 859) ( 444 128)
--------- --------- ---------
$ - 0 - $ - 0 - $ - 0 -
========= ========= =========
</TABLE>
A 100% valuation allowance has been recorded due to the lack of certainty
regarding future taxable income based on the sale of the Company's assets
pursuant to Note 11.
NOTE 9 - RELATED PARTY INFORMATION
The Chairman of the Company was reimbursed rent and other office expenses in
his capacity as Chairman. $3,609, $17,163 and $16,261, respectively, were
reimbursed to the Chairman for the years ended December 31, 1994, 1993, and
1992. At December 31, 1994, reimbursements totalling $6,149 remained payable.
Art work and software development expenses totalling $8,000, $20,010 and
$14,000, respectively, were accrued to a company related through common
ownership. At December 31, 1994, $8,000 remained to be paid to the related
company.
-13-
<PAGE> 14
KNOWLEDGE ENGINEERING, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1994, 1993, and 1992
NOTE 10 - LEASE COMMITMENTS
The Company signed two 48-month equipment leases and three 36-month equipment
leases. The total aggregate lease expenses for each of the years ended December
31, 1994, 1993, and 1992 were $17,687, $9,692 and $4,365, respectively.
The Company also paid office rent totalling $47,380, $62,411 and $52,715. See
Note 9.
These commitments have become the responsibility of the purchasing company
after January 18, 1995. (See Note 11)
NOTE 11 - SUBSEQUENT EVENTS
On January 18, 1995, the Company sold all of its computer software,
instructional manuals, peripheral equipment, inventory and fixed assets to a
software development company headquartered in Washington state. The purchasing
company also assumed certain liabilities of the Company incurred prior to the
closing date of the sale. The purchase price was $100,000 at closing, the
issuance of a $50,000 promissory note and an undetermined number of registered
securities of the purchasing company.
Upon the sale of all its proprietary assets, the Company was effectively
dormant as of January 18, 1995. Consequently, all liabilities of the Company
at December 31, 1994 are considered current for purposes of financial statement
presentation.
-14-
<PAGE> 15
SUPPLEMENTARY INFORMATION
-15-
<PAGE> 16
KNOWLEDGE ENGINEERING, INC.
SCHEDULES OF OPERATING EXPENSES
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Auto Expenses $ 19 457 $ 13 099 $ - 0 -
Bank Charges 581 262 - 0 -
Dues and Subscriptions 278 2 542 - 0 -
Bad Debt Expenses 2 108 7 691 15 712
Gifts 213 201 - 0 -
Moving Expenses 4 119 - 0 - - 0 -
Insurance 17 940 24 081 9 908
Salaries and Benefits 87 571 178 798 322 485
Sales Commissions 93 158 36 747 85 354
Lease Expense 9 115 8 271 4 365
Legal and Accounting 4 128 8 095 7 863
Licenses and Fees 3 878 - 0 - - 0 -
Marketing Expenses 6 866 23 775 34 814
Meals and Entertainment 988 13 182 7 852
Office Expenses 2 551 3 731 - 0 -
Office Supplies 2 208 9 451 27 189
Outside Services 2 185 - 0 - - 0 -
Parking 2 850 4 544 2 646
Permits and Licenses 271 - 0 - - 0 -
Postage and Shipping 7 675 12 777 34 115
Printing Expenses 17 289 4 015 - 0 -
Repairs and Maintenance 110 - 0 - - 0 -
Rent 47 198 62 412 52 715
Payroll Taxes 8 116 20 943 27 629
Taxes 140 2 044 - 0 -
Telephone 18 591 21 986 28 498
Travel 19 093 45 005 94 486
Utilities 842 - 0 - - 0 -
Miscellaneous 828 7 738 4 485
--------- --------- ---------
Total $ 380 347 $ 511 390 $ 760 116
========= ========= =========
</TABLE>
-16-
<PAGE> 17
UNAUDITED COMBINED CONDENSED PRO FORMA FINANCIAL
STATEMENTS AS OF DECEMBER 31, 1994
The following unaudited combined condensed pro forma balance sheet aggregates
the balance sheets of Midisoft Corporation (Midisoft) at December 31, 1994 and
Knowledge Engineering, Inc. (KEI) as of December 31, 1994 using the purchase
method of accounting for the acquisitions and using the assumptions described
in the accompanying notes. The combined condensed pro forma balance sheet
should be read in conjunction with the separate financial statements of
Midisoft and of KEI and is not necessarily indicative of the combined financial
position as may exist in the future.
(in thousands, except share data)
<TABLE>
<CAPTION>
ORIGINAL SUBSEQUENT
PURCHASE PURCHASE
MIDISOFT KEI ADJUSTMENTS ADJUSTMENTS(3) COMBINED
<S> <C> <C> <C> <C> <C>
Cash $ 9,601 $ 1 $ (126)(a) $ 9,476
Accounts receivable 3,844 7 (7)(a) 3,844
Other current assets 1,238 57 (19)(a) 1,276
Property and equipment 447 10 (5)(a) 452
Other assets 1,634 45 557 (a) $ (602)(c) 1,634
---------- ---------- ----------- ---------- ----------
$ 16,764 $ 120 $ 400 $ (602) $ 16,682
========== ========== =========== ========== ==========
Current liabilities $ 1,507 $ 675 $ (646)(a) $ 1,536
Deferred income taxes 291 291
Common stock 14,676 229 262(a) 15,167
Paid-in capital 1,535 (1,535)(a)
Retained earnings (deficit) 290 (2,319) 2,319(a) $ (602) (312)
---------- ---------- ----------- ---------- ----------
$ 16,764 $ 120 $ 400 $ (602) $ 16,682
========== ========== =========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED COMBINED
CONDENSED PRO FORMA FINANCIAL STATEMENTS.
-17-
<PAGE> 18
UNAUDITED COMBINED CONDENSED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
The following unaudited combined condensed pro forma statement of income for
the year ended December 31, 1994 aggregate the results of operations of
Midisoft and KEI for the year ended December 31, 1994. Pro Forma adjustments
reflect adjustments as if the acquisitions had occurred on January 1, 1994,
using the purchase method of accounting for the acquisitions and using the
assumptions described in the accompanying notes. The combined condensed pro
forma statement of income presented should be read in conjunction with the
separate financial statement of Midisoft and KEI and is not necessarily
indicative of the combined condensed results of operations as they may exist in
the future.
(in thousands, except share data)
<TABLE>
<CAPTION>
ORIGINAL SUBSEQUENT
PURCHASE PURCHASE
MIDISOFT KEI ADJUSTMENTS ADJUSTMENTS(3) COMBINED
<S> <C> <C> <C> <C> <C>
Revenues $ 4,989 $ 379 $ 5,368
Cost of revenues 1,082 136 $ (150)(b) 1,368
---------- ---------- ----------- ----------
Gross profit 3,907 243 (150) 4,000
Operating expenses 3,919 380 $ (452)(c) 4,751
---------- ---------- ----------- ---------- ----------
Operating (loss) (12) (137) (150) (452) (751)
Other income (expense) 183 (58) 125
---------- ---------- ----------- ---------- ----------
Income (loss) before income
taxes 171 (195) (150) (452) (626)
Provision for income taxes (53) (53)
---------- ---------- ----------- ---------- ----------
Net income (loss) $ 118 $ (195) $ (150) $ (452) $ (679)
========== ========== =========== ========== ==========
Net income (loss) per share $ 0.03 $ (0.19)
Weighted average number of
shares outstanding 3,850,000 3,626,000
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED COMBINED
CONDENSED PRO FORMA FINANCIAL STATEMENTS.
-18-
<PAGE> 19
NOTES TO UNAUDITED COMBINED
CONDENSED PRO FORMA FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The pro forma financial statements give effect to the acquisition of
Knowledge Engineering, Inc. (KEI) by Midisoft Corporation (Midisoft)
completed on January 18, 1995.
The pro forma balance sheet is prepared aggregating the financial
position of Midisoft as of December 31, 1994 with the financial
position of KEI as of December 31, 1994, as though the companies were
combined at December 31, 1994.
The pro forma statement of income aggregates the results of operations
of Midisoft for the year ended December 31, 1994 and KEI for the year
ended December 31, 1994. Pro forma adjustments to the income
statement reflect adjustments as if acquisitions had occurred on
January 1, 1994.
The pro forma financial statements are presented for illustrative
purposes only and should not be construed to be indicative of the
actual combined financial position or results of operations as may
exist in the future. The pro forma adjustments are based on the
consideration exchanged, including the estimated fair value of assets
acquired, liabilities assumed and common stock issued. The actual
adjustments, which will be based upon final determinations of fair
value as of the date of acquisition, may differ from those made
herein.
Midisoft accounted for the acquisition using the purchase method of
accounting, wherein the purchase price was allocated to the assets
acquired and liabilities assumed based upon their relative fair
values.
2. ACQUISITION OF KEI
On January 18, 1995, Midisoft purchased certain assets (primarily
software technology of KEI). The total consideration given for the
above transaction was approximately $656,000, of which $100,000 was in
cash, $491,000 was in stock (44,651 shares), and the remainder in the
assumption of certain liabilities.
3. SUBSEQUENT EVENTS
During the third and fourth quarters of 1995, the Company wrote off
the software technology product purchased from KEI to restructuring
expense associated with the Company's determination that the product
was not compatible with the Company's reorganized product strategy.
The Company's entire research and development and marketing and sales
efforts were refocused on the Company's core competence in sound and
music. The Company will pursue licensing these products to third
party publishers for per unit loyalty payments.
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<PAGE> 20
4. PRO FORMA ADJUSTMENTS
Pro forma adjustments were made to reflect the following:
a. To record the purchase of KEI. The total purchase price was
$656,000 consisting of $100,000 in cash, 44,651 shares of
Midisoft common stock valued at $491,000 and assumption of
certain liabilities. Midisoft acquired primarily software
technology which was recorded to capitalized software in other
assets.
b. To record amortization of the purchased technology over the
estimated useful life of four years.
c. To record the subsequent write-off of the purchased technology
in the fourth quarter of 1995 (see Note 3).
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<PAGE> 21
EXHIBIT INDEX
Exhibit No. Description Page
- - ----------- ----------- ----
23 Consent of Jaillett & Company
<PAGE> 1
JAILLETT & COMPANY
Certified Public Accountants
1200 Ashwood Parkway, Suite 230
Atlanta, Georgia 30338
Telephone: (770) 698-0022
Fax: (770) 698-0097
We hereby consent to the incorporation by reference in the Midisoft
Corporation Form S-8 Registration Statement (SEC File No. 33-7234) of our
report dated November 7, 1995 relating to the financial statements of Knowledge
Engineering, Inc. appearing on page 4 of this Form 8-K.
/S/ Jaillett & Company
Jaillett & Company
Atlanta, Georgia 30338
May 3, 1996
