<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB/A1
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year Ended December 31, 1996 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 000-22172
MIDISOFT CORPORATION
(Exact name of small business issuer as specified in its charter)
WASHINGTON 91-1345532
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1605 NW Sammamish Road, Suite 205,
Issaquah, Washington 98027
(Address of principal executive offices)
(206) 391-3610
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
None N/A
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $3,113,000.
Aggregate market value of voting stock held by non-affiliates of the
registrant as of March 10, 1997 was $8,868,800 (based upon the closing sale
price of $1.88 per share on the Nasdaq National Market on such date). Number
of shares of Common Stock outstanding as of March 10, 1997: 5,624,951 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III is incorporated by reference from the definitive proxy statement to be
filed in connection with the Company's 1997 Annual Meeting of Shareholders.
<PAGE>
ITEM 3.
LEGAL PROCEEDINGS
On March 24, 1995 a shareholders' class action was filed against the Company and
three of the Company's former officers. The complaint, captioned as SMITH, ET
AL. V. MIDISOFT, ET AL., was filed in the United States District Court for the
Western District of Washington. The action was brought on behalf of purchasers
of the Company's Common Stock during the period April 26, 1994 to August 18,
1995, as extended. Among other things, the complaint alleged that the
defendants made various misrepresentations and/or omissions with respect to the
Company's business. On February 26, 1996 the parties entered into an agreement
pursuant to which the case was settled subject to final court approval.
Pursuant to the settlement agreement, the Company was required to pay $100,000
cash and to issue 650,000 shares of Common Stock to the plaintiffs; the Company
was also obligated to register the Common Stock under the Securities Exchange
Act of 1933 in order to allow the plaintiffs to sell the stock. The Company
filed a registration statement covering the Common Stock issued to the
plaintiffs in the fourth quarter, 1996, and is proceeding with such
registration.
The Securities and Exchange Commission ("SEC") has concluded its investigation
into the restatement of the Company's financial statements for the year ended
December 31, 1994. In anticipation of an administrative proceeding being
commenced by the SEC alleging violation of certain reporting and accounting
requirements, the Company entered into a settlement agreement with the SEC in
October 1996. Pursuant to the settlement agreement, the Company, without
admitting or denying any of the SEC's findings, was ordered to cease and desist
from permitting or causing any violation of certain reporting and accounting
requirements contained in the federal securities laws. The settlement has not
had an adverse effect on the Company's operating results or financial condition.
On May 9, 1997, Ask Me Multimedia Corporation ("AMM") served a Demand for
Arbitration (the "Arbitration") on the Company. The Arbitration was filed
with the American Arbitration Association in Seattle, Washington. The
Arbitration alleges that in connection with the Company's purchase of
certain AMM assets in early 1995, the Company breached certain of the
representations, warranties and covenants made to AMM. The Arbitration seeks
damages in excess of $1.1 million for, among other things, breach of
contract. The Company intends to vigorously defend the Arbitration and to
assert all available counterclaims against AMM. The Company believes that it
has certain valid defenses and counterclaims to the Arbitration, however, the
Company cannot predict the outcome of the Arbitration. Given the Company's
limited working capital, a significant damage award against the Company could
have a material adverse affect on future operations. In addition, the
existence of the Arbitration may adversely affect the Company's ability to
raise additional capital.
ITEM 7. FINANCIAL STATEMENTS
Item 7 is hereby amended in order to (i) make certain technical corrections
to the report of Price Waterhouse LLP, (ii) change the order of the
Statements of Cash Flows and the Statements of Shareholders' Equity,
(iii) modify the numbers assigned to the Notes to Financial Statements
(iv) add a new note 15 to Notes to Financial Statements describing the
repurchase of certain shares of common stock pursuant to a buy-sell agreement
and (v) add Note 16 describing a certain subsequent event. The Company has
not restated or modified any amounts appearing in the Financial Statements or
the Notes to Financial Statements set forth below.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders of Midisoft Corporation
We have audited the accompanying balance sheet of Midisoft Corporation as of
December 31, 1996 and the related statement of operation, shareholders'
equity, and cash flow 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, the 1996 financial statements referred to above present
fairly, in all material respects, the financial position of Midisoft
Corporation at December 31, 1996 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1,
the Company has incurred recurring losses from operations and has negative
operating cash flows. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classifications of liabilities that may result from the outcome of this
uncertainty.
Seattle, Washington Ernst & Young LLP
March 13, 1997
REPORT OF PRICE WATERHOUSE LLP, INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Midisoft Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Midisoft Corporation at December
31, 1995 and the results of its operations and its cash flows for the year
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 audit. We conducted our audit 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 misstatements. 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 audit provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Seattle, Washington
March 27, 1996
2
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MIDISOFT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
Year ended December 31,
-----------------------------------
1996 1995
--------------- ---------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 709,000 $ 2,143,000
Short term investments 1,540,000
Accounts receivable - net of allowances of
$1,052,000 in 1996 and $1,550,000 in 1995 1,282,000 2,329,000
Inventories 942,000 494,000
Prepaid expenses and other receivable 282,000 266,000
--------------- ---------------
Total current assets 3,215,000 6,772,000
Property & equipment, net 421,000 562,000
Capitalized software and other costs, net 455,000 1,230,000
--------------- ---------------
Total assets $ 4,091,000 $ 8,564,000
--------------- ---------------
--------------- ---------------
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 691,000 $ 429,000
Accrued wages & payroll taxes 186,000 260,000
Other accrued expenses 118,000 1,804,000
Deferred revenue 821,000 807,000
--------------- ---------------
Total current liabilities 1,816,000 3,300,000
--------------- ---------------
Commitments & contingencies (Note 13)
Shareholders' equity
Preferred stock, Series A Convertible, no par value; 2,500,000 shares
authorized, 1,100 shares issued and outstanding in 1996 and
none in 1995 1,100,000
Common stock, no par value; 10,000,000 shares authorized,
5,345,425 issued and outstanding in 1996 and
4,662,441 issued and outstanding in 1995 18,733,000 17,106,000
Retained deficit (17,558,000) (11,842,000)
--------------- ---------------
Total shareholders' equity 2,275,000 5,264,000
--------------- ---------------
Total liabilities and shareholders' equity $ 4,091,000 $ 8,564,000
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to financial statements.
3
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MIDISOFT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net loss $ (5,716,000) $ (12,132,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 222,000 204,000
Amortization 780,000 948,000
Loss on disposal of leasehold 16,000
Deferred rent provision 65,000
Writedown of capitalized software 3,898,000
Settlement of litigation 150,000
(INCREASE) DECREASE IN ASSETS:
Accounts receivable, net 1,047,000 1,515,000
Inventories (448,000) 185,000
Prepaid expenses (16,000) 15,000
Deferred income taxes 283,000
INCREASE (DECREASE) IN LIABILITIES:
Trade accounts payable 262,000 (38,000)
Accrued wages & payroll taxes (74,000) 120,000
Other accrued expenses (142,000) 1,624,000
Deferred income taxes - (291,000)
Deferred revenue 14,000 22,000
--------------- ---------------
Total adjustments 1,645,000 8,716,000
--------------- ---------------
Net cash used for operations (4,071,000) (3,416,000)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of short term investments 1,540,000
Purchases of short term investments (1,540,000)
Purchases of property & equipment (86,000) (407,000)
Capitalized software - (2,384,000)
--------------- ---------------
Net cash provided by/(used in) investing activities 1,454,000 (4,331,000)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock option exercises 83,000 306,000
Proceeds from sale of preferred stock 1,100,000
Stock repurchased (17,000)
--------------- ---------------
Net cash provided by financing activities 1,183,000 289,000
--------------- ---------------
Net decrease in cash and cash equivalents (1,434,000) (7,458,000)
Cash and cash equivalents, beginning of year 2,143,000 9,601,000
--------------- ---------------
Cash and cash equivalents, end of period $ 709,000 $ 2,143,000
--------------- ---------------
--------------- ---------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Common stock issued for purchase of other assets $ - $ 1,991,000
Common stock and stock options issued in settlement of claims 1,544,000 150,000
Income taxes paid - 2,000
4
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</TABLE>
STOCK COMPENSATION
The Company has elected to apply the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for stock
Based Compensation." Accordingly, the Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Compensation cost for stock
options is measured as the excess, if any, of the fair market value of the
Company's common stock at the date of grant over the exercise price.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the
current year presentation.
3. RESTRUCTURING OF OPERATIONS
During the third and fourth quarters of 1995, the Company recorded charges
of $2,369,000 and $1,529,000, respectively, for restructuring associated
with the Company's determination that certain software assets were not
compatible with the reorganized product strategy. The charges consists of
the write-down of previously capitalized software development costs. The
Company's entire research and development, marketing and sales efforts were
refocused upon the Company's core competence in sound and music. Products
that represented education, entertainment and business were written off as
it was determined that no further internal resources would be spent to
develop or promote them. The Company has established licensing agreements
for these products to third party publishers for per unit royalty payments.
4. ACCOUNTS RECEIVABLE AND MAJOR CUSTOMER INFORMATION
The Company operates in a single business segment. During the years ended
December 31, 1996 and 1995, the Company had revenue from foreign customers
of $603,000 and $944,000, respectively. Foreign sales as a percentage of
the Company's total revenue in 1996 and 1995 were 19% and 17%,
respectively. In 1996 and 1995 separate domestic reseller customers
accounted for revenues of $2,071,000 and $2,255,000, respectively, equal to
67% and 42% of the Company's total revenue in the periods.
Accounts receivable are summarized as follows:
1996 1995
---- ----
OEM $ 1,600,000 $ 2,398,000
Resellers and other 734,000 1,481,000
-------------- --------------
Subtotal 2,334,000 3,879,000
Less: Allowance for doubtful accounts (781,000) (1,120,000)
Allowance for sales returns (271,000) (430,000)
-------------- --------------
Total accounts receivable $ 1,282,000 $ 2,329,000
-------------- --------------
-------------- --------------
Accounts receivable consist principally of amounts due from OEMs and
reseller customers for licensing fees, royalties and direct sales of
products. OEM customer payment terms typically are one year in duration
and require payments to be made in quarterly installments. At December 31,
1996 and 1995, OEM accounts receivable amounts not yet due were $173,000
and $971,000, equal to 11% and 40%, respectively, of total OEM receivables.
At December 31, 1996 and 1995, reseller accounts receivable amounts not yet
due were $154,000 and $421,000 equal to 21% and 28%, respectively, of total
reseller receivables.
The Company's primary credit concentrations involve domestic and foreign
OEM and reseller customers. Foreign customers are primarily located in
Western Europe, Taiwan, and Japan.
5
<PAGE>
Domestic customers comprise $1,540,000 and $2,769,000 of accounts
receivable at December 31, 1996 and 1995, respectively. Foreign customers
comprised $794,000 of accounts receivable at December 31, 1996 compared to
$1,110,000 at December 31, 1995.
5. INVENTORIES
Inventories are summarized as follows:
December 31,
------------
1996 1995
---- ----
Raw materials $ 760,000 $ 455,000
Finished goods 287,000 284,000
Less: Allowance for obsolescence (105,000) (245,000)
-------------- --------------
Total inventory $ 942,000 $ 494,000
-------------- --------------
-------------- --------------
6. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
December 31,
------------
1996 1995
---- ----
Equipment $ 917,000 $ 839,000
Furniture 81,000 79,000
Leasehold improvement 30,000 23,000
-------------- --------------
Property and equipment, at cost 1,028,000 941,000
Less: Accumulated depreciation (599,000) (376,000)
Accumulated amortization (8,000) (3,000)
-------------- --------------
Property and equipment, net 421,000 562,000
-------------- --------------
-------------- --------------
7. CAPITALIZED SOFTWARE AND OTHER COSTS
Capitalized software and other costs are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Purchased software technology, net of accumulated amortization of
$412,000 and $177,000, respectively, in 1996 and 1995 $ 193,000 $ 428,000
Purchased contract software technology, net of accumulated amorti-
zation of $380,000 and $131,000, respectively, in 1996 and 1995 115,000 364,000
Capitalized software development costs, net of accumulated amorti-
zation of 430,000 and $139,000, respectively, in 1996 and 1995 147,000 438,000
------------- -------------
Total capitalized software $ 455,000 $ 1,230,000
------------- -------------
------------- -------------
</TABLE>
PURCHASED SOFTWARE TECHNOLOGY
The Company purchased software technology from various sources during 1995.
The estimated useful lives of the remaining product costs range from
eighteen months to two years. Amortization expense related to purchased
software technology for the years ended December 31, 1996 and 1995 was
$235,000 and $561,000, respectively.
PURCHASED CONTRACT SOFTWARE TECHNOLOGY
6
<PAGE>
Purchased contract software technology costs represent contract software
development costs incurred for work performed by external contract software
engineers in developing computer software. Amortization expense related to
purchased contract software technology was $249,000 and $111,000 for 1996
and 1995, respectively.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Capitalized software development costs represent software product
development and product enhancements consisting of salaries and related
benefits, incurred internally in developing computer software after
technological feasibility has been established. Amortization expense
related to capitalized software development costs was $291,000 and $148,000
for 1996 and 1995, respectively.
8. BANK CREDIT LINE FACILITY
The Company has a bank line of credit facility, from U.S. Bank of
Washington. Pursuant to the terms of the agreement, the Company may borrow
on a secured basis up to $3,000,000 at the bank's prime rate and up to
$120,000 on corporate bank cards. The credit facility has a 1/4%
commitment fee, matures May 31, 1997. At December 31, 1996, no amount was
drawn on either credit facility.
9. OTHER ACCRUED EXPENSES
The following table summarizes the components of the other current
liabilities:
December 31,
------------
1996 1995
---- ----
Shareholder litigation settlement $ - $ 1,644,000
Other accrued expenses 118,000 160,000
-------------- --------------
$ 118,000 $ 1,804,000
-------------- --------------
-------------- --------------
The shareholder litigation settlement is comprised of 650,000 shares of the
Company's common stock which were issued in the fourth quarter of 1996.
The cash payment portion of the settlement in the amount of $100,000 was
made in May, 1996.
10. INCOME TAXES
There is no provision for income taxes for the years ended December 31,
1996 and 1995 due to the net loss incurred.
The components of deferred income taxes are summarized as follows:
7
<PAGE>
December 31,
------------
1996 1995
---- ----
Deferred income tax assets
Net operating losses 6,152,000 3,861,000
Accrued liabilities and allowances 403,000 1,193,000
Capitalized software 226,000
Other 214,000 72,000
-------------- --------------
6,995,000 5,126,000
Deferred income tax liabilities
Capitalized software (482,000)
Other (6,000)
Valuation allowance (6,989,000) (4,644,000)
-------------- --------------
Net deferred tax liabilities - -
-------------- --------------
-------------- --------------
At December 31, 1996, the Company had net operating losses of $18.1 million
that will reduce taxes due in future periods and expire beginning in 2008.
In certain circumstances, as specified in the Internal Revenue Code, a 50%
or more ownership change by certain combination of the Company's
stockholders during any three-year period would result in limitations on
the Company's ability to utilize its net operating loss carry-forward.
11. SHAREHOLDERS' EQUITY
In 1996, the Company's Board of Directors designated 1,100 shares of
Preferred Stock as Series A Convertible Preferred Stock (the "Series A
Preferred Stock"). All 1,100 shares were issued at a price of $1,000 per
share in an offshore private placement completed in October, 1996. The
Series A Preferred Stock is convertible at the holder's option into shares
of Common Stock at a price which is equal to the lesser of 85% of the
closing bid as of the date of conversion or 100% of the closing bid price
of the Common Stock as of the date of issuance of the Series A Preferred
Stock. The Series A Preferred Stock is also subject to mandatory
conversion two years after its date of issuance based upon the conversion
formula described above. Holders of the Series A Preferred Stock are
entitled to an 8% cumulative dividend payable in cash or Common Stock, at
the holder's option, at the time of conversion. Holders of Series A
Preferred Stock are entitled to one vote for each share of stock held.
During 1995, the Company repurchased from one of the co-founders, 53,000
shares of common stock for $17,000 under the Founders' buy-sell agreement.
At December 31, 1996, the Company has reserved the following shares of
Common Stock:
Warrants 163,000
Stock Options 896,936
WARRANTS
In connection with the July 26, 1994 and the July 19, 1993 public stock
offerings, the Company has agreed to issue and sell to the Underwriter
Representatives, for nominal consideration, warrants to purchase an
aggregate of 38,000 and 100,000 shares of common stock, respectively, at a
price of $12.90 and $4.20, respectively. The warrants expire in 1998.
In connection with the October, 1996 sale of Series A Preferred Stock, the
Company is also obligated to issue one warrant (the "Warrant") with respect
to each share of Common Stock which is issued. Each Warrant will entitle
the holder to purchase one share of common stock at a price equal to $8.50
per share.
8
<PAGE>
amounts of the company's net loss and net loss per share for the years
ended December 31, 1996 and 1995 would have been as follows:
1996 1995
---- ----
(Unaudited)
Net loss as reported $ (5,716,000) $ (12,132,000)
--------------- -----------------
--------------- -----------------
Net loss pro forma $ (6,613,000) $ (12,882,000)
--------------- -----------------
--------------- -----------------
Loss per share as reported $ (1.22) $ (2.60)
--------------- -----------------
--------------- -----------------
Loss per share pro forma $ (1.41) $ (2.76)
--------------- -----------------
--------------- -----------------
The fair value of each option grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions: risk-
free interest rates of 4.74% to 8.34%; expected option life of five years;
expected volatility of 1.17%; and no expected dividends. The weighted-
average fair value of options granted during the years 1996 and 1995 was
$2.88 and $3.61, respectively.
12. LICENSE AGREEMENTS
The Company has license agreements with various developers and producers of
computer software which require the Company to pay royalties. During the
years ended December 31, 1996 and 1995, total royalty costs were $48,000
and $195,000, respectively.
13. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities and a warehouse for its operations.
The leases contain renewal and expansion provisions, exerciseable at the
discretion of the Company. The Company's leases include scheduled rent
increases over the term of the lease. The total payment amount is being
recognized to expense on a straight-line basis over the term of the lease.
Future minimum lease rental commitments for all non-cancelable operating
leases are summarized as follows:
YEAR
1997 $ 270,000
1998 271,000
1999 273,000
2000 73,000
------------
$ 887,000
------------
------------
Rent expense for 1996 and 1995 was $263,000 and $191,000, respectively.
The Company received $69,000 from sublease income for 1996. There was no
sublease income in 1995.
The Company is subject to various claims and lawsuits in the ordinary
course of business. In the opinion of management, the ultimate resolution
of these matters will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
14. EMPLOYEE BENEFIT PLANS
In June 1996, the Company adopted a qualified profit-sharing plan under the
provisions of Internal Revenue Code 401(k). The plan is available to all
employees meeting the eligibility requirements.
15. RELATED PARTY TRANSACTIONS
During 1995, the Company repurchased from one of its Co-Founders, Mr.
McCulley, 63,000 shares of common stock for $17,000 under the Founder's
buy-sell agreement.
16. SUBESQUENT EVENT (UNAUDITED)
On May 9, 1997, Ask Me Multimedia Corporation ("AMM") served a
Demand for Arbitration (the "Arbitration") on the Company. The
Arbitration was filed with the American Arbitration Association in
Seattle, Washington. The Arbitration alleges that in connection with
the Company's purchase of certain AMM assets in early 1995, the Company
breached certain of the representations, warranties and covenants made
to AMM. The Arbitration seeks damages in excess of $1.1 million for,
among other things, breach of contract. The Company is still in the
process of evaluating AMM's claims and therefore is not in a position at
this time to estimate possible outcome. The Company intends to defend
against the Arbitration vigorously.
9
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
1. Previous independent accountants.
(i) Midisoft Corporation (the "Company") dismissed Price Waterhouse LLP
(the "Former Accountants") as its independent accountants on January
2, 1997.
(ii) The Former Accountants reported on the Company's financial
statements for the fiscal years ended December 31, 1994 and 1995.
The reports of the Former Accountants on the financial statements
for such years contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
(iii) The Company's Board of Directors approved the dismissal of the
Former Accountants and the selection of Ernst & Young LLP as the
Company's new accountants.
(iv) Except as described below, during the Company's fiscal years ended
December 31, 1994 and 1995, and through the date of this report,
there were no disagreements with the Former Accountants on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if
not resolved to the satisfaction of the Former Accountants would
have caused them to make reference thereto in their report on the
financial statements for such years. In connection with their audit
of the Company's financial statements for fiscal year 1994, the
Former Accountants advised the Company and the Company's former
management that they disagreed with the Company recognizing revenue
for certain OEM contracts. The disagreement was discussed by the
Former Accountants with the Company's former management and with the
Company's Board of Directors and the matter was resolved to the
Former Accountant's satisfaction.
Except as described below, during the fiscal years ended December 31,
1994 and 1995 and through the date of this report, the Former
Accountants did not advise the Company with respect to the matters
described in paragraphs (a) (1) (vi) (B) (1) through (3) of Item 304
of Regulation S-B. In connection with the Former Accountants' audit
of the Company's financial statements for fiscal year 1994 subsequent
to original issuance of the financial statements, information came to
the attention of the Former Accountants which caused them to perform
additional procedures which resulted in their unwillingness to rely
upon the representations of the Company's former management regarding
the December 31, 1994 financial statements, and to expand the scope of
their audit work. These matters were discussed with the Company's
former management and the Company's Board of Directors. The Former
Accountants' further audit work led to a restatement of the Company's
financial statements for the year ended December 31, 1994 to reverse
certain revenue previously recognized in the Company's 1994 financial
statements in a manner satisfactory to the Former Accountants. The
Former Accountants also advised the Board of Directors and former
management of matters considered to be reportable conditions related
to internal accounting controls under standards established by the
AICPA. These matters related to the Company's policies and procedures
for recognizing revenue in its financial statements. The Company's
current management has adopted and implemented additional internal
accounting controls to address these matters, and the Former
Accountants have not issued any subsequent reports to the Company
which include reportable conditions.
Each of the events described in this report occurred prior to the
appointment of the Company's existing executive officers. In
particular, the Company's executive officers at the time of each of
the events described herein consisted of Raymond Bily, Chairman;
Ronald Risdon, President; and Calvin Dyer, Chief Financial Officer.
10
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 12 is hereby incorporated by reference to the information in the Proxy
Statement.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS: The following are filed as a part
of this report under Financial Statements
Page
Report of Ernst & Young LLP. . . . . . . . . . . . . . . . . 16
Report of Price Waterhouse LLP . . . . . . . . . . . . . . . 16
Balance Sheets - At December 31, 1996 and 1995 . . . . . . . 17
Statements of Operations - For the Years Ended December 31,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . 18
Statements of Shareholders' Equity - For the Years
Ended December 31, 1996 and 1995 . . . . . . . . . . . . . 19
Statements of Cash Flows - For the Years Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . 20
Notes to Financial Statements - For the Years
Ended December 31, 1996 and 1995 . . . . . . . . . . . . . 21
11
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MIDISOFT CORPORATION
(Registrant)
Date: June 17, 1997 By: /S/ Larry Foster
-------------------------------------
Larry Foster, Chairman of the Board,
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ LARRY FOSTER Chairman of the Board, June 17, 1997
- ------------------------- President and Chief Executive
Larry Foster Officer
/S/ MELINDA A. BRYDEN Vice President, Finance and June 17, 1997
- ------------------------- and Chief Financial Officer
Melinda A. Bryden (Principal Accounting Officer)
/S/ JOHN BAUER Director June 17, 1997
- -------------------------
John Bauer
/S/ MARSHA MURRY Director June 17, 1997
- -------------------------
Marsha Murry
/S/ A. PETER PARSONS Director June 17, 1997
- -------------------------
A. Peter Parsons
Director June 17, 1997
- -------------------------
Stephen Sedmak
12
