<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): June 22, 1998
OSAGE SYSTEMS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-22808 95-4374983
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
1661 East Camelback Road
Suite 245
Phoenix, AZ 85016
(Address of principal executive office)
Registrant's telephone number, including area code: (602) 274-1299
(Former name or former address, if changed since last report)
<PAGE> 2
GENERAL EXPLANATION
The purpose of this Report is to amend the registrant's Current Report
on Form 8-K dated June 22, 1998 relative to the acquisition of Open Business
Systems, Inc. This Report amends the information provided under Item 7(a) and
7(b).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Acquired Businesses
OPEN BUSINESS SYSTEMS, INC.
Independent Auditors' Report
Balance Sheets As Of December 31, 1997 and 1996
Statements of Income For The Years Ended December 31,
1997 and 1996
Statements of Stockholders' Equity For The Years
Ended December 31, 1997 and 1996
Statements of Cash Flows For The Years Ended December
31, 1997 and 1996
Notes to Financial Statements
Unaudited Interim Financial Statements:
Balance Sheets As Of June 30, 1998 and 1997
Statements Of Operations For The Six Months
Ended June 30, 1998 and 1997
Statements Of Cash Flows For The Six Months
Ended June 30, 1998 and 1997
Notes to Financial Statements
(b) Pro Forma Financial Information
<PAGE> 3
FINANCIAL STATEMENTS PROVIDED UNDER ITEM 7(a)
<PAGE> 4
OPEN BUSINESS
SYSTEMS, INC.
Financial Statements
Years Ended December 31, 1997 and 1996, and
Independent Auditors' Report
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
Board of Directors
Open Business Systems, Inc.
Wood Dale, Illinois
We have audited the accompanying balance sheets of Open Business Systems, Inc.
(the "Company") as of December 31, 1997 and 1996, and the related statements of
income, stockholders' equity 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1997 and 1996,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
July 10, 1998
<PAGE> 6
OPEN BUSINESS SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 298,761 $ 609,525
Certificate of deposit 50,000
Accounts receivable (Note 6) 1,265,335 693,648
---------- ----------
Total current assets 1,564,096 1,353,173
FURNITURE AND EQUIPMENT - Net (Note 2) 99,837 84,119
OTHER ASSETS 11,370 7,371
---------- ----------
TOTAL $1,675,303 $1,444,663
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable financing facility (Note 3) $ 595,915 $ 214,191
Accounts payable 115,172 528,288
Accrued expenses 182,940 172,720
---------- ----------
Total current liabilities 894,027 915,199
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)
STOCKHOLDERS' EQUITY:
Common stock - $1 par value; authorized, 10,000 shares;
issued and outstanding, 1,600 shares 1,600 1,600
Retained earnings 779,676 527,864
---------- ----------
Total stockholders' equity 781,276 529,464
---------- ----------
TOTAL $1,675,303 $1,444,663
========== ==========
</TABLE>
See notes to financial statements.
- 2 -
<PAGE> 7
OPEN BUSINESS SYSTEMS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
NET SALES (Note 6) $9,075,637 $7,015,912
COST OF SALES 6,231,546 5,158,449
---------- ----------
Gross profit 2,844,091 1,857,463
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,508,695 1,600,730
---------- ----------
OPERATING INCOME 335,396 256,733
INTEREST AND OTHER INCOME - Net 12,418 32,842
---------- ----------
NET INCOME $ 347,814 $ 289,575
========== ==========
</TABLE>
See notes to financial statements.
-3-
<PAGE> 8
OPEN BUSINESS SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------------------
SHARES AMOUNT EARNINGS TOTAL
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 1,600 $ 1,600 $ 326,468 $ 328,068
Distribution to stockholders (88,179) (88,179)
Net income 289,575 289,575
-------- --------- --------- ---------
BALANCE, DECEMBER 31, 1996 1,600 1,600 527,864 529,464
Distribution to stockholders (96,002) (96,002)
Net income 347,814 347,814
-------- --------- --------- ---------
BALANCE, DECEMBER 31, 1997 1,600 $ 1,600 $ 779,676 $ 781,276
========= ========= ========= =========
</TABLE>
See notes to financial statements.
-4-
<PAGE> 9
OPEN BUSINESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 347,814 $ 289,575
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 75,500 40,885
Changes in operating assets and liabilities:
Accounts receivable (571,687) (207,305)
Other assets (3,999) (7,371)
Accounts payable (31,392) 450,274
Accrued expenses 10,220 118,898
--------- ---------
Net cash (used in) provided by operating activities (173,544) 684,956
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (91,218) (59,471)
Proceeds from certificate of deposit 50,000
--------- ---------
Net cash used in investing activities (41,218) (59,471)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES - Distributions
to stockholders (96,002) (88,179)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (310,764) 537,306
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 609,525 72,219
--------- ---------
CASH AND CASH EQUIVALENTS END OF YEAR $ 298,761 $ 609,525
========= =========
</TABLE>
See notes to financial statements.
-5-
<PAGE> 10
OPEN BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Open Business Systems, Inc. (the "Company") was
founded in 1991 with the specific goal of offering customers technology
solutions that utilize advanced "open" technologies to provide an
extensive platform for future growth. The Company specifically resells
hardware and software while also providing professional services such as
installation, software design and programming primarily in the state of
Illinois. The Company has entered into contracts with major suppliers of
computer hardware and software to act as their value-added reseller.
Purchases and sales under the value-added reseller contracts account for
the majority of the Company's sales and costs of sales.
SIGNIFICANT ACCOUNTING POLICIES are as follows:
a. Cash and Cash Equivalents - For financial statement purposes, the
Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
b. Certificate of deposit is not included in cash and cash equivalents
because it had an original maturity date greater than three months.
c. Furniture and equipment and software are stated at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The useful lives range from
three to five years.
d. Other assets consist principally of the cash surrender value of
officer's life insurance.
e. Revenue Recognition - The Company recognizes sales of products when
the products are shipped, and services and support revenue is
recognized when the applicable services are rendered.
f. Income Taxes - The Company has elected to be treated as an S
Corporation ("S Corp") as prescribed under Section 1362 of the
Internal Revenue Code. As an S Corp, items of income or loss and
deductions or credits generated by the Company flow through directly
to the stockholders and are included in their tax returns.
Accordingly, no provision for income taxes has been included in the
accompanying financial statements.
g. Fair Value of Financial Instruments - The fair value of accounts
receivable, accounts payable and accrued expenses approximates the
carrying value due to the short-term nature of these instruments.
h. 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 and disclosure of
contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
-6-
<PAGE> 11
2. FURNITURE AND EQUIPMENT
Furniture and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Computer equipment $175,730 $111,786
Furniture and fixtures 47,980 20,706
-------- --------
Total 223,710 132,492
Less accumulated depreciation 123,873 48,373
-------- --------
Furniture and equipment - net $ 99,837 $ 84,119
======== ========
</TABLE>
3. ACCOUNTS PAYABLE FINANCING FACILITY
The Company has an accounts payable financing facility which is guaranteed
by the stockholders. Amounts due under the financing facility which are
paid within 45 days do not bear interest. Interest is payable monthly on
amounts outstanding over 45 days at the bank's prime rate (8.5% at
December 31, 1997) plus 6 percent.
4. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company leases office space and equipment under
noncancelable operating leases. The Company has an option to renew the
office lease for an additional three-year term at fair market value.
Future minimum payments under noncancelable operating leases at December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $102,106
1999 106,685
2000 109,779
2001 107,099
2002 109,159
Thereafter 85,225
--------
Total $620,053
========
</TABLE>
Total rent expense was $44,391 and $37,631 for the years ended December
31, 1997 and 1996, respectively.
LETTER OF CREDIT - As of August 8, 1997, the Company entered into an
agreement with a bank to provide a letter of credit in the amount of
$50,000 to the lessor of the office space. The letter of credit expires on
October 1, 1999.
5. EMPLOYEE BENEFIT PLAN
The Company has a qualified contributory 401(k) plan that covers all
employees who have attained the age of 21 and completed six months of
service. Each participant may elect to contribute up to 15 percent of his
or her gross compensation up to the maximum amount allowed by the Internal
Revenue Service. The Company can make discretionary matching
contributions. In addition, the Company has a discretionary profit sharing
plan for all employees eligible for the 401(k) plan. The Company
contributed $28,107 and $51,033 to the plans for the years ended December
31, 1997 and 1996, respectively.
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<PAGE> 12
6. MAJOR CUSTOMER
For the years ended December 31, 1997 and 1996, the Company had a major
customer, sales to which exceeded 10 percent of the Company's revenues.
Revenues from sales to this customer were approximately $1,593,000 and
$4,047,597 for the years ended December 31, 1997 and 1996. The Company had
an accounts receivable balance from this customer of $301,202 and $130,412
as of December 31, 1997 and 1996, respectively.
7. SUBSEQUENT EVENTS
On June 22, 1998, the Company was acquired by Osage Systems Group, Inc.
("Osage"), which operates in the same industry as the Company. Under the
terms of the agreement with Osage, the selling price of the Company was
$2,000,000 cash and $2,000,000 of Osage's common stock valued at $6 per
share.
Additionally, the selling stockholders may receive earn-out shares
consisting of additional shares of Osage common stock with a value of up
to $3.0 million which may be earned by the Company based upon the sale
revenue and net income of the Company during the three years following the
closing.
* * * * * *
-8-
<PAGE> 13
PRO FORMA FINANCIAL INFORMATION PROVIDED UNDER ITEM 7(b)
<PAGE> 14
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statement of operations for the
year ended December 31, 1997 and the six months ended June 30, 1998 combines
historical statements of operations for Osage Systems Group, Inc. (the
"Company") and the acquired company, Open Business Systems, Inc. ("OBS"), as if
the acquisition had occurred on January 1, 1997. A pro forma consolidated
balance sheet at June 30, 1998 is not presented since the transaction is already
reflected in the Company's June 30, 1998 consolidated balance sheet which was
filed with the Securities and Exchange Commission on Form 10-QSB on August 14,
1998.
The detailed assumptions used to prepare the unaudited pro forma consolidated
financial information are contained herein. The unaudited pro forma consolidated
financial information reflects the use of the purchase method of accounting for
the acquisitions. The purchase price allocation used in the preparation of the
pro forma financial information is preliminary and subject to change based upon
final evaluations being performed.
The unaudited pro forma consolidated financial information assumes the
acquisition was funded from currently available cash, assorted private placement
transactions and through the issuance of common stock.
The unaudited pro forma data are not necessarily indicative of the financial
position or results of operations which would have actually been reported had
the transactions been consummated at the date mentioned above or which may be
reported in the future.
The unaudited pro forma data should be read in conjunction with the notes to the
unaudited pro forma consolidated historical financial information and the
historical financial statements, and notes thereto, of the Company which are
incorporated by reference to the Company's Form 10-KSB and the historical
financial statements of OBS which are included herein.
<PAGE> 15
OSAGE SYSTEMS GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA CONSOLIDATED
OSAGE OBS ADJ. BALANCE
----- --- ---- ------------
<S> <C> <C> <C> <C>
NET SALES $ 16,001 $ 9,357 $ 25,358
COST OF SALES 13,141 7,207 20,348
-------- -------- -------- --------
Gross profit 2,860 2,150 5,010
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,001 2,133 $ 99 {a} 6,233
-------- -------- -------- --------
OPERATING INCOME (LOSS) (1,141) 17 (99) (1,223)
INTEREST - Net 23 3 26
-------- -------- -------- --------
INCOME (LOSS) BEFORE BENEFIT FOR
INCOME TAXES (1,118) 20 (99) (1,197)
(BENEFIT) PROVISION FOR INCOME TAXES (324) 8 {b} (316)
-------- -------- -------- --------
NET INCOME (LOSS) $ (794) $ 20 $ (107) $ (881)
======== ======== ======== ========
LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.13) $ (0.14)
======== ========
SHARES USED IN PER SHARE CALCULATION 6,031 6,463 {c}
-------- --------
</TABLE>
<PAGE> 16
PRO FORMA ADJUSTMENT LEGEND
{a} Amount represents the amortization of goodwill. While the Company has yet
to complete the final purchase accounting entries, based on its
preliminary estimate, the Company believes that any additional adjustments
required will be allocated to goodwill, which is estimated to be amortized
over 20 years. The excess of assets acquired over liabilities assumed of
$3,973,000 has been allocated to goodwill.
{b} Amount represents pro forma adjustment for income taxes as follows:
<TABLE>
<S> <C>
Current tax provision for OBS assuming a
40% tax rate as OBS was taxed as
an S Corp. prior to the acquisition $ 8
======
</TABLE>
{c} Amount represents the number of shares outstanding resulting from the
acquisition of OBS as if the shares were outstanding as of January 1,
1998:
<TABLE>
<S> <C>
Weighted average shares outstanding as of June 30, 1998 6,031
OBS shares 362
Fees paid 70
-----
Total 6,463
=====
</TABLE>
<PAGE> 17
OSAGE SYSTEMS GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA CONSOLIDATED
OSAGE OBS ADJ. BALANCE
-------- --------- ---------- ------------
<S> <C> <C> <C> <C>
NET SALES $ 14,191 $ 9,076 $ 23,267
COST OF SALES 11,670 6,232 17,902
-------- -------- -------- --------
Gross profit 2,521 2,844 5,365
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,807 2,509 $ 199 {a} 5,515
-------- -------- -------- --------
OPERATING INCOME (LOSS) (286) 335 (199) (150)
INTEREST - Net (10) 13 3
-------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES (296) 348 (199) (147)
(BENEFIT) PROVISION FOR INCOME TAXES (3) 139 {b} 136
-------- -------- -------- --------
NET INCOME (LOSS) $ (293) $ 348 $ (338) $ (283)
======== ======== ======== ========
LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.06) $ (0.05)
======== ========
SHARES USED IN PER SHARE CALCULATION 4,820 5,252 {c}
======== ========
</TABLE>
<PAGE> 18
PRO FORMA ADJUSTMENT LEGEND
{a} Amount represents the amortization of goodwill. While the Company has yet
to complete the final purchase accounting entries, based on its
preliminary estimate, the Company believes that any additional adjustments
required will be allocated to goodwill, which is estimated to be amortized
over 20 years. The excess of assets acquired over liabilities assumed of
$3,973,000 has been allocated to goodwill.
{b} Amount represents pro forma adjustment for income taxes as follows:
<TABLE>
<S> <C>
Current tax provision for OBS assuming a 40%
tax rate as OBS was taxed as an S Corp. prior to
the acquisition $ 139
========
</TABLE>
{c} Amount represents the number of shares outstanding resulting from the
acquisition of OBS as if the shares were outstanding as of January 1,
1997:
<TABLE>
<S> <C>
Shares outstanding as of December 31, 1997 4,820
OBS shares 362
Fees paid 70
--------
Total 5,252
--------
</TABLE>
<PAGE> 19
OPEN BUSINESS SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 340,019 $ 626,809
Accounts receivable - net of $11,000 allowance for
doubtful accounts in 1998 4,168,933 820,594
Inventories 341
Prepaid expenses and other current assets 40,598 11,370
---------- ----------
Total current assets 4,549,891 1,458,773
---------- ----------
FURNITURE AND EQUIPMENT - net 164,135 80,063
---------- ----------
TOTAL $4,714,026 $1,538,836
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $3,644,292 $ 730,291
Accrued expenses 423,817 55,285
---------- ----------
Total current liabilities 4,068,109 785,576
---------- ----------
NOTES PAYABLE
STOCKHOLDERS' EQUITY: ---------- ----------
Common stock 1,600 1,600
Retained earnings 644,317 751,660
---------- ----------
Total stockholders' equity 645,917 753,260
---------- ----------
TOTAL $4,714,026 $1,538,836
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE> 20
OPEN BUSINESS SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) (UNAUDITED)
JUNE 30, 1998 JUNE 30, 1997
<S> <C> <C>
NET SALES $9,357,633 $3,906,489
COST OF SALES 7,207,472 2,571,510
---------- ----------
Gross profit 2,150,161 1,334,979
---------- ----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,133,210 1,014,598
---------- ----------
OPERATING INCOME 16,951 320,381
INTEREST INCOME - net 2,925
---------- ----------
NET INCOME $ 19,876 $ 320,381
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE> 21
OPEN BUSINESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) (UNAUDITED)
JUNE 30, 1998 JUNE 30, 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 19,876 $ 320,381
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 39,046 10,000
Changes in operating assets and liabilities:
Accounts receivable (2,903,598) (126,946)
Inventories (341)
Prepaid expenses and other assets (29,228) (3,999)
Accounts payable 2,933,205 (12,188)
Accrued expenses 240,877 (117,435)
----------- -----------
Net cash provided by operating activities 299,837 69,813
----------- -----------
INVESTING ACTIVITIES - Capital expenditures (103,344) (5,944)
----------- -----------
FINANCING ACTIVITIES - Shareholder distributions (155,235) (96,585)
----------- -----------
NET INCREASE IN CASH 41,258 (32,716)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 298,761 659,525
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 340,019 $ 626,809
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE> 22
OPEN BUSINESS SYSTEMS, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of the Company, the accompanying unaudited interim financial
statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position of the Company
and the results of its operations and changes in its financial position for
the periods presented.
<PAGE> 23
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 thereunto duly authorized.
Dated: September 4, 1998 OSAGE SYSTEMS GROUP, INC.
BY:/s/ Jack R. Leadbeater
------------------------
Jack R. Leadbeater
Chief Executive Officer
