<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
JULY 23, 1999
- --------------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
QRS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-21958 68-0102251
- --------------------------------------------------------------------------------
(State or other jurisdiction of (Commission File Number) (I.R.S Employer
of incorporation) Identification No.)
1400 Marina Way South, Richmond, California 94804
- --------------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (510) 215-5000
--------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
Former name or former address, if changed since last report)
The Registrant hereby amends and restates its Report on Form 8-K filed with the
Securities and Exchange Commission on August 6, 1999, reporting the acquisition
by Registrant of all the outstanding common stock of Retail Data Services, Inc.,
a Virginia corporation, and its affiliate RDS, Inc., a Virginia Corporation, as
set forth in the pages attached hereto:
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 23, 1999, QRS Corporation ("QRS" or the "Company") entered into a Stock
Purchase Agreement (the "Agreement") with Retail Data Services, Inc., a Virginia
corporation ("Retail Data"), pursuant to which QRS acquired all of the issued
and outstanding shares of Retail Data and its affiliate, RDS, Inc., a Virginia
corporation (collectively "RDS"). A copy of the Agreement has previously been
filed with the Securities and Exchange Commission and is hereby incorporated by
reference.
The acquisition was effected through the issuance of 53,250 shares of QRS common
stock valued at $2.8 million and payment of $15.0 million in cash, in exchange
for all of the stock of RDS outstanding immediately prior to the consummation of
the transaction. As described in detail in the Agreement, additional
consideration of $3.0 million will be payable to the seller if revenue targets
are achieved in 1999 and 2000 from the acquired business. The amount of such
consideration was determined based upon arms-length negotiations between QRS and
RDS. The purpose of the acquisition is to expand into the grocery retail market.
The acquisition is being accounted for as a purchase transaction.
QRS filed a registration statement on Form S-3 with the Securities and Exchange
Commission on August 20, 1999 to permit the resale of the outstanding shares
issued in connection with the acquisition of RDS. A copy of the press release
announcing the acquisition of RDS has previously been filed with the Securities
and Exchange Commission and is hereby incorporated by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
INDEX
<TABLE>
<C> <S> <C>
(a) Financial Information of Business Acquired............... Exhibit 99.1
(b) Pro Forma Financial Information.......................... Exhibit 99.2
(c) Exhibits:
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
23.1 Consent of Robert R. Raymond & Associates, LLP
99.1 Financial Statements of Business Acquired
99.2 Pro Forma Financial Information
</TABLE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QRS CORPORATION
Date: October 5, 1999 /s/ Peter Papano
-------------------------------------
Peter Papano
Chief Financial Officer and Secretary
2
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the filing of our report on the combined financial statements
of Retail Data Services, Inc. and Affiliate dated September 17, 1999 with
this Current Report on Form 8-K/A of QRS Corporation and to the incorporation
by reference in QRS Corporation's Registration Statement No. 333-85783 on
Form S-3; Amendment to Registration Statement No. 333-85783 on Form S-3/A;
Registration Statements No. 33-66944, No. 33-67138, No. 33-74734, No.
33-94878, No. 333-66837, No. 333-78499 and No. 333-81159 on Forms S-8; Post
Effective Amendments No. 1 and No. 2 to Registration Statements No. 33-66944,
No. 33-67138, No. 33-74734 and No. 33-94878 on Forms S-8; and Post Effective
Amendment No. 1 to Registration Statement No. 333-81159 on Form S-8.
/s/ Robert R. Raymond & Associates, LLP
Richmond, Virginia
October 5, 1999
3
<PAGE>
EXHIBIT 99.1 FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Historical Combined Financial Statements of Retail Data Services, Inc. and Affiliate:
Report of Independent Auditors................................................................ 5
Combined Balance Sheet as of December 31, 1998................................................ 6
Combined Statement of Earnings for the Year Ended December 31, 1998........................... 7
Combined Statement of Changes in Stockholder's Equity for the Year
Ended December 31, 1998................................................................... 8
Combined Statement of Cash Flows for the Year Ended December 31, 1998......................... 9
Notes to Combined Financial Statements........................................................ 10
Unaudited Combined Financial Statements of Retail Data Services, Inc. and Affiliate:
Unaudited Combined Balance Sheet at June 30, 1999............................................. 13
Unaudited Combined Statement of Earnings for the Six Months Ended June 30, 1999............... 14
Unaudited Combined Statement of Cash Flows for the Six Months Ended June 30, 1999............. 15
Notes to Unaudited Combined Financial Statements.............................................. 16
</TABLE>
4
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Retail Data Services, Inc. and Affiliate:
We have audited the accompanying combined balance sheet of Retail Data Services,
Inc. and Affiliate (S Corporations) as of December 31, 1998, and the related
combined statements of earnings, changes in stockholder's equity, and cash flows
for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined 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 combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Retail Data
Services, Inc. and Affiliate as of December 31, 1998, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As disclosed in Note 8 to the combined financial statements, all of the
outstanding common stock of Retail Data Services, Inc. and Affiliate was
acquired by QRS Corporation on July 23, 1999.
/s/ Robert R. Raymond & Associates, LLP
September 17, 1999
Richmond, Virginia
5
<PAGE>
RETAIL DATA SERVICES, INC. AND AFFILIATE
Combined Balance Sheet
December 31, 1998
(Dollars in thousands)
ASSETS
------
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Current assets:
Cash.................................................................................... $ 149
Accounts receivable (net of allowance for
doubtful accounts of $17) (Note 3) ................................................. 1,143
Prepaid expenses........................................................................ 48
-----------
Total current assets................................................................ 1,340
Property and equipment, less accumulated depreciation
and amortization (Note 2)............................................................... 232
Note receivable from a related party (Note 4)................................................ 144
Capitalized product development costs........................................................ 26
-----------
$ 1,742
-----------
-----------
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Accounts payable........................................................................ $ 53
Accrued liabilities..................................................................... 242
-----------
Total current liabilities........................................................... 295
Bank line of credit (Note 3)................................................................. 494
-----------
Total liabilities................................................................... 789
-----------
Commitments (Note 5)
Stockholder's equity:
Common stock, $1 par value; 10,000 shares authorized;
200 shares issued and outstanding................................................... --
Additional paid-in capital.............................................................. 33
Retained earnings....................................................................... 920
-----------
Total stockholder's equity.......................................................... 953
-----------
$ 1,742
-----------
-----------
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE>
RETAIL DATA SERVICES, INC. AND AFFILIATE
Combined Statement of Earnings
Year Ended December 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Revenues .................................................................................... $ 8,175
Cost of revenue.............................................................................. 5,728
-----------
Gross profit................................................................................. 2,447
-----------
Operating expenses:
Sales and marketing..................................................................... 247
General and administrative.............................................................. 1,031
-----------
Total operating expenses............................................................ 1,278
-----------
Operating earnings........................................................................... 1,169
-----------
Other income (expense):
Interest expense........................................................................ (54)
Interest income......................................................................... 8
-----------
Total other expense................................................................. (46)
-----------
Net earnings................................................................................. $ 1,123
-----------
-----------
</TABLE>
See accompanying notes to combined financial statements.
7
<PAGE>
RETAIL DATA SERVICES, INC. AND AFFILIATE
Combined Statement of Changes in Stockholder's Equity
Year Ended December 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Additional Retained
Stock Paid-in Capital Earnings Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1998................ $ -- $ 33 $ 588 $ 621
Net earnings............................ -- -- 1,123 1,123
Stockholder distributions............... -- -- (791) (791)
------------- ------------- ------------- -------------
Balance, December 31, 1998.............. $ -- $ 33 $ 920 $ 953
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to combined financial statements.
8
<PAGE>
RETAIL DATA SERVICES, INC. AND AFFILIATE
Combined Statement of Cash Flows
Year Ended December 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Cash flows from operating activities:
Net earnings............................................................................ $ 1,123
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization....................................................... 138
Bad debt............................................................................ 24
(Increase) decrease in assets:
Accounts receivable............................................................ (393)
Prepaid expenses............................................................... (34)
Increase (decrease) in liabilities:
Accounts payable............................................................... 52
Accrued liabilities............................................................ (405)
-----------
Net cash provided by operating activities........................................... 505
-----------
Cash flows from investing activities:
Purchases of property and equipment..................................................... (99)
Capitalization of product development costs............................................. (13)
Net repayments from related party....................................................... 323
-----------
Net cash provided by investing activities........................................... 211
-----------
Cash flows from financing activities:
Net repayments of bank line of credit................................................... (156)
Stockholder distributions............................................................... (791)
Other................................................................................... (9)
-----------
Net cash used in financing activities............................................... (956)
-----------
Net decrease in cash......................................................................... (240)
Cash at beginning of year.................................................................... 389
-----------
Cash at end of year.......................................................................... $ 149
-----------
-----------
Supplemental disclosure:
Interest paid........................................................................... $ 50
-----------
-----------
</TABLE>
See accompanying notes to combined financial statements.
9
<PAGE>
RETAIL DATA SERVICES, INC. AND AFFILIATE
Notes to Combined Financial Statements
Year Ended December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
Retail Data Services, Inc. ("Retail Data") and RDS, Inc.
("RDS"), (collectively referred to as the "Companies") are
located in Henrico County, Virginia. The Companies provide
competitive retail pricing information to their customers in
the grocery business, who are located throughout the United
States. Services are generally rendered under fixed-price
contracts with one year terms. RDS provides payroll and
management services to Retail Data under terms of a contract
described in Note 4. Retail Data and RDS were each solely
owned by Christine B. Cottrell (the "Stockholder") at December
31, 1998 (see Note 8).
(b) PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of the
Companies. All material intercompany transactions have been
eliminated in the combined statements.
(c) REVENUE AND COST RECOGNITION
Revenues are recognized on the specific performance method, as
services are rendered. All costs are charged to expense as
incurred.
(d) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
computed over tax lives (which approximate estimated useful
lives) ranging from 3 to 7 years using both straight-line and
accelerated methods.
(e) CAPITALIZED PRODUCT DEVELOPMENT COSTS
Retail Data is developing a computer software product to be
sold, leased or otherwise marketed to its customers. Costs
incurred to establish the technological feasibility of this
product have been charged to expense. Costs incurred
subsequent to the establishment of technological feasibility
have been capitalized. The product was not ready for general
release to customers at December 31, 1998; no amortization of
the related development costs has been recorded through
December 31, 1998.
(f) INCOME TAXES
The Companies have elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Accordingly, the
Companies would not generally pay federal or state corporate
income taxes. Instead, the Stockholder is liable for
individual federal and state income taxes on the Companies'
tax attributes. It is the policy of the Companies to make cash
distributions to the Stockholder in amounts sufficient to pay
taxes resulting from the pass-through of tax attributes.
10
<PAGE>
(g) USE OF ESTIMATES
Management uses estimates and assumptions in preparing
financial statements. These estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities, and the reported
revenues and expenses. Actual results could differ materially
from those reported.
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Equipment $ 566
Furniture and fixtures 93
-----------
Total property and equipment 659
Less: accumulated depreciation and amortization 427
Net property and equipment $ 232
-----------
-----------
</TABLE>
(3) BANK LINE OF CREDIT
In February 1997, Retail Data obtained a $200,000 line of
credit from a commercial bank (the "Bank Note"). The Bank Note
was modified in December of 1997 to increase the maximum
permitted amount to $750,000 and to extend the due date to
January 15, 1999. The Bank Note was renewed in January 1999 at
substantially similar terms with a due date of January 15,
2000. Interest on the Bank Note is payable monthly at the
prime rate of interest plus .5%. The applicable prime rate of
interest at December 31, 1998 is 7.75%. The Bank Note is
secured by all accounts receivable of Retail Data and the
personal guarantees of the Stockholder and the Stockholder's
spouse (the "Guarantors"). Outstanding borrowings under the
Bank Note total $494,000 at December 31, 1998.
The Bank Note contains various covenants. It is the opinion of
management that Retail Data and the Guarantors are in
compliance with these provisions.
(4) RELATED PARTY TRANSACTIONS
RDS provides payroll and management services to Retail Data
under a contract. The terms of the contract provide for Retail
Data to compensate RDS for services rendered on a monthly
basis, based on employee time incurred, plus a monthly fixed
charge. Total fees paid by Retail Data to RDS in 1998 were
$4,283,000. These fees are eliminated in the accompanying
combined statement of earnings.
The Companies are related through common ownership with D.C.
Trell, LLC ("D.C. Trell"). Retail Data leases real property
from D.C. Trell as described in Note 5.
Note receivable from related party at December 31, 1998
consists of a $144,000 unsecured, demand loan from Retail Data
to D.C. Trell, with interest income of $8,000 for the year
ended December 31, 1998, calculated at the applicable federal
rate. The applicable federal rate at December 31, 1998 was
5.63%.
11
<PAGE>
(5) COMMITMENTS
Retail Data leases the real property used in operations from
D.C. Trell (see Note 4) on a month-to-month basis. The lease
requires Retail Data to pay for any repairs or alterations to
the leased premises. Rent expense under the lease was $88,000
for the year ended December 31, 1998.
Retail Data leases certain equipment under noncancellable
operating leases that expire over the next four years. Future
minimum rental payments required under these leases are as
follows (in thousands):
<TABLE>
<S> <C>
1999 $ 270
2000 219
2001 81
2002 16
Thereafter --
---------
Total $ 586
---------
---------
</TABLE>
Retail Data has agreements with two key employees, under which
the employees could be provided additional compensation upon
the sale of substantially all of the assets or any of the
outstanding stock of Retail Data. The amount of such
compensation would be based on the net proceeds of such sale
subject to possible conditions of forfeiture (see Note 8).
(6) CONCENTRATION OF CREDIT RISK
The Companies perform ongoing credit evaluations of their
customers' financial conditions and, generally, require no
collateral. The three largest customers accounted for
approximately 18% of 1998 revenues and 28% of accounts
receivable at December 31, 1998.
(7) YEAR 2000 (UNAUDITED)
The Companies are in the process of reviewing and modifying
their information systems to ensure that the Companies'
information technology will recognize the year 2000. The cost
of the project is not expected to have a significant effect on
the Companies' results of operations or financial position.
(8) SUBSEQUENT EVENT
All of the outstanding common stock of the Companies was
acquired by QRS Corporation on July 23, 1999.
Under the terms of agreements with two key employees (see
Note 5), $1,719,000 in additional compensation was paid to the
employees upon the sale of the Companies' outstanding common
stock.
12
<PAGE>
RETAIL DATA SERVICES, INC. AND AFFILIATE
Unaudited Combined Balance Sheet
June 30, 1999
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
1999
------------
<S> <C>
Current assets:
Cash.................................................................................... $ 194
Accounts receivable (net of allowance for
doubtful accounts of $9)............................................................ 1,394
Prepaid expenses........................................................................ 89
-----------
Total current assets................................................................ 1,677
Property and equipment, less accumulated depreciation
and amortization........................................................................ 219
Capitalized product development costs ....................................................... 75
-----------
$ 1,971
-----------
-----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................................................ $ 62
Accrued liabilities..................................................................... 367
Bank line of credit..................................................................... 171
-----------
Total current liabilities........................................................... 600
-----------
Commitments
Stockholder's equity:
Common stock, $1 par value; 10,000 shares authorized;
200 shares issued and outstanding................................................... --
Additional paid-in capital.............................................................. 33
Retained earnings....................................................................... 1,338
-----------
Total stockholder's equity.......................................................... 1,371
-----------
$ 1,971
-----------
-----------
</TABLE>
See accompanying notes to unaudited combined financial statements.
13
<PAGE>
RETAIL DATA SERVICES, INC. AND AFFILIATE
Unaudited Combined Statement of Earnings
Six Months Ended June 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Revenues .................................................................................... $ 4,938
Cost of revenue.............................................................................. 3,233
-----------
Gross profit................................................................................. 1,705
-----------
Operating expenses:
Sales and marketing..................................................................... 139
General and administrative.............................................................. 467
-----------
Total operating expenses............................................................ 606
-----------
Operating earnings........................................................................... 1,099
-----------
Other income (expense):
Interest expense........................................................................ (10)
Interest income......................................................................... 3
-----------
Total other expense................................................................. (7)
-----------
Net earnings............................................................................ $ 1,092
-----------
-----------
</TABLE>
See accompanying notes to unaudited combined financial statements.
14
<PAGE>
RETAIL DATA SERVICES, INC. AND AFFILIATE
Unaudited Combined Statement of Cash Flows
Six Months Ended June 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Cash flows from operating activities:
Net earnings............................................................................ $ 1,092
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization....................................................... 52
Bad debt............................................................................ 9
(Increase) decrease in assets:
Accounts receivable............................................................ (260)
Prepaid expenses............................................................... (41)
Increase (decrease) in liabilities:
Accounts payable............................................................... 9
Accrued liabilities............................................................ 125
-----------
Net cash provided by operating activities........................................... 986
-----------
Cash flows from investing activities:
Purchases of property and equipment..................................................... (40)
Capitalization of product development costs............................................. (49)
Net repayments from related party....................................................... 144
-----------
Net cash provided by investing activities........................................... 55
-----------
Cash flows from financing activities:
Net repayments of bank line of credit................................................... (322)
Stockholder distributions............................................................... (674)
------------
Net cash used in financing activities............................................... (996)
------------
Net increase in cash......................................................................... 45
Cash at beginning of period.................................................................. 149
-----------
Cash at end of period........................................................................ $ 194
-----------
-----------
Supplemental disclosure:
Interest paid........................................................................... $ 13
-----------
-----------
</TABLE>
See accompanying notes to unaudited combined financial statements.
15
<PAGE>
RETAIL DATA SERVICES, INC. AND AFFILIATE
Notes to Unaudited Combined Financial Statements
Six Months Ended June 30, 1999
(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Retail Data Services, Inc. and RDS, Inc. (collectively referred to as
the "Companies") provide competitive retail pricing information to
their customers in the grocery business, who are located throughout the
United States. Services are generally rendered under fixed-price
contracts with one year terms.
The accompanying unaudited combined balance sheet and combined
statements of earnings and cash flows have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Such interim combined financial statements do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting primarily of normal
recurring accruals) considered necessary for a fair presentation have
been included. These combined financial statements should be read in
conjunction with the Companies' audited combined financial statements
and footnotes thereto for the year ended December 31, 1998 included
elsewhere in this Form 8-K/A.
(2) SUBSEQUENT EVENT
On July 23, 1999, QRS Corporation acquired all of the outstanding
common stock of the Companies.
Under the terms of agreements with two key employees, $1,719,000 in
additional compensation was paid to the employees upon the sale of the
Companies' outstanding common stock.
16
<PAGE>
EXHIBIT 99.2
PRO FORMA FINANCIAL INFORMATION
On July 23, 1999, the Company completed the acquisition of all the
outstanding capital stock of Retail Data Services, Inc. and RDS, Inc.
(collectively, "RDS"). The total acquisition cost was $21,183,820;
comprised of $15,000,000 paid in cash; $3,000,000 in deferred
compensation to the seller; 53,250 shares of common stock valued at
$2,762,610 of which 11,000 shares of common stock were issued from the
Company's treasury account; liabilities assumed of $171,210 and
$250,000 in transaction costs related to the acquisition. Under the
terms of the Agreement, the Company is required to pay $2,000,000 and
$1,000,000 in March 2000 and 2001, respectively to the seller if
revenue from the acquired business meets or exceeds certain levels in
1999 and 2000. Management has determined, based on the results of its
analysis that it is highly probable that revenue from the acquired
business will exceed the established levels, and accordingly, the
deferred payments to the seller have been included in the acquisition
cost. The total acquisition cost was allocated to the estimated fair
value of assets acquired based on an independent appraisal.
The following unaudited pro forma condensed consolidated financial
statements of QRS Corporation and subsidiaries (the "Company") give
effect to the acquisition of all of the outstanding common stock of RDS
on July 23, 1999. The acquisition was accounted for under the purchase
method of accounting, which requires the purchase price to be allocated
to the acquired assets and liabilities assumed of RDS on the basis of
their estimated fair values as of the date of acquisition. The
following unaudited pro forma condensed consolidated balance sheet
gives effect to the acquisition of RDS as if it had occurred on June
30, 1999, and the unaudited pro forma condensed consolidated statements
of earnings and comprehensive earnings (collectively, the "Unaudited
Pro Forma Financial Information") reflects the results of operations of
the Company for the six month period ended June 30, 1999 and the fiscal
year ended December 31, 1998 as if the acquisition of RDS had occurred
on January 1, 1999 (the first day of fiscal 1999) and January 1, 1998,
(the first day of fiscal 1998) and includes adjustments directly
attributable to the acquisition and expected to have a continuing
impact on the combined company. The Unaudited Pro Forma Financial
Information has been prepared based on preliminary estimates of certain
direct costs and liabilities associated with the transaction, and
amounts actually recorded may change upon final determination of such
amounts. Specifically, additional information is expected to be
obtained for accrued expenses related to the acquisition.
The Unaudited Pro Forma Financial Information and related notes are
provided for informational purposes only and are not necessarily
indicative of what the Company's actual financial position or results
of operations would have been had the forgoing transaction been
consummated on such dates, nor does it give effect to the synergies,
cost savings and other charges expected to result from the acquisition.
Accordingly, the pro forma financial information does not purport to be
indicative of the Company's financial position or results of operations
as of the date hereof or for any period ended on the date hereof or as
of or for any other future date or period.
The following unaudited pro forma financial information is based in
part on the historical consolidated financial statements of the
Company, and the related notes thereto, which are included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1998 and the Company's Quarterly Report on Form 10-Q for the six months
ended June 30, 1999; and the combined financial statements of RDS, and
the related notes thereto, for the year ended December 31, 1998, and
the unaudited combined financial statements of RDS, and the related
notes thereto, for the six months ended June 30, 1999, included
elsewhere in this Current Report on Form 8-K/A.
17
<PAGE>
This Current Report on Form 8-K/A contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and other risks
detailed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 and the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 and other reports filed with the
Securities and Exchange Commission from time to time. Actual results
could differ materially from those projected in these forward-looking
statements as a result of the risks described above as well as other
risk factors set forth in the Company's periodic reports both
previously and hereafter filed with the Securities and Exchange
Commission.
18
<PAGE>
PRO FORMA FINANCIAL INFORMATION
- -------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1999................................ 20
Unaudited Pro Forma Condensed Consolidated Statement of Earnings for the Six
Months Ended June 30, 1999.............................................................................. 21
Unaudited Pro Forma Condensed Consolidated Statement of Earnings for the Year Ended
December 31, 1998....................................................................................... 22
Unaudited Notes to Pro Forma Condensed Consolidated Financial Statements.................................... 23
</TABLE>
19
<PAGE>
QRS CORPORATION and RDS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
QRS RDS ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents............................ $ 47,062 $ 194 $ (15,000)[A] $ 32,256
Marketable securities available for sale............. 4,334 4,334
Accounts receivable-net.............................. 18,967 1,394 20,361
Deferred income tax assets........................... 816 816
Prepaid expenses and other........................... 1,216 89 1,305
------------ ------------ ------------ ------------
Total current assets............................ 72,395 1,677 (15,000) 59,072
Property and equipment, net.......................... 8,996 219 9,215
Marketable securities available for sale............. 7,399 7,399
Deferred income tax assets........................... 5,941 5,941
Capitalized product development costs - net.......... 4,152 75 (75)[B] 4,152
Intangible assets - net.............................. 2,829 18,757 [C][D] 21,586
Other assets......................................... 314 314
------------ ------------ ------------ ------------
Total assets.................................... $ 102,026 $ 1,971 $ 3,682 $107,679
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable................................ $ 8,574 $ 62 $ $ 8,636
Accrued and other liabilities................... 4,522 538 2,250 [E] 7,310
------------ ------------ ------------- ------------
Total current liabilities................... 13,096 600 2,250 15,946
Deferred rent and other.............................. 1,259 1,000 [F] 2,259
------------ ------------ ------------- ------------
Total liabilities............................... 14,355 600 3,250 18,205
------------- ------------ ------------ ------------
Stockholders' equity:
Preferred stock................................. -- --
Common stock ................................... 78,291 2,192 [G] 80,483
Additional Paid-in Capital...................... -- 33 (33)[H] --
Treasury stock.................................. (740) 214 [G] (526)
Accumulated other comprehensive earnings........ (51) (51)
Retained earnings .............................. 10,171 1,338 (1,941)[G][H] 9,568
------------- ------------ ------------- ------------
Total stockholders' equity ................. 87,671 1,371 432 89,474
------------- ------------ ------------ ------------
Total liabilities and stockholder's equity...... $ 102,026 $ 1,971 $ 3,682 $107,679
------------- ------------ ------------ -----------
------------- ------------ ------------ -----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
20
<PAGE>
QRS CORPORATION and RDS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
For the Six Months Ended June 30, 1999
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
QRS RDS ADJUSTMENTS COMBINED
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Revenues ............................................ $ 58,884 $ 4,938 $ 63,822
Cost of revenue...................................... 30,174 3,233 $ 1,629 [I] 35,036
------------- ------------ ------------- -----------
Gross profit......................................... 28,710 1,705 (1,629) 28,786
------------- ------------ ------------ -----------
Operating expenses:
Sales and marketing............................. 8,253 139 8,392
Product development............................. 4,084 4,084
General and administrative...................... 5,267 467 5,734
In-process technology expense related to acquisitions 963 [J] 963
------------- ------------ ------------- -----------
Total operating expenses.................... 17,604 606 963 19,173
------------- ------------ ------------ -----------
Operating earnings................................... 11,106 1,099 (2,592) 9,613
Interest income(expense)............................. 1,057 (7) (336) [K] 714
------------- ------------ ------------- -----------
Earnings from continuing operations before
income taxes....................................... 12,163 1,092 (2,928) 10,327
Income taxes......................................... 4,621 (698) [L] 3,923
------------- ------------ ------------ -----------
Net earnings......................................... $ 7,542 $ 1,092 $ (2,230) $ 6,404
------------- ------------ ------------ -----------
------------- ------------ ------------ -----------
Basic earnings per share (Note 2) ................... $ 0.57 $ 0.49
------------- -----------
------------- -----------
Shares used to compute basic earnings per share...... 13,128 53 [G] 13,181
------------- ------------ -----------
------------- ------------ -----------
Diluted earnings per share ( Note 2) ................ $ 0.54 $ 0.46
------------- -----------
------------- -----------
Shares used to compute diluted earnings per share.... 13,903 53 [G] 13,956
------------- ------------ -----------
------------- ------------ -----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
21
<PAGE>
QRS CORPORATION and RDS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
For the Year Ended December 31, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
QRS RDS ADJUSTMENTS COMBINED
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues ............................................ $ 91,926 $ 8,175 $ 100,101
Cost of revenue...................................... 51,140 5,728 $ 3,258[I] 60,126
------------- ------------ ------------ ------------
Gross profit......................................... 40,786 2,447 (3,258) 39,975
------------- ------------ ------------ -----------
Operating expenses:
Sales and marketing............................. 12,080 247 12,327
Product development............................. 4,309 4,309
General and administrative...................... 7,314 1,031 8,345
In-process technology expense related to
acquisitions.................................. 967 963 [J] 1,930
------------- ------------ ------------ -----------
Total operating expenses.................... 24,670 1,278 963 26,911
------------- ------------ ------------ -----------
Operating earnings................................... 16,116 1,169 (4,221) 13,064
Interest income(expense)............................. 2,151 (46) (672) [K] 1,433
------------- ------------ ------------ -----------
Earnings from continuing operations before income
taxes......................................... 18,267 1,123 (4,893) 14,497
Income taxes......................................... 7,113 (1,470) [L] 5,643
------------- ------------ ------------ -----------
Earnings from continuing operations after
income taxes.................................. 11,154 1,123 (3,423) 8,854
Discontinued operations:
Gain from sale of software and services business 896 896
------------- ------------ ------------ -----------
Net earnings......................................... $ 12,050 $ 1,123 $ (3,423) $ 9,750
------------- ------------ ------------ ----------
------------- ------------ ------------ ----------
Basic earnings per share (Note 2):
Continuing operations........................... $ 0.87 $ 0.69
Discontinued operations......................... 0.07 0.07
------------- ----------
Net earnings per share.......................... $ 0.94 $ 0.76
------------- ----------
------------- ----------
Shares used to compute basic earnings per share...... 12,812 53 [G] 12,865
------------- ------------ ----------
------------- ------------ ----------
Diluted earnings per share (Note 2):
Continuing operations........................... $ 0.84 $ 0.66
Discontinued operations......................... 0.07 $ 0.07
------------- -----------
Net earnings per share.......................... $ 0.91 $ 0.73
------------- -----------
------------- -----------
Shares used to compute diluted earnings per share... 13,287 53 [G] 13,340
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
22
<PAGE>
QRS CORPORATION and RDS
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. PRO FORMA ADJUSTMENTS
[A] Adjustment to record the payment of the $15,000,000 cash
purchase price.
[B] Adjustment to record acquired capitalized product development
costs at estimated fair value.
[C] Adjustment to record the allocation of the acquisition cost to
the estimated fair value of assets acquired based on an
independent appraisal and to reflect the write-off of $963,000
of in-process research and development as no alternative
future uses existed for these research projects at the
acquisition date as follows (in thousands):
<TABLE>
<S> <C>
Current technology $ 4,190
Customer list and trademark 3,757
In-process research and development 1,865
Fair value of other intangible assets 1,687
Assembled workforce 1,535
--------
Subtotal 13,034
Write-off in-process research and development (963)
--------
Total $ 12,071
--------
-------
</TABLE>
[D] Represents the adjustment to record the excess of purchase
price over the estimated fair value of the identifiable net
assets acquired (Goodwill) as computed below (in thousands):
<TABLE>
<S> <C>
Cash $ 15,000
Estimated fair value of common stock issued 2,763
Accrued transaction costs 250
Deferred compensation to seller 3,000
--------
Total purchase price 21,013
Preliminary allocation of purchase price:
Cash 160
Accounts receivable 1,092
Property and equipment 212
Intangible assets 13,034
Liabilities assumed (171)
--------
Sub-total preliminary allocation of purchase price 14,327
--------
Goodwill $ 6,686
--------
--------
</TABLE>
[E] Represents adjustment to reflect the following (in thousands):
<TABLE>
<S> <C>
To accrue for the additional payment due in March 2000 under the
terms of the Agreement $ 2,000
To accrue for estimated direct fees and expenses in connection with the
acquisition of RDS 250
--------
Total $ 2,250
--------
--------
</TABLE>
23
<PAGE>
[F] Represents adjustment to accrue for the additional $1,000,000
payment due in March 2001 under the terms of the Agreement
[G] To reflect the issuance of 53,250 shares of common stock
valued at $2,762,610 of which 11,000 shares of common stock
(with an original cost of $214,000) were issued from the
Company's treasury account as follows (in thousands):
<TABLE>
<S> <C>
Common stock $ 2,192
Treasury stock 214
Retained earnings 357
--------
Total $ 2,763
--------
--------
</TABLE>
[H] To reflect the write-off of the historical equity of RDS
and the effect of the write-off of in-process research and
development discussed in note [C] above as follows (in
thousands):
<TABLE>
<S> <C>
Historical additional paid-in-capital of RDS $ (33)
--------
--------
Historical retained earnings of RDS $(1,335)
Write-off in-process research and development ( 963)
--------
Total $(2,298)
--------
--------
</TABLE>
[I] To reflect the amortization of intangible assets.
[J] To reflect the write-off of in-process research and
development as discussed in note [C] above.
[K] To reflect decrease in interest income due to the use of
$15.0 million of cash equivalents for the purchase of RDS.
Interest income was calculated at the Company's average rate
of 4.48% for the six months ended June 30, 1999 and for
the year ended December 31, 1998.
[L] To reflect the income tax effect of the net income of RDS and
the pro forma adjustments at the Company's effective income
tax rate of 38% for the six months ended June 30, 1999 and 39%
for the year ended December 31, 1998.
24
<PAGE>
2. PRO FORMA EARNINGS PER SHARE
Basic and diluted pro forma earnings per share was calculated based on
the Company's outstanding common stock at June 30, 1999 and December
31, 1998, which reflects a 3 for 2 stock split and 53,250 shares of the
Company's common stock issued in connection with the acquisition.
25