<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
January 21, 2000
- -------------------------------------------------------------------------------
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 January 28, 2000, reporting the
acquisition by Registrant of all the outstanding common stock of Image Info
Inc., a New York corporation, as set forth in the pages attached hereto:
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 21, 2000, Image Info Inc. ("Image Info"), a New York corporation
merged with and into WS Acquisition Corp. ("Merger Sub"), a New York corporation
and a wholly-owned subsidiary of QRS Corporation ("QRS"), pursuant to an
Agreement and Plan of Merger (the "Agreement"), dated January 16, 2000, among
QRS, Merger Sub and Image Info. A copy of the Agreement has previously been
filed with the Securities and Exchange Commission and is here by incorporated by
reference.
Pursuant to the Agreement, the outstanding capital stock of Image Info was
converted into the right to receive 440,913 shares of Common Stock of QRS and
$5,000,000 in cash. In addition, the former shareholders of Image Info shall
receive an aggregate additional payment of $2,500,000 in 2001 and 2002 if the
revenue of the business of Image Info exceeds certain agreed upon amounts in
2000 or 2001. The amount of such consideration was determined based upon
arm's-length negotiations between QRS and Image Info. As a result of the merger,
Merger Sub will pay bonuses to employees of Image Info in the aggregate of
approximately $1,431,500. The acquisition is being accounted for as a purchase
transaction.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
INDEX
<TABLE>
<S> <C>
(a) Financial Statements of Business Acquired................. Exhibit 99.1
(b) Pro Forma Financial Information........................... Exhibit 99.2
(c) Exhibits:
</TABLE>
<TABLE>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
23.1 Consent of Goldstein Golub Kessler 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: March 27, 2000 /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 financial statements of Image Info
Inc. dated February 23, 2000 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.
Goldstein Golub Kessler LLP
New York, New York
March 27, 2000
3
<PAGE>
EXHIBIT 99.1 FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
TABLE OF CONTENTS
<TABLE>
PAGE
<S> <C>
Report of Independent Auditors 5
Historical Financial Statements of Image Info Inc., as of and for
the Years Ended December 31, 1999 and 1998:
Balance Sheet........................................................... 6
Statement of Operations ................................................ 7
Statement of Shareholders' Deficiency................................... 8
Statement of Cash Flows................................................. 9
Notes to Financial Statements........................................... 10
</TABLE>
4
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Image Info Inc.
We have audited the accompanying balance sheets of Image Info Inc. as of
December 31, 1999 and 1998, and the related statements of operations,
shareholders' deficiency 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 audit.
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, the financial statements referred to above, present fairly, in
all material respects, the financial position of Image Info Inc. as of December
31, 1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
As disclosed in Note 8 to the financial statements, all of the outstanding
common stock of Image Info Inc. was acquired by QRS Corporation on January 21,
2000.
Goldstein Golub Kessler LLP
February 23, 2000
New York, New York
5
<PAGE>
IMAGE INFO INC.
Balance Sheet
December 31, 1999 and 1998
(Dollars in thousands)
ASSETS (Note 3)
<TABLE>
1999 1998
----------- ---------
<S> <C> <C>
Current Assets:
Cash ............................................................... $ 372 $ 16
Accounts receivable (net of allowance for doubtful
accounts of $50 and $25, respectively ) ........................ 1,861 890
Prepaid expenses and other current assets .......................... 6 32
--------- ---------
Total current assets ........................................... 2,239 938
Property and equipment, net (Notes 1 and 2) ............................. 331 234
Other assets ............................................................ 42 41
--------- ---------
Total Assets ................................................... $ 2,612 $ 1,213
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities (Note 5) .................. $ 1,626 $ 717
Deferred revenue ................................................... 684 445
Loan payable - bank (Note 3) ....................................... 298 368
Current portion of notes payable (Note 4) .......................... 34 141
Obligation under capitalized lease (Note 6) ........................ 39
Loan payable - shareholder (Note 9) ................................ 63
--------- ---------
Total current liabilities ...................................... 2,744 1,671
Note payable, net of current portion (Note 4) ........................... 40 65
Loan payable - shareholder (Note 9) ..................................... 67
Obligation under capitalized lease, net of current maturities (Note 5) .. 124
Deferred rent ........................................................... 44 36
--------- ---------
Total liabilities .............................................. 2,952 1,839
--------- ---------
Commitments (Note 7)
Shareholders' Deficiency:
Common stock - no par value; authorized 200 shares, issued
and outstanding 109.015 and 106.015, respectively .............. 3 3
Additional paid-in capital ......................................... 516 63
Accumulated deficit ................................................ (859) (692)
--------- ---------
Shareholders' deficiency ....................................... (340) (626)
--------- ---------
Total Liabilities and Shareholders' Deficiency .............. $ 2,612 $ 1,213
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
IMAGE INFO INC.
Statement of Operations
Years Ended December 31, 1999 and 1998
(Dollars in thousands)
<TABLE>
1999 1998
---- ----
<S> <C> <C>
Revenues ....................................... $ 7,031 $ 4,075
Cost of revenues ............................... 3,762 2,352
-------- --------
Gross profit ................................... 3,269 1,723
-------- --------
Operating expenses:
Sales and marketing ....................... 1,128 846
Research and development .................. 435 382
General and administrative ................ 1,776 865
-------- --------
Total operating expenses .............. 3,339 2,093
-------- --------
Operating loss ................................. (70) (370)
Interest expense (Note 9) ...................... 85 70
-------- --------
Loss before provision for income taxes ......... (155) (440)
Provision for income taxes ..................... 12
-------- --------
Net loss ....................................... $ (167) $ (440)
-------- --------
-------- --------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
IMAGE INFO INC.
Statement of Shareholders' Deficiency
Years Ended December 31, 1999 and 1998
(Dollars in thousands)
<TABLE>
Common Stock
--------------------
Shareholders'
Number of Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficiency)
--------- ------ ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 ............... 86.635 $ 2 $ 25 $(252) $(225)
Issuance of common stock for services .... 19.380 1 38 39
Net Loss ................................. (440) (440)
--------- ------ ------- ----------- -------------
Balance at December 31, 1998 ............. 106.015 3 63 (692) (626)
Issuance of common stock for services .... 3.000 453 453
Net Loss ................................. (167) (167)
--------- ------ ------- ----------- -------------
Balance at December 31, 1999 ............. 109.015 $ 3 $ 516 $(859) $(340)
--------- ------ ------- ----------- -------------
--------- ------ ------- ----------- -------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
IMAGE INFO INC.
Statement of Cash Flows
Years Ended December 31, 1999 and 1998
(Dollars in thousands)
<TABLE>
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................... $ (167) $ (440)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Deferred rent ....................................................... 8
Bad debt ............................................................ 51 25
Depreciation and amortization ....................................... 106 97
Common stock issued for services .................................... 453 39
Changes in operating assets and liabilities:
Increase in accounts receivable .................................... (1,022) (573)
(Increase) decrease in prepaid expenses and other current assets ... 26 (10)
Increase in other assets ........................................... (1) (4)
Increase in accounts payable, accrued expenses and other
current liabilities ............................................ 910 552
Increase in deferred revenue ....................................... 238 229
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ..................... 602 (85)
--------- ---------
Cash used in investing activity - purchase of property and equipment ............. (27) (14)
--------- ---------
Cash flows from financing activities:
Payments for capitalized lease obligations .................................. (12)
Net borrowings (repayments) from loan payable - bank ...................... (70) 168
Repayments of notes payable ................................................. (132) (131)
Repayments of shareholder loan .............................................. (5)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ..................... (219) 37
--------- ---------
Net increase (decrease) in cash .................................................. 356 (62)
Cash at beginning of year ........................................................ 16 78
--------- ---------
Cash at end of year .............................................................. $ 372 $ 16
--------- ---------
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .................................................................... $ 60 $ 61
Taxes ....................................................................... $ 1
---------
---------
Supplemental disclosure of noncash investing and financing activities:
Capitalized lease obligations incurred ...................................... $ 175
---------
---------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
IMAGE INFO INC.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
1. SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPAL BUSINESS ACTIVITY:
The principal business activity of the Company is the development and
marketing of software used primarily in the apparel and retail
industries. The Company's customers are located throughout the United
States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates by
management. Actual results could differ from these estimates.
Revenue is recognized when services are performed or when software is
delivered.
Depreciation and amortization of property and equipment is provided for
based upon the provisions of the Internal Revenue Code (the "Code").
Such depreciation and amortization does not differ materially from that
which would be recorded under generally accepted accounting principles.
For income tax purposes, the Company has elected to be treated as a
small business corporation (S Corporation) under the applicable
sections of the Code and New York State corporate franchise tax law.
Accordingly, there is no provision for federal income taxes as earnings
of the Company flow through directly to its shareholders. The Company
is subject to the New York State income taxes at reduced rates and New
York City income taxes computed using an alternative method. The
Company files its income tax returns on the cash basis.
The company maintains its cash in bank deposit accounts which, at
times, exceed federally insured limits.
The Company incurred advertising expenses which were charged to
operations of approximately $99,500 and $141,000 for the years ended
December 31, 1999 and 1998, respectively.
2. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following (in
thousands):
<TABLE>
Recovery
December 31, 1999 1998 Period
------------------------------------------- -------- -------- -----------
<S> <C> <C> <C>
Machinery and equipment ................... $ 564 $ 361 5 to 10 years
Leasehold improvements .................... 165 165 10 to 39 years
-------- --------
729 526
Less accumulated depreciation and
amortization ......................... (398) (292)
-------- --------
$ 331 $ 234
-------- --------
-------- --------
</TABLE>
10
<PAGE>
3. LOAN PAYABLE - BANK:
The Company borrows from a bank under a $400,000 line of credit with
interest at 1% over the bank's base rate (9.5% at December 31, 1999).
The demand loan is collateralized by substantially all assets of the
Company.
4. NOTES PAYABLE:
Notes payable consist of the following (in thousands):
<TABLE>
December 31, 1999 1998
------------------------------------------------------------------- ------ ------
<S> <C> <C>
Due to related party .............................................. $ 100
Note payable with a bank, payable in monthly installments of
$3,376, including interest, through December 2001. The note
bears interest at the rate of 9.25% per annum ..................... $ 74 106
------ ------
74 206
Current portion ................................................... 34 141
------ ------
$ 40 $ 65
------ ------
------ ------
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following (in
thousands):
<TABLE>
December 31, 1999 1998
------------------------------------------------------- ------- -------
<S> <C> <C>
Salaries and bonuses .................................. $ 507
Accrued revenue sharing ............................... 305
Sales taxes ........................................... 391 $ 140
Accounts payable ...................................... 144 454
All other, less than 5% for individual items .......... 279 123
------- -------
$ 1,626 $ 717
------- -------
------- -------
</TABLE>
6. OBLIGATIONS UNDER CAPITALIZED LEASES:
The Company leases certain machinery and equipment under capital lease
agreements expiring over the next five years. The leases require
monthly payments of principal and interest and are secured by the
related machinery and equipment at December 31, 1999 (in thousands).
<TABLE>
<S> <C>
Machinery and equipment...................................... $ 175
Less accumulated depreciation................................. 35
-------
$ 140
-------
-------
</TABLE>
11
<PAGE>
The following is a schedule of future minimum lease payments for
capitalized leases at December 31, 1999 (in thousands):
<TABLE>
Year ending December 31,
<S> <C>
2000 $ 65
2001 60
2002 46
2003 26
2004 17
--------
Total minimum lease payments 214
Less amounts representing interest 51
--------
Total value of minimum lease payments 163
Less portion due within one year 39
--------
Total long term portion $ 124
--------
--------
</TABLE>
7. COMMITMENTS:
The Company leases office space under a noncancelable operating lease.
The lease contains renewal options, provides for payment of certain
occupancy costs and is subject to escalation for increases in the
consumer price index. Rent expense charged to operations amounted to
approximately $216,000 and $159,000 for the years ended December 31,
1999 and 1998, respectively, and includes approximately $48,000 paid to
a related party for the year ended December 31, 1999.
Aggregate future minimum rental commitments under this lease at
December 31, 1999 are payable as follows (in thousands):
<TABLE>
Year ending December 31,
<S> <C>
2000 $ 165
2001 169
2002 174
2003 178
2004 183
Thereafter 379
----------
Total $ 1,248
----------
----------
</TABLE>
8. EMPLOYEE BENEFIT PLAN:
The Company maintains a defined contribution pension plan under Section
401(k) of the Code covering all eligible employees. The Company's
contribution to the plan is based upon a discretionary percentage of
the participant's salary reductions. Certain officers of the Company
serve as trustees of the plan.
The Company contributed $11,071 and $4,323 to the plan for the years
ended December 31, 1999 and 1998, respectively.
12
<PAGE>
9. RELATED PARTY TRANSACTIONS:
During 1999 the Company paid $100,000 to a relative of a shareholder,
which represented advances to the Company.
Loan payable - shareholder represents advances made to the Company with
repayment terms of less than one year. These advances are non-interest
bearing.
10. SUBSEQUENT EVENT
On January 21, 2000 the shareholders of the Company sold their shares
to QRS Corporation ("QRS") for $5,000,000 plus 440,913 shares of common
stock of QRS plus additional contingent consideration of up to
$5,000,000, as defined. The value of the transaction amounted to
approximately $51,000,000.
13
<PAGE>
99.2 PRO FORMA FINANCIAL INFORMATION
On January 21, 2000, the Company completed the acquisition of all the
outstanding capital stock of Image Info Inc. ("Image Info"). The total
acquisition cost was $52,771,682, comprised of $5,000,000 paid in cash;
$5,000,000 in deferred acquisition cost to the former shareholders of
Image Info; 440,913 shares of common stock valued at $41,040,182;
$1,431,500 in bonuses payable to the employees of Image Info and
transaction costs of approximately $300,000 related to the acquisition.
Under the terms of the merger agreement, the Company agreed to pay
$2,500,000 each in 2001 and 2002 to the former shareholders of Image
Info if revenue from the acquired business meets or exceeds certain
levels in 2000 and 2001. 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 acquisition cost to the former shareholders
of Image Info has been included in the acquisition cost. The Company
also granted stock options under its 1993 Stock Option/Stock Issuance
Plan to certain employees of Image Info to purchase 23,500 shares of
the Company's common stock at $96.00 per share. 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
Image Info on January 21, 2000. 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 Image
Info 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 Image Info as if it
had occurred on December 31, 1999, and the unaudited pro forma
condensed consolidated statements of earnings (collectively, the
"Unaudited Pro Forma Financial Information") reflects the results of
operations of the Company and comprehensive earnings for the fiscal
year ended December 31, 1999, as if the acquisition of Image Info had
occurred on January 1, 1999 (the first day of fiscal 1999) 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,
1999; and the historical financial statements of Image Info, and the
related notes thereto, for the year ended December 31, 1999, included
elsewhere in this Current Report on Form 8-K/A.
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, 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.
14
<PAGE>
PRO FORMA FINANCIAL INFORMATION
TABLE OF CONTENTS
<TABLE>
PAGE
<S> <C>
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 1999............................ 16
Unaudited Pro Forma Condensed Consolidated Statement of Earnings for the Year Ended
December 31, 1999..................................................................................... 17
Unaudited Notes to Pro Forma Condensed Consolidated Financial Statements.................................... 18
</TABLE>
15
<PAGE>
QRS CORPORATION AND IMAGE INFO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1999
(Dollars in thousands)
<TABLE>
PRO FORMA PRO FORMA
QRS IMAGE INFO ADJUSTMENTS COMBINED
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 34,412 $ 372 $ (5,000) [A] $ 29,784
Marketable securities available for sale ................... 12,895 12,895
Accounts receivable-net .................................... 25,964 1,861 27,825
Deferred income tax assets ................................. 819 819
Prepaid expenses and other ................................. 2,848 6 2,854
Prepaid income taxes ....................................... 4,726 4,726
--------- --------- --------- ---------
Total current assets .................................. 81,664 2,239 (5,000) 78,903
Property and equipment, net ................................ 13,823 331 14,154
Deferred income tax assets ................................. 1,156 1,156
Capitalized product development costs - net ................ 8,088 8,088
Intangible assets - net .................................... 20,758 52,438[B][C] 73,196
Other assets ............................................... 1,466 42 1,508
--------- --------- --------- ---------
Total ...................................................... $ 126,955 $ 2,612 $ 47,438 $ 177,005
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 10,508 $ 144 $ 10,652
Accrued and other liabilities ......................... 9,632 2,600 $ 1,732 [D] 13,964
--------- --------- --------- ---------
Total current liabilities ......................... 20,140 2,744 1,732 24,616
Deferred income taxes ...................................... 8,637 [C][K] 8,637
Deferred rent and other .................................... 2,240 208 5,000 [E] 7,448
--------- --------- --------- ---------
Total liabilities ..................................... 22,380 2,952 15,369 40,701
--------- --------- --------- ---------
Minority interest .......................................... 361 361
Stockholders' equity:
Preferred stock ....................................... -- --
Common stock .......................................... 86,971 3 41,037[F] 128,011
Additional Paid-in Capital ............................ -- 516 (516)[G] --
Treasury stock ........................................ (526) (526)
Accumulated other comprehensive earnings .............. (136) (136)
Retained earnings (deficit) ........................... 17,905 (859) (8,452) [G] 8,594
--------- --------- --------- ---------
Total stockholders' equity ........................ 104,214 (340) 32,069 135,943
--------- --------- --------- ---------
Total ...................................................... $ 126,955 $ 2,612 $ 47,438 $ 177,005
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
16
<PAGE>
QRS CORPORATION AND IMAGE INFO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
For the Year Ended December 31, 1999
(In thousands, except per share amounts)
<TABLE>
PRO FORMA PRO FORMA
QRS IMAGE INFO ADJUSTMENTS COMBINED
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues ...................................................... $ 124,705 $ 7,031 $ 131,736
Cost of revenue ............................................... 62,946 3,762 66,708
--------- --------- ---------
Gross profit .................................................. 61,759 3,269 65,028
--------- --------- ---------
Operating expenses:
Sales and marketing ...................................... 17,994 1,128 19,122
Product development ...................................... 8,645 435 9,080
General and administrative ............................... 11,285 1,776 13,061
Amortization of intangible assets ........................ 1,996 $ 8,237[H] 10,233
In-process technology expense related to acquisitions .... 963 9,439[I] 10,402
--------- --------- --------- ---------
Total operating expenses ............................. 40,883 3,339 17,676 61,898
--------- --------- --------- ---------
Operating earnings (loss) ..................................... 20,876 (70) (17,676) 3,130
Interest income (expense) ..................................... 2,011 (85) (260)[J] 1,666
--------- --------- --------- ---------
Earnings (loss) from continuing operations before income taxes
and minority interest ..................................... 22,887 (155) (17,936) 4,796
Income taxes .................................................. 8,057 12 (1,658)[K] 6,411
Minority interest in subsidiary ............................... (89) (89)
--------- --------- --------- ---------
Net earnings (loss) ........................................... $ 14,919 $ (167) $ (16,278) $ (1,526)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic earnings (loss) per share (Note 2) ...................... $ 1.12 $ (0.11)
--------- ---------
--------- ---------
Shares used to compute basic earnings (loss) per share ........ 13,322 441 [F] 13,763
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
17
<PAGE>
QRS CORPORATION AND IMAGE INFO
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. PRO FORMA ADJUSTMENTS
[A] Adjustment to record the payment of the $5,000,000 cash purchase
price.
[B] 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 $9,439,177 of
in-process research and development as technological feasibility
had not been established and no alternative future uses existed
for these research projects at the acquisition date as follows (in
thousands):
<TABLE>
<S> <C>
Current technology................................................................. $ 17,486
Customer list and trademark........................................................ 2,283
In-process research and development 9,439
Fair value of other intangible assets.............................................. 1,700
Assembled workforce................................................................ 938
-------------
Subtotal....................................................................... 31,846
Write-off in-process research and development...................................... (9,439)
-------------
Total.......................................................................... $ 22,407
-------------
-------------
</TABLE>
[C] 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.............................................................................. $ 5,000
Estimated fair value of common stock issued....................................... 41,040
Accrued transaction costs......................................................... 300
Accrued bonuses................................................................... 1,432
Deferred acquisition cost.......................................................... 5,000
-------------
Total purchase price .......................................................... 52,772
-------------
Preliminary allocation of purchase price:
Accounts receivable............................................................... 1,529
Property and equipment ........................................................ 322
Other assets....................................................................... 49
Intangible assets.................................................................. 31,846
Deferred income taxes.............................................................. (8,637)
Liabilities assumed................................................................ (2,368)
-------------
Sub-total preliminary allocation of purchase price............................. 22,741
-------------
Goodwill........................................................................... $ 30,031
-------------
-------------
</TABLE>
[D] Represents adjustment to reflect the following (in thousands):
<TABLE>
<S> <C>
To accrue for bonuses payable to employees of Image Info........................... $ 1,432
To accrue for estimated direct fees and expenses in connection with the
acquisition of Image Info.......................................................... 300
-------------
Total $ 1,732
-------------
-------------
</TABLE>
[E] Represents adjustment to accrue for the additional payments due
in February 2001 and 2002 under the terms of the Agreement
18
<PAGE>
[F] To reflect the issuance of 440,913 shares of common stock and the
elimination of the historical common stock of Image Info, as
follows (in thousands):
<TABLE>
<S> <C>
Issuance of common stock......................................................... $ 41,040
Historical common stock of Image Info............................................ (3)
------------
$ 41,037
------------
------------
</TABLE>
[G] To reflect the elimination of the historical additional paid-in
capital and deficit of Image Info and the effect of the write-off
of in-process research and development discussed in note [B]
above, as follows (in thousands):
<TABLE>
<S> <C>
Historical additional paid-in capital of Image Info................................ $ (516)
------------
------------
Historical deficit of Image Info................................................... $ 987
Write-off in-process research and development...................................... (9,439)
------------
Total.............................................................................. $ (8,452)
------------
------------
</TABLE>
[H] To reflect the amortization of intangible assets.
[I] To reflect the write-off of in-process research and development as
discussed in note [B] above.
[J] To reflect decrease in interest income due to the use of $5.0
million of cash equivalents for the purchase of Image Info.
Interest income was calculated at the Company's average rate of
5.2% for the year ended December 31, 1999.
[K] To reflect the income tax effect of the loss of Image Info and the
pro forma adjustments at the Company's income tax rate of 38%,
except that no tax effect is given to the amounts written off as
in-process research and development and the amortization of
goodwill.
2. PRO FORMA EARNINGS PER SHARE
Basic pro forma loss per share was calculated based on the Company's
outstanding common stock at December 31, 1999, which reflects 440,913
shares of the Company's common stock issued in connection with the
acquisition. Diluted pro forma loss per share was not presented because
the potential common shares outstanding during the period are
antidilutive.
19
