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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
(AMENDMENT NO. 1)
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
July 16, 1996
Date of Report (Date of earliest event reported)
APPLIED DIGITAL ACCESS, INC.
(Exact name of registrant as specified in its charter)
California 0-23698 68-0132939
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
9855 Scranton Road
San Diego, CA 92121
(Address of principal executive offices)
(619) 623-2200
(Registrant's telephone number, including area code)
Total number of pages: 13
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The undersigned hereby amends Item 7 of its Current Report on Form 8-K filed
with the Commission on July 16, 1996 to read as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
<TABLE>
<S> <C>
(a) Report of Independent Accountants..........................................................4
Statement of Net Assets Acquired at July 16, 1996 as of'
December 31, 1995..........................................................................5
Statement of Operations for the Year Ended December 31, 1995...............................6
Notes to the Statement of Net Assets Acquired at July 16, 1996
and Statement of Operations................................................................7
(b) Introduction to Unaudited Pro Forma Financial Statements...................................9
Pro Forma Combining Balance Sheets (Unaudited) as of
June 30, 1996.............................................................................10
Pro Forma Combining Statements of Operations (Unaudited)
for the Six Months Ended June 30, 1996....................................................11
Pro Forma Combining Statements of Operations (Unaudited)
for the Year Ended December 31, 1995......................................................12
Note to Pro Forma Combining Financial Statements (Unaudited)..............................13
</TABLE>
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Applied Digital Access, Inc.
Dated: September 30, 1996 By: /s/ PETER P. SAVAGE
-------------------------------------
Peter P. Savage
President and Chief Executive Officer
3
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Applied Digital Access, Inc.
We have audited the accompanying Statement of Net Assets Acquired at July 16,
1996 as of December 31, 1995 and Statement of Operations for the year ended
December 31, 1995 (collectively the "Statements") of the Special Services
Network Division (acquired by Applied Digital Access, Inc. from MPR Teltech,
Ltd. ["MPR"]). The Statements are the responsibility of Applied Digital Access,
Inc.'s management. Our responsibility is to express an opinion on the 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 Statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the 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.
The accompanying Statements were prepared for inclusion in the Form 8-K/A of
Applied Digital Access, Inc. on the basis of presentation as described in Note
1, and are not intended to be a complete presentation of the Special Services
Network Division's assets, liabilities, and operations.
In our opinion, the Statements referred to above present fairly, in all material
respects, the net assets acquired at July 16, 1996 as of December 31, 1995 and
the results of operations for the year ended December 31, 1995 of the Special
Services Network Division on the basis of presentation as described in Note 1,
in conformity with generally accepted accounting principles.
San Diego, California
September 20, 1996
4
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SPECIAL SERVICES NETWORK DIVISION
(ACQUIRED BY APPLIED DIGITAL ACCESS, INC.)
STATEMENT OF NET ASSETS ACQUIRED AT JULY 16, 1996
AS OF DECEMBER 31, 1995
(IN THOUSANDS)
----------
<TABLE>
<S> <C>
Computer equipment, net of accumulated depreciation of $2,703 $493
---
Net assets acquired $493
====
</TABLE>
The accompanying notes are an integral part
of these statements.
5
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SPECIAL SERVICES NETWORK DIVISION
(ACQUIRED BY APPLIED DIGITAL ACCESS, INC.)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
----------
<TABLE>
<S> <C>
Revenues $10,412
-------
Cost of revenues:
Division costs, direct 5,720
Corporate allocation, indirect 2,793
-------
8,513
-------
Income before income taxes 1,899
Provision for income taxes 1,045
-------
$ 854
=======
</TABLE>
The accompanying notes are an integral part
of these statements.
6
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SPECIAL SERVICES NETWORK DIVISION
(ACQUIRED BY APPLIED DIGITAL ACCESS, INC.)
NOTES TO THE STATEMENT OF
NET ASSETS ACQUIRED AT JULY 16, 1996 AND
STATEMENT OF OPERATIONS
----------
1. BASIS OF PRESENTATION:
On July 16, 1996 ("Acquisition Date"), Applied Digital Access, Inc.
("ADA") acquired certain assets of MPR Teltech, Ltd. ("MPR Teltech"), a
subsidiary of BC TELECOM, Inc. The assets acquired were part of MPR
Teltech's operating unit commonly known as the Special Services Network
Division ("SSN"). SSN is an operations systems software development group
with expertise in development of network management systems for public
access. SSN developed operations system software primarily for Prism
Systems, Ltd., a joint venture of Northern Telecom and BC TELECOM, Inc.
ADA and its subsidiary Applied Digital Access-Canada, Inc. ("ADA-Canada")
acquired the assets for $4.2 million in cash and 150,000 shares of ADA's
common stock. The transaction will be accounted for under the purchase
method. The Statement of Net Assets Acquired as of July 16, 1996 is not
intended to be a complete presentation of the assets and liabilities of
the Special Services Network Division, rather a presentation of tangible
assets acquired by ADA at July 16, 1996 as of December 31, 1995 at MPR
Teltech's historical net book value.
The accompanying Statement of Operations include only the revenues and
expenses attributable to SSN's operations. Prior to the acquisition, SSN
was included in the financial statements of MPR Teltech which were
included in the consolidated financial statements of BC TELECOM, Inc.,
and was not accounted for as a separate entity. The Statement of
Operations includes certain expenses that were incurred in connection
with the operations of SSN which were allocated to SSN by MPR Teltech.
Such allocated expenses include costs incurred by MPR Teltech associated
with supporting SSN's operations and included the following expenses:
quality control, manufacturing management, legal services, financial
services, facilities management, business support, human resources,
computer services, purchasing and executive support. Such costs were
allocated to SSN's indirect cost of revenues based on SSN's direct labor
costs as a percentage of total MPR Teltech direct labor costs. Interest
expense which may have been incurred for any debt directly or indirectly
associated with the operations of SSN and income taxes were not charged
to SSN's Statement of Operations.
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SPECIAL SERVICES NETWORK DIVISION
(ACQUIRED BY APPLIED DIGITAL ACCESS, INC.)
NOTES TO THE STATEMENT OF
NET ASSETS ACQUIRED AT JULY 16, 1996 AND
STATEMENT OF OPERATIONS,
CONTINUED
----------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 at the date of the
financial statements, and the reported amounts of revenue and expense
during the reporting period. Actual results could differ from estimates.
COMPUTER EQUIPMENT
Computer equipment is stated at cost and depreciated over the estimated
useful lives of the assets (three years) using the straight-line method.
Maintenance and repairs are charged to expense as incurred. Upon
retirement or disposition, the computer equipment and related accumulated
depreciation are removed from the accounts and any resulting profit or
loss is credited or charged to income.
Depreciation expense, maintenance and repairs, and any profit or loss
upon retirement or disposition are recorded on MPR Teltech's records and
allocated to the operating units (see Note 1).
REVENUE RECOGNITION
For the year ended December 31, 1995, approximately 98% of SSN's revenues
were earned under a master agreement between MPR Teltech and Prism
Systems, Ltd. Under such agreement, revenue is recognized as costs are
incurred, including a profit percentage, in accordance with the contract
terms.
INCOME TAXES
The provision for income taxes represents the calculation of taxes at the
Canadian statutory rate of 55% as if SSN were a separate entity at
December 31, 1995.
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APPLIED DIGITAL ACCESS, INC. AND THE
SPECIAL SERVICES NETWORK DIVISION
OF MPR TELTECH, LTD.
INTRODUCTION TO UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
----------
On July 16, 1996, Applied Digital Access, Inc. ("ADA") acquired certain assets
of MPR Teltech, Ltd. ("MPR Teltech"), a subsidiary of BC TELECOM, Inc. The
assets acquired were part of MPR Teltech's operating unit commonly known as the
Special Services Network Division ("SSN"). ADA and its Canadian subsidiary,
Applied Digital Access-Canada, Inc. ("ADA-Canada") acquired the assets for $4.2
million in cash and 150,000 shares of ADA's common stock. The transaction will
be accounted for as a purchase.
SSN is located in Vancouver, British Columbia, Canada, and has expertise in the
development of network management systems for public carriers. SSN has become
part of ADA-Canada and will develop network performance management operations
systems software products for ADA and its customers. ADA intends to use the
acquired equipment in the same manner in which it was previously used and
intends to maintain a majority of the assets and related operations in
Vancouver, British Columbia, Canada for the foreseeable future.
The attached unaudited pro forma combining financial statements for the year
ended December 31, 1995 and six months ended June 30, 1996 and as of June 30,
1996 give effect to the acquisition accounted for by the purchase method. The
pro forma combining statements of operations assume that the acquisition took
place at January 1, 1995. In addition, the pro forma information for ADA
reflects the pro forma combination of ADA and Applied Computing Devices, Inc.
("ACD"). ADA acquired certain assets of ACD for $1.7 million in cash in
February 1996. ACD was a company that developed and marketed operating system
software used primarily by independent telephone companies to manage certain
functions in their network. The December 31, 1995 pro forma combining financial
statements reflecting the ACD asset acquisition by ADA are included in the Form
8-K/A previously filed on February 29, 1996.
The pro forma combining financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisition been consummated at the beginning of the
periods presented, nor is it necessarily indicative of future operating results.
The pro forma combining financial information should be read in conjunction with
the historical financial statements and the related notes thereto of ADA and
ACD, previously filed, and the historical financial statements and related notes
thereto of SSN included herein.
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APPLIED DIGITAL ACCESS, INC. AND SPECIAL SERVICES NETWORK DIVISION
PRO FORMA COMBINING BALANCE SHEETS (UNAUDITED)
AS OF JUNE 30, 1996
(IN THOUSANDS)
----------
<TABLE>
<CAPTION>
ADA SSN ADJUSTMENTS COMBINED
--- --- ----------- --------
ASSETS
- ------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents...................... $ 1,883 $ -- $ -- $ 1,883
Investments - current.......................... 22,076 -- (4,256)(a) 17,820
Accounts receivable, net....................... 3,411 -- -- 3,411
Inventory, net................................. 7,441 -- -- 7,441
Deferred income taxes.......................... 750 -- -- 750
Prepaid expenses and other current assets...... 1,646 -- -- 1,646
-------- -------- -------- --------
Total current assets................... 37,207 -- (4,256) 32,951
Investments, non-current........................... 5,972 -- -- 5,972
Property and equipment, net........................ 4,019 493 363 (a) 4,875
Deferred income taxes.............................. 752 -- -- 752
Other.............................................. 315 -- 2,588 (a) 2,903
-------- -------- -------- --------
$ 48,265 $ 493 $ (1,305) $ 47,453
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 1,724 $ -- $ -- $ 1,724
Accrued expenses............................... 1,338 -- 200 (a) 1,538
Accrued warranty............................... 1,368 -- -- 1,368
Current portion of obligations under
capital lease.............................. 23 -- -- 23
-------- -------- -------- --------
Total current liabilities.............. 4,453 -- 200 4,653
Obligations under capital leases, net of
current portion................................ 41 -- -- 41
-------- -------- -------- --------
Total liabilities...................... 4,494 -- 200 4,694
Shareholders' equity:
Common stock................................... 49,318 -- 1,088 (a) 50,406
Additional paid-in capital..................... 2,416 -- -- 2,416
Unrealized gain on investments................. (4) -- -- (4)
Accumulated deficit............................ (7,959) -- (2,100)(a) (10,059)
Division equity................................ -- 493 (493)(a) -
-------- -------- -------- --------
Total shareholders' equity............. 43,771 493 (1,505) 42,759
-------- -------- -------- --------
$ 48,265 $ 493 $ (1,305) $ 47,453
======== ======== ======== ========
</TABLE>
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APPLIED DIGITAL ACCESS, INC. AND SPECIAL SERVICES NETWORK DIVISION
PRO FORMA COMBINING STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
----------
<TABLE>
<CAPTION>
ADA SSN ADJUSTMENTS COMBINED
--- --- ----------- --------
<S> <C> <C> <C> <C>
Revenue ...................................... $11,253 $ 4,544 $ - $ 15,797
Cost of revenue................................... 5,067 2,585 (73)(b) 7,579
Corporate allocation.............................. - 990 - 990
------- ------- --------- --------
Gross profit.......................... 6,186 969 (73) 7,228
Operating expenses:
Research and development...................... 3,962 - - 3,962
In-process research and development
related to acquisition.................... 1,186 - - 1,186
Sales and marketing........................... 3,335 - - 3,335
General and administrative.................... 1,526 - 432 (b) 1,958
------- ------- --------- --------
Total operating expenses.............. 10,009 - 432 10,441
------- ------- --------- --------
Operating income (loss)............... (3,823) 969 (359) (3,213)
Interest income................................... 953 - - 953
Other income, net................................. 42 - - 42
------- ------- --------- --------
Income (loss) before income taxes..... (2,828) 969 (359) (2,218)
Income tax provision.............................. - 533 - 533
------- ------- --------- --------
Net income (loss)..................... $(2,828) $ 436 $ (359) $ (2,751)
======= ======= ========= ========
Loss per common share............................. $ (.24) $ (.23)
======= ========
Shares used in per share computations............. 11,983 12,133
======= ========
</TABLE>
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APPLIED DIGITAL ACCESS, INC. AND SPECIAL SERVICES NETWORK DIVISION
PRO FORMA COMBINING STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
----------
<TABLE>
<CAPTION>
ADA SSN ADJUSTMENTS COMBINED
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenue .......................................... $ 28,335 $ 10,412 $ -- $ 38,747
Cost of revenue .................................. 9,925 5,720 (145)(b) 15,500
Corporate allocation ............................. -- 2,793 -- 2,793
-------- -------- -------- ---------
Gross profit ......................... 18,410 1,899 145 20,454
Operating expenses:
Research and development ..................... 11,502 -- -- 11,502
In-process research and development
related to acquisition ................... 1,186 -- 2,100(a) 3,286
Sales and marketing .......................... 7,270 -- -- 7,270
General and administrative ................... 7,185 -- 863(b) 8,048
-------- -------- -------- ---------
Total operating expenses ............. 27,143 -- 2,963 30,106
-------- -------- -------- ---------
Operating income (loss) .............. (8,733) 1,899 (2,818) (9,652)
Interest income .................................. 2,023 -- -- 2,023
Other income, net ................................ 153 -- -- 153
-------- -------- -------- ---------
Income (loss) before income taxes .... (6,557) 1,899 (2,818) (7,476)
Income tax provision ............................. -- 1,045 -- 1,045
-------- -------- -------- ---------
Net income (loss) .................... $ (6,557) $ 854 $ (2,818) $ (8,521)
======== ======== ======== =========
Loss per common share ............................ $ (.56) $ (.71)
======== =========
Shares used in per share computations ............ 11,806 11,956
======== =========
</TABLE>
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APPLIED DIGITAL ACCESS, INC. AND SPECIAL SERVICES NETWORK DIVISION
NOTE TO PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
----------
PRO FORMA FINANCIAL STATEMENTS:
The pro forma financial statements have been prepared to reflect the acquisition
of SSN by ADA. Pro forma adjustments are made to reflect the following:
<TABLE>
<CAPTION>
<S> <C>
a. Cash price paid $4,256,000
Value of 150,000 shares of common stock issued 1,088,000
Transaction costs incurred 200,000
----------
Total purchase price $5,544,000
==========
Purchase price allocation:
In-process research and development acquired $2,100,000
Know how and other 2,588,000
Property and equipment 856,000
----------
Total $5,544,000
==========
</TABLE>
b. Reflects the adjustment of SSN's results for the depreciation as a result
of the acquisition.
Property and equipment of $856,000 with a three year life results in annual
depreciation of $285,000.
Know how and other of $2,588,000 with a three year life results in annual
amortization of $856,000.
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