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 Exchange Act of 1934
Date of Report: July 31, 1996
(Date of earliest event reported)
Allegro New Media, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-14076 22-3270045
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
3 Oak Road, Fairfield, New Jersey 07004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
including area code (201) 808-1992
16 Passaic Avenue, Fairfield, New Jersey 07004
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. Financial Statements, Pro Forma Financial
Information and Exhibits
(a) Financial Statements of Business Acquired.
(i) Audited financial statements of Serif Inc. as of December 31, 1995 and
1994 and for the years then ended.
(ii) Unaudited financial statements of Serif Inc. for the six months ended
June 30, 1996 and 1995.
(iii) Audited financial statements of Serif (Europe) Limited as of December 31,
1995 and 1994 and for the years then ended.
(iv) Unaudited financial statements of Serif (Europe) Limited for the six
months ended June 30, 1996 and 1995.
(b) Pro Forma Financial Information (Unaudited).
(i) Pro forma condensed combined balance sheet of the Registrant and its
subsidiaries as of June 30, 1996.
(ii) Pro forma condensed combined statements of operations of the Registrant
and its subsidiaries for the year ended December 31, 1995.
(iii) Pro forma condensed combined statements of operations of the Registrant
and its subsidiaries for the six months ended June 30, 1996.
(iv) Notes to unaudited pro forma consolidated financial statements.
(c) Exhibits
None except as filed with the Current Report on Form 8-K which this Form
8-K/A amends.
<PAGE>
Financial Statements
Serif, Inc.
December 31, 1995
Contents
Independent Auditor's Report
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations and Accumulated Deficit for the years
ended December 31, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1995
and 1994
Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Serif, Inc.
We have audited the accompanying balance sheets of Serif, Inc. as of
December 31, 1995 and 1994 and the related statements of operations and
accumulated deficit and cash flows for the years ended December 31, 1995 and
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Serif, Inc. at December 31,
1995 and 1994 and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
- -------------------------------------
Ernst & Young LLP
Hackensack, New Jersey
July 30, 1996
<PAGE>
<TABLE>
<CAPTION>
SERIF, INC.
BALANCE SHEETS
December 31,
1995 1994
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,465 $207,245
Accounts receivable, less allowances of
$259,976 and $194,642 193,190 17,709
Inventories (Note 2) 117,162 77,082
Prepaid Expenses 30,908 14,132
Other current assets 2,470 18,921
-------- --------
Total current assets 347,195 335,089
Equipment, furniture and leasehold improvements
net of accumulated depreciation and
amortization of $50,106 and $22,317 56,211 74,302
Investment in affiliate, at cost 24,127 -
Other assets 20,096 29,075
-------- --------
$447,629 $438,466
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $915,826 $827,916
Accrued liabilities 122,995 121,880
Deferred revenue 46,000 -
Due to shareholder and other related party
(Note 6) 10,487 10,430
Capitalized lease obligations, current portion
(Note 3) 15,888 13,723
-------- --------
Total current liabilities 1,111,196 973,949
Capitalized lease obligations, less current
portion (Note 3) 6,379 22,267
Due to affiliate (Note 6) 314,048 43,491
Commitments (Note 7)
Stockholders' equity (Note 5):
Common stock, par value $1.00 per share,
authorized 1,000 shares; issued and
outstanding 100 shares in 1995 and 1994 100 100
Accumulated deficit (984,094) (601,341)
--------- --------
Total stockholders' equity $447,629 $438,466
--------- --------
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIF, INC.
STATEMENTS OF OPERATIONS
For the Year Ended December 31,
Revenues 1995 1994
<S> <C> <C>
Net product sales $4,584,869 $4,160,301
Royalty and licensing income (Note 6) 809,742 613,034
---------- ----------
Total revenue 5,394,611 4,773,335
Cost of goods sold 1,433,206 1,450,201
---------- ----------
Gross profit 3,961,405 3,323,134
Selling, general and administrative
expenses 4,120,174 3,584,600
Product development 265,075 169,744
Interest (income) expense net 8,909 (65)
---------- ----------
Net (loss) $ (382,753) $ (431,145)
Accumulated deficit at beginning of year (601,341) (170,196)
---------- ----------
Accumulated deficit at end of year $ (984,094) $ (601,341)
---------- ----------
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIF, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1995 1994
Operating activities
<S> <C> <C>
Net loss $(382,753) $(431,145)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 27,789 18,255
Provisions for accounts receivable 158,859 163,653
Changes in operating assets and liabilities:
Accounts receivable (240,815) (144,335)
Inventories ( 40,080) ( 38,711)
Other current assets ( 325) ( 32,237)
Other assets 8,979 ( 27,779)
Accounts payable 45,435 709,498
Accrued expenses 33,449 ( 10,569)
---------- ----------
Net cash used in operating activities (440,512) 206,630
Investment activities
Purchase of equipment, furniture and fixtures (9,698) ( 53,326)
---------- ----------
Net cash used in investing activities (9,698) ( 53,326)
Financing activities
Advances/(payments) from affiliate (net) 246,430 ( 8,585)
---------- ----------
Net cash provided by financing activities 246,430 ( 8,585)
Net increase in cash and cash equivalents (203,780) 144,719
Cash and cash equivalents at beginning of year 207,245 62,526
---------- ----------
Cash and cash equivalents at end of year $ 3,465 $207,245
---------- ----------
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
SERIF, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business/Concentration of Credit Risk
Serif, Inc. (the "Company"), develops and publishes a line of desktop
publishing software products. The Company sells its products directly to
customers on a telemarketing basis and to distributors and other re-sellers in
the United States and Canada. The Company performs periodic credit evaluations
of its customers but generally does not require collateral. No individual
customer represents a significant percentage of sales.
Revenue Recognition
Revenue is generally recognized upon shipment of products to customers and
is recorded net of allowances for anticipated returns. Certain customers are
provided goods on a consignment basis. Revenues on these transactions are
recognized upon the sale of products to the ultimate customer.
Revenues from the licensing of proprietary software are recognized upon
delivery, in accordance with the contract terms.
Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of
three months or less when purchased.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Product Development Costs
Product development costs consist principally of compensation to employees,
related costs paid to outside consultants and an affiliated company, and
technology and software the Company may acquire for use in its products. All
product development costs are expensed as incurred.
Equipment, Furniture and Leasehold Improvements
Equipment, furniture and leasehold improvements, including assets under
capitalized leases are stated at cost. Depreciation, including amortization of
assets under capitalized leases is provided on a straight-line basis based upon
the estimated useful lives of the related assets, generally 3 to 7 years.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the life of the improvement or the remainder of the lease term.
<PAGE>
SERIF, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. These estimates principally include provisions for sales
returns and allowances. Actual results could differ from these estimates.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred. Advertising
expense was $1,344,386 and $1,092,072 for 1995 and 1994, respectively.
2. Inventories
<TABLE>
<CAPTION>
Inventories at 1995 and 1994 consist of the following:
December 31,
1995 1994
<S> <C> <C>
Raw material $108,242 $ 12,783
Finished goods 8,920 64,299
---------- ----------
$117,162 $ 77,082
</TABLE>
3. Capitalized Lease Obligations
The Company has accounted for certain leases for equipment as capitalized
lease obligations. These leases are payable in monthly installments, including
interest, aggregating $1,622.
<TABLE>
<CAPTION>
As of December 31, 1995 future minimum lease payments, excluding interest,
under capitalized leases are as follows:
<C> <C>
1996 $ 15,888
1997 6,379
</TABLE>
4. Income Taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
At December 31, 1995, the Company has available net operating loss carry
forwards of approximately $566,000 that expires at December 31, 2009 ($110,000)
and December 31, 2010 ($456,000). As a result of the transactions described in
Note 8 below, utilization of the Company's net operating loss carryforward will
be subject to significant limitations.
<PAGE>
<TABLE>
<CAPTION>
SERIF, INC.
NOTES TO FINANCIAL STATEMENTS
4. Income Taxes (continued)
The components of deferred tax assets at December 31, 1995 and 1994
included the following:
1995 1994
Deferred tax assets:
<S> <C> <C>
Accounts receivable reserves $ 104,000 $ 78,000
Inventory reserves 36,000 8,000
Net operating loss carryforwards 226,000 44,000
Other 43,000 110,000
---------- ---------
409,000 240,000
Valuation allowance (395,000) (234,000)
---------- ---------
Net deferred tax asset 14,000 6,000
Deferred tax liabilities:
Depreciation 14,000 6,000
---------- ---------
Net deferred taxes $ - $ -
---------- ---------
</TABLE>
5. Stockholder's Equity
In July 1996, the Company's principal shareholder agreed to transfer
certain shares of the Company's outstanding common stock to a former employee to
settle a claim arising during 1995. The Company recorded a charge to operations
in 1995, of approximately $8,000, representing the estimated fair value of such
shares.
6. Related Party Transactions
The Company and Serif (Europe) Ltd., a company affiliated through common
ownership have entered into an agreement under which the companies share certain
software technology, software development and other related costs and marketing
information. Under the terms of the agreement, Serif, Inc. retains copyright and
trademark rights of all software products and receives royalties on certain
software sales by Serif (Europe) Ltd. Serif (Europe) Ltd. has been granted
exclusive distribution rights for certain software in the United Kingdom and
non-exclusive distribution rights in certain other countries.
The Company incurred the following costs and earned revenues directly from
Serif (Europe), Ltd. for the years ended December 31, 1995 and 1994,
respectively:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Product development $250,576 $169,744
Management costs 91,786 100,489
Inventory purchases 9,177 -
Royalty income (412,470) (465,605)
</TABLE>
<PAGE>
SERIF, INC.
NOTES TO FINANCIAL STATEMENTS
6. Related Party Transactions (continued)
During 1995 the Company acquired 11,000 shares of common stock of Serif
(Europe), Ltd. which represents an ownership percentage of approximately 8%. The
Company has accounted for this investment under the cost method of accounting.
The balance due to shareholders and affiliated party, an employee, is
non-interest bearing and is due on demand.
7. Commitments
The Company leases certain facilities and equipment under operating type
leases. The leases expire through 1997. Rental expense was approximately $99,100
and $49,500 in 1995 and 1994, respectively.
<TABLE>
<CAPTION>
Future minimum lease payments under non-cancelable operating leases with
initial or remaining terms of one year or more are as follows:
<C> <C>
1996 $58,000
1997 42,000
1998 4,000
</TABLE>
8. Subsequent Events
On July 31, 1996 Allegro New Media, Inc. ("Allegro") acquired all of the
Company's outstanding common stock in a purchase transaction. The accompanying
balance sheet represents the historical carrying values of the assets and
liabilities and no adjustments have been recorded related to this transaction.
In addition, Allegro also acquired all of the outstanding common stock of Serif
(Europe) Ltd.
In connection with the above acquisition of the Company by Allegro New
Media, Inc., the Company's principal shareholder agreed to transfer rights to
certain shares of Allegro common stock received in consideration in the
transaction to certain employees of the Company. This transfer will result in
the recognition of compensation expense by the Company of $74,000 in the period
of the transaction.
<PAGE>
<TABLE>
<CAPTION>
SERIF, INC.
BALANCE SHEET
(Unaudited)
As of June 30, 1996
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 16,065
Accounts receivable, less allowances of $237,181 197,645
Inventories (Note 2) 55,214
Prepaid Expenses 12,956
Other current assets 34,389
---------
Total current assets 316,269
Equipment, furniture and leasehold improvements net of
accumulated depreciation and amortization of $63,775 42,542
Investment in affiliate, at cost 24,127
Other assets 25,708
---------
$408,646
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 846,062
Accrued liabilities 121,166
Deferred revenue 40,024
Due to shareholder and other related party (Note 5) 10,487
Capitalized lease obligations, current portion (Note 3) 13,870
---------
Total current liabilities 1,051,609
Capitalized lease obligations, less current portion (Note 3) 0
Due to affiliate 323,288
Commitments -
Stockholders' equity:
Common stock, par value $1.00 per share, authorized 1,000
shares; issued and outstanding 100 shares as of June 30, 1995 100
Accumulated deficit (966,351)
---------
Total stockholders' equity $408,646
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIF, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
For the Six Months
Ended June 30,
Revenues 1996 1995
<S> <C> <C>
Net product sales $1,349,930 $3,150,270
Royalty and licensing income (Note 6) 234,079 490,268
---------- ----------
Total revenue 1,584,009 3,640,538
Cost of goods sold 404,675 915,935
---------- ----------
Gross profit 1,179,334 2,724,603
Selling, general and administrative expenses 1,161,591 2,719,250
Product development - 132,536
Interest (income) expense net - (426)
---------- ----------
Net Income (loss) $ 17,743 $ (126,757)
Accumulated deficit at beginning of period (984,094) (601,341)
---------- ----------
Accumulated deficit at end of period $ (966,351) $ (728,098)
---------- ----------
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
SERIF, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Nature of Business/Concentration of Credit Risk
Serif, Inc. (the "Company"), develops and publishes a line of desktop
publishing software products. The Company sells its products directly to
customers on a telemarketing basis and to distributors and other re-sellers in
the United States and Canada. The Company performs periodic credit evaluations
of its customers but generally does not require collateral. No individual
customer represents a significant percentage of sales.
Revenue Recognition
Revenue is generally recognized upon shipment of products to customers and
is recorded net of allowances for anticipated returns. Certain customers are
provided goods on a consignment basis. Revenues on these transactions are
recognized upon the sale of products to the ultimate customer.
Revenues from the licensing of proprietary software are recognized upon
delivery, in accordance with the contract terms.
Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of
three months or less when purchased.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Product Development Costs
Product development costs consist principally of compensation to employees,
related costs paid to outside consultants and an affiliated company, and
technology and software the Company may acquire for use in its products. All
product development costs are expensed as incurred.
Equipment, Furniture and Leasehold Improvements
Equipment, furniture and leasehold improvements, including assets under
capitalized leases are stated at cost. Depreciation, including amortization of
assets under capitalized leases is provided on a straight-line basis based upon
the estimated useful lives of the related assets, generally 3 to 7 years.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the life of the improvement or the remainder of the lease term.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. These estimates principally include provisions for sales,
returns and allowances. Actual results could differ from these entries.
<PAGE>
2. Inventories
<TABLE>
<CAPTION>
Inventories at 6/30/96 and 12/31/96 consist of the following:
At 6/30/96 At 12/31/96
<S> <C> <C>
Raw material $ 39,167 $108,242
Finished Goods 16,047 8,920
---------- ---------
$ 55,214 $117,162
</TABLE>
---------- ---------
3. Capital Lease Obligations
The Company has accounted for certain leases for equipment as capitalized
lease obligations. These leases are payable in monthly installments, including
interest, aggregating $979.
<TABLE>
<CAPTION>
As of June 30, 1996, future minimum lease payments, excluding interest,
under capitalized leases are as follows:
<C> <C>
1996 $7,962
1997 $6,379
</TABLE>
4. Subsequent Events
On July 31, 1996, Allegro New Media, Inc. ("Allegro"), acquired all of the
Company's outstanding common stock in a purchase transaction.
5. Related Party Transactions
The balance due to shareholders and affiliated party, an employee, is
non-interest bearing and is due on demand.
<PAGE>
SERIF (EUROPE) LIMITED
REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1995
FOR THE PURPOSE OF THE SECURITIES AND
EXCHANGE COMMISSION FILINGS OF
ALLEGRO NEW MEDIA INC.
<PAGE>
SERIF (EUROPE) LIMITED
REPORT AND ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 1995
Contents
Auditors' Report
Statement of Operations
Balance Sheet
Notes to the Accounts
<PAGE>
INDEPENDENT AUDITORS' REPORT TO THE
BOARD OF DIRECTORS OF SERIF (EUROPE) LIMITED
- -------------------------------------------------------------------------------
We have audited the accompanying financial statements set out on pages 2 to
11 of Serif (Europe) Limited. These financial statements were audited in
accordance with UK Auditing Standards which do not differ in any significant
respect from United States Generally Accepted Auditing Standards.
Basis of Opinion
Our audit included an examination, on a test basis, of evidence relevant to
the amounts and disclosures in the financial statements. It also included an
assessment of the significant estimates and judgements made by the directors in
the preparation of the financial statements, and of whether the accounting
policies were appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
were free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion, the financial statements set out on pages 2 to 11 present
fairly, in all material respects, the financial position of the company at
December 31, 1995 and the results of its operations for each of the two years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles in the United Kingdom which differ in certain respects
from those followed in the United States (see Note 16 to the financial
statements).
/s/Haines Watts
HAINES WATTS
CHARTERED ACCOUNTANTS
NOTTINGHAM, ENGLAND
May 20, 1996, except for Note 15
Subsequent events as to which
the date is July 31, 1996 and
Note 16 Differences between United
Kingdom aned United States
Generally Accepted Accounting
Principles as to which the date is
October 14, 1996
<PAGE>
<TABLE>
<CAPTION>
SERIF (EUROPE) LIMITED
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED 31 DECEMBER 1995 AND 1994
- -------------------------------------------------------------------------------
Note 1995 1994
BP BP
<S> <C> <C> <C>
TURNOVER 2 3,185,591 3,859,350
Cost of sales 648,611 1,271,507
---------- ---------
GROSS PROFIT 2,536,980 2,587,843
Administrative expenses 1,254,899 1,228,280
Selling and distribution costs 1,201,198 1,778,611
---------- ---------
OPERATING PROFIT/(LOSS) 3 80,883 (23,213)
Bank interest received 11,779 1,078
Bank interest payable 5,623 6,479
---------- ---------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES
BEFORE TAXATION 87,039 (28,614)
Taxation 5 18,851 -
---------- ---------
PROFIT FOR THE FINANCIAL YEAR 12 68,188 (28,614)
---------- ---------
<FN>
There were no other recognised gains or losses other than those passing through
the profit and loss account. All amounts relate to continuing operations.
The notes on pages 4 to 11 form part of these accounts.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIF (EUROPE) LIMITED
BALANCE SHEET AS AT 31 DECEMBER 1995
- ----------------------------------------------------------------------
Note 1995
BP
ASSETS
Current assets:
<S> <C> <C>
Cash 146,610
Accounts receivable
less allowances of BP1,676 124,681
Inventories 8 46,154
Due from Serif, Inc. 186,685
Prepaid expenses and other current assets 97,161
---------
Total current assets 601,291
Fixed assets net of accumulated
depreciation of BP107,568 7 28,614
Deferred development expenditure net of
depreciation of BP94,961 6 63,634
Deferred taxes 10 13,501
---------
707,040
---------
LIABILITIES AND SHAREHOLDERS' FUNDS
Current liabilities:
Accounts payable 334,589
Accrued expenses 21,566
Taxation and social security 77,378
Loans payable 9 77,285
---------
Total current liabilities 510,818
---------
Loans payable 9 35,993
---------
Shareholders' funds:
Equity funds 11
Ordinary shares of BP1; 228,540 authorised
135,620 issued 135,620
Share premium 42,920
Retained earnings deficiency* (39,771)
---------
Total equity funds 138,769
---------
Non-equity funds 11
Preference shares of BP1; 21,460 authorised
21,460 issued 21,460
---------
Total shareholders' funds 13 160,229
---------
707,040
---------
<FN>
A summary of the material adjustments to shareholders' funds which would be
required if US GAAP had been applied instead of UK GAAP is given in note 16 to
the financial statements.
The notes on pages 4 to 11 form part of these accounts.
</FN>
</TABLE>
Approved by the Board:
/s/James Bryce July 30, 1996
James Bryce Date
SERIF (EUROPE) LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 1995
- ----------------------------------------------------------------------
The accounts take into consideration events occurring between 31 December
1995 and the date of their approval by the Board of Directors.
1. ACCOUNTING POLICIES
There have been no changes in accounting policies during the year.
a. These accounts have been prepared under the historical cost convention
and in accordance with accounting standards as defined in the Companies Act
1985, as amended, of Great Britain and have been reformatted for the purpose
of the Securities and Exchange Commission filings for Allegro New Media Inc.
In preparing these accounts the comparative results have been amended to show
the 12 month period to December 31, 1994 from the 15 month statutory period
to December 31, 1994.
b. Turnover represents the net amount of invoices to customers less
credit notes for goods returned, excluding VAT.
c. Depreciation is provided on the cost less estimated residual values
of tangible assets over their estimated useful lives.
The following rates and bases apply:
Office equipment 15% Straight Line
Computer hardware 25% Straight Line
Fixtures and fittings 15% Straight Line
Show equipment 16.7% per Show Attended
Motor vehicles 25% Straight Line
d. Inventories are stated at the lower of cost and net realisable value.
Cost is based on the cost of purchase on a first in, first out basis.
Finished goods include the relevant proportion of overheads. Net
realisable value is based on estimated selling price less further costs
to completion and disposal.
e. provision is made for taxation deferred in respect of all material timing
differences between the treatment of certain items for taxation and
accounting purposes, only to the extent that it is probable that the
liability will become payable in the foreseeable future.
f. Transactions denominated in foreign currencies are translated into
sterling at the rate of exchange ruling at the date of the transaction.
Assets and liabilities denominated in foreign currencies are translated
into sterling at the rate of exchange ruling at the balance sheet date.
g. Rentals payable under operating leases are charged to the profit and
loss account as they are incurred.
<PAGE>
SERIF (EUROPE) LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 1995
- ----------------------------------------------------------------------
ACCOUNTING POLICIES (CONTINUED)
h. Research and development expenditure is written off to the profit and loss
account in the period in which it is incurred. Development expenditure is
written off in the same way unless the directors are satisfied as to the
technical, commercial and financial viability of individual projects. In this
situation, the expenditure is deferred and amortised at a rate of 1% of
turnover (less applicable expenses) per period.
<TABLE>
<CAPTION>
TURNOVER 1995 1994
BP BP
During the year turnover was split between the
following geographical markets:
<S> <C> <C>
United Kingdom 3,178,511 3,506,477
Rest of Europe 7,080 352,873
--------- ---------
3,185,591 3,859,350
--------- ---------
OPERATING PROFIT/(LOSS)
The operating profit/(loss) is stated after
charging/(crediting):
1995 1994
BP BP
Amortised deferred development expenditure 26,927 34,074
Depreciation of tangible fixed assets
Owned assets 35,945 40,277
Assets held under hire purchase agreements 1,208 -
Auditors remuneration 8,500 4,800
Profit on sale of fixed assets (650) -
Hire of plant and machinery 678 873
Operating lease rentals - land and buildings 22,880 17,553
- other 15,848 17,718
--------- ---------
</TABLE>
TRANSACTIONS WITH DIRECTORS
Mr G Jones a director of the company owns the majority of the issued share
capital of Serif Inc., a company registered in the United States of America.
Serif Inc. and Serif (Europe) Limited have a co-operative joint venture
agreement regarding the sharing of product development and intellectual property
rights.
<PAGE>
<TABLE>
<CAPTION>
SERIF (EUROPE) LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 1995
- ----------------------------------------------------------------------
TAXATION 1995 1994
BP BP
Transfer to deferred taxation provision 18,851 -
------ ------
The company had no liability to corporation tax at 31 December 1995 or 31
December 1994.
DEFERRED DEVELOPMENT EXPENDITURE
COST BP
<S> <C>
Balance at 1995 and 1994 158,325
PROVISION FOR DIMINUTION IN VALUE
Balance at 1994 67,764
Charge 26,927
---------
94,691
---------
NET BOOK VALUE
1995 63,634
---------
</TABLE>
<TABLE>
<CAPTION>
FIXED ASSETS
Fixtures
Office Computer and Show Motor
Equipment Hardware Fittings Equipment Vehicles Total
BP BP BP BP BP BP
COST
<S> <C> <C> <C> <C> <C> <C>
Balance at 1994 21,620 106,654 4,412 8,524 - 141,210
Additions - 32,555 4,108 375 14,500 51,538
Disposals - (56,566) - - - (56,566)
-------- -------- --------- --------- --------- ---------
21,620 82,643 8,520 8,899 14,500 136,182
-------- -------- --------- --------- --------- ---------
DEPRECIATION
Balance at 1994 6,575 70,748 3,711 5,340 - 86,374
Charge 3,243 27,854 1,289 3,559 1,208 37,153
Disposals - (15,959) - - - (15,959)
-------- -------- --------- --------- --------- ---------
9,818 82,643 5,000 8,899 1,208 107,568
-------- -------- --------- --------- --------- ---------
NET BOOK VALUE
1995 11,802 - 3,520 - 13,292 28,614
-------- -------- --------- --------- --------- ---------
<FN>
The net book value of tangible assets includes BP13,292 (1994: BPNil) in
respect of assets held under hire purchase agreements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIF (EUROPE) LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 1995
- --------------------------------------------------------------------
INVENTORIES
1995
BP
<S> <C>
Finished goods 46,154
-------
<FN>
In the opinion of the directors the replacement
cost of inventories is not materially different
from the values shown above.
</FN>
</TABLE>
<TABLE>
<CAPTION>
LOANS PAYABLE
ANALYSIS OF BORROWINGS
<S> <C>
Bank loans 50,661
Bank overdraft 52,082
Hire purchase ageements 10,535
-------
113,278
Less: amounts due within one year 77,285
--------
Amounts due in more than one year 35,993
--------
Bank loans and overdrafts and other loans
Payable on demand and due:
Within one year 52,082
Repayable by instalments and due:
Within one year 21,336
Between one and two years 18,336
Between two and five years 10,989
Obligations under hire purchase agreements
Repayable by instalments and due:
Within one year 3,867
Between one and five years 6,668
-------
113,278
--------
<FN>
The bank loans and overdraft are secured by a floating
charge over the assets of the company.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIF (EUROPE) LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 1995
- ----------------------------------------------------------------------
DEFERRED TAXES
1995
BP
<S> <C>
Balance at 1 January 1995 (32,352)
Transfer to profit and loss account 18,851
---------
Balance at 31 December 1995 (13,501)
---------
Deferred taxation is calculated at 25%
(1994: 25%) and comprises:
Total potential liability
Accelerated capital allowances (22,363)
Tax losses available (7,046)
Other timing differences 15,908
---------
(13,501)
---------
Provided in accounts
Accelerated capital allowances (22,363)
Tax losses available (7,046)
Other timing differences 15,908
---------
(13,501)
</TABLE>
---------
<TABLE>
<CAPTION>
SHARE CAPITAL
1995
BP
<S> <C>
Authorised
Ordinary Shares of BP1 each 228,540
8% Non-Convertible, Redeemable
Preference Shares of BP1 each 21,460
---------
250,000
---------
Issued and Fully Paid
Ordinary Shares of BP1 each 135,620
8% Non-Convertible, Redeemable
Preference Shares of BP1 each 21,460
---------
157,080
---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIF (EUROPE) LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 1995
- ---------------------------------------------------------------
NON EQUITY SHARES
The non-convertible, redeemable, preference shares of BP1 each are redeemable
at par at any time at the option of the company and are not entitled to a
surplus on winding-up and have no voting rights.
PROFIT AND LOSS ACCOUNT
1995 1994
BP BP
<S> <C> <C>
Balance at beginning of the year (107,959) (79,345)
Profit/(loss) for the financial year 68,188 (28,614)
--------- ---------
(39,771) (107,959)
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
13. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
1995 1994
BP BP
<S> <C> <C>
Profit/(loss) for the financial year 68,188 (28,614)
Opening shareholder's funds 92,041 120,655
--------- ---------
Closing shareholder's funds 160,229 92,041
--------- ---------
Non-equity shareholders funds 21,460 21,460
</TABLE>
<TABLE>
<CAPTION>
--------- ---------
14. LEASE COMMITMENTS
At 31 December 1995 the company had the
following lease commitments:
1995
BP
Rentals due in the next year
on operating leases which expire:
Non-property leases
<S> <C>
Less than one year 4,713
Between one and two years -
After five years 400
Property leases
After five years 27,500
---------
32,613
---------
</TABLE>
<PAGE>
SERIF (EUROPE) LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 1995
- ----------------------------------------------------------------------
15. SUBSEQUENT EVENT
On July 31, 1996, Allegro New Media, Inc., (Allegro) a publicly owned company
incorporated in the United States, acquired all of the issued ordinary and
preference shares of Serif (Europe) Limited in a share for share transaction.
In addition, Allegro acquired all of the outstanding common stock of Serif,
Inc. in a similar transaction.
16. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The accounting policies, under which the financial statements of Serif
(Europe) Limited are prepared, conform with generally accepted accounting
principles in the United Kingdom (UK GAAP), which differ in certain respects
from generally accepted accounting principles in the United States (US GAAP).
Differences having a significant effect on the profit/(loss) and shareholders
funds are set out below.
Research and product development
Under UK GAAP certain research and product development costs are capitalized
and amortized over future periods. Under US GAAP all research and product
development costs are written off as incurred.
Taxation
Deferred taxation is not provided where, in the opinion of the directors, no
tax liability is likely to arise in the foreseeable future. However, US GAAP
requires full provision for deferred taxes using the liability method, and
requires an evaluation as to the recoverability of deferred tax assets.
<TABLE>
<CAPTION>
Profit available for appropriation
1995 1994
BP BP
<S> <C> <C>
Profit/(loss) as reported in the profit
and loss account 68,188 (28,614)
Adjustments: Amortization of deferred
development costs 26,927 34,074
Taxation 18,851 -
-------- --------
Profit for the year in accordance with US GAAP 113,966 5,460
-------- --------
Ordinary shareholders' funds as
reported in the balance sheet 160,229
Adjustments: Deferred development costs (63,634)
Taxation (13,501)
---------
Ordinary shareholders' funds in
accordance with US GAAP 83,094
---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIF (EUROPE) LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 1995
- ----------------------------------------------------------------------
16. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
Under FRS 1, UK GAAP does not require the company to present a statement
of cash flows, however, under US GAAP the following statement of cash
flows would be presented:
1995 1994
BP BP
Cash(used)/provided by:
Operating activities
<S> <C> <C>
Operating profit/(loss) 80,883 (23,213)
Depreciation 37,153 40,277
Amortization of deferred development
expenditure 26,927 34,074
Gain on sale of tangible fixed assets (650) -
Changes in assets and liabilities
Accounts receivable, prepaid expenses
and other current assets 19,603 (255,827)
Inventories 43,902 (28,350)
Accounts payable, accrued expenses and
other taxation and social security (244,093) 283,760
----------- ----------
Net cash(used)/provided by
operating activities (36,275) 50,721
----------- ----------
Investing activities:
Payments to acquire tangible fixed
assets (39,938) 59,022
Receipts from sale of tangible
fixed assets 41,257 -
---------- ----------
Net cash provided/used by investing
activities 1,319 (59,022)
---------- -----------
Financing activities:
Bank loan repayments (24,404) (41,037)
Finance from bank loans - 50,000
Capital element of hire purchase
rental payments (1,066) -
Other net financing costs 6,156 (5,401)
---------- -----------
Net cash (used)/provided by
financing activities (19,314) 3,562
---------- -----------
Net decrease in cash and cash
equivalents (54,2700) (4,739)
Cash and cash equivalents at beginning
of the year 148,798 153,537
---------- -----------
Cash and cash equivalents at end
of the year 94,528 148,798
---------- -----------
</TABLE>
<PAGE>
Interim Financial Statements
Serif (Europe) Limited
June 30, 1996
(Unaudited)
<PAGE>
Financial Statements
Serif (Europe) Limited
June 30, 1996
Contents
Balance Sheets as of June 30, 1996 (Unaudited) and
December 31, 1995
Statements of Operations for the six months
ended June 30, 1996 (Unaudited)
Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
SERIF (EUROPE) LIMITED
BALANCE SHEETS
Expressed in USD @ BP 1.00 = $1.50
June 30, December 31,
1996 1995
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $218,223 $138,227
Accounts receivable, net 267,561 184,767
Intercompany receivable 291,528 272,982
Inventories (Note 2) 108,471 67,489
Other current assets 53,387 138,189
--------- ---------
Total current assets 939,170 801,654
Equipment, furniture and leasehold
improvements B net 47,139 41,841
Other assets - 140,357
--------- ---------
$986,309 $983,852
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $439,023 $356,768
Accrued liabilities 445,592 297,093
--------- ---------
Total current liabilities 884,615 653,861
Other liabilities 44,195 74,080
--------- ---------
Total liabilities 928,810 727,941
Commitments (Note 7)
Stockholders' equity (Note 5):
8% Preferred stock, par value, BP1; 21,460
shares issued 32,190 32,190
Common stock, par value,BP 1.00 per share,
135,620 shares issued and outstanding in
1996 and 1995 203,430 203,430
Accumulated earnings/(deficit) (178,121) 20,291
--------- ---------
Total liabilities and stockholders' equity $986,309 $983,852
--------- ---------
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIF (EUROPE) LIMITED
STATEMENTS OF OPERATIONS
(Unaudited)
Expressed in USD @ BP 1.00 = $1.50
Six Months
Ended June 30,
Revenues 1996
<S> <C>
Net product sales $2,235,035
Cost of goods sold 729,191
----------
Gross profit 1,505,844
Selling, general and administrative expenses 1,344,154
Product development 144,638
Non-operating expense 26,251
Interest (income) expense B net 9,747
Extraordinary loss 179,516
----------
Net (loss) $ (198,462)
----------
Accumulated earnings at beginning of period 20,341
----------
Accumulated (deficit) at end of period $ (178,121)
----------
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
SERIF (Europe) LIMITED
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Nature of Business/Concentration of Credit Risk
Serif (Europe) Limited (the "Company"), develops and publishes a line of
desktop publishing software products. The Company sells its products directly to
customers on a telemarketing basis and to distributors and other re-sellers in
the United Kingdom and continental Europe. The Company performs periodic credit
evaluations of its customers but generally does not require collateral. No
individual customer represents a significant percentage of sales.
Revenue Recognition
Revenue is generally recognized upon shipment of products to customers and
is recorded net of allowances for anticipated returns. Certain customers are
provided goods on a consignment basis. Revenues on these transactions are
recognized upon the sale of products to the ultimate customer.
Revenues from the licensing of proprietary software are recognized upon
delivery, in accordance with the contract terms.
Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of
three months or less when purchased.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or net
realiseable value. Finished goods include the relevant proportion of overheads.
Net realiseable value is based on estimated selling price less further costs to
completion and disposal.
Product Development Costs
Product development costs consist principally of compensation to employees,
related costs paid to outside consultants and an affiliated company, and
technology and software the Company may acquire for use in its products. All
product development costs are expensed as incurred.
Equipment, Furniture and Leasehold Improvements
Equipment, furniture and leasehold improvements, are stated at cost less
estimated residual values over their estimated useful lives. Depreciation is
provided on a straight-line basis based upon the estimated useful lives of the
related assets, generally 3 to 7 years. Leasehold improvements are amortized on
a straight-line basis over the shorter of the life of the improvement or the
remainder of the lease term.
<PAGE>
SERIF (EUROPE) LIMITED
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with United Kingdom
generally accepted accounting principals and with United States generally
accepted accounting principals which requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. These estimates principally include provisions for sales
returns and allowances. Actual results could differ from these estimates.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred.
2. Inventories
<TABLE>
<CAPTION>
Inventories at June 30, 1996 and December 31, 1995 consist of the
following:
June 30, December 31,
1996 1995
<S> <C> <C>
Raw material $ - $ -
Finished goods 108,471 67,489
---------- --------
$108,471 $67,489
---------- --------
</TABLE>
3. Income Taxes
Provision is made for taxation deferred in respect of all material timing
differences between the treatment of certain items for taxation and accounting
purposes, only to the extent that it is probable that the liability will become
payable in the foreseeable future.
4. Foreign Currency Exchange
Transactions denominated in foreign currencies are translated into sterling
at the rate of exchange ruling at the date of the transaction. Assets and
liabilities denominated in foreign currencies are translated into sterling at
the rate of exchange ruling at the balance sheet date.
5. Related Party Transactions
The Company and Serif Inc., a company affiliated through common ownership
have entered into an agreement under which the companies share certain software
technology, software development and other related costs and marketing
information. Under the terms of the agreement, Serif, Inc. retains copyright and
trademark rights of all software products and receives royalties on certain
software sales by the Company. The Company Ltd. has been granted exclusive
distribution rights for certain software in the United Kingdom and non-exclusive
distribution rights in certain other countries.
<PAGE>
SERIF (Europe) LIMITED
NOTES TO FINANCIAL STATEMENTS
5. Related Party Transactions (continued)
During 1995 the Serif Inc. acquired 11,000 shares of common stock of the
Company which represents an ownership percentage of approximately 8%.
6. Commitments
The Company leases certain facilities and equipment under operating type
leases which are charged to the profit and loss account as they are incurred.
The leases expire through 1999.
7. Subsequent Events
On July 31, 1996 Allegro New Media, Inc. ("Allegro") acquired all of the
Company's outstanding common stock in a purchase transaction. The accompanying
balance sheet represents the historical carrying values of the assets and
liabilities and no adjustments have been recorded related to this transaction.
In addition, Allegro also acquired all of the outstanding common stock of Serif
Inc.
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (Unaudited)
The following unaudited pro forma condensed combined financial statements
are based on the historical financial statements of Allegro New Media, Inc.
("Allegro") (audited for the year ended December 31, 1995 and unaudited at June
30, 1996 and for six months then ended) and Serif, Inc. and Serif (Europe) Ltd.
(collectively "Serif") (audited for the year ended December 31, 1995 and
unaudited at June 30 1996 and for the six months then ended). The pro forma
condensed combined balance sheet assumes that the acquisition of Serif occurred
as of June 30, 1996. The pro forma condensed combined statements of operations
give effect to the acquisition of Serif assuming the transactions were completed
at the beginning of the respective periods.
The pro forma condensed combined statements of operations are not
necessarily indicative of operating results which would have been achieved had
these transactions been completed at the beginning of the respective periods and
should not be construed as representative of future operations.
These pro forma condensed combined financial statements should be read in
conjunction with the historical financial statements of Allegro and Serif
including the notes thereto and the notes to these pro forma financial
statements.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
Allegro New Serif (Europe) Adjustments Combined
Media, Inc. Serif Inc. Limited (Note 2) Pro Forma
ASSETS
CURRENT ASSETS
<S> <C> <C> <C> <C> <C>
Cash and cash
equivalents $1,722,050 $ 16,065 $225,235 $1,963,350
Accounts
receivable
(net) 814,577 197,645 276,160 1,288,382
Inventories 241,828 55,214 111,957 408,999
Other current
assets 246,847 47,345 55,102 349,294
Due from
affiliate 300,896 (300,896)(a) 0
----------- --------- --------- --------- -----------
Total Current
Assets 3,025,302 316,269 969,350 (300,896) 4,010,025
----------- --------- --------- --------- -----------
Property, plant
& equipment
(net) 55,477 42,542 48,653 146,672
Other assets 242,474 25,708 268,182
Investment in
affiliate 24,127 ( 24,127)(b) 0
Intangibles and
goodwill 972,000 (c) 972,000
----------- --------- --------- --------- -----------
TOTAL
ASSETS $3,323,253 $408,646 $1,018,003 $646,977 $5,396,879
----------- --------- --------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C> <C> <C> <C>
Accounts payable
and accrued
liabilities $ 507,058 $1,026,342 $ 812,374 $476,473 (e) $2,822,247
Debt (current) 13,870 13,870
----------- ---------- ---------- ---------- -----------
Total current
liabilities 507,058 1,040,212 812,374 476,473 2,836,117
Debt 10,567 10,567
Due to affiliate 300,896 (300,896) (a) 0
Stockholders=Equity/
(Deficit) 2,816,195 (943,029) 205,629 737,400 (c) 2,550,195
3,620,000 (d)
(3,886,000)(e)
----------- ---------- ---------- ---------- -----------
TOTAL LIABILITIES
AND STOCKHOLDERS=
EQUITY $3,323,253 $408,646 $1,018,003 $ 646,977 $5,396,879
----------- ---------- ---------- ---------- -----------
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
Allegro New Serif (Europe) Adjustments Combined
Media, Inc. Serif Inc. Limited (Note 2) Pro Forma
<S> <C> <C> <C> <C> <C>
Net Sales $1,410,962 $5,394,611 $5,051,710 ($412,000)(a) $11,445,283
Cost of
goods sold 795,730 1,433,206 1,028,567 3,257,503
----------- ----------- ----------- ----------- ------------
Gross profit 615,232 3,961,405 4,023,143 (412,000) 8,187,780
Selling, general
and admin.
expenses 1,439,983 4,070,174 3,852,178 (412,000)(a) 9,270,335
320,000 (b)
Product
development 295,878 265,075 560,953
In process
research and
development 3,856,000 (c) 3,856,000
Interest (income)
expense (net) 34,934 8,909 (9,762) 34,081
----------- ---------- ---------- ---------- -----------
Loss before
extraordinary
item (1,155,563) (382,753) 180,727 (4,176,000) (5,533,589)
Extraordinary
loss 990,928 990,928
Net (loss)/
income ($2,146,491) ($382,753) $180,727 ($4,176,000) ($6,524,517)
----------- ----------- ------------ ----------- ------------
Extraordinary
loss per
common share ($0.66) ($0.40)
Pro forma loss
per common
share ($1.44) ($2.62)
Pro forma shares
outstanding 1,493,171 2,493,171
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
Allegro New Serif (Europe) Adjustments Combined
Media, Inc. Serif Inc. Limited (Note 2) Pro Forma
<S> <C> <C> <C> <C> <C>
Net Sales $867,049 $1,614,411 $2,275,886 ($115,000)(a) $4,602,346
Cost of
goods sold 795,730 405,315 578,769 1,326,253
----------- ----------- ------------ ---------- -----------
Gross profit 524,880 1,209,096 1,697,117 (115,000) 3,276,093
Selling, general
and admin.
expenses 1,644,481 1,162,567 1,557,111 (155,000)(a) 4,369,159
160,000 (b)
Product
development 439,566 147,280 560,846
In process
research and
development 3,856,000 (c) 3,856,000
Interest (income)
expense (net) (52,977) (23) 9,925 (43,075)
----------- ----------- ------------ ---------- -----------
(Loss)/income
before taxes (1,506,190) 46,552 (17,199) (4,016,000) (5,492,837)
Corporate
income taxes 2,000 2,000
Net (loss)/
income ($1,506,190) $44,552 $(17,199) ($4,016,000) ($5,494,837)
----------- ----------- ------------ ---------- -----------
Pro forma
loss per
common share ($0.49) ($1.35)
Pro forma shares
outstanding 3,067,215 4,067,215
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
Notes to the Pro Forma Combined Condensed Financial Statements (Unaudited)
1. Description of Transactions
On August 12, 1996, Allegro New Media, Inc. ("Allegro") acquired all of the
outstanding common stock of Serif, Inc. and all of the outstanding preferred and
common stock of Serif (Europe) Ltd. (collectively "Serif"). The aggregate
purchase price was approximately $4,120,000, including 1,000,000 shares of
Allegro common stock with a fair value of $3,620,000. The transaction has been
accounted for as a purchase. Under the purchase method of accounting, the assets
and liabilities have been adjusted to their preliminary estimated fair values
based upon available information and are subject to revision. As a result of the
preliminary purchase price allocation, a charge to earnings of approximately
$3,886,000 was recorded on the date of acquisition representing the cost
assigned to pre-acquisition software development.
<TABLE>
<CAPTION>
1. Pro Forma Adjustments
Balance Sheet
June 30, 1996
<S> <C>
(a) Elimination of inter-company balances $300,896
(b) Elimination of investment in affiliate 24,127
(c) Elimination of Serif shareholders= equity (deficit) 737,400
(d) Record Allegro common stock issued to complete
acquisition 3,620,000
(e) Purchase accounting adjustments:
Charge related to equity to write off cost of
in-process research and development 3,886,000
Intangibles and goodwill 972,000
Record accrued liabilities to complete
acquisition 476,473
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
December 31, 1995 June 30, 1996
<S> <C> <C>
(a) Eliminate royalty income and
expense between Serif Inc.
and Serif (Europe) Ltd. $ 412,000 $ 155,000
(b) Amortization of intangibles and
goodwill resulting from purchase
transaction 320,000 160,000
(c) Charge to write off purchase
price attributed to in-process
research and development 3,856,000 3,856,000
</TABLE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLEGRO NEW MEDIA, INC.
By: /s/ Mark E. Leininger
Mark E. Leininger
Chief Operating Officer, Vice
President-Finance, Treasurer
and Chief Financial Officer
Date: October 14, 1996
