SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13
of the Securities and Exchange Act of 1934
Date of Report: November 25, 1996
DATA SYSTEMS NETWORK CORPORATION
(Exact Name of Registrant as Specified in Charter)
MICHIGAN 1-13424 38-2649874
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
34705 W. 12 Mile Rd., Suite 300
Farmington Hills, Michigan 48331
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, incl. area code: (810) 489-7117
Item 2. Acquisition of Assets.
(a) Purchase of Assets. On September 12, 1996, Data Systems Network
Corporation, a Michigan corporation ("DSNC") purchased certain tangible
personal property, executory contracts and other assets (the "Acquired
Assets") of Information Decisions, Incorporated, a Michigan corporation
("IDI") and System Constructs, Inc., a New York corporation ("SCI") (each a
"Seller" and collectively, the "Sellers") used by the Sellers in the conduct
of the business of the network systems integration division of SofTech, Inc.,
a Massachusetts corporation ("SofTech"), which is the sole shareholder of the
Sellers (the "Acquisition"). The Acquisition was made pursuant to the terms
and conditions of an Asset Purchase Agreement by and among DSNC, the Sellers
and SofTech, dated as of September 12, 1996 (the "Agreement"). A copy of the
Agreement is attached hereto as Exhibit 2.2. DSNC intends to continue to use
the Acquired Assets in the network systems integration business.
As consideration for the Acquired Assets, at the closing of the
Agreement, DSNC paid $890,000, assumed certain liabilities of the Sellers and
issued 540,000 shares of DSNC common stock to SofTech (collectively, the
"Purchase Price"). The cash portion of the Purchase Price was financed
through cash reserves on hand. The Purchase Price is subject to certain post-
closing adjustments described in Section 2.2(c) and (d) of the Agreement.
Pursuant to the Agreement, SofTech agrees not to sell or otherwise
dispose of the shares of DSNC common stock received as part of the Purchase
Price except as provided in the Registration Rights Agreement (defined below)
and agrees to distribute such shares at the time and in the manner provided in
the Registration Rights Agreement. After September 12, 1996 until the earlier
of three years from that date or such time as SofTech shall have distributed
or sold all such shares, SofTech agrees not to (i) acquire "beneficial
ownership" (as such term is defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act")) of DSNC common stock other than from DSNC,
(ii) participate in any "solicitation" of "proxies" (as such terms are used in
the Exchange Act) to vote any voting securities of DSNC; (iii) form, join or
participate in a "group" (as defined in the Exchange Act) or otherwise act,
alone or in concert with others, to seek to control or influence the
management, Board of Directors or policies of DSNC; (iv) vote such shares
other than in the same manner and proportion (whether for, against or
abstaining on any proposal) as the other shareholders of DSNC vote shares with
respect to any matter submitted to the shareholders of DSNC (or, if the board
of directors of SofTech determines in good faith that its fiduciary duties so
require, not to vote such shares in any manner on such a proposal); or (v)
transfer voting rights with respect to such shares.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
Network Services Group (a division of SofTech, Inc.)
Consolidated Balance Sheets
As of May 31,
1996 1995
Assets:
Current assets:
Accounts receivable (less allowance of $241,868
in 1996, and $42,254 in 1995) $6,529,825 $8,912,185
Unbilled costs and fees 685,973 1,146,738
Inventory 1,602,737 1,518,672
Prepaid expenses and other assets 469,757 897,782
--------- ----------
Total current assets 9,288,292 12,475,377
Property and equipment, at cost:
Data processing equipment 1,328,359 2,149,943
Office furniture 845,136 898,772
Leasehold improvements 69,290 179,906
Land and building 513,540 500,000
--------- --------
Total property and equipment 2,756,325 3,728,621
Less accumulated depreciation & amortization 1,397,210 2,218,309
--------- ---------
1,359,115 1,510,312
Goodwill, net 1,030,408 2,419,076
--------- ---------
11,677,815 16,404,765
========== ==========
Liabilities and Investment of Parent:
Current liabilities:
Accounts payable $1,799,283 $2,695,166
Accrued expenses 1,010,718 1,512,614
Deferred maintencance revenue 1,311,463 1,066,201
--------- ---------
Total current liabilities 4,121,464 5,273,981
--------- ---------
Commitments and contingencies
Investment of parent 7,556,351 11,130,784
--------- ----------
$11,677,815 $16,404,765
========== ==========
Network Services Group (a division of SofTech, Inc.)
Consolidated Statements Of Operations
And Investment Of Parent
For The Years Ended May 31,
1996 1995 1994
Revenue:
Products $20,730,048 $29,960,153 $11,442,062
Services 9,600,106 9,360,739 5,880,855
---------- ---------- ----------
30,330,154 39,320,892 17,322,917
Cost of products sold 17,753,866 25,315,236 9,023,845
Cost of services provided 7,483,452 5,706,001 4,357,165
---------- ---------- ---------
5,092,836 8,299,655 3,941,907
Selling, general and administrative 8,950,518 9,035,628 3,125,823
Loss on carrying value of goodwill 700,000 0 0
--------- --------- ---------
Income (loss) before income taxes (4,557,682) (735,973) 816,084
Provision (benefit) for income taxes 24,869 (113,928) 205,652
---------- ---------- --------
Net income (loss) (4,582,551) (622,045) 610,432
Investment of parent company 1,008,118 7,299,526 1,193,930
Parent company investment, beginning
of year 11,130,784 4,453,303 2,648,941
---------- --------- ---------
Parent company investment,
end of year $7,556,351 $11,130,784 $4,453,303
========== ========== =========
Network Systems Group (a division of SofTech, Inc.)
Consolidated Statements of Cash Flows
For the Years ended May 31,
1996 1995 1994
Cash flows from operating activities:
Net income (loss) $(4,582,551) $ (622,045) $ 610,432
Adjustments to reconcile net income
(loss) to net cash used by
operating activities:
Depreciation and amortization 1,398,557 1,195,347 607,168
(Gain) loss on disposal of equipment 8,212 (24,773) 1,594
Loss on carrying value of goodwill 700,000 0 0
Change in current assets and liabilities:
Accounts receivable and unbiled
costs and fees 2,843,125 (5,664,144) (2,078,970)
Inventory (313,841) (566,715) (715,805)
Prepaid expenses and other assets 506,237 (660,286) (117,056)
Accounts payable (895,883) 1,319,515 133,737
Accrued expenses (580,108) 603,913 349,230
Deferred maintenance revenue 245,262 329,221 328,007
--------- ---------- ---------
Total adjustments 3,911,561 (3,467,922) (1,492,095)
--------- ---------- ---------
Net cash used by operating activities (670,990) (4,089,967) (881,663)
--------- ---------- ---------
Cash flow from investing activities:
Capital expenditures (342,448) (711,246) (386,084)
Proceeds from sale of capital equipment 5,320 21,569 73,817
Payments for the purchase of CCS and SCI 0 (2,519,882) 0
--------- ----------- ---------
Net cash used by investing activities (337,128) (3,209,559) (312,267)
--------- ----------- ---------
Cash flows from financing activities:
Cash provided by parent company 1,008,118 7,299,526 1,193,930
--------- ---------- ---------
Net cash provided from financing
activities 1,008,118 7,299,526 1,193,930
Net change in cash and cash
equivalents $ -0- $ -0- $ -0-
========= ========== ==========
REPORT OF INDEPENDANT ACCOUNTANTS
To the Stockholders and Board of Directors of SofTech, Inc.
We have audited the accompanying consolidated balance sheets of Network
Systems Group, a division of SofTech, Inc. as of May 31, 1996 and May 31, 1995
and the statements of operations and investment of parent and cash flows for
the three years in the period ended May 31, 1996. These financial statements
are the responsibility of Network Systems Group and SofTech, Inc.'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.
As discussed in Notes A and E, certain corporate expenses presented in
the financial statements represent allocations of the cost of services
provided to Network Systems Group by SofTech, Inc. As a result, the
financial statements presented may not be indicative of the financial
position or results of operations that would have been achieved had the
Network Systems Group operated as a nonaffiliated entity.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Network Systems
Group, a division of SofTech, Inc., as of May 31, 1996 and May 31, 1995,
and the results of operations and cash flows for the three years in the
period ended May 31, 1996 in conformity with generally accepted accounting
principles.
As discussed in Note F, on September 12, 1996, certain assets and
liabilities of the Network Systems Group were sold to Data Systems Network
Corporation.
/s/Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 21, 1996
(b) Pro Forma Financial Information.
The following unaudited pro forma financial statements were prepared to
illustrate the effects of the acquisition as if it had occured on January 1,
1995. The pro forma adjustments are based on the available information and
upon certain assumptions the Company believes are reasonable. The pro forma
financial statements do not purport to represent what the Company's financial
statements would actually have been if such transaction in fact had occured
on January 1, 1995, or to project the Company's financial statements for
any future period. The information below reflects the elimination of
recorded goodwill as well as the elimination of certain administrative
expenses which were deemed to be duplicative.
Data Systems Network Corporation
Proforma Balance Sheet Data
as of December 31, 1996
(in thousands)
Assets:
Current assets $21,203
Other assets 7,372
------
Total assets 28,575
======
Liabilities:
Current liabilities 16,948
Other liabilities 100
------
Total liabilities 17,048
Equity 11,527
------
Total liabilities & equity $28,575
Data Systems Network Corporation
Proforma Income Statement
(in thousands)
Year ending Nine months ending
December 31, 1995 September 30, 1996
Revenue $ 68,419 $40,331
Cost of revenue 58,919 34,437
------- ------
Gross profit 9,500 5,894
Selling expense 7,827 5,846
General & administrative expense 1,306 1,463
Amortization of goodwill 133 89
------- ------
Income (loss) from operations 367 (1,504)
Other income(expense) (280) 188
-------- -------
Income(loss) before extraordinary item 87 (1,316)
Extraordinary items 322 (89)
-------- -------
Net income(loss) $ 409 $(1,405)
======== =======
Earnings(loss) per share $0.13 $(0.43)
(c) Exhibits.
2.2 Asset Purchase Agreement, dated September 12, 1996, by and among DSNC,
IDI, SCI and SofTech, previously provided with original current
report on Form 8-K, filed September 27, 1996. Schedules to the
Agreement, listed on pp iii-iv of the Table of Contents of the
Agreement, were not filed, but will be provided to the
Commission supplementally upon request.
10.17 Registration Rights Agreement, dated as of September 12, 1996, made
and entered into by DSNC and SofTech, previously provided with original
current report on Form 8-K filed september 27, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
DATA SYSTEMS NETWORK CORPORATION
Date: November 25, 1996 /s/ Philip M. Goy
By: Philip M. Goy
Its: Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description
2.2 Asset Purchase Agreement, dated September 12, 1996, by and
among DSNC, IDI, SCI and SofTech incorporated herein by
reference.
10.17 Registration Rights Agreement, dated as of September 12, 1996,
made and entered into by DSNC and SofTech incorporated herin
by reference.
