<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) MAY 24, 1996
------------
FRACTAL DESIGN CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
CALIFORNIA 000-26822 77-0276903
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
335 SPRECKELS DRIVE, APTOS, CALIFORNIA 95003
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 688-5300
--------------------------
N/A
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(Former name or former address, if changed since last report)
<PAGE> 2
The Undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its current report on Form 8-K,
originally filed with the Securities and Exchange Commission on June 6, 1996
(the "Form 8-K") as set forth in the pages attached hereto.
ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS
A. Item 7(a) of Registrant's Current Report on Form 8-K is amended to add
the required financial statements of the business acquired, including
the unaudited balance sheet as of March 31, 1996 and unaudited
statements of operations and cash flows for the three months ended
March 31, 1996 and March 31, 1995.
<PAGE> 3
RAY DREAM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,731,300 $ 1,938,600
Trade receivables, less allowance for returns and bad debts of
$965,300 at March 31, 1996 and $584,500 at December 31, 1995 2,536,500 1,647,300
Inventories 416,300 387,100
Prepaid expenses and other assets 510,300 271,700
----------- -----------
Total current assets 5,194,400 4,244,700
Property and equipment 370,700 304,400
Other assets 182,900 191,300
----------- -----------
$ 5,748,000 $ 4,740,400
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $ 166,700 $ 166,700
Accounts payable 1,197,800 828,800
Accrued expenses 868,300 546,600
Deferred revenue 768,300 13,900
----------- -----------
Total current liabilities 3,001,100 1,556,000
Long-term debt 250,000 291,700
----------- -----------
Total liabilities 3,251,100 1,847,700
Shareholders' equity:
Preferred stock (aggregate liquidation preference of $5,392,500) 5,296,900 5,296,900
Common stock, no par, 7,000,000 shares authorized; 1,862,336 and
1,808,336 shares issued and outstanding at March 31, 1996 and
December 31, 1995, respectively 733,700 726,300
Deferred stock compensation (322,200) (407,500)
Cumulative translation adjustment (49,700) (80,500)
Accumulated deficit (3,161,800) (2,642,500)
----------- -----------
Total shareholders' equity 2,496,900 2,892,700
----------- -----------
$ 5,748,000 $ 4,740,400
=========== ===========
</TABLE>
<PAGE> 4
RAY DREAM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
------------------
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Revenue:
Product sales $2,979,500 $1,474,600
License revenue -- 86,800
---------- ----------
Total revenue 2,979,500 1,561,400
Costs and expenses:
Cost of revenues 607,400 141,000
Research and development 486,500 263,000
Sales and marketing 1,850,200 1,008,000
General and administrative 453,500 217,000
---------- ----------
Total costs and expenses 3,397,600 1,629,000
---------- ----------
Operating loss (418,100) (67,600)
Interest income, net 23,100 30,000
---------- ----------
Net (loss) before income taxes (395,000) (37,600)
Income taxes 124,300 7,000
---------- ----------
Net loss $ (519,300) $ (44,600)
========== ==========
Net loss per share $ (0.28) $ (0.02)
========== ==========
Shares used in computing net loss per share 1,835,000 1,791,000
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 5
RAY DREAM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
------------------
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (519,300) $ (44,600)
Adjustments to reconcile net income to net cash used for
operating activities:
Depreciation 39,000 29,900
Stock compensation expense 85,300 --
Allowance for returns and bad debts 380,800 20,400
Changes in operating assets and liabilities:
Trade receivables (1,270,000) (381,300)
Inventories (29,200) (11,800)
Prepaid expenses and other assets (238,600) (81,200)
Accounts payable 369,000 84,000
Accrued expenses 321,700 78,900
Deferred revenue 754,400 (500)
----------- ----------
Net cash used for operating activities (106,900) (306,200)
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (105,300) (66,100)
Other assets 8,400 (8,000)
----------- ----------
Net cash used for investing activities (96,900) (74,100)
----------- ----------
Cash flows from financing activities:
Principal payments on note payable (41,700) --
Issuance of common stock from exercise of stock options 7,400 --
----------- ----------
Net cash used for financing activities (34,300) --
----------- ----------
Effect of exchange rate changes on cash 30,800 41,500
----------- ----------
Net decrease in cash and cash equivalents (207,300) (338,800)
Cash and cash equivalents at beginning of period 1,938,600 2,217,000
----------- ----------
Cash and cash equivalents at end of period $ 1,731,300 $1,878,200
=========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 6
RAY DREAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND DECEMBER 31, 1995
(1) BASIS OF PRESENTATION
The financial information contained herein has been prepared without
audit in accordance with the Company's accounting policies as described
in its Registration Statement filed with the Securities and Exchange
Commission on Form S-4, declared effective on April 26, 1996. In the
opinion of management, all adjustments, including normal recurring
accruals, necessary for a fair presentation of the Company's financial
position, results of operation and cash flows for the interim periods
presented have been made. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
where such disclosure would substantially duplicate previous
disclosures. These financial statements should be read in conjunction
with the financial statements and related notes included in the
Company's Registration Statement on Form S-4, declared effective on
April 26, 1996. The interim results are not necessarily indicative of
the results to be expected for the entire year.
(2) SHORT-TERM INVESTMENTS
Short-term investments have been classified as available-for-sale
securities, and as of March 31, 1996 and December 31, 1995, consisted
of the following:
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
U.S. Government agencies $ -- $ 149,300
Commercial paper 1,191,700 1,238,300
---------- ----------
$1,191,700 $1,387,600
========== ==========
</TABLE>
All securities were due in 90 days or less, and are included in cash
and cash equivalents. The estimated fair value of these investments
approximated cost as of March 31, 1996 and December 31, 1995.
(3) INVENTORIES
A summary of inventories as of March 31, 1996 and December 31, 1995
follows:
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Raw materials and work-in-process $194,500 $188,500
Finished goods 221,800 198,600
-------- --------
$416,300 $387,100
======== ========
</TABLE>
(4) ACCRUED EXPENSES
A summary of accrued expenses as of March 31, 1996 and December 31,
1995 follows:
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Accrued payroll and employee benefits $472,900 $220,400
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
Other 395,400 326,200
-------- --------
$868,300 $546,600
======== ========
</TABLE>
(5) PROPERTY AND EQUIPMENT
A summary of property and equipment as of March 31, 1996 and December
31, 1995 follows:
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Computer equipment $556,300 $536,300
Furniture and fixtures 194,600 109,300
-------- --------
750,900 645,600
Less accumulated depreciation 380,200 341,200
-------- --------
$370,700 $304,400
======== ========
</TABLE>
(6) PREPAID EXPENSES AND OTHER ASSETS
A summary of prepaid expenses and other assets as of March 31, 1996 and
December 31, 1995 follows:
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Prepaid expenses $194,600 $168,400
Prepaid merger expenses 263,500 --
Other assets 52,200 $103,300
-------- --------
$510,300 $271,700
======== ========
</TABLE>
<PAGE> 8
B. Item 7(b) of Registrant's Current Report on Form 8-K is amended to add
the required pro forma financial information.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial
information assumes a business combination between Fractal and Ray Dream
accounted for on a pooling of interests basis. The pro forma unaudited combined
condensed financial statements are based on the respective historical financial
statements of Fractal and Ray Dream and should be read in conjunction with such
financial statements and the notes thereto.
Fractal's fiscal year ends March 31, and Ray Dream's fiscal year ends
December 31. The unaudited pro forma combined condensed balance sheet combines
Fractal's March 31, 1996 consolidated balance sheet with Ray Dream's March 31,
1996 unaudited consolidated balance sheet. The unaudited pro forma combined
condensed statements of operations combine Fractal's historical consolidated
statements of operations for the three fiscal years ended March 31, 1996 with
corresponding Ray Dream historical consolidated statements of operations for the
three years ended December 31, 1995.
The unaudited pro forma combined condensed information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Merger had been
consummated at the beginning of the periods presented, nor is it necessarily
indicative of future operating results or financial position.
<PAGE> 9
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1996
--------------------------------------------
Pro Forma Pro Forma
Fractal Ray Dream Adjustments Combined
------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 5,422 $1,731 $ -- $ 7,153
Short-term investments........................ 23,683 -- -- 23,683
Accounts receivable, net...................... 4,070 2,537 713(3) 7,320
Inventories................................... 804 416 -- 1,220
Deferred income taxes......................... 1,446 -- -- 1,446
Other current assets.......................... 1,462 510 -- 1,972
------- ------ ------- -------
Total current assets................... 36,887 5,194 713 42,794
------- ------ ------- -------
Property and equipment, net....................... 587 371 -- 958
Other assets...................................... -- 183 -- 183
------- ------ ------- -------
Total assets........................... $37,474 $5,748 $ 713 $43,935
======= ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 2,482 $1,197 $ -- $ 3,679
Accrued liabilities........................... 4,482 1,637 278(3) 8,709
713(3)
1,865(4)
(266)(4)
Current portion of long-term debt............. -- 167 -- 167
------- ------ ------- -------
Total current liabilities.............. 6,964 3,001 2,590 12,555
------- ------ ------- -------
Long-term debt.................................... -- 250 -- 250
------- ------ ------- -------
Shareholders' equity.............................. 30,510 2,497 (1,877)(3,4) 31,130
------- ------ ------- -------
Total liabilities and shareholders'
equity $37,474 $5,748 $ 713 $43,935
======= ====== ======= =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information.
<PAGE> 10
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net revenues $ 29,529 $ 18,476 $ 10,002
Cost of net revenues 5,146 3,124 2,524
-------- -------- --------
Gross profit 24,383 15,352 7,478
-------- -------- --------
Operating expenses:
Research and development 4,073 2,509 1,372
Sales and marketing 13,512 8,992 6,038
General and administrative 2,612 1,684 1,166
-------- -------- --------
20,197 13,185 8,576
-------- -------- --------
Income (loss) from operations 4,186 2,167 (1,098)
Interest income (expense), net 567 65 (64)
-------- -------- --------
Income (loss) before income taxes 4,753 2,232 (1,162)
Provision for income taxes (1,827) (473) --
-------- -------- --------
Net income (loss) $ 2,926 $ 1,759 $ (1,162)
======== ======== ========
Net income (loss) per share $ 0.25 $ 0.17 $ (0.14)
======== ======== ========
Shares used to compute net income (loss) per share 11,603 10,485 8,240
======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information.
<PAGE> 11
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
NOTE 1 - BASIS OF COMBINATION:
The pro forma combined condensed financial information reflects the
issuance of 3,165,660 shares of Fractal Common Stock for an aggregate of
5,600,470 shares of Ray Dream Common Stock in connection with the Merger based
on an exchange ratio of 0.565249 shares of Fractal for each share of Ray Dream
Common Stock.
Fractal's fiscal year ends on March 31 and Ray Dream's fiscal year ends
on December 31. The unaudited pro forma combined condensed balance sheet
combines Fractal's March 31, 1996 consolidated balance sheet with Ray Dream's
March 31, 1996 unaudited consolidated balance sheet. The unaudited pro forma
combined condensed statements of operations combine Fractal's historical
consolidated statements of operations for the three fiscal years ended March 31,
1996 with corresponding Ray Dream historical consolidated statements of
operations for the three years ended December 31, 1995.
As a result of the above noted presentation, Ray Dream's net change in
equity for the three months ended March 31, 1996, is reflected as an adjustment
to retained earnings. Net revenues and net loss of Ray Dream for the three
months ended March 31, 1996 were $2,979,500 and $(519,300), respectively.
NOTE 2 - PRO FORMA NET INCOME (LOSS) PER SHARE:
The unaudited pro forma combined net income (loss) per share is based
upon the weighted average number of shares of common stock and, when dilutive,
common equivalent shares outstanding of Fractal and Ray Dream for each period
using an exchange ratio of 0.565249 shares of Fractal for each share of Ray
Dream Common Stock.
Fractal was exempt from the payment of U.S. federal and certain state
income taxes prior to October 1, 1993, as a result of its shareholders electing
to be taxed as a Subchapter S Corporation. Effective October 1, 1993 the
Company's shareholders terminated their Subchapter S election. As a result of
pro forma combined pre-tax losses for the year ended March 31, 1994, there is no
pro forma benefit for income taxes. Therefore, the fact that Fractal was a
Subchapter S corporation during part of this period does not require any
additional pro forma presentations of net income or net income per share as was
necessary for Fractal's historical consolidated financial statements. As the
unaudited pro forma combined condensed statements of operations combines the
historical results of operations of Fractal and Ray Dream, no income tax benefit
has been recognized in the unaudited pro forma combined condensed statements of
operations for any periods in which Ray Dream had losses from operations and
Fractal had income from operations.
NOTE 3 - CONFORMING ADJUSTMENTS & INTERCOMPANY TRANSACTIONS:
There are no material transactions between Fractal and Ray Dream
included in the unaudited pro forma combined financial information for any
period presented. The following pro
<PAGE> 12
forma adjustments were made to conform Ray Dream financial reporting with the
financial reporting presentations of Fractal:
- Reclassify the $713,000 sales returns reserve of Ray Dream from
accounts receivable reserves to an accrued liability.
- Reclassify the $278,000 cumulative amortization of deferred
compensation related to stock options from shareholders' equity to an accrued
liability.
NOTE 4 - TRANSACTION COSTS AND RESTRUCTURING EXPENSES:
Total costs associated with the Merger are expected to be approximately
$1,865,000, including approximately, $450,000 for payments under transition and
severance agreements, $135,000 related to closing duplicate facilities, $950,000
of transaction costs and $330,000 of other costs. Transaction costs to be
incurred by Fractal and Ray Dream include fees to financial advisors and legal,
accounting, printing and other related expenses.
Such costs will be expensed in the quarter ended June 30, 1996, the
quarter in which the Merger is expected to be consummated. Accordingly, the
unaudited pro forma combined condensed statements of operations do not reflect
such costs and expenses. The unaudited pro forma combined condensed balance
sheet gives effect to such expenses, net of income taxes of $266,000, as if they
had been incurred as of March 31, 1996.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Fractal Design Corporation
(Registrant)
Dated: August 7, 1996 By: /s/ LESLIE WRIGHT
-----------------
Leslie Wright
Chief Operating Officer, Chief
Financial Officer and Assistant
Secretary
