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 (Date of earliest event reported) August 19, 1997
APAC TELESERVICES, INC.
(Exact name of registrant as specified in charter)
Illinois 0-26786 36-2777140
(State or other jurisdiction (Commission (IRS Employer
of incorporation) file number) Identification No.)
One Parkway North Center, Suite 510, Deerfield, IL 60015
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code 847/945-0055
N/A
(Former name or former address, if changed since last report)
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
Financial statements of Paragren Technologies, Inc. for
the period ending June 30, 1997
(b) Pro Forma financial information
Unaudited Pro Forma Condensed Consolidated Financial
Statements for APAC TeleServices, Inc.
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.
Date: November 3, 1997 APAC TELESERVICES, INC.
By: /s/ Marc S. Simon
Marc S. Simon, Chief Financial
Officer
EXHIBIT INDEX
Exhibit Number Page Number
(99) 1. Financial statements of Paragren Technologies, Inc. for the period
ending June 30, 1997
(99) 2. Unaudited Pro Forma Condensed Consolidated Financial Statements for
APAC TeleServices, Inc.
PARAGREN TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
AS OF JUNE 30, 1997
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Paragren Technologies, Inc.:
We have audited the accompanying balance sheet of PARAGREN TECHNOLOGIES, INC.
(a Delaware corporation) as of June 30, 1997, and the related statements of
operations, stockholders' investment and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our 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 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 audit provides 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 Paragren Technologies, Inc. as
of June 30, 1997, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 19, 1997
PARAGREN TECHNOLOGIES, INC.
BALANCE SHEET
JUNE 30, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 722,824
Accounts receivable 1,393,462
Deferred income taxes 457,132
Prepaids and other current assets 6,939
Total current assets 2,580,357
PROPERTY AND EQUIPMENT:
Furniture and equipment 151,456
Computer equipment and software 820,965
972,421
Less- Accumulated depreciation and amortization (195,373)
Total property and equipment, net 777,048
OTHER ASSETS:
Capitalized software costs, net of accumulated
amortization of $128,109 768,657
Other assets 44,363
Total other assets 813,020
Total assets $4,170,425
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 208,716
Wages and commissions payable 571,288
Stockholder loan payable 200,000
Deferred revenue 2,072,290
Other current liabilities 342,200
Total current liabilities 3,394,494
STOCKHOLDERS' INVESTMENT:
Preferred stock, $.01 par value, convertible,
5,000,000 shares authorized, 2,200,000 shares 22,000
issued and outstanding
Common stock, $.01 par value, 20,000,000 shares
authorized, 8,050,252 shares issued and 80,503
outstanding
Additional paid-in capital 2,597,698
Accumulated deficit (1,924,270
Total stockholders' investment 775,931
Total liabilities and stockholders'
investment $4,170,425
The accompanying notes to financial statements
are an integral part of this statement.
PARAGREN TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
REVENUES:
Consulting $2,249,515
Software 260,037
Total revenues 2,509,552
OPERATING EXPENSES:
Salaries and employee benefits 1,768,496
Telecommunications panel expenses 536,729
Office supplies 423,390
Marketing and advertising 355,327
Depreciation and amortization 307,410
Travel 314,546
Other operating expenses 386,820
Total operating expenses 4,092,718
Loss from operations (1,583,166)
OTHER INCOME AND EXPENSE:
Interest income 25,024
Other expense, net (4,676)
Total other income, net 20,348
Net loss before income taxes (1,562,818)
INCOME TAX BENEFIT 457,132
Net loss $(1,105,686)
The accompanying notes to financial statements
are an integral part of this statement.
PARAGREN TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,105,686)
Adjustments to reconcile net loss to net cash and cash
equivalents used for operating activities-
Depreciation and amortization 307,410
Deferred income taxes (457,132)
Loss on asset disposal 60,871
Changes in operating assets and liabilities-
Increase in accounts receivable (1,325,962)
Increase in prepaid and other expense (28,195)
Increase in accounts payable 172,343
Increase in wages and commissions payable 546,550
Increase in deferred revenue 2,072,290
Increase in current liabilities 340,738
Net cash and cash equivalents used for
operating activities 583,227
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (919,363)
Investment in capitalized software (768,657)
Net cash and cash equivalents used for
investing activities (1,688,020)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shareholder loans 200,000
Proceeds from sale of preferred stock 600,000
Net cash and cash equivalents provided by
financing activities 800,000
DECREASE IN CASH AND CASH EQUIVALENTS (304,793)
CASH AND CASH EQUIVALENTS, beginning of year 1,027,617
CASH AND CASH EQUIVALENTS, end of year $ 722,824
The accompanying notes to financial statements
are an integral part of this statement.
PARAGREN TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE YEAR ENDED JUNE 30, 1997
OUTSTANDING OUTSTANDING ADDITIONAL
PREFERRED COMMON PREFERRED COMMON PAID-IN ACCUMULATED
SHARES SHARES STOCK STOCK CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1996 2,000,000 8,050,252 $20,000 $80,503 $1,999,698 $(818,584) $1,281,617
Exercise of stock 200,000 - 2,000 - 598,000 - 600,000
warrants
Net loss - - - - - (1,105,686) (1,105,686)
BALANCE, June 30, 1997 2,200,000 8,050,252 $22,000 $80,503 $2,597,698 $(1,924,270) $775,931
The accompanying notes to financial statements are an integral part of this
statement.
</TABLE>
PARAGREN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. DESCRIPTION OF BUSINESS
Paragren Technologies, Inc. (the "Company"), formerly known as Cornerstone
Technologies until January, 1997, was founded in 1995 and is headquartered
in Reston, Virginia. The Company builds, markets and supports customer
marketing applications to drive business intelligence for customer centric
organizations. The Company's product family of customer intelligence
applications is based on an open architecture supporting true platform
independence. Company solutions enable on-line exploratory analysis,
descriptive and predictive modeling, promotion planning, detailed customer
segmentation and campaign execution and evaluation. In addition to its
software solutions, system integration and consulting, the Company designs,
develops and manages consumer panel research. This research helps
businesses learn more about their competition, customer preferences and
marketplace environment through actual purchase and behavioral data
collected over time.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company licenses software under noncancelable perpetual license
agreements and provides services including maintenance, training and
consulting. License fee revenues are recognized when a noncancelable
license agreement has been signed, the product has been delivered and
installed and all other significant contractual obligations have been
satisfied. Revenues from maintenance agreements for maintaining, supporting
and providing periodic upgrades are recognized proportionately over the
maintenance period, which is usually one year. Revenues for training or
consulting services are recognized as services are performed.
Cash received relating to license fees and installation which have not
satisfied all contract obligations and the portion of maintenance agreements
for which services have not yet been provided are classified as deferred
revenue.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Cash and cash equivalents
include time deposits with commercial banks used for temporary cash
management purposes.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentration
of credit risk consist primarily of cash, short-term investments and trade
accounts receivable. The Company places its temporary cash and short-term
investments in one or more financial institutions. The Company has not
experienced any losses on these investments to date.
The Company has not experienced significant losses related to receivables
from individual customers or groups of customers. The Company's customer
base includes a number of telecommunications companies, although its
marketing initiatives are not limited to the telecommunications industry.
Due to these factors, no additional credit risk beyond amounts provided for
collection losses is believed by management to be inherent in the Company's
accounts receivable. The four largest customers at June 30, 1997, represent
36%, 21%, 14% and 11%, respectively, of the total accounts receivable
balance. The Company's three largest customers represent 49%, 17% and 15%,
respectively, of total revenues for the year ended June 30, 1997.
PROPERTY AND EQUIPMENT
Computer equipment and software, office furniture and fixtures, and
leasehold improvements are recorded at cost. Depreciation and amortization
is recorded using the straight-line method over a useful life of three to
five years. Leasehold improvements are amortized over the lesser of their
estimated useful life or the lease term. Repairs and maintenance costs are
charged to expense as incurred. Upon sale or retirement of property and
equipment, the costs and related accumulated depreciation are eliminated
from the accounts and any resulting gain or loss on such disposition is
included in the determination of net income.
CAPITALIZED SOFTWARE
The Company capitalizes certain direct costs, consisting primarily of
salaries and related benefits of individuals directly involved in developing
computer software products. Costs incurred prior to the establishment of
technological feasibility are expensed as incurred. Software development
costs incurred related to new products and systems are capitalized
subsequent to the establishment of technological feasibility. Upon the
general release of the product to customers, capitalization ceases and such
costs are amortized on a straight-line basis over a period not exceeding
five years. Amortization expense related to capitalized software for 1997
was $128,109. Total research and development costs expensed during the year
were $385,947.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
judgments that affect the reported amounts of assets and liabilities and
disclosures of contingencies at the date of the financial statement and
revenues and expenses recognized during the reporting period. Actual
results could differ from those estimates.
3. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured by applying enacted
statutory tax rates, applicable to the future years in which deferred tax
assets or liabilities are expected to be settled or realized, to the
differences between the financial statement carrying amount and the tax
bases of existing assets and liabilities. The statement also requires a
valuation allowance against deferred tax assets which may not be realized.
As of June 30, 1997, the Company had deferred tax assets and (liabilities),
which are summarized as follows:
Deferred revenue $472,000
Net operating loss carryforward 503,568
Accelerated depreciation (14,868
Deferred tax asset before
valuation, net 960,700
Less- Valuation allowance (503,568)
Deferred tax asset, net $457,132
The valuation allowance recorded under SFAS 109 primarily results from the
uncertainty surrounding the Company's ability to generate sufficient taxable
income to realize the benefit of the net operating loss carryforward. The
net operating loss carryforward expires in 2010.
A reconciliation of the statutory tax rate to the effective tax rate
follows:
Statutory rate 34%
State tax, net of federal benefit 4
Net operating loss carryforward valuation (9)
allowance
Effective rate 29%
4. STOCKHOLDERS INVESTMENT
Each share of preferred and common stock is entitled to one vote. The
preferred stock is convertible, at the option of the holder, into fully paid
and nonassessable shares of common stock. The preferred stock is
convertible to common stock at approximately a one-to-one ratio. The
Company has reserved 2,200,000 shares of common stock for conversion of
preferred stock.
COMMON STOCK
The Company's certificate of incorporation was amended and restated to
authorize the Company to issue 20,000,000 shares of common stock, $.01 par
value, and 5,000,000 shares of preferred stock, $.01 par value.
On October 1, 1996, the Board of Directors authorized and the stockholders
approved a four-for-one stock split of the outstanding shares of the
Company's capital stock. All references to capital stock, options, and per
share data have been restated to give effect to the stock split.
SERIES A PREFERRED STOCK WARRANTS
During 1997, all outstanding Series A preferred stock warrants were
exercised. The result was the purchase of 200,000 shares of preferred stock
at a price of $3 per share, resulting in proceeds of $600,000.
5. STOCK-BASED COMPENSATION PLANS
The Company has stock-based compensation plans which are described below.
In October, 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation." SFAS 123 is effective for period beginning after
December 15, 1995. SFAS 123 requires that companies either recognize
compensation expense for grants of stock, stock options, and other equity
instruments based on fair value, or provide pro forma disclosure of net
income and earnings per share in the notes to the financial statements. The
Company adopted the disclosure provisions of SFAS 123 in 1996 and has
applied Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its plans.
The Board of Directors has adopted the Employee Non-Qualified Stock Option
Plan (the "Plan"). Under the Plan, shares of common stock were reserved for
issuance at the discretion of the Board of Directors in the form of stock
options, restricted and unrestricted stock awards, and performance awards.
Under the Plan, the option exercise price shall be at no less than 100% of
the fair market value at the date of grant. Options vest annually over a
four-year period and may be exercised for a period up to ten years from
grant date.
As of June 30, 1997, options for 737,000 shares have been granted under the
Plan, of which, options for 637,000 shares were issued during the year ended
June 30, 1997. All options outstanding are at a price of $.175 per share.
At June 30, 1997, options to purchase approximately 25,000 shares of common
stock were exercisable pursuant to the Plan.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: an expected life of 7.5 years, no expected volatility, and a
dividend yield of 0%. Had the effect of the stock options been included in
the statement of operations, the result would have been, on a pro forma
basis, to increase the net loss by $(68,000), from $(748,770) to $(816,770).
The fair value of options granted during the year ended June 30, 1997, was
$4,375.
6. RETIREMENT PLAN
The Company has a 401(k) retirement savings plan in which all full-time
employees of the Company are eligible to participate. Participants become
eligible to participate in the plan after 30 days of employment with the
Company. The Company does not match participant contributions, although it
does pay all fees incurred in connection with administering the plan.
7. LEASE OBLIGATIONS
The Company has entered into several operating leases which expire at
various dates through the year 2003. The principal operating leases of the
Company are for office space and computer equipment at its location in
Reston, Virginia. The following is a summary of the annual future minimum
rental payments required under noncancelable operating leases:
1998 $ 430,000
1999 468,000
2000 337,000
2001 321,000
2002 288,000
Thereafter 55,000
Total $1,899,00
0
8. TRANSACTIONS WITH RELATED PARTIES
In the ordinary course of business, the Company has entered into a service
contract with an entity that has a minority interest in the Company. The
services provided include, but are not limited to, consulting work, software
implementation and training. The Company has recorded net deferred revenue
of $500,000 for activity related to this contract. Management believes that
these transactions were under terms no less favorable than those arranged
with other parties.
During 1997, the Company entered into a $200,000 loan agreement with the
President and Vice President of the Company (the "Principals"). The
Principals own a significant portion of the business. The loan is payable
on demand and accrues interest at 10% per annum.
9. SUBSEQUENT EVENTS
On August 19, 1997, the Company and APAC Teleservices, Inc. ("APAC")
executed a merger agreement. APAC is a leading provider of outsourced
customer service and sales for corporate clients operating in various
industries throughout the United States. The agreement calls for
stockholders of the Company to receive .1802 shares of APAC common stock in
exchange for each share of the Company's Series A preferred stock and common
stock, which are tendered. All Paragren stock options outstanding were
converted to APAC stock options with similar terms as under the Paragren
plan on the date of the acquisition. Also, in conjunction with the
transaction, the full amount of the loan from the Principles, referred to in
note 8, was repaid by the Company.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements of
APAC TELESERVICES, INC. ("the Company") gives effect to the acquisition of
PARAGREN TECHNOLOGIES, INC. ("Paragren"). The unaudited pro forma financial
statements are filed by way of an amendment to the Company's Current Report on
Form 8-K filed on August 19, 1997, which describes the acquisition of Paragren.
The unaudited pro forma condensed consolidated statement of operations for the
year ended December 29, 1996, reflects the audited historical statement of
income of the Company and the unaudited historical statement of operations of
Paragren for the year then ended. The unaudited pro forma condensed consolidated
balance sheet as of June 29, 1997, and the statement of operations for the
twenty-six weeks ended June 29 and 30, 1997, reflect the unaudited historical
balance sheets and statements of operations of the Company and Paragren,
respectively. Paragren's historical financial statements are based on a
June 30 year-end and have been restated herein for pro forma purposes to
conform with the Company's year-end financial statements.
The unaudited pro forma condensed financial statements are a presentation of
historical results with accounting and other adjustments. The unaudited pro
forma condensed financial statements (i) do not reflect the effects of any
anticipated changes to be made by the Company to its historical operations;
(ii) are presented for informational purposes only; and (iii) should not be
construed to be indicating the results of operations or the financial
position of the Company that actually would have occurred had the acquisition
of Paragren been consummated as of the dates indicated, or the results of
operations or the financial position of the Company in the future.
The unaudited pro forma financial statements reflect the acquisition using the
purchase method of accounting. The acquired assets and liabilities of Paragren
are stated at values representing a preliminary allocation of the purchase
price based upon the estimated fair market values at the date of acquisition.
The final purchase accounting allocations will be determined based on the final
appraised values which could differ from the estimates used herein. Variations
from the final allocations will be recorded in the quarter ending December 28,
1997.
The following unaudited pro forma financial statements and accompanying notes
are qualified in their entirety by reference to, and should be read in
conjunction with the Company's Management's Discussion and Analysis of
Financial Condition and Results of Operations included in its Annual Report on
Form 10-K for the year ended December 29, 1996, and in its Quarterly Report on
Form 10-Q for the twenty-six week period ended June 29, 1997, and the audited
financial statements of Paragren as of June 30, 1997, which are also included
within this amendment to the Company's Form 8-K filed on August 19, 1997.
<TABLE>
<CAPTION>
APAC TeleServices, Inc. and
Subsidiaries
Unaudited Pro Forma Condensed
Consolidated Statement of
Operations
For the Fifty-Two Weeks Ended
December 29, 1996
(000's omitted, except per
share data)
Pro Forma
Historical Adjustments Combined
APAC Paragren (1)(3)(5) Pro Forma
NET REVENUE $276,443 $1,167 $277,610
OPERATING EXPENSES:
Cost of services 193,967 1,748 $4,203 199,918
Selling, general and 33,397 323 3,927 37,647
administrative expenses
Total operating 227,364 2,071 8,130 237,565
expenses
Income (loss) from 49,079 (904) (8,130) 40,045
operations
INVESTMENT INCOME 280 40 320
INTEREST EXPENSE, NET (309) (309)
Income (loss) before income 49,050 (864) (8,130) 40,056
taxes
PROVISION FOR INCOME TAXES 18,500 (2,863) 15,637
(BENEFIT)
NET INCOME (LOSS) $30,550 $(864) $(5,267) $24,419
Net Income per share $0.64 $0.49
Weighted average shares 47,935 2,181 50,116
outstanding
APAC TeleServices, Inc. and
Subsidiaries
Unaudited Pro Forma Condensed
Consolidated Statement of
Operations
For the Twenty-Six Weeks Ended
June 29, 1997
(000's omitted, except per
share data)
Pro Forma
Historical Adjustments Combined
APAC Paragren (1)(3)(5) Pro Forma
<S> <C> <C> <C> <C>
NET REVENUE $181,904 $1,557 $183,461
OPERATING EXPENSES:
Cost of services 131,399 1,748 $1,973 135,120
Selling, general and 22,306 959 1,964 25,229
administrative expenses
Total operating 153,705 2,707 3,937 160,349
expenses
Income (loss) from 28,199 (1,150) (3,937) 23,112
operations
INTEREST EXPENSE, NET (638) 10 (628)
Income (loss) before income 27,561 (1,140) (3,937) 22,484
taxes
PROVISION FOR INCOME TAXES 10,475 (457) (1,366) 8,652
(BENEFIT)
NET INCOME (LOSS) $17,086 $(683) $(2,571) $13,832
Net Income per share $0.36 $0.28
Weighted average shares 48,058 2,181 50,239
outstanding
APAC TeleServices, Inc. and
Subsidiaries
Unaudited Pro Forma Condensed
Consolidated Balance Sheet
As of June 29, 1997
(000's omitted)
Pro Forma
Historical Adjustments Combined
ASSETS APAC Paragren (2) Pro Forma
CURRENT ASSETS:
Cash and cash equivalents $17 $723 $(590) $150
Accounts receivable, net 61,228 1,393 62,621
Other current assets 3,089 464 3,553
Total current assets 64,334 2,580 (590) 66,324
PROPERTY AND EQUIPMENT 126,384 972 127,356
Less - accumulated (26,607) (195) (26,802)
depreciation
Property and equipment, net 99,777 777 100,554
OTHER ASSETS:
Capitalized software, net 769 12,261 13,030
Workforce and non-compete 8,830 8,830
agreements
Goodwill 18,363 18,363
Other assets 1,589 44 830 2,463
Total other assets 1,589 813 40,284 42,686
Total assets $165,700 $4,170 $39,694 $209,564
LIABILITIES AND SHARE OWNERS'
EQUITY
CURRENT LIABILITIES:
Notes payable $21,592 $ 800 $22,392
Accounts payable 14,811 $209 15,020
Income taxes payable 2,718 2,718
Other current liabilities 10,899 3,185 (390) 13,694
Total current 50,020 3,394 410 53,824
liabilities
LONG-TERM DEBT, NET 1,289 1,289
DEFERRED INCOME TAXES 3,900 8,769 12,669
SHARE OWNERS' EQUITY:
Preferred shares 22 (22)
Common shares 468 80 (58) 490
Additional paid-in capital 59,213 2,598 29,271 91,082
Retained earnings (deficit) 50,810 (1,924) 1,324(4) 50,210
Total share owners' 110,491 776 30,515 141,782
equity
Total liabilities and $165,700 $4,170 $39,694 $209,564
share owners' equity
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following notes identify the pro forma adjustments made to the historical
amounts in the unaudited pro forma condensed consolidated financial statements:
1. The adjustments to the unaudited pro forma condensed statement of
operations give effect to the amortization of intangible assets acquired
and the related tax benefit attributed to deductible amortization other
than goodwill.
2. The adjustments to the unaudited pro forma condensed balance sheet give
effect to the preliminary allocation of the Company's purchase price to the
tangible and intangible assets acquired, based on a preliminary appraisal,
and related deferred income taxes at an assumed tax rate of 40%. The
purchase price of $32.7 million was based upon the issuance of 2,180,584
shares of the Company's common stock (common shares were valued at $14.625)
and the payment of other direct acquisition costs of $800,000. In
conjunction with the transaction, loans and advances due to
shareowners/officers in the amount of $590,000 were repaid by the Company.
3. The income tax benefit associated with Paragren's historical loss for the
twelve month period ended December 31, 1996, has been recognized as a pro
forma adjustment to the provision for income taxes. Additionally, net
operating losses amounting to $395,000 not previously recognized in
Paragren's historical statement of operations for the six months ended
June 30, 1997, have been reflected as a pro forma reduction to the
provision for income taxes. The pro forma adjustments reflect the
Company's ability to utilize Paragren's deferred tax asset (net operating
loss carryforward) within a consolidated group for Federal income tax
purposes.
4. The Company assigned $600,000 of the purchase price to in-process research
and development costs resulting in a reduction to beginning retained
earnings.
5. Pro forma weighted average shares outstanding include the effect of the
2,180,584 shares issued by the Company.
