SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 15, 1995
SOFTNET SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New York 1-5270 11-1817252
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
717 Forest Avenue, Lake Forest, Illinois 60045
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 266-8150
Not Applicable
(Former name or former address, if changed since last report)
The Form 8-K Current Report filed by the registrant on October 2, 1995 is
hereby amended as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
The text of this item as previously filed is hereby restated to read in its
entirety as follows:
(a) Financial statements of businesses acquired.
Financial Statements of Micrographic Technology Corporation (balance
sheets as of June 30, 1995 and June 26, 1994, and the related statements
of income, shareholders' equity (net capital deficiency) and cash flows
for the years then ended) with Report of Independent Auditors.
Board of Directors
Micrographic Technology Corporation
Mountain View, California
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying balance sheets of Micrographic Technology
Corporation as of June 30, 1995 and June 26, 1994, and the related statements
of income, shareholders' equity (net capital deficiency), and cash flows for
the years 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 upon 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 balance sheet is 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 accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe our audits provide a reasonable basis for our
opinion.
As further discussed in Note 2 to the financial statements, the Company has
agreed to be acquired by another company, SofNet Systems, Inc.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Micrographic Technology
Corporation as of June 30, 1995 and June 26, 1994, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Frank, Rimerman & Co.
FRANK, RIMERMAN & CO.
Menlo Park, California
August 31, 1995, except as to Note 2
which is as of September 14, 1995
MICROGRAPHIC TECHNOLOGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1995 June 26, 1994
ASSETS
<S> <C> <C>
Current assets:
Cash $ 140,207 $ -
Accounts receivable, net of allowance of approximately 4,205,115 2,576,169
$55,000 for doubtful accounts ($42,000 at June 26, 1994)
Inventories 1,224,103 1,956,541
Other current assets 91,065 161,132
Total current assets 5,660,490 4,693,842
Property and equipment, net 543,234 380,745
Deferred issuance costs of long-term debt, net 352,496 405,722
Other assets 33,416 58,149
$ 6,589,636 $ 5,538,458
LIABILITIES AND SHAREHOLDERS'
EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Bank overdraft $ - $ 74,946
Revolving loan payable 691,355 874,964
Accounts payable 1,690,376 2,054,706
Accrued compensation expenses 486,699 214,962
Income and other taxes payable 101,299 57,162
Other accrued expenses 396,254 586,469
Deferred revenue 396,267 186,582
Due to shareholder 743,129 360,030
Total current liabilities 4,505,379 4,409,821
Long-term debt 3,429,900 3,305,560
Due to shareholder - 645,960
Commitments and contingencies
Shareholders' equity (net capital deficiency):
Common stock 1,917,412 1,917,412
Accumulated deficit (3,263,055) (4,740,295)
Net capital deficiency (1,345,643) (2,822,883)
$ 6,589,636 $ 5,538,458
See Notes to the Financial Statements
</TABLE>
MICROGRAPHIC TECHNOLOGY CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended
June 30, 1995. June 26, 1994.
<S> <C> <C>
Net revenue $ 15,393,700 $ 16,891,771
Cost of revenue 8,718,542 11,448,992
Gross margin 6,675,158 5,442,779
Operating expenses:
Sales and marketing 1,414,277 2,209,987
Engineering 1,536,690 1,756,918
General and administrative 1,702,171 1,658,844
4,653,138 5,625,749
Income (loss) from operations 2,022,020 (182,970)
Interest expense, net 511,573 545,474
Other (income) and expenses (15,369) (132,951)
Income (loss) before income tax expense and
extraordinary credit 1,525,816 (595,493)
Income tax expense 48,576 -
Income (loss) before extraordinary credit 1,477,240 (595,493)
Extraordinary credit on early extinguishment of
debt (Note 1) - (750,435)
Net income $ 1,477,240 $ 154,942
Income (loss) per common share:
Before extraordinary credit $ 0.01 $ (0.01)
Extraordinary credit $ 0.01 $ 0.00
Weighted average common
& common equivalent shares 111,109,517 111,109,517
See Notes to the Financial Statements
</TABLE>
MICROGRAPHIC TECHNOLOGY CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
Total
Shareholders'
Equity (Net
Common Stock Accumulated Capital
Shares Amounts Deficit Deficiency)
<S> <C> <C> <C> <C>
Balance at June 27, 1993 101,709,517 $ 1,886,503 $ (4,895,237) $ (3,008,734)
Conversion of warrants 9,000,000 - - -
Issuance of common shares 100,000 7,727 - 7,727
Exercise of stock option 300,000 23,182 - 23,182
Net income - - 154,942 154,942
Balance at June 26, 1994 111,109,517 $ 1,917,412 $ (4,740,295) $ (2,822,883)
Net income 1,477,240 1,477,240
- -
Balance at June 30, 1995 111,109,517 $ 1,917,412 $ (3,263,055) $ (1,345,643)
</TABLE>
See Notes to Financial Statements
MICROGRAPHIC TECHNOLOGY CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
June 30, June 26,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,477,240 $ 154,942
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 341,364 357,569
Interest expense converted to note principal 124,340 245,560
Extraordinary credit - (750,435)
Change in assets and liabilities:
Accounts receivable (1,628,946) (144,737)
Inventories 732,438 1,423,989
Other current assets 70,067 51,264
Other assets 24,733 (51,088)
Bank overdraft (74,946) 61,078
Accounts payable (364,330) (28,151)
Accrued compensation and related expenses 271,737 (205,900)
Taxes payable 44,137 -
Other accrued liabilities (190,215) 99,322
Deferred revenue 209,685 (181,223)
Due to shareholder (262,861) (122,120)
Net cash provided by operating activities 774,443 910,070
CASH USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (450,627) (53,335)
Net cash used in investing activities (450,627) (53,335)
CASH USED IN FINANCING ACTIVITIES
Payments on revolving loan (183,609) (759,655)
Reduction of long-term debt - (162,254)
Increase in note payable to shareholder - 65,174
Net cash used in financing activities (183,609) (856,735)
Net increase in cash 140,207 -
Cash at beginning of period - -
Cash at end of period $ 140,207 $ -
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ - $ 294,000
Income taxes paid $ 14,410 $ -
Supplemental schedule of noncash investing and financing activities
Common stock issued in conjunction with private
placement of special warrants and exercise of stock option $ - $ 30,909
See Notes to Financial Statements
</TABLE>
MICROGRAPHIC TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization and Business
In 1989, Micrographic Technology Corporation (the "Company" or "MTC"), a
California corporation, acquired substantially all of the assets and
assumed certain liabilities of the Micrographic Systems Division of NCR
Corporation (NCR Corporation was subsequently acquired by AT&T and
became a wholly owned subsidiary AT&T). The acquisition was accounted
for as a purchase with no goodwill recorded. The purchase price was
approximately $9,200,000. The Company was initially financed through
the issuance of common stock, preferred stock (with the preferred stock
being subsequently converted to common stock) and debt (including debt
from AT&T).
The Company designs, develops, manufactures and markets products for the
computer output microfilm ("COM") market. The Company's products
consist primarily of proprietary hardware and software systems and media
products (consumables), which include original and duplicate microfilm
and the chemicals used in developing the film.
Under agreements, the Company uses AT&T as a distributor for its
products in many locations outside the United States and as the
exclusive provider of installation and contract maintenance service
within the United States. Net revenue from AT&T was approximately 26%
and 44% of total net revenue for fiscal years 1995 and 1994,
respectively. The Company had accounts receivable from AT&T of
approximately $907,000 and $1,032,000 at June 30, 1995 and 1994,
respectively.
In 1994, the Company made several changes in its contractual
relationship with AT&T. Effective May 19, 1994, AT&T and the Company
executed a termination agreement whereby certain agreements previously
entered into by the parties were terminated. Pursuant to the
termination agreement, AT&T canceled indebtedness owed to it by MTC of
$750,435, net of certain equipment transferred to AT&T by MTC. The
Company incurred no tax liability as a result of this transaction due to
the utilization of net operation loss carryforwards (Note 5).
Effective July 1, 1994, the Company entered into a new Third Party
Maintenance Agreement with AT&T under which AT&T became the exclusive
worldwide authorized maintenance service representative for installation
and contract maintenance services. The term of the Third Party
Maintenance Agreement is for one year from the effective date and it
automatically renews for additional one year periods. Either party may
terminate this agreement by giving the other party six months prior
written notice at the end of each one year period. The Company is
entitled to receive a percentage of the net annual maintenance revenues
generated by AT&T from servicing MTC products, payable monthly. In
1995, the Company earned and collected royalties of $1,602,000 in
connection with this agreement.
Fiscal Year
In 1995, the Company adopted a fiscal year of June 30. In 1994, the
Company used in a 52-53 fiscal year which ended June 26.
Revenue Recognition
Product revenue is recognized upon shipment, installation or final
customer acceptance, depending on specific contract terms. Software
service revenues are recognized ratably over the related contract period
or as services are performed. Royalty revenue is recognized monthly
based on estimated maintenance fees and is subject to verification
against actual fees on a semi-annual basis.
Export Sales
Export sales made to continental Europe were approximately 27% and 26%
of net revenue for fiscal years 1995 and 1994, respectively.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts
receivable. The Company sells its products on a national and
international basis. The Company performs ongoing credit evaluations of
its customers' financial condition and generally requires no collateral
from its customers. At June 30, 1995, approximately 27% of trade
accounts receivable were due from the Company's two primary
distributors, including AT&T (43% in 1994).
Inventories
Inventories are stated at the lower of cost or market. Media products
(consumables) inventories are included in finished goods.
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 26, 1994
<S> <C> <C>
Raw material . . . . $ 393,428 $ 584,232
Work-in-process . . . 148,169 49,046
Finished goods . . . 682,506 1,323,263
$ 1,224,103 $ 1,956,541
</TABLE>
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method with estimated useful lives
ranging from three to ten years. Depreciation and amortization expenses
for fiscal years 1995 and 1994 were approximately $237,000 and $214,000
respectively, and are included in cost of revenue and in each of the
operating expense categories in the statement of operations.
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1995JUNE 26, 1994
<S> <C> <C>
Furniture and fixtures $ 491,946 $ 491,946
Leasehold improvements 374,461 361,565
Machinery and equipment 808,873 496,729
Computer equipment . 829,715 704,127
$ 2,504,995 $ 2,054,367
Less accumulated depreciation
and amortization . (1,961,761) (1,673,622)
$ 543,234 $ 380,745
</TABLE>
Deferred Issuance Costs of Long Term Debt
Costs incurred in the issuance of Debentures and Notes (Note 3) have
been capitalized and are being amortized using the straight-line method
over 10 years, the term of the related debt instruments. Accumulated
amortization was approximately $165,500 at June 30, 1995 ($112,000 in
1994).
Software Development Costs
Software development costs are expensed as incurred.
Net Income (Loss) Per Common Share
Primary net income (loss) per common share is computed based on the
weighted average number of common and common equivalent shares
outstanding. Fully diluted net income (loss) per share is not presented
as it is not materially different from primary net income (loss) per
common share.
Reclassifications
Certain reclassifications have been made to 1994 balances to conform
with the 1995 presentation.
2. Proposed Sale of the Company
On March 24, 1995, the Company entered into an agreement (the
"Agreement") to exchange all of its issued and outstanding common stock,
after conversion of its convertible subordinated notes, for cash of
$1,050,000, notes with a face value of $2,800,000 and 777,778 shares of
common stock of SoftNet Systems, Inc. ("SoftNet"). This consideration
is subject to adjustment based upon the Company's 1995 operating
results. SoftNet's primary business activities relate to
telecommunication and image processing. The Agreement was approved by
the Company's stockholders in September 14, 1995. Upon completion of the
merger, the Company will cease to exist.
3. Financing Arrangements
Revolving Line of Credit
The Company has a $1,200,000 revolving line of credit subject to draw
against qualified accounts receivable as defined by the agreement. As
of June 30, 1995, the Company had available credit against this line of
approximately $260,000. The line is secured by the accounts receivable
of the Company and bears interest at prime plus 4.5% (13.50% at June 30,
1995) of the average daily outstanding balance. The line expires in
September 1995 and is subject to annual renewal.
Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 26, 1994
<S> <C> <C>
Convertible subordinated secured
debentures, due in February 2002
with semi-annual interest payments
at 6% (Note 2) . . . . . . . $ 1,800,000 $1,800,000
Subordinated secured notes, due in
February 2002 with semi-annual interest
payments at 11% . . . . . . 1,629,900 1,505,560
3,429,900 3,305,560
Less current portion . . - -
$ 3,429,900 $3,305,560
</TABLE>
Under the terms of the Indenture governing the Convertible Subordinate
Secured Debentures (the "Debentures") and the Subordinate Secured Notes
(the "Notes"), accrued interest is to be paid semi-annually so long as the
securities are outstanding. Due to the Company's working capital
requirements and its financial condition, the semi-annual interest payments
due December 31, 1993, June 30, 1994 and December 31, 1994, on the
Debentures and Notes were not made. In February 1995, the security holders
agreed to convert accrued interest on the Debentures and Notes for December
31, 1993, June 30, 1994 and December 31, 1994 into additional principal on
the Notes. Accordingly, the Notes were increased to $1,629,900 as of
December 31, 1994. At June 30, 1995, the Company is in full compliance
with all provisions of the convertible debentures and subordinated secured
notes.
The Debentures can be converted at any time prior to redemption into shares
of the Company's common stock at a ratio of one common share for each $.12
of outstanding principal amount, subject to certain antidilution
adjustments. If all the Debentures were converted, the Company would
issue, approximately, an additional 15,000,000 common shares. The Company
has reserved 15,000,000 common shares issuable upon conversion of the
Debentures.
The Debentures are subject to redemption at the option of the Company after
the closing price for the Company's common shares on a publicly traded
market equals or exceeds 200% of the conversion price of the Debentures for
at least 75 trading days in any 90 consecutive trading day period. The
Debentures are also subject to redemption, at the option of the Company at
a price equal to the then outstanding principal amount, subject to a
redemption premium of 5% of the principal value of the Notes in 1993,
declining to zero in 2001. In the latter case, the Company would have to
issue common share purchase warrants to purchase the same number of shares
as would have been issuable if the Debentures had been converted.
The Debentures and Notes are subordinate to borrowings under the Company's
revolving line of credit agreement. As long as any of the Debentures and
Notes remain outstanding, the cumulative net losses of the Company,
calculated from July 1, 1994 forward, at the end of any fiscal year, shall
not exceed $1,000,000.
4. Lease Commitments
The Company operates in leased office and manufacturing facilities under a
noncancellable lease which expired on July 31, 1995. Subsequent to June
30, 1995, the Company entered into a new three year noncancellable lease
which expires on July 31, 1998. Rental expense was approximately $487,000
and $423,000 (net of sublease income of approximately $240,000 and $80,000
in fiscal years 1995 and 1994, respectively) for fiscal years 1995 and
1994, respectively.
The Company also leases operating and administrative equipment on an
operating lease basis. None of the obligations is material.
Minimum future lease payments under all noncancellable operating leases at
June 30, 1995 (including the new facilities lease) are as follows:
<TABLE>
<CAPTION>
RENTAL
COMMITMENTSSUBLEASE INCOME
<S> <C> <C>
Fiscal Year
1995 . . . . . . . . . $ 358,500 $ 20,000
1996 . . . . . . . . . 346,800 -
1997 . . . . . . . . . 346,800 -
1998 . . . . . . . . . 28,900 -
$ 1,081,000 $ 20,000
</TABLE>
5. Income Taxes
The Company accounts for its income taxes assets and liabilities on the
liability method in accordance with Statement of Financial Accounting
Standards No. 109.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
JUNE 30, 1995JUNE 26, 1994
<S> <C> <C>
Federal:
Current . . . . . . . $ 26,525 $ -
Deferred . . . . . . . - -
$ 26,525 $ -
State:
Current . . . . . . . $ 22,051 $ -
Deferred . . . . . . . - -
$ 22,051 $ -
$ 48,576 $ -
</TABLE>
At June 30, 1994, the Company had net operating loss carryforwards of
approximately $2,430,000 for federal income tax purposes of which
approximately $1,730,000 was used to reduce taxable income in 1995. The
remaining carryforwards of $700,000 will expire in the years 2006 through
2009 if not used to reduce future federal taxable income.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 26, 1994
<S> <C> <C>
Deferred Tax Assets
Inventory and other reserves $ 369,000 $ 289,000
Excess book over tax depreciation 115,000 60,000
Deferred revenue . . . 13,000 29,000
Net operating losses . . 280,000 810,000
Total deferred tax assets $ 777,000 $ 1,188,000
Valuation allowance . . (777,000) (1,188,000)
Net deferred tax assets $ - $ -
</TABLE>
6. Shareholders' Equity
Common Stock
The Company is authorized to issue 200,000,000 shares of no par value
common stock. At June 30, 1995 and June 26, 1994, 111,109,517 shares were
issued and outstanding.
Preferred Stock
The Company is authorized to issue 15,000,000 shares of no par value
preferred stock, of which 500,000 shares were designated and issued as
Series A convertible preferred stock and 500,000 shares were designated and
issued as Series B redeemable preferred stock (the "preferred stock"). In
March 1993, all of the issued and outstanding shares of Series A
convertible preferred stock and Series B redeemable preferred stock were
converted into common stock.
Options and Warrants
In 1992, the Company completed a private placement transaction which
resulted in the issuance of its currently outstanding subordinated
Debentures and Notes (Note 3). In connection with this transaction,
9,000,000 warrants, each convertible into one share of common stock, were
issued. No portion of the consideration received in connection with the
transaction was allocated to the equity instruments (warrants). The
warrants were converted into common stock in 1994.
In connection with the above transaction, the Company issued a total of
400,000 shares of common stock (300,000 through stock options) as
compensation to the underwriter of the private placement.
Share Purchase Warrant Registration
On April 14, 1993, the Company obtained a receipt for a final prospectus
from the Ontario Securities Commission ("OSC") for the secondary
distribution of 5,253,517 common shares of the Company. The common shares
were originally acquired by the stockholder/director of the Company. In
1989, the shares were transferred to Plumbing Marts of America ("PMA") and
were being held for distribution to the shareholders of PMA, who include
the above-mentioned stockholder/director of the Company. There were no
proceeds to the Company upon completion of the secondary distribution of
the 5,253,517 common shares.
In connection with this secondary distribution, the Company borrowed
$158,600 from the shareholder/director. This obligation, included in "Due
to shareholder," is to be repaid when the Company's operations become
profitable and cash flow permits.
7. Other Related Party Transaction
In May 1993, the stockholder/director acquired the Company's rights and
interests in three of its sales agreements for approximately $2,100,000.
Under the terms of the transaction, the Company agreed to facilitate the
signing of lease agreements between the stockholder/director and the
customers. As of June 30, 1995, approximately $2,020,000 of lease
agreements between the stockholder/director and the customers, on which the
Company has recognized revenue, have been signed. At June 30, 1995, the
remaining amount of $79,795 ($245,030 at June 26, 1994) is included in the
balance shown as "Due to shareholder" in the current liabilities section of
the balance sheet. The Company has agreed that the stockholder/director
will receive at least a 16% return on his investment. Also included in
"Due to shareholder" at June 30, 1995, is a reserve of approximately
$273,211 ($262,000 at June 26, 1994) representing the present value of the
difference between the return on investment desired by the Private Investor
and the return on investment implicit in the lease agreements signed by the
customers. The stockholder/director has agreed to forgive the $273,211
upon the merger of the Company into SoftNet (Note 2).
Financial Statements of Kansas Communications, Inc. (balance sheets as of
March 31, 1995 and March 31, 1994, and the related statements of earnings,
retained earnings and cash flows for each of the three years in the period
ended March 31, 1995) with Report of Independent Accountants included in
the Registration Statement on Form S-4 dated August 9, 1995, as amended
(Reg. No. 33-95542) and incorporated herein by reference.
Unaudited Financial Statements of Kansas Communications, Inc. for the
three-month period ended June 30, 1995.
<TABLE>
<CAPTION>
KANSAS COMMUNICATIONS, INC.
BALANCE SHEET AS OF JUNE 30, 1995
(unaudited)
ASSETS
<S> <C>
Current assets:
Cash $ 320,668
Receivables, net 1,272,195
Inventories 1,753,445
Prepaid expenses 22,555
Total current assets 3,368,863
Property and equipment, net 234,421
Other assets 161,302
$3,764,586
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $1,225,305
Current portion of long-term debt 201,889
Deferred revenue 510,070
Total current liabilities 1,937,264
Long-term debt, net of current portion 75,595
Shareholders' equity:
Common stock, $1 par value, 50,000
shares authorized,
5,333 shares outstanding 5,333
Capital in excess of par value 12,668
Retained earnings 1,733,726
Total shareholders' equity 1,751,727
$3,764,586
</TABLE>
<TABLE>
<CAPTION>
KANSAS COMMUNICATIONS, INC.
STATEMENTS OF INCOME
Three months ended
June 30,
1995 1994
(Unaudited)
<S> <C> <C>
Sales $ 2,733,994$ 3,047,901
Cost of sales 1,702,813 1,848,550
Gross profit 1,031,181 1,199,351
Expenses:
Selling, general and administrative 866,450 676,604
Depreciation and amortization 23,235 17,076
Total expenses 889,685 693,680
Income from operations 141,496 505,671
Other expense 3,042 619
Income before provision for income taxes 138,454 505,052
Provision for income taxes 55,000 196,000
Net income $ 83,454$ 309,052
Net income per share $ 15.65$ 57.95
Weighted average common shares outstanding 5,333 5,333
</TABLE>
<TABLE>
<CAPTION>
KANSAS COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
Three months ended
June 30,
1995 1994
(Unaudited)
<C> <C>
<S>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 83,454$ 309,052
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 23,235 17,076
Changes in operating assets and
liabilities
Receivables (68,759) (283,216)
Inventories (79,351) 175,392
Prepaid expenses 56,187 (14,872)
Accounts payable and accrued expenses 176,971 373,012
Deferred revenue (111,575) (231,920)
Net cash provided by operating 80,162 344,524
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,939) (2,366)
Increase in other assets (47,959) (111,614)
Cash used in investing activities (57,898) (113,980)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 179,269 (21,524)
Net cash provided by (used) in 179,269 (21,524)
financing activities
NET INCREASE (DECREASE) IN CASH 201,533 209,020
CASH, beginning of period 119,135 259,430
CASH, end of period $ 320,668$ 468,450
</TABLE>
1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the consolidated statements of financial position, results of
operations and cash flows as of, and for the interim period ended, June 30,
1995.
The results of operations for the three months ended June 30, 1995 are not
necessarily indicative of the results to be expected for the full year.
2. PROPOSED SALE OF THE COMPANY
On March 24, 1995, the Company entered into an agreement (the "Agreement")
to exchange all of its issued and outstanding common stock for 1,300,000
shares of common stock of SoftNet Systems, Inc. The transaction will be
accounted for as a pooling-of-interest. On September 15, 1995 the
transaction was completed.
(b) Pro Forma financial information.
Unaudited Pro Forma Condensed Combined Financial Statements of SoftNet
Systems, Inc. and the acquired businesses: Micrographic Technology
Corporation and Kansas Communications, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the mergers of Micrographic Technology Corporation ("MTC") and
Communicate Direct Incorporated ("CDI"), on a purchase accounting basis, and
the merger of Kansas Communications, Inc. ("KCI"), on a pooling-of-interests
basis, with SoftNet Systems, Inc. and Subsidiaries ("SoftNet").
The unaudited pro forma condensed combined balance sheet at June 30, 1995
assumes that the mergers of MTC and KCI occurred on June 30, 1995. The
unaudited pro forma condensed combined statements of operations for the nine
months ended June 30, 1995 and the year ended September 30, 1994, assume that
the mergers occurred on October 1, 1994 and October 1, 1993, respectively.
The pro forma adjustments are based on preliminary assumptions of the
allocation of the purchase price and are subject to revision once evaluations
of the fair value of the assets and liabilities and net worth of CDI and MTC
are completed. Such revisions are not expected to be material to the
reported pro forma financial position or results of operations.
THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS ARE NOT
NECESSARILY INDICATIVE OF THE RESULTS THAT ACTUALLY WOULD HAVE OCCURRED IF
THE MERGERS HAD BEEN COMPLETED ON THE ASSUMED DATES, NOR ARE THE STATEMENTS
INDICATIVE OF FUTURE COMBINED FINANCIAL POSITION OR EARNINGS.
The pro forma condensed combined financial statements should be read in
conjunction with the consolidated financial statements of SoftNet filed with
the Securities and Exchange Commission in its Annual Report on Form 10-KSB
for the fiscal year ended September 30, 1994 and its current report on Form
10-QSB for the nine months ended June 30, 1995.
<TABLE>
<CAPTION>
SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 1995
(UNAUDITED)
Historical Pro forma
SoftNet Kansas Microgrpahic
Systems, Communications, Technology,
Inc. Inc. Corp. Adjustments Combined
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash $ 361,195 $ 320,668 $ 140,207 - $ 822,070
Trade accounts receivable, net 1,643,603 1,272,195 4,205,115 - 7,120,913
Inventories 1,191,009 1,753,445 1,224,103 - 4,168,557
Prepaid expenses 168,105 7,631 91,065 - 266,801
Total current assets 3,363,912 3,353,939 5,660,490 - 12,378,341
Property and equipment, net 1,447,092 234,420 543,234 - 2,224,746
Long-term investment, at cost 1,989,379 - - - 1,989,379
Intangible assets, net 4,348,658 - 352,496 $ 5,000,114(D) 10,214,772
866,000(E)
-352,496(H)
Other assets 433,122 176,226 33,416 -230,000(E) 412,764
Total assets $11,582,163 $ 3,764,585 $ 6,589,636 $ 5,283,618 $ 27,220,002
LIABILITIES
Current Liabilities
Notes payable $ 1,930,651 $ 163,678 $ 691,355 $ -691,000(B) $ 2,094,684
Obligations under capital lease - 38,211 - - 38,211
Accounts payable and accrued expenses 3,100,598 1,315,303 2,674,628 -230,000(B) 6,860,529
Deferred revenue 389,955 510,070 396,267 - 1,296,292
Stock put liability 200,000 - - - 200,000
Total current liabilities 5,621,204 2,027,262 3,762,250 -921,000 10,489,716
Obligations under capital lease,
less current portion - 36,805 - - 36,805
Long-term debt less current portion 4,095,423 38,790 3,429,900 2,800,000(C) 12,018,213
3,284,100(B)
-1,630,000(H)
Other liabilities - - 743,129 -743,129(B) 0
Total liabilities 9,716,627 2,102,857 7,935,279 2,789,971 22,544,734
Shareholder's equity:
Common stock outstanding 31,921 5,333 1,917,412 -1,917,412(F) 55,376
7,778(A)
7,667(G)
2,012(H)
665(I)
Additional paid in capital 19,109,211 12,668 - 5,242,222(A) 26,573,257
-7,667(G)
-363,000(E)
1,627,988(H)
951,835(I)
Retained earnings
(Accumulated Deficit) -17,275,596 1,643,727 -3,263,055 3,263,055(F) -21,953,365
-352,496(H)
-969,000(E)
-5,000,000(D)
Total shareholder's equity 1,865,536 1,661,728 -1,345,643 2,493,647 4,675,268
Total liabilities and
shareholder's equity $ 11,582,163 $ 3,764,585 $ 6,589,636 $ 5,283,618 $ 27,220,002
See notes to pro forma condensed combined balance sheet.
</TABLE>
SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED
BALANCE SHEET
JUNE 30, 1995
(UNAUDITED)
(A) To record the issuance of 777,778 shares of SoftNet Systems, Inc. common
stock to the shareholders of MTC, $.01 par value, for approximate value
of $5,250,000.
(B) To record additional borrowings in the amount of $3,284,100 by SoftNet
to pay the cash consideration to the shareholders of MTC in the amount
of $1,050,000, the payment of $297,600 to one shareholder for the
complete satisfaction of certain obligations owed by MTC to the
shareholder, the payment of $691,000 to pay-off of the MTC revolving
line of credit, and the payment of transaction costs incurred in
connection with the mergers.
(C) To record the issuance of $2,800,000 principal amount of SoftNet
Systems, Inc. 9% convertible subordinated debentures as additional
consideration to the shareholders of MTC.
(D) To record the purchase price of MTC in excess of the fair value of
acquired assets, less assumed liabilities, to be added to intangible
assets.
(E) To record the transaction costs incurred in connection with the mergers,
approximately $866,000 to be added to intangible assets and $969,000 to
be expensed as acquisition costs. Also, to reclassify the portion of
these transaction costs already recorded by SoftNet and included in
other assets. Additionally, to record the costs related to issuance of
equity securities in connection with the merger of MTC, of approximately
$363,000.
(F) To remove MTC outstanding common stock and accumulated deficit as of
June 30, 1995.
(G) To record the issuance of 1,300,000 shares of SoftNet Systems Inc.
common stock, par value $.01, in exchange for all of the outstanding
shares of KCI common stock.
(H) To record the conversion of $1,630,000 in notes into 201,235 shares of
SoftNet Systems, Inc. common stock, par value $.01, as well as, to
record the write-off of debt issuance costs related to the converted
notes.
(I) To record the issuance of 66,437 shares of SoftNet Systems, Inc. common
stock, par value $.01, in consideration for certain transaction related
costs.
<TABLE>
<CAPTION>
SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the nine months ended June 30, 1995
(UNAUDITED)
Historical Pro forma
SoftNet Communicate Kansas Microgrpahic
Systems, Direct, Communications, Technology
Inc. Inc. Inc. Corporation Adjustments Combined
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 8,285,031 $ 903,032 $ 7,564,169 $12,186,361 --- $28,938,593
Cost of revenue 4,483,017 501,815 4,427,028 6,778,375 --- 16,190,235
3,802,014 401,217 3,137,141 5,407,986 --- 12,748,358
Operating expenses:
Selling, general and
administrative 5,160,915 470,062 2,651,627 2,102,142 $ 617,000(C) 11,001,746
Acquisition costs --- --- --- 969,000(F) 969,000
Research and development --- --- --- 1,536,690 5,000,000(D) 6,536,690
Total operating expenses 5,160,915 470,062 2,651,627 3,638,832 6,586,000 18,507,436
Income (loss) from operations -1,358,901 -68,845 485,514 1,769,154 -6,586,000 -5,759,078
Interest expense, net -422,066 -22,299 1,087 -397,867 -189,000(A) -1,230,145
-200,000(B)
Other income (expenses) 4,054 --- -35,558 15,369 -352,496(E) -368,631
-418,012 -22,299 -34,471 -382,498 -741,496 -1,598,776
Income (loss) before income taxes -1,776,913 -91,144 451,043 1,386,656 -7,327,496 -7,357,854
Provision for income taxes --- --- 179,309 48,576 --- 227,885
Income (loss) before
extraordinary credit $ -1,776,913 $ -91,144 $ 271,734 $1,338,080 $-7,327,496 $-7,585,739
Income per common share $ -1.47
Weighted average common and common
equivalent shares outstanding 5,150,516
See notes to pro forma condensed combined statement of operations.
</TABLE>
SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
The historical statement of operations of CDI for the period ended June 30,
1995, includes the operating results, for the month of October 1994 (the
period prior to the acquisition by SoftNet). All operations of CDI
subsequent to October 1994 are included in the consolidated statement of
operations of SoftNet. Purchase price adjustments for the acquisition of CDI
are reflected in the balance sheet of SoftNet at June 30, 1995.
(A) To adjust interest expense to reflect the issuance of 9% convertible
debentures in the amount of $189,000.
(B) To adjust interest expense to reflect the additional borrowings used to
fund the merger with MTC, calculated at 10%, in the amount of $250,000
less the amount of interest on the MTC revolver paid off, in the amount
of $50,000.
(C) To adjust amortization expense for the amortization of developed
purchased software, the purchase price of MTC in excess of the fair
value of acquired assets, less assumed liabilities, and certain
transaction costs incurred in connection with the merger of MTC.
Software and the transaction costs are amortized over a 5 year life,
goodwill is amortized over a 10 year life. The adjustments for the
amortization of the purchased software, transaction costs and goodwill
are $150,000, $130,000 and $337,000, respectively.
(D) To record the acquired in process technology relating to the acquisition
of new technology made in support of SoftNet's expansion into the data
imaging software market.
(E) To record the write-off of deferred debt issuance costs related to the
notes converted into shares of SoftNet Systems, Inc. common stock.
(F) To record certain transaction costs incurred in relation to the mergers.
<TABLE>
<CAPTION>
SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended September 30, 1994
(UNAUDITED)
Historical Pro forma
SoftNet Communicate Kansas Microgrpahic
Systems, Direct, Communications, Technology
Inc. Inc. Inc. Corporation Adjustments Combined
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 883,352 $ 11,577,220 $ 9,441,440 $15,073,867 --- $36,975,879
Cost of revenue --- 6,763,943 5,658,130 10,154,165 --- 22,576,238
883,352 4,813,277 3,783,310 4,919,702 --- 14,399,641
Operating expenses:
Selling, general and
administrative 2,160,436 4,917,168 2,908,406 3,264,817 $ 773,000(A) 14,623,827
600,000(E)
Acquisition costs --- --- --- --- 969,000(G) 969,000
Research and development --- --- --- 1,756,918 5,000,000(F) 6,756,918
Total operating expenses 2,160,436 4,917,168 2,908,406 5,021,735 7,342,000 22,349,745
Income (loss) from operations -1,277,084 -103,891 874,904 -102,033 -7,342,000 -7,950,104
Interest expense, net -603,262 -105,921 -14,118 -523,095 -185,000(B) -1,953,396
-252,000(C)
-270,000(D)
Other income (expenses) 1,967 --- -33,299 132,951 -393,000(H) -291,381
-601,295 -105,921 -47,417 -390,144 -1,100,000 -2,244,777
Income (loss) before income taxes -1,878,379 -209,812 827,487 -492,177 -8,442,000 -10,194,881
Provision for income taxes --- --- 376,846 --- --- 376,846
Income (loss) before
extraordinary credit $ -1,878,379 $ -209,812 $450,641 $-492,177 $-8,442,000 $-10,571,727
Income per common share $-2.18
Weighted average common and common
equivalent shares outstanding 4,856,844
See notes to pro forma condensed combined statement of operations.
</TABLE>
SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
(A) To adjust amortization expense for the amortization of the purchase
price of CDI in excess of the fair value of acquired assets, less
assumed liabilities, added to intangible assets and amortized over a 10
year life, in the amount of $440,000.
(B) To adjust interest expense for (i) the amortization of the debt
issuance costs incurred with the acquisition of CDI, amortized over a 2
year life, in the amount of $52,000; (ii) the interest expense to
reflect the issuance of SoftNet's Series B notes in the amount of
$8,000; and (iii) the interest expense to reflect the issuance of
SoftNet' 10% convertible subordinated notes in the amount of $125,000.
(C) To adjust interest expense to reflect the issuance of 9% convertible
debentures in the amount of $252,000.
(D) To adjust interest expense to reflect the additional borrowings used to
fund the merger with MTC, calculated at 10%, in the amount $330,000,
less the amount of interest on the MTC revolver paid off, in the amount
of $60,000.
(E) To adjust amortization expense for the amortization of developed
purchased software, the purchase price of MTC in excess of the fair
value of acquired assets, less assumed liabilities, and certain
transaction costs incurred in connection with the merger of MTC.
Software and the transaction costs are amortized over a 5 year life and
goodwill is amortized over a 10 year life. The adjustments for the
amortization of the purchased software, transaction costs and goodwill
are $200,000, $173,000 and $400,000, respectively.
(F) To record the acquired in process unproven technology relating to the
acquisition of new technology made in support of SoftNet's expansion
into the data imaging software market.
(G) To record transaction costs incurred with the mergers, of approximately
$969,000.
(H) To record the write-off of deferred debt issuance costs related to the
notes converted into shares of SoftNet Systems, Inc. common stock.
(c) Exhibits.
See Exhibit Index.
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.
SOFTNET SYSTEMS, INC.
Date: November 29, 1995 By: /s/ Martin A. Koehler
Martin A. Koehler
Vice President - Finance and
Chief Financial Officer
EXHIBIT INDEX
The text of this Exhibit Index as previously filed is hereby restated to read
in its entirety as follows:
Exhibit
No. Description of Document
2.1 Agreement and Plan of Reorganization dated March 24, 1995 among
SoftNet Systems, Inc., KCI Acquisition Corp., Kansas Communications,
Inc., Sizemore Enterprises and Gerald Tousey and Cleo Tousey filed as
Exhibit 2.1 to the Registration Statement on Form S-4 dated August 9,
1995, as amended (Reg. No. 33-95542) and incorporated herein by
reference.
2.2 Agreement and Plan of Reorganization dated March 24, 1995 among
SoftNet Systems, Inc., MTC Acquisition Corp. and Micrographic
Technology Corporation, as amended by Amendment No. 1 dated as of July
20, 1995, filed as Exhibit 2.2 to the Registration Statement on Form
S-4 dated August 9, 1995, as amended (Reg. No. 33-95542) and
incorporated herein by reference.
4.1 Form of Indenture between SoftNet Systems, Inc. and U.S. Trust Company
of California, N.A., as Trustee, including Form of Note, relating to
the 9% SoftNet Convertible Subordinated Debentures, filed as Exhibit
4.2 to the Registration Statement on Form S-4 dated August 9, 1995,
as amended (Reg. No. 33-95542) and incorporated herein by reference.
23.1 Consent of Frank Rimerman & Co.
23.2 Consent of Grant Thornton LLP
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Form 8-K/A-1 of our report, dated
August 31, 1995, except as to Note 2 which is as of September 14, 1995, on our
audits of the financial statements of Micrographic Technology Corporation as of
June 30, 1995 and June 26, 1994, and for each of the two years in the period
ended June 30, 1995.
/s/ Frank, Rimerman & Co.
FRANK, RIMERMAN & CO.
Menlo Park, California
November 29, 1995
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 14, 1995, accompanying the
financial statements of Kansas Communications, Inc. contained in the
Registration Statement and Prospectus on Form S-4 (File No. 33-95542). We
consent to the incorporation by reference of the aforementioned report in this
Form 8-K/A-1.
GRANT THORNTON LLP
/s/ Grant Thornton LLP
Kansas City, Missouri
November 29, 1995
