EXHIBIT 99.1 FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
TABLE OF CONTENTS
PAGE
Report of Independent Auditors 5
Historical Financial Statements of Image Info Inc., as of and for
the Years Ended December 31, 1999 and 1998:
Balance Sheet........................................................... 6
Statement of Operations ................................................ 7
Statement of Shareholders' Deficiency................................... 8
Statement of Cash Flows................................................. 9
Notes to Financial Statements........................................... 10
4
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Image Info Inc.
We have audited the accompanying balance sheets of Image Info Inc. as of
December 31, 1999 and 1998, and the related statements of operations,
shareholders' 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 on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Image Info Inc. as of December
31, 1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
As disclosed in Note 8 to the financial statements, all of the outstanding
common stock of Image Info Inc. was acquired by QRS Corporation on January 21,
2000.
Goldstein Golub Kessler LLP
February 23, 2000
New York, New York
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IMAGE INFO INC.
Balance Sheet
December 31, 1999 and 1998
(Dollars in thousands)
ASSETS (Note 3)
1999 1998
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Current Assets:
Cash ............................................................... $ 372 $ 16
Accounts receivable (net of allowance for doubtful
accounts of $50 and $25, respectively ) ........................ 1,861 890
Prepaid expenses and other current assets .......................... 6 32
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Total current assets ........................................... 2,239 938
Property and equipment, net (Notes 1 and 2) ............................. 331 234
Other assets ............................................................ 42 41
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Total Assets ................................................... $ 2,612 $ 1,213
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LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities (Note 5) .................. $ 1,626 $ 717
Deferred revenue ................................................... 684 445
Loan payable - bank (Note 3) ....................................... 298 368
Current portion of notes payable (Note 4) .......................... 34 141
Obligation under capitalized lease (Note 6) ........................ 39
Loan payable - shareholder (Note 9) ................................ 63
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Total current liabilities ...................................... 2,744 1,671
Note payable, net of current portion (Note 4) ........................... 40 65
Loan payable - shareholder (Note 9) ..................................... 67
Obligation under capitalized lease, net of current maturities (Note 5) .. 124
Deferred rent ........................................................... 44 36
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Total liabilities .............................................. 2,952 1,839
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Commitments (Note 7)
Shareholders' Deficiency:
Common stock - no par value; authorized 200 shares, issued
and outstanding 109.015 and 106.015, respectively .............. 3 3
Additional paid-in capital ......................................... 516 63
Accumulated deficit ................................................ (859) (692)
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Shareholders' deficiency ....................................... (340) (626)
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Total Liabilities and Shareholders' Deficiency .............. $ 2,612 $ 1,213
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See accompanying notes to financial statements.
6
IMAGE INFO INC.
Statement of Operations
Years Ended December 31, 1999 and 1998
(Dollars in thousands)
1999 1998
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Revenues ....................................... $ 7,031 $ 4,075
Cost of revenues ............................... 3,762 2,352
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Gross profit ................................... 3,269 1,723
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Operating expenses:
Sales and marketing ....................... 1,128 846
Research and development .................. 435 382
General and administrative ................ 1,776 865
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Total operating expenses .............. 3,339 2,093
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Operating loss ................................. (70) (370)
Interest expense (Note 9) ...................... 85 70
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Loss before provision for income taxes ......... (155) (440)
Provision for income taxes ..................... 12
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Net loss ....................................... $ (167) $ (440)
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See accompanying notes to financial statements.
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IMAGE INFO INC.
Statement of Shareholders' Deficiency
Years Ended December 31, 1999 and 1998
(Dollars in thousands)
Common Stock
--------------------
Shareholders'
Number of Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficiency)
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Balance at January 1, 1998 ............... 86.635 $ 2 $ 25 $(252) $(225)
Issuance of common stock for services .... 19.380 1 38 39
Net Loss ................................. (440) (440)
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Balance at December 31, 1998 ............. 106.015 3 63 (692) (626)
Issuance of common stock for services .... 3.000 453 453
Net Loss ................................. (167) (167)
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Balance at December 31, 1999 ............. 109.015 $ 3 $ 516 $(859) $(340)
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See accompanying notes to financial statements.
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IMAGE INFO INC.
Statement of Cash Flows
Years Ended December 31, 1999 and 1998
(Dollars in thousands)
1999 1998
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Cash flows from operating activities:
Net loss .................................................................... $ (167) $ (440)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Deferred rent ....................................................... 8
Bad debt ............................................................ 51 25
Depreciation and amortization ....................................... 106 97
Common stock issued for services .................................... 453 39
Changes in operating assets and liabilities:
Increase in accounts receivable .................................... (1,022) (573)
(Increase) decrease in prepaid expenses and other current assets ... 26 (10)
Increase in other assets ........................................... (1) (4)
Increase in accounts payable, accrued expenses and other
current liabilities ............................................ 910 552
Increase in deferred revenue ....................................... 238 229
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ..................... 602 (85)
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Cash used in investing activity - purchase of property and equipment ............. (27) (14)
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Cash flows from financing activities:
Payments for capitalized lease obligations .................................. (12)
Net borrowings (repayments) from loan payable - bank ...................... (70) 168
Repayments of notes payable ................................................. (132) (131)
Repayments of shareholder loan .............................................. (5)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ..................... (219) 37
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Net increase (decrease) in cash .................................................. 356 (62)
Cash at beginning of year ........................................................ 16 78
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Cash at end of year .............................................................. $ 372 $ 16
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Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .................................................................... $ 60 $ 61
Taxes ....................................................................... $ 1
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Supplemental disclosure of noncash investing and financing activities:
Capitalized lease obligations incurred ...................................... $ 175
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See accompanying notes to financial statements.
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IMAGE INFO INC.
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
1. SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPAL BUSINESS ACTIVITY:
The principal business activity of the Company is the development and
marketing of software used primarily in the apparel and retail
industries. The Company's customers are located throughout the United
States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates by
management. Actual results could differ from these estimates.
Revenue is recognized when services are performed or when software is
delivered.
Depreciation and amortization of property and equipment is provided for
based upon the provisions of the Internal Revenue Code (the "Code").
Such depreciation and amortization does not differ materially from that
which would be recorded under generally accepted accounting principles.
For income tax purposes, the Company has elected to be treated as a
small business corporation (S Corporation) under the applicable
sections of the Code and New York State corporate franchise tax law.
Accordingly, there is no provision for federal income taxes as earnings
of the Company flow through directly to its shareholders. The Company
is subject to the New York State income taxes at reduced rates and New
York City income taxes computed using an alternative method. The
Company files its income tax returns on the cash basis.
The company maintains its cash in bank deposit accounts which, at
times, exceed federally insured limits.
The Company incurred advertising expenses which were charged to
operations of approximately $99,500 and $141,000 for the years ended
December 31, 1999 and 1998, respectively.
2. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following (in
thousands):
Recovery
December 31, 1999 1998 Period
------------------------------------------- -------- -------- -----------
Machinery and equipment ................... $ 564 $ 361 5 to 10 years
Leasehold improvements .................... 165 165 10 to 39 years
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729 526
Less accumulated depreciation and
amortization ......................... (398) (292)
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$ 331 $ 234
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3. LOAN PAYABLE - BANK:
The Company borrows from a bank under a $400,000 line of credit with
interest at 1% over the bank's base rate (9.5% at December 31, 1999).
The demand loan is collateralized by substantially all assets of the
Company.
4. NOTES PAYABLE:
Notes payable consist of the following (in thousands):
December 31, 1999 1998
------------------------------------------------------------------- ------ ------
Due to related party .............................................. $ 100
Note payable with a bank, payable in monthly installments of
$3,376, including interest, through December 2001. The note
bears interest at the rate of 9.25% per annum ..................... $ 74 106
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74 206
Current portion ................................................... 34 141
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$ 40 $ 65
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5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following (in
thousands):
December 31, 1999 1998
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Salaries and bonuses .................................. $ 507
Accrued revenue sharing ............................... 305
Sales taxes ........................................... 391 $ 140
Accounts payable ...................................... 144 454
All other, less than 5% for individual items .......... 279 123
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$ 1,626 $ 717
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6. OBLIGATIONS UNDER CAPITALIZED LEASES:
The Company leases certain machinery and equipment under capital lease
agreements expiring over the next five years. The leases require
monthly payments of principal and interest and are secured by the
related machinery and equipment at December 31, 1999 (in thousands).
Machinery and equipment...................................... $ 175
Less accumulated depreciation................................. 35
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$ 140
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The following is a schedule of future minimum lease payments for
capitalized leases at December 31, 1999 (in thousands):
Year ending December 31,
2000 $ 65
2001 60
2002 46
2003 26
2004 17
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Total minimum lease payments 214
Less amounts representing interest 51
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Total value of minimum lease payments 163
Less portion due within one year 39
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Total long term portion $ 124
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7. COMMITMENTS:
The Company leases office space under a noncancelable operating lease.
The lease contains renewal options, provides for payment of certain
occupancy costs and is subject to escalation for increases in the
consumer price index. Rent expense charged to operations amounted to
approximately $216,000 and $159,000 for the years ended December 31,
1999 and 1998, respectively, and includes approximately $48,000 paid to
a related party for the year ended December 31, 1999.
Aggregate future minimum rental commitments under this lease at
December 31, 1999 are payable as follows (in thousands):
Year ending December 31,
2000 $ 165
2001 169
2002 174
2003 178
2004 183
Thereafter 379
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Total $ 1,248
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8. EMPLOYEE BENEFIT PLAN:
The Company maintains a defined contribution pension plan under Section
401(k) of the Code covering all eligible employees. The Company's
contribution to the plan is based upon a discretionary percentage of
the participant's salary reductions. Certain officers of the Company
serve as trustees of the plan.
The Company contributed $11,071 and $4,323 to the plan for the years
ended December 31, 1999 and 1998, respectively.
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9. RELATED PARTY TRANSACTIONS:
During 1999 the Company paid $100,000 to a relative of a shareholder,
which represented advances to the Company.
Loan payable - shareholder represents advances made to the Company with
repayment terms of less than one year. These advances are non-interest
bearing.
10. SUBSEQUENT EVENT
On January 21, 2000 the shareholders of the Company sold their shares
to QRS Corporation ("QRS") for $5,000,000 plus 440,913 shares of common
stock of QRS plus additional contingent consideration of up to
$5,000,000, as defined. The value of the transaction amounted to
approximately $51,000,000.
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