99.2 PRO FORMA FINANCIAL INFORMATION
On January 21, 2000, the Company completed the acquisition of all the
outstanding capital stock of Image Info Inc. ("Image Info"). The total
acquisition cost was $52,771,682, comprised of $5,000,000 paid in cash;
$5,000,000 in deferred acquisition cost to the former shareholders of
Image Info; 440,913 shares of common stock valued at $41,040,182;
$1,431,500 in bonuses payable to the employees of Image Info and
transaction costs of approximately $300,000 related to the acquisition.
Under the terms of the merger agreement, the Company agreed to pay
$2,500,000 each in 2001 and 2002 to the former shareholders of Image
Info if revenue from the acquired business meets or exceeds certain
levels in 2000 and 2001. Management has determined, based on the
results of its analysis that it is highly probable that revenue from
the acquired business will exceed the established levels, and
accordingly, the deferred acquisition cost to the former shareholders
of Image Info has been included in the acquisition cost. The Company
also granted stock options under its 1993 Stock Option/Stock Issuance
Plan to certain employees of Image Info to purchase 23,500 shares of
the Company's common stock at $96.00 per share. The total acquisition
cost was allocated to the estimated fair value of assets acquired based
on an independent appraisal.
The following unaudited pro forma condensed consolidated financial
statements of QRS Corporation and subsidiaries (the "Company") give
effect to the acquisition of all of the outstanding common stock of
Image Info on January 21, 2000. The acquisition was accounted for under
the purchase method of accounting, which requires the purchase price to
be allocated to the acquired assets and liabilities assumed of Image
Info on the basis of their estimated fair values as of the date of
acquisition. The following unaudited pro forma condensed consolidated
balance sheet gives effect to the acquisition of Image Info as if it
had occurred on December 31, 1999, and the unaudited pro forma
condensed consolidated statements of earnings (collectively, the
"Unaudited Pro Forma Financial Information") reflects the results of
operations of the Company and comprehensive earnings for the fiscal
year ended December 31, 1999, as if the acquisition of Image Info had
occurred on January 1, 1999 (the first day of fiscal 1999) and includes
adjustments directly attributable to the acquisition and expected to
have a continuing impact on the combined company. The Unaudited Pro
Forma Financial Information has been prepared based on preliminary
estimates of certain direct costs and liabilities associated with the
transaction, and amounts actually recorded may change upon final
determination of such amounts. Specifically, additional information is
expected to be obtained for accrued expenses related to the
acquisition.
The Unaudited Pro Forma Financial Information and related notes are
provided for informational purposes only and are not necessarily
indicative of what the Company's actual financial position or results
of operations would have been had the forgoing transaction been
consummated on such dates, nor does it give effect to the synergies,
cost savings and other charges expected to result from the acquisition.
Accordingly, the pro forma financial information does not purport to be
indicative of the Company's financial position or results of operations
as of the date hereof or for any period ended on the date hereof or as
of or for any other future date or period.
The following unaudited pro forma financial information is based in
part on the historical consolidated financial statements of the
Company, and the related notes thereto, which are included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1999; and the historical financial statements of Image Info, and the
related notes thereto, for the year ended December 31, 1999, included
elsewhere in this Current Report on Form 8-K/A.
This Current Report on Form 8-K/A contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and other risks
detailed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 and other reports filed with the Securities and
Exchange Commission from time to time. Actual results could differ
materially from those projected in these forward-looking statements as
a result of the risks described above as well as other risk factors set
forth in the Company's periodic reports both previously and hereafter
filed with the Securities and Exchange Commission.
14
PRO FORMA FINANCIAL INFORMATION
TABLE OF CONTENTS
PAGE
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 1999............................ 16
Unaudited Pro Forma Condensed Consolidated Statement of Earnings for the Year Ended
December 31, 1999..................................................................................... 17
Unaudited Notes to Pro Forma Condensed Consolidated Financial Statements.................................... 18
15
QRS CORPORATION AND IMAGE INFO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1999
(Dollars in thousands)
PRO FORMA PRO FORMA
QRS IMAGE INFO ADJUSTMENTS COMBINED
--------- ---------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 34,412 $ 372 $ (5,000) [A] $ 29,784
Marketable securities available for sale ................... 12,895 12,895
Accounts receivable-net .................................... 25,964 1,861 27,825
Deferred income tax assets ................................. 819 819
Prepaid expenses and other ................................. 2,848 6 2,854
Prepaid income taxes ....................................... 4,726 4,726
--------- --------- --------- ---------
Total current assets .................................. 81,664 2,239 (5,000) 78,903
Property and equipment, net ................................ 13,823 331 14,154
Deferred income tax assets ................................. 1,156 1,156
Capitalized product development costs - net ................ 8,088 8,088
Intangible assets - net .................................... 20,758 52,438[B][C] 73,196
Other assets ............................................... 1,466 42 1,508
--------- --------- --------- ---------
Total ...................................................... $ 126,955 $ 2,612 $ 47,438 $ 177,005
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 10,508 $ 144 $ 10,652
Accrued and other liabilities ......................... 9,632 2,600 $ 1,732 [D] 13,964
--------- --------- --------- ---------
Total current liabilities ......................... 20,140 2,744 1,732 24,616
Deferred income taxes ...................................... 8,637 [C][K] 8,637
Deferred rent and other .................................... 2,240 208 5,000 [E] 7,448
--------- --------- --------- ---------
Total liabilities ..................................... 22,380 2,952 15,369 40,701
--------- --------- --------- ---------
Minority interest .......................................... 361 361
Stockholders' equity:
Preferred stock ....................................... -- --
Common stock .......................................... 86,971 3 41,037[F] 128,011
Additional Paid-in Capital ............................ -- 516 (516)[G] --
Treasury stock ........................................ (526) (526)
Accumulated other comprehensive earnings .............. (136) (136)
Retained earnings (deficit) ........................... 17,905 (859) (8,452) [G] 8,594
--------- --------- --------- ---------
Total stockholders' equity ........................ 104,214 (340) 32,069 135,943
--------- --------- --------- ---------
Total ...................................................... $ 126,955 $ 2,612 $ 47,438 $ 177,005
--------- --------- --------- ---------
--------- --------- --------- ---------
See notes to unaudited pro forma condensed consolidated financial statements.
16
QRS CORPORATION AND IMAGE INFO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
For the Year Ended December 31, 1999
(In thousands, except per share amounts)
PRO FORMA PRO FORMA
QRS IMAGE INFO ADJUSTMENTS COMBINED
--------- ---------- ----------- ---------
Revenues ...................................................... $ 124,705 $ 7,031 $ 131,736
Cost of revenue ............................................... 62,946 3,762 66,708
--------- --------- ---------
Gross profit .................................................. 61,759 3,269 65,028
--------- --------- ---------
Operating expenses:
Sales and marketing ...................................... 17,994 1,128 19,122
Product development ...................................... 8,645 435 9,080
General and administrative ............................... 11,285 1,776 13,061
Amortization of intangible assets ........................ 1,996 $ 8,237[H] 10,233
In-process technology expense related to acquisitions .... 963 9,439[I] 10,402
--------- --------- --------- ---------
Total operating expenses ............................. 40,883 3,339 17,676 61,898
--------- --------- --------- ---------
Operating earnings (loss) ..................................... 20,876 (70) (17,676) 3,130
Interest income (expense) ..................................... 2,011 (85) (260)[J] 1,666
--------- --------- --------- ---------
Earnings (loss) from continuing operations before income taxes
and minority interest ..................................... 22,887 (155) (17,936) 4,796
Income taxes .................................................. 8,057 12 (1,658)[K] 6,411
Minority interest in subsidiary ............................... (89) (89)
--------- --------- --------- ---------
Net earnings (loss) ........................................... $ 14,919 $ (167) $ (16,278) $ (1,526)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic earnings (loss) per share (Note 2) ...................... $ 1.12 $ (0.11)
--------- ---------
--------- ---------
Shares used to compute basic earnings (loss) per share ........ 13,322 441 [F] 13,763
--------- --------- ---------
--------- --------- ---------
See notes to unaudited pro forma condensed consolidated financial statements.
17
QRS CORPORATION AND IMAGE INFO
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. PRO FORMA ADJUSTMENTS
[A] Adjustment to record the payment of the $5,000,000 cash purchase
price.
[B] Adjustment to record the allocation of the acquisition cost to the
estimated fair value of assets acquired based on an independent
appraisal and to reflect the write-off of $9,439,177 of
in-process research and development as technological feasibility
had not been established and no alternative future uses existed
for these research projects at the acquisition date as follows (in
thousands):
Current technology................................................................. $ 17,486
Customer list and trademark........................................................ 2,283
In-process research and development 9,439
Fair value of other intangible assets.............................................. 1,700
Assembled workforce................................................................ 938
-------------
Subtotal....................................................................... 31,846
Write-off in-process research and development...................................... (9,439)
-------------
Total.......................................................................... $ 22,407
-------------
-------------
[C] Represents the adjustment to record the excess of purchase price
over the estimated fair value of the identifiable net assets
acquired (Goodwill) as computed below (in thousands):
Cash.............................................................................. $ 5,000
Estimated fair value of common stock issued....................................... 41,040
Accrued transaction costs......................................................... 300
Accrued bonuses................................................................... 1,432
Deferred acquisition cost.......................................................... 5,000
-------------
Total purchase price .......................................................... 52,772
-------------
Preliminary allocation of purchase price:
Accounts receivable............................................................... 1,529
Property and equipment ........................................................ 322
Other assets....................................................................... 49
Intangible assets.................................................................. 31,846
Deferred income taxes.............................................................. (8,637)
Liabilities assumed................................................................ (2,368)
-------------
Sub-total preliminary allocation of purchase price............................. 22,741
-------------
Goodwill........................................................................... $ 30,031
-------------
-------------
[D] Represents adjustment to reflect the following (in thousands):
To accrue for bonuses payable to employees of Image Info........................... $ 1,432
To accrue for estimated direct fees and expenses in connection with the
acquisition of Image Info.......................................................... 300
-------------
Total $ 1,732
-------------
-------------
[E] Represents adjustment to accrue for the additional payments due
in February 2001 and 2002 under the terms of the Agreement
18
[F] To reflect the issuance of 440,913 shares of common stock and the
elimination of the historical common stock of Image Info, as
follows (in thousands):
Issuance of common stock......................................................... $ 41,040
Historical common stock of Image Info............................................ (3)
------------
$ 41,037
------------
------------
[G] To reflect the elimination of the historical additional paid-in
capital and deficit of Image Info and the effect of the write-off
of in-process research and development discussed in note [B]
above, as follows (in thousands):
Historical additional paid-in capital of Image Info................................ $ (516)
------------
------------
Historical deficit of Image Info................................................... $ 987
Write-off in-process research and development...................................... (9,439)
------------
Total.............................................................................. $ (8,452)
------------
------------
[H] To reflect the amortization of intangible assets.
[I] To reflect the write-off of in-process research and development as
discussed in note [B] above.
[J] To reflect decrease in interest income due to the use of $5.0
million of cash equivalents for the purchase of Image Info.
Interest income was calculated at the Company's average rate of
5.2% for the year ended December 31, 1999.
[K] To reflect the income tax effect of the loss of Image Info and the
pro forma adjustments at the Company's income tax rate of 38%,
except that no tax effect is given to the amounts written off as
in-process research and development and the amortization of
goodwill.
2. PRO FORMA EARNINGS PER SHARE
Basic pro forma loss per share was calculated based on the Company's
outstanding common stock at December 31, 1999, which reflects 440,913
shares of the Company's common stock issued in connection with the
acquisition. Diluted pro forma loss per share was not presented because
the potential common shares outstanding during the period are
antidilutive.
19