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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 19, 1998
INTERFACE SYSTEMS, INC.
(Exact name of registrant as specified in charter)
MICHIGAN 0-10902 38-1857379
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
5855 Interface Drive
Ann Arbor, Michigan 48103
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (734) 769-5900
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INTERFACE SYSTEMS, INC.
CURRENT REPORT ON FORM 8-K
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On May 19, 1998, Interface Systems, Inc. (the "Company" or "ISI") completed
the sale of the distribution business of its wholly owned U.K. subsidiary,
Interface Systems International Ltd. (the "ISIL Distribution Business") to
Fayrewood plc, a U.K. company quoted on the Alternative Investment Market of the
London Stock Exchange ("Fayrewood"), pursuant to a Purchase Agreement, dated May
19, 1998, by and among Fayrewood, Doctor Buylines Limited ("Doctor Buylines"),
Interface Systems International Limited ("ISIL") and the Company, and a Deed of
Variation, dated May 19, 1998, by and among Fayrewood, Doctor Buylines, ISIL and
the Company.
The consideration for the sale of the ISIL Distribution Business of $3.6 million
is approximately equal to 83% of the net assets sold and is subject to
post-closing adjustments based upon an audit of the assets sold and the
liabilities assumed at closing. The net assets sold consist of accounts
receivable, inventory and fixed assets, net of accounts payable. An initial
payment of $2.9 million was paid in cash at closing. The balance of the
consideration is due in approximately 60 days upon completion of an audit of
the net assets sold. The consideration paid in the sale was determined through
arms-length negotiations between the Company and Fayrewood.
(b) Not applicable.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Not applicable.
(b) The pro forma financial information furnished herein reflects the
disposition of the ISIL Distribution Business on the consolidated
financial statements of the Company.
Page Number
-----------
Unaudited Pro Forma Consolidated Statement of
Operations for the Fiscal Year Ended September 30, 1997 F-2
Unaudited Pro Forma Consolidated Statement of Operations
for the Fiscal Year Ended September 30, 1996 F-3
Unaudited Pro Forma Consolidated Statement of Operations
for the Fiscal Year Ended September 30, 1995 F-4
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1998 F-5
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(c) The exhibits furnished in connection with this Report are as follows:
Exhibit
Number Description
------ -----------
2.1 Purchase Agreement dated as of May 13, 1998 by and
among Fayrewood plc, Doctor Buylines Limited,
Interface Systems International Limited and Interface
Systems, Inc.
2.2 Deed of Variation dated as of May 19, 1998 by and
among Fayrewood plc, Doctor Buylines Limited,
Interface Systems International Limited and Interface
Systems, Inc.
2.3 Deed of Release dated as of May 13, 1998 by and
among The First National Bank of Chicago,
Interface Systems International Limited and
Interface Systems, Inc.
SIGNATURE
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 thereunto duly authorized.
Date: June 3, 1998 Interface Systems, Inc.
(Registrant)
By: /s/ John R. Ternes
Name: John R. Ternes
Title: Vice president Finance &
Chief Financial Officer
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PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Statements of Operations of the
Company for the fiscal years ended September 30, 1997, 1996 and 1995 reflect
(i) the ISIL Distribution Business as a discontinued operation and (ii) the
application of the estimated net proceeds of the sale by the Company in May
1998 of the ISIL Distribution Business as if the relevant transactions,
including the loss of $1,791,000 on disposal of the discontinued operations
recognized in the quarter ended March 31, 1998, had occurred at the beginning
of the fiscal year ended September 30, 1995. Pro Forma Consolidated
Statements of Operations for the six months ended March 31, 1998 and 1997 have
not been presented herein because the information that would be presented is
substantially the same as that contained in the Company's previously filed Form
10-Q for the quarter ended March 31, 1998.
The following Unaudited Pro Forma Consolidated Balance Sheet of the Company as
of March 31, 1998 reflects the sale of the ISIL Distribution Business as if it
had occurred on that date.
The pro forma statements do not purport to represent what the Company's
financial position or results of operations would actually have been if the
relevant transactions had occurred at the beginning of the fiscal year ended
September 30, 1995 or on March 31, 1998, or to project the Company's
consolidated results of operations or financial position at any future date or
for any future period.
F-1
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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1997
(In thousands)
Discontinuance
of the ISIL
ISI Distribution Pro Forma
Consolidated Business As Adjusted
------------ -------- -----------
Net revenues $ 81,845 $ (62,761) $ 19,084
Cost of revenues 75,103 (60,462) 14,641
---------- ----------- ---------
Gross profit 6,742 (2,299) 4,443
Expenses:
Product development 3,719 -- 3,719
Selling, general and administrative 15,391 (5,924) (1) 9,467
---------- ----------- ---------
Operating income (loss) from
continuing operations (12,368) 3,625 (8,743)
Interest expense (731) 309 (422)
Other income 119 (3) 116
---------- ----------- ---------
Income (loss) from continuing
operations before income taxes (12,980) 3,931 (9,049)
Income tax benefit (2,101) -- (2,101)
---------- ----------- ---------
Income (loss) from continuing operations $ (10,879) $ 3,931 $ (6,948)
========== =========== =========
Net loss per share $ (2.47) $ (1.58)
========== =========
Weighted average shares outstanding 4,411 4,411
========== =========
(1) Includes elimination of $520,000 of goodwill amortization and
write-off related to ISI's investment in the ISIL distribution business
and $120,000 of professional fees and other general and administrative
expense incurred by ISI on behalf of ISIL.
F-2
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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1996
(In thousands)
Discontinuance
of the ISIL
ISI Distribution Pro Forma
Consolidated Business As Adjusted
------------ -------- -----------
Net revenues $74,583 $(56,312) $ 18,271
Cost of revenues 63,798 (53,386) 10,412
------- -------- --------
Gross profit 10,785 (2,926) 7,859
Expenses:
Product development 1,956 -- 1,956
Selling, general and administrative 11,621 (2,757)(1) 8,864
------- -------- --------
Operating income (loss) from
continuing operations (2,792) (169) (2,961)
Interest expense (340) 276 (64)
Other income 200 -- 200
------- -------- --------
Income (loss) from continuing
operations before income taxes (2,932) 107 (2,825)
Income tax benefit (969) -- (969)
------- -------- --------
Income (loss) from continuing operations $(1,963) $ 107 $ (1,856)
======= ======== ========
Net loss per share $ (0.44) $ (0.42)
======= ========
Weighted average shares outstanding 4,440 4,440
======= ========
(1) Includes elimination of $100,000 of goodwill amortization expense incurred
by ISI related to its investment in ISIL.
F-3
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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1995
(In thousands)
Discontinuance
of the ISIL
ISI Distribution Pro Forma
Consolidated Business As Adjusted
------------ -------- -----------
Net revenues $ 70,243 $ (48,009) $ 22,234
Cost of revenues 57,516 (45,434) 12,082
--------- ---------- ---------
Gross profit 12,727 (2,575) 10,152
Expenses:
Product development 1,454 -- 1,454
Selling, general and administrative 10,506 (2,927)(1) 7,579
--------- ---------- ---------
Operating income (loss) from
continuing operations 767 352 1,119
Interest expense (264) 253 (11)
Other income 203 -- 203
--------- ---------- ---------
Income (loss) from continuing
operations before income taxes 706 (605) 1,311
Income tax benefit 540 -- 540
--------- ---------- ---------
Income (loss) from continuing operations $ 166 $ (605) $ 771
========= ========== =========
Net loss per share $ 0.04 $ 0.18
========= =========
Weighted average shares outstanding 4,239 4,239
========= =========
(1) Includes elimination of $100,000 of goodwill amortization expense incurred
by ISI related to its investment in ISIL.
F-4
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UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
Discontinuance Sale
of the ISIL of the ISIL
ISI Distribution Distribution Pro Forma
Consolidated Business Business As Adjusted
------------ -------- -------- -----------
Assets
Current assets:
Cash and cash equivalents $ 1,049 $ -- $ -- $ 1,049
Accounts receivable, net 12,864 (10,155) -- 2,709
Inventories 5,780 (2,610) -- 3,170
Net assets of discontinued operations -- 5,810 (5,040) 770
Other current assets 2,746 (629) -- 2,117
--------- ---------- ---------- ---------
Total current assets 22,439 (7,584) (5,040) 9,815
Property and equipment, net 4,298 (596) -- 3,702
Other assets 1,478 -- -- 1,478
--------- ---------- ---------- ---------
$ 28,215 $ (8,180) $ (5,040) $ 14,995
========= ========== ========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 7,609 $ -- $ (3,249) (1) $ 4,360
Accounts payable 9,176 (7,748) -- 1,428
Accrued expenses and other 1,588 (432) -- 1,156
--------- ---------- ---------- ---------
Total current liabilities 18,373 (8,180) (3,249) 6,944
Other liabilities 711 -- -- 711
--------- ---------- ---------- ---------
Total liabilities 19,084 (8,180) (3,249) 7,655
Stockholders' equity 9,131 -- (1,791) (2) 7,340
--------- ---------- ---------- ---------
$ 28,215 $ (8,180) $ (5,040) $ 14,995
========= ========== ========== =========
(1) Represents reduction of notes payable using the $3.6 million estimated
sale proceeds, less sale related expenses.
(2) Represents the loss on sale of the ISIL Distribution Business.
F-5
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Purchase Agreement dated as of May 13, 1998 by and among
Fayrewood plc, Doctor Buylines Limited, Interface
Systems International Limited and Interface Systems, Inc.
2.2 Deed of Variation dated as of May 19, 1998 by and among
Fayrewood plc, Doctor Buylines Limited, Interface
Systems International Limited and Interface Systems, Inc.
2.3 Deed of Release dated as of May 13, 1998 by and among The First
National Bank of Chicago, Interface Systems
International Limited and Interface Systems, Inc.