EXHIBIT 99.1 FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
TABLE OF CONTENTS
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PAGE
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Historical Combined Financial Statements of Retail Data Services, Inc. and Affiliate:
Report of Independent Auditors................................................................ 5
Combined Balance Sheet as of December 31, 1998................................................ 6
Combined Statement of Earnings for the Year Ended December 31, 1998........................... 7
Combined Statement of Changes in Stockholder's Equity for the Year
Ended December 31, 1998................................................................... 8
Combined Statement of Cash Flows for the Year Ended December 31, 1998......................... 9
Notes to Combined Financial Statements........................................................ 10
Unaudited Combined Financial Statements of Retail Data Services, Inc. and Affiliate:
Unaudited Combined Balance Sheet at June 30, 1999............................................. 13
Unaudited Combined Statement of Earnings for the Six Months Ended June 30, 1999............... 14
Unaudited Combined Statement of Cash Flows for the Six Months Ended June 30, 1999............. 15
Notes to Unaudited Combined Financial Statements.............................................. 16
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INDEPENDENT AUDITORS' REPORT
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Board of Directors
Retail Data Services, Inc. and Affiliate:
We have audited the accompanying combined balance sheet of Retail Data Services,
Inc. and Affiliate (S Corporations) as of December 31, 1998, and the related
combined statements of earnings, changes in stockholder's equity, and cash flows
for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined 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 combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Retail Data
Services, Inc. and Affiliate as of December 31, 1998, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As disclosed in Note 8 to the combined financial statements, all of the
outstanding common stock of Retail Data Services, Inc. and Affiliate was
acquired by QRS Corporation on July 23, 1999.
/s/ Robert R. Raymond & Associates, LLP
September 17, 1999
Richmond, Virginia
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RETAIL DATA SERVICES, INC. AND AFFILIATE
Combined Balance Sheet
December 31, 1998
(Dollars in thousands)
ASSETS
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1998
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Current assets:
Cash.................................................................................... $ 149
Accounts receivable (net of allowance for
doubtful accounts of $17) (Note 3) ................................................. 1,143
Prepaid expenses........................................................................ 48
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Total current assets................................................................ 1,340
Property and equipment, less accumulated depreciation
and amortization (Note 2)............................................................... 232
Note receivable from a related party (Note 4)................................................ 144
Capitalized product development costs........................................................ 26
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$ 1,742
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LIABILITIES AND STOCKHOLDER'S EQUITY
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Current liabilities:
Accounts payable........................................................................ $ 53
Accrued liabilities..................................................................... 242
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Total current liabilities........................................................... 295
Bank line of credit (Note 3)................................................................. 494
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Total liabilities................................................................... 789
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Commitments (Note 5)
Stockholder's equity:
Common stock, $1 par value; 10,000 shares authorized;
200 shares issued and outstanding................................................... --
Additional paid-in capital.............................................................. 33
Retained earnings....................................................................... 920
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Total stockholder's equity.......................................................... 953
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$ 1,742
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See accompanying notes to combined financial statements.
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RETAIL DATA SERVICES, INC. AND AFFILIATE
Combined Statement of Earnings
Year Ended December 31, 1998
(Dollars in thousands)
1998
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Revenues .................................................................................... $ 8,175
Cost of revenue.............................................................................. 5,728
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Gross profit................................................................................. 2,447
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Operating expenses:
Sales and marketing..................................................................... 247
General and administrative.............................................................. 1,031
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Total operating expenses............................................................ 1,278
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Operating earnings........................................................................... 1,169
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Other income (expense):
Interest expense........................................................................ (54)
Interest income......................................................................... 8
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Total other expense................................................................. (46)
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Net earnings................................................................................. $ 1,123
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See accompanying notes to combined financial statements.
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RETAIL DATA SERVICES, INC. AND AFFILIATE
Combined Statement of Changes in Stockholder's Equity
Year Ended December 31, 1998
(Dollars in thousands)
Common Additional Retained
Stock Paid-in Capital Earnings Total
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Balance, January 1, 1998................ $ -- $ 33 $ 588 $ 621
Net earnings............................ -- -- 1,123 1,123
Stockholder distributions............... -- -- (791) (791)
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Balance, December 31, 1998.............. $ -- $ 33 $ 920 $ 953
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See accompanying notes to combined financial statements.
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RETAIL DATA SERVICES, INC. AND AFFILIATE
Combined Statement of Cash Flows
Year Ended December 31, 1998
(Dollars in thousands)
1998
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Cash flows from operating activities:
Net earnings............................................................................ $ 1,123
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization....................................................... 138
Bad debt............................................................................ 24
(Increase) decrease in assets:
Accounts receivable............................................................ (393)
Prepaid expenses............................................................... (34)
Increase (decrease) in liabilities:
Accounts payable............................................................... 52
Accrued liabilities............................................................ (405)
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Net cash provided by operating activities........................................... 505
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Cash flows from investing activities:
Purchases of property and equipment..................................................... (99)
Capitalization of product development costs............................................. (13)
Net repayments from related party....................................................... 323
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Net cash provided by investing activities........................................... 211
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Cash flows from financing activities:
Net repayments of bank line of credit................................................... (156)
Stockholder distributions............................................................... (791)
Other................................................................................... (9)
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Net cash used in financing activities............................................... (956)
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Net decrease in cash......................................................................... (240)
Cash at beginning of year.................................................................... 389
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Cash at end of year.......................................................................... $ 149
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Supplemental disclosure:
Interest paid........................................................................... $ 50
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See accompanying notes to combined financial statements.
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RETAIL DATA SERVICES, INC. AND AFFILIATE
Notes to Combined Financial Statements
Year Ended December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
Retail Data Services, Inc. ("Retail Data") and RDS, Inc.
("RDS"), (collectively referred to as the "Companies") are
located in Henrico County, Virginia. The Companies provide
competitive retail pricing information to their customers in
the grocery business, who are located throughout the United
States. Services are generally rendered under fixed-price
contracts with one year terms. RDS provides payroll and
management services to Retail Data under terms of a contract
described in Note 4. Retail Data and RDS were each solely
owned by Christine B. Cottrell (the "Stockholder") at December
31, 1998 (see Note 8).
(b) PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of the
Companies. All material intercompany transactions have been
eliminated in the combined statements.
(c) REVENUE AND COST RECOGNITION
Revenues are recognized on the specific performance method, as
services are rendered. All costs are charged to expense as
incurred.
(d) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
computed over tax lives (which approximate estimated useful
lives) ranging from 3 to 7 years using both straight-line and
accelerated methods.
(e) CAPITALIZED PRODUCT DEVELOPMENT COSTS
Retail Data is developing a computer software product to be
sold, leased or otherwise marketed to its customers. Costs
incurred to establish the technological feasibility of this
product have been charged to expense. Costs incurred
subsequent to the establishment of technological feasibility
have been capitalized. The product was not ready for general
release to customers at December 31, 1998; no amortization of
the related development costs has been recorded through
December 31, 1998.
(f) INCOME TAXES
The Companies have elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Accordingly, the
Companies would not generally pay federal or state corporate
income taxes. Instead, the Stockholder is liable for
individual federal and state income taxes on the Companies'
tax attributes. It is the policy of the Companies to make cash
distributions to the Stockholder in amounts sufficient to pay
taxes resulting from the pass-through of tax attributes.
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(g) USE OF ESTIMATES
Management uses estimates and assumptions in preparing
financial statements. These estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities, and the reported
revenues and expenses. Actual results could differ materially
from those reported.
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 are as follows (in
thousands):
1998
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Equipment $ 566
Furniture and fixtures 93
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Total property and equipment 659
Less: accumulated depreciation and amortization 427
Net property and equipment $ 232
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(3) BANK LINE OF CREDIT
In February 1997, Retail Data obtained a $200,000 line of
credit from a commercial bank (the "Bank Note"). The Bank Note
was modified in December of 1997 to increase the maximum
permitted amount to $750,000 and to extend the due date to
January 15, 1999. The Bank Note was renewed in January 1999 at
substantially similar terms with a due date of January 15,
2000. Interest on the Bank Note is payable monthly at the
prime rate of interest plus .5%. The applicable prime rate of
interest at December 31, 1998 is 7.75%. The Bank Note is
secured by all accounts receivable of Retail Data and the
personal guarantees of the Stockholder and the Stockholder's
spouse (the "Guarantors"). Outstanding borrowings under the
Bank Note total $494,000 at December 31, 1998.
The Bank Note contains various covenants. It is the opinion of
management that Retail Data and the Guarantors are in
compliance with these provisions.
(4) RELATED PARTY TRANSACTIONS
RDS provides payroll and management services to Retail Data
under a contract. The terms of the contract provide for Retail
Data to compensate RDS for services rendered on a monthly
basis, based on employee time incurred, plus a monthly fixed
charge. Total fees paid by Retail Data to RDS in 1998 were
$4,283,000. These fees are eliminated in the accompanying
combined statement of earnings.
The Companies are related through common ownership with D.C.
Trell, LLC ("D.C. Trell"). Retail Data leases real property
from D.C. Trell as described in Note 5.
Note receivable from related party at December 31, 1998
consists of a $144,000 unsecured, demand loan from Retail Data
to D.C. Trell, with interest income of $8,000 for the year
ended December 31, 1998, calculated at the applicable federal
rate. The applicable federal rate at December 31, 1998 was
5.63%.
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(5) COMMITMENTS
Retail Data leases the real property used in operations from
D.C. Trell (see Note 4) on a month-to-month basis. The lease
requires Retail Data to pay for any repairs or alterations to
the leased premises. Rent expense under the lease was $88,000
for the year ended December 31, 1998.
Retail Data leases certain equipment under noncancellable
operating leases that expire over the next four years. Future
minimum rental payments required under these leases are as
follows (in thousands):
1999 $ 270
2000 219
2001 81
2002 16
Thereafter --
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Total $ 586
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Retail Data has agreements with two key employees, under which
the employees could be provided additional compensation upon
the sale of substantially all of the assets or any of the
outstanding stock of Retail Data. The amount of such
compensation would be based on the net proceeds of such sale
subject to possible conditions of forfeiture (see Note 8).
(6) CONCENTRATION OF CREDIT RISK
The Companies perform ongoing credit evaluations of their
customers' financial conditions and, generally, require no
collateral. The three largest customers accounted for
approximately 18% of 1998 revenues and 28% of accounts
receivable at December 31, 1998.
(7) YEAR 2000 (UNAUDITED)
The Companies are in the process of reviewing and modifying
their information systems to ensure that the Companies'
information technology will recognize the year 2000. The cost
of the project is not expected to have a significant effect on
the Companies' results of operations or financial position.
(8) SUBSEQUENT EVENT
All of the outstanding common stock of the Companies was
acquired by QRS Corporation on July 23, 1999.
Under the terms of agreements with two key employees (see
Note 5), $1,719,000 in additional compensation was paid to the
employees upon the sale of the Companies' outstanding common
stock.
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RETAIL DATA SERVICES, INC. AND AFFILIATE
Unaudited Combined Balance Sheet
June 30, 1999
(Dollars in thousands)
ASSETS
1999
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Current assets:
Cash.................................................................................... $ 194
Accounts receivable (net of allowance for
doubtful accounts of $9)............................................................ 1,394
Prepaid expenses........................................................................ 89
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Total current assets................................................................ 1,677
Property and equipment, less accumulated depreciation
and amortization........................................................................ 219
Capitalized product development costs ....................................................... 75
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$ 1,971
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................................................ $ 62
Accrued liabilities..................................................................... 367
Bank line of credit..................................................................... 171
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Total current liabilities........................................................... 600
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Commitments
Stockholder's equity:
Common stock, $1 par value; 10,000 shares authorized;
200 shares issued and outstanding................................................... --
Additional paid-in capital.............................................................. 33
Retained earnings....................................................................... 1,338
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Total stockholder's equity.......................................................... 1,371
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$ 1,971
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See accompanying notes to unaudited combined financial statements.
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RETAIL DATA SERVICES, INC. AND AFFILIATE
Unaudited Combined Statement of Earnings
Six Months Ended June 30, 1999
(Dollars in thousands)
1999
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Revenues .................................................................................... $ 4,938
Cost of revenue.............................................................................. 3,233
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Gross profit................................................................................. 1,705
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Operating expenses:
Sales and marketing..................................................................... 139
General and administrative.............................................................. 467
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Total operating expenses............................................................ 606
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Operating earnings........................................................................... 1,099
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Other income (expense):
Interest expense........................................................................ (10)
Interest income......................................................................... 3
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Total other expense................................................................. (7)
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Net earnings............................................................................ $ 1,092
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See accompanying notes to unaudited combined financial statements.
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RETAIL DATA SERVICES, INC. AND AFFILIATE
Unaudited Combined Statement of Cash Flows
Six Months Ended June 30, 1999
(Dollars in thousands)
1999
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Cash flows from operating activities:
Net earnings............................................................................ $ 1,092
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization....................................................... 52
Bad debt............................................................................ 9
(Increase) decrease in assets:
Accounts receivable............................................................ (260)
Prepaid expenses............................................................... (41)
Increase (decrease) in liabilities:
Accounts payable............................................................... 9
Accrued liabilities............................................................ 125
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Net cash provided by operating activities........................................... 986
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Cash flows from investing activities:
Purchases of property and equipment..................................................... (40)
Capitalization of product development costs............................................. (49)
Net repayments from related party....................................................... 144
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Net cash provided by investing activities........................................... 55
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Cash flows from financing activities:
Net repayments of bank line of credit................................................... (322)
Stockholder distributions............................................................... (674)
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Net cash used in financing activities............................................... (996)
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Net increase in cash......................................................................... 45
Cash at beginning of period.................................................................. 149
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Cash at end of period........................................................................ $ 194
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Supplemental disclosure:
Interest paid........................................................................... $ 13
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See accompanying notes to unaudited combined financial statements.
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RETAIL DATA SERVICES, INC. AND AFFILIATE
Notes to Unaudited Combined Financial Statements
Six Months Ended June 30, 1999
(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Retail Data Services, Inc. and RDS, Inc. (collectively referred to as
the "Companies") provide competitive retail pricing information to
their customers in the grocery business, who are located throughout the
United States. Services are generally rendered under fixed-price
contracts with one year terms.
The accompanying unaudited combined balance sheet and combined
statements of earnings and cash flows have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Such interim combined financial statements do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting primarily of normal
recurring accruals) considered necessary for a fair presentation have
been included. These combined financial statements should be read in
conjunction with the Companies' audited combined financial statements
and footnotes thereto for the year ended December 31, 1998 included
elsewhere in this Form 8-K/A.
(2) SUBSEQUENT EVENT
On July 23, 1999, QRS Corporation acquired all of the outstanding
common stock of the Companies.
Under the terms of agreements with two key employees, $1,719,000 in
additional compensation was paid to the employees upon the sale of the
Companies' outstanding common stock.
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