<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 27, 1997
WORLDTALK COMMUNICATIONS CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
0-27886 77-0303581
- ------------- -------------------
(Commission (IRS Employer
File Number) Identification No.)
5155 OLD IRONSIDES DRIVE, SANTA CLARA, CA 95054
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(Address of principal executive offices,
including zip code)
Registrant's telephone number, including area code: (408) 567-1500
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ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<CAPTION>
(a) Financial Statements of Deming Software, Inc. Page Number
--------------------------------------------- -----------
<S> <C>
Report of independent certified public accountants 5
Balance Sheet at November 9, 1996 6
Statements of Operation, period from December 11, 1995 (inception)
to November 9, 1996 7
Statement of Shareholders' Deficit, period from December 11, 1995 (inception)
to November 9, 1996 8
Statement of Cash Flows, period from December 11, 1995 (inception)
to November 9, 1996 9
Notes to Financial Statements, November 9, 1996 10
(b) Pro Forma Financial Information
Unaudited Pro Forma Combined Balance Sheet at September 30, 1996 14
Unaudited Pro Forma Combined Statements of Operations at September 30, 1996 15
Notes to Unaudited Pro Forma Combined Financial Statements 16
Signature 17
</TABLE>
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CONSENT OF INDEPENDENT AUDITORS'
The Board of Directors
Deming Software, Inc.
We consent to the incorporation by reference in the registration statement (No.
333-3510) on Form S-8 of Worldtalk Communications Corporation of our report
dated January 22, 1997, with respect to the balance sheet of Deming Software,
Inc., a development stage enterprise, as of November 9, 1996, and the related
statements of operations, shareholders' deficit, and cash flows for the period
from December 11, 1995 (inception) to November 9, 1996, which report appears in
the Form 8-K/A of Worldtalk Communications Corporation dated January 27, 1997.
KPMG Peat Marwick LLP
San Jose, California
January 24, 1997
3
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DEMING SOFTWARE, INC.
(A Development Stage Enterprise)
Financial Statements
November 9, 1996
(With Independent Auditors' Report Thereon)
4
<PAGE> 5
Independent Auditors' Report
The Board of Directors and Stockholders
Deming Software, Inc.:
We have audited the accompanying balance sheet of Deming Software, Inc. (the
Company), a development stage enterprise, as of November 9, 1996, and the
related statements of operations, stockholders' deficit, and cash flows for the
period from December 11, 1995 (inception) to November 9, 1996. 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 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 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 audit provides 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 Deming Software, Inc., a
development stage enterprise, as of November 9, 1996, and the results of its
operations and its cash flows for the period from December 11, 1995 (inception)
to November 9, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
San Jose, California
January 22, 1997
5
<PAGE> 6
DEMING SOFTWARE, INC.
(A Development Stage Enterprise)
Balance Sheet
November 9, 1996
<TABLE>
Assets
<S> <C>
Current assets - cash $ 583
Property and equipment, net 48,983
Other assets 3,295
---------
Total assets $ 52,861
=========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 48,685
Accrued liabilities 35,246
---------
Total current liabilities 83,931
Note payable to Worldtalk Communications Corporation 75,000
Note payable to stockholder 125,000
---------
Total liabilities 278,931
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.0001 par value, 24,000,000 shares authorized; none
issued or outstanding --
Common stock, $.0001 par value; 26,000,000 shares authorized;
575,000 shares issued and outstanding 58
Notes receivable from stockholders (3,000)
Additional paid-in capital 663,397
Deficit accumulated during the development stage (766,525)
Treasury stock purchase (120,000)
---------
Total stockholders' deficit (226,070)
---------
Total liabilities and stockholders' deficit $ 52,861
=========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
DEMING SOFTWARE, INC.
(A Development Stage Enterprise)
Statement of Operations
Period from December 11, 1995 (inception) to November 9, 1996
<TABLE>
<S> <C>
Revenues:
Software development contracts $ 378,988
Software licenses 150,000
-----------
Total revenues 528,988
-----------
Cost of revenues:
Software development contracts 130,625
Software licenses 20,000
-----------
Total cost of revenues 150,625
-----------
Operating expenses:
Research and development 299,904
Sales and marketing 58,403
General and administrative 122,470
Stock Compensation 650,000
-----------
Total operating expenses 1,330,777
-----------
Operating loss (952,414)
Other expense 14,111
-----------
Net loss $ (766,525)
===========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 8
DEMING SOFTWARE, INC.
(A Development Stage Enterprise)
Statement of Stockholders' Deficit
Period from December 11, 1995 (inception) to November 9, 1996
<TABLE>
<CAPTION>
Deficit
Notes accumulated
Common stock receivable Additional during the Treasury Total
------------------- from paid-in development stock stockholders'
Shares Amount stockholders capital stage purchase deficit
------ ------ ------------ ---------- ----------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders as of December
11, 1995 575,000 $ 58 (3,000) 13,397 - - 10,455
Purchase of 80,000 shares of
treasury stock at cost at
November 6, 1996 - - - - - (120,000) (120,000)
Contributed capital associated
with stock compensation
expense - - - 650,000 - - 650,000
Net loss - - - - (766,525) - (766,525)
-------- ----- ----- ------- ------- ------- -------
Balances as of November 9,
1996 575,000 $ 58 (3,000) 663,397 (766,525) (120,000) (226,070)
======== ===== ===== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 9
DEMING SOFTWARE, INC.
(A Development Stage Enterprise)
Statement of Cash Flows
Period from December 11, 1995 (inception) to November 9, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(766,525)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 24,565
Stock compensation expense 650,000
Write-off of investment in equity securities 18,450
Changes in operating assets and liabilities:
Prepaid expenses (3,000)
Other assets (295)
Accounts payable 48,686
Accrued liabilities 35,246
---------
Net cash provided by operating activities 7,127
---------
Cash flows from investing activities:
Purchases of equity securities (7,995)
Purchases of property and equipment (73,549)
Net cash used in investing activities (81,544)
---------
Cash flows provided by financing activities - proceeds from note
payable to Worldtalk Communications Corporation 75,000
---------
Net increase in cash 583
Cash, beginning of period --
--------
Cash, end of period $ 583
=========
Supplemental disclosure of noncash financing activities:
Issuance of note payable to stockholder for redemption of common stock $ 120,000
=========
Loan to stockholder for issuance of common stock $ 3,000
---------
Equity securities contributed for issuance of common stock $ 10,455
---------
Excess of fair value over considerations paid for treasury stocks $ 650,000
---------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 10
DEMING SOFTWARE, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 9, 1996
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Deming Software, Inc. (the Company) is a development stage enterprise
that was incorporated in Delaware on December 11, 1995, to engage in
the design, development, and marketing of software products.
Effective November 9, 1996, the Company was acquired by Worldtalk
Communications Corporation.
Revenue Recognition
Software development contract revenues, all of which were derived from
the same customer, are recognized using the percentage-of-completion
method based on contract milestones achieved.
Software license revenues, all of which were derived from the same
customer, are recognized upon shipment of the software.
Capitalized Software
Development costs incurred in the research and development of new
software products and enhancements to existing software products are
expensed as incurred until technological feasibility in the form of a
working model has been established. To date, the Company's software
development has been completed concurrent with the establishment of
technological feasibility, and accordingly, no costs have been
capitalized.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets, which is three years.
Income Taxes
The Company accounts for income taxes using an asset and liability
approach. Deferred tax assets and liabilities are determined based on
differences between financial reporting amounts and tax bases of assets
and liabilities and are measured applying enacted statutory tax rates
applicable to periods in which such assets and liabilities are expected
to be realized. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
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Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect to the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and reported amount of revenues
and expenses during the period. Actual results could differ from those
estimates.
Basis of Presentation
As of November 9, 1996, the Company has an accumulated deficit and
current liabilities in excess of current assets. In November 1996, the
Company was purchased by Worldtalk Communications Corporation in a
stock for stock transaction. Accordingly, these financial statements
have been prepared on a going concern basis.
(2) PROPERTY AND EQUIPMENT
Property and equipment as of November 9, 1996, consisted of the
following:
<TABLE>
<S> <C>
Computer equipment $ 70,608
Furniture and equipment 2,940
---------
73,548
Less accumulated depreciation and amortization 24,565
---------
$ 48,983
=========
</TABLE>
(3) BORROWING ARRANGEMENTS
On October 25, 1996, the Company entered in a $75,000 promissory note
with Worldtalk Communications Corporation for funding operations. The
entire principal and unpaid interest, at 6% per annum, is due on
December 31, 1997.
On November 6, 1996, the Company entered into a $120,000 loan agreement
with a stockholder for the redemption of common stock. The note bears
6% interest rate per annum and is due in total, including all accrued
interest and outstanding principally, on January 15, 1997.
(4) STOCKHOLDERS' DEFICIT
Except to the extent such rights are granted to the holders of
preferred stock, the holders of common stock have unlimited voting
rights and are entitled to receive the net assets of the Company upon
dissolution. The preferences, limitations, and relative rights of the
holders of preferred stock are undesignated. The Company's Board of
Directors may designate one or more series of preferred stock, and
shall determined the preferences, limitations, and relative rights of
any shares of preferred stock, or any series of preferred stock, before
issuance.
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During the period ended November 11, 1996, the Company recorded
$650,000 of compensation expense attributable to the repurchase of
common stock from a principal stockholder at below fair market value.
(5) COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under one noncancelable operating
leases. Future minimum lease payments under the Company's operating
leases as of November 9, 1996, is as follows:
<TABLE>
<CAPTION>
Years ending Operating
December 31, leases
------------ ---------
<S> <C>
Reminder of 1996 $ 5,966
1997 35,796
1998 35,796
1999 2,983
2000 -
---------
Future minimum lease payments $ 80,541
=========
</TABLE>
Rent expense was $35,451 for the period from December 11, 1995
(inception) to November 9, 1996.
(6) INCOME TAXES
Deferred tax assets of approximately $120,000 result from temporary
differences comprised primarily of research and development tax credits
and net operating loss carryforwards. As of November 9, 1996, the
deferred tax assets were fully offset by a valuation allowance.
The Company has federal net operating loss and tax credit carryforwards
of approximately $289,000 and $20,000, respectively.
Federal and state tax laws impose substantial restrictions on the
utilization of net operating loss and tax credit carryforwards in the
event of an "ownership change," as defined in Internal Revenue Code,
Section 382. The Company does not believe an ownership change has
occurred.
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PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma combined financial statements assume a
business combination between Worldtalk Communications Corporation and Deming
Software, Inc. accounted for on a purchase basis. The pro forma combined
condensed financial statements are based on historical financial statements of
Worldtalk Communications Corporation as of September 30, 1996 and the unaudited
historical financial statements of Deming as of November 9, 1996.
The unaudited pro forma combined balance sheet combines Worldtalk's historical
September 30, 1996 balance sheet with Deming's November 9, 1996 historical
balance sheet, giving effect to the business combination as if it had occurred
on September 30, 1996. The unaudited pro statements of operations combine
Worldtalk's historical statement of operations for the nine-months ended
September 30, 1996 with Deming's historical statement of operations for the
nine-months ended November 9, 1996, giving effect to the business combination as
if it had occurred on January 1, 1996.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred if the business combination had been consummated at the beginning
of the period presented, nor is it necessarily indicative of future operating
results or financial position.
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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Worldtalk Deming Pro Forma
Communications Software Pro Forma Combined
Sep. 30, 1996 Nov. 9, 1996 Adjustments Sep. 30, 1996
-------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 15,163 1 (225) 14,939
Accounts receivable 3,693 -- -- 3,693
Prepaids and other 478 -- -- 478
-------- --- ----- -------
Total current assets 19,334 1 (225) 19,110
Property and equipment - net 1,535 49 -- 1,584
Other assets 305 3 499 807
-------- --- ----- -------
Total assets $ 21,174 53 274 21,501
======== === ===== =======
Accounts payable $ 1,355 49 -- 1,404
Accrued expenses 2,793 35 418 3,246
Current capital leases 139 -- -- 139
Deferred revenue 1,869 -- -- 1,869
-------- -- ----- -------
Total current liabilities 6,156 84 418 6,658
Capital lease, less current 165 -- -- 165
Other liabilities 350 195 -- 545
-------- --- ----- -------
Total liabilities 6,671 279 418 7,368
Common stock 97 -- 5 102
Additional paid in capital 27,379 544 3,584 31,507
Shareholders note receivable (262) (265)
(3)
Deferred compensation (142) (142)
Accumulated deficit (12,569) (767) (3,733) (17,069)
-------- --- ----- ------
Total shareholders' equity (deficit) 14,503 (226) (144) 14,133
-------- --- ----- ------
Total liabilities and shareholders' $ 21,174 53 274 21,501
equity (deficit) ======== === ===== ======
</TABLE>
See accompanying notes to unaudited combined condensed financial statements
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<PAGE> 15
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Worldtalk Deming Pro Forma
Communications Software Pro Forma Combined
Sep. 30, 1996 Nov. 9, 1996 Adjustments Sep. 30, 1996
-------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ 6,727 150 -- 6,877
Maintenance, installation, and training 3,126 -- -- 3,126
Software development contracts -- 295 -- 295
-------- ----- --- ------
Total revenues 9,853 445 -- 10,298
Cost of revenues:
Software licenses 751 20 -- 771
Maintenance, installation, and training 1,630 -- -- 1,630
Software development contracts -- 117 -- 117
-------- ----- --- ------
Total cost of revenues 2,381 137 -- 2,518
Gross margin 7,472 308 -- 7,780
Operating expenses:
Product development 2,601 920 (190) 3,711
Selling and marketing 4,720 16 -- 4,736
General and administrative 1,253 110 -- 1,363
-------- ----- --- ------
Total operating expenses 8,574 1,046 (190) 9,810
Operating loss (1,102) (738) (190) (2,030)
Other income (expense), net 355 (14) -- 341
-------- ----- --- ------
Net loss $ (747) (752) (190) (1,689)
======== ===== === ======
Net loss per share $ (0.08) (0.18)
======== ======
Shares used in per share computation 8,896 9,471
======== ======
</TABLE>
See accompanying notes to unaudited combined condensed financial statements
15
<PAGE> 16
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1. PERIODS COMBINED
The Worldtalk statement of operations for the nine-months ended September 30,
1996 have been combined with the Deming statements of operations for the
nine-months ended November 9, 1996, giving effect to the business combination as
if it had occurred on January 1, 1996. The Worldtalk balance sheet as of
September 30, 1996 has been combined with the Deming balance sheet as of
November 9, 1996, giving effect to the business combination as if it had
occurred on September 30, 1996.
NOTE 2. BASIS OF PRESENTATION AND PRO FORMA ADJUSTMENTS
The pro forma combined condensed financial statements reflect the issuance of
546,538 shares of Worldtalk common stock and $225,000 in cash in exchange for
all of the outstanding shares of Deming common stock in a business combination
accounted for under the purchase method. The Worldtalk stock issued in the
combination is not registered, but has demand registration rights beginning
as early as 1998, depending on certain circumstances.
<TABLE>
<S> <C>
Number of shares of Worldtalk common stock outstanding at September 30, 1996 9,668,585
Number of shares of Worldtalk common stock issued in connection with the
business combination 546,538
----------
Number of shares of Worldtalk common stock assumed outstanding after
completion of the business combination 10,215,123
==========
</TABLE>
The total purchase price of $4,773 ,000 includes $418,000 of direct acquisition
costs (primarily legal, accounting, consulting, and travel) and has been
allocated on a preliminary basis to the net assets acquired based on their
relative estimated fair values as follows: (in 000s)
<TABLE>
<S> <C>
Net liabilities acquired $ (226)
Goodwill, covenant not to compete, and workforce in place 499
In-process research and development 4,500
-------
Total purchase price $ 4,773
</TABLE>
The pro forma adjustments applied to the historical statement of operations to
arrive at the pro forma combined statement of operations reflects amortization
expense of $190,000 related to goodwill and other intangibles resulting from the
acquisition of Deming over their estimated useful life of four years.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 27, 1997
WORLDTALK COMMUNICATIONS CORPORATION
By: /s/ Stephen R. Bennion
--------------------------------------
Stephen R. Bennion
Vice President, Finance and Operations,
Chief Financial Officer and Secretary
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