<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: June 24, 1998 Commission File No. 000-23453
------------- ---------
(Date of earliest event reported)
FLEXIINTERNATIONAL SOFTWARE, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
DELAWARE 06-1309427
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Two Enterprise Drive, Shelton, Connecticut 06484
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(203) 925-3040
--------------
(Registrant's telephone number, including area code)
<PAGE> 2
The undersigned Registrant hereby amends Item 7 of its Current Report on Form
8-K dated June 29, 1998 to read in its entirety as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
The following financial statements required by Item 7 with respect to the
Dodge acquisition are filed as part of this report:
FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED:
- Independent Auditors' Report
- Consolidated Balance Sheets, December 31, 1997 and 1996
- Consolidated Statements of Operations for the Years Ended December 31,
1997 and 1996
- Consolidated Statements of Shareholders' Equity (Deficiency) Years
Ended December 31, 1997 and 1996
- Consolidated Cash Flow Statements for the Years Ended December 31,
1997 and 1996
PRO FORMA FINANCIAL INFORMATION:
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the
Six Months Ended June 30, 1998 and for the Year Ended December 31, 1997.
<PAGE> 3
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
THE DODGE GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
INDEPENDENT AUDITORS' REPORT
DELOITTE & TOUCHE
HILL HOUSE
1 LITTLE NEW STREET
LONDON EC4A 3TR
<PAGE> 4
THE DODGE GROUP, INC.
CONTENTS PAGE
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED BALANCE SHEETS 2
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) 4
CONSOLIDATED CASH FLOW STATEMENTS 5
NOTES TO THE CONSOLIDATED ACCOUNTS 6
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The Dodge Group, Inc.
We have audited the accompanying consolidated balance sheets of The Dodge
Group, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity
(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 audits.
BASIS OF OPINION
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.
OPINION
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Companies at December
31, 1996 and 1997, and the results of their operations and their cash flows
for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
-------------------------
Chartered Accountants
June 24, 1998
1
<PAGE> 6
THE DODGE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
NOTE 1996 1997
$ $
<S> <C> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and equivalents 1 1,318,543 793,797
Accounts receivable 939,486 1,392,944
Prepaid expenses and other assets 195,404 128,511
----------- -----------
TOTAL CURRENT ASSETS 2,453,433 2,315,252
PROPERTY AND EQUIPMENT - Net 3 625,736 505,328
OTHER ASSETS - Deposits 74,203 66,884
----------- -----------
TOTAL ASSETS 3,153,372 2,887,464
=========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY):
CURRENT LIABILITIES
Current portion of capital leases 7 24,220 14,569
Accounts payable and accrued expenses 2,303,680 2,027,018
Deferred income 1 1,572,199 3,029,755
----------- -----------
TOTAL CURRENT LIABILITIES 3,900,099 5,071,342
NOTES PAYABLE TO RELATED PARTIES 4 - 1,000,000
NOTES PAYABLE 4 - 342,563
DEFERRED RENT 34,293 6,682
LONG-TERM PORTION OF CAPITAL LEASES 7 16,116 1,547
----------- -----------
TOTAL LIABILITIES 3,950,508 6,422,134
STOCKHOLDERS' EQUITY (DEFICIENCY) 5
Redeemable, convertible preferred stock: 28,900,009 28,900,009
16,483,308 shares authorised, issued and outstanding
Convertible preferred stock:
287,500 shares authorised, issued and outstanding 2,876 2,876
Common stock:
28,000,000 shares authorised, 598,291 issued and
outstanding 5,983 5,983
Additional paid-in capital 812,247 812,247
Accumulated deficit (30,644,952) (33,471,665)
Cumulative translation adjustment 1 126,701 215,880
----------- -----------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIENCY) (797,136) (3,534,670)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) 3,153,372 2,887,464
=========== ===========
</TABLE>
2
<PAGE> 7
THE DODGE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
NOTE
1996 1997
$ $
<S> <C> <C>
REVENUES: 1
Licenses 4,119,865 2,425,166
Consulting and other 2,764,574 5,113,728
Maintenance 664,510 1,179,429
---------- ----------
TOTAL REVENUES 7,548,949 8,718,323
---------- ----------
COSTS AND EXPENSES:
Research and development 4,825,108 3,917,462
Sales and marketing 8,082,492 4,518,077
General and administrative 2,626,756 3,272,537
Restructuring charges 2 1,281,868 (313,817)
---------- ----------
TOTAL COSTS AND EXPENSES 16,816,224 11,394,259
---------- ----------
LOSS FROM OPERATIONS (9,267,275) (2,675,936)
========== ==========
OTHER INCOME/(EXPENSE):
Interest income 208,620 29,056
Interest expense (15,845) (78,168)
Foreign exchange gains/(losses) 1,884 (4,551)
---------- ----------
TOTAL OTHER INCOME/(EXPENSE) 194,659 (53,663)
---------- ----------
LOSS BEFORE TAXATION (9,072,616) (2,729,599)
TAXATION (10,687) (97,114)
---------- ----------
NET LOSS (9,083,303) (2,826,713)
========== ==========
</TABLE>
3
<PAGE> 8
THE DODGE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
REDEEMABLE,
CONVERTIBLE CONVERTIBLE ADDITIONAL CUMULATIVE STOCKHOLDERS'
PREFERRED PREFERRED COMMON PAID-IN ACCUMULATED TRANSLATION EQUITY
STOCK STOCK STOCK CAPITAL DEFICIT ADJUSTMENT (DEFICIENCY)
$ $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 18,500,009 2,876 4,736 854,794 (21,561,649) 33,774 (2,165,460)
Issuance of stock, net of Issuance
costs of $57,494 10,400,000 - - (57,494) - - 10,342,506
Exercise of stock options - - 1,247 14,947 - - 16,194
Net loss - - - - (9,083,303) - (9,083,303)
Translation adjustment - - - - - 92,927 92,927
---------- ----- ----- ------- ----------- ------- ----------
BALANCE, DECEMBER 31, 1996 28,900,009 2,876 5,983 812,247 (30,644,952) 126,701 (797,136)
========== ===== ===== ======= =========== ======= ==========
BALANCE, JANUARY 1, 1997 28,900,009 2,876 5,983 812,247 (30,644,952) 126,701 (797,136)
Net loss - - - - (2,826,713) - (2,826,713)
Translation adjustment - - - - - 89,179 89,179
---------- ----- ----- ------- ----------- ------- ----------
BALANCE, DECEMBER 31, 1997 28,900,009 2,876 5,983 812,247 (33,471,665) 215,880 (3,534,670)
========== ===== ===== ======= =========== ======= ==========
</TABLE>
4
<PAGE> 9
THE DODGE GROUP, INC.
CONSOLIDATED CASH FLOW STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
$ $
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (9,083,303) (2,826,713)
Adjustments to reconcile net loss to cash used for
operating activities:
Loss on disposal of assets 415,645 8,525
Depreciation and amortisation 478,354 264,732
Accounts receivable (572,122) (480,883)
Prepaid expenses and other assets 62,551 68,913
Accounts payable and accrued expenses 764,632 (219,716)
Deferred revenue 126,966 1,506,108
Deferred rent (90,234) (26,442)
---------- ----------
Cash used for operating activities (7,897,511) (1,705,476)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (772,917) (162,205)
Sale of property and equipment 77,708 -
Deposits 56,641 -
---------- ----------
Cash used for investing activities (638,568) (162,205)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Preferred stock 8,367,504 -
Common stock 16,194 -
Notes payable 300,000 1,342,563
Repayment of capital lease obligations (39,934) (24,220)
---------- ----------
Cash provided by financing activities 8,643,764 1,318,343
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 65,740 24,592
---------- ----------
INCREASE/(DECREASE) IN CASH AND EQUIVALENTS 173,425 (524,746)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 1,145,118 1,318,543
---------- ----------
CASH AND EQUIVALENTS, END OF YEAR 1,318,543 793,797
========== ==========
</TABLE>
5
<PAGE> 10
THE DODGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Dodge Group, Inc. (the "Company") develops, markets and supports
financial application software designed to meet the needs of large,
complex organisations that wish to transform their current business
practices. The Company's principal operating facilities are located in
the United States and the United Kingdom. Sales outside these
geographic locations are handled by personnel from the United States or
the United Kingdom or through selected distributors located in the
country in which the customer requests delivery. Use of distributors to
sell product has not been significant to date.
ACCOUNTING PRINCIPLES
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company, a wholly-owned subsidiary, The Dodge Group Limited and The
Dodge Group SA, a wholly owned subsidiary of The Dodge Group Limited.
All intercompany accounts and transactions have been eliminated in
consolidation.
SIGNIFICANT ESTIMATES
Preparation of financial statements in conformity with generally
accepted accounting principles requires, of necessity, the use of
estimates. These estimates could change.
REVENUE RECOGNITION
Revenue from software licenses is recognised upon delivery of the
software and completion of any significant remaining obligations.
Maintenance revenue is recognised over the term of the related
maintenance contract. Consulting and other revenues are recognised on
the delivery of services.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
PROPERTY AND EQUIPMENT
Purchased property and equipment are recorded at cost. Leased equipment
is recorded at the present value of the minimum lease payments.
Depreciation and amortisation are provided using the straight-line
method over the estimated useful lives of the related assets and over
the lease terms, if shorter, of the related leases.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of non-US operations are translated into US
dollars at year end rates and revenues and expenses at average rates of
exchange prevailing during the period. The resulting translation
adjustments are reported as a separate component of stockholders'
equity (deficiency). Foreign currency transaction gains and losses are
recognised in operations currently.
6
<PAGE> 11
THE DODGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CASH AND EQUIVALENTS
The Company considers all highly liquid investments purchased with
remaining maturities of three months or less to be cash equivalents.
Supplemental disclosure of cash flow information is as follows:
1996 1997
$ $
Interest paid 15,845 11,580
Significant non cash transactions - acquisition of
equipment through capital leases 25,216 -
====== ======
INCOME TAXES
Deferred tax assets or liabilities are recorded to measure the tax
impact of differences between the book and tax bases of the Company's
assets and liabilities and the Company's operating loss carry forwards.
Deferred taxes are computed using currently enacted rates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying value of its financial
instruments approximates their estimated fair values.
CONCENTRATION OF CREDIT RISK
The Company has sold and intends to sell and market its products to
customers in various industries throughout the world. The Company
performs credit evaluations before extending credit and generally
requires no collateral from its customers. For the year ended December
31, 1996, three customers each accounted for 22%, 15%, and 11%,
respectively, of the Company's total revenue. For the year ended
December 31, 1997, three customers each accounted for 17%, 10% and 9%,
respectively, of the Company's total revenue.
RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified
to conform to the 1997 presentation.
7
<PAGE> 12
THE DODGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
2. RESTRUCTURING
In 1996, in connection with the relocation of the Company's corporate
offices and development activities to London, the Company recorded a
restructuring charge of $1.28 million. The charge consisted primarily
of severance costs ($487,000), write-off of fixed assets ($375,000),
the estimated liability to fulfill certain contractual obligations
($330,000) and other costs ($90,000). In 1997, favorable settlements
were made of those contractual obligations and the estimated liability
was reduced by $314,000.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1997
$ $
PROPERTY AND EQUIPMENT CONSISTED OF THE
FOLLOWING AT DECEMBER 31:
<S> <C> <C>
Computer equipment 631,008 744,527
Purchased computer software 123,322 57,922
Computer equipment under capital leases 112,266 106,212
Furniture and fixtures 131,824 135,914
Office equipment 78,569 91,182
Leasehold improvements 79,560 78,131
--------- ---------
Total 1,156,549 1,213,888
Less accumulated depreciation and
amortisation (530,813) (708,560)
--------- ---------
Property and equipment - net 625,736 505,328
========= =========
</TABLE>
Accumulated amortisation of equipment under capital leases was $73,396
and $93,630 at December 31, 1996 and 1997, respectively.
4. NOTES PAYABLE
At December 31, 1997, the Company had notes payable to stockholders
and other investors aggregating $1,000,000. These notes bore interest
at 7% per annum.
Subsequent to December 31, 1997, the Company borrowed an additional
$1,500,000 from stockholders.
In addition the Company had bank notes payable of $342,563 which bore
interest at 9.25% per annum. These notes payable were secured on the
assets of the Company, however they were subsequently repaid and all
securities released on July 29, 1998.
8
<PAGE> 13
THE DODGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
5. CAPITAL STRUCTURE
The Company's capital structure consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1996 1997 1997
AUTHORISED ISSUED AUTHORISED ISSUED
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C>
Redeemable, Convertible Preferred Stock, $.01 par
value
Series E 7,172,414 7,172,414 7,172,414 7,172,414
Series D 2,500,000 2,500,000 2,500,000 2,500,000
Series C 6,249,997 6,249,997 6,249,997 6,249,997
Series B 560,897 560,897 560,897 560,897
---------- ---------- ---------- ----------
16,483,308 16,483,308 16,483,308 16,483,308
========== ========== ========== ==========
Convertible Preferred Stock, $.01 par value
Series A-1 143,750 143,750 143,750 143,750
Series A-2 143,750 143,750 143,750 143,750
---------- ---------- ---------- ----------
287,500 287,500 287,500 287,500
========== ========== ========== ==========
Common Stock, $.01 par value 28,000,000 598,291 28,000,000 598,291
========== ========== ========== ==========
</TABLE>
CONVERTIBLE PREFERRED STOCK
In January 1996, the Company issued 7,172,414 shares of its Series E
preferred stock for consideration of $10,400,000. Consideration
received consisted of cash of $8,425,000 and conversion of notes
payable to stockholders aggregating $1,975,002. The Series E preferred
stock has rights and privileges senior to all other classes of
preferred stock.
In connection with this transaction, the number of authorised shares of
common stock was increased to 28,000,000 and the number of shares which
may be issued pursuant to option grants was increased to 3,644,000. In
addition, the redemption date for the Series B, C, D and E preferred
shares was extended to December 31, 2002, the size of the public
offering required to trigger automatic conversion to common was
increased to $15,000,000 at a price of at least $5.00 per share, and
the date on which dividends become cumulative was extended to
January 1, 2000.
9
<PAGE> 14
THE DODGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
5. CAPITAL STRUCTURE (CONTINUED)
DIVIDENDS
Prior to the date at which such dividends become cumulative, payable as
and if declared by the Company, the holders of shares of Series E stock
are entitled to receive dividends, prior and in preference to any
declaration or payment of any dividend on the common stock, preferred
stock or any other class of stock, at the rate of $0.145 per share per
annum or, if greater (as determined on a per annum basis and on an as
converted basis), an amount equal to that paid on any other outstanding
shares.
After payment in full of dividends to Series E shareholders and prior
to the date at which such dividends become cumulative, payable as and
if declared by the Company, the holders of shares of Series B, Series C
and Series D preferred stock are entitled to receive dividends, prior
and in preference to any declaration or payment of any dividend on the
common stock, preferred stock or any other class of stock, pari passu,
at the rate of $1.25 per share of Series B stock per annum, at the rate
of $0.128 per share of Series C stock per annum, and at the rate of
$0.14 per share of Series D stock per annum, or, if greater (as
determined on a per annum basis and on an as converted basis), an
amount equal to that paid on any other outstanding shares.
After payment in full of dividends to Series E, Series B, Series C and
Series D shareholders, the holders of the Series A-1 and A-2 preferred
stock are entitled to receive dividends as declared by the Company.
When and if the Company declares a dividend on the then outstanding
common stock, the holders of the preferred stock are entitled to the
amount of dividends per share as would be payable on the largest number
of whole shares of common stock into which each share of preferred
stock could then be converted pursuant to the conversion rights of the
preferred stock.
Until the date of the issuance of the Series E stock, the dividends on
the Series B, Series C and Series D stock became cumulative on January
1, 1997. Coincident with the Series E stock transaction, commencing
January 1, 2000, the dividends on the Series B, Series C, Series D and
Series E stock become mandatory, cumulative and payable quarterly in
arrears on March 31, June 30, September 30, and December 31 of each
year.
10
<PAGE> 15
THE DODGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
5. CAPITAL STRUCTURE (CONTINUED)
LIQUIDATION PREFERENCE
In the event of liquidation, all series of preferred stock are ranked
prior to common stock, the Series E is ranked prior to all other
classes of preferred stock, the Series D preferred stock is ranked
prior to the Series C, B and A preferred stock, the Series C preferred
stock is ranked prior to Series B and A preferred stock. The preferred
stock is entitled to the following liquidation preferences, plus
accrued and unpaid dividends:
<TABLE>
<CAPTION>
LIQUIDATION REDEMPTION VALUE AND
PREFERENCE LIQUIDATION PREFERENCE
PER SHARE 1996 1997
$ $ $
<S> <C> <C> <C>
Redeemable, Convertible Preferred Stock
Series E 1.45 10,400,000 10,400,000
Series D 1.40 3,500,000 3,500,000
Series C 1.28 8,000,000 8,000,000
Series B 12.48 7,000,000 7,000,000
---------- ----------
28,900,000 28,900,000
========== ==========
Convertible Preferred Stock
Series A-1 1.28 184,000 184,000
Series A-2 5.68 816,500 816,500
---------- ----------
1,000,500 1,000,500
========== ==========
</TABLE>
VOTING
Each holder of outstanding shares of Preferred Stock is entitled to the
number of votes equal to the number of whole shares of Common Stock
into which the shares of Preferred Stock held by such shareholder are
then convertible. The holders of the Preferred Stock vote together with
the holders of the Common Stock as a single class.
The Company must obtain the written consent or affirmative vote of the
majority of the holders of each series of Preferred Stock before
altering the preferences, rights or powers of any series of Preferred
Stock, increase the authorised shares of such series, or issue
additional shares of such series. Additionally, subject to certain
limitations, the Company can enter into a business combination or sell
substantially all of its assets without obtaining the affirmative
written consent of the holders of the majority of the Series B, the
majority of the Series C, the majority of the Series D and the majority
of the Series E shares.
OPTIONAL CONVERSION
The Series, A-1, A-2, B, C, D and E preferred shares are convertible,
at the option of the holder, into shares of common stock at a
conversion rate of one share, 4.4375 shares, 9.75 shares, one share,
one share and one share, respectively, of common for one share of
preferred, subject to adjustment upon the occurrence of certain
dilutive stock issuances.
The Series E Stock has special conversion rights, which are triggered
if the Company does not meet certain revenue targets or is sold for
less than $50 million, which increase the number of shares of common
stock available at conversion from one share to up to 1.26 shares.
11
<PAGE> 16
THE DODGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
5. CAPITAL STRUCTURE (CONTINUED)
ANTI-DILUTION PROVISION
The conversion price of the preferred shares is subject to certain
anti-dilution provisions. Upon the issuance of the Series E preferred
shares, the conversion price of the Series D preferred shares was
adjusted and the conversion rate was increased from one share to 1.036
shares.
MANDATORY CONVERSION
All outstanding shares of Preferred Stock shall automatically be
converted into Common Stock, upon the closing of a public offering of
common shares, at a price in excess of $5.00 per share, pursuant to a
effective registration under the Securities Act of 1993 which results
in gross proceeds to the Company of $15 million.
MANDATORY REDEMPTION
The Series B, C, D and E preferred stock are redeemable, at the
election of either (a) a majority of the Series E shareholders and a
majority of the Series B, C, D & E shareholders voting as a class or
(b) the Company and a majority of the Series E shareholders, at any
time after December 31, 2002, at a redemption price of $12.48, $1.28,
$1.40 and $1.45, respectively, plus accrued and unpaid dividends.
EMPLOYEE STOCK OPTION PLAN
The Company has a stock option plan under which incentive and
non-qualified options to purchase shares of common stock may be granted
to certain employees and advisors of the Company. The exercise price of
incentive stock options cannot be less than 100% of the fair market
value of the stock at the date of grant; the exercise price of
non-qualified options is determined by the Company's Board of
Directors.
The following table sets forth option activity for the two years ended
December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE
<S> <C> <C>
Outstanding, January 1 1996 1,932,110 $.12 -2.00
Grants 1,037,610 $.13 - .15
Exercised (124,409) $.12 -2.00
Cancelled (1,443,101) $.12 -2.00
----------
Outstanding, December 31, 1996 1,402,210 $.12 -2.00
Grants 4,694,250 $.15
Exercised - -
Cancelled (750,460) $.12-2.00
----------
Outstanding, December 31, 1997 5,346,000 $.12-2.00
==========
Exercisable, December 31, 1997 410,791
==========
</TABLE>
RESERVED SHARES
The Company has reserved 17,358,000 shares of common stock for issuance
under the Company's stock option plan and conversion of preferred stock.
12
<PAGE> 17
THE DODGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
6. INCOME TAXES
At December 31, 1996 and 1997, the Company's deferred tax accounts
consisted of the following:
<TABLE>
<CAPTION>
1996 1997
$ $
<S> <C> <C>
Net operating loss carry forwards - United States 21,000,000 22,000,000
Net operating loss carry forwards - foreign 4,723,000 4,819,000
Tax credit carry forwards 367,000 367,000
Other deductible temporary differences, principally
depreciation and compensated absences 89,000 89,000
---------- ----------
Net asset 26,179,000 27,275,000
Valuation allowance 26,179,000 27,275,000
---------- ----------
Net asset recognised in the consolidated
balance sheets - -
========== ==========
</TABLE>
Because of the Company's limited operating history, management has
provided a full valuation allowance against the Company's net tax
asset. The US net operating loss carry forwards are available through
2012. The foreign net operating loss can be carried forward
indefinitely; however, it may only be applied against income from the
same line of business generating the loss carry forward. Due to the
significance of the changes in stock outstanding which occurred during
1995 and 1996, use of US net operating loss carry forwards may be
subject to limitations.
During 1996 and 1997, the valuation allowance was increased by
$17,673,000 and $1,096,000 reflecting net operating loss and credit
carry forwards generated for tax purposes for which realisation is not
assured.
13
<PAGE> 18
THE DODGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
7. COMMITMENTS AND CONTINGENCIES
CONTINGENCIES
From time to time, the Company is a party to litigation arising in the
ordinary course of business. Management is of the opinion that an
adverse outcome in any of all matters pending would not be material to
financial position or the results of operations.
CAPITAL LEASE OBLIGATIONS
The Company has entered into capital lease agreements with effective
interest rates ranging from 7% to 11%. Payments required under capital
leases are due as follows:
$
YEAR ENDING DECEMBER 31
1998 16,206
1999 3,321
-------
Total minimum lease payments 19,527
Less portion representing interest,
insurance, and taxes (3,411)
-------
Present value of minimum lease
payments 16,116
Less current portion (14,569)
-------
Long term obligations under capital
1,547
=======
OPERATING LEASES
The Company leases office space, equipment, and telephone systems for
its US and UK operations under operating leases. Rent expense under
all operating leases totalled $547,768 and $402,922 for the years
ended December 31, 1996 and 1997, respectively.
Future minimum lease payments under all operating leases are as
follows:
$
YEAR ENDING DECEMBER 31
1998 541,073
1999 433,636
2000 389,915
2001 355,952
2002 and thereafter 565,712
----------
Total 2,286,288
==========
14
<PAGE> 19
THE DODGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
8. SUBSEQUENT EVENT
Under an Agreement and Plan of Merger dated June 24, 1998 (the "Merger
Agreement"), FlexiInternational Software, Inc. ("Flexi") acquired all
of the outstanding common and preferred stock of the Company. Under the
Merger Agreement, the holders of the Series E preferred stock received
a right to obtain common stock of Flexi. Holders of all other series of
preferred stock and common stock of the Company received a deminimis
amount of cash. The holders of the outstanding options received the net
consideration, if any, calculated on an "as converted basis". Flexi
paid (with its common stock and cash) in full the then outstanding
principal and interest on the notes payable to certain stockholders of
the Company.
15
<PAGE> 20
(b) PRO FORMA FINANCIAL INFORMATION
On June 24, 1998, Flexi acquired Dodge through the merger of a
wholly-owned subsidiary of Flexi with and into Dodge. Pursuant to the terms of
the merger agreement, the outstanding shares of Series E Convertible Preferred
Stock of Dodge were converted into the right to receive an aggregate of 591,781
shares of Common Stock of Flexi. In addition, each outstanding share of capital
stock of Dodge other than the Series E Preferred Stock were converted into the
right to receive $0.00001. Each outstanding option (the "Dodge Options") to
purchase shares of Common Stock of Dodge under the 1991 Stock Option Plan of
Dodge were converted into an option to purchase the consideration that would
have been issuable with respect to the number of shares of Common Stock of Dodge
subject the unexercised portion of such Dodge Option. Flexi also granted options
under its 1997 Stock Incentive Plan to purchase (i) an aggregate of 150,000
shares of Common Stock to employees of Dodge pursuant to the merger agreement
and (ii) an additional 18,000 shares of Common Stock to employees of Dodge
following the merger. Following the merger and in accordance with the merger
agreement, Flexi paid in full an aggregate of $2,622,069.42 of principal and
interest on promissory notes of Dodge held by certain former stockholders of
Dodge by issuing an additional 271,719 shares of Common Stock and by paying
$754,000 in cash.
The following Unaudited Pro Forma Condensed Consolidated Statements
of Operations ("Pro Forma Statements of Operations") for the six months ended
June 30, 1998 and the year ended December 31, 1997, give effect to the
acquisition of Dodge as if it had occurred on January 1, 1997. The Pro Forma
Statements of Operations are based on historical results of operations of Flexi
and Dodge for the six months ended June 30, 1998, and the year ended December
31, 1997. The Pro Forma Statements of Operations and the accompanying notes
("Pro Forma Financial Information") should be read in conjunction with and are
qualified by the historical financial statements and notes thereto of Flexi and
Dodge.
The Pro Forma Financial Information is intended for informational
purposes only and is not necessarily indicative of the combined results that
would have occurred had the acquisition taken place on January 1, 1997, nor is
it necessarily indicative of results that may occur in the future.
16
<PAGE> 21
FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Flexi Dodge Adjustments Pro Forma
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Software license $ 10,746 $ 1,110 $ - $ 11,856
Service and maintenance 6,013 3,336 - 9,349
-------- ------- ------- --------
Total revenues 16,759 4,446 - 21,205
Cost of revenues:
Software license 1,131 329 - 1,460
Service and maintenance 3,859 2,808 - 6,667
-------- ------- ------- --------
Total cost of revenues 4,990 3,137 - 8,127
Operating expenses:
Sales and marketing 4,748 680 - 5,428
Product development 4,326 627 - 4,953
General and administrative 1,417 2,021 288 (a) 3,726
Acquired in-process R&D 6,830 - (6,830) (b) -
-------- ------- ------- --------
Total operating expenses 17,321 3,328 (6,542) 14,107
Operating loss (5,552) (2,019) 6,542 (1,029)
Interest income 570 7 - 577
Interest expense (42) (39) - (81)
-------- ------- ------- --------
Loss before provision for income taxes (5,024) (2,051) 6,542 (533)
Provision for income taxes - - - -
-------- ------- ------- --------
Net loss $ (5,024) $(2,051) $ 6,542 $ (533)
======== ======= ======= ========
Net loss per share:
Basic and diluted $ (0.30) $ (0.03) (c)
Weighted average shares:
Basic and diluted 16,533 17,368
</TABLE>
17
<PAGE> 22
FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FLEXI DODGE(d) ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Software license $ 13,901 $ 2,425 $ - $ 16,326
Service and maintenance 7,723 6,293 - 14,016
-------- -------- -------- --------
Total revenues 21,624 8,718 - 30,342
Cost of revenues:
Software license 828 869 - 1,697
Service and maintenance 5,450 4,949 - 10,399
-------- -------- -------- --------
Total cost of revenues 6,278 5,818 - 12,096
Operating expenses:
Sales and marketing 7,820 2,436 - 10,256
Product development 7,880 817 - 8,697
General and administrative 2,316 2,734 577(a) 5,627
Restructuring charges - (314) - (314)
-------- -------- -------- --------
Total operating expenses 18,016 5,673 577 24,266
Operating loss (2,670) (2,773) (577) (6,020)
Interest income 168 29 - 197
Interest expense (141) (78) - (219)
Other - (5) - (5)
-------- -------- -------- --------
Loss before provision for income taxes (2,643) (2,827) (577) (6,047)
Provision for income taxes - - - -
-------- -------- -------- --------
Net loss $ (2,643) $ (2,827) $ (577) $ (6,047)
======== ======== ======== ========
Net loss per share:
Basic and diluted $ (0.42) $ (0.84)(c)
Weighted average shares:
Basic and diluted 6,332 7,196
</TABLE>
18
<PAGE> 23
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(a) The pro forma adjustments represent amortization of goodwill and other
identifiable intangible assets of $288,000 and $577,000 for the six months
ended June 30, 1998 and the year ended December 31, 1997 respectively,
assuming the transaction had occurred on January 1, 1997.
(b) The pro forma adjustment represents $6,830,000 of acquired in-process
research and development expense. These costs are excluded from pro forma
results of operations, as they are not expected to have a continuing impact
on Flexi's results of operations.
(c) Pro forma basic and diluted net loss per share is computed by dividing the
pro forma net loss attributable to common shareholders by the pro forma
weighted average number of common shares outstanding.
(d) Dodge results have been reclassified to conform with historical Flexi
presentation.
The following table reconciles shares used to compute historical basic and
diluted net loss per share to shares used to compute pro forma basic and
diluted net loss per share:
Six Year
Months Ended Ended
June 30, December 31,
1998 1997
------------ ------------
(in thousands)
Shares used to compute historical basic
And diluted net loss per share 16,533 6,332
Impact of shares issued in acquisition -
Assumed outstanding from January 1, 1997 835 864
------- ------
Shares used to compute pro forma basic
and diluted net loss per share 17,368 7,196
======= ======
(c) EXHIBITS:
EXHIBIT
NO. DESCRIPTION
2* Agreement and Plan of Merger, dated June 24, 1998,
among FlexiInternational Software, Inc., The Dodge
Group Inc. and Princess Acquisition Corporation.
23.1 Consent of Deloitte and Touche LLP
99* Press release of FlexiInternational Software, Inc.
issued June 25, 1998.
* Incorporated by reference from the Registrant's Current Report on
Form 8-K filed with the Securities and Exchange Commission on
June 30, 1998.
19
<PAGE> 24
SIGNATURES
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 hereunto duly authorized.
Dated: September 8, 1998 FLEXIINTERNATIONAL SOFTWARE, INC.
/s/ Jennifer V. Cheng
-----------------------------
Jennifer V. Cheng
President
20
<PAGE> 25
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
2* Agreement and Plan of Merger, dated June 24, 1998,
among FlexiInternational Software, Inc., The Dodge
Group Inc. and Princess Acquisition Corporation.
23.1 Consent of Deloitte and Touche LLP
99* Press release of FlexiInternational Software, Inc.
issued June 25, 1998.
* Incorporated by reference from the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission on June 30,
1998.
21
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-46991, 333-47059 and 333-47843 of FlexiInternational Software, Inc. on Form
S-8 of our report (on the 1997 and 1996 financial statements of The Dodge Group,
Inc.) dated June 24, 1998, appearing in this Current Report on Form 8-K/A of
FlexiInternational Software, Inc. dated September 8 1998.
/s/ Deloitte & Touche
- -----------------------
Deloitte & Touche
Chartered Accountants
Hill House
1 Little New Street
London
EC4A 3TR
September 4 1998
22
