<PAGE>
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
February 27, 1998
-----------------
Date of Report (Date of earliest event reported)
ROGUE WAVE SOFTWARE, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-28900 93-1064214
- ------------------------------ ----------- ------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
5500 Flatiron Parkway
Boulder, CO 80301
-----------------
(Address of principal executive offices)
(303) 473-9118
--------------
(Registrant's telephone number, including area code)
F-1
<PAGE>
The undersigned registrant hereby amends its Form 8-K dated February 27,
1998 and filed on March 9, 1998 by amending Item 7 to add the restated financial
statements of the registrant.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rogue Wave Software, Inc.:
We have audited the accompanying consolidated balance sheets of Rogue
Wave Software, Inc. and subsidiaries as of September 30, 1996 and 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended September 30,
1997. These consolidated financial statements are the responsibility of the
Company's management. our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
financial statements of Stingray Software, Inc. (Stingray), a wholly-owned
subsidiary acquired on February 28, 1998 in a business combination accounted
for as a pooling of interests, which statements reflect total assets
constituting 3.4 percent in 1996 and 3.7 percent in 1997 and total revenue
constituting 6.9 percent in 1996 and 13.1 percent in 1997 of the related
consolidated totals. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, in so far as it relates to
the amounts included for Stingray, is based solely on the report of the other
auditors.
We conducted our audits 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 audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Rogue Wave Software, Inc. and
subsidiaries as of September 30, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1997 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
May 8, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Stingray Software, Inc.:
We have audited balance sheets of Stingray Software, Inc. as of December
31, 1997 and 1996, and the related statements of operations, shareholders'
equity, and cash flows for the years then ended (not presented herein). 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.
We conducted our audits 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 audits provide 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 Stingray Software, Inc. as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Raleigh, North Carolina
January 26, 1998
F-3
<PAGE>
<TABLE>
<CAPTION>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30,
-------------------------
ASSETS 1996 (1) 1997 (1)
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 1,818 $10,088
Short-term investments.............................................................. -- 25,739
Accounts receivable, net............................................................ 4,662 6,707
Prepaid expenses and other current assets........................................... 906 976
Deferred income taxes............................................................... 108 381
------- -------
Total current assets................................................................ 7,494 43,891
Furniture, fixtures and equipment, net................................................. 2,801 4,297
Other noncurrent assets, net........................................................... 254 2,370
------- -------
Total assets........................................................................ $10,549 $50,558
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... 700 969
Accrued expenses.................................................................... 911 2,664
Deferred revenue.................................................................... 3,052 6,187
Current portion of long-term obligations............................................ 217 202
------- -------
Total current liabilities........................................................... 4,880 10,022
Long-term obligations, less current portion............................................ 322 351
------- -------
Total liabilities................................................................... 5,202 10,373
Commitments and contingencies
Mandatorily redeemable preferred stock, $0.001 par value. Authorized 2,350 and 5,000
shares; issued and outstanding 1,543 and zero shares at September 30, 1996 and 1997,
respectively.......................................................................... 4,664 --
------- -------
Stockholders' equity:
Common stock, $0.001 par value. Authorized 35,000 shares; issued and outstanding
5,307 and 10,024 shares at September 30, 1996 and 1997, respectively............... 19 23
Additional paid-in capital........................................................ 676 36,695
Stockholder note receivable......................................................... (13) --
Retained earnings................................................................... 24 3,587
Cumulative translation adjustment................................................... (23) (120)
------- -------
Total stockholders' equity.......................................................... 683 40,185
------- -------
Total liabilities and stockholders' equity.......................................... $10,549 $50,558
======= =======
</TABLE>
(1) Restated for pooling of interests. See note 1.
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1995 (1) 1996 (1) 1997 (1)
----------- ------------ ------------
<S> <C> <C> <C>
Revenue:
License revenue...................................................... $10,482 $16,259 $25,125
Service and maintenance revenue...................................... 1,520 3,979 9,570
------- ------- -------
Total revenue...................................................... 12,002 20,238 34,695
------- ------- -------
Cost of revenue:
Cost of license revenue.............................................. 1,059 1,492 1,991
Cost of service and maintenance revenue.............................. 1,123 1,663 2,996
------- ------- -------
Total cost of revenue.............................................. 2,182 3,155 4,987
------- ------- -------
Gross profit....................................................... 9,820 17,083 29,708
------- ------- -------
Operating expenses:
Product development.................................................. 3,211 6,082 7,662
Sales and marketing.................................................. 4,891 8,598 14,623
General and administrative........................................... 1,498 2,479 3,663
------- ------- -------
Total operating expenses........................................... 9,600 17,159 25,948
------- ------- -------
Income (loss) from operations...................................... 220 (76) 3,760
Other income (expense), net........................................... (10) 100 1,403
------- ------- -------
Income before income taxes......................................... 210 24 5,163
Income tax expense (benefit).......................................... 106 (24) 1,459
------- ------- -------
Net income......................................................... $ 104 $ 48 $ 3,704
======= ======= =======
Pro forma net income data (unaudited):
Income before income taxes, as reported............................ $ 210 $ 24 $ 5,163
Pro forma income tax expense (benefit)............................. 115 (19) 1,775
------- ------- -------
Pro forma net income................................................ $ 95 $ 43 $ 3,388
======= ======= =======
Basic earnings per share.............................................. $ 0.03 $ 0.01 $ 0.42
======= ======= =======
Diluted earnings per share............................................ $ 0.02 $ 0.01 $ 0.36
======= ======= =======
Pro Forma basic earnings per share (unaudited)........................ $ 0.02 $ 0.01 $ 0.38
======= ======= =======
Pro Forma diluted earnings per share (unaudited)...................... $ 0.02 $ 0.01 $ 0.33
======= ======= =======
Shares used in basic per share calculation............................ 4,129 5,077 8,807
Shares used in diluted per share calculation.......................... 4,941 7,593 10,420
</TABLE>
(1) Restated for pooling of interests. See note 1.
See accompanying notes to consolidated financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
COMMON STOCK
-------------- ADDITIONAL STOCKHOLDER RETAINED CUMULATIVE TOTAL
PAID-IN NOTE EARNINGS TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE (DEFICIT) ADJUSTMENT EQUITY
------ ------ ---------- ------------ --------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994................. 3,425 $ 3 $ 636 $ (13) $ (90) $ -- $ 536
Issuance of common stock...................... 1,652 15 4 -- -- -- 19
Net income.................................... -- -- -- -- 104 -- 104
------ --- ------- ----------- ------ ----------- -------
Balance at September 30, 1995 (1)............. 5,077 18 640 (13) 14 -- 659
Exercise of stock options..................... 230 1 36 -- -- -- 37
Net income.................................... -- -- -- -- 48 -- 48
Payment of dividends.......................... -- -- -- -- (38) -- (38)
Foreign currency translation adjustment....... -- -- -- -- -- (23) (23)
------ --- ------- ----------- ------ ----------- -------
Balance at September 30, 1996 (1)............. 5,307 19 676 (13) 24 (23) 683
Issuance of common stock, net................. 4,297 4 34,269 -- -- -- 34,273
Exercise of stock options..................... 420 -- 327 -- -- -- 327
Tax benefit from stock option exercises....... -- -- 1,423 -- -- -- 1,423
Net income.................................... -- -- -- -- 3,704 -- 3,704
Payment of dividends.......................... -- -- -- -- (141) -- (141)
Payment on shareholder note receivable........ -- -- -- 13 -- -- 13
Foreign currency translation adjustment....... -- -- -- -- -- (97) (97)
------ --- ------- ----------- ------ ----------- -------
Balance at September 30, 1997 (1)............. 10,024 $23 $36,695 $ -- $3,587 $ (120) $40,185
====== === ======= =========== ====== =========== =======
</TABLE>
(1) Restated for pooling of interests. See note 1.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1995 (1) 1996 (1) 1997 (1)
--------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................................. $ 104 $ 48 $ 3,704
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization.......................................................... 514 819 1,900
Loss on disposal of equipment.......................................................... 23 -- --
Changes in assets and liabilities:
Accounts receivable................................................................... (1,139) (2,497) (986)
Prepaid expenses and other current assets............................................. (64) (684) 125
Deferred income taxes................................................................. (80) (28) (273)
Other noncurrent assets............................................................... (16) (72) (723)
Accounts payable and accrued expenses................................................. 440 423 2,069
Deferred revenue..................................................................... 702 1,701 2,433
-------- -------- --------
Net cash from operating activities.................................................. 484 (290) 8,249
-------- -------- --------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment.......................................... (326) (2,134) (2,876)
(Purchase) maturity of short-term investments.......................................... 344 -- (25,738)
Purchase of business, net of cash acquired............................................. -- -- (879)
-------- -------- --------
Net cash from investing activities.................................................. 18 (2,134) (29,493)
-------- -------- --------
Cash flows from financing activities:
Payments on long-term obligations...................................................... (313) (296) (198)
Net proceeds from issuance of mandatorily redeemable preferred stock................... 199 3,524 --
Net proceeds from issuance of common stock............................................. 19 -- 29,609
Payments of dividends.................................................................. -- (38) (141)
Payment on shareholder note receivable................................................. -- -- 13
Proceeds from exercise of stock options................................................ -- 37 327
-------- -------- --------
Net cash from financing activities.................................................. (95) 3,227 29,610
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents.............................. -- (1) (96)
-------- -------- --------
Net change in cash and cash equivalents............................................. 407 802 8,270
Cash and cash equivalents at beginning of period.......................................... 609 1,016 1,818
-------- -------- --------
Cash and cash equivalents at end of period................................................ $ 1,016 $ 1,818 $ 10,088
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest................................................................. $ 53 $ 37 $ 38
Cash paid for taxes.................................................................... 258 106 47
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of equipment financed by capital lease obligations......................... 346 375 --
Common stock issued for conversion of mandatorily redeemable preferred stock........... -- -- 4,664
Purchase of business, net of cash acquired:
Working capital, other than cash....................................................... -- -- (823)
Equipment.............................................................................. -- -- 121
Cost in excess of net assets acquired.................................................. -- -- 1,539
Other.................................................................................. -- -- 42
-------- -------- --------
Net cash used to acquire business................................................. -- -- 879
======== ======== ========
</TABLE>
(1) Restated for pooling of interests. See note1.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Rogue Wave Software, Inc. and subsidiaries (the "Company") is primarily
engaged in the development, sale and support of object-oriented software parts
and related tools. The Company markets its products primarily through its direct
sales organization and, to a lesser extent, through outside sales
representatives and indirect channel partners to business and government
customers. The Company operates in a single industry segment across
geographically diverse markets.
Basis of Presentation
The Company acquired all of the common stock of Stingray Software, Inc.
(Stingray) on February 28, 1998 in exchange for 1,652 shares of the Company's
common stock in a transaction accounted for as a pooling of interests (see Note
2). The Company's consolidated financial statements and notes to consolidated
financial statements have been restated for all periods presented to combine the
financial position, results of operations and cash flows of Stingray with those
of the Company. The consolidated financial statements include the accounts of
the Company and its other wholly-owned subsidiaries as of and for the years
ended September 30, and the accounts of Stingray as of and for the years ended
December 31. Intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Currency Translation
The Company translates the assets and liabilities of its non-U.S.
functional currency subsidiaries into dollars at the rates of exchange in effect
at the end of the period. Revenue and expenses are translated using rates that
approximate those in effect during the period. Gains and losses from currency
translation are included in stockholders' equity in the consolidated balance
sheets.
Cash Equivalents and Short-Term Investments
Cash equivalents consist of investments in highly liquid investment
instruments with original maturities of less than three months at date of
acquisition. Short-term investments consist primarily of commercial paper with
acquired maturities of 180 days or less. Short-term investments are held as
securities available for sale and are carried at their market value as of the
balance sheet date, which approximated cost. At September 30, 1997, there was
$300 of cash restricted for various purposes.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost. Maintenance and
repairs are expensed as incurred. Equipment under capital leases is stated at
the present value of future minimum lease payments at the inception of the
lease. Depreciation of furniture, fixtures and equipment is calculated on the
straight-line method over the estimated useful lives of
F-8
<PAGE>
the assets ranging from three to seven years. Equipment held under capital
leases is amortized straight-line over the shorter of the lease term or
estimated useful lives of the leased assets.
Intangible Assets
Other noncurrent assets include purchased software rights, a covenant not
to compete and goodwill, which are amortized over estimated useful lives of
three to five years using the straight-line method. Original cost of these
intangibles was $671 and $2.8 million at September 30, 1996 and 1997
respectively. Accumulated amortization at September 30, 1996 and 1997 was $562
and $962, respectively. Amortization charged to expense was $224, $221 and $400
for the years ended September 30, 1995, 1996 and 1997, respectively.
Foreign Exchange Contracts
The Company enters into foreign exchange forward contracts to hedge certain
operational and balance sheet exposures from changes in foreign currency
exchange rates. Such exposures result from the portion of the Company's
operations, assets, and liabilities that are denominated in currencies other
than the U.S. dollar. These transactions are entered into to hedge purchases,
sales, and other normal recurring transactions and accordingly are not
speculative in nature. The Company does not hold or issue financial instruments
for trading purposes nor does it hold or issue leveraged derivative financial
instruments. Market value gains and losses on such contracts that result from
fluctuations in foreign exchange rates are recognized as offsets to the exchange
gains or losses on the hedged transactions. By their nature, these transactions
generally offset. The net gain or loss on such foreign currency contracts and
underlying transactions was not material during 1997. The Company had
outstanding short-term forward exchange contracts to exchange German marks for
U.S. dollars in the amount of $1.1 million at September 30, 1997.
Revenue Recognition
License revenue is recognized at the time of shipment. License revenue
includes a limited initial term of maintenance, the cost of which is
insignificant. Maintenance and service revenue includes maintenance revenue
which is recognized ratably over the maintenance period and service revenue
which includes training and consulting services recognized as services are
performed. The Company generally provides a thirty-day right of return policy
for software sales. The allowance for returns was $113 and $230 at September 30,
1996 and September 30, 1997, respectively.
Advertising costs
Advertising costs are charged to expense when incurred.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents, short
term investments, and accounts receivable. The counter parties to the agreements
relating to the Company's cash equivalents and short term investments consist of
various major corporations and financial institutions of high credit standing.
The Company's receivables are derived primarily from the sales of software
products and services to customers in diversified industries as well as
distributors in the U.S. and foreign markets. International revenue accounted
for approximately 20%, 21%, and 24% of the Company's total revenue for the years
ended September 30, 1995, 1996, and 1997, respectively. The Company performs
ongoing credit evaluations of its customers' financial condition and limits the
amount of credit extended when deemed necessary but generally requires no
collateral. The Company provided allowance for doubtful accounts of $114 and
$258 at September 30, 1996 and 1997, respectively.
Research and Development
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. Under the standard,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to
F-9
<PAGE>
net realizable value considerations. The Company begins capitalization upon
completion of a working model. To date, such capitalizable costs have not been
material. Accordingly, the Company has charged all such costs to product
development expense.
Computation of Net Income Per Share
Income (loss) per share is presented in accordance with the provisions
of `Statement of Financial Accounting Standards No. 128, Earnings Per Share
(SFAS 128). SFAS 128 replaced the presentation of primary and fully diluted
earnings (loss) per share (EPS), with a presentation of basic EPS and diluted
EPS. Under SFAS 128, basic EPS excludes dilution for potential common shares
and is computed by dividing income or loss available to common shareholders by
the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock and resulted in the issuance of common stock.
Pro Forma Net Income
To properly reflect the Company's pro forma net income, the net income of
Stingray which was not subject to income taxes due to their S corporation
status, has been tax effected and included as a pro forma adjustment to income
tax expense in the accompanying consolidated statements of operations. This
adjustment was computed as if Stingray had been a taxable entity subject to
federal and state income taxes for all periods presented at the marginal tax
rates applicable in such periods.
Accounting for Stock-Based Compensation
The Company has elected to account for its stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees ("APB 25") and has adopted the "disclosure only" alternative
described in SFAS 123, Accounting for Stock-Based Compensation.
(2) MERGERS AND ACQUISITIONS
On October 27, 1995, the Company acquired all of the common stock of Inmark
Development Corporation ("Inmark") in exchange for 878 shares of the Company's
common stock in a transaction accounted for as a pooling of interests. Inmark
was a privately held corporation specializing in the development, distribution
and support of object-oriented graphical user interface library software. The
Company's consolidated financial statements and notes to consolidated financial
statements have been restated to include the results of Inmark for all periods
presented.
On February 15, 1997, the Company acquired 100% of the outstanding stock
of PVI Precision Software GmbH ("Precision") for $1.9 million in cash and notes
payable. Precision is a European distributor of Rogue Wave software products
and other companies' software products in Germany, the United Kingdom, France,
and the Benelux countries. The acquisition has been accounted for under the
purchase method and accordingly, the accompanying consolidated financial
statements include Precision's results beginning with the acquisition date.
Consolidated pro forma results of operations as if the acquisition had occurred
at the beginning of the fiscal years 1995, 1996, and 1997 are not presented as
the pro forma effect is not material.
As discussed in note 1, on February 28, 1998, the Company acquired 100% of
the outstanding stock of Stingray Software, Inc. (Stingray) in exchange for
1,652 shares of the Company's common stock in a transaction accounted for as a
pooling of interests. Stingray was a privately held corporation which develops
and distributes object oriented developer tools for Windows software
programmers.
F-10
<PAGE>
Revenue and net income of the Company, Stingray and the combined operations
for the years ended September 30 are as follows:
<TABLE>
<CAPTION>
THE
COMPANY STINGRAY COMBINED
----------- ---------- -------------
<S> <C> <C> <C>
Year ended September 30, 1995:
Total revenue..................................... $11,937 $ 65 $12,002
Net income........................................ 79 25 104
Year ended September 30, 1996:
Total revenue..................................... 18,845 1,393 20,238
Net income........................................ 35 13 48
Year ended September 30, 1997:
Total revenue..................................... 30,166 4,529 34,695
Net income........................................ 2,798 906 3,704
</TABLE>
(3) BALANCE SHEET COMPONENTS
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment at September 30, consist of the
following:
<TABLE>
<CAPTION>
1996 1997
-------- ------
<S> <C> <C>
Computer equipment............................................ $3,349 $4,957
Furniture, fixtures and equipment............................. 562 1,860
------ ------
3,911 6,817
Less accumulated depreciation and amortization................ 1,110 2,520
------ ------
Furniture, fixtures and equipment, net..................... $2,801 $4,297
====== ======
</TABLE>
Depreciation expense for the years ended September 30, 1995, 1996 and 1997
was $262, $598 and $1,501, respectively.
Accrued Expenses
The Company's accrued expenses at September 30, include the following:
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Accrued payroll and related liabilities.......................... $ 471 $1,503
Other accrued expenses........................................... 440 1,161
----- ------
Accrued expenses.............................................. $ 911 $2,664
===== ======
</TABLE>
(4) LEASES
The Company leases certain equipment and office space through noncancelable
operating lease arrangements. The leases expire 1997 through 2001 and are net
leases with the Company paying all executory costs, including insurance,
utilities and maintenance. Rent expense for operating leases during the years
ended September 30, 1995, 1996 and 1997 was $210, $601 and $915, respectively.
F-11
<PAGE>
Property under capital leases at September 30, is as follows:
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Computer equipment......................................... $ 750 $ 750
Office furniture and equipment............................. 39 39
----- -----
Total................................................... 789 789
Less accumulated amortization.............................. 282 522
----- -----
Property under capital leases, net...................... $ 507 $ 267
===== =====
</TABLE>
Amortization expense is included in depreciation expense for furniture,
fixtures and equipment.
Future minimum lease payments under capital and operating leases (with initial
or remaining lease terms in excess of one year) and the present value of future
minimum capital lease payments are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
----------- --------------
<S> <C> <C>
Year ending September 30:
1998................................................... $217 $2,124
1999................................................... 119 2,243
2000................................................... 4 1,442
2001................................................... -- 1,081
2002................................................... -- 894
2002 thereafter........................................ -- 1,842
---- ------
Total minimum lease payments.......................... 340 $9,626
======
Less amounts representing interest........................ 18
----
Present value of future minimum lease payments......... 322
Less current portion...................................... 202
----
Obligations under capital leases, less current portion. $120
====
</TABLE>
(5) LONG-TERM DEBT
Long-term debt at September 30, consists of the following:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Non-interest bearing note payable related to business combination due
February 2012, discounted on an imputed interest rate of 10%
(unamortized discount of $769)...................................... $ 231
Less current portion of long-term debt............................... --
-----
Long-term debt, less current portion.............................. $ 231
=====
</TABLE>
F-12
<PAGE>
(6) INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1995 1996 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Current:
Federal........................................... $ 142 $ -- $1,582
State and local................................... 44 4 150
----- ----- ------
186 4 1,732
----- ----- ------
Deferred:
Federal........................................... (49) (22) (213)
State and local................................... (31) (6) (60)
----- ----- ------
(80) (28) (273)
----- ----- ------
Total........................................... $ 106 $ (24) $1,459
===== ===== ======
</TABLE>
Income tax expense differs from the expected tax expense (computed by applying
the U.S. federal corporate income tax rate of 34% to net income before income
taxes) as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1995 1996 1997
------------ ------------ -----------
<S> <C> <C> <C>
Computed expected income tax expense........................................ $ 63 $ 4 $1,447
Increase (reduction) in income tax expense resulting from:
State income tax expense................................................... 1 3 228
Research and experimentation credit........................................ (110) (108) (312)
Change in valuation allowance.............................................. 120 43 610
Acquired foreign net operating loss carryforwards....................... -- -- (568)
Rate differential.......................................................... 14 -- -
Non-deductible meals and entertainment..................................... 9 14 59
Other, net................................................................. 9 20 (5)
----- ----- ------
Income tax expense (benefit)............................................. $ 106 $ (24) $1,459
===== ===== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------
1996 1997
--------------- -------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable........................................................... $ -- $ 120
Intangible assets............................................................. 37 61
Accrued expenses.............................................................. 95 99
Net operating loss carryforwards.............................................. 74 96
Foreign operating loss carryforwards.......................................... 66 692
Research and experimentation credit carryforward.............................. 217 288
Other......................................................................... 14 30
----- ------
Total gross deferred tax assets............................................... 503 1,386
Valuation allowance........................................................... (357) (967)
----- ------
Net deferred tax assets....................................................... 146 419
Deferred tax liabilities:
Cash to accrual adjustment.................................................... 18 9
Property and equipment, due to differences in depreciation.................... 20 29
----- ------
Total gross deferred tax liabilities.......................................... 38 38
----- ------
Net deferred taxes............................................................ $ 108 $ 381
===== ======
</TABLE>
F-13
<PAGE>
At September 30, 1997, the Company had net operating loss carryforwards for
federal, state and foreign income tax purposes of $266, $119 and $1,544,
respectively. The federal net operating loss expires 2007 to 2010 and the state
net operating loss expires in 2000. The Company also had $288 of tax credit
carryforwards that expire 2003 to 2012. The net federal and state operating
losses and $86 of the tax credit carryforwards were generated by Inmark prior to
Inmark's merger with the Company on October 27, 1995. As a result, utilization
of all such amounts are limited by the future taxable income of Inmark.
Utilization of the acquired foreign net operating loss carryforwards will first
be offset against goodwill associated with the acquisition of Precision before
being recorded as a tax benefit.
(7) STOCKHOLDERS' EQUITY
Initial Public Offering
On November 21, 1996, the Company completed an initial public offering of
2,368 shares of common stock at $12.00 per share. The Company received net
proceeds of $25.4 million. In connection with the initial public offering,
all outstanding shares of preferred stock converted into 1,543 shares of common
stock.
Follow-on Public Offering
On August 21, 1997, the Company completed a public offering of 350 shares
of common stock at $12.00 per share. The Company received net proceeds of $3.9
million.
(8) EQUITY INCENTIVE PLAN
In June 1996, the Company's Board of Directors adopted the 1996 Equity
Incentive Plan (the Equity Incentive Plan). The Company has reserved 3,000
shares of common stock for issuance under the Equity Incentive Plan. The Equity
Incentive Plan replaces the Company's 1994 Stock Option Plan and the Inmark
Stock Option Plan.
The Equity Incentive Plan provides for grants of stock options to employees
(including officers and employee directors) and nonstatutory stock options to
employees (including officers and employee directors), directors and consultants
of the Company. The Equity Incentive Plan is administered by the Board of
Directors of a committee appointed by the Board, which determines recipients and
types of awards to be granted, including the exercise price, number of shares
subject to the award and the exercisability thereof.
The terms of a stock option granted under the Equity Incentive Plan
generally may not exceed ten years (five years in the case of holders of more
than 10% of the Company's capital stock). The exercise price of options granted
under the Equity Incentive Plan is determined by the Board of Directors but, in
the case of an incentive stock option, cannot be less than 100% of the fair
market value of the common stock on the date of grant. Options granted under the
Equity Incentive Plan vest at the rate specified in the option agreement.
The following table summarizes stock option activity through September 30,
1997:
<TABLE>
<CAPTION>
WEIGHTED AVG.
SHARES PRICE PER SHARE
-------------- ----------------
<S> <C> <C>
Outstanding options at September 30, 1994............................. 1,188 $ 0.19
Granted............................................................... 460 0.72
Exercised............................................................. -- --
Canceled.............................................................. (267) 0.15
----- ------
Outstanding options at September 30, 1995............................. 1,381 0.37
Granted............................................................... 554 6.02
Exercised............................................................. (230) 0.25
Canceled.............................................................. (255) 1.36
----- ------
Outstanding options at September 30, 1996............................. 1,450 2.39
Granted............................................................... 961 10.23
Exercised............................................................. (420) 0.81
Canceled.............................................................. (102) 3.33
----- ------
Outstanding options at September 30, 1997............................. 1,889 $ 6.65
===== ======
</TABLE>
F-14
<PAGE>
Of the 1,889 options outstanding at September 30, 1997, 458 options were
vested and exercisable. For various price ranges, weighted average
characteristics of outstanding stock options at September 30, 1997 were as
follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
--------------------------------------- -----------------------------------
REMAINING WEIGHTED WEIGHTED
EXERCISE PRICE SHARES LIFE (YEARS) AVG. PRICE SHARES AVG. PRICE
- -------------------------- ------------- ------------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$0.15-$0.53 467 7.0 $ 0.25 241 $ 0.24
$1.94-$7.50 531 8.7 $ 5.90 146 $ 5.65
$8.25-$10.00 463 9.1 $ 8.87 10 $ 9.95
$10.25-$23.50 428 11.3 $12.84 61 $12.82
----- ---
1,889 8.97 $ 6.65 458 $ 3.86
===== ===
</TABLE>
The Company follows APB 25, to account for stock option and employee stock
purchase plans. No compensation cost is recognized because the option exercise
price is equal to the market price of the underlying stock on the date of grant.
Had compensation cost for these plans been determined based on the Black-Scholes
value at the grant dates for awards as prescribed by SFAS 123, pro forma net
income and earnings per share would have been:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 1997
------------ ------------
<S> <C> <C>
Pro forma net income (loss)............................................... $ (125) $2,656
Pro forma basic earnings (loss) per share................................. (0.02) 0.35
Pro forma diluted earnings (loss) per share............................... (0.02) 0.25
</TABLE>
The pro forma disclosures above include the amortization of the fair value
of all options vested during 1996 and 1997. The effects of applying SFAS 123 in
this pro forma disclosure may not be indicative of future amounts.
The weighted average Black-Scholes value of options granted under the stock
option plans during 1996 and 1997 was $3.57 and $6.64. Value was estimated
using an expected life of five years, no dividends, volatility of .80, and risk-
free interest rates of 6.1% and 6.4% in 1996 and 1997.
(9) EMPLOYEE STOCK PURCHASE PLAN
In June 1996, the Board adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 350 shares of common stock. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Internal Revenue Code. Under the Purchase
Plan, the Board of Directors may authorize participation by eligible employees,
including officers, in periodic offerings following the adoption of the Purchase
Plan. The offering period for any offering will be no more than 27 months.
Employees are eligible to participate if they are employed by the Company
or an affiliate of the Company designated by the Board of Directors. Employees
who participate in an offering can have up to 15% of their earnings withheld
pursuant to the Purchase Plan and applied, on specific dates determined by the
Board of Directors, to the purchase of shares of common stock. The price of
common stock purchased under the Purchase Plan will be equal to 85% of the lower
of the fair market value of the common stock on the commencement date of each
offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
During the year ended September 30, 1997, 36 shares were purchased under this
plan.
F-15
<PAGE>
(10) QUALIFIED PROFIT SHARING PLAN
The Company adopted a 401(k) profit sharing plan in January 1993. The plan
is offered to eligible employees and calls for a discretionary employer match of
employee contributions which is approved by the Board of Directors. To
participate in the plan, employees must have been employed for 90 days, and work
a minimum of 1,000 hours during the plan year. The Company matches all employee
contributions up to 3% of earnings and half of employee contributions from 3% to
5%. Company contributions paid in the years ended September 30, 1995, 1996 and
1997 were $31, $118, and $271, respectively.
(11) WORLDWIDE OPERATIONS
Information regarding worldwide operations is as follows:
<TABLE>
<CAPTION>
UNITED
STATES EUROPE ELIMINATIONS TOTAL
------------- ------------- ----------------- -----------
<S> <C> <C> <C> <C>
September 30, 1997, and for the year then ended:
Revenue to unaffiliated customers....................... $29,575 $5,120 $ - $34,695
Intercompany transfers.................................. 1,567 - (1,567) -
------- ------ ------- -------
Net revenues....................................... 31,142 5,120 (1,567) 34,695
Operating income (loss)................................. 3,940 (180) - 3,760
Assets.................................................. 49,277 3,340 (2,059) 50,558
September 30, 1996, and for the year then ended:
Revenue to unaffiliated customers....................... 19,234 1,004 - 20,238
Intercompany transfers.................................. 491 - (491) -
------- ------ ------- -------
Net revenues....................................... 19,725 1,004 (491) 20,238
Operating income (loss)................................. 57 (133) - (76)
Assets.................................................. 10,498 608 (557) 10,549
September 30, 1995, and for the year then ended:
Revenue to unaffiliated customers....................... 12,002 - - 12,002
Intercompany transfers.................................. - - - -
------- ------ ------- -------
Net revenues....................................... 12,002 - - 12,002
Operating income........................................ 220 - - 220
Assets.................................................. 4,798 - - 4,798
</TABLE>
(12) CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
F-16
<PAGE>
(13) QUARTERLY INFORMATION (UNAUDITED)
The following table presents unaudited quarterly operating results for each
of the Company's eight quarters in the two-year period ended September 30, 1997.
<TABLE>
<CAPTION>
Quarter ended
---------------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sept. 30,
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Fiscal year 1997
Total revenue.................................................. $6,635 $7,821 $9,411 $10,827
Gross margin................................................... 5,723 6,693 7,939 9,353
Operating income............................................... 553 749 869 1,590
Net income..................................................... 507 799 922 1,475
Pro forma net income........................................... 442 731 881 1334
Basic earnings per share....................................... 0.07 0.09 0.10 0.15
Diluted earnings per share..................................... 0.08 0.09 0.10 0.15
Pro forma basic earnings per share............................. 0.06 0.08 0.09 0.14
Pro forma diluted earnings per share........................... 0.05 0.07 0.08 0.12
FISCAL YEAR 1996
Total revenue.................................................. 3,743 4,968 5,455 6,072
Gross margin................................................... 3,220 4,345 4,600 4,918
Operating income (loss)........................................ 167 117 (66) (294)
Net income (loss).............................................. 174 157 31 (315)
Pro forma net income (loss).................................... 123 107 (34) (153)
Basic earnings (loss) per share................................ 0.03 0.03 0.01 (0.06)
Diluted earnings (loss) per share.............................. 0.02 0.02 0.01 (0.04)
Pro forma basic earnings (loss) per share...................... 0.02 0.02 (0.01) (0.03)
Pro forma diluted earnings (loss) per share.................... 0.02 0.01 (0.01) (0.02)
</TABLE>
(14) SUBSEQUENT EVENTS
On October 1, 1997 the Company acquired approximately 80% of the
outstanding stock of HotData Inc. ("HotData") for $1.3 million in cash and can
contribute up to a total of $2.0 million over the next three to 15 months.
HotData is developing technology to collect and verify data across the Internet.
The financial results of HotData will be consolidated with the Company's
financial results. The Company will have the option to purchase the minority
interest of the subsidiary during a specified time period in the future.
In October 1997, the Board adopted the Company's 1997 Non-Officer Stock
Option Plan (the "1997 Plan") providing for the issuance of either nonstatutory
common stock options, stock bonuses, or rights to purchase restricted stock to
employees and consultants of the Company. The 1997 Plan specifically excludes
directors and employees serving as officers of the Company. Under the 1997
Plan, 900 shares have been authorized for issuance.
F-17
<PAGE>
ROGUE WAVE SOFTWARE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Years Ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
BALANCE BALANCE
AT BEGINNING AT END
OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
---------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
September 30, 1997
Allowance for doubtful accounts................. $107 $129 $ -- $236
Sales returns and allowance..................... 111 112 -- 223
September 30, 1996
Allowance for doubtful accounts................. 251 -- (144) 107
Sales returns and allowance..................... 111 598 (598) 111
September 30, 1995
Allowance for doubtful accounts................. 34 539 (322) 251
Sales returns and allowance..................... 36 453 (378) 111
</TABLE>
(c) Exhibits*
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------ ------------------------
11.1 Computation of Net Income Per Share
23.1 Consent of KPMG Peat Marwick L.L.P.
23.2 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
___________
* Includes only the exhibits filed herewith
S-1
<PAGE>
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.
ROGUE WAVE SOFTWARE, INC.
Dated: May 21, 1998 By: /s/ Michael Scally
------------ ----------------------
Michael Scally
President and Chief Operating Officer
<PAGE>
EXHIBIT INDEX*
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------ -----------------------
11.1 Computation of Net Income Per Share
23.1 Consent of KPMG Peat Marwick L.L.P.
23.2 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
___________
* Includes only the exhibits filed herewith
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
ROGUE WAVE SOFTWARE CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share data)
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average common shares................................................ 4,129 5,077 8,807
Dilutive common stock options using the treasury stock method................. 421 1,325 1,381
Weighted average shares assuming conversion of preferred stock................ 391 1,191 232
------ ------ -------
Total shares used for per share calculations.................................. 4,941 7,593 10,420
Net income.................................................................... $ 104 $ 48 $ 3,704
Pro forma net income.......................................................... $ 95 $ 43 $ 3,388
Basic earnings per share...................................................... $ 0.03 $ 0.01 $ 0.42
Diluted earnings per share.................................................... $ 0.02 $ 0.01 $ 0.36
Pro forma basic earnings per share............................................ $ 0.02 $ 0.01 $ 0.38
Pro forma diluted earnings per share.......................................... $ 0.02 $ 0.01 $ 0.33
</TABLE>
<PAGE>
EXHIBIT 23.1
REPORT ON SCHEDULE AND CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Rogue Wave Software, Inc. and Subsidiaries:
The audits referred to in our report dated November 4, 1997 included the related
financial statement schedule as of September 30, 1997, and for each of the years
in the three-year period ended September 30, 1997, included in the annual report
on Form 10-K of Rogue Wave Software, Inc. and subsidiaries. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
We consent to incorporation by reference in the Registration Statements on Form
S-8 (Nos. 333-16749, 333-48485 and 333-48525) of Rogue Wave Software, Inc. and
subsidiaries of our reports dated May 8, 1998, relating to the consolidated
financial statements of Rogue Wave Software, Inc. and subsidiaries as of
September 30, 1996 and 1997 and for each of the related schedule, which report
appears in the Form 8-K/A dated May 20, 1998 of Rogue Wave Software, Inc. and
subsidiaries.
KPMG PEAT MARWICK LLP
Denver, Colorado
May 20, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Rogue Wave Software, Inc. and subsidiaries on Forms S-8 (File Nos. 333-16749,
333-48485 and 333-48525) of our report dated January 26, 1998, on our audit of
the financial statements of Stingray Software, Inc. as of December 31, 1997 and
1996 and for the years then ended which report is included in this Current
Report on Form 8-K/A
Coopers & Lybrand LLP
Raleigh, North Carolina
May 19, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPANY'S
FINANCIAL STATEMENTS ON FORM 8-K/A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1995 SEP-30-1996 SEP-30-1997
<PERIOD-START> OCT-01-1994 OCT-01-1995 OCT-01-1996
<PERIOD-END> SEP-30-1995 SEP-30-1996 SEP-30-1997
<CASH> 1,016 1,818 10,088
<SECURITIES> 0 0 25,739
<RECEIVABLES> 2,347 4,889 7,002
<ALLOWANCES> 160 227 265
<INVENTORY> 72 0 167
<CURRENT-ASSETS> 3,476 33 42,501
<PP&E> 1,392 3,807 6,817
<DEPRECIATION> 503 1,089 2,520
<TOTAL-ASSETS> 4,798 10,548 50,558
<CURRENT-LIABILITIES> 2,769 4,540 10,021
<BONDS> 230 322 351
1,140 4,664 0
0 0 0
<COMMON> 5 4 8
<OTHER-SE> 654 679 40,177
<TOTAL-LIABILITY-AND-EQUITY> 4,798 10,548 50,558
<SALES> 12,002 20,238 34,695
<TOTAL-REVENUES> 12,002 20,238 34,695
<CGS> 2,182 3,156 4,987
<TOTAL-COSTS> 2,182 3,156 4,987
<OTHER-EXPENSES> 9,600 17,141 25,687
<LOSS-PROVISION> 148 18 261
<INTEREST-EXPENSE> 53 37 0
<INCOME-PRETAX> 210 24 5,163
<INCOME-TAX> 106 (24) 1,459
<INCOME-CONTINUING> 104 48 3,704
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 104 51 3,704
<EPS-PRIMARY> 0.03 0.01 0.42
<EPS-DILUTED> 0.02 0.01 0.36
</TABLE>
