<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT No. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 30, 1999
------------------
TSI INTERNATIONAL SOFTWARE LTD.
-------------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-22667 06-1132156
- -------- ------- ----------
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
45 Danbury Road
Wilton, Connecticut 06897
- ------------------- -----
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including are code: (203) 761-7600
--------------
The undersigned registrant hereby amends and restates Item 7 of its Current
Report on Form 8-K, dated September 30, 1999 originally filed with the
Securities and Exchange Commission (the "Commission") on October 15, 1999 so
that as amended and restated said Item 7 shall read in its entirety as follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
-----------------------------------------
The following financial statements of Novera Software, Inc.
("Novera"), together with the report thereon by PricewaterhouseCoopers LLP, are
included herein as Exhibit 99.2 to this report and are incorporated herein by
reference:
Novera Software, Inc. Balance Sheets as of December 31,
1998 and 1997 and as of (unaudited) June 30, 1999.
Novera Software, Inc. Statements of Operations for the
years ending December 1998 and 1997 and for the
(unaudited) six months ended June 30, 1999 and 1998.
<PAGE>
Novera Software, Inc. Statements of Redeemable
Convertible Preferred Stock and Stockholders' Deficit
for the years ending December 1998 and 1997 and for the
(unaudited) six months ended June 30, 1999.
Novera Software, Inc. Statements of Cash Flows for the
years ended December 31, 1998 and 1997 and for the
(unaudited) six month periods ended June 30, 1999 and
June 30, 1998.
Novera Software, Inc. Notes to Financial Statements.
(b) Pro Forma Financial Information
-------------------------------
The following unaudited pro forma condensed consolidated statements of
operations are included herein as Exhibit 99.3 to this report and are
incorporated herein by reference:
Unaudited Pro forma Condensed Consolidated Statements of
Operations for the fiscal year ended December 31, 1998 and the
nine-month period ended September 30, 1999.
The unaudited pro forma condensed consolidated financial information included
herein as Exhibit 99.3 and incorporated herein by reference has been prepared by
combining the historical consolidated information of TSI International Software
Ltd. ("TSI") with (i) the historical information of Braid Group Limited
("Braid"), which was acquired by TSI on March 18, 1999 as previously reported in
TSI's Current Report on Form 8-K filed with the Commission on April 4, 1999, as
amended by TSI's Current Report on Form 8-K/A filed with the Commission on June
1, 1999 and (ii) the historical information of Novera.
The unaudited pro forma financial information is based on and should be read
together with the historical financial statements of TSI as of and for the year
ended December 31, 1998; the unaudited financial statements of TSI as of and for
the nine month period ended September 30, 1999, the Form 8-K/A dated March 18,
1999 and filed with the Commission on June 1, 1999 in connection with the
acquisition of Braid; the historical financial statements of Novera as of and
for the year ended December 31, 1998 and the unaudited financial statements of
Novera as of and for the six month period ended June 30, 1999 included herein as
Exhibit 99.2 to this report and incorporated herein by reference.
The unaudited pro forma condensed consolidated information included herein as
Exhibit 99.3 to this report and incorporated herein by reference is based on
certain assumptions and includes the adjustments described herein and in the
notes to the unaudited pro forma condensed consolidated financial information.
The unaudited condensed consolidated statements of operations for the year ended
December 31, 1998 and for the nine months ended September 30, 1999 included
herein as Exhibit 99.3 to this report and incorporated herein by reference were
prepared based on the assumption that the Novera and Braid acquisitions had
taken place on January 1, 1998. For accounting purposes, the Novera acquisition
will be treated as a purchase.
It should be understood that the unaudited pro forma condensed consolidated
financial statements do not necessarily reflect the actual consolidated
financial position or results of operations of the combined entities because,
among other factors, actual expenses related to or following the acquisitions of
Braid and Novera may be different than amounts assumed or estimated. The pro
forma condensed consolidated financial information is provided for illustrative
purposes only and may not necessarily be indicative of the financial results
that would have occurred had the acquisitions been effective on the dates
indicated, and should not be viewed as indicative of results of operations or
financial position of future periods.
2
<PAGE>
(c) Exhibits
Exhibit No. Description
----------- -----------
2.1* Agreement and Plan of Reorganization dated as of
September 30, 1999 by and among TSI International
Software Ltd., Natchez Acquisition Corp. and Novera
Software, Inc.
2.2* Escrow Agreement dated as of September 30, 1999 by and
among TSI International Software Ltd., Novera
Software, Inc., the Indemnification Representative (as
defined therein) and The Bank of New York, as escrow
agent.
23.1 Consent of PricewaterhouseCoopers LLP.
99.1* Press Release of TSI International Software Ltd. dated
September 30, 1999
99.2 The following financial statements of Novera Software,
Inc., together with the report thereon of
PricewaterhouseCoopers LLP:
Novera Software, Inc. Balance Sheets as of December
31, 1998 and 1997, and as of (unaudited) June 30,
1999.
Novera Software, Inc. Statements of Operations for the
years ending December 1998 and 1997 and for the
(unaudited) six months ended June 30, 1999 and 1998.
Novera Software, Inc. Statements of Redeemable
Convertible Preferred Stock and Stockholders' Deficit
for the years ending December 1998 and 1997 and for
the (unaudited) six months ended June 30, 1999.
Novera Software, Inc. Statements of Cash Flows for the
years ended December 31, 1998 and 1997 and for the
(unaudited) six month periods ended June 30, 1999 and
1998.
Novera Software, Inc. Notes to Financial Statements.
99.3 The following unaudited pro forma condensed
consolidated financial statements:
Unaudited Pro Forma Condensed Consolidated Statements
of Operations for the fiscal year ended December 31,
1998 and the nine-month period ended September 30,
1999.
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Information.
* Previously filed with TSI's Current Report on Form 8-K dated September 30,
1999 and filed with the Commission on October 15, 1999.
3
<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.
TSI INTERNATIONAL SOFTWARE LTD.
By: /s/ Ira A. Gerard
--------------------------------------
Ira A. Gerard
Vice President, Finance and
Administration
Chief Financial Officer and Secretary
Dated: November _____, 1999
4
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1* Agreement and Plan of Reorganization dated as of September 30, 1999 by
and among TSI International Software Ltd., Natchez Acquisition Corp. and
Novera Software, Inc.
2.2* Escrow Agreement dated as of September 30, 1999 by and among TSI
International Software Ltd., Novera Software, Inc., the Indemnification
Representative (as defined therein) and The Bank of New York, as escrow
agent.
23.1 Consent of PricewaterhouseCoopers LLP.
99.1* Press Release of TSI International Software Ltd. dated September 30,
1999
99.2 The following financial statements of Novera Software, Inc., together
with the report thereon of PricewaterhouseCoopers LLP:
Novera Software, Inc. Balance Sheets as of December 31, 1998 and 1997,
and as of (unaudited) June 30, 1999.
Novera Software, Inc. Statements of Operations for the years ending
December 1998 and 1997 and for the (unaudited) six months ended June 30,
1999 and 1998.
Novera Software, Inc. Statements of Redeemable Convertible Preferred
Stock and Stockholders' Deficit for the years ending December 1998 and
1997 and for the (unaudited) six months ended June 30, 1999.
Novera Software, Inc. Statements of Cash Flows for the years ended
December 31, 1998 and 1997 and for the (unaudited) six month periods
ended June 30, 1999 and 1998.
Novera Software, Inc. Notes to Financial Statements.
99.3 The following unaudited pro forma condensed consolidated financial
statements:
Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the fiscal year ended December 31, 1998 and the nine-month period ended
September 30, 1999.
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information.
* Previously filed with TSI's Current Report on Form 8-K dated September 30,
1999 and filed with the Commission on October 15, 1999.
5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-30631, 333-37969 and 33-89951 and the
Registration Statement on Form S-3 (No. 333-81427) of TSI International Software
Ltd. of our report dated November 8, 1999 relating to the financial statements
of Novera Software, Inc., which report appears in this Form 8-K/A Amendment No.
1 to the Current Report on Form 8-K dated September 30, 1999.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 15, 1999
<PAGE>
Exhibit 99.2
Novera Software, Inc.
Financial Statements
December 31, 1998
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Novera Software, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of redeemable convertible preferred stock and stockholders' deficit
and of cash flows present fairly, in all material respects, the financial
position of Novera Software, Inc. at December 31, 1998 and 1997, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 8, 1999
<PAGE>
Novera Software, Inc.
Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30,
1999 1998 1997
Assets (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 2,253,332 $ 707,839 $ 2,176,596
Accounts receivable 496,439 638,262 917,562
Prepaid expenses and other current assets 86,200 14,708 75,180
============== ============== ==============
Total current assets 2,835,971 1,360,809 3,169,338
Fixed assets, net 212,209 178,883 187,772
Other assets 88,434 61,318 37,500
-------------- -------------- --------------
$ 3,136,614 $ 1,601,010 $ 3,394,610
-------------- -------------- --------------
Liabilities, Redeemable Convertible Preferred Stock and
Stockholders' Deficit
Current liabilities:
Current portion of notes payable $ 63,177 $ 1,566,599 $ 66,336
Accounts payable 514,488 439,354 203,922
Accrued employee compensation and benefits 163,396 145,704 197,509
Accrued expenses 103,448 104,821 111,396
Deferred revenue 118,036 182,102 553,377
-------------- -------------- --------------
Total current liabilities 962,545 2,438,580 1,132,540
Notes payable 31,587 54,490 117,930
-------------- -------------- --------------
Total liabilities 994,132 2,493,070 1,250,470
-------------- -------------- --------------
Commitments (Note 9)
Redeemable convertible preferred stock, $.10 par value:
Series A preferred stock, 2,300,000 shares authorized, issued and
outstanding, at issuance cost plus accumulated dividends of
$496,674, $416,836 and $255,836 at June 30, 1999 (unaudited),
December 31, 1998 and 1997, respectively 2,796,674 2,716,836 2,555,836
Series B preferred stock, 1,641,616 shares authorized, issued and
outstanding at June 30, 1999 (unaudited) and December 31, 1998,
1,352,599 shares authorized, issued and outstanding at December 31,
1997, at issuance cost plus accumulated dividends of $708,563,
$547,585 and $193,885 at June 30, 1999 (unaudited), December 31, 1998
and 1997, respectively 6,388,554 6,227,576 4,873,877
Series C preferred stock, 2,352,941 shares authorized, 1,412,943 issued
and outstanding at June 30, 1999 (unaudited), none issued or
outstanding at December 31, 1998 and 1997, at issuance cost plus
accumulated dividends of $137,036 (unaudited) 6,142,044 - -
-------------- -------------- --------------
Total redeemable convertible preferred stock 15,327,272 8,944,412 7,429,713
-------------- -------------- --------------
Stockholders' deficit:
Undesignated preferred stock, $.10 par value; 705,443, 658,384 and
947,401 shares authorized, at June 30, 1999 (unaudited), December 31,
1998 and 1997, respectively, none issued or outstanding - - -
Common stock, $.01 par value; 11,500,000, 9,000,000 and 7,500,000
shares authorized at June 30, 1999 (unaudited), December 31, 1998 and
1997, respectively; 2,157,337, 2,130,487 and 1,965,662 shares issued
and outstanding at June 30, 1999 (unaudited), December 31, 1998 and
1997, respectively 21,574 21,305 19,657
Additional paid-in capital 1,987,485 75,368 54,565
Accumulated deficit (13,418,302) (9,933,145) (5,359,795)
Deferred compensation (1,775,547) - -
-------------- -------------- --------------
Total stockholders' deficit (13,184,790) (9,836,472) (5,285,573)
-------------- -------------- --------------
Total liabilities, redeemable convertible preferred stock and
stockholders' deficit $ 3,136,614 $ 1,601,010 $ 3,394,610
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Novera Software, Inc.
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, December 31,
---------------------- ----------------------
1999 1998 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Revenue:
Software $ 491,750 $ 660,582 $ 1,359,712 $ 566,623
Maintenance and services 586,894 339,824 1,097,246 157,286
------------- ------------- ------------- -------------
1,078,644 1,000,406 2,456,958 723,909
Cost of revenue:
Software 19,255 5,760 39,087 58,874
Maintenance and services 815,146 217,946 631,665 78,748
------------- ------------- ------------- -------------
834,401 223,706 670,752 137,622
------------- ------------- ------------- -------------
Gross profit 244,243 776,700 1,786,206 586,287
------------- ------------- ------------- -------------
Costs and expenses:
Research and development 1,176,404 1,107,457 2,395,056 2,058,188
General and administrative 451,265 240,057 800,011 434,655
Sales and marketing 1,694,295 1,167,603 2,628,280 1,976,143
------------- ------------- ------------- -------------
3,321,964 2,515,117 5,823,347 4,468,986
------------- ------------- ------------- -------------
Loss from operations (3,077,721) (1,738,417) (4,037,141) (3,882,699)
Interest income 40,223 20,999 32,224 110,738
Interest expense (28,849) (8,192) (44,513) (9,437)
------------- ------------- ------------- -------------
Net loss $(3,066,347) $(1,725,610) $(4,049,430) $(3,781,398)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Novera Software, Inc.
Statement of Redeemable Convertible Preferred Stock and Stockholders' Deficit
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Redeemable convertible Additional
preferred stock Common stock paid-in
Shares Amount Shares Par value capital
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 2,300,000 $ 2,394,836 1,896,262 $ 18,963 $ 48,319
Issuance of common stock 69,400 694 6,246
Issuance of Series B redeemable
convertible preferred stock, issuance
costs of $9,421 1,352,599 4,679,992
Accrual of cumulative dividend 354,885
Net loss
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 3,652,599 7,429,713 1,965,662 19,657 54,565
Issuance of common stock 164,825 1,648 20,803
Issuance of Series B redeemable
convertible preferred stock, issuance
of $9,220 289,017 999,999
Accrual of cumulative dividend 514,700
Net loss
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 3,941,616 8,944,412 2,130,487 21,305 75,368
Issuance of common stock (unaudited) 26,850 269 7,442
Issuance of Series C redeemable convertible preferred
stock, issuance costs of $40,958 (unaudited) 1,412,943 6,005,008
Accrual of cumulative dividend (unaudited) 377,852
Net loss (unaudited)
Deferred compensation relating to grants
of stock options (unaudited) 1,904,675
Amortization of deferred compensation relating
to grants of stock options (unaudited)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1999 (unaudited) 5,354,559 $ 15,327,272 2,157,337 $ 21,574 $ 1,987,485
------------ ------------ ------------ ------------ ------------
<CAPTION>
Accumulated Deferred
deficit compensation Total
<S> <C> <C> <C>
Balance at December 31, 1996 $ (1,214,091) $ (1,146,809)
Issuance of common stock 6,940
Issuance of Series B redeemable
convertible preferred stock, issuance
costs of $9,421 (9,421) (9,421)
Accrual of cumulative dividend (354,885) (354,885)
Net loss (3,781,398) (3,781,398)
------------- ------------- -------------
Balance at December 31, 1997 (5,359,795) (5,285,573)
Issuance of common stock 22,451
Issuance of Series B redeemable
convertible preferred stock, issuance
of $9,220 (9,220) (9,220)
Accrual of cumulative dividend (514,700) (514,700)
Net loss (4,049,430) (4,049,430)
------------- ------------- -------------
Balance at December 31, 1998 (9,933,145) (9,836,472)
Issuance of common stock (unaudited) 7,711
Issuance of Series C redeemable convertible preferred
stock, issuance costs of $40,958 (unaudited) (40,958) (40,958)
Accrual of cumulative dividend (unaudited) (377,852) (377,852)
Net loss (unaudited) (3,066,347) (3,066,347)
Deferred compensation relating to grants
of stock options (unaudited) $ (1,904,675)
Amortization of deferred compensation relating
to grants of stock options (unaudited) 129,128 129,128
------------- ------------- -------------
Balance at June 30, 1999 (unaudited) $(13,418,302) $ (1,775,547) $(13,184,790)
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Novera Software, Inc.
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, December 31,
---------------------- ----------------------
1999 1998 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,066,347) $(1,725,610) $(4,049,430) $(3,781,398)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization 57,778 40,218 88,441 75,264
Compensation expense relating to stock options 129,128 - - -
Increase (decrease) resulting from changes in
operating assets and liabilities:
Accounts receivable 141,823 592,683 279,300 (917,562)
Prepaid expenses and other current assets (71,492) 34,172 60,472 (42,639)
Accounts payable 75,134 159,056 235,432 59,416
Accrued employee compensation and benefits 17,692 77,788 (51,805) 197,509
Accrued expenses (1,373) (255,359) (6,575) 76,382
Deferred revenue (64,066) (491,489) (371,275) 523,377
------------ ------------ ------------ ------------
Net cash used for operating activities (2,781,723) (1,568,541) (3,815,440) (3,809,651)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchases of fixed assets (91,104) (18,457) (79,552) (58,265)
Increase in other assets (27,116) (23,818) (23,818) -
------------ ------------ ------------ ------------
Net cash used for investing activities (118,220) (42,275) (103,370) (58,265)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net
of issue costs 5,964,050 - 990,779 4,670,571
Proceeds from exercise of stock options 7,711 3,890 22,451 6,940
Proceeds from issuance of notes payable - - 1,500,000 189,530
Principal payments on notes payable (1,526,325) (31,588) (63,177) (5,264)
------------ ------------ ------------ ------------
Net cash provided by (used for) financing activities 4,445,436 (27,698) 2,450,053 4,861,777
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,545,493 (1,638,514) (1,468,757) 993,861
Cash and cash equivalents, beginning of period 707,839 2,176,596 2,176,596 1,182,735
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 2,253,332 $ 538,082 $ 707,839 $ 2,176,596
------------ ------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 28,849 $ 8,192 $ 44,512 $ 9,437
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Novera Software, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Nature of Business and Basis of Presentation
Novera Software, Inc. (the "Company"), a Delaware Corporation, was
incorporated on March 28, 1996. The Company is engaged in the development
and sale of software products that integrate enterprise information with
web applications. The Company's principal markets are the domestic and
international business markets, and the Company operates in one business
segment. Substantially all of Novera's long-lived assets were located in
the United States for all periods presented.
Through 1997, the Company devoted substantially all of its efforts to
research and development, business planning and financings and was
considered to be in the development stage as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company is no longer considered to be a
development stage enterprise as planned principal operations have commenced
and revenue therefrom through December 31, 1998 is significant.
2. Summary of Significant Accounting Policies
Revenue Recognition
Revenue from software license fees is recognized when a contract has been
executed, the product has been shipped and the collection of the related
receivable is probable.
The Company also recognizes revenue from maintenance and consulting service
arrangements. Maintenance revenue, consisting of post-contract customer
support, is deferred and recognized ratably over the period the services
are provided, generally one year. Consulting service revenue is recognized
as the services are performed.
Use of Estimates
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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
Company invests its excess cash in money market funds and U.S. Treasury
bills which are subject to minimal credit and market risk. Cash equivalents
are comprised of money market funds totaling $2,199,688, $634,523 and
$1,954,263, at June 30, 1999 (unaudited), December 31, 1998 and 1997,
respectively. All cash equivalents have been classified as
available-for-sale and are reported at amortized cost which approximates
fair value. Since inception, there have been no realized gains or losses on
the sale of available-for-sale securities.
<PAGE>
Novera Software, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company closely monitors these accounts receivable and, to
date, has not experienced any credit losses. A certain customer accounted
for 51% and 82% of the accounts receivable balance at December 31, 1998 and
1997, respectively. This balance was collected in full subsequent to
year-end.
For the years ended December 31, 1998 and 1997, certain customers accounted
for more than 10% of the Company's revenue. Individual customers accounted
for 25%, 18%, 14% and 13% and 12% of revenue in 1998, and 35%, 28% and 12%
of revenue in 1997.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Maintenance and repair costs are
expensed as incurred.
Research and Development and Capitalized Software Development Costs
The Company incurs costs to develop computer software to be sold, licensed
or otherwise marketed to customers. Costs incurred in the research and
development of new software products and enhancements to existing products
are expensed as incurred. Software development costs incurred subsequent to
the establishment of technological feasibility and prior to general release
of the product to the public, are capitalized and amortized to cost of
revenue over the estimated useful life of the related products. Software
development costs eligible for capitalization have not been significant to
date.
Accounting for Stock-Based Compensation
The Company accounts for stock-based awards to its employees using the
intrinsic value based method as prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations and has adopted the provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation," through disclosure only (Note 8).
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
notes payable, accounts payable and accrued expenses. The fair values of
these financial instruments approximate their carrying value at
December 31, 1998 and 1997.
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising costs
were approximately $18,817 and $40,816 in the years ended December 31, 1998
and 1997, respectively.
Unaudited Interim Financial Data
The interim financial statements as of June 30, 1999 and for the six months
ended June 30, 1999 and 1998 are unaudited. Management believes the
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations in such periods. Results for
the six months ended June 30, 1999 are not necessarily indicative of
results to be expected for the full fiscal year.
2
<PAGE>
Novera Software, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. SFAS No. 133 is
effective for fiscal quarters of fiscal years beginning after June 15,
2000. Novera does not expect SFAS No. 133 to have a material effect on its
financial positions or results of operations.
3. Fixed Assets
Fixed assets consist of the following:
Estimated
useful life December 31,
(years) 1998 1997
Computer equipment and software 3 $ 272,850 $ 193,297
Office equipment 5 32,067 32,067
Furniture and fixtures 7 49,582 49,583
---------- ----------
354,499 274,947
Less-accumulated depreciation 175,616 87,175
---------- ----------
$ 178,883 $ 187,772
========== ==========
Depreciation expense for the years ended December 31, 1998 and 1997 was
$88,441 and $75,264, respectively.
4. Notes Payable
In May 1997, the Company entered into an equipment line of credit with a
bank. The line of credit provided for borrowings of up to $300,000 at the
bank's prime rate (7.75% at December 31, 1998) plus 1.0% through November
1997 (the "Draw Period"). During the Draw Period, accrued interest on
outstanding borrowings was payable monthly in arrears. In December 1997,
all outstanding borrowings under the line of credit converted into a term
note payable in 36 equal monthly installments of interest and principal.
In October 1998, the Company entered into a credit agreement, which
provides for borrowings of up to $1,500,000 for working capital purposes.
The borrowings bear interest at bank's prime rate (7.75% at December 31,
1998) plus 1% and are secured by substantially all of the Company's assets.
At December 31, 1998, outstanding borrowings under this agreement were
$1,500,000 and were due at the earlier of the issuance of the Company's
equity resulting in the receipt of at least $5,000,000 or February 28,
1999. In March of 1999, the maturity date for these borrowings was extended
to March 12, 1999 and were subsequently repaid.
3
<PAGE>
Novera Software, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
All borrowings are subject to certain minimum working capital requirements,
financial covenants and other non-financial covenants, including
restrictions on the Company's ability to pay dividends.
Annual principal maturities are as follows:
1999 $ 1,566,599
2000 54,490
-------------
$ 1,621,089
=============
5. Preferred Stock
Series A and B stockholders have the following rights and privileges:
Conversion Rights
The Series A Preferred Stock and Series B Preferred Stock is convertible,
at the option of the holder, into common stock of the Company based upon a
formula which currently would result in a 1-for-1 exchange. The Series A
Preferred Stock and Series B Preferred Stock will automatically convert
into common stock upon the closing of an initial public offering for which
proceeds equal or exceed $15,000,000 at a price per share equal to or
greater than $5.00 per share.
Dividend Rights
The holders of Series A Preferred Stock and Series B Preferred Stock are
entitled to receive dividends, when and if declared by the Board of
Directors, at the same rate as dividends are paid with respect to common
stock (determined by the number of common shares into which the preferred
shares are convertible).
Voting Rights
Holders of the Series A Preferred Stock and Series B Preferred Stock are
entitled to one vote for each share of common stock into which the
respective share of Series A Preferred Stock and Series B Preferred Stock
is then convertible.
Liquidation Rights
In the event of any liquidation, dissolution, merger, sale or winding up of
the Company, the holders of Series A Preferred Stock and Series B Preferred
Stock are entitled to receive prior to, and in preference to the holders of
common stock, $1.00 per share and $3.46 per share, respectively. After such
payments have been made, subject to the limits outlined in the following
sentence, the remaining assets shall be distributed among the holders of
Series A Preferred Stock and Series B Preferred Stock and common stock
ratably in proportion to the number of shares of common stock held by them
with each holder of preferred stock being treated as holding the number of
shares of common stock into which such holder could have converted. In the
event of a liquidation, dissolution, merger, sale or winding up of the
Company, no payment shall be made in respect of Series A Preferred Stock
and Series B Preferred Stock in excess of $5.00 per share and $7.00 per
share, respectively.
4
<PAGE>
Novera Software, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Redemption Rights
At the written request of any holder of Series A Preferred Stock and Series
B Preferred Stock (the "Requesting Stockholder") at any time on or after
May 28, 2002 and May 26, 2003, respectively, the Company shall redeem all
the outstanding shares of the Requesting Stockholder in three equal annual
installments. The first installment of such redemption shall occur on a
date specified by the Requesting Stockholder not to be earlier than 60 days
following the date of the permitted election (the "First Redemption Date").
The second and third installments of such redemption shall occur on the
first and second anniversary of the First Redemption Date, respectively.
The Series A Preferred Stock and Series B Preferred Stock is redeemable at
a price equal to $1.00 per share and $3.46 per share, respectively, plus an
amount equal to all unpaid cumulative accruing dividends (the "Accruing
Dividends"), whether or not declared, plus any declared but unpaid
dividends. The Accruing Dividends accrue on a daily basis from the date of
issuance of the Series A Preferred Stock and Series B Preferred Stock at an
annual rate of $.07 per share and $.24 per share, respectively. If the
Company fails to redeem any of the preferred shares of the Requesting
Stockholder in accordance with these redemption rights, the Accruing
Dividends shall immediately begin accruing at an increased annual rate of
$.15 per share and $.48 per share for the Series A Preferred Stock and
Series B Preferred Stock, respectively, and shall become payable quarterly.
Cumulative and unpaid dividends on Series A Preferred Stock and Series B
Preferred Stock of $416,836 and $547,585, respectively, have been charged
to accumulated deficit and are included in the carrying value of the Series
A Preferred Stock and Series B Preferred Stock at December 31, 1998.
Right of First Refusal
The holders of Series A Preferred Stock and Series B Preferred Stock have
the right of first refusal on all future issuances by the Company of any of
its equity securities. If the holders of Series A Preferred Stock and
Series B Preferred Stock elect not to participate in future issuances of
equity securities, then the shares held by them will convert automatically
into a new series of preferred stock with the same rights as the Series A
Preferred Stock and Series B Preferred Stock, respectively, except that the
conversion price for such new series of preferred stock will be permanently
fixed at the conversion price for the Series A Preferred Stock and Series B
Preferred Stock in effect prior to the equity issuance. In addition, the
holders of Series A Preferred Stock and Series B Preferred Stock who elect
not to purchase their pro rata share in any future issuance of equity
securities will forfeit their right of first refusal with respect to all
future financings.
Undesignated Preferred Stock
In connection with the issuance of the Series A Preferred Stock, the
Company authorized the issuance of up to 4,600,000 shares of undesignated
preferred stock of which 2,300,000 shares and 1,641,616 shares were
subsequently designated as Series A Preferred Stock and Series B Preferred
Stock, respectively. Issuances of the remaining undesignated preferred
stock may be made at the discretion of the Board of Directors of the
Company (without stockholder approval) with such designations, rights and
preferences as the Board of Directors may determine from time to time which
may be more expansive than the rights of the holders of the Series A
Preferred Stock and Series B Preferred Stock and the common stock.
5
<PAGE>
Novera Software, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Newly Authorized Capital Stock
In March 1999, the Company approved an increase in the number of authorized
shares of its common stock and preferred stock to 11,500,000 and 7,000,000,
respectively. In connection with this approval, the authorized shares of
preferred stock are designated as follows:
Series A preferred stock 2,300,000
Series B preferred stock 1,641,616
Series C preferred stock 2,352,941
Undersignated convertible preferred stock 705,443
-----------
7,000,000
-----------
Issuance of Series C Preferred Stock
On March 5, 1999, the Company sold 1,412,943 shares of its Series C
Preferred Stock for cash proceeds totaling approximately $6,005,008. The
rights and preferences of the Series C Preferred Stock are substantially
the same as those of the Series A and Series B Preferred Stock as outlined
above, except for the liquidation preference and conversion price per
share. Upon liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of each share of Series C
Preferred Stock shall be entitled to an amount equal to $4.25 per share.
As a result of the issuance of the Series C Preferred Stock, certain terms
of the Series A and Series B Preferred Stock were changed to conform with
the terms of the new class of preferred stock. Specifically, the mandatory
redemption dates for the Preferred Stock was changed to March 5, 2000,
March 5, 2005 and March 5, 2006 liquidation preference for the Series B
Preferred Stock was limited to $5.00 per share, and the provisions set
forth under the caption "Right of First Refusal" above, under which holders
of Series A or Series B Preferred Stock lost rights for failure to exercise
certain rights of first refusal, were eliminated.
6. Common Stock
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are
entitled to receive dividends, when and if declared by the Board of
Directors, subject to any preferential dividend rights of the preferred
stockholders.
At December 31, 1998, the Company has 5,919,391 shares of its common stock
reserved for issuance upon conversion of the preferred stock and exercise
of options. In connection with the issuance of Series C Preferred Stock,
the Company increased the number of shares of common stock reserved for
issuance upon conversion of convertible preferred stock to 7,332,334.
6
<PAGE>
Novera Software, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Stock Restriction Agreements
At December 31, 1998, 1,736,262 of the Company's outstanding shares of
common stock are subject to stock restriction agreements. Under these
agreements, the Company has the option to repurchase, at a price of $.01
per share, any or all unvested shares of common stock held by any of the
Company's founders in the event the founder ceases to be employed by the
Company for any reason, with or without cause. The number of shares to be
repurchased by the Company will be reduced over a period of 4 to 5 years,
depending on the specific vesting schedule included in each founder's stock
restriction agreement. The stock restriction agreements expire upon the
earlier of the closing of an underwritten initial public offering with
gross proceeds of at least $15 million, or on May 29, 2006. At December 31,
1998, 551,728 of such shares are unvested.
7. 1996 Stock Option Plan
In August 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan"). The Plan provides for the granting of incentive and nonqualified
stock options to employees, consultants and directors of the Company. The
total number of shares of common stock that may be issued pursuant to the
exercise of options granted under the Plan is 2,212,000. The Board of
Directors is responsible for administration of the Plan and, accordingly,
determines the term of each option, exercise dates, the option exercise
price at the date of grant and whether restrictions will be imposed on the
shares subject to options.
Incentive stock options may be granted at an exercise price per share of
not less than the fair market value per common share on the date of grant.
For holders of more than 10% of the Company's voting stock, incentive stock
options ("ISOs") may not be granted for less than 110% of the fair value
and for a term not to exceed five years. The term of the options are set
forth in the applicable option agreement, except that in the case of ISOs
the option term shall not exceed ten years.
For the year ended December 31, 1998 and December 31, 1997, no compensation
cost has been recognized for options granted under the Plan. Had
compensation cost for these awards been determined based on the fair value
at the date of grant consistent with the method prescribed by SFAS No. 123,
the Company's net loss would not have differed materially from the amount
reported for both periods. However, because options vest over several years
and because additional option grants are expected to be made in future
years, the pro forma effects of applying the fair value method may be
material to reported net income or loss in future years. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for grants made in
1998 and 1997: no dividend yield for either period; risk-free interest
rates of 4.36% to 5.66% and 5.71% to 6.70% for options granted during the
year ended December 31, 1998 and December 31, 1997, respectively; no
volatility and an expected option term of five years for both periods.
7
<PAGE>
Novera Software, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
A summary of the status of the Company's option plan during years ended
December 31, 1998 and 1997 is presented below:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1998 December 31, 1997
Weighted Weighted
average average
exercise exercise
Shares price Shares price
<S> <C> <C> <C> <C>
Outstanding at beginning of period 694,850 $ .14 557,500 $ .10
Granted 1,011,500 .40 253,000 .20
Exercised (164,825) .12 (69,400) .10
Cancelled (140,950) .19 (46,250) .10
------------- ------------
Outstanding at period end 1,400,575 .32 694,850 .14
------------- ------------
Options exercisable at period end 249,215 93,870
------------- ------------
Weighted average fair value of options
granted during the period $ .09 $ .05
------------- ------------
</TABLE>
Options exercisable at December 31, 1998 have an exercise price of $.10 and
$.35.
The following table summarizes information about employee stock options
outstanding at December 31, 1998:
Options outstanding
Weighted
average
remaining
Number contractual
Exercise price outstanding life
$ .10 348,950 7.8
.35 84,625 8.6
.40 967,000 9.4
8
<PAGE>
Novera Software, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
8. Income Taxes
The Company's deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Net operating loss carryforwards $ 3,397,000 $ 1,992,000
Research and development tax credit carryforwards 348,000 96,000
Other temporary differences 61,000 17,000
------------ ------------
Total deferred tax assets 3,806,000 2,105,000
Deferred tax asset valuation allowance (3,806,000) (2,105,000)
------------ ------------
$ - $ -
------------ ------------
</TABLE>
The Company has provided a full valuation allowance for the deferred tax assets
as the realization of these future benefits is not sufficiently assured as of
December 31, 1998. If the Company achieves profitability, the deferred tax
assets will be available to offset future income tax liabilities.
At December 31, 1998, the Company has federal net operating loss carryforwards
and research and development tax credit carryforwards available to reduce future
taxable income and income tax liabilities, respectively, which expire as
follows:
Net Research and
operating development
loss tax credit
Year of carryforwards carryforwards
expiration
2011 $ 940,800 $ 5,600
2012 3,858,500 90,400
2018 3,540,500 116,500
------------- -------------
$ 8,339,800 $ 212,500
------------- -------------
As a result of the Tax Reform Act of 1986, if certain substantial changes in the
Company's ownership should occur, there may be a limitation on the amount of net
operating losses and research and development tax credit carryforwards which
could be utilized annually to offset future taxable income or tax liabilities.
The amount of any annual limitation is determined based upon the Company's value
prior to an ownership change.
9
<PAGE>
Novera Software, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
9. Commitments
The Company leases its facilities and certain computer equipment under
noncancelable operating leases. Future minimum commitments under the
noncancelable operating leases at December 31, 1998 are $314,924 and
pertain exclusively to 1999.
Rental expense under operating leases was $255,565 and $187,000 for the
years ended December 31, 1998 and 1997, respectively.
10. Employee Benefit Plan
The Company sponsors a 401(k) retirement savings plan. Participation in the
plan is available to full-time employees who meet eligibility requirements.
Company contributions to the plan may be made at the discretion of the
Board of Directors. Through December 31, 1998, the Company made no
contributions.
11. Deferred Compensation (unaudited)
In the six months ended June 30, 1999, Novera granted stock options to
purchase 680,500 shares of its common stock with an exercise price of $.40
and $.50 per share. Novera recorded deferred compensation relating to these
options totaling $1,904,675 representing the differences between the
estimated fair market value of the common stock on the date of grant and
the exercise price. Compensation expense options which vest over time was
recorded as a component of stockholders' deficit and is being amortized
over the vesting periods of the related options.
12. Subsequent Events
Preferred Stock
On July 14, 1999, the Company sold 1,170,586 shares of Series C preferred
stock for cash proceeds totaling $4,974,991. In connection with this sale,
Novera increased the number of authorized Series C preferred stock to
2,785,000 and increased the total number of shares issuable pursuant to
1996 stock option plan, to 2,500,000.
Acquisition
On September 30, 1999, Novera was acquired by TSI International Software
Ltd. (TSI) by an exchange of all of Novera's outstanding capital stock for
2,159,058 shares of TSI's common stock.
10
<PAGE>
EXHIBIT 99.3
TSI International Software, Ltd. and Novera Software, Inc. Unaudited Pro Forma
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
December 31, 1998 Pro forma Information TSI Pro Forma as Pro forma (2)
adjusted for Braid Novera (1) Adjustments Consolidated
------------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
Total revenues $ 65,940,700 $ 2,457,000 $ - $ 68,397,700
Total cost of revenues 14,363,400 670,800 - 15,034,200
------------------ ----------- --------------- -------------
Gross profit 51,577,300 1,786,200 - 53,363,500
Operating expenses 46,208,900 5,823,300 - 52,032,200
Amortization of intangibles 25,621,000 - 17,785,800 43,406,800
------------------ ----------- --------------- -------------
Total operating expenses 71,829,900 5,823,300 17,785,800 95,439,000
------------------ ----------- --------------- -------------
Operating loss (20,252,600) (4,037,100) (17,785,800) (42,075,500)
Borrowing expenses (10,900) (44,500) 44,500 (10,900)
Investment income 275,400 32,200 (81,100) 226,500
------------------ ----------- --------------- -------------
Loss before income taxes (19,988,100) (4,049,400) (17,822,400) (41,859,900)
Provision for (benefit from) income taxes (3,400,100) - (1,538,800) (4,938,900)
------------------ ----------- --------------- -------------
Net Loss $ (16,588,000) $(4,049,400) $ ($16,283,600) $ (36,921,000)
================== =========== =============== =============
Net loss per share
Basic $ (0.74) $ (1.52)
Diluted $ (0.74) $ (1.52)
Average shares outstanding
Basic 22,506,264 24,296,180
Diluted 22,506,264 24,296,180
</TABLE>
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information.
1
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998 Pro Forma Information Pro Forma (3) Pro Forma
TSI Historical Braid (1) Adjustments as Adjusted
-------------- ----- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues $45,316,100 $20,624,600 $ - $ 65,940,700
Total cost of revenues 6,889,100 7,474,300 - 14,363,400
----------- ----------- ---------------- -----------------
Gross profit 38,427,000 13,150,300 - 51,577,300
Operating expenses 33,660,600 13,385,600 (837,300) 6,208,900
Amortization of intangibles 303,000 - 25,318,000 25,621,000
----------- ----------- ---------------- -----------------
Total operating expenses 33,963,600 13,385,600 24,480,700 71,829,900
----------- ----------- ---------------- -----------------
Operating income (loss) 4,463,400 (235,300) (24,480,700) (20,252,600)
Borrowing expenses (10,900) - - (10,900)
Investment income 2,025,400 - (1,750,000) 275,400
----------- ----------- ---------------- -----------------
Income (loss) before income taxes 6,477,900 (235,300) (26,230,700) (19,988,100)
Provision for (benefit from) income taxes (678,900) 343,500 (3,064,700) (3,400,100)
----------- ----------- ----------------
Net income (loss) $ 7,156,800 $ (578,800) $ (23,166,000) (16,588,000)
=========== =========== ================ =================
Net Income (loss) per share
Basic $ 0.35 $ (0.74)
Diluted $ 0.30 $ (0.74)
Average shares outstanding
Basic 20,299,006 22,506,264
Diluted 23,815,608 22,506,264
</TABLE>
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information.
2
<PAGE>
<TABLE>
<CAPTION>
September 30, 1999 Pro forma Information TSI Pro Forma Novera (1) Pro forma (2) Consolidated
as adjusted ------ Adjustments ------------
----------- -----------
<S> <C> <C> <C> <C>
Total revenues $ 72,067,800 $ 1,448,000 $ $ 73,515,800
Total cost of revenues 17,655,100 1,414,200 19,069,300
------------- -------------- --------------- -------------
Gross profit 54,412,700 33,800 54,446,500
Operating expenses 47,057,400 5,468,200 52,525,600
Amortization of intangibles 20,772,100 13,339,300 34,111,400
------------- -------------- --------------- -------------
Total operating expenses 67,829,500 5,468,200 13,339,300 86,637,000
------------- -------------- --------------- -------------
Operating loss (13,416,800) (5,434,400) (13,339,300) (32,190,500)
Borrowing expenses - (31,400) 31,400 -
Investment income $ 569,100 90,400 (60,800) 598,700
------------- -------------- --------------- -------------
Loss before income taxes (12,847,700) (5,375,400) (13,368,700) (31,591,800)
Provision for (benefit from) income taxes (345,500) - (2,042,600) (2,388,100)
------------- -------------- --------------- -------------
Net loss $ (12,502,200) $ (5,375,400) $ (11,326,100) $ (29,203,700)
============= ============== =============== =============
Net loss per share
Basic $ (0.51) $ (1.11)
Diluted $ (0.51) $ (1.11)
Average shares outstanding
Basic 24,612,447 26,402,363
Diluted 24,612,447 26,402,363
</TABLE>
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information.
3
<PAGE>
<TABLE>
<CAPTION>
September 30 1999 Pro forma Information TSI Historical Braid (1) Pro forma (3) TSI Pro Forma as
-------------- ----- Adjustments adjusted for Braid
----------- ------------------
<S> <C> <C> <C> <C>
Total revenues $ 67,611,500 $ 4,456,300 $ - $ 72,067,800
Total cost of revenues 15,963,700 1,691,400 - 17,655,100
-------------- -------------- --------------- ------------------
Gross profit 51,647,800 2,764,900 - 54,412,700
Operating expenses 44,182,100 3,601,500 (726,200) 47,057,400
Amortization of intangibles 16,305,600 - 4,466,500 20,772,100
-------------- -------------- --------------- ------------------
Total operating expenses 60,487,700 3,601,500 3,740,300 67,829,500
-------------- -------------- --------------- ------------------
Operating loss (8,839,900) (836,600) (3,740,300) (13,416,800)
Investment income 860,800 - (291,700) 569,100
-------------- -------------- --------------- ------------------
Loss before income taxes (7,979,100) (836,600) (4,032,000) (12,847,700)
Provision for (benefit from) income taxes 244,000 32,100 (621,600) (345,500)
-------------- -------------- --------------- ------------------
Net loss $ ( 8,223,100) $ (868,700) $ (3,410,400) $ (12,502,200)
============== ============== =============== ==================
Net loss per share
Basic $ (0.33) $ (0.51)
Diluted $ (0.33) $ (0.51)
Average shares outstanding 24,612,447 24,612,447
Basic 24,612,447 24,612,447
Diluted
</TABLE>
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information.
4
<PAGE>
TSI International Software Ltd. and Novera Software, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
1. The unaudited pro forma condensed consolidated statements of operations
have been prepared by combining the historical consolidated financial
statements of TSI International Software Ltd. ("TSI" or the "Company"),
with the historical financial information of Braid Group Limited ("Braid")
and Novera Software, Inc. ("Novera"). The unaudited pro forma condensed
consolidated statement of operations for the year ended December 31, 1998
has been prepared by combining the unaudited statement of operations of TSI
for the year ended December 31, 1998 with the unaudited statement of
operations for Braid for the year ended January 31, 1999 and the audited
statement of operations of Novera for the year ended December 31, 1998. The
unaudited pro forma condensed consolidated statement of operations as of
and for the nine months ended September 30, 1999 has been prepared by
combining the unaudited historical financial information of TSI as of and
for the nine months ended September 30, 1999, the unaudited financial
information for Braid for two months ended February 28, 1999 and the
unaudited financial information of Novera as of and for the nine months
ended September 30, 1999.
2. The Novera acquisition is being accounted for using the purchase method of
accounting. For purposes of the pro forma condensed consolidated financial
statements, the estimated excess of acquisition costs over the fair value
of net assets acquired is $53.4 million which is assumed to be amortized on
a straight line basis over 3 years. The $53.4 million consists of the cost
of the issuance of stock at a market value of $46.6 million, options valued
at $9.6 million and the estimated costs of the acquisition of $2.1 million,
less net assets acquired of $4.9 million. The pro forma statements of
operations have been adjusted to reflect amortization of intangibles of
$17.8 million for the year ended December 31, 1998 and $13.3 million for
the nine months ended September 30, 1999 assuming the purchase was made on
January 1, 1998.
The pro forma statements of operations for TSI and Novera include the following
adjustments:
(a) To reflect the increase in amortization expense due to the amortization of
intangibles on a straight-line basis over 3 years.
(b) To reflect the decrease in interest expense and decrease in interest income
resulting from the payment of bank borrowings.
(c) To reflect the decrease in income tax expense resulting from the release of
a portion of the Novera valuation allowance.
5
<PAGE>
(d) Earnings per share is computed by dividing the net loss by the average
number of common shares outstanding. The calculation assumes shares of the
Company's common stock for the acquisition were outstanding for the entire
period. Diluted earnings per share is the same as basic earnings per share
as the potential common stock equivalents are anti-dilutive.
3. The pro forma statements of operations for TSI adjusted for Braid include
the following adjustments:
(a) To reflect the increase in amortization expense due to the amortization of
goodwill and other identifiable intangible assets, and the tax benefit
related to other identifiable assets.
(b) To reflect the decrease in interest income resulting from the payment to
Braid of $30.0 million and approximately $4.5 million in closing costs, and
the related tax benefit, where applicable.
(c) To eliminate the compensation costs related to options issued by Braid
which were exchanged for TSI options at the date of purchase, whose fair
value is included in the purchase price and therefore included in the
related goodwill amortization.
(d) Earnings per share is computed by dividing the net loss by the weighted
average number of common shares outstanding. The calculation assumes that
the 2,207,258 shares of the Company's common stock issued in its
acquisition were outstanding for the entire period. Diluted earnings per
share is the same as basic earnings per shares as the potential common
stock equivalents are anti-dilutive.
6
