<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
Date of report (date of earliest event reported): November 12, 1998
------------------------------
PERVASIVE SOFTWARE INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 000-23043 74-2693793
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
12365 Riata Trace Parkway, Building II, Austin, Texas 78727
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (512) 231-6000
-----------------------------
8834 Capital of Texas Highway, Austin, Texas 78759
- --------------------------------------------------------------------------------
(Former name or Former Address, if Changed Since Last Report.)
<PAGE>
Amendment Note
Form 8-K/A filed on February 1, 1999 is being amended to include the
unaudited condensed consolidated balance sheet of EveryWare Development Inc. as
of September 30, 1998 and the unaudited condensed consolidated statements of
loss and deficit and statements of changes in financial position for the three
months ended September 30, 1998 and September 30, 1997.
Item 2. Acquisition or Disposition of Assets.
On November 12, 1998, Pervasive Software Inc. ("Pervasive" or the
"Company") acquired in the aggregate, 12,420,110 common shares of EveryWare
Development Inc. (more than 93% of the outstanding shares) pursuant to the
previously announced offer made by Pervasive Acquisition Corporation, a wholly-
owned subsidiary, by way of a take-over bid circular dated October 13, 1998.
Pervasive completed compulsory procedures to acquire the remaining shares of
EveryWare in December 1998.
The foregoing description is qualified in its entirety by reference to
the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 6, 1998 (the "Prior 8-K") and to the Support Agreement
which was attached as Exhibit 2.1 to the Prior 8-K and incorporated therein by
reference.
2
<PAGE>
Item 7. Financial Statements and Exhibits.
The following financial statements and pro forma financial information
are being provided in accordance with the instructions to this item.
(a) Financial Statements of Business Acquired.
Consolidated balance sheets of EveryWare Development Inc. as of
June 30, 1998, June 30, 1997 and December 31, 1996 and the
consolidated statements of loss and deficit and changes in financial
position for the year ended June 30, 1998, for the six months ended
June 30, 1997 and for the year ended December 31, 1996.
Unaudited condensed consolidated balance sheet of EveryWare
Development Inc. as of September 30, 1998 and unaudited condensed
consolidated statements of loss and deficit and statements of changes
in financial position for the three months ended September 30, 1998
and September 30, 1997.
(b) Pro Forma Financial Information.
Unaudited Pro Forma Condensed Balance Sheet as of September 30,
1998 and explanatory notes.
Unaudited Pro Forma Condensed Statements of Operations for the
year ended June 30, 1998 and the three months ended September 30, 1998
and explanatory notes.
(c) Exhibits:
Exhibit
Number Description
------- -----------
2.1* Support Agreement between Pervasive Software Inc. and
EveryWare Development Inc. dated September 30, 1998,
including Schedules A and B thereto.
23.1 Consent of Independent Auditors
99.1* Text of Press Release dated September 30, 1998.
- ----------------------
* Incorporated by reference to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on October 6, 1998.
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.
PERVASIVE SOFTWARE INC.
Date: February 3, 1999 By: /s/ James R. Offerdahl
-----------------------------------------------
James R. Offerdahl
Chief Operating Officer and Chief Financial
Officer (Duly Authorized Officer and
Principal Financial Officer)
4
<PAGE>
AUDITORS' REPORT
To the Board of Directors of
EveryWare Development Inc.
We have audited the consolidated balance sheets of EveryWare Development Inc. as
at June 30, 1998 and 1997 and December 31, 1996 and the consolidated statements
of loss and deficit and changes in financial position for the year ended June
30, 1998, for the six months ended June 30, 1997 and for the year ended December
31, 1996. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at June 30, 1998 and
1997 and December 31, 1996 and the results of its operations and the changes in
its financial position for the year ended June 30, 1998, for the six months
ended June 30, 1997 and for the year ended December 31, 1996 in accordance with
generally accepted accounting principles in Canada which, except as described in
note 16, conform in all material respects with accounting principles generally
accepted in the United States.
KPMG LLP
Chartered Accountants
Hamilton, Canada
September 24, 1998, except as to note 15, which is as of October 1, 1998
Comments by Auditor for U.S. Readers on Canada-U.S. Reporting Difference
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph when the financial statements are affected by
conditions and events that cast substantial doubt on the company's ability to
continue as a going concern, such as those described in note 1 to the financial
statements. Our report to the directors dated September 24, 1998, is expressed
in accordance with Canadian reporting standards which do not permit a reference
to such events and conditions in the auditors' report when these are adequately
disclosed in the financial statements.
KPMG LLP
Chartered Accountants
Hamilton, Canada
September 24, 1998
F1
<PAGE>
EVERYWARE DEVELOPMENT INC.
Consolidated Balance Sheets
(in Canadian dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
June 30, June 30, December 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and short-term deposits $ 227,036 $ 2,196,503 $ 247,132
Accounts receivable 1,778,782 1,241,041 2,264,099
Inventory 180,659 194,723 165,260
Investment tax credits receivable - 110,491 573,067
Prepaid expenses 125,827 87,242 129,612
--------------------------------------------------------------------------------------------
2,312,304 3,830,000 3,379,170
Capital assets (note 3) 971,217 1,188,453 852,050
Purchased technology and product rights (note 4) 1,783,383 2,723,364 -
Deferred development costs, net (note 5) - - 390,000
- ---------------------------------------------------------------------------------------------
$ 5,066,904 $ 7,741,817 $ 4,621,220
- ---------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 1,547,232 $ 2,499,920 $ 1,182,860
Deferred revenue 111,698 5,625 12,924
--------------------------------------------------------------------------------------------
1,658,930 2,505,545 1,195,784
Shareholders' equity:
Share capital (note 6) 13,514,902 11,765,889 5,721,300
Deficit (10,106,928) (6,529,617) (2,295,864)
--------------------------------------------------------------------------------------------
3,407,974 5,236,272 3,425,436
Commitments (note 9)
Basis of presentation (note 1)
- ---------------------------------------------------------------------------------------------
$ 5,066,904 $ 7,741,817 $ 4,621,220
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F2
<PAGE>
EVERYWARE DEVELOPMENT INC.
Consolidated Statements of Loss and Deficit
(in Canadian dollars)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Six months Year
ended ended ended
June 30, June 30, December 31,
1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 7,919,202 $ 2,183,319 $ 6,065,517
Cost of sales 513,801 457,434 1,083,807
- ----------------------------------------------------------------------------------------------
7,405,401 1,725,885 4,981,710
Expenses:
Selling, general and administrative 7,796,958 4,146,552 5,455,744
Research and development (note 5) 2,293,245 1,608,179 1,608,694
Depreciation of capital assets 625,577 207,537 278,116
Amortization of purchased technology 289,981 - -
Interest expense 1,022 10,170 -
---------------------------------------------------------------------------------------------
11,006,783 5,972,438 7,342,554
- ----------------------------------------------------------------------------------------------
(3,601,382) (4,246,553) (2,360,844)
Interest income 24,071 12,800 61,033
- ----------------------------------------------------------------------------------------------
Loss before income taxes (3,577,311) (4,233,753) (2,299,811)
Income taxes (note 10) - - -
- ----------------------------------------------------------------------------------------------
Net loss (3,577,311) (4,233,753) (2,299,811)
(Deficit) retained earnings, beginning of period (6,529,617) (2,295,864) 3,947
- ----------------------------------------------------------------------------------------------
Deficit, end of period $(10,106,928) $(6,529,617) $ (2,295,864)
- ----------------------------------------------------------------------------------------------
Net loss per share (note 11) $(0.3262) $ (0.5844) $ (0.3487)
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F3
<PAGE>
EVERYWARE DEVELOPMENT INC.
Consolidated Statements of Changes in Financial Position
(in Canadian dollars)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Year Six months Year
ended ended ended
June 30, June 30, December 31,
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
Cash provided by (used in):
<S> <C> <C> <C>
Operations:
Net loss $(3,577,311) $(4,233,753) $(2,299,811)
Items not involving cash:
Amortization of deferred development costs - 692,944 1,231,340
Amortization of purchased technology 289,981 - -
Depreciation of capital assets 625,577 207,537 278,116
Gain on sale of subsidiaries (2,500) - -
Changes in non-cash operating working capital
(note 12) (1,298,386) 1,832,818 (965,918)
- ----------------------------------------------------------------------------------------------------
(3,962,639) (1,500,454) (1,756,273)
Financing:
Proceeds on issuance of common shares and
warrants 1,749,013 6,044,589 2,872,510
Proceeds on sale of subsidiaries (note 8) 652,500 - -
---------------------------------------------------------------------------------------------------
2,401,513 6,044,589 2,872,510
Investments:
Acquisition of InContext Systems Inc. (note 8) - (2,074,653) -
Purchases of capital assets (408,341) (217,167) (749,781)
Expenditures on deferred development (net) - (302,944) (1,231,340)
---------------------------------------------------------------------------------------------------
(408,341) (2,594,764) (1,981,121)
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in cash position (1,969,467) 1,949,371 (864,884)
Cash position, beginning of period 2,196,503 247,132 1,112,016
- ----------------------------------------------------------------------------------------------------
Cash position, end of period $ 227,036 $ 2,196,503 $ 247,132
- ----------------------------------------------------------------------------------------------------
</TABLE>
Cash position is defined as cash and short-term deposits.
See accompanying notes to consolidated financial statements.
F4
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements
(in Canadian dollars)
- --------------------------------------------------------------------------------
The consolidated financial statements of EveryWare Development Inc. (the
"Company") have been prepared by management of the Company in accordance
with accounting principles generally accepted in Canada which, except as
described in note 16, conform in all material respects with accounting
principles generally accepted in the United States and practices prescribed
by the United States Securities and Exchange Commission.
1. Basis of presentation:
On June 30, 1997, EveryWare Development Canada Corp. ("EDCC") amalgamated
with InContext Systems Inc. ("InContext") and continues to operate as one
company under the name EveryWare Development Inc. ("EDI", "Company"). EDCC
changed its name from Patshare Capital Inc. on April 26, 1996.
The Company designs and distributes computer software products under the
trade name EveryWare Development Corp. ("EDC").
These financial statements have been prepared on the going concern basis
which assumes that the Company will continue in operation in the
foreseeable future and be able to realize assets and satisfy liabilities in
its normal course of business.
The Company has incurred significant losses in recent years and does not
currently have a confirmed source of additional financing in place. The
Company is seeking additional financing to fund operations until positive
cash flows from operations can be generated. There can be no assurance the
Company will be successful in obtaining the necessary financing to continue
operations.
(a) Basis of consolidation:
The consolidated financial statements comprise the financial
statements of EveryWare Development Inc. and its wholly-owned
subsidiary companies. All significant intercompany balances and
transactions have been eliminated.
(b) Accounting principles:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities, the 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.
(c) Business combination of EDCC and InContext:
On June 30, 1997, EDCC completed a Plan of Arrangement with InContext,
a public company, which was a software developer. A new company, EDI
was formed.
Under the terms of the amalgamation agreement, the shareholders of
EDCC received 0.1 common shares in EDI (8,805,144 shares in total) in
exchange for each share of EDCC tendered. The shareholders of
InContext received 0.035 common shares in EDI (1,281,108 shares in
total) and 0.05 warrants (1,830,155 warrants in total), with each
whole warrant entitling the holder to acquire one EDI share for $4.00
per share at any time before July 1, 1999, in exchange for each share
of InContext tendered.
F5
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 2
(in Canadian dollars)
- --------------------------------------------------------------------------------
1. Basis of presentation (continued):
(c) Business combination of EDCC and InContext (continued):
The holders of warrants of EDCC received 0.1 EDI warrants in exchange
for each EDCC warrant held. Each whole EDI warrant has identical terms
for exercise as the EDCC warrant converted and entitles the holder to
purchase one EDI common share at a purchase price of 10 multiplied by
the exercise price of the EDCC warrant, at any time during the term of
the warrant. Details of the EDI warrants issued are provided in note
6(b)(v).
The holders of EDCC Special Compensation Options received 0.1 EDI
Special Compensation Option in exchange for each EDCC Special
Compensation Option held. Each whole EDI Special Compensation Option
entitles the holder to acquire for no additional consideration one EDI
Compensation Option, each of which entitles the holder to acquire one
EDI common share and one EDI warrant, until March 18, 1999 at a price
of $3.00 per option.
(d) Accounting for the business combination of EDCC and InContext (see
also note 8):
The combination of EDCC and InContext to form EDI, has been accounted
for as an acquisition of InContext by EDCC. Therefore, the purchase
method has been used to account for the combination.
Application of purchase accounting results in the following:
(i) The financial statements of EDI are considered a continuation of
the financial statements of EDCC. The results of operations of
InContext are included in the financial statements of EDI from
June 30, 1997 forward.
(ii) EDCC's interest in identifiable assets acquired and liabilities
assumed from InContext was based on their fair values on the
date of acquisition.
(iii) The excess of the acquisition cost over EDCC's interest in the
identifiable assets acquired and liabilities assumed from
InContext has been reflected as purchased technology and product
rights.
(e) Business combination of EDCC and EDC:
On March 12, 1996, EDCC acquired all of the outstanding shares and
warrants to acquire common shares of EDC, a private company. Under the
terms of the agreement, the shareholders of EDC received one common
share of EDCC for each share of EDC tendered (59,278,000 shares in
total) and one warrant that entitles the holder to acquire one common
share of EDCC for $0.60 per share until March 12, 1998 for each EDC
warrant tendered (10,000,000 warrants in total).
F6
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 3
(in Canadian dollars)
- --------------------------------------------------------------------------------
1. Basis of presentation (continued):
(f) Accounting for the business combination of EDCC and EDC:
As former shareholders of EDC held a majority of the outstanding
shares of EDCC subsequent to these transactions, the business
combination of the two companies was accounted for as a reverse
takeover of EDCC by EDC.
Application of reverse takeover accounting resulted in the following:
(i) As EDC was deemed to be the acquirer for accounting purposes,
its assets and liabilities were included in the consolidated
financial statements at their historical carrying values in the
accounts of EDC;
(ii) Control of the net assets of EDCC was deemed to be acquired by
EDC. For purposes of this transaction, the deemed consideration
was the $2,204,638 ascribed to the 9,116,435 common shares and
3,624,500 warrants of EDCC outstanding at March 12, 1996.
The accounting for the business combination on this basis can be
summarized as follows:
---------------------------------------------------------------------
Deemed consideration $2,204,638
---------------------------------------------------------------------
Assigned value of net assets of EDCC:
Current assets $2,259,774
Current liabilities (55,136)
---------------------------------------------------------------------
$2,204,638
---------------------------------------------------------------------
2. Significant accounting policies:
(a) Short-term investments:
Short-term deposits consist of high quality short-term (less than
three months) non-leveraged financial instruments issued by or
guaranteed by major financial institutions in Canada or in similar low
risk instruments. Since the Company intends to hold the financial
instruments to maturity, they are valued at cost plus accumulated
interest.
(b) Inventory:
Inventory consists of computer CDs and manuals and is stated at the
lower of cost and net realizable value.
F7
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 4
(in Canadian dollars)
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(c) Capital assets:
Capital assets are stated at cost. Depreciation is provided using the
following methods and over the following terms:
---------------------------------------------------------------------
Asset Basis Term
---------------------------------------------------------------------
Computer hardware Straight-line 3 years
Computer software Straight-line 3 years
Furniture and fixtures Straight-line 10 years
Leasehold improvements Straight-line 4 years
---------------------------------------------------------------------
(d) Purchased technology and product rights:
Purchased technology and product rights, representing the underlying
technology for the InContext products, are being amortized to income
on a straight-line basis, over 8 years. The carrying value of
purchased technology and product rights are periodically reassessed
and are written down to net recoverable value when it is determined
that a permanent impairment in ongoing value has occurred.
(e) Research and development costs:
Research costs are expensed as incurred. Development costs are
expensed in the year incurred unless management believes a development
project meets the generally accepted accounting criteria for deferral
and amortization.
(f) Revenue recognition:
The Company recognizes revenue from software licenses, net of
allowance for estimated returns and cancellations, upon the later of
delivery or when all significant vendor obligations have been
satisfied.
Revenue from license agreements with original equipment manufacturers
("OEMs") for redistribution to the OEMs' end user customers is
recognized when the Company delivers the software to the OEM.
Revenue from post contract support and maintenance agreements is
recognized in proportion to the estimated costs incurred over the
service period.
Revenue from consulting and other software related services is
recognized as the services are rendered.
Deferred revenues represent payments received prior to the completion
of the earnings process.
(g) Investment tax credits:
Investment tax credits are recorded as a reduction of the related
expense or the cost of the asset acquired. The benefits are recognized
when the Company has complied with the terms and conditions of the
applicable tax legislation.
F8
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 5
(in Canadian dollars)
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(h) Segmented information:
The Company operates in one industry segment being the design and
distribution of computer software products. Sales made to customers
located outside of Canada for the year ended June 30, 1998 were
approximately $5,000,000 (six months ended June 30, 1997: $1,500,000;
year ended December 31, 1996: $4,500,000).
(i) Foreign currency translation:
The Company's subsidiaries are considered to be integrated operations.
Accordingly, monetary assets and liabilities denominated in foreign
currencies are translated into Canadian dollars at the rate of
exchange prevailing at year end, while other consolidated balance
sheet items are translated at historic rates. Revenues and expenses
are translated at the rate of exchange on the transaction dates.
Realized and unrealized foreign exchange gains and losses are included
in income in the year in which they occur, except where they arise
from translation of non-current monetary items. Such gains and losses
are deferred and amortized to income on a straight-line basis over the
remaining life of the underlying monetary items.
3. Capital assets:
--------------------------------------------------------------------------
June 30, 1998
--------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
--------------------------------------------------------------------------
Computer hardware $1,666,473 $ 988,376 $ 678,097
Computer software 284,616 159,506 125,110
Furniture and fixtures 198,444 57,259 141,185
Leasehold improvements 62,252 35,427 26,825
--------------------------------------------------------------------------
$2,211,785 $1,240,568 $ 971,217
--------------------------------------------------------------------------
--------------------------------------------------------------------------
June 30, 1997
--------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
Computer hardware $1,416,433 $ 584,375 $ 832,058
Computer software 253,011 97,368 155,643
Furniture and fixtures 196,512 35,896 160,616
Leasehold improvements 61,465 21,329 40,136
--------------------------------------------------------------------------
$1,927,421 $ 738,968 $1,188,453
--------------------------------------------------------------------------
F9
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 6
(in Canadian dollars)
- --------------------------------------------------------------------------------
3. Capital assets (continued):
--------------------------------------------------------------------------
December 31, 1996
--------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
--------------------------------------------------------------------------
Computer hardware $1,025,700 $ 409,220 $ 616,480
Computer software 148,760 79,020 69,740
Furniture and fixtures 160,782 27,731 133,051
Leasehold improvements 48,242 15,463 32,779
--------------------------------------------------------------------------
$1,383,484 $ 531,434 $ 852,050
--------------------------------------------------------------------------
4. Purchased technology and product rights:
--------------------------------------------------------------------------
June 30, June 30, December 31,
1998 1997 1996
--------------------------------------------------------------------------
Cost $2,073,364 $2,723,364 $ -
Accumulated amortization 289,981 - -
--------------------------------------------------------------------------
$1,783,383 $2,723,364 $ -
--------------------------------------------------------------------------
5. Research and development costs:
--------------------------------------------------------------------------
Year Six months Year
ended ended ended
June 30, June 30, December 31,
1998 1997 1996
--------------------------------------------------------------------------
Research and development
costs $2,293,245 $1,218,179 $ 1,819,654
Investment tax credits - - (210,960)
Software development
costs deferred - (302,944) (1,231,340)
Software development
costs amortized - 692,944 1,231,340
--------------------------------------------------------------------------
Research and development
expense $2,293,245 $1,608,179 $ 1,608,694
--------------------------------------------------------------------------
F10
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 7
(in Canadian dollars)
- --------------------------------------------------------------------------------
5. Research and development costs (continued):
The cost and accumulated amortization of deferred development costs at June
30, 1998 are $Nil (June 30, 1997: $Nil; December 31, 1996: $1,748,486 and
$1,358,486, respectively).
The balances outstanding at June 30, 1997 have each been reduced by
$2,051,430 to reflect the elimination of fully written down balances, which
relate to product versions no longer marketed by the Company.
6. Share capital:
(a) As at June 30, 1998:
The authorized share capital of EDI consists of an unlimited number of
common and preferred shares.
The issued share capital of EDI as at June 30, 1998 is as follows:
---------------------------------------------------------------------
Common
shares Warrants Amount
---------------------------------------------------------------------
12,237,160 3,675,567 $13,514,902
---------------------------------------------------------------------
The warrants outstanding at June 30, 1998 entitled the holder to
purchase common shares as follows:
---------------------------------------------------------------------
Price per Expiry
Warrants share date
100,000 $ 1.65 November 19, 1998
1,268,500 $ 1.65 March 18, 1999
1,707,067 $ 1.80 July 1, 1999
600,000 $ 0.52 October 4, 1999
---------------------------------------------------------------------
3,675,567
---------------------------------------------------------------------
(b) Changes in share capital:
(i) January 1, 1996 to March 12, 1996:
As described in notes 1(e) and 1(f), EDC is deemed, for
accounting purposes, to have acquired EDCC effective March 12,
1996.
F11
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 8
(in Canadian dollars)
- --------------------------------------------------------------------------------
6. Share capital (continued):
(b) Changes in share capital (continued):
(i) January 1, 1996 to March 12, 1996 (continued)
Changes in the share capital of EDC to March 12, 1996, the
effective date of the business combination with EDCC, were as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Common Special
shares Warrants warrants Amount
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share capital of EDC,
December 31, 1995 47,278,000 - 10,000,000 $2,848,790
Shares issued as finders fee 1,000,000 - - -
Exercise of special warrants 10,000,000 10,000,000 (10,000,000) -
Exercise of warrants by
underwriters 1,000,000 - - 320,000
Additional share issue costs - - - (211,878)
----------------------------------------------------------------------------------
Share capital of EDC,
March 11, 1996 59,278,000 10,000,000 - $2,956,912
----------------------------------------------------------------------------------
</TABLE>
As part of a 1995 private placement, underwriters were granted
options to acquire 1,000,000 common share purchase warrants
entitling the holder to purchase shares at a price of $0.32 per
share. These options were exercised in 1996. In addition,
Yorkton Securities Inc. and Securities Trading S.A. were issued
a finder's fee which resulted in them acquiring in total,
1,000,000 common shares of EDC for no cash proceeds.
(ii) As at March 12, 1996:
The ascribed share capital of EDCC as at March 12, 1996 for
accounting purposes, is computed as follows:
---------------------------------------------------------------------
Existing share capital of EDC, March 12, 1996 $2,956,912
Ascribed value of shares of EDCC 2,204,638
---------------------------------------------------------------------
Share capital of EDCC, March 12, 1996 $5,161,550
---------------------------------------------------------------------
F12
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 9
(in Canadian dollars)
- --------------------------------------------------------------------------------
6. Share capital (continued):
(b) Changes in share capital (continued):
(ii) As at March 12, 1996 (continued):
The number of outstanding common shares and warrants of EDCC as
at March 12, 1996, is computed as follows:
---------------------------------------------------------------------
Common
shares Warrants
---------------------------------------------------------------------
Existing EDCC shares and warrants
March 12, 1996 9,116,435 3,624,500
Shares and warrants issued to effect
business combination with EDC 59,278,000 10,000,000
---------------------------------------------------------------------
68,394,435 13,624,500
---------------------------------------------------------------------
(iii) March 12, 1996 to June 30, 1997:
Changes in the share capital of EDCC to June 30, 1997, the
effective date of the business combination with InContext, were
as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Common Special
shares Warrants warrants Amount
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share capital of EDCC,
March 12, 1996 68,394,435 13,624,500 - $ 5,161,550
Exercise of stock options 435,000 - - 65,250
Exercise of warrants 157,500 (157,500) - 94,500
Proceeds from private
placement 2,000,000 2,000,000 - 400,000
----------------------------------------------------------------------------------
Share capital of EDCC,
December 31, 1996 70,986,935 15,467,000 - 5,721,300
Proceeds from private
placement March 19, 1997 - - 11,650,000 3,095,450
Proceeds from private
placement April 4, 1997 - - 5,200,000 1,404,600
Exercise of special warrants 16,850,000 16,850,000 (16,850,000) -
Additional share issue costs - - - (166,274)
Exercise of stock options 75,000 - - 11,250
Exercise of warrants 139,500 (139,500) - 27,900
----------------------------------------------------------------------------------
Share capital of EDCC,
June 30, 1997 88,051,435 32,177,500 - $10,094,226
----------------------------------------------------------------------------------
</TABLE>
F13
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 10
(in Canadian dollars)
- --------------------------------------------------------------------------------
6. Share capital (continued):
(b) Changes in share capital (continued):
(iii) March 12, 1996 to June 30, 1997 (continued):
On November 19, 1996, EDCC completed a private placement for
proceeds of $400,000. Pursuant to the private placement,
2,000,000 common shares were issued and 2,000,000 warrants were
granted which entitle the holder to purchase one common share at
$0.35 per share for each warrant tendered until November 19,
1998.
On March 19, 1997, EDCC raised gross proceeds of $3,495,000 less
transaction costs of $399,550 by way of private placement of
11,650,000 Special Warrants at a price of $0.30 per Special
Warrant. Each Special Warrant consisted of one common share and
one warrant, each warrant entitling the holder thereof to
purchase one common share of EDCC until March 19, 1999 at a
price of $0.35 per share.
On April 4, 1997, a private placement of 5,200,000 Special
Warrants at $0.30 per Special Warrant raised gross proceeds of
$1,560,000, less transaction costs of $155,400. Each Special
Warrant consisted of one common share and one warrant, each
warrant entitling the holder thereof to purchase one common
share and one warrant, each warrant entitling the holder thereof
to purchase one common share of EDCC until April 4, 1999 at a
price of $0.35 per share.
On March 19, 1997, EDCC issued, to the underwriters of the
private placement 1,685,000 non-assignable Special Compensation
Options for no consideration. Each Special Compensation Option
entitles the holder thereof to acquire one EDCC common share and
one EDCC warrant until March 18, 1999 at a price of $0.30 per
option. Each warrant entitles the holder thereof to purchase one
common share of EDCC until March 19, 1999 at a price of $0.35
per share.
(iv) As at June 30, 1997
As described in note 1(c), EDI was formed on the amalgamation of
EDCC and InContext, effective June 30, 1997.
The issued share capital of EDI as at June 30, 1997 is as
follows:
----------------------------------------------------------------
Common
shares Warrants Amount
----------------------------------------------------------------
EDI common shares and
warrants issued to EDCC
shareholders 8,805,144 3,217,750 $10,094,226
EDI common shares and
warrants issued to
InContext shareholders 1,281,108 1,830,155 1,671,663
----------------------------------------------------------------
10,086,252 5,047,905 $11,765,889
----------------------------------------------------------------
F14
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 11
(in Canadian dollars)
- --------------------------------------------------------------------------------
6. Share capital (continued):
(b) Changes in share capital (continued):
(v) July 1, 1997 to June 30, 1998
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Common
shares Warrants Amount
---------------------------------------------------------------------------
<S> <C> <C> <C>
Share capital of EDI,
June 30, 1997 10,086,252 5,047,905 $11,765,889
Exercise of warrants 1,154,305 (1,154,305) 1,238,031
Expiration of warrants - (818,033) -
Proceeds from private placements 996,603 600,000 523,982
Share issue costs - - (13,000)
---------------------------------------------------------------------------
Share capital of EDI, June 30, 1998 12,237,160 3,675,567 $13,514,902
---------------------------------------------------------------------------
</TABLE>
On February 12, 1998, the Board of Directors approved the
repricing of certain warrants previously granted. The 1,332,750
series A warrants expiring on March 12, 1998 were reduced to
$1.10 per share until expiry. The 200,000 series B warrants
expiring on November 19, 1998 were reduced to $1.10 per share
until March 12, 1998 and thereafter increased to $1.65 per
share. The 1,685,000 series C warrants expiring on March 18,
1999 were reduced to $1.10 per share until March 12, 1998 and
thereafter increased to $1.65 per share. The 1,830,155 series D
warrants expiring on July 1, 1999 were reduced to $1.10 per
share until March 12, 1998 and thereafter increased to $1.80 per
share.
During March 1998, 1,153,843 warrants were exercised at a price
of $1.10 per share for net proceeds of $1,237,199 after
transaction costs. On June 10, 1998, 462 warrants were exercised
at a price of $1.80 per share for proceeds of $832. On March 12,
1998, 818,033 warrants expired.
On October 3, 1997, EDI completed a private placement for
proceeds of $249,600. Pursuant to the private placement,
600,000, common shares were issued and 600,000 warrants were
granted which entitled the holder to purchase one common share
at $0.52 per share for each warrant tendered until October 4,
1999. On November 12, 1997, EDI completed a private placement
for proceeds of $97,500. Pursuant to the private placement,
75,000 common shares were issued. On May 15, 1998, EDI completed
a private placement for proceeds of $176,882. Pursuant to the
private placement, 321,603 common shares were issued.
F15
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 12
(in Canadian dollars)
- --------------------------------------------------------------------------------
6. Share capital (continued):
(b) Changes in share capital (continued):
Warrants outstanding at June 30, 1998 entitle the holder to purchase
common shares as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Common Price per
shares share Expiring
------------------------------------------------------------------------------------
<S> <C> <C> <C>
100,000 $ 1.65 November 19, 1998
1,268,500 $ 1.65 March 18, 1999
1,707,067 $ 1.80 July 1, 1999
600,000 $ 0.52 October 4, 1999
------------------------------------------------------------------------------------
3,675,567
------------------------------------------------------------------------------------
</TABLE>
7. Stock options:
EDI has a stock option plan covering all employees. A summary of option
activity is as follows:
<TABLE>
----------------------------------------------------------------------------------------
<S> <C>
Outstanding at January 1, 1996 510,000
Granted 6,225,000
Exercised (435,000)
Expired or cancelled (525,000)
----------------------------------------------------------------------------------------
Outstanding at December 31, 1996 5,775,000
Granted 1,302,500
Exercised (75,000)
Expired or cancelled (595,000)
----------------------------------------------------------------------------------------
Options to acquire EDCC common stock outstanding at June 30,1997 6,407,500
Adjustment to convert EDCC options to EDI options (5,766,750)
----------------------------------------------------------------------------------------
640,750
Options to acquire EDI common stock converted from former
options to acquire InContext common stock 106,995
----------------------------------------------------------------------------------------
Options to acquire EDI common stock outstanding at June 30,1997 747,745
Granted 1,140,100
Expired or cancelled (957,245)
----------------------------------------------------------------------------------------
Options to acquire EDI common stock outstanding at June 30,1998 930,600
----------------------------------------------------------------------------------------
</TABLE>
F16
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 13
(in Canadian dollars)
- --------------------------------------------------------------------------------
7. Stock options (continued):
Under the amalgamation agreement, the options to acquire EDCC and InContext
common stocks were converted into options under the EDI stock option plan
as follows:
. each EDCC stock option outstanding shall be treated as if such options
had been issued as EDI stock options under the EDI stock option plan,
except that each holder of such former EDCC stock options, upon due
exercise of such former EDCC stock options shall be entitled to receive
0.1 EDI common shares for every EDCC common share which such holder
would have been entitled to receive otherwise upon due exercise of such
former EDCC stock options.
. each InContext stock option outstanding shall be treated as if such
options had been issued as EDI stock options under the EDI stock option
plan, except that each holder of such former InContext stock options
upon due exercise of such former InContext stock options shall be
entitled to receive 0.035 EDI common shares for every InContext common
share which such holder would have been entitled to receive otherwise
upon due exercise of such former InContext stock options.
Under the EDI stock option plan, the aggregate number of common shares
reserved for issuance is 10% of the issued common shares, of which 293,116
remain available at June 30, 1998.
Options outstanding at June 30, 1998 are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Common Price per Expiry
shares share
---------------------------------------------------------------------------
<S> <C> <C> <C>
4,550 $14.29 September 19, 1999
12,000 $ 2.50 October 10, 1999
3,500 $14.29 March 29, 2000
2,450 $44.57 July 28, 2000
30,000 $ 2.25 July 29, 2001
329,000 $0.375 August 12, 2002
416,000 $ 0.74 September 30, 2002
133,100 $ 0.74 March 24, 2003
---------------------------------------------------------------------------
930,600
---------------------------------------------------------------------------
</TABLE>
F17
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 14
(in Canadian dollars)
- --------------------------------------------------------------------------------
8. Divestitures/Acquisitions:
Divestitures:
During the year ended June 30, 1998, the Company sold for cash two of
its subsidiaries, InContext Corporation and Bottom Line Software
resulting in a gain on sale of $2,500.
The total selling price was approximately $752,500 less selling costs of
$100,000. The net assets sold consisted of purchased technology and
product rights of $650,000, current assets of approximately $150,000,
capital assets of approximately $20,000, accounts payable and accrued
liabilities of approximately $170,000.
For the year ended June 30, 1998 the subsidiaries reported sales of
approximately $800,000 ($120,000 six months ended June 30, 1997;
$410,000 year ended December 31, 1996).
Acquisition of InContext Systems Inc.:
As described in notes 1(c) and 1(d) the business combination with
InContext has been accounted for as an acquisition of InContext by EDCC.
The total purchase price for InContext Systems Inc. and its two
subsidiaries InContext Corporation and InContext USA Corporation was
$2,171,663. The consideration comprised 1,281,108 shares in EDI with an
ascribed value of $1,921,663 at $1.50 per share plus $250,000 of
transaction costs.
The acquired business included at fair value, $97,010 of cash, $29,210
of other current assets, $326,772 of capital assets and $1,004,693 of
current liabilities.
The difference between the total purchase price and the net fair value
of all identifiable assets and liabilities acquired was $2,723,364 and
has been reflected in the financial statements as purchased technology
and product rights.
During 1996, the Company purchased the net assets of Bottom Line Software,
which were nominal in amount, from related parties for $1. The Company
previously held a 20% ownership interest in Bottom Line Software.
9. Commitments:
Under various agreements, the Company has an obligation to pay royalties
based upon sales of certain computer software products. There are no
minimum royalties required under these agreements.
The Company is committed under operating leases for office space. The
annual commitments for the years ending June 30 are as follows: 1999 -
$450,000; 2000 - $303,000 and 2001 - $23,000.
10. Income taxes:
At June 30, 1998, the Company has tax loss carry-forwards available to
reduce future years' income for tax purposes. Federal and provincial losses
are approximately $8,200,000 and $9,400,000 respective, expiring between
2002 and 2005. The Company also has scientific research costs of
approximately $2,000,000 and share issue costs of approximately $1,000,000
available to reduce future years' income for tax purposes. The benefit of
the foregoing items has not been recorded in these accounts.
F18
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 15
(in Canadian dollars)
- --------------------------------------------------------------------------------
11. Net loss per share:
Net loss per share has been calculated using the weighted average number of
shares deemed or actually outstanding during the year ended June 30, 1998
and consists of 10,968,047 shares (six months ended June 30, 1997:
7,245,212 shares; year ended December 31, 1996: 6,595,778 shares).
12. Changes in non-cash operating working capital:
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Six months Year ended
ended ended ended
June 30, June 30, December 31,
1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Decrease (increase) in accounts receivable $ (537,741) $1,023,058 $(1,733,199)
Decrease (increase) in inventory 14,064 (6,002) (99,990)
Decrease (increase) in investment tax
credits receivable 110,491 462,576 (16,772)
Decrease (increase) in prepaid expenses (38,585) 48,118 (57,029)
Decrease in receivable from related companies - - 17,777
Increase (decrease) in accounts payable
and accrued liabilities (952,688) 312,367 954,746
Decrease (increase) in deferred revenue 106,073 (7,299) (31,451)
- -----------------------------------------------------------------------------------------------
$(1,298,386) $1,832,818 $ (965,918)
- -----------------------------------------------------------------------------------------------
</TABLE>
13. Fair values of financial instruments:
The carrying values of all financial assets and liabilities approximate
their fair value due to the relatively short periods to maturity of the
instruments.
14. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
F19
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 16
(in Canadian dollars)
- --------------------------------------------------------------------------------
15. Subsequent event:
On October 1, 1998, an offer was made to the existing shareholders of the
Company to purchase for cash all of the outstanding common shares at a
price of $1.20 per share. The offer to purchase the shares is conditional
upon, among other things, at least 66 2/3% of the outstanding common shares
being tendered.
16. Reconciliation to United States Generally Accepted Accounting Principles:
Reconciliations of net loss determined in accordance with generally
accepted accounting principles in Canada to net loss determined under
accounting principles which are generally accepted in the United States are
as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Year Six months Year
ended ended ended
June 30, June 30, December 31,
1998 1997 1996
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss for the period in accordance with
Canadian accounting principles, as reported $(3,577,311) $(4,233,753) $(2,299,811)
Development expenses (a) - 390,000 -
Compensation expense related to options
granted to non-employees (b) (100,000) (50,000) (60,000)
Compensation expense related to options
granted to employees (c) (590,000) (320,000) (360,000)
Expense associated with repricing
of warrants (d) (1,000,000) - -
Impact of adjustments to purchase price
of InContext Systems Inc. (e) (490,207) - -
Net loss for the period in accordance
with United States accounting
principles $(5,757,518) $(4,213,753) $(2,719,811)
-----------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------------------
Year Six months Year
ended ended ended
June 30, June 30, December 31,
1998 1997 1996
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss per share in accordance
with United States accounting
principles - Basic and Fully Diluted $(0.5249) $(0.5816) $ (0.4124)
-----------------------------------------------------------------------------------------
</TABLE>
F20
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 17
(in Canadian dollars)
- --------------------------------------------------------------------------------
16. Reconciliation to United States Generally Accepted Accounting Principles
(continued):
Differences between Canadian and United States accounting principles are as
follows:
(a) Under Canadian accounting principles, development costs, which meet
certain criteria, are deferred and amortized. Under United States
accounting principles, such development costs would not have met the
test for capitalization and accordingly have been expensed as
incurred.
(b) During the year ended December 31, 1996, the Company issued options to
purchase 500,000 common shares for $0.48 per share to a shareholder
who was performing consulting services for the Company. The options
vest over a thirty month period. During the period ended June 30,
1997, the Company reduced the exercise price of the option to $0.25
per share. All other terms of the original option agreement were
unchanged. Under Statement of financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" the fair value of these
options must be recognized as an expense and as additional paid in
capital over the vesting period of the options.
The fair value of the option at the date of grant has been estimated
using the Black-Scholes option pricing model with the following
weighted average assumptions used for original grant and repricing. In
1996 and 1997, respectively: dividend yield of zero, expected
volatility of 70% , risk-free interest rates of 4% for both years and
expected lives of 30 months and 15 months for 1996 options and 1997
repriced options.
(c) At June 30, 1998, the Company has a stock-based compensation plan for
employees. The Company applies APB Opinion 25 and related
Interpretations in accounting for compensation costs for the employee
stock option plan for U.S. GAAP purposes. Accordingly, compensation
cost has been recognized under U.S. GAAP over the vesting period for
the plan where the options were issued and the strike price at the
date of being granted was less than the trading price of the Company's
shares. Where the options issued had a strike price greater than the
market value of the shares, no compensation cost has been recognized.
(d) During 1998, the Board of Directors approved the repricing of certain
warrants granted as outlined in note 6(b). Under US GAAP, in
accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", the fair value of the
repriced warrants in excess of the fair value of the warrant
immediately prior to repricing is accounted for as compensation
expense.
The fair value of the warrants has been estimated using the Black-
Scholes option pricing model with the following weighted average
assumptions used: dividend yield of zero, expected volatility of 70%,
risk-free interest rate of 4% and expected life of 11 months.
F21
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 18
(in Canadian dollars)
- --------------------------------------------------------------------------------
16. Reconciliation to United States Generally Accepted Accounting Principles
(continued):
Differences between Canadian and United States accounting principles are as
follows (continued):
(e) On June 30, 1997, EDCC completed a Plan of Arrangement with InContext,
a public company, which was a software developer. A new company, EDI
was formed as described in note 1(c). As described in note 8, the
amalgamation of InContext and EDCC was accounted for as an acquisition
of InContext by EDCC using the purchase method of accounting for
business combinations under Canadian GAAP.
Under US GAAP, the transaction also would be accounted for using the
purchase method of accounting. However, under US GAAP, the value of
the equity securities issued is based on the trading price of
Everyware's shares for a reasonable period of time before and after
the two companies have reached an agreement on the transaction terms
and conditions and the proposed transaction are announced.
Accordingly, the date for measuring the consideration paid by
Everyware to acquire InContext is deemed to be May 16, 1997 rather
than June 30, 1997 used under Canadian GAAP.
Under US GAAP, the value ascribed to the consideration paid by Everyware
to acquire InContext has been determined as follows:
<TABLE>
<S> <C>
Common shares $3,843,324
Warrants 1,750,000
Transaction costs 500,000
-------------------------------------------------
6,093,324
Purchase price consideration
under Canadian GAAP 2,171,663
-------------------------------------------------
$3,921,661
-------------------------------------------------
</TABLE>
This difference has been allocated to goodwill and is being amortized
over 8 years.
The cumulative effect of the application of the above-noted United States
accounting principles on the balance sheet of the Company as at June 30,
1998 would be to decrease deferred development costs asset by Nil (June 30,
1997 -Nil, December 31, 1996 - $390,000), increase goodwill by $3,431,454
(June 30, 1997 - $3,921,661, December 31, 1996 - Nil), and increase
shareholders' equity by $3,431,454 (June 30, 1997 - increase $3,921,661,
December 31, 1996 -decrease $390,000).
F22
<PAGE>
EVERYWARE DEVELOPMENT INC.
Notes to Consolidated Financial Statements, page 19
(in Canadian dollars)
- --------------------------------------------------------------------------------
16. Reconciliation to United States Generally Accepted Accounting Principles
(continued):
Under US GAAP, non-cash financing and investing activities are excluded
from the Statement of Cash Flows. Accordingly, the Consolidated Statement
of Changes in Financial Position would be revised for the acquisition of
InContext on June 30, 1997 through the issuance of shares with an ascribed
value of $1,671,663. Further, expenditures on deferred development would be
reclassified from investing activities to operating activities. The impact
on the Company's Consolidated Statement of Financial Position is as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Year Six months Year
ended ended ended
June 30, June 30, December 31,
1998 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in):
Operations:
Under Canadian GAAP $(3,962,639) $(1,500,454) $(1,756,273)
Expenditures on deferred
development - (302,944) (1,231,340)
--------------------------------------------------------------------------
Under US GAAP $(3,962,639) $(1,803,398) $(2,987,613)
--------------------------------------------------------------------------
Financing:
Under Canadian GAAP $ 2,401,513 $ 6,044,589 $ 2,872,510
Non-cash proceeds on issuance
of common shares and warrants - (1,671,633) -
--------------------------------------------------------------------------
Under US GAAP $ 2,401,513 $ 4,372,956 $ 2,872,510
--------------------------------------------------------------------------
Investments:
Under Canadian GAAP $ (408,341) $(2,594,764) $(1,981,121)
Non-cash acquisition of InContext - 1,671,633 -
Expenditures on deferred
development - 302,944 1,231,340
--------------------------------------------------------------------------
Under US GAAP $ (408,341) $ (620,187) $ (749,781)
--------------------------------------------------------------------------
</TABLE>
F23
<PAGE>
Unaudited Financial Statements of EveryWare Development Inc.
For the three months ended September 30, 1998
F24
<PAGE>
EVERYWARE DEVELOPMENT INC.
Unaudited Condensed Consolidated Balance Sheets
(in Canadian dollars)
================================================================================
September 30, June 30,
1998 1998
================================================================================
Assets
Current assets:
Cash and short-term deposits $ 12,986 $ 227,036
Accounts receivable 1,592,529 1,778,782
Inventory 157,983 180,659
Prepaid expenses 121,051 125,827
-------------------------------------------------------------------------------
1,884,549 2,312,304
Capital assets, net 835,046 971,217
Purchased technology and product rights, net 1,715,283 1,783,383
- --------------------------------------------------------------------------------
$ 4,434,878 $ 5,066,904
================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 1,489,541 $ 1,547,232
Deferred revenue 119,805 111,698
-------------------------------------------------------------------------------
1,609,346 1,658,930
Shareholders' equity:
Share capital 13,514,901 13,514,902
Deficit (10,689,369) (10,106,928)
-------------------------------------------------------------------------------
2,825,532 3,407,974
================================================================================
$ 4,434,878 $ 5,066,904
================================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
F25
<PAGE>
EVERYWARE DEVELOPMENT INC.
Unaudited Condensed Consolidated Statements of Loss and Deficit
(in Canadian dollars)
================================================================================
Three months Three months
ended ended
September 30, September 30,
1998 1997
================================================================================
Sales $ 1,531,477 $ 2,102,680
Cost of sales 79,129 93,533
- --------------------------------------------------------------------------------
1,452,348 2,009,147
Expenses:
Selling, general and administrative 1,430,576 1,414,282
Research and development 409,975 585,916
Depreciation of capital assets 125,312 163,847
Amortization of purchased technology 68,100 62,000
Interest expense 1,000 609
- --------------------------------------------------------------------------------
2,034,963 2,226,654
- --------------------------------------------------------------------------------
Loss from operations (582,615) (217,507)
Interest income 174 11,500
- --------------------------------------------------------------------------------
Loss before income taxes (582,441) (206,007)
Income taxes
- --------------------------------------------------------------------------------
Net loss (582,441) (206,007)
(Deficit) retained earnings, beginning of period (10,106,928) (6,529,617)
- --------------------------------------------------------------------------------
Deficit, end of period $(10,689,369) $(6,735,624)
================================================================================
Net loss per share $(0.0476) $(0.0204)
================================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
F26
<PAGE>
EVERYWARE DEVELOPMENT INC.
Unaudited Condensed Consolidated Statements of Changes in Financial Position
(in Canadian dollars)
================================================================================
Three months Three months
ended ended
September 30, September 30,
1998 1997
- --------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net loss $(582,441) $ (206,007)
Items not involving cash:
Amortization of purchased technology 68,100 62,000
Depreciation of capital assets 125,312 163,847
Changes in non-cash operating working capital 164,121 (839,567)
- --------------------------------------------------------------------------------
(224,908) (819,727)
Financing:
Proceeds on issuance of common shares and
warrants (1) (13,021)
Investments:
Acquisition of InContext Systems Inc. - -
Purchases of capital assets 10,859 (147,685)
- --------------------------------------------------------------------------------
Decrease in cash position (214,050) (980,433)
Cash position, beginning of period 227,036 2,196,503
- --------------------------------------------------------------------------------
Cash position, end of period $ 12,986 $1,216,070
================================================================================
Cash position is defined as cash and short-term deposits.
See accompanying notes to unaudited condensed consolidated financial statements.
F27
<PAGE>
EVERYWARE DEVELOPMENT, INC.
NOTES TO UAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. General and Basis of Financial Statements
The unaudited interim condensed consolidated financial statements include
the accounts of EveryWare Development, Inc. and its majority-owned subsidiaries
(collectively, the "Company" or "EveryWare"). All material intercompany
accounts and transactions have been eliminated in consolidation.
The financial statements included herein have been prepared by management
in accordance with Canadian generally accepted accounting principles and reflect
all adjustments, consisting only of normal recurring adjustments, which in the
opinion of management are necessary to fairly state the Company's financial
position, results of operations and cash flows for the periods presented.
These financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto for the year ended June 30,
1998. The results of operations for the three month period ended September 30,
1998 are not necessarily indicative of results that may be expected for any
other interim period or for the full fiscal year.
2. Subsequent Event
On November 12, 1998, Pervasive Software Inc. acquired in the aggregate,
12,420,110 common shares of EveryWare Development Inc. (more than 93% of the
outstanding shares) pursuant to the previously announced offer made by Pervasive
Acquisition Corporation, a wholly-owned subsidiary, by way of a take-over bid
circular dated October 13, 1998. Pervasive completed compulsory procedures to
acquire the remaining shares of EveryWare in December 1998.
F28
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
3. Reconciliation to United States Generally Accepted Accounting Principles
Reconciliations of net loss determined in accordance with generally accepted
accounting principles in Canada to net loss determined under accounting
principles which are generally accepted in the United States are as follows:
Three Months Ended
September 30,
--------------------------
1998 1997
------------ -----------
Net loss for the period in accordance with
Canadian accounting principles $(582,441) $(206,007)
Compensation expense related to options
granted to non-employees (a) (25,000) (25,000)
Compensation expense related to options
granted to employees (b) (140,000) (135,000)
Impact of adjustments to the purchase price
of InContext Systems, Inc. (c) (122,531) (122,531)
--------- ---------
Net loss for the period in accordance with
U. S. Accounting principals $(869,972) $(488,538)
========= =========
Basic and diluted net loss per share for the
period in accordance with U. S.
Accounting principals $ (0.07) $ (0.05)
========= =========
(a) During the year ended December 31, 1996, the Company issued options to
purchase 500,000 common shares for $0.48 per share to a shareholder who was
performing consulting services for the Company. The options vest over a
thirty month period. During the period ended June 30, 1997, the Company
reduced the exercise price of the option to $0.25 per share. All other
terms of the original option agreement were unchanged. Under Statement of
financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" the fair value of these options must be recognized as an
expense and as additional paid in capital over the vesting period of the
options.
The fair value of the option at the date of grant has been estimated using
the Black-Scholes option pricing model with the following weighted average
assumptions used for original grant and repricing in 1996 and 1997,
respectively: dividend yield of zero, expected volatility of 70% , risk-
free interest rates of 4% for both years and expected lives of 30 months
and 15 months for 1996 options and 1997 repriced options.
(b) At September 30, 1998, the Company has a stock-based compensation plan for
employees. The Company applies APB Opinion 25 and related Interpretations
in accounting for compensation costs for the employee stock option plan for
U.S. GAAP purposes. Accordingly, compensation cost has been recognized
under U.S. GAAP over the vesting period for the plan where the options were
issued and the strike price at the date of being granted was less than the
trading price of the Company's shares. Where the options issued had a
strike price greater than the market value of the shares, no compensation
cost has been recognized.
F29
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
(c) On June 30, 1997, EDCC completed a Plan of Arrangement with InContext, a
public company, which was a software developer. The amalgamation of
InContext and EDCC was accounted for as an acquisition of InContext by EDCC
using the purchase method of accounting for business combinations under
Canadian GAAP.
Under US GAAP, the transaction also would be accounted for using the
purchase method of accounting. However, under US GAAP, the value of the
equity securities issued is based on the trading price of EveryWare's
shares for a reasonable period of time before and after the two companies
have reached an agreement on the transaction terms and conditions and the
proposed transaction are announced. Accordingly, the date for measuring the
consideration paid by EveryWare to acquire InContext is deemed to be May
16, 1997 rather than June 30, 1997 used under Canadian GAAP.
Under US GAAP, the value ascribed to the consideration paid by EveryWare to
acquire InContext was approximately $6,093,000 compared to approximately
$2,172,000 in accordance with Canadian GAAP. This difference of
approximately $3,921,000 has been allocated to goodwill and is being
amortized over 8 years.
F30
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
On November 12, 1998, Pervasive Software Inc. (the "Company") acquired 93% of
the outstanding shares of EveryWare Development, Inc. ("EveryWare"). The
Company acquired the remaining outstanding shares of EveryWare in December 1998
(the November and December transactions are herein referred to as the
"Acquisition"). The Acquisition will be accounted for as a purchase business
combination by the Company. The pro forma condensed financial statements are
based on the historical financial statements of the Company and EveryWare. This
exhibit to the Company's Current Report on Form 8-K/A includes the following
unaudited pro forma condensed financial statements: (i) Unaudited Pro Forma
Condensed Balance Sheet as of September 30, 1998; (ii) Unaudited Pro Forma
Condensed Statements of Operations of the Company and EveryWare for the three
months ended September 30, 1998 and the year ended June 30, 1998; and (iii)
related notes thereto. The unaudited pro forma condensed balance sheet assumes
the Acquisition had been consummated on September 30, 1998. The unaudited pro
forma condensed statements of operations assume the Acquisition had been
consummated on July 1, 1997.
The unaudited pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the financial position or results of
operations that would have been reported if the Acquisition had been consummated
as presented in the accompanying unaudited pro forma condensed financial
statements, nor is it necessarily indicative of the Company's future financial
position or results of operations. The pro forma adjustments and the assumptions
on which they are based are described in the accompanying notes to the unaudited
pro forma condensed financial statements.
These unaudited pro forma condensed financial statements are based on and should
be read in conjunction with the historical consolidated financial statements and
related notes thereto of the Company and the financial statements and notes
thereto of EveryWare for the year ended June 30, 1998.
The financial information for EveryWare included in these unaudited pro forma
condensed financial statements has been derived from audited financial
statements prepared in accordance with Canadian GAAP in Canadian dollars. These
financial statements have been conformed to comply with US GAAP and have been
translated to US dollars at an average exchange rate of C$1.00=US$0.66 for both
the year ended June 30, 1998 and the three months ended September 30, 1998, and
an exchange rate of C$1.00=US$0.65 as of September 30, 1998. Such translations
should not be construed as representations that the Canadian dollar amounts
represent, or have been or could be, converted into US dollars at that or any
other rate.
F31
<PAGE>
PERVASIVE SOFTWARE INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
PRO FORMA
PERVASIVE EVERYWARE ADJUSTMENTS
HISTORICAL HISTORICAL (NOTE 2) PRO FORMA
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 14,706 $ 9 $ (11,516) (a) $ 3,199
Marketable securities.................... 5,497 - - 5,497
Trade accounts receivable, net........... 6,081 1,023 - 7,104
Prepaid expenses and other current
assets................................. 2,663 204 - 2,867
------------------------------------------------ -----------
Total current assets...................... 28,947 1,236 (11,516) 18,667
Property and equipment, net............... 4,473 547 - 5,020
Purchased software technology, net........ - 1,124 (1,124) (d)
1,200 (b) 1,200
Excess of cost over fair value of net
assets acquired, net.................... 578 - 8,656 (b) 9,234
Other assets.............................. 747 - - 747
Total assets.............................. $ 34,745 $ 2,907 $ (2,784) $ 34,868
================================================ ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Trade accounts payable................ $ 1,535 $ 698 $ - $ 2,233
Accrued payroll and payroll related
costs............................... 1,515 - - 1,515
Other accrued expenses................ 2,912 278 - 3,190
Deferred revenue...................... 2,253 79 - 2,332
Income taxes payable.................. 851 - - 851
------------------------------------------------ -----------
Total current liabilities................. 9,066 1,055 - 10,121
Deferred income tax liability - - 600 (b) 600
------------------------------------------------ -----------
Total liabilities 9,066 1,055 600 10,721
Minority interest in subsidiary........... 360 - - 360
Stockholders' equity:
Common stock.......................... 26,455 10,471 (10,471) (c)
268 (a) 26,723
Accumulated deficit................... (1,136) (8,619) 8,619 (c)
(1,800) (b) (2,936)
Total stockholders' equity................ 25,319 1,852 (3,384) 23,787
------------------------------------------------ -----------
Total liabilities and stockholders'
equity................................ $ 34,745 $ 2,907 $ (2,784) $ 34,868
================================================ ===========
</TABLE>
See accompanying notes.
F32
<PAGE>
PERVASIVE SOFTWARE INC.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(in thousands of U.S. dollars, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
PERVASIVE EVERYWARE ADJUSTMENT PRO FORMA
HISTORICAL HISTORICAL S (NOTE 3)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues................................. $ 11,776 $ 1,005 $ - $ 12,781
Cost and expenses:
Cost of revenues and technical
support.............................. 1,620 421 (125) (b)
30 (a) 1,946
Sales and marketing.................... 4,979 517 - 5,496
Research and development............... 2,960 410 - 3,370
General and administrative............. 1,025 215 - 1,240
Amortization of excess cost over fair
value of net assets acquired......... 16 - 216 (a) 232
---------------------------------------------------------------------------
Total costs and expenses................. 10,600 1,563 121 12,284
---------------------------------------------------------------------------
Operating income (loss).................. 1,176 (558) (121) 497
Interest and other income.............. 218 - (115) (c) 103
---------------------------------------------------------------------------
Income (loss) before income taxes and
minority interest...................... 1,394 (558) (236) 600
Provision for income taxes............. (426) - 15 (d) (411)
Minority interest in earnings of
subsidiary, net of income taxes...... 14 - - 14
---------------------------------------------------------------------------
Net income (loss)........................ $ 982 $ (558) $ (221) $ 203
===========================================================================
Basic earnings per share................. $ 0.07 $ 0.02
============ =============
Shares used in computing basic
earnings per share..................... 13,378 13,378
Diluted earnings per share............... $ 0.06 $ 0.01
============ =============
Shares used in computing diluted
earnings per share..................... 15,228 15,256
</TABLE>
See accompanying notes.
F33
<PAGE>
PERVASIVE SOFTWARE INC.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998
(in thousands of U.S. dollars except per share data)
<TABLE>
<CAPTION>
PRO FORMA
PERVASIVE EVERYWARE ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (NOTE 3)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues.................................. $ 36,700 $ 5,169 $ - $ 41,869
Cost and expenses: -
Cost of revenues and technical (b)
support............................... 5,292 1,775 (509) (a)
120 6,678
Sales and marketing..................... 15,438 3,558 - 18,996
Research and development................ 9,556 1,950 - 11,506
General and administrative.............. 3,041 1,660 - 4,701
Amortization of excess cost over fair
value of net assets acquired.......... 29 - 866 (a) 895
--------------------------------------------------------------------------
Total costs and expenses.................. 33,356 8,943 477 42,776
--------------------------------------------------------------------------
Operating income (loss)................... 3,344 (3,774) (477) (907)
Interest and other income............... 573 15 (460) (c) 128
--------------------------------------------------------------------------
Income (loss) before income taxes and
minority interest ...................... 3,917 (3,759) (937) (779)
Provision for income taxes.............. (1,101) - 60 (d) (1,041)
Minority interest in earnings of
subsidiary, net of income taxes....... (94) - - (94)
--------------------------------------------------------------------------
Net income (loss)......................... $ 2,722 $ (3,759) $ (877) $ (1,914)
==========================================================================
Basic earnings per share.................. $ 0.26 $ (0.18)
=============== ===============
Shares used in computing basic
earnings per share...................... 10,468 10,468
Diluted earnings per share................ $ 0.18 $ (0.18)
=============== ===============
Shares used in computing diluted
earnings per share...................... 14,741 10,468
</TABLE>
See accompanying notes.
F34
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
1. GENERAL
The Acquisition will be accounted for as a purchase business combination by
the Company. The accompanying unaudited pro forma condensed financial
statements reflect an aggregate purchase price of approximately $11.8
million, consisting of cash paid to EveryWare stockholders and
optionholders, costs directly related to the Acquisition and value of
replacement options issued to EveryWare employees.
For purposes of the accompanying unaudited pro forma condensed balance
sheet, the aggregate purchase price has been allocated to the net assets
acquired, with the remainder recorded as excess cost over net assets
acquired on the basis of preliminary estimates of fair values. These
preliminary estimates of fair value were determined by the Company's
management based primarily on information furnished by management of
EveryWare and an independent valuation of acquired technologies and
research and development. The final allocation of the purchase price will
be based on a complete evaluation of the assets and liabilities of
EveryWare. Accordingly, the information presented herein may differ from
the final purchase price allocation, however, it is expected that such
differences, if any, will not materially affect the accompanying pro forma
financial information.
2. UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
The accompanying unaudited pro forma condensed balance sheet assumes the
Acquisition was consummated on September 30, 1998 and reflects the
following pro forma adjustments:
(a) To record consideration given in acquisition of EveryWare:
Cash paid to EveryWare shareholders and optionholders $10,520
Transaction costs 996
-------
Total cash consideration 11,516
Value of replacement options granted to EveryWare
employees 268
-------
Total purchase price $11,784
=======
The purchase price excludes $705,000 of cash advanced to EveryWare by
the Company in October and November 1998.
F35
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
(in thousands of U.S. dollars)
2. UNAUDITED PRO FORMA CONDENSED BALANCE SHEET (CONTINUED)
(b) To record allocation of purchase price to the assets of EveryWare:
Software technology $ 1,200
Purchased research and development 1,800
Adjustment for excess of cost over fair value
of net assets acquired 8,656
Deferred tax adjustment related to intangible
assets acquired (600)
Fair value of net tangible assets acquired 728
-------
Net assets acquired $11,784
=======
(c) To record elimination of EveryWare's stockholders' equity.
(d) To remove EveryWare's historical purchased software technology.
3. UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
The accompanying unaudited pro forma condensed statements of operations
have been prepared as if the Acquisition was consummated as of July 1, 1997
and reflect the following pro forma adjustments:
(a) Reflects the new basis and amortization period of intangibles
associated with acquired intangibles. The amortization was based on
the value of intangible assets in Note 2. Amounts are amortized over
10 years.
(b) To eliminate EveryWare's historical intangibles amortization expense.
(c) To adjust interest income to reflect interest foregone as a result of
$11.5 million cash payment for the acquisition of EveryWare and
related acquisition costs assuming an average rate of 4%.
(d) To record decrease in deferred tax liabilities associated with the
amortization of acquired intangibles.
The accompanying unaudited pro forma condensed statements of operations do
not reflect the one-time impact of the charge for purchased research and
development of $1.8 million recorded by the Company in connection with the
Acquisition.
F36
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
(in thousands of U.S. dollars)
4. UNAUDITED PRO FORMA EARNINGS PER COMMON SHARE DATA
The unaudited pro forma basic earnings per share is computed by dividing
pro forma income (loss) per share by the weighted average number of common
shares outstanding. The unaudited pro forma diluted earnings per share data
is computed by dividing pro forma income (loss) per share by the weighted
average number of common shares and common share equivalents represented by
stock options, if the exercise of such stock options would have a dilutive
effect in the aggregate. Options issued as replacements of certain
EveryWare options have been included in the denominator for diluted
earnings per share assuming these options were outstanding as of July 1,
1997.
F37
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
EveryWare Development Inc.:
We consent to the incorporation by reference in the registration statement (No.
333-67659) on Form S-8 of Pervasive Software Inc. of our report dated September
24, 1998, with respect to the consolidated balance sheets of EveryWare
Development Inc. as of June 30, 1998, June 30, 1997 and December 31, 1996 and
the related consolidated statements of loss and deficit and changes in financial
position for the year ended June 30, 1998, the six months ended June 30, 1997
and the year ended December 31, 1996, which report appears in the Form 8-K/A of
Pervasive Software Inc. dated February 1, 1999.
KPMG LLP
Hamilton, Canada
February 1, 1999
