<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 8, 1999
-----------------
RAVISENT Technologies Inc.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 000-26287 23-2763854
- ----------------------------------------------------------------------------
(State of other jurisdiction (Commission (IRS Employer of
incorporation) File Number) Identification No.)
One Great Valley Parkway, Malvern, Pennsylvania 19355
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (800) 700-0362
--------------------------
Not Applicable
- ----------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
1
<PAGE>
ITEM 2 ACQUISITION OR DISPOSITION OF ASSETS.
(a) This current report on Form 8-K/A amends the Current Report on
Form 8-K filed by RAVISENT Technologies Inc. on November 22, 1999
solely to add the financial statements of the business acquired
required by Item 7(a) and the pro forma financial information
required by Item 7(b).
1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Teknema Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 3
Balance Sheets as of September 30, 1999 and December 31,1998 4
Statements of Operations for the nine month period ended September 30, 1999
and the year ended December 31, 1998 5
Statements of Stockholders' (Deficit) Equity for the nine month period ended September 30, 1999 and
the year ended December 31, 1998 6
Statements of Cash Flows for the nine month period ended September 30, 1999 and
the year ended December 31, 1998 7
Notes to Financial Statements 8-15
(b) Pro forma Financial Information
Pro forma financial information 16
Unaudited Pro forma Combined Condensed Balance Sheet as of September 30, 1999 17
Unaudited Pro forma Combined Condensed Statement of Operations for the nine month period ended
September 30, 1999 18
Unaudited Pro forma Combined Condensed Statement of Operations for the year ended
December 31, 1998 19
Notes to Unaudited Pro forma Combined Condensed Financial Statements 20-21
</TABLE>
2
<PAGE>
Independent Auditors' Report
The Board of Directors
Teknema, Inc.:
We have audited the accompanying balance sheets of Teknema, Inc. (the Company)
as of September 30, 1999, and December 31, 1998, and the related statements of
operations, stockholders' (deficit) equity, and cash flows for the nine-month
period ended September 30, 1999, and for the year ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Teknema, Inc. as of September
30, 1999, and December 31, 1998, and the results of its operations and its cash
flows for the nine-month period ended September 30, 1999, and for the year ended
December 31, 1998, in conformity with generally accepted accounting principles.
January 7, 2000
Mountain View, California
/s/ KPMG LLP
3
<PAGE>
TEKNEMA, INC.
Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1999 1998
--------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 327,290 $ 1,112,481
Accounts receivable, net of allowances for doubtful
accounts of $38,267and $174,000, respectively 103,878 779,943
Income tax refund receivable 65,000 65,000
Inventories 34,864 67,192
Prepaid software liscense 59,137 50,000
Prepaid expenses and other current assets 55,598 126,461
Deferred income taxes 106,000 106,000
--------------- --------------
Total current assets 751,767 2,307,077
Property and equipment, net 66,558 80,775
Other assets 11,486 8,625
--------------- --------------
Total assets $ 829,811 $ 2,396,477
=============== ==============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 348,183 $ 1,527,757
Accrued liabilities 177,468 73,418
Deferred revenue 178,633 540,000
--------------- --------------
Total current liabilities 704,284 2,141,175
Note payable 1,000,000 --
Deferred income taxes 10,000 8,000
--------------- --------------
Total liabilities 1,714,284 2,149,175
--------------- --------------
Commitments
Stockholders' equity (deficit):
Common stock, $0.001 par value; 10,000,000 shares authorized;
4,045,875 and 3,504,000 shares issued and outstanding,
respectively 4,046 3,504
Additional paid-in capital 4,920,380 3,463,626
Deferred compensation expense (3,225,661) (2,620,031)
Retained earnings (accumulated deficit) (2,583,238) (599,797)
--------------- --------------
Total stockholders' equity (deficit) (884,473) 247,302
--------------- --------------
Total liabilities and stockholders' equity (deficit) $ 829,811 $ 2,396,477
=============== ==============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
TEKNEMA, INC.
Statements of Operations
<TABLE>
<CAPTION>
Nine Month Year
Period Ended Ended
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Revenues $ 3,277,212 $ 5,075,829
Cost of revenues 2,361,614 3,207,343
------------- -------------
Gross margin 915,598 1,868,486
------------- -------------
Operating expenses:
Research and development 1,798,392 2,005,026
Selling and marketing 438,428 363,344
General and administrative 665,470 529,096
------------- -------------
Total operating expenses 2,902,290 2,897,466
------------- -------------
Loss from operations (1,986,692) (1,028,980)
Interest income, net 8,251 32,561
-------------- -------------
Loss before income taxes (1,978,441) (996,419)
Income tax expense (benefit) 5,000 (94,000)
-------------- -------------
Net loss $ (1,983,441) $ (902,419)
============== =============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
Teknema, Inc.
Statement of Stockholders' (Deficit) Equity
Nine-month period ended September 30, 1999 and year ended December 31, 1998
<TABLE>
<CAPTION>
Retained Total
Additional Deferred Earnings Stockholders'
Common stock Paid-in Compensation (accumulated Equity
--------------------------
Shares Amount capital expense Deficit) (deficit)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1997 3,640,000 $ 3,640 $ 211,300 $ (104,790) $ 302,622 $ 412,772
Issuance of Common stock on exercise of options 24,000 24 906 -- -- 930
Repurchase of common stock (160,000) (160) (1,440) -- -- (1,600)
Deferred compensation expense -- -- 3,252,860 (3,252,860) -- --
Amortization of deferred compensation expense -- -- -- 737,619 -- 737,619
Net loss -- -- -- (902,419) (902,419)
------------ ------------ ------------ ------------ ------------ ------------
Balances as of December 31, 1998 3,504,000 $ 3,504 $ 3,463,626 $ (2,620,031) $ (599,797) $ 247,302
Issuance of common stock on exercises of options 541,875 542 26,614 -- -- 27,156
Deferred compensation expense -- -- 1,430,140 (1,430,140) -- --
Amortization of deferred compensation expense -- -- -- 824,510 -- 824,510
Net loss -- -- -- -- (1,983,441) (1,983,441)
------------ ------------ ------------ ------------ ------------ ------------
Balances as of September 30, 1999 4,045,875 $ 4,046 $ 4,920,380 $ (3,225,661) $ (2,583,238) $ (884,473)
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
TEKNEMA, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Month Year
Period Ended Ended
September 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,983,441) $ (902,419)
Adjustment to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 24,972 34,025
Deferred income taxes 2,000 (29,000)
Provision for doubtful accounts (135,733) 93,845
Amortization of deferred compensation expense 824,510 737,619
Changes in operating assets and liabilities:
Accounts receivable 811,798 230,915
Income tax refund receivable -- (65,000)
Inventories 32,328 224,848
Prepaid expenses and other current assets 61,726 (149,838)
Other assets (2,861) (8,625)
Accounts payable (1,179,574) (250,174)
Accrued liabilities 104,050 (31,770)
Deferred revenue (361,367) 480,873
--------------- ---------------
Net cash (used in) provided by operating activities (1,801,592) 365,299
--------------- ---------------
Cash flows used in investing activities - purchases of property
and equipment (10,755) (28,021)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common stock 27,156 930
Repurchase of common stock -- (1,600)
Proceeds from note payable 1,000,000 --
--------------- ---------------
Net cash provided by (used in) financing activities 1,027,156 (670)
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (785,191) 336,608
Cash and cash equivalents at beginning of period/year 1,112,481 775,873
--------------- ---------------
Cash and cash equivalents at end of period/year $ 327,290 $ 1,112,481
=============== ===============
Supplemental disclosures of cash flow information:
Noncash investing and financing activity - deferred
compensation associated with stock option activity $ 487,933 $ 2,049,247
=============== ===============
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
TEKNEMA, INC.
Notes to Financial Statements
September 30, 1999 and December 31, 1998
(1) The Company and Summary of Significant Accounting Policies
(a) Description of the Company
Teknema, Inc., a California corporation, (the Company) was
incorporated in December 1994. The Company designs, develops, and
markets information appliances, both software and hardware, which
enable easy access to the Internet. The Company also provides Internet
technology and services to original equipment manufacturers (OEM) and
hardware integration companies who design and sell Internet products
and appliances. The Company's customers are located principally in the
United States and Europe.
On November 8, 1999, RAVISENT Technologies, Inc., a Delaware
corporation, (RAVISENT) purchased all of the outstanding shares and
options of the Company for 266,165 shares of RAVISENT common stock,
and 537,560 of stock options, and $2,500,000 in cash. In connection
with and prior to the purchase, RAVISENT loaned the Company $1,000,000
for working capital purposes (see Note 3).
(b) Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash
equivalents. Cash equivalents in the amount of $327,290 and $1,112,481
as of September 30, 1999 and December 31, 1998, respectively,
consisted primarily of money market funds. Cash equivalents are
recorded at cost, which approximates fair value.
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market. As of September 30, 1999, and December 31, 1998,
inventories were principally comprised of finished goods.
(d) Software Development Costs
Statement of Financial Accounting Standards (SFAS) No. 86, Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed, requires the capitalization of software development costs
once technological feasibility has been established. Through September
30, 1999, the Company believes its process for developing software was
essentially completed concurrently with the establishment of
technological feasibility, and, accordingly, no software development
costs have been capitalized. Software development costs are
included in research and development and expensed in the accompanying
statements of operations.
(e) Property and Equipment
Property and equipment are recorded at cost less accumulated
depreciation. Depreciation is calculated using the straight-line
method over the estimated useful lives of the respective assets,
generally three to seven years.
(f) Revenue Recognition
Revenues are generally recognized upon shipment of the product or when
development services are performed, provided that no significant
obligations remain and collection of the resulting receivable is
probable. Support service revenues are recognized over the service
period. Deferred revenues are comprised of support revenues.
(g) Product Warranty
The Company provides a warranty on its products. Estimated warranty
costs are accrued at the time of sale. As of September 30, 1999, and
December 31, 1998, accrued warranty expense was approximately $57,000
and $-0- respectively, and is included in accrued liabilities in the
accompanying balance sheets.
8
<PAGE>
(h) 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.
(i) Business Concentrations
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
and cash equivalents and accounts receivable. The Company maintains
its cash and cash equivalents in commercial checking and money market
accounts with high quality financial institutions. The Company
performs ongoing credit evaluations of its customer's financial
condition. The Company establishes reserves for potential credit
losses and such losses have historically been within management
expectations.
The Company purchases substantially all of its inventory from an
Internet television set-up box supplier located in Taiwan. As of
September 30, 1999 and December 31, 1998, accounts payable to this
supplier were $303,240 and $1,508,673, respectively.
(j) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. A valuation is recorded to reduce deferred tax assets
to an amount for which realization is more likely than not.
(k) Stock-Based Compensation
The Company accounts for its stock-based compensation arrangements for
employees using the intrinsic-value method pursuant to Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. As such, compensation expense is recorded for fixed plan
stock options on the date of grant when the fair value of the
underlying common stock exceeds the exercise price for stock options
or the purchase price for issuance or sales of common stock. Options
granted to consultants and other nonemployees are accounted for at
fair value pursuant to SFAS No. 123, Accounting for Stock-Based
Compensation. The Company discloses the pro forma effects of using the
fair value method of accounting for all stock-based compensation
arrangements in accordance with SFAS No. 123.
(l) Comprehensive Income
The Financial Accounting Standards Board (the FASB) has issued SFAS
No. 130, Reporting Comprehensive Income, which establishes standards
for reporting and disclosure of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general purpose financial statements. The Company has no components of
other comprehensive income (loss) for the periods presented.
(m) Financial Instruments
The carrying amount of the Company's cash equivalents, accounts
receivable, and accounts payable approximates fair value due to the
short-term nature of these balances. The carrying amount of the
Company's note payable approximates fair value as the note bears
interest based on rates currently available for debt with similar
terms.
(n) New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1
requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the
9
<PAGE>
estimated useful life of the software. SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. The adoption of
SOP 98-1 did not have a significant impact on the Company's results of
operations.
In 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires companies to
record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the
values of those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge accounting.
SFAS No. 133 is effective for annual financial statements for periods
beginning after June 15, 1999. The Company believes that the adoption
of SFAS No. 133 will not have a significant impact on its financial
condition or results of operations.
(o) Revenues
Revenues consisted of the following for the nine-month period ended
September 30, 1999, and December 31, 1998:
1999 1998
------------ ------------
Product Sales $ 2,954,320 4,149,845
Development services 294,975 211,984
Royalties -- 284,000
Support services 27,917 430,000
------------ ------------
$ 3,277,212 5,075,829
============ ============
(2) Property and Equipment
Property and equipment as of September 30, 1999, and December 31, 1998,
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Computer equipment and software $ 179,952 173,528
Furniture, fixtures, and office equipment 12,894 8,563
------------ ------------
192,846 182,091
Less accumulated depreciation and amortization 126,288 101,316
------------ ------------
$ 66,558 80,775
============ ============
</TABLE>
(3) Note Payable
The Company issued a $1,000,000 convertible promissory note to RAVISENT on
August 12, 1999. The note is unsecured and bears interest at a rate of 10%
per year. The principal and accrued interest are due on August 12, 2002.
The outstanding principal and accrued interest may be converted into the
Company's stock at a conversion price of $2.09, which is the greater than
the fair value of the Company's common stock at the date of issuance of the
note. The Company is subject to certain financial and nonfinancial
covenants in connection with this note. As of September 30, 1999, the
Company was in compliance with these covenants.
(4) Stockholders' Equity (Deficit)
(a) Stock Plan
The Company has reserved 6,670,000 shares of common stock for issuance
under its 1996 Stock Option Plan (the Plan). The Plan provides for the
issuance of stock purchase rights, incentive stock options, or
nonstatutory stock options.
The stock purchase rights are subject to a restricted stock purchase
agreement whereby the Company has the right to repurchase the stock
upon the voluntary or involuntary termination of the purchasers'
employment with the Company at the original issuance cost. The
Company's repurchase right lapses generally over a four-year period.
10
<PAGE>
As of September 30, 1999, the Company has issued 2,560,417 shares under
restricted stock purchase agreements, of which 325,000 shares are subject
to repurchase at a weighted-average price of $.01 per share.
During 1998, the Company repurchased 160,000 shares of restricted common
stock at $0.01 per share in cash.
Nonstatutory options are exercisable at a price not less than 85% of fair
market value of the stock at the date of grant, as determined by the
Company's Board of Directors, unless they are granted to an individual who
owns greater than 10% of the voting rights of all classes of stock, in
which case the exercise price shall be no less than 110% of the fair market
value. Incentive stock options are exercisable at a price not less than
100% of fair market value of the stock at the date of grant, as determined
by the Company's Board of Directors, except when they are granted to an
employee who owns greater than 10% of the voting power of all classes of
stock, in which case they are exercisable at a price not less than 110% of
fair market value.
Options issued under the Plan generally expire in 10 years. However, the
term of the options may be limited to 5 years if the optionee owns stock
representing more than 10% of the voting power of all classes of stock.
Vesting periods are determined by the Company's Board of Directors and
generally provide for shares to vest ratably over a four-year period.
During 1998, the Company issued options to purchase 1,540,000 shares of
common stock at an exercise price of $0.05 per share to nonemployees for
services performed. The fair value of the options at the vesting date was
determined to be $635,560 using the Black-Scholes option pricing model
using the following assumptions: no dividends; contractual life of 4 years;
risk-free interest rate of 5%; and expected volatility of 60%. The fair
value of the options was charged to expense in 1998 as the related services
were performed. The amortization of the deferred compensation expense was
allocated to the functional expense categories based upon an employee's
job classification.
During the first nine months of 1999, the Company issued options to
purchase 160,000 shares of common stock at an exercise price of $0.10 per
share to nonemployees for services performed. The fair value of the options
at the vesting date was determined to be $482,294 using the Black-Scholes
option pricing model using the following assumptions: no dividends;
contractual life of 4 years; risk-free interest rate of 5%; and expected
volatility of 60%. The fair value of the options is charged to expense as
the related services are performed. The amortization of the deferred
compensation expense was allocated to the functional expense based upon an
employee's job classification.
As of September 30, 1999, there were no additional stock options available
for grant under the Plan.
(b) Stock-Based Compensation
The Company uses the intrinsic value method prescribed by APB Opinion No.
25 in accounting for its stock-based compensation arrangements for
employees. Compensation cost has been recognized for fixed stock options
issuances in the accompanying financial statements because the fair value
of the underlying common stock equals or exceeds the exercise price of the
stock options at the date of grant.
The Company has recorded deferred stock compensation expense of $964,000
and $2,600,500 for the difference at the grant date between the exercise
price and the fair value of the common stock underlying the option granted
in the nine-month period ended September 30, 1999, and for the year ended
December 31 1998, respectively. These amounts are being amortized on a
straight line basis over the vesting period, generally four years.
Amortization of deferred compensation of approximately $647,302 and
$546,146 was recognized in the nine-month period ended September 30, 1999,
and for the year ended December 31, 1998, respectively. The amortization of
the deferred compensation expense was allocated to the functional expense
categories based upon the employee's job classification.
11
<PAGE>
Had compensation cost for the Company's stock-based compensation plan been
determined consistent with the fair value approach set forth in SFAS No.
123, the Company's net losses for the nine-month period ended September 30,
1999, and for the year ended December 31, 1998, would have been as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Net loss as reported $ (1,983,441) (902,419)
Additional stock-based compensation under
SFAS No. 123 (1,025,190) (2,663,935)
APB Opinion No. 25 compensation
expense recorded 964,000 2,600,500
-------------- --------------
Net loss pro forma $ (1,922,251) (965,854)
============== ==============
</TABLE>
The fair value of each option was estimated on the date of grant using the
minimum value method with the following weighted-average assumptions: no
dividends; risk-free interest rate of 5%; and expected life of 4 years for
both the nine-month period ended September 30, 1999, and the year ended
December 31, 1998.
The following table summarizes activity under the Plan for the nine-month
period ended September 30, 1999, and for the year ended December 31, 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------- ---------------------
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period/year 4,950,000 $ 0.05 345,000 $ 0.01
Options granted 820,000 0.10 5,505,000 0.05
Options exercised (541,875) 0.05 (24,000) 0.04
Options canceled (178,125) 0.06 (876,000) 0.05
---------- ----------
Outstanding at
period/year-end 5,050,000 0.06 4,950,000 0.05
========== ==========
Options vested at
period/year-end 2,217,114 0.05 1,348,125 0.05
========== ==========
Weighted-average fair
value of options granted
during the year 0.05 0.08
</TABLE>
12
<PAGE>
The following table summarizes information about fixed stock options
outstanding as of September 30, 1999:
<TABLE>
<CAPTION>
Options outstanding
---------------------------------------------- Options exercisable
Weighted- ----------------------------
average Weighted- Weighted-
Range of remaining average average
exercise contractual exercise
price Options life (years) price Options price
------------ ------------ --------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 0.01 330,000 6.49 $ 0.01 289,375 $ 0.01
0.05 3,920,000 8.40 0.05 1,818,572 0.05
0.10 800,000 9.46 0.10 109,167 0.10
------------ ------------
5,050,000 8.44 0.06 2,217,114 0.05
============ ============
</TABLE>
(5) Income Taxes
Income tax expense (benefit) for the nine-month period ended September 30,
1999, and for the year ended December 31, 1998 consisted the following
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
1999
Federal $ -- 2,000 2,000
State 3,000 -- 3,000
------- ------- -------
3,000 2,000 5,000
======= ======= =======
1998
Federal $(65,000) (44,000) (109,00)
------- ------- -------
State -- 15,000 15,000
$(65,000) (29,000) (94,000)
======= ======= =======
</TABLE>
The September 30, 1999, and December 31, 1998, income tax expense (benefit)
differed from the amounts computed by applying the federal statutory rate of 34%
to pretax loss as a result of the following:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Computed expected tax expense (benefit) (673,000) (339,000)
State taxes, net of federal benefit (42,000 (19,000)
Non deductible stock compensation 226,000 194,000
Effect of federal marginal rate 2,000 (8,000)
Other permanent differences (18,000) (4,000)
Change in valuation allowance 510,000 82,000
------- ------
$ 5,000 (94,000)
======= ======
</TABLE>
As of September 30, 1999, and December 31, 1998, the types of temporary
differences that give rise to significant portions of the Company's deferred tax
assets and liabilities are set out below:
<TABLE>
<CAPTION>
1999 1998
-------------- ------------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves $ 277,000 180,000
Net operating loss and carryforwards 421,000 8,000
-------------- ------------
698,000 188,000
Valuation allowances (592,000) ( 82,000)
-------------- ------------
Total tax deferred assets 106,000 106,000
Deferred tax liabilities -- plant and equipment ( 10,000) ( 8,000)
-------------- ------------
Net deferred tax assets (liabilities) $ 96,000 98,000
============== ============
</TABLE>
The Company has provided a valuation allowance due to the uncertainty of
generating future profits that would allow for the realization of such
deferred tax assets. The net valuation allowance increased by $510,000
and $82,000 during the nine-month period ended September 30, 1999, and
for the year ended December 31, 1998, respectively.
As of December 31, 1998, the Company has net operating loss carryforwards
for federal and state income tax purposes of approximately $790,000 and
$633,000, respectively, available to reduce future income taxes. The
federal carryforwards will expire from 2019. The California net
operating loss carryforwards expire from 2003 to 2004.
Federal and California tax laws impose substantial restrictions on the
utilization of met operating loss and credit carryforwards in the event of
an "ownership change" for tax purposes, as defined in the Internal Revenue
Code. The Company has not yet determined if an ownership change has
occurred If such ownership change has occurred, utilization of the net
operating losses will be subject to an annual limitation in future years.
(6) Commitments
The Company leases its facilities under an operating lease agreement that
expires in January 2001. In addition, the Company leases certain equipment
under operating lease agreements.
Future minimum lease payments under noncancelable operating leases as of
September 30, 1999, are as follows:
13
<PAGE>
<TABLE>
<CAPTION>
Fiscal years
ending
------------
<S> <C>
1999 $ 32,000
2000 133,000
2001 11,000
----------
$ 176,000
==========
</TABLE>
Rent expense from operating leases was approximately $98,000 and $77,000
for the nine-month period ended September 30, 1999, and for the year ended
December 31, 1998, respectively.
(7) Segment and Geographic Information
During 1999, the Company adopted the provisions of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 establishes standards for the reporting by public business
enterprises of information about operating segments, products and services,
geographic areas, and major customers. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is calculated regularly by the chief operating decision
maker, or decision making group, in deciding how to allocate resources and
in assessing their performance. The Company operates in one industry
segment: the Internet appliance segment. Substantially all revenues result
from the sale of products and services to OEM customers in this segment.
The Company's chief operating decision-maker reviews financial information
presented on a Company-wide basis for purposes of making operating
decisions and assessing financial performance. The Company-wide financial
information is the same as the information presented in the accompanying
balance sheets and statements of operations.
The Company's assets are primarily located in the United States and are not
allocated to any specific region. The Company does not produce reports for,
or measure the performance of, its geographic regions, and, therefore,
segment information is not provided for regions.
For the period ended September 30, 1999, and for the year ended December
31, 1998, sales to three customers were greater than 10% of total revenues.
The related percentages of revenues and accounts receivable as of September
30, 1999, and December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Percent of Percent of accounts
revenues receivable
----------------------- -----------------------
1999 1998 1999 1998
----------------------- -----------------------
<S> <C> <C> <C> <C>
Customer A 63% 37% -- 87%
Customer B 21% 20% -- --
Customer C 10% 10% -- --
</TABLE>
Three international customers accounted for approximately 85% and 69% of
the Company's revenues in fiscal 1999 and 1998, respectively. Domestic
sales as a percentage of gross revenues were not significant in fiscal 1999
and 1998. International sales in 1999 and 1998, were principally sales to
OEM distributors. Domestic sales are made primarily to end users.
14
<PAGE>
(7) Segment and Geographic Information
During 1999, the Company adopted the provisions of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 establishes standards for the reporting by public business
enterprises of information about operating segments, products and services,
geographic areas, and major customers. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision
maker, or decision making group, in deciding how to allocate resources and
in assessing their performance. The Company operates in one industry
segment: the Internet appliance segment. Substantially all revenues result
from the sale products and services OEM customers in this segment. The
Company's chief operating decision maker reviews financial information
presented on a Company-wide basis for purposes of making operating
decisions and assessing financial performance. The Company-wide financial
information is the same as the information presented in the accompanying
statements of operations.
The Company's assets are primarily located in the United States and are not
allocated to any specific region. The Company does not produce reports for,
or measure the performance of, its geographic regions and, therefore,
segment information is not provided for regions.
Three international customers accounted for approximately 85% of the
Company's revenues in fiscal 1999. Three international customers accounted
for approximately 69% of the Company's revenues in fiscal 1998. Domestic
sales as a percentage of gross revenues were not significant in fiscal 1999
and fiscal 1998. International sales in 1999 and 1998, were principally
sales to OEMs distributors. Domestic sales are made primarily to end users.
Three international customers comprise 53% of the accounts receivable
balance as of September 30, 1999. Three international customers comprise
88% of the accounts receivable balance as of December 31, 1998.
15
<PAGE>
(b) Pro Forma Financial Information.
The following unaudited pro forma condensed financial statements give effect to
the acquisition of Teknema, Inc. ("Teknema") by RAVISENT Technologies, Inc.
("Ravisent") in a transaction accounted for as a purchase in accordance with APB
Opinion No. 16 (the "Acquisition"). Under the purchase method of accounting, the
purchase price is allocated to the assets acquired and liabilities assumed based
on their estimated fair values at the date of the Acquisition. Estimates of the
fair values of the assets and liabilities of Teknema have been combined with the
recorded values of the assets and liabilities of Ravisent in the unaudited pro
forma condensed financial statements. The pro forma adjustments are based on
management's estimates of the fair values of the assets and liabilities
acquired. Minor changes to adjustments included in the unaudited pro forma
condensed financial statements are expected as the results of operations of
Teknema subsequent to September 30, 1999 will affect the allocation of the
purchase price. Accordingly, actual amounts will differ from those in the
unaudited pro forma condensed financial statements.
The unaudited pro forma combined condensed balance sheet has been prepared to
reflect the Acquisition as if it occurred on September 30, 1999. The unaudited
pro forma condensed statements of operations reflect the results of operations
of Ravisent and Teknema for the year ended December 31, 1998 and the nine months
ended September 30, 1999 as if the Acquisition occurred on January 1, 1998.
The unaudited pro forma combined condensed financial statements are presented
for illustrative purposes only and are not necessarily indicative of the
combined financial position or results of operations in future periods or the
results that actually would have been realized had Ravisent and Teknema been a
combined company during the specified periods. The unaudited pro forma condensed
financial statements, including the notes thereto, are qualified in their
entirety by reference to, and should be read in conjunction with, the historical
consolidated financial statements for the year ended December 31, 1998 of
Ravisent, included in its Registration Statement on Form S-1 and its quarterly
report on Form 10-Q for the nine months ended September 30, 1999 and the
financial statements of Teknema included elsewhere in this Current Report on
Form 8-KA.
16
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF September 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
RAVISENT Teknema
September 30, September 30, Pro Forma Pro Forma
1999 1999 Adjustments Combined
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 58,665 $ 327 (3,780) (a/c) 55,212
Accounts receivable, net.......................... 9,247 104 - 9,351
Income tax refund receivable...................... -- 65 - 65
Inventory......................................... 597 35 - 632
Prepaid expenses.................................. 787 115 - 902
Other assets...................................... 53 -- - 53
Deferred income taxes............................. -- 106 - 106
--------- --------- --------- ---------
Total current assets............................. 69,349 752 (3,780) 66,321
Furniture and equipment, net....................... 1,221 67 - 1,288
Goodwill and other intangibles .................... 3,953 -- 14,639 (e) 18,592
Loan receivable.................................... 1,000 -- (1,000) (b) -
Other assets....................................... 27 11 - 38
--------- --------- --------- ---------
Total assets..................................... $ 75,550 $ 830 9,859 86,239
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable................... .............. $ 2,108 $ 348 - 2,456
Accrued expenses and other........................ 793 177 741 (c) 1,711
Other current liabilities......................... 1,457 - - 1,457
Current installments under capital leases......... 7 - - 7
Deferred Revenue.................................. - 179 - 179
--------- --------- --------- ---------
Total current liabilities........................ 4,365 704 741 5,810
Loan payable...................................... -- 1 ,000 (1,000) (b) --
Other long-term liabilities....................... 772 - - 772
Long term obligations under capital leases........ 2 - - 2
--------- --------- --------- ---------
Total liabilities................................ 5,139 1 ,714 (259) 6,594
--------- --------- --------- ---------
Stockholders' equity (deficiency)
Common stock...................................... 15 4 (4) (d) 15
Additional paid-in capital........................ 96,781 4,920 12,402 (c) 109,183
(4,920) (d)
Deferred stock compensation....................... (1,814) (3,225) 3,225 (d) (1,814)
Accumulated deficit............................... (23,302) (2,583) (1,280) (a) (26,470)
2,583 (d)
(1,888) (d)
Accumulated other comprehensive income............ (49) - - (49)
Treasury stock at cost, 200,000 shares............ (720) - - (720)
Note receivable................................... (500) - - (500)
--------- --------- --------- ---------
Total stockholders' equity (deficiency)......... 70,411 (884) 10,118 79,645
--------- --------- --------- ---------
Total liabilities and stockholders' equity
(deficiency)..................................... $ 75,550 $ 830 9,859 86,239
========= ========= ========= =========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements
17
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RAVISENT Teknema
Nine Months Nine Months
Ended Ended
September 30, September 30, Pro Forma Pro Forma
1999 1999 Adjustments Combined
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues.......................................... $ 28,401 $ 3,277 - $ 31,678
Cost of revenue................................... 16,231 2,362 - 18,593
---------- ---------- ---------- ----------
Gross profit................................... 12,170 915 - 13,085
Research and development.......................... 4,541 1,798 6,339
Sales and marketing............................... 3,300 438 3,738
General and administrative........................ 3,189 665 3,854
Amortization of goodwill and other intangibles.... 685 2,745 (e) 3,449
Amortization of deferred stock compensation....... 305 -- 305
---------- ---------- ---------- ----------
Total operating expenses.......................... 12,020 2,901 2,745 17,666
---------- ---------- ---------- ----------
Operating income (loss)......................... 150 (1,986) (2,745) (4,581)
Interest expense (income), net.................. (463) (8) -- (471)
---------- ---------- ---------- ----------
Income (loss) before income taxes................. 613 (1,978) (2,745) (4,110)
Provision for income taxes........................ 74 5 -- 79
---------- ---------- ---------- ----------
Net income (loss) before accretion................ $ 539 $ (1,983) $ (2,745) $ (4,189)
---------- ---------- ---------- ----------
Accretion of mandatory redeemable preferred stock. 660 -- -- 660
---------- ---------- ---------- ----------
Net loss attributable to common stockholders...... $ (121) $ (1,983) $ (2,745) $ (4,849)
========== ========== ========== ==========
Basic and diluted loss per common share........... $ (0.02) (0.74)
========== ==========
Weighted Average Shares........................... 6,305,049 6,571,214(g)
========== ==========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements
18
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RAVISENT Teknema
YEAR Ended YEAR Ended
DECEMBER 31, DECEMBER 31, Pro Forma Pro Forma
1998 1998 Adjustments Combined
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues............................................ $ 30,288 $ 5,075 - $ 35,363
Cost of revenue..................................... 24,546 3,207 - 27,753
---------- ---------- ---------- ----------
Gross profit..................................... 5,742 1,868 - 7,610
Research and development............................ 3,121 2,005 - 5,126
Sales and marketing................................. 1,964 363 - 2,327
General and administrative.......................... 4,673 529 - 5,202
Amortization of goodwill and other intangibles...... 906 - 3,660 (e) 4,566
Amortization of deferred stock compensation......... 139 - - 139
Acquired in-process research and Development........ 7,900 7,900
---------- ---------- ---------- ----------
Total operating expenses............................ 18,703 2,897 3,660 25,260
---------- ---------- ---------- ----------
Operating loss.................................... (12,961) (1,029) (3,660) (17,650)
Interest expense (income), net.................... 722 (32) - 690
---------- ---------- ---------- ----------
Net loss before income taxes........................ (13,683) (997) (3,660) (18,340)
Provision (benefit) for income taxes................ -- (94) -- (94)
---------- ---------- ---------- ----------
Loss before accretion............................... (13,683) (903) (3,660) (18,246)
Accretion of mandatory redeemable preferred stock... 754 -- -- 754
---------- ---------- ---------- ----------
Net loss attributable to common stockholders........ $ (14,437) $ (903) $ (3,660) $ (19,000)
========== ========== ========== ==========
Basic and diluted loss per common share............. $ (4.94) $ (6.06)
========== ==========
Weighted Average Shares............................. 2,920,677 3,186,842(g)
========== ==========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements
19
<PAGE>
RAVISENT TECHNOLOGIES INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. Background
On November 8, 1999, we acquired Teknema, Inc. for $2.5 million in cash,
and issued 266,165 shares of common stock and 537,560 stock options that have an
estimated fair value of $12.4 million. Prior to finalizing the agreement, we
loaned Teknema $1 million at a rate of 10% for three years and had recorded the
amount as a loan receivable on the balance sheet. When including the associated
acquisition expenses, the Teknema acquisition is valued at approximately $16
million. Teknema is an Internet technology company dedicated to developing
software and solutions for the emerging market for Internet appliances. The
company sells Internet television set-top hardware and software technology
through intellectual property licenses and Original equipment manufacturer (OEM)
agreements with telecommunication companies and Internet service providers.
Teknema serves the emerging market for information appliances that connect users
to the Internet. The acquisition will be accounted for as a purchase and the
estimated excess of the purchase price over the fair value of the net assets
acquired of approximately $15 million will be recorded as goodwill and other
intangible assets and will be amortized over the estimated useful lives which
are estimated to be approximately 48 months.
2. Basis of Presentation
The accompanying unaudited pro forma combined condensed statements of
operations for the year ended December 31, 1998 and the nine months ended
September 30, 1999 give effect to the acquisition of Teknema as if it had
occurred on January 1, 1998. The unaudited pro forma combined condensed balance
sheet as of September 30, 1999 gives effect to the acquisition of Teknema as if
it had occurred on September 30, 1999.
The effects of the acquisition have been presented using the purchase
method of accounting and accordingly, the purchase price was allocated to the
assets acquired and liabilities assumed based upon management's best estimate of
their fair value.
The pro forma adjustments related to the purchase price allocation of the
acquisition represent management's best estimate of the effects of the
acquisition.
3. The pro forma balance sheet adjustments as of September 30, 1999 are as
follows:
(a) To record a $1,280,000 hiring bonus payment to certain employees of
Teknema paid immediately after the close of the acquisition.
(b) To eliminate the $1,000,000 intercompany loan between Ravisent and
Teknema.
(c) To record the consideration issued by Ravisent to consummate the
acquisition of Teknema. Acquisition consideration consisted of the following:
Ravisent common stock and options issued $12,402,000
Cash consideration 2,500,000
Acquisition expenses 741,000
-----------
Total purchase consideration $15,643,000
===========
(d) The pro forma adjustments reflect the allocation of the purchase price
paid to the assets acquired and liabilities assumed based on their respective
fair values and to eliminate the equity of Teknema.
The total purchase price is allocated as follows:
In-process research and development technology $ 1,888,000
Core technology 1,356,000
Developed technology 5,767,000
Workforce in place 190,000
Goodwill and other intangible assets 7,326,000
-----------
Total purchase price $16,527,000
===========
20
<PAGE>
4. The pro forma statement of operations adjustments for the year ended
December 31, 1998 and nine months ended September 30, 1999 are as follows:
(e) Teknema pro forma amortization expense has been adjusted to reflect the
amortization of goodwill and other intangible assets associated with the
acquisition which have an estimated useful life of approximately four years.
($14.7 million divided by 48 months = $0.305 million per month; $3.7 million
amortization per year). No pro forma adjustment for depreciation expense for
fixed assets acquired has been recorded as the expense recorded by Teknema
approximates the expense that would be recorded by Ravisent.
(f) The $1,280,000 hiring bonus and the $1,888,000 write-off of in-process
research and development have not been reflected as pro forma adjustments as
these are non-recurring charges that resulted directly from the acquisition of
Teknema.
(g) Basic and diluted weighted average common shares outstanding and net
loss per share amounts have been adjusted to reflect the issuance of 266,165
shares of Ravisent's common stock in connection with the Teknema acquisition, as
if the shares had been outstanding from January 1, 1998.
21
<PAGE>
(c) EXHIBITS: The following documents are filed as exhibits to this report:
1. Exhibit 7(C) (2) (A) - Signature page of Agreement and Plan of
Reorganization dated as of October 8, 1999.
22
<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.
RAVISENT Technologies Inc.
(Registrant)
Date: January 21, 2000 By: /s/ Francis E.J. Wilde III
--------------------------
Francis E.J. Wilde III, President
and Chief Executive Officer
23
<PAGE>
EXHIBIT INDEX
EXHIBIT
- -------
7(C)(2A) Signature page for Agreement and Plan of Reorganization dated as of
October 8, 1999 by and among Ravisent, Merger Sub, Teknema and
certain securityholders of Teknema listed therein.
24
<PAGE>
Exhibit 7(C) (2) (A):
IN WITNESS WHEREOF, RAVISENT Technologies Inc., RVST Acquisition Corp.
and Teknema, Inc. have caused this Agreement to be executed and delivered by
their respective officers thereunto duly authorized, and each Principal has
executed and delivered this Agreement, all as of the date first written above.
RAVISENT TECHNOLOGIES INC.
By /s/ Francis E.J. Wilde
------------------------------------
Name Francis E.J. Wilde
----------------------------------
Title President
---------------------------------
RVST ACQUISITION CORP.
By /s/ Francis E.J. Wilde
------------------------------------
Name Francis E.J. Wilde
----------------------------------
Title President
---------------------------------
TEKNEMA, INC.
By /s/ Marco E. Graziano
------------------------------------
Marco E. Graziano, President
<PAGE>
PRINCIPALS
Name /s/ Marco E. Graziano
--------------------------------
Marco E. Graziano
Name /s/ Stathis Kassimidis
--------------------------------
Stathis Kassimidis
Name /s/ Giacomo Marini
--------------------------------
Giacomo Marini
Name /s/ James Smith
--------------------------------
James Smith
