<PAGE> 1
===============================================================================
UNITED STATES
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): FEBRUARY 9, 2000
BINDVIEW DEVELOPMENT CORPORATION
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
TEXAS 000-24677 76-0306721
(State of Incorporation) (Commission File No.) (I.R.S. Employer Identification No.)
5151 SAN FELIPE, 21ST FLOOR
HOUSTON, TEXAS 77056
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 561-4000
===============================================================================
<PAGE> 2
ITEM 1. ACQUISITION OR DISPOSITION OF ASSETS
As disclosed in its Current Report on Form 8-K filed February 9, 2000,
as filed with the Securities and Exchange Commission on February 23, 2000,
BindView Development Corporation ("BindView") acquired all of the outstanding
equity interests of Entevo Corporation ("Entevo") on February 9, 2000 in
exchange for an aggregate of 2,090,417 shares of the BindView's common stock.
BindView also assumed a warrant and stock options of Entevo, which were
converted into a warrant and options to purchase an aggregate of 117,311 shares
of BindView's common stock. The transaction was accounted for as a pooling of
interests.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
The following financial statements of Entevo are attached as Exhibit
99.2 and are incorporated herein by reference.
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholder's Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information.
The following financial statements of BindView are included in and have
been filed with BindView's Annual Report on Form 10-K for the year ended
December 31, 1999 (file no. 000-24677) and are incorporated herein by reference.
Report of Independent Accountants
Supplemental Combined Balance Sheets
Supplemental Combined Statement of Operations and Comprehensive Loss
Supplemental Combined Statement of Shareholder's Equity
Supplemental Combined Statement of Cash Flows
Notes to Supplemental Combined Financial Statements
(c) Exhibits.
2.1* Agreement of Merger, dated January 26, 2000, by and among BindView
Development Corporation, Bravo Acquisition Corporation, Entevo Corporation and
the Representing Stockholders identified therein.
23.1 Consent of Independent Accountants
99.1* Press Release
99.2 Entevo Financial Statements
* Previously filed
Page 2
<PAGE> 3
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.
BINDVIEW DEVELOPMENT CORPORATION
Dated: April 10, 2000 By: /s/ SCOTT R. PLANTOWSKY
--------------------------------------
Scott R. Plantowsky,
Chief Financial Officer
Page 3
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1* Agreement of Merger, dated January 26, 2000, by and among
BindView Development Corporation, Bravo Acquisition
Corporation, Entevo Corporation and the Representing
Stockholders identified therein.
23.1 Consent of Independent Accountants
99.1* Press Release
99.2 Entevo Financial Statements
</TABLE>
* Previously filed
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File No. 333-59825, effective July 24, 1998, File No.
333-66331, effective October 29, 1998, Amendment No. 1 thereto dated February
22, 1999, File No. 333-76527, effective April 19, 1999, File No. 333-79919,
effective June 3, 1999 and File No. 333-31330, effective February 29, 2000) of
BindView Development Corporation of our report dated March 29, 2000, relating to
the financial statements of Entevo Corporation which appears in this Form 8-K.
PRICEWATERHOUSECOOPERS LLP
McLean, VA
April 7, 2000
<PAGE> 1
EXHIBIT 99.2
ENTEVO CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ENTEVO CORPORATION
Report of Independent Accountants.................................... F-1
Consolidated Balance Sheets.......................................... F-2
Consolidated Statements of Operations................................ F-3
Consolidated Statements of Changes in Stockholders' Equity........... F-4
Consolidated Statements of Cash Flows................................ F-5
Notes to the Financial Statements.................................... F-6
</TABLE>
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Entevo Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of Entevo
Corporation and its subsidiary at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
McLean, VA
March 29, 2000
F-1
<PAGE> 3
ENTEVO CORPORATION
CONSOLIDATED BALANCE SHEETS
--------
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,707,958 $ 10,821,074
Accounts receivable, net 884,384 1,213,483
Other current assets 119,354 241,835
------------ ------------
Total current assets 4,711,696 12,276,392
Restricted cash 62,000 62,000
Property and equipment, net 538,232 915,307
Software development costs, net 26,437 --
Other assets 69,824 64,955
------------ ------------
Total assets $ 5,408,189 $ 13,318,654
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,580 $ 405,847
Accrued expenses 176,530 365,112
Accrued compensation 201,205 370,468
Deferred revenue 307,506 632,177
Current portion of bank term loan -- 132,291
Current maturities of obligations under capital leases 56,022 43,562
------------ ------------
Total current liabilities 774,843 1,949,457
Deferred rent 17,913 8,977
Obligations under capital leases, less current portion 45,316 1,754
Bank term loan -- 132,291
------------ ------------
Total liabilities 838,072 2,092,479
------------ ------------
Commitments (Note 7)
Minority interest in subsidiary 500 500
------------ ------------
Stockholders' equity:
Series A convertible preferred stock, par value $.001: Authorized 5,000,000 shares;
5,000,000 shares issued and outstanding (liquidation value, $2,500,000) 5,000 5,000
Series B convertible preferred stock, par value $.001: Authorized 7,689,146 shares;
7,689,146 shares issued and outstanding (liquidation value, $7,189,352) 7,689 7,689
Series C convertible preferred stock, par value $.001: Authorized 10,030,000 shares; 0
and 10,000,000 shares issued and outstanding, respectively (liquidation value,
$15,000,000) -- 10,000
Common stock, par value $.001: Authorized 40,000,000 shares; 6,752,917 and 6,971,328
issued and outstanding, respectively 6,753 6,971
Additional paid in capital 9,832,036 23,946,680
Accumulated deficit (5,001,659) (12,451,586)
Notes receivable, shareholders (202,500) (202,500)
Accumulated other comprehensive loss (77,702) (96,579)
------------ ------------
Total stockholders' equity 4,569,617 11,225,675
------------ ------------
Total liabilities and stockholders' equity $ 5,408,189 $ 13,318,654
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
<PAGE> 4
ENTEVO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
-------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product licenses $ -- $ 1,190,594 $ 3,237,059
Maintenance and support -- 31,443 326,793
Consulting services 394,721 121,196 227,084
------------ ------------ ------------
Total revenues 394,721 1,343,233 3,790,936
------------ ------------ ------------
Cost of revenues:
Product licenses -- 16,348 72,450
Maintenance and support -- 91,339 232,303
Consulting services 91,710 18,830 79,709
------------ ------------ ------------
Total costs of revenues 91,710 126,517 384,462
------------ ------------ ------------
Gross profit 303,011 1,216,716 3,406,474
Operating expenses:
Sales and marketing 418,595 3,132,749 7,008,970
Research and development 655,361 1,193,520 2,641,951
General and administrative 572,968 941,599 1,389,848
------------ ------------ ------------
Total operating expenses 1,646,924 5,267,868 11,040,769
------------ ------------ ------------
Operating loss (1,343,913) (4,051,152) (7,634,295)
------------ ------------ ------------
Other income (expense):
Foreign currency exchange, net (18,805) 8,852 (2,745)
Interest income 38,789 162,508 245,997
Interest expense (4,277) (21,139) (58,884)
------------ ------------ ------------
15,707 150,221 184,368
------------ ------------ ------------
Net loss $ (1,328,206) $ (3,900,931) $ (7,449,927)
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE> 5
ENTEVO CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
-------
<TABLE>
<CAPTION>
Convertible Convertible
Preferred Stock Preferred Stock
Common Stock Series A Series B
--------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 2,700,000 $ 2,700 -- $ -- -- $ --
Sale of Series A preferred stock at $.50 per
share (net of costs) -- -- 4,920,000 4,920 -- --
Shareholder distribution -- -- -- -- -- --
Comprehensive loss:
Net loss -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- -- --
Total comprehensive loss
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 2,700,000 2,700 4,920,000 4,920 -- --
Sale of Series A preferred stock at $.50 per
share -- -- 80,000 80 -- --
Sale of Series B preferred stock at $.935 per
share (net of costs) -- -- -- -- 7,154,387 7,154
Conversion of notes payable to Series B
preferred stock at $.935 per share -- -- -- -- 534,759 535
Stock options exercised 2,917 3 -- -- -- --
Issuance of common stock in exchange for
notes receivable 4,050,000 4,050 -- -- -- --
Stock warrants issued at $.05 per share -- -- -- -- -- --
Comprehensive loss:
Net loss -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- -- --
Total comprehensive loss
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 6,752,917 $ 6,753 5,000,000 $ 5,000 7,689,146 $ 7,689
Sale of Series C preferred stock at $1.50 per
share (net of costs) -- -- -- -- -- --
Issuance of stock warrant -- -- -- -- -- --
Issuance of stock options -- -- -- -- -- --
Stock options exercised 218,411 218 -- -- -- --
Comprehensive loss:
Net loss -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- -- --
Total comprehensive loss
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 6,971,328 $ 6,971 5,000,000 $ 5,000 7,689,146 $ 7,689
============ ============ ============ ============ ============ ============
<CAPTION>
Convertible
Preferred Stock
Series C Additional
-------------------------- Paid-in Accumulated Shareholder
Shares Amount Capital Deficit Receivable
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 -- $ -- $ 10,442 $ 269,910 $ --
Sale of Series A preferred stock at $.50 per
share (net of costs) -- -- 2,439,281 -- --
Shareholder distribution -- -- -- (42,432) --
Comprehensive loss:
Net loss -- -- -- (1,328,206) --
Foreign currency translation adjustment -- -- -- -- --
Total comprehensive loss
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 -- -- 2,449,723 (1,100,728) --
Sale of Series A preferred stock at $.50 per
share -- -- 39,920 -- --
Sale of Series B preferred stock at $.935 per
share (net of costs) -- -- 6,641,121 -- --
Conversion of notes payable to Series B
preferred stock at $.935 per share -- -- 499,465 -- --
Stock options exercised -- -- 143 -- --
Issuance of common stock in exchange for
notes receivable -- -- 198,450 -- (202,500)
Stock warrants issued at $.05 per share -- -- 3,214 -- --
Comprehensive loss:
Net loss -- -- -- (3,900,931) --
Foreign currency translation adjustment -- -- -- -- --
Total comprehensive loss
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 -- $ -- $ 9,832,036 $ (5,001,659) $ (202,500)
Sale of Series C preferred stock at $1.50 per
share (net of costs) 10,000,000 10,000 14,052,918 -- --
Issuance of stock warrant -- -- 29,978 -- --
Issuance of stock options -- -- 18,167 -- --
Stock options exercised -- -- 13,581 -- --
Comprehensive loss:
Net loss -- -- -- (7,449,927) --
Foreign currency translation adjustment -- -- -- -- --
Total comprehensive loss
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 10,000,000 $ 10,000 $ 23,946,680 $(12,451,586) $ (202,500)
============ ============ ============ ============ ============
<CAPTION>
Other
Comprehensive
Loss Total
------------- ------------
<S> <C> <C>
Balance at December 31, 1996 $ -- $ 283,052
Sale of Series A preferred stock at $.50 per
share (net of costs) -- 2,444,201
Shareholder distribution -- (42,432)
Comprehensive loss:
Net loss --
Foreign currency translation adjustment (39,125)
Total comprehensive loss (1,367,331)
------------- ------------
Balance at December 31, 1997 (39,125) 1,317,490
Sale of Series A preferred stock at $.50 per
share -- 40,000
Sale of Series B preferred stock at $.935 per
share (net of costs) -- 6,648,275
Conversion of notes payable to Series B
preferred stock at $.935 per share -- 500,000
Stock options exercised -- 146
Issuance of common stock in exchange for
notes receivable -- --
Stock warrants issued at $.05 per share 3,214
Comprehensive loss:
Net loss --
Foreign currency translation adjustment (38,577)
Total comprehensive loss (3,939,508)
------------- ------------
Balance at December 31, 1998 $ (77,702) $ 4,569,617
Sale of Series C preferred stock at $1.50 per
share (net of costs) -- 14,062,918
Issuance of stock warrant -- 29,978
Issuance of stock options -- 18,167
Stock options exercised -- 13,799
Comprehensive loss:
Net loss --
Foreign currency translation adjustment (18,877)
Total comprehensive loss (7,468,804)
------------- ------------
Balance at December 31, 1999 $ (96,579) $ 11,225,675
============= ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE> 6
ENTEVO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,328,206) $ (3,900,931) $ (7,449,927)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation & amortization 68,683 224,748 375,484
Allowance for doubtful accounts -- -- 100,000
Non-cash expense associated with issuance of stock options and warrants -- 3,214 48,145
Changes in assets and liabilities:
Accounts receivable 158,467 (830,674) (429,099)
Other current assets (15,440) (73,574) (122,481)
Other assets (28,168) (29,430) 4,869
Accounts payable 176,423 (141,561) 372,267
Accrued expenses 94,493 84,016 188,582
Accrued compensation -- 201,205 169,263
Deferred revenue -- 307,506 324,671
Deferred rent 22,545 (4,633) (8,936)
------------ ------------ ------------
Net cash used in operating activities (851,203) (4,160,114) (6,427,162)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (289,640) (300,796) (726,122)
Sale (purchase) of short term investment (511,706) 511,706 --
Purchase of remaining majority interest in QSPL (87,499) -- --
Purchase of license (52,875) -- --
Collection of loan receivable 12,517 -- --
------------ ------------ ------------
Net cash (used in) provided by investing activities (929,203) 210,910 (726,122)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of costs 2,444,201 6,688,275 14,062,918
Proceeds from exercise of stock options -- 146 13,799
Proceeds from sale of minority interest -- 500 --
Distribution to shareholder (42,432) -- --
Restricted cash (52,000) (10,000) --
Proceeds from loans payable 9,189 500,000 264,582
Payments on loans payable (2,417) (8,270) --
Payment of capital lease obligation (4,536) (64,568) (56,022)
------------ ------------ ------------
Net cash provided by financing activities 2,352,005 7,106,083 14,285,277
------------ ------------ ------------
Effect of exchange rate changes on cash and cash equivalents (8,535) (20,195) (18,877)
Net increase in cash and cash equivalents 563,064 3,136,684 7,113,116
Cash and cash equivalents, beginning of period 8,210 571,274 3,707,958
------------ ------------ ------------
Cash and cash equivalents, end of period $ 571,274 $ 3,707,958 $ 10,821,074
============ ============ ============
Supplement disclosure of cash flow information:
Cash paid for income taxes $ -- $ -- $ --
============ ============ ============
Cash paid for interest 4,277 $ 21,139 $ 58,884
============ ============ ============
Noncash investing and financing activity:
Issuance of common stock in exchange for notes receivable $ -- $ 202,500 $ --
============ ============ ============
Conversion of notes payable to Series B preferred stock $ -- $ 500,000 $ --
============ ============ ============
Property and equipment purchased with capital leases $ 130,672 $ 30,179 $ --
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE> 7
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
1. ORGANIZATION AND BUSINESS
Entevo Corporation ("Entevo" or the "Company") designs, develops,
markets and supports software products for the migration, deployment and
management of enterprise directories in distributed networks. In 1997,
the Company's revenue was generated primarily from the provision of
consulting services. During 1998, the Company completed the initial
development of and began marketing software products.
Entevo was incorporated in the state of Georgia in April 1993 and
operated under the name Querisoft, Inc. until May 1998, when it changed
its name to Entevo Corporation. In July 1999, the Company reincorporated
in the state of Delaware and created classes of common stock and
preferred stock with rights and privileges equivalent to the previously
outstanding stock in all respects, except that all the stock of the
Delaware corporation has a par value of $.001 per share. The
accompanying consolidated financial statements have been restated
retroactively to give effect to the reincorporation.
In January 2000, the Company entered into an Agreement of Merger with
BindView Development Corporation (See Note 11).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Entevo and
its foreign subsidiary, Entevo (I) Private Limited, formerly named
Querisoft Systems Private Limited. All significant intercompany accounts
and transactions are eliminated in consolidation.
During October 1997, the Company and its shareholders purchased a
majority interest in Entevo (I) Private Limited for approximately
$87,500 resulting in a 99.8% ownership. During 1998, the Company sold
.1% in Entevo (I) Private Limited to a director of the Company for $500.
No gain or loss was recorded on this transaction. The minority share of
the subsidiary's earnings was insignificant for the years ended December
31, 1997, 1998 and 1999.
Continued
F-6
<PAGE> 8
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
The foreign subsidiary's assets and liabilities consisted of the
following in U.S. dollars:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 214,610 $ 119,691
Other current assets 90,485 72,455
--------------- ----------------
Total current assets 305,095 192,146
Fixed assets, net 306,191 376,562
Other non-current assets 55,531 26,902
--------------- ----------------
Total assets $ 666,817 $ 595,610
=============== ================
LIABILITIES
Current liabilities $ 112,340 $ 35,883
--------------- ----------------
Total liabilities $ 112,340 $ 35,883
=============== ================
</TABLE>
REVENUE RECOGNITION
Revenue from product licenses is generally recognized upon meeting each
of the following criteria: (i) execution of a written license agreement
or contract; (ii) delivery of the software; (iii) the license fee is
fixed or determinable; and (iv) collectibility is reasonably assured.
Revenue from licenses sales is recorded as product license revenue in
the Statement of Operations.
The Company defers and recognizes maintenance and support revenue
ratably over the terms of the contract period, typically 12 months.
Consulting service revenue, which includes training and consulting, is
recognized at the time the service is performed.
In December 1998, the AICPA issued Statement of Position 98-9,
Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions ("SOP 98-9"). SOP 98-9 modifies SOP 97-2 by
requiring revenue to be recognized using the "residual method" if
certain conditions
Continued
F-7
<PAGE> 9
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
are met. The Company has adopted the provisions of SOP 98-9 for the year
ended December 31, 1999. The adoption of SOP 98-9 has not had a
significant effect on the consolidated financial statements.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiary are
translated at the exchange rates in effect on the balance sheet date.
Revenues and expenses are translated at the average exchange rate in
effect during the period. Gains and losses resulting from these
translations are included in accumulated comprehensive loss, as a
separate component of stockholders' equity. Transactions expressed in
foreign currency are shown at the rates prevailing at the time they were
concluded or at the time of recording the transaction. Foreign exchange
transaction gains and losses are included in the Statement of
Operations.
CASH AND CASH EQUIVALENTS
All highly liquid investments with original maturities of three months
or less from the date of purchase are considered to be cash equivalents.
RESTRICTED CASH
The Company entered into agreements to lease office equipment in 1997
and 1998. The lessor required the Company to assign certificates of
deposit in the amount of $52,000 and $10,000 in 1997 and 1998,
respectively, as additional collateral for the lease agreements. This
cash balance is reflected separately in the Balance Sheet as restricted
cash.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment under
capital leases are recorded at the lower of their fair value or the
present value of future minimum lease payments determined at the
inception of the lease. Depreciation of property and equipment is
recorded using the straight-line method over the estimated useful lives,
ranging from three to ten years. Leasehold improvements are amortized
over the lesser of their estimated useful lives or the lease terms.
Property and equipment recorded under capital leases are amortized on a
straight-line basis over the lease term. At the time of retirement or
other disposal of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in the Statement of Operations.
Continued
F-8
<PAGE> 10
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE
In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed, software development costs are expensed as incurred
until technological feasibility has been established, at which time such
costs are capitalized until the product is available for general release
to customers. The Company defines the establishment of technological
feasibility as the completion of all planning, designing, coding and
testing activities that are necessary to establish products that meet
design specifications including functions, features and technical
performance requirements. Under the Company's definition, establishing
technological feasibility is considered complete only after the majority
of customer testing and customer feedback has been incorporated into
product functionality. Software development costs capitalized include
direct labor costs and fringe labor overhead costs attributed to
programmers, software engineers, quality control and field certifiers
working on products after they reach technological feasibility, but
before they are generally available to customers for sale. To date, the
period between achieving technological feasibility and the general
availability of internally developed software has been short, and
software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs.
Amortization of software development costs and purchased software
commences upon the product's availability for general release to
customers and is provided at the greater of the straight-line method
over a two year period or the ratio of current product revenues to total
anticipated future product revenues. In 1997, the Company purchased and
capitalized $52,875 in licensing rights relating to one of its products.
Amortization of the license is recorded using the straight-line method
over two years. Amortization expense was $0, $26,438, and $26,437 for
the years ended December 31, 1997, 1998, and 1999, respectively.
STOCK-BASED COMPENSATION
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic method, as prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair market value of the
Company's stock at the date of grant over the amount the employee must
pay to acquire the stock, and is
Continued
F-9
<PAGE> 11
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
recognized over the related vesting period. The Company provides
supplemental disclosure of the effect on net income as if the provisions
of Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation had been applied in measuring compensation
expense.
LONG-LIVED ASSETS
The Company reviews the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss would be recognized when estimated future cash flows
expected to result from the use of the asset and its eventual
disposition is less than its carrying value amount. The Company has not
identified any such impairment losses.
FAIR VALUE OF FINANCIAL STATEMENT INSTRUMENTS
The estimated fair values of the Company's cash and cash equivalents,
accounts receivables, other current assets, other assets, accounts
payable, accrued expenses and accrued compensation, approximate their
carrying values due to their short-term nature.
ADVERTISING COSTS
The Company expenses advertising costs as incurred.
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 revenue and expenses
during the reported period. Actual results could differ from these
estimates.
Continued
F-10
<PAGE> 12
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
INCOME TAXES
Prior to July 1997, Entevo was taxed as an S Corporation and taxable
income of the Company was included in the individual tax returns of the
shareholders. Effective July 11, 1997, Entevo terminated its S
Corporation status. Subsequent to July 11, 1997, income taxes are the
responsibility of the Company and are accounted for in the consolidated
financial statements.
The Company accounts for income taxes utilizing the liability method.
Deferred income taxes are recognized for the tax consequences in future
years for differences between the tax basis of assets and liabilities
and their financial reporting amounts at each period end, based on
enacted tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary, to reduce deferred tax assets
to the amount expected to be realized. The provision for income taxes is
the current tax expense for the period plus the change during the period
in deferred tax assets and liabilities.
The Company does not provide for foreign withholding and income taxes on
undistributed earnings amounting to approximately $656,000 through 1999,
cumulatively, for its foreign subsidiary, as such earnings are intended
to be permanently invested in those operations. The ultimate tax
liability related to repatriation of such earnings is dependent upon
future tax planning opportunities and cannot be estimated at the present
time.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to a
concentration of credit risk consist principally of cash and cash
equivalents. Cash and cash equivalents include deposits, which are
maintained in various financial institutions. The total deposits, at
these institutions, exceed the amount guaranteed by federal agencies
and, therefore, bear some risk since they are not collateralized. The
Company has not experienced any material losses on these investments.
The Company grants uncollateralized credit, in the form of accounts
receivable, to its customers.
Continued
F-11
<PAGE> 13
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
The following represents the percent of total revenue earned from each
of its significant customers:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1998 1999
---------- --------- ---------
<S> <C> <C> <C>
Customer A -- 24% 1%
Customer B -- 11% --
Customer C -- 17% 4%
Customer D -- 13% 1%
Customer E 55% -- --
Customer F 42% -- --
Customer I -- -- 14%
Customer J -- -- 12%
Customer K -- -- 10%
</TABLE>
The following represents the percent of total accounts receivable
outstanding from each of its significant customers:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1998 1999
---------- --------- ---------
<S> <C> <C> <C>
Customer C -- 45% --
Customer D -- 25% --
Customer E 100% -- --
Customer G -- 14% --
Customer H -- 15% --
Customer I -- -- 15%
Customer L -- -- 28%
Customer M -- -- 13%
</TABLE>
Continued
F-12
<PAGE> 14
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
SEGMENT REPORTING
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures About Segments of an Enterprise and Related Information. The
Company currently operates in a single industry and geographic segment.
Sales in countries outside North America totaled $0, $9,278, and
$612,305 for the years ended December 31, 1997, 1998, and 1999,
respectively.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133
requires all derivatives to be recorded on the balance sheet at fair
value and establishes "special accounting" for the following three
different types of hedges: hedges of changes in the fair value of
assets, liabilities or firm commitments; hedges of the variable cash
flows of forecasted transactions; and hedges of foreign currency
exposures of net investments in foreign operations. SFAS 133 is
effective for years beginning after June 15, 1999, with earlier adoption
permitted. On July 8, 1999, the FASB issued SFAS No. 137, Accounting
for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 ("SFAS 137"). SFAS 137 defers
the effective date of SFAS No. 133 until fiscal years beginning after
June 15, 2000. The Company believes that the effect of adoption of SFAS
133 will not be material.
Continued
F-13
<PAGE> 15
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
4. ACCOUNTS RECEIVABLE
Accounts receivable balances are summarized as follows as of December
31:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Trade accounts receivable $ 884,384 $ 1,313,483
Less: Allowance for doubtful accounts -- (100,000)
------------ ------------
Accounts receivable, net $ 884,384 $ 1,213,483
============ ============
</TABLE>
Bad debt expense totaled $0, $1,415 and $101,428 in 1997, 1998 and 1999,
respectively.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Computer and other equipment $ 442,777 $ 939,159
Automobiles 102,021 98,841
Office furniture 194,813 272,700
Leasehold improvements 69,199 169,359
------------ ------------
Property and equipment, at cost 808,810 1,480,059
------------ ------------
Less: Accumulated depreciation (270,578) (564,752)
------------ ------------
Property and equipment, net $ 538,232 $ 915,307
============ ============
</TABLE>
During 1999, the Company purchased $726,122 of property and equipment.
In addition, during 1999, the Company disposed of $54,873 of fully
depreciated property and equipment. The cash generated from this
disposal is insignificant.
Continued
F-14
<PAGE> 16
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
The assets underlying capitalized leases are included in the Company's
owned property and equipment, and are summarized as follows as of
December 31:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Computer equipment $ 92,154 $ 76,099
Office furniture 68,697 68,697
------------ ------------
Total capital leases 160,851 144,796
------------ ------------
Less: Accumulated amortization (65,887) (103,816)
------------ ------------
Capital leases, net $ 94,964 $ 40,980
============ ============
</TABLE>
Depreciation and amortization of property and equipment was $68,683,
$198,310 and $349,047 for the years ended December 31, 1997, 1998 and
1999, respectively.
6. BANK LINE OF CREDIT
On December 23, 1998, the Company entered into a loan agreement with a
commercial bank. The agreement established a $1,000,000 revolving line
of credit (the "Revolving Line") and a $500,000 term loan facility for
equipment financing (the "Equipment Line").
In July 1999, the loan agreement was amended to provide the Company with
a $1,500,000 revolving line of credit without covenant restrictions for
the period from July 1, 1999, through the earlier of the sale of the
Company's Series C Preferred Stock (Note 8) or September 30, 1999. In
consideration for the covenant waiver provisions of the amendment, the
Company issued to the bank a warrant to purchase 30,000 shares of the
Company's Series C Preferred Stock at an exercise price of $1.50 per
share. The Company used the Black Scholes valuation method to determine
the fair value of the stock warrant. Accordingly, $29,978 of expense was
recognized in 1999. This warrant was assumed by BindView Development
Corporation in connection with the merger of the Company (Note 11). The
warrant is exercisable immediately and expires on September 27, 2004.
Continued
F-15
<PAGE> 17
\
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
The availability of additional borrowings under the Revolving Line and
the Equipment Line expired on December 22, 1999 and were not renewed.
The agreement required the Company to maintain certain financial ratios,
primarily with respect to liquidity and net tangible worth, and comply
with certain other restrictive covenants. As of December 31, 1999, the
Company was in compliance with these covenants. The borrowings under
this agreement are collateralized by substantially all the assets of
Entevo.
Borrowings under the Revolving Line may not exceed the lesser of
$1,000,000 or 80% of eligible accounts receivable. Interest on
outstanding borrowings under the Revolving Line accrues at the bank's
prime rate (8.50% at December 31, 1999) and is payable monthly. As of
December 31, 1999, no amounts had been borrowed under the Revolving
Line.
Under the Equipment Line, advances to finance the purchase of qualifying
equipment accrue interest only, payable monthly, until such advances are
converted to term notes. Borrowings under the Equipment Line accrue
interest at a rate equal to the bank's prime rate plus one-half of one
percent. In January and June 1999, the Company borrowed $231,400 and
$137,895, respectively, under the Equipment Line. Both the borrowings
were immediately converted to term notes with equal monthly payments of
principal and interest over thirty-six months and thirty months,
respectively. As of December 31, 1999, the Company had borrowings
totaling $264,582 under the Equipment Line.
Subsequent to the Company's merger in January 2000 (Note 11), all
amounts outstanding under the loan agreement were repaid, the agreement
was terminated, and the bank's security interest in the Company's assets
was terminated.
7. LEASE COMMITMENTS
The Company is obligated under various noncancelable operating lease
agreements for office facilities, furniture and equipment expiring at
various dates through December 31, 2000. The terms of one of the office
leases included a reduction of rental payments during the first year of
the lease and scheduled rent increases at specified intervals during the
three-year term of the lease. The Company is recognizing rent expense on
a straight-line basis over the life of the lease, which establishes
deferred rent on the balance sheet. The Company also leases office
furniture and equipment under capital leases.
Continued
F-16
<PAGE> 18
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
Rent expense for the years ended December 31, 1997, 1998 and 1999
totalled $116,475, $209,888 and $370,976, respectively.
At December 31, 1999, future minimum lease payments under operating and
capital leases were as follows:
<TABLE>
<CAPTION>
Operating Capital
Year Ending December 31: Leases Leases
------------------------ ------------ ------------
<S> <C> <C>
2000 325,565 $ 47,157
2001 -- 1,781
------------ ------------
Total minimum lease payments $ 325,565 $ 48,938
============ ------------
Less: amounts representing interest at rates
ranging from 12% to 25% (3,622)
------------
Present value of net minimum lease payments 45,316
Less: Current obligations under capital leases (43,562)
------------
Long-term capital lease obligations $ 1,754
============
</TABLE>
8. STOCKHOLDERS' EQUITY
COMMON STOCK
In 1998, the Company issued an aggregate of 4,050,000 shares of common
stock to two founders (the "Founders") of the Company pursuant to the
terms of restricted stock purchase agreements. The common stock was
issued at $0.05 per share in consideration of full recourse promissory
notes from the Founders. The promissory notes bear interest at an annual
rate of 6% and are due in five years. The common stock is subject to
certain vesting requirements, which lapsed on June 1, 1998.
STOCK PURCHASE WARRANTS
In January 1998, the Company issued a common stock purchase warrant
covering 625,000 shares of common stock at an exercise price of $0.05
per share. The warrant was issued in connection with a master license
agreement through which the Company acquired certain
Continued
F-17
<PAGE> 19
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
license rights to various software products owned by the warrant holder,
which was also a significant customer during 1997. During 1998, the
Company recognized an expense of $3,214. The fair value was determined
using the Black Scholes valuation method. The warrant expires on the
earlier of (i) certain changes in the warrant holder's corporate
organizational form, (ii) the closing of a public sale of the Company's
securities, (iii) the sale or acquisition of the Company, or (iv) two
years after the January 27, 1998 grant date. The holder exercised this
warrant on January 26, 2000 by payment of the exercise price of $31,250.
In October 1999, as part of the financing costs related to the Series C
convertible preferred stock, the Company issued a warrant to purchase
213,750 shares of the Company's $.001 par value common stock, at an
exercise price of $1.50 per share. The warrant is immediately
exercisable and has an expiration date of April 22, 2004. The Company
valued the stock warrant using the Black Scholes valuation method, and
recognized the fair value as an offering cost relating to its Series C
convertible preferred stock offering. On February 8, 2000, this warrant
was exercised resulting in the issuance of 112,061 shares of the
Company's $.001 par value common stock.
PREFERRED STOCK
During 1997 and 1998, the Company issued a total of 5,000,000 shares of
Series A convertible preferred stock (the "Series A Preferred Stock") to
various investors for $2,500,000 ($0.50 per share) (the "Series A
Preferred Stockholders").
On April 28, 1998, the Company received loans totaling $500,000 from two
of its Series A Preferred Stockholders. The loans were for $250,000 each
and bore interest at 8.5%, and matured on May 28, 1998. The loans were
convertible into convertible preferred stock.
On June 3, 1998, the Company sold 7,689,146 shares of Series B
convertible preferred stock (the "Series B Preferred Stock") to various
investors ("Series B Preferred Stockholders") for a total of $7,189,351
($0.935 per share). In connection with the sale of the Series B
Preferred Stock, the $500,000 of loans received in April 1998 was
converted into Series B Preferred Stock. The Series B Preferred Stock
was sold pursuant to the terms of the Series B Preferred Stock Purchase
Agreement, other related agreements, and certain amendments to the
Company's Articles of Incorporation ("Purchase Agreements"), which
provide for the sale of the Series B Preferred Stock and set forth
certain terms, conditions,
Continued
F-18
<PAGE> 20
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
and rights of the Series B Preferred Stockholders and the Series A
Preferred Stockholders, as set forth below.
In October 1999, the Company completed the sale of 10,000,000 shares of
Series C convertible preferred stock (the "Series C Preferred Stock") to
various investors ("Series C Preferred Stockholders") for a total of
$15,000,000 ($1.50 per share). The Series C Preferred Stock was sold
pursuant to the terms of the Series C Preferred Stock Purchase
Agreement, other related agreements, and certain amendments to the
Company's Certificate of Incorporation ("Purchase Agreements"), which
provide for the sale of the Series C Preferred Stock and set forth
certain terms, conditions, and rights of the Series C Preferred
Stockholders and the Series A and Series B Preferred Stockholders, as
set forth below.
The Series A Preferred Stockholders, the Series B Preferred
Stockholders, and Series C Preferred Stockholders are referred to
collectively as the "Preferred Stockholders" and the Series A Preferred
Stock, Series B Preferred Stock, and Series C Preferred Stock is
collectively referred to as the "Preferred Stock."
Each Preferred Stockholder is entitled to vote on all matters presented
to stockholders. Each share of common stock entitles the holder to one
vote, and each share of Preferred Stock entitles the holder to vote
equal to the number of shares of common stock into which such shares of
Preferred Stock is convertible. Each share of Series A Preferred Stock,
Series B Preferred Stock, and Series C Preferred Stock is convertible at
a rate determined by dividing $0.50, $0.935, and $1.50 by the
"conversion price" applicable to the Series A Preferred Stock, the
Series B Preferred Stock, and the Series C Preferred Stock,
respectively. Initially, the "conversion price" is $0.50, $0.935, and
$1.50 per-share for Series A Preferred Stock , the Series B Preferred
Stock, and the Series C Preferred Stock, respectively, but is subject to
adjustment under the terms of the related Purchase Agreement. Each share
of Preferred Stock shall automatically be converted into shares of
common stock upon the closing of the sale of common stock in a public
offering which meets certain size criteria as defined in the Company's
Certificate of Incorporation.
Each Series A Preferred Stockholder, Series B Preferred Stockholder, and
Series C Preferred Stockholder is entitled to receive, when and as
declared by the Board of Directors, dividends at an annual rate of $0.04
per share, $0.0748 per share, and $0.12 per share, respectively. Such
dividends are payable in preference and priority to any payment of any
dividend to common stockholders. Each share of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock has a preference
in liquidation of $0.50 per
Continued
F-19
<PAGE> 21
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
share, $0.935 per share, and $1.50 per share, respectively, plus accrued
and unpaid dividends (as and if declared) and participates with common
stock in liquidation to the extent liquidation proceeds exceed the
preference amounts, not to exceed $1.50 per share, $2.805 per share, and
$4.50 per share for the Series A Preferred Stockholders, the Series B
Preferred Stockholders, and the Series C Preferred Stockholders,
respectively.
The Company granted to each Preferred Stockholder the right of first
offer to purchase pro rata, all (or any part) of certain shares of
common or preferred stock that the Company may from time to time propose
to sell and issue. Each holder's pro rata share, for purposes of this
right of first offer, is the ratio, the numerator of which is the number
of shares of common stock issued or issuable to such holder, and the
denominator of which is the total number of outstanding shares of common
stock assuming conversion of all outstanding Preferred Stock.
The Preferred Stockholders also have certain other rights and privileges
under the respective Purchase Agreements, including the right to Board
representation, antidilution protection, registration rights and co-sale
rights. The Company is subject to certain restrictions under the
Purchase Agreements, including restrictions on modifying the rights,
privileges, and preferences of the Preferred Stockholders, issuing
additional securities, or entering into a sale or transfer of
substantially all of the assets of the Company.
9. STOCK OPTIONS
The Company has two stock-based compensation plans under which stock
options are granted to employees of the Company, directors and
consultants. The 1997 Stock Plan, adopted in 1997, provides for granting
incentive stock options, non-qualified stock options and stock purchase
rights to employees, directors and consultants of Entevo Corporation.
The 1998 Indian Stock Option Plan, adopted in 1998, provides for
granting incentive stock options and non-qualified stock options to
employees, directors and consultants of the foreign subsidiary.
Incentive stock options may only be granted to, and held by, employees
of the Company.
The stock compensation plans are administered by a committee appointed
by the Board of Directors. The options are not transferable and are
subject to various restrictions outlined in the Plan. The committee
determines the number of options granted to employees, directors or
consultants, the vesting period and the exercise price.
Continued
F-20
<PAGE> 22
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
Under the 1998 Indian Stock Option Plan, optionees may only exercise
vested options after receiving approval to pay the exercise price from
the Reserve Bank of India ("RBI"). Upon receiving such approval, such
stock options may be exercised, subject to vesting provisions of the
options granted and certain limitations on the aggregate amount of such
payments as imposed by the RBI.
The aggregate amount of common stock reserved for issuance under all
stock option plans is 3,665,989 shares of which 3,315,989 shares are
reserved for issuance under the 1997 Stock Plan and 350,000 shares are
reserved for issuance under the 1998 Indian Stock Option Plan. Options
granted generally vest over a four-year period and expire ten years
after the date of grant.
Stock option activity was as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number of Exercise
Options Price
------------ ------------
<S> <C> <C>
Options outstanding, January 1, 1997 -- --
Granted 441,666 $ 0.05
Exercised -- --
Cancelled (10,000) $ 0.05
------------
Options outstanding, December 31, 1997 431,666 $ 0.05
Granted 1,358,196 $ 0.07
Exercised (2,917) $ 0.05
Cancelled (449,499) $ 0.05
------------
Options outstanding, December 31, 1998 1,337,446 $ 0.07
Granted 1,467,971 $ 0.22
Exercised (218,411) $ 0.06
Cancelled (521,465) $ 0.09
------------
Options outstanding, December 31, 1999 2,065,541 $ 0.17
============
</TABLE>
Continued
F-21
<PAGE> 23
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
A summary of stock options outstanding and exercisable as of December
31, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Exercise Number Remaining Number Exercise
Price Outstanding Life (years) Exercisable Price
-------------- ------------------- ----------------- ------------------ --------------
<S> <C> <C> <C> <C>
$0.05 721,463 8.46 437,207 $0.05
$0.10 536,948 4.50 103,845 $0.10
$0.25 437,130 9.56 0 $0.25
$0.40 370,000 9.77 624 $0.40
------------------ -----------------
2,065,541 541,676
================== =================
</TABLE>
The weighted average fair value of options granted during the years
ended December 31, 1997, 1998 and 1999 were $0.02, $0.03 and $0.16,
respectively, based on the Black-Scholes option pricing model.
The Company accounts for its employee stock options in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees. Accordingly, no compensation expense has been recognized
because the exercise price is equal to the estimated fair value of the
underlying common stock. Had compensation expense been determined based
on the fair value at the grant date for options under the Plans
consistent with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, the Company's net loss would
have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Net loss:
As reported $ (1,328,206) $ (3,900,931) $ (7,449,927)
Pro forma $ (1,328,869) $ (3,905,506) $ (7,483,995)
</TABLE>
The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants during the years ended
December 31, 1997, 1998 and 1999: Dividend yields of 0%, expected
volatility of 87%, expected terms of 10 years, and risk-free interest
rates of 6.93%, 5.65% and 5.24%, respectively.
Continued
F-22
<PAGE> 24
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
10. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset were as follows:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Net operating loss carryforward $ 2,141,000 $ 4,772,204
Property and equipment 14,300 6,522
Adjustments from accrual basis to cash basis (58,300) 137,836
------------ ------------
2,097,000 4,916,562
Less valuation allowance (2,097,000) (4,916,562)
------------ ------------
Net deferred tax asset $ -- $ --
============ ============
</TABLE>
A reconciliation between income taxes from operations computed using the
federal statutory income tax rate and the Company's effective tax rate
for the years ended December 31, is as follows:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Federal statutory rate 34.0% 34.0%
State income taxes, net of federal
provision (benefit) 4.0 4.0
Unremitted foreign earnings (2.0) --
Increase to valuation allowance (36.0) (38.0)
------------ ------------
-- --
============ ============
</TABLE>
Although the Company has a loss before income taxes on a consolidated
basis for the years ended December 31, 1997, 1998 and 1999, the
Company's foreign subsidiary has generated net income for these years.
No provision for income taxes has been recorded since the foreign
subsidiary's income is exempt under India tax laws. The Company has
approximately $12,558,000 in net operating loss carryforwards that
expire in various amounts through 2019.
Continued
F-23
<PAGE> 25
ENTEVO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
The realizability of the deferred tax asset, generated primarily from
operating loss carryforwards, is dependent upon future taxable income
generated during the periods in which net operating loss carryforwards
are available. Management considers projected future taxable income and
tax planning strategies, which can be implemented by the Company in
making this assessment. Since the Company has only recently begun
significant operations, there is very little historical information to
assess whether future taxable income will be generated in future periods
when net operating losses are available. Accordingly, management has
established a valuation allowance equal to the net deferred tax assets
at December 31, 1998 and 1999.
11. SUBSEQUENT EVENT
On February 9, 2000, the Company was merged into and became a wholly
owned subsidiary of BindView Development Corporation pursuant to an
Agreement of Merger dated January 26, 2000. The transaction was
accounted for as a pooling of interests. Under the terms of the
agreement, BindView Development Corporation issued 2.2 million shares of
common stock (9.90% of such shares are being held in escrow), on a fully
diluted basis, including the assumption of all outstanding Entevo stock
warrants and stock options.
F-24
