<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
December 12, 1999
Date of Report (Date of earliest event reported)
PRIMUS KNOWLEDGE SOLUTIONS, INC.
(Exact name of Registrant as specified in its charter)
WASHINGTON 0-26273 91-1350484
(State of incorporation) (Commission file number) (I.R.S. Employer
Identification No.)
1601 FIFTH AVENUE, SUITE 1900
SEATTLE, WASHINGTON 98101
(Address of principal executive offices, including zip code)
(206) 292-1000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2.
On December 13, 1999, Primus Knowledge Solutions, Inc. filed a Form 8-K to
report its completing the acquisition of Imparto Software Corporation. Pursuant
to Item 7 of Form 8-K, Primus indicated that it would file certain financial
information no later than the date required by Item 7 of Form 8-K. This
Amendment No. 1 is being filed to provide such financial information.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
See exhibit 20.1 for the audited financial statements of Imparto Software
Corporation as of and for the years ended December 31, 1998 and 1997.
See exhibit 20.2 for the unaudited condensed financial statements of
Imparto Software Corporation as of September 30, 1999 and for the nine
month periods ended September 30, 1999 and 1998.
(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
statements give effect to the merger between Primus Knowledge Solutions, Inc.
("Primus" or the Company) and Imparto Software Corporation ("Imparto"), which
occurred on December 12, 1999. The Imparto acquisition was accounted for under
the pooling-of-interests method of accounting in accordance with APB Opinion No.
16. Under the pooling-of-interests method of accounting, all periods prior to
the acquisition are restated to include the accounts and results of operations
as though the companies were combined for all periods presented.
The unaudited pro forma condensed combined balance sheet has been
prepared to reflect the Imparto merger as if it occurred on September 30, 1999.
The unaudited pro forma condensed combined statements of operations reflect the
results of operations of Primus and Imparto for the years ended December 31,
1998, 1997 and 1996 and for the nine months ended September 30, 1999 and 1998 as
if the Imparto acquisition occurred on January 1, 1996.
The unaudited pro forma condensed combined 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 Primus and Imparto been a
combined company during the specified periods. In the opinion of management, all
adjustments necessary to present fairly such pro forma financial information
have been made to the financial statements, and are reflected in the
accompanying notes. The unaudited pro forma condensed combined financial
statements, including the notes thereto, are qualified in their entirety by
reference to, and should be read in conjunction with, historical consolidated
financial statements and the related notes thereto of Primus included in its
registration statement on Form S-1 (No. 333-77477) as amended and on file with
the SEC, and the audited financial statements of Imparto included in this
filing.
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
Primus Imparto Adjustments Combined
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
Current assets:
Cash & cash equivalents............................ $ 12,597 $ 2,549 $ -- $ 15,146
Securities available-for-sale...................... 35,050 -- -- 35,050
Accounts receivable, net........................... 6,972 466 -- 7,438
Prepaid expenses & other current assets............ 1,100 48 -- 1,148
-------- ------- ----------- --------
Total current assets............................. 55,719 3,063 -- 58,782
Property & equipment, net............................ 2,202 365 -- 2,567
Deposits and other assets............................ 423 118 -- 541
-------- ------- ----------- --------
Total assets..................................... $ 58,344 $ 3,546 $ -- $ 61,890
======== ======= =========== ========
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable & accrued liabilities............. $ 3,638 $ 526 $ -- $ 4,164
Compensation-related accruals...................... 1,956 66 -- 2,022
Current portion of long-term obligations........... 219 458 -- 677
Obligations under capital leases, current.......... 30 -- -- 30
Deferred revenue................................... 7,781 280 -- 8,061
Accrued merger expenses............................ -- -- 1,520 1,520
-------- ------- ----------- --------
Total current liabilities........................ 13,624 1,330 1,520 16,474
Obligations under capital leases, net of current..... 31 -- -- 31
Long-term debt, net of current....................... -- 125 -- 125
Stockholders' equity:
Convertible preferred stock........................ -- 7,863 (7,863) --
Common stock....................................... 356 89 (66) 379
Additional paid-in capital......................... 80,655 -- 7,929 88,584
Accumulated deficit................................ (36,275) (5,861) (1,520) (43,656)
Accumulated other comprehensive loss............... (47) -- -- (47)
-------- ------- ----------- --------
Total stockholders' equity....................... 44,689 2,091 (1,520) 45,260
-------- ------- ----------- --------
Total liabilities and stockholders' equity....... $ 58,344 $ 3,546 $ -- $ 61,890
======== ======= =========== ========
</TABLE>
See accompanying notes to unaudited pro forma
condensed combined financial statements.
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Primus Imparto Combined
---------- ------- ----------
<S> <C> <C> <C>
Revenues, net:
Licenses......................................... $ 6,034 $ 139 $ 6,173
Services......................................... 2,576 813 3,389
---------- ------- ----------
Total revenues................................. 8,610 952 9,562
Cost of revenues:
Licenses......................................... 375 - 375
Services......................................... 2,434 664 3,098
---------- ------- ----------
Total cost of revenues......................... 2,809 664 3,473
---------- ------- ----------
Gross profit....................................... 5,801 288 6,089
Operating expenses:
Sales and marketing.............................. 9,750 957 10,707
Research and development......................... 3,286 851 4,137
General and administrative....................... 3,271 617 3,888
---------- ------- ----------
Total operating expenses....................... 16,307 2,425 18,732
---------- ------- ----------
Loss from operations............................... (10,506) (2,137) (12,643)
Interest income.................................... 187 - 187
Interest expense................................... (239) (8) (247)
---------- ------- ----------
Loss before income taxes........................... (10,558) (2,145) (12,703)
Benefit from (provision for) income taxes.......... (45) 102 57
---------- ------- ----------
Net loss........................................... (10,603) (2,043) (12,646)
Preferred stock accretion.......................... (545) - (545)
---------- ------- ----------
Loss available to common shareholders.............. (11,148) (2,043) (13,191)
========== ======= ==========
Loss per share:
Basic and diluted................................ $ (2.82) $ (3.09)
Shares used in the calculation of loss per share:
Basic and diluted................................ 3,957,310 4,275,356
</TABLE>
See accompanying notes to unaudited pro forma
condensed combined financial statements.
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Primus Imparto Combined
---------- --------- ----------
<S> <C> <C> <C>
Revenues, net:
Licenses......................................... $ 3,558 $ - $ 3,558
Services......................................... 1,631 1,294 2,925
---------- ---------- ----------
Total revenues................................. 5,189 1,294 6,483
Cost of revenues:
Licenses......................................... 97 - 97
Services......................................... 2,306 623 2,929
---------- ---------- ----------
Total cost of revenues......................... 2,403 623 3,026
---------- ---------- ----------
Gross profit....................................... 2,786 671 3,457
Operating expenses:
Sales and marketing.............................. 4,613 149 4,762
Research and development......................... 2,538 228 2,766
General and administrative....................... 1,580 209 1,789
---------- ---------- ----------
Total operating expenses....................... 8,731 586 9,317
---------- ---------- ----------
Income (loss) from operations...................... (5,945) 85 (5,860)
Interest income.................................... 103 - 103
Interest expense................................... (143) - (143)
---------- ---------- ----------
Income (loss) before income taxes.................. (5,985) 85 (5,900)
Provision for income taxes......................... - (34) (34)
---------- ---------- ----------
Net income (loss).................................. (5,985) 51 (5,934)
Preferred stock accretion.......................... (301) - (301)
---------- ---------- ----------
Income (loss) available to common shareholders..... (6,286) 51 (6,235)
========== ========== ==========
Loss per share:
Basic and diluted................................ $ (1.62) $ (1.54)
Shares used in the calculation of loss per share:
Basic and diluted................................ 3,883,514 4,043,509
</TABLE>
See accompanying notes to unaudited pro forma
condensed combined financial statements.
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Primus Imparto Combined
---------- --------- --------
<S> <C> <C> <C>
Revenues, net:
Licenses......................................... $ 1,459 $ - $ 1,459
Services......................................... 963 452 1,415
---------- ---------- ----------
Total revenues................................. 2,422 452 2,874
Cost of revenues:
Licenses......................................... 137 - 137
Services......................................... 1,090 25 1,115
---------- ---------- ----------
Total cost of revenues......................... 1,227 25 1,252
---------- ---------- ----------
Gross profit....................................... 1,195 427 1,622
Operating expenses:
Sales and marketing.............................. 3,499 2 3,501
Research and development......................... 2,459 - 2,459
General and administrative....................... 1,229 254 1,483
---------- ---------- ----------
Total operating expenses....................... 7,187 256 7,443
---------- ---------- ----------
Income (loss) from operations...................... (5,992) 171 (5,821)
Interest income.................................... 223 - 223
Interest expense................................... (109) (1) (110)
---------- ---------- ----------
Income (loss) before income taxes.................. (5,878) 170 (5,708)
Provision for income taxes......................... - (68) (68)
---------- ---------- ----------
Net income (loss).................................. (5,878) 102 (5,776)
Preferred stock accretion.......................... (208) - (208)
---------- ---------- ----------
Income (loss) available to common shareholders..... (6,086) 102 (5,984)
========== ========== ==========
Loss per share:
Basic and diluted................................ $ (1.58) $ (1.53)
Shares used in the calculation of loss per share:
Basic and diluted............................ 3,857,448 3,914,997
</TABLE>
See accompanying notes to unaudited pro forma
condensed combined financial statements.
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
Primus Imparto Combined
---------- ------- ----------
<S> <C> <C> <C>
Revenues, net:
Licenses......................................... $ 11,576 $ 204 $ 11,780
Services......................................... 4,279 477 4,756
---------- ------- ----------
Total revenues................................. 15,855 681 16,536
Cost of revenues:
Licenses......................................... 684 - 684
Services......................................... 2,814 805 3,619
---------- ------- ----------
Total cost of revenues......................... 3,498 805 4,303
---------- ------- ----------
Gross profit (loss)................................ 12,357 (124) 12,233
Operating expenses:
Sales and marketing.............................. 10,726 1,536 12,262
Research and development......................... 3,566 1,709 5,275
General and administrative....................... 3,040 586 3,626
---------- ------- ----------
Total operating expenses....................... 17,332 3,831 21,163
---------- ------- ----------
Loss from operations............................... (4,975) (3,955) (8,930)
Interest income.................................... 656 28 684
Interest expense................................... (191) (44) (235)
---------- ------- ----------
Loss before income taxes........................... (4,510) (3,971) (8,481)
Provision for income taxes......................... (227) - (227)
---------- ------- ----------
Net loss........................................... (4,737) (3,971) (8,708)
Preferred stock accretion.......................... (432) - (432)
---------- ------- ----------
Loss available to common shareholders.............. (5,169) (3,971) (9,140)
========== ======= ==========
Loss per share:
Basic and diluted................................ $ (.67) $ (1.12)
Shares used in the calculation of loss per share:
Basic and diluted................................ 7,675,474 8,191,329
</TABLE>
See accompanying notes to unaudited pro forma
condensed combined financial statements.
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Primus Imparto Combined
---------- ------- ----------
<S> <C> <C> <C>
Revenues, net:
Licenses......................................... $ 3,598 $ 126 $ 3,724
Services......................................... 1,799 697 2,496
---------- ------- ----------
Total revenues................................. 5,397 823 6,220
Cost of revenues:
Licenses......................................... 114 - 114
Services......................................... 1,711 471 2,182
---------- ------- ----------
Total cost of revenues......................... 1,825 471 2,296
---------- ------- ----------
Gross profit....................................... 3,572 352 3,924
Operating expenses:
Sales and marketing.............................. 6,393 533 6,926
Research and development......................... 2,532 592 3,124
General and administrative....................... 1,738 367 2,105
---------- ------- ----------
Total operating expenses....................... 10,663 1,492 12,155
---------- ------- ----------
Loss from operations............................... (7,091) (1,140) (8,231)
Interest income.................................... - - -
Interest expense................................... (79) (1) (80)
---------- ------- ----------
Loss before income taxes........................... (7,170) (1,141) (8,311)
Benefit from income taxes.......................... - 102 102
---------- ------- ----------
Net loss........................................... (7,170) (1,039) (8,209)
Preferred stock accretion.......................... (329) - (329)
---------- ------- ----------
Loss available to common shareholders.............. (7,499) (1,039) (8,538)
========== ======= ==========
Loss per share:
Basic and diluted................................ $ (1.92) $ (2.03)
Shares used in the calculation of loss per share:
Basic and diluted................................ 3,912,947 4,196,637
</TABLE>
See accompanying notes to unaudited pro forma
condensed combined financial statements.
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Pursuant to an Agreement and Plan of Merger, Primus issued 1,000,000
shares of common stock in exchange for each outstanding share of Imparto capital
stock, and all outstanding stock options and warrants to acquire Imparto capital
stock. The acquisition has been accounted for as a pooling of interests in
accordance with APB No. 16 and accordingly, the Company's financial statements
have been restated to include the results of operations of Imparto. The pro
forma combined statements of operations reflects the restatement of Primus's
financial statements as if the companies had been combined for all periods
presented, and the pro forma combined balance sheet has been adjusted to reflect
the merger as if it had occurred on September 30, 1999.
2. PRO FORMA ADJUSTMENTS
Pro forma adjustments to the September 30, 1999 unaudited pro forma
condensed combined balance sheet have been prepared to reflect the conversion of
the Imparto preferred stock to Primus common stock, to reflect the conversion of
Imparto's common stock par value to that of Primus and to reflect the accrual of
approximately $1.5 million of merger related costs consisting primarily of
financial advisory fees, attorneys, accountants, financial printing, and other
related charges.
3. PRO FORMA LOSS PER COMMON SHARE
The unaudited pro forma condensed combined net loss per share, basic
and diluted, is based upon the weighted average number of common shares of
Primus and common and convertible preferred shares of Imparto. Imparto common
and convertible preferred shares are converted using the applicable merger
exchange ratio.
4. CONFORMING AND RECLASSIFICATION ADJUSTMENTS
There were no adjustments required to conform the accounting policies
of Imparto. There were no intercompany transactions in the periods presented.
<PAGE>
(c) EXHIBITS
The following exhibits are filed herewith:
20.1 Imparto Software Corporation audited financial statements for the
years ended December 31, 1998 and 1997
20.2 Unaudited condensed financial statements for Imparto Software
Corporation as of September 30, 1999 and for the nine months ended
September 30, 1999 and 1998
23.1 Consent of PricewaterhouseCoopers, Independent Accountants
<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.
PRIMUS KNOWLEDGE SOLUTIONS, INC.
Date: February 24, 2000 By: /S/ Elizabeth Huebner
Executive Vice President, Chief Financial
Officer, Secretary and Treasurer (Principal
financial and chief accounting officer)
<PAGE>
Exhibit 20.1
Report of Independent Accountants
March 26, 1999, except for Note 9
which is as of July 20, 1999
To the Board of Directors and Shareholders
of Imparto Software Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Imparto Software Corporation at
December 31, 1998 and 1997 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
<PAGE>
Imparto Software Company
Balance Sheet (in thousands, except share and per share data)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997
----------------- ------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................................................... $ 1,660 $ 115
Accounts receivable, net of allowance of $33 in 1998.............................. 125 276
Prepaid expenses and other current assets......................................... 49 167
----------------- ------------------
Total current assets............................................................ 1,834 558
Property and equipment, net......................................................... 163 91
----------------- ------------------
$ 1,997 $ 649
================= ==================
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable..................................................................... $ 200 $ 5
Accounts payable.................................................................. 145 57
Accrued liabilities............................................................... 166 102
Deferred revenue.................................................................. 19 -
----------------- ------------------
Total current liabilities....................................................... 530 164
----------------- ------------------
Commitments and subsequent events (Note 5, 9 and 10)
Shareholders' equity:
Convertible Preferred Stock:
Series A:
200,000 shares authorized; 200,000 issued and outstanding
at December, 31 1998 and 1997................................................. 95 95
Series B:
250,000 shares authorized; 230,000 and 170,000 issued and
outstanding at December 31, 1998 and 1997..................................... 222 162
Series C:
3,000,000 shares authorized; 3,000,000 issued and outstanding
at December, 31 1998 and no shares issued and outstanding
at December 31, 1997.......................................................... 2,957 -
Common Stock: no par value; 9,000,000 shares authorized; 2,020,087 and
2,000,000 issued and outstanding at December 31, 1998 and 1997................ 83 75
Retained earnings (accumulated deficit)......................................... (1,890) 153
----------------- ------------------
Total shareholders' equity.................................................. 1,467 485
----------------- ------------------
$ 1,997 $ 649
================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Imparto Software Corporation
Statement of Operations (in thousands)
Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997
---------- ----------
Revenues:
<S> <C> <C>
Technical consulting and design......................................................... $ 711 $ 1,294
License fees............................................................................ 139 -
Service and other....................................................................... 102 -
---------- ----------
Total revenues........................................................................ 952 1,294
Cost of revenues:
Technical consulting and design......................................................... 300 623
Service and other....................................................................... 364 -
---------- ----------
Total cost of revenues................................................................ 664 623
---------- ----------
Gross profit.............................................................................. 288 671
---------- ----------
Operating expenses:
Research and development................................................................ 851 228
Sales and marketing..................................................................... 957 149
General and administrative.............................................................. 617 209
---------- ----------
Total operating expenses.............................................................. 2,425 586
---------- ----------
Income (loss) from operations............................................................. (2,137) 85
Interest expense, net..................................................................... 8 -
---------- ----------
Income (loss) before income taxes......................................................... (2,145) 85
Benefit from (provision for) income taxes................................................. 102 (34)
---------- ----------
Net income (loss)......................................................................... $ (2,043) $ 51
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Imparto Software Corporation
Statement of Shareholders' Equity (in thousands, except per share amounts)
Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convertible Preferred Stock
------------------------------------------------ Retained
Series A Series B Series C Common Stock Earnings Total
-------------- -------------- -------------- -------------- (Accumulated Shareholders'
Shares Amount Shares Amount Shares Amount Shares Amount Deficit) Equity
------ ------ ------ ------ ------ ------ ------ ------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996...... - $ - - $ - - $ - 2,000 $75 $ 102 $ 177
Issuance of Series A Preferred
Stock at $0.50 per share,
net of issuance costs........... 200 95 - - - - - - - 95
Issuance of Series B Preferred
Stock at $1.00 per share,
net of issuance costs........... - - 170 162 - - - - - 162
Net income........................ - - - - - - - - 51 51
----- ------ ----- ------ ----- ------ ------ ----- --------- -------
Balance at December 31, 1997...... 200 95 170 162 - - 2,000 75 153 485
Issuance of Common Stock pursuant
to exercise of options.......... - - - - - - 20 1 - 1
Issuance of Series B Preferred
Stock at $1.00 per share........ - - 60 60 - - - - - 60
Issuance of Series C Preferred
Stock at $1.00 per share,
net of issuance costs........... - - - - 3,000 2,957 - - - 2,957
Issuance of Series B Preferred
Stock warrants in connection
with notes payable.............. - - - - - - - 7 - 7
Net loss.......................... - - - - - - - - (2,043) (2,043)
----- ------ ----- ------ ----- ------ ------ ----- --------- -------
Balance at December 31, 1998...... 200 $95 230 $222 3,000 $2,957 2,020 $83 $(1,890) $ 1,467
===== ====== ===== ====== ===== ====== ====== ===== ========= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Imparto Software Corporation
Statement of Cash Flows (in thousands)
Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
Years Ended December 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................. $ (2,043) $ 51
Adjustments to reconcile net income (loss) to net
cash used in operating activities: - -
Provision for doubtful accounts............................................... 33 -
Depreciation.................................................................. 64 21
Issuance of warrants.......................................................... 7 -
Changes in current assets and liabilities: - -
Accounts receivable......................................................... 118 (118)
Prepaid expenses and other current assets................................... 118 (118)
Accounts payable............................................................ 88 56
Accrued liabilities......................................................... 64 34
Deferred revenue............................................................ 19 -
---------- ----------
Net cash used in operating activities..................................... (1,532) (74)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment................................................ (136) (96)
---------- ----------
Net cash used in investing activities..................................... (136) (96)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of Convertible Preferred
Stock, net of issuance costs.................................................... 3,017 257
Proceeds from issuance of Common Stock............................................ 1 -
Proceeds from issuance of note payable............................................ 195 5
---------- ----------
Net cash provided by financing activities................................. 3,213 262
---------- ----------
Net increase in cash and cash equivalents........................................... 1,545 92
Cash and cash equivalents at beginning of year...................................... 115 23
---------- ----------
Cash and cash equivalents at end of year............................................ $ 1,660 $ 115
========== ==========
Supplemental cash flow information:
Cash paid for interest............................................................ $ 8 $ -
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
IMPARTO SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The Company and Summary of Significant Accounting Policies
The Company
Imparto Software Corporation (the "Company") produces web-based marketing
automation software applications that allow rapid two way communication between
an organization and its target audience. The Company was incorporated in
California in May 1996.
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
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue recognition
The Company's revenues are derived from licenses of its marketing automation
software applications and related services, which include implementation and
customization, maintenance, training and consulting, and technical consulting
and design services. The Company is currently phasing out the technical
consulting and design piece of its business.
License fees are recognized upon delivery of the software, provided that there
is a signed agreement evidencing a fixed and determinable fee and a
determination that collection of the fee is probable. Service and support fees
are recognized ratably over the term of the support agreement. Fees received in
advance of revenue recognition are included in the balance sheet as deferred
revenue.
Technical consulting and design revenues are recognized upon obtaining signed
completion certificates from the customer and determination that collection of
the fee is probable.
Service and other revenues are recognized as such provided to the customer,
generally ratably over the service period.
Cash equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company deposits
its cash and cash equivalents with high credit quality financial institutions.
Concentration of credit risk
Financial instruments that potentially subject the Company to a concentration of
credit risk consist of cash, cash equivalents and accounts receivable. The
Company's accounts receivable are derived from revenue earned from customers
located in the U.S.. The Company performs ongoing credit evaluations of its
customers' financial condition and requires no collateral from its customers.
The Company maintains an allowance for doubtful accounts receivable based upon
the expected collectibility of accounts receivable.
At December 31, 1998 and 1997 one customer accounted for 44% and 47% of revenue
and 54% and 31% of the net accounts receivable, respectively.
Research and development
Costs incurred in the research and development of new products are charged to
expense as incurred until the technological feasibility of the product has been
established through the development of a working model. No costs have been
capitalized to date as the effect on the financial statements for all periods
presented is not significant.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
three years.
<PAGE>
IMPARTO SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Stock-based compensation
The Company accounts for stock-based employee compensation using the intrinsic
value method of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," ("APB No. 25") as permitted by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The Company provides footnote disclosures of
the pro forma net income (loss), if materially different than reported net
income, based on the fair method of SFAS No. 123.
Income taxes
The Company accounts for income taxes under the liability method, which
requires, among other things, that deferred income taxes be provided for
temporary differences between the tax bases of the Company's assets and
liabilities and their financial statement reported amounts. In addition,
deferred tax assets are recorded for the future benefit of utilizing net
operating losses and research and development credit carryforwards. A valuation
allowance is provided against deferred tax assets unless it is more likely than
not that they will be realized.
Comprehensive income
The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income" in 1998. SFAS No. 130 requires the Company to report in their financial
statements, in addition to its net income (loss), comprehensive income (loss),
which includes all changes in equity during a period from nonowner sources
including, as applicable, foreign currency items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. During 1998 and 1997, such items were not significant, and
the Company's comprehensive loss approximated its net loss.
New accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The Company expects that the adoption of SOP
98-1 will not have a material impact on its financial position, results of
operations or cash flows. The Company will be required to implement SOP 98-1
for the year ending December 31, 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
established methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. Because the Company currently holds no derivative instruments and
does not engage in hedging activities, the Company expects that the adoption of
SFAS No. 133 will not have a material impact on its financial position, results
of operations or cash flows. The Company will be required to implement SFAS No.
133 for the year ending December 31, 1999.
<PAGE>
IMPARTO SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
2. Balance Sheet Components (in thousands)
<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
----- -----
<S> <C> <C>
Accounts receivable, net:
Accounts receivable $ 158 $ 276
Allowance for doubtful accounts (33) -
----- -----
$ 125 $ 276
----- -----
Property and equipment, net:
Computer equipment $ 233 $ 117
Furniture and fixtures 28 8
----- -----
261 125
Less: Accumulated depreciation (98) (34)
----- -----
$ 163 $ 91
----- -----
</TABLE>
3. Income Taxes
The Company's provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
1998 1997
------ ------
<S> <C> <C>
Current:
Federal $(102) $ 29
State - 5
----- -----
Total current (102) 34
----- -----
Deferred:
Federal - -
State - -
----- -----
Total deferred - -
----- -----
$(102) $ 34
----- -----
</TABLE>
As at December 31, 1998 deferred tax assets relating primarily to net operating
loss carryforwards, amounted to $850,000. A valuation allowance has been
provided in an amount equal to these assets as sufficient uncertainty exists
regarding their realizability.
At December 31, 1998, the Company had approximately $2,000,000 of federal and
state net operating loss carryforwards available to offset future taxable
income. Such carryforwards expire through 2018 and 2005 for federal and state
purposes, respectively.
<PAGE>
IMPARTO SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
4. Note Payable
In April 1998, the Company entered into an agreement with its bank that provides
for borrowings of up to $600,000. The note is due for repayment in January 2000
and bears interest at the bank's prime rate plus 0.75% (8.25% as of December 31,
1998). The note is secured by all of the assets of the Company.
In connection with the note payable, the Company issued warrants to purchase
20,000 shares of Series B Convertible Preferred Stock for $1.00 per share in
April 1998. Such warrants are outstanding at December 31, 1998 and expire in
April 2003. Using the Black-Scholes option pricing model, the Company
determined that the fair value of the warrants were $7,000 at the date of grant.
5. Commitments
Leases
The Company leases office space and equipment under noncancelable operating
leases with various expiration dates through September 1999. The Company also
subleases a property, the term of which expires in May, 1999.
Future minimum lease payments under noncancelable operating leases, net of
future minimum sublease rental receipts aggregate $194,000 in 1999.
6. Convertible Preferred Stock
Convertible Preferred Stock at December 31, 1998 consists of the following (in
thousands):
<TABLE>
<CAPTION>
Proceeds
Shares Net of
-------------------------- Liquidation Issuance
Series Authorized Outstanding Amount Costs
- ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
A 200 200 $ 100 $ 95
B 250 230 230 222
C 3,000 3,000 3,000 2,957
----- ----- ------ ------
3,450 3,430 $3,330 $3,274
----- ----- ------ ------
</TABLE>
The holders of Convertible Preferred Stock have various rights and preferences
as follows:
Voting
Each share of Series A, B and C Convertible Preferred Stock has voting rights
equal to an equivalent number of shares of Common Stock into which it is
convertible and votes together as one class with the Common Stock.
As long as shares of Convertible Preferred Stock remain outstanding, the Company
must obtain approval from a majority of the holders of Convertible Preferred
Stock in order to alter the Articles of Incorporation as related to Convertible
Preferred Stock, change the authorized number of shares of Convertible Preferred
Stock, repurchase any shares of Common Stock other than shares subject to the
right of repurchase by the Company, change the authorized number of Directors,
authorize a dividend for any class or series other than Convertible Preferred
Stock, create a new class of stock or effect a merger, consolidation or sale of
assets where the existing shareholders retain less than 50% of the voting stock
of the surviving entity.
<PAGE>
IMPARTO SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Dividends
Holders of Series C Convertible Preferred Stock are entitled to receive
noncumulative dividends at the per annum rate of $0.10 per share, when and if
declared by the Board of Directors. The holders of Series A, B and C
Convertible Preferred Stock will also be entitled to participate in dividends on
Common Stock, when and if declared by the Board of Directors, based on the
number of shares of Common Stock held on an as-if-converted basis. No dividends
on Convertible Preferred Stock or Common Stock have been declared by the Board
of Directors from inception through December 31, 1998.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners of
the Company retain less than a majority of the voting power in the surviving
entity, the holders of Series A, B and C Convertible Preferred Stock are
entitled to receive an amount of $0.50, $1.00 and $1.00 per share, respectively,
plus any declared but unpaid dividends prior to and in preference to any
distribution to the holders of Common Stock. Upon completion of the
distribution to the holders of Convertible Preferred Stock, the remaining assets
of the Company shall be distributed among the holders of Series A, B and C
Convertible Preferred Stock and Common Stock pro rata leased on the number of
shares of Common Stock held by each (assuming conversion of all shares of
Convertible Preferred Stock into shares of Common Stock) until the holders of
Series A, B and C Convertible Preferred Stock have received an aggregate amount
per share equal to five times the original issue price. Once this distribution
is completed, the remaining assets, if any, shall be distributed ratably among
the holders of the Series A, B and C Preferred Stock and Common Stock in
proportion to the number of shares of Common Stock owned by each such holder
(assuming conversion of Series A, B and C Preferred Stock). Should the
Company's legally available assets be insufficient to satisfy the liquidation
preferences, the funds will be distributed ratably to the Series A, B and C
Convertible Preferred Stock preferences.
Conversion
Each share of Series A, B and C Convertible Preferred Stock is convertible at
any time after the date of issuance, at the option of the holder, according to a
conversion ratio, subject to adjustment for dilution. Each share of Series A, B
and C Convertible Preferred Stock automatically converts into the number of
shares of Common Stock into which such shares are convertible at the then
effective conversion ratio upon (1) the closing of a public offering of Common
Stock at a per share price of at least $5.00 per share with gross proceeds of at
least $10,000,000, (2) the date on which the majority of the shares of Series C
Preferred Stock (on the original issue date) are converted into shares of Common
Stock, or (3) the consent of the holders of the majority of Convertible
Preferred Stock.
7. Stock Option Plans
The Company's 1996 Stock Option Plan (the "Plan") provides for the granting of
stock options to employees and consultants of the Company. Options granted
under the Plan may be either incentive stock options or nonqualified stock
options. Incentive stock options ("ISO") may be granted only to Company
employees (including officers and directors who are also employees).
Nonqualified stock options ("NSO") may be granted to Company's employees and
consultants. The Company has reserved 1,490,000 shares of Common Stock for
issuance under the Plan.
Options under the Plan may be granted for periods of up to ten years and with
exercise prices no less than 85% of the estimated fair value of the shares on
the date of grant as determined by the Board of Directors, provided, however,
that (i) the exercise price of an ISO and NSO shall not be less than 100% and
85% of the estimated fair value of the shares on the date of grant,
respectively, and (ii) the exercise price of an ISO and NSO granted to a 10%
shareholder shall not be less than 110% of the estimated fair value of the
shares on the date of grant, respectively.
<PAGE>
IMPARTO SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
A summary of the activity under the Plan is as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------- --------------------------
Options Price Options Price
-------------- ------------- -------------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Options outstanding at January 1 99 $ 0.04 - $ -
Options granted 880 $0.06 - $0.10 171 $0.04
Options exercised (20) $0.04 - $0.06 - $ -
Options canceled (100) $0.04 - $0.06 (72) $0.04
----- ----
Options outstanding
at December 31 860 $0.04 - $0.10 99 $0.04
----- ----
Options vested at
December 31 41 $0.04 - $0.06 11 $0.04
----- ----
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable at
Options Outstanding at December 31, 1998 December 31, 1998
-------------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Outstanding Price
- ------------- -------------- ----------- -------- -------------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
$0.04 - $0.10 819 9 years $0.09 41 $0.05
---- ---
</TABLE>
8. Employee Benefit Plans
Effective September 1998 the Company adopted a 401(k) Savings and Retirement
Plan that qualifies as a deferred salary arrangement under Section 401 of the
Internal Revenue Service code. Under the Plan, participating employees may
defer a portion of their pretax earnings into the Plan. The Company may value
discretionary payments into the Plan, however no such contributions have been
made through December 31, 1998.
9. Subsequent Events
In January 1999, the Company entered into an agreement with its bank to provide
an additional $400,000 of working capital in the form of a note payable. The
note is due for repayment in January 2000 and bears interest at the bank's prime
rate plus 0.75%. The note is secured by the assets of the Company.
On July 20, 1999, the Company issued 2,139,037 shares of Series D Convertible
Preferred Stock for aggregate proceeds of $4 million. The various rights and
preferences of the Series D stock are similar to the Series A, B and C
Convertible Preferred Stock.
10. Subsequent Event (Unaudited)
On December 12, 1999, the Company entered into an Agreement and Plan of Merger
with Primus Knowledge Solutions ("Primus"). The merger closed on December 14,
1999. Primus issued 1,000,000 shares of its common stock (the "Total Merger
Consideration") in exchange for each outstanding share of Imparto capital stock
and all outstanding stock options and warrants to acquire Imparto common stock.
<PAGE>
IMPARTO SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
The Total Merger Consideration will be allocated between (i) the portion to be
received by the holders of the Company's preferred stock and common stock (the
"Net Merger Consideration"), and (ii) the portion issuable to the holders of the
Company's options and warrants upon the respective exercise or conversion
thereof (the "Option Merger Consideration"). The Net Merger Consideration and
the Option Merger Consideration was paid to the Company's shareholders as
follows: holders of the Company's common stock received 0.0767 of a share of
Primus common stock in the Merger for each share of the Company's common stock
they held, and the holders of the Company's Series D preferred stock received
0.1167 of a share of Primus common stock for each share of the Company's Series
D preferred stock they held. All outstanding shares of the Company's Series A,
Series B and Series C preferred stock were converted into common stock prior to
the effective time of the merger.
Options outstanding to purchase shares of the Company's common stock, whether or
not vested or exercisable, were assumed by Primus and constitute an option to
acquire shares of Primus common stock, on substantially the same terms as were
applicable under the assumed option. Warrants outstanding to purchase capital
stock of the Company were assumed by Primus and constitute a warrant to acquire
shares of Primus common stock, on substantially the same terms and conditions as
were applicable under the assumed warrant.
<PAGE>
Exhibit 20.2
IMPARTO SOFTWARE CORPORATION
UNAUDITED CONDENSED BALANCE SHEET
(In thousands)
September 30, 1999
-------------------
ASSETS
Current assets:
Cash and cash equivalents.................... $ 2,549
Accounts receivable, net..................... 466
Prepaid expenses and other current assets.... 48
-------
Total current assets....................... 3,063
Property and equipment, net.................... 365
Deposits....................................... 118
-------
Total assets............................... $ 3,546
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities..... $ 592
Current portion of long-term debt............ 458
Deferred revenue............................. 280
-------
Total current liabilities.................. 1,330
Long-term debt, net of current................. 125
Shareholders' equity:
Convertible preferred stock.................. 7,863
Common stock................................. 89
Accumulated deficit.......................... (5,861)
-------
Total shareholders' equity................. 2,091
-------
Total liabilities and shareholders' equity..... $ 3,546
=======
See accompanying notes to unaudited condensed financial statements.
<PAGE>
IMPARTO SOFTWARE CORPORATION
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
Nine Months Ended
September 30,
-----------------
1999 1998
------- --------
Revenues, net:
Licenses.............................. $ 204 $ 126
Services.............................. 477 697
------- --------
Total revenues...................... 681 823
Cost of revenues:
Services.............................. 805 471
------- --------
Total cost of revenues.............. 805 471
------- --------
Gross profit (loss)..................... (124) 352
Operating expenses:
Sales and marketing..................... 1,536 533
Research and development................ 1,709 592
General and administrative.............. 586 367
------- --------
Total operating expenses............ 3,831 1,492
------- --------
Loss from operations.................... (3,955) (1,140)
Interest expense, net................... 16 1
------- --------
Loss before income taxes................ (3,971) (1,141)
Benefit from income taxes............... - 102
------- --------
Net loss................................ (3,971) (1,039)
======= ========
See accompanying notes to unaudited condensed financial statements.
<PAGE>
IMPARTO SOFTWARE CORPORATION
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................... $ (3,971) $ (1,039)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts..................... (26) 3
Depreciation........................................ 85 43
Issuance of warrants................................ 4 --
Changes in assets and liabilities:
Accounts receivable................................. (316) 56
Prepaid expenses and other current assets........... (24) 13
Other assets.......................................... (92) (26)
Accounts payable.................................... 314 84
Accrued liabilities................................. (32) 82
Deferred revenue...................................... 260 20
-------- --------
Net cash used in operating activities............... (3,798) (764)
Cash flows from investing activities-
purchases of property and equipment................... (287) (111)
Cash flows from financing activities:
Proceeds from issuance of Convertible Preferred Stock,
net of issuance costs................................. 4,589 1,119
Proceeds from issuance of Common Stock.................. 3 --
Proceeds from issuance of note payable.................. 187 195
Proceeds from issuance of long-term debt................ 213 --
Repayments on long-term debt............................ (17) --
Repurchase of common stock.............................. (1) --
-------- --------
Net cash provided by financing activities............... 4,974 1,314
Net increase in cash and cash equivalents............... 889 439
Cash and cash equivalents at beginning of year.......... 1,660 115
-------- --------
Cash and cash equivalents at end of year................ $ 2,549 $ 554
======== ========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
<PAGE>
IMPARTO SOFTWARE CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 and 1998
1. Unaudited Interim Financial Information
The financial information as of September 30, 1999 and for the nine-month
periods ended September 30, 1999 and 1998 is unaudited, but includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the financial position at such
dates and the operations and cash flows for the periods then ended. Operating
results for the nine-months ended September 30, 1999 are not necessarily
indicative of results that may be expected for the entire year.
2. Note Payable
In January 1999, the Company entered into an agreement with its bank to provide
an additional $400,000 of working capital in the form of a note payable. The
note is due for repayment in January 2000 and bears interest at the bank's prime
rate plus 0.75%. The note is secured by the assets of the Company.
In June 1999, approximately $213,000 was renegotiated to a long term note due
and payable over 36 months.
3. Convertible Preferred Stock
During the nine months ended September 30, 1999, the Company issued 361,000
shares of Series C Convertible Preferred Stock at $1.00 per share and 2,287,000
shares of Series D Convertible Preferred Stock at $1.87 per share for proceeds
of approximately $4.6 million, net of $55,000 issuance costs. The various rights
and preferences of the Series D stock are similar to the Series A, B, and C
Convertible Preferred Stock.
4. Subsequent Events
Pursuant to a Merger Agreement dated December 12, 1999 between the Company and
Primus, Primus issued 1,000,000 shares of Primus common stock, $.025 par value
per share in exchange for each outstanding share of Imparto capital stock and
all outstanding stock options and warrants to acquire Imparto common stock. The
Merger will be accounted for as a pooling-of-interests business combination.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
FOR IMPARTO SOFTWARE CORPORATION
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-82059) of Primus Knowledge Solutions, Inc. of our
report dated March 26, 1999, except for Note 9 which is as of July 20, 1999,
relating to the financial statements of Imparto Software Corporation which
appear in the Current Report on Form 8-K of Primus Knowledge Solutions, Inc.
dated February 25, 2000.
PricewaterhouseCoopers LLP
San Jose, California
February 24, 2000
