<PAGE> 1
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): AUGUST 4, 2000
NIKU CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of
incorporation)
000-28797 77-0473454
----------------------- ---------------------
(Commission (IRS Employer
File Number) Identification No.)
305 Main Street, Redwood City, CA 94063
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(Address of principal executive offices) (Zip Code)
(650) 298-4600
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(Registrant's telephone number, including area code)
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(Former name or former address, if changed since last report)
<PAGE> 2
Niku Corporation ("Niku") hereby amends Item 7 of its Current Report on
Form 8-K, initially filed with the Securities and Exchange Commission on August
18, 2000 in connection with the completion of its acquisition of ABT
Corporation, a New York corporation ("ABT"), by means of a merger of a
wholly-owned subsidiary of Niku with and into ABT.
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
2
<PAGE> 3
ABT CORPORATION
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, and 1997
3
<PAGE> 4
ABT CORPORATION
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Redeemable Securities
for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
4
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
ABT Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in redeemable securities
and of cash flows present fairly, in all material respects, the financial
position of ABT Corporation and its subsidiaries (the "Company") 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.
/s/ PricewaterhouseCoopers LLP
New York, New York
April 14, 2000
5
<PAGE> 6
ABT CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,487 $ 4,661
Accounts receivable, less allowances for bad debts and sales
returns of $1,067 and $847, respectively 20,825 17,813
Deferred income taxes 588 560
Income taxes refunds - receivable 206 263
Other current assets 2,516 2,839
-------- --------
Total current assets 28,622 26,136
Property and equipment, net 5,624 5,316
Goodwill, net 3,018 4,097
Software and other intangibles, net 5,356 3,960
Deferred income taxes 1,159 73
Other assets 904 399
-------- --------
Total assets $ 44,683 $ 39,981
======== ========
LIABILITIES AND REDEEMABLE SECURITIES
Current liabilities:
Deferred revenues $ 10,983 $ 10,198
Accounts payable 1,966 1,979
Accrued expenses 1,626 1,988
Accrued compensation 3,251 2,550
Income taxes payable 753 1,855
Current portion of loans payable 4,750 2,574
Current portion of capital lease obligations 385 144
Other current liabilities 2,241 2,145
-------- --------
Total current liabilities 25,955 23,433
-------- --------
Deferred income taxes 2,291 1,679
Noncurrent portion of loans payable 1,546 1,419
Noncurrent portion of capital lease obligations 778 426
Other liabilities 180 271
-------- --------
Total liabilities 30,750 27,228
-------- --------
Commitments and contingencies (Note 10)
Redeemable securities:
Convertible preferred stock ($.01 par value, 511,111 shares
authorized, issued and outstanding) 1,101 1,101
Common stock - $.01 par value; 10,000,000 shares authorized,
issued shares - 5,200,665 and 5,200,665, respectively, and
outstanding shares - 5,185,665 and 5,184,665, respectively 52 52
Additional paid-in capital 1,916 1,913
Treasury stock (15,000 and 16,000 shares, respectively) (29) (30)
Retained earnings 10,248 9,052
Cumulative translation adjustment 645 665
-------- --------
Total redeemable securities 13,933 12,753
-------- --------
Total liabilities and redeemable securities $ 44,683 $ 39,981
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE> 7
ABT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Software licenses $ 33,160 $ 26,483 $ 20,052
Consulting and training 19,789 21,267 18,756
Customer support 14,786 13,650 11,792
-------- -------- --------
Total revenues 67,735 61,400 50,600
-------- -------- --------
Cost of revenues:
Software licenses 3,089 2,780 3,026
Consulting and training 17,704 15,608 13,495
Customer support 2,390 1,870 1,637
-------- -------- --------
Total cost of revenues 23,183 20,258 18,158
-------- -------- --------
Gross profit 44,552 41,142 32,442
-------- -------- --------
Operating costs and expenses:
Sales and marketing 23,722 20,990 17,123
Research and development 9,917 8,326 5,440
General and administrative 7,234 5,205 4,698
Amortization of goodwill 915 595 540
Restructuring charge -- -- 509
-------- -------- --------
Total operating costs and expenses 41,788 35,116 28,310
-------- -------- --------
Operating income 2,764 6,026 4,132
Other income (expense):
Interest income 72 222 127
Interest expense (536) (282) (110)
-------- -------- --------
Income before income taxes and minority interest 2,300 5,966 4,149
Provision for income taxes 1,104 2,999 1,683
-------- -------- --------
Net income before minority interest 1,196 2,967 2,466
Minority interest in subsidiary's earnings -- -- (266)
-------- -------- --------
Net income $ 1,196 $ 2,967 $ 2,200
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE> 8
ABT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE SECURITIES
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL TREASURY STOCK OTHER TOTAL
---------------- ---------------- PAID-IN --------------- RETAINED COMPREHENSIVE REDEEMABLE
SHARES AMOUNT SHARES PAR VALUE CAPITAL SHARES AMOUNT EARNINGS INCOME SECURITIES
------- -------- ------ ---------- ---------- ------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997 511 $ 1,101 4,733 $ 47 $ 771 (25) $ (47) $ 3,885 $ 237 $ 5,994
Net income -- -- -- -- -- -- -- 2,200 -- 2,200
Translation adjustment -- -- -- -- -- -- -- -- (54) (54)
---------
Comprehensive income -- -- -- -- -- -- -- -- -- 2,146
Issuance of stock -- -- 453 5 1,091 -- -- -- -- 1,096
Exercise of stock options -- -- 15 -- 42 -- 1 -- -- 43
------- -------- -------- -------- -------- ------- ------- -------- -------- ---------
Balances at December 31, 1997 511 1,101 5,201 52 1,904 (25) (46) 6,085 183 9,279
------- -------- -------- -------- -------- ------- ------- -------- -------- ---------
Net income -- -- -- -- -- -- -- 2,967 -- 2,967
Translation adjustment -- -- -- -- -- -- -- -- 482 482
---------
Comprehensive income -- -- -- 3,449
Exercise of stock options -- -- -- -- 9 9 16 -- -- 25
------- -------- -------- -------- -------- -------- ------- -------- -------- --------
Balances at December 31, 1998 511 1,101 5,201 52 1,913 (16) (30) 9,052 665 12,753
------- -------- -------- -------- -------- -------- ------- -------- -------- --------
Net income -- -- -- -- -- -- -- 1,196 -- 1,196
Translation adjustment -- -- -- -- -- -- -- -- (20) (20)
--------
Comprehensive income 1,176
Exercise of stock options -- -- -- -- 3 1 1 -- -- 4
------- -------- -------- -------- -------- -------- ------- -------- -------- --------
Balances at December 31, 1999 511 $ 1,101 5,201 $ 52 $ 1,916 (15) $ (29) $ 10,248 $ 645 $ 13,933
======= ======== ======== ======== ======== ======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
8
<PAGE> 9
ABT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,196 $ 2,967 $ 2,200
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and equipment 2,186 1,979 1,304
Allowance for bad debts and sales returns 220 196 322
Amortization of goodwill 915 595 540
Amortization of software and other intangibles 1,990 898 414
Deferred income taxes (502) 1,008 34
Changes in operating assets and liabilities:
Increase in accounts receivable (3,232) (5,854) (2,266)
Increase (decrease) in other current assets and liabilities, net 407 678 (361)
Increase (decrease) in deferred revenues 785 2,587 (281)
Increase in accrued compensation 701 1,139 360
Increase (decrease) in accounts payable and accrued expenses (375) (64) 862
Increase (decrease) in income taxes payable (1,102) 1,116 (102)
Decrease (increase) in income taxes receivable 57 (204) 30
Increase (decrease) in other assets and liabilities, net (150) 110 11
------- ------- -------
Net cash provided by operating activities 3,096 7,151 3,067
------- ------- -------
Cash flows from investing activities:
Acquisition of property and equipment (1,743) (2,711) (2,136)
Payment for acquisitions (Note 2) (270) (3,258) --
Additions to capitalized software costs and other intangibles (3,386) (3,279) (1,427)
------- ------- -------
Net cash used in investing activities (5,399) (9,248) (3,563)
------- ------- -------
Cash flows from financing activities:
Proceeds from loans 3,563 3,250 750
Principal payments of loans (1,260) (596) (823)
Principal payments of capital lease obligations (158) (46) (87)
Dividend paid to minority interest holder -- (266) --
Proceeds from exercise of stock options 4 25 42
------- ------- -------
Net cash provided by (used in) financing activities 2,149 2,367 (118)
------- ------- -------
Effect of exchange rate changes on cash (20) 482 (54)
------- ------- -------
Net (decrease) increase in cash and cash equivalents (174) 752 (668)
Beginning cash and cash equivalents 4,661 3,909 4,577
------- ------- -------
Ending cash and cash equivalents $ 4,487 $ 4,661 $ 3,909
======= ======= =======
Supplemental disclosures:
Taxes paid in cash $ 2,250 $ 1,781 $ 1,471
Interest paid in cash $ 559 $ 180 $ 110
Shares issued in connection with acquisition $ -- $ -- $ 453
Equipment acquired under capital lease $ 751 $ 616 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
9
<PAGE> 10
ABT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- The principal business activities of ABT Corporation and its
subsidiaries (the "Company") are the design, development, production, marketing,
and support of microcomputer-based project management software. Additionally,
the Company provides training in the use of its software and provides project
management consulting services. The Company is headquartered in New York City
and markets its products worldwide through operations in the United States, the
United Kingdom, Canada, Germany, France, the Netherlands, Switzerland, Australia
and through distribution agreements with third parties around the world.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the
accounts of the Company and its branch and subsidiary entities. All intercompany
balances and transactions have been eliminated.
MINORITY INTEREST -- Minority interest represents the 25% ownership by Hoskyns
Group plc in the Company's U.K. subsidiary through December 31, 1997.
FOREIGN CURRENCY TRANSLATION - In accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation," assets and
liabilities denominated in foreign currencies are translated at exchange rates
at the balance sheet date. Consolidated Statement of Income accounts are
translated at average exchange rates during the year. Translation adjustments
are shown separately as a component of stockholders' equity. Gains and losses on
foreign currency exchange transactions are reflected in the Consolidated
Statement of Income.
REVENUE RECOGNITION - The Company licenses software under noncancelable license
agreements through direct and distribution channels and provides consulting and
training services, and customer support. Effective January 1, 1998, the Company
adopted SOP 97-2, "Software Revenue Recognition." The adoption of SOP 97-2 had
no material impact on the Company's financial statements. Software license
revenues are recognized upon shipment, when collection is considered probable by
management and when all significant contractual obligations, if any, have been
satisfied. The Company does not generally have any obligations subsequent to the
shipment of its product. Consulting and training revenues are recognized when
such services are rendered. Customer support revenues are recognized as follows:
the portion of the fee related to the product upgrade feature provided under the
program is deferred and recognized when the upgrade is shipped; the remainder of
the support fee is recognized ratably over the customer support program period.
CASH EQUIVALENTS -- The Company classifies as cash equivalents all highly liquid
instruments with a maturity of three months or less at time of purchase.
PROPERTY AND EQUIPMENT -- Property and equipment, including leasehold
improvements, are stated at cost and are depreciated or amortized on a
straight-line basis over their estimated useful lives, as follows: furniture and
fixtures and computers and equipment, 2 to 5 years; and leasehold improvements,
over the life of the related lease. Maintenance and repairs are expensed as
incurred. Depreciation of assets recorded under capital leases is included in
depreciation expense.
GOODWILL -- Goodwill of $3,018 (net of accumulated amortization of $3,078) at
December 31, 1999 and $4,097 (net of accumulated amortization of $2,163) at
December 31, 1998 represents the excess of purchase cost over the fair value of
net assets of businesses acquired and is being amortized on a straight-line
basis over periods up to seven years. Goodwill is measured for possible
impairment when events or changes in circumstances indicate that the carrying
value of goodwill may not be recoverable; such measurement is based on the
undiscounted future cash flows from the related operations.
RESEARCH AND DEVELOPMENT AND COMPUTER SOFTWARE -- Costs relating to research,
design and development of computer software prior to achievement of
technological feasibility are charged to research and development expense as
incurred. Upon achievement of technological feasibility, and continuing until
general product release, costs incurred to complete the product and produce
product masters are capitalized. Capitalized computer software costs are
amortized to cost of revenues beginning at the time of general release, and
continuing over the estimated economic life of the product or enhancement,
usually three years.
10
<PAGE> 11
ABT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
TREASURY STOCK -- The Company accounts for treasury stock purchases using the
cost method. The Company holds 15,000 shares of treasury stock for issuance
under its stock option plans.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS -- The Company's financial
instruments consist of cash and cash equivalents, accounts receivable, capital
lease obligations, accounts payable and short-term borrowings. The current
carrying amount of these instruments approximates fair market value.
CONCENTRATIONS OF CREDIT RISK -- Financial instruments which potentially subject
the Company to concentration of credit risk consist principally of trade
accounts receivable. The Company controls this risk through credit approvals and
other monitoring procedures. No single customer or group of customers accounted
for a significant portion of the Company's revenues or accounts receivable for
all periods presented.
INCOME TAXES -- Deferred taxes are determined under the asset and liability
approach. Deferred tax assets and liabilities are recognized on differences
between the book and tax bases of assets and liabilities using presently enacted
tax rates. In addition, valuation allowances are provided if it is more likely
than not that some or all of the deferred tax asset will not be realized.
ACCOUNTING FOR STOCK-BASED COMPENSATION -- The Company has adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation." As permitted by this statement, the Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," to
account for its stock-based employee compensation arrangements.
COMPREHENSIVE INCOME -- The Company has adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." Comprehensive
income has been disclosed in the Consolidated Statement of Changes in
Stockholders' Equity for all periods presented. The accumulated other
comprehensive income balance represents the cumulative translation adjustments.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - In June 1998, FASB issued SFAS 133,
"Accounting for Derivatives and Hedging Activities", which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
SFAS 133 is effective for all fiscal quarters or fiscal years beginning after
June 15, 2000, as amended by SFAS 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133", issued in June 1999. The Company does not expect the adoption of this
statement to have a significant impact on the Company's results of operations,
cash flows or financial position.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101
"Revenue Recognition in Financial Statements". SAB 101 summarizes certain of the
SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. In March 2000, the SEC issued SAB
101A, an amendment to SAB 101, which delays the implementation of SAB 101 to no
later than June 30, 2000 for companies with fiscal years that begin between
December 16, 1999 and March 15, 2000. In June 2000 the SEC issued SAB 101B, an
amendment to SAB 101 and SAB 101A, which delays the implementation date of SAB
101 until no later than the fourth quarter of fiscal years beginning after
December 15, 1999. The Company is in the process of assessing the impact of SAB
101.
In April 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation no. 44, ("FIN 44") Accounting for Certain Transactions Involving
Stock Compensation -- an interpretation of APB Opinion No. 25 ("APB 25"). This
interpretation, which is effective from July 1, 2000, is intended to clarify
certain problems that have arisen in practice since the issuance of APB 25
including the definition of employee for the purpose of applying APB 25, the
criteria for determining whether a plan qualifies as a noncompensatory plan,
the accounting consequence of various modifications to the terms of a
previously fixed stock option award and the accounting for an exchange of stock
compensation awards in a business combination. The Company does not believe
that FIN 44 will have a material impact on its financial statements.
ADVERTISING COSTS - Advertising costs are expensed as incurred. Advertising
costs included in sales and marketing expenses amounted to approximately $608,
$344 and $351 for the years ending December 31, 1999, 1998 and 1997,
respectively.
MANAGEMENT ESTIMATES -- The presentation 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 disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to
conform to the current year presentation.
11
<PAGE> 12
ABT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 2 - ACQUISITIONS
On June 30, 1998, the Company purchased TMIS, a distributor of the Company's
products in France, for $3.14 million in cash. The acquisition was accounted for
by the purchase method and accordingly, the Company's financial statements
include the results of TMIS effective July 1, 1998. The resulting goodwill of
$3.16 million is being amortized over 5 years. Under the terms of the agreement,
additional purchase consideration is payable by the Company in 1999 and 2000 if
certain revenue milestones are achieved. In 1999, the Company paid $270 as
additional purchase consideration.
On December 31, 1997, the Company purchased the remaining 25% ownership of its
U.K. subsidiary from Hoskyns Group plc for 452,913 shares of the Company's
common stock based upon the terms and conditions of the 1995 Purchase Agreement.
The purchase method of accounting was used to record the transaction resulting
in approximately $1,095 of goodwill. Such goodwill is being amortized over seven
years.
NOTE 3 - RESTRUCTURING CHARGE
During 1997, the Company recorded a $509 restructuring charge associated with a
reorganization of the United States and European sales divisions. In addition,
certain satellite sales offices were relocated as a result of the plan. All
costs related to the reorganization plan, primarily severance costs, were paid
in 1997.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
<S> <C> <C>
Computers and equipment $10,495 $ 9,186
Leased computers and equipment 1,586 938
Furniture and fixtures 2,343 2,236
Leased furniture and fixtures 350 331
Leasehold improvements 1,046 635
------- -------
15,820 13,326
Less - Accumulated depreciation and amortization 10,196 8,010
------- -------
Property and equipment, net $ 5,624 $ 5,316
======= =======
</TABLE>
12
<PAGE> 13
ABT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 5 - SOFTWARE AND OTHER INTANGIBLES
Software and other intangibles consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
<S> <C> <C>
Capitalized software development costs $ 8,888 $5,857
Internal use software 1,779 1,471
Other intangibles 230 183
------- ------
10,897 7,511
Less - Accumulated amortization:
Capitalized software development costs 3,989 2,408
Internal use software 1,327 1,013
Other intangibles 225 130
------- ------
5,541 3,551
------- ------
Software and other intangibles, net $ 5,356 $3,960
======= ======
</TABLE>
NOTE 6 - RETIREMENT AND SAVINGS PLANS
For its U.S. employees, the Company has a voluntary savings plan designed to
enable employees to make contributions by salary deductions pursuant to Section
401(k) of the Internal Revenue Code. Effective December 1, 1996, the Company
began matching 30% of employee contributions up to the first 5% of compensation.
In connection with the required match, the Company's contribution to the plan
was $210, $178 and $157 for the years ended December 31, 1999, 1998 and 1997,
respectively.
For its U.K. subsidiary employees, the Company maintains a Company Personnel
Pension Scheme. The scheme, which is a contributory, defined-contribution plan,
covers substantially all employees of the U.K. subsidiary. Company contributions
to the plan were approximately $306, $263 and $243 for the years ended December
31, 1999, 1998 and 1997, respectively.
NOTE 7 - REDEEMABLE SECURITIES
CONVERTIBLE PREFERRED SHARES
The Company's Preferred Stock consists of 511,111 shares of $.01 par value
Series A Convertible Preferred Stock ("Series A Preferred"). The Series A
Preferred carries voting rights equivalent to the Company's common stock and
also entitle the holders to certain preferences and rights with respect to
dividends and distributions, liquidation and conversion. Conversion is either at
the option of the holders or upon the consummation of a public offering. Under
the terms of the Series A Preferred, the number of shares of common stock to be
issued upon conversion of a share of Series A Preferred will, based on a
formula, exceed one share when the sum of the number of option shares
outstanding or exercised under the Company's stock option plans exceeds 750,000
shares. The conversion formula is structured in such a way that the ownership
interests of present Series A Preferred holders will remain the same regardless
of the number of common stock option shares granted in excess of 750,000 shares.
Based on the number of common shares granted under stock options at December 31,
1999, each share of Series A Preferred would have been convertible into 1.31
shares of common stock. In the event of a liquidation, dissolution or winding up
of the Company, holders of the Series A Preferred are entitled to receive
approximately $2.35 per share (the "Series A Liquidation Preference"), prior to
any distribution to holders of Common Stock. A merger, consolidation,
reorganization of the Company, sale of all or substantially all of the Company's
assets shall be deemed to be a liquidation event. Accordingly, the Series A
Preferred is presented as Mandatorily Redeemable Security.
13
<PAGE> 14
ABT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
COMMON STOCK
Each share of common stock is entitled to one vote. The holders of common stock
are also entitled to receive dividends whenever funds are legally available and
when declared by the Board of Directors, subject to the prior rights of holders
of all classes of stock outstanding. In the event of a liquidation, dissolution
or winding up of the Company, and after the holders of Series A Preferred have
received the full amount of the Series A Liquidation Preference, the holders of
the outstanding shares of Common Stock shall be entitled to receive, out of the
remaining assets of the Company available for distribution to its stockholders,
in cash or other property, a fixed amount equal to approximately $2.35 per share
(the "Common Stock Liquidation Preference"). Any assets of the Company remaining
after all of the payments as mentioned above shall be distributed with respect
to then outstanding shares of preferred stock and common stock pro rata on a per
share basis without regard to class.A merger, consolidation, reorganization of
the company, sale of all or substantially all of the Company's assets shall be
deemed to be a liquidation event. Accordingly, the common stock is presented as
Mandatorily Redeemable security.
NOTE 8 - INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current tax provision (benefit):
U.S. federal $ (266) $ 154 $ 451
State and local 49 (20) 110
Foreign 1,823 1,857 1,088
------- ------- -------
Total current provision 1,606 1,991 1,649
Deferred tax (benefit) provision:
U.S. federal (261) 788 43
State and local (3) 227 12
Foreign (238) (7) (21)
------- ------- -------
Total deferred (benefit) provision (502) 1,008 34
------- ------- -------
Provision for income taxes $ 1,104 $ 2,999 $ 1,683
======= ======= =======
</TABLE>
At December 31, 1999, the Company had foreign tax credit carryforwards and state
tax losses carryforwards totaling approximately $282 and $116, respectively,
which expire at December 31, 2004 and December 31, 2019, respectively.
14
<PAGE> 15
ABT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Deferred tax (assets) liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
------- -------
<S> <C> <C>
Machinery and equipment depreciation $ 330 $ 293
Software development costs amortization 1,941 1,368
Furniture & fixtures depreciation 10 1
Other 10 17
------- -------
Gross deferred tax liabilities 2,291 1,679
------- -------
Deferred revenue (239) (72)
Research and development credit carryforwards (261) (41)
Sales revenue reserve (380) (274)
Leasehold improvements amortization (81) (62)
Internal use software amortization (27) (12)
Bad debts allowance (10) (10)
Foreign tax credit (282) --
Alternative minimum tax (30) --
Foreign benefit on NOL (490) (185)
State NOL carryforwards (116) --
Other (321) (162)
------- -------
Gross deferred tax (assets) (2,237) (818)
Less - valuation allowance 490 185
------- -------
Net deferred tax (assets) (1,747) (633)
------- -------
Net deferred tax liability $ 544 $ 1,046
======= =======
</TABLE>
The differences between the provision for income taxes and the income tax
computed using the U.S. statutory federal income tax rate to pretax income were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Statutory tax rate $ 782 $ 2,028 $ 1,320
Changes in rates resulting from:
Higher rates on earnings of foreign operations 390 286 122
State and local income taxes, net of federal benefit (9) 137 81
Nondeductible items 449 399 285
Tax credits (497) (116) (213)
Other (11) 265 88
------- ------- -------
Provision for income taxes $ 1,104 $ 2,999 $ 1,683
======= ======= =======
</TABLE>
15
<PAGE> 16
ABT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 9 - STOCK OPTION PLANS
The Employee Incentive Option Plan ("USISO Plan") provides for the granting of
incentive stock options, at fair market value as determined by the Board of
Directors at the date of grant, to officers and key employees, primarily in the
United States, for the purchase of common stock of the Company. During 1997 and
1998, additional 500,000 and 750,000 common shares, respectively were authorized
for grant under the USISO Plan, bringing the total authorized to 2,825,000.
Options granted under the USISO Plan vest over not more than four years,
generally in equal amounts each year, and expire ten years after date of grant.
The UK Approved Share Option Subplan ("UKISO Plan"), an approved share option
scheme under the regulations of the Inland Revenue, provides for the granting of
incentive stock options, at fair market value as determined by the Company's
Board of Directors at the date of grant, to officers and key employees of the
Company's U.K. subsidiary ABT International, Ltd. Total authorized common shares
under the UKISO Plan are 450,000. Options granted under the UKISO Plan vest over
not more than four years, in equal amounts each year, and expire seven or ten
years after date of grant.
During 1998, a new nonqualified stock option plan ("98NQSO Plan") was initiated
to provide for grants of nonqualified stock options, at fair market value as
determined by the Board of Directors at the date of grant, to Board members,
advisers, consultants and others who are not employed by the Company, as well as
to employees at the discretion of the Board. Authorized shares at December 31,
1999 total 100,000. All options granted under the 98NQSO Plan were granted to
outside Board members and vest at the end of the calendar year in which they are
granted. Vesting periods may vary for future grants under the Plan. Options
granted under the Plan expire ten years from date of grant.
The Nonqualified Stock Option Plans ("NQSO Plans") include the Stock Option Plan
which provides for the granting of nonqualified stock options to officers and
key employees and the 1998 Stock Option Plan which provides for the granting of
nonqualified stock options to employees, directors, consultants and advisors of
the Company. No additional shares may be authorized and granted under the Stock
Option Plan. Total authorized shares under the NQSO Plans are 150,000. Plan
options expire ten years from date of grant, and exercise prices and
exercisability of the options are determined based on length of Company service
of the option holders at date of grant.
16
<PAGE> 17
ABT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Activity and balances in each of the plans was as follows:
<TABLE>
<CAPTION>
USISO Plan UKISO Plan NQSO Plans
------------------------ ----------------------- ------------------------
Weighted Weighted Weighted
Stock Average Stock Average Stock Average
Options Exercise Options Exercise Options Exercise
Outstanding Price Outstanding Price Outstanding Price
----------- --------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 1,228,500 $ 2.71 334,000 $ 3.32 50,000 $ 1.80
Granted 406,500 $ 5.25 39,000 $ 5.25 -- --
Exercised (15,500) $ 2.74 -- -- -- --
Canceled (177,500) $ 2.81 (228,000) $ 3.30 -- --
--------- -------- -------
Balance at December 31, 1997 1,442,000 $ 3.41 145,000 $ 3.88 50,000 $ 1.80
========= ======== =======
Granted 901,500 $ 7.39 34,000 $ 6.80 10,000 $ 6.80
Exercised (5,000) $ 2.74 (3,500) $ 3.25 -- --
Canceled (205,500) $ 4.81 (36,500) $ 3.74 -- --
--------- -------- -------
Balance at December 31, 1998 2,133,000 $ 4.96 139,000 $ 4.65 60,000 $ 2.63
========= ======== =======
Granted 449,000 $ 9.54 47,500 $ 8.50 10,000 $ 8.50
Exercised (1,000) $ 5.25 -- -- -- --
Canceled (260,500) $ 5.85 (7,000) $ 6.80 (50,000) $ 1.80
--------- -------- -------
Balance at December 31, 1999 2,320,500 $ 5.75 179,500 $ 5.58 20,000 $ 7.65
========= ======== =======
Exercisable at December 31, 1999 1,311,684 $ 3.94 96,750 $ 3.95 20,000 $ 7.65
========= ======== =======
Available for grant at December 31, 1999 468,000 262,000 130,000
========= ======== =======
</TABLE>
The following table summarizes information regarding stock options outstanding
at December 31, 1999 under the Company's option plans:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Range of Exercise Number Remaining Life Exercise Number Exercise
Price Outstanding in Years Price Exercisable Price
------------------ ----------- -------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.40 - $4.50 986,000 2.94 $2.67 986,000 $2.67
$5.25 - $7.90 1,057,000 8.15 $6.94 402,834 $6.79
$8.50 - $13.00 477,000 8.90 $9.48 39,600 $8.50
</TABLE>
In accordance with Statement of Financial Accounting Standards ("SFAS") 123,
"Accounting for Stock-Based Compensation," the Company applies the disclosure
method of accounting for stock-based compensation. The Company continues to
apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," in accounting for its stock-based compensation plans. If the
Company had recorded compensation cost based upon the fair value at the grant
date for awards under these plans consistent with SFAS No. 123, the Company's
net income would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net income as reported $1,196 $2,967 $2,200
Net income pro forma $1,039 $2,840 $2,171
</TABLE>
17
<PAGE> 18
ABT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model, under the minimum value method, with the
following weighted-average assumptions used for grants in 1999, 1998 and 1997,
risk-free interest rate of 4.92 percent, 5.06 percent and 6.09 percent,
respectively; zero dividend yield; and an expected option life of four years. In
accordance with SFAS No. 123, the fair value method of accounting has not been
applied to options granted prior to January 1, 1995. Therefore, the resulting
pro forma impact may not be representative of that to be expected in future
years.
The weighted average fair value of options granted during the years ended
December 31, 1999, 1998, 1997 was $1.68, $1.32 and $1.10, respectively.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain equipment under various lease
arrangements, which are classified for financial reporting purposes as either
capital or operating leases. Future minimum rental payments under noncancelable
capital and operating leases at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
2000 $ 500 $ 2,522
2001 467 1,816
2002 358 1,611
2003 54 1,482
2004 -- 1,444
2005 and thereafter -- 3,010
------- -------
Total minimum lease payments 1,379 $11,885
=======
Less - Amount representing interest (216)
-------
Present value of minimum lease payments $ 1,163
=======
</TABLE>
The noncancelable operating lease for the Company's current headquarters office
space expires in 2000 and provides for adjustments in annual rental payments for
increases in real estate and other taxes. Performance during the term of the
lease is guaranteed to the lessor by a letter of credit in the lessor's name in
the amount of $80; the letter of credit is fully secured by an outstanding
certificate of deposit in the Company's name in the same amount as the letter of
credit. In late 1998, the Company entered into a lease for new headquarters
office space. The noncancelable operating lease expires in 2009 and provides for
adjustments in annual rental payments for increases in real estate taxes and
electricity and other operating expenses. Performance under the lease is
guaranteed to the lessor by a security deposit representing six months rental
payments. The future operating lease payments above reflect the net amount of
lease payments under both these leases.
Operating lease rental expense was $3,407, $2,317 and $1,948 for the years ended
December 31, 1999, 1998 and 1997, respectively.
NOTE 11 - BORROWINGS
The Company maintains a secured, revolving, working capital line of credit
agreement expiring June 30, 2000. The agreement provides for maximum borrowings
equal to the lesser of 80% of eligible U.S. and Canadian trade accounts
receivable or $5,000, less the face amount of any outstanding or standby letters
of credit or the face
18
<PAGE> 19
ABT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
amount plus margin (10%) on any outstanding foreign exchange contracts which are
secured by the line. A maximum of $1,250 of spot and future foreign exchange
contracts may be secured by the line. The interest rate on borrowings is prime
plus 1.5%. Borrowings outstanding at December 31, 1999 and 1998 were $3,250 and
$1,500, respectively. Under the terms of the working capital line of credit
agreement, the Company is required to comply with certain financial covenants,
including minimum tangible net worth and minimum net income/loss (measured
quarterly) and minimum adjusted quick ratio (as defined in the agreement-
measured monthly).
In August 1999, the Company entered into a $1,000 fixed asset term loan
agreement. The interest rate is prime plus 1.5%. The loan matures on August 16,
2002. The covenant and collateral requirements are essentially the same as the
working capital line of credit.
In July 1999, the UK subsidiary entered into a $813 loan. The loan matures on
June 1, 2002.
In December 1998, the Company entered into a $1,000 fixed asset term loan
agreement. The interest rate is prime plus 0.75%. The loan matures on December
30, 2001. The covenants and collateral requirements are essentially the same as
the working capital line of credit.
In September 1998, the Company entered into a $750 fixed asset term loan
agreement. The interest rate is prime plus 1.5%. The loan matures on September
1, 2001. The covenants and collateral requirements are essentially the same as
the working capital line of credit.
In December 1997, the Company entered into a $750 fixed asset term loan
agreement. The interest rate is prime plus 1.5%. The loan matures on December 1,
2000. The covenants and collateral requirements are essentially the same as the
working capital line of credit.
During December 1996, the Company entered into a $300 three-year promissory note
agreement. The interest rate is 10.31%. The note is secured by a $90 standby
letter of credit and certain equipment purchases.
In November 1996, the Company entered into a $400 fixed asset term loan
agreement. The interest rate is prime plus 1.5%. The loan matures on May 4,
2000. The covenants and collateral requirements are essentially the same as the
working capital line of credit.
The Company is required to make principal payments on outstanding obligations as
follows:
<TABLE>
<S> <C>
2000 $4,750
2001 1,121
2002 425
2003 and thereafter --
------
Total $6,296
======
</TABLE>
Total commitment fees on the lines of credit amounted to $36, $29 and $19 for
1999, 1998 and 1997, respectively.
During the year ended December 31, 1999, the Company did not comply with some of
the financial covenants, which were waived by the lender. As of December 31,
1999, the Company met all financial covenants.
19
<PAGE> 20
NOTE 12 - SUBSEQUENT EVENTS (UNAUDITED)
On August 4, 2000, ABT was acquired by Niku Corporation (Niku) for
4,000,000 shares of Niku common stock and $10,000,000 in cash, in a transaction
to be accounted for as a purchase.
20
<PAGE> 21
ABT CORPORATION
Unaudited Condensed Consolidated Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
JUNE 30,
2000
--------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,857
Accounts receivable, less allowances for bad debts
and sales returns of $1,490 15,094
Deferred income taxes 588
Income taxes refunds - receivable 321
Other current assets 3,300
--------
Total current assets 23,160
Property and equipment, net 4,634
Goodwill, net 2,457
Software and other intangibles, net 4,194
Deferred income taxes 1,159
Other assets 830
--------
Total assets $ 36,434
========
LIABILITIES AND REDEEMABLE SECURITIES
Current liabilities:
Deferred revenues 10,371
Accounts payable 1,850
Accrued expenses 2,192
Accrued compensation 2,644
Income taxes payable 243
Current portion of loans payable 4,285
Current portion of capital lease obligations 447
Other current liabilities 2,073
--------
Total current liabilities 24,105
Deferred income taxes 1,747
Noncurrent portion of loans payable 934
Noncurrent portion of capital lease obligations 650
Other liabilities 315
--------
Total liabilities 27,751
--------
Commitments and contingencies
Redeemable Securities
Convertible preferred stock ($.01 par value, 511,111
shares authorized, issued and outstanding) 1,101
Common stock ($.01 par value, 10,000,000 shares
authorized, 5,251,681 shares issued and outstanding 53
Additional paid-in capital 2,215
Retained earnings 5,379
Cumulative translation adjustment (65)
--------
Total redeemable securities 8,683
--------
Total liabilities and redeemable securities $ 36,434
========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
21
<PAGE> 22
ABT CORPORATION
Unaudited Condensed Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED JUNE 30,
-------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Software licenses $ 11,599 $ 14,384
Consulting and training 10,015 10,090
Customer support 8,015 6,741
-------- --------
Total revenues 29,629 31,215
-------- --------
Cost of revenues:
Software licenses 2,361 1,439
Consulting and training 9,471 8,636
Customer support 1,186 1,238
-------- --------
Total cost of revenues 13,018 11,313
-------- --------
Gross profit 16,611 19,902
-------- --------
Operating costs and expenses:
Sales and marketing 11,974 10,795
Research and development 6,007 4,051
General and administrative 3,384 3,341
Amortization of goodwill 439 446
-------- --------
Total operating costs and expenses 21,804 18,633
-------- --------
Operating income (loss) (5,193) 1,269
Other income (expense):
Interest income 52 40
Interest expense (372) (174)
-------- --------
Income (loss) before taxes (5,513) 1,135
Provision for (benefit from) income taxes (644) 545
-------- --------
Net income (loss) $ (4,869) $ 590
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
22
<PAGE> 23
ABT CORPORATION
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED JUNE 30,
-------------------------
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(4,869) $ 590
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment 1,120 1,081
Allowance for bad debts and sales returns 423 (43)
Amortization of goodwill 439 446
Amortization of software and other intangibles 1,657 753
Deferred income taxes (544) --
Changes in operating assets and liabilities:
Accounts receivable 5,308 167
Other current assets and liabilities, net 1,594 (586)
Deferred revenues (612) (139)
Accrued compensation (607) (1,502)
Accounts payable and accrued expenses 451 2,091
Income taxes payable (510) (206)
Income taxes receivable (2,661) --
Other assets and liabilities, net 209 (13)
------- -------
Net cash provided by operating activities 1,398 2,639
Cash flows from investing activities:
Acquisition of property and equipment (130) (1,687)
Cash paid for acquisitions 122 --
Additions to capitalized software costs and other intangibles (495) (2,215)
------- -------
Net cash used in investing activities (503) (3,902)
------- -------
Cash flows from financing activities:
Proceeds from loans -- 262
Principal payments of loans (1,077) --
Principal payments of capital lease obligations (66) (59)
Proceeds from exercise of stock options 328 --
------- -------
Net cash provided by (used in) financing activities (815) 203
------- -------
Effect of exchange rate changes on cash (710) --
------- -------
Net decrease in cash and cash equivalents (630) (1,060)
Cash and cash equivalents at beginning of period 4,487 4,661
------- -------
Cash and cash equivalents at end of period $ 3,857 $ 3,601
======= =======
Supplemental disclosures:
Cash paid for taxes $ 718 $ 744
======= =======
Cash paid for interest $ 441 $ 207
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
23
<PAGE> 24
ABT CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2000
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
contain all adjustments, consisting of normal recurring items, which in
the opinion of management of ABT Corporation (ABT) are necessary to
present fairly the financial position, results of operations and cash
flows for the periods shown. The financial data included herein was
compiled in accordance with the same accounting policies applied to the
Company's audited annual financial statements, which should be read in
conjunction with these statements.
The results of operations for the six months ended June 30, 2000, are not
necessarily indicative of the results to be expected for the full year.
(2) SUBSEQUENT EVENT
On August 4, 2000, Niku Corporation ("Niku"), completed the acquisition
of the Company pursuant to a merger of a wholly-owned subsidiary of the
Niku with and into Company (the "Merger"), with the Company surviving as
a wholly-owned subsidiary of Niku. In connection with the Merger, Niku
issued an aggregate of 4,000,000 shares of its Common Stock and $10.0
million in cash for all of the outstanding capital stock, including stock
options and warrants, of the Company, of which 400,000 shares will be
subject to an escrow arrangement to secure certain indemnification
obligations of the Company and $2.25 million in cash will be held in
escrow to secure payment obligations to warrant holders of the Company as
well as to pay for certain transaction expenses. The shares were issued
pursuant to an exemption from registration under Section 3(a)(10) of the
Securities Act of 1933, as amended. Therefore, these shares will
generally be available for public resale at any time in the future,
subject to specified lock-up provisions contained in the merger
agreement. The Merger is intended to be a tax-free reorganization.
Following the acquisition, Niku and the Company paid off all the
outstanding debt of the Company as of August 4, 2000.
In connection with the acquisition, the Company received a loan of
approximately $150,000 from a bank at an interest rate of 9.5% per annum,
due and payable on September 30, 2001. Subsequently the Company loaned to
its option holders approximately $150,000 with substantially the same
terms as the loan received by the Company, except that such loans are
secured by shares of Niku Common Stock held by such option holders, and
are with full recourse to such option holders.
24
<PAGE> 25
(b) Pro Forma Financial Information.
25
<PAGE> 26
NIKU CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION
OVERVIEW
The following unaudited pro forma combined condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the combined financial position or results of operations for future periods
or the results of operations or financial position that actually would have been
realized had Niku Corporation (the Company) and ABT Corporation (ABT) been a
combined company during the specified periods. The unaudited pro forma combined
condensed financial statements, including the related notes, are qualified in
their entirety by reference to, and should be read in conjunction with, the
historical financial statements and related notes thereto of the Company
included in its previously filed Form 10-K for the year ended January 31, 2000,
and Form 10-Q filings for the quarters ended April 30, 2000 and July 31, 2000,
and the consolidated financial statements of ABT included elsewhere in this
filing. The following unaudited pro forma combined condensed financial
statements give effect to the acquisition of ABT by the Company using the
purchase method of accounting. The unaudited pro forma combined condensed
financial statements are based on the respective historical audited and
unaudited financial statements and related notes of the Company and ABT.
The pro forma adjustments are preliminary and based on management's
estimates of the value of the tangible and intangible assets acquired. The
actual adjustments may differ materially from those presented in these pro forma
financial statements. A change in the pro forma adjustments would result in a
reallocation of the purchase price affecting the value assigned to the long-term
tangible and intangible assets or, in some circumstances, resulting in a charge
to the statement of operations. The effect of these changes on the statement of
operations will depend on the nature and amount of the assets and liabilities
adjusted.
The unaudited pro forma combined condensed balance sheet assumes that the
acquisition took place on July 31, 2000, and combines the Company's July 31,
2000 consolidated balance sheet with ABT's June 30, 2000 consolidated balance
sheet. The unaudited pro forma combined condensed statements of operations
assumes the acquisition took place on February 1, 1999, and combines the
Company's consolidated statement of operations for the year ended January 31,
2000, with ABT's consolidated statement of operations for the year ended
December 31, 1999, and the Company's consolidated statement of operations for
the six months ended July 31, 2000, with ABT's consolidated statement of
operations for the six months ended June 30, 2000.
26
<PAGE> 27
NIKU CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JULY 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- ----------------------------
NIKU ABT ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 122,978 $ 3,857 $ (10,000)(c) $ 116,835
Short-term investments 91,524 -- -- 91,524
Accounts receivable 15,448 15,094 -- 30,542
Deferred income taxes -- 588 (588)(b) --
Income taxes receivable -- 321 (321)(b) --
Prepaid expenses and other current assets 7,781 3,300 -- 11,081
--------- --------- --------- ---------
Total current assets 237,731 23,160 (10,909) 249,982
Deposits and other assets 5,091 830 -- 5,921
Deferred income taxes -- 1,159 (1,159) (b) --
Property and equipment, net 8,347 4,634 -- 12,981
Goodwill and other intangible assets, net 76,031 6,651 (6,651)(a) 76,031
100,396 (c) 100,396
--------- --------- --------- ---------
$ 327,200 $ 36,434 $ 81,677 $ 445,311
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,801 $ 1,850 $ -- $ 9,651
Accrued liabilities 17,138 6,909 1,500 (c) 25,547
Income taxes payable -- 243 (243)(b) --
Current portion of long-term obligations 6,517 4,732 -- 11,249
Deferred revenue 8,698 10,371 -- 19,069
--------- --------- --------- ---------
Total current liabilities 40,154 24,105 1,257 65,516
Deferred income taxes -- 1,747 (1,747) --
Long-term obligations, less current portion -- 1,899 -- 1,899
--------- --------- --------- ---------
Total liabilities 40,154 27,751 (490) 67,415
--------- --------- --------- ---------
Redeemable securities of ABT -- 8,683 (8,683)(c) --
--------- --------- --------- ---------
Stockholders' equity (deficit):
Common stock 7 -- 1 (c) 8
Additional paid-in capital 410,452 -- 90,849 (c)
5,100 (d) 506,401
Deferred stock compensation (27,109) -- (5,100)(d) (32,209)
Notes receivable from stockholders (5,272) -- -- (5,272)
Cumulative translation adjustment (56) -- -- (56)
Accumulated deficit (90,976) -- -- (90,976)
--------- --------- --------- ---------
Total stockholders' equity (deficit) 287,046 -- 90,850 377,896
--------- --------- --------- ---------
$ 327,200 $ 36,434 $ 81,677 $ 445,311
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
27
<PAGE> 28
NIKU CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- -------------------------
NIKU ABT ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
License $ 5,480 $ 33,160 $ -- $ 38,640
Services 2,573 34,575 -- 37,148
Marketplace 104 -- -- 104
--------- --------- --------- ---------
Total revenues 8,157 67,735 -- 75,892
Cost of revenues:
License 400 3,089 -- 3,489
Services 2,220 20,094 -- 22,314
Marketplace -- -- -- --
--------- --------- --------- ---------
Total cost of revenues 2,620 23,183 -- 25,803
--------- --------- --------- ---------
Gross profit 5,537 44,552 -- 50,089
Operating expenses:
Sales and marketing 15,521 23,722 -- 39,243
Research and development 10,920 9,917 -- 20,837
General and administrative 4,737 7,234 -- 11,971
Stock-based compensation 9,014 -- 4,592 (g) 13,606
Amortization of goodwill and other intangible assets 2,381 915 (915)(e)
23,889 (f) 26,270
--------- --------- --------- ---------
Total costs and expenses 42,573 41,788 27,566 111,927
--------- --------- --------- ---------
Operating loss (37,036) 2,764 (27,566) (61,838)
Interest and other income (expense), net 549 (464) -- 85
--------- --------- --------- ---------
Loss before income taxes (36,487) 2,300 (27,566) (61,753)
Income tax (expense) benefit -- (1,104) 1,104 (h) --
--------- --------- --------- ---------
Net loss $ (36,487) $ 1,196 $ (26,462) $ (61,753)
========= ========= ========= =========
Basic and diluted net loss per share $ (5.61) $ (5.88)
========= =========
Shares used to compute basic and diluted net loss per share 6,506 4,000 (i) 10,506
========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
28
<PAGE> 29
NIKU CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- ----------------------------
NIKU ABT ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
License $ 14,673 $ 11,599 $ -- $ 26,272
Services 5,347 18,030 -- 23,377
Marketplace 1,115 -- -- 1,115
--------- --------- --------- ---------
Total revenues 21,135 29,629 -- 50,764
Cost of revenues:
License 1,389 2,361 -- 3,750
Services 4,716 10,657 -- 15,373
Marketplace 10 -- -- 10
--------- --------- --------- ---------
Total cost of revenues 6,115 13,018 -- 19,133
--------- --------- --------- ---------
Gross profit 15,020 16,611 -- 31,631
Operating expenses:
Research and development 14,430 6,007 -- 20,437
Sales and marketing 25,852 11,974 -- 37,826
General and administrative 5,156 3,384 -- 8,540
Stock-based compensation 15,518 -- 248 (g) 15,766
Amortization of goodwill and other intangible assets 10,564 439 (439)(e)
11,945 (f) 22,509
--------- --------- --------- ---------
Total costs and expenses 71,520 21,804 11,754 105,078
--------- --------- --------- ---------
Operating loss (56,500) (5,193) (11,754) (73,447)
Interest and other income (expense), net 5,032 (320) -- 4,712
--------- --------- --------- ---------
Loss before income taxes (51,468) (5,513) (11,754) (68,735)
Income tax benefit (expense) -- 644 (644)(h) --
--------- --------- --------- ---------
Net loss $ (51,468) $ (4,869) $ (12,398) $ (68,735)
========= ========= ========= =========
Basic and diluted net loss per share $ (0.86) $ (1.08)
========= =========
Shares used to compute basic and diluted net loss per share 59,666 4,000 (i) 63,666
========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
29
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
(1) UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
On August 4, 2000, Niku Corporation (the Company), acquired ABT
Corporation (ABT), a privately-held company in New York. The Company issued
4,000,000 shares of its common stock, valued at approximately $88 million, and
$10 million in cash for all of ABT's outstanding capital stock. In addition, the
Company agreed to issue common stock and options to current and former employees
of ABT. Former employees of ABT will receive additional consideration of 163,000
shares of the Company's common stock and options to purchase 162,000 shares of
the Company's common stock. Current employees of ABT will receive consideration
with intrinsic value totaling approximately $5.1 million payable in common stock
of the Company or options to purchase common stock of the Company upon closing
of the transaction, contingent on continued employment for periods ranging form
three months to two years. The transaction will be accounted for as a purchase.
Fully vested common stock to be issued or fully vested stock options
granted to former employees of ABT will be recorded as additional consideration.
The then fair value of the common stock or stock options will be recorded as
additional goodwill to be amortized over the remaining useful life. Common stock
issued or stock options granted to current employees of ABT will be recorded as
deferred stock compensation to be amortized over the vesting term.
The pro forma combined condensed balance sheet as of July 31, 2000, gives
effect to the acquisition as if it had occurred on July 31, 2000.
The following adjustment has been reflected in the unaudited pro forma
combined condensed balance sheet:
(a) To eliminate historical goodwill and other intangible assets of ABT.
(b) To eliminate ABT historical tax-related accounts.
(c) To record common stock issued and options granted by Niku and record
applicable purchase accounting entries for the acquisition of ABT.
Amounts allocated to identifiable intangible assets and goodwill will be
amortized on a straight-line basis over estimated useful lives ranging
from 2 to 5 years. Allocations are subject to valuations as of the date
of the consummation of the acquisition. The amounts and components of the
estimate purchase price along with the preliminary allocation of the
estimated purchase price to assets purchased are as follows (in
thousands):
30
<PAGE> 31
<TABLE>
<S> <C>
Common stock $ 88,000
Options granted to former employees of ABT 2,850
Cash 10,000
Estimated transaction costs 1,500
---------
$ 102,350
=========
Cash $ 3,857
Accounts receivable 15,094
Prepaid expenses and other current assets 3,300
Deposits and other assets 830
Property and equipment 4,634
Accounts payable (1,850)
Accrued expenses (6,909)
Deferred revenue (10,371)
Long-term obligations (6,631)
---------
Fair value of net tangible assets of ABT 1,954
Assembled workforce 5,600
Customer base 31,800
Current products and technology 12,700
Goodwill 50,296
---------
Net assets acquired (after adjustments (a) and (b) above) $ 102,350
=========
</TABLE>
The actual allocation of the purchase price will depend on the
composition of ABT's net assets on the closing date and Niku's
evaluation of the fair value of the net assets as of the date
indicated. Consequently, the actual allocation of the purchase
price could differ from that presented above.
(d) To record deferred stock-based compensation resulting from common
stock issued and stock options granted to current employees of
ABT.
(2) UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The following adjustments have been reflected in the unaudited pro forma
combined condensed statements of operations:
(e) To reverse historical amortization of goodwill and other
intangible assets of ABT.
(f) Adjustment to record the amortization of goodwill and other
intangible assets resulting from the allocation of the ABT
purchase price based on the following estimated useful lives:
31
<PAGE> 32
<TABLE>
<CAPTION>
Estimated Annual
Value useful life amortization
------- ----------- ------------
<S> <C> <C> <C>
Assembled workforce $ 5,600 5 years $ 1,120
Customer base 31,800 5 years 6,360
Current products and technology 12,700 2 years 6,350
Goodwill 50,296 5 years 10,059
-------
$23,889
=======
</TABLE>
(g) To record amortization of deferred stock-based compensation
resulting from the acquisition. Deferred stock-based compensation
is being amortized over vesting terms ranging from three months to
two years in a manner consistent with FASB Interpretation No. 28.
The majority of the deferred-stock based compensation vests
within one year.
(h) To record pro forma tax-related adjustment to the provision for
income taxes.
(i) To reflect the shares issued as consideration for the acquisition
of ABT.
32
<PAGE> 33
(c) Exhibits.
The following exhibits are filed herewith:
2.1 Agreement and Plan of Reorganization, dated as of May 24,
2000, by and among the Company, Nation Acquisition Corp. and ABT Corporation
(previously filed as an exhibit to the original Current Report on Form 8-K on
August 18, 2000).
23.1 Consent of PricewaterhouseCoopers LLP, Independent Auditors.
33
<PAGE> 34
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NIKU CORPORATION
Date: October 18, 2000 By: /s/ Mark Nelson
--------------------------------
Mark Nelson
Chief Financial Officer
34
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization, dated as of May 24,
2000, by and among the Company, Nation Acquisition Corp. and
ABT Corporation (previously filed as an exhibit to the original
Current Report on Form 8-K on August 18, 2000).
23.1 Consent of PricewaterhouseCoopers LLP, Independent Auditors.
</TABLE>
