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): June 2, 2000
PIVOTAL CORPORATION
------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
British Columbia, Canada
------------------------------------------------
(State or Other Jurisdiction of Incorporation)
000-26867 Not Applicable
------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
300 - 224 West Esplanade
North Vancouver, B.C., Canada V7M 3M6
------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (604) 988-9982
Not Applicable
------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On June 2, 2000, Pivotal Corporation acquired 100 percent of the issued and
outstanding shares of Exactium Ltd., a provider of eSelling solutions optimized
for Internet and Microsoft standards, an Israeli company based in Atlanta,
Georgia. Under the terms of the Stock Purchase Agreement dated April 12, 2000, a
copy of which is attached hereto as Exhibit 2.1, Pivotal Corporation paid an
aggregate purchase price of approximately US$45.1 million for all shares of
Exactium Ltd. Significant components of the purchase price include issuance of
common shares with a fair value of US$29.2 million, issuance of options to
purchase common shares with fair value of US$2.8 million and cash of US$13.1
million from working capital (including shareholder loan repayment of US$5.4
million and acquisition-related expenditures of US$775,000). The transaction
will be accounted under the purchase method of accounting.
Pivotal Corporation filed a current report on Form 8-K on June 19, 2000 to
report the acquisition. This amendment to the initial Form 8-K current report
contains audited consolidated financial statements of Exactium Ltd. and
unaudited pro forma condensed combined financial statements of Pivotal
Corporation omitted from the initial Form 8-K current report in accordance with
the instructions of Form 8-K under the Securities Exchange Act of 1934.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Audited Consolidated Financial Statements of Exactium, Ltd. as at
December 31, 1999 and 1998:
Report of Independent Auditor
Consolidated Balance Sheets
Consolidated Statements of Operations
Statements of Changes in Shareholders' Deficiency
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Unaudited Condensed Consolidated Financial Statements of Exactium,
Ltd.:
Condensed Consolidated Balance Sheet - March 31, 2000
Condensed Consolidated Statements of Operations - March 31, 2000
and 1999
Condensed Consolidated Statements of Cash Flows - March 31, 2000
and 1999
Notes to Condensed Consolidated Financial Statements
<PAGE>
EXACTIUM LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
IN U.S. DOLLARS
INDEX
Page
Report of Independent Auditor ..............................................2
Consolidated Balance Sheets ..............................................3-4
Consolidated Statements of Operations ......................................5
Statements of Changes in Shareholders' Deficiency ..........................6
Consolidated Statements of Cash Flows ......................................7
Notes to Consolidated Financial Statements ..............................8-16
<PAGE>
[ERNST & YOUNG LOGO] * Kost Forer & * Phone: 972-3-6232525
Gabbay Fax: 972-3-5622555
2 Kremenetski St.
Tel-Aviv 67899, Israel
REPORT OF INDEPENDENT AUDITOR
To the Shareholders of
EXACTIUM LTD.
We have audited the accompanying consolidated balance sheets of Exactium
Ltd. ("the Company") and its subsidiary as of December 31, 1999 and 1998, and
the related consolidated statements of operations, changes in shareholders'
deficiency and cash flows for each of the two years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
Board of Directors and management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Israel, including those prescribed by the Israeli Auditors'
Regulations (Mode of Performance), 1973. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Board of Directors and management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiary as of December 31, 1999 and 1998 and the
consolidated results of their operations, changes in shareholders' deficiency
and cash flows for each of the two years in the period ended December 31, 1999,
in conformity with generally accepted accounting principles in Israel. As
applicable to the Company's financial statements, generally accepted accounting
principles in the United States and in Israel are identical in all material
aspects.
/s/ Kost Forer & Gabbay
Tel-Aviv, Israel KOST FORER & GABBAY
February 9, 2000 A Member of Ernst & Young International
<PAGE>
<TABLE>
EXACTIUM LTD.
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------------------------------
In U.S. dollars
December 31,
---------------------------------
1998 1999
--------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 94,318 148,121
Trade receivables 96,432 437,340
Trade receivables from related parties 33,000 1,751,842
Other accounts receivable and prepaid expenses 63,282 164,346
--------------- --------------
Total current assets 287,032 2,501,649
--------------- --------------
PROPERTY AND EQUIPMENT (Note 3):
Cost 456,466 785,788
Less - accumulated depreciation 244,067 352,513
--------------- --------------
212,399 433,275
--------------- --------------
OTHER ASSETS:
Capitalized software development costs (net of accumulated
amortization of $ 21,897 at December 31, 1999) - 421,868
--------------- --------------
Total assets 499,431 3,356,792
=============== ==============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
<PAGE>
<TABLE>
EXACTIUM LTD.
CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------------------------
In U.S. dollars
December 31,
-----------------------------------
1998 1999
-------------- -----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Short-term bank credit 65,899 59,574
Current maturities of long-term debt (Note 4) 69,794 33,254
Trade payables 76,416 218,601
Employees and payroll accruals 88,587 231,419
Deferred revenues 73,000 228,101
Other accounts payable 83,263 273,342
-------------- -----------------
Total current liabilities 456,959 1,044,291
-------------- -----------------
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities (Note 4) 118,165 11,576
Long-term loan from a related party (Note 5) - 4,581,476
Accrued severance pay, net 139,871 202,476
-------------- -----------------
Total long-term liabilities 258,036 4,795,528
-------------- -----------------
SHAREHOLDERS' DEFICIENCY:
Share capital (Note 8) 4,256 4,271
Additional paid-in capital 7,856,377 7,880,355
Deferred compensation (28,984) -
Accumulated deficit (8,047,213) (10,367,653)
-------------- -----------------
Total shareholders' deficiency (215,564) (2,483,027)
-------------- -----------------
Total liabilities less shareholders' deficiency 499,431 3,356,792
============== =================
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
/s/ Eli Barak
-------------------------
Eli Barak
Chief Executive Officer
and Director
<PAGE>
<TABLE>
EXACTIUM LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------------------
In U.S. dollars
Year ended December 31,
--------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Revenues (*) (Note 10):
Sales 492,378 1,269,269
Services 329,910 1,324,323
-------------- --------------
Total revenues 822,288 2,593,592
Cost of revenues 363,714 970,617
-------------- --------------
Gross profit 458,574 1,622,975
-------------- --------------
Operating costs and expenses:
Research and development 1,415,870 1,298,378
Sales and marketing 1,072,163 1,348,762
General and administrative 1,348,689 1,200,309
-------------- --------------
Total operating costs and expenses 3,836,722 3,847,449
-------------- --------------
Operating loss (3,378,148) (2,224,474)
Financial expenses, net 41,391 95,966
-------------- --------------
Loss for the year (3,419,539) (2,320,440)
============== ==============
</TABLE>
(*) Revenues resulting from transactions with a related parties for the years
ended December 31, 1998 and 1999 were $380,700 and $1,213,622,
respectively.
The accompanying notes are an integral part of
the consolidated financial statements.
<PAGE>
<TABLE>
EXACTIUM LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
---------------------------------------------------------------------------------------------------------------------------------
In U.S. dollars
Additional Receipts on Total
Share paid-in account Deferred Accumulated shareholders'
capital capital of shares compensation deficit deficiency
------- ---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1998 2,569 2,954,752 1,118,292 (82,397) (4,627,674) (634,458)
Issuance of shares, net 1,632 4,428,432 (1,118,292) - - 3,311,772
Exercise of options, net 55 51,965 - - - 52,020
Deferred compensation related to
stock options grant - 421,228 - (421,228) - -
Amortization of deferred compensation - - - 474,641 - 474,641
Loss for the year - - - - (3,419,539) (3,419,539)
------- ---------- ----------- ------------ ----------- -------------
Balance as of December 31, 1998 4,256 7,856,377 - (28,984) (8,047,213) (215,564)
Exercise of options, net 15 2,685 - - - 2,700
Deferred compensation related to
issuance of shares - 21,293 - (21,293) - -
Amortization of deferred compensation - - - 50,277 - 50,277
Loss for the year - - - - (2,320,440) (2,320,440)
------- ---------- ----------- ------------ ----------- -------------
Balance as of December 31, 1999 4,271 7,880,355 - - (10,367,653) (2,483,027)
======= ========== =========== ============ =========== =============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
<PAGE>
<TABLE>
EXACTIUM LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------------------------------------------
In U.S. dollars
Year ended December 31,
-------------------------------------
1998 1999
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Loss for the year (3,419,539) (2,320,440)
Adjustments to reconcile loss to net cash used in operating activities:
Amortization of deferred compensation 474,641 50,277
Depreciation and amortization 61,805 130,343
Capital gain (3,249) -
Accrued severance pay, net (11,728) 62,605
Decrease (increase) in trade receivables 16,823 (340,908)
Increase in trade receivables from related parties (33,000) (1,718,842)
Increase in other accounts receivable and prepaid expenses (16,235) (101,064)
Increase (decrease) in trade payables (121,109) 142,185
Increase (decrease) in employees and payroll accruals,
deferred revenues and other accounts payable (160,291) 488,012
----------------- ----------------
Net cash used in operating activities (3,211,882) (3,607,832)
----------------- ----------------
Cash flows from investing activities:
Proceeds from bank deposits 35,761 -
Proceeds from sale of property and equipment 6,805 -
Purchase of property and equipment (71,077) (245,096)
Computer software costs capitalized - (443,765)
----------------- ----------------
Net cash used in investing activities (28,511) (688,861)
----------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of shares, net 3,311,772 -
Proceeds from exercise of options, net 52,020 2,700
Short-term bank credit, net (264,945) (6,325)
Principal payment of long-term debt (68,296) (227,355)
Proceeds from long-term loan from related parties - 4,581,476
----------------- ----------------
Net cash provided by financing activities 3,030,551 4,350,496
----------------- ----------------
Increase (decrease) in cash and cash equivalents (209,842) 53,803
Cash and cash equivalents at the beginning of the year 304,160 94,318
----------------- ----------------
Cash and cash equivalents at the end of the year 94,318 148,121
================= ================
Non cash investing and financing information:
Capital lease obligations incurred upon the acquisition of
property and equipment - 84,226
================= ================
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
<PAGE>
NOTE 1:- GENERAL
Exactium Ltd. ("the Company") was established and commenced operations
in 1991. The Company develops, designs, manufactures and markets
advanced sales configuration, marketing encyclopedia and proposal
generation solutions for use with customer interaction software (CIS)
as well as enterprise resource planning (ERP) applications.
The Company established a wholly-owned subsidiary in the United
States, Exactium Inc. which commenced operations in 1996.
In February 1999, the majority of the Company's shares has been sold
to a Swedish publicly held company by the name of IFS AB.
The Company and its subsidiary ("the Group") sell their products
worldwide. For the year ended December 31, 1999, revenues were derived
mainly from IFS group.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that effect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
b. Financial statements in U.S. dollars:
The Company's transactions are recorded in new Israeli shekels
("NIS"); however, the Company's sales are made outside Israel in
U.S. dollars, and a substantial portion of the Company's costs is
incurred in U.S. dollars. Accordingly, the Company has determined
the U.S, dollar as the currency of the primary economic
environment, and thus its functional and reporting currency
The Company's transactions and balances denominated in U.S.
dollars are presented at their original amounts. Non-dollar
transactions and balances have been remeasured into U.S. dollars
in accordance with Statement No. 52 of the Financial Accounting
Standards Board ("FASB"). All transaction gains and losses from
remeasurement of monetary balance sheet items denominated in
non-dollar currencies are reflected in the statement of
operations as financial income or expenses, as appropriate.
c. Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its subsidiary. Intercompany transactions and
balances, including profits from intercompany sales not yet
realized outside the group, have been eliminated in
consolidation.
d. Cash equivalents:
Cash equivalents are short-term highly liquid investments that
are available for withdrawal, or short-term deposits originally
purchased with maturities of three months or less.
<PAGE>
e. Property and equipment:
Property and equipment are stated at cost. Depreciation is
calculated using the straight-line method, over the estimated
useful lives of the assets, at the following annual depreciation
rates:
%
--------------------------
Computers and peripheral equipment 20 - 33
Office furniture and equipment 6 - 20
Motor vehicles 15
Leasehold improvements over the term of the lease
The Company periodically assess the recoverability of the
carrying amount of property and equipment and provides for any
possible impairment loss based upon the difference between the
carrying amount and fair value of such assets. As of December 31,
1999, no impairment indicators have been identified.
f. Income taxes:
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") 109,
"Accounting for Income Taxes". This Statement prescribes the use
of the liability method whereby deferred tax assets and liability
account balances are determined based on differences between
financial reporting and tax bases on assets and liabilities and
are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. The Company
provides a valuation allowance, if necessary, to reduce deferred
tax assets to their estimated realizable value.
g. Research and development costs:
Research and development costs, are charged to expenses as
incurred. Statement of Financial Accounting Standards ("SFAS")
No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed", requires capitalization of
certain software development costs, subsequent to the
establishment of technological feasibility.
Based on the Company's product development process, technological
feasibility is established upon completion of a working model.
Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general
release have been capitalized.
Capitalized software costs are amortized by the greater of: (i)
ratio of current gross revenues from sales of the software to the
total of current and anticipated future gross revenues from sales
of that software or (ii) the straight-line method over the
remaining estimated useful life of the product (not greater than
three years). The Company assesses the recoverability of this
intangible asset by determining whether amortization of the asset
over its remaining life can be recovered through undiscounted
future operating cash flows from the specific product.
At December 31, 1999 and 1998, the capitalized software costs
were $ 443,765 and $ 0, respectively. The capitalized software
costs are amortized over a period of 27 months. As of December
31, 1999 and 1998, accumulated amortization was $ 21,897 and $ 0,
respectively.
<PAGE>
h. Revenue recognition:
The Company generates revenues from licensing the rights to use
its software products directly to end-users and indirectly
through resellers. The Company also generates revenues from sales
of professional services, including consulting, implementation,
training and maintenance.
Revenues from licensing the rights to use the software products
are recognized in accordance with SOP 97-2, as amended. License
revenues are comprised of perpetual license fees which are
derived from contracts with resellers and end-customers. License
revenues from sales to resellers and end-customers are recognized
upon delivery of the software when collection is probable; all
license payments are due within one year; the license fee is
otherwise fixed or determinable; vendor-specific objective
evidence exists and persuasive evidence of an arrangement exists.
Service revenues are comprised of revenues from maintenance and
support arrangements, consulting fees, and training. Revenues
from support arrangements are deferred and recognized on a
straight-line basis as service revenues over the life of the
related agreement. Consulting, implementation and training
revenues are recognized at the time the services are rendered.
Customer advances and billed amounts due from customers in excess
of revenue recognized are recorded as deferred revenues.
i. Concentrations of credit risks:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
cash equivalents and trade receivables. Cash and cash equivalents
are invested in major banks in Israel and the United States.
Management believes that the financial institutions that hold the
Company's investments are financially sound and, accordingly,
minimal credit risk exists with respect to these investments. The
trade receivables of the Company are mainly derived from sales to
related parties. The Company usually does not require collateral
on trade receivables because its customers are large,
well-established companies.
j. Accounting for stock-based compensations:
The Company has elected to follow Accounting Principles Board
Opinion No. 25 ("APB-25"), "Accounting for Stock Issued to
Employees", in accounting for its employee stock option plans.
Under APB-25, when the exercise price of the Company employee
stock options equals or is above the market value of the
underlying stock on the date of grant, no compensation expense is
recognized.
The Company applies SFAS No. 123, "Accounting for Stock-Based
Compensation", with respect to options and warrants issued to
non-employees. SFAS No. 123 requires the use of option valuation
models to measure the fair value of the options and warrants at
the date of grant.
k. Severance pay:
The Company's liability for severance pay is calculated pursuant
to the Israeli Severance Pay Law based on the most recent salary
of the employees multiplied by the number of years of employment
as of the balance sheet date. Employees are entitled to one
month's salary for each year of employment or a portion thereof.
The Company's liability for all of its employees is fully
provided by monthly deposits with insurance policies and by an
accrual.
<PAGE>
Severance pay expenses for the years ended December 31, 1998 and
1999 were $ 139,871 and $ 202,476, respectively.
l. Impact of recently issued accounting standards:
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which will be effective for fiscal years beginning
after June 15, 2000. This Statement establishes accounting and
reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other
contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement also requires
that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. The
Company does not expect the impact of this new Statement on the
Company's balance sheet or results of operations to be material.
NOTE 3:- PROPERTY AND EQUIPMENT:
<TABLE>
December 31,
--------------------------------
1998 1999
------------- ---------------
<S> <C> <C>
Cost:
Computers and peripheral equipment 259,798 454,153
Office furniture and equipment 123,633 236,637
Motor vehicles 29,872 29,872
Leasehold improvements 43,163 65,126
------------- ---------------
456,466 785,788
------------- ---------------
Accumulated depreciation:
Computers and peripheral equipment 180,129 236,592
Office furniture and equipment 27,978 71,105
Motor vehicles 17,174 21,655
Leasehold improvements 18,786 23,161
------------- ---------------
244,067 352,513
------------- ---------------
Depreciated cost 212,399 433,275
============= ===============
</TABLE>
Depreciation expenses amounted to $ 61,805 and $ 108,446 for the years
ended December 31, 1998 and 1999, respectively.
<PAGE>
NOTE 4:- LONG-TERM DEBT
a. Balances, linkage terms and interest rates:
<TABLE>
December 31,
Interest -----------------------------
Linkage rate 1998 1999
--------- ------ ----------- -------------
%
------
<S> <C> <C> <C> <C>
Bank U.S. $ 7 187,959 -
Other U.S. $ 7 - 44,830
----------- -------------
187,959 44,830
Less - current maturities 69,794 33,254
----------- -------------
118,165 11,576
=========== =============
b. Aggregate maturities
First year (current maturities) 69,794 33,254
------------ -------------
Second year 69,794 7,834
Third year 48,371 3,742
------------ -------------
118,165 11,576
------------ -------------
187,959 44,830
============ =============
</TABLE>
NOTE 5:- LONG TERM LOAN FROM RELATED PARTY
The long term loan is linked to the US dollar and bears interest of
STIBOR + 2%. Maturity date has not yet bean determined.
NOTE 6:- CONTINGENT LIABILITIES AND COMMITMENTS
a. Royalties:
The Company entered into several contracts with the Chief
Scientist of the Ministry of Industry and Trade and received
grants for the funding of research and development projects.
In the event that development of a specific product in which the
Chief Scientist participated is successful, the Company is
obligated to pay royalties at the rate of 3% based on the sales
proceeds of that specific product, up to 100% - 150% of the grant
received (linked to the exchange rate of the U.S. dollar).
At December 31, 1999, the Company has a remaining contingent
obligation of $ 466 thousand.
b. Guarantee:
The Company provided guarantee in favor of its lessor in the
amount of $ 11,061.
<PAGE>
NOTE 7:- TAXES ON INCOME
a. Tax benefits under the Law for the Encouragement of Capital
Investments, 1959:
The Company has been granted an "Approved Enterprise" status for
investment program approved in 1998 by the Israeli Government
under the Law for Encouragement of Capital Investments, 1959
("the Law").
Undistributed Israeli income derived from the "Approved
Enterprise" program entitles the Company to a tax exemption for a
period of two years and to a reduced tax rate of 10% - 25% for an
additional period of five to eight years (depending on the level
of foreign-investment in the Company). The benefit periods are
limited to the earlier of twelve years from commencement of
operations, or fourteen years from receipt of approval.
Thereafter, the Company's income will be subject to the regular
income tax rate of 36%.
The Law also provides for accelerated depreciation on equipment
used in the "approved enterprise" for a period of five tax years.
The investment program has not yet been completed.
The tax exempt profits that will be earned by the Company's
"Approved Enterprises" can be distributed to shareholders,
without imposing tax liability to the Company only upon the
complete liquidation of the Company. If these retained tax-exempt
profits are distributed in a manner other than in the complete
liquidation of the Company they would be taxed at the corporate
tax rate applicable to such profits as if the Company had not
elected the alternative system of benefits currently between 10%
to 25% for an "Approved Enterprise". The Company's Board of
Directors has determined that such tax exempt income will not be
distributed as dividends.
Income from sources other than the "Approved Enterprise" during
the benefit period will be subject to tax at the regular
corporate tax rate of 36%.
To receive such tax benefits, the Company must meet some
requirements. As of December 31, 1999, the Company has not
maintained some of the requirements and may not be entitled to
tax benefits.
b. Measurement of taxable income under the Income Tax Law
(Inflationary Adjustments):
Results of the Company for tax purposes are measured and
reflected in real terms in accordance with the changes in the
Israeli consumer price index ("CPI"). As explained in Note 2, the
financial statements are presented in U.S. dollars. The
difference between the change in the Israel CPI and in the
NIS\U.S. dollar exchange rate causes a difference between taxable
income or loss and the income or loss reflected in the financial
statements. In accordance with paragraph 9 (f) of SFAS 109, the
Company has not provided deferred income taxes on this difference
between the reporting currency and the tax bases of assets and
liabilities.
c. Deferred income taxes:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes.
<PAGE>
The Company has provided 100% valuation allowances in respect of
this deferred tax asset. Management currently believes that since
the Company has a history of losses it is more likely than not
that the deferred tax will not be realized in the foreseeable
future.
d. Tax loss carryforwards:
The Company has accumulated losses for tax purposes as of
December 31, 1999 in the amount of approximately $ 3 million,
which may be carried forward and offset against taxable income in
the future for an indefinite period. Exactium Inc. has a net
operating loss carryforward of approximately $ 1.5 million
available to offset against U.S. taxable federal income through
the year 2013.
NOTE 8:- SHARE CAPITAL
a. Composed as follows:
<TABLE>
Authorized Issued and outstanding
------------------------------------ ---------------------------------
December 31 December 31
------------------------------------ ---------------------------------
1998 1999 1998 1999
----------------- ---------------- --------------- ---------------
Number of shares
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shares of
NIS 0.01 par value 2,519,491 2,519,491 363,200 369,200
================= ================ =============== ===============
Preferred A shares of
NIS 0.01 par value 1,000,000 1,000,000 383,666 384,581
================= ================ =============== ===============
Preferred B shares of
NIS 0.01 par value 58,000 58,000 58,000 58,000
================= ================ =============== ===============
Preferred C shares of
NIS 0.01 par value 662,509 662,509 591,124 592,680
================= ================ =============== ===============
</TABLE>
All Preferred shares are convertible into Common shares on a
one-for-one basis at any time at the holders' discretion and
confer upon the holders a liquidation preference up to the sales
price received by the Company for such shares plus 8%.
b. Stock options:
1. The Company has authorized under its 1997 Incentive Share
Option Plan the grant of options to officers, management and
other key employees of up to 290,843 shares of the Company's
Common shares. The options vest over a period of four years
from the date of grant in four installments, as long as the
holder continues to be an employee of the Company. The
options expire ten years after the date of grant. In 1998,
the Company's board of directors approved the increase of
the number of options available for grant under the 1997
Stock Option Plan from 290,843 to 321,358.
2. During 1999, the Company adopted a new Option Plan ("1999
Stock Option Plan"). The Company has authorized under its
1999 Incentive Share Option Plan the grant of options to
officials, management and other key employees of up to
170,000 shares of the Company's Common shares.
The options vest over a period of four years from the date
of grant in four installments, as long as the holder
continues to be an employee of the Company. The options
expire seven years after the date of grant.
3. Pro forma information regarding net loss is required by SFAS
No. 123 (for grants issued after December 1994), and has
been determined as if the Company had accounted for its
employee stock options under the fair value method of that
Statement. The fair value for
<PAGE>
these options was estimated at the date of grant, using the
Black-Scholes Option Valuation Model, with the following
weighted-average assumptions for each of the two years ended
December 31, 1999: expected volatility of 0.01; risk-free
interest rates of 6%, dividend yields of 0%, and a
weighted-average expected life of the option of 4.5 years.
The effect of applying SFAS 123 did not result in pro forma
net loss that is materially different from the amount
reported for the two years ended December 31, 1999.
Therefore, such pro forma information is not separately
presented.
4. During 1999, the Company repriced some of the options to
employees.
5. A summary of the Company's stock option activity, and
related information is as follows:
<TABLE>
Year ended December 31,
----------------------------------------------------
1998 1999
------------------------ -----------------------
Number of Exercise Number of Exercise
options price options price
---------- ---------- ---------- ----------
$ $
---------- ----------
<S> <C> <C> <C> <C>
Outstanding - at the beginning of year 105,407 0 - 0.45 288,386 0-0.45
Granted 225,041 0 - 0.45 170,250 0.45
Exercised (21,200) 0.45 (6,000) 0.45
Forfeited (20,862) 0.45 (10,188) 0.45
---------- ----------
Outstanding - at the end of year 288,386 0 - 0.45 442,448 0 - 0.45
========== ==========
</TABLE>
NOTE 9:- REPORTABLE SEGMENTS
a. The Company operates in one industry segment, the development and
marketing of encyclopedia and proposal generation solutions for
use with customer interaction software (CIS). The following is a
summary of operations within geographic areas:
Year ended December 31,
--------------------------
1998 1999
----------- ----------
Israel 12,288 -
North America 810,000 2,593,592
----------- ----------
822,288 2,593,592
=========== ==========
b. Major customers data:
Customer A 47% 47%
=========== ==========
Customer B - 24%
=========== ==========
Customer C 20% -
=========== ==========
<PAGE>
NOTE 11:- SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to the balance sheet date, the shareholders of the Company
signed an agreement for selling their shares in the Company to Pivotal
corporation, a British Colombia corporation.
<PAGE>
Condensed Consolidated Financial Statements of
EXACTIUM LTD.
<PAGE>
EXACTIUM LTD.
Condensed Consolidated Balance Sheet
(Expressed in United States dollars; all amounts in thousands)
<TABLE>
--------------------------------------------------------------------------------------------------
March 31, December 31,
2000 1999
---------------- -----------------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT
Cash and cash equivalents $ 18 $ 148
Trade receivables 392 437
Trade receivables from related parties 2,138 1,752
Prepaid expenses 62 165
---------------- -----------------
Total current assets 2,610 2,502
Property and equipment, net 403 433
Other assets 677 422
---------------- -----------------
Total assets $ 3,690 $ 3,357
================ =================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT
Short-term bank credit $ 71 $ 60
Accounts payable and accrued liabilities 542 756
Deferred revenue 169 228
---------------- -----------------
Total current liabilities 782 1,044
Long-term loan from a related party 6,206 4,581
Other non-current liabilities 233 215
---------------- -----------------
Total liabilities 7,221 5,840
---------------- -----------------
SHAREHOLDERS' DEFICIENCY (3,531) (2,483)
---------------- -----------------
Total liabilities and shareholders' deficiency $ 3,690 $ 3,357
================ =================
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
EXACTIUM LTD.
Condensed Consolidated Statements of Operations
(Expressed in United States dollars; all amounts in thousands)
(Unaudited)
------------------------------------------------------------------------------
Three months ended
March 31,
------------------------------
2000 1999
---------- ----------
Revenues (*)
Sales $ 162 $ 255
Services 355 52
---------- ----------
Total revenues 517 307
Cost of revenues 226 64
---------- ----------
Gross profit 291 243
---------- ----------
Operating expenses
Research and development 538 210
Sales and marketing 554 168
General and administrative 284 201
---------- ----------
Total operating costs and expenses 1,376 579
---------- ----------
Operating loss (1,085) (336)
Financial expenses, net (82) (22)
---------- ----------
Loss for the period $(1,167) $ (358)
========== ==========
See Accompanying Notes to Condensed Consolidated Financial Statements
(*) Revenues resulting from transactions with related parties for the three
months ended March 31,2000 and 1999 were $467 and $266, respectively.
<PAGE>
EXACTIUM LTD.
Condensed Consolidated Statements of Cash Flows
(Expressed in United States dollars; all amounts in thousands)
(Unaudited)
<TABLE>
-----------------------------------------------------------------------------------------------------------
Three months ended
March 31,
-------------------------------
2000 1999
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period $ (1,167) $ (358)
Adjustments to reconcile loss to net cash used in
operating activities:
Depreciation and amortization 110 6
Decrease (increase) in trade receivables (341) (233)
Decrease (increase) in prepaid expenses 103 56
Increase (decrease) in accounts payable and accrued liabilities (214) 26
Increase (decrease) in deferred revenue (59) (12)
-------------- ---------------
Net cash provided by operating activities (1,568) (515)
-------------- ---------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (80) (10)
Computer software costs capitalized (255) (148)
-------------- ---------------
Net cash used in investing activities (335) (158)
-------------- ---------------
Proceeds from other non-current liabilities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares, net 119 -
Short-term bank credit, net 11 17
Proceeds from long-term loan from related parties 1,625 -
Proceeds from other non-current liabilities 18 805
-------------- ---------------
Net cash provided by financing activities 1,773 822
-------------- ---------------
Net increase (decrease) in cash and cash equivalents (130) 149
Cash and cash equivalents, beginning of period 148 94
-------------- ---------------
Cash and cash equivalents, end of period $ 18 $ 243
============== ===============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
1. BASIS OF PRESENTATION
Interim financial information
The accompanying unaudited financial statements have been prepared in
conformity with United States generally accepted accounting principles
("United States GAAP") for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with United States GAAP have been
condensed, or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission. In our opinion, the statements include
all adjustments necessary (which are of a normal and recurring nature) for
the fair presentation of the results of the interim periods presented.
These financial statements should be read in conjunctions with our audited
consolidated financial statements for the years ended December 31, 1999 and
1998.
2. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities were as follows:
March 31, December 31,
2000 1999
---------- -----------
Accounts payable $ 190 $ 219
Accrued compensation - 231
Accrued liabilities 352 306
---------------------------------------------------------------------------
$ 542 $ 756
===========================================================================
3. SUBSEQUENT EVENT
Subsequent to the balance sheet date, the shareholders of the Company
signed an agreement to sell their shares in the Company to Pivotal
Corporation, a British Columbia corporation.
<PAGE>
(b) Pro Forma Financial Information
Unaudited Pro Forma Condensed Combined Financial Statements:
Unaudited Pro Forma Condensed Combined Balance Sheet
Unaudited Pro Forma Condensed Combined Statements of Operations
for the Nine Months Ended March 31, 2000
Unaudited Pro Forma Condensed Combined Statements of Operations
for the Year Ended June 30, 1999
Notes to the Unaudited Pro Forma Condensed Combined Financial
Statements
<PAGE>
PIVOTAL CORPORATION
PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(Expressed in United States dollars;
all amounts in thousands except per share data)
(Unaudited)
<TABLE>
Year ended June 30, 1999
------------------------------------------------------------------
Historical Historical Pro forma Pro forma
Pivotal Exactium Adjustments Combined
---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Licenses ........................................ $ 18,819 $ 555 $ - $ 19,374
Services and Maintenance ........................ 6,508 689 - 7,197
---------------- -------------- ------------- ----------------
Total revenues ....................................... 25,327 1,244 - 26,571
---------------- -------------- ------------- ----------------
Cost of revenues:
Licenses ........................................ 536 - - 536
Services and Maintenance ........................ 3,078 569 - 3,647
---------------- -------------- ------------- ----------------
Total cost of revenues ............................... 3,614 569 - 4,183
---------------- -------------- ------------- ----------------
Gross profit ......................................... 21,713 675 - 22,388
---------------- -------------- ------------- ----------------
Operating expenses:
Sales and marketing ............................. 16,830 1,088 - 17,918
Research and development ........................ 4,958 1,566 - 6,524
General and administrative ...................... 2,466 983 - 3,449
Amortization of goodwill and other .............. - - 13,705(a) 13,705
---------------- -------------- ------------- ----------------
Total operating expenses ............................. 24,254 3,637 13,705 41,596
---------------- -------------- ------------- ----------------
Loss from operations ................................. (2,541) (2,962) (13,705) (19,208)
Interest and other income (loss) ..................... (24) (40) - (64)
---------------- -------------- ------------- ----------------
Loss before income taxes ............................. (2,565) (3,002) (13,705) (19,272)
Income taxes ......................................... 243 - - 243
---------------- -------------- ------------- ----------------
Net loss ............................................. $ (2,808) $ (3,002) $ (13,705) $ (19,515)
================ ============== ============= ================
Loss per share:
Basic ........................................... $ (0.72) $ (3.90)
Diluted ......................................... $ (0.72) $ (3.90)
Pro forma basic and diluted ..................... $ (0.18) $ (1.14)
Weighted average number of shares used
to calculate loss per share
Basic ........................................... 3,888 5,005
Diluted ......................................... 3,888 5,005
Pro forma basic and diluted ..................... 15,940 17,057
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
<PAGE>
PIVOTAL CORPORATION
PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(Expressed in United States dollars;
all amounts in thousands except per share data)
(Unaudited)
<TABLE>
Nine months ended March 31, 2000
------------------------------------------------------------------
Historical Historical Pro forma Pro forma
Pivotal Exactium Adjustments Combined
---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Licenses ........................................... $ 24,248 $ 883 $ - $ 25,131
Services and Maintenance ........................... 10,506 1,246 - 11,752
---------------- -------------- ------------- ----------------
Total revenues .......................................... 34,754 2,129 - 36,883
---------------- -------------- ------------- ----------------
Cost of revenues:
Licenses ........................................... 1,329 37 - 1,366
Services and Maintenance ........................... 5,476 865 - 6,341
---------------- -------------- ------------- ----------------
Total cost of revenues .................................. 6,805 902 - 7,707
---------------- -------------- ------------- ----------------
Gross profit ............................................ 27,949 1,227 - 29,176
---------------- -------------- ------------- ----------------
Operating expenses:
Sales and marketing ................................ 20,846 1,346 - 22,192
Research and development ........................... 6,103 1,266 - 7,369
General and administrative ......................... 2,872 1,047 - 3,919
Amortization of goodwill and other ................. 129 - 10,279 (a) 10,408
---------------- -------------- ------------- ----------------
Total operating expenses ................................ 29,950 3,659 10,279 43,888
---------------- -------------- ------------- ----------------
Loss from operations .................................... (2,001) (2,432) (10,279) (14,712)
Interest and other income (loss) ........................ 1,715 (180) - 1,535
---------------- -------------- ------------- ----------------
Loss before taxes ....................................... (286) (2,612) (10,279) (13,177)
Income taxes ............................................ 340 - - 340
---------------- -------------- ------------- ----------------
Net loss ................................................ $ (626) (2,612) (10,279) (13,517)
================ ============== ============= ================
Earnings (loss) per share:
Basic .............................................. $ (0.03) $ (0.71)
Diluted ............................................ $ (0.03) $ (0.71)
Pro forma basic and diluted ........................ $ (0.03) $ (0.66)
Weighted average number of shares used
to calculate loss per share
Basic .............................................. 17,951 19,068
Diluted ............................................ 17,951 19,068
Pro forma basic and diluted ........................ 19,513 20,630
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
<PAGE>
PIVOTAL CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(Expressed in United States dollars;
all amounts in thousands except per share data)
(Unaudited)
<TABLE>
March 31, 2000
------------------------------------------------------------------
Historical Historical Pro forma Pro forma
Pivotal Exactium Adjustments Combined
---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 5,818 $ 18 $ - $ 5,836
Short term investments ............................. 42,882 - (13,150)(b) 29,732
Accounts receivable ................................ 15,061 2,530 - 17,591
Prepaid expenses ................................... 3,304 62 - 3,366
---------------- -------------- ------------- ----------------
Total current assets .................................... 67,065 2,610 (13,150) 56,525
Property and equipment, net ............................. 5,447 403 - 5,850
Other assets ............................................ 1,415 677 40,439 (a) 42,531
---------------- -------------- ------------- ----------------
Total assets ............................................ $ 73,927 3,690 27,289 104,906
================ ============== ============= ================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities ........... $ 12,095 $ 542 $ - $ 2,637
Line of credit ..................................... - 71 - 71
Deferred revenue ................................... 7,678 169 - 7,847
---------------- -------------- ------------- ----------------
Total current liabilities ............................... 19,773 782 - 20,555
---------------- -------------- ------------- ----------------
Other noncurrent liabilities ............................ - 6,439 (5,402)(b) 1,037
---------------- -------------- ------------- ----------------
Shareholders' equity (deficit):
Share capital ...................................... 62,455 5 31,985(b),(c) 94,445
Additional paid-in capital ......................... - 8,258 (8,258)(c) -
Deferred share-based compensation .................. (249) - - (249)
Capital reserves ................................... - (259) 259 (c) -
Accumulated deficit ................................ (8,052) (11,535) 8,705 (c),(d) (10,882)
---------------- -------------- ------------- ----------------
Total shareholders' equity (deficit) .................... 54,154 (3,531) 32,691 83,314
---------------- -------------- ------------- ----------------
Total liabilities and shareholders' equity (deficit) .... $73,927 $ 3,690 $ 27,289 $ 104,906
================ ============== ============= ================
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
<PAGE>
PIVOTAL CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except per share data)
1. BASIS OF PRESENTATION
The following unaudited pro forma condensed combined financial statements
give effect to the acquisition of Exactium Ltd. ("Exactium") by Pivotal
Corporation (the "Company" or "Pivotal"). Effective June 7, 2000, the
Company acquired 100% of Exactium. The purchase price of $45,140 consisted
of the issuance of common shares of the Company with a fair value of
$29,215, issuance of options to purchase common shares of the Company with
a fair value of $2,775 and cash of $13,150 including a shareholder loan
repayment of $5,402 and acquisition related expenditures of $775. Exactium,
an Atlanta Georgia company, provides e-selling solutions for internet and
Microsoft standards.
The pro forma condensed combined balance sheet assumes the acquisition took
place on March 31, 2000 and combines the March 31, 2000 balance sheets of
Pivotal and Exactium. The pro forma condensed combined statement of
operations for the fiscal year ended June 30, 1999 assumes the acquisition
took place as of the beginning of the fiscal year and combines the
historical results of Pivotal for the fiscal year ended June 30, 1999 and
Exactium for the twelve months ended June 30, 1999 with pro forma
adjustments. The pro forma combined statement of operations for the nine
months ended March 31, 2000 assumes the acquisition took place as of the
beginning of the most recently completed fiscal year and combines the
historical results of Pivotal and Exactium for the nine months ended March
31, 2000 with pro forma adjustments. Since the fiscal years of Pivotal and
Exactium differ, the financial statements of Exactium have been recast for
the 1999 completed fiscal year of Pivotal and are presented for the twelve
month period ended June 30, 1999.
The unaudited pro forma condensed combined balance sheet reflects the
appropriate pro forma adjustments to record the acquisition of Exactium
using the purchase method of accounting as described in Note 2. Acquisition
costs and allocation of the excess of acquisition costs over net assets
acquired are set forth below:
<TABLE>
<S> <C>
Cash (including acquisition related expenditures of $775) .................... $ 13,150
Fair value of common shares of Pivotal issued and share purchase
options of Pivotal exchanged ................................................. 31,990
-----------
Total acquisition costs ...................................................... 45,140
Less: net tangible assets acquired .......................................... 1,194
-----------
Excess of acquisition costs over net assets acquired $ 43,946
-----------
Allocation to:
Goodwill and other intangibles ............................................. $ 41,116
In process research and development ........................................ $ 2,830
</TABLE>
The fair value of shares of Pivotal common stock was determined by taking
an average of the opening and closing price of Pivotal common stock for a
short period just before and just after the terms of the transaction were
agreed to by the parties and announced to the public. The purchase price
was increased by the estimated fair value of the Pivotal share purchase
options exchanged for the Exactium options outstanding.
The unaudited pro forma condensed consolidated statements of operations
reflect additional amortization expense resulting from the increase in
goodwill and other intangible assets due to this acquisition. The charge
for in process research and development has been reflected in the unaudited
pro forma condensed combined balance sheet. The charge for in process
research and development has not been included in the unaudited pro forma
condensed combined statements of operations as these statements do not give
effect to
<PAGE>
nonrecurring merger costs related to the transaction. The unallocated
excess of acquisition costs over net assets acquired has been allocated to
goodwill and other intangibles, which will be amortized over three years.
In the opinion of management, the acquired in process research and
development had not yet reached technological feasibility and had no
alternative future uses. Accordingly, the Company will record a special
charge of $2,830 in its fourth quarter of fiscal 2000 to write off the
acquired in process technology.
The pro forma combined financial statements included herein have been
prepared by Pivotal, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. However, Pivotal believes that the disclosures are
adequate to make the information not misleading. These pro forma combined
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in Pivotal's Form F-1
for the fiscal year ended June 30, 1999, the consolidated financial
statements and the notes thereto included in Pivotal's Form 10-Q for the
nine months ended March 31, 2000 and the financial statements of Exactium
included in this filing.
2. PRO FORMA ADJUSTMENTS
The pro forma condensed combined balance sheet reflects the following
adjustments:
(a) To record goodwill and other intangibles acquired.
(b) To record the acquisition of Exactium by the issuance of 1,116,955
shares of Pivotal common stock and 108,435 options to purchase Pivotal
common stock and payment of $13,150 cash (including repayment of
shareholder loan of $5,402) to purchase 100% of the equity of
Exactium.
(c) To eliminate the share capital, additional paid-in capital, capital
reserves and accumulated deficit of Exactium.
(d) To record allocation of purchase price to in process research and
development
The pro forma combined statements of operations reflect the following
adjustment with respect to the acquisition:
(a) To record amortization of purchased intangibles other than in process
research and development over estimated useful lives of three years.
3. LOSS PER SHARE
Basic and diluted net loss per share for each period is calculated by
dividing pro forma net loss by the shares used to calculate net loss per
share in the historical period plus the effect of the 1,116,955 shares of
Pivotal's common stock and options which were exchanged for all issued and
outstanding shares of Exactium.
<PAGE>
(c) Exhibits
2.1* Stock Purchase Agreement among Pivotal Corporation and Industrial
& Financial Systems AB and Eli Barak, Alon Hod and Tony Topaz
Concerning all of the Shares of Exactium, Ltd. dated April 11,
2000
23.1 Consent of Ernst & Young
--------------------
* Previously filed.
<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.
PIVOTAL CORPORATION
Date: August 16, 2000 By /s/ George W. Reznik
----------------------------------------
George W. Reznik
Vice President, Finance
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
------ -------
2.1* Stock Purchase Agreement among Pivotal Corporation and
Industrial & Financial Systems AB and Eli Barak, Alon Hod
and Tony Topaz Concerning all of the Shares of Exactium,
Ltd. dated April 11, 2000
23.1 Consent of Ernst & Young
--------------------
* Previously filed.
