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Exhibit 99.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Premier Software Technologies, Inc.:
We have audited the accompanying balance sheet of Premier Software Technologies,
Inc. (the "Company") as of December 31, 1999 and the related statements of
operations, shareholders' deficiency and comprehensive loss, and cash flows for
the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1999, and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
March 31, 2000
(April 25, 2000 as to Note 8 and the third paragraph of Note 6)
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PREMIER SOFTWARE TECHNOLOGIES, INC.
BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents............................................. $ 131,371
Accounts receivable................................................... 274,484
Prepaid expenses and other current assets............................. 34,069
-----------
Total current assets......................................... 439,924
Property and equipment, net............................................. 14,084
Deferred income taxes................................................... 1,778
-----------
Total assets............................................................ $ 455,786
===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable...................................................... $ 33,014
Accrued liabilities................................................... 176,488
Deferred revenue...................................................... 84,586
Deferred tax liability................................................ 1,969
-----------
Total current liabilities.................................... 296,057
-----------
Stock compensation liability............................................ 2,636,592
Shareholders' deficiency:
Common stock, no par value, 10,000,000 shares authorized;
53,354 shares issued and outstanding................................ 200
Accumulated deficit................................................... (2,477,063)
-----------
Total shareholders' deficiency............................... (2,476,863)
-----------
Total liabilities and shareholders' deficiency.......................... $ 455,786
===========
</TABLE>
See notes to financial statements.
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PREMIER SOFTWARE TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<TABLE>
<S> <C>
Revenues:
License............................................................... $ 128,750
Service............................................................... 1,380,931
-----------
Total revenues............................................... 1,509,681
-----------
Cost of revenues:
License............................................................... 109,210
Service............................................................... 646,109
-----------
Total cost of revenues....................................... 755,319
-----------
Gross profit............................................................ 754,362
-----------
Operating expenses:
Research and development.............................................. 103,802
Sales and marketing................................................... 349,310
General and administrative............................................ 243,352
Stock compensation*................................................... 1,278,087
-----------
Total operating expenses..................................... 1,974,551
-----------
Operating loss.......................................................... (1,220,189)
Interest income......................................................... 9,360
-----------
Loss before income taxes................................................ (1,210,829)
Income tax provision.................................................... 25,292
-----------
Net loss................................................................ $(1,236,121)
===========
*Stock compensation:
Cost of revenues.................................................... $ 859,130
Research and development............................................ 418,957
-----------
$ 1,278,087
===========
</TABLE>
See notes to financial statements.
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PREMIER SOFTWARE TECHNOLOGIES, INC.
STATEMENT OF SHAREHOLDERS' DEFICIENCY
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Common Stock Total
----------------------- Accumulated Shareholders'
Shares Amount Deficit Deficiency
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCES, January 1, 1999......................... 60,001 $ - $ (1,146,148) $ (1,146,148)
Stock repurchase (Note 4).......................... (6,667) - (94,794) (94,794)
Issuance of common stock........................... 20 200 - 200
Components of comprehensive loss - net loss........ - - (1,236,121) (1,236,121)
---------- ------ ------------- -------------
BALANCES, December 31, 1999....................... 53,354 $ 200 $ (2,477,063) $ (2,476,863)
========== ====== ============= =============
</TABLE>
See notes to financial statements.
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PREMIER SOFTWARE TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................................... $(1,236,121)
Adjustments to reconcile net income to net cash provided by operating
activities:
Deferred income taxes............................................................ 19,223
Depreciation..................................................................... 6,721
Stock compensation expenses...................................................... 1,278,087
Change in assets and liabilities:
Accounts receivable............................................................ (148,304)
Prepaid expenses and other..................................................... (31,112)
Accounts payable............................................................... 33,014
Accrued liabilities............................................................ 48,738
Deferred revenue............................................................... 39,778
------------
Net cash provided by operating activities................................. 10,024
------------
Cash flows from investing activities:
Purchase of property and equipment................................................. (9,615)
------------
Net cash used in investing activities..................................... (9,615)
------------
Cash flows from financing activities:
Issuance of common stock........................................................... 200
Repurchase of common stock......................................................... (94,794)
------------
Net cash used in financing activities..................................... (94,594)
------------
Net decrease in cash and cash equivalents............................................ (94,185)
Cash and cash equivalents - beginning of year........................................ 225,556
------------
Cash and cash equivalents - end of year.............................................. $ 131,371
============
Supplemental cash flows information -
Cash paid for income taxes......................................................... $ 41,306
============
</TABLE>
See notes to financial statements.
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PREMIER SOFTWARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1999
1. Summary of Significant Accounting Policies
Organization - Premier Software Technologies, Inc. was incorporated in
November 1994 in Wisconsin. Thomas Dayton, Inc. was incorporated in July
1999 in California, by the shareholders of the Premier Software. In
September 1999, the two companies entered into an Agreement of Merger and
Plan of Reorganization. The merged company changed its name to Premier
Software Technologies, Inc. (the Company).
The Company is a developer of business oriented web applications with web
development services in marketing, corporate collaboration, e-commerce,
business-to-business, infrastructure and education.
Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with a remaining maturity of three months or less to be cash
equivalents.
Concentration of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of
cash equivalents and accounts receivable. The Company's cash equivalents
consist of checking and money market accounts with financial institutions.
The Company sells its products primarily to companies in the United States.
The Company does not require collateral or other security to support
accounts receivable. To reduce credit risk, management performs ongoing
evaluations of its customers' financial condition. During the year ended
December 31, 1999, one customer accounted for 91% of the Company's total
revenue and 96% of total accounts receivable at December 31, 1999.
Property and Equipment - Property and equipment are stated at cost and
depreciated using the straight-line method over estimated useful lives of
approximately three to seven years.
Software Development Costs -Costs for the development of new software
products and substantial enhancements to existing software products are
expensed as incurred until technological feasibility has been established,
at which time any additional development costs would be capitalized in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Computer Software To Be Sold, Leased, or Otherwise Marketed. Because the
Company believes its current process for developing software is essentially
completed concurrently with the establishment of technological feasibility,
no costs have been capitalized to date.
Income Taxes - The Company accounts for income taxes under an asset and
liability approach. Deferred income taxes reflect the impact of temporary
differences between assets and liabilities recognized for financial
reporting purposes and such amounts recognized for income tax reporting
purposes, net operating loss carryforwards and other tax credits measured
by applying currently enacted tax laws. Valuation allowances are provided
when necessary to reduce deferred tax assets to an amount that is more
likely than not to be realized.
Certain Significant Risks and Uncertainties - The Company operates in the
software industry, and accordingly, can be affected by a variety of
factors. For example, management of the Company believes that changes in
any of the following areas could have a significant negative effect on the
Company in terms of its future financial position, results of operations or
cash flows; ability to obtain additional financing; fundamental changes in
the technology underlying software products; market acceptance of the
Company's products under development; development of sales channels; loss
of significant customers;
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PREMIER SOFTWARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Year Ended December 31, 1999
adverse changes in international market conditions; litigation or other
claims against the Company; the hiring, training and retention of key
employees; successful and timely completion of product development efforts;
and new product introductions by competitors.
Financial Statement Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, and disclosures of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Revenue Recognition - The Company's revenue recognition policy is
consistent with Statement of Position 97-2, as amended. License revenues
are comprised of fees for the Company's software products. Revenue from
license fees is recognized when an agreement has been signed, delivery of
the product has occurred, no significant Company obligations remain, the
fee is fixed or determinable and collectibility is probable. For electronic
delivery, the software is considered to have been delivered when the
Company has provided the customer with the access codes that allow for
immediate possession of the software. If the fee due from the customer is
not fixed or determinable, revenue is recognized as payments become due
from the customer. If collectibility is not considered probable, revenue is
recognized when the fee is collected. Revenue on arrangements with
customers who are not ultimate users (primarily resellers) is not
recognized until the product is delivered to the end user.
Service revenues are comprised of revenue from support arrangements and
consulting fees. Support arrangements provide technical support and the
right to unspecified upgrades on an if-and-when-available basis. Revenue
from support arrangements is recognized on a straight-line basis as service
revenue over the life of the related agreement, which is typically one
year. Consulting revenue is recognized when provided to the customer.
Customer advances and billed amounts due from customers in excess of
revenue recognized are recorded as deferred revenue.
Research and Development - Research and development expenses are charged to
operations as incurred. Such expenses include costs associated with the
design and development of new products and costs related to the Company's
internally developed software systems. To date, these costs, which meet the
capitalization criteria of SOP 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, have not been significant.
Stock-Based Compensation - The Company accounts for stock-based awards
(Stock Appreciation Rights) to employees using the intrinsic value method
in accordance with Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees.
Comprehensive Loss - SFAS No. 130, Reporting Comprehensive Income requires
that an enterprise report, by major components and as a single total, the
change in its net assets during the period from nonowner sources. For the
year ended December 31, 1999, comprehensive loss was equal to net loss.
Recently Issued Accounting Standard - In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement requires companies to
record derivatives on the balance sheet as assets or liabilities, measured
at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. SFAS No. 133 will
be effective for the Company's fiscal
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PREMIER SOFTWARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Year Ended December 31, 1999
year ending December 31, 2001. The Company believes that this statement
will not have a significant impact on the Company's financial position,
results of operations or cash flows.
2. Property and Equipment
<TABLE>
<S> <C>
Property and equipment at December 31, 1999 consist of:
Furniture and fixtures....................................... $ 1,200
Computers and software....................................... 27,966
----------
29,166
Accumulated depreciation..................................... (15,082)
----------
Property and equipment, net.................................. $ 14,084
==========
3. Accrued Liabilities
Accrued liabilities at December 31, 1999 consist of:
Accrued payroll and related benefits......................... $ 162,817
Other........................................................ 13,671
----------
$ 176,488
==========
</TABLE>
4. Related Party Transactions
The Company has transactions with related parties in the ordinary course of
business. Related party transactions were as follows:
. In April 1999, the Company repurchased 6,667 shares from a shareholder
and officer for $94,794.
. During the year ended December 31, 1999, the Company paid $36,000 for
administrative services and $24,000 for marketing services to related
parties of a shareholder.
. During the year ended December 31, 1999, the Company sold software
products with maintenance service for a period of one year, totaling
to $75,225 to Active Software, Inc. (Note 8). At December 31, 1999,
the Company established a deferred revenue of $6,633 for the remaining
service period.
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PREMIER SOFTWARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Year Ended December 31, 1999
5. Income Taxes
The provision for income taxes for the years ended December 31, 1999
consists of the following:
<TABLE>
<S> <C>
Currently payable:
Federal................................................... $ 4,046
State..................................................... 2,023
--------
Total.......................................................... 6,069
--------
Deferred:
Federal................................................... 16,820
State..................................................... 2,403
--------
Total deferred................................................. 19,223
--------
Total.......................................................... $ 25,292
========
</TABLE>
Significant components of the Company's net deferred tax assets for federal
and state income taxes at December 31, 1999 consist of:
<TABLE>
<S> <C>
Deferred tax asset - basis difference in fixed assets....... $ 1,778
Deferred tax liability - accrual to cash adjustment......... (1,969)
--------
Net deferred tax liability.................................. $ (191)
========
</TABLE>
For all periods presented, the Company's effective rate differs from the
expected tax expense at the federal statutory rate due primarily to state
taxes offset by a valuation allowance against deferred tax assets.
6. Stock Compensation
The Company, since 1996, has offered a compensatory equity participation
plan to employees which, at December 31, 1999, represented approximately
25% of the outstanding common stock of the Company.
In connection with these arrangements, the Company recognized $1,278,087 in
compensation expense in 1999. As of December 31, 1999, the stock
compensation liability is $2,636,592, which is the estimated value of such
rights, and is subject to adjustment based upon the future value of the
Company's common stock.
Subsequent to year end, concurrent with the sale of the Company (see Note
8), the employees signed a Settlement and Release Agreement which released
the Company and its shareholders from the compensatory equity participation
arrangement in exchange for a future cash payment from the shareholders.
7. Employee Benefit Plan
The Company participates in a Savings Incentive Match Plan, whereby the
Company matches the lesser of 3% of compensation or $6,000 for each
employee. In 1999, the Company contributed $17,960.
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PREMIER SOFTWARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Year Ended December 31, 1999
8. Subsequent Events
In April 2000, the Company was acquired by Active Software, Inc. (Active),
a developer of software products for businesses that allow users to
integrate incompatible software applications across their extended
enterprise of customers, suppliers and partners. Active issued 121,308
shares of common stock and paid $500,000 in cash in exchange for all
capital stock of the Company.
* * * * *
