<PAGE>
Exhibit 99.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Alier, Inc.:
We have audited the accompanying balance sheets of Alier, Inc. (the "Company")
as of December 31, 1998 and 1999 and the related statements of operations,
shareholders' equity (deficiency) and comprehensive loss, and cash flows for the
years 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 audits.
We conducted our audits 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 audits provide 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, 1998 and 1999,
and the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
March 3, 2000
<PAGE>
ALIER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
ASSETS 1998 1999
----- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 71,351 $ 108,078
Accounts receivable (net of allowances of $0 and $100,000....................... 455,985 135,265
Prepaid expenses and other current assets....................................... 22,397 36,662
-------- -----------
Total current assets................................................... 549,733 280,005
Property and equipment, net....................................................... 50,119 32,155
-------- -----------
Total assets...................................................................... $599,852 $ 312,160
======== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY)
Current liabilities:
Line of credit.................................................................. $ - $ 258,136
Accounts payable................................................................ 51,368 146,224
Accrued liabilities............................................................. 220,690 313,249
Deferred revenue................................................................ 139,412 132,209
Current portion of long-term debt............................................... - 100,000
Notes payable - shareholders.................................................... 9,998 52,348
Lease obligation - current...................................................... 6,956 11,406
-------- -----------
Total current liabilities.............................................. 428,424 1,013,572
-------- -----------
Long-term debt.................................................................... - 275,000
Notes payable - shareholders...................................................... 47,654 46,068
Lease obligation.................................................................. 17,577 14,062
Commitments (Note 8)
Shareholders' equity (deficiency):
Common stock, par value none, 25,000,000 shares authorized;
shares issued and outstanding: 14,920,000 in 1998 and 15,015,000
in 1999...................................................................... 24,000 7,549,583
Deferred stock compensation..................................................... - (5,511,142)
Accumulated other comprehensive income.......................................... - 2,695
Retained earnings (accumulated deficit.......................................... 82,197 (3,077,678)
-------- -----------
Total shareholders' equity (deficiency)................................ 106,197 (1,036,542)
-------- -----------
Total liabilities and shareholders' equity (deficiency)........................... $599,852 $ 312,160
======== ===========
</TABLE>
See notes to financial statements.
<PAGE>
ALIER, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1998 1999
---- ----
<S> <C> <C>
Revenues:
License........................................................... $ 851,500 $ 420,503
Service........................................................... 956,522 1,187,007
------------- ------------
Total revenues.............................................. 1,808,022 1,607,510
------------- ------------
Total costs and expenses:
Cost of license revenues.......................................... 40,499 195,899
Cost of service revenues.......................................... 589,549 1,048,692
Research and development.......................................... 484,884 174,534
Sales and marketing............................................... 360,913 540,132
General and administrative........................................ 622,672 793,926
Stock compensation................................................ - 1,910,891
------------- ------------
Total costs and expenses.................................... 2,098,517 4,664,074
------------- ------------
Loss from operations............................................... (290,495) (3,056,564)
------------- ------------
Other income (expense):
Interest income................................................... 2,337 2,239
Interest expense.................................................. (7,634) (59,841)
Other expense, net................................................ (413) (25,303)
------------- ------------
Total other expense, net.................................... (5,710) (82,905)
------------- ------------
Loss before income taxes........................................... (296,205) (3,139,469)
Income tax provision............................................... 6,731 20,406
------------- ------------
Net loss........................................................... $ (302,936) $ (3,159,875)
============= ============
* Stock compensation:
Cost of revenues................................................ $ - $ 376,979
Research and development........................................ - 88,908
Sales and marketing............................................. - 794,339
General and administrative...................................... 650,665
------------- ------------
$ - $ 1,910,891
============= ============
</TABLE>
See notes to financial statements.
<PAGE>
ALIER, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Accumulated Retained
Common Stock Deferred Other Earnings
-------------------------- Stock Comprehensive (Accumulated
Shares Amount Compensation Income Deficit)
------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1998........................ 14,880,000 $ 18,000 $ - $ - $ 385,133
Net loss and comprehensive loss.................. - - - - (302,936)
Exercise of stock options........................ 40,000 6,000 - - -
------------ ---------- ------------ ------------- ------------
Balances, December 31, 1998...................... 14,920,000 24,000 - - 82,197
Components of comprehensive loss:
Net loss....................................... - - - - (3,159,875)
Foreign currency translation adjustment........ - - - 2,695 -
Total comprehensive loss......................... - - - - -
Exercise of stock options, net of repurchases.... 95,000 14,250 - -
Accelerated vesting of options................... - 89,300 - - -
Deferred stock compensation...................... - 7,422,033 (7,422,033) - -
Amortization of deferred stock compensation...... - - 1,910,891 - -
------------ ---------- ------------ ------------- ------------
Balances, December 31, 1999...................... 15,015,000 $7,549,583 $(5,511,142) $2,695 $(3,077,678)
============ ========== ============ ============= ============
<CAPTION>
Total
Shareholders'
Equity
(Deficiency)
--------------
<S> <C>
Balances, January 1, 1998........................ $ 403,133
Net loss and comprehensive loss.................. (302,936)
Exercise of stock options........................ 6,000
-----------
Balances, December 31, 1998...................... 106,197
Components of comprehensive loss:
Net loss....................................... (3,159,875)
Foreign currency translation adjustment........ 2,695
-----------
Total comprehensive loss......................... (3,157,180)
Exercise of stock options, net of repurchases.... 14,250
Accelerated vesting of options................... 89,300
Deferred stock compensation...................... -
Amortization of deferred stock compensation...... 1,910,891
-----------
Balances, December 31, 1999...................... $(1,036,542)
===========
</TABLE>
See notes to financial statements.
<PAGE>
ALIER, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------------------------
1998 1999
------------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................................... $(302,936) $(3,159,875)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.................................................. 27,033 27,240
Amortization of deferred stock compensation.................................... - 1,910,891
Accelerated vesting of options................................................. - 89,300
Loss on disposal of property................................................... 413 -
Change in assets and liabilities:
Accounts receivable.......................................................... 112,568 320,720
Prepaid expenses and other................................................... (10,345) (14,510)
Accounts payable............................................................. (9,171) 96,936
Accrued liabilities.......................................................... 108,510 93,785
Deferred revenue............................................................. 84,896 (7,203)
--------- -----------
Net cash provided by (used in) operating activities..................... 10,968 (642,716)
--------- -----------
Cash flows from investing activities:
Purchase of property and equipment............................................... (14,572) -
--------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options, net of repurchases...................... 6,000 14,250
Proceeds from line of credit, net................................................ - 258,136
Proceeds from long term loan..................................................... - 400,000
Repayments of long term loan..................................................... - (25,000)
Proceeds from notes payable - shareholders....................................... 60,000 51,663
Repayments of notes payable - shareholders....................................... (2,348) (10,899)
Repayments of capital lease obligations.......................................... (16,751) (8,525)
--------- -----------
Net cash provided by financing activities............................... 46,901 679,625
--------- -----------
Effect of exchange rate changes on cash and cash equivalents....................... - (182)
--------- -----------
Net increase in cash and cash equivalents.......................................... 43,297 36,727
Cash and cash equivalents - beginning of year...................................... 28,054 71,351
--------- -----------
Cash and cash equivalents - end of year............................................ $ 71,351 $ 108,078
========= ===========
Supplemental cash flows information:
Cash paid for income taxes....................................................... $ - $ 6,731
========= ===========
Cash paid for interest........................................................... $ 7,634 $ 48,014
========= ===========
Equipment acquired under capital leases.......................................... $ 24,755 $ 9,450
========= ===========
</TABLE>
See notes to financial statements.
<PAGE>
ALIER, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
1. Summary of Significant Accounting Policies
Organization - Alier, Inc. (the Company), was incorporated in January 1995 in
California. The Company is a worldwide provider of Enterprise Application
Integration solutions for financial institutions.
Basis of Presentation - The financial statements include the Company and its
U.K. operations. All significant intercompany balances and transactions have
been eliminated.
Cash Equivalents - The Company considers all highly liquid financial
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, savings and money market accounts with several financial
institutions. The Company sells its products primarily to companies outside
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.
The following individual customers accounted for 10% or more of total
revenue:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------
1998 1999
--------- --------
<S> <C> <C>
Company A......................................................................... - 39%
Company B......................................................................... 24% 14%
Company C......................................................................... - 14%
Company D......................................................................... 37% -
</TABLE>
The following individual customers accounted for 10% or more of total
accounts receivable:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------
1998 1999
--------- --------
<S> <C> <C>
Company A........................................................................... - 43%
Company B........................................................................... 14% 28%
Company C........................................................................... 23% 13%
Company D........................................................................... 45% -
</TABLE>
Financial Instruments - The Company's financial instruments include cash and
cash equivalents and accounts receivable. At December 31, 1998 and 1999, the
fair value of these financial instruments approximated their financial
statement carrying amounts.
<PAGE>
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.
Long-Lived Assets - The Company evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
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; 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.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, 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.
Revenue Recognition - The Company's revenue recognition policy is consistent
with Statement of Position (SOP) 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. 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
<PAGE>
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,
consulting fees and training. 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 and training 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.
Foreign Currency Translation - Assets and liabilities of the foreign
operations are translated into U.S. dollars at the exchange rate in effect as
of the balance sheet date, and results of operations are translated using
average rates in effect for the period presented. Translation adjustments
have been included within shareholder's equity as part of accumulated other
comprehensive income.
Stock-Based Compensation - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees.
The Company accounts for equity instruments issued to nonemployees in
accordance with the provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, and Emerging Issues Task Force (EITF) Issue No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services, which requires
that the fair value of such instruments be recognized as an expense over the
period in which the related services are received.
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. In 1998,
comprehensive loss was equal to net loss. In 1999, accumulated other
comprehensive loss is comprised of foreign currency translation adjustments
of $2,695.
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 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.
<PAGE>
2. Property and Equipment
Property and equipment at December 31 consist of:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Furniture and fixtures.................................................... $ 4,004 $ 4,004
Computers and software.................................................... 110,734 102,100
-------- --------
Total..................................................................... 114,738 106,104
Accumulated depreciation and amortization................................. (64,619) (73,949)
-------- --------
Property and equipment, net............................................... $ 50,119 $ 32,155
======== ========
</TABLE>
Equipment with a net book value of $23,018 and $21,085 at December 31, 1998
and 1999, respectively (net of accumulated amortization of $4,665 and
$16,048, respectively), is leased under capital leases.
3. Accrued Liabilities
Accrued liabilities at December 31 consist of:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Accrued payroll and related benefits.................................. $207,144 $225,574
VAT payable........................................................... 13,546 74,719
Other................................................................. - 12,956
-------- --------
$220,690 $313,249
======== ========
</TABLE>
4. Related Party Transactions
The following transactions were entered into with shareholders of the
Company:
. In September 1998, the Company issued notes payable to two shareholders
totaling $60,000. The notes bear interest at 10% and are payable in twenty
equal quarterly installments of principal and interest through September
2003.
. In May 1999, the Company issued a note payable to a shareholder for
$36,500. The note bears interest at 10% and is payable on demand.
. In June 1999, the Company issued a non-interest bearing loan to a
shareholder for $3,004, payable on demand.
. In November 1999, the Company issued a note payable to two shareholders
totaling $12,159. The notes bear interest at 10% and are payable in twenty
equal quarterly installments of principal and interest of through September
2004.
Future minimum payments under notes payable from shareholders are $52,348 in
2000, $14,437 in 2001, $15,937 in 2002, $13,743 in 2003 and $1,951 in 2004.
<PAGE>
5. Line of Credit
Under a revolving line of credit with no expiration date, the Company can
borrow a maximum of $75,000. Borrowings under the line of credit bear
interest at 17% per annum.
In August 1999, the Company entered into a second line of credit agreement
expiring in July 2000. The Company may borrow up to 80% of its eligible
accounts receivable to a maximum of $800,000. Borrowings bear interest at
10% and are collateralized by a commercial guaranty from two shareholders.
The Company was in compliance with all financial covenants at December 31,
1999.
The Company had a total of $258,136 outstanding under these lines of credit
at December 31, 1999.
6. Debt Obligations
In September 1999, the Company entered into loan agreement for $400,000. The
loan bears interest at the Wall Street Journal Prime rate (8.50% at December
31, 1999) plus 2.50% per annum and is payable in 48 monthly installments
through September 2003. The loan is secured by property of the Company and
personal guarantees and assignment of life insurance of two shareholders.
The Company was in compliance with all financial covenants at December 31,
1999. At December 31, $375,000 was outstanding under the loan. Future
minimum payments under the loan are $100,000 in 2000, $100,000 in 2001,
$100,000 in 2002 and $75,000 in 2003.
7. Shareholders' Equity
Common Stock
At December 31, 1999, the Company has reserved shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
Issuance under the option plan..................................................... 6,143,500
=========
</TABLE>
Stock Option Plan
Under the Company's 1996 Stock Option Plan and the 1997 Stock Option Plan
(the Plans), the Board of Directors is authorized to grant to employees,
officers, directors and consultants up to 6,283,500 shares of common stock at
prices not less than the fair market value at date of grant for incentive
stock options and not less than 85% of fair market value for nonstatutory
options as determined by the Board of Directors. These options generally
expire ten years from the date of grant and are immediately exercisable with
unvested shares subject to repurchase. At December 31, 1999, 16,875 shares
were subject to repurchase.
During 1999, the Company repurchased 5,000 unvested shares of common stock
from an employee.
<PAGE>
Option activity under the Plans is as follows:
<TABLE>
<CAPTION>
Weighted
Number Average
of Exercise
Shares Price
---------------- ------------
<S> <C> <C>
Outstanding, January 1, 1998 (537,500 vested at a weighted
average exercise price of $0.09,......................................... 2,051,500 $0.11
Granted (weighted average fair value of $0.03 per share,................... 1,226,500 0.15
Exercised.................................................................. (40,000) 0.15
Canceled................................................................... (160,000) 0.15
----------
Outstanding, December 31, 1998 (1,404,325 vested at a
weighted average exercise price of $0.11,................................ 3,078,000 0.13
Granted (weighted average fair value of $1.81 per share,................... 4,147,000 0.15
Exercised.................................................................. (100,000) 0.15
Canceled................................................................... (1,395,000) 0.09
----------
Outstanding, December 31, 1999............................................. 5,730,000 $0.15
==========
</TABLE>
At December 31, 1999, 413,500 shares were available for future grant under
the Option Plan.
Additional information regarding options outstanding as of December 31, 1999
is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Vested
-------------------------------------------------------------------------------- ---------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Life Exercise Number Exercise
Price Outstanding (Years) Price Exercisable Price
---------- --------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.15 5,730,000 9.20 $0.15 3,149,219 $0.15
</TABLE>
Stock Compensation
During 1999, the Company issued 3,917,000 common stock options to employees
at an estimated exercise price of $0.15 per share, which were at prices less
than the fair value of its common stock. The fair value of the common stock
was $2.03 per share. Accordingly, the Company recorded approximately
$7,363,960 as the value of such options in 1999. Stock compensation of
$1,852,818 was amortized to expense in 1999 and at December 31, 1999, the
Company had $5,511,142 in deferred stock compensation related to such
options.
During 1999, the Company issued nonstatutory common stock options to a
consultant to purchase 30,000 shares of common stock which were all
outstanding at December 31, 1999. Accordingly, the Company recognized the
fair value of $58,073 as stock compensation expense in 1999. The fair values
of these options were determined at the date of vesting using the methods
specified by SFAS 123 with the following weighted average assumptions during
1999: expected life, ten years; risk free interest rate, 6.0%; volatility,
100%; and no dividends during the expected term. Forfeitures are recognized
as they occur.
<PAGE>
Additional Stock Plan Information
As discussed in Note 1, the Company accounts for its stock-based awards using
the intrinsic value method in accordance with APB No. 25, Accounting for
Stock Issued to Employees, and its related interpretations. Accordingly, no
compensation expense has been recognized in the financial statements for
employee stock arrangements granted at fair market value.
SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), requires
the disclosure of pro forma net income or loss had the Company adopted the
fair value method. Under SFAS 123, the fair value of stock-based awards to
employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including expected time to exercise, which greatly
affect the calculated values. The Company's calculations were made using the
minimum value method with the following weighted average assumptions:
expected life, four years in 1998 and 1999; risk-free interest rate, 6% in
1998 and 1999; and no dividends during the expected term. The Company's
calculations are based on a single option valuation approach, and forfeitures
are recognized as they occur. If the computed fair values of the awards had
been amortized to expense over the vesting period of the awards under the
fair value method as required under SFAS No. 123, pro forma net loss would
approximately $332,000 and $3,239,000 for 1998 and 1999, respectively.
8. Lease Commitments
The Company leases its principal facilities under a noncancelable operating
lease expiring in 2001. Future minimum rental payments under operating and
capital leases are as follows:
<TABLE>
<CAPTION>
Year Ending Capital Operating
December 31, Leases Leases
------------ ------ ------
<S> <C> <C>
2000....................................................................... $ 19,245 $61,000
2001....................................................................... 15,984 3,000
2002....................................................................... 1,210 -
-------- -------
Total future minimum payments.............................................. 36,439 $64,000
Amounts representing interest.............................................. (10,971) =======
--------
Present value of future minimum payments................................... 25,468
Current portion............................................................ (11,406)
--------
$ 14,062
========
</TABLE>
Rent expense was approximately $84,000 and $149,000 for 1998 and 1999,
respectively.
<PAGE>
9. Income Taxes
The provision for income taxes for the years ended December 31 consists of
the following:
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Currently payable:
Federal................................................................... $ 265 $ -
State..................................................................... 1,959 800
Foreign................................................................... 4,507 19,606
------ -------
Total....................................................................... $6,731 $20,406
====== =======
</TABLE>
The tax provision in 1999 and 1998 relates primarily to foreign operations.
Loss before income taxes is as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Domestic............................................................... $(296,205) $ (642,016)
Foreign................................................................ - (2,497,453)
--------- -----------
Total.................................................................. $(296,205) $(3,139,469)
========= ===========
</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 assets:
Accruals and reserves recognized in different periods.................................. $ 155,000
Net operating loss carryforwards....................................................... 260,000
Credit carryforwards................................................................... 20,000
---------
Total deferred tax assets................................................................ 435,000
Deferred tax liabilities - excess tax over book depreciation............................. (7,000)
---------
Total net deferred tax assets............................................................ 428,000
Valuation allowance...................................................................... (428,000)
---------
Net deferred tax asset................................................................... $ -
=========
</TABLE>
At December 31, 1999, the Company has federal and state net operating loss
carryforwards of approximately $685,000 and $342,000, respectively, expiring
through 2019 and 2004, respectively.
At December 31, 1999, the Company had federal foreign tax credits of
approximately $20,000 available to offset future federal income taxes. The
credit expires in 2004.
The extent to which the loss and credit carryforwards can be used to offset
future taxable income and tax liabilities, respectively, may be limited,
depending on the extent of ownership changes within any three-year period.
<PAGE>
10. Employee Benefit Plan
Money Purchase Pension Plan and Trust
The Company sponsors a Money Purchase Pension Plan and Trust (the Money
Plan) for all employees who meet certain eligibility requirements. Under
the Money Plan, the employer, for each plan year, must contribute an amount
equal to 4% of employees' compensation for the plan year and 4% of the
amount of employees' excess compensation for the plan year. Excess
compensation is a participant's compensation in excess of the 100% of the
taxable wage base in effect at the beginning of the plan year. The Plan
does not permit nor require employee contributions to the trust fund. The
Company contributed approximately $24,000 and $31,000 in 1998 and 1999,
respectively.
Profit Sharing Plan and Trust
The Company sponsors a Profit Sharing Plan and Trust (the Profit Plan) for
all employees who meet certain eligibility requirements. Each plan year,
the employer may contribute to the Profit Plan an amount determined by the
employer at its discretion. The employer may choose not to contribute to
the Profit Plan for a particular plan year. The Profit Plan does not permit
nor require employee contributions to the trust fund. The Company made no
contributions in 1998 and 1999.
11. Subsequent Events
In February 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 390,875
shares of common stock, options to purchase 158,277 shares of common stock,
and paid approximately $2.0 million in cash in exchange for all capital
stock of the Company.
* * * * *
