<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
June 30, 1998
Date of Report
------------------------------
(Date of earliest event
reported)
INTERLINQ SOFTWARE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Washington 0-25186 91-1187540
- -------------------------- ----------------------- ----------------------
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
</TABLE>
11255 Kirkland Way
Kirkland, Washington 98033
- --------------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
(425) 827-1112
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Page 1 of 4
Exhibit Index on Page 4
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
As previously reported under Item 2 in INTERLINQ Software Corporation's
(the "Company") Current Report on Form 8-K dated June 30, 1998, the Company
acquired all of the right, title and interest in and to substantially all of the
assets and business of Logical Software Solutions Corporation, a Maryland
corporation ("LSSC"), an enterprise application integration developer and
service provider, pursuant to an Asset Purchase Agreement, dated June 30, 1998,
by and among the Company, LSSC and certain shareholders of LSSC.
Included under Item 7 hereof are the historical financial statements of
LSSC, together with certain pro forma information of the Company, as adjusted to
give effect to the LSSC acquisition.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Filed as Exhibit 99.1 are the audited historical financial statements,
for the periods indicated, of LSSC.
(b) PRO FORMA FINANCIAL INFORMATION
Filed as Exhibit 99.2 is certain unaudited pro forma financial
information regarding the Company, as adjusted to give effect to the LSSC
acquisition.
(c) EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
23.1 Consent of KPMG Peat Marwick LLP-- Independent
Auditors
99.1 Financial Statements, as of December 31, 1997,
(with independent auditors' report thereon), for
Logical Software Solutions Corporation.
99.2 Unaudited pro forma condensed statement of
operations and related footnotes for INTERLINQ
Software Corporation.
</TABLE>
Page 2
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
INTERLINQ SOFTWARE CORPORATION
Dated: September 11, 1998
By /s/ STEVE YOUNT
-------------------------------
Steve Yount
Executive Vice President,
Chief Financial Officer and Secretary
Page 3
<PAGE> 4
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
23.1 Consent of KPMG Peat Marwick LLP -- Independent
Auditors
99.1 Financial Statements, as of December 31, 1997, (with
independent auditors' report thereon), for Logical Software
Solutions Corporation.
99.2 Unaudited pro forma condensed statement of operations
and related footnotes.
</TABLE>
Page 4
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Logical Software Solutions Corporation:
We consent to the incorporation by reference in the registration statements
(Nos. 33-63388 and 333-4558) on Form S-8 of INTERLINQ Software Corporation of
our report dated June 30, 1998, with respect to the balance sheet of Logical
Software Solutions Corporation as of December 31, 1997, and the related
statements of operations, stockholders' equity, and cash flows for the year then
ended, which report appears in the June 30, 1998, current report on Form 8-K/A
of INTERLINQ Software Corporation.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
September 11, 1998
<PAGE> 1
EXHIBIT 99.1
LOGICAL SOFTWARE SOLUTIONS CORPORATION
Financial Statements
December 31, 1997
(With Independent Auditors' Report Thereon)
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Logical Software Solutions Corporation:
We have audited the accompanying balance sheet of Logical Software Solutions
Corporation as of December 31, 1997, and the related statements of operations,
shareholders' equity (deficit) 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 generally accepted auditing standards.
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, the financial statements referred to above present fairly, in
all material respects, the financial position of Logical Software Solutions
Corporation as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
June 30, 1998
<PAGE> 3
LOGICAL SOFTWARE SOLUTIONS CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
ASSETS 1997 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 42,663 $ 1,016,581
Accounts receivable, net of allowance for doubtful accounts of $10,000
at December 31, 1997 and June 30, 1998 228,549 378,336
Prepaid expenses 35,642 14,000
------------- -------------
Total current assets 306,854 1,408,917
------------- -------------
Property, equipment and leasehold improvements at cost 201,231 201,231
Less accumulated depreciation and amortization 146,382 156,582
------------- -------------
Net property, equipment and leasehold improvements 54,849 44,649
------------- -------------
Capitalized software costs, less accumulated amortization of $519,415 and
$640,031 at December 31, 1997 and June 30, 1998, respectively 689,759 569,143
Other assets 4,083 4,083
------------- -------------
Total assets $ 1,055,545 $ 2,026,792
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 75,928 $ 417,088
Accrued liabilities 34,037 28,761
Deferred revenue 56,060 51,766
Due to shareholders 543,167 550,388
Proceeds from INTERLINQ Software Corporation -- 1,000,000
------------- -------------
Total current liabilities 709,192 2,048,003
------------- -------------
Shareholders' equity (deficit):
Common stock, $.001 par value. Authorized 1,000,000 shares; issued and
outstanding 161,580 shares at December 31, 1997 and June 30, 1998 162 162
Additional paid-in capital 448,617 448,617
Accumulated deficit (81,797) (449,361)
Treasury stock, 51 shares at cost (20,629) (20,629)
------------- -------------
Total shareholders' equity (deficit) 346,353 (21,211)
Commitments
------------- -------------
Total liabilities and shareholders' equity (deficit) $ 1,055,545 $ 2,026,792
============= =============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 4
LOGICAL SOFTWARE SOLUTIONS CORPORATION
Statements of Operations
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------------------------
1997 1997 1998
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues:
Software license fees $ 722,421 $ 496,045 $ 28,500
Software support fees 68,461 40,841 46,339
Services 601,725 362,620 563,284
------------- ------------- -------------
Total net revenues 1,392,607 899,506 638,123
------------- ------------- -------------
Cost of revenues:
Software license fees 221,484 109,242 120,616
Software support fees 16,054 8,023 1,743
Services 287,199 126,266 538,101
------------- ------------- -------------
Total cost of revenues 524,737 243,531 660,460
------------- ------------- -------------
Gross margin 867,870 655,975 (22,337)
------------- ------------- -------------
Operating expenses:
Product development 95,854 71,320 78,551
Sales and marketing 279,366 166,974 100,423
General and administrative 375,687 166,897 166,308
------------- ------------- -------------
Total operating expenses 750,907 405,191 345,282
------------- ------------- -------------
Operating income (loss) 116,963 250,784 (367,619)
Net interest and other income (expense) (7,140) (6,182) 55
------------- ------------- -------------
Net income (loss) $ 109,823 $ 244,602 $ (367,564)
============= ============= =============
Pro forma (unaudited):
Income before income taxes $ 109,823
Income tax expense 37,951
-------------
Net income $ 71,872
=============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 5
LOGICAL SOFTWARE SOLUTIONS CORPORATION
Statements of Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL SHAREHOLDERS'
COMMON PAID-IN ACCUMULATED TREASURY EQUITY
STOCK CAPITAL DEFICIT STOCK (DEFICIT)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $ 150 $ 9,948 $ 17,988 $ (20,629) $ 7,457
Dividends -- -- (209,608) -- (209,608)
Issuance of 11,580 shares of common stock in
exchange for cash and cancellation of
amounts due to shareholders 12 438,669 -- -- 438,681
Net income for the year ended December 31, 1997 -- -- 109,823 -- 109,823
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1997 162 448,617 (81,797) (20,629) 346,353
Net loss for the six months ended June 30, 1998
(unaudited) -- -- (367,564) -- (367,564)
------------ ------------ ------------ ------------ ------------
Balances at June 30, 1998 (unaudited) $ 162 $ 448,617 $ (449,361) $ (20,629) $ (21,211)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 6
LOGICAL SOFTWARE SOLUTIONS CORPORATION
Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------------------------
1997 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 109,823 $ 244,602 $ (367,564)
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization of property, equipment and
leasehold improvements 16,574 8,727 10,200
Amortization of capitalized software costs 221,484 109,241 120,616
Change in certain assets and liabilities:
Accounts receivable (3,071) (84,522) (149,787)
Prepaid expenses (33,685) (41,512) 21,642
Other assets (1,033) (3,343) --
Accounts payable 21,949 13,280 341,160
Accrued liabilities 11,229 8,287 (5,276)
Deferred revenue (402,724) (428,102) (4,294)
------------ ------------ ------------
Net cash used in operating activities (59,454) (173,342) (33,303)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (34,148) (22,789) --
Capitalization of software costs (112,561) (17,083) --
------------ ------------ ------------
Net cash used in investing activities (146,709) (39,872) --
------------ ------------ ------------
Cash flows from financing activities:
Increase in due to shareholders 214,603 227,381 7,221
Sale of common stock 243,831 243,831 --
Dividends (209,608) (209,608) --
Proceeds from INTERLINQ Software Corporation -- -- 1,000,000
------------ ------------ ------------
Net cash provided by financing activities 248,826 261,604 1,007,221
------------ ------------ ------------
Net increase in cash 42,663 48,390 973,918
Cash at beginning of period -- -- 42,663
------------ ------------ ------------
Cash at end of period $ 42,663 $ 48,390 $ 1,016,581
============ ============ ============
Supplemental disclosure of cash flow information - cash paid during
the period for interest $ 13,875 $ 13,180 $ 360
============ ============ ============
Supplemental schedule of noncash financing activities - sale of common
stock in exchange for cancellation of amounts due to shareholders $ 194,850 $ 194,850 $ --
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 7
LOGICAL SOFTWARE SOLUTIONS CORPORATION
Notes to Financial Statements
December 31, 1997
(Information with regard to June 30, 1997 and 1998 is unaudited)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Logical Software Solutions Corporation (Company) provides
application integration/workflow solutions that integrate
disparate systems and applications to route information and
processes seamlessly across an entire enterprise. These
solutions coordinate activities across legacy systems,
enterprise applications, databases and Internet technologies.
The Company was founded in 1987 and has offices in Maryland and
Montana. The Company sells and distributes its products
primarily in the United States.
(b) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Depreciation and amortization of property, equipment and
leasehold improvements are provided on the straight-line method
over the estimated useful lives of the assets or respective
lease terms if shorter.
Management periodically evaluates property, equipment and
leasehold improvements for impairment whenever events or
circumstances indicate that the carrying amount may not be
recoverable.
(c) PRODUCT DEVELOPMENT AND CAPITALIZED SOFTWARE COSTS
Software development costs incurred in conjunction with product
development are charged to product development expense in the
period the cost is incurred until technological feasibility is
established. Thereafter, all software product development costs
are capitalized and reported at the lower of unamortized cost or
net realizable value.
Amortization of capitalized software costs begins when the
related software is available for general release to customers
and is provided for each software product based on the greater
of (i) the ratio of current gross revenues to total current and
anticipated future gross revenues for the related software or
(ii) the straight-line method over the economic life of the
software.
The estimates of anticipated future gross revenues and economic
life of the Company's products are subject to risks inherent in
the software industry, such as changes in technology and
customer perceptions. Management regularly reviews these
estimates and makes adjustments as appropriate.
(d) REVENUE RECOGNITION
The Company recognizes revenue from software license fees upon
delivery provided that no significant obligations of the Company
remain and collection of the resulting receivable is probable.
Software support fees are charged separately and are recognized
over the life of the related support agreements. Service
revenues include consulting, training and other services and are
recognized as the services are provided.
6
(Continued)
<PAGE> 8
LOGICAL SOFTWARE SOLUTIONS CORPORATION
Notes to Financial Statements
December 31, 1997
(Information with regard to June 30, 1997 and 1998 is unaudited)
Effective January 1, 1998, the Company adopted Statement of
Position (SOP) 97-2, Software Revenue Recognition, issued by the
American Institute of Certified Public Accountants. The
statement provides specific industry guidance and stipulates
that revenue recognized from software arrangements is to be
allocated to each element of the arrangement based on the
relative fair values of the elements, such as software products,
upgrades, enhancements, post contract customer support,
installation, or training. Under SOP 97-2, the determination of
fair value is based on objective evidence which is specific to
the vendor. If such evidence of fair value for each element of
the arrangement does not exist, all revenue from the arrangement
is deferred until such time that evidence of fair value does
exist or until all elements of the arrangement are delivered.
Revenue allocated to software products, specified upgrades and
enhancements is generally recognized upon delivery of the
related products, upgrades and enhancements. The adoption of SOP
97-2 did not have a material impact on the Company's revenue
recognition for the six months ended June 30, 1998.
(e) INCOME TAXES
The shareholders of the Company have elected to utilize the
provisions of Subchapter S of the Internal Revenue Code and thus
include the Company's net income in their personal income tax
returns. Accordingly, the Company's historical statements of
operations do not include a provision for income taxes. The
Company has presented a pro forma provision for income taxes as
if the Company had not been an S corporation for the year ended
December 31, 1997.
(f) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(g) CONCENTRATIONS OF CUSTOMERS AND MARKET RISK
The Company markets its products primarily to businesses
involved in certain vertical markets such as healthcare,
utilities, government and insurance. Changes in these industries
and other economic factors could affect the economic stability
of these businesses and their ability, as a group, to purchase
the Company's products. As a result, the Company's success in
marketing its products may fluctuate in accordance with these
economic factors.
During the year ended December 31, 1997, two customers accounted
for 53% of the Company's total net revenues. During the six
months ended June 30, 1997, one customer accounted for 49% of
the Company's total net revenues. During the six months ended
June 30, 1998, one customer accounted for 72% of the Company's
total net revenues.
Included in software license fees for the year ended December
31, 1997 and the six months ended June 30, 1997 are revenues of
$428,102 which had previously been deferred under an OEM
7
(Continued)
<PAGE> 9
LOGICAL SOFTWARE SOLUTIONS CORPORATION
Notes to Financial Statements
December 31, 1997
(Information with regard to June 30, 1997 and 1998 is unaudited)
agreement. The agreement was terminated in January 1997 at which
point the Company recognized the revenue since all of the
Company's obligations under the agreement were terminated.
(h) INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of June 30, 1998, and the
statements of operations and cash flows for the six months ended
June 30, 1998 and June 30, 1997, and the statements of
shareholders' equity for the six months ended June 30, 1998 are
unaudited, but in the opinion of management, include all
adjustments (consisting of normal, recurring adjustments)
necessary for a fair presentation of results for these interim
periods. The results of operations for the six months ended June
30, 1998 are not necessarily indicative of the results to be
expected for the entire fiscal year.
(2) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Major classes of property, equipment and leasehold improvements
as of December 31, 1997 and June 30, 1998 are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
------------
<S> <C> <C>
Furniture and fixtures $ 24,859 7 years
Computer equipment 174,927 3 to 5 years
Leasehold improvements 1,445 5 years
--------------
$ 201,231
==============
</TABLE>
(3) DUE TO SHAREHOLDERS
Amounts due to shareholders include the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------- -------------
<S> <C> <C>
Salaries payable $ 504,837 $ 504,837
Notes payable 38,330 45,551
------------- -------------
$ 543,167 $ 550,388
============= =============
</TABLE>
The salaries payable are noninterest bearing. The notes payable accrue
interest at 9% per year. By agreement among the shareholders, these
amounts are payable upon availability of funds.
8
(Continued)
<PAGE> 10
LOGICAL SOFTWARE SOLUTIONS CORPORATION
Notes to Financial Statements
December 31, 1997
(Information with regard to June 30, 1997 and 1998 is unaudited)
(4) LEASE COMMITMENTS
The Company leases office space and equipment under operating leases
expiring from 1998 to 2002. Future minimum payments on operating leases
as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 55,540
1999 51,216
2000 34,355
2001 7,996
2002 2,016
</TABLE>
Rent expense amounted to $49,493 for the year ended December 31, 1997,
and $23,119 and $32,826 for the six months ended June 30, 1997 and 1998,
respectively.
(5) NET INTEREST AND OTHER INCOME (EXPENSE)
Net interest and other income (expense) consists of:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------------------------
1997 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Interest income $ 335 $ 335 $ --
Interest expense (13,875) (13,180) (360)
Other, net 6,400 6,663 415
------------- ------------- -------------
$ (7,140) $ (6,182) $ 55
============= ============= =============
</TABLE>
(6) FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable and accounts payable. These financial instruments have a
short term until maturity or settlement in cash and, therefore, the
carrying value approximates fair value. It is not practicable to
estimate the fair value of amounts due to shareholders due to the
related party nature of these financial instruments.
9
(Continued)
<PAGE> 11
LOGICAL SOFTWARE SOLUTIONS CORPORATION
Notes to Financial Statements
December 31, 1997
(Information with regard to June 30, 1997 and 1998 is unaudited)
(7) PRO FORMA FEDERAL INCOME TAXES (UNAUDITED)
Pro forma income tax expense (benefit) for the year ended December 31,
1997 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
U.S. federal $ (69,714) $ 107,665 $ 37,951
============= ============= =============
</TABLE>
Pro forma income tax expense differs from the "expected" tax expense
computed by applying the U.S. federal corporate graduated tax rate to
income before pro forma income taxes primarily due to the following:
<TABLE>
<S> <C>
Computed expected pro forma tax expense $ 37,340
Nondeductible expenses 611
-------------
$ 37,951
=============
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1997,
primarily relate to capitalized software and accrued liabilities.
(8) SUBSEQUENT EVENT
On June 30, 1998, the shareholders of the Company sold all of the
outstanding stock of the Company to INTERLINQ Software Corporation
(INTERLINQ) in exchange for $3,600,000 in cash (of which $1,000,000 was
received on June 30, 1998) and 233,334 shares of common stock of
INTERLINQ.
10
<PAGE> 1
EXHIBIT 99.2
EXHIBIT 99.2 PRO FORMA FINANCIAL INFORMATION
On June 30, 1998, INTERLINQ Software Corporation completed the acquisition of
Logical Software Solutions Corporation. Under the terms of the acquisition,
substantially all of the assets and business of LSSC were acquired for
$3,600,000 in cash and 233,334 unregistered shares of common stock of the
Company, valued at approximately $1,400,000. The stock is subject to vesting
over six years (with certain accelerated vesting provisions). The Company
incurred direct acquisition costs of approximately $400,000 related to this
transaction. The acquisition was accounted for using the purchase method of
accounting.
The following Unaudited Pro Forma Condensed Consolidated Statement of Operations
("Pro Forma Statement of Operations") for the year ended June 30, 1998, gives
effect to the acquisition of LSSC as if it had occurred on July 1, 1997. The Pro
Forma Statement of Operations is based on historical results of operations of
INTERLINQ and LSSC for the year ended June 30, 1998. LSSC's fiscal year ended on
December 31, 1997, and as such the information presented has been conformed to
the June 30, 1998, fiscal year end of the Company. The Pro Forma Statement of
Operations and the accompanying notes ("Pro Forma Financial Information") should
be read in conjunction with and are qualified by the historical financial
statements and notes thereto of INTERLINQ.
The Pro Forma Financial Information is intended for information purposes only
and is not necessarily indicative of the combined results that would have
occurred had the acquisition taken place on July 1, 1997, nor is it necessarily
indicative of results that may occur in the future.
1
<PAGE> 2
EXHIBIT 99.2
INTERLINQ SOFTWARE CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
INTERLINQ LSSC ADJUSTMENTS PRO FORMA
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total net revenues $ 18,346,393 $ 1,131,224 $ -- $ 19,477,617
Total cost of revenues 5,082,557 941,665 (1,532)(a) 6,022,690
------------- ------------- ------------- -------------
Gross margin 13,263,836 189,559 1,532 13,454,927
Operating expenses:
Product development 1,608,840 103,085 -- 1,711,925
Sales and marketing 5,674,475 212,815 -- 5,887,290
General and
administrative 3,754,222 375,098 251,168 (b) 4,380,488
Purchase of in-process R&D 3,615,304 -- (3,615,304)(c) --
------------- ------------- ------------- -------------
Total operating
expenses 14,652,841 690,998 (3,364,136) 11,979,703
------------- ------------- ------------- -------------
Operating income
(loss) (1,389,005) (501,439) 3,365,668 1,475,224
Net interest and other
income (expense) 744,865 (903) -- 743,962
------------- ------------- ------------- -------------
Income (loss) before
income taxes (644,140) (502,342) 3,365,668 2,219,186
Income tax expense 906,653 -- (85,554)(d) 821,099
------------- ------------- ------------- -------------
Net income (loss) $ (1,550,793) $ (502,342) $ 3,451,222 $ 1,398,087
============= ============= ============= =============
Net income (loss) per share -
basic $ (.30) $ .26
Net income (loss) per share -
diluted $ (.30) $ .25
Shares used to calculate
basic net income (loss) per
share 5,213,000 5,446,000(e)
Shares used to calculate
diluted net income (loss) per
share 5,213,000 5,609,000(e)
</TABLE>
2
<PAGE> 3
EXHIBIT 99.2
INTERLINQ SOFTWARE CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(a) The pro forma adjustment represents $231,325 of amortization of
capitalized software acquired, less $232,857 of amortization included in
the historical financial statements of LSSC. Total capitalized software
acquired was $777,110 which has an estimated useful life of four years.
(b) The pro forma adjustment represents an addition to expenses of $281,168
for the amortization of goodwill, offset by a decrease of $30,000 for
transaction related costs incurred by LSSC.
(c) The pro forma adjustment represents the purchase of in-process R&D. This
item has been excluded from the pro forma results of operations as it is
not expected to have a continuing impact on INTERLINQ's results of
operations. Purchase of in-process R&D represents a one-time charge
incurred by the Company upon acquisition of LSSC. The Company believes
that the technology obtained in this acquisition requires significant
enhancements so that it may be successfully integrated with the existing
MortgageWare products and so that it may successfully compete in the
Enterprise Application Integration market, and has no future alternative
uses. As such, $3,615,304 of the purchase price was recorded as
in-process R&D and expensed on the date of acquisition.
(d) The pro forma adjustment reflects the tax benefit of losses incurred by
LSSC during the period presented.
(e) Pro forma basic and diluted net income per share is computed by dividing
the pro forma net income by the pro forma weighted average number of
common shares outstanding and the weighted average common and common
equivalent shares outstanding, respectively.
The following table reconciles shares used to compute historical basic
and diluted net loss per share to shares used to compute pro forma basic
and diluted net income per share (rounded):
<TABLE>
<S> <C>
Shares used to compute historical
basic and diluted net loss per share 5,213,000
Impact of shares issued in acquisition -
assumed outstanding from July 1, 1997 233,000
Shares used to compute pro forma basic -------------
net income per share 5,446,000
Impact of INTERLINQ common equivalent
shares outstanding 163,000
Shares used to compute pro forma -------------
diluted net income per share 5,609,000
</TABLE>
3
