SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report: October 23, 1995
INTERSOLV, Inc.
(Exact name of registrant as specified in charter)
Delaware 0-15188
(State/other jurisdiction of incorporation) (Commission File Number)
52-0990382
(IRS Employer Identification No.)
9420 Key West Avenue, Rockville, Maryland 20850
(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code 301/838-5000
Item 7. Financial Statements, Pro Forma, Financial Information
and Exhibits.
This Amendment No. 1 to the current report is filed on Form 8-
K/A by INTERSOLV, Inc. ("the Company") and amends the
Current Report on Form 8-K filed by the Company on November
7, 1995. Only those items which are amended are set forth
herein.
A. Historical Financial Statements of TechGnosis
International, Inc.
Report of KPMG Peat Marwick LLP, Independent
Accountants Consolidated Balance Sheets as of December 31, 1994
and 1993
Consolidated Statement of Operations for the years
ended December 31, 1994, 1993, and 1992
Consolidated Statement of Stockholder's Deficit for the
years ended December 31, 1994, 1993 and 1992
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1993, and 1992
Notes to Financial Statements
Unaudited Consolidated Balance Sheet as of October 31, 1995
Unaudited Consolidated Statement of Operations for the ten
months ended October 31, 1995 and 1994
Unaudited Consolidated Statement of Stockholders' Deficit
for the ten months ended October 31, 1995
Unaudited Consolidated Statement of Cash Flows for the ten
months ended October 31, 1995 and 1994
B. Pro Forma Financial Statements of INTERSOLV, Inc.
Unaudited Pro Forma Condensed Combined Statements of
Operations for each of the fiscal years ended April
30, 1995, 1994 and 1993.
C. Exhibits
Exhibit No. Exhibit
23 Consent of KPMG Peat Marwick LLP, Independent Accountants
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 thereunto duly authorized.
INTERSOLV, Inc.
Date: January 5, 1996 By /s/ Kenneth A. Sexton
Kenneth A. Sexton
Vice President,
Finance & Administration/CFO
ITEM 7.A Financial Statements of TechGnosis International,
Inc.
Attached are the financial statements of TechGnosis
International, Inc., which includes the Consolidated Balance
Sheets as of December 31, 1994 and 1993 and the related
Consolidated Statements of Operations, Stockholders' deficit
and Cash Flows for each of the three years ending December
31, 1994, 1993 and 1992, Notes to Financial Statements and
the Report of KPMG Peat Marwick LLP, Independent Accountants.
In addition, the unaudited consolidated Balance Sheet as of
October 31, 1995, the unaudited consolidated Statements of
Operations and Cash Flows for the ten months ended October
31, 1995 and 1994 and the unaudited Statement of Changes in
Stockholders' Deficit for the ten months ended October 31,
1995 are included.
Independent Auditors' Report
The Board of Directors
TechGnosis International, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets
of TechGnosis International, Inc. and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated
statements of operations, stockholders' deficit and cash
flows for the threeyear period ended December 31, 1994.
These consolidated financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits 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 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 financial position of TechGnosis
International, Inc. and subsidiaries as of December 31, 1994
and 1993, and the results of their operations and their cash
flows for the three-year period ended December 31, 1994, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick
LLP Boston, Massachusetts
March 6, 1995
TECHGNOSIS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
October 31, December 31,
ASSETS 1995 1994 1993
(Unaudited)
Current assets:
Cash and cash equivalents $278 $3,741 $362
Trade receivables, net of
allowance for doubtful
accounts of $676, $130, and $60 2,880 2,919 2,065
Deferred tax assets (note 7) 191 191 ---
Prepaid expenses and other
current assets 1,393 531 654
Total current assets 4,742 7,382 3,081
Property, plant and equipment
(notes 2, 4 and 6) 4,246 3,264 2,687
Less accumulated depreciation and
amortization (2,686) (2,237) (1,670)
Net property, plant
and equipment 1,560 1,027 1,017
Software production and purchased
software costs, net 1,428 1,348 1,263
Other assets 355 232 63
Total assets $8,085 $9,989 $5,424
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term debt (note 3) $1,367 $1,074 $ 731
Current portion of long-term
debt (note 4) 66 90 117
Current installments of obligations
under capital leases (note 6) 31 79 76
Accounts payable 3,062 2,640 1,950
Accrued expenses and other current
liabilities 1,941 376 890
Deferred revenue 928 883 631
Accrued compensation and vacation
benefits 300 312 181
Accrued payroll taxes 250 263 535
Total current
liabilities 7,945 5,717 5,111
Long-term debt, less current
portion (note 4) 239 251 409
Obligations under capital leases,
less current installments (note 6) 276 158 135
Total liabilities 8,460 6,126 5,655
Subordinated convertible notes
(note 5) 3,865 4,000 ---
Minority interests 272 191 258
Commitments and contingencies
(note 6)
Stockholders' deficit (note 8):
Preferred stock, $.01 par value.
Authorized 500,000 shares; issued
and outstanding 100,000 and
150,000 shares at October 31, 1995
and December 31 1994, respectively 1 2 ---
Common stock, $.01 par value.
Authorized 2,000,000 shares;
outstanding 1,261,000 shares,
1,101,000 shares and 1,173,000 shares
at October 31, 1995, December 31, 1994,
and 1993, respectively 13 12 12
Additional paid-in capital 9,283 7,982 7,617
Accumulated deficit (note 8) (13,710) (7,881) (8,023)
(4,413) 115 (394)
Less treasury stock, at cost (20) (510) (37)
Currency translation adjustment (79) 67 (58)
Total stockholders'
deficit (4,512) (328) (489)
Total liabilities and
stockholders' deficit $8,085 $9,989 $5,424
See accompanying notes to consolidated financial statements.
TECHGNOSIS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of
Operations
(In thousands)
Ten Months Ended
October 31, Year Ended December 31,
1995 1994 1994 1993 1992
(Unaudited)
Revenues (notes 10 and 12):
License fees $10,582 $9,269 $11,590 $7,138 $ 4,213
Service fees 2,643 1,828 2,139 1,765 2,136
Total revenues 13,225 11,097 13,729 8,903 6,349
Operating expenses:
Cost of license fees 1,442 899 1,094 922 734
Cost of service fees 3,445 2,723 3,596 1,956 2,779
Research and development 2,192 875 1,060 993 417
Selling and marketing 7,903 3,605 4,766 2,776 3,217
General and administrative 3,451 1,999 2,871 2,234 2,345
Restructuring charge
(note 11) 52 --- --- 756 ---
Write-off of software
development costs --- --- --- --- 482
Total operating
expenses 18,485 10,101 13,387 9,637 9,974
Operating income (loss) (5,260) 996 342 (734) (3,625)
Other income (expense):
Interest expense, net (331) (204) (326) (281) (239)
Other income (expense) (102) (173) (57) 47 124
Minority interests (63) (116) 50 (56) ---
Total other expense,
net (496) (493) (333) (290) (115)
Income (loss) before income
taxes (5,756) 503 9 (1,024) (3,740)
Income tax expense (benefit)
(note 7) 73 --- (133) 116 ---
Net income (loss) ($5,829) $503 $ 142 (1,140) (3,740)
See accompanying notes to consolidated financial statements.
TECHGNOSIS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Deficit
Years ended December 31, 1994, 1993 and1992
and (Unaudited) Ten Months Ended October 31, 1995
(in thousands)
Preferred Stock Common Stock Additional
Shares Amount Shares Amount Paid-in
Capital
Balance, December 31, 1991 --- --- 997 $10 $6,464
Purchase of treasury stock --- --- --- --- ---
Sale of treasury stock --- --- --- --- 125
Issuance of subscribed stock --- --- --- --- ---
Issuance of stock in exchange
for services --- --- --- --- 30
Net loss --- --- --- --- ---
Effect of foreign currency
translation --- --- --- --- ---
Balance, December 31, 1992 --- --- 997 10
Conversion of bond --- --- 188 2 998
Purchase of treasury stock --- --- --- --- ---
Sale of treasury stock --- --- --- --- ---
Net loss --- --- --- --- ---
Effect of foreign currency
translation --- --- --- --- ---
Balance, December 31, 1993 --- --- 1,185 12 7,617
Issuance of conversion stock --- --- 50 --- 67
Issuance of preferred stock 150 2 --- --- 298
Purchase of treasury stock --- --- --- --- ---
Sale of treasury stock --- --- --- --- ---
Net income --- --- --- --- ---
Effect of foreign currency
translation --- --- --- --- ---
Balance, December 31, 1994 150 2 1,235 12 7,982
Exercise of stock options --- --- 6 --- 6
Conversion of subordinated
notes --- --- 18 --- 135
Conversion of preferred
stock (50) (1) 50 1 ---
Net Sales/retirements of
treasury stock --- --- (43) --- 1,160
Net loss --- --- --- --- ---
Effect of foreign currency
translation --- --- --- --- ---
Balance, October 31, 1995
(unaudited) 100 $1 1,266 $13 $9,283
TECHGNOSIS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Deficit
Years ended December 31, 1994, 1993 and1992
and (Unaudited) Ten Months Ended October 31, 1995
(in thousands)
(CONTINUED)
Total
Stockholders'
Accumulated Treasury Stock Translation Equity
Deficit Shares Amount Adjustment (Deficit)
Balance, December 31, 1991 ($3,143) 132 ($162) ($97) $3,072
Purchase of treasury stock --- 113 (22) --- (22)
Sale of treasury stock --- (10) --- --- 125
Issuance of subscribed stock --- (80) --- --- ---
Issuance of stock in exchange
for services --- (1) --- --- 30
Net loss (3,740) --- --- --- $3,740
Effect of foreign currency
translation --- --- --- 88 88
Balance, December 31, 1992 (6,883) 154 (184) (9) (447)
Conversion of bond --- --- --- --- 1,000
Purchase of treasury stock --- 25 (78) --- (78)
Sale of treasury stock --- (167) 225 --- 225
Net loss (1,140) --- --- --- 1,140
Effect of foreign currency
translation --- --- --- (49) (49)
Balance, December 31, 1993 (8,023) 12 (37) (58) (489)
Issuance of conversion stock --- --- --- --- 67
Issuance of preferred stock --- --- --- --- 300
Purchase of treasury stock --- 135 (515) --- (515)
Sale of treasury stock --- (13) 42 --- 42
Net income 142 --- --- --- 142
Effect of foreign currency
translation --- --- --- 125 125
Balance, December 31, 1994 (7,881) 134 (510) 67 (328)
Exercise of stock options --- --- --- --- 6
Conversion of subordinated --- --- --- --- 135
notes --- --- --- --- ---
Conversion of preferred
stock --- --- --- --- ---
Net Sales/retirements of
treasury stock --- (129) 490 --- 1,650
Net loss (5,289) --- --- --- (5,829)
Effect of foreign currency
translation --- --- --- (146) (146)
Balance, October 31, 1995
(unaudited) ($13,710) 5 ($20) ($79) ($4,512)
See accompanying notes to consolidated financial statements
TECHGNOSIS INTERNATIONAL, INC. AND
SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Ten Months Ended
October 31, Year Ended
1995 1994 1994 1993 1992
(Unaudited)
Cash flows from operating activities:
Net income (loss) ($5,829) $503 $ 142 $(1,140) $(3,740)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization
1,239 986 1,344 1,209 983
Write-off of software development costs
--- --- --- --- 482
Loss (gain) on disposal of property, plant and
equipment --- 17 17 77 (19)
Noncash compensation expense
--- 67 67 --- 30
Minority interests 81 36 (50) 56 ---
Deferred taxes --- --- (191) --- ---
Changes in operating assets and liabilities:
Trade receivables 39 (702) (854) 4 (19)
Stock subscription receivables
--- --- --- (31) 1,000
Prepaid expenses and other current assets
(862) 215 123 (569) 435
Accounts payable 422 (347) 690 339 (268)
Accrued expenses and other current
liabilities 1,422 83 (796) 1,475 102
Accrued compensation and vacation benefits
(12) 99 (131) 15 22
Accrued payroll taxes (13) (335) 272 (535) ---
Deferred revenue 188 (67) 251 41 210
Net cash provided by (used in) operating
activities (3,325) 555 884 941 (782)
Cash flows from investing activities:
Additions to property, plant and equipment
(982) (299) (359) (15) (236)
Proceeds from sale of property, plant and
equipment --- --- 29 --- 19
Software production and purchased software costs
(870) (737) (884) (862) (896)
Investment in affiliates --- --- --- 207 (136)
Acquisition of minority interests
--- (33) (33) --- ---
Other assets (259) (110) (169) 23 (4)
Net cash used in investing activities
(2,111) (1,179) (1,416) (647) (1,253)
Cash flows from financing activities:
Net proceeds (payments) of short-term debt
293 (231) 343 (207) 244
Proceeds (repayments) of long-term debt
104 466 (185) (231) 558
Repayments of capital leases
(70) (67) (81) (88) (122)
Proceeds from issuance of subordinated
convertible notes (135) 4,000 4,000 --- 1,000
Treasury stock transactions
1,791 (420) (443) 147 103
Net proceeds from issuance of preferred stock
--- 300 300 --- ---
Net cash provided by (used in) financing
activities
1,983 4,048 3,934 (379) 1,783
Effect of exchange rate changes on cash and cash
equivalents (10) (19) (23) 163 88
Net increase (decrease) in cash and cash
equivalents (3,463) 3,405 3,379 78 (164)
Cash and cash equivalents, at beginning of period
3,741 362 362 284 448
Cash and cash equivalents, at end of period
$278 $3,767 $3,741 362 284
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $170 $147 $ 176 $281 $241
Income taxes --- $13 $13 $99 ---
See accompanying notes to consolidated financial statements.
TECHGNOSIS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
December 31, 1994 ,1993 and 1992
(1) Summary of Significant Accounting Policies
(a) Description of Business
TechGnosis International, Inc. and subsidiaries
(the "Company") is engaged in the development,
sale, and distribution of client/server middleware
software products and related consulting services.
(b) Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and all companies in which
the Company has a majority equity ownership. All
significant intercompany balances and transactions
have been eliminated.
In 1993, the Company established joint ventures in
Japan and Germany to market, sell and service its
software products. The Company held a 51% interest
in each of these ventures at December 31, 1993 and
increased the interest in the German joint venture
to 90% in 1994. The Company has included the
financial results of both joint ventures in its
consolidated financial statements.
(c) Concentrations of Credit Risk
Financial instruments which potentially expose the
Company to concentrations of credit risk consist
primarily of trade
accounts receivable. Concentrations of credit risk
with respect to trade receivables are limited due to
the large number of diverse, geographically
dispersed customers.
(d) Revenue Recognition
The Company recognizes revenue from the sale of its
software licenses upon satisfaction of all of the
following criteria: signing of the license
agreement, shipment of the products and when no
contractual terms remain unsatisfied.
The Company recognizes revenues from post-contract
customer support agreements ratably over the terms
of the agreements. Revenues from consulting services
are recognized as services are performed.
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments
purchased with original maturities of three months
or less to be cash equivalents.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Equipment under capital leases is stated at the
lower of the present value of minimum lease payments
at the beginning of the lease term or fair value at
the inception of the lease. Depreciation is computed
using the straight-line method over the estimated
useful lives of the assets ranging from three to
forty years. Equipment under capital leases is
amortized on the straight-line basis over the
shorter of the lease term or estimated useful life
of the asset.
(g) Software Production Costs
The Company charges all costs of establishing
technological feasibility of computer software
products to research and development expense as
incurred. Thereafter, software production costs are
capitalized and reported at the lower of unamortized
cost or net realizable value.
The total amounts of software production costs
capitalized
during 1994, 1993 and 1992 were $760,000, $657,000
and $562,000, respectively. Such costs are
amortized on a product-by-product basis at the
greater of the amount computed using (a) the
straight-line method over the estimated economic
life of the product (three years), or (b) the ratio
of current gross revenues to total expected gross
revenues for the product. Amortization expense for
the years ended December 31, 1994, 1993 and 1992 was
$676,000 ,$623,000 and $323,000, respectively.
During 1992, in connection with its evaluation of
software values, the Company expensed $482,000 of
previously capitalized software production costs.
(h) Purchased Software Costs
Purchased software costs are capitalized and
reported at the lower of unamortized cost or net
realizable value.
The costs of purchased software from outside vendors
were $124,000, $205,000 and $334,000 in 1994, 1993
and 1992, respectively. The total amount of such
costs amortized to expense during those periods was
$226,000, $255,000, and $102,000 respectively.
Amortization on a product-by-product basis is
computed using the greater of (a) the straight line
method over the estimated economic life of the
products (three years), or (b) the ratio of current
gross revenues to total expected gross revenues for
the product.
(I) Income Taxes
The Company accounts for income taxes under the
provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes.
Statement 109 requires recognition of deferred tax
assets and liabilities for the estimated future
tax consequences attributable to differences
between the financial statement carrying amounts
of existing assets and liabilities and their
respective tax bases. Measurement of deferred tax
assets and liabilities is based upon the
provisions of enacted tax laws and the effects of
future changes in tax laws or rates are not
anticipated.
(j) Foreign Currency Translation and Transaction
Gains and
Losses
The Company considers the local currency to be the
functional currency for its foreign operations and
the U.S. dollar to be the functional currency of
its U.S. operations. The reporting currency of the
Company is the U.S. dollar: accordingly, all
amounts included in the consolidated financial
statements have been translated into U.S. dollars.
All assets and liabilities of its foreign
operations are translated into U.S. dollars using
the exchange rates in effect on balance sheet
dates for assets and liabilities. Income and
expenses are translated at average rates in effect
for the periods presented. The currency
translation adjustment is reflected as a separate
component of stockholders' deficit on the
consolidated balance sheets.
Foreign currency transaction gains and losses are
included in the consolidated results of operations
for the periods presented. To date, transaction
gains and losses have not been significant.
2) Property, Plant and Equipment
Property, plant and equipment at December 31 consist of:
1994 1993
(In Thousands)
Land and buildings $ 362 342
Machinery and equipment 2,452 1,980
Furniture and fixtures 393 344
Leasehold improvements 57 21
Total $3,264 $2,687
(3) Short-term Debt
As of December 31, 1994 and 1993, the Company had
$1,074,000 and $731,000 of short-term debt outstanding under
foreign lines of credit and other borrowing
arrangements. Interest on the short-term debt ranged
from 3.5% to 10% as of December 31, 1994 with varying
maturity dates through December 1995. Foreign lines
of credit and other borrowing arrangements are
generally restricted for working capital purposes.
The borrowings are primarily secured by certain
assets of the Company's foreign operations.
(4) Long-term Debt
Long-term debt consists of the following at December 31:
1994 1993
(In Thousands)
Mortgage note payable to bank with interest at 7.75% at
December 31, 1994; secured by real estate with a net
book value of $318,000; payable in monthly principal
and interest installments through July 2002
$210 219
Unsecured note payable to bank with interest at 8.25%
at December 31, 1994; payable in quarterly principal
and interest installments through December 1997
94 118
Bank line of credit with interest at 8.75% at December
31, 1994; secured by assets of the Company's Belgian
subsidiary and payable in full in 1995
37 189
Total long-term debt 341 526
Less current portion 90 117
Long-term debt excluding current portion $251 409
The maturities of long-term debt for the five years
subsequent to December 31, 1994 are as follows (in thousands):
1995 $90
1996 53
1997 53
1998 21
1999 and thereafter 124
$341
(5) Subordinated Convertible Notes
In 1994 the Company issued $4,000,000 of 8.4%
subordinated convertible notes which are due in
October 1999. Interest is payable annually for the
first two years and semi-annually thereafter. Fifty
percent of the first year's interest will be accrued
and paid at the end of the second year.
These notes are convertible into shares of common stock
at the option of the holder at any time prior to
maturity. The notes will convert automatically if
the Company offers common stock pursuant to an
effective registration statement under the Securities
Act of 1933, of which the aggregate net proceeds
received by the Company exceed $15,000,000 and whose
price per share offered to the public is at least
$16.00.
The initial conversion price per share of the notes is
$7.80. This price will be adjusted for certain
dilutive events. The Company may prepay the notes at
any time,
in whole or in part, together with accrued and unpaid
interest through the date of the prepayment. Upon
payment, the note holders will receive warrants to
purchase that number of shares of common stock
determined by dividing the amount of principal
prepaid by the conversion price. The warrants shall
be exercisable until October, 1999.
(6) Lease Obligations
The Company leases certain equipment under capital
and operating leases and office facilities under
operating leases. These leases expire at various
dates through 1999. Total rent expense charged to
operations was $454,000, $569,000 and $340,000 for
the years ended December 31, 1994, 1993 and 1992,
respectively.
The cost and accumulated amortization of equipment
under capital leases at December 31 is as follows:
1994 1993
(In thousands)
Equipment $ 366 366
Accumulated amortization (140) (174)
$ 226 192
Future minimum lease payments under operating leases
and the present value of future minimum capital
lease payments as of December 31, 1994 are as
follows:
Capital Operating
Leases Leases
(In thousands)
1995 $ 98 552
1996 88 483
1997 64 252
1998 18 178
1999 17 178
Total minimum lease payments 285 1,643
Less amount representing interest (48)
Present value of net minimum capital
lease payments 237
Less current installments of obligations under
capital leases (79)
Obligations under capital leases excluding
current installments $158
(7) Income Taxes
Income tax expense (benefit) attributable to income
(loss) from operations for the years ended December
31 consists of:
Current Deferred Total
(In thousands)
1994
U.S. federal $ --- --- ---
U.S. state --- --- ---
Foreign 20 (153) (133)
$20 (153) (133)
1993
U.S. federal $ --- --- ---
U.S. state --- --- ---
Foreign 116 --- 116
$116 --- 116
The principal difference between the "expected" tax expense
using the U.S. federal income tax rate of 34% and
actual income tax expense (benefit) is the change in
valuation allowance.
As of December 31, 1994, the Company had net operating
loss carryforwards of approximately $7,392,000, which
may be used to reduce future taxable income through the
year 2009 and tax credit carryforwards of $73,000 which
may be used to reduce tax payments otherwise required
through the year 2008. If a more than 50% change in
stock ownership occurs during a threeyear period, the
amount of U.S. net operating loss carryforward which
may be utilized each year may be subject to
limitations. The use of certain net operating loss
carryforwards is limited due to the separate return
year limitation provisions.
The tax effects of temporary differences that give rise
to significant portions of net deferred tax assets and
the significant components of deferred income tax
expense attributable to income from continuing
operations at December 31, 1994 and 1993 are non
deductible book, reserves, difference in methods of
depreciation and amortization for book and tax
purposes, net operating loss and tax credit
carryforwards.
The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 1994 are
presented below:
(in thousands)
Deferred tax assets:
Accounts receivable $ 20
Leases 35
Royalty payments 129
Net operating loss carryforward benefit 2,912
Tax credit carryforwards benefit 73
Total gross deferred tax assets 3,169
Less valuation allowance (2,859)
310
Deferred tax liabilities, principally
depreciation (119)
Net deferred tax assets $ 191
The valuation allowance for the years ended December
31, 1994 and 1993 was $2,859,000 and $2,350,000,
respectively. The net change in the total valuation
allowance for the years ended December 31, 1994 and
1993 was an increase of $509,000 and $463,000,
respectively.
In assessing the realizability of deferred tax assets,
the Company considers whether it is more likely than
not that some portion or all of the deferred tax assets
will not be realized. Due to the fact that certain
foreign subsidiaries of the Company project future
taxable income over the periods in which the deferred
tax assets are deductible, the ultimate realization of
deferred tax assets at December 31, 1994 appears more
likely than not.
(8) Stockholders' Deficit
Preferred Stock
In 1994, the Company issued 150,000 shares of preferred
stock at $2.00 per share. All outstanding shares of
preferred stock are convertible at the option of the
holder into such number of fully paid and nonassessable
shares of common stock as is determined by dividing
$2.00 by the conversion price in effect
at the time of the conversion. The conversion price in
effect at December 31, 1994 was $2.00.
Each share of preferred stock shall automatically be
converted into common stock, at the conversion price in
effect at that time, immediately upon the Company's sale
of its common stock in a public offering pursuant to a
registration statement under the Securities Act of 1933.
Upon voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the preferred
stock shall be entitled to receive an amount per share
equal to the sum of (i) $2.00 for each outstanding share
of the preferred stock and (ii) an amount equal to
declared but unpaid dividends on such share. Each share
of the preferred stock is eligible for a dividend at an
annual rate of $.20 per share. Such dividends shall be
cumulative and accrue on each share from the date of
issuance, whether or not earned or declared. The
cumulative amount of such unpaid dividends at December
31, 1994 was $30,000.
Upon request of any holders of the preferred stock, the
Company shall redeem the shares for $2.00 per share plus
any declared or accumulated but unpaid dividends. This
redemption can be elected only upon consummation of any
transaction which results in a change in ownership of a
majority of the outstanding shares of common stock. The
Company may redeem the preferred stock in whole or in
part at any time for $2.00 per share plus any declared or
accumulated but unpaid dividends.
Stock Option Plans
In 1993 the Company adopted a key employee stock option
plan (the "1993 Plan") which provides for options for
150,000 shares of common stock to be granted over a 10
year period from the date of the 1993 Plan. Option prices
may not be less than eighty five percent (85%) of the
fair market value of the stock at date of grant. Pursuant
to the 1993 Plan, a committee designated by the Board of
Directors shall determine to whom the options shall be
granted, the number of shares granted and whether the
options or grants are restricted or take the form of
stock appreciation rights. Upon employment termination,
the otherwise exercisable options lapse within a period
of three months subsequent to termination.
In 1994, the Board granted 150,000 options at an exercise
price of $1.00 per share of which 37,500 options are
exercisable at December 31, 1994. The exercise price per
share was the estimated fair market value of stock at the
date of grant. No options have been exercised as of
December 31, 1994.
In 1994, the Board agreed on a second stock option plan
(the "1994 Plan") under which 150,000 options for shares
of common stock have been authorized. The terms of the
1994 Plan are similar to those of the 1993 Plan. No
shares have been granted as of December 31, 1994.
Other
During 1994, in connection with an employment agreement,
the Company issued 50,000 shares of common stock to an
employee in lieu of compensation. The fair market value
of the stock was $67,000 and was recorded in general and
administrative expenses.
Retained earnings of a subsidiary of the Company of
$15,000 are restricted from distribution due to Belgian
law as of
December 31, 1994 and 1993.
(9) Noncash Financing Activities
In 1992, the Company issued treasury stock valued at
$30,000 in exchange for services.
In 1993, $1,000,000 in convertible debentures were
converted to 188,461 shares of common stock.
In 1994, 13,150 shares of treasury stock were issued as
payment of a $30,000 liability.
In 1994, 50,000 shares of common stock were issued in
lieu of compensation expense (see note 8) in the amount
of $67,000.
The Company entered into capital leases in the amount of
$81,000 and $138,000 in 1994 and 1993, respectively.
(10) Related Party Transactions
The Company paid management fees of $30,000 to a
shareholder in the years ended December 31, 1994, 1993 and 1992.
The Company sells software products for resale to the
Japanese joint venture minority shareholder. Total
sales during 1994 and 1993 to the minority shareholder
were approximately $2,600,000 and $2,700,000 or 19% and
29%, respectively, of consolidated net sales. In
addition, the minority shareholder provides employees,
office space and other miscellaneous items to the
Company joint venture on a cost plus management fee
basis. During 1994 and 1993, total costs and
management fee reimbursed to the minority shareholder
were approximately $1,200,000 and $1,500,000,
respectively.
(11) Restructuring Charge
During 1993, the Company recorded a $756,000 charge
resulting from management's analysis of the Company's
operations and future strategy including determining
the key markets of focus to expand its market share as
well as identifying cost savings opportunities. This
strategy resulted in a charge of approximately $200,000
for payroll and related costs associated with the
dismissal of certain directors and officers of the
Company; approximately $470,000 for the closing and
relocation of office facilities in the U.S., France and
Belgium; and approximately $86,000 for the writeoff of
the Company's investment in Gnosis Finance N.V., a
Belgian company engaged in the development of computer
software, which was liquidated during 1993.
(12) Geographic Segments
The Company operates exclusively in the software
industry. All revenues result from sales in the United
States, Europe and Japan. Identifiable assets are
those assets used exclusively in the operations of each
geographic area. Information by geographic area as of
and for the years ended December 31, 1994, 1993 and
1992 follows:
United
States Europe Japan Consolidated
(In thousands)
1994
Revenue $ 2,278 3,276 8,218 13,772
Operating income (loss)$ (269) 665 (54) 342
Identifiable assets $ 3,977 3,643 2,369 9,989
1993
Revenue $1,821 3,246 4,272 9,339
Operating income (loss) $ (661) (525) 452 (734)
Identifiable assets $ 831 2,990 1,603 5,424
1992
Revenue $ 1,948 5,871 --- 7,819
Operating income (loss) $(1,783) (1,842) --- (3,625)
Identifiable assets $ 1,190 4,071 --- 5,261
Item 7.B Pro Forma Financial Statements of INTERSOLV, Inc.
The following unaudited pro forma combined financial
information sets forth the combined results of operations
of INTERSOLV, Inc. ("INTERSOLV") and TechGnosis
International, Inc. ("TechGnosis") based upon accounting
for the acquisition as a pooling-of-interests and that
the acquisition was consummated as of the beginning of
each period presented in the Statements of Operations.
The unaudited pro forma combined financial
information combines the historical Statements of
Operations on INTERSOLV and TechGnosis for each of the
years ended April 30, 1995, 1994 and 1993. The combined
financial position as of October 31, 1995 and April 30,
1995 of INTERSOLV and TechGnosis is shown in the
INTERSOLV's Form 10-Q for the three months ended October
31, 1995, which was filed previously; accordingly there
is no additional pro forma balance sheet presentation in
this Form 8K/A.
For the periods presented in the pro forma condensed
combined Statements of Operations, pro forma shares used
in computing earnings per share give effect to the
exchange of approximately 2.6 million shares of INTERSOLV
common stock and $4.8 million for all of the outstanding
TechGnosis common and preferred stock.
Costs to be incurred by INTERSOLV for nonrecurring
costs such as severance, consolidation of facilities,
certain transaction costs and other one-time integration
costs have not been reflected in the pro forma combined
financial statements. The following pro forma data is not
necessarily indicative of the financial position or
results of operations which would have actually been
reported had the acquisition been in effect during those
periods or which may be reported in the future.
INTERSOLV, INC. AND TECHGNOSIS INTERNATIONAL, INC.
PRO FORMA CONDENSED FOR STATEMENT OF OPERATIONS
(UNAUDITED)
FISCAL YEAR ENDED APRIL 30, 1995
(amounts in thousands, except per share data)
INTERSOLV* Techgnosis Adjustments Combined
Revenues: $119,749 $14,768 --- $134,517
Costs and expenses:
Cost of products 10,624 1,313 11,937
Cost of services 20,735 850 21,585
Sales and marketing 48,051 9,072 57,123
Research and development 12,109 1,537 13,646
General and administrative9,941 3,815 13,756
Non-recurring charges --- --- ---
Total costs and expenses 101,460 16,587 118,047
Operating income (loss) 18,289 (1,819) 16,470
Other income (expense), net 755 (492) 263
Income (loss) before income
taxes 19,044 (2,311) 16,733
Provision for income
taxes 5,683 1 5,684
Net income (loss) $13,361 ($2,312) $11,049
Shares used in computing primary income per share
16,857 2,626 19,483
Primary net income (loss) per share
$0.79 ($0.88) $0.57
Shares used in computing fully diluted net income per share
16,890 3,282 20,172
Fully diluted net income per share
$0.79 ($0.70) $0.55
*INTERSOLV includes the results of INTERSOLV, Inc. and PC Strategies
and Solutions, Inc., which was acquired May 1995
in a transaction accounted for using the "pooling-of
interests" method.
INTERSOLV, INC. AND TECHGNOSIS INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS (UNAUDITED)
FISCAL YEAR ENDED APRIL 30, 1994 (amounts
in thousands, except per share data)
INTERSOLV* Techgnosis Adjustments Combined
Revenues: $88,518 $11,050 --- $99,568
Costs and expenses:
Cost of products 7,111 1,243 8,354
Cost of services 13,221 559 13,780
Sales and marketing 40,153 5,022 45,175
Research and development 9,023 1,046 10,069
General and administrative 7,376 2,159 9,535
Non-recurring charges 40,660 642 41,302
Total costs and expenses 117,544 10,671 128,215
Operating income (loss) (29,026) 379 (28,647)
Other income (expense), net 200 (291) (91)
Income (loss) before income
taxes (28,826) 88 (28,738)
Provision for income taxes 261 46 307
Net income (loss) ($29,087) $42 --- ($29,045)
Shares used in computing primary income per
share 12,797 2,527 15,324
Primary net income (loss)
per share ($2.27) $0.02 ($1.89)
Shares used in computing fully diluted net
income per share 12,797 2,527 15,324
Fully diluted net income per share
($2.27) $0.02 ($1.89)
*INTERSOLV includes the results of INTERSOLV, Inc. and PC
Strategies and Solutions, Inc., which was acquired May 1995
in a transaction accounted for using the "pooling-of
interests" method.
INTERSOLV, INC. AND TECHGNOSIS INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS (UNAUDITED)
FISCAL YEAR ENDED APRIL 30, 1993
(amounts in thousands, except per share data)
INTERSOLV* Techgnosis Adjustments Combined
Revenues: $81,860 $6,403 --- $88,263
Costs and expenses:
Cost of products 5,632 732 6,364
Cost of services 8,286 744 9,030
Sales and marketing 43,438 4,432 47,870
Research and development 10,752 599 11,351
General and administrative 8,967 2,529 11,496
Non-recurring 16,573 436 17,009
Total costs and expenses 93,648 9,472 103,120
Operating loss (11,788) (3,069) (14,857)
Other income (expense), net 52 (84) (32)
Loss before income taxes (11,736) (3,153) (14,889)
Provision (benefit) for income
taxes (30) 70 40
Net Loss ($11,706) ($3,223) --- ($14,929)
Shares used in computing primary income per
share 12,536 2,527 15,063
Primary net income (loss) per share
($0.93) ($1.28) ($0.99)
Shares used in computing fully diluted net
income per share
12,536 2,527 15,063
Fully diluted net income per share
($0.93) ($1.28) ($0.99)
*INTERSOLV includes the results of INTERSOLV, Inc. and PC
Strategies and Solutions, Inc., which was acquired May 1995
in a transaction accounted for using the "pooling-of
interests" method.
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
TechGnosis International, Inc.
We consent to the incorporation of our report dated
March 6, 1995, with respect to the consolidated balance
sheets of TechGnosis International, Inc. and
subsidiaries as of December 31, 1994 and 1993 and the
related consolidated statements of
operations, stockholders' deficit, and cash flows for
each of the years in the three-year period ended
December 31, 1994, which report appears in the Form 8-
K/A of INTERSOLV, Inc.
KPMG Peat Marwick, LLP
Boston, Massachusetts
January 5, 1996
