UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 14, 1999
LEGATO SYSTEMS, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-26130 94-3077394
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
3210 Porter Drive, Palo Alto, California 94304
(Address of Principal Executive Offices) (Zip Code)
Company's telephone number, including area code: (415) 812-6000
(Former Name or Former Address, if Changed Since Last Report.)
<PAGE>
Item 5. Other Events
This Form 8-K/A amends the Current Report on Form 8-K filed on April 1,
1999 to incorporate Item 7, the Financial Statements of Businesses Acquired, Pro
Forma Financial Information and Exhibits.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
(1) The unaudited condensed consolidated financial statements of
Intelliguard Software, Inc. and Affiliates as of March 31, 1999 and for the
three-months ended March 31, 1999 and 1998 are filed as an amendment to the
initial report filed April 1, 1999.
(2) The consolidated balance sheets and the related consolidated statements
of operation, stockholders' equity and cash flows of Intelliguard Software,
Inc., as of December 31, 1998 are filed as an amendment to the initial report
filed April 1, 1999.
(b) Pro Forma Financial Information.
The unaudited combined condensed consolidated financial statements as of
December 31, 1998 are filed as an amendment to the initial report filed April 1,
1999.
(c) Exhibits. The following documents are filed as exhibits to this initial
report:
Exhibit
Number Description
23.1 Consent of PricewaterhouseCoopers LLP.
99.1^ Press release, dated January 28, 1999.
99.2^ Press release, dated April 1, 1999.
^Previously filed.
<PAGE>
(a)(1) Financial Statements Business Acquired. The unaudited condensed
consolidated financial statements of Intelliguard Software, Inc. and Affiliates
as of March 31, 1999 are filed as an amendment to the initial report filed April
1, 1999.
<TABLE>
INTELLIGUARD SOFTWARE, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1999 1998
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,000 $ 393,496
Accounts receivable, net 593,373 907,318
Accounts receivable related party 8,948,837 7,130,787
Prepaid and other current assets 171,493 298,800
-------------- ------------
Total current assets 9,714,703 8,730,401
Property and equipment, net 1,153,173 1,413,776
-------------- ------------
Total assets $ 10,867,876 $ 10,144,177
============== ============
Liabilities and Shareholders' equity
Due to related party $ 14,715,089 $ 12,059,754
Accounts payable 92,539 383,726
Accrued liabilities 745,858 725,983
Incentive unit plan 4,754,871 --
Deferred revenue 1,722,779 1,743,639
-------------- ------------
Total current liabilities 22,031,136 14,913,102
Commitments and contingencies
Shareholders' equity:
Equity 103,856 103,856
Deficit (11,267,116) (4,872,781)
-------------- ------------
Total shareholders' equity (11,163,260) (4,768,925)
-------------- ------------
Total liabilities and shareholders' equity $ 10,867,876 $ 10,144,177
============== ============
</TABLE>
The accompanying notes are an integral part of the Condensed Consolidated
Financial Statements.
<PAGE>
<TABLE>
INTELLIGUARD SOFTWARE, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Sales - related party $ 768,199 $ 1,628,897
Sales 1,426,469 1,216,541
----------- -----------
Total sales 2,194,668 2,845,438
Cost of goods sold 223,954 223,068
----------- -----------
Gross profit 1,970,714 2,622,237
Selling, general and administrative expenses 8,336,015 3,138,809
----------- -----------
Operating loss (6,365,301) (516,439)
----------- -----------
Other expense (income):
Interest expense 60,705 25,824
Other (31,669) --
----------- -----------
Total other expense 29,036 25,824
----------- -----------
Net loss $(6,394,337) $ (542,263)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Condensed Consolidated
Financial Statements.
<PAGE>
<TABLE>
INTELLIGUARD SOFTWARE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $(6,394,337) $ (542,263)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 96,051 96,549
Changes in operating assets and liabilities:
Accounts receivable 313,947 (308,217)
Prepaid and other current assets 127,307 88,220
Accounts payable (291,187) 189,247
Accrued liabilities 4,774,746 (5,905)
Deferred revenue (20,860) --
----------- -----------
Net cash used in operating activities (1,394,333) (482,369)
----------- -----------
Cash flows from investing activities:
Capital disposals (expenditures) 164,552 (16,411)
----------- -----------
Net cash provided by (used in) investing activities 164,552 (16,411)
----------- -----------
Cash flows from financing activities:
Due to related parties 837,285 401,008
----------- -----------
Net cash provided by financing activities 837,285 401,008
----------- -----------
Net decrease in cash and cash equivalents (392,496) (97,772)
Cash and cash equivalents at beginning of period 393,496 98,772
----------- -----------
Cash and cash equivalents at end of period $ 1,000 $ 1,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Condensed Consolidated
Financial Statements.
<PAGE>
INTELLIGUARD SOFTWARE, INC. AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Companies:
Intelliguard Software, Inc. ("Intelliguard") is a wholly-owned subsidiary
of DRG Holdings, Inc. ("DRG"). On January 1, 1998, DRG changed its name from
Peripheral Devices Corp., II ("PDC"). The assets of PDC were transferred to two
newly created subsidiaries, Intelliguard and PDC Solutions, Inc. in exchange for
100% of their respective shares. The assets were transferred at PDC's historical
basis. Intelliguard and Intelliguard International are engaged in the
development, production and marketing of proprietary software and sales of
enhanced high capacity peripheral storage devices. The proprietary software
provides automatic backup and retrieval of data.
O.R.P., Inc. ("ORP") develops and refines software for Intelliguard through
its wholly-owned subsidiary in India.
2. Summary of Significant Accounting Policies:
Basis of Presentation:
The unaudited combined financial statements of Intelliguard Software, Inc.
and Affiliates (the "Companies") include the accounts of Intelliguard,
Intelliguard International and ORP, entities under common control. All
significant intercompany accounts and transactions have been eliminated in
combination. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (all of which are
normal and recurring in nature) necessary to present fairly the financial
position, results of operations and cash flows of the Companies. The results of
operations for the interim periods presented are not necessarily indicative of
the results that may be expected for any future interim periods or for the full
fiscal year. The Notes to the Combined Financial Statements contained in the
1998 combined financial statements should be read in conjunction with these
Condensed Consolidated Financial Statements. The balance sheet at December 31,
1998 was derived from audited financial statements; however, it does not include
all disclosures required by generally accepted accounting principles.
Inventory:
Inventories consist of finished goods and packaging supplies and are stated
at the lower of cost or market. Cost is determined using the first-in, first-out
method.
Revenues:
The Companies recognize revenue from product sales at the time of shipment.
The majority of Intelliguard's revenue is to a wholly-owned subsidiary of DRG,
PDC Solutions, Inc. ("PDC"), a reseller. Customer support service revenue is
recognized ratably over the terms of the related customer support agreements.
Deferred revenue arises primarily from customer support service revenue billed
at customers' request and collected in advance of the performance of the related
services.
Income Taxes:
The Companies' shareholders elected for Intelliguard, Inc. and Affiliates
to be treated as S Corporations in accordance with Subchapter S of the Internal
Revenue Code, for federal income tax purposes, whereby profits and losses are
passed directly to the shareholders for inclusion in their personal tax returns.
Accordingly, no liability for federal income taxes is included in the
accompanying combined financial statements. They have also elected Subchapter S
status for state income tax purposes.
3. Concentration of Credit Risk:
The Company derives a majority of its sales from PDC Solutions, Inc., a
wholly-owned subsidiary of Intelliguard's parent, DRG.
4. Incentive Unit Plan
The Companies have an Incentive Unit Plan ("Plan") for certain key
employees. The Plan provides for the award of incentive units based on
management's discretion. The units are not exercisable until a liquidity event
occurs. Upon such liquidity event, the incentive units will be assigned a value
based on the total shares of both the incentive units and the common shares
outstanding. Accordingly, as the sale of the Companies was considered probable
as of March 31, 1999, the Companies accrued $4,754,871. Units related to this
plan vested on April 1, 1999 in connection with the sale of Intelliguard (see
Note 5).
5. Subsequent Events:
On April 1, 1999, Intelliguard was sold to Legato Systems Inc. for stock
and cash. In addition, a subsequent separate cash payment was made by Legato to
settle all intercompany activity on Intelliguard's balance sheet; as such, the
$7,130,787 account receivable due from PDC Solutions and the $11,366,815 due to
DRG and the $692,939 due to PDC Solutions were settled in full. In addition, the
$4,754,871 was paid in connection with the Incentive Unit Plan.
In connection with the sale of Intelliguard, a non related entity has
notified Intelliguard that it is due $1,000,000 for services rendered. No
agreement exists between Intelliguard and the entity and no formal action has
been filed. While Intelliguard believes it has good and meritorious defenses, it
has accrued an estimated amount for this matter.
<PAGE>
(a)(2) Financial Statements Business Acquired. The consolidated balance
sheets and the related consolidated statements of operation, stockholders'
equity and cash flows of Intelliguard Software, Inc., as of December 31, 1998
are filed as an amendment to the initial report filed April 1, 1999.
<TABLE>
Combined Balance Sheet
December 31, 1998
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents $ 393,496
Accounts receivable, less allowance for uncollectible accounts
of $120,000 907,318
Accounts receivable related party 7,130,787
Prepaid and other current assets 298,800
----------------
Total current assets 8,730,401
Property and equipment, net of accumulated depreciation of $1,674,411 1,413,776
----------------
Total assets $ 10,144,177
================
LIABILITIES AND EQUITY
Due to related party 12,059,754
Accounts payable 383,726
Accrued liabilities 725,983
Deferred revenue 1,743,639
----------------
Total current liabilities 14,913,102
----------------
Commitments and contingencies
Shareholders' equity:
Equity 103,856
Deficit (4,872,781)
----------------
Total shareholders' deficit (4,768,925)
----------------
Total liabilities and shareholders' deficit $ 10,144,177
================
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
<PAGE>
<TABLE>
INTELLIGUARD SOFTWARE, INC. AND AFFILIATES
Combined Statement of Operations
for the year ended December 31, 1998
<S> <C>
Sales - related party $ 7,130,787
Sales 3,121,945
-----------------
Total sales 10,252,732
Cost of goods sold 1,206,481
-----------------
Gross profit 9,046,251
Selling, general and administrative expenses 13,849,042
-----------------
Operating loss (4,802,791)
-----------------
Other expense:
Interest expense 134,460
Other 28,320
-----------------
Total other expense 162,780
-----------------
Net loss $ (4,965,571)
=================
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
<PAGE>
<TABLE>
INTELLIGUARD SOFTWARE, INC. AND AFFILIATES
Combined Statement of Changes in Shareholders' Deficit
for the year ended December 31, 1998
<CAPTION>
Equity Deficit Total
----------------- ----------------- ----------------
<S> <C> <C> <C>
Balance, January 1, 1998 $ 103,856 $ 92,790 $ 196,646
Net loss - (4,965,571) (4,965,571)
----------------- ----------------- ----------------
Balance, December 31, 1998 $ 103,856 $ (4,872,781) $ (4,768,925)
================= ================= ================
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
<PAGE>
<TABLE>
INTELLIGUARD SOFTWARE, INC. AND AFFILIATES
Combined Statement of Cash Flows
for the year ended December 31, 1998
<S> <C>
Cash flows from operating activities:
Net loss $ (4,965,571)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 460,286
Provision for doubtful accounts 120,000
Changes in operating assets and liabilities:
Increase in accounts receivable (379,981)
Decrease in prepaid expenses and other current assets (18,555)
Increase in accounts payable 130,089
Increase in accrued liabilities 409,055
Increase in deferred revenue 97,356
-----------------
Net cash used in operating activities (4,147,321)
-----------------
Cash flows from investing activities:
Capital expenditures (486,922)
-----------------
Net cash used in investing activities (486,922)
-----------------
Cash flows from financing activities:
Due to related parties, net 4,928,967
-----------------
Net cash provided by financing activities 4,928,967
-----------------
Net increase in cash and cash equivalents 294,724
Cash and cash equivalents, beginning of year 98,772
-----------------
Cash and cash equivalents, end of year $ 393,496
=================
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
<PAGE>
INTELLIGUARD SOFTWARE, INC. AND AFFILIATES
Notes to Combined Financial Statements
1. Description of Companies:
Intelliguard Software, Inc. ("Intelliguard") is a wholly-owned subsidiary
of DRG Holdings, Inc. ("DRG"). On January 1, 1998, DRG changed its name from
Peripheral Devices Corp., II ("PDC"). The assets of PDC were transferred to two
newly created subsidiaries, Intelliguard and PDC Solutions, Inc. in exchange for
100% of their respective shares. The assets were transferred at PDC's historical
basis. Intelliguard and Intelliguard International are engaged in the
development, production and marketing of proprietary software and sales of
enhanced high capacity peripheral storage devices. The proprietary software
provides automatic backup and retrieval of data.
O.R.P., Inc. ("ORP") develops and refines software for Intelliguard through
its wholly-owned subsidiary in India.
2. Summary of Significant Accounting Policies:
Basis of Presentation:
The combined financial statements of Intelliguard Software, Inc. and
Affiliates (the "Companies") include the accounts of Intelliguard, Intelliguard
International and ORP, entities under common control. All significant
intercompany accounts and transactions have been eliminated in combination.
Use of Estimates in the Preparation of Financial Statements:
The preparation of combined 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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
The Companies consider all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
The Companies maintain cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Companies have not experienced any losses
in such accounts.
<PAGE>
2. Summary of Significant Accounting Policies, continued:
Inventory:
Inventories consist of finished goods and packaging supplies and are stated
at the lower of cost or market. Cost is determined using the first-in, first-out
method.
Property and Equipment:
Property and equipment are recorded at cost. Costs of major additions,
replacements and betterments are capitalized and maintenance and repairs which
do not extend the life of the respective assets are expensed as incurred. When
property is retired or otherwise disposed of, the cost of the property and the
related accumulated depreciation are removed from the accounts and any resulting
gains or losses are reflected in current operations. Depreciation is computed
using straight - line methods. Useful lives are generally five to seven years
for furniture, fixtures, machinery and equipment and three years for software.
Leasehold improvements are amortized over the lease term or the life of the
improvements, whichever is shorter.
Long-Lived Assets:
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable through future cash flows. If it is determined that an impairment
loss has occurred, the loss is recognized in the income statement.
Revenues:
The Companies recognize revenue from product sales at the time of shipment.
The majority of Intelliguard's revenue is to a wholly-owned subsidiary of DRG,
PDC Solutions, Inc. ("PDC"), a reseller. Customer support service revenue is
recognized ratably over the terms of the related customer support agreements.
Deferred revenue arises primarily from customer support service revenue billed
at customers' request and collected in advance of the performance of the related
services.
Income Taxes:
The Companies' shareholders elected for Intelliguard, Inc. and Affiliates
to be treated as S Corporations in accordance with Subchapter S of the Internal
Revenue Code, for federal income tax purposes, whereby profits and losses are
passed directly to the shareholders for inclusion in their personal tax returns.
Accordingly, no liability for federal income taxes is included in the
accompanying combined financial statements. They have also elected Subchapter S
status for state income tax purposes.
<PAGE>
3. Concentration of Credit Risk:
The Company derives 70% of its sales from PDC Solutions, Inc., a
wholly-owned subsidiary of Intelliguard's parent, DRG. These sales totaled
$7,130,787 in 1998 and the entire amount remained due to Intelliguard at
December 31, 1998. This amount was settled in conjunction with the sale of
Intelliguard (see Note 10).
4. Property and Equipment:
Property and equipment consists of the following as of December 31, 1998:
<TABLE>
<S> <C>
Machinery and equipment $ 2,322,725
Furniture and fixtures 116,439
Leasehold improvements 549,347
Software 99,676
-----------------
3,088,187
Less accumulated depreciation (1,674,411)
-----------------
$ 1,413,776
=================
</TABLE>
5. Due to Related Party:
This balance represents expenses paid by DRG Holdings and PDC Solutions on
Intelliguard's behalf in the amount of $11,366,815 and $692,939, respectively.
These amounts were settled in conjunction with the sale of Intelliguard (see
Note 10).
6. Incentive Unit Plan:
The Companies have an Incentive Unit Plan ("Plan") for certain key
employees. The Plan provides for the award of incentive units based on
management's discretion. The units are not exercisable until a liquidity event
occurs. Upon such liquidity event, the incentive units will be assigned a value
based on the total shares of both the incentive units and the common shares
outstanding. The Company has set aside 1,345,586 incentive units. At December
31, 1998, there were 728,658 incentive units outstanding. The employee's
incentive units will normally vest over a five year period, with 20% becoming
vested for each year of employment following the issue date of the incentive
units. However, management reserves the right to increase an employee's vested
number of incentive units at its own discretion. Units related to this plan
vested on April 1, 1999 in connection with the sale of Intelliguard (see Note
10).
<PAGE>
7. Commitments and Contingencies:
Operating Leases:
During 1997, the Companies entered into a new lease for office and
warehouse space in Dublin, California. The rent expense for the year ended
December 31, 1998 and 1997 was $499,631 and $77,854, respectively. The lease
expires on October 31, 2004. The Companies sublease a portion of this facility
to an unrelated party; the lease expires October 27, 2001. The monthly rental
income is $12,750; total income for the year ended December 31, 1998 was
$153,000.
The future minimum lease payments required as of December 31, 1998 under
operating leases that have initial noncancelable lease terms exceeding one year
are as follows:
<TABLE>
<S> <C>
1999 $ 516,218
2000 467,124
2001 467,124
2002 467,124
Thereafter 856,394
</TABLE>
Other:
Various lawsuits, claims and other contingent liabilities arise in the
ordinary course of the Companies' business. While the ultimate disposition of
these contingencies is not determinable at this time, management believes that
any liability resulting therefrom will not materially affect the combined
results of operations or financial condition of the Companies.
8. Cross Collateralized Debt:
At December 31, 1998, substantially all of Intelliguard's assets were
pledged as collateral for a $3,000,000 line of credit advanced by a bank to DRG
Holdings. On April 1, 1999, the outstanding balance on this line of credit in
the amount of $2,500,000 was paid and the facility was terminated.
9. Savings and Retirement Plan:
The Companies' Savings and Retirement Plan, a defined contribution 401(k)
plan, covers all eligible full time employees of the Companies. The Companies
will match 50% of each dollar contributed by the employees up to a total Company
contribution of $1,000 per employee per year. The Companies' contributions under
the Plan resulted in a charge to earnings of approximately $54,029 for the year
ended December 31, 1998.
<PAGE>
10. Subsequent Events:
On April 1, 1999, Intelliguard was sold to Legato Systems Inc. for stock
and cash. In addition, a subsequent separate cash payment was made by Legato to
settle all intercompany activity on Intelliguard's balance sheet; as such, the
$7,130,787 account receivable due from PDC Solutions and the $11,366,815 due to
DRG and the $692,939 due to PDC Solutions were settled in full. In addition,
the $4,754,871 was paid in connection with the Incentive Unit Plan.
In connection with the sale of Intelliguard, a non related entity has
notified Intelliguard that it is due $1,000,000 for services rendered. No
agreement exists between Intelliguard and the entity and no formal action has
been filed. While Intelliguard believes it has good and meritorious defenses, it
has accrued an estimated amount for this matter.
<PAGE>
Report of Independent Accountants
To the Board of Directors of
Intelliguard Software, Inc. and Affiliates:
In our opinion, the accompanying combined balance sheet and the related
combined statement of operations, statement of changes in stockholders' deficit
and of cash flows present fairly, in all material respects, the financial
position of Intelliguard Software, Inc. and Affiliates at December 31, 1998, and
the results of its operations and its cash flows for the year ended December 31,
1998, in conformity with generally accepted accounting principles. These
combined 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/PricewaterhouseCoopers, LLP
Philadelphia, PA
April 20, 1999
<PAGE>
(b) Pro Forma Financial Information
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On April 1, 1999, Legato Systems, Inc. ("Legato") completed the acquisition
of Intelliguard Software, Inc. and O.R.P., Inc., developers of standards-based
storage management solutions for storage area networks. In this document, Legato
refers to Intelliguard Software, Inc. and O.R.P., Inc. collectively as
"Intelliguard." Legato issued 720,000 shares of our common stock and provided
cash consideration of $9,022,000 for all of the outstanding stock and stock
rights of Intelliguard. Legato accounted for the transaction as a purchase
business combination.
On April 19, 1999, Legato completed the merger of Qualix Group, Inc., dba
FullTime Software, Inc. ("FullTime"), a developer of distributed,
enterprise-wide, cross-platform, adaptive computing solutions that enable
customers to proactively manage application service level availability into a
wholly-owned subsidiary of Legato. Legato issued 1,721,000 shares of its common
stock in exchange for all the common stock and options of Qualix Group, Inc.
Legato accounted for the transaction as a pooling-of-interests.
The unaudited pro forma combined condensed balance sheet of Legato gives
effect to the transactions as if they had been consummated as of March 31, 1999.
The unaudited pro forma combined condensed balance sheet of Legato combines the
unaudited historical condensed balance sheets Legato, FullTime and Intelliguard
as of March 31, 1999.
The unaudited combined statements of operations of Legato give effect to
the transactions as if they had been consummated at January 1, 1998. The
unaudited pro forma combined statement of operations of Legato for the
three-months ended March 31, 1999 and the year ended December 31, 1998 combines
the unaudited historical statement of operations and the audited historical
statement of operations of Legato for the three-months ended March 31, 1999 and
the year ended December 31, 1998, respectively, the unaudited historical
statement of operations of FullTime for the three-months and twelve months ended
December 31, 1998 and the unaudited condensed statement of operations of
Intelliguard for the three-months ended March 31, 1999 and the year ended
December 31, 1998.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred if the merger had been consummated at the beginning of
the earliest period presented, nor is it necessarily indicative of future
operating results or financial position. The pro forma adjustments are based
upon information and assumptions available at the time of the filing of this
Form 8-K/A. The pro forma information should be read in conjunction with the
accompanying notes thereto and with the historical financial statements and
related notes thereto in Legato's Form 10K/A, filed in March 1999, FullTime's
historical audited financial statements and related notes thereto in Legato's
Form S-4 filed March 16, 1999 and Intelliguard's 1998 audited combined financial
statements and related notes filed herewith.
<TABLE>
LEGATO SYSTEMS, INC., FULLTIME SOFTWARE, INC.
AND INTELLIGUARD SOFTWARE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
March 31, 1999
(amount in thousands)
<CAPTION>
Legato FullTime Intelliguard Pro Forma Pro Forma
Adjustments Combined
----------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 86,522 $ 6,313 $ 1 $ (9,022) (1) $ 77,543
(6,271) (9)
Short-term investments 30,627 -- -- 30,627
Accounts receivable, net 41,140 1,940 9,542 (8,576) (9) 44,046
Other current assets 5,924 716 172 6,812
Deferred tax asset 5,896 -- -- 7,097 (3) 12,993
--------- -------- --------- ---------- ----------
Total current assets 170,109 8,969 9,715 (16,772) 172,021
Long-term investments 12,391 -- -- 12,391
Property and equipment, net 18,128 3,036 1,153 22,317
Intangible assets, net 1,963 -- -- 56,228 (2) 58,191
Other assets 3,252 1,174 -- 4,426
--------- --------- --------- --------- ----------
Total assets $ 205,843 $ 13,179 $ 10,868 $ 39,456 $ 269,346
========= ========= ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued
liabilities and current
portion of long-term
obligations $ 19,934 $ 4,974 $ 20,308 $ 197 (3) $ 34,629
3,890 (5)
4,928 (4)
(14,847) (9)
(4,755) (10)
Deferred revenues 23,297 2,776 1,723 -- 27,796
--------- --------- --------- -------- ---------
Total current liabilities43,231 7,750 22,031 (10,587) 62,425
Deferred tax liability 528 -- -- -- 528
Stockholders' equity:
Capital stock 97,266 25,546 104 42,339 (6) 165,255
Retained earnings
(Accumulated deficit) 64,818 (20,117) (11,267) 11,267 (7) 41,138
6,900 (3)
(4,928) (4)
(5,535) (7)
--------- --------- --------- --------- ---------
Total stockholders'
equity 162,084 5,429 (11,163) 50,043 206,393
--------- --------- --------- --------- ---------
Total liabilities and stockholders'
equity $ 205,843 $ 13,179 $ 10,868 $ 39,456 $ 269,346
========= ========= ========= ========= =========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
<PAGE>
<TABLE>
LEGATO SYSTEMS, INC., FULLTIME SOFTWARE, INC.
AND INTELLIGUARD SOFTWARE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
THREE-MONTHS ENDED MARCH 31, 1999
<CAPTION>
Pro Forma Pro Forma
Legato FullTime Intelliguard Adjustments Combined
--------- --------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenue:
Product $ 35,453 $ 2,632 $ 1,359 $ -- $ 39,444
Service and support 12,827 1,440 835 -- 15,102
--------- --------- --------- -------- -----------
Total revenue 48,280 4,072 2,194 -- 54,546
Cost of revenue:
Product 1,049 500 35 -- 1,584
Service and support 4,559 609 188 -- 5,356
--------- --------- --------- -------- -----------
Total cost of revenue 5,608 1,109 223 -- 6,940
--------- --------- --------- -------- -----------
Gross profit 42,672 2,963 1,971 -- 47,606
Operating expenses:
Research and development 6,518 1,142 844 -- 8,504
Sales and marketing 17,434 3,767 2,293 -- 23,494
General and administrative 3,429 1,426 5,199 (4,755) (10) 5,299
Amortization of intangibles 279 -- -- 2,481 (8) 2,760
--------- --------- --------- -------- -----------
Total operating expenses 27,660 6,335 8,336 (2,274) 40,057
--------- --------- --------- -------- -----------
Income (loss) from operations 15,012 (3,372) (6,365) 2,274 7,549
Other income, net 1,322 77 (29) -- 1,370
--------- --------- --------- -------- -----------
Income before provision
for income taxes 16,334 (3,295) (6,394) 2,274 8,919
Provision for income taxes 6,206 18 -- (2,966) (3) 3,258
--------- --------- --------- -------- -----------
Net income $ 10,128 $ (3,313) $ (6,394) $ 5,240 $ 5,661
========= ========= ========= ======== ===========
Net income per share - basic $ 0.27 $ (0.31) $ 0.14
========= ========= ===========
Net income per share - diluted $ 0.25 $ (0.31) $ 0.13
========= ========= ===========
Shares used in per share
calculations - basic 37,907 10,837 (8,587) 40,157
--------- --------- -------- ===========
Shares used in per share
calculations - diluted 40,882 10,837 (8,488) 43,231
--------- --------- -------- ===========
</TABLE>
See notes to unaudited proforma combined condensed financial statements.
<PAGE>
<TABLE>
LEGATO SYSTEMS, INC., FULLTIME SOFTWARE, INC.
AND INTELLIGUARD SOFTWARE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(amount in thousands, except per share amounts)
Pro Forma Pro Forma
Legato FullTime Intelliguard Adjustments Combined
----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Product $ 110,477 $ 18,656 $ 6,947 $ -- $ 136,080
Service and support 32,701 6,073 3,306 -- 42,080
--------- --------- --------- -------- -----------
Total revenue 143,178 24,729 10,253 -- 178,160
Cost of revenue:
Product 4,299 5,397 301 -- 9,997
Service and support 12,901 2,196 905 -- 16,002
--------- --------- --------- -------- -----------
Total cost of revenue 17,200 7,593 1,206 -- 25,999
--------- --------- --------- -------- -----------
Gross profit 125,978 17,136 9,047 -- 152,161
Operating expenses:
Research and development 21,784 3,861 3,509 -- 29,154
Sales and marketing 51,664 20,353 8,605 -- 80,622
General and administrative 10,771 5,103 1,735 -- 17,609
Amortization of intangibles 1,118 -- -- 9,925 (8) 11,043
Merger expenses 645 -- -- -- 645
--------- --------- --------- -------- -----------
Total operating expenses 85,982 29,317 13,849 9,925 139,073
--------- --------- --------- -------- -----------
Income (loss) from operations 39,996 (12,181) (4,802) (9,925) 13,088
Other income, net 4,221 578 (163) -- 4,636
--------- --------- --------- -------- -----------
Income before provision
for income taxes 44,217 (11,603) (4,965) (9,925) 17,724
Provision for income taxes 16,509 40 -- (10,597) (3) 5,952
--------- --------- --------- -------- -----------
Net income $ 27,708 $ (11,643) $ (4,965) $ 672 $ 11,772
========= ========= ========= ======== ===========
Net income per share - basic $ 0.75 $ (1.11) $ 0.30
========= ========= ===========
Net income per share - diluted $ 0.69 $ (1.11) $ 0.28
========= ========= ===========
Shares used in per share
calculations - basic 36,894 10,531 (8,324) 39,101
--------- ---------- -------- ===========
Shares used in per share
calculations - diluted 40,005 10,531 (8,279) 42,257
---------- ---------- --------- ===========
</TABLE>
See notes to unaudited proforma combined condensed financial statements.
<PAGE>
LEGATO SYSTEMS, INC., FULLTIME SOFTWARE, INC.
AND INTELLIGUARD SOFTWARE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma combined condensed financial statements of Legato
combine the financial position of Legato, FullTime and Intelliguard at March 31,
1999 and December 31, 1998 and the results of operations of Legato, Intelliguard
and FullTime for the three-months ended March 31, 1999 and the year ended
December 31, 1998.
The unaudited pro forma combined condensed financial statements of Legato
have been prepared on the basis of assumptions relating to the allocation of the
amount of consideration paid, to the assets and liabilities of Intelliguard
based on preliminary estimates. The actual allocation of the amount of such
consideration may differ from that reflected in these unaudited pro forma
combined condensed financial statements after valuations and other procedures
have been completed. Since Legato's merger with FullTime is accounted for as a
pooling-of-interests, such allocations of the amount of consideration paid are
not necessary. Below is a table of the estimated acquisition cost, estimated
purchase price allocation and estimated amortization of intangible assets as of
March 31, 1999 and January 1, 1998:
March 31, 1999:
- ------------------
Estimated acquisition price:
Value of securities issued $ 42,443
Cash consideration paid 9,022
Acquisition costs 3,890
----------
Total acquisition costs $ 55,355
==========
Estimated purchase price allocation:
Tangible net assets acquired (11,163)
Liability for Intelliguard incentive
Unit Plan not assumed 4,755
Intangible assets 56,228
In-process research and development 5,535
----------
Total $ 55,355
==========
January 1, 1998:
- ------------------
Estimated acquisition price:
Value of securities issued $ 42,443
Cash consideration paid 9,022
Acquisition costs 3,890
----------
Total acquisition costs $ 55,355
==========
Estimated purchase price allocation:
Tangible net assets acquired 197
Intangible assets 49,623
In-process research and development 5,535
----------
Total $ 55,355
==========
Estimated annual amortization
(based on amortizaton period of five years)
Annual $ 9,925
=========
The tangible net assets acquired by Intelliguard includes cash, accounts
receivable, other current assets and property and equipment. Liabilities assumed
include accounts payable and other accrued liabilities.
The amount allocated to the in-process research and development represents
the purchased in-process technology for projects that had not yet reached
technological feasibility and have no alternative future use. Based on
preliminary assessments, the value of these projects was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products; estimating the resulting net cash flows from the
sale of the products resulting from the completion of the projects reduced by
the portion of the revenue attributable to core technology; and discounting the
net cash flows back to their present value.
The nature of the efforts to develop the purchased in-process research and
development into commercially viable products principally relates to the
completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the product can be produced to
meet its design specification including function, features and technical
performance requirements. The resulting net cash flows from such products are
based on estimates of revenue, cost of sales, research and development costs,
sales and marketing costs, and income taxes from such projects. The present
value of the net cash flows was multiplied by the percentage of in-process
research and development projects that were complete at the date of acquisition.
The amount allocated to those projects identified as in-process research
and development of Intelliguard will be charged to the income statement in the
period the valuation analysis is completed shortly after the consummation of the
acquisition. Such charges related to in-process research and development have
not been included in the Legato unaudited pro forma combined condensed statement
of operations since they are non-recurring in nature. However, the charges have
been reflected in the Legato unaudited pro forma combined condensed balance
sheet.
2. UNAUDITED PRO FORMA COMBINED NET INCOME PER SHARE
The unaudited pro forma combined net income per share is based on the
weighted average number of common and common equivalent shares of Legato and
FullTime and 720,000 shares issued to Intelliguard shareholders for the
three-month period ended March 31, 1999 and the year ended December 31, 1998.
FullTime's weighted average common equivalent shares are based upon the share
exchange ratio of 0.1411 shares of Legato common stock. The exchange ratio of
0.1411 shares is calculated based on the number of shares of FullTime common
stock and options to purchase FullTime common stock outstanding as of April 19,
1999, the date of consummation of the merger with FullTime (See Note 3).
The pro forma combined basic and diluted net income per share information
was determined as follows for the three-months ended March 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
Basic Diluted
------ -------
<S> <C> <C>
Legato shares used for net income per share calculation 37,907 40,882
FullTime shares used for net income per share calculation, 10,837 11,543
(assumes diluted net income per share calculation is
required on a combined basis)
Share exchange ratio 0.1411 0.1411
Legato equivalent shares ------ ------
1,530 1,629
Legato shares issued for the acquisition of Intelliguard 720 720
------ ------
Pro forma combined Legato shares used for net income
per share calculation 40,157 43,231
======= =======
</TABLE>
The pro forma combined basic and diluted net income per share information
was determined as follows for the year ended December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Basic Diluted
------ -------
<S> <C> <C>
Legato shares used for net income per share calculation 36,894 40,005
FullTime shares used for net income per share calculation, 10,531 10,853
(assumes diluted net income per share calculation is
required on a combined basis)
Share exchange ratio 0.1411 0.1411
Legato equivalent shares ------ ------
1,487 1,532
Legato shares issued for the acquisition of Intelliguard 720 720
------ ------
Pro forma combined Legato shares used for net income
per share calculation 39,101 42,257
======= =======
</TABLE>
3. PRO FORMA UNAUDITED COMBINED SHARES OUTSTANDING
These unaudited pro forma combined condensed financial statements reflect
the issuance of 1,721,000 shares of Legato common stock in exchange for an
aggregate of 12,193,000 shares of FullTime common stock, based on the
outstanding FullTime common stock and potential common shares as of April 19,
1999, the consummation date of the acquisition. These unaudited pro forma
combined condensed financial statements also reflect the issuance of 720,000
shares of Legato common stock in exchange for the net assets of Intelliguard as
of March 31, 1999.
The following table details the pro form share issuance in connection with
the merger and acquisition as of March 31, 1999:
<TABLE>
<S> <C>
FullTime common stock outstanding and potential common shares as of April 19, 1999 12,193,000
Exchange ratio 0.1411
----------
Number of shares of Legato common stock exchanged for Fulltime common stock 1,721,000
Number of shares of Legato common stock issued for Intelliguard net assets 720,000
Total number of shares of Legato common stock as of March 31, 1999 38,088,073
----------
Number of Legato common shares outstanding after the completion of the merger and acquisition 40,529,073
==========
</TABLE>
4. PRO FORMA ADJUSTMENTS
The unaudited pro forma combined condensed financial statements of Legato
give effect to the following pro forma adjustments:
(1) To reflect the cash consideration paid for the acquisition of Intelliguard.
(2) To reflect the intangible assets resulting from the allocation of the total
amount of the consideration paid for the Intelliguard acquisition.
(3) FullTime previously provided a valuation allowance for its net deferred tax
assets related primarily to loss carryforwards generated in periods since
its inception until 1995 and its fiscal year ended June 30, 1999. Legato
has determined that estimated combined taxable income is sufficient to
conclude that such net deferred tax assets would be realized. Accordingly,
a pro forma adjustment has been made to eliminate the valuation allowance
of FullTime as of an earlier period not included in the pro forma combined
condensed statement of operations.
In addition, pro forma adjustments have been made to eliminate the
benefit of recognition of the net operating loss carryforward of
FullTime, account for the operating loss of Intelliguard and the tax
benefit received from the amortization of intangible assets from the
acquisition of Intelliguard, in the pro forma combined condensed
statement of operations by decreasing income tax expense by $3.0
million and $10.6 million at a statutory tax rate of 40% for the
three-months ended March 31 ,1999 and the year ended December 31,
1998, respectively.
(4) To reflect the accrual of costs arising from the merger with FullTime,
estimated at approximately $4.9 million consisting of:
-$2.1million of direct transaction costs, consisting primarily of
investment banking, legal, accounting and filing fees;
-$1.9million for operating lease commitments and leasehold improvement
write-offs on sales and administrative facilities of FullTime that
were duplicative and were vacated;
-$0.7million for liabilities related to involuntary termination benefits to
be paid to Legato and FullTime employees;
-$0.2million for liabilities related to buyout of other FullTime
non-cancellable commitments.
The charges related to the merger with FullTime have not been included in
the Legato unaudited pro forma combined condensed statement of
operations since it is non-recurring in nature. However, the charges
have been reflected in the Legato unaudited pro forma combined
condensed balance sheet.
(5) To reflect the accrual of direct costs arising from the acquisition of
Intelliguard, estimated at approximately $3.9 million consisting primarily
of investment banking, legal, accounting and filing fees.
(6) To reflect the elimination of Intelliguard additional paid in capital of
$0.1 million and the issuance of $42.4 million in connection with Legato's
acquisition of Intelliguard.
(7) To reflect the elimination of Intelliguard's accumulated deficit of $11.3
million and estimated write-off of in-process research and development of
$5.5 million for the three-months ended March 31, 1999.
The charges related to in-process research and development have not been
included in the Legato unaudited pro forma combined condensed
statement of operations since it is non-recurring in nature. However,
the charges have been reflected in the Legato unaudited pro forma
combined condensed balance sheet.
(8) To reflect the amortization of intangibles related to the acquisition of
Intelliguard.
(9) To reflect Legato's payment of $6.3 million for Intelliguard's net
intercompany payable to an affiliate of Intelliguard in connection with the
acquisition and eliminate the related intercompany receivable and payable.
(10) To reflect the reversal of an accrual of $4.8 million recorded by
Intelliguard for its Incentive Unit Plan which became vested and payable
upon a change in control of Intelliguard ownership. On a consolidated pro
forma basis, such an accrual is not required as Legato did not assume the
liability.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LEGATO SYSTEMS, INC.
Date: May 28, 1999 By: /s/ Stephen C. Wise
Name: Stephen C. Wise
Title: Senior Vice President,
Finance and Administration
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
23.1 Consent of PricewaterhouseCoopers LLP.
99.1^ Press release, dated January 28, 1999.
99.2^ Press release, dated April 1, 1999.
^Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-3 (Registration numbers 333-64693, 333-75581) and Forms
S-8 (Registration numbers 333-28405, 333-02378, 333-94306, 333-67031, 333-76923)
of Legato Systems, Inc. of our report dated April 20, 1999 related to the
financial statements of Intelliguard Software, Inc. and Affiliates, which
appears in the Current Report on Form 8-K/A of Legato Systems, Inc. dated May
28, 1999.
/s/PricewaterhouseCoopers, LLP
Philadelphia, PA
May 28, 1999
