<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT TO FORM 8-K CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
AMENDMENT NO. 1
Date of Report (Date of earliest event reported):
DECEMBER 31, 1998
DATAWARE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-21860 06-1232140
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
ONE CANAL PARK, CAMBRIDGE, MASSACHUSETTS 02141
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(617) 621-0820
<PAGE>
The undersigned registrant hereby amends Item 7 of its Current Report on Form
8-K filed with the Securities and Exchange Commission on January 14, 1999 (the
"Form 8-K) as set forth in the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
------------------------------------------------------------------
(a) Financial Statements of Business Acquired.
-----------------------------------------
1. Audited Financial Statements of Sovereign Hill Software, Inc. as of
and for the years ended December 31, 1997 and December 31, 1996 which include
the following:
a. Independent Auditors' Report;
b. Balance Sheets;
c. Statements of Operations;
d. Statements of Stockholders' Deficiency;
e. Statements of Cash Flows; and
f. Notes to Financial Statements.
2. Unaudited Condensed Financial Statements of Sovereign Hill
Software, Inc. as of and for the nine month periods ended September 30, 1998 and
September 30, 1997 which include the following:
a. Condensed Balance Sheet;
b. Condensed Statements of Operations;
c. Condensed Statements of Cash Flows; and
d. Notes to Financial Statements
(b) Pro Forma Financial Information
-------------------------------
1. Unaudited Pro Forma Condensed Financial Statements of Dataware
Technologies, Inc., as of September 30, 1998 and for the nine month period ended
September 30, 1998 and for the year ended December 31, 1997 which include the
following:
a. Pro Forma Condensed Balance Sheet as of September 30, 1998;
b. Pro Forma Condensed Statements of Operations for the year
ended December 31, 1997;
c. Pro Forma Condensed Statements of Operations for the nine
months ended September 30, 1998; and
d. Notes to Financial Statements.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
-----------------------------------------
1. Audited Financial Statements of Sovereign Hill Software, Inc. for the
years ended December 31, 1997 and December 31, 1996.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Sovereign Hill Software, Inc.:
We have audited the accompanying balance sheets of Sovereign Hill Software, Inc.
(the "Company") as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' deficiency, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1996, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company's
recurring losses from operations and stockholders' deficiency raise substantial
doubt about its ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Deloitte & Touche LLP
- - --------------------------
May 8, 1998 (December 15, 1998
as to the third paragraph of Note 2
and the second paragraph of Note 12)
F-1
<PAGE>
SOVEREIGN HILL SOFTWARE, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
- - ------------------------------------------------------------------------------------------------------------------------------------
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 308,834 $ 898,425
Accounts receivable (less allowance for doubtful accounts of $22,000
and $35,000 in 1997 and 1996, respectively) 228,138 384,935
Prepaid license fees 106,000 -
Other current assets 33,752 29,716
----------- ----------
Total current assets 676,724 1,313,076
----------- ----------
PROPERTY AND EQUIPMENT:
Computers and equipment 264,306 3,157
Furniture and fixtures 129,696 45,061
Leasehold improvements 16,137 -
----------- ----------
Total property and equipment 410,139 48,218
Less accumulated depreciation 128,774 3,110
----------- ----------
Property and equipment - net 281,365 45,108
----------- ----------
OTHER ASSETS - Net 21,350 27,450
----------- ----------
TOTAL $ 979,439 $1,385,634
=========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable $ 252,426 $ 101,648
Accrued expenses 184,908 88,371
Deferred revenue 17,544 58,022
Short-term debt 1,500,000 15,445
----------- ----------
Total current liabilities 1,954,878 263,486
----------- ----------
REDEEMABLE CONVERTIBLE PREFERRED STOCK -
At redemption value 3,143,710 1,363,583
COMMITMENTS AND CONTINGENCIES (Notes 2, 3 and 8)
STOCKHOLDERS' DEFICIENCY:
Common stock, $.001 par value - authorized, 9,000,000 shares; issued and
outstanding, 1,861,500 and 1,661,700 shares in 1997 and 1996, respectively 1,862 1,662
Accumulated deficit (4,103,011) (243,097)
Treasury stock, at cost, 180,000 and 0 shares in 1997 and 1996, respectively (18,000) -
----------- ----------
Total stockholders' deficiency (4,119,149) (241,435)
----------- ----------
TOTAL $ 979,439 $1,385,634
=========== ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
SOVEREIGN HILL SOFTWARE, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
- - ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
REVENUES $ 1,365,125 $ 774,404
------------ ----------
COSTS AND EXPENSES:
Cost of sales 273,691 89,086
Engineering and product development 1,161,935 543,114
Selling and marketing 728,370 7,574
General and administrative 2,883,549 312,281
------------ ----------
5,047,545 952,055
------------ ----------
LOSS FROM OPERATIONS (3,682,420) (177,651)
OTHER INCOME (EXPENSE):
Interest expense (26,870) (707)
Miscellaneous income 27,683 7,618
------------ ----------
NET LOSS $ (3,681,607) $ (170,740)
============ ==========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
SOVEREIGN HILL SOFTWARE, INC.
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1997 AND 1996
- - ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED SUBSCRIPTION TREASURY STOCK
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE SHARES AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 802 $ 1 $ - $ - $ - - $ - $ 1
Issuance of common stock, including
dissolution of the Massachusetts
Corporation 1,486,898 1,487 - - - - - 1,487
Issuance of common stock in exchange
for consulting services 174,000 174 17,226 - - - - 17,400
Accretion of redeemable convertible
preferred stock - - (17,226) (18,357) - - - (35,583)
Excess of contingent fees over the
carryover basis of acquired
technology - - - (54,000) - - - (54,000)
Net loss - - - (170,740) - - - (170,740)
--------- ------ -------- ----------- ---------- -------- -------- -----------
BALANCE, DECEMBER 31, 1996 1,661,700 1,662 - (243,097) - - - (241,435)
Exercise of stock options 19,800 20 - - - - - 20
Issuance of common stock 180,000 180 17,820 - (18,000) - - -
Purchase of treasury stock - - - - 18,000 180,000 (18,000) -
Accretion of redeemable convertible
preferred stock - - (17,820) (112,307) - - - (130,127)
Excess of contingent fees over the
carryover basis of acquired - - - (66,000) - - - (66,000)
technology
Net loss - - - (3,681,607) - - - (3,681,607)
--------- ------ -------- ----------- ---------- -------- -------- -----------
BALANCE, DECEMBER 31, 1997 1,861,500 $1,862 $ - $(4,103,011) $ - 180,000 $(18,000) $(4,119,149)
========= ====== ======== =========== ========== ======== ======== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
SOVEREIGN HILL SOFTWARE, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
- - ------------------------------------------------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (3,681,607) $ (170,740)
------------- -----------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 131,764 6,161
Common stock issued in exchange for consulting services - 17,400
Changes in assets and liabilities:
Accounts receivable 156,797 (384,935)
Prepaid expenses (110,036) (29,716)
Accounts payable 150,778 87,648
Accrued expenses 96,537 88,371
Deferred revenue (40,478) 58,022
------------- -----------
Total adjustments 385,362 (157,049)
------------- -----------
Net cash used in operating activities (3,296,245) (327,789)
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (361,921) (29,864)
Other assets - (30,500)
------------- -----------
Net cash used in investing activities (361,921) (60,364)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuances of redeemable convertible preferred stock 1,650,020 1,329,487
Proceeds from short-term debt 1,500,000 -
Payments of short-term debt (15,445) (2,909)
Excess of contingent fees over the carryover basis of acquired technology (66,000) (40,000)
------------- -----------
Net cash provided by financing activities 3,068,575 1,286,578
------------- -----------
(DECREASE) INCREASE IN CASH AND EQUIVALENTS (589,591) 898,425
CASH AND EQUIVALENTS, BEGINNING OF YEAR 898,425 -
------------- -----------
CASH AND EQUIVALENTS, END OF YEAR $ 308,834 $ 898,425
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION - Cash paid for interest $ 17,009 $ 707
============= ============
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Purchase of furniture and fixtures under a short-term note payable $ - $ 18,354
============= ============
Common stock issued in exchange for consulting services $ - $ 17,400
============= ============
Issuance of common stock for subscription receivable $ 18,000 $ -
============= ============
Purchase of treasury stock in exchange for forgiveness of subscription receivable $ 18,000 $ -
============= ============
Excess of contingent fees over the carryover basis of acquired technology included
in accounts payable $ - $ 14,000
============= ============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
SOVEREIGN HILL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
- - --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION - Sovereign Hill Software, Inc. was
incorporated in Massachusetts on June 27, 1995 for the purpose of acquiring
certain technologies developed in whole or in part by the University of
Massachusetts (the "University") or its related companies and commenced
operations on April 8, 1996. On June 24, 1996, a separate company also named
Sovereign Hill Software, Inc. (the "Company") was incorporated in Delaware and
was merged with the Massachusetts Corporation on July 10, 1996, upon which the
Massachusetts corporation was dissolved. Due to the common ownership and control
of the companies, the assets and liabilities were transferred at historical cost
in a manner similar to a pooling of interests. The Company develops, markets and
distributes advanced information retrieval and information processing products
designed to access and analyze large-scale heterogeneous, distributed multimedia
document databases. The Company also provides consulting services surrounding
the implementation and support of its software products.
USES 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 at
the date of the financial statements. Actual results could differ from those
estimates.
CASH EQUIVALENTS - Cash equivalents consist primarily of demand deposits and
short-term highly liquid investments purchased with remaining maturity of three
months or less.
OTHER ASSETS - Other assets consist of organizational costs which are being
amortized using the straight-line method over five years. Accumulated
amortization approximated $9,200 and $3,100 at December 31, 1997 and 1996,
respectively.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of the related assets (two to five years).
REVENUE RECOGNITION - Revenue from the sale of software licenses is recognized
upon receipt of a signed software license agreement and shipment of the product
provided no significant obligations remain and collectibility is probable.
Related royalty revenue is recognized as earned, provided amounts can be
reasonably estimated. Revenue from the sale of maintenance agreements is
deferred and recognized ratably over the term of the agreements (generally
twelve months). Revenue from support and consulting services is also deferred
and recognized as the services are provided.
SOFTWARE DEVELOPMENT COSTS - Costs incurred prior to technological feasibility
of the Company's software products are expensed as research and development
costs. Certain costs incurred after technological feasibility has been
established are capitalized. No such capitalized costs were incurred in 1997 and
1996.
F-6
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the Company's financial statements or tax returns. Deferred tax
liabilities and assets are determined based upon the difference between the
financial statement carrying amounts and tax basis of existing assets and
liabilities, using enacted tax rates in effect in the year(s) in which the
differences are expected to reverse.
STOCK-BASED COMPENSATION - The Company accounts for stock-based compensation
using the intrinsic-value method in accordance with Accounting Principles Board
Opinion No. 25.
CONCENTRATION OF RISK AND MAJOR CUSTOMERS - The Company is subject to credit
risk through trade receivables, which is minimized as the Company's customer
base includes large organizations and certain government agencies. Revenues from
customers equaling or exceeding 10% of total revenues for the years ended
December 31, 1997 and 1996 are as follows:
Customer 1997 1996
A 13% 35%
B - 12
C 30 10
D - 10
E 17 -
RECENTLY ISSUED ACCOUNTING STANDARDS - In October 1997, the Accounting Standards
Executive Committee issued Statement of Position ("SOP") 97-2, "Software Revenue
Recognition." SOP 97-2 provides guidance on when revenue should be recognized
and in what amounts for licensing, selling, or otherwise marketing computer
software. SOP 97-2 will be required to be adopted by the Company for
transactions entered into after December 31, 1997 and is not anticipated to
significantly change the method in which the Company recognizes revenue.
RECLASSIFICATIONS - Certain 1996 amounts have been reclassified to conform to
the 1997 presentation.
2. FINANCIAL RESULTS AND MANAGEMENT'S PLANS
The Company incurred a net loss of approximately $3,700,000 in 1997. In
addition, the Company has continued to incur losses subsequent to December
31, 1997 and expects to incur an operating loss for fiscal year 1998. The
Company has negative working capital and a stockholders' deficiency. These
factors indicate that the Company may be unable to continue as a going
concern. The Company has funded its historical operating losses with the
proceeds from the sale of preferred stock and the issuance of debt. The
Company's ability to continue as a going concern is dependent on its
ability to continue to raise financing sufficient to cover its operating
losses. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The Company has taken several actions in 1998 intended to improve its
financial condition. Such activities include a change in the Company's
senior management in 1998. In addition, cost reduction programs, the
closing of a facility and refocusing the marketing and product strategies
have reduced, but not eliminated, operating losses in 1998 (unaudited). The
Company's new management has concluded that a sale of the Company is the
most likely strategy to achieving financial viability.
F-7
<PAGE>
2. FINANCIAL RESULTS AND MANAGEMENT'S PLANS (CONTINUED)
On November 5, 1998, the majority of the shareholders of the Company signed a
Letter of Intent for the Company to be acquired by Dataware Technologies,
Inc. The proposed acquisition is subject to completion of a definite
agreement as well as a number of other conditions. There can be no assurance
that the acquisition of the Company will be consummated. If not, management
will be required to seek alternative sources of capital as well as other
possible merger partners.
3. PURCHASED TECHNOLOGY AND CONTINGENCIES
On April 8, 1996, the Company's predecessor Massachusetts corporation
acquired certain technology from the Applied Computing Systems Institute of
Massachusetts, Inc. ("ACSIOM") for 500 shares of common stock and future
contingent payments of up to $600,000. In connection with the merger
described in Note 1, the 500 shares were canceled and exchanged for 450,000
shares of the Company's common stock on July 10, 1996. In addition, under the
terms of the agreement with ACSIOM, in order to retain the acquired
technology, the Company must (i) obtain at least $1,000,000 in financing from
equity or debt issuances within one year; (ii) obtain a total of $3,000,000
within three years from the generation of revenues or from equity or debt
issuances or a combination of both; (iii) grant ACSIOM a nonexclusive,
nontransferable, perpetual, royalty-free license to use the commercially
available version of the software for research or prototyping purposes, as
defined; and (iv) purchase consulting services from ACSIOM for a period of at
least two years (see Note 11). In the event that the obligations of (i) and
(ii) are not met, the acquired technology shall revert back to ACSIOM.
The contingent payments are equal to 4% of equity investment funding, as
defined, received by the Company up to $10,000,000, plus 2% of equity
investment funding received by the Company in excess of $10,000,000 up to a
total of $20,000,000. The contingent payments do not bear interest and the
term is indefinite until the $600,000 is paid. As the term and amount of the
future contingent payments are not readily determinable, no obligation has
been recorded as a liability as of December 31, 1997 and 1996.
The purchased technology has been recorded at ACSIOM's carryover basis of
zero in the financial statements of the Company because ACSIOM and certain
individuals associated with ACSIOM and involved in the development of the
technology held a controlling interest in the Company at the date of the
technology transfer. Accordingly, all contingent payments will be in excess
of the carryover cost basis of the acquired technology and will be accounted
for as direct charges to accumulated deficit when the related equity
investment funding is consummated.
During 1997 and 1996, respectively, the Company received gross proceeds of
$1,650,000 and $1,350,000 from the issuance of Preferred Stock (see Note 8).
Accordingly, $66,000 and $54,000 of contingent payments were due to ACSIOM
and were charged to accumulated deficit during 1997 and 1996, respectively.
During 1997, the University informed the Company that it believes there may
have been significant irregularities in the Company's acquisition of the
technology from ACSIOM. It is unclear whether the University intends to file
any formal claim or complaint. Based on the facts as presented by the
Company, the Company's legal counsel has advised the Company that it has
significant legal defenses to the allegations made by the University. In
addition, the Company denies the allegations and will vigorously defend them
if pursued by the University. As no formal claim or litigation has been
instituted, the likelihood of the success of any such claims or litigation or
the Company's exposure is not presently determinable. Accordingly, no amounts
have been accrued in the financial statements for the years ended December
31, 1997 and 1996 with respect to this matter.
F-8
<PAGE>
4. PREPAID LICENSE AGREEMENT
In April 1997, the Company, as licensee, entered into a license agreement
to adapt, integrate and distribute materials provided by the licensor. As
of December 31, 1997, minimum prepaid royalties amounted to $106,000 with a
final installment of $53,000 due in March 1998. The prepaid royalties are
nonrefundable whether or not the Company subsequently develops and markets
the products under the license agreement. No amount of royalty expense has
been recognized in the statement of operations for the year ended December
31, 1997. The license agreement expires in April 1999.
The Company is currently renegotiating the agreement in order to obtain a
pricing structure more consistent with its current business model. The
Company has entered into discussions to be acquired, as discussed in Note
2. It is possible that this agreement would be cancelled as a result of
this acquisition, which could result in a write off of the prepaid royalty
of $106,000.
5. LEASES
The Company leases computer equipment and certain office space and
furnishings under noncancelable operating lease agreements expiring on
various dates through September 2001. Total rent expense under all
operating leases was approximately $155,129 and $115,360 for the years
ended December 31, 1997 and 1996, respectively.
At December 31, 1997, future minimum payments under operating leases are
due as follows:
YEAR ENDING DECEMBER 31
1998 $ 300,502
1999 209,034
2000 209,034
2001 178,861
---------
$ 897,431
=========
In connection with the termination of an office lease (see Note 12),
approximately $425,000 of lease commitments included above were released by
the landlord.
6. FINANCING ARRANGEMENTS
CONVERTIBLE PROMISSORY NOTES PAYABLE - On December 10, 1997, the Company
issued a series of Convertible Promissory Notes Payable (the "Notes")
aggregating $1,500,000, the proceeds of which were used, in part, to pay
any outstanding borrowings under the Company's line of credit. The Notes
bear interest at 12% and principal and accrued interest is payable on April
10, 1998. The Notes are convertible into equity automatically by virtue of
and simultaneously with the occurrence of an equity financing of the
Company that closes on or before April 10, 1998 of not less than $2,000,000
from investors other than present Company security holders or affiliates.
Each Note holder will receive, upon the conversion, a number of shares
based on a per share conversion price equal to the per share price of the
equity financing. The Company has not paid the outstanding amounts of the
Notes upon maturity on April 10, 1998 and, as of such date, no additional
equity financing has been obtained. Accordingly, as of April 10, 1998, the
Notes began accruing interest at a defaulted interest rate of 18%.
F-9
<PAGE>
6. FINANCING ARRANGEMENTS (CONTINUED)
LINE OF CREDIT - On September 11, 1997, the Company obtained a line of credit
facility with a bank which provided for maximum borrowings up to $1,000,000.
Borrowings under the line of credit facility ranked senior to all other debt and
were collateralized by substantially all assets of the Company. Outstanding
borrowings bore interest at the bank's prime rate plus 2.0%. On December 11,
1997, the line of credit facility expired upon which all outstanding principal
and interest was paid.
SHORT-TERM NOTE PAYABLE - During 1996, the Company purchased certain furniture
and fixtures under a short-term note payable in the original amount of $18,354.
The note payable bears interest at 12% and requires monthly payments of
principal and interest of $1,631. The note payable expired in October 1997.
7. INCOME TAXES
The tax effect of temporary differences and carryforwards that give rise to
deferred tax assets at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Depreciation and amortization $ 10,300 $ 200
Bad debt 8,800 13,800
Other reserves and expenses not currently deductible 40,500 36,800
Net operating loss carryforwards 1,442,000 12,600
Research and development credits 27,600 27,600
----------- --------
1,529,200 91,000
Valuation allowance (1,529,200) (91,000)
----------- --------
Deferred taxes, net $ - $ -
=========== ========
</TABLE>
SFAS No. 109 requires a valuation allowance against deferred tax assets, if
based on available evidence it is more likely than not that some or all of the
deferred tax assets will not be realized. The Company believes that uncertainty
exists with respect to future realization of the deferred tax assets and has
established a valuation allowance for the full amount as of December 31, 1997
and 1996.
The Company has available for both federal and state tax purposes net operating
loss carryforwards of approximately $3,553,000 which expire in 2012 and 2002,
respectively. The Company also has research and development credits for federal
and state tax purposes of $15,100 and $12,500, respectively, which expire in
2011. Should the Company undergo an ownership change as defined in Section 382
of the Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change would be subject to an annual limitation
which could reduce or defer the utilization of these losses. The Company did
not pay any income taxes in 1997 and 1996.
F-10
<PAGE>
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK
At December 31, 1997, the Company has 3,000,000 authorized, issued and
outstanding shares of $0.001 par value Series A Redeemable Convertible Preferred
Stock (the "Preferred Stock"), of which 1,650,000 shares were issued in 1997 and
1,350,000 shares were issued in 1996 upon the satisfaction of certain financial
and nonfinancial performance measures as required by the Preferred Stock
agreement.
Holders of the Preferred Stock have the right and option to convert the
Preferred Stock, at any time, into an equal number of shares of Common Stock.
The conversion rate will be adjusted for stock splits, combinations, stock
dividends and distributions. The Preferred Stock has voting rights equal to the
number of shares of Common Stock into which it is convertible.
The Preferred Stock will be automatically converted into Common Stock, at the
then applicable conversion rate, in the event of (a) a public offering of shares
of the Common Stock in which the aggregate gross proceeds are at least
$10,000,000; or (b) upon the approval of the holders of at least 70% of all the
then outstanding shares of Preferred Stock.
In the event of liquidation of the Company, the holders of Preferred Stock are
entitled to receive in preference to the holders of Common Stock, an amount
equal to the initial price of $1.00 per share plus any accrued but unpaid
dividends. In the event of a sale of the Company, the holders of Preferred
Stock are entitled to receive in preference to the holders of Common Stock, an
amount equal to the amount they would have received if they had converted the
Preferred Stock to Common Stock immediately prior to such sale.
At any time after July 8, 2002, the Company may be required at the option of the
holders of at least 70% of the Preferred Stock then outstanding to redeem all or
any portion of the then outstanding shares of Preferred Stock. The shares of
Preferred Stock shall be redeemed at $1.00 per share plus dividends at a per
annum rate which would provide the holder with a 5% return on the initial
purchase price of $1.00 per share, computed from July 10, 1996 to the redemption
date.
At December 31, 1997 and 1996, the redemption value of the preferred stock is
comprised of the following:
<TABLE>
<CAPTION>
SHARES AMOUNT
<S> <C> <C>
Balance, January 1, 1996 - $ -
Issuance of redeemable convertible preferred stock, net of
issue costs of $22,000 1,350,000 1,328,000
Dividends and accretion - 35,583
--------- ------------
Balance, December 31, 1996 1,350,000 1,363,583
Issuance of redeemable convertible preferred stock 1,650,000 1,650,000
Dividends and accretion - 130,127
--------- -----------
Balance, December 31, 1997 3,000,000 $ 3,143,710
========= ===========
</TABLE>
F-11
<PAGE>
9. STOCKHOLDERS' DEFICIENCY
COMMON STOCK - At December 31, 1997, the Company has 9,000,000 authorized shares
of $0.001 par value Common Stock (the "Common Stock"), of which 1,681,500 shares
are outstanding. 3,000,000 shares are reserved for issuance upon conversion of
the Preferred Stock and 4,018,800 shares are reserved for issuance upon exercise
of options.
STOCK OPTIONS - During 1996, the Company adopted the 1996 Stock Option Plan (the
"Option Plan") which provides for the issuance of nonqualified and incentive
stock options to employees, officers, directors and consultants to purchase up
to 3,000,000 shares of Common Stock. In addition to the options of the Option
Plan, the Company also granted nonqualified options to purchase an aggregate
1,018,800 shares of Common Stock. The exercise price for incentive stock
options must be at least equal to the fair market value at the date of grant as
determined by the Company's Board of Directors (the "Board"). The exercise
price of nonqualified stock options may be granted below fair market value but
not less than par value. Options become exercisable immediately or over a four-
year period as specified at the date of grant. The options expire five years
from the date of grant or ten years from the date of grant if the option holder
owns more than 10% of the total combined voting power of all classes of the
Company's capital stock.
The following table presents activity for all stock options during 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE
OPTIONS PRICE OPTIONS PRICE
<S> <C> <C> <C> <C>
Outstanding, beginning of year 1,018,800 $ 0.001 - $ -
Granted 1,735,000 0.100 1,018,800 0.001
Exercised (19,800) 0.001 - -
Canceled (744,333) 0.100 - -
---------- ------- ---------- ----------
Outstanding, end of year 1,989,667 0.050 1,018,800 0.001
========== ======= ========== ==========
Exercisable, end of year 1,027,875 $ 0.004 1,018,800 $ 0.001
========== ======= ========== ==========
</TABLE>
Outstanding options at December 31, 1997 had a weighted-average remaining life
of approximately nine years.
As described in Note 1, the Company uses the intrinsic value method to measure
compensation expense associated with grants of stock options to employees. Had
the Company used the fair value method to measure compensation, net loss would
have been substantially the same as the net loss reported in the statement of
operations.
The weighted-average fair value of options granted was $0.03 and $0.0003 per
share for 1997 and 1996, respectively.
F-12
<PAGE>
9. STOCKHOLDERS' DEFICIENCY (CONTINUED)
STOCK OPTIONS (CONTINUED) - The fair value of each stock option is estimated on
the date of grant using the Black/Scholes option-pricing model with the
following weighted-average assumptions:
YEAR ENDED DECEMBER 31 1997 1996
Average risk-free interest rate 6.43 % 6.10 %
Expected life of option grants (in years) 5 years 10 years
Expected dividend payment rate, as a percentage
of the stock price on the date of the grant - -
Expected volatility - -
The option pricing model used was designed to value readily tradable stock
options with relatively short lives. The options granted to employees are not
tradable and have contractual lives of ten years. However, management believes
that the assumptions used and the model applied to value the awards yields a
reasonable estimate of the fair value of the grants made under the
circumstances.
WARRANTS - In connection with the September 1997 line of credit facility (see
Note 6), the Company issued warrants to purchase 30,000 shares of Common Stock
at $1 per share, expiring on September 10, 2003. On February 20, 1998, the
Company amended the exercise price of the warrants from $1 to $0.10 per share
and increased the number of shares purchasable under the warrant by 5,000 shares
in connection with the reinstatement of the line of credit facility.
In connection with the issuance of the Notes on December 10, 1997 (see Note 6),
the Company issued warrants to purchase up to 1,500,000 shares of Common Stock
at $0.10 per share expiring on December 10, 2003. Accordingly, the actual number
of shares purchasable under each warrant will be equal to the principal of the
underlying Notes divided by ninety days and multiplied by the number of days
that have elapsed between December 10, 1997 and March 10, 1998 for which the
Company has not obtained at least $2,000,000 in equity financing, not to exceed
1,500,000 shares. At December 31, 1997, 350,000 warrants became issuable for
which the fair value was deminimus. As of March 10, 1998, the required equity
financing has not been obtained and, accordingly, the remaining 1,150,000
warrants became issuable for which the fair value was deminimus.
10. RETIREMENT SAVINGS PLAN
During 1996, the Company adopted a 401(k) retirement savings plan (the "plan")
covering substantially all of the Company's employees. Under the provisions of
the plan, employees may contribute a percentage of their compensation within
certain limitations. The Company, at the discretion of the Board, may make
contributions on behalf of its employees under the plan. Such contributions, if
any, become fully vested after four years of continuous service. The Company did
not make any contributions in 1997 and 1996.
F-13
<PAGE>
11. RELATED-PARTY TRANSACTIONS
In connection with the purchase of technology from ACSIOM (see Note 3), the
Company is required, upon the receipt of at least $1,000,000 in equity
investment funding, to purchase certain consulting services approximating
$129,000 annually from ACSIOM, of which ACSIOM and certain of its consultants
are stockholders of the Company. The consulting agreement expires on July 10,
2000, or upon written notice by the Company after two years have elapsed under
the contract. Such consulting expenses aggregated $126,800 and $60,400 in 1997
and 1996, respectively.
During 1997, the Company issued 180,000 shares of Common Stock to an officer of
the Company in exchange for an $18,000 subscription receivable. The Company
repurchased the 180,000 shares in 1997 and forgave the subscription receivable.
Accordingly, such shares are recorded as treasury stock in the accompanying 1997
balance sheet.
During 1996, the Company issued 174,000 shares of Common Stock to a director of
the Company in exchange for $17,400 of consulting services.
12. SUBSEQUENT EVENTS
In February 1998, the Company terminated its operating lease for office space
prior to its contractual expiration. Accordingly, the Company sold certain
property and equipment for approximately $50,000 and recognized a loss,
inclusive of lease cancellation fees, of approximately $46,000.
During 1998, the Company's bank line of credit was reinstated through November
19, 1998 and increased to $1,350,000. Also, see Note 2.
*****
F-14
<PAGE>
2. Unaudited Condensed Financial Statements of Sovereign Hill Software, Inc.
as of and for the nine month periods ended September 30, 1998 and September 30,
1997.
SOVEREIGN HILL SOFTWARE, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1998
- - ------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and equivalents $ 162
Accounts receivable 424
Prepaid license fees 159
Other current assets 52
--------
Total current assets 797
--------
Property and equipment, net 119
Other assets, net 17
--------
Total assets $ 933
========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses 930
Deferred revenue 31
Short-term debt 2,810
--------
Total current liabilities $ 3,771
--------
Redeemable convertible preferred stock at redemption value 3,259
Stockholders' deficiency (6,097)
--------
Total liabilities and stockholders' deficiency $ 933
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
SOVEREIGN HILL SOFTWARE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
- - ----------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
---- ----
<S> <C> <C>
Revenues $ 913 $ 1,055
Cost of revenues 215 212
------- ---------
Gross profit 698 843
Operating expenses:
Product development 1,808 871
General and administrative 357 2,160
Sales and marketing 214 546
------- ---------
Total operating expenses 2,379 3,577
------- ---------
Loss from operations (1,681) (2,734)
Interest income, net (209) 25
Miscellaneous income (expense), net (1) (5)
------- ---------
Loss before provision for income taxes (1,891) (2,714)
------- ---------
Provision for income taxes - -
------- ---------
Net loss $(1,891) $ (2,714)
======= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
SOVEREIGN HILL SOFTWARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
---- ----
<S> <C> <C>
Net loss for the period $ (1,891) $ (2,714)
Adjustments required to reflect the cash flows from operating activities:
Depreciation 120 85
Changes in operating asset and liability items:
(Increase)/decrease in accounts receivable (196) 240
(Increase)/decrease in prepaid license fee (53) (106)
(Increase)/decrease in other assets (13) (52)
Increase/(decrease) in accounts payable and accrued expenses 493 335
Increase/(decrease) in deferred revenue 14 (41)
--------- ---------
Net cash used in operating activities (1,526) (2,253)
--------- ---------
Cash flows from (used in) investing activities 69 (355)
--------- ---------
Cash flows from financing activities
Short-term debt, net 1,310 436
Preferred stock - 1,650
Excess of contingent fees over the carrying basis of acquired technology - (66)
--------- ---------
Cash flows from financing activities 1,310 2,020
--------- ---------
Decrease in cash and cash equivalents (147) (588)
--------- ---------
Cash and cash equivalents, beginning of year $ 309 $ 898
Cash and cash equivalents, end of year $ 162 $ 310
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
SOVEREIGN HILL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
- - --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements included herein are unaudited, condensed and do not
contain all information required by generally accepted accounting principles to
be included in a full set of financial statements. In the opinion of management,
all adjustments considered necessary (which consist only of normal recurring
accruals) for a fair presentation have been included. The results of operations
for any interim period are not necessarily indicative of results of operations
for the entire year. These financial statements should be read in conjunction
with the audited financial statements and notes thereto for the year ended
December 31, 1997 included with this report.
NOTE 2. REVENUE RECOGNITION
The Company recognizes software revenues in accordance with the provisions of
Statement of Position 97-2, "Software Revenue Recognition." Revenue from
software license fees are recorded upon execution of the contract provided that
all shipment obligations have been met, fees are fixed or determinable, and
collection is deemed probable. Revenue from maintenance contracts, including
amounts bundled in initial software licenses, is deferred and recognized ratably
over the term of the agreement, generally one year. Revenues from services are
recognized as the Company performs the service in accordance with the contract.
NOTE 3. COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income"
(Statement 130), which establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. The adoption
of Statement 130 had no impact on the Company's comprehensive income for the
nine months ended September 30, 1998 and 1997 and the year ended December 31,
1997 as there were no components of other comprehensive income.
NOTE 4. FINANCING ARRANGEMENTS
Convertible Promissory Notes Payable -- On December 10, 1997, the Company issued
a series of Convertible Promissory Notes Payable (the "Notes") aggregating
$1,500,000, the proceeds of which were used, in part, to pay any outstanding
borrowings under the Company's line of credit. These Notes matured on April 10,
1998, at which time the principal and accrued interest, at a rate of 12%, was to
have been repaid, or converted to equity upon the satisfaction of certain
conversion criteria. Such criteria was not met and the Company did not repay the
notes. As a result, from April 10, 1998 onwards the Notes have been accruing
interest at a pre-defined rate of 18% per annum.
Line of Credit -- On February 20, 1998, the Company obtained a line of credit
facility with a bank that provided for maximum borrowings up to $1,350,000.
Borrowings under the line of credit facility ranked senior to all other debt and
are collateralized by substantially all assets of the Company. Outstanding
borrowings bear interest at a rate of prime plus 2.0%. As of September 30, 1998
the amount outstanding under this facility was $1,350,000.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
------------------------------------------------------------------
(b) Pro Forma Financial Information.
-------------------------------
On December 31, 1998, Dataware Technologies, Inc. ("Dataware") acquired
substantially all of the assets and assumed selected liabilities of Sovereign
Hill Software, Inc. ("Sovereign Hill") for approximately $1.2 million (the
"Transaction"). The purchase of Sovereign Hill's net liabilities of $2.1 million
was funded as follows: (i) 200,000 shares of Dataware Common Stock with a fair
value of $0.5 million at the date of acquisition, (ii) 5 year warrants to
purchase 40,000 additional shares of Dataware Common Stock at an exercise price
of $6.00 per share valued at $45,000, and (iii) $0.1 million in cash. Dataware
expects to incur $0.5 million of direct acquisition expenses related to the
Transaction.
The unaudited pro forma consolidated statements of operations give effect to the
Transaction as if it was consummated at the beginning of the period presented.
The pro forma information is presented for illustrative purposes only and does
not purport to be indicative of the operating results that would have actually
occurred if the Transaction had been in effect at January 1, 1997, nor is it
indicative of the future operating results of the Company. 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 Company's December 31, 1997 financial statements and notes
thereto contained in its 1997 Form 10-K filed on March 31, 1998.
F-17
<PAGE>
<TABLE>
<CAPTION>
DATAWARE TECHNOLOGIES, INC.
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998
(Unaudited)
(in thousands)
Dataware Sovereign Hill Adjustments Total
----------- --------------- ------------ ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,396 $ 162 $ (10) (a) $ 12,548
Accounts receivable, net 4,217 424 (10) (b) 4,631
Prepaid expenses and other current assets 1,935 211 (184) (c) 1,962
-------- ------- ------- --------
Total current assets 18,548 797 (204) 19,141
-------- ------- ------- --------
Property and equipment, net 3,704 119 (41) (d) 3,782
Other assets, net 4,212 17 4,229
Goodwill, net - - 2,474 (e) 2,474
-------- ------- ------- --------
Total assets $ 26,464 $ 933 $ 2,229 $ 29,626
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable 1,935 716 (7) (f) 2,644
Accrued expenses 4,827 214 341 (g) 5,382
Short-term debt - 2,810 (1,500) (h) 1,310
Income taxes payable 703 - - 703
Deferred revenue 2,569 31 - 2,600
-------- ------- ------- --------
Total current liabilities $ 10,034 $ 3,771 $(1,166) $ 12,639
-------- ------- ------- --------
Redeemable convertible preferred stock
At redemption value - 3,259 (3,259) (I) -
Stockholders' equity (deficiency):
Common stock 94 2 - (j) 96
Additional paid-in capital 47,202 28 527 (k) 47,757
Accumulated deficit (29,730) (6,109) 6,109 (l) (29,730)
Treasury stock at cost (952) (18) 18 (m) (952)
Cumulative translation adjustment (184) - - (184)
-------- ------- ------- --------
Total stockholders' equity (deficiency) 16,430 (6,097) 6,654 16,987
-------- ------- ------- --------
Total liabilities and stockholders'
equity (deficiency) $ 26,464 $ 933 $ 2,229 $ 29,626
======== ======= ======= ========
</TABLE>
See accompanying notes to the Pro Forma Unaudited Condensed Financial Statements
F-18
<PAGE>
DATAWARE TECHNOLOGIES, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Dataware Sovereign Hill Adjustments Total
--------- --------------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues $37,319 $ 1,365 - $ 38,684
Cost of revenues 13,510 274 - 13,784
------- ------- ----- --------
Gross profit 23,809 1,091 - 24,900
Operating expenses:
Sales and marketing 16,603 728 - 17,331
Product development 6,721 1,162 - 7,883
General and administrative 5,884 2,884 - 8,768
Amortization of goodwill - - 646 (n) 646
------- ------- ----- --------
Total operating expenses 29,208 4,774 646 34,628
------- ------- ----- --------
Loss from operations (5,399) (3,683) (646) (9,728)
Interest income (expense), net (160) (27) 11 (o) (176)
Miscellaneous income (expense), net (149) 28 - (121)
------- ------- ----- --------
Loss before provision for income taxes (5,708) (3,682) (635) (10,025)
------- ------- ----- --------
Provision for income taxes 80 - - 80
------- ------- ----- --------
Net loss $(5,788) $(3,682) $(635) $(10,105)
======= ======= ===== ========
Accretion of preferred stock 677 - - 677
Net loss available to common stockholders $(6,465) $(3,682) $(635) $(10,782)
======= ======= ===== ========
Net loss per common share - basic and diluted $(0.85) - - $(1.38)
Weighted average number of common shares
outstanding - basic and diluted 7,632 - 200 (p) 7,832
</TABLE>
See accompanying notes to the Pro Forma Unaudited Condensed Financial Statements
F-19
<PAGE>
<TABLE>
<CAPTION>
DATAWARE TECHNOLOGIES, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
(In thousands, except per share data)
Dataware Sovereign Hill Adjustments Total
----------- --------------- ------------ ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $24,440 $ 913 - $25,353
Cost of revenues 7,200 215 - 7,415
------- ------- ----- -------
Gross profit 17,240 698 - 17,938
Operating expenses:
Sales and marketing 8,237 214 - 8,451
Product development 4,532 1,808 - 6,340
General and administrative 3,888 357 - 4,245
Amortization of goodwill - - 485 (q) 485
Charge for purchased in-process research and development 450 - - 450
------- ------- ----- -------
Total operating expenses 17,107 2,379 485 19,971
------- ------- ----- -------
Income (loss) from operations 133 (1,681) (485) (2,033)
Interest income (expense), net 358 (209) 173 (r) 322
Miscellaneous income (expense), net 1 (1) - -
------- ------- ----- -------
Income (loss) before provision for income taxes 492 (1,891) (312) (1,711)
------- ------- ----- -------
Provision for income taxes - - - -
------- ------- ----- -------
Net income (loss) $ 492 $(1,891) $(312) $(1,711)
======= ======= ===== =======
Net income (loss) per common share - basic $0.05 $(0.18)
Net income (loss) per common share - diluted $0.05 $(0.18)
Weighted average number of common shares outstanding - basic 9,450 200 (s) 9,650
Weighted average number of common shares outstanding - diluted 9,542 108 (t) 9,650
</TABLE>
See accompanying notes to the Pro Forma Unaudited Condensed Financial Statements
F-20
<PAGE>
DATAWARE TECHNOLOGIES, INC.
NOTES TO PRO FORMA UNAUDITED CONDENSED FINANCIAL STATEMENTS
Adjustments to reflect the Sovereign Hill business combination as of September
30, 1998 are as follows:
(a) To reduce cash for payments made related to the acquisition of Sovereign
Hill.
(b) To reduce accounts receivable for items considered uncollectable.
(c) To reduce the value of prepaid and other assets assumed due to redundant
licensing agreement of $159,000 and to reduce other prepaid and other
assets to fair value.
(d) To reduce the property and equipment acquired to its fair value.
(e) To reflect goodwill recorded at December 31, 1998 of $3,232,000 less
Sovereign Hill's Q4 loss of $758,000.
(f) To reduce accounts payable for liabilities not assumed as part of the
acquisition agreement
(g) To reflect $514,000 of obligations for professional fees and other accrued
expenses related to the acquisition of Sovereign Hill, less accrued
interest of $173,000 not assumed by Dataware related to the short-term
debt.
(h) To reduce notes payable for notes not assumed as part of acquisition.
(i) To reflect the elimination of preferred stock not assumed as part of the
acquisition.
(j) To reflect the elimination of 200,000 shares of Sovereign Hill's common
stock and the issuance 200,000 shares of Dataware common stock as a
component of the purchase price of Sovereign Hill.
(k) To reflect the elimination of Sovereign Hill's additional paid-in capital
and the issuance of Dataware common stock and warrants as a component of
the purchase price of Sovereign Hill.
(l) To reflect the elimination of Sovereign Hill's accumulated deficit.
(m) To reflect the elimination of Sovereign Hill's treasury stock.
Adjustments to reflect the Sovereign Hill business combination, as if it had
occurred as of January 1, 1997 are as follows:
(n) To increase amortization expense due to $3.2 million of goodwill generated
from the acquisition of Sovereign Hill assuming a 5 year amortization
period.
(o) To reduce interest expense due to the elimination of $1.5 million of short
term debt at 12% (issued 12/10/97) not assumed by Dataware.
(p) To adjust for common shares issued that would have been outstanding for the
entire year had the transaction occurred on January 1, 1997.
(q) To increase amortization expense due to $3.2 million of goodwill generated
from the acquisition of Sovereign Hill assuming nine months of a 5 year
amortization period.
(r) To reduce interest expense due to the elimination of $1.5 million short
term debt at 12% through April 10, 1998 and 18% through September 30, 1998
not assumed by Dataware.
(s) To adjust for common shares issued that would have been outstanding for the
entire year had the transaction occurred on or before January 1, 1998.
(t) To adjust for common shares issued that would have been outstanding for the
entire year had the transaction occurred on or before January 1, 1998 and
to eliminate dilutive equity securities for the combined company.
F-21
<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.
Date: March ___, 1999 DATAWARE TECHNOLOGIES, INC.
By: /s/ Michael Gonnerman
--------------------------------
Michael Gonnerman
Vice President and Chief Financial Officer
<PAGE>
(c) Exhibits:
--------
2.1 Asset Purchase Agreement dated December 31, 1998, among Dataware,
Sovereign Hill and certain Stockholders of Sovereign Hill.
(Incorporated by reference to the Form 8-K). Pursuant to Item
601(b)(2) of Regulation S-K, the schedules or exhibits referred
to in the Agreement are omitted. The Registrant hereby
undertakes to furnish supplementally a copy of any omitted
schedule or exhibit to the Commission upon request.
23.1 Consent of Deloitte & Touche LLP, independent auditors to be
filed with amendment.
