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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A-1
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 1, 1996
CFI PROSERVICES, INC.
(Exact name of registrant as specified in its charter)
Oregon 0-21980 93-0704365
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification No.)
incorporation or
organization)
400 S.W. Sixth Avenue, Portland, Oregon 97204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-274-7280
The index to exhibits appears on page 6 of this document
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CFI PROSERVICES, INC.
FORM 8-K
INDEX
ITEM DESCRIPTION PAGE
- ---- ----------- ----
Item 2. Acquisition or Disposition of Assets 3
Item 7. Financial Statements and Exhibits 5
Independent Auditors' Report - MicroBilt Financial Products
Division F-1
MicroBilt Financial Products Division, Combined Balance Sheets -
December 31, 1995 and (unaudited) March 31, 1996 F-2
MicroBilt Financial Products Division, Combined Statements of
Operations - Year Ended December 31, 1995 and (unaudited)
Three Months Ended March 31, 1995 and 1996 F-3
MicroBilt Financial Products Division, Combined Statements of
Shareholders' Equity - Year Ended December 31, 1995 and
(unaudited) Three Months Ended March 31, 1996 F-4
MicroBilt Financial Products Division, Combined Statements of
Cash Flows - Year Ended December 31, 1995 and (unaudited)
Three Months Ended March 31, 1995 and 1996 F-5
MicroBilt Financial Products Division, Notes to Combined
Financial Statements - Year Ended December 31, 1995 and
(unaudited) Three Months Ended March 31, 1995 and 1996 F-6
Report of Independent Public Accountants - Input Creations, Inc. F-11
Input Creations, Inc., Balance Sheets - December 31, 1995 and
(unaudited) March 31, 1996 F-12
Input Creations, Inc., Statements of Income and Retained
Earnings - For the Year Ended December 31, 1995 and the
(unaudited) Three Month Periods Ended March 31, 1996 and 1995 F-13
Input Creations, Inc., Statements of Cash Flows - For
the Year Ended December 31, 1995 and the (unaudited) Three
Month Periods Ended March 31, 1996 and 1995 F-14
Input Creations, Inc., Notes to Financial Statements - For
the Year Ended December 31, 1995 F-15
CFI ProServices, Inc. Pro Forma Consolidated Balance Sheet -
March 31, 1996 PF-1
CFI ProServices, Inc. Pro Forma Consolidated Statement of
Operations - Year Ended December 31, 1995 PF-3
CFI ProServices, Inc. Pro Forma Consolidated Statement
of Operations - Three Months Ended March 31, 1996 PF-4
CFI ProServices, Inc. Footnotes to Pro Forma Consolidated
Financial Statements PF-5
Signatures 7
2
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
This Form 8-K/A-1 is intended to qualify as an amendment to the Company's Form
8-K dated April 1, 1996 and Form 8-K dated April 17, 1996.
1. As of April 1, 1996, CFI ProServices, Inc. (the "Company") acquired all of
the issued and outstanding common stock of OnLine Financial Communication
Systems, Inc. ("OnLine") and COIN Banking Systems, Inc. ("COIN"), both Georgia
corporations, collectively MicroBilt Financial Products Division. The Stock
Sale and Purchase Agreement (the "Agreement") was entered into by the Company
with MicroBilt Corporation, a Georgia corporation ("MicroBilt"), which
immediately prior to the closing of the Agreement owned 100% of the outstanding
common stock of COIN ("COIN Stock"), and First Financial Management Corporation,
a Georgia corporation ("FFMC"), which immediately prior to closing the agreement
owned 100% of the outstanding common stock of OnLine ("OnLine Stock").
In accordance with the terms of the Agreement, the Company has agreed to pay
cash consideration to MicroBilt and FFMC in the aggregate amount of
$5,500,000. In addition, the Company has agreed to make certain additional
contingent payments to FFMC only. Upon closing the acquisitions, CFI paid
$1,363,636 to MicroBilt and paid $636,364 to FFMC. Also at the closing, the
Company delivered Promissory Notes to MicroBilt and FFMC for $2,386,364 and
$1,113,636, respectively. The principal amount of the Notes, which are not
accruing interest, are payable on or before June 29, 1996, and the payments are
secured by a Pledge Agreement ("Pledge Agreement") entered into by the Company,
MicroBilt and FFMC at closing (MicroBilt and FFMC are collectively referred to
herein as the "Shareholders"). The Pledge Agreement provides that in the event
the Company fails to pay to Shareholders all amounts due under the Notes, the
Shareholders at their option can demand that the Company assign and transfer to
them all of the COIN Stock and OnLine Stock purchased by the Company. In the
event that the Shareholders make such a demand on the Company, the Company shall
be obligated under the Pledge Agreement to transfer to the Shareholders their
respective shares of COIN Stock or OnLine Stock upon tender to the Company by
the Shareholders of $1,750,000, which represents the aggregate purchase price
paid at closing minus $250,000, which will be retained by the Shareholders in
full satisfaction of any and all claims that they may have against the Company
arising out of the Agreement. Upon return of the COIN Stock and the OnLine
Stock and the repayment to the Company, the Agreement would then be null and
void between the parties, except with respect to confidentiality obligations of
the respective parties.
Pursuant to the Agreement, the Company will also make contingent payments to
FFMC on a quarterly basis through March 31, 2001. FFMC shall be paid the
following contingent amounts: (i) with respect to those customers who currently
license only one OnLine product, $5,000 for each such customer who converts to a
corresponding product offered by the Company; and (ii) with respect to those
customers who currently license both OnLine's teller product and OnLine's
platform product, $2,500 for each customer of OnLine who converts from OnLine's
teller product to a corresponding product offered by the Company, and $2,500 for
each customer of OnLine who converts from OnLine's platform product to a
corresponding product offered by the Company. At least fifty percent of the
customer's total branches must convert to a corresponding product of the Company
before these contingent amounts are paid to FFMC.
The source of the funds used to pay the purchase price shall be a combination of
available cash resources including cash generated by operations and a $5,000,000
revolving line of credit with the Company's principal bank, Bank of America,
Oregon. The purchase price of the OnLine Stock and the COIN Stock was
determinated by negotiation between the Company, MicroBilt, and FFMC. The
purchase of OnLine Stock and COIN Stock has resulted in both OnLine and COIN
becoming wholly owned subsidiaries of the Company.
3
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OnLine serves approximately 1,000 financial institutions in the United States
with PC-based software solutions for teller stations and platform operations.
COIN serves over 150 commercial banks with indirect lending software which
automates the receipt and processing of applications from a variety of financial
institutions. OnLine and COIN have shared and are expected to continue to share
principal executive offices located in Atlanta, Georgia.
Neither OnLine nor COIN own any real property. The Company intends that both
OnLine and COIN will continue to utilize their leased facilities and the assets
categorized on their respective balance sheets as equipment (primarily computer
equipment) in the same manner utilized by OnLine and COIN, respectively, prior
to the Company's acquisition of those two companies.
The foregoing descriptions of the Agreement, the Notes, and the Pledge Agreement
are qualified by reference to the complete texts of those agreements, together
with the exhibits attached thereto. The Agreement was filed as Exhibit 2.1,
without the exhibits attached thereto, and the Notes and Pledge Agreement were
filed as Exhibits 10.1, 10.2, and 10.3, respectively, to the Company's Current
Report on Form 8-K dated April 1, 1996.
Subsequent to executing and closing the Agreement, a dispute over the assets
excluded from the acquisitions has arisen between the Company and MicroBilt.
The aggregate amount in dispute is approximately $250,000. The parties are
currently attempting to resolve this dispute.
2. On April 17, 1996, the Company purchased substantially all of the assets of
Input Creations, Inc., a New Jersey corporation ("INPUT"). The Asset Purchase
and Sale Agreement, dated effective as of April 1, 1996 (the "Agreement"), was
entered into by and among the Company, INPUT, and the shareholders of INPUT (the
"Principals"). The assets purchased by the Company (collectively, the
"Purchased Assets") include all of INPUT's intellectual property and related
licenses and records, all inventory and work in progress of INPUT, all deposits,
prepayments, and similar payments made by INPUT in connection with or relating
to the Purchased Assets, all rights of INPUT under any confidentiality,
noncompetition, proprietary information, or similar agreement between INPUT and
any third party, and certain tangible personal property and contracts
specifically identified in exhibits to the Agreement. All other assets
(including generally all cash, accounts receivable, and notes receivable) were
retained by INPUT.
Upon closing the acquisition of the Purchased Assets, the Company paid
$1,000,000 in cash ("Initial Payment Amount") to INPUT and placed in escrow with
the Company's legal counsel, Farleigh, Wada & Witt, P.C. ("Escrow Agent") an
additional $1,000,000 ("Escrow Deposit Amount"). The Escrow Agent has been
instructed to deliver to INPUT the Escrow Deposit Amount promptly upon INPUT's
delivery to the Company of the LOANscape product in a graphical user
environment, in a condition for customer use substantially similar to the
condition that INPUT has historically delivered other completed software systems
to its customers (the "LOANscape Project"); provided, however, that in no event
shall the Escrow Agent deliver to INPUT the Escrow Deposit Amount prior to
January 1, 1997. The Company and INPUT have further agreed that in the event
that the LOANscape Project is not completed by January 1, 1998, the Escrow
Deposit Amount shall be returned to the Company.
In addition to the Initial Payment Amount and the Escrow Deposit Amount
referenced above, the Company has agreed to pay INPUT an amount (the "Earnout
Amount") equal to 14% of the Earnout Revenues (as defined in the Agreement)
received for all of INPUT's Products and Services (as defined in the Agreement)
during the period beginning April 1, 1996 and ending March 31, 2001 (the
"Earnout Period"); provided, however, at such time during the Earnout Period
that the aggregate Earnout Revenues received exceeds $4,000,000, thereafter the
Earnout Amount shall equal 7% of the Earnout Revenues received for INPUT's
Products and Services. The Company shall pay to INPUT each Earnout Amount
within 45 days after the end of each such calendar quarter. Earnout Amounts
shall be paid either solely in cash or in a combination of cash and shares of
the Company's common stock ("Earnout Shares"), at the
4
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Company's sole discretion; provided, however, that in no event shall the market
value of the Earnout Shares exceed 25% of the aggregate Earnout Amounts paid.
The Company may elect to issue the Earnout Shares only if the Earnout Shares are
registered under the Securities Act of 1933, as amended. The aggregate earnout
payments to be received by INPUT or its respective agents and representatives
pursuant to the Agreement shall in no event be less than $2,000,000, nor greater
than $6,000,000.
Prior to the closing of the acquisition, INPUT occupied office space in
Englewood Cliffs, New Jersey, under a lease dated March 1, 1995. The term of
the lease expires May 31, 1997, with a five year renewal option and rent at
$4,167 per month, with rent having been prepaid through May 31, 1997. In
connection with the acquisition, the Company has entered into an agreement with
INPUT to sublease (the "Sublease") the offices from INPUT, pursuant to which the
Company has agreed to pay the monthly rent obligation as specified under the
original lease.
Also in connection with the acquisition, the Company entered into Employment
Agreements with all ten persons employed by INPUT as of the closing date. Each
of the Employment Agreements contains noncompetition and nonsolicitation
restrictions. Salaries and other guarantees to be paid pursuant to these two
year Employment Agreements (one single agreement is for a three year term) will
be approximately $1,895,500 in the aggregate. This aggregate amount does not
include commissions, profit-sharing, and other benefits and performance
incentives to which these employees may be entitled pursuant to their individual
agreements.
The source of the funds used to pay the purchase price shall be a combination of
available cash resources including cash generated by operations and a $5,000,000
revolving line of credit with the Company's principal bank, Bank of America,
Oregon. The purchase price for the Purchased Assets was determined by
negotiation between the Company, INPUT, and INPUT's Principals.
INPUT's primary product, LOANscape, is a Windows-based product for processing
mortgage loans, preparing loan documents, managing customer relationships,
providing pipeline and portfolio management, prequalifying borrowers, pricing
transactions, and assisting in secondary market activities. INPUT serves some
of the largest financial institutions in the United States. The Company intends
to continue to use the equipment and other physical property acquired from INPUT
to develop the LOANscape Project.
The foregoing descriptions of the Agreement, the Employment Agreements, and the
Sublease are qualified by reference to the complete texts of those agreements,
together with the exhibits attached thereto. The Agreement was filed as Exhibit
2.1, the form of Employment Agreement (subject to some variation in terms and
conditions for individual employees) entered into by each of the INPUT
Principals was filed as Exhibit 10.1 and the Sublease was filed as Exhibit 10.2
to the Company's Current Report on Form 8-K dated April 17, 1996.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Companies Acquired
See pages F-1 through F-16
(b) Pro Forma Financial Statements
See pages PF-1 through PF-7
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(c) Exhibits
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
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2.1 Stock Purchase and Sale Agreement effective April 1,
1996, by and among MicroBilt Corporation, First
Financial Management Corporation and CFI ProServices,
Inc. - previously filed as Exhibit 2.1 with the
Company's Form 8-K dated April 1, 1996 and as filed with
the Securities and Exchange Commission on April 16,
1996. --
2.2 Asset Purchase and Sale Agreement, effective April 1,
1996, by and among Input Creations, Inc., its
shareholders and CFI ProServices, Inc. - previously
filed as Exhibit 2.1 with the Company's Form 8-K dated
April 17, 1996 and as filed with the Securities and
Exchange Commission on May 2, 1996. --
10.1 Promissory Note, dated April 1, 1996, in favor of
MicroBilt, Inc. - previously filed as Exhibit 10.1 with
the Company's Form 8-K dated April 1, 1996 and as filed
with the Securities and Exchange Commission on April 16,
1996. --
10.2 Promissory Note, dated April 1, 1996, in favor of First
Financial Management Corporation - previously filed as
Exhibit 10.2 with the Company's Form 8-K dated April 1,
1996 and as filed with the Securities and Exchange
Commission on April 16, 1996. --
10.3 Pledge Agreement, dated April 1, 1996, by and between
CFI ProServices, Inc. And MicroBilt Corporation and
First Financial Management - previously filed as Exhibit
10.3 with the Company's Form 8-K dated April 1, 1996 and
as filed with the Securities and Exchange Commission on
April 16, 1996. --
10.4 Business Loan Agreement (Revolving Line of Credit) dated
November 8, 1995 between CFI ProServices, Inc. and Bank
of America, Oregon - previously filed as Exhibit 10.4
with the Company's Form 8-K dated April 1, 1996 and as
filed with the Securities and Exchange Commission on
April 16, 1996 and as Exhibit 10.3 with the Company's
Form 8-K dated April 17, 1996 and as filed with the
Securities and Exchange Commission on May 2, 1996. --
10.5 Form of Employment Agreement entered into with former
employees of Input Creations, Inc. - previously filed as
Exhibit 10.1 with the Company's Form 8-K dated April 17,
1996 and as filed with the Securities and Exchange
Commission on May 2, 1996. --
10.6 Sublease by and among Input Creations, Inc. and CFI
ProServices, Inc. - previously filed as Exhibit 10.2
with the Company's Form 8-K dated April 17, 1996 and as
filed with the Securities and Exchange Commission on May
2, 1996. --
23.1 Consent of Deloitte & Touche LLP. --
23.2 Consent of Arthur Andersen LLP. --
6
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
CFI PROSERVICES, INC.
Date: June 14, 1996 By /s/ Matthew W. Chapman
----------------------
Matthew W. Chapman
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: June 14, 1996 By /s/ Fred Hall
----------------------
Fred Hall
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
7
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INDEPENDENT AUDITORS' REPORT
To: MicroBilt Financial Products Division,
a division of First Data Corporation
We have audited the accompanying combined balance sheet of OnLine Financial
Communication Systems, Inc. and COIN Banking Systems, Inc. (indirect wholly
owned subsidiaries of First Data Corporation, collectively "MicroBilt Financial
Products Division") as of December 31, 1995, and the related combined statements
of operations, shareholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of MicroBilt Financial Products
Division as of December 31, 1995, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
ATLANTA, GEORGIA
MAY 31, 1996
F-1
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MICROBILT FINANCIAL PRODUCTS DIVISION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS MARCH 31,
DECEMBER 31, 1996
CURRENT ASSETS: 1995 (UNAUDITED)
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<S> <C> <C>
Cash $160,945 $147,998
Accounts receivable
Billed, net of allowance for doubtful accounts of $300,000 and $379,620, respectively 728,783 1,250,146
Unbilled receivables 308,253 308,253
Prepaid expenses 44,740 29,829
Deferred taxes 585,174 585,174
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TOTAL CURRENT ASSETS 1,827,895 2,321,400
PROPERTY AND EQUIPMENT:
Computer equipment and software 2,206,766 2,208,576
Office furniture and fixtures 796,561 796,561
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TOTAL PROPERTY AND EQUIPMENT 3,003,327 3,005,137
Less Accumulated depreciation 2,145,796 2,230,512
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NET PROPERTY AND EQUIPMENT 857,531 774,625
SOFTWARE DEVELOPMENT COST, NET OF ACCUMULATED AMORTIZATION OF $587,059 AND $686,059, RESPECTIVELY 986,459 887,459
OTHER ASSETS 8,708 6,735
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TOTAL ASSETS $3,680,593 $3,990,219
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $281,251 $273,494
Customer deposits 171,053 543,419
Deferred revenue 1,219,933 1,104,122
Accrued liabilities 201,912 302,435
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TOTAL CURRENT LIABILITIES 1,874,149 2,223,470
LONG-TERM DEFERRED TAXES 179,203 206,249
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock 1,000,000 1,000,000
Common Stock 2,500 2,500
Net advances to parent company (1,557,532) (1,674,279)
Retained earnings 2,182,273 2,232,279
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TOTAL SHAREHOLDERS' EQUITY 1,627,241 1,560,500
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,680,593 $3,990,219
------------ ------------
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</TABLE>
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
F-2
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<TABLE>
<CAPTION>
MICROBILT FINANCIAL PRODUCTS DIVISION THREE MONTHS ENDED
COMBINED STATEMENTS OF OPERATIONS YEAR ENDED MARCH 31,
DECEMBER 31, 1995 1996
1995 (UNAUDITED)
------------ -------------------------
<S> <C> <C> <C>
REVENUE
Software License Fees $6,982,865 $1,510,218 $1,423,649
Professional Services 1,579,792 537,820 343,670
Maintenance and Support 2,925,711 688,414 643,238
Other Revenues 181,417 71,074 29,605
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TOTAL REVENUE 11,669,785 2,807,526 2,440,162
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COST AND EXPENSES:
Cost of revenue 4,266,066 1,211,945 899,878
Impairment of capitalized software development costs 800,000
Sales and marketing 1,664,805 220,827 345,188
Product development 1,412,278 496,226 528,640
General and administrative 3,845,747 1,067,710 589,405
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INCOME (LOSS) BEFORE TAXES (319,111) (189,182) 77,051
INCOME TAX EXPENSE (BENEFIT) (111,977) (66,403) 27,045
---------- ---------- ----------
NET INCOME (LOSS) ($207,134) ($122,779) $50,006
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
F-3
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MICROBILT FINANCIAL PRODUCTS DIVISION
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET ADVANCES
PREFERRED STOCK COMMON STOCK TO PARENT RETAINED
SHARES AMOUNT SHARES AMOUNT COMPANY EARNINGS TOTAL
---------------------- --------------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994 1,000,000 $1,000,000 251,000 $2,500 $1,954,964 $2,389,407 $5,346,871
Change in net advances to parent company (3,512,496) (3,512,496)
(unaudited)
Net loss for the period (207,134) (207,134)
---------------------- ---------------------- ---------- ---------- ----------
DECEMBER 31, 1995 1,000,000 1,000,000 251,000 2,500 (1,557,532) 2,182,273 1,627,241
Change in net advances to parent company (116,747) (116,747)
(unaudited)
Net income for the period (unaudited) 50,006 50,006
---------------------- ---------------------- ---------- ---------- ----------
MARCH 31, 1996 (UNAUDITED) 1,000,000 $1,000,000 251,000 $2,500 ($1,674,279) $2,232,279 $1,560,500
---------------------- ---------------------- ---------- ---------- ----------
---------------------- ---------------------- ---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
MICROBILT FINANCIAL PRODUCTS DIVISION
COMBINED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, 1995 1996
1995 (UNAUDITED)
------------ --------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) ($207,134) ($122,779) $50,006
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 720,659 143,467 183,096
Impairment of capitalized software development costs 800,000
Deferred income taxes (111,977) (66,403) 27,046
(Increase) decrease in assets:
Accounts receivable 3,728,017 2,150,819 (521,363)
Prepaid expenses (17,744) (36,545) 16,884
Increase (decrease) in liabilities:
Accounts payable 169,051 (41,802) (7,757)
Customer deposits (110,200) (151,045) 372,366
Deferred revenue (302,579) (327,424) (115,811)
Accrued expenses (152,096) (2,380) 100,523
--------- --------- ---------
TOTAL ADJUSTMENTS 4,723,131 1,668,687 54,984
--------- --------- ---------
NET CASH PROVIDED BY OPERATIONS 4,515,997 1,545,908 104,990
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development cost (455,652) (61,914)
Expenditures for property and equipment (139,555) (80,723) (1,190)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (595,207) (142,637) (1,190)
CASH FLOWS FROM FINANCING ACTIVITIES:
Transfer of property from MicroBilt (396,600)
Net cash transferred to parent company (3,512,496) (1,340,089) (116,747)
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES (3,909,096) (1,340,089) (116,747)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 11,694 63,182 (12,947)
CASH, AT BEGINNING OF PERIOD 149,251 149,251 160,945
--------- --------- ---------
CASH, AT END OF PERIOD $160,945 $212,433 $147,998
--------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
F-5
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995 AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1995
AND 1996
________________________________________________________________
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS
OnLine Financial Communication Systems, Inc. and COIN Banking Systems, Inc.
(collectively referred to hereinafter as "MicroBilt Financial Products
Division") are subsidiaries of MicroBilt Corporation, a wholly-owned subsidiary
of First Data Corporation ("FDC").
MicroBilt Financial Products Division develops, sells and services software used
by financial institutions. Products include software which provides automation
for transaction processing systems focusing on bank branches and loan
origination and documentation software. These products have historically been
sold principally to financial institutions within the United States. However,
MicroBilt Financial Products Division markets and sells certain products
internationally.
BASIS OF COMBINATION
The accompanying combined financial statements include the accounts of MicroBilt
Financial Product Division. All material intercompany balances and transactions
have been eliminated from the financial statements.
REVENUE RECOGNITION
Revenues from software license fees derived from end users are recognized
when no further significant obligations exist. Revenues for software license
fees derived from third party distributors are recognized when the related
software is delivered. Other revenues from software license fees derived from
end users are recognized by the percentage of completion method measured by
identified contract milestones achieved relative to the total contract value.
Revenues from professional services are recognized when the services have
been performed. Revenues from maintenance and support contracts are deferred
and recognized ratably over the term of the service period.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the individual assets,
which ranges from three to seven years. Expenditures for repairs and
maintenance are charged to current operations, and costs related to renewals and
improvements that add significantly to the useful life of an asset are
capitalized. The costs of assets retired or sold, together with the related
accumulated depreciation, are removed from the accounts, and any gain or loss on
disposal is credited or charged to earnings.
F-6
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CAPITALIZED SOFTWARE
The cost of internally developed software is capitalized in accordance with
Statement of Financial Accounting Standards Number 86, "Accounting for the Costs
of Computer Software To Be Sold, Leased or Otherwise Marketed." These costs are
amortized on a straight-line basis over an estimated useful life of four years.
Amortization of internally developed software for the period ended December 31,
1995 was $342,000. It is reasonably possible that estimates of anticipated
future gross revenues, the remaining estimated economic life of such software
development cost, or both will be reduced in the near term due to competitive
pressure. As a result, the carrying amount of software development cost may be
reduced materially in the near term.
INCOME TAXES
The MicroBilt Financial Products Division has adopted Statement of Financial
Accounting Standards Number 109, "Accounting for Income Taxes" (SFAS No. 109).
This pronouncement requires deferred tax assets and liabilities to be valued
using the enacted tax rates expected to be in effect when the temporary
differences are recovered or settled. Income taxes have been allocated to the
Microbilt Financial Products Division for purposes of these combined financial
statements as if it were a separate taxpayer.
NET ADVANCES TO PARENT COMPANY
The net advances to parent company represents cumulative net advances to FDC as
a result of transactions with or on behalf of the Microbilt Financial Products
Division. Net amounts advanced to FDC are not to be repaid and have been
classified as a component of shareholders' equity in the accompanying combined
balance sheets.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The combined financial statements as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for these periods. Operating results for the
three months ended March 31, 1996, are not necessarily indicative of results
that may be expected for the entire year.
F-7
<PAGE>
2. RELATED PARTY TRANSACTIONS
MicroBilt Corporation charges the MicroBilt Financial Products Division for
certain services including financial, legal, and tax services, employee benefits
programs (medical coverage, defined contribution retirement plan, etc.),
procurement and shipping services, accounting and internal audit services, and
liability insurance coverage. Management believes such charges were reasonable.
The total cost for these services in 1995 was $2,419,000 and three months ended
March 31, 1995 and 1996 were $656,000 and $278,000, respectively.
3. INCOME TAXES
The income tax benefit is as follows for year ended December 31, 1995:
Current Tax Benefit $ -
Deferred Benefit 111,977
--------
Total Benefit $111,977
--------
--------
The reconciliation of the statutory Federal income tax rate to the
effective income tax rate is as follows for year ended December 31, 1995
Federal statutory rate 34.0%
State income taxes net of Federal benefits 4.5
Disallowance of meals and entertainment expenses (3.3)
Other (0.1)
-----
35.1%
-----
-----
Deferred tax assets and (liabilities) are comprised of the following
components at December 31, 1995:
Current deferred tax asset:
Allowance for doubtful accounts $115,500
Deferred revenues 469,674
---------
Total current deferred tax asset $585,174
--------
--------
Long term deferred tax (liability):
Book versus tax depreciation ($135,997)
Software development costs (379,787)
Net operating loss carryforwards 336,581
--------
--------
Total long-term deferred tax (liability) ($179,203)
--------
--------
At December 31, 1995, for Federal tax return reporting purposes, MicroBilt
Financial Products Division has approximately $874,237 of regular tax loss
carryovers that expire in the year 2005. The Tax Reform Act of 1986
contains provisions which limit the net operating loss carryovers available
to be used in
F-8
<PAGE>
any given year in the event of certain circumstances including significant
changes in ownership interest. MicroBilt Financial Products Division is
limited to using approximately $152,000 of net operating loss carryovers per
year. Management believes it is more likely than not that future taxable
income will be sufficient to realize fully the benefits of the deferred tax
assets, and the realization of tax loss carryforwards is more likely than
not. As such, no valuation allowance has been recorded.
4. IMPAIRMENT CHARGE
At December 31, 1995, the MicroBilt Financial Products Division recognized a
capitalized software development cost impairment charge of $800,000 relating to
a graphical software product developed by OnLine and released in November 1995.
Based upon the market acceptance of the product subsequent to release, OnLine
significantly reduced its estimate of the products future cash flows and,
accordingly, recorded the $800,000 impairment charge.
5. OPERATING LEASES
During most of 1995, the MicroBilt Financial Products Division occupied office
space that was leased by MicroBilt Corporation. The rent expense associated
with this space was allocated to the MicroBilt Financial Products Division by
MicroBilt Corporation. Total rent expense was $297,000 for the year ended
December 31, 1995.
In November 1995, MicroBilt entered into a new lease agreement whereby the
space occupied by the MicroBilt Financial Products Division was segregated.
The MicroBilt Financial Products Division pays the rent expense associated
with their portion of the lease. Future minimum lease payments under the
noncancelable lease agreement during years subsequent to December 31, 1995
are as follows:
1996 $ 792,000
1997 816,000
1998 840,000
1999 866,000
2000 815,000
-----------
TOTAL MINIMUM LEASE PAYMENTS $4,129,000
----------
----------
6. SHAREHOLDERS' EQUITY
The authorized capital stock for each corporation comprising the MicroBilt
Financial Products Division is as follows at December 31, 1995:
OnLine Financial Communication Systems, Inc. ("OnLine"), no par
value, authorized 1,000 common shares, issued and outstanding 1,000
shares
F-9
<PAGE>
COIN Banking Systems, Inc. ("COIN"), $.01 par value, authorized
2,000,000 common shares, issued and outstanding 250,000 shares; $1 par
value, authorized 1,000,000 shares of Series A Preferred Stock, issued
and outstanding 1,000,000 shares
7. SUBSEQUENT EVENT
On April 1, 1996, all of the outstanding stock of OnLine and COIN was
acquired by CFI ProServices, Inc. ("CFI") for $5,500,000 and contingent
future payments. Subsequent to executing and closing this agreement, a
dispute over the assets excluded from the acquisition has arisen between CFI
and MicroBilt Corporation. The aggregate amount in dispute is approximately
$250,000. The parties are currently attempting to resolve this dispute.
F-10
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
Input Creations, Inc.:
We have audited the accompanying balance sheet of Input Creations, Inc. (a New
Jersey corporation) as of December 31, 1995, and the related statements of
income and retained earnings, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Input Creations, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Portland, Oregon,
June 1, 1996
F-11
<PAGE>
INPUT CREATIONS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------ -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $206,382 $ 201,166
Accounts receivable, net of allowance for
doubtful accounts of $40,000 406,000 546,000
Notes receivable 15,590 15,590
Prepaid expenses 63,177 50,677
-------- ----------
Total current assets 691,149 813,433
-------- ----------
PROPERTY AND EQUIPMENT:
Computer equipment and software 125,303 154,110
Office furniture and fixtures 30,400 30,400
-------- ----------
155,703 184,510
Less- Accumulated depreciation 81,760 87,562
-------- ----------
Net property and equipment 73,943 96,948
SOFTWARE DEVELOPMENT COSTS, NET 92,000 84,333
OTHER ASSETS 10,933 10,933
-------- ----------
Total assets $868,025 $1,005,647
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,806 $ 2,463
Accrued liabilities 52,106 24,099
Deferred revenue 165,550 165,550
-------- ----------
Total current liabilities 228,462 192,112
-------- ----------
SHAREHOLDERS' EQUITY:
Common stock, 1,000 shares authorized, 100 shares
issued and outstanding 7,800 7,800
Retained earnings 631,763 805,735
-------- ----------
Total shareholders' equity 639,563 813,535
-------- ----------
Total liabilities and shareholders'
equity $868,025 $1,005,647
======== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-12
<PAGE>
INPUT CREATIONS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended ----------------------
December 31, March 31, March 31,
1995 1995 1996
------------ --------- ---------
(Unaudited)
<S> <C> <C> <C>
REVENUE:
Professional services $1,191,692 $ 521,306 $524,769
---------- ---------- --------
Total revenue 1,191,692 521,306 524,769
COST OF REVENUE 807,261 196,314 132,686
---------- ---------- --------
Gross profit 384,431 324,992 392,083
GENERAL AND ADMINISTRATIVE
EXPENSES 256,792 18,987 105,275
PRODUCT DEVELOPMENT 99,000 24,750 16,232
---------- ---------- --------
NET INCOME 28,639 281,255 270,576
RETAINED EARNINGS AT BEGINNING
OF PERIOD 957,096 957,096 631,763
SHAREHOLDERS' DIVIDENDS (353,972) (126,270) (96,604)
----------- ---------- --------
RETAINED EARNINGS AT END OF PERIOD $ 631,763 $1,112,081 $805,735
----------- ---------- --------
----------- ---------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-13
<PAGE>
INPUT CREATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended ---------------------
December 31, March 31, March 31,
1995 1995 1996
------------ --------- --------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,639 $ 281,255 $ 270,576
Adjustments to reconcile net income
to net cash provided by operating
activities-
Depreciation and amortization 11,934 2,577 13,469
(Increase) decrease in assets:
Accounts receivable 607,866 168,945 (140,000)
Notes receivable 92,088 - -
Prepaid expenses (62,837) (99,660) 12,500
Other assets (8,333) (8,333) -
Increase (decrease) in
liabilities:
Accounts payable (194) - (8,343)
Accrued liabilities (125,103) (83,785) (28,007)
Deferred revenue 165,550 - -
--------- --------- ---------
Total adjustments 680,971 (20,256) (150,381)
--------- --------- ---------
Net cash provided
by operating activities
709,610 260,999 120,195
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property
and equipment (80,908) (2,689) (28,807)
Software development costs
capitalized (92,000) - -
--------- --------- ---------
Net cash used in investing
activities (172,908) (2,689) (28,807)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Shareholders' dividends (353,972) (126,270) (96,604)
--------- --------- ---------
Net cash used in financing
activities (353,972) (126,270) (96,604)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 182,730 132,040 (5,216)
CASH, beginning of period 23,652 23,652 206,382
--------- --------- ---------
CASH, end of period $ 206,382 $ 155,692 $ 201,166
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-14
<PAGE>
INPUT CREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Input Creations, Inc. (the Company) develops, sells and services software. The
services and products are provided to mortgage, health care, advertising and
entertainment companies worldwide. The Company was founded in 1980.
REVENUE RECOGNITION
Revenue is recognized when services have been performed or a product has been
delivered. Revenue is deferred until any significant uncertainty about customer
acceptance is resolved.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives for purposes of financial
reporting, which is three to seven years. Maintenance and repairs are expensed
as incurred. Depreciation expense for the year ended December 31, 1995 was
$11,934.
SOFTWARE
The cost of internally developed software which meet the criteria in Statement
of Financial Accounting Standards No. 86 "Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed," are capitalized. These
costs will be amortized on a straight-line basis over an estimated economic life
of three years. For the year ended December 31, 1995, there was no amortization
expense related to capitalized software development costs.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions the Company does not pay federal
or state corporate income taxes on its taxable income and is not allowed a net
operating loss carryover or carryback as a deduction. Instead, the shareholders
are liable for individual federal and state income taxes on their respective
shares of the Company's taxable income.
USE OF ESTIMATES
Management makes estimates and assumptions when preparing the financial
statements in conformity with generally accepted accounting principles. These
estimates and assumptions affect the amounts reported in the accompanying
financial statements and notes thereto. Actual results could differ from those
estimates.
F-15
<PAGE>
CONCENTRATION OF CREDIT RISK
As of December 31, 1995, four customers in the entertainment, advertising,
health care and mortgage industries accounted for approximately 26, 18, 15 and
11 percent, respectively, of accounts receivable. Historically, the Company has
not incurred any significant losses related to accounts receivable. The Company
does not obtain security interests in their receivables.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of accounts receivable, notes
receivable, accounts payable and accrued liabilities. As of December 31, 1995,
because of their short-term nature, the fair value of the Company's financial
instruments approximated the carrying value.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for these periods. Operating results for
the three months ended March 31, 1996 are not necessarily indicative of
results that may be expected for the entire year.
2. OPERATING LEASES:
The Company leases facilities under an operating lease, with a term of two
years. Rent has been prepaid through the end of the lease, May 31, 1997. Total
lease expense for the year ended December 31, 1995 was $37,503.
3. MAJOR CUSTOMER:
Two customers in the mortgage and health care industries accounted for
approximately 60 and 19 percent, respectively, of the Company's revenue in 1995.
4. RELATED PARTY TRANSACTIONS:
The Company has a loan receivable of $15,590 at December 31, 1995 from the
majority shareholder of the Company. The balance is net of $92,085 of
repayments made in 1995. Cost of revenues for the year ended December 31, 1995
includes $51,673 of consulting expenses paid to a shareholder's brother.
5. SUBSEQUENT EVENT:
In April 1996, the Company was acquired by CFI ProServices, Inc., in an
acquisition to be accounted for as a purchase.
F-16
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION
CFI ProServices, Inc.
Pro Forma Consolidated Balance Sheet
March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
MicroBilt CFI
CFI Financial Input ProServices,
ProServices, Products Creations, Inc.
(Dollars in Thousands) Inc. Division Inc. Adjustments Pro Forma
------------ --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,053 $ 148 $ - $ (4,508) a. $ 2,693
Short-term investments 1,762 - - - 1,762
Accounts receivable, net 10,463 1,558 - - 12,021
Inventory 198 - - - 198
Deferred tax asset 445 585 - - 1,030
Prepaid expenses and other current
assets 1,294 30 - - 1,324
--------- --------- --------- --------- ---------
Total Current Assets 21,215 2,321 - (4,508) 19,028
PROPERTY AND EQUIPMENT, NET 3,067 775 97 - 3,939
SOFTWARE DEVELOPMENT COSTS, NET 5,062 887 84 (153) b. 5,880
PURCHASED SOFTWARE COSTS, NET 733 - - - 733
OTHER INTANGIBLES, NET 2,934 - - 2,424 c. 5,358
LONG-TERM DEFERRED TAX ASSET - - - 914 b., d., e. 914
OTHER ASSETS 353 7 - - 360
--------- --------- --------- --------- ---------
Total Assets $ 33,364 $ 3,990 $ 181 $ (1,323) $ 36,212
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
PF-1
<PAGE>
CFI ProServices, Inc.
Pro Forma Consolidated Balance Sheet
March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
MicroBilt CFI
CFI Financial Input ProServices,
ProServices, Products Creations, Inc.
(Dollars in Thousands) Inc. Division Inc. Adjustments Pro Forma
------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 801 $ 274 $ - $ - $ 1,075
Accrued expenses 3,262 - - - 3,262
Deferred revenues 5,890 1,104 166 - 7,160
Customer deposits 842 543 - - 1,385
Notes payable 1,084 - - 3,500 f. 4,584
Other current liabilities 310 303 - - 613
--------- --------- --------- --------- ---------
Total Current Liabilities 12,189 2,224 166 3,500 18,079
DEFERRED TAX LIABILITY 965 206 - (1,171) e. -
OTHER LONG-TERM LIABILITIES 275 - - 1,533 g. 1,808
--------- --------- --------- --------- ---------
Total Liabilities 13,429 2,430 166 3,862 19,887
MANDATORILY REDEEMABLE PREFERRED
STOCK, CLASS A 734 - - - 734
SHAREHOLDERS' EQUITY -
Common Stock, no par value, 10,000,000
shares authorized and 4,645,593
shares issued and outstanding 15,856 - - - 15,856
Retained earnings (deficit) 3,345 - - (3,610) h. (265)
--------- --------- --------- --------- ---------
Total Shareholders' Equity 19,201 - - (3,610) 15,591
Total Liabilities and Shareholders'
--------- --------- --------- --------- ---------
Equity $ 33,364 $ 2,430 $ 166 $ 252 $ 36,212
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
PF-2
<PAGE>
CFI ProServices, Inc.
Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
MicroBilt CFI
CFI Financial Input ProServices,
ProServices, Products Creations, Inc.
(In thousands, except per share data) Inc. Division Inc. Adjustments Pro Forma
------------ --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE
Software license fees 18,918 6,983 - - 25,901
Service and Support 15,060 4,506 1,192 - 20,758
Other 2,798 181 - - 2,979
--------- --------- --------- --------- ---------
Total Revenue 36,776 11,670 1,192 - 49,638
COST OF REVENUE 12,015 4,266 807 273 i. 17,361
IMPAIRMENT OF CAPITALIZED SOFTWARE COSTS - 800 - (800) k. -
--------- --------- --------- --------- ---------
Gross Profit 24,761 6,604 385 527 32,277
OPERATING EXPENSES
Sales and marketing 9,558 1,665 - - 11,223
Product development 6,356 1,412 99 - 7,867
General and administrative 4,295 3,846 257 346 j. 8,744
Acquired in-process research and
development and restructuring 4,549 - - - 4,549
--------- --------- --------- --------- ---------
Total Operating Expenses 24,758 6,923 356 346 32,383
--------- --------- --------- --------- ---------
Income (Loss) From Operations 3 (319) 29 181 (106)
NON-OPERATING INCOME (EXPENSE)
Interest expense (3) - - (107) l. (110)
Interest income 490 - - (270) m. 220
Other, net - - - - -
--------- --------- --------- --------- ---------
Total Non-operating Income 487 - - (377) 110
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 490 (319) 29 (196) 4
PROVISION FOR (BENEFIT FROM) INCOME TAXES 167 (112) - (15) n. 40
--------- --------- --------- --------- ---------
NET INCOME (LOSS) 323 (207) 29 (181) (36)
PREFERRED STOCK DIVIDEND 97 - - - 97
--------- --------- --------- --------- ---------
NET INCOME (LOSS) APPLICABLE TO COMMON 226 (207) 29 (181) (133)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NET INCOME (LOSS) PER SHARE 0.05 - - - (0.03)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SHARES USED IN PER SHARE CALCULATIONS 4,877 - - - 4,877
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
PF-3
<PAGE>
CFI ProServices, Inc.
Pro Forma Consolidated Statement of Operations
For the Three Months Ended March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
MicroBilt CFI
CFI Financial Input ProServices,
ProServices, Products Creations, Inc.
(In thousands, except per share data) Inc. Division Inc. Adjustments Pro Forma
------------ --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE
Software license fees $ 6,000 $ 1,424 $ - $ - $ 7,424
Service and Support 4,174 987 525 - 5,686
Other 834 29 - - 863
--------- --------- --------- --------- ---------
Total Revenue 11,008 2,440 525 - 13,973
COST OF REVENUE 3,715 900 133 68 i. 4,816
--------- --------- --------- --------- ---------
Gross Profit 7,293 1,540 392 (68) 9,157
OPERATING EXPENSES
Sales and marketing 2,802 345 - - 3,147
Product development 2,008 529 16 2,553
General and administrative 1,080 589 105 87 j. 1,861
--------- --------- --------- --------- ---------
Total Operating Expenses 5,890 1,463 121 87 7,561
--------- --------- --------- --------- ---------
Income (Loss) From Operations 1,403 77 271 (155) 1,596
NON-OPERATING INCOME (EXPENSE)
Interest expense (7) - - (27) l. (34)
Interest income 117 - - (68) m. 49
Other, net 2 - - - 2
--------- --------- --------- --------- ---------
Total Non-operating Income 112 - - (95) 17
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 1,515 77 271 (250) 1,613
PROVISION FOR (BENEFIT FROM) INCOME TAXES 622 27 - 22 n. 671
--------- --------- --------- --------- ---------
NET INCOME (LOSS) 893 50 271 (272) 942
PREFERRED STOCK DIVIDEND 24 - - - 24
--------- --------- --------- --------- ---------
NET INCOME (LOSS) APPLICABLE TO COMMON $ 869 $ 50 $ 271 $ (272) $ 918
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NET INCOME PER SHARE $ 0.18 $ - $ - $ - $ 0.19
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SHARES USED IN PER SHARE CALCULATIONS 4,881 - - - 4,881
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
PF-4
<PAGE>
CFI ProServices, Inc.
Footnotes to Pro Forma Consolidated Financial Statements
(Unaudited)
(in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma financial statements have been prepared
to present the effect of the acquisition by the Company of MicroBilt
Financial Products Division ("MFPD") and INPUT. The pro forma financial
statements have been prepared based upon the historical financial statements
of the Company, MFPD and INPUT as if the acquisition had occurred at March
31, 1996 and at the beginning of the respective periods.
The Pro Forma Consolidated Balance Sheet was prepared using only those assets
and liabilities of MFPD and INPUT that were purchased by the Company.
The Pro Forma Consolidated Statements of Operations were prepared without the
impact of the write-off of acquired in-process research and development
and the related tax benefits of $5.6 million and $2.0 million, respectively,
related to the purchase of MFPD and INPUT as described in this Form 8-K/A-1.
Such amounts were not included as the write-off would not have an on-going
effect on normal operations of the Company.
The pro forma consolidated statements do not include the results of operations
or the financial position of two other acquisitions, National Systems Research
Co. and Pathways Software, Inc., as reported by the Company under Item 5. in its
Form 8-K dated April 17, 1996, as neither company is considered a significant
subsidiary either individually or in the aggregate.
The Pro Forma Consolidated Statements of Operations may not be indicative of the
results of operations that actually would have occurred if the transactions had
been in effect as of the beginning of the respective periods nor do they purport
to indicate the results of future operations of the Company. The pro forma
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1995 Annual Report on Form 10-K and
the audited financial statements and notes thereto for MFPD and INPUT included
elsewhere in this report of Form 8-K/A-1. Management believes that all
adjustments necessary to present fairly such pro forma financial statements have
been made based on the terms and structure of the transaction.
PF-5
<PAGE>
<TABLE>
<S> <C> <C>
2. PRO FORMA ADJUSTMENTS
a. Cash and cash equivalents as of March 31, 1996 was adjusted as follows:
To record cash paid for MFPD $ 2,000
To record cash paid for INPUT 2,000
Other cash expenses 508
--------
$ 4,508
--------
--------
b. To record adjustment of software development costs and related deferred
tax liability to appraised value:
<CAPTION>
Software Adjustment
Development to
Change Deferred Taxes
-------- --------
<S> <C> <C>
Related to MFPD $ (263) $ 113
Related to INPUT 110 -
-------- --------
$ (153) $ 113
-------- --------
-------- --------
c. Other intangibles, net as of March 31, 1996 was adjusted as follows:
To record other intangibles associated with MFPD $ 1,674
To record other intangibles associated with INPUT 750
--------
$ 2,424
--------
--------
d. To increase long-term deferred tax asset at March 31, 1996 for the following:
Tax benefit of acquired in-process research and development write-off $ 1,972
--------
--------
e. To reclass long-term deferred tax liability to long-term deferred tax asset.
Long-term deferred tax liability at March 31, 1996 $ (1,171)
--------
--------
f. Notes payable - current as of March 31, 1996 was adjusted as follows:
To record note payable related to purchase of MFPD $ 3,500
--------
--------
g. Other long-term liabilities as of March 31, 1996 was adjusted as follows:
To record present value of guaranteed future minimum payments related to
purchase of INPUT $ 1,533
--------
--------
</TABLE>
PF-6
<PAGE>
<TABLE>
<S> <C> <C>
h. Retained earnings as of March 31, 1996 was adjusted as follows:
To record acquired in-process research and
development write-off $ (5,582)
To record tax benefit of acquired in-process research and
development write-off 1,972
--------
$ (3,610)
--------
--------
i. Cost of revenue was adjusted as follows:
<CAPTION>
12/31/95 3/31/96
-------- --------
<S> <C> <C>
To record purchased software amortization $ 273 $ 68
-------- --------
-------- --------
j. General and administrative expense was adjusted as follows:
<CAPTION>
12/31/95 3/31/96
-------- --------
<S> <C> <C>
To record other intangible amortization $ 346 $ 87
-------- --------
-------- --------
k. Reversal of impairment of capitalized software costs
12/31/95 3/31/96
-------- --------
<C> <C>
$ 800 $ -
-------- --------
-------- --------
l. To record imputed interest expense on guaranteed minimum payment to INPUT
12/31/95 3/31/96
-------- --------
<C> <C>
$ 107 $ 27
-------- --------
-------- --------
m. To record lost interest income on cash paid for acquisitions
<CAPTION>
12/31/95 3/31/96
<S> -------- --------
<C> <C>
$ 270 $ 68
-------- --------
-------- --------
n. Income tax expense (benefit) was adjusted as follows:
<CAPTION>
12/31/95 3/31/96
-------- --------
<S> <C> <C>
To record proforma taxes related to INPUT S Corporation status $ 12 $ 109
To record decrease in taxes due to additional interest expense (43) (11)
To record decrease in taxes due to lost interest income (108) (27)
To record additional tax expense related to reversal of
impairment of capitalized software costs 320 -
To record tax benefit of deductible purchased software amortization (105) (26)
To record tax benefit of deductible other intangible amortization (91) (23)
-------- --------
$ (15) $ 22
-------- --------
-------- --------
</TABLE>
PF-7
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
No. 33-70506 and No. 33-89872 of CFI ProServices, Inc. on Form S-8 of our
report dated May 31, 1996, appearing in this Form 8-K/A-1 of CFI ProServices,
Inc. dated June 14, 1996.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
June 14, 1996
<PAGE>
EXHIBIT 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our report dated June 1, 1996 on Input Creations, Inc.'s financial statements
for the year ended December 31, 1995, included in this Form 8-K/A-1, into CFI
ProServices, Inc.'s previously filed Registration Statements File No.
33-70506 and No. 33-89872 on Form S-8.
ARTHUR ANDERSEN LLP
Portland, Oregon,
June 13, 1996
