- -------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 1 to
FORM 8-K/A
--------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 4, 1999
--------------
CFI ProServices, Inc. d/b/a Concentrex Incorporated
(Exact name of registrant as specified in its charter)
Oregon 0-21980 93-0704365
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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
CFI ProServices, Inc.
(Former name or former address, if changed since last report)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The following is a list of
audited financial statements for MECA Software, L.L.C. filed herewith:
Report of Independent Accountants................................. F-1
Balance Sheet as of December 31, 1997 and 1998.................... F-2
Statement of Operations for the Years Ended
December 31, 1997 and 1998............................... F-3
Statement of Changes in Members' Equity (Deficit)
for the Years Ended December 31, 1997 and 1998........... F-4
Statement of Cash Flows for the Years Ended
December 31, 1997 and 1998............................... F-5
Notes to Financial Statements, December 31, 1997 and 1998......... F-6
The following is a list of unaudited interim financial data for
MECA Software, L.L.C. filed herewith:
Unaudited Balance Sheet as of March 31, 1999..................... FS-1
Unaudited Statement of Operations for the Three Months Ended
March 31, 1998 and 1999................................. FS-2
Statement of Changes in Members' Deficit
for the Three Months Ended March 31, 1999............... FS-3
Unaudited Statement of Cash Flows for the three months ended
March 31, 1998 and 1999................................. FS-4
Notes to Unaudited Interim Financial data, March 31, 1999........ FS-5
(b) PRO FORMA FINANCIAL INFORMATION. The following is a list of pro forma
financial information pertaining to CFI ProServices, Inc., d/b/a Concentrex
Incorporated, and MECA Software, L.L.C. filed herewith:
Pro Forma Unaudited Balance Sheet as of March 31, 1999........... PF-1
Pro Forma Unaudited Statement of Operations for the
Three Months Ended March 31, 1999....................... PF-2
Pro Forma Unaudited Statement of Operations for the
Year Ended December 31, 1998............................ PF-3
Notes to Pro Forma Unaudited Financial Statements................ PF-4
(c) EXHIBITS.
Exhibit No. Description
23.1 Consent of Independent Public Accountants
2
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on its behalf by
the undersigned hereunto duly authorized.
CFI PROSERVICES, INC.
d/b/a CONCENTREX INCORPORATED
Date: August 4, 1999 By: /s/ Kurt W. Ruttum
----------------------------------------------
Kurt W. Ruttum, Vice President and
Chief Financial Officer
3
<PAGE>
Report of Independent Accountants
To the Board of Managers of MECA Software, L.L.C.
In our opinion, the accompanying balance sheets and the related statements of
operations and changes in members' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of MECA Software L.L.C.
at December 31, 1997 and 1998, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The Company is a member of a group of affiliated companies, and, as disclosed in
the financial statements, has extensive transactions and relationships with
members of the group. Because of these relationships, it is possible that the
terms of these transactions are not the same as those that would result from
transactions among wholly unrelated parties.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to 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.
PricewaterhouseCoopers LLP
March 5, 1999
F-1
<PAGE>
MECA Software, L.L.C.
Balance Sheet
<TABLE>
<CAPTION>
December 31,
1997 1998
------------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,326,539 $ 1,677,599
Accounts receivable, less allowance for doubtful accounts of
$131,721 and $390,319, respectively 3,753,149 3,287,800
Inventory 224,247 160,689
Other current assets 296,817 588,696
Costs and estimated profits in excess of billings on
uncompleted contracts (Note 3) 1,450,659 -
------------------- -----------------
Total current assets 11,051,411 5,714,784
Restricted cash (Note 3) 283,997 210,000
Fixed assets, net (Notes 3 and 9) 2,199,622 1,430,847
Goodwill, net of accumulated amortization of
$19,126,379 at December 31, 1997 (Notes 3 and 7) 17,332,526 -
Other assets 66,825 66,825
=================== =================
$ 30,934,381 $ 7,422,456
=================== =================
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 3,703,534 $ 7,773,389
Deferred revenue (Note 3) 2,022,695 100,000
Notes payable - related party (Note 8) 7,500,000 7,500,000
Accrued interest - related party (Note 8) 321,370 630,674
Accrued restructuring costs (Note 11) 768,076 190,000
Estimated loss on uncompleted contracts (Note 3) 646,128 -
------------------- -----------------
Total current liabilities 14,961,803 16,194,063
Deferred compensation (Note 12) 848,186 1,491,629
------------------- -----------------
Total liabilities 15,809,989 17,685,692
Commitments (Note 12)
Members' equity (deficit) 15,124,392 (10,263,236)
------------------- -----------------
Total liabilities and members' equity (deficit) $ 30,934,381 $ 7,422,456
=================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
MECA Software, L.L.C.
Statement of Operations
For the years ended
December 31,
-------------------------------------
1997 1998
---------------- ----------------
Revenue
Software license fees $ 4,045,219 $ 8,882,992
Custom development services 7,255,466 2,431,011
Technical support services 8,638,433 8,876,411
Manufacturing and fulfillment 3,074,574 2,964,887
Retail 1,211,611 492,731
---------------- ----------------
24,225,303 23,648,032
---------------- ----------------
Costs and expenses
Cost of custom development services 6,278,988 2,730,393
Cost of technical support services 6,709,212 5,686,333
Cost of manufacturing and fulfillment 2,499,231 2,125,791
Cost of retail 727,635 105,130
Research and development (Note 6) 6,161,286 10,385,755
Sales and marketing 1,841,117 1,676,784
General and administrative 5,581,549 8,510,537
Amortization of goodwill (Note 7) 7,549,993 17,332,526
Restructuring charge (Note 11) 1,000,000 -
---------------- ----------------
38,349,011 48,553,249
---------------- ----------------
Loss from operations (14,123,708) (24,905,217)
Interest income 321,755 130,573
Interest expense - related
party (Note 8) (633,185) (612,984)
---------------- ----------------
Net loss $ (14,435,138) $ (25,387,628)
================ ================
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
MECA Software, L.L.C.
Statement of Changes in Members' Equity (Deficit) For the years ended December
31, 1997 and 1998
<TABLE>
<CAPTION>
New
Bank of Fleet U.S. Royal Bank England
America Bank Bank of Canada Financial Citibank Total
------------- ----------- ----------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ (3,926,684) $ 6,789,659 $ 6,789,659 $ 6,966,784 $ 9,958,821 $ - $ 26,578,239
Capital contributions - - - - - 3,000,000 3,000,000
Legal and investment
banking costs (Note 5) (6,236) (3,118) (3,118) (3,118) (3,119) - (18,709)
Net loss for the year (4,739,894) (2,369,947) (2,369,947) (2,369,947) (2,369,947) (215,456) (14,435,138)
------------- ----------- ----------- ------------ ----------- ----------- -------------
Balance, December 31, 1997 (8,672,814) 4,416,594 4,416,594 4,593,719 7,585,755 2,784,544 15,124,392
Net loss for the year (8,124,042) (4,062,021) (4,062,021) (4,062,021) (4,062,021) (1,015,502) (25,387,628)
------------- ----------- ----------- ------------ ----------- ----------- -------------
-
Balance, December 31, 1998 $(16,796,856) $ 354,573 $ 354,573 $ 531,698 $ 3,523,734 $ 1,769,042 $ (10,263,236)
============= =========== =========== ============ =========== =========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
MECA Software, L.L.C.
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
For the years ended
December 31,
---------------------------------------
1997 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (14,435,138) $ (25,387,628)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 8,740,815 18,447,619
Loss on the disposal of fixed assets - 487,773
Changes in assets and liabilities:
Accounts receivables, net (1,423,866) 465,349
Inventories 260,051 63,558
Costs in excess of billings on uncompleted contracts (1,105,185) 1,450,659
Other assets, current (208,012) (291,879)
Accounts payable and accrued expenses (392,141) 4,069,855
Deferred revenue 440,627 (1,922,695)
Accrued restructuring costs 768,076 (578,076)
Estimated loss on uncompleted contracts 530,628 (646,128)
Deferred compensation (26,718) 643,443
------------------ ------------------
Net cash used in operating activities (6,850,863) (3,198,150)
------------------ ------------------
Cash flows from investing activities:
Additions to furniture, fixtures and equipment (1,046,811) (834,091)
Restricted cash - 73,997
------------------ ------------------
Net cash used in investing activities (1,046,811) (760,094)
------------------ ------------------
Cash flows from financing activities:
Capital contributions, net of issuance costs 2,981,291 -
Accrued interest - related party (Note 8) (163,824) 309,304
------------------ ------------------
Net cash provided by financing activities 2,817,467 309,304
------------------ ------------------
Net decrease in cash and cash equivalents (5,080,207) (3,648,940)
Cash and cash equivalents:
Beginning of year 10,406,746 5,326,539
------------------ ------------------
End of year $ 5,326,539 $ 1,677,599
================== ==================
Supplemental disclosure of cash flow information:
Interest paid $ 795,432 $ 303,679
================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
MECA SOFTWARE, L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
1. BUSINESS AND ORGANIZATION
MECA Software, L.L.C. (the "Company" or "MECA") is a limited liability
company which was formed by operating subsidiaries of Bank of America
NT & SA ("Bank of America") and NationsBank, N.A. ("NationsBank") to
acquire MECA Software, Inc. from H&R Block, effective June 29, 1995.
Bank of America and NationsBank merged in the fourth quarter of 1998.
As a result of the merger, all capital from NationsBank was transferred
to Bank of America. Additional shareholders purchased interests in MECA
in 1996 and 1997. The Company develops and executes custom software and
service solutions which enable financial institutions to provide to
their customers electronic remote access to financial products and
services on their terms. The Company also offers a comprehensive array
of on-line banking support services including technical support,
manufacturing, fulfillment, training and marketing.
2. BASIS OF PREPARATION
Since inception, the Company has suffered recurring losses and net cash
outflows from operations and expects to incur additional losses from
operations. The Company has funded its operating losses through capital
contributions from its Class A and Class B Members. It is management's
intention to continue to fund the Company's operating loss through new
or existing additional member capital contributions in order to meet
its strategic objectives. Management is actively pursuing various
options which include obtaining funding from a new Class A or Class B
Member or obtaining additional funding from its current Class A or
Class B Members. The Company believes that sufficient funding will be
available to meet its planned business objectives, including
anticipated cash needs for working capital for a reasonable period of
time. However, there can be no assurance the Company will be able to
obtain sufficient funds to continue operations. As a result of the
foregoing, there exists substantial doubt about the Company's ability
to continue as a going concern. See unaudited subsequent event Note 13.
These financial statements do not include any adjustments relating to
the recoverability of the carrying amount of recorded assets or the
amounts of liabilities that might result from the outcome of this
uncertainty.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with original
maturities of three months or less from the date of acquisition to be
cash equivalents. The Company invests its excess cash in an overnight
money market account or in AAA rated corporate bonds. Accordingly, the
investments are subject to minimal credit and market risk.
F-6
<PAGE>
At December 31, 1997 and 1998, the Company had $871,000 and $1,320,000,
respectively, in a money market account. At December 31, 1997 and 1998,
the Company had $4,349,294 and $640,604, respectively, invested in AAA
rated corporate bonds.
In accordance with certain operating lease agreements with two third
parties, the Company must maintain a minimum cash deposit at the
Company's bank of $150,000 and $133,997, and $100,000 and $110,000, at
December 31, 1997 and 1998, respectively, for the duration of the
leases which expire on April 30, 1999 and October 31, 2001,
respectively.
REVENUE RECOGNITION
The Company's revenue recognition policies for the period are presented
in conformity with Statement of Position 97-2, "Software Revenue
Recognition," promulgated by the American Institute of Certified Public
Accountants. The following is a summary of MECA's revenue recognition
policies for each of their various sources of revenue:
SOFTWARE LICENSE FEES REVENUE - The Company generates revenues from
licensing the rights to use its software product to certain financial
institutions and their customers. Revenue is recognized upon shipment
of the product to the financial institution or its customer. Amounts
received prior to the shipment of the product are initially recorded as
deferred revenue. It is management's preference to bill license fees
separately. Materials and other direct costs that result from software
license activities are billed separately and the corresponding revenues
and costs are included in manufacturing and fulfillment on the
statement of operations.
CUSTOM DEVELOPMENT SERVICES REVENUE - Revenue generated from certain
custom development contracts is recognized as the services are
performed and delivered.
From time to time, certain other fixed fee contracts have been entered
into involving significant modifications or customizations to the basic
software delivered under the contract. The completed contract method is
used under such contracts when the fees are fixed and the contract is
expected to be completed within one year. A contract is considered
complete when the software is delivered, and the Company has
substantially completed its service obligations under the contract.
Amounts received prior to the completion of the contract are recorded
as deferred revenue until the contract has been completed. At December
31, 1997, costs and estimated profits in excess of billings on
uncompleted contracts was $1,450,659.
A provision for loss under these contracts, principally with Class A
Members, was computed on the basis of total estimated costs to complete
the contract, which includes contract costs incurred to date plus
estimated costs to complete. At December 31, 1997, there were accrued
losses on uncompleted contracts of $646,128 which has been charged to
the statement of operations.
TECHNICAL SUPPORT SERVICES REVENUE - The Company provides technical
support services to the financial institutions' customers. Revenue from
technical support is recognized as the services are provided.
F-7
<PAGE>
MANUFACTURING AND FULFILLMENT REVENUES - Revenues from manufacturing
and fulfillment services are generated under separate contracts from
the copying of discs or CD-ROMs, packaging and shipment of the
Company's software products and third party software products to
licensed users. Revenue from such services is recognized upon shipment.
RETAIL REVENUE - Revenue is generated from sales of the Company's
products to retail stores. Revenue is recognized upon shipment, net of
an allowance for returns. Also included within retail sales is royalty
income earned on the services and supplies utilized to support the
Company's product.
INVENTORY
Inventory consists principally of raw materials and is valued at the
lower of cost or market, determined on the weighted average basis.
FIXED ASSETS
Fixed assets are recorded at cost and are depreciated using the
straight-line method over their estimated useful lives which range from
three to five years. Leasehold improvements are amortized over the
shorter of their economic life or their life of the lease. The Company
periodically reviews the recoverability of long lived assets based upon
anticipated cash flows generated from such assets. During 1998 the
Company incurred a loss on the disposal of fixed assets of $487,773.
GOODWILL
The excess purchase price over the fair value of net assets acquired
was being amortized using the straight-line method over five years. The
Company's policy is to make an annual evaluation of the remaining
goodwill for potential impairment of value at each balance sheet date.
During 1998 the Company expensed the full amount of remaining goodwill
as more fully described in Note 7.
INTERNALLY DEVELOPED SOFTWARE COSTs
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," the Company evaluates the establishment of
technological feasibility of its various products during the
development stage. The time period during which costs could be
capitalized from the point of reaching technological feasibility until
the time of general product release is tentatively short and,
consequently, the amounts that could be capitalized are not material to
the Company's financial position or results of operations. Therefore,
the Company charges all product development expenses to operations in
the period incurred.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company maintains allowances for potential credit
losses. At December 31, 1997 and 1998, the Company had approximately
92% of the total accounts receivable balance concentrated within the
top ten customers.
F-8
<PAGE>
FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, which
include cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses, and notes payable, approximate their fair
market values at December 31, 1997 and 1998.
ADVERTISING AND PROMOTIONAL EXPENSES
Advertising and promotional expenses are charged to operations during
the periods in which they are incurred. Total advertising and
promotional expenses were $687,000 and $607,313 for the years ended
December 31, 1997 and 1998, respectively, and are included in sales and
marketing expenses in the accompanying statement of operations.
INCOME TAXES
Income taxes have not been provided for in the accompanying financial
statements as the limited liability company is a partnership for income
tax purposes. Members are responsible for reporting their allocable
share of membership income, gains, deductions, losses and credits in
their own tax returns.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
year's presentation.
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, including
goodwill and other intangibles, 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 form those estimates.
4. RECLASSIFICATIONS
Effective December 31, 1998, the Company elected to reclassify certain
revenues, costs and expenses in its statement of operations to further
detail certain revenues and expenses. For financial statement
presentation purposes, the Company has expanded the presentation of
revenues and cost of revenues according to the business activities to
which it relates (e.g. custom development, technical support, etc.). In
addition, the Company now groups the corresponding departmental
indirect costs, as well as the above mentioned direct costs, within
costs of revenues according to the business activity to which the costs
relate. The effect of this presentation is to reclassify certain prior
year amounts, previously reported within research and development and
general administrative expenses, to cost of revenues. The effect of
these reclassifications is as follows:
F-9
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997:
Reclassified Previously Effects of
Amount Reported Reclassification
------------------- ----------------- -----------------------
<S> <C> <C> <C>
Revenues:
Software license fees $ 4,045,219 $ - $ (4,045,219)
Custom development services 7,255,466 - (7,255,466)
Technical support services 8,638,433 - (8,638,433)
Manufacturing and fulfillment 3,074,574 - (3,074,574)
Retail 1,211,611 - (1,211,611)
Net revenues - 24,225,303 24,225,303
Costs and Expenses:
Cost of custom development services 6,278,988 - (6,278,988)
Cost of technical support services 6,709,212 - (6,709,212)
Cost of manufacturing and fulfillment 2,499,231 - (2,499,231)
Cost of retail 727,635 - (727,635)
Total cost of revenue - 1,474,302 1,474,302
Research and development 6,161,286 12,157,451 5,996,165
General and administrative 5,581,549 14,326,148 8,744,599
=======================
-
=======================
</TABLE>
5. LIMITED LIABILITY COMPANY AGREEMENT
The Company has been organized as a limited liability company ("LLC").
The owners of an interest in a limited liability company are called
"Members" and are not individually liable for obligations and
liabilities of the entity.
Pursuant to the LLC Agreement, the Class A Members of the LLC have
equal economic and voting interest in the Company. Each Class A Member
has the right to elect one manager to the Board of Managers. Membership
interests are transferable only with the written approval of the
majority interest, as defined. Each Class A Member is required to sign
a licensing and distribution agreement with respect to the Company's
products and services.
On September 10, 1997, Citibank became a Class B Member with a $3
million capital contribution. Class B Members do not have voting
rights. In connection with making Citibank a Class B Member, the
Company incurred costs of $18,709, which were paid by the other Members
in a pro rata share.
The LLC shall continue until dissolved and liquidated in accordance
with the Agreement. The Company will not make any distribution to its
Members, unless determined by the Board of Managers. Allocations to
members' capital accounts for items of income, gain, loss, deduction
and credit of the Company shall be allocated to the members in
accordance with their respective percentage ownership and period of
ownership; provided, however, that if any loss,
F-10
<PAGE>
deduction, expense or credit attributable to any capital contribution
made by a Member can be specifically allocated to such Member.
6. RESEARCH AND DEVELOPMENT
Research and development expense was $6,161,286 and $10,385,755 for the
years ended December 31, 1997 and 1998, respectively. Included in the
1998 research and development expense was a transaction with New
England Financial (NEF). In connection with NEF's purchase of a Class A
(voting) interest in MECA, NEF entered into a Development, License and
Marketing Agreement with MECA. This agreement stated that a pro rata
portion (1/6 which is equal to the NEF interest in MECA) of MECA's
annual product spending would be directed to projects specified by NEF.
The total costs incurred during 1998 related to the NEF project during
1998 were $1,128,000. The Company terminated the agreement in 1998 for
a payment of $600,000, which is included in the above Research and
Development expense amount.
7. GOODWILL IMPAIRMENT
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets to Be
Disposed Of," the Company periodically evaluates the carrying value of
long-lived assets to be held and used, including goodwill, when events
and circumstances warrant such a review. During the latter part of
1998, through analyzing operating results and related cash flows,
trends and prospects as well as competitive and economic factors
surrounding the Company, management concluded that the remaining
goodwill was permanently impaired. Accordingly, the remaining
unamortized goodwill balance of $17,332,526 was expensed and has been
included in amortization of goodwill in the Company's statement of
operations.
8. RELATED PARTY TRANSACTIONS
Principal revenue sources for the Company are the development contracts
with the Class A and B Members and license fees earned on customized
software products for the Class A and B Members. Aggregate revenues
recognized during 1997 and 1998 from these sources were approximately
$20,822,159 and $20,316,883, respectively. Aggregate receivable
balances were $3,033,866 and $1,702,622 at December 31, 1997 and 1998,
respectively.
At December 31, 1998, the Company had outstanding notes payable in the
amount of $7,500,000 to certain Class A Members. This balance
represents the original amounts loaned to the Company upon the
formation of the LLC by certain Class A Members. These promissory notes
accrue interest at a rate per annum equal to the average of the prime
rate (8.25% at December 31, 1997 and 1998) and is payable quarterly.
These notes are payable on demand. For the years ended December 31,
1997 and 1998, interest of $633,185 and $612,984, respectively, was
incurred. Additionally, accrued interest at December 31, 1997 and 1998
was $321,370 and $630,674, respectively.
F-11
<PAGE>
9. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
1997 1998
------------------- --------------------
<S> <C> <C>
Computer equipment and software $ 5,134,610 $ 1,570,509
Machinery and equipment 835,084 712,376
Furniture and fixtures 716,680 518,831
Leasehold improvements 426,628 241,856
------------------- --------------------
7,113,002 3,043,572
Less - accumulated depreciation (4,913,380) (1,612,725)
=================== ====================
$ 2,199,622 $ 1,430,847
=================== ====================
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1998 was
$1,190,822 and $1,115,093, respectively. Fixed assets no longer in use
of $4,903,522 were written off during 1998.
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
December 31,
1997 1998
------------ -----------
Accounts payable $ 2,059,558 $ 2,116,176
Accrued employee costs 1,347,200 1,525,192
Lease termination costs -- 885,000
Development, License and
Marketing Agreement
termination costs -- 600,000
Other accrued expenses 296,776 2,647,021
=========== ===========
$ 3,703,534 $ 7,773,389
=========== ===========
11. RESTRUCTURING PLAN
The Company approved certain restructuring plans to reduce costs
through job eliminations and, as a result, recorded a restructuring
charge of $1,000,000 in 1997 and certain other minor charges in 1998,
principally for severance costs. Approximately 55 employees were
terminated under these programs. The Company has paid severance costs
of $231,924 and $633,587 as of December 31, 1997 and 1998,
respectively. At December 31, 1998, approximately $190,000 remains to
be paid to former employees under these programs.
F-12
<PAGE>
12. COMMITMENTS
The Company has employment agreements with certain officers and key
employees. The terms of these employment agreements are generally three
years and can be terminated by the Company under certain circumstances.
The agreements include a component of deferred compensation. Benefits
accrued under this arrangement, including accrued interest, totaled
$1,004,865 and $2,006,629 at December 31, 1997 and 1998, respectively,
which are being paid over the course of three years in accordance to
their respective agreements.
LEASE COMMITMENTS
The Company leases office space and machinery under noncancelable
operating leases. The lease for the office space is guaranteed by the
Class A Members. Future minimum rental payments under the operating
leases are as follows:
1999 $ 1,403,824
2000 1,374,606
2001 1,296,094
2002 1,087,631
2003 988,562
============
$ 6,150,717
============
Rent expense totaled $1,440,048 and $1,402,779, respectively, for the
years ended December 31, 1997 and 1998.
EMPLOYEE BENEFIT PLANS
The Company has a voluntary 401(K) Plan that is available to all
eligible employees after ninety days of service. Beginning January 1,
1998, the Company made contributions equal to 75% of the employees'
pretax contributions up to a maximum of 6% of participants' total
eligible compensation. From January 1, 1997 to December 31, 1997, the
Company made contributions in an amount equal to 50% of employees'
pretax contributions, up to a maximum of 6% of participants' total
eligible compensation. Prior to January 1, 1997, the Company made
contributions in an amount equal to 25% of employees' pretax
contributions, up to a maximum of 6% of participants' total eligible
compensation. The Company contributed $99,996 and $215,160 to the
401(K) Plan during the years ended December 31, 1997 and 1998,
respectively.
13. SUBSEQUENT EVENT UNAUDITED
On May 17, 1999, CFI ProServices, Inc., d/b/a Concentrex Incorporated
("Concentrex") and Moneyscape Holdings, Inc. (a wholly owned subsidiary
of Concentrex), acquired 99% and 1%, respectively, of the Members'
equity in MECA in exchange for 50,000 shares of Concentrex common
stock.
F-13
<PAGE>
MECA Software, L.L.C.
Balance Sheet
(In Thousands)
March 31, 1999
(unaudited)
-----------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,527
Receivables, net of allowances of $409 3,063
Inventory 62
Other current assets 334
-----------------
Total current assets 6,986
Restricted cash 210
Fixed assets, net 1,356
=================
Total assets $ 8,552
=================
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 6,601
Deferred revenue 2,677
Notes payable 7,500
-----------------
Total current liabilities 16,778
Deferred compensation 1,451
-----------------
Total liabilities 18,229
Commitments
Members' deficit (9,677)
-----------------
Total liabilities and members' deficit $ 8,552
=================
The accompanying notes are an integral part of these statements.
FS-1
<PAGE>
MECA Software, L.L.C.
Statement of Operations
(In Thousands)
<TABLE>
<CAPTION>
For the three months ended
March 31,
------------------------------------------
1998 1999
(unaudited) (unaudited)
------------------- ------------------
<S> <C> <C>
Revenue
Software license fees $ 2,303 $ 3,556
Custom development services 666 804
Technical support services 2,060 2,207
Manufacturing and fulfillment 456 495
Retail 161 95
------------------- ------------------
Total revenue 5,646 7,157
Costs and expenses
Cost of software license fees - 123
Cost of custom development services 815 787
Cost of technical support services 1,442 1,544
Cost of manufacturing and fulfillment 373 440
Cost of retail 61 -
Research and development 1,439 1,453
Sales and marketing 318 427
General and administrative 2,322 1,682
Goodwill amortizaion 1,878 -
------------------- ------------------
Total operating expenses 8,648 6,456
------------------- ------------------
Income (loss) from operations (3,002) 701
Interest expense, net (97) (115)
------------------- ------------------
Net income (loss) $ (3,099) $ 586
=================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
FS-2
<PAGE>
MECA Software, L.L.C.
Statement of Changes in Members' Equity (Deficit)
For the three month period ended March 31, 1999 (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
New
Bank of Fleet U.S. Royal Bank England
America Bank Bank of Canada Financial Citibank Total
------------- ----------- ----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ (16,797) $ 355 $ 355 $ 531 $ 3,524 $ 1,769 $ (10,263)
Net income for the quarter 187 94 94 94 94 23 586
------------- ----------- ----------- ------------ ------------ ------------- -------------
Balance, March 31, 1999 $ (16,610) $ 449 $ 449 $ 625 $ 3,618 $ 1,792 $ (9,677)
============= =========== =========== ============ =========== ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
FS-3
<PAGE>
MECA Software, L.L.C.
Statement of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
For the three months ended
March 31,
-----------------------------------------
1998 1999
(unaudited) (unaudited)
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,099) $ 586
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,130 169
Loss on the disposal of fixed assets - 25
Changes in assets and liabilities:
Accounts receivables, net (674) 223
Inventory (79) 98
Other assets (144) 355
Accounts payable and accrued expenses (204) (1,592)
Deferred revenue (400) 2,577
Accrued restructuring costs - (137)
Estimated loss on uncompleted contracts (135) (440)
Deferred compensation 32 (41)
------------------- -------------------
Net cash provided by (used in) operating activities (2,573) 1,823
------------------- -------------------
Cash flows from investing activities:
Additions to furniture, fixtures and equipment (96) (119)
Restricted cash (1) -
------------------- -------------------
Net cash used in investing activities (97) (119)
------------------- -------------------
Cash flows from financing activities:
Accrued interest - related party (164) 145
------------------- -------------------
Net cash provided by (used in) financing activities (164) 145
------------------- -------------------
Net increase (decrease) in cash and cash equivalents (2,834) 1,849
Cash and cash equivalents:
Beginning of period 5,327 1,678
------------------- -------------------
End of period $ 2,493 $ 3,527
=================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
FS-4
<PAGE>
MECA SOFTWARE, L.L.C.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. UNAUDITED INTERIM FINANCIAL DATA
The interim financial data as of March 31, 1999 and for the three
months ended March 31, 1999 and March 31, 1998 is unaudited; however,
in the opinion of the Company, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair statement of results for the interim periods. Certain
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted from the unaudited financial statements.
The results of operations for the three-month period ended March 31,
1999 are not necessarily indicative of the operating results for the
full year or for future periods. For further information, refer to the
financial statements and footnotes thereto for the year ended December
31, 1998 included elsewhere in this Amendment No. 1 to Form 8-K/A.
FS-5
<PAGE>
CFI PROSERVICES, INC.
PRO FORMA UNAUDITED BALANCE SHEET
AS OF MARCH 31, 1999
(In Thousands)
<TABLE>
<CAPTION>
CFI MECA Pro forma After
ProServices LLC Adjustments Purchase
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 3,527 $ - $ 3,527
Investments 206 - - 206
Receivables, net of allowances 28,123 3,063 - 31,186
Inventory 372 62 - 434
Deferred tax asset 1,341 - 971 (a) 2,312
Prepaid expenses and other current assets 1,709 334 - 2,043
------------- ------------- -------------- --------------
Total current assets 31,751 6,986 971 39,708
Restricted cash - 210 - 210
Property and equipment, net 4,407 1,356 (1,356)(a) 4,407
Software development costs, net 7,495 - - (a) 7,495
Purchased software costs, net 2,391 - - (a) 2,391
Other intangibles, net 10,383 - - (a) 10,383
Other assets, including deferred taxes 926 - 8,918 (a) 9,844
============= ============= ============== ==============
Total assets $ 57,353 $ 8,552 $ 8,533 $ 74,438
============= ============= ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Drafts payable $ 386 $ - $ - $ 386
Accounts payable 1,735 1,294 - 3,029
Accrued expenses 3,046 6,758 1,559 (a) 11,363
Deferred revenues 10,795 - - 10,795
Customer deposits 2,875 2,677 - 5,552
Bank line of credit 262 - - 262
Current portion of long-term debt 182 7,500 (7,500)(c) 182
Income taxes payable 537 - - 537
------------- ------------- -------------- --------------
Total current liabilities 19,818 18,229 (5,941) 32,106
Deferred credit - - 528 (a) 528
Long-term debt, lesst current portion 5,608 - 7,500 (c) 13,108
Other long-term liabilities 254 - - 254
------------- ------------- -------------- --------------
Total liabilities 25,680 18,229 2,087 45,996
Mandatory Redeemable Class A Preferred Stock 735 - - 735
Shareholders' Equity
Common stock and additional paid-in-capital 19,196 67,189 (66,620)(b) 19,765
Retained earnings (deficit) 11,742 (76,866) 73,066 (b) 7,942
------------- ------------- -------------- --------------
Total shareholders' equity 30,938 (9,677) 6,446 27,707
------------- ------------- -------------- --------------
Total liabilities and shareholders' equity $ 57,353 $ 8,552 $ 8,533 $ 74,438
============= ============= ============== ==============
</TABLE>
See accompanying Notes to Pro Forma Unaudited Financial Statements.
PF-1
<PAGE>
CFI PROSERVICES, INC.
PRO FORMA UNAUDITED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(In Thousands, except per share data)
<TABLE>
<CAPTION>
CFI MECA Pro forma After
ProServices LLC Adjustments Purchase
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue
Software license fees $ 8,865 $ 4,455 $ - $ 13,320
Service and support 9,254 2,207 - 11,461
Other 1,934 495 - 2,429
------------- ------------- ------------- -------------
Total revenue 20,053 7,157 - 27,210
Cost of Revenue 7,747 2,894 (109)(a) 10,532
------------- ------------- ------------- -------------
Gross profit 12,306 4,263 109 16,678
Operating Expenses
Sales and marketing 3,732 427 (2)(a) 4,157
Product development 4,279 1,453 (18)(a) 5,714
General and administration 2,436 1,682 (65)(a) 4,053
Amortization of intangibles 410 - (19)(b) 391
------------- ------------- ------------- -------------
Total operating expenses 10,857 3,562 (104) 14,315
------------- ------------- ------------- -------------
Income from operations 1,449 701 213 2,363
Non-operating Income (Expense)
Interest expense (104) (145) - (249)
Interest income 95 30 - 125
Other, net 3 - - 3
------------- ------------- ------------- -------------
Total non-operating income (expense) (6) (115) - (121)
------------- ------------- ------------- -------------
Income before Provision for Income Taxes 1,443 586 213 2,242
Provision for Income Taxes 621 - 376 (c) 997
------------- ------------- ------------- -------------
Net Income 822 586 (163) 1,245
Preferred Stock Dividend 23 - - 23
------------- ------------- ------------- -------------
Net Income Applicable to Common Shareholders $ 799 $ 586 $ (163) $ 1,222
============= ============= ============= =============
Basic Net Income per Share $ 0.16 $ 0.24
============= =============
Shares Used in Calculating Basic Net Income per Share 5,040 5,090 (d)
============= =============
Diluted Net Income per Share $ 0.16 $ 0.23
============= =============
Shares Used in Calculating Diluted Net Income per Share 5,151 5,201 (d)
============= =============
</TABLE>
See accompanying Notes to Pro Forma Unaudited Financial Statements.
PF-2
<PAGE>
CFI PROSERVICES, INC.
PRO FORMA UNAUDITED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(In Thousands, except per share data)
<TABLE>
<CAPTION>
CFI MECA Pro forma After
ProServices LLC Adjustments Purchase
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenue
Software license fees $ 49,202 $ 11,807 $ - $ 61,009
Service and support 30,352 8,876 - 39,228
Other 6,076 2,965 - 9,041
------------ ------------ ------------ -------------
Total revenue 85,630 23,648 - 109,278
Cost of Revenue 29,423 10,648 (646)(a) 39,425
------------ ------------ ------------ -------------
Gross profit 56,207 13,000 646 69,853
Operating Expenses
Sales and marketing 19,204 513 (3)(a) 19,714
Product development 14,913 9,257 (61)(a) 24,109
General and administration 10,012 10,803 (893)(a) 19,922
Amortization of intangibles 1,228 17,333 (17,408)(b) 1,153
Acquired in-process research and development and
other charges 2,661 - - 2,661
------------ ------------ ------------ -------------
Total operating expenses 48,018 37,906 (18,365) 67,559
------------ ------------ ------------ -------------
Income (loss) from operations 8,189 (24,906) 19,011 2,294
Non-operating Income (Expense)
Interest expense (454) (613) - (1,067)
Interest income 295 131 - 426
Equity in losses attributable to joint venture (670) - - (670)
Other, net 83 - - 83
------------ ------------ ------------ -------------
Total non-operating income (expense) (746) (482) - (1,228)
------------ ------------ ------------ -------------
Income (loss) before Provision for Income Taxes 7,443 (25,388) 19,011 1,066
Provision for Income Taxes 3,483 - (2,383) (c) 1,100
------------ ------------ ------------ -------------
Net Income (Loss) 3,960 (25,388) 21,394 (34)
Preferred Stock Dividend 95 - - 95
------------ ------------ ------------ -------------
Net Income (Loss) Applicable to Common Shareholders $ 3,865 $ (25,388) $ 21,394 $ (129)
============ ============ ============ =============
Basic Net (Loss) Income per Share $ 0.77 $ (0.03)
============ =============
Shares Used in Calculating Basic Net Income (Loss) per Share 5,012 5,062 (d)
============ =============
Diluted Net Income (Loss) per Share $ 0.75 $ (0.03)
============ =============
Shares Used in Calculating Diluted Net Income (Loss) per Share 5,167 5,062 (d)
============ =============
</TABLE>
See accompanying Notes to Pro Forma Unaudited Financial Statements.
PF-3
<PAGE>
CFI PROSERVICES, INC.
d/b/a CONCENTREX INCORPORATED
NOTES TO PRO FORMA UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited pro forma financial statements for the
periods ended March 31, 1999 and December 31, 1998 have been prepared
to present the effect of the purchase by CFI ProServices, Inc., d/b/a
Concentrex Incorporated ("Concentrex") and Moneyscape Holdings, Inc. (a
wholly ownded subsidiary of Concentrex) of 99% and 1%, respectively, of
all the Members' equity in MECA Software, L.L.C. ("MECA").
The pro forma statements assume that the purchase was effective at the
beginning of the respective periods for the Pro Forma Statements of
Operations and as of March 31, 1999 for the Pro Forma Balance Sheet.
The pro forma financial statements have been prepared based on the
historical financial statements of Concentrex restated to reflect the
purchase of MECA. In addition, certain historical amounts have been
reclassified to conform to the current presentation. The pro forma
financial statements may not be indicative of the results of the
operations that actually would have occurred if the transaction had
been in effect as of the beginning of the respective periods nor do
they purport to indicate the results of the future operations of
Concentrex. The pro forma financial statements should be read in
conjunction with the audited financial statements and notes thereto of
MECA included elsewhere in this Form 8-K/A.
PF-4
<PAGE>
1. BALANCE SHEET
Effective May 17, 1999, Concentrex acquired 99% of MECA Software,
L.L.C. in a purchase transaction. The remaining 1% was acquired by
Moneyscape Holdings, Inc., a wholly-owned subsidiary of Concentrex. The
following amounts in footnotes (a) through (c) describe the nature of
the transaction and are for informational purposes only. They reflect
the adjustments that would have been recorded on the balance sheet at
March 31, 1999 had the purchase occurred on that date.
(a) The Company recorded a net increase in negative goodwill as follows, in
thousands:
<TABLE>
<S> <C>
Purchase price
Common stock (50,000 shares) $ 569
Accrued acquisition costs 1,559
------------
Total 2,128
Net value of liabilities acquired
Fair value of recorded assets (liabilities) acquired (9,677)
Deferred tax asset acquired 9,889
Appraised value of in-process research and development 3,800
Appraised value of existing product technology
(purchased software) 2,140
Appraised value of assembled workforce 230
------------
Negative goodwill resulting from purchase 4,254
Negative goodwill was reduced by allocating negative goodwill to the
following:
Product technology (purchased
software) acquired (2,140)
Other intangibles acquired (230)
Fixed assets acquired (1,356)
------------
Negative goodwill recorded as a deferred credit on the balance sheet $ 528
============
</TABLE>
PF-5
<PAGE>
(b) The Company recorded a net increase in combined shareholders'/Members'
equity as follows, in thousands:
Increase in common stock
Issuance of 50,000 shares of CFI's common stock $ 569
Decrease in retained earnings
Write off of in-process research
and development (3,800)
Elimination of MECA retained deficit 76,866
Elimination of MECA Members' paid in capital (67,189)
----------
$ 6,446
==========
(c) The Company recorded a decrease in current liabilities and an increase
in long-term debt as follows, in thousands:
Decrease in current liabilities
Payoff of current note payable $ (7,500)
Increase in long-term debt
Proceeds from line of credit $ 7,500
These adjustments reflect the refinancing of the acquired MECA note
payable on a two-year revolving line of credit. Both the acquired note
payable and the line of credit carry an interest rate equal to the
prime rate. The Company does not intend to repay the line of credit
balance within the next twelve months and therefore has classified it
as a long-term liability.
PF-6
<PAGE>
2. STATEMENTS OF OPERATIONS
The Pro Forma Unaudited Statements of Operations are presented without
the impact of the $3.8 million write-off of in-process research and
development related to the purchase of MECA Software, L.L.C. as the
write-off would not have an on-going effect on normal operations. The
pro forma adjustments to the Pro Forma Unaudited Statements of
Operations for the three months ended March 31, 1999 and the year ended
December 31, 1998 consist of the following:
(a) Depreciation expense and loss on disposal of fixed assets was
reduced in the amounts shown below (in thousands) as a result
of the reduction in the carrying value of acquired fixed
assets:
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Depreciation expense $169 $1,115
Loss on disposal of
fixed assets 25 488
</TABLE>
(b) Amortization of intangibles was reduced to reflect both the
reversal of a write off of existing goodwill by MECA during
1998 and to amortize the negative goodwill recorded as a
result of the purchase of MECA.
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, 1999 December 31, 1998
------------------- ------------------
<S> <C> <C>
Reverse the write off
of existing goodwill $ -- $ (17,333)
Amortization of
negative goodwill (19) (75)
==================== =================
Total $ (19) $ (17,408)
==================== =================
</TABLE>
(c) The pro forma adjustments to provision for income taxes was
made to bring the total tax provision to the amount that would
have been recorded based on an effective rate for the year
calculated using the combined pro forma income.
(d) Shares used in the calculation of the pro forma net income
(loss) per share have been adjusted to reflect the 50,000
shares of common stock issued in the purchase of MECA.
PF-7
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-70506, No. 33-89872, and No. 333-11351)
of CFI ProServices, Inc. of our report dated March 5, 1999 relating to
the financial statements of MECA Software, L.L.C., which appears in
this Amendment No. 1 to the Form 8-K/A of CFI ProServices, Inc. d/b/a
Concentrex Incorporated.
PricewaterhouseCoopers LLP
Stamford, Connecticut
August 4, 1999
