<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Commission File No. 0-23098
SOFTDESK, INC.
--------------
(Exact name of Registrant as specified in its charter)
Delaware 02-0390273
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7 Liberty Hill Road, Henniker, New Hampshire 03242
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603)428-5000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes ___ No
- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of our previously filed Form
10-K dated March 25, 1996 or any amendment to this Form 10-K/A. [_]
As of May 10, 1996, the aggregate market value of the Registrant's
voting securities held by non-affiliates of the Registrant was approximately
$65,923,000.
The number of outstanding shares of the Registrant's Common Stock,
$.01 par value per share, as of May 10, 1996, was 5,995,960.
1
<PAGE>
The undersigned registrant hereby amends Item 8 and Item 14 of its
Annual Report on Form 10-K dated March 25, 1996 to read in their entirety as
follows:
ITEM 8. FINANCIAL STATEMENTS
--------------------
See attached list of Financial Statements. The Annual Report on Form
10-K dated March 25, 1996 included (i) supplemental consolidated financial
statements of the Registrant, which were prepared to give retroactive effect to
the acquisition of SOFT-TECH Software Technologie GmbH (SOFT-TECH) on January
22, 1996 and (ii) historical consolidated financial statements of Softdesk, Inc.
and subsidiaries. Generally accepted accounting principles proscribe giving
effect to a consummated business combination accounted for by the pooling-of-
interests method in financial statements that do not include the date of
consummation until post merger operating results have been disclosed.
Accordingly, the Registrant presented supplemental financial statements. The
Registrant has now disclosed post merger operating results and accordingly is
amending its Form 10-K to effect its financial statements which reflect the
business combination.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) See list of Financial Statements attached as Item 8. Financial
Statements and Supplementary Data.
The following financial statement schedule was filed with our
report on Form 10-K dated March 25, 1996:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Stock Purchase Agreement dated January 15, 1996 by and
among Softdesk International, Inc., Softdesk, Inc. and
Dieter Heimlich and Gunter Otto. (10)
3.1 Restated Certificate of Incorporation, as amended. (9)
3.2 By-laws. (1)
4.1 Specimen certificate for shares of Common Stock. (1)
10.1 1993 Equity Incentive Plan. (1)+
10.2 1992 Stock Option Plan. (1)+
10.3 1993 Director Stock Option Plan. (1)+ *
10.3.1 1996 Employee Stock Purchase Plan. +
10.5 Purchase and Sale Agreement between Arnold & Paine
Partnership and the Registrant for the Registrant's
Henniker, NH facilities. (7)
10.7 Standard form of Customer Account Product License
(shrink-wrap). (1)
10.8 Standard form of Dealer Agreement (United States &
Canada). (1)
10.9 Standard form of International Dealer Agreement (1993
version). (1)
10.10 Standard form of International Distributor Agreement
(1993 version). (1)
10.11 Standard form of Customer Software Support Agreement.
(1)
10.12 Standard form of Customer Software Limited Support
Agreement. (1)
10.13 Standard form of Site License Agreement. (1)
2
<PAGE>
Exhibits (Continued)
10.14 Promissory Note to First NH Bank dated March 31, 1994.
(3)
11.1 Statement re Computation of Per Share Earnings. *
21.1 Subsidiaries of the Registrant. *
23.1 Consent of Arthur Andersen, LLP.
23.2 Consent of Coopers & Lybrand, L.L.P.,
_______________________
+ Compensatory plan.
* Previously filed.
(1) Incorporated by reference from the Registrant's Registration
Statement on Form S-1 (File No. 33-73112)
(3) Incorporated by reference from the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994.
(7) Incorporated by reference from the Registrant's Annual Report
on Form 10-K dated March 28, 1995.
(9) Incorporated by reference from the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995.
(10) Incorporated by reference from the Registrant's Current Report
on Form 8-K dated February 5, 1996.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the Registrant has duly caused this amendment to its Annual
Report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto
duly authorized.
SOFTDESK, INC.
By: /s/ John A. Rogers
---------------------------
Date: May 24, 1996 John A. Rogers
Chief Financial Officer
and Vice President, Finance
(Principal Financial and
Accounting Officer)
4
<PAGE>
TABLE OF CONTENTS
List of Financial Statements
<TABLE>
<CAPTION>
PAGE
<S> <C>
Softdesk, Inc. and Subsidiaries Audited Consolidated Financial Statements
Report of Independent Public Accountants 6
Report of Independent Accountants 7
Consolidated Balance Sheets as of December 31, 1995 and 1994 8
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993 9
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993 10
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 11
Notes to Consolidated Financial Statements 13
</TABLE>
5
<PAGE>
Report of Independent Public Accountants
To Softdesk, Inc.:
We have audited the accompanying consolidated balance sheets of Softdesk, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1995. The consolidated statements
give retroactive effect to the merger with SOFT-TECH Software Technologie GmbH
on January 22, 1996, which has been accounted for as a pooling of interests as
described in Note 1. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Image Systems Technology, Inc., a Company
acquired during 1994 in a transaction accounted for as a pooling of interests,
as discussed in Note 2. Such financial statements are included in the
consolidated financial statements of Softdesk, Inc., and reflect revenues of 17
percent in 1993 of the related consolidated total. These financial statements
for 1993 were audited by other auditors whose report thereon has been furnished
to us. Our opinion expressed herein, insofar as it relates to the amounts
included for Image Systems Technology, Inc., is based solely upon the report of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Softdesk, Inc. and its subsidiaries
as of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1995, after giving retroactive effect to the merger with SOFT-TECH Software
Technologie GmbH as described in Note 1, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
January 26, 1996
6
<PAGE>
Report of Independent Accountants
To the Shareholders of Image Systems Technology, Inc.,
Troy, New York:
We have audited the balance sheet of Image Systems Technology, Inc. as of
December 31, 1993, and the related statements of income, shareholders' equity,
and cash flows for the year ended December 31, 1993. These financial
statements, not included herein, are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Image Systems Technology, Inc.
as of December 31, 1993, and the results of its operations and its cash flows
for the year ended December 31, 1993, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Albany, New York
March 3, 1994, except for Notes 11 and 14 as to which the dates are April 15,
1994 and May 5, 1994, respectively.
7
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Consolidated Balance Sheets--as of December 31, 1995 And 1994
(In Thousands, Except Share Data)
ASSETS
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 1) $ 4,800 $ 4,209
Short-term investments (Note 1) 7,575 4,422
Accounts receivable, net of allowance for
doubtful accounts of $1,261 and $655 at
December 31, 1995 and 1994 11,060 6,139
Inventory (Note 1) 671 269
Prepaid expenses and other current assets 1,402 1,291
Deferred income taxes (Note 4) 751 300
-------- --------
Total current assets 26,259 16,630
-------- --------
Plant, Property and Equipment, at cost:
Land 409 90
Buildings 2,002 858
Equipment 5,853 4,329
Furniture and fixtures 414 483
-------- --------
8,678 5,760
Less--Accumulated depreciation (Note 1) 4,085 2,983
-------- --------
4,593 2,777
-------- --------
Long-term Investments (Note 1) 4,815 8,600
Deferred Income Taxes (Note 4) 103 391
Other assets, net (Note 3) 247 1,041
-------- --------
$ 36,017 $ 29,439
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of mortgage payable (Note 6) $ 34 $ -
Accounts payable 3,122 2,162
Accrued expenses (Note 12) 5,179 3,418
Customer advances 1,350 1,234
Accrued income taxes (Note 4) 876 468
Dividends payable - 149
-------- --------
Total current liabilities 10,561 7,431
-------- --------
Mortgage Payable, less current maturities (Note 6) 1,193 -
-------- --------
Commitments (Note 9)
Stockholders' Equity (Note 10):
Preferred stock, $.01 par value-
Authorized--1,000,000 shares
Issued and outstanding--none - -
Common stock, $.01 par value-
Authorized--15,000,000 shares
Issued and outstanding--5,980,380 shares
and 5,722,414 shares at
December 31, 1995 and 1994, respectively 60 58
Additional paid-in capital 21,353 19,400
Retained earnings 2,973 2,641
Unrealized holding loss on
available-for-sale securities - (58)
Cumulative translation adjustment (123) (33)
-------- --------
Total stockholders' equity 24,263 22,008
-------- --------
$ 36,017 $ 29,439
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Years Ended December 31, 1995, 1994 and 1993
(In Thousands, Except per Share Data)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net Revenues $ 41,737 $ 30,582 $ 26,115
Cost of Revenues 6,119 5,159 5,023
----------- --------- -----------
Gross profit 35,618 25,423 21,092
Selling and Marketing Expenses 14,499 10,830 9,201
Product Development Expenses 10,116 7,613 6,179
General and Administrative Expenses 3,126 2,639 2,591
Nonrecurring Charges (Note 3) 2,309 892 1,161
----------- --------- -----------
Income from operations 5,568 3,449 1,960
Interest Income 574 584 247
Interest Expense (86) (20) (45)
----------- --------- -----------
Income before provision for income taxes 6,056 4,013 2,162
Provision for Income TaxeS (Note 4) 2,477 1,644 820
----------- --------- -----------
Net income 3,579 2,369 1,342
Pro Forma Tax Adjustment (Note 4) - 221 (47)
----------- --------- -----------
Pro forma net income $ 3,579 $ 2,590 $ 1,295
=========== ========= ===========
Pro Forma Net Income per Common and Common
Equivalent Share (Note 1) $ .58 $ .46 $ .34
====== ====== ======
Weighted Average Number of Common and Common
Equivalent Shares Outstanding (Note 1) 6,161 5,619 3,859
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
9
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Consolidated Statements Of Stockholders' Equity
For Years Ended December 31, 1995, 1994 And 1993
(In Thousands, Except Sharedata)
<TABLE>
<CAPTION>
-----------------------------------------
REDEEMABLE COMMON STOCK ADDI-
CONVERTIBLE NUMBER 5.01 TIONAL
PREFERRED OF SHARES PAR PAID-IN
STOCK VALUE CAPITAL
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 $ 2,024 2,829,230 $29 $ 98
Issuance of shares in connection
with acquisitions of Archsoft
Group (ASG) - 635,796 6 559
Exercise of stock options - 1,500 1 -
Purchase and retirement of treasury
stock - (2,869) - -
Sale of treasury stock - - - -
Cumulative translation adjustment - - - -
Accretion of dividends 162 - - -
Dividends declared - - - -
Net income - - - -
--------- ------------ ---- ---------
BALANCE, DECEMBER 31, 1993 2,186 3,463,657 36 657
Issuance of shares of common
stock, net of issuance costs of
$922 - 1,554,883 16 15,658
Conversion of redeemable
convertible preferred stock into
common stock (2,186) 556,180 5 2,181
Exercise of stock options - 157,778 1 677
Escrow claim settlement in
connection with ASG - (10,084) (74)
Tax benefit of disqualifying
dispositions and nonqualified
stock options - - - 301
Unrealized holding loss on
available-for-sale securities - - - -
Cumulative translation adjustment - - - -
Dividends declared - - - -
Net income - - - -
--------- ------------ ---- ---------
BALANCE, DECEMBER 31, 1994 - 5,722,414 58 19,400
Issuance of shares in connection
with acquisition of Foresight
Resources Corp. - 188,561 1 1,234
Exercise of stock options - 69,405 1 516
Tax benefit of disqualifying
dispositions and nonqualified
stock options - - - 203
Cumulative translation adjustment - - - -
Unrealized holding gain on
available-for-sale securities - - - -
Net income - - - -
--------- ------------ ---- ---------
BALANCE, DECEMBER 31, 1995 $ - 5,980,380 $60 $ 21,353
========== ============ ==== =========
<CAPTION>
STOCKHOLDERS' EQUITY
--------------------------------------------------------------
UNREALIZED
HOLDING LOSS ON CUMULATIVE TOTAL
RETAINED AVAILABLE-FOR-SALE TRANSLATION STOCKHOLDERS
EARNINGS SECURITIES ADJUSTMENT EQUITY
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 $ 109 $ - $101 $ 337
Issuance of shares in connection
with acquisitions of Archsoft
Group (ASG) - - - 565
Exercise of stock options - - - 1
Purchase and retirement of treasury
stock (9) - - (9)
Sale of treasury stock 18 - - 18
Cumulative translation adjustment - - (36) (36)
Accretion of dividends (162) - - (162)
Dividends declared (818) - - (818)
Net income 1,342 - - 1,342
---------- ------------ ----- -----------
BALANCE, DECEMBER 31, 1993 480 - 65 1,238
Issuance of shares of common
stock, net of issuance costs of
$922 - - - 15,674
Conversion of redeemable
convertible preferred stock into
common stock - - - 2,186
Exercise of stock options - - - 678
Escrow claim settlement in
connection with ASG - - - (74)
Tax benefit of disqualifying
dispositions and nonqualified
stock options - - - 301
Unrealized holding loss on
available-for-sale securities - (58) - (58)
Cumulative translation adjustment - - (98) (98)
Dividends declared (208) - - (208)
Net income 2,369 - - 2,369
---------- ------------ ----- -----------
BALANCE, DECEMBER 31, 1994 2,641 (58) (33) 22,008
Issuance of shares in connection
with acquisition of Foresight
Resources Corp. (3,247) - (2,012)
Exercise of stock options - - - 517
Tax benefit of disqualifying
dispositions and nonqualified
stock options - - 203
Cumulative translation adjustment - - (90) (90)
Unrealized holding gain on
available-for-sale securities - 58 - 58
Net income 3,579 - - 3,579
---------- ------------ ----- -----------
BALANCE, DECEMBER 31, 1995 $ 2,973 $ - $(123) $ 24,263
========== ============ ===== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1995, 1994 and 1993
(In Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 3,579 $ 2,369 $ 1,342
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,488 1,308 686
Nonrecurring charges 2,309 892 1,161
Deferred income taxes (163) (415) (278)
Foreign currency translation (42) (11) (106)
Change in assets and liabilities, net of assets acquired in connection
with the acquisitions of Archsoft Group, Walter M. Smith
Enterprises, Inc. d/b/a intelliCADD, Advantage Engineering, Inc.,
Foresight Resources Corp., Aritek Systems, Inc. and IdeaGraphix,
Inc.:
Accounts receivable (4,512) (1,150) (925)
Inventory (366) 205 (68)
Prepaid expenses and other current assets (328) (984) (142
Accounts payable 941 1,140 (766)
Accrued expenses (617) 122 715
Customer advances 115 321 168
Accrued income taxes 589 (31) (218)
---------- ---------- ----------
Net cash provided by operating activities 2,993 3,766 1,569
---------- ---------- ----------
Cash Flows from Investing Activities:
Purchase of plant, property and equipment, net (2,891) (2,048) (522)
Decrease (increase) in other assets (104) 92 (118)
Increase (decrease) in short-term investments (3,153) (4,422) 83
Increase (decrease) in long-term investments 3,843 (8,658) -
Capitalized product development costs - - (170)
Cash paid for acquisition of IdeaGraphix, Inc. and Aritek Systems, Inc. (200) - -
Cash acquired from acquisition of Archsoft Group - - 257
Cash acquired from acquisition of Foresight Resources Corp. 28 - -
Purchase of technology - (270) -
Payment for acquisition of intelliCADD, net of acquired cash - (1,046) -
---------- ---------- ----------
Net cash used in investing activities (2,477) (16,352) (470)
---------- ---------- ----------
Cash Flows from Financing Activities:
Proceeds from mortgage, net 1,227 - -
Payments to stockholders, net - (122) -
Payments of notes payable (1,473) (596) (322)
Proceeds from issuance of common stock, net of issuance costs - 15,674 -
Purchase and retirement of treasury stock - - (5)
Dividends paid (149) (835) (941)
Proceeds from exercise of stock options 517 678 -
---------- ---------- ----------
Net cash provided by (used in) financing activities 122 14,799 (1,268)
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS $ (47) $ (87) $ 70
--------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 591 2,126 (99)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,209 2,083 2,182
--------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,800 $ 4,209 $ 2,083
--------- ---------- ----------
DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year for-
Interest $ 8 $ 5 $ 48
========= ========== ==========
Income taxes $ 1,864 $ 1,285 $ 419
========= ========== ==========
DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
During 1995, 1994 and 1993, the Company acquired certain companies
as described in Note 2. These acquisitions are summarized as follows:
Fair value of assets acquired $ 794 $ 1,386 $ 2,412
Payments in connection with the acquisition (200) (1,046) (566)
--------- ---------- ----------
Liabilities assumed $ 594 $ 340 $ 1,846
========= ========== ==========
In January 1995, the Company acquired Foresight Resources Corp.,
which was accounted for as an immaterial pooling of interests
(Note 2).
DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Preferred stock converted into common stock upon
the initial public offering $ - $ 2,186 $ -
========= ========== ==========
Dividends declared $ - $ 208 $ 818
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Softdesk, Inc. (the Company) is engaged in the development, production and
sale of software for the architectural, engineering and construction (AEC)
market.
These consolidated financial statements of the Company have been prepared
to give retroactive effect to the acquisition of SOFT-TECH Software
Technologie GmbH (SOFT-TECH) (see Note 2), which occurred on January 22,
1996. Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of consummation
until post merger operating results have been disclosed. These financial
statements do not extend through the date of consummation; however, they
retroactively reflect the acquisition of SOFT-TECH since financial
statements covering the date of consummation of the business combination
have been disclosed.
The accompanying consolidated financial statements reflect the application
of the following significant accounting policies.
(a) Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions. These estimates and assumptions may
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.
(b) Consolidation
The Company's consolidated financial statements include the accounts
of its wholly owned subsidiaries and SOFT-TECH, as discussed above.
All material intercompany transactions and balances have been
eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash and
cash equivalents are stated at cost, which approximates market value.
13
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Marketable Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under this standard, the
Company is required to classify all investments in debt and equity
securities into one or more of the following three categories: held-
to-maturity, available-for-sale or trading. All marketable securities
classified as held-to-maturity are recorded at their amortized cost.
Available-for-sale securities are recorded at fair market value with
unrealized gains and losses excluded from earnings and reported in
stockholders' equity. Trading securities are also recorded at fair
market value, and unrealized gains and losses are included in
earnings.
At December 31, 1995 and 1994, the Company's investments consisted of
debt securities issued by the U.S. Treasury, other U.S. Government
agencies and political subdivisions of the states and municipalities.
As of December 31, 1995, these investments were classified as held-to-
maturity. The classifications of the Company's investments as of
December 31, 1994 were held-to-maturity and available-for-sale. During
1995, management reassessed its intent for the investments classified
as available-for-sale. There have been no securities from this
classification which were sold during 1995. All investments held as of
December 31, 1995 mature within two years of investment and are
classified as held-to-maturity. The aggregate fair value and costs of
the investments were as follows (in thousands):
<TABLE>
<CAPTION>
--------------------------------- 1995 ---------------------------------------
----------------AMORTIZED COST---------------- FAIR
HELD-TO- AVAILABLE- MARKET
MATURITY MATURITY FOR-SALE TOTAL VALUE
<S> <C> <C> <C> <C>
Less than one year $ 7,575 $ - $ 7,575 $ 7,610
Greater than one year 4,815 - 4,815 4,776
---------------------------------- 1994 ---------------------------------------
Less than one year$ 4,422 $ - $ 4,422 4,422
Greater than one year 4,383 4,217 8,600 8,658
</TABLE>
(e) Derivative Financial Instruments
In October 1994, the Financial Accounting Standards Board issued SFAS
No. 119, Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments. SFAS No. 119 requires certain
disclosures about derivative financial instruments, including futures,
forward swap and option contracts and other financial instruments with
similar characteristics. As of December 31, 1995 and 1994, the Company
did not have investments requiring disclosure under SFAS No. 119.
14
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Inventory
Inventory is stated at the lower of cost (first-in, first-out) or
market and consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Materials and supplies $ 313 $ 147
Finished goods 358 122
------ ------
$ 671 $ 269
====== ======
</TABLE>
(g) Depreciation
The Company provides for depreciation by charges to operations in
amounts that allocate the cost of property and equipment over their
estimated useful lives using the straight-line method as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
<S> <C>
Buildings 25-40 Years
Equipment 3-5 Years
Furniture and fixtures 5-10 Years
</TABLE>
(h) Revenue Recognition
The Company derives substantially all of its revenue from the license
of its software products. Revenue is recognized upon shipment of the
product, provided that no significant vendor and postcontract support
obligations remain outstanding and collection of the resulting
receivable is deemed probable. The Company generally does not have
significant vendor and postcontract support obligations associated
with its product sales. The Company recognizes revenue from
postcontract support ratably over the period of the postcontract
arrangement. Any costs associated with insignificant vendor
obligations are accounted for by deferring a pro rata portion
15
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Revenue Recognition (Continued)
of the revenue and recognizing it either ratably as the obligations
are fulfilled or upon completion of the performance. The Company
provides reserves for any returns and warranty expenses upon shipment
of the product. Revenue, if any, from funded development contracts is
recognized on the percentage-of-completion method of accounting.
Revenue from funded development contracts and maintenance and customer
support contracts represented less than 10% of net revenues for all
periods presented. These contracts generally have terms of one year or
less.
(i) Research, Development and Software Development Costs
The Company capitalizes product development costs subsequent to the
establishment of technological and commercial feasibility until the
product is available for general release. Costs incurred prior to the
establishment of technological feasibility are charged to product
development expenses. Development costs associated with product
enhancements that extend the original product's life or significantly
improve the original product's marketability are also capitalized upon
technological feasibility. Amortization of product development costs
begins in the month that commercial marketability is established and
extends on a straight-line basis over the shorter of the estimated
useful life of the product or 18 months, which results in amortization
expense no less than that which would result from using the ratio of
current gross revenues to total expected gross revenues. Amortization
expense is recorded as a component of cost of revenues.
The Company did not capitalize any costs for the year ended December
31, 1995, as such costs were immaterial. For the years ended December
31, 1994 and 1993, the Company capitalized product development costs
of approximately $14,000 and $170,000, respectively. The Company
recorded amortization of approximately $170,000 and $14,000 during the
years ended December 31, 1994 and 1993, respectively. No amortization
was recorded for the year ended December 31, 1995.
(j) Pro Forma Net Income per Common and Common Equivalent Share
Pro forma net income per common and common equivalent Share is based
on net income for the year ended December 31, 1995. For the years
ended December 31, 1994 and 1993, pro forma net income per common and
common equivalent share is based on pro forma net income, which
reflects the pro forma adjustments for income taxes related to Image
Systems (see Note 2). Image Systems Technology, Inc. was treated as an
S corporation for federal and state tax
16
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(j) Pro Forma Net Income per Common and Common Equivalent Share
(Continued)
purposes and, accordingly, did not record income tax adjustments in
its historical financial statements. For the year ended December 31,
1993, net income was reduced by a charge for accretion of preferred
stock to a redemption value of approximately $162,000.
The weighted average number of common and common equivalent shares
outstanding has been determined in accordance with the treasury-stock
method. As required by rules promulgated by the Securities and
Exchange Commission, shares or options issued at prices below the
offering price in the Company's initial public offering in the year
before the offering (excluding the shares issued in connection with
the acquisition of Archsoft Group, see Note 2) have been included in
the calculation as if outstanding for all periods presented using the
treasury-stock method. These shares were included for the year ended
December 31, 1993.
Fully diluted and primary income per common and common equivalent
share do not differ materially for any of the periods presented.
(k) Foreign Currency Translation
The Company translates the assets and liabilities of its foreign
subsidiaries at exchange rates in effect at year-end. Revenues and
expenses are translated using exchange rates in effect during the
year. Gains or losses from foreign currency translation are credited
or charged to cumulative translation adjustment included in
stockholders' equity in the accompanying consolidated balance sheets.
There were no significant gains or losses from foreign currency
transactions during any period presented.
(l) Postretirement and Postemployment Benefits
The Company does not have any obligations for postretirement or
postemployment benefits, except as discussed in Note 7.
(m) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentration of Credit Risk, requires disclosure of any significant
off-balance-sheet and credit risk concentrations. The Company has no
significant off-balance-sheet concentration of credit risk such as
foreign exchange contracts, option contracts or other foreign hedging
arrangements. The Company's accounts receivable credit risk is not
17
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) Concentration of Credit Risk (Continued)
concentrated within any geographic area, and no customer represented a
significant credit risk to the Company. In any of the years presented,
no single customer accounted for greater than 10% of revenues.
(n) Reclassifications
The Company has reclassified certain prior year information to conform
with the current year's presentation.
(2) ACQUISITIONS
(a) SOFT-TECH Software Technologie GmbH
On January 22, 1996, the Company acquired SOFT-TECH, a developer of
architectural software for the European Marketplace. The Company
exchanged 250,000 shares of common stock for all the capital shares of
SOFT-TECH. The Company placed 25,000 shares into escrow as security
for indemnification obligations of SOFT-TECH relating to
representation, warranties and tax matters. This merger will be
accounted for as a pooling of interests. The Company expensed
approximately $300,000 for merger related costs, which were included
in the 1995 consolidated statement of income (see Note 3). Pro forma
condensed statements of income data for the years ended December 31,
1995, 1994, and 1993 are as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
SOFT-
SOFTDESK TECH COMBINED
<S> <C> <C> <C>
1995-
Net revenue $ 35,608 $ 6,129 $ 41,737
Net income (loss) 3,743 (164) 3,579
========= ======== =========
Earnings (loss) per share $ . 63 $ (.66) $ .58
====== ====== =======
1994-
Net revenue $ 24,021 $ 6,561 $ 30,582
Pro forma net income (loss) 2,687 (97) 2,590
========= ======== =========
Earnings (loss) per share $ .50 $ (.39) $ .46
====== ====== =======
1993-
Net revenue $ 19,002 $ 7,113 $ 26,115
Pro forma net income 681 614 1,295
========= ======== =========
Earnings per share $ . 19 $ 2.46 $ .34
====== ======= =======
</TABLE>
18
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(2) ACQUISITIONS (Continued)
(b) IdeaGraphix, Inc.
On June 19, 1995, the Company acquired certain assets and technology
of IdeaGraphix, Inc. (IdeaGraphix). IdeaGraphix develops, produces and
sells AEC software on the MicroStation platform. The total cost of
this acquisition was $590,000, which included a five-year guaranteed
minimum royalty totaling $500,000, of which $100,000 was paid at
closing, plus certain assumed liabilities and related acquisition
costs of $90,000. In addition, the agreement provides for additional
royalties of up to $1,000,000. This royalty rate is calculated at 15%
on certain product sales, as defined. The Company was not required to
pay any amounts above the minimum royalty as of December 31, 1995.
This acquisition was accounted for under the purchase method, and
accordingly, the results of operations of IdeaGraphix from June 19,
1995 forward are included in the Company's consolidated statements of
income. The aggregate cost of the acquisition over historical book
value was assigned principally to purchased research and development,
product development costs and other intangible assets based upon their
estimated fair values. The portion of the purchase price allocated to
research and development that had not yet reached technological
feasibility and had no alternative future use as of June 19, 1995, was
approximately $360,000 and was charged to expense. The portion of the
purchase price allocated to product development costs and other
intangible assets was $127,000 and $74,000 respectively, and was to be
amortized on a straight-line basis over the lesser of their estimated
useful lives or three years. In December 1995, the Company wrote off
the remainder of such capitalized costs and included these amounts as
part of the nonrecurring charge in the consolidated statements of
income for 1995 (see Note 3).
(c) Aritek Systems, Inc.
On May 26, 1995, the Company acquired certain assets and technology of
Aritek Systems, Inc. (ARITEK). ARITEK was a third-party developer of
ArrisCAD software primarily for the construction market. The total
cost of this acquisition was $204,000, which included cash of
approximately $100,000 and assumed liabilities and related acquisition
costs of approximately $104,000. In addition, the agreement provides
for royalties of up to $250,000, calculated at a 15% royalty rate on
certain product sales, as defined. The Company also entered into an
employment agreement with an employee of ARITEK providing for
royalties of up to $650,000. This royalty rate is calculated at 15% on
certain product sales, as defined. The Company expensed a total amount
of $171,000 related to both of these royalty agreements for the year
ended December 31, 1995.
19
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(2) ACQUISITIONS (Continued)
(c) Aritek Systems, Inc. (Continued)
This acquisition was accounted for under the purchase method, and
accordingly, the results of operations of ARITEK from May 26, 1995
forward are included in the accompanying consolidated statements of
income. The aggregate cost of the acquisition over historical book
value was assigned principally to purchased research and development,
product development costs and other intangible assets based on their
estimated fair values. The portion of the purchase price allocated to
research and development that had not yet reached technological
feasibility and had no alternative future use as of May 26, 1995 was
approximately $131,000 and was charged to expense. The portion of the
purchase price allocated to product development costs and other
intangible assets was approximately $19,000 and $10,000, respectively,
and was to be amortized on a straight-line basis over the lesser of
their estimated useful lives or three years. In December 1995, the
Company wrote off the remainder of such capitalized costs and included
these amounts as part of the nonrecurring charge in the accompanying
consolidated statements of income for 1995 (see Note 3).
(d) Foresight Resources Corp.
On January 24, 1995, the Company acquired all of the outstanding
capital stock of Foresight Resources Corp. (Foresight). Foresight
develops, produces and sells AEC software for the nonprofessional
users in the home and small office. In payment of the purchase price
for this acquisition, the Company issued to the stockholders of
Foresight a total of 181,938 shares of its common stock, of which
9,096 shares were placed in escrow to secure indemnification
obligations of Foresight stockholders. These shares were released from
escrow during 1995. The Company also assumed various liabilities of
Foresight as of the effective date of the merger, including its
phantom-stock plans, which were settled by issuing 6,623 shares of the
common stock of the Company.
The results of operations of Foresight are included in the
accompanying consolidated statement of income from January 1, 1995.
This transaction was accounted for as a pooling of interests. None of
the periods preceding January 1, 1995 have been restated, as net
assets and liabilities, historic results of operations and cumulative
stockholders' equity of Foresight were not deemed to be material to
the consolidated financial statements of the Company.
20
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(2) ACQUISITIONS (Continued)
(e) Advantage Engineering, Inc.
On October 18, 1994, the Company acquired certain software technology
and certain assets of Advantage Engineering, Inc., an engineering firm
and developer of process and power plant design software. The total
cost of this acquisition was not material to the total consolidated
financial statements of the Company. In December 1995, the Company
wrote off the remainder of such capitalized costs and included these
amounts as part of the nonrecurring charge in the consolidated
statements of income for 1995 (see Note 3).
(f) Walter M. Smith Enterprises, Inc. d/b/a intelliCADD
On August 1, 1994, the Company acquired all assets except for the ADE
Technology, as defined, of Walter M. Smith Enterprises, Inc. d/b/a
intelliCADD (intelliCADD). IntelliCADD is a developer of AutoCAD--
based AM/FM and Utility Design Software. The total cost of the
acquisition, $1,386,000, consisted of $1,000,000 in cash and assumed
liabilities and related acquisition costs of approximately $386,000.
The Company placed $100,000 of the purchase price into escrow as
security for indemnification obligations of intelliCADD relating to
representations, warranties and tax matters. The escrow was released
in full.
The acquisition was accounted for under the purchase method, and
accordingly, the results of operations of intelliCADD from August 1,
1994 were included in the accompanying 1994 consolidated statement of
income. The aggregate cost of the acquisition over historical book
value was assigned principally to purchased research and development
and product development costs based on their estimated fair values.
The Company allocated $530,000 of the purchase price to research and
development that had not yet reached technological feasibility and had
no alternative future use. These costs were expensed and included in
the nonrecurring charge in the accompanying consolidated statement of
income in 1994. The portion of the purchase price allocated to product
development costs of approximately $622,000 was to be amortized on a
straight-line basis over its estimated useful life, not to exceed
three years. In June 1995, the Company wrote off the remainder of such
capitalized costs and included these amounts as part of the
nonrecurring charge in the accompanying consolidated statement of
income for 1995 (see Note 3).
21
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(2) ACQUISITIONS (Continued)
(g) Image Systems Technology, Inc.
On May 27, 1994, the Company acquired Image Systems Technology, Inc.
(Image Systems), a developer and marketer of software for managing and
manipulating scanned raster drawings. The Company exchanged 156,361
shares of common stock for all outstanding shares of Image Systems.
Outstanding Image Systems options were converted into options to
purchase 27,432 shares of the Company's common stock. The Company
placed 7,818 shares of common stock into escrow as security for
indemnification obligations of Image Systems relating to
representations, warranties and tax matters. The escrow agreement
expired during 1994, and all escrow shares were released. The merger
has been accounted for as a pooling of interests. The Company incurred
expenses of approximately $362,000 related to this acquisition, which
were expensed and included in the nonrecurring charge in the
accompanying consolidated statement of income in 1994.
(h) Archsoft Group
On June 30, 1993, the Company acquired Archsoft Group (ASG), a
developer and marketer of software for the architectural, engineering
and construction market. The purchase price of the acquisition,
$2,412,276, consisted of assumed liabilities and related acquisition
costs of $1,846,417 and the original issuance of 653,209 shares of the
Company's common stock. Shares totaling 261,324 were originally placed
into escrow as security for indemnification obligations of ASG
relating to representations, warranties and tax matters. These shares
were to be held in escrow for an initial term of 18 months, and 78,397
of these shares were to be held for an additional term of 30 months.
The Company has settled a claim under the indemnity arrangement
relating to the ASG acquisition that has resulted in the reacquisition
by the Company of 17,413 shares from escrow. The Company has reflected
the liability associated with these claims in its purchase accounting
adjustments, effective June 30, 1993, and recorded a net issuance of
635,796 shares in this acquisition. Subsequently, the Company settled
with the former ASG shareholders whereby of the 243,911 shares
remaining in escrow, 10,084 were returned to the Company for
additional claims settled prior to December 31, 1995 and 233,827
shares were released from escrow to the former ASG shareholders. The
Company canceled the returned shares.
22
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(2) ACQUISITIONS (Continued)
(h) Archsoft Group (Continued)
The acquisition has been accounted for under the purchase method, and
accordingly, the results of ASG since June 30, 1993 have been
presented in the accompanying consolidated statements of income for
the year ended December 31, 1993. The aggregate cost of the
acquisition over historical book value has been assigned principally
to purchased research and development and product development costs
based on their estimated fair market values. The portion of the
purchase price allocated to research and development that had not yet
reached technological feasibility and had no alternative future use as
of June 30, 1993, totaling $1,161,169, was immediately expensed and
included in the nonrecurring charge in the accompanying consolidated
statement of income in 1993. The portion of the purchase price
allocated to product development costs and other intangibles was
amortized on a straight-line basis over their estimated useful lives,
not to exceed three years, which resulted in amortization expense no
less than that which would have resulted from using the ratio of
current gross revenues to total expected gross revenues.
(i) Pro Forma Combined Results
The following table presents selected unaudited consolidated financial
information for the Company, IdeaGraphix, ARITEK, Foresight and
intelliCADD, assuming the companies had combined at the beginning of
1994 (in thousands).
<TABLE>
<CAPTION>
1995/1/ 1994/1/
<S> <C> <C>
Pro forma net revenues $ 42,906 $ 35,356
Pro forma net income 4,358 3,051
Pro forma net income per
common and common equivalent share $.71 $.53
Pro forma weighted average common and
common equivalent shares 6,161 5,808/2/
</TABLE>
/1/ Does not reflect the charge for purchased research and development
and nonrecurring acquisition charges adjusted for the applicable
tax rates.
/2/ Includes 188,561 shares issued in connection with the 1995
Foresight acquisition, accounted for as an immaterial pooling.
23
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(3) NONRECURRING CHARGES
The nonrecurring charges included in the accompanying consolidated
statements of income consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Charge for purchased research and
development $ 491 $ 530 $ 1,161
Charge for revaluation of intangibles 827 - -
Nonrecurring acquisition charges 300 362 -
Restructuring charges 691 - -
-------- ------- -------
$ 2,309 $ 892 $ 1,161
======== ======= =======
</TABLE>
The Company periodically reviews and assesses the realizability of its
intangible assets, including product development costs and other intangible
assets. In June 1995, amounts allocated to product development costs
related to the acquisition of intelliCADD (see Note 2), were adjusted to
its realizable value. The amount charged to expense related to this
assessment was approximately $466,000 and was included, as a revaluation of
intangibles, in the nonrecurring charge in the accompanying consolidated
statement of income for the year ended December 31, 1995. The Company
determined the value of the remaining intangible assets as realizable based
on management's estimates of future cash flow projections. Nonrecurring
charges also include amounts related to the charges for purchased research
and development of $360,000 and $131,000 in connection with the
acquisitions of IdeaGraphix and ARITEK, respectively.
In December 1995, the Company assessed the realizability of the remaining
purchased product development costs and other intangible assets from its
second quarter 1995 and fourth quarter 1994 acquisitions. The amount of
this charge, included, as a revaluation of intangibles, in the fourth
quarter nonrecurring charge, was approximately $361,000. Also, in
connection with the acquisition of SOFT-TECH (see Note 2), the Company
included approximately $300,000 for merger-related costs.
In addition, the Company included in the December 1995 nonrecurring
charges, costs related to the closing of offices in New York, Texas and
Belgium of approximately $691,000. The closing of the above offices was due
primarily to management's decision to consolidate the selling and
marketing, product development, and general and administrative efforts of
the prior acquisitions. The prior
24
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(3) Nonrecurring Charges (Continued)
acquisitions had created several remote offices, many of which duplicated
resources. The Belgium office has become a duplication in selling and
marketing efforts with the newly acquired SOFT-TECH operations located in
Germany, which also has a sales office in the United Kingdom. This portion
of the nonrecurring charge consists of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Severance and related benefits $ 271
(The reduction in head count affected five
individuals from Selling and Marketing,
14 from Product Development and two from
General and Administrative.)
Lease costs 230
Other 190
-------
$ 691
=======
</TABLE>
Included in the nonrecurring charges in the accompanying consolidated
statement of income for 1994, was the portion of purchase price allocated
to research and development that had not yet reached technological
feasibility and had no alternate future use, from the August 1, 1994,
intelliCADD acquisition, totaling $530,000. In addition, the 1994
nonrecurring charges included $362,000 of expenses related to the May 27,
1994 acquisition of Image Systems.
Included in the nonrecurring charges in the accompanying consolidated
statement of income for 1993 was the portion of the purchase price
allocated to research and development that had not yet reached
technological feasibility and had no alternate future use, from the June
30, 1993 ASG acquisition (see Note 2), totaling $1,161,000.
(4) Income Taxes
The Company provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS
No. 109, a deferred tax asset or liability is determined based on the
difference between the financial statement and tax bases of assets and
liabilities, as measured by the enacted tax rates assumed to be in effect
when these differences reverse.
The pro forma tax adjustment represents a pro forma tax provision (benefit)
for Image Systems (see Note 2). Prior to being acquired by the Company,
Image Systems elected to be treated as an S corporation for both federal
and state income tax purposes, whereby the stockholders were taxed on their
proportionate share of Image Systems' income. Accordingly, Image Systems
did not record a tax
25
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(4) Income Taxes (Continued)
provision (benefit) in its historical financial statements. The Company has
recorded a pro forma tax adjustment in the accompanying consolidated
statements of income, related to the preacquisition income and losses of
Image Systems. This adjustment was based on the Company's overall effective
rate, applied to the separate income or loss of Image Systems.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current-
Federal $ 2,228 $ 1,638 $ 447
State 412 421 168
Foreign - - 483
---------- ---------- ----------
2,640 2,059 1,098
---------- ---------- ----------
Deferred-
Federal (137) (323) (225)
State (26) (92) (53)
---------- ---------- ----------
(163) (415) (278)
---------- ---------- ----------
$ 2,477 $ 1,644 $ 820
========== ========== ==========
</TABLE>
A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory tax rate 34.0 % 34.0 % 34.0 %
State taxes, net of federal benefit 6.3 5.3 8.2
Foreign taxes - - 6.3
Nondeductible loss of SOFT-TECH 2.0 2.0 -
Nondeductible merger expenses 1.8 1.5 18.2
Research and development credits (1.6) (2.4) (25.2)
Tax-exempt interest (2.8) (4.7) -
Nondeductible loss (nontaxable income)
of Image - 4.7 (4.7)
Other nondeductible expenses 1.2 0.6 1.1
----- ----- -----
Effective tax rate 40.9 % 41.0 % 37.9 %
===== ==== ====
</TABLE>
26
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(4) INCOME TAXES (CONTINUED)
The sources of deferred income tax and the related tax effect for the years
ended December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Allowance for doubtful accounts $ 299 $ 206
Accrued returns and allowances 282 40
Accrued restructuring charges 210 -
Accrued vacation 85 95
Other (125) (41)
------- ------
Total current deferred income taxes $ 751 $ 300
------- ------
Accelerated depreciation $ 30 $ 2
Purchased intangible assets 105 360
Other (32) 29
------- ------
Total long-term deferred income taxes $ 103 $ 391
======= ======
</TABLE>
The Company has acquired significant net operating losses in connection
with the acquisitions of Soft-Tech, Foresight Resources Corp. and ASG. As
of December 31, 1995, these losses amounted to approximately $5,228,000, of
which $4,400,000 expire through 2010, and the remainder do not expire.
Utilization of certain of these net operating loss carryforwards is
severely limited. Accordingly, the Company has not recorded deferred tax
assets for these net operating loss carryforwards.
(5) NOTES PAYABLE
The Company had various notes payable in 1993 related to acquisitions.
These notes amounted to $370,000 and were repaid in 1994.
In August 1994, the Company assumed approximately $100,000 of notes payable
to stockholders in connection with the acquisition of intelliCADD. The
Company repaid these notes in 1994.
(6) MORTGAGE PAYABLE
In March 1995, the Company entered into two agreements with a bank for the
mortgage of its building in Germany. The $1,300,000 proceeds from these
mortgages was used to purchase a building. Borrowings under this facility
are payable through 2027 and bear interest at 7.25% for two years;
thereafter, the interest rate is variable based on the bank's base rate.
27
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(6) MORTGAGE PAYABLE (CONTINUED)
Future debt payments on these agreements are approximately as follows:
<TABLE>
<S> <C>
1996 $ 34,000
1997 37,000
1998 40,000
1999 44,000
2000 47,000
Thereafter 1,025,000
-----------
$ 1,227,000
===========
</TABLE>
(7) EMPLOYEE BENEFIT PLANS
(a) 401(k) Profit-Sharing Plan
The Company has a profit-sharing plan under Section 401(k) of the
Internal Revenue Code. The plan allows eligible employees to make
contributions up to a specified percentage of their compensation.
Under the plan, the Company will match 25% of participant's
contributions, up to the lower of 15% of the participant's
compensation or $250. For the years ended December 31, 1995, 1994 and
1993, the Company's matching contribution was approximately $36,000,
$31,000, and $18,000, respectively.
(b) Pension Plan
The Company has a defined benefit pension plan to cover the two former
shareholders of SOFT-TECH. The benefit is based on a projected unit
credit method. The Company funds these liabilities through the
purchase of life insurance. The accrual is intended to provide not
only for benefits attributed to service to date, but also for those
expected benefits to be earned in the future.
The following assumption and components were used to develop the net
pension expenses for the three years ended December 31, 1995, 1994 and
1993:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
Assumptions-
Discount rate 7.00% 7.00% 7.00%
---- ---- ----
Components-
Service cost of benefits earned during the year $ 58,000 $ 54,000 $ 48,000
Interest cost on projected benefit obligation 43,000 35,000 28,000
---------- ---------- ----------
Net pension expense $ 101,000 $ 89,000 $ 76,000
========== ========== ==========
</TABLE>
28
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(7) EMPLOYEE BENEFIT PLANS (Continued)
(b) Pension Plan (Continued)
The status of the pension plan at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Actuarial present value of benefit obligations-
Accumulated benefit obligation $ 608,000 $ 501,000 $ 395,000
----------- ----------- -----------
Projected benefit obligations for
services rendered 608,000 501,000 395,000
Plan assets at fair value - - -
----------- ----------- -----------
Accrued pension liability (included in
accrued expenses $ 608,000 $ 501,000 $ 395,000
=========== =========== ===========
</TABLE>
(8) RELATED PARTY TRANSACTIONS
Through December 1994, the Company leased its headquarters and principal
operations facilities on a month-to-month basis from a partnership (the
Partnership), the partners of which were officers and stockholders of the
Company. Rent expense paid to the Partnership for each of the years ended
December 31, 1994 and 1993 was approximately $120,000.
In December 1994, the Company purchased its headquarters and principal
operations facilities from the Partnership for approximately $746,000. The
Company believes that the amounts paid represented the fair market value of
such transactions, and the terms were at least as favorable to the Company
as could have been obtained from an unaffiliated third party. The purchase
price of the facilities was based upon an independent, third-party
appraisal.
In December 1994, the Company constructed additional facility space in New
Hampshire. The cost of the new space was approximately $202,000 and was
constructed by a relative of an officer/stockholder of the Company. As of
December 31, 1995, the Company contracted the relative for additional
facility space. The space was in construction and not placed in service as
of December 31, 1995 and, accordingly, no amounts were included in the
statements of income for depreciation. The total cost of the additional
facility space was estimated at approximately $150,000. The Company
believes the cost of these transactions represents the fair market value of
the services performed and the terms were at least as favorable to the
Company as could be obtained from an unaffiliated third party.
29
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(9) COMMITMENTS
(a) Lease Agreement
The Company leases certain additional office space and equipment under
operating leases that expire through 2002. Rent expense for the years
ended December 31, 1995, 1994 and 1993 was approximately $585,000,
$597,000 and $480,000, respectively. As of December 31, 1995, the
Company's future minimum lease payments for each of the five years in
the period ended December 31, 2000 and thereafter were $356,000,
$203,000, $82,000, $55,000, $52,000 and $107,000, respectively.
(b) License Agreements
The Company has entered into various license agreements under which
the Company is required to pay royalties on revenues of certain
products. Except for the royalty commitment payable to IdeaGraphix
(see Note 2). These agreements do not have minimum royalty
commitments.
During 1993, Image Systems received $100,000 from three investors for
the development of a new software product and the promotion and sale
of two existing products. Accordingly, $69,700 of revenue has been
included in the accompanying consolidated statement of income for the
year ended December 31, 1993. In return, the investors were to receive
royalties of 10% of net sales of the products over two years. During
1994, the Company paid the investors $100,000 in full satisfaction of
the agreement.
In December 1994, the Company entered into a two-year licensing
agreement with Autodesk to distribute certain of Autodesk's products
through an OEM arrangement. As of December 31, 1995, the Company has
paid and recorded prepaid royalties of approximately $120,000, which
is being amortized through 1996.
Royalty expense of $1,129,000 (excluding royalties related to the
acquisitions (see Note 3(a)), $1,495,000 and $1,506,000 for the years
ended December 31, 1995, 1994 and 1993, respectively, is included in
cost of revenues in the accompanying consolidated statements of
income.
(10) STOCKHOLDERS' EQUITY
(a) Authorization of Common Stock
In March 1995, the Company's Board of Directors increased the
authorized shares of $.01 par value common stock from 10,000,000
shares to 15,000,000 shares. This amendment was approved by the
stockholders and became effective in June 1995.
30
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(10) STOCKHOLDERS' EQUITY (Continued)
(b) Dividends
Image Systems declared dividends of approximately $42,000 and $24,000,
payable in April 1994 and 1993, respectively, to shareholders of
record on December 31, 1993 and 1992 for tax obligations. In 1994,
Image Systems paid an additional dividend of approximately $59,000 for
the shareholders to meet their tax obligation on the Company's S
corporation taxable income for 1993. Image Systems did not declare
dividends for the year ended December 31, 1994.
SOFT-TECH did not declare a dividend in 1995. SOFT-TECH declared
dividends of approximately $149,000 and $776,000 in 1994 and 1993,
respectively, for income tax purposes.
(c) Stock Options
On February 13, 1992, the Board of Directors adopted the 1992 Stock
Option Plan (the 1992 Plan). Under the terms of the 1992 Plan, the
Company may grant either incentive or nonqualified stock options to
purchase shares of common stock to employees, officers and directors.
The Company has reserved 200,700 shares of common stock for issuance
under the 1992 Plan of which 53,356 were yet to be issued as of
December 31, 1995. The options' exercise prices are determined by the
Board of Directors; however, the exercise prices of incentive stock
options must equal the fair market value of the stock at the date of
grant. Each option will be exercisable and will expire according to
the terms of the individual option grants, with incentive stock
options expiring no later than 10 years from the date of grant.
In December 1993, the Company adopted the 1993 Equity Incentive Plan
(the 1993 Plan). Under the terms of the 1993 Plan, the Company may
grant either incentive or nonqualified stock options to purchase
common stock and restricted common stock to employees and consultants.
The Company has reserved 750,000 shares for issuance under the 1993
Plan of which 671,601 were yet to be issued as of December 31, 1995.
The exercise price of options to be granted under the 1993 Plan will
be determined by the Board of Directors; however, the exercise price
of incentive stock options must equal the fair market value of the
stock at the date of grant. Each option will be exercisable and will
expire according to the terms of the individual option grant, with
each incentive stock option expiring no later than 10 years from date
of grant.
In December 1993, the Company adopted the 1993 Director Stock Option
Plan (the Director Plan). Under the terms of the Director Plan, the
Company has reserved 50,000 shares for issuance. There were no shares
issued under this Director Plan as of December 31, 1995. One third of
the shares granted under this Director Plan will vest on the first
anniversary of the grant, and the remaining unvested options will
become exercisable evenly over the next 24 months.
31
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(10) STOCKHOLDERS' EQUITY (Continued)
(c) Stock Options (Continued)
Stock option activity under these plans is as follows:
<TABLE>
<CAPTION>
Number
of Shares Price Per Share
<S> <C> <C>
Outstanding, December 31, 1992 36,114 $ .16-$ 4.10
Granted 373,450 .89- 9.00
Exercised (1,500) .16
-------- ---------------
Outstanding, December 31, 1993 408,064 .16- 9.00
Granted 89,518 3.48- 15.50
Exercised (157,778) .16- 11.50
Forfeited/terminated (14,453) .16- 11.50
-------- ---------------
Outstanding, December 31, 1994 325,351 .16- 15.50
Granted 397,550 16.25- 22.50
Exercised (69,405) .16- 15.50
Forfeited/terminated (69,576) 8.50- 22.50
-------- ---------------
Outstanding, December 31, 1995 583,920 $ .16-$ 22.50
-------- ---------------
Exercisable, December 31, 1995 108,160 $ .16-$ 22.50
======== ===============
</TABLE>
The Company accounts for stock options in accordance with the
provisions of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. The above table includes the 27,432
options granted to holders of options to purchase Image Systems stock
in connection with the acquisition (see Note 2(f)). These options are
reflected as of the date originally issued and the number of shares
and exercise prices are based on the original terms, adjusted for the
conversion ratio in the pooling transaction.
(d) Employee Stock Purchase Plan
In January 1996, the Company adopted the 1996 Softdesk, Inc. Employee
Stock Purchase Plan (the Employee Plan). The Employee Plan provides
for 250,000 shares of the Company's common stock to be issued in a
series of offerings. Except for the initial offering, periods are 12
months in length commencing each January 1 and July 1 and expire when
all shares are issued. The initial offering commences March 1, 1996
and is 10 months in length. The price at which
32
<PAGE>
SOFTDESK, INC. AND SUDSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(10) STOCKHOLDERS' EQUITY (Continued)
(d) Employee Stock Purchase Plan (Continued)
shares are sold in each offering will be 85% of the closing price of
the common stock on the first or last day of each offering period,
whichever is lower. Participants may have up to 10% of their
qualifying compensation deducted and set aside for purchasing shares
in each offering under the Employee Plan. The Plan, which has not yet
been ratified by the stockholders, can be terminated by the Board of
Directors.
(e) Preferred Stock
The Board of Directors has been authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue,
from time to time, up to 1,000,000 shares of preferred stock in one or
more series. Each such series of preferred stock shall have such
number of shares, designations, preferences, voting powers,
qualifications and special or relative rights or privileges as shall
be determined by the Board of Directors, which may include, among
others, dividend rights, voting rights, redemption and sinking fund
provisions, liquidation preferences, conversion rights, and preemptive
rights.
(11) LINE-OF-CREDIT AGREEMENT
The Company has a $1,000,000 unsecured demand line-of-credit agreement with
a bank. Borrowings under the line accrue interest at the prime rate (8.5%
at December 31, 1995). No borrowings have ever been made under this
agreement.
(12) ACCRUED EXPENSES
Accrued expenses on the accompanying consolidated balance sheets consist of
the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Payroll and related items $ 924 $ 1,020
Pension reserve 583 562
Accrued acquisition and other costs 665 137
Returns 900 104
Royalties 792 97
Dealer commissions 170 431
Warranty 191 363
Other accrued expenses 954 704
------- -------
$ 5,179 $ 3,418
======= =======
</TABLE>
33
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(Continued)
(13) Geographic Segment Information
The Company conducts its operations in two significant geographic segments,
the United States and Europe. Revenues from export sales were $7,497,000,
$6,130,000 and $4,560,000 for 1995, 1994 and 1993, respectively, and were
related to U.S. operations.
<TABLE>
<CAPTION>
US Europe Eliminations Total
<S> <C> <C> <C> <C>
1995
Sales to unaffiliated customers $ 35,608 $ 6,129 $ - $ 41,737
======== ======= ========= ========
Income (loss) from operations $ 5,665 $ (97) $ - $ 5,568
======== ======= ========= ========
Identifiable assets $ 32,952 $ 3,257 $ - $ 36,209
======== ======= ========= ========
1994
Sales to unaffiliated customers $ 24,021 $ 6,561 $ - $ 30,582
======== ======= ========= ========
Income (loss) from operations $ 3,560 $ (111) $ - $ 3,449
======== ======= ========= ========
Identifiable assets $ 27,095 $ 2,344 $ - $ 29,439
======== ======= ========= ========
1993
Sales to unaffiliated customers $ 19,002 $ 7,113 $ - $ 26,115
======== ======= ========= ========
Income (loss) from operations $ 927 $ 1,033 $ - $ 1,960
======== ======= ========= ========
Identifiable assets $ 8,180 $ 2,070 $ - $ 10,250
======== ======= ========= ========
</TABLE>
United States and international sales as a percentage of total revenues are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
United States 68% 58% 55%
Europe 22 32 35
Canada 4 4 4
Far East 4 3 3
Other 2 3 3
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
34
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(Continued)
(14) SALE OF MECHANICAL PRODUCT LINE
Effective December 31, 1993, the Company sold its rights, title and
interests in two mechanical products and related assets (representing
approximately 2% of the Company's 1993 revenues) to Cimlogic, Inc.
(Cimlogic). The sales price equaled the book value of the related assets
(estimated to be approximately $10,000) plus a royalty based upon future
sales of the associated products. The Company also granted a $70,000 credit
line to Cimlogic and received preferred stock representing a 25% equity
interest in Cimlogic. The Company has advanced approximately $75,000 to
Cimlogic through December 31, 1995. Included in the accompanying
consolidated statement of income was approximately $102,000 and $137,000 of
royalties earned during 1995 and 1994, respectively.
35
<PAGE>
Exhibit 23.1
- ------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K/A into the Company's previously filed
registration statements (File Nos. 33-76300, 33-76302, 33-76304 and 333-246) on
Form S-8 and Registration Statement on Form S-3 (File No. 33-91754).
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 23, 1996
<PAGE>
Exhibit 23.2
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Softdesk, Inc. on Form S-8 (File Nos. 33-76300, 33-76302, 33-76304 and 333-246)
and Form S-3 (File No. 33-91754) of our report , dated March 3, 1994, except for
Notes 11 and 14 as to which the dates are April 15, 1994 and May 5, 1994,
respectively, on our audit of the financial statements of Image Systems
Technology, Inc. as of December 31, 1993, and for the year ended December 31,
1993, which report is included in this Annual Report on Form 10-K/A which amends
the Annual Report on Form 10-K dated March 25, 1996.
COOPERS & LYBRAND L.L.P.
Albany, New York
May 24, 1996
