<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
APRIL 25, 1996
Date of Report (Date of earliest event reported)
NETSCAPE COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-26310 94-3200270
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Incorporation) Identification No.)
501 East Middlefield Road
Mountain View, CA 94043
(Address of principal executive offices, including zip code)
(415) 254-1900
(Registrant's telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
This Amendment No. 1 to the Registrant's Current Report on Form 8-K dated May 7,
1996 (the "Report"), relates to the Registrant's completion of the acquisition
of InSoft, Inc., a corporation organized and existing under the laws of the
State of Delaware ("InSoft"), by means of a merger (the "Merger") of NSCP
Acquisition Corporation, a corporation organized and existing under the laws of
the State of California and a wholly owned subsidiary of the Registrant ("Merger
Sub"), with and into InSoft, pursuant to the Agreement and Plan of
Reorganization, dated as of January 31, 1996 (the "Reorganization Agreement"),
among the Registrant, Merger Sub and InSoft. The purpose of this Amendment is to
amend Item 7(a) to provide the financial statements of InSoft and Item 7(b) to
provide the required pro forma financial information relating to the business
combination between the Registrant and InSoft on April 25, 1996 which were
impracticable to provide at the time the Registrant filed this Report.
Total Number of Pages: 33
--
Exhibit Index on Sequentially Numbered Page: 10
--
1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
See Exhibit 20.1 for InSoft's financial statements.
(b) PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma combined condensed consolidated financial
statements assume a business combination between Netscape Communications
Corporation ("Netscape") and InSoft accounted for on a pooling of interests
basis. The pro forma combined condensed consolidated financial statements are
based on the historical financial statements and the notes thereto of Netscape
included in the quarterly report on Form 10-Q for the quarter ended March 31,
1996, the annual report on Form 10-K for the year ended December 31, 1995, and
the historical financial statements and the notes thereto of InSoft included
herein. The Netscape historical financial statement data for the three months
ended March 31, 1996 and the InSoft historical financial statement data for the
three months ended March 31, 1996 have been prepared on the same basis as the
audited financial statements of Netscape and, in the opinion of management,
contain all adjustments necessary for the fair presentation of the results of
operations for such periods.
The pro forma combined condensed consolidated balance sheet combines Netscape's
March 31, 1996 condensed consolidated balance sheet with InSoft's March 31, 1996
condensed balance sheet, giving effect to the Merger as if it had occurred on
March 31, 1996. The pro forma combined condensed consolidated statements of
operations combine Netscape's historical condensed consolidated statements of
operations for the period from inception (February 9, 1993) through December 31,
1993 and the years ended December 31, 1994 and 1995 and the unaudited three
months ended March 31, 1996 with the corresponding InSoft condensed statements
of operations for the years ended December 31, 1993, 1994 and 1995, and the
unaudited three months ended March 31, 1996.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred if the Merger had been consummated at the beginning of the periods
presented, nor is it necessarily indicative of future operating results or
financial position. The unaudited pro forma combined condensed consolidated
financial statements do not incorporate any benefits from cost savings or
synergies of operations of the combined company.
Netscape and InSoft estimate that they will incur direct transaction costs of
approximately $5.0 million associated with the Merger which will be charged to
operations during the quarter ending June 30, 1996 and have not been reflected
as an adjustment in the pro forma combined condensed consolidated statement of
operations. There can be no assurance that Netscape will not incur additional
charges in subsequent quarters to reflect costs associated with the Merger or
that management will be successful in their efforts to integrate the operations
of the two companies.
These pro forma combined condensed consolidated financial statements should be
read in conjunction with the historical consolidated financial statements and
the related notes thereto of Netscape and the financial statements and the notes
thereto of InSoft included herein.
2
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED AND IN THOUSANDS)
March 31, 1996
---------------------------------------------
Pro Forma
Netscape InSoft Adjustments Combined
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 56,752 $ 2,384 $ - $ 59,136
Short-term investments 88,824 - - 88,824
Accounts receivable, net 48,183 1,343 - 49,526
Other current assets 10,539 616 - 11,155
-------- ------- ------- --------
Total current assets 204,298 4,343 - 208,641
Property and equipment, net 32,426 535 - 32,961
Long-term investments 34,391 - - 34,391
Other assets 2,425 - 2,425
-------- ------- ------- --------
$273,540 $ 4,878 $ - $278,418
======== ======= ======= ========
Liabilities, Mandatorily Redeemable
Convertible Preferred Stock and
Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued
liabilities $ 37,190 $ 1,588 $ 4,767(2)(3) $ 43,545
Deferred revenues 54,166 179 - 54,345
Current portion of long-term
obligations 1,352 - - 1,352
-------- ------- ------- --------
Total current liabilities 92,708 1,767 4,767 99,242
Long-term obligations and
installment notes payable 1,031 - - 1,031
Mandatorily redeemable convertible
preferred stock - 4,662 4,662 (1) -
Stockholders' equity (deficit):
Preferred stock, common stock
and additional paid-in capital 191,322 5,821 4,662 (1) 201,805
Accumulated deficit (11,602) (7,372) (4,767)(2)(3) (23,741)
Accumulated translation adjustment 81 - - 81
-------- ------- ------- --------
Total stockholders' equity
(deficit) 179,801 (1,551) (105) 178,145
-------- ------- ------- --------
$273,540 $ 4,878 $ - $278,418
======== ======= ======= ========
</TABLE>
See accompanying Notes to Pro Forma
Combined Condensed Consolidated Financial Statements.
3
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Inception
(February 9, 1993)
to December 31, Year ended
1993 December 31, 1993
--------------------------------------------------
Pro Forma
Netscape InSoft Combined
-------- ------- ---------
<S> <C> <C> <C>
Revenues:
Product revenues $ - $ 1,006 $ 1,006
Service revenues - 100 100
------- ------- ---------
Total revenues - 1,106 $ 1,106
Cost of revenues:
Cost of product revenues - 28 28
Cost of service revenues - 43 43
------- ------- ---------
Total cost of revenues - 71 71
------- ------- ---------
Gross profit - 1,035 1,035
Operating expenses:
Research and development 620 251 871
Sales and marketing 179 1,319 1,498
General and administrative 248 265 513
------- ------- ---------
Total operating expenses 1,047 1,835 2,882
Operating loss (1,047) (800) (1,847)
Interest income (expense), net 53 (18) 35
------- ------- ---------
Net loss $ (994) $ (818) $ (1,812)
======= ======= =========
Net loss applicable to common stock $ (994) $ (842) $ (1,836)
======= ======= =========
Net loss per common share $ (0.02) $ (0.81) $ (0.03)
======= ======= =========
Shares used in computing net loss
per common share 60,642 1,036 61,423
======= ======= =========
</TABLE>
See accompanying Notes to Pro Forma
Combined Condensed Consolidated Financial Statements.
4
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31, 1994
----------------------------------
Pro Forma
Netscape InSoft Combined
-------- ------- ---------
<S> <C> <C> <C>
Revenues:
Product revenues $ 1,087 $ 2,250 $ 3,337
Service revenues 316 485 801
-------- ------- --------
Total revenues 1,403 2,735 4,138
Cost of revenues:
Cost of product revenues 162 24 186
Cost of service revenues 167 80 247
-------- ------- --------
Total cost of revenues 329 104 433
-------- ------- --------
Gross profit 1,074 2,631 3,705
Operating expenses:
Research and development 3,674 472 4,146
Sales and marketing 4,469 3,281 7,750
General and administrative 2,535 854 3,389
Property rights agreement and related charges 2,487 - 2,487
-------- ------- --------
Total operating expenses 13,165 4,607 17,772
-------- ------- --------
Operating loss (12,091) (1,976) (14,067)
Interest income, net 212 25 237
-------- ------- --------
Net loss $(11,879) $(1,951) $(13,830)
======== ======= ========
Net loss applicable to common stock $(11,879) $(2,056) $(13,935)
======== ======= ========
Net loss per common share $ (0.18) $ (1.66) $ (0.20)
======== ======= ========
Shares used in computing net loss per common share 67,489 1,236 68,421
======== ======= ========
</TABLE>
See accompanying Notes to Pro Forma
Combined Condensed Consolidated Financial Statements.
5
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
--------------------------------
Pro Forma
Netscape InSoft Combined
--------- -------- ---------
<S> <C> <C> <C>
Revenues:
Product revenues $ 73,236 $ 4,253 $ 77,489
Service revenues 7,420 478 7,898
-------- -------- --------
Total revenues 80,656 4,731 85,387
Cost of revenues:
Cost of product revenues 8,653 524 9,177
Cost of service revenues 2,420 110 2,530
-------- -------- --------
Total cost of revenues 11,073 634 11,707
-------- -------- --------
Gross profit 69,583 4,097 73,680
Operating expenses:
Research and development 24,909 1,932 26,841
Sales and marketing 39,476 4,203 43,679
General and administrative 10,045 1,291 11,336
Property rights agreement and related charges 500 - 500
Merger related costs 2,033 - 2,033
-------- -------- --------
Total operating expenses 76,963 7,426 84,389
-------- -------- --------
Operating loss (7,380) (3,329) (10,709)
Interest income, net 4,437 157 4,594
-------- -------- --------
Loss before income taxes (2,943) (3,172) (6,115)
Provision for income taxes 498 - 498
-------- -------- --------
Net loss $ (3,441) $ (3,172) $ (6,613)
======== ======== ========
Net loss applicable to common stock $ (3,441) $ (3,351) $ (6,792)
======== ======== ========
Net loss per common share $ (0.05) $ (2.70) $ 0.09
======== ======== ========
Shares used in computing net loss
per common share 73,784 1,241 74,719
======== ======== ========
</TABLE>
See accompanying Notes to Pro Forma
Combined Condensed Consolidated Financial Statements.
6
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996
-----------------------------------------------
Pro Forma
Netscape InSoft Adjustments Combined
---------- ------- ----------- ---------
<C> <S> <S> <S> <S>
Revenues:
Product revenues $ 48,113 $ 938 $ - $49,051
Service revenues 6,888 182 - 7,070
--------- ------ --------- -------
Total revenues 55,001 1,120 - 56,121
Cost of revenues:
Cost of product revenues 6,797 14 - 6,811
Cost of service revenues 1,654 29 - 1,683
--------- ------ --------- -------
Total cost of revenues 8,451 43 - 8,494
--------- ------ --------- -------
Gross profit 46,550 1,077 - 47,627
Operating expenses:
Research and development 13,245 455 - 13,700
Sales and marketing 24,666 1,139 - 25,805
General and administrative 4,755 451 - 5,206
--------- ------ --------- -------
Total operating expenses 42,666 2,045 - 44,711
--------- ------ --------- -------
Operating income (loss) 3,884 (968) - 2,916
Interest income, net 2,393 38 - 2,431
--------- ------ --------- -------
Income (loss) before provision for income taxes 6,277 (930) - 5,347
Income tax provision (benefit) 1,565 - (233)(2) 1,332
--------- ------ --------- -------
Net income (loss) $ 4,712 $ (930) $ 233 $ 4,015
========= ====== ========= =======
Net income (loss) applicable to common stock $ 4,712 $ (970) $ 233 $ 3,975
========= ====== ========= =======
Net income (loss) per common share $ 0.06 $(0.78) $ 0.05
========= ====== =======
Shares used in computing net income (loss)
per common share 85,080 1,248 87,122
========= ====== =======
</TABLE>
See accompanying Notes to Pro Forma
Combined Condensed Consolidated Financial Statements.
7
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PERIODS COMBINED
The Netscape unaudited pro forma combined condensed consolidated statements of
operations for each of the periods ended December 31, 1993, 1994 and 1995 and
the three months ended March 31, 1996 have been combined with the InSoft
condensed statements of operations for each of the same periods giving effect to
the Merger as if it had occurred at the beginning of the earliest period
presented.
The Netscape unaudited pro forma combined condensed consolidated balance sheet
as of March 31, 1996 has been combined with the InSoft condensed balance sheet
as of the same date giving effect to the Merger as if it had occurred on March
31, 1996.
BASIS OF PRESENTATION
Pro Forma Basis of Presentation
The pro forma combined condensed consolidated financial statements reflected the
issuance of 1,956,229 shares of Netscape Common Stock for all of the outstanding
shares of InSoft Common Stock in connection with the Merger which resulted in an
exchange ratio of .753808871 shares of Netscape Common Stock for each share of
InSoft Common Stock.
Pro Forma Adjustments
- - ---------------------
(1) The pro forma combined condensed consolidated financial statements
reflected an adjustment for the conversion of InSoft's Mandatorily
Redeemable Preferred Stock into Common Stock at a conversion rate of one
common share for each preferred share.
(2) The pro forma combined condensed consolidated financial statements
reflected a decrease to the income tax provision for the quarter ended
March 31, 1996 as a result of utilization of InSoft's net operating losses.
(3) The pro forma combined condensed balance sheet reflected merger
transaction costs of approximately $5.0 million associated with the merger
as discussed below.
Merger Transaction Costs
- - ------------------------
Netscape and InSoft estimate direct transaction costs of approximately $5.0
million associated with the Merger, consisting of transaction fees for
investment bankers, attorneys, accountants and other related charges. The
nonrecurring costs are reflected in the pro forma condensed balance sheet as a
reduction to retained earnings and an increase in accrued liabilities. The
nonrecurring costs will be charged to operations in the fiscal quarter ended
June 30, 1996 and have not been reflected in the pro forma combined condensed
consolidated statement of operations.
PRO FORMA INCOME (LOSS) PER COMMON SHARE
The pro forma combined income (loss) per share is based on the combined weighted
average number of common and dilutive common equivalent shares of Netscape
Common Stock and InSoft Common Stock outstanding for each period, using the
exchange ratio based on the issuance of 1,956,229 shares of Netscape Common
Stock for all of the outstanding shares of InSoft Common Stock and all of the
outstanding options to purchase InSoft Common Stock as of April 25, 1996.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins
and Staff Policy, such computations include all common and common equivalent
shares issued within 12 months of the Initial Public Offering date as if they
were outstanding for all periods presented using the treasury stock method.
Common equivalent shares consist of the incremental common shares issuable upon
conversion of the convertible preferred stock (using the if-converted method)
and shares issuable upon the exercise of stock options (using the treasury stock
method).
CONFORMING AND PRO FORMA ADJUSTMENTS
There were no adjustments required to conform the accounting policies of
Netscape and InSoft. Certain amounts for InSoft have been reclassified to
conform with Netscape's financial statement presentation. There have been no
significant intercompany transactions.
8
<PAGE>
(c) EXHIBITS
20.1 InSoft, Inc. audited financial statements at December 31, 1993,
1994 and 1995 and the unaudited financial statements at March 31,
1995 and 1996.
23.1 Consent of Ernst & Young LLP, independent auditors.
9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NETSCAPE COMMUNICATIONS CORPORATION
Date: July 3, 1996 /s/ Peter L.S. Currie
------------ ---------------------
Peter L.S. Currie
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
10
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
<S> <C> <C>
20.1 InSoft, Inc. audited financial statements at December 31,
1993, 1994 and 1995 and the unaudited financial statements
at March 31, 1995 and 1996. 12
23.1 Consent of Ernst & Young LLP, independent auditors. 33
</TABLE>
<PAGE>
EXHIBIT 20.1
InSoft, Inc.
Index to Financial Statements
<TABLE>
<CAPTION>
<S>.................................................................... <C>
Report of Ernst & Young LLP, Independent Auditors...................... 13
Balance Sheets......................................................... 14
Statements of Operations............................................... 16
Statements of Stockholders' Equity (Deficit)........................... 17
Statements of Cash Flows............................................... 19
Notes to Financial Statements.......................................... 21
</TABLE>
1
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Stockholders
InSoft, Inc.
We have audited the accompanying balance sheets of InSoft, Inc. as of
December 31, 1994 and 1995, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 11, on January 31, 1996, the Company entered into
agreements whereby it will become a wholly owned subsidiary of Netscape
Communications Corporation through a merger. The Company anticipates closing the
merger by June 30, 1996.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InSoft, Inc. at December 31,
1994 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Harrisburg, Pennsylvania
February 16, 1996
2
<PAGE>
InSoft, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1994 1995 1996
-------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,038,703 $3,611,621 $2,384,049
Trade accounts receivable, less
allowance for doubtful accounts of
$103,531 in 1994, $130,997 in 1995,
and $166,549 at March 31, 1996 1,108,623 1,226,939 1,342,525
Inventories 192,077 501,088 298,414
Prepaid expenses and other current assets 85,515 146,125 317,849
-------------------------------------
Total current assets 3,424,918 5,485,773 4,342,837
Furniture, fixtures, and equipment 275,311 461,202 739,257
Accumulated depreciation 60,001 185,244 204,108
-------------------------------------
215,310 275,958 535,149
Capitalized software development costs, net 431,281 - -
-------------------------------------
Total assets $4,071,509 $5,761,731 $4,877,986
=====================================
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1994 1995 1996
-----------------------------------------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable $ 874,986 $ 709,145 $ 864,086
Accrued payroll and related expenses 1,442 373,096 468,602
Other current liabilities 210,329 398,828 255,169
Deferred revenue 167,576 243,941 178,837
-----------------------------------------
Total current liabilities 1,254,333 1,725,010 1,766,694
Mandatorily redeemable Series A
convertible preferred stock, $.01 par value:
Authorized shares - 580,000
Issued and outstanding shares - 474,384
in 1994, 493,358 in 1995, and 499,683
at March 31, 1996
Liquidation preference - $5.70 per share 2,645,262 2,753,413 2,789,465
Payment-in-kind dividend in arrears 25,187 26,194 -
Mandatorily redeemable Series C
convertible preferred stock, $.01 par value:
Authorized shares - 166,667 in 1995 and
at March 31, 1996
Issued and outstanding shares - 166,667
in 1995 and at March 31, 1996
Liquidation preference - $12.00 per share
plus unpaid dividends - 1,872,845 1,872,845
Commitments
Stockholders' equity (deficit):
Series B convertible preferred stock,
$.01 par value:
Authorized shares - 500,000
Issued and outstanding shares - 250,000
in 1994, and 500,000 in 1995 and
at March 31, 1996
Liquidation preference - $10.00 per share 2,500 5,000 5,000
Additional paid-in capital, preferred stock 2,436,487 4,928,987 4,928,987
Common stock, $.01 par value:
Authorized shares - 2,500,000 in 1994,
and 3,087,500 in 1995 and at March 31, 1996
Issued and outstanding shares -
1,236,331 in 1994, 1,244,931 in 1995,
and 1,251,931 at March 31, 1996 12,363 12,449 12,519
Additional paid-in capital, common stock 746,855 840,031 874,961
Retained earnings (deficit) (3,051,478) (6,402,198) (7,372,485)
-----------------------------------------
Total stockholders' equity (deficit) 146,727 (615,731) (1,551,018)
-----------------------------------------
Total liabilities, mandatorily
redeemable preferred stock, and
stockholders' equity (deficit) $ 4,071,509 $ 5,761,731 $ 4,877,986
=========================================
</TABLE>
See accompanying notes.
4
<PAGE>
InSoft, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS ENDED MARCH 31
1993 1994 1995 1995 1996
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Net revenues:
Product revenues $1,005,680 $ 2,249,738 $ 4,252,593 $ 895,051 $ 938,191
Service revenues 100,158 485,044 478,106 146,008 182,022
------------------------------------------------------------------------
Total revenues 1,105,838 2,734,782 4,730,699 1,041,059 1,120,213
Costs of revenues:
Cost of product revenues 28,189 24,161 524,283 126,505 14,082
Cost of service revenues 42,730 80,211 109,876 23,351 28,737
------------------------------------------------------------------------
Total costs of revenues 70,919 104,372 634,159 149,856 42,819
------------------------------------------------------------------------
Gross margin 1,034,919 2,630,410 4,096,540 891,203 1,077,394
Costs and expenses:
Research and development 251,000 471,806 1,931,760 253,601 455,464
Sales and marketing 1,318,563 3,280,893 4,202,256 1,084,758 1,139,194
General and administrative 265,320 854,289 1,290,800 222,691 451,031
------------------------------------------------------------------------
Total costs and expenses 1,834,883 4,606,988 7,424,816 1,561,050 2,045,689
------------------------------------------------------------------------
Loss from operations (799,964) (1,976,578) (3,328,276) (669,847) (968,295)
Interest income (expense), net (17,847) 25,201 156,714 14,271 37,866
========================================================================
Net loss $ (817,811) $(1,951,377) $(3,171,562) $ (655,576) $ (930,429)
========================================================================
Net loss applicable to common stock $ (842,031) $(2,056,335) $(3,350,720) $ (682,866) $ (970,287)
========================================================================
Net loss per share $(.81) $(1.66) $(2.70) $(.55) $(.78)
========================================================================
Weighted average common shares
outstanding 1,036,000 1,236,000 1,241,000 1,236,000 1,248,000
========================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
InSoft, Inc.
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
ADDITIONAL
SERIES B CONVERTIBLE PAID-IN
PREFERRED STOCK CAPITAL, COMMON STOCK
--------------------- PREFERRED ------------------------
SHARES AMOUNT STOCK SHARES AMOUNT
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 - $ - $ - 835,000 $ 8
Exercise of warrants - - - 200,000 2
Shares issued for services - - - 50,000 1
Shares issued for cash - - - 46,665 1
Shares issued to repay debt - - - 10,000 -
Shares issued for conversion of notes payable - - - 79,666 1
1,000 for 1 stock split - - - - 12,200
Shares issued for services - - - 15,000 150
Acquisition of shares - - - (120,000) (1,200)
Shares issued for cash - - - 120,000 1,200
Preferred stock dividend accrued - - - - -
Net loss - - - - -
------------------------------------------------------
Balance at December 31, 1993 - - - 1,236,331 12,363
Shares issued for cash, net of issuance costs 250,000 2,500 2,436,487 - -
Preferred stock dividends issued and accrued - - - - -
Net loss - - - - -
-----------------------------------------------------
Balance at December 31, 1994 250,000 2,500 2,436,487 1,236,331 12,363
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
CAPITAL, RETAINED
COMMON EARNINGS
STOCK (DEFICIT) TOTAL
--------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1993 $ 105,787 $ (153,112) $ (47,317)
Exercise of warrants 198 - 200
Shares issued for services 149,999 - 150,000
Shares issued for cash 179,999 - 180,000
Shares issued to repay debt 30,000 - 30,000
Shares issued for conversion of notes payable 218,222 - 218,223
1,000 for 1 stock split (12,200) - -
Shares issued for services 74,850 - 75,000
Acquisition of shares (598,800) - (600,000)
Shares issued for cash 598,800 - 600,000
Preferred stock dividend accrued - (24,220) (24,220)
Net loss - (817,811) (817,811)
--------------------------------------------
Balance at December 31, 1993 746,855 (995,143) (235,925)
Shares issued for cash, net of issuance costs - - 2,438,987
Preferred stock dividends issued and accrued - (104,958) (104,958)
Net loss - (1,951,377) (1,951,377)
---------------------------------------------
Balance at December 31, 1994 746,855 (3,051,478) 146,727
</TABLE>
See accompanying notes.
-6-
<PAGE>
InSoft, Inc.
Statements of Stockholders' Equity (Deficit) (continued)
<TABLE>
<CAPTION>
ADDITIONAL
SERIES B CONVERTIBLE PAID-IN
PREFERRED STOCK CAPITAL, COMMON STOCK
-------------------- PREFERRED -------------------
SHARES AMOUNT STOCK SHARES AMOUNT
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 250,000 $2,500 $2,436,487 1,236,331 $12,363
Shares issued for services - - - 8,600 86
Acquisition of shares - - - (200,000) (2,000)
Shares issued for cash, net of
issuance costs 250,000 2,500 2,492,500 200,000 2,000
Warrants issued - - - - -
Preferred stock dividends
issued and accrued - - - - -
Options granted - - - - -
Net loss - - - - -
-------------------------------------------------------
Balance at December 31, 1995 500,000 5,000 4,928,987 1,244,931 12,449
Shares issued on exercise
of employee stock options
(unaudited) - - - 7,000 70
Preferred dividends issued
and accrued (unaudited) - - - - -
Net loss (unaudited) - - - - -
-------------------------------------------------------
Balance at March 31, 1996
(unaudited) 500,000 $5,000 $4,928,987 1,251,931 $12,519
=======================================================
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
CAPITAL, RETAINED
COMMON EARNINGS
STOCK (DEFICIT) TOTAL
------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1994 $ 746,855 $(3,051,478) $ 146,727
Shares issued for services 42,914 - 43,000
Acquisition of shares (1,598,000) - (1,600,000)
Shares issued for cash, net of
issuance costs 1,598,000 - 4,095,000
Warrants issued 500 - 500
Preferred stock dividends
issued and accrued - (179,158) (179,158)
Options granted 49,762 - 49,762
Net loss - (3,171,562) (3,171,562)
------------------------------------------
Balance at December 31, 1995 840,031 (6,402,198) (615,731)
Shares issued on exercise
of employee stock options
(unaudited) 34,930 - 35,000
Preferred dividends issued
and accrued (unaudited) - (39,858) (39,858)
Net loss (unaudited) - (930,429) (930,429)
------------------------------------------
Balance at March 31, 1996
(unaudited) $874,961 $(7,372,485) $(1,551,018)
==========================================
</TABLE>
See accompanying notes.
-7-
<PAGE>
InSoft, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
1993 1994 1995 1995 1996
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
OPERATING ACTIVITIES
Net loss $(817,811) $(1,951,377) $(3,171,562) $ (655,576) $(930,429)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 7,475 49,061 125,243 9,226 18,864
Amortization 724 4,763 431,914 107,820 -
Provision for losses on accounts receivable 39,017 54,831 27,466 (33,555) 35,552
Options granted - - 49,762 - -
Expenses paid by issuing stock 245,398 - - - -
Changes in operating assets and liabilities:
Trade accounts receivable (376,298) (682,463) (145,782) 12,897 (151,138)
Inventories (94,344) (93,586) (309,011) (206,480) 202,674
Prepaid expenses and other current assets (41,589) 9,752 (61,243) (169,431) (171,724)
Trade accounts payable 294,214 508,464 (165,841) (264,415) 154,941
Accrued expenses and other current liabilities 40,033 328,814 609,518 21,018 (143,257)
Other (39,563) - - - -
--------------------------------------------------------------------
Net cash used in operating activities (742,744) (1,771,741) (2,609,536) (1,178,496) (984,517)
INVESTING ACTIVITIES
Capitalized software development costs - (435,320) - - -
Purchases of furniture, fixtures, and equipment (55,825) (204,981) (185,891) (10,263) (278,055)
--------------------------------------------------------------------
Net cash used in investing activities (55,825) (640,301) (185,891) (10,263) (278,055)
</TABLE>
See accompanying notes.
8
<PAGE>
InSoft, Inc.
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
1993 1994 1995 1995 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
FINANCING ACTIVITIES
Issuance of convertible notes payable $ 90,000 $ - $ - $ - $ -
Payments of notes payable (160,500) (504,000) - - -
Acquisition of common stock - - (1,600,000) - -
Issuance of common stock 780,000 - 1,600,000 - -
Issuance of preferred stock 2,541,271 2,438,987 4,367,845 - -
Issuance of warrants - - 500 - -
Exercise of warrants 200 - - - -
Exercise of employee stock options - - - - 35,000
----------------------------------------------------------------------
Net cash provided by financing
activities 3,250,971 1,934,987 4,368,345 - 35,000
----------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 2,452,402 (477,055) 1,572,918 (1,188,759) (1,227,572)
Cash and cash equivalents at beginning
of period 63,356 2,515,758 2,038,703 2,038,703 3,611,621
----------------------------------------------------------------------
Cash and cash equivalents at end of
period $2,515,758 $2,038,703 $ 3,611,621 $ 849,944 $ 2,384,049
======================================================================
</TABLE>
See accompanying notes.
9
<PAGE>
InSoft, Inc.
Notes to Financial Statements
(Information relating to March 31, 1996 and
the three months ended March 31, 1995 and 1996 is unaudited)
1. ORGANIZATION
InSoft, Inc. was incorporated in Delaware on September 4, 1991, for the purpose
of developing and marketing multiplatform collaborative multimedia software for
the workstation market. The Company's year end is December 31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet at March 31, 1996, the statements of operations
and cash flows for the three months ended March 31, 1995 and 1996, and the
statement of stockholders' equity (deficit) for the three months ended March 31,
1996, are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position at such date and the operating
results and cash flows for those periods. Results of the three months ended
March 31, 1996, are not necessarily indicative of results for the entire year.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three months
or less at date of purchase to be cash equivalents. Cash of $169,124 and
$171,115 pledged as collateral has been included in cash and cash equivalents as
of December 31, 1994 and 1995, respectively.
10
<PAGE>
InSoft, Inc.
Notes to Financial Statements (continued)
(Information relating to March 31, 1996 and
the three months ended March 31, 1995 and 1996 is unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents and accounts receivable. The
Company invests primarily in money market accounts with high quality financial
institutions. The Company's accounts receivable are derived primarily from sales
to customers located primarily in the United States. The Company performs
ongoing credit evaluations of its customers and does not require collateral. To
date, the Company has not experienced any material losses and such losses have
been within management's expectations. No customer accounted for more than 10%
of net revenues during 1993 or 1995. One customer accounted for 13% of net
revenues in 1994. For the three months ended March 31, 1995, no customer
accounted for more than 10% of net revenues. For the three months ended March
31, 1996, one customer accounted for 16% of net revenues.
INVENTORIES
Inventories consist primarily of computer hardware and peripheral equipment and
are stated at the lower of cost or market. Cost is determined by the first-in,
first-out method.
FURNITURE, FIXTURES, AND EQUIPMENT
Furniture, fixtures, and equipment consist primarily of computer equipment and
office furniture and are stated on the basis of cost. Depreciation is computed
by the straight-line method for financial statement purposes over the estimated
useful lives of the assets and accelerated methods for tax purposes.
RESEARCH AND DEVELOPMENT
Research and development expenditures are generally charged to operations as
incurred. The Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility.
11
<PAGE>
InSoft, Inc.
Notes to Financial Statements (continued)
(Information relating to March 31, 1996 and
the three months ended March 31, 1995 and 1996 is unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT (CONTINUED)
Based on the Company's product development process, technological feasibility is
established upon the completion of a detailed program design. Before January 1,
1994, costs incurred by the Company between technological feasibility and the
point at which the product is ready for general release had been insignificant.
In 1994, certain software development costs were capitalized and amortized over
a future period. Amortization of capitalized software development costs is
computed on a product-by-product basis over the estimated economic life of the
product. The Company amortized $4,039 and $431,281 of capitalized software
development costs to expense in 1994 and 1995, respectively.
During 1995 and after, the Company charged all software development costs
incurred to research and development expenses due to the increasing rate of
technological change, the future direction of product plans, and the short
period of time from the establishment of technological feasibility prior to
products' availability for general release.
REVENUE RECOGNITION
The Company's product revenues are derived from product licensing fees, and
sales of computer hardware and peripheral equipment, while service revenues are
derived from fees for maintenance and support, training, and software
customization. Product revenues are generally recognized upon delivery, net of
allowances for estimated future returns, provided that no significant vendor
obligations remain and collection of the resulting receivable is deemed
probable. Service revenues from customer maintenance fees for ongoing customer
support and product updates are recognized ratably over the term of the
maintenance period, which is typically 12 months. Payments for maintenance fees
are generally made in advance and are nonrefundable. Service revenues from
training and software customization are recognized when the services are
performed.
12
<PAGE>
InSoft, Inc.
Notes to Financial Statements (continued)
(Information relating to March 31, 1996 and
the three months ended March 31, 1995 and 1996 is unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTION PLAN
The Company accounts for its stock option plan in accordance with the provisions
of the Accounting Principles Board's Opinion No. 25 (APB 25), "Accounting for
Stock Issued to Employees." In 1995, the Financial Accounting Standards Board
released the Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock Based Compensation." SFAS 123 provides an alternative to
APB 25 and is effective for fiscal years beginning after December 15, 1995. The
Company continues to account for its employee stock option plan in accordance
with the provisions of APB 25. Accordingly, SFAS 123 does not have a material
impact on the Company's financial position or results of operations.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of," during
the first quarter of 1996, which did not have a material impact on the results
of operations or financial position of the Company.
RECLASSIFICATIONS
Certain reclassifications, none of which affected net income, have been made to
audited financial statements which have been previously issued in order to
conform to the current presentation.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common stock equivalents have not been
included in the net loss per share calculation as they are antidilutive.
13
<PAGE>
InSoft, Inc.
Notes to Financial Statements (continued)
(Information relating to March 31, 1996 and
the three months ended March 31, 1995 and 1996 is unaudited)
3. INCOME TAXES
Effective October 8, 1993, the Company was required to be taxed under Subchapter
C of the Internal Revenue Code for federal and state income tax purposes.
Previously the stockholders of the Company had elected under Subchapter S of the
Internal Revenue Code to include the Company's income or loss in their own
income for federal and state income tax purposes.
As of December 31, 1995, the Company has net operating loss carryforwards of
approximately $2,800,000 for both federal and state income tax purposes, which
begin to expire in 2009 for federal purposes and in 1998 for state purposes. For
financial reporting purposes, a valuation allowance of $2,149,000 has been
recognized to offset the deferred tax assets related to those carryforwards and
other deferred tax assets as of December 31, 1995. The valuation allowance
increased by $923,400 in 1994 and $1,120,000 in 1995.
Utilization of net operating losses may be subject to a substantial annual
limitation due to certain ownership change limitations provided by the Internal
Revenue Code. The annual limitation may result in the expiration of net
operating losses and credits before utilization.
14
<PAGE>
InSoft, Inc.
Notes to Financial Statements (continued)
(Information relating to March 31, 1996 and
the three months ended March 31, 1995 and 1996 is unaudited)
3. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1995
--------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 746,000 $ 1,000,000
Research and development credit carryforward 33,000 83,000
Allowance for doubtful accounts 41,000 52,000
Software development costs 160,000 829,000
Book over tax depreciation - 18,000
Accrued compensation 41,000 155,000
Other 16,000 12,000
----------- -----------
Total deferred tax assets 1,037,000 2,149,000
Valuation allowance on deferred tax assets (1,029,000) (2,149,000)
----------- -----------
Net deferred tax assets 8,000 -
Deferred tax liabilities:
Tax over book depreciation 8,000 -
----------- -----------
Total deferred tax liabilities 8,000 -
----------- -----------
Net deferred taxes $ - $ -
=========== ===========
</TABLE>
4. COMMITMENTS
The Company leases various computer equipment and office space. Future minimum
payments under noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $527,994
1997 170,547
1998 106,542
1999 5,826
</TABLE>
Rent expense under operating leases amounted to $110,176, $544,204, and $651,860
in 1993, 1994 and 1995, respectively.
15
<PAGE>
InSoft, Inc.
Notes to Financial Statements (continued)
(Information relating to March 31, 1996 and
the three months ended March 31, 1995 and 1996 is unaudited)
4. COMMITMENTS (CONTINUED)
In January 1996, the Company has agreed to license certain software source code
for $270,000 payable in 1996. Such code is not essential to the functionality of
the Company's current products and the Company is under no obligation to
incorporate such code in any of its current products.
5. CREDIT FACILITIES
The Company has letters of credit totaling $53,295 as of December 31, 1995, of
which the entire amount is available.
Interest paid during 1993, 1994, and 1995 totaled $15,000, $11,204, and $0,
respectively.
6. STOCK OPTION PLAN
The stockholders approved a 1993 stock option plan that provides for the
granting of stock options to certain officers, key employees, consultants, and
directors of the Company. Options may be either incentive stock options or
nonqualified stock options. As of December 31, 1995, 300,000 shares of common
stock are reserved for stock options.
The stock options are exercisable over a period of time determined by the Board
of Directors, but in the case of incentive stock options, this period may be no
longer than ten years; further if incentive stock options are granted to an
employee, who prior to the grant, owns in excess of 10% of the total combined
voting power of stock of the Company, this period shall not exceed five years.
16
<PAGE>
InSoft, Inc.
Notes to Financial Statements (continued)
(Information relating to March 31, 1996 and
the three months ended March 31, 1995 and 1996 is unaudited)
6. STOCK OPTION PLAN (CONTINUED)
The Company's outstanding and exercisable options are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31, 1996
---------------------------------------------------------------------------------------
EXERCISE OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE
PRICE OPTIONS OPTIONS OPTIONS OPTIONS OPTIONS OPTIONS
- - --------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
$5.00 - $5.50 50,725 37,176 134,185 107,308 127,185 105,729
$6.50 - - 45,275 12,414 45,275 14,805
$8.00 - - 63,337 7,710 63,337 11,546
$52.60 - - 5,942 - 5,942 377
---------------------------------------------------------------------------------------
50,725 37,176 248,739 127,432 241,739 132,457
=======================================================================================
</TABLE>
At December 31, 1993, the Company had no outstanding options.
7. STOCKHOLDERS' EQUITY AND MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
On October 8, 1993, the Company sold 456,140 shares of the 580,000 authorized
shares of redeemable Series A convertible preferred stock, $.01 par value at
$5.70 per share. Dividends on the Series A convertible preferred stock accrue at
an annual rate of 4%, are cumulative, and are payable in additional shares of
preferred stock or at the election of the preferred stockholder, in cash to the
extent of the tax liability of the stockholder due to the dividends. Dividends
of 18,244 and 18,974 shares of Series A convertible preferred stock were issued
in 1994 and 1995, respectively.
During 1993, the Company recognized expenses for compensation and services
totaling $225,000 that were paid with common stock issued. Also, the Company
issued common stock to repay a promissory note of $25,000, resulting in a loss
on extinguishment of debt of $5,000. Further, the Company issued common stock to
satisfy the conversion of convertible notes payable plus accrued interest
totaling $218,140.
During December 1993, the Company purchased 120,000 shares of common stock from
existing shareholders in exchange for noninterest bearing notes payable totaling
$600,000. These shares were then canceled. Simultaneously the Company issued
120,000 shares of common stock for $600,000 in cash.
17
<PAGE>
InSoft, Inc.
Notes to Financial Statements (continued)
(Information relating to March 31, 1996 and
the three months ended March 31, 1995 and 1996 is unaudited)
7. STOCKHOLDERS' EQUITY AND MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
On October 14, 1994, the Company issued 250,000 shares of the 500,000 authorized
shares of Series B convertible preferred stock, $.01 par value. Pursuant to the
Securities Purchase Agreement and the Amended and Restated Certificate of
Incorporation of the Company executed coincident with the issuance of the Series
B convertible preferred stock in 1994, the holders of Series B convertible
preferred stock exercised the right to acquire an additional 250,000 shares of
Series B at $10 per share on June 15, 1995.
The holders of Series B convertible preferred stock and common stock shall be
entitled to receive dividends when and as declared by the Board of Directors,
pro rata based on the number of whole shares of common stock into which the
shares of the Series B convertible preferred stock held by each holder thereof
is convertible and the number of shares of common stock held by each holder
thereof.
In the event of any liquidation, dissolution, or winding up of the Company,
either voluntary or involuntary, the holders of Series B convertible preferred
stock shall be entitled to receive, after payment of all preferential amounts
required to be paid to the holders of Series A convertible preferred stock and
Series C convertible preferred stock and prior to and in preference to any
distribution of the assets of the Company to the holders of common stock, an
amount per share equal to $10.00 for each outstanding share of Series B
convertible preferred stock.
During May 1995, the Company issued 166,667 shares of redeemable Series C
convertible preferred stock, $.01 par value at $12.00 per share. The holders of
Series C convertible preferred stock shall be entitled to receive cumulative
cash dividends at the rate of $.72 per share per annum accruing daily whether or
not earned or declared by the Board of Directors. The Company has accrued
$70,000 of cash dividends payable on Series C convertible preferred stock as of
December 31, 1995.
18
<PAGE>
InSoft, Inc.
Notes to Financial Statements (continued)
(Information relating to March 31, 1996 and
the three months ended March 31, 1995 and 1996 is unaudited)
7. STOCKHOLDERS' EQUITY AND MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
In the event of any liquidation, dissolution, or winding up of the Company,
either voluntary or involuntary, the holders of Series A convertible preferred
stock and Series C convertible preferred stock shall be entitled to receive,
prior and in preference to any distribution to the holders of the Series B
convertible preferred stock and common stock by reason of their ownership
thereof, an amount per share equal to $5.70 for each outstanding share of Series
A convertible preferred stock and $12.00 for each outstanding share of Series C
convertible preferred stock plus unpaid dividends. If upon the occurrence of
such event, the assets and funds thus distributed among the holders of the
Series A convertible preferred stock and Series C convertible preferred stock
are insufficient to permit the payment to such holders the full preferential
amounts, then the entire assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of the Series A
convertible preferred stock and the Series C convertible preferred stock in
proportion to the full preferential amount to which each holder is entitled.
The Company is required to redeem 25% of the number of shares of Series A
convertible preferred stock and 25% of the number of shares of Series C
convertible preferred stock outstanding in May 1995, on each of May 1, 1999,
May 1, 2000, and May 1, 2001, and the remaining shares then outstanding on
May 1, 2002. The redemption price is $5.70 per share for the Series A
convertible preferred stock and $12.00 per share for the Series C convertible
preferred stock, subject to future adjustments. Redemption may be waived by the
holders of a majority of the issued and outstanding shares of Series A
convertible preferred stock and Series C convertible preferred stock, voting
together as a single class.
The Series A convertible preferred stock, Series B convertible preferred stock,
and Series C convertible preferred stock are convertible at any time at the
option of the holder into common stock at an initial conversion rate of one
common share for each preferred share, which is subject to future adjustment.
Mandatory conversion is required for a respective series of preferred stock upon
the occurrence of certain events including certain agreements of the holders of
a respective series to convert and certain public offerings of the Company's
common stock. The Company has reserved shares of common stock in the amounts of
580,000, 500,000, and 166,667 for issuance upon conversion of the Series A
convertible preferred stock, Series B convertible preferred stock, and Series C
convertible preferred stock, respectively.
19
<PAGE>
InSoft, Inc.
Notes to Financial Statements (continued)
(Information relating to March 31, 1996 and
the three months ended March 31, 1995 and 1996 is unaudited)
7. STOCKHOLDERS' EQUITY AND MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
Each holder of outstanding shares of Series A convertible preferred stock,
Series B convertible preferred stock, and Series C convertible preferred stock
is entitled to the number of votes equal to the number of whole shares of common
stock into which the shares of such convertible preferred stock held by such
holder are convertible.
As part of the Series C convertible preferred stock issuance, the Company issued
50,000 common stock warrants, $.01 par value, to the holders of Series C
convertible preferred stock. The warrants are exercisable at $14.50 per share
and at any time until expiration on May 31, 2000, at which time the warrants
will automatically exercise on a net exercise basis. The Company has reserved
50,000 shares of common stock for issuance upon exercise of the warrants.
Pursuant to the issuance of the Series C convertible preferred stock, during
1995, the Company acquired 200,000 shares of common stock from existing
shareholders for $1,600,000 and issued 200,000 shares of common stock for
$1,600,000 in cash. The shares acquired were then canceled.
8. RELATED PARTY TRANSACTIONS
During 1995, the Company recognized sales of $355,154 to an affiliate, of which
$301,144 is included in trade accounts receivable at December 31, 1995.
9. RETIREMENT PLAN
The Company established in 1995 a defined contribution plan covering
substantially all employees who have attained the age of 21. Employer
contributions are generally based on 50% of contributions made by each employee.
Employer contributions are limited to 2.5% of the employee's earnings. Company
contributions in 1995 were $14,159.
20
<PAGE>
InSoft, Inc.
Notes to Financial Statements (continued)
(Information relating to March 31, 1996 and
the three months ended March 31, 1995 and 1996 is unaudited)
10. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company conducts its business within one industry segment. Sales from
exports to unaffiliated customers represent less than 10% of net revenues in
1993 and 1994. Sales from exports to unaffiliated customers amounted to 23% of
net revenues in 1995, and 39% and 28% of net revenues for the three months ended
March 31, 1995 and 1996, respectively.
11. SUBSEQUENT EVENT
On January 31, 1996, the Company entered into an Agreement and Plan of
Reorganization (Reorganization Agreement), Agreement of Merger (Merger
Agreement) and related agreements, with Netscape Communications Corporation
(Netscape) and NSCP Corporation (NSCP), a wholly owned subsidiary of Netscape.
Subject to the terms and conditions of the Reorganization Agreement and Merger
Agreement, NSCP will be merged with and into the Company and the Company will
become a wholly owned subsidiary of Netscape. The Merger Agreement provides,
among other things, the mode of effecting the merger and the manner and basis of
converting each issued and outstanding share of capital stock of the Company
into shares of common stock of Netscape. The closing of the merger will take
place after satisfaction or waiver of conditions required of the parties
involved as set forth in the Reorganization Agreement. The merger is intended to
be a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986 and to be accounted for as a pooling of interests
pursuant to Opinion No. 16 of the Accounting Principles Board. The Company
anticipates closing of the merger to occur before June 30, 1996.
21
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-95536) pertaining to the 1994 Stock Option Plan, 1995 Stock
Plan, 1995 Employee Stock Purchase Plan and 1995 Director Option Plan of
Netscape Communications Corporation, (Form S-8 No. 33-99198) pertaining to the
Collabra Software, Inc. 1993 Incentive Stock Plan, (Form S-8 No. 333-4222)
pertaining to the Insoft, Inc. 1993 Stock Option Plan and (Form S-8 No.
333-4478) pertaining to the NetCode Corporation 1996 Stock Plan, of our report
dated February 16, 1996, with respect to the financial statements of Insoft,
Inc. included in this Form 8-K/A of Netscape Communications Corporation.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Harrisburg, Pennsylvania
July 2, 1996
