<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment #1 To Current Report
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 11, 1998
THE VANTIVE CORPORATION
-----------------------------------------------
(Exact name of registrant as specified in charter)
Delaware
(State or other jurisdiction of incorporation)
0-26592 77-0266662
(Commission File Number) (IRS Employer Identification No.)
The Vantive Corporation, 2455 Augustine Drive, Santa Clara, CA 95054
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 982-5700
Not applicable.
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
The undersigned registrant hereby amends the following item of its Current
Report, dated July 15, 1998 on Form 8-K as set forth in the pages attached
thereto:
<PAGE>
ITEM 5. OTHER EVENTS
In September 1998, the Company purchased privately-held Scotch Bonnet
Integration, Inc. ("SBII"), a provider of consulting services. The
transaction is valued at approximately $1.1 million and will be accounted for
as a purchase. Under the terms of the acquisition, SBII's stockholders
will receive approximately 70,000 shares of the Company's Common Stock and
approximately $140,000 in cash in exchange for all of the outstanding shares
of SBII. In addition, the Company has agreed, contingent upon certain
milestones being achieved within one year of the acquisition, to issue up to
an additional 50,000 shares of its Common Stock to SBII's stockholders.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements of Business Acquired. The following financial
statements for Wayfarer, Inc. are attached hereto as Exhibit 7.1
Audited:
-Independent Auditor's Report
-Balance Sheets as of December 31, 1997 and 1996
-Statement of Operations for the years ended
December 31, 1997 and 1996
-Statement of Changes in Shareholders' (deficit) equity for the
years ended December 31, 1997 and 1996
-Statement of Cash Flows for the years ended
December 31, 1997 and 1996
-Notes to Financial Statements for the years ended
December 31, 1997 and 1996
(b) Pro Forma Financial Information. Attached hereto as Exhibit 7.2
are the unaudited pro forma combined condensed statements of
operations for the fiscal year ended December 31, 1997 and six
months ended June 30, 1998, reflecting the acquisition of
Wayfarer, Inc., including the notes to the unaudited pro forma
consolidated statement of operations.
(c) Exhibits.
7.1 Audited Financial Statements of Wayfarer, Inc. for the years
ended December 31, 1997 and 1996.
7.2 Unaudited pro forma combined condensed statements of
operations for the fiscal year ended December 31, 1997 and six
months ended June 30, 1998, reflecting the acquisition of
Wayfarer, Inc., including the notes to the unaudited pro forma
combined condensed statements of operations.
<PAGE>
EXHIBIT INDEX
7.1 Audited Financial Statements of Wayfarer, Inc.
for the years ended December 31, 1997 and 1996.
7.2 Unaudited pro forma combined condensed statements
operations for the fiscal year ended December 31, 1997
and six months ended June 30, 1998, reflecting the
acquisition of Wayfarer, Inc., including the notes to
the unaudited combined condensed statement of operations
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE VANTIVE CORPORATION
Date: September 11, 1998 By: /s/ David Schellhase
----------------------
David Schellhase
Vice President and General Counsel
<PAGE>
EXHIBIT 7.1
WAYFARER COMMUNICATIONS, INC.
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT ACCOUNTANTS
June 18, 1998
To The Shareholders and Board of Directors
Wayfarer Communications, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related statements of operations, changes in shareholders' (deficit) equity
and of cash flows present fairly, in all material respects, the financial
position of Wayfarer Communications, Inc. at December 31, 1997 and 1996,
and the results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statement, assessing the accounting principles used and
significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has not generated significant cash flow
since inception and management has placed significant reliance on obtaining
additional financing to sustain operating activities through 1998. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. As discussed in Note
14, subsequent to year end, the Company entered into a definitive merger
agreement with The Vantive Corporation.
PriceWaterhouse Coopers
San Francisco, California
WAYFARER COMMUNICATIONS, INC.
BALANCE SHEETS
December 31, 1997 and 1996
---------
<TABLE>
<CAPTION>
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $644,855 $2,461,847
Accounts receivable, net of allowances of
$19,300 and $0, respectively 100,901 190,822
Prepaid expenses and other current assets 21,120 79,464
------------ ------------
Total current assets 766,876 2,732,133
Property and equipment, net 618,792 323,134
Other assets 136,908 58,574
------------ ------------
Total assets $1,522,576 $3,113,841
============ ============
LIABILITIES
Current liabilities:
Capital lease obligations-current $97,122 $95,013
Accounts payable 573,542 98,369
Accrued expenses 289,615 260,640
Deferred revenue (Note 3) 746,320 106,074
------------ ------------
Total current liabilities 1,706,599 560,096
Capital lease obligations 53,169 144,058
Other 9,838 --
------------ ------------
Total liabilities 1,769,606 704,154
------------ ------------
Commitments (Notes 7 and 14)
SHAREHOLDERS' (DEFICIT) EQUITY
Preferred stock; authorized 8,801,708 shares:
Series A convertible preferred stock, $.20 par value;
designated: 800,000 shares; issued and outstanding:
800,000 shares in 1997 and 1996
(liquidation value: $160,000) 153,343 153,343
Series C convertible preferred stock, $.80 par value;
designated: 400,000 shares; issued and outstanding:
400,000 shares in 1997 and 1996
(liquidation value: $320,000) 309,218 309,218
Series D convertible preferred stock, $1.30 par value;
designated: 2,161,308 shares; issued and outstanding:
2,142,308 shares in 1997 and 1996
(liquidation value: $2,785,000) 2,757,191 2,757,191
Series E convertible preferred stock, $3.19 par value;
designated:1,920,400 shares; issued and outstanding:
1,576,800 shares in 1997 and 1996
(liquidation value: $5,029,992) 4,996,342 4,996,342
Series F convertible preferred stock, $2.38 par value;
designated: 3,520,000 shares; issued and outstanding:
2,100,844 shares in 1997
(liquidation value: $5,000,009) 4,803,138 --
Common stock, no par value; authorized: 12,000,000
shares; issued and outstanding: 3,443,514 shares
in 1997 and 3,140,577 shares in 1996 147,345 65,020
Notes receivable from shareholders (1,953) (9,558)
Accumulated deficit (13,411,654) (5,861,869)
------------ ------------
Total shareholders' (deficit) equity (247,030) 2,409,687
------------ ------------
Total liabilities and shareholders'
(deficit) equity $1,522,576 $3,113,841
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
WAYFARER COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
---------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
Software license fee revenue $609,506 $243,343
Cost of revenues 159,222 30,548
------------ ------------
Gross margin 450,284 212,795
------------ ------------
Operating expenses:
General and administrative 1,285,940 836,024
Research and development 2,190,510 1,170,529
Sales and marketing 4,554,426 2,300,972
------------ ------------
Total operating expenses 8,030,876 4,307,525
------------ ------------
Loss from operations (7,580,592) (4,094,730)
Other income (expense) 32,487 (64)
Interest income (expense),net (1,680) 65,127
------------ ------------
Net loss ($7,549,785) ($4,029,667)
============ ============
Basic and diluted net loss per share ($2.35) ($1.31)
============ ============
Weighted average shares outstanding
used in per share calculation 3,208,929 3,083,793
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
WAYFARER COMMUNICATIONS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Series A Series C Series D
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
------------------------- ----------------------- ------------------------
Shares Amount Shares Amount Shares Amount
----------- ------------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 800,000 $153,343 400,000 $309,218 2,142,308 $2,757,191
Issuance of preferred stock
for cash, net of issuance
cost of $33,650
in June 1996
Issuance of common stock for
services, net of issuance
cost of $1,975
Exercise of common stock
options for cash
Forgiveness of notes
receivable from founders
Net loss
----------- ------------- ----------- ----------- ---------- -------------
Balances, December 31, 1996 800,000 153,343 400,000 309,218 2,142,308 2,757,191
Issuance of preferred stock
for cash, net of issuance
cost of $196,871
in July 1997 -- -- -- -- -- --
Issuance of common stock for
services April 1997
Exercise of common stock
options for cash
Repayment of note receivable
from shareholder
Issuance of common stock in
exchange for assets
acquired in a business
combination under the
purchase method
Exercise of common stock
options in exchange for a
receivable
Net loss
----------- ------------- ----------- ----------- ---------- -------------
Balances, December 31, 1997 800,000 $153,343 400,000 $309,218 2,142,308 $2,757,191
=========== ============= =========== =========== ========== =============
<CAPTION>
Series E Series F
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
------------------------- ----------------------- ------------------------
Shares Amount Shares Amount Shares Amount
----------- ------------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 3,112,500 $59,670
Issuance of preferred stock
for cash, net of issuance
cost of $33,650
in June 1996 1,576,800 $4,996,342
Issuance of common stock for
services, net of issuance
cost of $1,975 21,417 4,484
Exercise of common stock
options for cash 6,660 866
Forgiveness of notes
receivable from founders
Net loss
----------- ------------- ----------- ----------- ---------- -------------
Balances, December 31, 1996 1,576,800 4,996,342 -- -- 3,140,577 65,020
Issuance of preferred stock
for cash, net of issuance
cost of $196,871
in July 1997 2,100,844 $4,803,138
Issuance of common stock for
services April 1997 10,435 3,099
Exercise of common stock
options for cash 17,482 2,273
Repayment of note receivable
from shareholder
Issuance of common stock in
exchange for assets
acquired in a business
combination under the
purchase method 250,000 75,000
Exercise of common stock
options in exchange for a
receivable 15,020 1,953
Net loss
----------- ------------- ----------- ----------- ---------- -------------
Balances, December 31, 1997 1,576,800 $4,996,342 2,100,844 $4,803,138 3,433,514 $147,345
=========== ============= =========== =========== ========== =============
<CAPTION>
Notes
Receivable
from
Share- Accumulated
holders Deficit Total
----------- ------------- -----------
<S> <C> <C> <C>
Balances, December 31, 1995 ($22,313) ($1,832,202) $1,424,907
Issuance of preferred stock
for cash, net of issuance
cost of $33,650
in June 1996 4,996,342
Issuance of common stock for
services, net of issuance
cost of $1,975 4,484
Exercise of common stock
options for cash 866
Forgiveness of notes
receivable from founders 12,755 12,755
Net loss (4,029,667) (4,029,667)
----------- ------------- -----------
Balances, December 31, 1996 (9,558) (5,861,869) 2,409,687
Issuance of preferred stock
for cash, net of issuance
cost of $196,871
in July 1997 4,803,138
Issuance of common stock for
services April 1997 3,099
Exercise of common stock
options for cash 2,273
Repayment of note receivable
from shareholder 9,558 9,558
Issuance of common stock in
exchange for assets
acquired in a business
combination under the
purchase method 75,000
Exercise of common stock
options in exchange for a
receivable (1,953) --
Net loss (7,549,785) (7,549,785)
----------- ------------- -----------
Balances, December 31, 1997 ($1,953) ($13,411,654) ($247,030)
=========== ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
WAYFARER COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997 and 1996
---------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($7,549,785) ($4,029,667)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 187,273 105,523
Noncash charges 30,000 --
Changes in operating assets and liabilities:
Accounts receivable 89,921 (89,512)
Prepaid expenses 58,344 (65,120)
Other assets (48,334) (31,504)
Accounts payable and accrued liabilities 489,220 214,400
Customer deposits 14,928 --
Deferred revenue 640,246 80,826
Other payables 9,838 --
------------ ------------
Net cash provided by operating activities (6,078,349) (3,815,054)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (458,048) (54,691)
------------ ------------
Net cash used in investing activities (458,048) (54,691)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 1,500,000 --
Repayment of notes payable (1,500,000) (500,000)
Payments on capital lease (95,564) (60,926)
Proceeds from issuance of preferred stock,
net of issuance costs 4,803,138 4,996,342
Proceeds from exercise of stock options 2,273 866
Repayment of notes receivable from shareholder 9,558 12,755
------------ ------------
Net cash provided by financing activities 4,719,405 4,449,037
------------ ------------
Increase (decrease) in cash (1,816,992) 579,292
Cahs and cash equivalents at beginning of period 2,461,847 1,882,555
------------ ------------
Cash at end of period $644,855 $2,461,847
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $55,540 $40,847
============ ============
Supplemental disclosure of noncash activities:
Exercise of stock options in exchange for
notes receivable $1,953 --
Assets acquired under capital leases $8,308 $239,071
Issuance of common stock for services $3,099 $21,463
Issuance of common stock in exchange for assets
acquired in a business combination $75,000 --
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
WAYFARER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Formation and Business of the Company:
Wayfarer Communications, Inc. (the Company), was incorporated on October 1,
1993 for the purpose of designing, developing, and marketing software that
enables individuals and enterprises to extend the reach of existing networks
and information systems to their mobile workforces. During 1996, the
Company began to focus primarily on designing, developing and marketing
software that enables individuals to build high performance applications
that run over private intranets and the Internet.
2. Acquisition:
In September 1997, the Company acquired certain assets, liabilities and
operations of Torso, Inc. (Torso) in exchange for 250,000 shares of common
stock. Torso developed an internet software tool for publishing web sites
to multiple webcasting platforms, as well as advanced parsing technologies
to allow further segmentation of web page content. The acquisition was
accounted for as a purchase. Goodwill associated with the acquisition is
being amortized over three years.
3. Summary of Significant Accounting Policies:
Basis of Presentation:
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has not achieved
profitable operations and has deficits in working capital and shareholders'
equity as of December 31, 1997. The ability of the Company to continue in
existence is dependent on the eventual achievement of sustained profitable
operations and/or its ability to fund working capital requirements through
additional financing. These circumstances raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments related to the
recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
On June 18, 1998, the Company entered into an agreement to merge with
another company (Note 14).
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash and cash equivalents consist of highly liquid investments which mature
within three months or less of their purchase date and include investments
in money market accounts. Substantially all cash and cash equivalents are
on deposit with two financial institutions in amounts that exceed federal
insurance limits.
Property and Equipment:
Property and equipment is stated at cost and is depreciated using the
straight-line method over three to seven years. The Company also leases
certain computer hardware under a capital lease. The leased assets are
depreciated over their estimated useful lives of three years or the term of
the lease, whichever is shorter.
Revenue Recognition:
Software license fee revenue is recognized when an agreement has been
signed, the product has been shipped and the Company has no additional
significant obligations. The Company generally accounts for revenues
received in advance by deferring such amounts until the related products or
services are delivered or performed.
Computation of Historical Net Loss Per Share and Pro Forma Net
Loss Per Share:
Basic and diluted net loss per share is computed using the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares, comprising the incremental common shares issuable
upon the exercise of stock options and upon conversion of convertible
Preferred Stock, have not been included, as such shares are anti- dilutive.
Advertising Costs:
Advertising costs are charged to sales and marketing expenses as incurred
and amounted to $101,929 and $15,484, for the years ended December 31, 1997
and 1996, respectively.
Income Taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes,"
(SFAS No. 109). Under SFAS No.109, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities and the net operating loss and credit
carryforwards using enacted tax rates. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized.
Software Development Costs:
Software research and development costs include personnel costs and
materials consumed primarily in connection with software development
activities. All such costs have been charged to expense as there were no
amounts eligible for capitalization pursuant to Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed".
Impairment of Long-Lived Assets:
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived to be
Disposed Of." SFAS No. 121 requires recognition of impairment of
long-lived assets in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets. The Company
assesses the impairment of long-lived assets when events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash
investments (including money market accounts) and accounts receivable. The
Company places its temporary cash investments with two financial
institutions.
The Company performs ongoing credit evaluations within the context of the
industry in which it operates, does not require collateral and maintains
reserves for potential credit losses on customer accounts when deemed
necessary. Eight customers accounted for 60% of revenues for the year ended
December 31, 1997 and 54% of trade accounts receivable at December 31, 1997.
Six customers accounted for 76% of revenues for the year ended December
31, 1996 and 48% of trade accounts receivable at December 31, 1996.
Recently Issued Accounting Pronouncements:
During 1997, the Financial Accounting Standards Board released Statement No.
129, "Disclosure of Information About Capital Structure," Statement No. 130,
"Reporting Comprehensive Income," and No. 131, "Disclosure about Segments of
an Enterprise and Required Information," which are effective for the year
ending December 31, 1998. In addition, the American Institute of Certified
Public Accountants released Statement of Position (SOP) No. 97-2, "Software
Revenue Recognition," effective for the year ended December 31, 1998. The
Company has not determined the impact of implementing these pronouncements.
Stock-Based Compensation:
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting
for Stock-Based Compensation," which is effective for the Company's
financial statements for fiscal years beginning after December 15, 1995,
allows companies to either account for stock-based compensation under the
new provisions of SFAS No. 123 or under the provisions of Accounting
Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued
to Employees," but requires pro forma disclosure in the footnotes to the
financial statements as if the measurement provisions of SFAS No. 123 has
been adopted. The Company has elected to account for its stock based
compensation in accordance with the provisions of APB No. 25 and present pro
forma disclosures required by SFAS No. 123.
4. Property and Equipment:
As of December 31, 1997 and 1996, property and equipment consisted of
the following:
<TABLE>
<CAPTION>
---------------------------
1997 1996
---------------------------
<S> <C> <C>
Equipment under capital lease $296,811 $288,503
Furniture and fixtures 227,267 33,516
Computer and office equipment 444,150 164,853
------------- -------------
968,228 486,872
Less accumulated depreciation (349,436) (163,738)
------------- -------------
Property and equipment, net $618,792 $323,134
============= =============
</TABLE>
Accumulated amortization of assets under capital leases was $152,783
and $64,900 in 1997 and 1996, respectively.
5. Capital Lease Obligations:
The Company leases certain computer equipment and other equipment
under capital lease agreements with finance companies.
Future minimum lease payments under capital leases at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $113,576
1999 47,073
2000 530
-------------
Total minimum lease payments 161,179
Less amount representing interest 10,888
-------------
Present value of minimum lease payments 150,291
Less current portion of capital lease obligations 97,122
-------------
Long term portion $53,169
=============
</TABLE>
6. Income Taxes:
The Company has net operating loss carryforwards of approximately
$12,701,000 for both federal and state income tax purposes as of December
31, 1997. The federal and state net operating loss carryforwards expire in
the years 2012 and 2002, respectively.
The Company's ability to utilize its net operating loss carryforwards to
offset future taxable income is subject to restrictions attributable to
equity transactions that result in changes in ownership as defined in the
Tax Reform Act of 1986. These restrictions will limit, on an annual basis,
the Company's future use of its net operating loss carryforwards.
The estimated tax effect of temporary differences and carryforwards that
give rise to deferred income tax assets as of December 31 are as follows:
<TABLE>
<CAPTION>
---------------------------
1997 1996
---------------------------
<S> <C> <C>
Net operating loss carryforwards $5,059,000 $2,200,000
Other 323,000 109,000
------------- -------------
Deferred tax assets 5,382,000 2,309,000
Valuation allowance (5,382,000) (2,309,000)
------------- -------------
Net deferred tax assets $ -- $ --
============= =============
</TABLE>
Due to uncertainty surrounding the realization of the favorable tax
attributes in future years, the Company has placed a full valuation
allowance against its deferred tax assets. The change in the valuation
allowance was $3,073,000 and $1,595,700 for the years ended December 31,
1997 and 1996, respectively. As a result the Company has recognized no
benefit from favorable income tax attributes in 1997 or 1996.
7. Commitments:
The Company leases its office facilities under an operating lease agreement.
Future minimum obligations under the noncancelable operating lease at
December 31, 1997 total $353,656, all of which are due in 1998. Rent
expense under the operating lease totaled $235,935 and $231,086 during the
years ended December 31, 1997 and 1996, respectively.
8. Earnings Per Share:
The following is a reconciliation of the numerator and denominator of
basic and diluted EPS:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Numerator-Basic and Diluted EPS:
Net loss ($7,549,785) ($4,029,667)
Denominator-Basic and Diluted EPS:
Weighted average common
stock outstanding 3,208,929 3,083,793
------------- -------------
Basic and diluted loss per share: ($2.35) ($1.31)
============= =============
Pro Forma:
Diluted Earnings Per Share:
Weighted average common
stock outstanding 3,208,929 3,083,793
Assumed conversion of
preferred stock 5,799,736 4,096,242
------------- -------------
Net income (loss)/share-proforma ($0.84) ($0.56)
============= =============
</TABLE>
9. Shareholders' Equity:
Common Stock:
The Company has the right to repurchase shares issued to founders or
consultants upon termination of employment or relationship with the Company
at the original issuance price. The number of shares subject to the
Company's right of repurchase declines based upon vesting terms over a four
year period from the original issue date or immediately upon the effective
date of a merger or sale of the Company. Thereafter, the Company has the
right of first refusal, which expires upon a sale of the Company or upon
consummation of an underwritten public offering. At December 31, 1997 and
1996, 14,398 and 617,400 shares of the Company's outstanding common stock
are subject to repurchase,respectively.
Preferred Stock:
The Company is authorized to issue 8,801,708 shares of preferred stock, in
one or more series. As of December 31, 1997, 800,000 400,000, 2,161,308,
1,576,800 and 3,520,000 of these shares have been designated Series A,
Series C, Series D, Series E and Series F convertible preferred stock,
respectively.
Voting- The holders of the Series A, C, D, E, and F preferred stock are
entitled to one vote for each share of common stock into which the preferred
stock could then be converted. Such holders have full voting rights and
powers equal to those holders of common stock.
Dividends - The holders of the Series A, C, D, E and F preferred stock are
entitled to receive dividends at the rate of $0.02, $0.08, $0.10, $0.25 and
$0.19 per share per annum, respectively, when and if declared by the Board
of Directors. These dividends are in preference to any declaration or
payment of any dividend on the common stock of the Company and are
noncumulative.
Liquidation - In the event of any liquidation, the holders of the Series A,
C, D, E, and F preferred stock are entitled to receive, prior and in
preference to any distribution to the holders of the common stock, 0.20,
$0.80, $1.30, $3.19 and $2.38 per share, respectively, plus all declared but
unpaid dividends. If the assets and funds distributed among the holders of
the Series A, C, D, E, and F preferred stock are insufficient to permit the
payment to the holders of their respective full preferential amounts, then
the amounts available will be distributed ratably among the holders of the
Series A, C, D, E, and F preferred stock in proportion to the respective
preferential amount each such holder is entitled to receive.
Conversion - Each share of the Series A, C, D, E, and F preferred stock is
convertible at the holder's option, into one share of the Company's common
stock. The Series A, C, D, E, and F preferred stock will be automatically
converted into common stock based on the then applicable conversion rate in
the event of a public offering equal to or exceeding gross proceeds of
$15,000,000 and at a price not less than $10.00 per share of common stock.
10. Warrants:
In 1995 and 1996, the Company issued warrants to purchase preferred stock to
an equipment lease provider and in connection with a bridge loan. The fair
value of warrants issued with the financing and purchase transactions does
not have a material effect on the financial statements. At December 31,
1997, such warrants outstanding were as follows:
<TABLE>
<CAPTION>
Aggregate
Exercise
Shares Price Expiration Date
--------- ---------- ------------------------------
<S> <C> <C> <C>
Series D preferred stock 19,000 $24,700 The earlier of September 2005
or two years from date of
initial public offering.
Series F preferred stock 14,107 $100,000 The later of May 2007 or five
years from the date of an
initial public offering.
</TABLE>
11. Stock Options:
In January 1995, the Board of Directors approved an Employee Nonqualified
Stock Option Plan (the Plan) which allows the Board of Directors to grant
options to employees to purchase up to 1,732,000 shares of the Company's
common stock. In January 1997, the Board of Directors approved a 1997 Stock
Option Plan which allows the Board of Directors to grant options to
employees to purchase up to 700,000 shares of the Company's common stock.
The exercise price for options granted under the Plans may not be less than
85% of the fair value of common stock on date of grant as determined by the
Board of Directors. The options granted under the Plans become exercisable
in such a manner and within such period or periods as determined by the
Board of Directors and generally vest over 48 months. The options expire no
later than ten years after the date of grant.
The following summarizes the activity of the Plans for the years ended
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Outstanding Options
---------- -------------- ---------- -----------
Weighted
Number Exercise Aggregate Average
Of Price Exercise Exercise
Shares Per Share Price Price
---------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 337,700 $0.13 $43,901 $0.13
Options granted 1,430,000 $0.13-$0.30 327,850 $0.23
Options exercised (6,660) $0.13 (866) $0.13
Options canceled (64,740) $0.13 (8,416) $0.13
---------- -------------- ---------- -----------
Balances at December 31, 1996 1,696,300 $0.13-$0.30 362,469 $0.21
Options granted 726,750 $0.30 218,025 $0.30
Options exercised (32,502) $0.13 (4,226) $0.13
Options canceled (193,741) $0.13-$0.30 (41,438) $0.21
---------- -------------- ---------- -----------
Balances at December 31, 1997 2,196,807 $0.13-$0.30 534,830 $0.24
========== ============== ========== ===========
</TABLE>
At December 31, 1997, 575,485 options of common stock were exercisable.
The following summarizes information with respect to stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ---------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Life Price at 12/31/97 Price
- ------------------------------- ---------- -------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.13 710,657 8.08 $0.13 370,647 $0.13
$0.13 1,486,150 9.23 $0.30 204,838 $0.30
</TABLE>
The following information concerning the Plans is provided in accordance
with Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation". The Company accounts for the Plan in accordance
with Accounting Principles Board (APB) Opinion No. 25 and related
interpretations.
The fair value of each employee and director stock option grant has been
estimated on the date of grant using the minimum value method for grants in
1996 and the Black-Scholes Model for grants in 1997 with the following
weighted average assumptions used:
<TABLE>
<CAPTION>
------------- -------------
December 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Risk-free interest rates 5.75%-6.50% 5.75%-6.50%
Expected life 4 4
Dividends 0 0
Volatility 50% --
</TABLE>
The weighted average fair value per option for employee and director stock
options granted in 1997 and 1996 were $0.089 and $0.107, respectively.
The following pro forma net loss and loss per share information has been
prepared as if the Company had followed the provisions of SFAS 123:
<TABLE>
<CAPTION>
------------- -------------
December 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Net loss:
Historical ($7,549,785) ($4,029,667)
Pro Forma ($7,602,373) ($4,032,847)
Net loss/share-pro forma ($2.37) ($1.31)
</TABLE>
These pro forma amounts may not be representative of the effects of pro
forma net income (loss) for future years as options vest over several years
and additional awards are generally made each year.
12. 401(k) Profit Sharing Plan:
The Company sponsors a 401(k) Profit Sharing Plan which covers substantially
all employees. Under the plan, employees are permitted to contribute up to
15% of gross compensation not to exceed the annual 402(g) limitation for any
plan year. Discretionary contributions may be made.
13. Related Party Transactions:
The Company entered into a license agreement with one of its shareholders,
Sumitomo Corporation. As of December 31, 1997, the Company recorded
$450,000 in deferred revenue related to this contract.
14. Subsequent Events:
On June 18, 1998, the Company entered into a definitive merger agreement
with The Vantive Corporation ("Vantive"), a provider of front-office
automation software. Under the terms of the agreement, Vantive will assume
certain of the Company's obligations and issue approximately 179,000 shares
of Vantive common stock in exchange for all outstanding shares and
equivalents of the Company. This transaction will be accounted for as a
purchase, is expected to close during the second quarter of 1998, and is
subject to customary closing conditions.
Subsequent to year end, the Company entered into a bank line of credit
borrowing a total of $2,000,000 at an interest rate of prime plus 1%. The
line is collateralized by substantially all assets of the Company and
provides warrants to the lender to purchase shares of the Company' stock.
As of June 18, 1998 these amounts remain outstanding.
The Company has also entered into a loan agreement for approximately
$630,000 with Vantive. As of June 30, 1998, the Company recorded a
payable related to the loan.
EXHIBIT 7.2
THE VANTIVE CORPORATION AND
WAYFARER COMMUNICATIONS, INC.
PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(UNAUDITED)
In June 1998, The Vantive Corporation (the "Company" or "Vantive") acquired
Wayfarer Communications, Inc. ("Wayfarer"), a privately held California
corporation that specializes in web-based information delivery by merging a
wholly owned subsidiary of the Company into Wayfarer (the "Acquisition").
The acquisition of Wayfarer has been accounted for as a purchase.
The accompanying unaudited pro forma combined condensed statements of
operations for the fiscal year ended December 31, 1997 and six months ended
June 30, 1998 assumes that the acquisition took place as of the beginning of
each period, and combines the Company's and Wayfarer's statements of
operations for each company's respective period. The required pro forma
balance sheet with respect to the acquired business is incorporated by
reference to Vantive's quarterly report on Form 10-Q/A as of June 30, 1998
filed with the Commission on August 19, 1998.
The purchase price allocation reflected in the accompanying pro forma
combined condensed financial statements has been prepared on an estimated
basis. The effects resulting from any differences in the final allocation of
the purchase price are not expected to have a material effect on the
Company's financial statements.
The method of combining historical financial statements for the preparation
of the pro forma combined condensed financial statements is for presentation
only. Actual statements of income of the companies will be combined
commencing on the date of acquisition.
The accompanying pro forma combined condensed financial statements should be
read in conjunction with the historical financial statements and related
notes thereto for both the Company and Wayfarer.
THE VANTIVE CORPORATION AND
WAYFARER COMMUNICATIONS, INC.
PROFORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
--------------------------------------- ------------
Historical Historical Pro-Forma Pro-Forma
Vantive Wayfarer Adjustments Combined
------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
REVENUES
License $41,699 $48 $41,747
Service 32,323 -- 32,323
------------ ----------- ------------
Total revenues 74,022 48 74,070
COST OF REVENUES:
License 319 83 402
Service 18,249 -- 18,249
------------ ----------- ------------
Total cost of revenues 18,568 83 18,651
------------ ----------- ------------
GROSS MARGIN 55,454 (35) 55,419
OPERATING EXPENSES
Sales and marketing 30,317 1,339 31,656
Research and development 12,179 2,770 14,949
General and administrative 5,862 665 6,527
Acquired in-process research and development 8,206 -- (8,206)(a) --
Acquisition-related compensatory expense 1,290 -- (1,290)(b) --
Amortization of excess of cost of investment
over fair value of net assets acquired -- -- 98 (d) 98
------------ ----------- ------------
Total operating expenses 57,854 4,774 53,230
------------ ----------- ------------
INCOME (LOSS) FROM OPERATIONS (2,400) (4,809) 2,189
OTHER INCOME 424 (85) 339
------------ ----------- ------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (1,976) (4,894) 2,528
PROVISION FOR INCOME TAXES 2,305 -- (1,334)(e) 971
============ =========== ============
NET INCOME (LOSS) ($4,281) ($4,894) $1,557
============ =========== ============
NET INCOME(LOSS) PER BASIC SHARE ($0.17) $0.06
============ ============
NET INCOME (LOSS) PER DILUTED SHARE ($0.17)
============
NET INCOME PER ADJUSTED DILUTED SHARE $0.06
============
BASIC-SHARES USED IN PER SHARE COMPUTATION 25,525 166 (g) 25,691
DILUTED-SHARES USED IN PER SHARE COMPUTATION 25,525
ADJUSTED DILUTED-SHARES USED IN 25,525 1,798 (f) 27,489
PER SHARE COMPUTATION OF PRO FORMA 166 (g)
COMBINED NET INCOME
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
THE VANTIVE CORPORATION AND
WAYFARER COMMUNICATIONS, INC.
PROFORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
---------
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1997
----------------------------------------------------
Historical Historical Pro-Forma Pro-Forma
Vantive Wayfarer Adjustments Combined
------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
REVENUES
License $76,471 $609 $77,080
Service 40,875 -- 40,875
------------ ----------- ------------
Total revenues 117,346 609 117,955
COST OF REVENUES:
License 736 159 895
Service 22,748 -- 22,748
------------ ----------- ------------
Total cost of revenues 23,484 159 23,643
------------ ----------- ------------
GROSS MARGIN 93,862 450 94,312
OPERATING EXPENSES
Sales and marketing 45,811 4,554 50,365
Research and development 17,508 2,191 19,699
General and administrative 9,377 1,286 10,663
Acquired in-process research and development 21,121 -- 21,121
Amortization of excess of cost of investment
over fair value of net assets acquired -- -- 196 (c) 196
------------ ----------- ------------
Total operating expenses 93,817 8,031 102,044
------------ ----------- ------------
INCOME (LOSS) FROM OPERATIONS 45 (7,581) (7,732)
OTHER INCOME 1,305 31 1,336
------------ ----------- ------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 1,350 (7,550) (6,396)
PROVISION FOR INCOME TAXES 8,308 -- (2,787)(e) 5,521
============ =========== ============
NET INCOME (LOSS) ($6,958) ($7,550) ($11,917)
============ =========== ============
NET INCOME(LOSS) PER BASIC SHARE ($0.28) ($0.48)
============ ============
NET INCOME (LOSS) PER DILUTED SHARE ($0.28) ($0.48)
============ ============
BASIC-SHARES USED IN PER SHARE COMPUTATION 24,570 166 (g) 24,736
DILUTED-SHARES USED IN PER SHARE COMPUTATION 24,570 166 (g) 24,736
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
THE VANTIVE CORPORATION AND
WAYFARER COMMUNICATIONS, INC.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRO FORMA ADJUSTMENTS
Certain pro forma adjustments have been made to the accompanying pro
forma combined condensed financial statements as described below:
(a) Eliminates the in-process research and development expense for
approximately $8.2 million associated with the acquisition of 89% of the
common stock of Wayfarer as of June 30, 1998.
(b) Eliminates the compensatory expense of $1.2 million directly
associated with the acquisition of Wayfarer as of June 30, 1998.
(c) Reflects amortization for twelve months of the excess of cost of
investment over the fair value of net assets acquired of
approximately $980,000, which will be amortized on a straight line
basis over five years.
(d) Reflects amortization for six months of the excess of cost of
investment over the fair value of net assets acquired of
approximately $980,000, which will be amortized on a straight line
basis over five years.
(e) Reflects the income tax benefit to the consolidated entity due to
net operating losses incurred by Wayfarer (based on the effective
tax rates of 37% for the year ended December 31, 1997 and June 30,
1998) and the fact that goodwill amortization amounts are non-
deductible in this transaction.
(f) Reflects common stock equivalents added back under the treasury
stock method due to Vantive's income position after adjusting for pro
forma adjustments.
(g) Reflects the impact of common stock issued in the acquisition as
if outstanding from the beginning of each period.
NOTE 2. PURCHASE PRICE ALLOCATION
In connection with the acquisition, the Company issued 163,969 shares
of its common stock and assumed all outstanding warrants in exchange
for 2,251 shares of the Company's common stock in exchange for
approximately 89% of Wayfarer shares. In addition, the Company
received $101,000 in cash as part of the acquisition. The Company
anticipates that it will record charges associated with acquiring
the remaining minority interest of approximately 11% upon the
completion of the acquisition of the remaining shares in the quarter
ending September 30, 1998. The fair value of the acquired assets
and liabilities were included in the Company's financial statements
beginning on the acquisition date. The Company also accrued
acquisition-related costs of approximately $1,245,000.
