<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K/A
AMENDMENT NO. 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): MAY 30, 1997
--------------
VERITY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-26880 77-0182779
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer)
incorporation or organization) Identification No.)
894 ROSS DRIVE
SUNNYVALE, CALIFORNIA 94089
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 541-1500
<PAGE> 2
The undersigned hereby amends the following items of its Current Report
dated June 13, 1997 on Form 8-K as set forth in the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
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.
VERITY, INC.
Date: August 13, 1997 By: /s/ Timothy J. Moore
-----------------------------------
Timothy J. Moore,
Vice President, General Counsel and
Secretary
(a) Audited financial statements of the Keyview operations of FTP
Software, Inc. for the years ended December 31, 1995 and 1996, are
attached hereto and filed herewith as Exhibit 7.1.
(b) Unaudited pro forma consolidated condensed financial statements
required pursuant to Article 11 of Regulation S-X, is attached
hereto and filed herewith as Exhibit 7.2.
(c) The following exhibits are attached hereto and filed herewith:
7.1 Audited financial statements of the Keyview
operations of FTP Software, Inc. for the years
ended December 31, 1995 and 1996.
7.2 Unaudited pro forma consolidated condensed
financial statements.
<PAGE> 3
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
7.1 Audited financial statements of the Keyview operations of FTP
Software, Inc. for the years ended December 31, 1995 and 1996.
7.2 Unaudited pro forma consolidated condensed financial statements.
<PAGE> 1
Exhibit 7.1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors of
Verity, Inc.:
We have audited the accompanying balance sheets of the Keyview Operations of FTP
Software, Inc. ("the Company") as of December 31, 1995 and 1996 and the related
statements of operations, statements of parent company investment and divisional
equity and statements of cash flows for the years ended December 31, 1995 and
1996. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Keyview Operations of FTP
Software, Inc. as of December 31, 1995 and 1996, and the related results of its
operations and its cash flows for the years ended December 31, 1995 and 1996, in
conformity with generally accepted accounting principles.
On March 1, 1995, the Company was acquired by FTP Software, Inc. ("FTP") as part
of the acquisition of Keyword Office Technologies Ltd. and from March 1, 1995 to
May 30, 1997, the Company was a subsidiary of FTP. On May 30, 1997, the Company
was sold to Verity Inc. As explained in Note 2 to the financial statements,
certain of the costs and expenses presented in the financial statements
represent intercompany allocations and management estimates of the costs of
services provided by FTP. As a result, the financial statements presented may
not be indicative of the financial position or results of operations that would
have been achieved had the Company operated as a nonaffiliated entity.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
July 30, 1997
<PAGE> 2
KEYVIEW OPERATIONS OF FTP SOFTWARE, INC.
BALANCE SHEETS
December 31, 1995 and 1996 and March 31, 1997
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------- ----
ASSETS 1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash $179 $285 $ 37
Prepaid expenses and other current assets 20 14 20
Inventory 48 21 23
---- ---- ----
Total current assets 247 320 80
Property and equipment, net (Note 3) 321 291 273
---- ---- ----
Total assets $568 $611 $353
==== ==== ====
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable and accrued expenses $228 $107 $ 75
Deferred revenue 17 34 35
---- ---- ----
Total current liabilities 245 141 110
Commitments and contingencies (Note 5)
Parent company investment and divisional equity 323 470 243
---- ---- ----
Total liabilities and divisional equity $568 $611 $353
==== ==== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 3
KEYVIEW OPERATIONS OF FTP SOFTWARE, INC.
STATEMENTS OF OPERATIONS
for the years ended December 31, 1995 and 1996 and the three-month periods ended
March 31, 1996 and 1997 (in thousands)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1995 1996 1996 1997
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Product revenue $ 364 $ 695 $ 114 $ 311
Service revenue 6 30 5 11
------- ------- ------- -------
Total revenue 370 725 119 322
------- ------- ------- -------
Cost of revenue:
Product cost 40 58 9 21
Service cost 122 122 34 48
------- ------- ------- -------
Total cost of revenue 162 180 43 69
------- ------- ------- -------
Gross margin 208 545 76 253
------- ------- ------- -------
Operating expenses:
Sales, general and administrative 1,560 1,679 601 502
Product development 1,587 906 256 293
------- ------- ------- -------
Total operating expenses 3,147 2,585 857 795
------- ------- ------- -------
Loss from operations (2,939) (2,040) (781) (542)
Interest income 24 9 2 1
------- ------- ------- -------
Net loss $(2,915) $(2,031) $(779) $(541)
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
KEYVIEW OPERATIONS OF FTP SOFTWARE, INC.
STATEMENTS OF PARENT COMPANY
INVESTMENT AND DIVISIONAL EQUITY
for the years ended December 31, 1995 and 1996 and the three-month period ended
March 31, 1997 (in thousands)
<TABLE>
<CAPTION>
THREE-MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
--------------- ------
1995 1996 1997
------ ------ ------
(Unaudited)
<S> <C> <C> <C>
Balance, beginning of period $ 126 $ 323 $ 470
Net loss (2,915) (2,031) (541)
Net transfers from FTP Software, Inc. 3,112 2,178 314
------ ------ ------
Balance, end of period $ 323 $ 470 $ 243
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
KEYVIEW OPERATIONS OF FTP SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995 and 1996 and the three-month periods ended
March 31, 1996 and 1997 (in thousands)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1995 1996 1996 1997
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,915) $(2,031) $ (779) $ (541)
Adjustments to reconcile net loss
to net cash used for operating activities:
Depreciation 59 105 25 30
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (17) 6 (9) (6)
Inventory (48) 27 25 (2)
Accounts payable and accrued expenses 131 (121) (36) (33)
Deferred revenue 17 17 15 1
------- ------- ------- -------
Net cash used for operating activities (2,773) (1,997) (759) (551)
------- ------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment (160) (75) -- (24)
Proceeds from sale of property and equipment -- -- -- 13
------- ------- ------- -------
Net cash used for investing activities (160) (75) -- (11)
------- ------- ------- -------
Cash flows from financing activities:
Net advances from parent 3,112 2,178 718 314
------- ------- ------- -------
Net (decrease) increase in cash and cash equivalents 179 106 (41) (248)
Cash and cash equivalents, beginning of period -- 179 179 285
------- ------- ------- -------
Cash and cash equivalents, end of period $ 179 $ 285 $ 138 $ 37
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
KEYVIEW OPERATIONS OF FTP SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF OPERATIONS INCLUDED IN THE ACCOMPANYING FINANCIAL STATEMENTS:
On May 30, 1997, Verity, Inc. acquired substantially all of the assets
and liabilities of the Keyview Operations of FTP Software, Inc., for
approximately $1.5 million in cash. Prior to the acquisition by FTP
Software, Inc. ("FTP" or "Parent") of Keyword Office Technologies Ltd.
("Keyword") on March 1, 1995, Keyword was an independent company. The
accompanying balance sheets, statements of operations, statements of
parent company investment and divisional equity and statements of cash
flows present the carved-out portion of the Keyview Operations of FTP
Software, Inc. This carved-out portion is herein referred to as the
"Company". Certain expenses are the result of allocations of total
expenses incurred by FTP. The Company has incurred losses for the last
two years, however, Verity Inc. has agreed to guarantee any cash flow
shortfalls arising from the operation of the Company through at least
August 1998. Accordingly, the accompanying financial statements may not
necessarily reflect the financial position, results of operations and
cash flows of the Company in the future, or what they would have been had
the Company been a separate entity during the periods presented.
2. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
ALLOCATION OF COST OF REVENUE
Cost of revenue, which was primarily related to the Company's
Canadian operations, was allocated based on specific payroll data.
ALLOCATION OF OPERATING EXPENSES
Expenses have been allocated based on a variety of methods
depending on the nature of the expense. The Company allocated
general and administrative expenses of FTP based on headcount
equivalents. The Company's revenue was used to apply this
equivalent to determine the total general and administrative
expenses related to the Company. The Company allocated selling
expenses of FTP based on the Company's revenue amounts for each
period presented.
6
<PAGE> 7
KEYVIEW OPERATIONS OF FTP SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
In addition, operating expenses, including product development,
related to the Company's Canadian operations were allocated based
on actual payroll data and management's estimates of time by
department.
Management believes that the cost of revenue and operating
expenses allocated to the Company using these methods are
reasonable.
REVENUE RECOGNITION
Revenue is generally recognized from the license of software upon
shipment when collection of the resulting receivable is deemed
probable. At the time the Company recognizes revenue from licensed
software products, no significant vendor or post-contract support
obligations remain. Service revenue includes revenue from support,
training and consulting. Payments received in advance for support
contracts are initially recorded as deferred revenue and are
recognized ratably over the term of the contract, typically one year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions. These estimates and assumptions 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 periods. The most significant estimates included in
these financial statements are the allocations of corporate expenses
from FTP. Actual results may differ from estimates.
RISKS AND UNCERTAINTIES
The Company is subject to risks common to companies in the software
industry, including but not limited to, development by its competitors
of new technology, dependence on key personnel and protection of
proprietary technology.
The Company sells its products outside the United States primarily
through a network of resellers in North and South America, Europe, the
Middle East, Canada, and Asia Pacific. In the United States, the
Company distributes its products through multiple channels, including
direct sales, value-added resellers, systems integrators, OEMs and
distributors.
INVENTORIES
Inventories, consisting of finished goods and raw materials are stated
at the lower of cost, determined on a first-in, first-out basis, or
market.
Continued
7
<PAGE> 8
KEYVIEW OPERATIONS OF FTP SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Raw materials $28 $ 9
Finished goods 20 12
--- ---
$48 $21
=== ===
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives, ranging from
four to seven years.
Expenditures for maintenance and repairs are expensed as incurred.
Upon retirement or other disposition of assets, the cost and related
accumulated depreciation are eliminated from the accounts and the
resulting gain or loss is included in net loss.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Canadian operations are translated into
U.S. dollars at period-end rates of exchange. Expenses are translated
into U.S. dollars at average rates of exchange for the period.
Resulting translation adjustments are immaterial for all periods
presented. Gains and losses from foreign currency transactions, which
are immaterial, are included in net loss.
PARENT COMPANY INVESTMENT AND DIVISIONAL EQUITY
A significant portion of the Company's operating expenses are incurred
by FTP and charged to the Company. Additionally, the Company's
receivables are collected by FTP as they appear on FTP's overall
invoices. All such intercompany charges and accounts receivable are
recorded as a component of divisional equity.
ACCOUNTING FOR STOCK-BASED COMPENSATION
FTP adopted Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," during 1996. This
Statement defines a fair value based method of accounting for
stock-based employee compensation and requires that companies either
recognize compensation expense for grants of stock, stock options and
other equity instruments or provide pro forma disclosure of net income
(loss) and net income (loss) per share in the notes to the financial
statements. FTP elected to continue measuring compensation costs for
those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. As such,
the adoption of this Statement has no effect on the Company's actual
Continued
8
<PAGE> 9
KEYVIEW OPERATIONS OF FTP SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
results of operations. The pro-forma amount allocable to the Company
is not material for the years ended December 31, 1995 and 1996.
PRODUCT DEVELOPMENT COSTS
Costs related to research, design and development of computer software
are charged to product development expense as incurred. The Company
capitalizes eligible software costs incurred after technological
feasibility of the product has been established, which is generally
demonstrated by the initial beta release. The capitalizable costs of
internally developed software to date have not been material.
In March 1995, FTP acquired substantially all of the assets of Keyword
for approximately $2.4 million. The transaction was accounted for as a
purchase. FTP allocated approximately $1.3 million primarily to
completed technology, which is not related to the product's of the
Company and therefore is not included in the accompanying financial
statements of the Company. In addition, FTP allocated approximately
$1.1 million to in-process technology for products being developed for
the Keyview product, which has been charged to product development
expense of the Company for the year ended December 31, 1995.
INCOME TAXES
Deferred income tax assets and liabilities arise from temporary
differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that are expected to
result in taxable or deductible amounts in future years. The Company
periodically evaluates the realizability of its deferred tax assets. A
valuation allowance against net deferred tax assets is established if,
based on the available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. On a
stand-alone basis, the Company had losses before income taxes. No
estimated income tax benefits have been reflected for these losses.
For income tax purposes, the Company's results have been consolidated
with the results of FTP and, accordingly, there is no net operating
loss carryforward available to the Company.
UNAUDITED INTERIM PERIOD FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial
statements contain all adjustments which are of a normal recurring
nature, necessary to present fairly the Company's results of
operations and cash flows for the three-month periods ended March 31,
1996 and 1997. Interim financial results are not necessarily
indicative of operating results for the entire year.
Continued
9
<PAGE> 10
KEYVIEW OPERATIONS OF FTP SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31
DECEMBER 31, 1997
1995 1996 (UNAUDITED)
----- ----- -----
<S> <C> <C> <C>
Furniture and fixtures $ 87 $ 97 $ 100
Computer equipment and software 293 358 367
----- ----- -----
380 455 467
Accumulated depreciation (59) (164) (194)
----- ----- -----
$ 321 $ 291 $ 273
===== ===== =====
</TABLE>
Depreciation expense was $59,000 and $105,000 for the years ended
December 31, 1995 and 1996, respectively.
4. PROFIT SHARING RETIREMENT PLAN:
FTP sponsored a profit-sharing retirement plan for eligible employees
of the Company, established under the Canadian provisions of a
Registered Retirement Savings Plan. The employer contribution is
defined under the Canadian provisions of a Registered Deferred Profit
Sharing Plan (the "Plan"). The Company did not participate in the Plan
in 1995. Participants may defer a portion of their annual compensation
(between 0% and 12%) on a pre-tax basis up to a maximum of
approximately $5,500 per year. Contributions by FTP to the Plan are at
the discretion of FTP's Board of Directors but limited to 50% of
employee contributions. FTP's contribution amounted to approximately,
$0 and $71,000 for the years ended December 31, 1995 and 1996,
respectively, related to the Company.
FTP does not currently offer post-retirement or post-employment
benefits.
Continued
10
<PAGE> 11
KEYVIEW OPERATIONS OF FTP SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. COMMITMENTS AND CONTINGENCIES:
The Company leases its administrative office facility under a
long-term noncancelable operating lease agreement expiring on February
28, 1998. The agreement generally requires the payment of utilities,
real estate taxes, insurance and repairs. Total rent expense for the
years ended December 31, 1995 and 1996 amounted to approximately
$55,000 and $60,000, respectively.
At December 31, 1996, future minimum annual rental payments required
under the operating lease agreement are as follows (in thousands):
<TABLE>
<S> <C>
1997 $46
1998 7
-----
$53
=====
</TABLE>
In September 1994, Keyview entered into a joint software development
contract with a French distributor. The agreement stated that an
unrelated French company would earn a royalty on future sales of the
jointly developed product. The agreement also included a penalty
clause if sales did not reach a specified sales amount by May 31,
1998. During 1996, the French distributor entered bankruptcy and
therefore stopped development. The specified sales amount was never
achieved. To date, there has been no enforcement of this penalty
clause and management believes that future claims are unlikely.
6. SIGNIFICANT CUSTOMERS:
No single customer accounted for more than 10 percent of the Company's
total revenue for the years ended December 31, 1995 and 1996.
11
<PAGE> 1
Exhibit 7.2
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Company completed its acquisition of the Keyview operations of FTP
Software, Inc. (Keyview) on May 30, 1997. The accompanying unaudited pro forma
consolidated condensed balance sheet of the Company combines the historical
consolidated balance sheet of the Company as of February 28, 1997 and the
balance sheet of Keyview as of March 31, 1997 as if such transaction had
occurred on February 28, 1997.
The accompanying unaudited pro forma consolidated condensed statement
of operations for the fiscal year ended May 31, 1996 combines the historical
consolidated statement of operations of the Company for the year ended May 31,
1996 and the statement of operations of Keyview for the year ended December 31,
1995 as if the acquisition had occurred on June 1, 1995. The accompanying
unaudited pro forma consolidated condensed statement of operations for the nine
months ended February 28, 1997 combines the unaudited historical consolidated
statement of operations of the Company for the nine months ended February 28,
1997 and the statement of operations of Keyview for the year ended December 31,
1996, reduced by the results of operations for the three months ended March 31,
1996, as if the acquisition had occurred on June 1, 1995. The unaudited pro
forma consolidated condensed financial statements give effect to the acquisition
of Keyview using the purchase method of accounting, and reflect the allocation
of the purchase price of approximately $1.3 million primarily to purchased
in-process research and development in the amount of $1.1 million, which has
been expensed at the date of the acquisition as it had no alternative future use
and relates to products for which technological feasibility had not been
established, and purchased software in the amount of $184,000. The remainder of
the purchase price has been allocated to the remaining tangible assets and
liabilities.
The unaudited pro forma consolidated condensed financial statements do
not purport to represent what the Company's results of operations would have
been had the acquisition occurred on the dates indicated or for any future
period or date. The pro forma adjustments give effect to available information
and assumptions that the Company believes are reasonable. The unaudited pro
forma consolidated condensed financial statements should be read in conjunction
with the Company's historical Consolidated Financial Statements and the
financial statements of Keyview and the notes thereto included or incorporated
elsewhere herein.
<PAGE> 2
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
February 28, 1997
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Verity, Inc. Keyview Adjustments Consolidated
ASSETS -------- -------- -------- --------
<S> <C> <C> <C> <C>
Current Assets:
Cash and short-term investments $ 22,920 $ 37 $(1,300)(1) $ 21,657
Accounts receivable 8,554 8,554
Prepaid expenses 1,769 20 1,789
Inventory 23 23
-------- -------- -------- --------
Total current assets 33,243 80 (1,300) 32,023
Property and equipment, at cost,
net of accumulated depreciation 9,182 273 (192)(1) 9,263
Long-term investments 10,188 10,188
Other assets 870 184 (1) 1,054
-------- -------- -------- --------
Total assets $ 53,483 $ 353 $ (1,308) $ 52,528
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt and capital lease
obligations $ 648 $ 648
Trade accounts payable and other accrued liabilities 6,695 $ 75 6,770
Deferred revenue 3,568 35 3,603
-------- -------- --------
Total current liabilities 10,911 110 11,021
Long-term debt and capital lease obligations,
net of current portion 291 291
-------- -------- --------
Total liabilities 11,202 110 11,312
Parent company investment and divisional equity 243 $ (243)(1)
Stockholders' equity 42,281 (1,065)(1) 41,216
-------- -------- -------- --------
Total liabilities and stockholders' equity $ 53,483 $ 353 $ (1,308) $ 52,528
======== ======== ======== ========
</TABLE>
<PAGE> 3
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the year ended May 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Verity, Inc. Keyview Adjustments Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 30,718 $ 370 $ 31,088
Cost of revenues 4,859 162 $ 61 (3) 5,082
-------- -------- -------- --------
Gross profit 25,859 208 (61) 26,006
-------- -------- -------- --------
Operating expenses:
Research and development 8,488 1,587 10,075
Acquisition of in-process research
and development 381 381
Marketing and sales 14,912 14,912
General and administrative 3,469 1,560 5,029
-------- -------- -------- --------
Total operating expenses 27,250 3,147 30,397
-------- -------- -------- --------
Loss from operations (1,391) (2,939) (61) (4,391)
Other income, net 1,078 24 (77)(4) 1,025
-------- -------- -------- --------
Net loss $ (313) $ (2,915) $ (138) $ (3,366)
======== ======== ======== ========
Accretion to redemption value of mandatorily
redeemable convertible preferred stock $ (611) $ (611)
======== ========
Net loss applicable to common stockholders $ (924) $ (3,977)
======== ========
Net loss per share $ (0.12) $ (0.51)
======== ========
Number of shares used in per share calculation 7,829 7,829
======== ========
</TABLE>
<PAGE> 4
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the nine months ended February 28, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Verity, Inc. Keyview Adjustments Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 31,531 $ 725 $ (119)(2) $ 32,137
Cost of revenues 4,975 180 3 (2)(3) 5,158
-------- -------- -------- --------
Gross profit 26,556 545 (122) 26,979
-------- -------- -------- --------
Operating expenses:
Research and development 10,839 906 (256)(2) 11,489
Acquisition of in-process research
and development 10,029 10,029
Marketing and sales 15,454 15,454
General and administrative 3,548 1,679 (601)(2) 4,626
-------- -------- -------- --------
Total operating expenses 39,870 2,585 (857) 41,598
-------- -------- -------- --------
Loss from operations (13,314) (2,040) 735 (2) (14,619)
Other income, net 1,428 9 (59)(2)(4) 1,378
-------- -------- -------- --------
Net loss $(11,886) $ (2,031) $ 676 (2) $(13,241)
======== ======== ======== ========
Net loss per share $ (1.10) $ (1.23)
======== ========
Number of shares used in per share calculation 10,800 10,800
======== ========
</TABLE>
Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements
(1) The amount of the purchase price allocated to purchased
research and development, which had no alternative future use
and relates to products for which technological feasibility
had not been established, was expensed at the acquisition
date. Due to the non-recurring nature of the purchased
research and development, it has been assumed to have been
charged to operations before the beginning of the pro forma
periods. The difference between the total purchase price and
the amount expensed to research and development was allocated
to the tangible and intangible assets and liabilities of
Keyview's balance sheet as of February 28, 1997.
(2) Elimination of the results of operations for the three months
ended March 31, 1996 from Keyview's results of operations for
the year ended December 31, 1996 to arrive at the
representative nine months of operations.
(3) Amortization of purchased technology of $184,000 for twelve
months ended May 31, 1996 and nine months ended February 28,
1997, respectively, over an estimated life of three years.
(4) Reduction of interest income from cash used in the purchase of
Keyview for the twelve months ended May 31, 1996 and nine
months ended February 28, 1997, respectively.
