<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): JANUARY 13, 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 January 27, 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: March 28, 1997 By: /s/ Timothy J. Moore
-----------------------------------
Timothy J. Moore,
Vice President, General Counsel and
Secretary
(a) Audited financial statements of Cognisoft Corporation for the period
from April 2, 1996 (date of inception) to January 13, 1997, are
attached hereto and filed herewith as Exhibit 7.1.
(b) Pro forma financial information of Cognisoft Corporation 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 Cognisoft
Corporation for the period from April 2, 1996
(date of inception) to January 13, 1997.
7.2 Pro forma financial information of Cognisoft
Corporation.
<PAGE> 3
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Cognisoft Corporation
We have audited the accompanying balance sheet of Cognisoft Corporation
(a development stage company) as of January 13, 1997, and the related
statements of operations, changes in shareholders' equity, and cash flows for
the periods from April 2, 1996 (date of inception) to June 30, 1996, July 1,
1996 to January 13, 1997, and April 2, 1996 (date of inception) to January 13,
1997. 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 audit 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 audit provides 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 Cognisoft Corporation as of
January 13, 1997, and the results of its operations and cash flows for the
periods from April 2, 1996 (date of inception) to June 30, 1996, July 1, 1996
to January 13, 1997, and April 2, 1996 (date of inception) to January 13, 1997,
in conformity with generally accepted accounting principles.
Clark & Associates, P.S.
Bellevue, Washington
February 19, 1997
<PAGE> 4
INDEX TO EXHIBITS
Exhibit Document
- ------- --------
7.1 Audited financial statements of Cognisoft Corporation
for the period from April 2, 1996 (date of inception)
to January 13, 1997.
7.2 Pro forma financial information of Cognisoft
Corporation.
<PAGE> 1
EXHIBIT 7.1
COGNISOFT CORPORATION
(A Development Stage Company)
BALANCE SHEET
January 13, 1997
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 189,786
Prepaid expenses ............................................... 6,872
Deposits ....................................................... 43,110
---------
Total current assets ..................................... 239,768
Property and equipment, at cost:
Computer equipment ............................................. 234,068
Office equipment ............................................... 31,870
Leasehold improvements ......................................... 4,800
---------
270,738
Less accumulated depreciation and amortization ................. 32,956
---------
237,782
Other assets:
Deposits ....................................................... 70,000
Organization costs, net ........................................ 780
---------
70,780
Total assets ............................................. $ 548,330
=========
LIABILITIES
Current liabilities:
Accounts payable ............................................... $ 113,527
Accrued liabilities:
Salaries and payroll taxes ................................... 29,389
Vacation ..................................................... 13,434
Interest ..................................................... 3,455
Current portion of capital lease obligations ................... 109,700
---------
Total current liabilities ................................ 269,505
Capital lease obligations, net of current portion ................ 76,667
Note payable ..................................................... 150,000
Deferred rent .................................................... 3,427
---------
Total liabilities ........................................ 499,599
STOCKHOLDERS' EQUITY
Preferred stock:
Series A convertible preferred stock, no par value; 1,000,000
shares authorized, 569,283 shares issued and outstanding,
$1,138,566 liquidation preference ............................ 793,947
Convertible preferred stock, no par value; 4,000,000 shares
authorized, no shares issued or outstanding .................. --
Common stock, no par value; 30,000,000 shares authorized,
1,250,000 shares issued and outstanding ...................... 12,400
Deficit accumulated during the development stage ............... (757,616)
---------
Total stockholders' equity ............................... 48,731
Total liabilities and stockholders' equity ............... $ 548,330
=========
The accompanying notes are an integral part of these financial statements.
<PAGE> 2
EXHIBIT 7.1
COGNISOFT CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Periods from April 2, 1996 (Date of Inception) to June 30, 1996,
July 1, 1996 to January 13, 1997, and
April 2, 1996 (Date of Inception) to January 13, 1997
<TABLE>
<CAPTION>
April 2, 1996 July 1, 1996 April 2, 1996
(Date of Inception) to (Date of Inception)
to June 30, 1996 January 13, 1997 to January 13, 1997
------------------- ---------------- -------------------
<S> <C> <C> <C>
Operating expenses:
Research and development ............. $ 35,587 $ 308,671 $ 344,258
Sales and marketing .................. 28,240 257,318 285,558
General and administrative ........... 8,740 118,415 127,155
--------- --------- ---------
Total operating expenses ....... 72,567 684,404 756,971
Other income (expense):
Interest income ...................... 2,922 11,752 14,674
Interest expense ..................... -- (15,319) (15,319)
--------- --------- ---------
Total other income (expense) ... 2,922 (3,567) (645)
--------- --------- ---------
Net loss ............................... $ (69,645) $(687,971) $(757,616)
========= ========= =========
Net loss per share ..................... $ (0.06) $ (0.55) $ (0.61)
========= ========= =========
Number of shares used in per share
calculation .......................... 1,250,000 1,250,000 1,250,000
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
COGNISOFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
January 13, 1997
NOTE 1: DESCRIPTION OF THE COMPANY AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
Cognisoft Corporation (the "Company") was incorporated on April 2, 1996
in the State of Washington. The Company's operations have been
primarily devoted to research and development, including the
development of business - oriented Internet software tools and
applications, as well as raising capital, obtaining financing, and
administrative functions.
Cash and Cash Equivalents
The Company defines cash and cash equivalents as all cash and short
term investments with original maturity dates of three months or less,
including checking and savings accounts, certificates of deposit,
commercial paper, and money market funds.
Financial Instruments
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash
equivalents. The Company places its cash and cash equivalents with high
credit quality institutions. At times such amounts may be in excess of
the FDIC insurance limits.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization, which include the amortization of assets acquired under
capital leases, are recorded on a straight - line basis for financial
statement purposes and accelerated methods for federal income tax
purposes. Estimated useful lives of the assets are as follows:
<TABLE>
<CAPTION>
Useful life
Asset in years
----------------------- --------
<S> <C>
Computer equipment 3
Office equipment 5
Leasehold improvements 3
</TABLE>
Assets acquired under capital lease obligations are amortized over the
estimated useful life of the related asset. Leasehold improvements are
amortized over the shorter of their estimated useful lives or the life
of the related lease.
4
<PAGE> 4
COGNISOFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
January 13, 1997
NOTE 1: DESCRIPTION OF THE COMPANY AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment (continued)
Expenditures for major renewals and improvements that extend the useful
lives of property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred. When
property and equipment are retired or otherwise disposed of, the cost
and related accumulated depreciation or amortization are removed from
the accounts and the resulting gain or loss is recognized.
Use of Estimates in the Preparation of Financial Statements
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 amount of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2: RESEARCH AND DEVELOPMENT
Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed,
requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based
upon the Company's product development process, technological
feasibility is expected to be established upon completion of a
commercially viable working model. The Company's products have not
reached technological feasibility as of January 13, 1997. Therefore, no
capitalization of software development costs has been included on the
accompanying balance sheet.
Research and development expenses, principally the design and
development of software products, are expensed as incurred.
5
<PAGE> 5
COGNISOFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
January 13, 1997
NOTE 3: NOTE PAYABLE
On December 6, 1996, the Company entered into a $500,000 bridge loan
agreement with Verity, Inc. ("Verity"). Advances under the terms of the
loan agreement are secured by substantially all of the Company's assets
and bear interest at the Bank of America's prime rate plus 2.00 percent
per annum (10.25% interest at January 13, 1997). Principal and accrued
interest are due and payable on June 30, 1999, but may be paid before
that date without penalty.
On December 11, 1996, the Company borrowed $150,000 under the terms of
the bridge loan agreement.
NOTE 4: INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes,
which adopts the liability method of comprehensive interperiod income
tax accounting.
Deferred federal income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial statement purposes and the amounts used for federal income
tax purposes. Deferred tax assets or liabilities are determined using
the tax rate expected to be in effect when these taxes are actually
recovered or paid.
At January 13, 1997, the Company's deferred tax assets consist
primarily of net operating loss and research and development credit
carry forwards of approximately $189,000 and $14,000, respectively.
These carry forwards will expire in 2011 if not used by then.
At January 13, 1997, a 100% valuation allowance has been recognized to
offset the related deferred tax assets due to the uncertainty of
realizing the benefit of the net operating loss and research and
development credit carry forwards.
NOTE 5: CAPITAL LEASE OBLIGATIONS
In June 1996, the Company purchased computer equipment with a cost of
$94,371, which was sold and subsequently leased back in July 1996. In
accordance with the requirements of Statement of Financial Accounting
Standards No. 13, Accounting For Leases, the effect of the sale and
leaseback transaction was properly recorded by the Company as a capital
lease.
6
<PAGE> 6
COGNISOFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
January 13, 1997
NOTE 5: CAPITAL LEASE OBLIGATIONS (CONTINUED)
The Company also entered into five additional financing leases to
purchase computer equipment. Each of the capital leases contains a
bargain purchase option.
A summary of assets acquired under capital leases is as follows:
<TABLE>
<S> <C>
Computer equipment, at cost $ 224,460
Less accumulated depreciation 29,824
---------
Net book value $ 194,636
=========
</TABLE>
The following is a schedule by years of future minimum payments
required under these capital lease agreements together with their
present value:
<TABLE>
<CAPTION>
Twelve Month Periods
Ending January 13,
--------------------
<S> <C>
1998 $ 136,537
1999 82,115
Thereafter --
---------
Total minimum lease payments 218,652
Less amount representing interest (32,285)
---------
Present value of minimum lease payments 186,367
Less current portion 109,700
---------
$ 76,667
=========
</TABLE>
NOTE 6: SHAREHOLDERS' EQUITY
Preferred Stock
The Company has authorized for issuance a total of 5,000,000 shares of
convertible preferred stock, and has designated 1,000,000 shares as
Series A convertible preferred stock ("Series A preferred stock"). As
of January 13, 1997, the Company has 569,283 shares of Series A
preferred stock issued and outstanding. Dividends are not payable on
the Series A preferred stock.
7
<PAGE> 7
COGNISOFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
January 13, 1997
NOTE 6: SHAREHOLDERS' EQUITY (CONTINUED)
Preferred Stock (continued)
Each share of Series A preferred stock is convertible, at the holders'
option, into one share of the Company's common stock. The conversion
rate is subject to adjustment to reflect consolidations, stock
dividends, stock splits, reorganizations, and the like. The Series A
preferred stock is converted automatically into common stock in the
event of an initial public offering of the Company's common stock in
which the aggregate proceeds received by the Company exceed
$10,000,000. In such an event, the Series A preferred stock
shareholders will receive the number of shares of common stock into
which the shares of Series A convertible preferred stock were
convertible to on the date such conversion occurred.
Convertible preferred stock has voting rights equal to its common stock
equivalent. Each share of preferred stock has a priority as to
dividends, if declared, and is entitled to a liquidation preference.
With respect to liquidation preference, Series A preferred stock
shareholders will be entitled to receive, in preference to holders of
common stock, an amount equal to $2.00 per share of Series A preferred
stock held.
Common Stock
The Company has reserved common stock sufficient to effect the
conversions of all outstanding shares of the Series A preferred stock.
The Company has also authorized 250,000 shares of common stock to be
reserved for grants pursuant to the Company's 1996 Stock Option Plan.
Stock Options
The Company's 1996 Stock Option Plan (the "Plan") provides for the
issuance of up to 250,000 non - qualified and incentive stock options,
under which officers, directors, and key employees may be granted
options to purchase the Company's common stock. The Board of Directors
is authorized to administer the Plan and establish the stock option
terms, including the grant price and vesting period.
Stock options vest over a four - year period, provided that, the Plan
administrator may accelerate vesting at times which shall be determined
at its sole discretion. The vesting of options also shall be
accelerated if the Company is involved in any transactions such as
stock dividends, reorganization or liquidation, or changes in control.
8
<PAGE> 8
COGNISOFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
January 13, 1997
NOTE 6: SHAREHOLDERS' EQUITY (CONTINUED)
Stock Options (continued)
Options may be exercised during continued employment or generally
within ninety days of terminating employment and expire ten years from
the date of grant.
Option activity for the period from April 2, 1996 to January 13, 1997,
is as follows:
<TABLE>
<CAPTION>
Number Option Aggregate
of Price Exercise
Shares per Share Price
-------- --------- ---------
<S> <C> <C> <C>
Granted:
October, 1996 124,500 $ .35 $ 43,575
November, 1996 7,500 .35 2,625
December, 1996 5,000 .35 1,750
-------- ------- ---------
Outstanding, January 13, 1997 137,000 $ .35 $ 47,950
======== ======= =========
Exercisable -- $ .35 $ --
======== ========= =========
</TABLE>
At January 13, 1997, stock options have a weighted average remaining
contractual life of approximately 9.75 years.
All stock options that have been granted are designated as non-
qualified.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), which is effective for fiscal
years beginning after December 15, 1995. This Statement encourages, but
does not require, entities to adopt the fair value based method which
measures compensation cost for those stock option plans using the
intrinsic value - based accounting prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25").
Therefore, the Company has elected to continue following APB 25 and
related interpretations in accounting for its Plan.
9
<PAGE> 9
COGNISOFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
January 13, 1997
NOTE 6: SHAREHOLDERS' EQUITY (CONTINUED)
Stock Options (continued)
However, if the Company had elected to recognize the compensation cost
based on the fair value of the options granted at grant date as
prescribed by SFAS 123, the net loss for the applicable periods would
have increased to the pro forma amounts shown below:
<TABLE>
<CAPTION>
April 2, 1996
July 1, 1996 (Date of Inception)
to January 13, to January 13,
1997 1997
-------------- -------------------
<S> <C> <C>
Net loss - as reported $ (687,971) $ (757,616)
=========== ============
Net loss - pro forma $ (688,652) $ (758,297)
=========== ============
</TABLE>
For purposes of the pro forma disclosure above, the estimated fair
value of the options is amortized to expense over the options' vesting
period of four years, and the weighted fair value of the options
granted during the periods presented is estimated to be $.07 per share.
The fair value for these options was estimated at the date of grant
using the minimum value pricing model with the weighted - average
assumptions as follows for the periods from July 1, 1996 to January 13,
1997, and April 2, 1996 to January 13, 1997, respectively: using zero
volatility (because the Company is a nonpublic company), a risk - free
interest rate of 6%, and a weighted-average expected life of the option
of 4 years. No options were granted for the period from April 2, 1996
to June 30, 1996.
The minimum value pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are
fully transferable. Also, option valuation models require the input of
highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
10
<PAGE> 10
COGNISOFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
January 13, 1997
NOTE 7: COMMITMENTS
Operating Leases
The Company leases office facilities in Bellevue, Washington. Rent
expense is amortized on a straight - line basis over the periods in
which the benefit from the property is derived. The Company also leases
certain office equipment under operating leases.
Total minimum future rental payments under these noncancelable leases
are as follows:
<TABLE>
<CAPTION>
Twelve Month Periods Office Office
Ending January 13, Facilities Equipment Total
-------------------- ---------- --------- ---------
<S> <C> <C> <C>
1998 $ 114,150 $ 4,686 $ 118,836
1999 133,050 4,489 137,539
2000 100,800 3,032 103,832
2001 -- 350 350
Thereafter -- -- --
--------- --------- ---------
$ 348,000 $ 12,557 $ 360,557
========= ========= =========
</TABLE>
During the periods from April 2, 1996 to June 30, 1996, July 1, 1996 to
January 13, 1997, and April 2, 1996 to January 13, 1997, rent expense
was $2,400, $30,727, and $33,127, respectively.
NOTE 8: OPERATIONS
During the period from April 2, 1996 (date of inception) through
January 13, 1997, the Company incurred an operating loss of
approximately $758,000, and a negative cash flow from operations of
approximately $568,000.
However, management believes that the Company has made significant
progress in the development of its products, although the Company's
ability to complete development of its products and successfully market
them in an increasingly competitive market is not assured. Management
believes that its technologies and the expertise of its staff can best
be utilized within the framework of a larger software company which has
a marketing and distribution infrastructure already in place.
Accordingly, in October 1996, the management of the Company and Verity
began discussions concerning the possible acquisition of the Company by
Verity.
11
<PAGE> 11
COGNISOFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
January 13, 1997
NOTE 8: OPERATIONS (CONTINUED)
It was in connection with those discussions that the Company entered
into the $500,000 bridge loan agreement with Verity.
In January 1997, Company shareholders approved the merger of the
Company and Verity. Under the terms of the merger, the Company became a
wholly - owned subsidiary of Verity, and each share of the Company's
common and preferred stock was converted into the right to receive an
amount of cash equal to $10,000,000 divided by the aggregate number of
shares of common stock outstanding plus the number of shares of common
stock which may be issued upon exercise of outstanding stock options.
12
<PAGE> 1
EXHIBIT 7.2
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Company completed its acquisition of Cognisoft Corporation (Cognisoft)
on January 13, 1997. The accompanying unaudited pro forma consolidated condensed
balance sheet of the Company combines the historical consolidated balance sheet
of the Company and the balance sheet of Cognisoft as if such transactions had
occurred on November 30, 1996.
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 and the statement of
operations of Cognisoft as if the acquisition had occurred on June 1, 1995. The
accompanying unaudited pro forma consolidated condensed statement of operations
for the six months ended November 30, 1996 combines the unaudited historical
consolidated statement of operations of the Company and the statement of
operations of Cognisoft as if the acquisition had occurred on June 1, 1995. The
unaudited pro forma consolidated condensed financial statements give effect to
the acquisition of Cognisoft using the purchase method of accounting, and
reflect the allocation of the purchase price of approximately $10.1 million
primarily to purchased in-process research and development which has been
expensed at the date of the acquisition.
The 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 pro forma consolidated condensed
financial statements should be read in conjunction with the Company's historical
Consolidated Financial Statements and the financial statements of Cognisoft and
the notes thereto included or incorporated elsewhere herein.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
November 30, 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Verity, Inc. Cognisoft Adjustment Consolidated
------------ --------- ---------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments .................................. $27,074 $190 $(10,000)(1) $17,264
Accounts receivable .............................................. 12,682 -- -- 12,682
Prepaid and other current assets ................................. 1,644 50 -- 1,694
------- ---- -------- -------
Total current assets ..................................... 41,400 240 (10,000) 31,640
Property and equipment, at cost, net of accumulated depreciation
and amortization ................................................. 9,030 238 -- 9,268
Long-term investments .............................................. 12,579 -- -- 12,579
Other assets ....................................................... 765 70 -- 835
------- ---- -------- -------
Total assets ............................................. $63,774 $548 $(10,000) $54,322
======= ==== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease
obligations .................................................... $ 460 $109 $ -- $ 569
Trade accounts payable and other accrued liabilities ............. 6,462 160 -- 6,622
Deferred revenue ................................................. 3,434 -- -- 3,434
------- ---- -------- -------
Total current liabilities ................................ 10,356 269 -- 10,625
Long-term debt and capital lease obligations,
net of current portion ........................................... 401 230 -- 631
------- ---- -------- -------
Total liabilities ........................................ 10,757 499 -- 11,256
------- ---- -------- -------
Stockholders' equity ............................................... 53,017 49 (10,000)(1) 43,066
------- ---- -------- -------
Total liabilities and stockholders' equity ............... $63,774 $548 $(10,000) $54,322
======= ==== ======== =======
</TABLE>
1
<PAGE> 2
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Verity, Inc. Cognisoft Adjustment Consolidated
------------ --------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues ........................................... $ 30,718 $ -- $ -- $ 30,718
Cost of revenues ................................... 4,859 -- -- 4,859
-------- ---- ------- --------
Gross profit ..................................... 25,859 -- -- 25,859
-------- ---- ------- --------
Operating expenses:
Research and development ......................... 8,488 36 -- 8,524
Acquisition of in-process research
and development ................................ 381 -- -- 381
Marketing and sales .............................. 14,912 28 -- 14,940
General and administrative ....................... 3,469 9 -- 3,478
-------- ---- ------- --------
Total operating expenses ................. 27,250 73 -- 27,323
-------- ---- ------- --------
Loss from operations ............................... (1,391) (73) -- (1,464)
Other income, net .................................. 1,078 3 -- 1,081
-------- ---- ------- --------
Net loss ........................................... $ (313) $(70) $ -- $ (383)
======== ==== ======= ========
Net loss ........................................... $ (313) $(70) $ -- $ (383)
Accretion to redemption value of mandatorily
redeemable convertible preferred stock ........... (611) -- -- (611)
-------- ---- ------- --------
Net loss applicable to common stockholders ......... $ (924) $(70) $ -- $ (994)
======== ==== ======= ========
Net loss per share ................................. $ (0.12) $ (0.13)
======== ========
Number of shares used in per share calculation ..... 7,829 7,829
======== ========
</TABLE>
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Verity, Inc. Cognisoft Adjustment Consolidated
------------ --------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues ..................................... $ 20,408 $ -- $ -- $ 20,408
Cost of revenues ............................. 3,472 -- -- 3,472
-------- ----- ----- --------
Gross profit ............................... 16,936 -- -- 16,936
-------- ----- ----- --------
Operating expenses:
Research and development ................... 6,789 238 -- 7,027
Marketing and sales ........................ 9,988 198 -- 10,186
General and administrative ................. 2,352 91 -- 2,443
-------- ----- ----- --------
Total operating expenses ........... 19,129 527 -- 19,656
-------- ----- ----- --------
Loss from operations ......................... (2,193) (527) -- (2,720)
Other income, net ............................ 1,132 (3) -- 1,129
-------- ----- ----- --------
Net loss ..................................... $ (1,061) $(530) $ -- $ (1,591)
======== ===== ===== ========
Net loss per share ........................... $ (0.10) $ (0.15)
======== ========
Number of shares used in per share
calculation ................................ 10,779 10,779
======== ========
</TABLE>
Note 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.
2
