EX-99 2 0002.txt EXHIBIT 99.2 Exhibit 99.2 Pacific Marketing and Consulting, Inc. and Subsidiaries Consolidated Financial Statements As of October 31, 1999 and for the Year Then Ended Report of Independent Accountants To the Board of Directors and Stockholders of Pacific Marketing and Consulting, Inc. and Subsidiaries In our opinion, the accompanying consolidated balance sheet and the related consolidated statement of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Pacific Marketing and Consulting, Inc. and Subsidiaries at October 31, 1999, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These consolidated financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP July 28, 2000, except for Notes 6 and 13, which are dated August 30, 2000 Pacific Marketing and Consulting, Inc. and Subsidiaries Consolidated Balance Sheet October 31, 1999 Assets Current assets: Cash and cash equivalents $ 367,825 Accounts receivable 1,231,695 Note receivable (Note 3) 548,542 Prepaid expenses and other current assets 134,778 ----------- Total current assets 2,282,840 Property and equipment, net (Note 4) 549,748 Deferred income taxes (Note 8) 160,000 Capitalized software development costs, net of accumulated amortization of $194,150 125,000 Other intangibles, net of accumulated amortization of $1,097,186 3,840,175 Other assets 9,827 ----------- Total assets $ 6,967,590 ----------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 65,569 Accrued liabilities 76,374 Accrued income taxes 394,000 Deferred revenue 506,680 Deferred income taxes (Note 8) 648,000 Lines of credit (Note 5) 800,000 Current portion of long-term debt (Note 6) 2,974,395 ----------- Total current liabilities 5,465,018 Long-term debt, less current portion (Note 6) 88,484 ----------- Total liabilities 5,553,502 Commitments and contingencies (Note 10) Minority interest 73,603 Stockholders' equity: Class A voting common stock, no par value; 1,000,000 shares authorized; 1,120 shares issued and outstanding 28,000 Class B voting common stock, no par value; 1,000,000 shares authorized; 120 shares issued and outstanding 3,000 Retained earnings 1,335,225 Accumulated other comprehensive loss (Note 7) (25,740) ----------- Total stockholders' equity 1,340,485 ----------- Total liabilities and stockholders' equity $ 6,967,590 ----------- The accompanying notes are an integral part of these consolidated financial statements. Pacific Marketing and Consulting, Inc. and Subsidiaries Consolidated Statement of Operations Year Ended October 31, 1999 Revenues: Software licenses $ 4,052,918 Maintenance and service 2,701,946 ------------ 6,754,864 ------------ Cost of revenues: Software licenses 256,950 Maintenance and service 1,953,813 ------------ 2,210,763 ------------ Gross profit 4,544,101 ------------ Operating expenses: Selling and marketing 1,343,823 Research and development 1,414,960 Amortization 1,247,398 General and administrative 328,021 ----------- Total operating expenses 4,334,202 ----------- Income from operations 209,899 Other income (expense), net: Interest income 82,638 Interest expense (212,308) Loss on disposal of equipment (1,322) ----------- Income before income tax provision and minority interest 78,907 Income tax provision (Note 8) 32,000 ----------- 46,907 Minority interest 94,006 ----------- Net income $ 140,913 ----------- Net income per basic common share: Basic earnings per share $ 114 Weighted average shares - basic 1,240 Net income per diluted common share: Diluted earnings per share $ 114 Weighted average shares - diluted 1,240 The accompanying notes are an integral part of these consolidated financial statements. Pacific Marketing and Consulting, Inc. and Subsidiaries Consolidated Statement of Stockholders' Equity Year Ended October 31, 1999 Accumulated Common Stock Other Total ------------- Retained Comprehensive Comprehensive Shares Amount Earnings Income(Loss) Total Loss ------- ------- ----------- ---------- ----------- -------- Balance, Oct. 31,1998 1,240 $31,000 $1,194,312 $ 34,443 $1,259,755 Net income for the year - - 140,913 140,913 $140,913 Other comprehensive loss (60,183) (60,183) (60,183) ------- ------ -------- ----------- --------- --------- Balance, October 31,1999 1,240 $31,000 $1,335,225 $ (25,740) $1,340,485 $80,730 The accompanying notes are an integral part of these consolidated financial statements. Pacific Marketing and Consulting, Inc. and Subsidiaries Consolidated Statement of Cash Flows Year Ended October 31, 1999 Cash flows from operating activities: Net income $ 140,913 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,549,889 Deferred income tax benefit (184,000) Loss on disposal of equipment 1,322 Minority interest (94,006) Foreign currency translation (60,183) Changes in operating assets and liabilities: Accounts receivable (207,215) Prepaid expenses and other current assets (62,314) Other assets 1,690 Accounts payable (323,078) Accrued liabilities 225,948 Deferred revenue 241,387 ---------- Net cash provided by operating activities 1,230,353 ---------- Cash flows from investing activities: Capital expenditures (140,401) Capitalization of internally developed software costs (193,450) Proceeds received under note receivable 576,583 ---------- Net cash provided by investing activities 242,732 ---------- Cash flows from financing activities: Proceeds from lines of credit 300,000 Payments on long-term notes payable (1,921,149) Proceeds from note payable 46,666 ---------- Net cash used by financing activities (1,574,483) ---------- Decrease in cash and cash equivalents (101,398) Cash and cash equivalents, beginning of year 469,223 ---------- Cash and cash equivalents, end of year $ 367,825 ---------- Supplemental disclosures of cash flow information: Cash paid during the year for: Income taxes $ 161 ---------- Interest $ 212,308 ---------- Supplemental noncash investing and financing activities: Assets acquired through long-term notes payable $ 4,937,361 ---------- The accompanying notes are an integral part of these consolidated financial statements. Pacific Marketing and Consulting, Inc. and Subsidiaries Notes to Consolidated Financial Statements October 31, 1999 1. Description of Business Pacific Marketing and Consulting, Inc. (the Company) develops, markets and supports software tools for engineering applications such as computational fluid dynamics and structural design and analysis. The Company's products and services are marketed and sold to companies principally in the United States and Europe that operate in a variety of industries, including automotive, aerospace and electronics. 2. Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its 90% owned German subsidiary, CFD and Structural Engineering GmbH, and its 99% owned French subsidiary, ICEM CFD Engineering. All significant intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition The Company's products are sold primarily through direct sales in the United States and distributors who are resellers with respect to the Company's products in foreign locations. Revenue is derived principally from the licensing of computer software products, either on an annual lease or perpetual basis, and from related maintenance contracts. Revenue from product licensing for perpetual licenses is recognized upon delivery of the product, acceptance by the customer and receipt of a signed contractual obligation, provided that no significant Company obligations remain and collection of the receivable is probable. A portion of the license fee from noncancelable annual leases is recognized as paid-up revenue upon inception of the lease. The remaining portion is recognized ratably over the remaining lease period. Revenue for monthly lease licenses is recognized monthly, as earned, because the lease license agreements can be cancelled by the customers with 30 days notice. Revenue from maintenance contracts is recognized ratably over the term of the contract. Costs related to maintenance obligations are expensed as incurred. Revenue from training, support and other services is recognized as the services are performed. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are recorded at cost, which approximates fair value. Property and Equipment Property and equipment are recorded at cost and depreciated on the straight-line method over the estimated useful lives of the various classes of assets, which range from three to five years. Repairs and maintenance expenditures, which are not considered betterments and do not extend the useful lives of the property and equipment, are expensed as incurred. The cost and related accumulated depreciation applicable to property and equipment no longer in service are eliminated from the accounts and any gain or loss is included in operations. Capitalized Software Internally developed computer software costs and costs of product enhancements are capitalized subsequent to the determination of technological feasibility; such capitalization continues until the product becomes available for general release. Amortization of capitalized software costs for internally developed software is computed on a product-by-product basis over the estimated economic life of the product, which is generally six months. Amortization is the greater of the amount computed using: (i) the ratio of the current year's gross revenue to the total current and anticipated future gross revenue for that product or (ii) the straight-line method over the estimated life of the product. Other Intangible Assets Other intangible assets, which consists of purchased software products and customer lists, are stated at cost and are amortized on a straight-line basis over their estimated useful lives of three years. Impairments of Long-Lived Assets The Company periodically reviews the carrying value of long-lived assets and impairments are recognized in the results of operations when the expected future undiscounted operating cash flow derived from the assets is less than its carrying value. Research and Development Costs Research and developments costs are expensed as incurred. Income Taxes Deferred income taxes are recorded using the liability method. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Foreign Currency Translation The Company's foreign subsidiaries use the local currency as their functional currency. Assets and liabilities are translated at year-end exchange rates. Items of income and expense are translated at average exchange rates for the year. Translation gains and losses are not included in determining net income (loss) but are accumulated as a separate component of stockholders' equity. Segment Information The Company follows the provisions of SFAS No.131 "Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for reporting information about operating segments, products and services, geographic areas and major customers. The Company manages and operates its business as one segment. Earnings per share Net income per basic common share is computed using the weighted average number of common shares outstanding during each period. Net income per diluted common share is computed using the weighted average number of common and common equivalent shares outstanding during each period. Common equivalent shares are not included in the per share calculations where their inclusion would be anti-dilutive. Concentrations of Credit Risk and Other Risks and Uncertainties Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents, trade receivables and note receivable. The Company's cash and cash equivalents are concentrated primarily in several domestic and foreign banks. At times, such deposits may be in excess of insured limits. The Company's products are principally sold to entities in the automotive, aerospace and electronics industries in the United States and Europe. Ongoing credit evaluations of customers' financial condition are performed and collateral is generally not required. 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 the disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. 3. Notes Receivable The Company had a note receivable with an unrelated third party with an imputed interest rate of 8% and a balance of $548,542 at October 31, 1999. The note was repaid in full in December 1999. 4. Property and Equipment Property and equipment at October 31, 1999 consists of the following: Computer and office equipment $ 1,058,095 Computer software 35,830 Furniture and fixtures 10,114 ------------------ 1,104,039 Less accumulated depreciation (554,291) ----------------- $ 549,748 ----------------- Depreciation expense related to property and equipment was $288,172 for the year ended October 31, 1999. 5. Commercial Credit Agreement The Company had a commercial credit agreement with a financial institution providing for borrowings under a revolving line of credit and a non-revolving line of credit. The revolving line of credit provided for maximum borrowings of $250,000. Borrowings under the revolving line of credit, which expired January 31, 2000, accrued interest at prime (8.25% at October 31, 1999) plus 0.75%. At October 31, 1999, there was $250,000 outstanding under the revolving line of credit. The non-revolving line of credit, which expired January 5, 1999, provided for borrowings of $500,000. Borrowings under the commercial credit agreement were secured by all the assets of the Company and guaranteed by the Company's major stockholders. In addition, the commercial credit agreement contained certain restrictive covenants, the most restrictive of which included financial ratios. At October 31, 1999, the Company was in violation with one of these financial ratios. In November 1999, the Company repaid the outstanding balance on the revolving line of credit of $250,000. In addition, the Company had a line of credit agreement with a financial institution providing for maximum borrowings of $550,000. Borrowings under the line accrued interest at prime (8.25% at October 31, 1999) plus 0.75%. At October 31, 1999, there was $550,000 outstanding under the line of credit. Borrowings under the agreement, which expired on December 31, 1999, were secured by all the assets of the Company and guaranteed by the Company's major stockholders. In addition, the line of credit agreement contained certain restrictive covenants, the most restrictive of which included financial ratios. At October 31, 1999 , the Company was in violation with one of these financial ratios. In November 1999, the Company repaid the outstanding balance on the $550,000. 6. Long-Term Debt Long-term debt consisted of the following at October 31, 1999: Term notes (A) $ 3,016,213 Promissory note with former stockholder (B) 46,666 ------------- 3,062,879 Less current portion 2,974,395 ------------- $ 88,484 ------------- (A) On March 1, 1999, the Company entered into an agreement with another company to purchase the right, title, interests and copyrights in the intellectual property, referred to as ICEM CFD for approximately $4,500,000. In addition, the Company purchased customer lists and contracts with resellers of ICEM CFD for approximately $429,000. The Company issued two separate notes for $4,508,014 and $429,347, respectively, in connection with the purchase agreement. The notes accrue interest at 7% and are payable through September 30, 2001 under a specified payment schedule. On August 30, 2000, the Company paid the remaining outstanding balances under the notes of $2,375,396 and $216,596, respectively, and accordingly, the entire balance of the notes at October 31, 1999 are classified as current liabilities in the accompanying balance sheet(see Note 13). (B) On September 15, 1999, the Company entered into a promissory note with the spouse of a deceased stockholder to purchase the deceased stockholder's interest in CFD and Structural Engineering GmbH. 7. Other Comprehensive Loss Other comprehensive loss consisted of the following at October 31, 1999: Foreign currency translation $ (83,133) Tax effect 22,950 -------------- Other comprehensive loss $ (60,183) -------------- 8. Income Taxes The provision for income taxes for the year ended October 31, 1999 is comprised of the following: Current: Federal $ 338,000 State 41,000 Foreign (benefit) (163,000) -------------- 216,000 Deferred: -------------- Federal (146,000) State (38,000) -------------- (184,000) -------------- Total $ 32,000 -------------- The reconciliation of the federal statutory tax rate to the consolidated effective tax rate is as follows: Federal statutory tax rate 34.0% State income taxes, net of federal benefit 2.5 Other 4.1 --------------- 40.6% --------------- The components of deferred tax assets and liabilities are as follows: Deferred tax assets: Capitalized software costs and other intangibles $ 223,000 --------- 223,000 --------- Deferred tax liabilities: Property and equipment 63,000 Cash basis accruals 648,000 --------- 711,000 --------- Net deferred tax liabilities $ 488,000 --------- 9. Royalty Agreements The Company has entered into various renewable non-exclusive license agreements under which the Company has been granted access to the licensor's patent technology and the right to sell the patent technology in the Company's product line. Royalties are payable to developers of the software at various rates and amounts generally based upon unit sales or revenue. Royalty fees, which are included in cost of revenues, were approximately $179,000 for the year ended October 31, 1999. 10. Commitments and Contingencies The Company leases office space under operating lease agreements expiring at various dates through September 2003. Total rent expense amounted to approximately $195,000 for the year ended October 31, 1999. Future minimum lease payments under the noncancelable operating leases in effect at October 31, 1999 as follows: 2000 $ 210,000 2001 178,000 2002 146,000 2003 137,000 ----------- $ 671,000 ----------- 11. Geographic Information Revenues by geographic area is as follows: United Other States Germany Europe Total Revenues $5,271,436 $1,189,891 $293,537 $6,754,864 Substantially all of the Company's long-lived assets are in the United States. 12. Employee Benefit Plans The Company maintains a 401(k) profit-sharing plan (the Plan) for all qualifying full-time employees. Each eligible employee may elect to contribute to the Plan up to 10% of eligible compensation. The Company may make discretionary matching contributions. The Company made no matching contributions for the year ended October 31, 1999. 13. Subsequent Event In May 2000, the Company executed a line of credit agreement with a financial institution providing for maximum borrowings of $250,000. Borrowings under the line accrue interest at prime plus 2.00%. Borrowings under the agreement, which expires on January 31, 2001, were secured by all the assets of the Company and guaranteed by the Company's major stockholders. In addition, the line of credit agreement contains certain restrictive covenants, the most restrictive of which include financial ratios. In August 2000, ANSYS, Inc. loaned PMAC approximately $1,366,000, which was used by PMAC to pay down a portion of the long-term debt balance then outstanding. On August 30, 2000, the Company entered into an agreement with ANSYS, Inc. to sell the Company to ANSYS, Inc. for an up-front purchase price of approximately $12,400,000, which is comprised of both cash and common stock of ANSYS, Inc. In addition, the agreement provides for future payments contingent upon the attainment of certain performance criteria. Pacific Marketing & Consulting, Inc. and Subsidiaries Unaudited Condensed Consolidated Financial Statements As of April 30, 2000 and For the Six Months Ended April 30, 2000 and 1999 Pacific Marketing and Consulting, Inc. and Subsidiaries Unaudited Condensed Consolidated Balance Sheet (in 000's,except share amounts) April 30, 2000 Assets Current assets: Cash and cash equivalents $ 913 Accounts receivable 1,499 Prepaid expenses and other current assets 181 ------------ Total current assets 2,593 Property and equipment, net 558 Capitalized software development costs, net 8 Other intangibles, net 3,027 Deferred income taxes 443 ------------ Total assets $ 6,629 ------------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 174 Accrued liabilities 1,386 Deferred revenue 664 Deferred income taxes 316 Lines of credit 175 Current portion of long-term debt 2,573 ------------ Total current liabilities 5,288 Minority interest 75 Stockholders' equity: Class A voting common stock, no par value; 1,000,000 shares authorized; 1,120 shares issued and outstanding 28 Class B voting common stock, no par value; 1,000,000 shares authorized; 120 shares issued and outstanding 3 Retained earnings 1,302 Accumulated other comprehensive loss (67) ------------ Total stockholders' equity 1,266 ------------ Total liabilities and stockholders' equity $ 6,629 ------------ The accompanying notes are an integral part of these condensed consolidated financial statements. Pacific Marketing and Consulting, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Operations (in 000's,except share amounts) Six Months Ended April 30, 2000 and 1999 2000 1999 Revenues --------- ------- Software licenses $ 2,807 $ 1,758 Maintenance and service 1,726 1,297 --------- -------- 4,533 3,055 --------- -------- Cost of revenues: Software licenses 97 42 Maintenance and service 989 1,044 --------- -------- 1,086 1,086 --------- -------- Gross profit 3,447 1,969 --------- -------- Operating expenses: Selling and marketing 1,060 627 Research and development 984 733 Amortization 957 376 General and administrative 454 150 --------- -------- Total operating expenses 3,455 1,886 --------- -------- Income (loss) from operations (8) 83 Other income (expense), net: Interest income 37 51 Interest expense (107) (61) --------- -------- Income (loss) before income tax provision and minority interest (78) 73 Income tax provision (benefit) (46) 27 --------- -------- (32) 46 Minority interest (1) 103 --------- -------- Net income (loss) $ (33) $ 149 --------- -------- Net income (loss) per basic common share Basic earnings per share $ (27) $ 120 Weighted average shares - basic 1,240 1,240 Net income (loss) per diluted common share: Diluted earnings per share $ (27) $ 120 Weighted average shares - diluted 1,240 1,240 The accompanying notes are an integral part of these condensed consolidated financial statements. Pacific Marketing and Consulting, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Cash Flows (in 000's) Six Months Ended April 30, 2000 and 1999 2000 1999 Cash flows from operating activities: ------- ------- Net income (loss) $ (33) $ 149 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,032 585 Deferred income tax benefit (615) (164) Minority interest 1 (103) Foreign currency translation (41) 2 Changes in operating assets and liabilities: Accounts receivable (267) (408) Prepaid expenses and other assets (36) 68 Accounts payable and accrued liabilities 1,023 (225) Deferred revenue 157 200 ------- ------- Net cash provided by operating activities 1,221 104 ------- ------- Cash flows from investing activities: Proceeds received under note receivable 548 1,140 Capitalization of internally developed software costs - (64) Capital expenditures (110) (62) ------- ------- Net cash provided by investing activities 438 1,014 ------- ------- Cash flows from financing activities: Payments on lines of credit and notes payable,net (1,114) (1,206) ------- ------- Cash used in financing activities (1,114) (1,206) ------- ------- Increase (decrease) in cash and cash 545 (88) equivalents Cash and cash equivalents, beginning of period 368 469 ------- ------- Cash and cash equivalents, end of period $ 913 $ 381 ------- ------- Supplemental disclosures of cash flow information: Cash paid during the period for: Income taxes $ -- $ -- Interest $ 107 $ 61 Supplemental noncash investing and financing activities Assets acquired through long-term notes payable $ -- $ 4,937 The accompanying notes are an integral part of these condensed consolidated financial statements. Pacific Marketing & Consulting, Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include the accounts of Pacific Marketing and Consulting, Inc. and Subsidiaries (PMAC), and have been prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of those of a normal, recurring nature necessary for a fair presentation of the financial position, results of operations and cash flows of PMAC at the date and for the periods indicated. While management believes that the disclosures presented are adequate to make the information not misleading, these financial statements should be read in conjunction with the audited financial statements of PMAC for the year ended October 31, 1999 included elsewhere in this Form 8-K/A. Operating results for the six months ended April 30, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ended October 31, 2000. 2. SUBSEQUENT EVENT In August 2000, ANSYS, Inc. loaned PMAC approximately $1,366,000, which was used by PMAC to pay down a portion of the long-term debt balance then outstanding. The Company was sold to ANSYS, Inc. on August 31, 2000.