-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C6ayiQTSlvpJlYowSpubuEShPeAghWJy1oMHF0Dm8zyF1kagx/dld6xH8svkC45z 4XF9GNjAiHOqWRGhNBj/AQ== 0000950005-97-000444.txt : 19970423 0000950005-97-000444.hdr.sgml : 19970423 ACCESSION NUMBER: 0000950005-97-000444 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970116 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970422 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOOLE & BABBAGE INC CENTRAL INDEX KEY: 0000734394 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 941651571 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-13258 FILM NUMBER: 97585263 BUSINESS ADDRESS: STREET 1: 3131 ZANKER ROAD CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4085263000 MAIL ADDRESS: STREET 1: 3131 ZANKER ROAD CITY: SAN JOSE STATE: CA ZIP: 95134 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A 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 16, 1997 Commission File Number 0-132-58 BOOLE & BABBAGE, INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 94- 1651571 -------- ----------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 3131 Zanker Road, San Jose, California 95134-1933 ------------------------------------------------- (Address of principal executive offices) Registrant's Telephone number, including area code: 408-526-3000 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial statements of business acquired. MAXM Systems Corporation are filed herewith: Report of Coopers & Lybrand LLP, Independent Auditors MAXM Systems Corporation Consolidated Balance Sheets as of September 30, 1996 and 1995 MAXM Systems Corporation Consolidated Statements of Operations for the years ended September 30, 1996 and 1995 MAXM Systems Corporation Consolidated Statements of Stockholders' Deficit for the years ended September 30, 1996 and 1995 MAXM Systems Corporation Consolidated Statements of Cash Flows for the years ended September 30, 1996 and 1995 MAXM Systems Corporation Notes to Consolidated Financial Statements Unaudited Consolidated Balance Sheet as of December 31, 1996 Unaudited Consolidated Statement of Operations for the three months ended December 31, 1996 and 1995 Unaudited Consolidated Statements of Cash Flows for the three months ended December 31, 1996 and 1995 Notes to Unaudited Consolidated Financial Statements MAXM SYSTEMS CORPORATION -------- CONSOLIDATED FINANCIAL STATEMENTS for the years ended September 30, 1996 and 1995 AND REPORT THEREON -------- TABLE OF CONTENTS Page ---- Report of Independent Accountants 1 Consolidated Financial Statements: Consolidated Balance Sheets 2 Consolidated Statements of Operations 3 Consolidated Statements of Stockholders' Deficit 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6-15 Report of Independent Accountants To the Board of Directors of MAXM Systems Corporation We have audited the accompanying consolidated balance sheets of MAXM Systems Corporation (the Company) as of September 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1, the Company has been acquired by Boole & Babbage, Inc. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of MAXM Systems Corporation as of September 30, 1996 and 1995, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. \Coopers & Lybrand LLP\ Washington, D.C. April 10, 1997 1 MAXM SYSTEMS CORPORATION CONSOLIDATED BALANCE SHEETS September 30, 1996 and 1995
ASSETS 1996 1995 ---------------- --------------- Current assets: Cash and cash equivalents $ 1,661,933 $ 3,615,574 Accounts receivable, net 4,673,744 6,271,951 Installment receivables 2,116,107 -- Prepaid expenses and other current assets 817,204 945,678 Prepaid software licenses 291,372 918,716 Notes receivable from officers 92,000 -- ---------------- --------------- Total current assets 9,652,360 11,751,919 ---------------- --------------- Property and equipment, at cost 9,735,842 7,880,659 Accumulated depreciation and amortization (5,667,984) ( 4,307,229) ---------------- --------------- 4,067,858 3,573,430 Restricted cash 292,700 291,000 Notes receivable from officers -- 133,545 Prepaid software licenses 400,000 -- Other assets 127,885 233,923 ---------------- --------------- Total assets $ 14,540,803 $ 15,983,817 ================ =============== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 962,620 $ 1,666,285 Accrued liabilities 4,257,078 3,643,742 Deferred revenue - current portion 4,015,760 3,230,535 Line of credit 2,160,000 -- Current portion of long-term debt 176,444 167,231 Capital lease obligations - current portion 852,225 495,728 ---------------- ---------------- Total current liabilities 12,424,127 9,203,521 Deferred revenue - long-term portion 1,488,583 -- Long-term debt, less current portion 75,000 200,444 Capital lease obligations - long-term 705,350 529,087 Deferred rent 743,709 671,898 Commitments and contingencies -- -- Convertible preferred stock 29,531,698 29,531,698 Stockholders' deficit: Common stock, par value $.01; 12,000,000 shares authorized; 1,319,772 and 952,372 shares issued and outstanding at September 30, 1996 and 1995, respectively 13,197 9,523 Additional paid-in capital 13,868,705 13,622,617 Accumulated deficit (44,314,876) (37,732,329) Foreign currency translation adjustment 5,310 38,272 Less stock subscription receivable -- (90,914) ---------------- ---------------- Total stockholders' deficit (30,427,664) (24,152,831) ---------------- ---------------- Total liabilities and stockholders' deficit $ 14,540,803 $ 15,983,817 ================ ================ The accompanying notes are an integral part of these consolidated financial statements.
2 MAXM SYSTEMS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended September 30, 1996 and 1995
1996 1995 ------------ ------------ Revenues: Software license fees $ 7,094,956 $ 11,466,469 Services and other 7,684,416 5,202,575 ------------ ------------ 14,779,372 16,669,044 ------------ ------------ Cost of revenues: Software license fees 1,011,943 859,581 Services and other 4,136,428 3,330,159 ------------ ------------ 5,148,371 4,189,740 ------------ ------------ Gross profit 9,631,001 12,479,304 Operating expenses: Sales and marketing 10,35,792 9,153,464 Research and development 3,052,481 4,461,602 General and administrative 2,620,917 2,237,340 ------------ ------------ Total operating expenses 16,209,190 15,852,406 ------------ ------------ Loss from operations (6,578,189) (3,373,102) Other income and expense: Interest income 149,139 227,377 Interest expense (448,438) (224,115) ------------ ------------ Loss from continuing operations before income taxes (6,877,488) (3,369,840) Income tax benefit -- 924,000 ------------ ------------ Loss from continuing operations (6,877,488) (2,445,840) Discontinued operations: Income from discontinued operations of hardware sales 294,941 113,566 ------------ ------------ Loss before extraordinary item (6,582,547) (3,256,274) Extraordinary gain on early extinguishment of debt, net of tax provision of $924,000 -- 1,506,766 ------------ ------------ Net loss $ (6,582,547) $ (825,508) ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
3 MAXM SYSTEMS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT for the years ended September 30, 1996 and 1995
Common stock Additional -------------------- Paid-in Accumulated Shares Par Value Capital Deficit Other Total ------ --------- ----------------------------------------------------------------- Balance at September 30, 1994 772,028 $ 7,720 $13,577,508 $(36,906,821) $(30,138) $(23,351,731) Issuance of common stock 180,344 1,803 45,109 -- -- 46,912 Foreign currency translation -- -- -- -- (6,005) (6,005) Stock subscription receivable -- -- -- -- (16,499) (16,499) Net loss -- -- -- (825,508) -- (825,508) ---------------------------------------------------------------------------------------------- Balance at September 30, 1995 952,372 9,523 13,622,617 (37,732,329) (52,642) (24,152,831) Issuance of common stock 367,400 3,674 246,088 -- -- 249,762 Foreign currency translation -- -- -- -- (32,962) (32,962) Stock subscription payment -- -- -- -- 90,914 90,914 Net loss -- -- -- (6,582,547) -- (6,582,547) ---------------------------------------------------------------------------------------------- Balance at September 30, 1996 1,319,772 $13,197 $13,868,705 $(44,314,876) $ 5,310 $(30,427,664) ============================================================================================== The accompanying notes are an integral part of these consolidated financial statements.
4 MAXM SYSTEMS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended September 30, 1996 and 1995
1996 1995 -------------------------------------- Operating activities: Net loss $(6,582,547) $ (825,508) Adjustments to reconcile net loss to net cash used in operating activities: Gain on early extinguishment of debt (2,430,766) Depreciation and amortization 1,525,314 1,099,338 Noncash compensation and severance expense 73,500 -- Changes in operating assets and liabilities: Accounts receivable 1,598,207 (1,299,327) Installment receivables (2,116,107) -- Prepaid software licenses 227,344 (918,716) Restricted cash (1,700) (291,000) Other assets 106,038 972,050 Prepaid expense and other current assets 128,474 (475,597) Accounts payable (703,665) (737,670) Accrued liabilities 613,336 1,859,918 Deferred revenue 2,273,808 963,776 Deferred rent 71,811 -- ----------- ----------- Net cash used in operating activities (2,786,187) (2,083,502) ----------- ----------- Investing activities: Purchases of property and equipment (2,019,742) (2,257,687) Issuance of notes receivable (25,000) -- Payments on notes receivable 33,545 14,580 ----------- ----------- Net cash used in investing activities (2,011,197) (2,243,107) ----------- ----------- Financing activities: Proceeds from issuance of stock 209,262 4,030,383 Proceeds from line of credit 2,600,000 -- Payments on line of credit (440,000) -- Principal payments on long-term debt (116,231) (2,397,161) Borrowings on sale-leaseback transactions 1,184,343 854,626 Principal payments on capital lease obligations (651,583) (314,418) Payments on stock subscription receivable 90,914 -- ----------- ----------- Net cash provided by financing activities 2,876,705 2,173,430 ----------- ----------- Effect of exchange rate changes on cash (32,962) (6,005) ----------- ----------- Net decrease in cash and cash equivalents (1,953,641) (2,159,184) Cash and cash equivalents at beginning of year 3,615,574 5,774,758 ----------- ----------- Cash and cash equivalents at end of year $ 1,661,933 $ 3,615,574 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
5 1. Organization MAXM Systems Corporation (the "Company") offers its customers integrated operations management solutions that maximize availability of the computing infrastructure. The Company's focus is the full spectrum of automated operations for distributed systems management. The Company's leading software product, MAX/Enterprise, automates the operations management of systems and networks by filtering and reducing event data streams and automating actions to recover, restore and correct problems. MAX/Enterprise was completed and licensed to its first customer during 1991. The Company has three wholly-owned subsidiaries, MAXM Systems Limited, located in the United Kingdom, MAXM Systems Corporation of Canada, located in Toronto, Canada, and MAXM Systems Corporation of Germany, located in Munich, Germany. These subsidiaries distribute MAX/Enterprise and perform related professional services. Effective January 16, 1997, the Company was acquired in a transaction which was expected to be accounted for as a pooling-of-interests. All of the Company's preferred and common shareholders received shares of Boole & Babbage, Inc.'s common stock based on the proportionate fair value of their equity interest in the Company. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and all wholly-owned subsidiaries. Upon consolidation, all intercompany accounts and transactions are eliminated. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. For these short-term investments, the carrying amount approximates fair value. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives, generally ranging from 3 to 5 years. Gains and losses upon asset disposal are taken into income. Assets under capital leases are amortized on the straight-line method over the shorter of the assets' useful lives or the relevant lease term, ranging from 2.5 to 4 years. Deferred Rent Deferred rent includes the effect of rental incentives and scheduled rent increases associated with the office lease which commenced February 1995. Rent expense is recognized on a straight-line basis over the lease term. Deferred Revenue The Company records deferred revenue for services billed in advance of recognition of revenue. Deferred revenue is recognized ratably over the service period. 6 Prepaid Software Licenses The Company purchases software licenses under a prepayment arrangement from a software vendor. The licenses are subsequently sold as part of the Company's integrated operations management software product line. Prepaid software licenses are charged to cost of software license fees as products are delivered to customers. Revenue Recognition The Company recognizes revenues in accordance with the provisions of AICPA Statement of Position 91-1, Software Revenue Recognition. Specifically, the Company recognizes software revenue upon delivery and upon the determination that collectibility is probable. Service revenues are recognized as they are performed. For license agreements where maintenance is bundled with the software license, an appropriate portion of these license fees is deferred and amortized over the initial maintenance period. Software Development Costs Research and development costs are expensed as incurred. In accordance with Statement of Financial Accounting Standards No. 86, the Company has not capitalized software development costs as of September 30, 1996 and 1995 as the costs incurred from the point of technological feasibility to the point of marketability are deemed immaterial. Income Taxes The Company reports its income taxes in compliance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" whereby deferred tax liabilities and assets are recognized for temporary differences between financial statement reporting and income tax purposes. If necessary, management records a valuation allowance for deferred tax assets. Concentration of Credit Risk The Company sells its products to various companies across several industries. The Company performs on-going credit evaluations of its customers and maintains reserves for potential credit losses. Neither the reserves established nor the losses incurred have been material. The Company generally requires no collateral from its customers. The Company's cash management and investment policies restrict investments to investment quality, highly liquid securities. Cash and cash equivalents consist principally of money market investments and demand deposits with high quality financial institutions. At times such investments and deposits may be in excess of the FDIC insurance limit; however, no losses have been experienced. Stock-Based Compensation In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). Management has chosen to adopt the disclosure-only provisions of the standard in 1997. Therefore, the adoption of this standard is not expected to have an effect on the Company's financial position or results of operations. 7 Transfers of Financial Assets The FASB also issued Statement of Financial Accounting Standard No. 125 (SFAS No. 125), Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which requires the entity to recognize the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished. SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. Management believes the impact will be immaterial. 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. Reclassification Certain reclassifications have been made to the 1995 financial statements to conform with the 1996 presentation. 3. Receivables Accounts receivable is comprised of the following at September 30, 1996 and 1995:
1996 1995 -------------- --------------- Billed receivables $ 4,104,152 $ 3,621,327 Unbilled receivables 958,592 3,019,624 -------------- --------------- 5,062,744 6,640,951 Less allowance for doubtful accounts 389,000 369,000 ------------- --------------- Accounts receivable, net $ 4,673,744 $ 6,271,951 ============== ===============
In April 1994, the Company loaned certain officers a total of $100,000 through promissory notes bearing 7% interest. In February 1996, $33,000 was canceled as part of a severance agreement with an officer. The remaining principal plus accrued interest is due in a lump sum payment during 1997. In March 1996, an additional loan was made to an officer for $25,000 through a non-interest bearing promissory note which was due December 1996. During 1996, the Company entered into two sales contracts which resulted in discounted long-term installment receivables of $2,116,107 as of September 30, 1996. Subsequent to September 30, 1996, these receivables were collected through a $843,460 third-party sale with recourse and a $1,250,000 negotiated prepayment by one of the customers. Total net proceeds from these transactions amounted to $2,093,460. Accordingly, the installment receivables are classified as current in the accompanying balance sheet. 8 4. Property and Equipment Property and equipment is comprised of the following at September 30, 1996 and 1995: 1996 1995 ---------------------------------- Operating equipment $6,925,092 $5,526,732 Computer software 1,180,318 819,052 Office furniture and fixtures 560,179 480,902 Leasehold improvements 1,070,253 1,053,973 ------------------------------- $9,735,842 $7,880,659 =============================== Depreciation and amortization expense of $1,525,314 and $1,099,338 was included in operating expenses for the years ended September 30, 1996 and 1995, respectively. Operating equipment and office furniture and fixtures under capital leases as of September 30, 1996 and 1995 was $2,739,022 and $1,554,679, respectively, with accumulated amortization of $1,246,618 and $534,099, respectively. During the years ended September 30, 1996 and 1995, the Company entered into sale and leaseback transactions totaling $1,184,343 and $854,626, respectively. During the year ended September 30, 1995, the Company entered into capital leases totaling $287,421, which were treated as noncash financing transactions for statement of cash flow purposes. 5. Long-Term Debt Notes payable balances at September 30, 1996 and 1995 are as follows:
1996 1995 ------------- -------------- Note payable to financing company, monthly principal and interest payments of $17,277 through August 1996, bearing interest at 17% per annum, final twelve additional monthly payments of $9,998 through August 1997, collateralized by certain fixed assets. $ 101,444 268,675 Noninterest bearing development funding with $75,000 payments due May 1997 and May 1998. 150,000 99,000 -------------- -------------- 251,444 367,675 Less current portion (176,444) (167,231) -------------- -------------- $ 75,000 200,444 ============== ==============
The annual maturities of the outstanding long-term debt at September 30, 1996 are as follows: Fiscal year ----------- 1997 $176,444 1998 75,000 --------- $251,444 Interest paid by the Company amounted to $383,946 and $219,117 for the years ended September 30, 1996 and 1995, respectively. 9 6. Commitments On May 22, 1995, the Company entered into a line of credit agreement which allowed the Company to borrow up to $2,500,000 for working capital. The line of credit was collateralized by substantially all of the Company's assets and included certain financial covenants. The unpaid principal balance, if any, was originally due and payable on August 5, 1996, the line of credit maturity date. During September 1996, the agreement was modified to extend the maturity date to November 4, 1996, at which time the unpaid balance was due and payable. Interest accrued at prime rate plus 1.5% per annum and was payable monthly in arrears. As of September 30, 1996, the Company was advanced $2,160,000 under this line of credit. As of September 30, 1996, the Company was in default of certain financial covenants of this agreement. The balance has been subsequently paid in full. In October 1996, the Company entered into a line of credit agreement with certain shareholders of the Company which allowed the Company to borrow up to $3,000,000 for working capital. No amounts have been borrowed against this line of credit. The line of credit expired on the effective date of the purchase by Boole & Babbage, Inc. (see Note 1). On September 26, 1994, the Company entered into a new ten-year operating lease beginning February 1, 1995 for office space at a new location. In conjunction with the new lease, the Company issued a letter of credit for $289,270 to be used in the event of a default in the payment of rent. The letter of credit agreement expires on January 31, 1998. The letter of credit is collateralized by approximately $292,700 and $291,000 of cash equivalents at September 30, 1996 and 1995, respectively. The lease agreement included approximately $617,000 of reimbursed build-out allowance which was treated as a noncash capital addition in 1995 for purposes of the statement of cash flows. In January 1995, the Company entered into a $2,500,000 equipment lease line of credit. Under the equipment lease line, the Company can sell and leaseback equipment or acquire new equipment at fair market values with lease terms of 18 to 36 months. The ability of the Company to obtain additional financing under this equipment lease line expired January 1997. During the years ended September 30, 1996 and 1995, $2,038,969 and $854,626, respectively, was borrowed in the form of sale/leaseback transactions under this lease line. No gain or loss was recognized on these transactions. Future minimum lease payments, including fixed escalation increases, under noncancelable operating and capital leases with remaining terms in excess of one year as of September 30, 1996 are:
Operating Capital Fiscal Year Leases Leases ----------- -------------------------------- 1997 $ 737,816 $ 966,540 1998 761,495 540,551 1999 775,528 204,556 2000 818,053 14,476 2001 - 4,006 -------------------------------- Total minimum lease payments $3,092,892 1,730,129 =========== Less amounts representing interest (172,554) ----------- Present value of minimum lease payments 1,557,575 Less current portion of capital lease obligations (852,225) ----------- Long-term portion of capital lease obligations $ 705,350 ===========
10 Rent expense for the years ended September 30, 1996 and 1995 was approximately $1,003,000 and $936,000, respectively. During fiscal year 1996, the Company entered into various reseller agreements under which royalty payments are due based on future product sales. In connection with these agreements, the Company has committed to purchase software licenses of $3.7 million during the fiscal year ending September 30, 1997, $2.0 million during fiscal year ending September 30, 1998, and $2.5 million during fiscal year ending September 30, 1999. Subsequent to year end, a settlement was negotiated with various of the resellers that reduced these commitments by approximately $3.7 million. 7. Equity Transactions Preferred Stock The Company has authorized the issuance 38,254,470 shares of Class A Convertible Preferred Stock, par value $.01, ("Class A Preferred Stock"), 5,180,000 shares of Class B Convertible Preferred Stock, par value $.01 ("Class B Preferred Stock") and 4,250,000 shares of Class C Convertible Preferred Stock, par value $.01 ("Class C Preferred Stock"). The following table reflects the activity for the fiscal years ended September 30, 1996 and 1995:
Class A Class B Class C Preferred Stock Preferred Stock Preferred Stock ------------------------------------------------------------------------- Shares Stated Value Shares Stated Value Shares Stated Value ------------------------------------------------------------------------- Balance at September 30, 1994 38,210,648 $9,759,000 5,000,000 $1,500,000 2,605,303 $11,411,227 Issuance of Stock - - - - 1,566,546 6,861,471 ------------------------------------------------------------------------- Balance at September 30, 1995 and 1996 38,210,648 $9,759,000 5,000,000 $1,500,000 4,171,849 $18,272,698 =========================================================================
In October 1994 as part of the June 7, 1994 private placement, 399,544 Class C Preferred shares were issued for an additional $1,750,003. The private placement also included bridge loans, in the form of subordinated promissory notes. The notes, originally issued for $961,108, matured January 3, 1995 at a total value of $1,000,000 including accrued interest, and were converted into 228,302 shares of Class C Preferred Stock. In December 1994, 425,000 shares of Class C Preferred Stock were issued as part of the early extinguishment of IBM debt (see Note 11). On June 7, 1995, 513,700 shares of Class C Preferred Stock were issued for an additional $2,250,006. 11 The Class A and Class B Preferred Stock classes accumulated dividends from the date of issuance at the rates of $.0179 per annum and $.021 per annum, respectively. The Class C Preferred Stock accumulated dividends quarterly from the date of issuance at a rate of $.3066 per annum. As of September 30, 1996, the cumulative dividends in arrears were $2,853,371, $402,164 and $2,586,405 for Class A, Class B and Class C Preferred Stock classes, respectively. The Class C Preferred Stock had first preference of payment for all unpaid past and current dividends before any dividends were to be paid on the Class A and Class B Preferred Stock or the common stock. No dividends, which were payable at the discretion and approval of the Board of Directors, had been declared. The holders of Class A and Class B Preferred Stock, were entitled to one vote for every ten shares and could have converted their shares into common stock at the rate of one share of common stock for every ten shares of preferred stock at any time. The holders of Class C Preferred Stock were entitled to one vote per share and could have converted their shares into common stock on a one-for-one basis at any time. In the event of liquidation, the holders of Class A, Class B and Class C Preferred Stock were entitled to receive up to $.2554 per share, $.30 per share and $4.38 per share, respectively, as defined, plus accumulated but unpaid dividends. In addition, subject to certain restrictions, there existed a programmed redemption on the Class A, Class B and Class C Preferred Stock whereby the preferred stockholders had the option to require the Company to redeem the stock at a price equal to $.2554, $.30 and $4.38 per share, respectively, as defined, beginning with up to 33-1/3% of each class on December 31, 1999, up to 50% on December 31, 2000, and up to 100% on December 31, 2001. As part of the acquisition by Boole & Babbage, Inc., all outstanding shares of Class A, Class B and Class C Preferred Stock were exchanged for shares of Boole & Babbage, Inc. common stock based on their proportionate fair value. Common Stock The Company has reserved 11,488,725 shares of common stock for issuance upon conversion of preferred stock, exercise of employee stock options, and the exercise of warrants. In December 1994, a director of the Company was issued 15,000 shares of common stock for $1.10 per share in exchange for a promissory note bearing 7.74% interest. Principal plus accrued interest was due in a lump sum payment in December 1999; however, this note was released in February 1996 as part of a severance agreement with the former director. During 1996, the Company issued 10,500 shares to members of the Board of Directors for services rendered. The estimated fair value at issuance was $40,500 or $3.85 per share. As part of the acquisition by Boole & Babbage, Inc., all outstanding shares of common stock were exchanged for shares of Boole & Babbage, Inc. common stock based on their proportionate fair value. 12 Common Stock Options In fiscal years 1996 and 1995, the Company amended the existing stock option plan ("the Plan") for the purpose of granting to employees options to purchase up to 2,269,900 shares of the Company's common stock. The following table summarizes stock option activity for fiscal years 1995 and 1996:
Options Outstanding Shares ---------------------------- Available Shares Price ------------------------------------------------------------------------------------ Balance, September 30, 1994 194,461 1,008,023 $.25 - $1.10 Additional options authorized 200,000 - Options granted (333,439) 333,439 1.10 - 3.00 Options exercised - (180,344) .25 Options terminated 201,144 (201,144) .25 - 3.00 ----------------------- Balance, September 30, 1995 262,166 959,974 .25 - 3.00 Additional options authorized 769,900 - - Options granted (963,746) 963,746 3.00 - 5.00 Options exercised - (434,674) .25 - 3.00 Options terminated 110,180 (110,180) .25 - 3.00 ----------------------- Balance, September 30, 1996 178,500 1,378,866 $.25 - $3.00 =======================
As of September 30, 1996, 487,165 shares under option had vested and were exercisable. The options were granted by action of the Board of Directors pursuant to the Plan and were either incentive stock options or non-statutory options, and were granted under the Plan to key employees to purchase shares at prices not less than fair market value as determined by the Board of Directors on the date of grant. Options granted under the Plan were nonassignable and were exercisable as specified in the option agreement. Generally, once an option had been granted to an employee, the option vested at 20% per year for five years and expired seven years after date of grant. As part of the acquisition by Boole & Babbage, Inc., all outstanding options were deemed to have no fair value. Accordingly, the option holders did not receive any shares of Boole & Babbage, Inc. 13 8. Income Taxes The tax effects of the primary temporary differences giving rise to the Company's net deferred tax assets were as follows:
1996 1995 -------------------------------- Deferred tax assets: Net operating loss carryforwards $14,996,118 $ 13,036,340 Purchased research and development 296,000 296,000 Deferred revenue 550,777 - Other book/tax differences 242,186 152,105 ---------------------------------- Total gross deferred tax asset 16,085,081 13,484,445 Less: valuation allowance (16,078,417) (13,327,800) ---------------------------------- Net deferred tax asset 6,664 156,645 ---------------------------------- Deferred tax liability: Net deferred tax liability (6,664) (156,645) ---------------------------------- Total deferred taxes $ - - ==================================
The Company has net operating loss carryforwards of approximately $41,330,000 and $36,033,000 for tax purposes, as of September 30, 1996 and 1995, respectively. The loss carryforwards, which are subject to limitations for P. 382 of the Internal Revenue Code, are available through the year 2010. The Company paid no federal income taxes during the years ended September 30, 1996 and 1995. 9. Employee Benefits Plan The Company has a defined contribution and profit sharing plan which is qualified under Section 401(k) of the Internal Revenue Code. This plan, which covers substantially all U.S. employees, stipulates that employees may elect to contribute an amount between 1% and 20% of their total compensation to the plan. At the end of each plan year, the Company, at its discretion, may make a profit-sharing contribution to the plan, which would be allocated to the accounts of all eligible employees on the basis of their compensation. All employees who are participants during the plan year and are employed by the Company on the last day of the plan year would be eligible to share in the profit-sharing contribution. No contributions have been made by the Company to the plan for the years ended September 30, 1996 and 1995. 14 10. Discontinued Operations Effective September 30, 1995, MAXM discontinued its business segment of hardware resales. Approximately $450,000 of equipment for resale was included in other current assets at September 30, 1995. This hardware related to contracts entered into prior to September 30, 1995 and subsequently was installed. There were no significant liabilities of this segment included in the accompanying balance sheet as of September 30, 1995. In addition, there were no proceeds from the disposal. The Company recognized $294,941 in 1996 as income from discontinued operations during the phase out period. Due to the Company's tax loss position, no tax provision has been provided for this gain. Total consolidated hardware revenues and related costs during the fiscal years ended September 30, 1996 and 1995 are as follows: 1996 1995 ---------- ----------- Hardware revenues $1,371,405 $3,803,706 Hardware cost of goods sold 1,076,464 3,500,306 ---------- ----------- Gross profit 294,941 303,400 Other direct expenses - 189,834 ---------- ----------- Income from discontinued operations $ 294,941 $ 113,566 ========== =========== 11. Extraordinary Item On December 23, 1994, the Company and IBM entered into an agreement which resulted in the early extinguishment of a $3,000,000 note payable and Financial Assistance Agreement. Both obligations, totaling $6,557,929 including accrued interest, were canceled in exchange for the payment of $1,750,000 in cash, the issuance of 425,000 shares of Class C Preferred Stock and a new $500,000 secured promissory note to IBM which has subsequently been paid. The resulting gain of $2,430,766 is reported as an extraordinary item for the year ended September 30, 1995. 12. Segment Reporting Information about the Company's geographic areas for the two years ended September 30, 1996 and 1995 is as follows: 1996 ------------------------------------------------ N. America Europe Total ---------- ------ ----- Revenue 9,573,825 5,205,547 14,779,372 Net loss (5,798,853) (783,694) (6,582,547) Assets 11,960,972 2,579,829 14,540,801 1995 ------------------------------------------------ N. America Europe Total ---------- ------ ----- Revenue 2,255,589 14,413,455 16,669,044 Net income (loss) 114,055 (825,508) (939,563) Assets 2,536,545 13,447,272 15,983,817 15 MAXM Systems Corporation Consolidated Balance Sheets (Amounts in thousands) (December 31, 1996 unaudited) December 31, September 30 1996 1996 Assets ------------- ------------- Current assets: Cash and cash equivalents $1,510 $1,662 Accounts receivable, net 2,428 4,674 Installment and other receivables, net 125 2,116 Prepaid expenses and other current assets 1,156 1,200 ------------- ------------- Total current assets 5,219 9,652 Equipment, furniture and leasehold improvements, net 3,727 4,068 Long-term installment and other receivables 216 - Restricted cash 293 293 Other assets 24 528 ------------- ------------- Total assets $9,479 $14,541 ============= ============= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $1,049 $962 Other accrued liabilities 3,805 4,257 Short-term borrowings 2,160 2,160 Notes payable due within one year 150 177 Capital lease obligations due within one year 800 852 Deferred maintenance revenue 3,753 4,016 ------------- ------------- Total current liabilities 11,717 12,424 Notes payable due after one year 75 75 Capital lease obligations due after one year 565 705 Deferred rent 758 744 Deferred maintenance revenue due after one year 1,490 1,489 Convertible preferred stock 29,532 29,532 Stockholders' deficit Common stock, par value $.01; 12,000,000 shares authorized; 1,311,280 and 1,319,772 shares issued and outstanding and December 31, 1996 and September 30, 1996, respectively 13 13 Additional paid-in capital 13,835 13,869 Accumulated deficit (48,444) (44,315) Foreign currency translation adjustment (62) 5 ------------- ------------- Total stockholders' equity (34,658) (30,428) ------------- ------------- Total liabilities and stockholders' equity $9,479 $14,541 ============= ============= See accompanying notes.
1 MAXM Systems Corporation Consolidated Statements of Income (Amounts in thousands, except net income per share) (Unaudited) Three Months Ended December 31, -------------------------------- 1996 1995 ---------- ----------- Revenue: Product licensing $463 $1,609 Maintenance fees and other 1,602 1,642 ---------- ----------- Total revenue 2,065 3,251 ---------- ----------- Costs and expenses: Cost of product licensing 355 290 Cost of maintenance fees and other 1,367 730 Product development 791 929 Sales and marketing 2,520 2,489 General and administrative 937 837 ---------- ----------- Total costs and expenses 5,970 5,275 ---------- ----------- Operating loss (3,905) (2,024) Interest and other income, net (224) (50) ---------- ----------- Income before provision for income taxes (4,129) (2,074) Provision for income taxes - - ---------- ----------- Net loss ($4,129) ($2,074) ========== =========== See accompanying notes. 2 MAXM Systems Corporation Consolidated Statements of Cash Flows (Amounts in thousands) (Unaudited)
Three Months Ended December 31, ---------------------------------- 1996 1995 -------------- ------------- Cash flows from operating activities: Net loss ($4,129) ($2,047) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 419 308 Stock issued under compensatory stock plans - 27 Changes in operating assets and liabilities excluding the effect of acquisitions: Accounts receivable and installment and other receivables 3,226 (1,838) Prepaid expenses and other assets 343 265 Accounts payable, accrued expenses and deferred rent (180) (97) Deferred maintenance revenue (262) 1,249 -------------- ------------- Net cash used for operating activities (583) (2,133) -------------- ------------- Cash flows from investing activities: Purchases of equipment, furniture and leasehold improvements (78) (8) -------------- ------------- Net cash used for investing activities (78) (8) -------------- ------------- Cash flows from financing activities: Proceeds from sale of lease receivables 795 - Proceeds from line of credit - 800 Payments on notes payable (27) (139) Payments on capital leases (192) (140) -------------- ------------- Net cash provided by financing activities 576 521 -------------- ------------- Effect of exchange rate changes on cash (67) (24) -------------- ------------- Net decrease in cash and cash equivalents (152) (1,644) Cash and cash equivalents at beginning of period 1,662 3,616 -------------- ------------- Cash and cash equivalents at end of period $1,510 $1,972 ============== ============= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $104 $69 Income taxes, net $2 $0 Supplemental disclosures of noncash investing and financing activities: Capital lease obligations of $527,000 were incurred in the quarter ended December 31, 1995 for the purchase of equipment and autos. See accompanying notes
3 MAXM SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying consolidated financial statements include the accounts of all subsidiaries after the elimination of all significant inter-company items and transactions. The unaudited consolidated balance sheet as of December 31, 1996 and the unaudited consolidated statements of operations and cash flows for the three months ended December 31, 1996 and 1995 should be read in conjunction with the MAXM Systems Corporation audited financial statement and related notes. The consolidated financial information at December 31, 1996 and for the three-month periods ended December 31, 1996 and 1995 is unaudited. The statements in this report include all adjustments of a normal recurring nature. In the opinion of management, these adjustments are necessary for a fair statement of the interim results for the periods presented. The interim results are not necessarily indicative of the results for the full year. 2. Subsequent Events During December 1996, Boole & Babbage, Inc. agreed to acquire, subject to certain conditions, all of the outstanding capital stock of MAXM Systems Corporation in exchange for 1,137,115 shares, 10% of which are held in escrow with an independent third party escrow agent, of Boole & Babbage common stock. The transaction was completed on January 16, 1997. The transaction will be accounted for using the pooling of interest method. 3. Contingencies The Company is involved in certain legal actions and claims arising in the ordinary course of business. Management believes that such litigation and claims will be resolved without material adverse effect on the Company's financial position or results of operations. (b) Unaudited Pro Forma Combined Financial Statements Pro Forma Combined Balance Sheet as of December 31, 1996 Pro Forma Combined Statements of Operations for the years ended September 30, 1996 and the three months ended December 31, 1996, 1995 and 1994 Notes to Unaudited Pro Forma Combined Balance Sheets and Combined Statements of Operations UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION The following unaudited pro forma combined financial statements give effect to the combination of Boole & Babbage, Inc. ("Boole & Babbage") and MAXM Systems Corporation ("MAXM") on a pooling of interests basis. The unaudited pro forma combined balance sheet presents Boole & Babbage's unaudited consolidated balance sheet as if the merger took place on December 31,1996. The unaudited pro forma combined statements of operations present Boole & Babbage's consolidated statements of operations for the fiscal years ended September 30, 1996, 1995 and 1994 and the three months ended December 31, 1996. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the merger had been consummated as presented in the accompanying unaudited pro forma combined financial information, nor is it necessarily indicative of future operating results or financial position. These unaudited pro forma combined financial statements should be read in conjunction with the historical consolidated financial statements and the notes of Boole & Babbage and MAXM which are incorporated in or included elsewhere in the Form 8-K/A. Boole & Babbage, Inc. and MAXM Systems Corporation Proforma Consolidated Balance Sheets (Amounts in thousands) (December 31, 1996 unaudited)
Boole & MAXM Proforma Assets Babbage, Inc Systems Corp Adjustments Combined ------------ ------------ ------------ ------------ Current assets: Cash and cash equivalents $ 28,667 $ 1,510 $ 0 $ 30,177 Short-term investments 27,999 -- -- 27,999 Accounts receivable, net 25,441 2,428 -- 27,869 Deferred tax asset 48,848 -- -- 48,848 Installment and other receivables, net 4,848 125 -- 4,973 Prepaid expenses and other current assets 5,791 1,156 -- 6,947 --------- --------- --------- --------- Total current assets 141,594 5,219 -- 146,813 Purchases and internally developed software, net 11,478 -- -- 11,478 Equipment, furniture and leasehold improvements, net 8,687 3,727 -- 12,414 Long-term installment and other receivables 47,542 216 -- 47,758 Long-term deferred tax asset 6,572 -- 2,935(6) 9,507 Restricted cash -- 293 -- 293 Costs in excess of net assets of purchased businesses, net 654 -- -- 654 Other assets 5,702 24 -- 5,726 --------- --------- --------- --------- Total assets $ 222,229 $ 9,479 $ 2,935 $ 234,643 ========= ========= ========= ========= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 6,622 $ 1,049 $ 0 $ 7,671 Accrued payroll expense 7,995 -- -- 7,995 Other accrued liabilities 20,572 3,805 10,000(7) 34,377 Short-term borrowings 781 2,160 -- 2,941 Notes payable due within one year 294 150 -- 444 Capital lease obligations due within one year 811 800 -- 1,611 Deferred maintenance revenue 47,416 3,753 -- 51,169 --------- --------- --------- --------- Total current liabilities 84,491 11,717 10,000 106,208 Notes payable due after one year 354 75 -- 429 Capital lease obligations due after one year 1,949 565 -- 2,514 Deferred rent -- 758 -- 758 Deferred maintenance revenue due after one year 32,203 1,490 -- 33,693 Convertible preferred stock -- 29,532 (29,532)(2) -- Stockholders' equity: Common stock 18 13 (12)(2) 19 Additional paid-in capital 39,392 13,835 29,544 (2) 82,771 Retained earnings 66,750 (48,444) (7,065) 11,241 Unrealized gain on marketable securities 1,708 -- -- 1,708 Foreign currency translation adjustment 2,369 (62) -- 2,307 Less treasury stock (7,005) -- -- (7,005) --------- --------- --------- --------- Total stockholders' equity 103,232 (34,658) 22,467 91,041 --------- --------- --------- --------- Total liabilities and stockholders' equity $ 222,229 $ 9,479 $ 2,935 $ 234,643 ========= ========= ========= ========= See accompanying notes.
1 Boole & Babbage, Inc. and MAXM Systems Corporation Proforma Consolidated Statements of Income (Amounts in thousands, except net income per share) (Unaudited)
Three Months Year Ended September 30, Ended ------------------------------------------- December 31, 1996 1996 1995 1994 ----------------- ---- ---- ---- Revenue: Product licensing $27,278 $95,239 $91,692 $72,970 Maintenance fees and other 22,483 85,363 79,458 68,981 ---------- ---------- ----------- ----------- Total revenue 49,761 180,602 171,150 141,951 ---------- ---------- ----------- ----------- Costs and expenses: Cost of product licensing 3,978 21,960 19,768 15,158 Cost of maintenance fees and other 6,016 13,199 13,909 13,805 Product development 6,387 22,326 21,056 18,667 Sales and marketing 25,181 91,894 86,492 70,297 General and administrative 5,270 18,392 17,140 16,406 Purchased R&D expense - - - 4,051 ---------- ---------- ----------- ----------- Total costs and expenses 46,832 167,771 158,365 138,384 ---------- ---------- ----------- ----------- Operating income 2,929 12,831 12,785 3,567 Interest and other income, net 1,589 5,641 3,907 1,306 ---------- ---------- ----------- ----------- Income before provision for income taxes 4,518 18,472 16,692 4,873 Provision for income taxes 2,600 7,015 6,000 3,570 ---------- ---------- ----------- ----------- Net income before extraordinary item 1,918 11,457 10,692 1,303 Extraordinary gain on early extinguishment of debt - - 2,430 - ---------- ---------- ----------- ----------- Net Income $1,918 $11,457 $13,122 $1,303 ========== ========== =========== =========== Net income per share $0.10 $0.60 $0.71 $0.08 ========== ========== =========== =========== Shares used in per share calculations 20,115 19,205 18,460 17,335 ========== ========== =========== ===========
2 BOOLE & BABBAGE, INC. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (Unaudited) 1. The unaudited pro forma combined balance sheet presents Boole & Babbage's unaudited consolidated balance sheet as if the merger took place on December 31,1996. The unaudited pro forma combined statements of operations present Boole & Babbage's consolidated statements of operations for the fiscal years ended September 30, 1996, 1995 and 1994 and the three months ended December 31, 1996. The audited pro forma combined financial statements give effect to the combination of Boole & Babbage, Inc. ("Boole & Babbage") and MAXM Systems Corporation ("MAXM") on a pooling of interest basis. 2. The pro forma combined financial statements reflect the issuance of 1,137,114 shares of Boole & Babbage common stock for all of the outstanding preferred classes and common stock of MAXM in connection with the merger. 3. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the merger had been consummated as presented in the accompanying unaudited pro forma combined financial information, nor is it necessarily indicative of future operating results or financial position. 4. These unaudited pro forma combined financial statements should be read in conjunction with the historical consolidated financial statements and the notes thereof of Boole & Babbage and MAXM which are incorporated in or included elsewhere in the Form 8-K/A. 5. On a combined basis, there were no material transactions between Boole & Babbage and MAXM during any period presented. 6. Pro forma adjustments have been made to reduce valuation allowances previously provided by MAXM against deferred tax assets attributable to it's net operating loss carryforwards. Boole and Babbage has concluded that it is more likely that not that a portion of MAXM's net operating loss carryovers (approximately $2.9 million of tax benefit at December 31, 1996) will be realized against future projected combined taxable income of the two companies. 7. The Company expects to incur charges to operations currently estimated to be between $8 million and $12 million before taxes, primarily in the March 1997 quarter in which the merger is to be consummated, to reflect transaction fees and costs incident to the merger. An estimated charge, at the midpoint of the above range, of $10 million is reflected in the pro forma combined balance sheet as a reduction to retained earnings and an increase in accrued liabilities. The estimated range is not reflected in pro forma combined statement of operations data. The amount of this charge is a preliminary estimate and therefore is subject to change. 8. Net income per common share is computed by adding to the weighted average number of common shares outstanding during the period the number of dilutive common shares that would be issuable upon the exercise of outstanding options using the treasury stock method of computation.
Years ended 3 Mo. Ended September 30, December 31, ---------------------------- 1996 1996 1995 1994 ---- ---- ---- ---- PRIMARY Weighted average number of common shares outstanding during the year 18,551 17,706 17,018 16,187 Incremental common shares attributable to exercise of outstanding options (assuming proceeds would be used to purchase treasury stock) 1,564 1,499 1,442 1,148 ----- ----- ----- ----- Total shares 20,115 19,205 18,460 17,335 ====== ====== ====== ====== Net income $1,918 $11,457 $13,122 $1,303 ====== ======= ======= ====== Net income per share $.10 $.60 $0.71 $0.08 ==== ==== ===== ===== FULLY DILUTED Weighted average number of common shares outstanding during the year 18,551 17,706 17,018 16,187 Incremental common shares attributable to exercise of outstanding options (assuming proceeds would be used to purchase treasury stock) 1,888 1,554 1,542 1,343 ------ ------ ------ ------ Total shares 20,439 19,260 18,560 17.530 ====== ====== ====== ====== Net income $1,918 $11,457 $13,122 $1,303 ====== ======= ======= ====== Net income per share $.09 $.59 $0.71 $0.07 ==== ==== ===== =====
Exhibit Number Description of Exhibit - -------- ---------------------- *2.1 Agreement and Plan of Merger and Reorganization dated December 10, 1996, among Boole & Babbage, Inc., a Delaware corporation, Merger Acquisition Sub, Inc., and Delaware corporation, and MAXM Systems Corporation, a Delaware corporation. *99.1 Press Release of Boole & Babbage, Inc. dated January 16, 1997 24.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants * These exhibits were included in the Form 8-K filed on January 31, 1997 EX-24.1 2 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 24.1 Consent of Independent Accountants We consent to the incorporation by reference in the registration statements (Nos. 33-13837, 33-39248, 33-65145, 33-55588, 33-79782 and 333-02723) pertaining to the 1986 Incentive Stock Option Plan, the 1986 Supplemental Stock Option Plan, the Employee Stock Purchase Plan, the 1993 Non-employee Directors' Stock Option Plan, and the 1995 Stock Option Plan of Boole & Babbage, Inc. filed on Form S-8 by Boole & Babbage, Inc., of our report dated April 10, 1997 on our audit of the consolidated financial statements of MAXM Systems Corporation as of and for the years ended September 30, 1996 and 1995. which report is included in this Form 8-K/A. \Coopers & Lybrand L.L.P.\ Washington, DC April 22, 1997 -----END PRIVACY-ENHANCED MESSAGE-----