-----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, DnW76q6ipVLxbdE8ZrtEONrkfGvDTfrWjKCSIwk5IyV7Rnob1HDRufUtrw/Ma25x BdZZyVtM+jcReCZfhg+e6A== 0001144204-04-008590.txt : 20040616 0001144204-04-008590.hdr.sgml : 20040616 20040616165140 ACCESSION NUMBER: 0001144204-04-008590 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040419 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040616 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL MICROCOMPUTER SOFTWARE INC /CA/ CENTRAL INDEX KEY: 0000814929 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942862863 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-15949 FILM NUMBER: 04866715 BUSINESS ADDRESS: STREET 1: 100 ROWLAND WAY STREET 2: SUITE 300 CITY: NOVATO STATE: CA ZIP: 94945 BUSINESS PHONE: 4158784000 MAIL ADDRESS: STREET 1: 100 ROWLAND WAY STREET 2: SUITE 300 CITY: NOVATO STATE: CA ZIP: 94945 8-K/A 1 v03996_8ka.txt UNITED STATES 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) April 19, 2004 Commission File Number 0-15949 INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. (Exact name of registrant as specified in its charter) California 94-2862863 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) identification No.) 100 ROWLAND WAY, NOVATO, CA 94945 (Address of principal executive offices) (Zip code) (415) 878-4000 (Registrant's telephone number including area code) ITEM 2 - ACQUISITION OR DISPOSITION OF ASSETS On April 19, 2004 (the "Closing Date"), International Microcomputer Software, Inc. ("IMSI") consummated the acquisition (the "Acquisition") of all the stock of Aladdin Systems, Inc. ("Aladdin"), pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement"), dated January 20, 2004, between Aladdin Systems Holdings, Inc, the parent company of Aladdin, and IMSI. The consideration paid in the Acquisition (which was determined as a result of arms'-length negotiations and which was based upon an in-depth analysis of Aladdin's current and projected business activity in addition to comparable companies and transactions) consisted of a combination of cash in the amount of $1,500,000, subject to a 10% escrow, 2,317,881 unregistered shares of IMSI common stock (which are required to be registered within 90 days of the close of the transaction) and two three-year convertible notes in the aggregate amount of $3,000,000.Additional cash earn-out payments may be earned, up to an aggregate of $2,000,000, based on net revenues derived from Aladdin for the three consecutive twelve-month periods following the Closing Date. Eligible employees of Aladdin were given the opportunity to convert their existing Aladdin Systems Holdings Inc. common stock options into IMSI common stock options priced at market as of the date of the closing. The newly granted options are subject to vesting as set forth in our 2004 Incentive Stock Option Plan. The conversion ratio was calculated using the Black-Scholes valuation methodology and resulted in the issuance of 638,000 IMSI common stock options with an aggregate value of $1.1 million which was included in the calculation of the aggregate consideration paid for the acquisition. Aladdin is a developer and publisher of utility software solutions in the areas of information access, removal, recovery, security and distribution of information and data for the Windows(R), Linux and Macintosh(R) platforms. IMSI relied on its available cash balances to make the payment related to the cash component of this transaction. 2 ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED: The financial statements of Aladdin Systems, Inc. and the report of Grant Thornton, LLP, the independent public accountants relating to such financial statements, are attached hereto. (b) PRO FORMA FINANCIAL INFORMATION: The unaudited pro forma condensed combined consolidated financial statements of IMSI attached hereto are not necessarily indicative of the results that actually would have been attained if the acquisition had been in effect on the dates indicated or which may be attained in the future. Such statements should be read in conjunction with the historical financial statements of IMSI and Aladdin Systems, Inc. (c) EXHIBITS: NUMBER EXHIBIT DESCRIPTION - -------------------------------------------------------------------------------- 2.1 Aladdin Stock Purchase Agreement, dated January 20, 2004, between Aladdin Systems Holdings, Inc. and International Microcomputer Software, Inc. (1) (2) 99.1 Press Release, dated April 20, 2004 of International Microcomputer Software, Inc. announcing the closing of the Aladdin Systems, Inc acquisition. (1) (1) Previously filed in the Current Report on Form 8-K filed by the registrant on April 20, 2004. (2) The exhibits to the Stock Purchase Agreement have not been filed with the Stock Purchase Agreement. The Stock Purchase Agreement previously filed as an exhibit to the Current Report on Form 8-K filed by the registrant on April 20, 2004 briefly describes the contents of each exhibit to the Stock Purchase Agreement. The Registrant undertakes to furnish supplementally a copy of any omitted exhibit to the Commission upon request. Set forth below is a list of the omitted exhibits: A. Form of Promissory Note B. Form of Promissory Note C. Form of Pledge Agreement D. Form of Earn-Out Report E. Form of Escrow Agreement F. Form of Registration Rights Agreement G. Form of Executive Employment Agreement- Jonathan Kahn H. Form of Executive Employment Agreement- Darryl Lovato I. Form of Purchaser's Counsel Opinion J. Form of Seller's Counsel Opinion 3 4 FINANCIAL STATEMENTS OF BUSINESS ACQUIRED: ALADDIN SYSTEMS, INC. INDEX TO AUDITED FINANCIAL STATEMENTS
DESCRIPTION PAGE - ----------------------------------------------------------------------------------------------------------------- Report of Independent Certified Public Accountants 6 Balance Sheets as of December 31, 2002 and December 31, 2003 7 Statements of Operations for the Years Ended December 31, 2002 and December 31, 2003 8 Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2002 and December 31, 2003 9 Statements of Cash Flows for the Years Ended December 31, 2002 and December 31, 2003 10 Notes to Financial Statements 11
5 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Aladdin Systems, Inc. We have audited the accompanying balance sheets of Aladdin Systems, Inc. (the "Company") as of December 31, 2003 and 2002 and the related statements of operations, stockholders' equity and cash flows for each of the two 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the two years then ended, in conformity with accounting principles generally accepted in the United States of America. Grant Thornton, LLP San Francisco, California APRIL 7, 2004 (except for Note 8 as to which the date is April 19, 2004) 6 ALADDIN SYSTEMS, INC BALANCE SHEETS AS OF DECEMBER 31, 2002 AND DECEMBER 31, 2003
------------------------- 2003 2002 ----------- ----------- ASSETS CURRENT ASSETS: Cash $ 461,580 $ 583,653 Accounts receivable (net of allowance of $181,648 and $125,267, respectively) 996,587 972,912 Inventories 125,816 88,802 Prepaid expenses and other current assets 228,248 213,923 ----------- ----------- TOTAL CURRENT ASSETS 1,812,231 1,859,290 Capitalized software, net 717,216 944,216 Property and equipment, net 250,083 272,352 ----------- ----------- 2,779,530 3,075,858 TOTAL ASSETS =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 568,796 $ 311,297 Accrued expenses and other liabilities 446,908 297,086 Current maturities of long-term debt 336,204 457,552 ----------- ----------- 1,351,908 1,065,935 TOTAL CURRENT LIABILITIES Long-term debt 7,500 339,704 ----------- ----------- 1,359,408 1,405,639 TOTAL LIABILITIES STOCKHOLDERS' EQUITY: Common stock, $0.01 par value: 20,000,000 shares authorized; 4,709,086 share issued and outstanding 47,091 47,091 Additional paid in capital 438,992 1,331,895 Retained earnings 934,039 291,233 ----------- ----------- Total stockholders' equity 1,420,122 1,670,219 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,779,530 $ 3,075,858 =========== ===========
See accompanying notes to financial statements. 7 ALADDIN SYSTEMS, INC STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2003
2003 2002 ----------- ----------- Sales $ 8,425,915 $ 7,457,245 Cost of sales 1,100,400 745,519 ----------- ----------- GROSS PROFIT 7,325,515 6,711,726 OPERATING EXPENSES: Marketing, sales and support 3,448,853 3,044,918 Research and development 2,132,267 1,858,893 General and administrative 1,113,009 912,379 ----------- ----------- Total operating expenses 6,694,129 5,816,190 INCOME FROM OPERATIONS 631,386 895,536 ----------- ----------- Other income (expense): Interest expense (18,365) (25,442) Other 29,785 2,216 ----------- ----------- INCOME BEFORE INCOME TAXES 642,806 872,310 Income taxes -- -- NET INCOME $ 642,806 $ 872,310 =========== =========== INCOME PER SHARE - BASIC AND DILUTED $ 0.14 $ 0.19 Shares used in computing basic and diluted income per share 4,709,086 4,709,086
See accompanying notes to financial statements. 8 ALADDIN SYSTEMS, INC STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2003
COMMON STOCK ADDITIONAL RETAINED ------------------------------ PAID -IN EARNINGS/ SHARES AMOUNT CAPITAL (DEFICIT) TOTAL --------------------------------------------------------------------------- BALANCE AT JANUARY 1, 2002 4,709,086 $ 47,091 $ 883,959 $ (581,077) $ 349,973 Net investment by parent 447,936 447,936 Net income 872,310 872,310 --------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 2002 4,709,086 47,091 1,331,895 291,233 1,670,219 Net distribution to parent (892,903) (892,903) Net income 642,806 642,806 --------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 2003 4,709,086 $ 47,091 $ 438,992 $ 934,039 $1,420,122 ===========================================================================
See accompanying notes to financial statements. 9 ALADDIN SYSTEMS, INC STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2003
2003 2002 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 642,806 $ 872,310 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 365,174 280,023 Loss on disposal of property and equipment -- 3,633 Changes in operating assets and liabilities: Accounts receivable, net (23,675) (56,614) Inventories (37,014) (31,356) Prepaid expenses and other current assets (14,325) 8,453 Accounts payable 257,499 (177,511) Accrued expenses and other liabilities 149,822 48,030 ----------- ----------- CASH PROVIDED BY OPERATING ACTIVITIES 1,340,287 946,968 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment (65,241) (28,882) Proceeds from sales of property and equipment -- 350 Acquisition of software rights (50,664) (210,500) ----------- ----------- CASH USED IN INVESTING ACTIVITIES (115,905) (239,032) CASH FLOWS FROM FINANCING ACTIVITIES: Net payment on line of credit -- (19) Net distribution to parent (892,903) (127,121) Repayment of long-term debt (453,552) (94,116) ----------- ----------- CASH USED IN FINANCING ACTIVITIES (1,346,455) (221,256) NET (DECREASE) INCREASE IN CASH (122,073) 486,680 Cash at beginning of period 583,653 96,973 ----------- ----------- CASH AT END OF PERIOD $ 461,580 $ 583,653 =========== =========== Cash paid during the period for Interest: $ 6,848 $ 16,085
See accompanying notes to financial statements. 10 ALADDIN SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Aladdin Systems, Inc. (the "Company") develops, publishes, and distributes computer software for the Macintosh, Windows, Solaris, and Linux software markets. Products are marketed through independent distributors in the United States and Canada, through resellers and mail order companies in other countries, directly to corporate accounts under site licensing agreements, and directly to end-users through direct marketing and the Internet. Basis of Presentation The Company is a 100% owned subsidiary of Aladdin Systems Holdings, Inc. ("Holdings"). The financial statements present the stand-alone statements of the Company and accordingly may not be indicative of the financial condition and results of operations had the Company operated independent of Holdings. All intercompany transactions with Holdings have been recorded as a net investment or distribution through additional paid in capital in shareholders' equity. Revenue Recognition Revenues and accounts receivable are principally derived from: o Distributors and resellers of the Company's products o The Company's websites o Third party products o Licensing contracts Sales to distributors and resellers are subject to agreements permitting rights of return for stock balancing. These revenues are recognized net of reserves for returns and rebates. Return reserves are based on actual inventory held by distributors or resellers that is in excess of levels appropriate for that channel and is likely to be returned. Based on estimated release dates for the next versions, the Company monitors the channel inventory and only ships product when the sell through to the customer will be probable. The Company recognizes revenue, net of estimated returns and rebates, upon shipment or delivery of the product, when no significant obligations remain and collectability is probable. Revenues from internet sales are recognized when the software is downloaded or shipped to the customer. Revenues from third party products make up a portion of internet sales and the Company recognizes as revenue the net fee the Company collects for facilitating the sale. Licensing fees are recognized upon delivery of the software or when the customer has committed to renew their annual fee, as the Company is not obligated to provide any other deliverables in connection with these licenses. 11 Accounts Receivable The majority of the Aladdin Systems' accounts receivable are due from domestic and international distributors and from Digital River, the Company's Website partner. All customer orders that are placed directly on the Website are processed by Digital River. Digital River collects these revenues and forwards the funds, less appropriate fees, twice per month to Aladdin Systems. Credit is extended based on evaluation of the customers' financial condition and collateral is not required. The Company maintains allowances for estimated product returns resulting from new version releases. Management regularly evaluates the allowance for returns account. Based on historical write-off experience, the Company currently does not maintain an allowance for doubtful accounts. Therefore, the allowance listed on the balance sheet is only for expected returns of software. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional allowance for doubtful accounts would be required. Capitalized Software Costs incurred in the initial design phase of software development are expensed as incurred as research and development. Once the point of technological feasibility is reached, direct production costs are capitalized. The Company ceases capitalizing computer software costs when the product is available for general release to customers. Costs associated with acquired completed software are capitalized. Total capitalized software development costs at December 31, 2003 were $2,949,772 less accumulated amortization of $2,232,556. The Company amortizes capitalized software development costs on a product-by-product basis. The amortization charged to operations in each period for each product is the greater of the amount computed using (a) the ratio of current gross revenues to the total of current and anticipated future gross revenues for the product or (b) 60 months. In addition, the Company evaluates the net realizable value of each software product at each balance sheet date and records write-downs to net realizable value for any products for which the carrying value is in excess of the estimated net realizable value. Total amortization expense for capitalized software was $277,663 and $183,044 in fiscal years 2003 and 2002, respectively. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Inventories Aladdin Systems' inventories are valued at the lower of cost or market and are accounted for on the first-in, first-out basis. Management performs periodic assessments to determine the existence of obsolete, slow moving and non-salable inventories, and records necessary provisions to reduce such inventories to net realizable value. 12 Property and Equipment The Company's property and equipment are stated at cost. Capital leases are recorded at the present value of the minimum lease payments at the date of acquisition. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets or lease term, whichever is shorter. RESEARCH AND DEVELOPMENT The Company's research and development costs are charged to operations when incurred. Advertising Aladdin Systems expenses advertising costs as they are incurred. Advertising and related promotion expenses for fiscal years 2003 and 2002 were $748,875 and $553,130 respectively. Income Taxes The Company is included in the consolidated tax return of Aladdin Systems Holdings, Inc. All income taxes are accounted for at the parent company level and no allocation is made to the Company. The group is in a tax loss position, with a full valuation allowance against net deferred tax assets. Accordingly, no tax is allocated to the Company. Fair Value of Financial Instruments The fair value of accounts receivable and accounts payable approximate carrying value due to the short-term nature of such instruments. The fair value of long-term obligations with third-parties approximates carrying value based on terms available for similar instruments. Stock-based Compensation The Company accounts for stock-based awards to employees using the intrinsic value method described in Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" and its related interpretations. Accordingly, no compensation expense has been recognized in the accompanying consolidated financial statements for stock-based awards to employees when the exercise price of the award is equal to or greater than the quoted market price of the stock on the date of the grant. SFAS No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123" require disclosures as if the Company had applied the fair value method to employee awards rather than the intrinsic value method. The fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's fair value calculations for awards from stock option plans were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected term, ten years from the date of grants in 2003 and 2002; stock price volatility, 72% in 2003 and 112% in 2002; risk free interest rate, 4.02% in 2003, and 4.0% in 2002; and no dividends during the expected term. 13 If the computed fair values of the stock-based awards had been amortized to expense over the vesting period of the awards, net income and net income per share, basic and diluted, would have been as follows:
YEAR ENDED DECEMBER 31, 2003 2002 Net income, as reported $ 642,806 $ 872,310 Stock based compensation, net of taxes, determined under the intrinsic value method -- -- Stock-based compensation, net of taxes, determined under the fair value method 264,004 349,575 ---------- ---------- PRO FORMA NET INCOME $ 378,802 $ 522,735 ========== =========== Basic and diluted net earnings per share AS REPORTED $ 0.14 $ 0.19 PRO FORMA $ 0.08 $ 0.11
EARNINGS PER SHARE Basic and diluted earnings per share are computed using the weighted average number of common shares outstanding during the period. The Company does not have any potentially dilutive securities. RECENT ACCOUNTING PRONOUNCEMENT In March 2003, the Emerging Issues Task Force published Issue No. 00-21 "Accounting for Revenue Arrangements with Multiple Deliverables" (EITF 00-21). EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it performs multiple revenue generating activities and how to determine whether such an arrangement involving multiple deliverables contains more than one unit of accounting for purposes of revenue recognition. The guidance in this Issue is effective for revenue arrangements entered in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 on July 1, 2003 did not have any significant impact on the Company's financial statements. NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment at December 31, consist of:
USEFUL LIVES (YEARS) 2003 2002 Computer equipment 5 $ 949,035 $ 889,625 Office equipment 5 183,336 182,368 Furniture and fixtures 5 306,250 306,250 Displays 5 to 7 126,166 121,302 ------------------------------ 1,564,787 1,499,545 Less accumulated depreciation (1,314,704) (1,227,193) ------------------------------ $ 250,083 $ 272,352 ==============================
14 NOTE 3 - LONG-TERM DEBT AND RELATED PARTY NOTES Long-term debt at December 31, consists of:
2003 2002 Capital lease obligations $ 13,704 $ 77,256 Software related payable 330,000 720,000 ---------------------------------- 343,704 797,256 Less current portion 336,204 457,552 ---------------------------------- $ 7,500 $ 339,704 ==================================
Software related payable is the amount to be paid to Vcommunications, Inc. for the acquisition of Easy Uninstall, Internet Cleanup and ZipMagic products. The total purchase price was $800,000 of which $155,000 was paid in 2002 and $315,000 in 2003. The balance of $330,000 is due in quarterly installments to be completed by October 2004. Per the agreement, Vcommunications has been assigned a continued interest in all of the Company's rights and title to the products to secure the Company's obligation to pay the full amount due. Fixed installments due on debt principal are as follows: Year ending December 31, 2004 $ 336,204 2005 7,500 -------------------- $ 343,704 ==================== NOTE 4 - MAJOR CUSTOMERS Aladdin Systems has one major customer that accounted for $2,170,803 or 26% and $1,736,101 or 23% of revenues in 2003 and 2002, respectively. NOTE 5 - RETIREMENT PLAN The Company has established a 401(k) retirement plan for all employees. Employees may elect to contribute a portion of their gross salary not to exceed federal tax law limitations. The Company may elect to match a portion of the employee contributions. No matching contributions were made for the years ended December 31, 2003 and 2002. NOTE 6 - COMMITMENTS AND CONTINGENCIES Leases The Company conducts its operations from one facility that is leased under an operating lease expiring October 2010. Rent expense was $282,624 and $277,735 in 2003 and 2002, respectively. The Company also has furniture and equipment under capital leases. The cost of assets acquired under capital leases is $500,070. Accumulated amortization on these assets at December 31, 2003 was $440,014. 15 Future minimum commitments under capital leases and non-cancelable operating leases as of December 31, 2003 are as follows:
CAPITAL LEASES OPERATING LEASES -------------- ---------------- Year ending December 31, 2004 $ 13,704 $ 289,363 2005 -- 293,124 2006 -- 296,935 2007 -- 300,795 2008 -- 304,705 Thereafter -- 609,411 ----------------------------------------- Total minimum lease payment 13,704 2,094,333 Less amount representing interest 980 -- ----------------------------------------- $ 12,724 $ 2,094,333 -----------------------------------------
NOTE 7 - STOCKHOLDERS' EQUITY Stock Options The Aladdin Systems Holdings, Inc. 1999 Stock Option Plan allows for the issuance of incentive stock options and non-qualified stock options to purchase shares of the Holding's common stock. The option plan has authorized 3,000,000 shares of which 167,969 remain available for granting at December 31, 2003. Under the option plan, incentive stock options may be granted to employees, directors, and officers of the Company and non-qualified stock options may be granted to consultants, employees, directors, and officers of the Company. Options granted under the option plan are for periods not to exceed ten years, and must be issued at prices not less than 100% of the fair market value of the stock on the date of grant. Options granted to shareholders who own greater than 10% of the outstanding stock are for periods not to exceed five years and must be issued at prices not less than 110% of the fair market value of the stock on the date of grant. Options granted under the option plan generally vest within 4 years. Stock option activity, at the parent company level, is summarized as follows:
WEIGHTED AVERAGE SHARES EXERCISE PRICE -------- ------------------ BALANCE AT JANUARY 1, 2002 2,473,528 $ 1.48 Granted 868,444 0.73 Cancelled (457,750) 1.12 ----------------------------------------- BALANCE AT DECEMBER 31, 2002 2,884,222 1.31 Granted 274,260 0.29 Cancelled (326,451) 1.22 ----------------------------------------- BALANCE AT DECEMBER 31, 2003 2,832,031 $ 1.22 =========================================
The following table summarizes information about stock options outstanding as of December 31, 2003: 16
WEIGHTED AVERAGE WEIGHTED AVERAGE REMAINING AVERAGE RANGE OF EXERCISE PRICE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE OUTSTANDING PRICE TERM (YEARS) EXERCISABLE PRICE - -------------------------------------------------------------------------------------- $0.20 - $0.63 857,302 $ 0.43 7.59 521,185 $ 0.46 $0.65 - $1.07 956,532 $ 0.90 4.26 875,282 $ 0.93 $1.15 - $1.85 616,468 $ 1.38 5.27 591,267 $ 1.37 $3.00 - $4.87 401,729 $ 3.44 2.80 393,911 $ 3.44 ----------------------------------------------------------- 2,832,031 $ 1.22 2,381,645 $ 1.35
The weighted average fair value of options granted to employees was $0.19 and $0.13 for 2003 and 2002, respectively. NOTE 8 - SUBSEQUENT EVENTS On January 21, 2004, Holdings and International Microcomputer Software, Inc. ("IMSI") entered into Stock Purchase Agreement for the sale of the Company to International Microcomputer Software, Inc. The final stock purchase agreement was signed on April 19, 2004. 17 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION: The following selected Unaudited Pro Forma Condensed Financial Information is based on the historical financial statements of IMSI and Aladdin Systems, Inc. and has been prepared to illustrate the effect of IMSI's acquisition of Aladdin. The Unaudited Pro Forma Condensed Financial Information has been prepared using the purchase method of accounting. Aladdin reports its financial results on a fiscal year ending December 31. The financial statements of Aladdin included in the following unaudited pro forma condensed financial information are based on the unaudited statements of Aladdin for the twelve months ended June 30, 2003 and the nine months ended March 31, 2004 that have been derived primarily from the audited financial statements of Aladdin included in this report. The pro forma statements of operations give effect to the acquisition of Aladdin as if it occurred on July 1, 2002. Because the selected unaudited pro forma condensed combined financial information is based upon Aladdin's financial position and operating results during periods when Aladdin was not under the control, influence or management of IMSI, the information presented may not be indicative of the results that would have actually occurred had the transaction been completed as of July 1, 2002 or March 31, 2004, as appropriate, nor is it indicative of future financial or operating results of the combined entity. 18 ALADDIN SYSTEMS, INC. INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
DESCRIPTION PAGE - ---------------------------------------------------------------------------------------------- Balance Sheet as of March 31, 2004 20 Notes to Unaudited Pro Forma Condensed Combined Balance Sheet 21 Statements of Operations for the Twelve Months Ended June 30, 2003 22 Statements of Operations for the Nine Months Ended March 31, 2004 23 Notes to Unaudited Pro Forma Condensed Combined Statements of Operations 24
19 INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 2004
IMSI IMSI Consolidated Aladdin Pro Forma Consolidated Historical Historical Adjustments Pro Forma ----------- ----------- ----------- ----------- ASSETS Current Assets: Cash and Cash Equivalents $ 4,904,989 $ 477,480 $(1,500,000) $ 3,882,469 Investment in Marketable Securities 1,752,462 -- -- 1,752,462 -- 2,153,821 Accounts Receivable, less allowances 1,186,714 967,107 Inventories 451,202 145,067 -- 596,269 Other Current Assets 623,551 154,977 (51,000) 727,528 ----------- ----------- ----------- ----------- Total Current Assets 8,918,918 1,744,631 (1,551,000) 9,112,549 Fixed Assets, net 412,238 230,590 642,828 Intangible Assets Capitalized Software, net 933,632 645,925 2,933,632 1,354,075 Capitalized Domain Names, net 1,643,060 -- -- 1,643,060 Capitalized Customer Names, net 262,222 -- 590,000 852,222 Capitalized Trademarks -- -- 700,000 700,000 Capitalized Distributor Agreements -- -- 400,000 400,000 Goodwill 611,404 -- 4,519,685 5,130,089 ----------- ----------- ----------- ----------- Total Intangible Assets 3,450,318 645,925 7,563,760 11,660,003 Other Assets Investment in Securities 1,436,250 -- -- 1,436,250 Receivable Long-Term 1,650,000 -- -- 1,650,000 ----------- ----------- ----------- ----------- Total Other Assets -- -- 3,086,250 3,086,250 ----------- ----------- ----------- ----------- Total Assets 15,867,724 2,621,146 6,012,760 24,501,630 =========== =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term Debt 986,286 257,018 1,000,000 2,243,304 Trade Accounts Payable 1,051,278 303,077 24,000 1,378,355 Accrued and Other Liabilities 633,608 490,427 -- 1,124,035 Deferred Revenue 268,012 -- 268,012 ----------- ----------- ----------- ----------- Total Current Liabilities 2,939,184 1,050,522 1,024,000 5,013,706 Long-term debt and other obligations 470,846 -- 2,000,000 2,470,846 Liabilities related to discontinued operations 84,230 -- -- 84,230 ----------- ----------- ----------- ----------- Total Liabilities 3,494,260 1,050,522 3,024,000 7,568,782 Stockholders' Equity Common Stock 36,147,924 492,199 4,067,185 40,707,308 (23,672,800) 1,078,425 (1,078,425) (23,672,800) Accumulated Deficit 1,078,425 Accumulated other loss (101,660) -- -- (101,660) ----------- ----------- ----------- ----------- Total Shareholders' Equity 12,373,464 1,570,624 2,988,760 16,932,848 ----------- ----------- ----------- ----------- Total Liabilities and SH Deficit $15,867,724 $ 2,621,146 $ 6,012,760 $24,501,630 =========== =========== =========== ===========
20 INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET The unaudited pro forma condensed balance sheet gives effect to the following unaudited pro forma adjustments: 1. Adjustment reflects the acquisition entry of Aladdin in accordance with the purchase method of accounting. 21 INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 2003
ALADDIN IMSI (HISTORICAL) (HISTORICAL)PRO FORMA ADJUSTMENTS IMSI PRO FORMA Amortization of Interest on Intangibles Notes Payable (1) (2) Net Revenues $ 8,932,377 $ 8,204,885 $ -- $ 17,137,262 Product Costs 3,989,390 979,269 400,000 5,368,659 -------------- --------------- --------------- ------------ ------------ Gross Margin 4,942,987 7,225,616 (400,000) 11,768,603 Costs and Expenses: Sales and Marketing 2,956,792 3,199,067 6,155,859 General and Administrative 3,082,110 2,000,237 184,667 5,267,014 Research and Development 1,513,611 937,765 2,451,376 -------------- --------------- --------------- ------------ ------------ Total Operating Expenses 7,552,513 6,137,069 184,667 13,874,249 -------------- --------------- --------------- ------------ ------------ Operating Income (Loss) (2,609,526) 1,088,547 (584,667) (2,105,646) -------------- --------------- --------------- ------------ ------------ Other Income and (Expense): Interest and Other, Net (890,686) (6,617) (120,000) (1,017,303) Loss on sale of assets (40,503) -- (40,503) Gain from Extinguishment of Debt 768,614 -- 768,614 -------------- --------------- --------------- ------------ ------------ Income (Loss) Before Income Tax (2,772,101) 1,081,930 (584,667) (120,000) (2,394,838) Income Tax Provision 7,446 7,446 -------------- --------------- --------------- ------------ ------------ Net Income (Loss) From Continuing Operations (2,779,547) 1,081,930 (584,667) (120,000) (2,402,284) Income from discontinued operations, net of tax 1,210,924 -- 1,210,924 Gain from the sale of discontinued operations 12,236,538 -- 12,236,538 -------------- --------------- --------------- ------------ ------------ Net Income $ 10,667,915 $ 1,081,930 $ (584,667) $ (120,000) 11,045,178 ============== =============== =============== ============ ============ Basic and diluted earnings (loss) per share Loss per share from continuing operations ($0.12) ($0.10) Income per share from discontinued operations $0.05 $0.05 Gain per share from the sale of discontinued operations $0.54 $0.49 Net income per share $0.47 $0.44 Shares used in computing earnings (loss) per share 22,800,795 25,118,676
22 INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2004
ALADDIN IMSI (HISTORICAL) (HISTORICAL) PRO FORMA ADJUSTMENTS MSI PRO --------------------------- FORMA Amortization Interest on of Intangibles Notes Payable (1) (2) Net Revenues $ 7,239,029 $ 6,858,028 $ - $14,097,057 Product Costs 2,416,554 804,951 300,000 3,521,505 -------------- ---------------- ------------ ---------- -------------- Gross Margin (300,000) 4,822,475 6,053,077 10,575,552 Costs and Expenses: Sales and Marketing 3,270,091 2,777,039 6,047,130 General and Administrative 2,537,474 1,667,002 138,500 4,342,976 Research and Development 1,654,971 975,967 2,630,938 -------------- ---------------- ------------ ---------- -------------- Total Operating Expenses 138,500 7,462,536 5,420,008 13,021,044 -------------- ---------------- ------------ ---------- -------------- Operating Income (Loss) (2,640,061) 633,069 (438,500) (2,445,492) -------------- ---------------- ------------ ---------- -------------- Other Income and (Expense): Interest and Other, Net 197,885 26,781 (90,000) 134,666 Realized Gain on Marketable Securities 75,997 - 75,997 Unrealized Gain on Marketable Securities 1,864,527 - 1,864,527 Gain from Extinguishment of Debt 76,110 - 76,110 -------------- ---------------- ------------ ---------- -------------- Income (Loss) Before Income Tax (438,500) (90,000) (425,542) 659,850 (294,192) Income Tax Provision 24,540 24,540 -------------- ---------------- ------------ ---------- -------------- Net Income (Loss) From Continuing Operations (450,082) 659,850 (438,500) (90,000) (318,732) Gain from the sale of discontinued operations 1,000,000 - 1,000,000 -------------- ---------------- ------------ ---------- -------------- Net Income $ 549,918 $ 659,850 $ (438,500) $(90,000) $ 681,268 ============== ================ ============ ========== ============== Basic and diluted earnings (loss) per share Income/(Loss) per share from continuing operations ($0.02) ($0.01) Gain per share from the sale of discontinued operations $0.04 $0.04 Net income per share $0.02 $0.03 Shares used in computing earnings (loss) per share 23,331,526 25,649,407
23 INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 2003 AND FOR THE NINE MONTHS ENDED MARCH 31, 2004 The unaudited pro forma condensed statements of operations give effect to the following unaudited pro forma adjustments: 1 Adjustment reflects the acquisition entry of Aladdin in accordance with the purchase method of accounting. (1) To reflect the amortization of capitalized software, distribution agreements and customer names acquired in the acquisition of Aladdin. The amortization perods for these identifiable intangibles are as follows o Capitalized software 5 years o Distribution Agreements 6 years o Customer Names 5 years (2) To reflect the interest expense associated with the notes payable used to partially fund the acquisition of Aladdin. 24 SIGNATURE 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. INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. DATED: JUNE 16, 2004 By: /s/ Martin Wade, III MARTIN WADE, III Director & Chief Executive Officer 25 -----END PRIVACY-ENHANCED MESSAGE-----