10-K 1 a781693_10-k.txt --------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended April 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period From _____ To _____ Commission file number 1-111898 JETFORM CORPORATION (Exact name of registrant as specified in its charter) CANADA N/A (state or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 560 Rochester Street Ottawa, Ontario K1S 5K2, Canada (Address of principal executive offices) (613) 230-3676 Registrant's telephone number (including area code) Securities registered under Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered Common shares, without par value Nasdaq, Toronto Stock Exchange, Pacific Stock Exchange Securities registered under Section 12(g) of the Exchange Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained herein, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the voting and non voting stock held by non-affiliates of the registrant computed by reference to the last price at which the stock was sold as reported on the NASDAQ Stock Market on July 16, 2001 was $56,213,693. For the purpose of determining this amount, voting stock held by officers, directors and stockholders whose ownership exceeds five percent are excluded. This determination of affiliate status is provided for purposes of this report and does not represent an admission by either the registrant or any such person as to the status of such person. State the number of the issuer's Common Shares outstanding on July 16, 2001: 24,897,143. DOCUMENTS INCORPORATED BY REFERENCE NONE 2 JETFORM CORPORATION TABLE OF CONTENTS PART I PAGE ITEM 1................BUSINESS 5 ITEM 2................PROPERTIES 16 ITEM 3................LEGAL PROCEEDINGS 17 ITEM 4................SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17 PART II ITEM 5................MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 18 ITEM 6................SELECTED FINANCIAL DATA 20 ITEM 7................MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 21 ITEM 7A...............QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS 31 ITEM 8................FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 31 ITEM 9................CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 61 PART III ITEM 10...............DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 62 ITEM 11...............EXECUTIVE COMPENSATION 66 ITEM 12...............SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 70 ITEM 13...............CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 71 PART IV ITEM 14...............EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 72 SIGNATURES 77 This Annual Report on Form 10-K ("Report"), contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933. Discussions containing such forward-looking statements may be found in Items 1, and 7 hereof, as well as within this Report generally. In addition, when used in this Report, the words "believes", "intends", "anticipates", "expects", and similar expressions are intended to identify forward-looking statements. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially from those described in the forward-looking statements as a result of changes in technology, changes in industry standards, new product introduction by competitors, increased participation in the enterprise software market by major corporations and other matters set forth in this Report (see Item 1. Business - "Risk Factors"). The Company does not undertake any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. PART I Item 1. BUSINESS THE COMPANY JetForm Corporation (which, together with its subsidiaries is referred to herein as "JetForm" or the "Company") was incorporated as Jorag Computer Systems Ltd. pursuant to the Canada Business Corporations Act on June 10, 1982. By Articles of Amendment dated September 28, 1982, the Company changed its name to Indigo Software Ltd. By Articles of Amendment dated September 30, 1991, the Company changed its name to JetForm Corporation. The Company's registered head and principal office is located at 560 Rochester Street, Ottawa, Ontario, K1S 5K2. The following chart sets forth certain information concerning the principal subsidiaries of the Company as at April 30, 2001: ---------------------------------- |----| JetForm Corporation | | | (Delaware, U.S.A.) | | ---------------------------------- | | ---------------------------------- |----| JetForm U.K. Limited | | | (England & Wales) | | ---------------------------------- | | ---------------------------------- --------------------------- |----| JetForm France SA | | JetForm Corporation | 100% | | (France) | | (Canada) |-------| ---------------------------------- --------------------------- | | ---------------------------------- |----| JF A'Asia Pty Limited | | | (Australia) | | ---------------------------------- | | ---------------------------------- |----| JetForm Scandinavia AB | | | (Sweden) | | ---------------------------------- | | ---------------------------------- |----| JetForm Deutschland GmbH | | | (Germany) | | ---------------------------------- | | ---------------------------------- |----| JetForm Technologies Limited | | | (Ireland) | | ---------------------------------- | | ---------------------------------- |----| JetForm Netherlands BV | | | (Netherlands) | | ---------------------------------- | | ---------------------------------- |----| JetForm PTE LTD | | | (Singapore) | | ---------------------------------- | | ---------------------------------- |----| JetForm Japan K.K. | | (Japan) | ---------------------------------- 5 Overview JetForm Corporation develops software solutions that extend and accelerate core business processes. JetForm solutions enable companies and governments to lower operating costs, increase revenues and reduce cycle times. The Company's core strengths are in intelligent data capture with XML-based forms, business process integration and presentation of high fidelity, customer-facing documents. The Company believes it is well positioned within the e-business market to serve a worldwide market in the business process integration, electronic document presentment and intelligent data capture arenas. JetForm's sales force and service professionals, who operate in 15 countries, focus on sales and services to end users and support for the Company's numerous partnerships. To further leverage the Company's global reach, JetForm has established strategic partnerships with e-Business application vendors, system integrators, international Value Added Resellers (VARs) and original equipment manufacturer's (OEMs). JetForm has also established key business and technology alliances with, among others, Siebel, Accenture, Microsoft, Hewlett-Packard, IBM, SAP and Xerox, to broaden market acceptance for its solutions. JetForm customers include The Australian Department of Defence, Axel Springer Verlag AG, Fidelity Employer Services Company (FESCO), Nationwide Building Society, Pennsylvania Department of Public Welfare, Prudential Real Estate and Relocation Services, SAFECO, U.S Army Reserve, National Guard, GMAC Insurance Online, Dresdner Bank, HealthAxis, U.S Army, Ericsson Business Consulting - Sverige, Carl Link Verlag AG, Miami Herald Publishing, Curaspan, The National Bank Of Greece S.A., SPAR AG, The New York City Department of Sanitation, State of North Carolina, Reliant Energy, PSA Peugeot Citroen, National City Corporation, The Federal Home Loan Bank of Atlanta, Que-Net Media, SEB Group, AB Svensk Bilprovning, SNCF, Human Resources Develpment Canada, Gras-Savoye, The Danzas Group, Gelsenwasser AG, SER Banking Software Solutions GmbH, Telenor Bedrift AS, and UBS AG. Industry Background Organizations worldwide are adopting e-business models at an accelerated pace. They are evolving their traditional business models to digital-based models using business process integration, electronic document presentment and intelligent data capture. Companies recognize the competitive advantage they gain from reduced cycle times and costs and improved service for their customers, partners and suppliers. Government agencies also recognize the benefits of being able to better serve their citizens. Business Process Integration e-Business is powered by integrated business processes involving the interaction of employees, customers, partners and suppliers through interconnected enterprise applications. When a company decides to participate in cross-functional or cross-enterprise business models, interoperability between disparate applications becomes an issue. A pragmatic approach for overcoming the interoperability issue is to integrate these applications with enterprise-wide integration solutions. Electronic Document Presentment Documents such as invoices, statements and contracts often serve as the key point of contact between an organization and its customers, partners and suppliers. The demands of the current e-business transformation require dynamic, personalized business documents to be delivered through multiple channels in a variety of formats-paper, e-mail, fax and the Web. Customer facing documents need to be high quality and high fidelity. Also, since this transformation will not entirely eliminate the need for paper documents, organizations are positioning themselves to operate effectively in this hybrid paper-Web world. Intelligent Data Capture Businesses and governments are continuing to improve their administrative efficiencies by automating paper-based solutions. Organizations' intranets have become the portals to initiate business processes. The evolution of the Internet from a publishing vehicle to a service-delivery vehicle is requiring organizations to offer customer service over the Internet; whether it be to complete a required form, access account information or check on the status of a customer service request. 6 The JetForm Solution JetForm's process integration, document presentment and data capture technologies provide organizations with the capability to adopt e-business models, giving them a competitive advantage in their respective industries. JetForm's solutions are complemented by its professional services team, which facilitates product implementation, and its customer services team, which provides ongoing technical support. Business Process Integration JetForm's business process solutions integrate people, processes and applications in e-business. JetForm's solutions are an Extensible Mark-up Language ("XML") based process automation solution that contains rich work management capabilities and provides companies with the capability to deliver their services and products across multiple media, including the Internet, wireless, mobile, e-mail and agents or brokers. o Safeco Corporation - in business since 1923, is a Fortune 500 diversified financial services company based in Seattle. Safeco and its more than 17,000 independent agents and financial advisors provide premier insurance and financial services to individual and business customers. Recently SAFECO used JetForm's e-process technology to develop an application that lets independent agents and brokers order, process and receive surety bonds online, in near real time. The application's efficiency and cost-savings will allow SAFECO to bring more products to market, and to increase market share by making it easier for independent agents and brokers to do business with SAFECO. The company plans to leverage JetForm's e-process technology to build multiple applications, ensuring SAFECO stays at the forefront of the financial services industry. Electronic Document Presentment JetForm's e-document presentment solutions allow organizations to produce professional quality document output from their line-of-business, legacy or enterprise resource planning (ERP) applications. The data generated from these business applications is merged with an electronic document template to dynamically generate documents in multiple formats for delivery to multiple devices, including print, e-mail, fax and the Web. o Healthaxis.com - Healthaxis.com is a leading provider of advanced technology solutions for healthcare administration. Acting as an intermediary, Healthaxis.com provides support to insurance carriers, Blue Cross/Blue Shield organizations, third-party administrators and self-administered employers. Their services include business-to-business (B2B) Internet-enabled applications that address the processing and flow of information among participants. JetForm's electronic document presentment technology creates the complex documents and integrated electronic and printed document output it needed to meet the challenges of the hybrid paper-Web world. Through its dynamic sub-forms capabilities, the content, look and feel of Healthaxis.com's forms are controlled dynamically by the underlying data ensuring the document is accurate and easy to read. As a result of implementing JetForm's technology, Healthaxis.com realizes a cost savings of $US1 per document, a significant savings given that the company produces over 18 million documents each year. Intelligent Data Capture JetForm is an industry leader in intelligent data capture using XML-based electronic forms. Graphical XML-based design tools create compliant forms to capture data. JetForm provides support for multiple platforms, whether the end user is filling out a form at a desktop, on a disconnected handheld device or even on a mobile device with Internet access. The Company's intelligent e-forms are robust in their ability to capture and validate data, perform calculations or access data throughout the organization. JetForm's e-form solutions can be used within governments and businesses wishing to improve efficiencies and save costs. According to Gartner Group, 80 per cent of all business documents are forms. These forms may need to be signed, participate in a workflow or be stored in a document management system. Kansas Department of Transportation - The Kansas Department of Transportation (KDOT) accumulates massive amounts of information about new and existing transportation infrastructure. With reduced staff levels, the 7 rising tide of information was becoming increasingly difficult to manage and process. The answer was JetForm e-process technology. To guide enterprise implementation, KDOT developed the Generic Implementation Methodology (GIM), a repeatable process any business unit can use. Of the e-process applications KDOT has deployed to date, one of the most innovative is a solution that creates and updates over 3,000 project authorizations and schedules annually. Developed without the need to rewrite mainframe-based legacy systems, this e-process eliminates duplicate data entry, automates processing and electronic distribution, and automatically converts the final forms to Adobe Acrobat PDF format and stores the form and any attachment in the KDOT document management system. KDOT is now able to accommodate an increasing workload with existing staff levels. The success of the GIM in this and many other e-process applications spurred Kansas to recognize KDOT as the state's lead agency for e-process initiatives. Corporate Strategy JetForm's strategic vision is to be the leading global company specializing in extending and accelerating core business processes. To accomplish this vision the company needs to work very closely with e-Business enterprise application providers, to enhance its market penetration and to develop world-class products. The Company plans to achieve this vision through the following strategies. Build Strategic Alliances JetForm continues to build strategic relationships with leading e-Business enterprise application providers and large system integrators to enhance its market penetration. JetForm believes these relationships facilitate access to strategic projects that often generate large commitments from its customers and can reduce the length of its sales cycles. In addition, JetForm believes the software deployment expertise and industry knowledge of system integrators shortens the implementation time of its product and helps to secure add-on business. Expand Sales Channels Worldwide JetForm believes that the e-business market in North America and globally represents a significant growth opportunity as organizations strive to evolve traditional business models into e-business models. JetForm plans to continue to invest in its worldwide distribution capacity to increase market share and penetration. This investment will include expanding the direct sales force within the established and new sales offices in North America and around the globe. Extend Technological Leadership JetForm's Web-centric, XML-based products provide key elements for the development of new and innovative e-business solutions. Their modular architecture can be easily adapted to new and existing standards, protocols and platforms. This architecture enables JetForm's products to accommodate multiple operating systems, applications, business models and data sources. Management believes that JetForm's product capabilities significantly differentiate it from its competitors. By continuing to invest in R&D to enhance technical core competencies, JetForm believes that it will extend its technological leadership in the market. Increase Brand Awareness JetForm intends to devote significant resources to marketing efforts to increase customer and industry awareness of JetForm's positioning and value proposition. These increased marketing efforts will include building a strong brand, executing focused press and industry analyst campaigns and expanding participation in related industry events. Through these marketing efforts, JetForm intends to demonstrate the value of its solutions and services to enterprises and thereby increase its market share. Leverage Existing Customer Base Management believes that JetForm's large base of existing customers provides a unique opportunity for additional sales of current and future products, as well as ongoing maintenance revenue. A majority of JetForm's customers have not yet purchased its full suite of products or currently only use them in specific business units or locations. Management believes that JetForm can penetrate customer accounts by expanding departmental deployments into enterprise-wide implementations as well as by cross-selling additional solutions and services. 8 Products The Company offers scaleable e-Business solutions for enterprises to adopt contemporary business models. JetForm solutions are comprised of a combination of software products and associated implementation and support services. JetForm's financial results are presented on a segmented basis which consist of Product, Consulting and Customer Support. The Company's product lines have been designed and developed with a modular, open-systems architecture and support many industry standard interfaces to e-mail, groupware, Internet/intranet and business application software. The Company's products are sold individually or in combination. The products are priced to accommodate various customer situations based on the number of licensed users and the combination of products and services to be provided. Business Process Integration InTempo - For companies who need to integrate multiple applications, processes and people from their brick and mortar businesses into their e-businesses, InTempo is an XML-based, business process integration platform that allows organizations to model, deploy, manage and integrate human-intense business processes with core business processes. Unlike application integration tools, packaged applications or Web development tools, InTempo integrates people and processes with existing systems and supports multi-channel delivery including the Internet, wireless, mobile and e-mail. The Enterprise Application Interface (EAI) capability provided within InTempo increases the speed of deployment by simplifying efforts required to integrate individual applications. Electronic Document Presentment Central and Central Pro - JetForm Central and Central Pro provide connectivity to line-of-business applications for producing document output for print, fax, e-mail and the Web. They combine an easy-to-use design tool for the creation of dynamic e-document templates. Web Output Pack - JetForm's Web Output pack extends a company's document presentment to the Web. Using the Web to provide business documents to customers is a key in the e-Business world. The Web Output Pack allows customers to access electronic documents in real time using only a Web browser. Output Pak for SAP R/3 - JetForm's Output Pak for SAP R/3 provides document output for SAP R/3 applications. It expands the scope of R/3 applications by allowing customers to create and integrate e-forms with their R/3 business processes. With a BAPI-certified interface, it provides a flexible and cost-effective way to create and maintain forms specifically for the SAP R/3 environment. Output Pak for Oracle - JetForm Output Pak for Oracle Applications provides document output from Oracle applications. It expands the scope of Oracle Applications by allowing customers to create and integrate e-forms with their Oracle business processes. With an Oracle CAI -certified interface, it provides a flexible and cost-effective way to create and maintain forms specifically for the Oracle environment. It provides professional-looking output, readability for users and a better corporate image for organizations. Intelligent Data Capture ReachForm - JetForm's latest e-Forms technology, ReachForm can provide an intelligent form filling experience to anyone on the Internet regardless of browser type or computing device, with no download or plug-in. A single-form template can be deployed to multiple platforms including WAP/WML enabled devices such as mobile phones. FormFlow99 - JetForm's FormFlow99 is an electronic forms solution that provides application interoperability, zero administration capabilities, process and routing security, integration capabilities and applications functionality. Pocket Form - JetForm Pocket Form, for Palm and Microsoft Pocket PC operating systems, enables mobile computing professionals to use e-forms to efficiently collect data, complete business transactions with a legally-binding signature and remotely initiate a business process workflow. JetForm's e-process framework and JetForm's Pocket Form provide an enterprise development environment for mobile solutions. 9 Services As at April 30, 2001, the Company had a team of 148 professionals who are responsible for consulting, custom software development, forms design and technical support. Consulting services include assisting customers to configure, implement and integrate the Company's products and, when required, customize products and design automated processes to meet customers' specific business needs. In addition, the Company offers e-forms design services. This broad range of services provides customers with the ability to streamline business processes. The Company also provides customers with ongoing technical support by way of phone, fax and the Web. The technical support team works closely with customers to diagnose problems and address system integration issues to ensure the customer receives the full benefit of the JetForm solution. The Company maintains support facilities that permit real-time testing and replication of customer problems. JetForm operates two support centers. The Ottawa support center provides coverage for North America while coverage for Europe is provided out of the Dublin support center. The Company's software products are typically sold with annual maintenance and support contracts. The annual service fee is generally 18 per cent of the price of the software purchased and entitles the customer to remote support, product upgrades and maintenance releases. Maintenance and support contracts can also be tailored to meet customer-specific needs. Sales, Marketing and Distribution The Company's sales strategy is to achieve broad market penetration worldwide by utilizing both direct and indirect sales channels. JetForm is expanding its sales force focused on sales to end customers. The company also supports its key partners including strategic partners, systems integrators, consulting firms, solution partners, OEMs and international distributors. The Company's marketing strategy supports the various focuses of the sales force and includes market research and industry analyst relations; targeted print, Web and direct mail advertising; public relations activities, lead-generating events, seminars and conferences; Web, multi-media and printed marketing collateral; and field-focused education tools and communication. The Company's sales force operates from 18 offices, with seven in the United States near the following centers: New York, Chicago, Detroit, Atlanta, San Francisco, Washington and Dallas; two in Canada and Japan and one in each of the United Kingdom, Ireland, France, Germany, Sweden, the Netherlands and China. The Company plans to expand its market penetration by adding new sales offices and new partners. The Company's sales force primarily targets Fortune 2000 companies, with a particular focus on the financial services, government (all levels), telecommunications and utility, and manufacturing sectors. Trained in the Solution Selling methodology, the Company's sales force builds on relationships with current clients while increasing the Company's presence in the e-business market and delivering business value to its customers. The JetForm Partner Program Through JetForm's Partner Program, the Company is able to develop relationships with organizations that provide core business applications, complementary products and services to extend our market penetration. The company has been also developing a strategic partner program. The Program is designed to attract key e-Business enterprise application vendors and large system integrators. JetForm partners with different types of organizations for process integration, document presentment and data capture through a variety of partner categories as follows: Strategic Partners: Siebel, Accenture, FujiXerox Business and Technology Microsoft, SAP, Oracle, PeopleSoft, Entrust, Partners: PenOp, Silanis, VeriSign, HP, Xerox, Lexmark, Zebra, Dazel, Sybase, SmartTrust System Integrators: CGI, The Hunter Group, Unisys, EDS, Toshiba Engineering, Toyo Information Systems, Core Technology Partners Solution Partners: Star IT, Enterprise Resolutions, Evergreen, Pro Technologies, Standard Register, Dictao 10 Distributors: Ingram Customers The Company's customers include a wide variety of organizations with an emphasis on the financial services industry and the government sector. The Company has an international customer base with customers outside of North America representing 44% of revenues for the year ended April 30, 2001, and 35% and 31% of revenues for the fiscal years ended April 30, 2000 and April 30, 1999, respectively. A selected list of users of JetForm's process integration, document presentment and data capture products is set forth below in the following table.
North America International Financial Bank of Montreal Australia and New Zealand Banking Services: Chase Manhattan Group Limited CIGNA Corp. Commonwealth Bank of Australia PaineWebber Incorporated Dresdner Bank Prudential Real Estate and Relocation Services Lloyds Bank SAFECO National Australia Bank Limited USERS Incorporated Union Bank of Switzerland Wachovia Bank Nationwide Building Society Wells Fargo Gras Savoye Government: Hydro-Quebec Australian Department of Defence Industry Canada Chinese Service Center for Scholarly New Brunswick Dept. of Supply & Services Exchange U.S. Army Frankfurt Airport Authority U.S Army Medical Command Swedish Car Test U.S. Department of the Treasury Swedish Health Organization U.S. Postal Service UK Department of Social Security (DSS) U.S. Social Security Administration Pennsylvania Department of Public Welfare State of Wisconsin Other: Kodak DaimlerChrysler Nestle Ford Motor Company GE Aircraft Schindler Corp. Dr Pepper/7Up SNCF Bombardier Inc. Volvo AB Minnesota Mining and Manufacturing Co Merck Owens Corning Axel Springer Verlag Procter & Gamble Company Technology: Hewlett-Packard Company Siemens Nixdorf Informationssysteme AG Microsoft Corporation Health Axis.com Symantec Corporation
11 Product Development As of April 30, 2001, the Company employed 165 full time employees in its product development group. JetForm's development team is engaged in research, development, testing, quality assurance and documentation activities focused primarily on Web-centric products, solutions, and related technologies. The research and development team, located in Ottawa, consists of many technical experts with many years of accumulated expertise acquired within JetForm, other product development companies and the IT industry. The Company's innovative research and development projects focus efforts in each of JetForm's global product lines to take full advantage of JetForm's technical core competencies to build Web-centric solutions for the e-Business market. This work builds on the key strengths of the Company's current product lines, provides maintenance and enhancements for current product lines and integration with the dynamic hardware and software technology environment. The costs related to total product development for the year ended April 30, 2001 were $17.5 million. Competition The market for JetForm's software and services is highly competitive, quickly evolving and subject to rapid technological change. Management expects competition to intensify in the future. JetForm's potential competitors vary in size and in the scope and breadth of the products and services offered. The Company's competitors fit into three separate areas. The first is business process integration solutions from organizations such as Vitria and Staffware. The second is electronic document presentment from organizations such as Optio, StreamServe, Xenos and AFP Technology. The third is intelligent data capture using electronic forms from organizations such as Adobe, Cardiff, PureEdge and Shana. Management believes that JetForm is differentiated relative to its competitors due to its full adoption of XML technology, which allows for easy integration between cross-functional and cross-enterprise applications. Management believes that, to the best of its knowledge, none of JetForm's competitors is capable of providing integrated solutions encompassing all three areas. Intellectual Property The Company distributes its products under software license agreements that generally grant customers perpetual licenses to use, rather than own, the Company's products and that contain various provisions protecting the Company's ownership and confidentiality of the underlying technology. The source code of the Company's products is protected as a trade secret and as unpublished copyrighted work. The Company also periodically obtains licenses to use or copy software written or supplied by third parties for inclusion into or as part of the functionality of the Company's products. Such licenses usually are perpetual in nature, subject to the regular payment of royalties by the Company as specified in the licenses and generally on terms and conditions comparable to those terms on which the Company licenses its own products. The Company has registered JetForm as a trademark in the United States and Canada and has applications issued or pending in all foreign countries in which it has distributor representation. The Company acquired, as part of the Delrina Assets, all of Delrina's relevant trademarks including FormFlow. Employees As of April 30, 2001, the Company had 674 employees of which 642 were full-time employees. Full time employees include 165 in product management and research and development, 91 in North American sales, 73 in European sales, 25 in Asia Pacific sales and services, 35 in marketing, 92 in systems and consulting services, 68 in support services and customer satisfaction and 93 in management and internal corporate services. Of the full-time employees, 412 are located in Canada, 67 are located in the United States, 25 are located in the United Kingdom, 24 are located in France, 61 are located in Ireland, 16 are located in Germany, 10 are located in Scandinavia, 1 is located in the Netherlands, 5 are located in China and 21 are located in Japan. None of the Company's employees is represented by a labor union or subject to a collective bargaining agreement, and the Company believes that its relations with its employees are good. 12 RISK FACTORS In considering an investment in the securities of the Company, a prospective purchaser should consider the following risk factors. Variability in Quarterly Results The Company's revenues and operating results have varied substantially from period to period. Product revenues are difficult to forecast due to the fact that the Company's sales cycle, from initial trial to multiple copy licenses, varies substantially from customer to customer. The sales cycle for the Company's solutions generally ranges from two to 12 months. The Company has in the past relied to a great extent on revenue derived from small numbers of large product licenses in every quarter. Orders are generally filled when they are received and the Company does not operate with a material order backlog. Therefore, product revenues in any period are substantially dependent on orders booked and shipped or the fulfillment in that period of the Company's obligations under Irrevocable Commitment Licenses, and variations in the timing of product sales or fulfillment of its obligations can cause material variations in operating results from period to period. In addition, the Company typically has realized a disproportionately high amount of its revenues and income in the last month of each quarter and, as a result, the magnitude of quarterly fluctuations may not become evident until late in, or at the end of, a given quarter. Accordingly, delays in product delivery or in the closing of sales near the end of a quarter could cause quarterly revenues and, to a greater degree, net income, to fall substantially short of anticipated levels. Due to the foregoing factors, the Company believes that period to period comparisons of its operating results are not necessarily meaningful and that such comparisons cannot be relied upon as indicators of future performance. There can be no assurance that future revenues and operating results will not vary substantially. It is also possible that in one or more quarters the Company's revenues or operating results will fall below the expectations of public market analysts and investors. In either case, the price of the Common Shares could be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Competition The market for JetForm's software and services is highly competitive, quickly evolving and subject to rapid technological change. Management expects competition to intensify in the future. JetForm's current and potential competitors vary in size and in the scope and breadth of the products and services offered. The Company's competitors fit into three separate areas. The first is process automation solutions from organizations such as Vitria and Staffware. The second is electronic document output from organizations such as Optio, StreamServe, Xenos and AFP Technology. The third is electronic forms from organizations such as Adobe, Cardiff, PureEdge and Shana. Rapid Technological Change The market for the Company's products and services is characterized by rapidly changing technology, evolving industry standards and new product introductions. The Company's future success will depend in part upon its ability to enhance its existing products and services and to develop and introduce new products and services to meet changing client requirements. The process of developing software products and solutions such as those offered by the Company is extremely complex and is expected to become increasingly complex and expensive in the future with the introduction of new platforms and technologies. There can be no assurance that the Company 13 will successfully complete the development of new products and solutions in a timely fashion or that the Company's current or future products and solutions will satisfy the future needs of its customers. Management of Growth The Company intends to expand its worldwide sales force and distribution channels. Rapid growth, including geographic expansion, could place a significant strain on the Company's management, operations and other resources. The Company's ability to manage its growth will require it to continue to invest in its operations, including its financial and management information systems and controls, and to retain, motivate and effectively manage its employees. If the Company's management is unable to manage the Company's growth effectively, the quality of the Company's products and services, the Company's ability to retain key personnel and its results of operations could be materially adversely affected. Third Party Dependence The Company's ability to remain competitive and respond to technological change is in part dependent upon the products and services of third parties, including vendors of application solutions. In the event that the products of such third parties have design defects or flaws, or if such products are unexpectedly delayed in their introduction, the Company's business, financial condition and results of operations could be materially adversely affected. Dependence Upon Key Personnel The success of the Company will be largely dependent on certain key employees including A. Kevin Francis, its President and Chief Executive Officer. The loss of the services of Mr. Francis or certain other key employees could have a material adverse effect on the Company's business and prospects. The Company's success is highly dependent on its continuing ability to identify, hire, train, retain and motivate highly qualified management, technical, sales and marketing personnel, including recently appointed officers and other employees. Competition for such personnel is intense, and there can be no assurance that the Company will be able to attract, integrate or retain highly qualified, technical, sales, marketing and managerial personnel in the future. The inability to attract and retain the necessary management, technical and sales and marketing personnel could have a material adverse effect on the Company's business, financial condition and results of operations. International Operations and Geographic Concentration Sales of the Company's products outside of the United States and Canada represented approximately 49% of the Company's product revenues for the year ended April 30, 2001, and approximately 42% and 37% of the Company's product revenues for the years ended April 30, 2000, and 1999, respectively. The Company anticipates that sales outside of the United States and Canada will continue to account for a significant portion of total revenue. These revenues are subject to certain risks including exchange rate changes, imposition of government controls, export license requirements, restrictions on the import/export of technology, political instability, trade restrictions, changes in tariffs and taxes, differences in copyright protection and difficulties in managing accounts receivable and term accounts receivable. There can be no assurance that these factors will not have a material adverse effect on the Company's future results of operations. Exchange Rate Risks; Currency Fluctuations Most of the Company's revenues are denominated in U.S. dollars, although the Company's expenses are primarily incurred in Canadian dollars and it reports its financial results in Canadian dollars. Fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar could have a material adverse effect on the Company's 14 reported results. As the Company continues to expand its European and Rest of World operations, its risk exposure to currencies other than the U.S. dollar and the Canadian dollar will also increase. Reliance on Intellectual Property The Company's success is heavily dependent upon its proprietary technology. The Company does not hold any patents relating to its software products. The Company regards its software products as proprietary and relies for protection upon copyright, trademark and trade secret laws as well as restrictions on disclosure and transferability contained in its software license agreements with customers. In spite of these precautions, it may be possible for unauthorized third parties to copy or otherwise obtain and use the Company's products or technology. In addition, effective copyright, trademark and trade secret protection may be unavailable or limited in certain foreign countries. The Company also periodically obtains licenses to use or copy software written or supplied by third parties for use in the Company's products. If such licenses are terminated by such third parties, there can be no assurance that any necessary licenses or rights could be obtained on terms satisfactory to the Company to allow continued use of such third party software which may be necessary for the functionality or features of the Company's products. Certain of the Company's software products and solutions could infringe existing intellectual property rights of others. A number of companies, including leading software companies, have obtained patents, some of which could be found to be infringed by the Company's products and solutions. If any infringement of intellectual property rights does exist in JetForm's products, there can be no assurance that the necessary licenses or rights could be obtained on terms satisfactory to the Company or that the Company would not be required to modify or discontinue distributing the infringing software products. A finding of infringement could have a material adverse effect on the Company's business, financial condition and results of operations. The threat or commencement of litigation against the Company by third parties to enforce alleged intellectual property rights, whether or not such intellectual property rights are found to exist or to have been infringed by the Company, could have a material adverse impact on the market price of the Common Shares, could prove costly for the Company to defend and could direct significant management resources away from the operations of the Company. Product Defects and Product Liability The Company's software products are highly complex and sophisticated and could from time to time contain design defects or software errors that could be difficult to detect and correct. Errors, bugs or viruses may result in loss of or delay in market acceptance or loss of client data. Although the Company has not experienced material adverse effects resulting from any software defects or errors to date, there can be no assurance that, despite testing by the Company and its clients, errors will not be found in new products. In addition, the Company regularly provides a warranty with its products. There can be no assurance that the financial impact of these obligations will not be significant in the future, especially in the event of a major product defect. The Company's products are used by many of its clients to perform mission critical functions. As a result, design defects, software errors, misuse of the Company's products, incorrect data from external sources or other potential problems that may arise from the use of the Company's products could result in claims for financial or other damages from the Company's customers. As is customary in the software industry, the Company does not maintain product liability insurance. Although the Company's license agreements with its customers typically contain provisions designed to limit the Company's exposure to potential claims, such provisions may not effectively protect the Company against such claims and related liabilities and costs. Accordingly, any such claim could have a material adverse effect upon the Company's business, financial condition and results of operations. Volatility of Stock Price On the basis of the history of the trading prices of the Common Shares and the stock prices of other technology companies, the market price of the Common Shares may be highly volatile and may be affected by factors other than the Company's results. Factors such as announcements of technological innovations or new products by the 15 Company's competitors, changes in the conditions of the data capture, process integration and document presentment markets, changes in public market analysts' expectations regarding future earnings and fluctuations in the rate of exchange between foreign currencies and the Canadian dollar may have an impact on the market price of the Common Shares. In addition, general economic, political and market conditions, such as recessions, economic treaties, elections or military conflicts, may adversely affect the market price of the Common Shares. Item 2. PROPERTIES Facilities The following table sets forth the location of the principal offices of the Company and its subsidiaries as of April 30, 2001, their uses, and the lease expiry date. The Company considers its facilities to be in good condition. The specific location of these facilities is not material to the Company's business.
Location Primary Use Lease Expiry Ottawa, Ontario, Canada Executive offices, customer support, September, 2006 consulting services, training services, sales, marketing and administration Toronto, Ontario, Canada Sales and consulting October, 2002 Atlanta, Georgia, USA Sales and consulting June, 2001 Chicago, Illinois, USA Sales and consulting August, 2001 Dallas, Texas, USA Sales and consulting September, 2004 Detroit, Michigan, USA Sales and consulting December, 2001 Falls Church, Virginia, USA U.S. Government sales, consulting and April, 2002 marketing headquarters, regional sales Mountain View, California, USA Sales and consulting April, 2005 New York, New York, USA Sales and consulting March, 2006 Boulogne, France Sales and consulting September, 2001 Dublin, Ireland Sales, consulting and customer support January, 2024 Ratingen, Germany Sales and consulting December, 2004 Stockholm, Sweden Sales and consulting September, 2003 Netherlands, BV Sales and consulting April, 2002 Windsor, UK Sales and consulting January, 2006
16 Beijing, China Sales and consulting March, 2002 Tokyo, Japan Sales, consulting and customer support January, 2002
Item 3. LEGAL PROCEEDINGS The Company is not a party to any material litigation. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the year ended April 30, 2001. 17 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Price Range of Common Shares The Company's Common Shares are quoted on the NASDAQ National Market under the symbol "FORM", the Pacific Stock Exchange under the symbol "JTF", and on the Toronto Stock Exchange under the symbol "JFM". The following table sets forth, for the periods indicated, the high and low closing sales prices of the Common Shares as reported on the NASDAQ National Market and the Toronto Stock Exchange. NASDAQ National Market High Low Year Ended April 30, 2000 First Quarter....................... US$ 5.12 US$ 3.12 Second Quarter...................... 4.40 3.12 Third Quarter....................... 7.56 3.43 Fourth Quarter...................... 12.31 5.12 Year Ended April 30, 2001 First Quarter....................... US$ 6.50 US$ 4.25 Second Quarter...................... 6.13 3.06 Third Quarter....................... 4.38 2.31 Fourth Quarter...................... 3.69 1.88 Toronto Stock Exchange High Low Year Ended April 30, 2000 First Quarter....................... CAN$ 7.80 CAN$ 4.65 Second Quarter...................... 7.10 4.50 Third Quarter....................... 11.55 5.00 Fourth Quarter...................... 18.90 7.00 Year Ended April 30, 2001 First Quarter....................... CAN$ 9.15 CAN$ 6.55 Second Quarter...................... 9.00 4.65 Third Quarter....................... 6.50 3.60 Fourth Quarter...................... 5.50 2.91 Holders As of July 16, 2001, there were 424 holders of record of Common Shares. A substantial number of Common Shares of the Company are held by depositories, brokerage firms and financial institutions in "street name". Based upon the number of annual reports and proxy statements requested by such nominees, management of the Company estimates that there are more than 16,500 beneficial holders of Common Shares. Dividends During the fiscal years ended April 30, 2001, 2000 and 1999, the Company did not declare or pay cash dividends on its Common Shares, and does not anticipate paying any dividends in the foreseeable future, but intends to retain future earnings for reinvestment to finance its business. 18 Limitations Affecting Security Holders There is no law or government decree or regulation in Canada that restricts the export or import of capital, or affects the remittances of dividends, insurance or other payments to a non-resident holder of Common Shares, other than the withholding tax requirements described below. Taxation The following discussion summarizes certain tax considerations relevant to an investment by individuals and corporations who, for income tax purposes, are resident in the United States and not in Canada, hold Common Shares as capital property, and do not use or hold the Common Shares in carrying on business through a permanent establishment or in connection with a fixed base in Canada (collectively, "Unconnected US Shareholders"). The Canadian tax consequences of an investment in the Common Shares by investors who are not Unconnected US Shareholders may be expected to differ substantially from the tax consequences discussed herein. The discussion is based upon the provisions of the Income Tax Act (Canada) (the "Tax Act"), the Convention between Canada and the United States of America with respect to taxes on Income and on Capital (the "Convention") and the published administrative practices of Revenue Canada, Taxation and judicial decisions, all of which are subject to change. This discussion does not take into account the tax laws of the various provinces or territories of Canada. This discussion is intended to be a general description of the Canadian tax considerations and does not take into account the individual circumstances of any particular shareholder. Any cash dividends and stock dividends on the Common Shares payable to Unconnected US Shareholders generally will be subject to Canadian withholding tax. Under the Convention, the rate of withholding tax generally applicable to Unconnected US Shareholders is 15%. In the case of a United States corporate shareholder owning 10% or more of the voting shares of the Company, the applicable withholding tax under the Convention is 5%. Capital gains realized on the disposition of Common Shares by Unconnected US Shareholders will not be subject to tax under the Tax Act unless such Common Shares are taxable Canadian property within the meaning of the Tax Act. Common Shares will generally not be taxable Canadian property to a holder unless, at any time during the five-year period immediately preceding a disposition, the holder, or persons with whom the holder did not deal at arm's length, or any combination thereof, owned 25% or more of the issued shares of any class or series of the Company. If the Common Shares are considered taxable Canadian property to a holder, the Convention will generally exempt Unconnected US Shareholders from tax under the Tax Act in respect of a disposition of Common Shares provided the value of the shares of the Company is not derived principally from real property situated in Canada. Neither Canada nor any province thereof currently imposes any estate taxes or succession duties. 19 Item 6. SELECTED FINANCIAL DATA The selected consolidated financial data as at and for each of the years in the five year period ended April 30, 2001, have been derived from the Company's audited Consolidated Financial Statements and Notes thereto, included in Item 8. "Financial Statements and Supplementary Data", and should be read in conjunction therewith. The Consolidated Financial Statements are prepared on the basis of U.S. GAAP and are expressed in Canadian dollars. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Year ended April 30, ----------------------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- ----------- ----------- ------------ ----------- (in thousands of Canadian dollars, except share and per share amounts) Statement of Operations Data: Revenues Product............................$ 61,038 $ 52,583 $ 66,662 $ 74,781 $ 54,935 Service............................ 39,601 41,734 47,550 36,446 21,679 ----------- ----------- ----------- ----------- ----------- 100,639 94,317 114,212 111,227 76,614 ----------- ----------- ----------- ----------- ----------- Costs and expenses Cost of product.................... 15,911 12,053 9,164 7,539 4,677 Cost of service.................... 12,270 12,373 19,058 15,259 10,805 Sales and marketing................ 55,043 45,097 53,315 40,214 29,140 General and administrative......... 12,375 12,168 10,722 9,846 8,618 Research and development........... 17,535 15,423 15,384 10,620 7,422 Depreciation and amortization...... 10,928 10,300 11,568 11,631 8,190 Gain on sale of assets (1)......... -- (1,813) -- -- -- Restructuring (2).................. (689) (1,106) 30,503 -- -- Repurchase of Moore Options(3)..... -- -- -- -- 47,084 In process research and development(4)..................... -- -- -- -- 106,962 ----------- ---------- ----------- ----------- ----------- 123,373 104,495 149,714 95,109 222,898 ----------- ---------- ----------- ----------- ----------- Operating income (loss)............ (22,734) (10,178) (35,502) 16,118 (146,284) Investment and other income (expense).......................... 794 3,163 3,815 (3,564) (2,003) ----------- ---------- ----------- ----------- ----------- Income (loss) before taxes......... (21,940) (7,015) (31,687) 12,554 (148,287) Provision for (recovery of) income taxes....................... 6,641 1,086 (2,552) 1,690 193 ----------- ---------- ----------- ----------- ----------- Net income (loss)..................$ (28,581) $ (8,101) $ (29,135) $ 10,864 $ (148,480) =========== ========== =========== =========== =========== Basic income (loss) per share Net income (loss) per share.............................. $(1.26) $(0.41) $(1.47) $0.65 $(10.03) Weighted average number of shares............................. 22,616,021 19,915,893 19,826,057 16,622,835 14,796,852 Fully diluted income (loss) per share Net income (loss) per share.............................. $(1.26) $(0.41) $(1.47) $0.62 $(10.03) Weighted average number of shares............................. 22,616,021 19,915,893 19,826,057 17,615,595 14,796,852
As at April 30, -------------------------------------------------------------------------- 2001 2000 1999 1998 1997 ------- ------------ ----------- ------------ ----------- (in thousands of Canadian dollars) Balance Sheet Data: Cash and cash equivalents.......... $ 41,426 $ 42,092 $ 47,262 $ 91,604 $ 34,450 Accounts receivable................ 28,488 21,416 29,274 31,347 24,276 Term accounts receivable........... 3,962 5,466 19,576 13,187 11,676 Working capital.................... 48,171 33,568 43,744 70,370 30,409 Total assets....................... 114,676 121,336 156,705 216,567 142,988 Long term debt including current maturities......................... 10,000 10,000 32,557 73,404 101,518 Shareholders' equity............... 70,562 76,302 84,930 112,149 16,089
-------- (1) On May 1, 1999 the Company sold all of the Common and Preferred shares of its multimedia subsidiary, Why Interactive, to a third party for total consideration of $6.4 million. (2) On March 17, 1999 the Company announced a restructuring plan which included the write-down of certain capital assets, reductions in the number of employees, closure of certain facilities and other costs totaling $30.5 million. See Note 15 to the Consolidated Financial Statements included elsewhere in this Form 10-K. During the year ended April 30, 2000 and 2001 the Company was successful in reducing its total expected liability under facilities leases and severance arrangements by $ 1.1 million and $689,000 respectively. (3) Effective June 27, 1996, the Company repurchased the Moore options for consideration of US$34.0 million, paid for by the issuance of 1,813,334 Common Shares. (4) On September 10, 1996, the Company acquired certain assets including title to intellectual property, that were formerly part of the E-Forms software group of Delrina Corporation. During the year ended April 30, 1997, the Company recorded a non-recurring charge of $107.0 million for purchased in process research and development relating to this acquisition. 20 The Company publishes its consolidated financial statements in Canadian dollars. The following table sets forth, for the periods indicated, certain exchange rates based on the exchange rates reported by the Federal Reserve Bank of New York as the noon buying rates in New York City for cable transfers in foreign currencies, as certified for customs purposes (the "Noon Buying Rate"). Such rates quoted are the number of U.S. dollars per Canadian dollar and are the inverse of the Noon Buying Rate.
Year ended April 30, ------------------------------------------------------------------- 2001 2000 1999 1998 1997 ----------- ----------- ----------- ----------- -------- High....... US$ 0.6771 US$ 0.6969 US$ 0.6882 US$ 0.7317 US$ 0.7513 Low........ 0.6416 0.6607 0.6341 0.6832 0.7145 Average(1). 0.6619 0.6803 0.6601 0.7093 0.7329 Period End. 0.6508 0.6748 0.6863 0.6992 0.7157
(1) The average of the month-end exchange rates during such periods. On June 20, 2001, the noon buying rate in New York City for cable transfers in Canadian dollars was US $1.00 - CAN $1.52 as certified for customs purposes by the Federal Reserve Bank of New York. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The following discussion of the Company's results of operations and of its liquidity and capital resources should be read in conjunction with the information contained in the Consolidated Financial Statements and related Notes thereto. The following discussion provides a comparative analysis of material changes for the years ended April 30, 2001, 2000 and 1999, in the financial condition and results of operations of the parent company ("JetForm") and its wholly-owned subsidiaries: JetForm Corporation (a Delaware corporation), JF A'Asia Pty. Limited ("JetForm Pacific"), JetForm Scandinavia AB ("JetForm Nordic"), JetForm France SA ("JetForm France"), JetForm UK Limited ("JetForm UK"), JetForm Deutschland GmbH ("JetForm Germany"), JetForm Technologies Limited ("JetForm Ireland"), JetForm Japan K.K. ("JetForm Japan"), JetForm Netherlands BV ("JetForm Netherlands") and JetForm PTE Ltd ("JetForm Singapore"). JetForm and its wholly-owned subsidiaries are collectively referred to herein as the "Company". Results of Operations The Company's revenues and operating results have varied from year to year. With the exception of its consulting services operation, the Company has historically operated with little backlog of orders because its software products are generally shipped as orders are received. The Company records product revenue from packaged software and irrevocable commitments to purchase products when persuasive evidence of an arrangement exists, the software product has been shipped, there are no significant uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable. As a result, product revenue in any period is substantially dependent on orders booked and shipped in that period. Product revenue is difficult to forecast due to the fact that the Company's sales cycle, from initial trial to multiple copy licenses, varies substantially from customer to customer. As a result, variations in the timing of product sales can cause significant variations in operating results from period to period. Product revenue represented 61% of total revenue for the year ended April 30, 2001. Service revenue primarily consists of consulting services, training and technical support. Consulting services include assisting customers to configure, implement and integrate the Company's products and, when required, customize products and design automated processes to meet customers' specific business needs. Service revenue 21 represented 39% of total revenue for the year ended April 30, 2001. Costs and expenses are comprised of cost of product, cost of service, sales and marketing, general and administrative, research and development, depreciation and amortization and other expenses. Cost of product consists of the cost of disks, manuals, packaging, freight, royalty payments to vendors whose software is bundled with certain products, amortization of deferred product development costs and provisions for bad debts. Cost of service includes all costs of providing technical support, training, consulting, custom forms development application development services and provision for bad debts. Sales and marketing expenses are principally related to salaries and commissions paid to sales and marketing personnel and the cost of marketing programs. Research and development expenses include personnel and occupancy costs as well as the costs of software development, testing, product management, quality assurance and documentation. General and administrative expenses include personnel and occupancy costs related to administrative personnel. Depreciation and amortization includes depreciation and amortization of fixed assets and amortization of other assets, goodwill and distribution rights relating to various acquisitions. The Company amortizes goodwill and distribution rights over their expected useful lives. The Company periodically reviews the carrying value of its capital assets. Any impairments in the carrying value are recognized at that time. The following table sets forth, on a comparative basis for the periods indicated, the components of the Company's product margin, service margin and product and service margin:
Year ended April 30, ----------------------------------------------------------------------------- 2001 2000 1999 ----------------------- ------------------------ ---------------------- (in thousands of Canadian dollars) Product revenue.... $61,038 100% $52,583 100% $66,662 100% Cost of product.... 15,911 26% 12,053 23% 9,164 14% ----------- -------- ---------- ---------- ---------- --------- Product margin..... $45,127 74% $40,530 77% $57,498 86% =========== ======== ========== ========== ========== ========= Service revenue.... $39,601 100% $41,734 100% $47,550 100% Cost of service.... 12,270 31% 12,373 30% 19,058 40% ----------- -------- ---------- ---------- ---------- --------- Service margin..... $27,331 69% $29,361 70% $28,492 60% =========== ======== ========== ========== ========== ========= Total revenue...... $100,639 100% $94,317 100% $114,212 100% Costs of product and service 28,181 28% 24,426 26% 28,222 25% ----------- -------- ---------- ---------- ---------- --------- Product and service margin $72,458 72% $69,891 74% $85,990 75% =========== ======== ========== ========== ========== =========
The following table presents, for the periods indicated, consolidated statement of operations data expressed as a percentage of total revenues:
Year ended April 30, --------------------------------------------- 2001 2000 1999 ------------- ------------ ------------ REVENUES Product................................ 61% 56% 58% Service................................ 39% 44% 42% ------------- ------------ ------------ 100% 100% 100% ------------- ------------ ------------ COSTS AND EXPENSES Cost of product........................ 16% 13% 8% Cost of service........................ 12% 13% 17% Sales and marketing.................... 55% 48% 47% General and administrative............. 12% 13% 9% Research and development............... 17% 16% 13% Depreciation and amortization.......... 11% 11% 10% Restructuring.......................... -1% -1% 27% Gain on sale of assets................. -- -2% -- ------------- ------------ ------------ 123% 111% 131% ------------- ------------ ------------ OPERATING LOSS........................... -23% -11% -31% Interest and other income (expense)...... 1% 3% 3% ------------- ------------ ------------ LOSS BEFORE TAXES........................ -22% -7% -28%
22 Provision for income taxes............... -7% -1% 2% ------------- ------------ ------------ NET LOSS................................. -28% -9% -26% ============= ============ ============
The following table provides details of product revenue by geographic segment and, within Canada and the United States of America, by distribution channel:
Year ended April 30, Period to Period Increase (Decrease) ---------------------------------------- ------------------------------------ 2001 2000 1999 2001 to 2000 1999 to 2000 ---------- ---------- ------------ --------------- --------------- (in thousands of Canadian dollars) Product revenue by region United States and Canada.... $ 31,183 $ 30,294 $ 42,286 3% -28% Europe...................... 21,191 18,076 20,051 17% -10% Rest of World............... 8,664 4,213 4,325 106% -3% ---------- ---------- ------------ $ 61,038 $ 52,583 $ 66,662 16% -21% ========== ========== ============ Product revenue by channel in the United States and Canada Reseller and OEM............ $ 10,565 $ 17,555 $ 24,779 -40% -29% Direct Sales................ 20,618 12,739 17,507 62% -27% ---------- ---------- ------------ $ 31,183 $ 30,294 $ 42,286 3% -28% ========== ========== ============
Year Ended April 30, 2001, Compared to the Year Ended April 30, 2000 Revenues Total Revenues: Total revenues increased 7% to $100.6 million for the year ended April 30, 2001, from $94.3 million for the year ended April 30, 2000. Total revenues consisted of 61% product revenue and 39% service revenue for the year ended April 30, 2001. Product Revenue: Product revenue increased 16% to $61.0 million for the year ended April 30, 2001, from $52.6 million for the year ended April 30, 2000. Product revenue derived from North America, Europe and Rest of World represented 51%, 35% and 14%, respectively, of product revenue for the year ended April 30, 2001, as compared to 58%, 34% and 8%, respectively, of product revenue for the year ended April 30, 2000. Product revenue derived from North America increased 3% to $31.2 million for the year ended April 30, 2001, from $30.3 million for the year ended April 30, 2000. Reseller and OEM sales, which represented 34% of North American product revenue, decreased 40% to $10.6 million for the year ended April 30, 2001, from $17.6 million for the year ended April 30, 2000. Product revenue from direct sales, which represented 66% of North American product revenue, increased 62% to $20.6 million for the year ended April 30, 2001, from $12.7 million for the year ended April 30, 2000 primarily due to the expansion in the direct sales force. Product revenue derived from Europe increased 17% to $21.2 million for the year ended April 30, 2001, from $18.1 million for the year ended April 30, 2000, due to increased license revenue from Germany, France and the United Kingdom. Product revenue derived from Rest of World increased 106% to $8.7 million for the year ended April 30, 2001, from $4.2 million for the year ended April 30, 2000, primarily due to increased reseller revenue from Japan and increased reseller revenue from Australia and Singapore. Service Revenue: Service revenue decreased 5% to $39.6 million for the year ended April 30, 2001, from $41.7 million for the year ended April 30, 2000. For the year ended April 30, 2001, maintenance and support 23 revenue increased 17% to $28.0 million from $23.9 million for the year ended April 30, 2000. The Company's consulting revenue decreased 35% to $11.6 million for the year ended April 30, 2001, from $17.9 million for the year ended April 30, 2000. The decrease in consulting revenue occurred in North America. The decrease was due to the redeployment of service resources to pre-sales activities in the prior fiscal year, and lower sales of services as a result of re-staffing in the Company's North American sales force in the first two quarters of fiscal 2001. Costs and Expenses Total Costs and Expenses: Total costs and expenses were $123.4 million for the year ended April 30, 2001, an increase of 18% from $104.5 million for the year ended April 30, 2000. Excluding the restructuring recovery of $700,000 in fiscal year 2001 and the gain on sale of asset and restructuring recovery of $2.9 million in fiscal year 2000, costs and expenses for the year ended April 30, 2001, increased by 4%. Cost of Product: Cost of product increased 32% to $15.9 million for the year ended April 30, 2001, from $12.1 million for the year ended April 30, 2000. These costs represent 26% and 23% of product revenue for the years ended April 30, 2001 and April 30, 2000, respectively. The increase is related to an increase in amortization of capitalized software costs, offset by a decrease in bad debt expense for the year. Total capitalized software costs charged to cost of product revenue increased 170% to $8.4 million for the year ended April 30, 2001, from $3.1 million for the year ended April 30, 2000. During the year ended April 30, 2001, other assets decreased as a result of amortization and the write down of the value of capitalized software costs. The write-down was attributable to management's realization that the life cycles of some of its products had come to an end. Total bad debt expense decreased 51% to $3.0 million for the year ended April 30, 2001, from $6.1 million for the year ended April 30, 2000. As a result of these changes, the product margin decreased to 74% for the year ended April 30, 2001, from 77% for the year ended April 30, 2000. Cost of Service: Cost of service decreased 1% to $12.3 million for the year ended April 30, 2001, from $12.4 million for the year ended April 30, 2000. The service margin decreased to 69% for the year ended April 30, 2001, from 70% for the year ended April 30, 2000. Included in cost of service is $1.0 million of bad debts for the year ended April 30, 2001. Costs of Product and Service: Costs of product and service increased 15% to $28.2 million for the year ended April 30, 2001, from $24.4 million for the year ended April 30, 2000. Product and service margin decreased to 72% for the year ended April 30, 2001, from 74% for the year ended April 30, 2000. Total bad debts decreased 34% to $4.0 million for the year ended April 30, 2001, from $6.1 million for the year ended April 30, 2000. Sales and Marketing: Sales and marketing expenses increased 22% to $55.0 million for the year ended April 30, 2001 from $45.1 million for the year ended April 30, 2000, as a result of the Company's increasing the size of its sales force from 55 sales representatives to 110. As a percentage of total revenues, sales and marketing increased to 55% for the year ended April 30, 2001, from 48% for the year ended April 30, 2000. General and Administrative: General and administrative expenses increased 2% to $12.4 million for the year ended April 30, 2001, from $12.2 million for the year ended April 30, 2000. As a percentage of total revenues, general and administrative expenses decreased to 12% for the year ended April 30, 2001, from 13% for the year ended April 30, 2000. Research and Development: Research and development expenses decreased 3% to $20.1 million for the year ended April 30, 2001, from $20.7 million for the year ended April 30, 2000, primarily due to lower investment tax credits recorded in the year and a reduction in the amount of capitalized software costs. During the year ended April 30, 2001, the Company capitalized approximately $2.6 million of software development costs as compared to $3.6 million for the year ended April 30, 2000. Software development costs are expensed as incurred unless they meet generally accepted accounting criteria for deferral and amortization. Costs were not deferred in fiscal 2001 to the extent they were in fiscal 2000 because fewer projects met the criteria for deferral and where projects did meet the criteria the period between achieving technological feasibility and the general availability of the product was short and the associated costs were lower. Research and development expense as a percentage of product revenue 24 remained constant at 29% for the years ended April 30, 2001 and 2000. The Company expects that its capitalized software costs in the future will be lower than in the year ended April 30, 2001. Overall research and development spending decreased 3% to $20.1 million for the year ended April 30, 2001, from $20.7 million for the year ended April 30, 2000. Depreciation and Amortization: Depreciation and amortization increased 6% to $10.9 million for the year ended April 30, 2001, from $10.3 million for the year ended April 30, 2000, primarily as a result of the increase in fixed assets such as internally developed software, leasehold improvements, computer equipment and software purchased throughout the year. Restructuring: During the year ended April 30, 2001, the Company was successful in reducing its total expected liability under facilities leases and severance arrangements by approximately $689,000. Gain on Sale of Assets: During the year ended April 30, 2001, the Company did not dispose of any assets. During the year ended April 30, 2000, the Company sold all of the Common and Preferred shares of its multimedia subsidiary, Why Interactive, to a third party for $6.4 million in cash, debt and convertible debt. This resulted in a gain of $1.8 million. The Company has received all amounts owed from the third party. Operating Loss: Operating loss was $22.7 million for the year ended April 30, 2001, compared to $10.2 million for the year ended April 30, 2000. The increase in operating loss is primarily a result of the increased amortization and write-offs of capitalized software costs. Investment and Other Income (Expense): Investment and other income was approximately $794,000 for the year ended April 30, 2001, compared to $3.2 million for the year ended April 30, 2000. During the year ended April 30, 2000 the Company recorded a gain of $1.5 million on the sale of a security. No such transaction took place during the year ended April 30, 2001. Provision for Income Taxes: The Company recorded a provision for current income taxes of $1.0 million and a provision for deferred income taxes of $5.6 million which was a result of an increase in the valuation allowance for the deferred tax assets during the year ended April 30, 2001, compared to a provision for current income taxes of $1.1 million and a provision for deferred income taxes of nil for the year ended April 30, 2000. Year Ended April 30, 2000, Compared to the Year Ended April 30, 1999 Revenues Total Revenues: Total revenues decreased 17% to $94.3 million for the year ended April 30, 2000, from $114.2 million for the year ended April 30, 1999. Total revenues consisted of 56% product revenue and 44% service revenue for the year ended April 30, 2000. Product Revenue: Product revenue decreased 21% to $52.6 million for the year ended April 30, 2000, from $66.7 million for the year ended April 30, 1999. Product revenue derived from North America, Europe and Rest of World represented 58%, 34% and 8%, respectively, of product revenue for the year ended April 30, 2000, as compared to 63%, 30% and 7%, respectively, of product revenue for the year ended April 30, 1999. The Company attributes the decrease in product revenue primarily to external market factors including the Year 2000 issue, a shift towards Internet based solutions from traditional client/server solutions, and the emergence of new competitors. 25 Product revenue derived from North America decreased 28% to $30.3 million for the year ended April 30, 2000, from $42.3 million for the year ended April 30, 1999. Reseller and OEM sales, which represented 58% of North American product revenue, decreased 29% to $17.6 million for the year ended April 30, 2000, from $24.8 million for the year ended April 30, 1999. Product revenue from direct sales, which represented 42% of North American product revenue, decreased 27% to $12.7 million for the year ended April 30, 2000, from $17.5 million for the year ended April 30, 1999. Product revenue derived from Europe decreased 10% to $18.1 million for the year ended April 30, 2000, from $20.1 million for the year ended April 30, 1999, primarily due to decreased license revenue from Germany and Sweden. Product revenue derived from Rest of World decreased 3% to $4.2 million for the year ended April 30, 2000, from $4.3 million for the year ended April 30, 1999, primarily due to decreased license revenue from Australia. Service Revenue: Service revenue decreased 12% to $41.7 million for the year ended April 30, 2000, from $47.6 million for the year ended April 30, 1999. For the year ended April 30, 2000, maintenance and support revenue increased 9% to $23.9 million from $21.8 million for the year ended April 30, 1999. The Company's consulting revenue decreased 30% to $17.9 million for the year ended April 30, 2000, from $25.6 million for the year ended April 30, 1999. For the year ended April 30, 1999, consulting revenue included $4.0 million from a former subsidiary of the Company, Why Interactive, which was sold in May 1999. Excluding revenue from Why Interactive, consulting revenue decreased 17%, primarily due to the general decrease in product sales and resulting consulting engagements. Costs and Expenses Total Costs and Expenses: Total costs and expenses were $104.5 million for the year ended April 30, 2000, a decrease of 30% from $149.7 million for the year ended April 30, 1999. Excluding non-recurring items of $2.9 million in fiscal year 2000 and $30.5 million in fiscal year 1999, costs and expenses for the year ended April 30, 2000, decreased by 10%. Cost of Product: Cost of product increased 32% to $12.1 million for the year ended April 30, 2000, from $9.2 million for the year ended April 30, 1999, primarily as a result of an increase in provisions for bad debts. During the year ended April 30, 2000, the Company provided for two large accounts, which amounted to $1.7 million. The product margin decreased to 77% for the year ended April 30, 2000, from 86% for the year ended April 30, 1999, primarily due to lost economies of scale resulting from the decrease in product revenue and the bad debt provisions. Cost of Service: Cost of service decreased 35% to $12.4 million for the year ended April 30, 2000, from $19.1 million for the year ended April 30, 1999, primarily as a result of a decrease in the number of employees resulting from the Company's restructuring in the fourth quarter of fiscal year 1999 and the sale of Why Interactive in May 1999. The service margin increased to 70% for the year ended April 30, 2000, from 60% for the year ended April 30, 1999, primarily as a result of the increased maintenance and support revenue, which traditionally has higher margins than other services. Costs of Product and Service: Costs of product and service decreased 13% to $24.4 million for the year ended April 30, 2000, from $28.2 million for the year ended April 30, 1999. Product and service margin decreased to 74% for the year ended April 30, 2000, from 75% for the year ended April 30, 1999. Sales and Marketing: Sales and marketing expenses decreased 15% to $45.1 million for the year ended April 30, 2000 from $53.3 million for the year ended April 30, 1999, primarily as a result of a decrease in the number of employees resulting from the Company's restructuring in the fourth quarter of fiscal year 1999. The Company expects to expand its direct and indirect sales force during fiscal year 2001. As a percentage of total revenues, sales and marketing increased to 48% for the year ended April 30, 2000, from 47% for the year ended April 30, 1999. 26 General and Administrative: General and administrative expenses increased 13% to $12.2 million for the year ended April 30, 2000, from $10.7 million for the year ended April 30, 1999, primarily due to approximately $2.3 million relating to the write-off of an investment and the departure of certain executives. As a percentage of total revenues, general and administrative expenses increased to 13% for the year ended April 30, 2000, from 9% for the year ended April 30, 1999. Excluding these charges, general and administrative expenses decreased 8% to $9.9 million for the year ended April 30, 2000. As a percentage of total revenues, general and administrative expense (excluding the write-off and departure charges) was 10% for the year ended April 30, 2000, compared to 9% for the year ended April 30, 1999. Research and Development: Research and development expenses remained constant at $15.4 million for both the years ended April 30, 2000 and 1999. During both the years ended April 30, 2000, and April 30, 1999, the Company capitalized approximately $3.6 million of software development costs. Research and development expense was 29% and 23% of product revenue for the years ended April 30, 2000 and 1999, respectively. Depreciation and Amortization: Depreciation and amortization decreased 11% to $10.3 million for the year ended April 30, 2000, from $11.6 million for the year ended April 30, 1999, primarily as a result of the write down of certain intangible assets in the fourth quarter of fiscal year 1999. Restructuring: During the year ended April 30, 2000, the Company was successful in reducing its total expected liability under facilities leases and severance arrangements by approximately $1.1 million. Gain on Sale of Assets: In May, 1999 the Company sold all of the Common and Preferred shares of its multimedia subsidiary, Why Interactive, to a third party for $6.4 million in cash, debt and convertible debt. This resulted in a gain of $1.8 million. As at April 30, 2000, the Company had received all amounts owed from the third party. Operating Income (Loss): Operating loss was $10.2 million for the year ended April 30, 2000, compared to $35.5 million for the year ended April 30, 1999. Investment and Other Income (Expense): Investment and other income was $3.2 million for the year ended April 30, 2000, compared to $3.8 million for the year ended April 30, 1999, primarily due to a decrease in interest income offset by a gain of $1.5 million from the sale of securities. Provision for Income Taxes: The Company recorded a provision for current income taxes of $1.1 million for the year ended April 30, 2000, compared to a provision for current income taxes of $2.1 million and a recovery of deferred income tax of $4.6 million for the year ended April 30, 1999. Liquidity and Capital Resources As at April 30, 2001, and April 30, 2000, the Company had $41.4 million and $42.1 million of cash and cash equivalents respectively. During the year ended April 30, 2001, the Company's cash and cash equivalents decreased by approximately $666,000 primarily due to the purchase of fixed and other assets, an increase in accounts receivable and a decrease in accounts payable offset by the proceeds received from the issuance of Common Shares. Operations The Company increased its investment in the non-cash operating components of working capital during the year ended April 30, 2001, by approximately $8.4 million, primarily due to an increase in accounts receivable and a decrease in accounts payable offset by an increase in accrued liabilities. 27 The Company purchased approximately $5.2 million of fixed assets in the year ended April 30, 2001 including computer hardware, office equipment, furniture and leasehold improvements. During the year ended April 30, 2001, the Company invested $9.1 million in other assets related primarily to purchased software and capitalized software costs of $2.6 million. During the year ended April 30, 2001, the Company generated cash of approximately $23.7 million relating to the Company's share offering, stock purchase plan, and the exercise of stock options by employees and others. Accounts Receivable and Term Accounts Receivable Total accounts receivable and term accounts receivable increased $5.6 million to $32.5 million at April 30, 2001 from $26.9 million at April 30, 2000, primarily due to the increase in revenue offset by the Company's continued focus on collections. Accounts receivable excluding term accounts receivable increased to $28.5 million at April 30, 2001, from $21.4 million at April 30, 2000. Term accounts receivable, which are accounts receivable with contracted payment dates exceeding the Company's customary trade terms, decreased by $1.5 million to $4.0 million for the year ended April 30, 2001, from $5.5 million on April 30, 2000 due to a reduction in the Company's practice of granting extended payment terms. Term accounts receivable primarily arise from the recording of revenue from Irrevocable Commitment Licenses. Under an Irrevocable Commitment License, a customer commits to pay a minimum amount over a specified period of time in return for the right to use or resell up to a specific number of copies of a delivered product for a fixed amount. The amount of revenue recorded is the amount of the minimum commitment over the term of the license, less deemed interest for that part of the license term that is beyond the Company's customary trade terms. Payments under Irrevocable Commitment Licenses are generally received from the customer on the earlier of (i) installation of the Company's products by the customer or delivery to its customers or end users and (ii) specified minimum payment dates in the license agreement. Amounts by which revenues recorded exceed payments received are recorded as accounts receivable. Payments that are expected beyond the Company's customary trade terms are recorded as term accounts receivable. Total license fees over the term of the Irrevocable Commitment License may be greater than the minimum commitment initially recorded as revenue. Revenues from installations or sales of the Company's products, in excess of the minimum commitment are recorded by the Company as and when they are reported by the customer. Acquisitions During the year ended April 30, 2001 the Company acquired certain assets and liabilities of Joey Technologies Inc. ("Joey") and Pummill Business Forms Inc. ("Pummill"). The purchase price for Joey was $1.2 million paid through the issuance of 100,000 common shares, and the forgiveness and assumption of debt. The purchase price of the Pummill assets was $272,000 and was satisfied in cash and by the issuance of a note payable which was paid by April 30, 2001. Restructuring On March 17, 1999, the Corporation announced a restructuring plan and recorded a provision for restructuring costs of $30.5 million directed at reducing costs. The key restructuring actions included: o Consolidation of management responsibilities and reduction in headcount; o Closure of redundant facilities; o Reduction in the carrying value of certain capital assets primarily related to past acquisitions; and o Cancellation of certain commitments and other costs. 28 The following table summarizes the activity in the restructuring costs during the years ended April 30, 1999, April 30, 2000 and April 30, 2001:
Employee Total Non Cash Total Termination Facilities Other Costs Costs Provision -------------- ----------- ---------- ----------- ------------ ------------ Restructuring provision............ $5,252 $ 2,914 $ 726 $8,892 $21,611 $ 30,503 Cash payments...................... (1,175) (36) (207) (1,418) -- (1,418) Non-cash items..................... -- -- -- -- (21,611) (21,611) -------------- ----------- ---------- ----------- ------------ ------------ Balance, April 30, 1999............ $ 4,077 $2,878 $519 $7,474 $ -- $ 7,474 Cash payments...................... (2,921) (1,092) (124) (4,137) -- (4,137) Reductions......................... (566) (540) -- (1,106) -- (1,106) -------------- ----------- ---------- ----------- ------------ ------------ Balance, April 30, 2000 $ 590 $1,246 $395 $2,231 $ -- $ 2,231 Cash payments...................... (468) (236) (121) (825) -- (825) Reductions......................... (122) (567) -- (689) -- (689) -------------- ----------- ---------- ----------- ------------ ------------ Balance, April 30, 2001............ $ $443 $274 $717 $ -- $ 717 ============== =========== ========== =========== ============ ============ Long-term balance.................. $ -- $ 394 $ 52 $446 $ -- $ 446 ============== =========== ========== =========== ============ ============
Employee terminations totaled 105 and included 46 in sales and marketing, 40 in research in development, 12 in internal corporate services, and 7 in systems and consulting services. Employee terminations included salary continuance for which the Company was contractually obligated to pay. All employees were terminated on or before April 30, 1999. During the year ended April 30, 2001, the Company's liability for bonuses and other compensation to terminated employees was reduced by $122,000. Facilities costs consisted primarily of $2.1 million and $780,000 related to the closure of the Company's United Kingdom and Toronto facilities, respectively. The provision for redundant facilities included management's best estimates of the total future operating costs of these vacant facilities for the remainder of their respective lease terms. Actual costs could differ from these estimates. During the year ended April 30, 2001, the Company's liability for vacant facilities was reduced by $567,000 through the successful negotiation of a sub lease agreement for the Company's United Kingdom facility. The Company's long-term balance relates to the United Kingdom facility which expires April 30, 2010. Other cash costs related primarily to the cancellation of trade shows and other commitments. The remaining obligation relates to a service contract which expires August 31, 2002. Non-cash costs included impairment losses of $21.6 million related to assets held for use. The losses were comprised of $16.6 million related to marketing and distribution rights, $3.1 million related to goodwill and $1.9 million related to other capital assets. Financial Instruments and Credit Facility The Company has entered into receivable purchase agreements with certain third party purchasers. Under the agreements, the Company has the option to sell certain accounts receivable on a recourse basis. The Purchasers have recourse in the event of a trade dispute as defined in the receivables purchase agreements. As at April 30, 2001, and April 30, 2000, the outstanding balance of accounts receivable sold under these agreements was approximately US$3.6 million and US$9.7 million, respectively. The recourse obligation is estimated to be nil as the Company believes that none of the receivables sold are at risk of recourse. During the years ended April 30, 2001 and April 30, 2000, the Company sold US$1.9 and US$7.4 million of its Accounts Receivable, respectively. The Company has a committed $20 million credit facility with the Royal Bank of Canada. The credit facility is made up of (i) a $10 million term facility which bears interest at a rate of 1.5% over the Bankers Acceptance rate of the Bank from time to time and is payable on May 1, 2002; and (ii) a $10 million revolving line of credit which bears interest at the prime rate of the Bank from time to time. As at April 30, 2001, the Company had drawn all of the $10 million term loan facility and fixed the interest rate until July 17, 2001, at 4.68%. The Company had no borrowings against its revolving line of credit as at April 30, 2001. The Company has granted, as collateral for the $20 million credit facility, a general security agreement over JetForm's assets, including a pledge of the shares of certain subsidiaries. 29 The Company believes that its existing cash and cash equivalents will provide sufficient liquidity to meet the Company's business requirements in the foreseeable future. However, should the Company continue to incur operating losses, its ability to meet its liquidity requirements and to raise additional capital through debt or equity financing may be compromised. JetForm uses forward contracts and purchased options to manage exposures to foreign exchange. The Company's objective is to minimize risk using the most effective methods to eliminate or reduce the impacts of this exposure. JetForm does not enter into financial instruments for speculative or trading purposes. As at April 30, 2001, the Company had no outstanding foreign exchange financial instruments. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued the Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement establishes accounting and reporting standards for derivative instruments and hedging activities and is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June, 1999, the FASB issued SFAS No.137, which delays the effective date of SFAS 133 until fiscal years beginning after June 15, 2000. Currently, as the Company has no derivative instruments, the adoption of SFAS No. 133 would have no impact on the Company's financial condition or results of operations. To the extent the Company begins to enter into such transactions in the future, the Company will adopt the Statement's disclosure requirements in the quarterly and annual financial statements for the year ending April 30, 2002. On March 31, 2000, FASB issued Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation - an interpretation of APB Opinion No. 25 (FIN 44), providing new accounting rules for stock-based Compensation under APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). FIN 44 does not change FASB Statement No. 123, Accounting for Stock based compensation (FAS 123). The new rules are significant and will result in compensation expense in several situations in which no expense is typically recorded under current practice, including option repricing, purchase business combinations and plans that permit tax withholdings. FIN 44 is generally effective for transactions occurring after July 1, 2000, but applies to repricings and some other transactions after December 15, 1998. The adoption of this Interpretation did not have a material impact on the Company's results of operations or financial position. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, which was amended in March 2000 by SAB 101A and in June 2000 by SAB 101B. The SAB summarizes certain of the SEC staff views in applying generally accepted accounting principles to revenue recognition in financial statements. This SAB is effective beginning the Company's fourth quarter of fiscal 2001. The adoption of SAB 101 did not have a material impact on its results of operations or financial position. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Assets and Extinguishments of Liabilities" ("SFAS 140"). This statement replaces FASB Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125"). It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS 125's provisions without reconsideration. SFAS 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001 which is during the Company's fourth quarter of fiscal 2001. The adoption of SFAS 140 did not have a material impact on its results of operations or financial position. 30 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company is primarily exposed to market risks associated with fluctuations in interest rates and foreign currency exchange rates. Interest rate risks The Company's exposure to interest rate fluctuations relates primarily to its investment portfolio and its credit facility with its bank. The Company primarily invests its cash in short-term high-quality securities with reputable financial institutions. The interest income from these investments is subject to interest rate fluctuations which management believes would not have a material impact on the financial position of the Company. The impact on net interest income of a 100 basis point adverse change in interest rates for the fiscal year ended April 30, 2001 would have been less than $100,000. Foreign Currency Risk The Company has net monetary asset and liability balances in foreign currencies other than the Canadian Dollar, including the U.S. Dollar ("US$"), the Pound Sterling ("GBP"), the Australian dollar ("AUD"), the Swedish Krona ("SEK"), the German Mark ("DEM"), the French Franc ("FRF"), the Irish Punt ("IEP"), the Euro ("EUR"), and the Japanese Yen ("JPY"). The Company's cash and cash equivalents are primarily held in Canadian and U.S. dollars. As a result, fluctuations in the exchange rate of the U.S. dollar will have an impact on the Company's reported cash position. As at April 30, 2001, a 10% adverse change in foreign exchange rates would not have had a material impact on the Company's reported cash and cash equivalents balance. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Management's Statement of Responsibility 32 Auditors' Report 33 Consolidated Balance Sheets 34 Consolidated Statements of Operations 35 Consolidated Statements of Comprehensive Income 36 Consolidated Statements of Shareholders' Equity 37 Consolidated Statements of Cash Flows 38 Notes to Consolidated Financial Statements 40 31 MANAGEMENT'S STATEMENT OF RESPONSIBILITY Management is responsible for the preparation of the financial statements and all other information in the Form 10-K filing with the U.S. Securities and Exchange Commission. The financial statements have been prepared in accordance with generally accepted accounting principles and reflect management's best estimates and judgments. The financial information presented elsewhere in the annual report is consistent with the consolidated financial statements. Management has developed and maintains a system of internal controls to provide reasonable assurance that all assets are safeguarded and to facilitate the preparation of relevant, reliable and timely financial information. Consistent with the concept of reasonable assurance, the Company recognizes that the relative cost of maintaining these controls should not exceed their expected benefits. The Audit Committee, which is comprised of independent directors, reviews the consolidated financial statements, considers the report of the external auditor, assesses the adequacy of the Company's internal controls, and recommends to the Board of Directors the independent auditors for appointment by the shareholders. The financial statements were reviewed by the Audit Committee and approved by the Board of Directors. The financial statements were audited by PricewaterhouseCoopers LLP, the external auditors, in accordance with generally accepted auditing standards on behalf of the shareholders. /s/ A. Kevin Francis /s/ Jeffrey McMullen ----------------------------------------- ------------------------------------- ----------------------------------------- ------------------------------------- A. Kevin Francis Jeffrey McMullen President and Chief Executive Officer Senior Vice President Finance and Chief Financial Officer 32 [LETTERHEAD OF PRICEWATERHOUSE COOPERS] PricewaterhouseCoopers LLP Chartered Accountants 99 Bank Street Suite 800 Ottawa Ontario Canada K1P 1E4 Telephone +1 (613) 237 3702 Facsimile +1 (613) 237 3963 AUDITORS' REPORT TO THE SHAREHOLDERS OF JETFORM CORPORATION We have audited the consolidated balance sheets of JetForm Corporation as of April 30, 2001 and 2000 and the consolidated statements of operations, comprehensive loss, shareholders' equity and cash flows for the years ended April 30, 2001, 2000, and 1999. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance 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. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2001 and 2000 and the results of its operations and its cash flows for the years ended April 30, 2001, 2000 and 1999 in accordance with accounting principles generally accepted in the United States. On June 19, 2001, we reported separately to the shareholders of JetForm Corporation on the consolidated financial statements for the same period, prepared in accordance with accounting principles generally accepted in Canada. /s/PricewaterhouseCoopersLLP Chartered Accountants Ottawa, Canada June 19, 2001 PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and other members of the worldwide PricewaterhouseCoopers organization. 33 JETFORM CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands of Canadian dollars, except share amounts)
April 30, April 30, 2001 2000 -------------- ------------ ASSETS Current assets Cash and cash equivalents.............................. $41,426 $42,092 Accounts receivable (Note 2)........................... 28,488 21,416 Term accounts receivable (Note 2)...................... 3,962 5,224 Unbilled receivables................................... 2,399 4,492 Inventory.............................................. 869 1,084 Prepaid expenses ...................................... 3,684 2,956 ------------- ------------ 80,828 77,264 Term accounts receivable (Note 2)...................... - 242 Deferred income tax assets (Note 9) ................... - 5,604 Fixed assets (Note 3).................................. 12,722 12,524 Other assets (Note 4).................................. 21,126 25,702 ------------- ------------ $ 114,676 $ 121,336 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable....................................... $4,039 $7,423 Accrued liabilities (Note 15).......................... 11,911 10,685 Unearned revenue....................................... 15,788 15,588 Term loan (Note 6)..................................... - 10,000 Obligations under capital lease (Note 14).............. 919 - -------------- ------------ 32,657 43,696 Accrued liabilities (Note 15).......................... 446 1,338 Term loan (Note 6)..................................... 10,000 - Obligations under capital lease (Note 14).............. 1,011 - -------------- ------------ 44,114 45,034 -------------- ------------ Commitments (Note 10).................................... Shareholders' equity Capital stock (Issued and outstanding-- 24,831,527 Common Shares at April 30, 2001; 19,592,314 Common Shares, 450,448 Preference Shares at April 30, 2000) (Note 7) ........................................ 272,587 248,210 Cumulative translation adjustment...................... (4,206) (2,670) Deficit................................................ (197,819) (169,238) -------------- ------------ 70,562 76,302 -------------- ------------ $114,676 $121,336 ============== ============
(the accompanying notes are an integral part of these consolidated financial statements) Signed on behalf of the Board: /s/ A. Kevin Francis /s/ Abraham Ostrovsky ------------------------------------ ---------------------------------- ------------------------------------ ---------------------------------- A. Kevin Francis Abraham Ostrovsky President and Chief Executive Officer Chairman, Board of Directors 34 JETFORM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands of Canadian dollars except share and per share amounts)
Year ended April 30, ------------------------------------------------ 2001 2000 1999 ------------- ------------- ------------- Revenues Product................................ $ 61,038 $ 52,583 $ 66,662 Service................................ 39,601 41,734 47,550 ------------- ------------- ------------- 100,639 94,317 114,212 ------------- ------------- ------------- Costs and expenses Cost of product........................ 15,911 12,053 9,164 Cost of service........................ 12,270 12,373 19,058 Sales and marketing.................... 55,043 45,097 53,315 General and administrative............. 12,375 12,168 10,722 Research and development (Note 5)...... 17,535 15,423 15,384 Depreciation and amortization.......... 10,928 10,300 11,568 Restructuring (Note 15)................ (689) (1,106) 30,503 Gain on sale of assets................. -- (1,813) -- ------------- ------------- ------------- 123,373 104,495 149,714 ------------- ------------- ------------- Operating loss (22,734) (10,178) (35,502) Net investment income (Note 12)........ 834 2,868 3,826 Other income (expense)................. (40) 295 (11) ------------- ------------- ------------- Loss before taxes (21,940) (7,015) (31,687) Income tax Current (Note 9)........................ (1,037) (1,086) (2,073) Deferred (Note 9)....................... (5,604) -- 4,625 ------------- ------------- ------------- Net loss $ (28,581) $ (8,101) $ (29,135) ============= ============= ============= Basic loss per share (Note 8) Net loss per share....................... $ (1.26) $ (0.41) $ (1.47) Weighted average number of shares........ 22,616,021 19,915,893 19,826,057 Fully diluted loss per share (Note 8) Net loss per share....................... $ (1.26) $ (0.41) $ (1.47) Weighted average number of shares........ 22,616,021 19,915,893 19,826,057
(the accompanying notes are an integral part of these consolidated financial statements) 35 JETFORM CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands of Canadian dollars)
Year ended April 30, ------------------------------------------------- 2001 2000 1999 ------------- ------------- -------------- Net loss..................................... $(28,581) $(8,101) $(29,135) Other comprehensive loss (net of tax of nil). Cumulative translation adjustment (1,536) (1,618) (1,052) ------------- ------------- -------------- Comprehensive loss........................... $(30,117) $(9,719) $(30,187) ============= ============= ==============
(the accompanying notes are an integral part of these consolidated financial statements) 36 JETFORM CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands of Canadian dollars except share amounts) Number issued and outstanding ------------------------------------------ Common Special Preference Stock Warrants Stock -------------- -------------- ---------- Balance as at April 30, 1998 17,028,141 2,200,000 450,448 Issuance of Common Shares: Pursuant to acquisitions.......... 6,918 -- -- Share purchase plan............... 20,768 -- -- Exercise of stock options......... 165,601 -- -- Conversions of Special Warrants 2,200,000 (2,200,000) -- Cumulative translation adjustment....................... -- -- -- Net loss for the year............... -- -- -- -------------- -------------- ---------- x Balance as at April 30, 1999 19,421,428 -- 450,448 Issuance of Common Shares: Pursuant to acquisitions.......... 6,918 -- -- Share purchase plan............... 49,141 -- -- Exercise of stock options......... 114,827 -- -- Cumulative translation adjustment....................... -- -- -- Net loss for the year............... -- -- -- ------------- -------------- ---------- Balance as at April 30, 2000 19,592,314 -- 450,448 Issuance of Common Shares: Public offering................... 4,600,000 -- -- Conversions....................... 450,448 -- (450,448) Pursuant to acquisitions.......... 106,915 -- -- Share purchase plan............... 67,520 -- -- Exercise of stock options......... 14,330 -- -- Shareholder loan (Note 7)...... -- Cumulative translation adjustment....................... -- -- -- Net loss for the year............... -- -- -- ---------------- -------------- ---------- Balance as at April 30, 2001 24,831,527 -- -- ================ ============== ==========
Stated Value ------------------------------------------------------------------------------------------ Total Cumulative Deficit Total Common Special Preference Capital Translation Shareholders' Stock Warrants Stock Stock Adjustment Equity ------------ ----------- --------- ---------- ----------- -------------- ----------- Balance as at April 30, 1998 $ 175,562 $ 63,650 $ 4,939 $ 244,151 -- $ (132,002) $112,149 Issuance of Common Shares: Pursuant to acquisitions.......... 242 -- -- 242 -- -- 242 Share purchase plan............... 375 -- -- 375 -- -- 375 Exercise of stock options......... 2,259 -- -- 2,259 -- -- 2,259 Conversions of Special Warrants 63,742 (63,650) -- 92 -- -- 92 Cumulative translation adjustment....................... -- -- -- -- (1,052) -- (1,052) Net loss for the year............... -- -- -- -- -- (29,135) (29,135) ------------ ----------- --------- ---------- --------------------------- ----------- Balance as at April 30, 1999 242,180 -- 4,939 247,119 (1,052) (161,137) 84,930 Issuance of Common Shares: Pursuant to acquisitions.......... 44 -- -- 44 -- -- 44 Share purchase plan............... 282 -- -- 282 -- -- 282 Exercise of stock options......... 765 -- -- 765 -- -- 765 Cumulative translation adjustment....................... -- -- -- -- (1,618) -- (1,618) Net loss for the year............... -- -- -- -- -- (8,101) (8,101) ------------ ----------- --------- ---------- ----------- -------------- ----------- Balance as at April 30, 2000 243,271 -- 4,939 248,210 (2,670) (169,238) 76,302 Issuance of Common Shares: Public offering................... 23,513 -- -- 23,513 -- -- 23,513 Conversions....................... 4,939 -- (4,939) -- -- -- -- Pursuant to acquisitions.......... 591 -- -- 591 -- -- 591 Share purchase plan............... 346 -- -- 346 -- -- 346 Exercise of stock options......... 81 -- -- 81 -- -- 81 Shareholder loan (Note 7)........ (154) (154) (154) Cumulative translation adjustment....................... -- -- -- -- (1,536) -- (1,536) Net loss for the year............... -- -- -- -- -- (28,581) (28,581) ------------ ----------- --------- ---------- ----------- -------------- ----------- Balance as at April 30, 2001 $ 272,587 -- -- $ 272,587 $ (4,206) $ (197,819) $ 70,562 ============ =========== ========= ========== =========== ============== ===========
(the accompanying notes are an integral part of these consolidated financial statements) 37 JETFORM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of Canadian dollars)
Year ended April 30, ----------------------------------------------------- 2001 2000 1999 -------------- --------------- --------- Cash provided from (used in): Operating activities Net loss................................ $(28,581) $(8,101) $(29,135) Items not involving cash: Depreciation and amortization......... 22,238 13,941 14,838 Deferred income taxes................. 5,604 -- (4,615) Other non-cash items.................. 742 (246) (3,368) Gain on sale of assets................ -- (1,813) -- Gain on sale of securities............ -- (1,497) -- Restructuring (Note 15) .............. (689) (1,106) 21,611 Net change in operating components of working capital (Note 11).......... (8,387) 17,083 8,055 ----------- ------------- ---------- (9,073) 18,261 7,386 ----------- ------------- ---------- Investing activities Proceeds from sale of assets............. -- 5,000 -- Proceeds from sale of securities......... -- 2,854 -- Purchase of fixed assets................. (5,151) (3,012) (7,233) Purchases of other assets................ (9,065) (5,752) (7,219) Acquisition of business (Note 16) ....... (272) -- -- ----------- ------------- ---------- (14,488) (910) (14,452) ----------- ------------- ---------- Financing activities Proceeds from issuance of shares...... 23,707 1,091 2,968 Issuance of debt.......................... -- -- 9,998 Capital lease repayments................ (51) -- -- Repayment of debt...................... (397) (22,560) (50,845) ----------- ------------- ---------- 23,259 (21,469) (37,879) ----------- ------------- ---------- Effect of exchange rate changes on cash (364) (1,052) 603 ----------- ------------- ---------- Decrease in cash and cash equivalents........................... (666) (5,170) (44,342) Cash and cash equivalents, beginning of year............................... 42,092 47,262 91,604 ----------- ------------- ---------- Cash and cash equivalents, end of year.................................. $41,426 $42,092 $47,262 =========== ============= ===========
(the accompanying notes are an integral part of these consolidated financial statements) 38 JETFORM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (in thousands of Canadian dollars) Supplemental disclosures of cash flow information:
Year ended April 30, --------------------------------------------------- 2001 2000 1999 ------------ ------------- ------------- Cash paid during the year for: Interest.................................. $1,714 $2,191 $ 2,190 Income taxes.............................. 992 988 935 ------------ ------------- ------------- 2,706 3,179 3,125 ------------ ------------- ------------- Non cash investing and financing activities: Capital lease obligation incurred: (Note 14) $1,981 -- -- Non cash investing activities as a result of acquisitions: (Note 16) Fair value of assets acquired............. $1,346 -- -- Cash paid for acquisitions................ 272 -- -- Equity issued for acquisitions............ 555 -- -- Liabilities assumed..................... $ 682 $ -- $ --
39 JETFORM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JETFORM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of presentation These consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"), and include all assets, liabilities, revenues and expenses of JetForm Corporation ("JetForm") and its wholly-owned subsidiaries: JetForm Corporation (a Delaware corporation), JF A'Asia Pty. Limited ("JetForm Pacific"), JetForm Scandinavia AB ("JetForm Nordic"), JetForm France SA ("JetForm France"), JetForm UK Limited ("JetForm UK"), JetForm Deutschland GmbH ("JetForm Germany"), JetForm Technologies Limited ("JetForm Ireland"), JetForm Japan K.K. ("JetForm Japan"), JetForm Netherlands BV ("JetForm Netherlands") and JetForm PTE Ltd ("JetForm Singapore"). JetForm and its wholly-owned subsidiaries are collectively referred to herein as the "Company". Investments in businesses that the Company does not control, but over which it can exert significant influence, are accounted for using the equity method. Such investments are periodically evaluated for impairment and appropriate adjustments are recorded, if necessary. (b) Nature of operations The Company develops Web based software solutions that extend and accelerate core business processes. The Company's process integration, document presentment and data caputure technologies provide organizations with the capability to adopt e-business models. These solutions are complemented by the Company's professional services team, which facilitates product implementation, and its customer services team, which provides ongoing training and support. The Company sells its products and services internationally through multiple channels, which include direct sales to end users, strategic partnerships with system integrators, solution partners, international distributors and original equipment manufacturers. (c) 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 dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (d) Revenue recognition The Company recognizes revenue in accordance with Statement of Position ("SOP") 97-2, "Software Revenue Recognition," issued by the American Institute of Certified Public Accountants ("AICPA"), SOP 98-9, "Modification of 97-2, Software Recognition with Respect to Certain Transactions" and Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements", issued by the Securities and Exchange Commission (SEC). The Company records product revenue from packaged software and irrevocable commitments to purchase products when persuasive evidence of an arrangement exists, the software product has been shipped, there are no significant uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable. Revenues from irrevocable commitments to purchase products with payment terms exceeding the Company's customary trade terms are recorded at the amount receivable less deemed interest. The Company amortizes the difference between the face value of the receivable and the discounted amount over the term of the receivable and records the discount as interest income. Revenue from software product licenses which include significant customization and revenue from services are recognized on a percentage of completion basis, whereby revenue is recorded, based on labor input hours, at the 40 estimated realizable value of work completed to date. Estimated losses on contracts are recognized when they become probable. Unbilled receivables represent consulting work performed under contract and not yet billed. Revenue from maintenance agreements is recognized ratably over the term of the agreement. Unearned revenue represents payments received from customers for services not yet performed. (e) Advertising costs Advertising costs are expensed as incurred. Advertising expense was $1.2 million for the year ended April 30, 2001, $2.3 million for the year ended April 30, 2000 and $1.5 million for the year ended April 30, 1999. (f) Income Taxes The Company accounts for income taxes under the asset and liability method that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. The Company provides a valuation allowance on net deferred tax assets when it is more likely than not that such assets will not be realized. (g) Investment tax credits Investment tax credits, which are earned as a result of qualifying research and development expenditures, are recognized when the expenditures are made and their realization is more likely than not, and are applied to reduce research and development expense in the year. (h) Fixed assets Fixed assets are recorded at cost. Depreciation is calculated using the following rates and bases: Computer equipment............. 30% declining balance and straight line over 2 to 4 years Furniture and fixtures......... 20% declining balance Leasehold improvements......... Straight-line over the term of the lease The carrying value of fixed assets is periodically reviewed by management, and impairment losses, if any, are recognized when the expected non-discounted future operating cash flows derived from the fixed asset is less than the carrying value of such asset. In the event of an impairment in fixed assets, the discounted cash flows method is used to arrive at the estimated fair value of such asset. (i) Goodwill and other intangibles Goodwill, which represents the purchase price paid for an acquired business in excess of the fair values assigned to identifiable assets, is amortized on a straight-line basis over its expected useful life. In general, goodwill has been expected to have a useful life of three to seven years. Computer software purchased by the Company is recorded as other assets when acquired. Costs for internal use software that are incurred in the preliminary project stage and in the post implementation/operation stage are expensed as incurred. Costs incurred during the application development stage, including appropriate website development costs, are capitalized and amortized over the estimated useful life of the software. 41 Amortization is calculated using the following rates and bases.
Delrina technology........................ Straight-line over 3 to 5 years Software.................................. 30% declining balance Software licenses and purchased rights to improve, market and/or distribute products................................ Straight-line over the lesser of the lives of the license or right and 15 years Trademarks, trade names, workforce and other assets.................................... Straight-line or declining balance over the useful lives of the assets which range from 3 to 15 years
The carrying value of goodwill is periodically reviewed by management, and impairment losses, if any, are recognized when the expected non-discounted future operating cash flows derived from the related business acquired are less than the carrying value of such goodwill. In the event of an impairment in goodwill, the discounted cash flows method is used to arrive at the estimated fair value of such goodwill. (j) Capitalized software costs Costs related to the development of proprietary software are expensed as incurred unless the costs relate to technically feasible and complete products and can reasonably be regarded as assured of recovery through future revenues in which case the costs are deferred and amortized. Annual amortization is computed using the greater of (i) the ratio of the product's current gross revenues to the total of current and expected gross revenues or (ii) the straight-line method computed by dividing the remaining un-amortized capitalized cost by the estimated remaining economic life of the product, not to exceed three years. (k) Foreign currency translation and foreign currency transactions The financial statements of the parent company and its subsidiaries have been translated into Canadian dollars in accordance with Statement of Financial Accounting Standards("SFAS") No. 52, "Foreign Currency Translation". The Company's subsidiaries use their local currency as their functional currency. All balance sheet amounts with the exception of Shareholders' Equity have been translated using the exchange rates in effect at year-end. Income statement amounts have been translated using the average exchange rate for the year. The gains and losses resulting from the translation of foreign currency statements into the Canadian dollar are reported in comprehensive income and as a separate component of Shareholders' Equity. Gains or losses on foreign currency transactions are recognized in income when incurred. (l) Cash equivalents Cash equivalents are defined as liquid investments, which have a term to maturity at the time of purchase of less than ninety days. (m) Stock based compensation The Company has elected to continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and to present the pro forma information that is required by SFAS No. 123 "Accounting for Stock Based Compensation" ("SFAS 123"). 42 2. ACCOUNTS RECEIVABLE Accounts receivable and term accounts receivable are net of an allowance for doubtful accounts of $2.9 million at April 30, 2001, and $2.4 million at April 30, 2000. The Company records revenues from irrevocable commitments to purchase products which do not conform to the Company's customary trade terms at the minimum amount receivable less deemed interest ("Term Accounts Receivable"). The Company uses a discount rate equal to its net cost of borrowing at the time the revenue is recorded, which ranged between 4.5% and 6.5% for the years ended April 30, 2000 and 2001. Under an irrevocable commitment to purchase product, the customer commits to pay a minimum amount over a specified period of time in return for the right to use or resell up to a specific number of copies of a delivered product. The Company records Term Accounts Receivable as non-current to the extent that management estimates payment will be received more than one year from the balance sheet date. Payment of Term Accounts Receivable is generally due the earlier of: (i) delivery of the Company's products by the customer to its customers or end users; and (ii) specific dates in the license agreement ("Minimum Payment Dates"). The net amount of these receivables at April 30, 2001, and April 30, 2000 was $4.0 million and $5.5 million, respectively. Total Term Accounts Receivable with Minimum Payment Dates exceeding one year were nil and $242,000 as at April 30, 2001 and April 30, 2000 respectively. The Company's customer base consists of large numbers of diverse customers dispersed across many industries and geographies. As a result, concentration of credit risk with respect to accounts receivable and term accounts receivable is not significant. 3. FIXED ASSETS
April 30, 2001 ----------------------------------------------------- Accumulated Net book Cost depreciation value ------------- ----------------- --------------- (in thousands of Canadian dollars) Computer equipment...... $20,013 $13,999 $6,014 Furniture and fixtures.. 9,152 5,424 3,728 Leasehold improvements.. 4,974 1,994 2,980 ------------- ----------------- --------------- $34,139 $21,417 $12,722 ============= ================= ===============
April 30, 2000 ----------------------------------------------------- Accumulated Net book Cost depreciation value ------------- ----------------- --------------- (in thousands of Canadian dollars) Computer equipment...... $16,407 $10,852 $5,555 Furniture and fixtures.. 8,600 4,258 4,342 Leasehold improvements.. 4,053 1,426 2,627 ------------- ----------------- --------------- $29,060 $16,536 $12,524 ============= ================= ===============
43 4. OTHER ASSETS
April 30, 2001 ---------------------------------------------------- Accumulated Net book Cost amortization value ------------- -------------- --------------- (in thousands of Canadian dollars) Delrina technology, trademarks, trade names and workforce............. $16,081 $11,146 $4,935 Software................................ 16,955 8,105 8,850 Goodwill................................ 2,203 1,319 884 Licenses, marketing and distribution rights................................ 6,792 3,375 3,417 Capitalized software costs.............. 17,294 16,331 963 Other assets............................ 6,234 4,157 2,077 ------------- -------------- --------------- $65,559 $44,433 $21,126 ============= ============== ===============
44
April 30, 2000 ----------------------------------------------------- Accumulated Net book Cost amortization value ------------- -------------- --------------- (in thousands of Canadian dollars) Delrina technology, trademarks, trade names and workforce.......... $16,081 $9,425 $6,656 Software.............................. 9,896 5,864 4,032 Goodwill.............................. 1,216 512 704 Licenses, marketing and distribution rights............................... 6,857 2,632 4,225 Capitalized software costs............. 14,724 7,905 6,819 Other assets........................... 5,618 2,352 3,266 ------------- -------------- --------------- $54,392 $28,690 $25,702 ============= ============== ===============
5. RESEARCH AND DEVELOPMENT EXPENSE The following table provides a summary of development costs deferred and the related amortization and write down charged to cost of product in the years ended April 30, 2001, 2000 and 1999.
Year ended April 30, --------------------------------------------------- 2001 2000 1999 ------------- -------------- ------------- (in thousands of Canadian dollars) Research and development costs........ $ 20,105 $ 20,713 $ 20,559 Investment tax credits................ -- (1,690) (1,575) Capitalized software costs............ (2,570) (3,600) (3,600) ------------- -------------- ------------- Net research and development expense.. $ 17,535 $ 15,423 $ 15,384 ============= ============== ============= Amortization and write-down of development costs charged to cost of product $8,426 $3,121 $2,636 ============= ============== =============
6. FINANCIAL INSTRUMENTS AND CREDIT FACILITIES For certain of the Company's financial instruments, including accounts receivable, unbilled receivables, accounts payable, and short term accrued liabilities, the carrying amount approximates the fair value due to their short maturities. The carrying amount of term accounts receivable, after applying an appropriate discount rate, approximates their fair value. Cash and cash equivalents, term loan, and long term accrued liabilities are carried at cost, which approximates their fair value. The Company has entered into receivable purchase agreements with certain third party purchasers. Under the agreements, the Company has the option to sell certain accounts receivable on a recourse basis. The Purchasers have recourse in the event of a trade dispute as defined in the receivables purchase agreements. As at April 30, 2001, and April 30, 2000, the outstanding balance of accounts receivable sold under these agreements was approximately US$3.6 million and US$9.7 million, respectively. The recourse obligation is estimated to be nil as the Company believes that none of the receivables sold are at risk of recourse. During the years ended April 30, 2001 and April 30, 2000, the Company sold US$1.9 and US$7.4 million of its Accounts Receivable, respectively. The Company has a committed $20 million credit facility with the Royal Bank of Canada. The credit facility is made up of (i) a $10 million term loan facility which bears interest at a rate of 1.5% over the Bankers Acceptance rate of the Bank from time to time and is payable on May 1, 2002; and (ii) a $10 million revolving line of credit which bears interest at the prime rate of the Canadian Bank from time to time. As at April 30, 2001, the Company had drawn all of the $10 million term loan facility and fixed the interest rate until July 17, 2001, at 4.68%. The 45 effective rate of interest on this term loan facility for the years ended April 30, 2001, 2000 and 1999, was approximately 5.35%, 6.51% and 6.24% respectively. The Company had no borrowings against its revolving line of credit as at April 30, 2001. The Company has granted as collateral for the $20 million credit facility a general security agreement over JetForm's assets, including a pledge of the shares of certain subsidiaries. JetForm uses forward contracts and purchased options to manage exposures to foreign exchange. The Company's objective is to minimize risk using the most effective methods to eliminate or reduce the impacts of this exposure. JetForm does not enter into financial instruments for speculative or trading purposes. As at April 30, 2001, the Company had no outstanding foreign exchange financial instruments. 7. CAPITAL STOCK The authorized capital stock of the Company consists of an unlimited number of Common Shares ("Common Shares") and 2,263,782 Convertible Preference Shares ("Preference Shares"). Holders of Common Shares are entitled to one vote for each share held on all matters submitted to a vote of shareholders and do not have cumulative voting rights. Holders of Common Shares are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors at its discretion from funds legally available therefor. Upon the liquidation, dissolution or winding up of the Company the holders of Common Shares are entitled to receive ratably, together with the Preference Shares, the net assets of the Company available after the payment of debts and other liabilities. Holders of Common Shares have no pre-emptive, subscription, redemption or conversion rights. Holders of the Preference Shares are not entitled to receive a fixed dividend but are entitled to receive a dividend as and when declared by the Board of Directors of the Company equal to the dividend declared on its Common Shares. The holders of the Preference Shares are entitled to convert such shares into fully paid and non-assessable Common Shares at a rate equal to one Common Share per Preference Share held (subject to adjustment for share re-classification, reorganizations or for other changes). In the event of the liquidation, dissolution or winding-up of the Company, the holders of the Preference Shares shall rank pari passu, share for share, with the holders of the Common Shares. Issuance of Common Shares During the year ended April 30, 2001, the Company issued 4,600,000 Common Shares at a price of $5.60 per Share. The net proceeds from the offering after deducting underwriting discounts, fees and expenses were $23.5 million. In connection with the offering, the Company also issued options to purchase 230,000 Common Shares to the underwriters at a price of $5.60 per share. The fair value of these options is approximately $430,000. The Company also issued 100,000 common shares having a stated value of $555,000 pursuant to the purchase of certain assets of Joey Technologies Inc. Proceeds from the employee stock purchase plan were approximately $346,000. Conversion of Preference Shares During the year ended April 30, 2001, all of the outstanding Preference Shares (450,448) were converted into an equal number of Common Shares in accordance with the terms of the Preference Shares. Stock option plans On March 4, 1993, the Company adopted the 1993 Employee Stock Option Plan (the "1993 Plan"). The 1993 Plan is administered by the Compensation Committee of the Board of Directors and options are not granted at less than the fair market value of the Common Shares on the date of grant. Options outstanding under the 1993 Plan remain in effect pursuant to their terms. Options granted under the 1993 Plan generally have a term of five years and vest at the rate of one-third of the shares covered on each of the first three anniversary dates of 46 the date of grant. Options granted under the 1993 Plan are not transferable and are exercisable only by the optionee during the optionee's lifetime. The Company established the 1995 Stock Option Plan ("1995 Plan") on June 28, 1995, to replace the 1993 Plan. The 1995 Plan is administered by the Compensation Committee of the Board of Directors and provides for the grant to all eligible full-time employees, directors, officers and others of options to purchase Common Shares at a price based upon the last trading price of the Common Shares on the NASDAQ National Market on the trading day immediately preceding the date of grant. Pursuant to the 1995 Plan, the aggregate number of Common Shares available to be issued is 5,175,763, of which 759,000 are still available for grant as at April 30, 2001. Options granted under the 1995 Plan have a term of four, five or seven years and vest ratably during the first three years following grant. Options also vest automatically on a change in control of the Company. Options granted are non-transferable. Special Warrants During the year ended April 30, 1998, the Company issued 2,200,000 special warrants ("Special Warrants") to Canadian investors at a price of US$21.25 per Special Warrant. The net proceeds from the offering after deducting underwriting discounts, fees and expenses were $63.7 million. The Special Warrants were deemed to have been exercised by the holders thereof on June 26, 1998, without payment of additional consideration on the basis of one Common Share for each Special Warrant so held. On June 19, 1998, the Company filed a final prospectus with Canadian securities regulators to register the 2,200,000 Common Shares issuable on exercise of the Special Warrants. The Company does not intend to register such Common Shares under the United States Securities Act of 1933. Employee stock purchase plan On September 11, 1997, the Shareholders of the Company approved the 1997 Employee Stock Purchase Plan (the "Stock Purchase Plan"). A total of 400,000 Common Shares of the Company have been reserved for issuance pursuant to the Stock Purchase Plan. Shares may be purchased under the Stock Purchase Plan by employees through payroll deduction. The purchase price of Common Shares issued under the Stock Purchase Plan is the lower of 95% of the fair market of the Common Shares of the Company at the beginning of each six month offering period and 95% of the fair market value of the Common Shares of the Company at the end of each six month offering period. Indebtedness of Directors and Officers During the year ended April 30, 2001, the Company issued an US$110,000 loan to the Chief Executive Officer as part of his employment agreement to purchase JetForm shares. The shares have been pledged as collateral for the loan. The loan is forgiveable after three years of service to the Corporation. 47 Stock option and warrant activity The following table presents the number of options and warrants outstanding and exercisable, and the weighted average exercise price:
Weighted average Other exercise options price Underwriters' and in U.S. 1995 Plan 1993 Plan options warrants Total dollars --------- --------- ------------ ----------- ---------- --------- Number of outstanding options and warrants Balance at April 30, 1998 2,976,141 407,133 -- 161,216 3,544,490 $ 13.95 Grants........... 1,037,960 63,550 -- -- 1,101,510 4.50 Cancellations and Forfeitures..... (360,813) (175,059) -- -- (535,872) 12.49 Exercises........ ( 47,485) (98,116) -- (20,000) (165,601) 9.38 --------- --------- ------------ ---------- ---------- Balance at April 30, 1999 3,605,803 197,508 -- 141,216 3,944,527 11.71 Grants........... 775,112 -- -- -- 775,112 6.00 Cancellations and Forfeitures..... (725,759) (99,259) -- -- (825,018) 12.60 Exercises........ ( 38,910) (75,917) -- -- (114,827) 4.71 --------- --------- ------------ ----------- ---------- Balance at April 30, 2000 3,616,246 22,332 -- 141,216 3,779,794 10.63 Grants........... 1,295,468 -- 230,000 -- 1,525,468 3.82 Cancellations and Forfeitures..... (647,852) (22,332) -- (116,216) (786,400) 11.86 Exercises....... (14,330) -- -- -- (14,330) 3.81 --------- --------- ------------ ----------- ---------- --------- Balance at April 30, 2001 4,249,532 -- 230,000 25,000 4,504,532 8.13 ========= ========= ============ =========== ========== Weighted average exercise price at April 30, 1999, in U.S. dollars..... $11.78 $ 6.93 N/A $15.98 $11.71 ========= ========= ============ =========== ========== Weighted average exercise price at April 30, 2000, in U.S. dollars..... $10.39 $ 13.15 N/A $15.98 $10.63 ========= ========= ============ =========== ========== Weighted average exercise price at April 30, 2001, in U.S. dollars.... $ 8.31 N/A $ 3.64 $15.98 $8.11 ========= ========= ============ =========== ========== Number of exercisable options and warrants April 30, 1999..... 1,397,776 180,759 -- 25,000 1,719,751 14.44 April 30, 2000..... 1,958,369 22,332 -- 25,000 2,121,917 13.52 April 30, 2001..... 2,465,199 -- 230,000 25,000 2,720,199 10.50 Range of exercise prices in U.S. dollars at April 30, 2001 From............. $ 2.00 N/A $ 3.64 $ 15.25 $ 2.00 To............... $ 22.00 N/A $ 3.64 $ 18.88 $ 22.00 Range of expiry dates at April 30, 2001 From............. June 2001 N/A Oct 2002 Oct 2001 June 2001 To............... Apr 2005 N/A Oct 2002 Aug 2002 Apr 2005
48 The following table presents the exercise prices and average remaining life of the outstanding options as at April 30, 2001.
---------------------------------------------------------------------------------------------------------------- Range of exercise prices Options Outstanding Options exercisable --------------------------- ------------------------------------------------- ------------------------------- Weighted Weighted Weighted average average average From To Number exercise price remaining life Number exercise price ------------ ------------ ------------- -------------- --------------- ------------- --------------- (U.S. dollars) (U.S. dollars) (Years) (U.S. dollars) $ 2.00 $ 3.813 1,672,768 $ 3.50 2.58 773,615 $ 3.73 3.875 6.125 1,190,000 5.53 3.07 319,096 5.68 13.00 13.50 1,115,096 13.28 1.60 1,111,764 13.29 14.31 22.00 526,668 17.62 1.93 515,724 17.62 ------------- ------------- 4,504,532 8.13 2.39 2,720,199 10.50 ============= =============
Options outstanding at April 30, 2000, had a weighted average remaining contractual life of approximately 2.85 years. The exercise price of all options granted during the years ended April 30, 2001, 2000 and 1999 was equal to the fair market value of the underlying shares at the date of grant. No compensation expense has been recorded in the Consolidated Statements of Operations for stock based compensation. Stock based compensation The following table presents net income and earnings per share for the periods presented on a pro forma basis after recording the pro forma compensation expense relating to stock options granted to employees, in accordance with SFAS 123:
Year ended April 30, ------------------------------------------------ 2001 2000 1999 ------------- ------------- -------------- (in thousands of Canadian dollars except per share amounts) Net loss reported........................ $ (28,581) $ (8,101) $(29,135) Pro forma compensation expense........... (210) (1,384) (6,770) ------------- ------------- -------------- Pro forma net loss....................... $ (28,791) $ (9,485) $(35,905) ============= ============= ============== Pro forma basic loss per share........... $ (1.27) $ (0.48) $ (1.81) ============= ============= ============== Pro forma fully diluted loss per share... $ (1.27) $ (0.48) $ (1.81) ============= ============= ==============
SFAS 123 requires that pro forma compensation expense be recognized over the vesting period, based on the fair value of options granted to employees. The pro forma compensation expense presented above has been estimated using the Black Scholes option pricing model. Assumptions used in the pricing model include: (i) risk free interest rates for the periods of between 4.80% and 6.27%; (ii) expected volatility of 80% for the year ended April 30, 2001; and 40% for the years ended April 30, 2000 and 1999; (iii) expected dividend yield of nil; and (iv) an estimated average life of three to four years. SFAS 123 requires that pro forma compensation expense be reported for options granted in fiscal years beginning after December 15, 1994, which in the case of the Company, was the year ended April 30, 1996. Since the compensation expense is recognized over the vesting period, the pro forma compensation expense presented above is not necessarily indicative of the pro forma compensation expense that will be reported in future periods if the Company continues to grant options. 49 8. EARNINGS PER SHARE The Common Shares and Preference Shares represent equivalent residual interests and have been included in the computation of weighted average number of shares outstanding for purposes of the earnings per share computation. The reconciliation of the numerator and denominator for the calculation of net income per share and diluted net income per share is as follows:
Year ended April 30, ------------------------------------------------ 2001 2000 1999 ----------------- --------------- -------------- (in thousands of Canadian dollars except share and per share amount) Basic loss per share Net loss................................................. $ (28,581) $ (8,101) $ (29,135) ================= =============== =============== Weighted average number of shares outstanding............ 22,616,021 19,915,893 19,826,057 ================= =============== =============== Net loss per share....................................... $ (1.26) $ (0.41) $ (1.47) ================= =============== =============== Fully diluted loss per share Net loss................................................. $ (28,581) $ (8,101) $ (29,135) ================= =============== =============== Weighted average number of shares outstanding........... 22,616,021 19,915,893 19,826,057 Dilutive effect of stock options *...................... -- -- -- ----------------- --------------- --------------- Adjusted weighted average number of shares outstanding 22,616,021 19,915,893 19,826,057 ================= =============== =============== Net loss per share...................................... $ (1.26) $ (0.41) $ (1.47) ================= =============== ===============
* All options and warrants outstanding have been excluded from the calculation of weighted average shares outstanding as the effect of their exercise would be to reduce the average loss per share. For the years ended April 30, 2001, 2000, and 1999, 288,000, 923,000 and 1.2 million options respectively had an exercise price less than the average market price of the Company's common stock and therefore would have been dilutive had the Company not incurred a loss in the years reported. 9. INCOME TAXES The Company operates in several tax jurisdictions. Its income is subject to varying rates of tax, and losses incurred in one jurisdiction cannot be used to offset income taxes payable in another. The income (loss) before income taxes consisted of the following:
Year ended April 30, ------------------------------------------------- 2001 2000 1999 ------------- -------------- ----------- (in thousands of Canadian dollars) Domestic income (loss) ............ $ (20,932) $ (2,980) $ (12,664) Foreign income (loss) ............. (1,008) (4,035) (19,023) ------------- -------------- ----------- Income (loss) before income taxes $ (21,940) $ (7,015) $ (31,687) ============= ============== ===========
The provision (recovery) for income taxes consist of the following:
Year ended April 30, ------------------------------------------------- 2001 2000 1999 ------------- -------------- ----------- (in thousands of Canadian dollars) Domestic: Current income taxes............ $ 303 $ 375 $ 771 Deferred income taxes........... 5,740 -- 220 ------------- -------------- ----------- $ 6,043 $ 375 $ 991 ------------- -------------- ----------- Foreign: Current income taxes............ $ 734 $ 711 $ 1,302 Deferred income taxes........... (136) -- (4,845) ------------- -------------- ----------- $ 598 $ 711 $(3,543) ------------- -------------- ----------- Provision for (recovery of) income $6,641 $1,086 $(2,552) taxes ============= ============== ===========
50 A reconciliation of the combined Canadian federal and provincial income tax rate with the Company's effective income tax rate is as follows:
Year ended April 30, ------------------------------------------------ 2001 2000 1999 ------------ -------------- ----------- (in thousands of Canadian dollars) Expected statutory rate (recovery). (42.31%) (44.52%) (44.62%) Expected provision for (recovery of) income tax.......................... $ (9,283) $ (3,130) $ (14,134) Change in valuation allowance.......... 15,518 3,393 6,884 Effect of foreign tax rate differences......................... 65 711 2,816 Non-taxable portion of capital gain -- (372) -- Income tax rate changes................ 344 573 -- Provincial tax incentive............... -- (426) -- Non-deductible restructuring charges -- -- 1,372 Other items Share purchase plan...... (3) 337 510 ------------ -------------- ----------- Provision for income taxes............ $6,641 $1,086 $(2,552) ============ ============== ===========
The primary temporary differences which gave rise to deferred taxes at April 30, 2001 and 2000 are: Year ended April 30, ------------------------------- 2001 2000 ------------- ------------ (in thousands of Canadian dollars) Deferred tax assets: Depreciation and amortization.............. $ 457 $-- Scientific research and experimental development expenditures................... 8,432 6,762 Net operating loss carryforwards........... 26,376 20,773 Restructuring ............................. -- 1,081 In process research and development........ 28,901 29,866 Investment tax credits (net of liability).. 3,064 3,288 Accrued severance and other................ 834 524 --------------- ------------ Total deferred tax asset 68,064 62,294 Less, valuation allowance.................. (68,064) (52,546) --------------- ------------ -- 9,748 --------------- ------------ Deferred tax liabilities: Depreciation and amortization.............. -- (4,075) Marketing and distribution rights.......... -- (69) --------------- ------------ Total deferred tax liabilities -- (4,144) --------------- ------------ Net deferred tax assets $-- $5,604 =============== ============ Included in the gross deferred tax assets represented by net operating loss carryforwards are domestic non-capital federal loss carryforwards of $14.5 million which begin to expire in 2008 and domestic non-capital provincial loss carryforwards of $128.5 million which expire between 2004 and 2008. In addition, the domestic investment tax credits, recorded as a gross deferred tax asset (net of liability) of $3.1 million expire between 2007 and 2010. Further, the Company has additional domestic investment tax credits with a net value of $1.7 million (2000 - $400,000) that have not been recorded, which begin to expire in 2010. The benefit of these additional investment tax credits would be credited to scientific research and development expenses if and when realized. Unremitted earnings of foreign subsidiaries that are considered permanently invested outside of Canada, and on which no deferred taxes have been provided, aggregate approximately $3.2 million at April 30, 2001 (2000 - $2.0 million and 1999 - $1.2 million). 51 10. COMMITMENTS As at April 30, 2001, the Company was committed under certain operating leases for rental of office premises and equipment as follows: (in thousands of Canadian dollars) Years ending April 30, 2002................... $ 7,060 2003................... $ 5,940 2004 .................. $ 5,527 2005 .................. $ 5,397 2006 and beyond........ $14,381 Total rent expense for the years ended April 30, 2001, 2000 and 1999 was $5.6 million, $4.9 million and $5.9 million, respectively. 11. NET CHANGE IN OPERATING COMPONENTS OF WORKING CAPITAL The net change in operating components of working capital is comprised of:
Year ended April 30, ----------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ (in thousands of Canadian dollars) Decrease (increase) in: Accounts receivable and term accounts receivable............ $(5,240) $21,176 $ (6,658) Unbilled receivables............. 2,148 (1,124) 2,984 Inventory........................ 215 55 (14) Prepaid expenses and deferred charges........................ (595) 715 (569) Other............................ (282) (1,231) (1,605) Increase (decrease) in: Accounts payable................. (3,487) (116) 3,759 Accrued liabilities.............. (984) (5,671) 6,449 Unearned revenue................. (162) 3,279 3,709 ------------ ------------ ------------ $(8,387) $17,083 $8,055 ============ ============ ============
12. NET INVESTMENT INCOME The net investment income is comprised of:
Year ended April 30, ----------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ (in thousands of Canadian dollars) Interest income.................. $1,578 $2,853 $ 5,910 Interest expense................. (744) (1,482) (2,084) Gain on sale of securities....... -- 1,497 -- ------------ ------------ ------------ Net investment income ........... $834 $2,868 $ 3,826 ============ ============ ============
52 13. SEGMENTED INFORMATION Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company's chief decision maker in deciding how to allocate resources and assessing performance. The Company's chief decision maker is the Chief Executive Officer. The Company's Chief Executive Officer primarily evaluates the Company on a geographic basis. The geographic evaluation is further segmented into Product, Consulting, and Customer Support components. The Product segment engages in business activities from which it earns license revenues from the Company's software products. The Consulting segment earns revenues from assisting customers in configuring, implementing and integrating the Company's products and, when required, customizing products and designing automated processes to meet the customers specific business needs as well as providing all necessary training. The Customer Support segment earns revenues through after sale support for software products as well as providing software upgrades under the Company's maintenance and support programs. The accounting policies of the Company's operating segments are the same as those described in Note 1. The Company evaluates performance based on the contribution of each segment. The Product segment costs include all costs associated with selling product licenses. The costs of the Consulting and Customer Support segments include all costs associated with the delivery of the service to the customer. Inter-segment revenues as well as charges such as depreciation and amortization, interest expense and overhead allocation are not included in the calculation of segment profit. The Company does not use a measure of segment assets to assess performance or allocate resources. As a result, segment asset information is not presented. 53 The following tables sets forth, on a comparative basis for the periods indicated, the Company's segmented information:
Year ended April 30, 2001 (in thousands of Canadian dollars) ----------------------------------------------------- Customer Product Consulting Support Total ------------- ------------- ------------ ------------ North America Revenue....................... $31,183 $5,960 $19,374 $56,517 Costs......................... 26,056 3,529 4,323 33,908 ------------- ------------- ------------ ------------ Margin........................ $5,127 $2,431 $15,051 $22,609 ------------- ------------- ------------ ------------ Europe Revenue....................... $21,191 $5,210 $7,826 $34,227 Costs......................... 13,983 2,478 1,940 18,401 ------------- ------------- ------------ ------------ Margin........................ $7,208 $2,732 $5,886 $15,826 ------------- ------------- ------------ ------------ Asia Pacific Revenue....................... $8,664 $441 $790 $9,895 Costs......................... 5,242 - - 5,242 ------------- ------------- ------------ ------------ Margin........................ $3,422 $441 $790 $4,653 ------------- ------------- ------------ ------------ Total Revenue....................... $61,038 $11,611 $27,990 $100,639 Costs......................... 45,281 6,007 6,263 57,551 ------------- ------------- ------------ ------------ Margin........................ $15,757 $5,604 $21,727 $43,088 ------------- ------------- ------------ ------------ Cost of product............... 15,911 Corporate marketing........... 9,762 Research and development...... 17,535 General and administration.... 12,375 Depreciation and amortization 10,928 Gain on sale of asset......... - Restructuring................. (689) ------------ $ 65,822 ------------ Operating loss ............... (22,734) Net investment income......... 794 ------------ Loss before taxes............. $ (21,940) Current income taxes.......... (1,037) Deferred income taxes......... (5,604) ------------ Net loss...................... $ (28,581) ============
54
Year ended April 30, 2000 (in thousands of Canadian dollars) ---------------------------------------------------- Customer Product Consulting Support Total ------------- ------------- ------------ ------------ North America Revenue....................... $ 30,294 $ 14,198 $ 17,270 $ 61,762 Costs......................... 19,326 5,536 3,555 28,417 ------------- ------------- ------------ ----------- Margin........................ $ 10,968 $ 8,662 $13,715 $ 33,345 ------------- ------------- ------------ ----------- Europe Revenue....................... $18,076 $ 3,498 $ 5,892 $ 27,466 Costs......................... 11,787 1,415 1,691 14,893 ------------- ------------- ------------ ----------- Margin........................ $6,289 $ 2,083 $ 4,201 $ 12,573 ------------- ------------- ------------ ----------- Asia Pacific Revenue....................... $ 4,213 $ 158 $ 718 $ 5,089 Costs......................... 4,570 - 176 4,746 ------------- ------------- ------------ ----------- Margin........................ $ (357) $ 158 $ 542 $ 343 ------------- ------------- ------------ ----------- Total Revenue....................... $ 52,583 $ 17,854 $ 23,880 $ 94,317 Costs......................... 35,683 6,951 5,422 48,056 ------------- ------------- ------------ ----------- Margin........................ $ 16,900 $ 10,903 $ 18,458 $ 46,261 ------------- ------------- ------------ ----------- Cost of product............... 12,053 Corporate marketing........... 9,414 Research and development...... 15,423 General and administration.... 12,168 Depreciation and amortization 10,300 Gain on sale of asset......... (1,813) Restructuring................. (1,106) ----------- $ 56,439 ----------- Operating loss ............... (10,178) Net investment income......... 3,163 ----------- Loss before taxes............. $ (7,015) Provision for income taxes.... (1,086) ----------- Net loss..................... $ (8,101) ===========
55
Year ended April 30, 1999 (in thousands of Canadian dollars) ----------------------------------------------------- Customer Product Consulting Support Total ------------- ------------- ------------ ------------ North America Revenue....................... $ 42,286 $ 20,152 $ 16,243 $ 78,681 Costs......................... 29,599 9,939 4,232 43,770 ------------- ------------- ------------ ------------ Margin........................ $ 12,687 $ 10,213 $ 12,011 34,911 ------------- ------------- ------------ ------------ Europe Revenue....................... $ 20,051 $ 4,857 $ 4,671 $ 29,579 Costs......................... 11,049 2,179 2,700 15,928 ------------- ------------- ------------ ------------ Margin........................ $9,002 $ 2,678 $ 1,971 13,651 ------------- ------------- ------------ ------------ Asia Pacific Revenue....................... $ 4,325 $ 603 $ 1,024 $ 5,952 Costs......................... 3,878 8 - 3,886 ------------- ------------- ------------ ------------ Margin........................ $ 447 $ 595 $ 1,024 $ 2,066 ------------- ------------- ------------ ------------ Total Revenue....................... $ 66,662 $ 25,612 $ 21,838 $ 114,212 Costs......................... 44,526 12,126 6,932 63,584 ------------- ------------- ------------ ------------ Margin........................ $ 22,136 $ 13,486 $15,006 $ 50,628 ------------- ------------- ------------ ------------ Cost of product............... 9,164 Corporate marketing........... 8,789 Research and development...... 15,384 General and administration.... 10,722 Depreciation and amortization 11,568 Gain on sale of asset......... - Restructuring................. 30,503 ------------ ------------ $ 86,130 ------------ Operating loss ............... (35,502) Net investment income......... 3,815 ------------ Loss before taxes............. $ (31,687) Recovery of income taxes...... 2,552 ------------ Net loss...................... $ (29,135) ============
56 The following table details the revenue and assets attributable to Canada (the Company's country of domicile), the United Sates, United Kingdom and all other foreign jurisdictions. The Company attributes revenue to geographic areas based on the location of the customer to which the products or services were sold.
Year ended April 30, ------------------------------------------------------------------------------- 2001 2000 1999 ------------------------- ------------------------ ------------------------ Revenue Fixed and Revenue Fixed and Revenue Fixed and Other assets Other Other Assets Assets (in thousands of Canadian dollars) Canada............. $ 7,857 $ 28,569 $ 5,611 $ 31,800 $ 6,584 $ 35,110 United States...... 48,659 1,728 55,831 2,592 72,616 3,299 United Kingdom..... 10,542 522 8,780 488 7,723 731 Other.............. 33,581 3,029 24,095 3,346 27,289 5,351 ----------- ------------- ----------- ------------ ---------- ------------- $ 100,639 $ 33,848 $ 94,317 $ 38,226 $ 114,212 $ 44,491 =========== ============= =========== ============ ========== =============
14. CAPITAL LEASE OBLIGATION The Company leases certain computer hardware and software under capital lease agreements. The capital leases have been recorded as fixed assets, other assets, and capital lease obligations in the accompanying financial statements. Depreciation related to the capital leases is included in depreciation and amortization expense for the year ended April 30, 2001. The total future minimum lease payments under capital leases at April 30, 2001 are as follows: in thousands of Canadian Years ending April 30, dollars 2002............................................ $ 1,088 2003............................................ 610 2004............................................ 493 --------------- Total minimum lease payment..................... 2,191 Less amounts representing interest.............. (261) --------------- Present value of net minimum lease payments..... $ 1,930 Less current portion............................ (919) --------------- Long term portion............................... $ 1,011 =============== 57 15. ACCRUED LIABILITIES Current April 30, ------------------------------- (in thousands of Canadian dollars) 2001 2000 ------------ --------------- Severance............................. $1,676 $1,813 Vacation.............................. 1,639 1,761 Other................................. 8,596 7,111 ------------ --------------- Total current liabilities............. $11,911 $10,685 ============ =============== 58 Long-term Restructuring On March 17, 1999, the Corporation announced a restructuring plan and recorded a provision for restructuring costs of $30.5 million directed at reducing costs. The key restructuring actions included: o Consolidation of management responsibilities and reduction in headcount. o Closure of redundant facilities. o Reduction in the carrying value of certain capital assets primarily related to past acquisitions. o Cancellation of certain commitments and other costs. The following table summarizes the activity in the restructuring costs during the years ended April 30, 1999, April 30, 2000 and the year ended April 30, 2001:
Employee Total Non Cash Total Termination Facilities Other Costs Costs Provision -------------- ----------- ---------- ----------- ------------ ------------ Restructuring provision........... $5,252 $2,914 $726 $8,892 $21,611 $ 30,503 Cash payments..................... (1,175) (36) (207) (1,418) -- (1,418) Non-cash items.................... -- -- -- -- (21,611) (21,611) ------------- ------- ------- --------- --------- --------- Balance, April 30, 1999........... $ 4,077 $2,878 $519 $7,474 $ -- $ 7,474 Cash payments..................... (2,921) (1,092) (124) (4,137) -- (4,137) Reductions........................ (566) (540) -- (1,106) -- (1,106) ------------- ------- ------- --------- --------- --------- Balance, April 30, 2000 $ 590 $1,246 $395 $2,231 $ -- $2,231 Cash payments...................... (468) (236) (121) (825) -- (825) Reductions......................... (122) (567) -- (689) -- (689) ------------- ------- ------- --------- --------- ---------- Balance, April 30, 2001............ $ $443 $274 $717 $ -- $ 717 ============= ======= ======= ========= ========= ========= Long-term balance.................. $ -- $ 394 $ 52 $446 $ -- $ 446 ============= ======= ======= ========= ========= =========
Employee terminations totaled 105 and included 46 in sales and marketing, 40 in research in development, 12 in internal corporate services, and 7 in systems and consulting services. Employee terminations included salary continuance for which the Company is contractually obligated to pay. All employees were terminated on or before April 30, 1999. During the year ended April 30, 2001, the Company's liability for bonuses and other compensation to terminated employees was reduced by $122,000. Facilities costs consisted primarily of $2.1 million and $780,000 related to the closure of the Company's UK and Toronto facilities, respectively. The provision for redundant facilities includes management's best estimates of the total future operating costs of these vacant facilities for the remainder of their respective lease terms. Actual costs could differ from these estimates. During the year ended April 30, 2001, the Company's liability for vacant facilities in the United Kingdon was reduced by $567,000. The Company's long-term balance relates to the United Kingdom facility which expires April 30, 2010. Other costs included $21.6 million of impairment losses on capital assets and $0.7 million related primarily to the cancellation of trade shows and other commitments. Non-cash costs included impairment losses of $21.6 million related to assets held for use. The losses were comprised of $16.6 million related to marketing and distribution rights, $3.1 million related to goodwill and $1.9 million related to other capital assets. 59 16. FISCAL 2001 ACQUISITIONS On November 6, 2000, JetForm completed the acquisition of certain assets and liabilities of Joey Technologies Inc ("Joey"), a developer of mobile forms software. The shareholders of Joey received total consideration of approximately $555,000, which was paid through the issuance of 100,000 common shares of the JetForm. On January 31, 2001, the Company completed the purchase of certain assets of Pummill Business Forms ("Pummill") a developer of visual enhancement products. Pummill received total consideration of $272,000 of which $136,000 was received in cash upon completion of the purchase and the remainder was received through the issuance of a note, which was paid during the fiscal year ended April 30, 2001. Both acquisitions have been accounted for using the purchase method. The results of operations of both acquired companies were not material, and thus pro forma information has not been provided. Total consideration, including acquisition costs, was allocated based on estimated fair values on the acquisition dates as follows: -------------------------------------- Joey Pummill Total ----------- ------------- ------------ (in thousands of Canadian dollars) Assets acquired...................... $ 163 $ -- $ 163 Liabilities assumed.................. (682) -- (682) ---------- ------------- ------------- Net assets (liabilities) acquired...... ( 519) -- (519) Software............................. 300 -- 300 Trademarks........................... -- 136 136 Goodwill............................. -- 136 136 Customer list........................ 774 -- 774 ---------- ------------- ------------- ---------- ------------- ------------- Purchase price......................... $ 555 $ 272 $ 827 ========== ============= ============= ========== ============= ============= Purchase price consideration Cash................................. -- 272 272 Capital stock payment................ 555 -- 555 ---------- ------------- ------------- $ 555 $ 272 $ 827 ========== ============= ============= 17. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued the Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement establishes accounting and reporting standards for derivative instruments and hedging activities and is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June, 1999, the FASB issued SFAS No.137, which delays the effective date of SFAS 133 until fiscal years beginning after June 15, 2000. Currently, as the Company has no derivative instruments, the adoption of SFAS No. 133 would have no impact on the Company's financial condition or results of operations. To the extent the Company begins to enter into such transactions in the future, the Company will adopt the Statement's disclosure requirements in the quarterly and annual financial statements for the year ending April 30, 2002. On March 31, 2000, FASB issued Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation - an interpretation of APB Opinion No. 25 (FIN 44), providing new accounting rules for stock-based Compensation under APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). FIN 44 60 does not change FASB Statement No. 123, Accounting for Stock based compensation (FAS 123). The new rules are significant and will result in compensation expense in several situations in which no expense is typically recorded under current practice, including option repricing, purchase business combinations and plans that permit tax withholdings. FIN 44 is generally effective for transactions occurring after July 1, 2000, but applies to repricings and some other transactions after December 15, 1998. The adoption of this Interpretation did not have a material impact on the Company's results of operations or financial position. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, which was amended in March 2000 by SAB 101A and in June 2000 by SAB 101B. The SAB summarizes certain of the SEC staff views in applying generally accepted accounting principles to revenue recognition in financial statements. This SAB is effective beginning the Company's fourth quarter of fiscal 2001. The adoption of SAB 101 did not have a material impact on its results of operations or financial position. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Assets and Extinguishments of Liabilities" ("SFAS 140"). This statement replaces FASB Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125"). It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS 125's provisions without reconsideration. SFAS 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001 which is during the Company's fourth quarter of fiscal 2001. The adoption of SFAS 140 did not have a material impact on its results of operations or financial position. 18. COMPARATIVE RESULTS Certain of the prior years' figures have been reclassified in order to conform to the presentation adopted in the current year. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 61 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company is a "foreign private issuer" and as such is not subject to section 16(a) of the Securities and Exchange Act of 1934. The following table sets forth certain information concerning the executive officers and directors of the Company:
Name Age Title ------------------------------- -------- -------------------------------------------------------------------------------- Abraham E. Ostrovsky....... 58 Chairman and Director A. Kevin Francis........... 51 President and Chief Executive Officer and Director Glen Doody................. 42 Senior Vice President and General Manager, North American Solutions Group Don Henderson.............. 52 Senior Vice President Global Product Development Declan Kelly............... 39 Senior Vice President and General Manager, European Solutions Group Jeffrey McMullen........... 41 Senior Vice President Finance and Chief Financial Officer David Antila............... 41 Former Vice President and General Manager, e-Process Business Group Shawn Cadeau............... 30 Vice President and General Manager, e-Document Presentment Business Group James Henry................ 38 Vice President Customer Satisfaction and Chief Information Officer John Hogerland............. 37 Vice President Global Business Development and Strategic Alliances Kevin Lynch................ 40 Vice President and General Manager, e-Process Business Group Donna Morris............... 33 Vice President, Human Resources and Training Gordon Neis................ 42 Vice President and Chief Marketing Officer Chris Trojanowski.......... 48 Vice President and Chief Strategy Officer David Welch................ 38 Vice President and General Manager, e-Forms Business Group Deborah L. Weinstein...... 41 Secretary and Director Paul K. Bates.............. 50 Director John Gleed................. 55 Director Stephen A. Holinski........ 54 Director Patrick Martin............. 60 Director
Mr. Ostrovsky joined the Corporation in August 1991 as Executive Vice President and Chief Operating Officer. He served as President and Chief Executive Officer from November 1991 to March 1994, and as the Corporation's Chairman and Chief Executive Officer from March 1994 to August 1995, when he resigned as Chief Executive Officer. Mr. Ostrovsky was Chairman of the Board of Directors and Chief Executive Officer of Compressent Corporation from March 1996 to December 1997. Mr. Ostrovsky is a director of SEEC, Net Manage, IXLA, Digital now and CenterBeam. Mr. Francis joined the Corporation on May 15, 2000 as President and Chief Executive Officer. Prior to joining the Corporation, Mr. Francis held a variety of positions with Xerox Canada, most recently as President, Chief Executive Officer and Chairman. Beginning in 1972 as a sales representative, Mr. Francis' extensive experience 62 with Xerox Canada included roles in sales, marketing, customer service, process re-engineering, administration, information systems, general management, customer satisfaction and quality. Mr. Doody joined the Corporation in July 2000 as Senior Vice President and General Manager North American Solutions Group. Mr. Doody has spent 20 years in the technology industry. Prior to joining the Corporation, Mr. Doody was Vice President of Sales at eLogo in 1999. From 1997 to 1999, he held Vice President Sales positions at Compaq Corporation and with Digital Equipment Corporation from 1984 to 1997 in Canada, the United States and Asia. Mr. Henderson joined the Corporation in September 1987. Since that time he has held senior positions in sales, alliance programs and product management. Mr. Henderson left the Corporation in 1998 for a period of two (2) years during which he was President of a startup in the mobile computing space. He rejoined the Corporation as Vice President and General Manager of the Electronic Document Presentment business unit before being promoted to Senior Vice-President, Global Product Development in May 2001. Prior to 1987, Mr. Henderson was President of a small software firm and held various positions with SHL Systemhouse. Mr. Kelly joined the Corporation, in January of 1998 as Managing Director of the European Services Operation. In October 1999, Mr. Kelly assumed overall responsibility for the European, Middle East and African operations of the Corporation. Prior to joining the Corporation and since 1987, Mr. Kelly worked for ICL an United Kingdom based international systems integration house. Mr. McMullen joined the Corporation in October 1994 as Controller. He was promoted to Vice President and Controller in June 1997 and to Vice President, Finance and Chief Financial Officer in September 1998. He was promoted to his current position in December 2000. Mr. Antila joined the Corporation in January 1998 as Director of Technology, Services. In June 1998 he was promoted to Director and Group Product Manager, a position that he held until June 2000 when he was promoted to Vice President and General Manager for the e-process Business Unit. Prior to joining the Corporation, Mr. Antila was a co-founder and Chief Technology Officer of WorkFlow Partners & Technology Services, a workflow consultancy, from April 1994 to January 1998 when the company was acquired by JetForm. Mr. Antila's employment with the company was terminated in May 2001. Mr. Cadeau joined the Corporation in January 2000 as Director of Product Marketing. He was promoted to Vice President and General Manager of the e-Document Presentment business unit in May 2001. Prior to joining the Corporation, Mr. Cadeau was employed as Director, Product Management and Marketing at Cebra Inc. (a subsidiary of the Bank of Montreal), a provider of internet-based e-commerce solutions from 1998 to December 2000. From 1996 to 1998, Mr. Cadeau was employed at Corel Corporation starting as Product Manager, Internet Products and then as Senior Product Manager for Consumer Applications. Mr. Henry joined the Corporation in January 1999 as Director, Operations based in Dublin, Ireland. He was promoted to Managing Director, European Operations in October 1999. In March 2001, he was promoted to his current position. Prior to joining the Corporation, Mr. Henry worked for ICL, a UK based international systems integration house, from August 1994 to December 1998. Mr. Hogerland joined the Corporation in December 1997 as Director of Systems Engineering. He served as Vice President of Sales Support since April 1999 and was promoted to his current position in July 2000. Prior to joining the Corporation, Mr. Hogerland spent 8 years with Novell Canada holding several positions including Manager of Consulting Alliances and most recently Director of Technology. Mr. Lynch joined the Corporation in August 1995 as Director, Customer Support. He was promoted to Vice President, Consulting Services in October 1997 and then to Vice President, Client Integration Services in July 2000. In May 2001, Mr. Lynch was promoted to his current position. Prior to joining the Corporation, Mr. Lynch was employed by SHL Systemhouse. 63 Ms. Morris joined the Corporation in February 1998 as Manager, Human Resources and was promoted to Vice President, Human Resources in December 1999. Prior to joining the Corporation, Ms. Morris was the Manager of Human Resources at Fulcrum Technologies from November 1997 to February 1998 after serving as a Human Resources Generalist from November 1996 to November 1997. Ms. Morris has acquired twelve years of experience in both the private and public sectors. Mr. Neis joined the Corporation in January 2001 as Chief Marketing Officer. Prior to joining the Corporation, Mr. Neis was Vice President of worldwide marketing at a Toronto-based wireless security company. He spent the previous twenty years in various sales and marketing positions at Xerox, including the Canadian Director of Marketing Operations. Mr. Trojanowski joined the Corporation in November 2000 as Vice President Strategic Planning. Prior to joining the Corporation, Mr. Trojanowski was Vice President of Marketing at Xenos Group, Vice President, Marketing and Sales for Software Metrics and previously held positions in product and market development at Hewlett Packard from 1982 to 1998. Mr. Welch joined the Corporation in June 1985 as a software developer. During his 16 years with the Corporation, he has held various management positions within the software development, consulting services and alliance management areas. In April 2000, Mr. Welch was promoted to Vice President and General Manager, e-Forms Business Unit. Ms. Weinstein has served as secretary of the Corporation since September 1993 and became a director in December 2000. Ms. Weinstein is a founding partner of LaBarge Weinstein, Canadian legal counsel to the Corporation. From February 1991 to January 1997, Ms. Weinstein was a partner with the law firm of Blake, Cassels & Graydon. Ms. Weinstein currently acts as a director of MOSAID Technologies Incorporated and AIT Advanced Information Technologies Corporation. Mr. Bates has been the President and CEO of Charles Schwab Canada Co. ("Schwab Canada") the Canadian subsidiary of the on-line brokerage firm Charles Schwab & Co. Inc. since February 1999. Prior to joining Schwab Canada, Mr. Bates was the founder and Chief Executive Officer of Priority Brokerage Inc. which was acquired by Schwab Canada in February 1999. Mr. Bates has also served as President and Chief Operating Officer of the brokerage firms Green Line Investor Services Inc. from 1993 to 1995 and Marathon Brokerage Inc. from 1988 to 1993. Mr. Bates became a director of the Corporation on September 6, 2000. Mr. Gleed is a founder of the Corporation and was its President from June 1982 until June 1990, when he was appointed to the position of Senior Vice President and Chief Technology Officer with the Corporation, which he held until his retirement on June 30, 1999. During fiscal year 2000, Mr. Gleed served as interim Chief Executive Officer from December 1999 to May 2000. Mr. Gleed also served as Chairman of the Board from June 1990 to March 1994. Mr. Holinski is a retired financial executive and private consultant. From May 1999 to September 2000 he was Executive Vice President and Chief Financial Officer of North American Gateway Inc. Between May 1994 and April 1999, he was the Senior Vice President and Chief Financial Officer of Moore Corporation Limited. Prior to joining Moore, Mr. Holinski was Treasurer of Northern Telecom Ltd. from March 1994 until May 1994, and Vice President Product Finance from September 1993 until March 1994. Mr. Holinski was Vice President Finance with Northern Telecom Europe from January 1991 until September 1993. Mr. Holinski has served as a director of the Corporation since October 26, 1995. Mr. Martin has been the President and Chief Operating Officer and Chairman of Storage Technology Corporation since July 11, 2000. Prior to joining Storage Technology Corporation he spent 23 years at Xerox Corporation, most recently serving as President, North American Solutions Group. Mr. Martin became a director of the Corporation on September 6, 2000. 64 Committees of the Board of Directors There are two standing Committees of the Board of Directors: the Audit Committee and the Compensation Committee. The Board of Directors does not have a Nominating Committee. The Audit Committee oversees the Corporation's financial reporting process and internal controls, and consults with management, the internal accountants, and the Corporation's independent auditors on matters related to the annual audit of the Corporation and the internal controls, published financial statements, accounting principles and auditing procedures being applied. The Committee also reviews management's evaluation of the auditors' independence, and submits to the Board of Directors its recommendations for the appointment of auditors. The members of the Audit Committee are Messrs. Bates, Holinski and Ostrovsky. The committee reports to the full Board each time the committee meets. The Compensation Committee has administered the Corporation's 1990 Employee Stock Option Plan and 1993 Employee Stock Option Plan and currently administers the 1995 Stock Option Plan and the 1997 Employee Stock Purchase Plan. The Committee also consults generally with, and makes recommendations to, the Board of Directors on matters concerning executive compensation, including individual salary rates, supplemental compensation and special awards. The members of the Compensation Committee are Messrs. Bates, Gleed and Martin. The committee reports to the full Board each time the committee meets. Board and Board Committee Meetings During the fiscal year ended April 30, 2001, the Board of Directors held 10 meetings, the Audit Committee held 5 meetings and the Compensation Committee held 4 meetings. All Directors attended at least 75% of the aggregate of all meetings of the Board and all committees on which they served. 65 Item 11. EXECUTIVE COMPENSATION The following table sets forth the total compensation paid to the Chief Executive Officer during fiscal year 2001 and the four other most highly compensated executive officers of the Company.
Long term Compensation Awards Year Annual Compensation ------------- ended -------------------- Number of Other Name and Principal Position April 30, Salary(1) Bonus(1) Options(2) Compensation --------------------------- --------- --------- -------- ---------- ------------ A. Kevin Francis 2001 $ 447,413 $ 49,406 200,000 $ - President and Chief 2000 $ - $ - 600,000 $ - Executive Officer 1999 $ - $ - - $ - Glen Doody (3) 2001 $ 200,261 $ 25,562 200,000 $ - Senior Vice President and General 2000 $ - $ - - $ - Manager European Solutions Group 1999 $ - $ - - $ - Declan Kelly(3) 2001 $ 273,527 $ 73,257 40,000 $ - Senior Vice President and General 2000 $ 180,946 $ 144,856 10,000 $ - Manager European Solutions Group 1999 $ 126,537 $ 31,992 9,560 $ - Jeffrey McMullen 2001 $ 191,250 $ 20,369 40,000 $ - Senior Vice President and 2000 $ 170,000 $ - - $ - Chief Financial Office 1999 $ 145,000 $ 7,500 25,300 $ - David Antila(3)(4) 2001 $ 172,500 $ 41,812 20,000 $ - Former Vice President and General 2000 $ 156,067 $ 36,750 7,060 $ - Manager e-Process Business Unit 1999 $ 174,840 $ - 33,333 $ -
----------------- (1) All references to "$" in this section are to Canadian dollars. (2) Represents number of options granted in the fiscal year. (3) The compensation of Mr. Antila, Mr. Doody and Mr. Kelly has been converted from U.S. dollars or Irish Punts using the average exchange rate for the year. (4) Mr Antila's employment with the Company was terminated on May 25, 2001. The following table sets forth the stock options granted during the fiscal year ended April 30, 2001 to each of the executive officers named in the Summary Compensation Table:
2001 Stock Option Grants -------------------------------------------------------------------------------------------------------------------------------- % of total Potential Realizable Value Shares options at Assumed Annual Rate of underlying granted to Exercise Stock Price number of employees Price per Appreciation over Option Term options in Fiscal Share (2) ------------------------------- Name Granted (1) 2001 (in US$) Expiry 5% 10% ---- ----------- ---- -------- ------ -- --- A. Kevin Francis 200,000 15.4% $ 5.50 September 6, 2004 $ 349,777 $753,258 Glen Doody 200,000 15.4% $ 4.50 July 31, 2004 $ 286,531 $617,053 Declan Kelly 40,000 3.1% $ 3.50 October 11, 2004 $ 45,290 $97,532 Jeffrey McMullen 40,000 3.1% $ 3.50 October 11, 2004 $ 45,290 $97,532 David Antila 20,000 1.5% $ 3.50 October 11, 2004 $ 22,645 $48,766
(1) Options are exercisable starting 6 months after the date of grant, with one-sixth of the shares becoming exercisable at that time and with an additional one-sixth of the option shares becoming exercisable on each successive six month period, with full vesting occurring on the third anniversary date. All options expire on the fourth anniversary date. (2) The calculated potential realized value is expressed in Canadian dollars using the exchange rate in effect at the date of option grant. 2001 Aggregate Option Exercises and Year-end Option Values The following table sets forth the number of shares acquired on exercise of stock options and the aggregate gains realised on exercise during the fiscal year ended April 30, 2001, by the Company's executive officers named in the Summary Compensation Table. The table also sets forth the number of shares covered by exercisable and unexercisable options held by such executives on April 30, 2001, and the aggregate gains that would have been realised had these options been exercised on April 30, 2001, even though the exercisable options were not exercised, and the unexercisable options could not have been exercised, on April 30, 2001.
Shares Acquired Number of Shares Covered Value of Unexercised on by Unexercised Options in-the-money Options at Exercise at April 30, 2001 April 30, 2001(a) during Value -------------------------- -------------------------- Name Fiscal 2001 Realized Exercisable Unexercisable Exercisable Unexercisable ---- ----------- -------- ----------- ------------------------- ------------- A. Kevin Francis - $ - 233,334 566,666 $ - $ - Glen Doody - - 33,334 166,666 - - Declan Kelly - - 26,042 41,518 - - Jeffrey McMullen - - 54,287 41,765 - - David Antila - - 42,375 19,018 - -
(a) Options are in-the-money if the market value of the shares covered thereby is greater than the option exercise price. At April 30, 2001 none of the named executive officers had options exercisable at a price less than the closing price of US$ 2.20 per share on the Nasdaq National Market. (b) The Corporation does not maintain any long-term incentive plans. Compensation of Directors The Board of Directors has determined for the year ended April 30, 2001 that each non-employee director be paid an annual fee of US$10,000, plus US$1,000 per meeting in person and US$500 per meeting by telephone. In addition, the Chairman of the Board and the Chairman of each committee of the Board will be paid an additional US$ 5,000. Each of the board members was granted 10,000 stock options, exercisable starting 6 months after the date of grant, with one-sixth of the shares becoming exercisable at that time and with an additional one-sixth of the option shares becoming exercisable on each successive six month period, with full vesting occurring on the third anniversary date. All options expire on the fourth anniversary date. 66 Employment Agreements / Termination of Employment The Corporation has entered into employment agreements with A. Kevin Francis, Glen Doody, Declan Kelly, Jeffrey McMullen and David Antila each of which, except as noted below, contain substantially similar provisions. Each employment agreement provides that the executive shall devote his full time and attention to performing his duties for the Corporation. In the event of termination by the executive for good reason (a material change in his responsibilities, a failure to maintain his compensation and benefits, a material breach by the Corporation under the employment agreement, or the failure by the Corporation to have the employment agreement assumed by any successor to the Corporation), or in the event of a change in control of the Corporation, or by the Corporation for other than cause, death, disability or retirement, the Corporation will pay salary and vacation pay earned to the date of termination as well as pay-in-lieu of notice based on a multiple of the executive's salary (the "Termination Payments"). Except as noted below, the Corporation will also continue all granted options during the termination notice period. All options held vest automatically in the event of a change of control. Mr. Francis' Termination Payments are equal to 1.5 times his then current salary and his bonuses and benefits entitlements continue during the termination notice period until he secures alternate employment. His non-compete Term is for one (1) year. All options will continue to vest and be exercisable during the termination notice period after termination for good reason, or by the Corporation for other than cause, death, disability or retirement. Mr. Francis has the right to terminate his employment within 90 days of a change of control if there is any adverse material change in his position or compensation. In the event that Mr. Francis terminates his employment after a change in control of the Corporation, all of his options become immediately vested and his Termination Payment is 2 times his base salary if the Corporation at the time is achieving 80% of its budget or higher, but if it is not, then his Termination Payment is 1.5 times his base salary. During the year ended April 30, 2001, the Company issued an US$110,000 loan to the Chief Executive Officer as part of his employment agreement to purchase JetForm shares. The shares have been pledged as collateral for the loan. The loan is forgiveable after three years of service to the Corporation. The Termination Payments for each of Messrs. Doody, Kelly, McMullen, and Mr. Antila (the "Executives") are equal to one (1) times their respective then current salary and up to $ 10,000 to $15,000 for job relocation expenses. Non-compete term for each of the Executives is for one (1) year. All options held by each of the Executives will continue to vest and be exercisable during the termination notice period after termination by the Executive for good reason, or by the Corporation for other than cause, death, disability or retirement. Effective May 25, 2001, Mr. Antila's employment was terminated by the Corporation. Directors' And Officers' Liability Insurance The Corporation presently maintains directors' and officers' liability insurance in the aggregate principal amount of US$10.0 million. The annual premium payable for this insurance during the year ended April 30, 2001 was US$ 155,000. The by-laws of the Corporation generally provide that the Corporation shall indemnify a director or officer of the Corporation and certain other bodies corporate against liability incurred in such capacity to the extent permitted or required by the Canada Business Corporations Act. To the extent the Corporation is required to indemnify the directors or officers pursuant to the by-laws, the insurance policy provides that the Corporation is liable for the initial US$100,000 in the aggregate for each loss with respect to the insuring agreement. 67 Compensation Committee Interlocks and Insider Participation in Compensation Decisions At April 30, 2001, the members of the Compensation Committee were Messrs. Gleed, Bates, and Martin, all non-employee directors of the Company. John Gleed, a founder of the Corporation and former Senior Vice President, Research and Development, serves as the committee's chair. The Committee has a mandate to: (a) monitor compliance with legislation applicable in respect of employment practices of the Company, (b) determine the appropriate overall allocation of options, (c) recommend Chief Executive Officer compensation, (d) approve Leadership Team compensation annual plan, and (e) monitor compliance with statutory requirements for employment matters including remittances and legislation. The Committee met four times in fiscal 2001 and acted by way of resolution on other occasions. Report on Executive Compensation The philosophy of the Corporation in the determination of Leadership Team compensation is to focus on providing a market competitive based salary at the 75th percentile of market data and to focus on providing incentive compensation to drive performance as it relates to: revenue growth; operating profit; customer satisfaction and employee satisfaction. For the year ended April 30, 2001, the process utilized by the Compensation Committee in determining executive officer compensation levels was based upon the Committee's extensive review of market data and approval of incentive compensation plan architecture. The Committee established the compensation payable for A. Kevin Francis, President and Chief Executive Officer. Mr. Francis, then recommended, subject to the Committee's review and the Board's approval, the compensation framework payable to the other Leadership Team members. The Committee's fundamental policy is to offer the Corporation's executive officers competitive compensation opportunities based upon overall Corporation performance, the team contribution to the financial success of the Corporation, and personal position responsibilities. It is the Committee's objective to have a substantial portion of each officer's compensation contingent upon the Corporation's performance, as well as upon his or her own level of performance. Accordingly, each executive officer's compensation package comprises three elements: (i) base salary, which is established primarily on the basis of individual performance and market considerations; (ii) quarterly variable incentive compensation awards payable in cash and, (iii) stock option grants at market price which strengthen the mutuality of interests between the executive officers and the shareholders. Under the terms of the stock option plan, options generally must be exercised within a period of four years from the date of the grant. All options granted terminate 30 days after termination of employment unless otherwise determined by the Chief Executive Officer, or as provided in an Executive's employment agreement. Chief Executive Officer Compensation The Chief Executive Officer's ("CEO") compensation is reviewed and recommended to the Board by the Compensation Committee. Mr. Francis' base salary was set at CAN$465,000. His incentive target was CAN$232,500. His bonus payment is determined by using the formula referred to in "Report on Executive Compensation" above, and resulted in an incentive of $49,406 (21% of target) for the fiscal year ended April 30, 2001. 68 Performance Graph The Common Shares of the Company began trading on the NASDAQ Small Cap Market System in April 1993. The following graph compares the cumulative percentage return since April 30, 1996 on the Company's Common Shares, compared with the percentage change in the NASDAQ index of all US and foreign issues and the NASDAQ index of computer and data processing companies. [OBJECT OMITTED] GRAPHIC OMITTED The past performance of the Company's common stock is not an indication of future stock performance. There can be no assurance that the price of the Company's Common Shares will appreciate at any particular rate or at all in the future years. Notwithstanding any statement to the contrary in any of the Company's previous or future filings with the Securities and Exchange Commission, the graph shall not be incorporated by reference into any such filings. EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC Cumulative Percentage Return Data
April 30, ------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 ------------------------------------------------------------------------- Common Shares of the Company............. 19.88 15.38 20.75 4.88 6.06 2.20 NASDAQ index of US and Foreign issues...................... 533.31 567.78 847.78 1,154.41 1,756.32 961.84 NASDAQ index of Computer and Data Processing companies........... 431.10 539.85 797.89 1,289.83 2,253.90 1,061.15
69 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of the Company's Common Shares as of July 8, 2001: (i) by each person who is known by the Company to own beneficially more than five percent of the outstanding Common Shares, (ii) by each director and named executive officer of the Company and (iii) by all directors and executive officers of the Company as a group at any time during fiscal year ended April 30, 2001. There is no family relationship between any directors or executive officers of the Company.
Number of Common Percentage of Shares Common Shares Beneficial Owner and address(1) Beneficially Owned Beneficially Owned ---------------------------------------------- ------------------ ------------------ Directors and Named Executive Officers Abraham Ostrovsky, McLean, Virginia (2)....... 155,645 * A.Kevin Francis, Ottawa, Ontario (3).......... 258,834 1.03% Glen Doody, Plano, Texas (4).................. 68,968 * Declan Kelly, Dublin, Ireland (5)............. 31,101 * Jeffrey McMullen, Ottawa, Ontario (6)......... 51,496 * David Antila, Ottawa, Ontario ................ 6,916 * Paul Bates, Oakville, Ontario (7)............. 1,667 * John Gleed, Ottawa, Ontario (8)............... 325,173 1.30% Stephen A. Holinski, Mississauga, Ontario (9). 17,001 * Patrick Martin, Boulder, Colorado (7)......... 1,667 * Deborah Weinstein, Ottawa, Ontario (10)....... 40,501 * All directors and executive officers (20 people) (11)......................... 1,103,897 4.30% 5% Shareholders AGF Funds Inc. 2,930,600 11.77%
---------- * Less than 1% (1) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from July 16, 2001, whether pursuant to the exercise of options, conversion of securities or otherwise. Each beneficial owner's percentage of ownership is determined by assuming that options or convertible preference shares that are held by such person (but not those held by any other person) and which are exercisable (or convertible) within 60 days of July 16, 2001 have been exercised. Unless otherwise noted in the footnotes below, the Corporation believes that all persons named in the table have sole voting power and investment power with respect to all common shares beneficially owned by them. Statements as to securities beneficially owned by directors, nominees for directors and executive officers, or as to securities over which they exercise control or direction, are based upon information obtained from such directors, nominees and executives and from records available to the Corporation. Unless otherwise stated the business address of each director and named executive office is 560 Rochester Street, Ottawa, Ontario, K1S 5K2. (2) Includes 35,000 common shares owned by two trusts (17,500 common shares each) of which Mr. Ostrovsky is the trustee, for the benefit of Mr. Ostrovsky's two children. Also includes 65,001 common shares subject to options. (3) Includes 233,334 common shares subject to options. (4) Includes 66,668 commons shares subject to options. (5) Includes 26,042 common shares subject to options. (6) Includes 50,787 common shares subject to options. (7) All common shares subject to options. 70 (8) Includes 100,000 common shares owned by two holding companies controlled by Mr. Gleed for the benefit of his children. Also includes 5,000 common shares owned by Mr. Gleed's spouse. Also includes 148,036 common shares subject to options and 11,982 common shares subject to options held by Mr. Gleed's spouse. Mr. Gleed disclaims any beneficial interest in such common shares and options owned by his spouse. (9) Includes 7,001 common shares subject to options. (10) Includes 27,001 common shares subject to options. (11) Includes 758,025 common shares subject to options. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Except as described above, no director, officer, nominee director, 5% holder of the Corporation's shares, or immediate family member, associate or affiliate thereof, had any material interest, direct or indirect, in any transaction since the commencement of the Corporation's and its subsidiaries last completed fiscal or has any material interest, direct or indirect, in any proposed transaction, having value of $60,000 or more. During the fiscal year ended April 30, 2000, the Corporation entered into an employment agreement with Mr. Gleed to outline the terms of his compensation and benefits in his role as the interim President and Chief Executive Officer of the Corporation. The Corporation agreed to pay Mr. Gleed $1,500 per day while he served as interim President and Chief Executive Officer and thereafter a monthly retainer of $7,500 for professional consulting services until April 30, 2002. All options granted to Mr. Gleed will vest and continue to be exercisable until expiry notwithstanding Mr. Gleed's retirement. 71 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following Financial Statements are filed as part of this report under Item 8 "Financial Statements and Supplementary Data". Auditors' Report Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedule The following financial statement schedule is filed as part of this report: Schedule II Valuation and Qualifying Accounts All other schedules are omitted as they are not required or the required information is shown in the financial statements or notes thereto. (a) 3. Exhibits Exhibit Number Description ------ ----------- 3.1(1) Certificate of Incorporation of Registrant, as amended 3.2(1) By-laws of Registrant, as amended 10.4.1(3) Investment Agreement dated June 10, 1994, between the Registrant and Moore Corporation Limited 10.4.2(6) Agreement to amend Investment Agreement dated June 27, 1996 between the Registrant and Moore Corporation Limited 10.5.1(3) Form of Option Agreement to be entered into between the Registrant and Moore Corporation Limited 10.5.2(6) Assignment of Option Agreement between Moore Corporation Limited and 3272303 Canada Inc., a wholly-owned subsidiary of the Registrant 10.6.1(5) Strategic Alliance Agreement dated August 11, 1994 between the Registrant and Moore Corporation Limited 10.6.2(8) Agreement to amend the Strategic Alliance Agreement dated June 27, 1996 between the Registrant and Moore Corporation Limited 10.6.3(8) Amendment to the Strategic Alliance Agreement dated April 30, 1998, between the Registrant and Moore Corporation Limited. 10.6.4(11) Amendment to the Strategic Alliance Agreement dated April 30, 1999, between the Registrant and Moore Corporation Limited. 10.8(5) Employment Agreement dated August 11,1994 between the Registrant and John Gleed 10.10(2) Lease dated as of February 1, 1993, between the Registrant and Arnon Development Corporation and Baix Developments Inc. for Ottawa, Canada facility 10.11(4) Form of Amendment to Lease to be entered into between Registrant and Arnon Development Corporation Limited and Baix Developments, Inc. 72 10.12(5) Letter Agreement dated June 1995 between Arnon Development Corporation and the Registrant 10.13(4) Lease dated April 24, 1991 between Arnon Development Corporation and Baix Developments, Inc. and CCC Cable Consumer Channel Inc (d/b/a Why Interactive) and amendment dated June 28, 1991. 10.14(4) Agency Agreement between the Registrant and Selling Shareholders of the Registrant and Richardson Greenshields of Canada Limited. 10.16(5) Employment Agreement dated August 1994 between the Registrant and Philip Weaver 10.17(5) Employment Agreement dated August 1994 between the Registrant and John Kelly 10.18(1) Registrant's 1990 Employee Stock Option Plan 10.19(l) Registrant's 1993 Employee Stock Option Plan 10.20(5) Registrant's 1995 Employee Stock Option Plan 10.21(7) Credit Facility dated October 25, 1996 between the Registrant and Royal Bank of Canada 10.21.1(11) Credit Facility dated October 14, 1997 between the Registrant and Royal Bank of Canada 10.21.2(12) Credit Facility dated April 7, 1999 between the Registrant and Royal Bank of Canada 10.21.3(13) Amendment dated October 27, 1999, to Loan Agreement (April 7, 1999) between the Royal Bank of Canada and the Registrant 10.22(7) Receivable Purchase Agreement and Amendment Agreement dated July 31, 1996, between the Registrant and Royal Bank Export Finance Co. Ltd. 10.23(9) Amendment to the Asset Purchase Agreement dated February 12, 1998 between the Registrant and Delrina Corporation 10.24(11) Registrant's 1997 Employee Stock Purchase Plan 10.25(10) Registrant's Shareholder Rights Plan Agreement dated June 25, 1998 10.26(11) Underwriting Agreement between the Registrant and RBC Dominion Securities Inc., Midland Walwyn Capital Inc., Goldman Sachs Canada and TD Securities Inc. dated April 2, 1998. 10.27(12) Amendment dated September 28, 1998 to the employment agreement dated August 11, 1994 between the Registrant and John Gleed 10.28(12) Amendment dated September 26, 1998 to the employment agreement dated August 11, 1994 between the Registrant and John Kelly 10.28.1(13) Termination Agreement dated December 1, 1999 between the Registrant and John B. Kelly 10.29(12) Amendment dated September 25, 1998 to the employment agreement dated August 11, 1994 between the Registrant and Phil Weaver 10.30(12) Employment Agreement dated September 22, 1998 between the Registrant and Carlos Fox 10.31(12) Employment Agreement dated September 22, 1998 between the Registrant and Ian Fraser 10.32(12) Employment Agreement dated September 22, 1998 between the Registrant and James Bursey 10.33(12) Employment Agreement dated September 22, 1998 between the Registrant and Hugh Millikin 10.34(12) Termination Agreement dated February 19, 1999 between the Registrant and Phil Weaver 10.35(12) Termination Agreement dated April 29, 1999 between the Registrant and Ian Fraser 10.36(12) Termination Agreement dated June 1, 1999 between the Registrant and Carlos Fox 10.37(13) Employment Agreement dated February 8, 2000 between the Registrant and James Bursey 10.3.1(13) Amendment dated February 8, 2000 to the employment agreement dated February 8, 2000 between the Registrant and James Bursey 10.37.2(13) Amendment dated July 17, 2000 to the employment agreement dated February 8, 2000 between the Registrant and James Bursey 10.38(13) Employment Agreement dated April 13, 2000 between the Registrant and A. Kevin Francis 10.39 (13) Employment Agreement dated October 21, 1999 between the Registrant and Jeff McMullen 10.40(13) Employment Agreement dated October 21, 1999 between the Registrant and Edward Capes 10.41 Employment Agreement dated May 4, 2000 between the Registrant and Declan Kelly 10.42(13) Employment Agreement dated February 16, 2000 between the Registrant and John Gleed 10.43(13) Share Purchase Agreement, dated May 19, 1999 between Calian Technologies and the Registrant 10.44(13) Distribution Agreement, dated August 1, 1999 between Indigo Pacific and the Registrant 21.1 Subsidiaries of the Registrant 23.0 Consent of PricewaterhouseCoopers LLP 73 (1) Incorporated by reference to the exhibits filed with the Registrant's Registration Statement on Form SB-2 (no. 33-47864-B) (previously filed on Form S-18) filed on May 12, 1992, and amended on March 5, 1993, and April 19, 1993, which Registration Statement became effective April 20, 1993. (2) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 10-KSB for the fiscal year ended April 30, 1993. (3) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 8-K dated June 10, 1994. (4) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 10-KSB for the fiscal year ended April 30, 1994. (5) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 10-KSB for the fiscal year ended April 30, 1995. (6) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 10-K for the fiscal year ended April 30, 1996. (7) Incorporated by reference to the exhibits filed with the Registrant's Statement on Form S-1 (no. 333-6368) (originally filed on Form S-3) filed on April 30,1997, as amended on March 3, 1997 and March 17, 1997, which Registration Statement became effective on March 19, 1997. (8) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 10-K for the fiscal year ended April 30, 1997. (9) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 10-Q for the three months ended January 31, 1998. (10) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 8-K, filed July 23, 1998. (11) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 10-K for the fiscal year ended April 30, 1998. (12) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 10-K for the fiscal year ended April 30, 1999. (13) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 10-K for the fiscal year ended April 30, 2000. (b) Reports on Form 8-K There were no reports on Form 8-K during the year. 74 [LETTERHEAD OF PRICEWATERHOUSE COOPERS] PricewaterhouseCoopers LLP Chartered Accountants 99 Bank Street Suite 800 Ottawa Ontario Canada K1P 1E4 Telephone +1 (613) 237 3702 Facsimile +1 (613) 237 3963 Our report on the consolidated financial statements of JetForm Corporation as of April 30, 2001 and 2000 and for the years ended April 2001, 2000 and 1999 is included in Item 8 of their Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule II listing in Item 14(a)2 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Chartered Accountants Ottawa, Ontario June 19, 2001 PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and other members of the worldwide PricewaterhouseCoopers organization. 75 JETFORM CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Allowance for doubtful accounts Balance as at April 30, 1998.................... $ 1,399 Charged to costs and expenses................... 2,528 Write-off/adjustments........................... (2,003) ------------- Balance as at April 30, 1999.................... 1,924 ============= Charged to costs and expenses................... 6,056 Write-off/adjustments........................... (5,556) ------------- Balance as at April 30, 2000.................... 2,424 ============= Charged to costs and expenses................... 4,016 Write-offs/adjustments.......................... (3,511) ------------- Balance as at April 30, 2001.................... $ 2,929 ============= Tax valuation reserve Balance as at April 30, 1998.................... $ 43,895 Charged to costs and expenses................... 6,884 Valuation allowance for deferred tax asset...... (1,626) ------------- Balance as at April 30, 1999.................... 49,153 ============= Charged to costs and expenses................... 3,393 Valuation allowance for deferred tax asset...... -- ------------- Balance as at April 30, 2000.................... 52,546 ============= Charged to costs and expenses................... 15,518 Valuation allowance for deferred tax asset...... -- ------------- Balance as at April 30, 2001.................... $ 68,064 ============= 76 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JetForm Corporation /s/ A. Kevin Francis -------------------------------------------------------- Kevin Francis President and Chief Executive Officer and Director (Principal Executive Officer) Dated: July 16, 2001 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Abraham Ostrovsky /s/ Jeffrey McMullen ---------------------------------------- -------------------------------------------------------- Abraham Ostrovsky Jeffrey McMullen Chairman and Director Senior Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) Dated: July 16, 2001 Dated: July 16, 2001 /s/ John Gleed /s/ Patrick Martin ---------------------------------------- -------------------------------------------------------- John Gleed Patrick Martin Director Director Dated: July 16, 2001 Dated: July 16, 2001 /s/ Paul Bates /s/ Deborah L. Weinstein ---------------------------------------- -------------------------------------------------------- Paul Bates Deborah L. Weinstein Director Secretary and Director Dated: July 16, 2001 Dated: July 16, 2001 /s/ Stephen A. Holinski -------------------------------------------------------- Stephen A. Holinski Director Dated: July 16, 2001