-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QCpcN44Yxo2SGDLdlu6q9h/1rPKmKaJkDddrZQQDPzQajrdYxEdWBj8bzJJkry7u 37sTgqH6R0IoYfEMKxLqjg== 0000908180-99-000015.txt : 19990805 0000908180-99-000015.hdr.sgml : 19990805 ACCESSION NUMBER: 0000908180-99-000015 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990804 ITEM INFORMATION: FILED AS OF DATE: 19990804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CFI PROSERVICES INC CENTRAL INDEX KEY: 0000908180 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 930704365 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-21980 FILM NUMBER: 99677444 BUSINESS ADDRESS: STREET 1: 400 S W SIXTH AVE STREET 2: SUITE 200 CITY: PORTLAND STATE: OR ZIP: 97204 BUSINESS PHONE: 5032747280 MAIL ADDRESS: STREET 1: 400 S W SIXTH AVE STREET 2: STE 200 CITY: PORTLAND STATE: OR ZIP: 97204 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K/A - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- AMENDMENT NO. 1 to FORM 8-K/A -------------------- CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): August 4, 1999 -------------- CFI ProServices, Inc. d/b/a Concentrex Incorporated (Exact name of registrant as specified in its charter) Oregon 0-21980 93-0704365 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 400 S.W. Sixth Avenue, Portland, Oregon 97204 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (503) 274-7280 CFI ProServices, Inc. (Former name or former address, if changed since last report) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The following is a list of audited financial statements for MECA Software, L.L.C. filed herewith: Report of Independent Accountants................................. F-1 Balance Sheet as of December 31, 1997 and 1998.................... F-2 Statement of Operations for the Years Ended December 31, 1997 and 1998............................... F-3 Statement of Changes in Members' Equity (Deficit) for the Years Ended December 31, 1997 and 1998........... F-4 Statement of Cash Flows for the Years Ended December 31, 1997 and 1998............................... F-5 Notes to Financial Statements, December 31, 1997 and 1998......... F-6 The following is a list of unaudited interim financial data for MECA Software, L.L.C. filed herewith: Unaudited Balance Sheet as of March 31, 1999..................... FS-1 Unaudited Statement of Operations for the Three Months Ended March 31, 1998 and 1999................................. FS-2 Statement of Changes in Members' Deficit for the Three Months Ended March 31, 1999............... FS-3 Unaudited Statement of Cash Flows for the three months ended March 31, 1998 and 1999................................. FS-4 Notes to Unaudited Interim Financial data, March 31, 1999........ FS-5 (b) PRO FORMA FINANCIAL INFORMATION. The following is a list of pro forma financial information pertaining to CFI ProServices, Inc., d/b/a Concentrex Incorporated, and MECA Software, L.L.C. filed herewith: Pro Forma Unaudited Balance Sheet as of March 31, 1999........... PF-1 Pro Forma Unaudited Statement of Operations for the Three Months Ended March 31, 1999....................... PF-2 Pro Forma Unaudited Statement of Operations for the Year Ended December 31, 1998............................ PF-3 Notes to Pro Forma Unaudited Financial Statements................ PF-4 (c) EXHIBITS. Exhibit No. Description 23.1 Consent of Independent Public Accountants 2 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned hereunto duly authorized. CFI PROSERVICES, INC. d/b/a CONCENTREX INCORPORATED Date: August 4, 1999 By: /s/ Kurt W. Ruttum ---------------------------------------------- Kurt W. Ruttum, Vice President and Chief Financial Officer 3 Report of Independent Accountants To the Board of Managers of MECA Software, L.L.C. In our opinion, the accompanying balance sheets and the related statements of operations and changes in members' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of MECA Software L.L.C. at December 31, 1997 and 1998, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The Company is a member of a group of affiliated companies, and, as disclosed in the financial statements, has extensive transactions and relationships with members of the group. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. PricewaterhouseCoopers LLP March 5, 1999 F-1 MECA Software, L.L.C. Balance Sheet
December 31, 1997 1998 ------------------- ----------------- ASSETS Current assets: Cash and cash equivalents $ 5,326,539 $ 1,677,599 Accounts receivable, less allowance for doubtful accounts of $131,721 and $390,319, respectively 3,753,149 3,287,800 Inventory 224,247 160,689 Other current assets 296,817 588,696 Costs and estimated profits in excess of billings on uncompleted contracts (Note 3) 1,450,659 - ------------------- ----------------- Total current assets 11,051,411 5,714,784 Restricted cash (Note 3) 283,997 210,000 Fixed assets, net (Notes 3 and 9) 2,199,622 1,430,847 Goodwill, net of accumulated amortization of $19,126,379 at December 31, 1997 (Notes 3 and 7) 17,332,526 - Other assets 66,825 66,825 =================== ================= $ 30,934,381 $ 7,422,456 =================== ================= LIABILITIES AND MEMBERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued expenses $ 3,703,534 $ 7,773,389 Deferred revenue (Note 3) 2,022,695 100,000 Notes payable - related party (Note 8) 7,500,000 7,500,000 Accrued interest - related party (Note 8) 321,370 630,674 Accrued restructuring costs (Note 11) 768,076 190,000 Estimated loss on uncompleted contracts (Note 3) 646,128 - ------------------- ----------------- Total current liabilities 14,961,803 16,194,063 Deferred compensation (Note 12) 848,186 1,491,629 ------------------- ----------------- Total liabilities 15,809,989 17,685,692 Commitments (Note 12) Members' equity (deficit) 15,124,392 (10,263,236) ------------------- ----------------- Total liabilities and members' equity (deficit) $ 30,934,381 $ 7,422,456 =================== =================
The accompanying notes are an integral part of these statements. F-2 MECA Software, L.L.C. Statement of Operations For the years ended December 31, ------------------------------------- 1997 1998 ---------------- ---------------- Revenue Software license fees $ 4,045,219 $ 8,882,992 Custom development services 7,255,466 2,431,011 Technical support services 8,638,433 8,876,411 Manufacturing and fulfillment 3,074,574 2,964,887 Retail 1,211,611 492,731 ---------------- ---------------- 24,225,303 23,648,032 ---------------- ---------------- Costs and expenses Cost of custom development services 6,278,988 2,730,393 Cost of technical support services 6,709,212 5,686,333 Cost of manufacturing and fulfillment 2,499,231 2,125,791 Cost of retail 727,635 105,130 Research and development (Note 6) 6,161,286 10,385,755 Sales and marketing 1,841,117 1,676,784 General and administrative 5,581,549 8,510,537 Amortization of goodwill (Note 7) 7,549,993 17,332,526 Restructuring charge (Note 11) 1,000,000 - ---------------- ---------------- 38,349,011 48,553,249 ---------------- ---------------- Loss from operations (14,123,708) (24,905,217) Interest income 321,755 130,573 Interest expense - related party (Note 8) (633,185) (612,984) ---------------- ---------------- Net loss $ (14,435,138) $ (25,387,628) ================ ================ The accompanying notes are an integral part of these statements. F-3 MECA Software, L.L.C. Statement of Changes in Members' Equity (Deficit) For the years ended December 31, 1997 and 1998
New Bank of Fleet U.S. Royal Bank England America Bank Bank of Canada Financial Citibank Total ------------- ----------- ----------- ------------ ------------- ----------- ------------- Balance, December 31, 1996 $ (3,926,684) $ 6,789,659 $ 6,789,659 $ 6,966,784 $ 9,958,821 $ - $ 26,578,239 Capital contributions - - - - - 3,000,000 3,000,000 Legal and investment banking costs (Note 5) (6,236) (3,118) (3,118) (3,118) (3,119) - (18,709) Net loss for the year (4,739,894) (2,369,947) (2,369,947) (2,369,947) (2,369,947) (215,456) (14,435,138) ------------- ----------- ----------- ------------ ----------- ----------- ------------- Balance, December 31, 1997 (8,672,814) 4,416,594 4,416,594 4,593,719 7,585,755 2,784,544 15,124,392 Net loss for the year (8,124,042) (4,062,021) (4,062,021) (4,062,021) (4,062,021) (1,015,502) (25,387,628) ------------- ----------- ----------- ------------ ----------- ----------- ------------- - Balance, December 31, 1998 $(16,796,856) $ 354,573 $ 354,573 $ 531,698 $ 3,523,734 $ 1,769,042 $ (10,263,236) ============= =========== =========== ============ =========== =========== =============
The accompanying notes are an integral part of these statements. F-4 MECA Software, L.L.C. Statement of Cash Flows Increase (Decrease) in Cash and Cash Equivalents
For the years ended December 31, --------------------------------------- 1997 1998 ------------------ ------------------ Cash flows from operating activities: Net loss $ (14,435,138) $ (25,387,628) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 8,740,815 18,447,619 Loss on the disposal of fixed assets - 487,773 Changes in assets and liabilities: Accounts receivables, net (1,423,866) 465,349 Inventories 260,051 63,558 Costs in excess of billings on uncompleted contracts (1,105,185) 1,450,659 Other assets, current (208,012) (291,879) Accounts payable and accrued expenses (392,141) 4,069,855 Deferred revenue 440,627 (1,922,695) Accrued restructuring costs 768,076 (578,076) Estimated loss on uncompleted contracts 530,628 (646,128) Deferred compensation (26,718) 643,443 ------------------ ------------------ Net cash used in operating activities (6,850,863) (3,198,150) ------------------ ------------------ Cash flows from investing activities: Additions to furniture, fixtures and equipment (1,046,811) (834,091) Restricted cash - 73,997 ------------------ ------------------ Net cash used in investing activities (1,046,811) (760,094) ------------------ ------------------ Cash flows from financing activities: Capital contributions, net of issuance costs 2,981,291 - Accrued interest - related party (Note 8) (163,824) 309,304 ------------------ ------------------ Net cash provided by financing activities 2,817,467 309,304 ------------------ ------------------ Net decrease in cash and cash equivalents (5,080,207) (3,648,940) Cash and cash equivalents: Beginning of year 10,406,746 5,326,539 ------------------ ------------------ End of year $ 5,326,539 $ 1,677,599 ================== ================== Supplemental disclosure of cash flow information: Interest paid $ 795,432 $ 303,679 ================== ==================
The accompanying notes are an integral part of these statements. F-5 MECA SOFTWARE, L.L.C. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1998 1. BUSINESS AND ORGANIZATION MECA Software, L.L.C. (the "Company" or "MECA") is a limited liability company which was formed by operating subsidiaries of Bank of America NT & SA ("Bank of America") and NationsBank, N.A. ("NationsBank") to acquire MECA Software, Inc. from H&R Block, effective June 29, 1995. Bank of America and NationsBank merged in the fourth quarter of 1998. As a result of the merger, all capital from NationsBank was transferred to Bank of America. Additional shareholders purchased interests in MECA in 1996 and 1997. The Company develops and executes custom software and service solutions which enable financial institutions to provide to their customers electronic remote access to financial products and services on their terms. The Company also offers a comprehensive array of on-line banking support services including technical support, manufacturing, fulfillment, training and marketing. 2. BASIS OF PREPARATION Since inception, the Company has suffered recurring losses and net cash outflows from operations and expects to incur additional losses from operations. The Company has funded its operating losses through capital contributions from its Class A and Class B Members. It is management's intention to continue to fund the Company's operating loss through new or existing additional member capital contributions in order to meet its strategic objectives. Management is actively pursuing various options which include obtaining funding from a new Class A or Class B Member or obtaining additional funding from its current Class A or Class B Members. The Company believes that sufficient funding will be available to meet its planned business objectives, including anticipated cash needs for working capital for a reasonable period of time. However, there can be no assurance the Company will be able to obtain sufficient funds to continue operations. As a result of the foregoing, there exists substantial doubt about the Company's ability to continue as a going concern. See unaudited subsequent event Note 13. These financial statements do not include any adjustments relating to the recoverability of the carrying amount of recorded assets or the amounts of liabilities that might result from the outcome of this uncertainty. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents and Restricted Cash The Company considers all highly liquid investments with original maturities of three months or less from the date of acquisition to be cash equivalents. The Company invests its excess cash in an overnight money market account or in AAA rated corporate bonds. Accordingly, the investments are subject to minimal credit and market risk. F-6 At December 31, 1997 and 1998, the Company had $871,000 and $1,320,000, respectively, in a money market account. At December 31, 1997 and 1998, the Company had $4,349,294 and $640,604, respectively, invested in AAA rated corporate bonds. In accordance with certain operating lease agreements with two third parties, the Company must maintain a minimum cash deposit at the Company's bank of $150,000 and $133,997, and $100,000 and $110,000, at December 31, 1997 and 1998, respectively, for the duration of the leases which expire on April 30, 1999 and October 31, 2001, respectively. REVENUE RECOGNITION The Company's revenue recognition policies for the period are presented in conformity with Statement of Position 97-2, "Software Revenue Recognition," promulgated by the American Institute of Certified Public Accountants. The following is a summary of MECA's revenue recognition policies for each of their various sources of revenue: SOFTWARE LICENSE FEES REVENUE - The Company generates revenues from licensing the rights to use its software product to certain financial institutions and their customers. Revenue is recognized upon shipment of the product to the financial institution or its customer. Amounts received prior to the shipment of the product are initially recorded as deferred revenue. It is management's preference to bill license fees separately. Materials and other direct costs that result from software license activities are billed separately and the corresponding revenues and costs are included in manufacturing and fulfillment on the statement of operations. CUSTOM DEVELOPMENT SERVICES REVENUE - Revenue generated from certain custom development contracts is recognized as the services are performed and delivered. From time to time, certain other fixed fee contracts have been entered into involving significant modifications or customizations to the basic software delivered under the contract. The completed contract method is used under such contracts when the fees are fixed and the contract is expected to be completed within one year. A contract is considered complete when the software is delivered, and the Company has substantially completed its service obligations under the contract. Amounts received prior to the completion of the contract are recorded as deferred revenue until the contract has been completed. At December 31, 1997, costs and estimated profits in excess of billings on uncompleted contracts was $1,450,659. A provision for loss under these contracts, principally with Class A Members, was computed on the basis of total estimated costs to complete the contract, which includes contract costs incurred to date plus estimated costs to complete. At December 31, 1997, there were accrued losses on uncompleted contracts of $646,128 which has been charged to the statement of operations. TECHNICAL SUPPORT SERVICES REVENUE - The Company provides technical support services to the financial institutions' customers. Revenue from technical support is recognized as the services are provided. F-7 MANUFACTURING AND FULFILLMENT REVENUES - Revenues from manufacturing and fulfillment services are generated under separate contracts from the copying of discs or CD-ROMs, packaging and shipment of the Company's software products and third party software products to licensed users. Revenue from such services is recognized upon shipment. RETAIL REVENUE - Revenue is generated from sales of the Company's products to retail stores. Revenue is recognized upon shipment, net of an allowance for returns. Also included within retail sales is royalty income earned on the services and supplies utilized to support the Company's product. INVENTORY Inventory consists principally of raw materials and is valued at the lower of cost or market, determined on the weighted average basis. FIXED ASSETS Fixed assets are recorded at cost and are depreciated using the straight-line method over their estimated useful lives which range from three to five years. Leasehold improvements are amortized over the shorter of their economic life or their life of the lease. The Company periodically reviews the recoverability of long lived assets based upon anticipated cash flows generated from such assets. During 1998 the Company incurred a loss on the disposal of fixed assets of $487,773. GOODWILL The excess purchase price over the fair value of net assets acquired was being amortized using the straight-line method over five years. The Company's policy is to make an annual evaluation of the remaining goodwill for potential impairment of value at each balance sheet date. During 1998 the Company expensed the full amount of remaining goodwill as more fully described in Note 7. INTERNALLY DEVELOPED SOFTWARE COSTs In accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," the Company evaluates the establishment of technological feasibility of its various products during the development stage. The time period during which costs could be capitalized from the point of reaching technological feasibility until the time of general product release is tentatively short and, consequently, the amounts that could be capitalized are not material to the Company's financial position or results of operations. Therefore, the Company charges all product development expenses to operations in the period incurred. CONCENTRATION OF CREDIT RISK Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company maintains allowances for potential credit losses. At December 31, 1997 and 1998, the Company had approximately 92% of the total accounts receivable balance concentrated within the top ten customers. F-8 FINANCIAL INSTRUMENTS The carrying amounts of the Company's financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and notes payable, approximate their fair market values at December 31, 1997 and 1998. ADVERTISING AND PROMOTIONAL EXPENSES Advertising and promotional expenses are charged to operations during the periods in which they are incurred. Total advertising and promotional expenses were $687,000 and $607,313 for the years ended December 31, 1997 and 1998, respectively, and are included in sales and marketing expenses in the accompanying statement of operations. INCOME TAXES Income taxes have not been provided for in the accompanying financial statements as the limited liability company is a partnership for income tax purposes. Members are responsible for reporting their allocable share of membership income, gains, deductions, losses and credits in their own tax returns. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to current year's presentation. 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, including goodwill and other intangibles, and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ form those estimates. 4. RECLASSIFICATIONS Effective December 31, 1998, the Company elected to reclassify certain revenues, costs and expenses in its statement of operations to further detail certain revenues and expenses. For financial statement presentation purposes, the Company has expanded the presentation of revenues and cost of revenues according to the business activities to which it relates (e.g. custom development, technical support, etc.). In addition, the Company now groups the corresponding departmental indirect costs, as well as the above mentioned direct costs, within costs of revenues according to the business activity to which the costs relate. The effect of this presentation is to reclassify certain prior year amounts, previously reported within research and development and general administrative expenses, to cost of revenues. The effect of these reclassifications is as follows: F-9
Year Ended December 31, 1997: Reclassified Previously Effects of Amount Reported Reclassification ------------------- ----------------- ----------------------- Revenues: Software license fees $ 4,045,219 $ - $ (4,045,219) Custom development services 7,255,466 - (7,255,466) Technical support services 8,638,433 - (8,638,433) Manufacturing and fulfillment 3,074,574 - (3,074,574) Retail 1,211,611 - (1,211,611) Net revenues - 24,225,303 24,225,303 Costs and Expenses: Cost of custom development services 6,278,988 - (6,278,988) Cost of technical support services 6,709,212 - (6,709,212) Cost of manufacturing and fulfillment 2,499,231 - (2,499,231) Cost of retail 727,635 - (727,635) Total cost of revenue - 1,474,302 1,474,302 Research and development 6,161,286 12,157,451 5,996,165 General and administrative 5,581,549 14,326,148 8,744,599 ======================= - =======================
5. LIMITED LIABILITY COMPANY AGREEMENT The Company has been organized as a limited liability company ("LLC"). The owners of an interest in a limited liability company are called "Members" and are not individually liable for obligations and liabilities of the entity. Pursuant to the LLC Agreement, the Class A Members of the LLC have equal economic and voting interest in the Company. Each Class A Member has the right to elect one manager to the Board of Managers. Membership interests are transferable only with the written approval of the majority interest, as defined. Each Class A Member is required to sign a licensing and distribution agreement with respect to the Company's products and services. On September 10, 1997, Citibank became a Class B Member with a $3 million capital contribution. Class B Members do not have voting rights. In connection with making Citibank a Class B Member, the Company incurred costs of $18,709, which were paid by the other Members in a pro rata share. The LLC shall continue until dissolved and liquidated in accordance with the Agreement. The Company will not make any distribution to its Members, unless determined by the Board of Managers. Allocations to members' capital accounts for items of income, gain, loss, deduction and credit of the Company shall be allocated to the members in accordance with their respective percentage ownership and period of ownership; provided, however, that if any loss, F-10 deduction, expense or credit attributable to any capital contribution made by a Member can be specifically allocated to such Member. 6. RESEARCH AND DEVELOPMENT Research and development expense was $6,161,286 and $10,385,755 for the years ended December 31, 1997 and 1998, respectively. Included in the 1998 research and development expense was a transaction with New England Financial (NEF). In connection with NEF's purchase of a Class A (voting) interest in MECA, NEF entered into a Development, License and Marketing Agreement with MECA. This agreement stated that a pro rata portion (1/6 which is equal to the NEF interest in MECA) of MECA's annual product spending would be directed to projects specified by NEF. The total costs incurred during 1998 related to the NEF project during 1998 were $1,128,000. The Company terminated the agreement in 1998 for a payment of $600,000, which is included in the above Research and Development expense amount. 7. GOODWILL IMPAIRMENT In accordance with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of," the Company periodically evaluates the carrying value of long-lived assets to be held and used, including goodwill, when events and circumstances warrant such a review. During the latter part of 1998, through analyzing operating results and related cash flows, trends and prospects as well as competitive and economic factors surrounding the Company, management concluded that the remaining goodwill was permanently impaired. Accordingly, the remaining unamortized goodwill balance of $17,332,526 was expensed and has been included in amortization of goodwill in the Company's statement of operations. 8. RELATED PARTY TRANSACTIONS Principal revenue sources for the Company are the development contracts with the Class A and B Members and license fees earned on customized software products for the Class A and B Members. Aggregate revenues recognized during 1997 and 1998 from these sources were approximately $20,822,159 and $20,316,883, respectively. Aggregate receivable balances were $3,033,866 and $1,702,622 at December 31, 1997 and 1998, respectively. At December 31, 1998, the Company had outstanding notes payable in the amount of $7,500,000 to certain Class A Members. This balance represents the original amounts loaned to the Company upon the formation of the LLC by certain Class A Members. These promissory notes accrue interest at a rate per annum equal to the average of the prime rate (8.25% at December 31, 1997 and 1998) and is payable quarterly. These notes are payable on demand. For the years ended December 31, 1997 and 1998, interest of $633,185 and $612,984, respectively, was incurred. Additionally, accrued interest at December 31, 1997 and 1998 was $321,370 and $630,674, respectively. F-11 9. FIXED ASSETS Fixed assets consist of the following: 1997 1998 ------------------- -------------------- Computer equipment and software $ 5,134,610 $ 1,570,509 Machinery and equipment 835,084 712,376 Furniture and fixtures 716,680 518,831 Leasehold improvements 426,628 241,856 ------------------- -------------------- 7,113,002 3,043,572 Less - accumulated depreciation (4,913,380) (1,612,725) =================== ==================== $ 2,199,622 $ 1,430,847 =================== ====================
Depreciation expense for the years ended December 31, 1997 and 1998 was $1,190,822 and $1,115,093, respectively. Fixed assets no longer in use of $4,903,522 were written off during 1998. 10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses include the following: December 31, 1997 1998 ------------ ----------- Accounts payable $ 2,059,558 $ 2,116,176 Accrued employee costs 1,347,200 1,525,192 Lease termination costs -- 885,000 Development, License and Marketing Agreement termination costs -- 600,000 Other accrued expenses 296,776 2,647,021 =========== =========== $ 3,703,534 $ 7,773,389 =========== =========== 11. RESTRUCTURING PLAN The Company approved certain restructuring plans to reduce costs through job eliminations and, as a result, recorded a restructuring charge of $1,000,000 in 1997 and certain other minor charges in 1998, principally for severance costs. Approximately 55 employees were terminated under these programs. The Company has paid severance costs of $231,924 and $633,587 as of December 31, 1997 and 1998, respectively. At December 31, 1998, approximately $190,000 remains to be paid to former employees under these programs. F-12 12. COMMITMENTS The Company has employment agreements with certain officers and key employees. The terms of these employment agreements are generally three years and can be terminated by the Company under certain circumstances. The agreements include a component of deferred compensation. Benefits accrued under this arrangement, including accrued interest, totaled $1,004,865 and $2,006,629 at December 31, 1997 and 1998, respectively, which are being paid over the course of three years in accordance to their respective agreements. LEASE COMMITMENTS The Company leases office space and machinery under noncancelable operating leases. The lease for the office space is guaranteed by the Class A Members. Future minimum rental payments under the operating leases are as follows: 1999 $ 1,403,824 2000 1,374,606 2001 1,296,094 2002 1,087,631 2003 988,562 ============ $ 6,150,717 ============ Rent expense totaled $1,440,048 and $1,402,779, respectively, for the years ended December 31, 1997 and 1998. EMPLOYEE BENEFIT PLANS The Company has a voluntary 401(K) Plan that is available to all eligible employees after ninety days of service. Beginning January 1, 1998, the Company made contributions equal to 75% of the employees' pretax contributions up to a maximum of 6% of participants' total eligible compensation. From January 1, 1997 to December 31, 1997, the Company made contributions in an amount equal to 50% of employees' pretax contributions, up to a maximum of 6% of participants' total eligible compensation. Prior to January 1, 1997, the Company made contributions in an amount equal to 25% of employees' pretax contributions, up to a maximum of 6% of participants' total eligible compensation. The Company contributed $99,996 and $215,160 to the 401(K) Plan during the years ended December 31, 1997 and 1998, respectively. 13. SUBSEQUENT EVENT UNAUDITED On May 17, 1999, CFI ProServices, Inc., d/b/a Concentrex Incorporated ("Concentrex") and Moneyscape Holdings, Inc. (a wholly owned subsidiary of Concentrex), acquired 99% and 1%, respectively, of the Members' equity in MECA in exchange for 50,000 shares of Concentrex common stock. F-13 MECA Software, L.L.C. Balance Sheet (In Thousands) March 31, 1999 (unaudited) ----------------- ASSETS Current assets: Cash and cash equivalents $ 3,527 Receivables, net of allowances of $409 3,063 Inventory 62 Other current assets 334 ----------------- Total current assets 6,986 Restricted cash 210 Fixed assets, net 1,356 ================= Total assets $ 8,552 ================= LIABILITIES AND MEMBERS' DEFICIT Current liabilities: Accounts payable and accrued expenses $ 6,601 Deferred revenue 2,677 Notes payable 7,500 ----------------- Total current liabilities 16,778 Deferred compensation 1,451 ----------------- Total liabilities 18,229 Commitments Members' deficit (9,677) ----------------- Total liabilities and members' deficit $ 8,552 ================= The accompanying notes are an integral part of these statements. FS-1 MECA Software, L.L.C. Statement of Operations (In Thousands)
For the three months ended March 31, ------------------------------------------ 1998 1999 (unaudited) (unaudited) ------------------- ------------------ Revenue Software license fees $ 2,303 $ 3,556 Custom development services 666 804 Technical support services 2,060 2,207 Manufacturing and fulfillment 456 495 Retail 161 95 ------------------- ------------------ Total revenue 5,646 7,157 Costs and expenses Cost of software license fees - 123 Cost of custom development services 815 787 Cost of technical support services 1,442 1,544 Cost of manufacturing and fulfillment 373 440 Cost of retail 61 - Research and development 1,439 1,453 Sales and marketing 318 427 General and administrative 2,322 1,682 Goodwill amortizaion 1,878 - ------------------- ------------------ Total operating expenses 8,648 6,456 ------------------- ------------------ Income (loss) from operations (3,002) 701 Interest expense, net (97) (115) ------------------- ------------------ Net income (loss) $ (3,099) $ 586 =================== ==================
The accompanying notes are an integral part of these statements. FS-2 MECA Software, L.L.C. Statement of Changes in Members' Equity (Deficit) For the three month period ended March 31, 1999 (Unaudited) (In Thousands)
New Bank of Fleet U.S. Royal Bank England America Bank Bank of Canada Financial Citibank Total ------------- ----------- ----------- ------------ ------------ ------------- ------------- Balance, December 31, 1998 $ (16,797) $ 355 $ 355 $ 531 $ 3,524 $ 1,769 $ (10,263) Net income for the quarter 187 94 94 94 94 23 586 ------------- ----------- ----------- ------------ ------------ ------------- ------------- Balance, March 31, 1999 $ (16,610) $ 449 $ 449 $ 625 $ 3,618 $ 1,792 $ (9,677) ============= =========== =========== ============ =========== ============= =============
The accompanying notes are an integral part of these statements. FS-3 MECA Software, L.L.C. Statement of Cash Flows (In Thousands)
For the three months ended March 31, ----------------------------------------- 1998 1999 (unaudited) (unaudited) ------------------- ------------------- Cash flows from operating activities: Net income (loss) $ (3,099) $ 586 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,130 169 Loss on the disposal of fixed assets - 25 Changes in assets and liabilities: Accounts receivables, net (674) 223 Inventory (79) 98 Other assets (144) 355 Accounts payable and accrued expenses (204) (1,592) Deferred revenue (400) 2,577 Accrued restructuring costs - (137) Estimated loss on uncompleted contracts (135) (440) Deferred compensation 32 (41) ------------------- ------------------- Net cash provided by (used in) operating activities (2,573) 1,823 ------------------- ------------------- Cash flows from investing activities: Additions to furniture, fixtures and equipment (96) (119) Restricted cash (1) - ------------------- ------------------- Net cash used in investing activities (97) (119) ------------------- ------------------- Cash flows from financing activities: Accrued interest - related party (164) 145 ------------------- ------------------- Net cash provided by (used in) financing activities (164) 145 ------------------- ------------------- Net increase (decrease) in cash and cash equivalents (2,834) 1,849 Cash and cash equivalents: Beginning of period 5,327 1,678 ------------------- ------------------- End of period $ 2,493 $ 3,527 =================== ===================
The accompanying notes are an integral part of these statements. FS-4 MECA SOFTWARE, L.L.C. NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS 1. UNAUDITED INTERIM FINANCIAL DATA The interim financial data as of March 31, 1999 and for the three months ended March 31, 1999 and March 31, 1998 is unaudited; however, in the opinion of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of results for the interim periods. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted from the unaudited financial statements. The results of operations for the three-month period ended March 31, 1999 are not necessarily indicative of the operating results for the full year or for future periods. For further information, refer to the financial statements and footnotes thereto for the year ended December 31, 1998 included elsewhere in this Amendment No. 1 to Form 8-K/A. FS-5 CFI PROSERVICES, INC. PRO FORMA UNAUDITED BALANCE SHEET AS OF MARCH 31, 1999 (In Thousands)
CFI MECA Pro forma After ProServices LLC Adjustments Purchase ------------- ------------- -------------- -------------- ASSETS Current assets: Cash and cash equivalents $ - $ 3,527 $ - $ 3,527 Investments 206 - - 206 Receivables, net of allowances 28,123 3,063 - 31,186 Inventory 372 62 - 434 Deferred tax asset 1,341 - 971 (a) 2,312 Prepaid expenses and other current assets 1,709 334 - 2,043 ------------- ------------- -------------- -------------- Total current assets 31,751 6,986 971 39,708 Restricted cash - 210 - 210 Property and equipment, net 4,407 1,356 (1,356)(a) 4,407 Software development costs, net 7,495 - - (a) 7,495 Purchased software costs, net 2,391 - - (a) 2,391 Other intangibles, net 10,383 - - (a) 10,383 Other assets, including deferred taxes 926 - 8,918 (a) 9,844 ============= ============= ============== ============== Total assets $ 57,353 $ 8,552 $ 8,533 $ 74,438 ============= ============= ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Drafts payable $ 386 $ - $ - $ 386 Accounts payable 1,735 1,294 - 3,029 Accrued expenses 3,046 6,758 1,559 (a) 11,363 Deferred revenues 10,795 - - 10,795 Customer deposits 2,875 2,677 - 5,552 Bank line of credit 262 - - 262 Current portion of long-term debt 182 7,500 (7,500)(c) 182 Income taxes payable 537 - - 537 ------------- ------------- -------------- -------------- Total current liabilities 19,818 18,229 (5,941) 32,106 Deferred credit - - 528 (a) 528 Long-term debt, lesst current portion 5,608 - 7,500 (c) 13,108 Other long-term liabilities 254 - - 254 ------------- ------------- -------------- -------------- Total liabilities 25,680 18,229 2,087 45,996 Mandatory Redeemable Class A Preferred Stock 735 - - 735 Shareholders' Equity Common stock and additional paid-in-capital 19,196 67,189 (66,620)(b) 19,765 Retained earnings (deficit) 11,742 (76,866) 73,066 (b) 7,942 ------------- ------------- -------------- -------------- Total shareholders' equity 30,938 (9,677) 6,446 27,707 ------------- ------------- -------------- -------------- Total liabilities and shareholders' equity $ 57,353 $ 8,552 $ 8,533 $ 74,438 ============= ============= ============== ==============
See accompanying Notes to Pro Forma Unaudited Financial Statements. PF-1 CFI PROSERVICES, INC. PRO FORMA UNAUDITED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 (In Thousands, except per share data)
CFI MECA Pro forma After ProServices LLC Adjustments Purchase ------------- ------------- ------------- ------------- Revenue Software license fees $ 8,865 $ 4,455 $ - $ 13,320 Service and support 9,254 2,207 - 11,461 Other 1,934 495 - 2,429 ------------- ------------- ------------- ------------- Total revenue 20,053 7,157 - 27,210 Cost of Revenue 7,747 2,894 (109)(a) 10,532 ------------- ------------- ------------- ------------- Gross profit 12,306 4,263 109 16,678 Operating Expenses Sales and marketing 3,732 427 (2)(a) 4,157 Product development 4,279 1,453 (18)(a) 5,714 General and administration 2,436 1,682 (65)(a) 4,053 Amortization of intangibles 410 - (19)(b) 391 ------------- ------------- ------------- ------------- Total operating expenses 10,857 3,562 (104) 14,315 ------------- ------------- ------------- ------------- Income from operations 1,449 701 213 2,363 Non-operating Income (Expense) Interest expense (104) (145) - (249) Interest income 95 30 - 125 Other, net 3 - - 3 ------------- ------------- ------------- ------------- Total non-operating income (expense) (6) (115) - (121) ------------- ------------- ------------- ------------- Income before Provision for Income Taxes 1,443 586 213 2,242 Provision for Income Taxes 621 - 376 (c) 997 ------------- ------------- ------------- ------------- Net Income 822 586 (163) 1,245 Preferred Stock Dividend 23 - - 23 ------------- ------------- ------------- ------------- Net Income Applicable to Common Shareholders $ 799 $ 586 $ (163) $ 1,222 ============= ============= ============= ============= Basic Net Income per Share $ 0.16 $ 0.24 ============= ============= Shares Used in Calculating Basic Net Income per Share 5,040 5,090 (d) ============= ============= Diluted Net Income per Share $ 0.16 $ 0.23 ============= ============= Shares Used in Calculating Diluted Net Income per Share 5,151 5,201 (d) ============= =============
See accompanying Notes to Pro Forma Unaudited Financial Statements. PF-2 CFI PROSERVICES, INC. PRO FORMA UNAUDITED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (In Thousands, except per share data)
CFI MECA Pro forma After ProServices LLC Adjustments Purchase ------------ ------------ ------------ ------------- Revenue Software license fees $ 49,202 $ 11,807 $ - $ 61,009 Service and support 30,352 8,876 - 39,228 Other 6,076 2,965 - 9,041 ------------ ------------ ------------ ------------- Total revenue 85,630 23,648 - 109,278 Cost of Revenue 29,423 10,648 (646)(a) 39,425 ------------ ------------ ------------ ------------- Gross profit 56,207 13,000 646 69,853 Operating Expenses Sales and marketing 19,204 513 (3)(a) 19,714 Product development 14,913 9,257 (61)(a) 24,109 General and administration 10,012 10,803 (893)(a) 19,922 Amortization of intangibles 1,228 17,333 (17,408)(b) 1,153 Acquired in-process research and development and other charges 2,661 - - 2,661 ------------ ------------ ------------ ------------- Total operating expenses 48,018 37,906 (18,365) 67,559 ------------ ------------ ------------ ------------- Income (loss) from operations 8,189 (24,906) 19,011 2,294 Non-operating Income (Expense) Interest expense (454) (613) - (1,067) Interest income 295 131 - 426 Equity in losses attributable to joint venture (670) - - (670) Other, net 83 - - 83 ------------ ------------ ------------ ------------- Total non-operating income (expense) (746) (482) - (1,228) ------------ ------------ ------------ ------------- Income (loss) before Provision for Income Taxes 7,443 (25,388) 19,011 1,066 Provision for Income Taxes 3,483 - (2,383) (c) 1,100 ------------ ------------ ------------ ------------- Net Income (Loss) 3,960 (25,388) 21,394 (34) Preferred Stock Dividend 95 - - 95 ------------ ------------ ------------ ------------- Net Income (Loss) Applicable to Common Shareholders $ 3,865 $ (25,388) $ 21,394 $ (129) ============ ============ ============ ============= Basic Net (Loss) Income per Share $ 0.77 $ (0.03) ============ ============= Shares Used in Calculating Basic Net Income (Loss) per Share 5,012 5,062 (d) ============ ============= Diluted Net Income (Loss) per Share $ 0.75 $ (0.03) ============ ============= Shares Used in Calculating Diluted Net Income (Loss) per Share 5,167 5,062 (d) ============ =============
See accompanying Notes to Pro Forma Unaudited Financial Statements. PF-3 CFI PROSERVICES, INC. d/b/a CONCENTREX INCORPORATED NOTES TO PRO FORMA UNAUDITED FINANCIAL STATEMENTS The accompanying unaudited pro forma financial statements for the periods ended March 31, 1999 and December 31, 1998 have been prepared to present the effect of the purchase by CFI ProServices, Inc., d/b/a Concentrex Incorporated ("Concentrex") and Moneyscape Holdings, Inc. (a wholly ownded subsidiary of Concentrex) of 99% and 1%, respectively, of all the Members' equity in MECA Software, L.L.C. ("MECA"). The pro forma statements assume that the purchase was effective at the beginning of the respective periods for the Pro Forma Statements of Operations and as of March 31, 1999 for the Pro Forma Balance Sheet. The pro forma financial statements have been prepared based on the historical financial statements of Concentrex restated to reflect the purchase of MECA. In addition, certain historical amounts have been reclassified to conform to the current presentation. The pro forma financial statements may not be indicative of the results of the operations that actually would have occurred if the transaction had been in effect as of the beginning of the respective periods nor do they purport to indicate the results of the future operations of Concentrex. The pro forma financial statements should be read in conjunction with the audited financial statements and notes thereto of MECA included elsewhere in this Form 8-K/A. PF-4 1. BALANCE SHEET Effective May 17, 1999, Concentrex acquired 99% of MECA Software, L.L.C. in a purchase transaction. The remaining 1% was acquired by Moneyscape Holdings, Inc., a wholly-owned subsidiary of Concentrex. The following amounts in footnotes (a) through (c) describe the nature of the transaction and are for informational purposes only. They reflect the adjustments that would have been recorded on the balance sheet at March 31, 1999 had the purchase occurred on that date. (a) The Company recorded a net increase in negative goodwill as follows, in thousands: Purchase price Common stock (50,000 shares) $ 569 Accrued acquisition costs 1,559 ------------ Total 2,128 Net value of liabilities acquired Fair value of recorded assets (liabilities) acquired (9,677) Deferred tax asset acquired 9,889 Appraised value of in-process research and development 3,800 Appraised value of existing product technology (purchased software) 2,140 Appraised value of assembled workforce 230 ------------ Negative goodwill resulting from purchase 4,254 Negative goodwill was reduced by allocating negative goodwill to the following: Product technology (purchased software) acquired (2,140) Other intangibles acquired (230) Fixed assets acquired (1,356) ------------ Negative goodwill recorded as a deferred credit on the balance sheet $ 528 ============
PF-5 (b) The Company recorded a net increase in combined shareholders'/Members' equity as follows, in thousands: Increase in common stock Issuance of 50,000 shares of CFI's common stock $ 569 Decrease in retained earnings Write off of in-process research and development (3,800) Elimination of MECA retained deficit 76,866 Elimination of MECA Members' paid in capital (67,189) ---------- $ 6,446 ========== (c) The Company recorded a decrease in current liabilities and an increase in long-term debt as follows, in thousands: Decrease in current liabilities Payoff of current note payable $ (7,500) Increase in long-term debt Proceeds from line of credit $ 7,500 These adjustments reflect the refinancing of the acquired MECA note payable on a two-year revolving line of credit. Both the acquired note payable and the line of credit carry an interest rate equal to the prime rate. The Company does not intend to repay the line of credit balance within the next twelve months and therefore has classified it as a long-term liability. PF-6 2. STATEMENTS OF OPERATIONS The Pro Forma Unaudited Statements of Operations are presented without the impact of the $3.8 million write-off of in-process research and development related to the purchase of MECA Software, L.L.C. as the write-off would not have an on-going effect on normal operations. The pro forma adjustments to the Pro Forma Unaudited Statements of Operations for the three months ended March 31, 1999 and the year ended December 31, 1998 consist of the following: (a) Depreciation expense and loss on disposal of fixed assets was reduced in the amounts shown below (in thousands) as a result of the reduction in the carrying value of acquired fixed assets:
Three months ended Year ended March 31, 1999 December 31, 1998 ------------------ ----------------- Depreciation expense $169 $1,115 Loss on disposal of fixed assets 25 488
(b) Amortization of intangibles was reduced to reflect both the reversal of a write off of existing goodwill by MECA during 1998 and to amortize the negative goodwill recorded as a result of the purchase of MECA.
Three months ended Year ended March 31, 1999 December 31, 1998 ------------------- ------------------ Reverse the write off of existing goodwill $ -- $ (17,333) Amortization of negative goodwill (19) (75) ==================== ================= Total $ (19) $ (17,408) ==================== =================
(c) The pro forma adjustments to provision for income taxes was made to bring the total tax provision to the amount that would have been recorded based on an effective rate for the year calculated using the combined pro forma income. (d) Shares used in the calculation of the pro forma net income (loss) per share have been adjusted to reflect the 50,000 shares of common stock issued in the purchase of MECA. PF-7 EX-23.1 2 EXHIBIT 23.1 Exhibit 23.1 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-70506, No. 33-89872, and No. 333-11351) of CFI ProServices, Inc. of our report dated March 5, 1999 relating to the financial statements of MECA Software, L.L.C., which appears in this Amendment No. 1 to the Form 8-K/A of CFI ProServices, Inc. d/b/a Concentrex Incorporated. PricewaterhouseCoopers LLP Stamford, Connecticut August 4, 1999 -----END PRIVACY-ENHANCED MESSAGE-----