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EXHIBIT 99.2
CLIENTELE SOFTWARE, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
TOGETHER WITH AUDITORS' REPORT
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Clientele Software, Inc.:
We have audited the accompanying balance sheets of Clientele Software, Inc. (an
Oregon corporation) as of December 31, 1996 and 1995, and the related statements
of operations, stockholders' deficit and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Clientele Software, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Portland, Oregon,
March 6, 1997
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CLIENTELE SOFTWARE, INC.
BALANCE SHEETS - AS OF DECEMBER 31, 1996 AND 1995
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS:
Cash $ 12,055 $ 18,411
Accounts receivable, net of allowance for doubtful
accounts of $38,760 in 1996 and $43,760 in 1995 620,875 691,891
Prepaid expenses 25,040 39,596
Other current assets 1,937 3,912
---------- ----------
Total current assets 659,907 753,810
PROPERTY AND EQUIPMENT, net 248,285 351,637
OTHER NONCURRENT ASSETS 14,526 36,451
---------- ----------
Total assets $ 922,718 $1,141,898
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Line of credit $ 215,000 $ 280,000
Accounts payable 145,178 115,448
Accrued commissions and bonuses 29,572 73,022
Other accrued liabilities 215,066 153,240
Current portion of capitalized lease obligations 55,805 94,815
Deferred revenue 403,934 322,012
---------- ----------
Total current liabilities 1,064,555 1,038,537
CAPITAL LEASE OBLIGATIONS, less current portion 91,417 128,231
LOANS FROM STOCKHOLDERS 182,516 176,324
---------- ----------
Total liabilities 1,338,488 1,343,092
STOCKHOLDERS' DEFICIT:
Preferred stock, no par value, 10,000,000 shares
authorized, none issued and outstanding -- --
Common stock, no par value, 40,000,000 shares
authorized, 4,427,125 and 4,270,500 and shares
issued and outstanding as of December 31, 1996
and 1995, respectively 53,232 38,688
Accumulated deficit (469,002) (239,882)
---------- ----------
Total stockholders' deficit (415,770) (201,194)
---------- ----------
Total liabilities and stockholders' deficit $ 922,718 $1,141,898
========== ==========
The accompanying notes are integral part of these balance sheets.
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CLIENTELE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
REVENUES:
License fees $ 3,267,982 $ 2,955,268
Services 750,382 517,046
----------- -----------
Total revenues 4,018,364 3,472,314
COST OF REVENUES:
License fees 363,293 263,971
Services 335,637 224,013
----------- -----------
Total cost of revenues 698,930 487,984
----------- -----------
Gross margin 3,319,434 2,984,330
OPERATING EXPENSES:
Sales 844,570 892,458
Marketing 712,623 689,186
Research and development 690,575 749,981
General and administrative 1,226,496 698,868
----------- -----------
Total operating expenses 3,474,264 3,030,493
----------- -----------
Operating loss (154,830) (46,163)
INTEREST INCOME 315 295
INTEREST EXPENSE (74,605) (33,627)
----------- -----------
Loss before provision for income taxes (229,120) (79,495)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET LOSS $ (229,120) $ (79,495)
=========== ===========
The accompanying notes are an integral part of these statements.
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CLIENTELE SOFTWARE, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Common Stock Total
------------------- Accumulated Stockholders'
Shares Amount Deficit Deficit
--------- ------- ----------- -------------
BALANCE, December 31, 1994 4,255,500 $36,188 $(160,387) $(124,199)
Exercise of stock options 15,000 2,500 -- 2,500
Net loss -- -- (79,495) (79,495)
--------- ------- --------- ---------
BALANCE, December 31, 1995 4,270,500 38,688 (239,882) (201,194)
Exercise of stock options 156,625 14,544 -- 14,544
Net loss -- -- (229,120) (229,120)
--------- ------- --------- ---------
BALANCE, December 31, 1996 4,427,125 $53,232 $(469,002) $(415,770)
========= ======= ========= =========
The accompanying notes are an integral part of these statements.
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CLIENTELE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(229,120) $ (79,495)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities-
Depreciation and amortization 122,326 67,374
Provision for bad debts 29,683 18,760
Loss on sale of equipment 10,027 --
Changes in operating assets and liabilities-
Decrease (increase) in accounts receivable 41,333 (407,568)
Decrease (increase) in prepaids and other 38,456 (39,656)
Increase in accounts payable 29,730 75,921
(Decrease) increase in accrued commissions and bonuses (43,450) 44,500
Increase in other accrued liabilities and loans from
stockholders 68,018 129,118
Increase in deferred revenue 81,922 193,351
--------- ---------
Net cash provided by operating activities 148,925 2,305
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (20,866) (89,623)
Proceeds on sale of equipment 15,682 --
--------- ---------
Net cash used in investing activities (5,184) (89,623)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds on line of credit (65,000) 145,000
Repayments on capital lease obligations (99,641) (55,541)
Issuance of common stock 14,544 2,500
--------- ---------
Net cash (used in) provided by financing
activities (150,097) 91,959
NET (DECREASE) INCREASE IN CASH (6,356) 4,641
CASH, beginning of year 18,411 13,770
--------- ---------
CASH, end of year $ 12,055 $ 18,411
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equipment obtained under capital lease obligations $ 23,817 $ 180,702
SUPPLEMENTAL DISCLOSURE CASH FLOW ACTIVITY:
Cash paid for interest $ 53,311 $ 26,202
The accompanying notes are an integral part of these statements.
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CLIENTELE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. THE COMPANY:
------------
Clientele Software, Inc. (the Company) was incorporated on December 4, 1995. The
Company was formerly called AnswerSet Corporation which had an incorporation
date of September 1, 1990. In January 1996, all of the assets and liabilities of
AnswerSet Corporation were merged into the Company. The Company develops
customer interaction software for mid-sized enterprises operating in
PC/LAN-based and client/server computing environments. The Company has
experienced operating losses during the years ended December 31, 1996 and 1995.
Significant ongoing expenditures will be necessary to implement the Company's
business plan, including developing, maintaining and marketing its products. If
the Company is unable to generate sufficient sales revenue, management may be
required to curtail the Company's product development and other operations. It
is management's opinion that the Company will have sufficient financial
resources from operations to cover the cost of operations for the next year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Revenue Recognition
- -------------------
The Company generates revenues from licensing the rights to use its software
products. The Company also generates revenues from services such as postcontract
support, consulting and training provided to customers who license its products.
Revenues from software license agreements are recognized upon shipment of the
software. The software licenses include 90 days of postcontract support which is
bundled with the license fee. The Company recognizes the postcontract support
portion of license fees upon shipment of the product because the estimated cost
of providing such support is deemed to be insignificant and collection is
probable.
The Company sells one-year postcontract support at an additional cost. Revenues
from these contracts are recognized ratably over the term of the support period.
Revenues from consulting and training are recognized as services are performed.
Deferred revenue relates to contracts for postcontract support, training and
consulting which has been paid for by the customers prior to the performance of
those services.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. Property and equipment capitalized
under capital leases are recorded at the present value of the minimum lease
payments due over the lease term. Depreciation and amortization are provided
using the straight-line method over the estimated useful lives of the related
assets which range from three to five years.
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Capitalized Software Development Costs
- --------------------------------------
Research and development costs are generally charged to operations as incurred.
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have been
insignificant. Through December 31, 1996, all software development costs have
been expensed.
Advertising Costs
- -----------------
The Company expenses advertising costs in the period the advertising takes
place. Advertising costs included in prepaid expenses at December 31, 1996 and
December 31, 1995 were $20,050 and $0, respectively. Amounts charged to
advertising expense in 1996 and 1995 were $376,693 and $284,481, respectively.
Income Taxes
- ------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting For Income Taxes" (SFAS No. 109). This
pronouncement requires deferred tax assets and liabilities to be valued using
the enacted tax rates expected to be in effect when the temporary differences
are recovered or settled.
As of December 31, 1996 and 1995, the Company had recorded total deferred tax
assets of approximately $279,000 and $191,000, respectively, resulting primarily
from net operating loss and research and development carryforwards and cash
versus accrual basis of accounting. A valuation reserve has been recorded for
the entire amount of the deferred tax assets as of December 31, 1996 as they do
not satisfy the recognition criteria set forth in SFAS No. 109. Deferred tax
liabilities for 1996 and 1995 were insignificant.
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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consist of the following:
December 31,
----------------------
1996 1995
-------- --------
Computer equipment $ 313,488 $ 287,126
Furniture and other equipment 183,251 203,938
--------- ---------
496,739 491,064
Less- Accumulated depreciation and amortization (248,454) (139,427)
--------- ---------
$ 248,285 $ 351,637
========= =========
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4. LINE OF CREDIT:
---------------
The Company has a $400,000 revolving line of credit with a bank with interest at
the bank's prime rate plus 2.5% (10.75% at December 31, 1996). The line is
payable on demand and is secured by substantially all of the Company's assets
and advances are limited to 70% of eligible accounts receivable. Under the terms
of the agreement, the Company must maintain certain financial covenants. The
Company was in compliance with all financial covenants at December 31, 1996.
5. COMMITMENTS AND CAPITAL LEASE OBLIGATIONS:
------------------------------------------
The Company leases it's facility and certain equipment and furnishings under
noncancelable capital and operating leases. Office and equipment rent expense
under operating leases was $673,880 and $266,918 for the years ending December
31, 1996 and 1995, respectively.
Future minimum lease payments under the Company's capital and operating leases
as of December 31, 1996 are as follows:
Capital Operating
Leases Leases
-------- ----------
1997 $ 74,500 $ 672,097
1998 46,972 697,598
1999 38,245 674,055
2000 -- 666,727
2001 -- 116,857
Thereafter -- --
-------- ----------
Total minimum lease payments 159,717 $2,827,334
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Less- Amount representing interest 12,495
--------
Present value of lease payments 147,222
Less- Current portion 55,805
--------
Long-term portion $ 91,417
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6. STOCKHOLDER LOANS:
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The Company has interest bearing and noninterest bearing stockholder loans
outstanding at December 31, 1996 and 1995. The interest bearing loans are
payable upon demand after December 31, 1997 and the noninterest bearing loans
are due upon cessation of employment of the stockholders. The amounts
outstanding under these loans at December 31, 1996 and 1995 are $182,516 and
$176,324, respectively.
7. STOCK OPTION PLANS:
-------------------
The Company has a Stock Option Plan (the Option Plan) under which incentive and
nonqualified stock options may be granted to its employees, officers, directors
and others. Under the Option Plan, 2,000,000 shares of the Company's common
stock have been reserved for issuance. As of December 31, 1996, 823,806 shares
remained available for future grant. Generally, incentive stock options are
granted at fair value and are subject to the employee's continued employment.
Options granted under the Option Plan generally expire five years after the date
of grant and generally vest over a four-year period.
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During 1995, the Financial Accounting Standards Board issued SFAS 123 which
defines a fair value based method of accounting for an employee stock option or
similar equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed in APB 25. Entities electing to remain with
the accounting in APB 25 must make pro forma disclosures of net income (loss)
and, if presented, earnings (loss) per share, as if the fair value based method
of accounting defined in the statement had been applied.
The Company has elected to account for its stock-based compensation plan under
APB 25. However, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during 1996 and 1995 using the Black-Scholes
option-pricing model as prescribed by SFAS 123, using the following weighted
average assumptions for grants in 1996 and 1995:
Risk-free interest rate 6%
Expected dividend yield 0%
Expected life 5 years
The total value of options granted during 1996 and 1995 would be amortized on a
pro forma basis over the vesting period of the options. Options generally vest
equally over four years. If the Company had accounted for these plans in
accordance with SFAS 123, the Company's net loss would have increased as
reflected in the following pro forma amounts:
Year Ended
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1996 1995
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Net loss:
As reported $(229,120) $(79,495)
Pro forma (286,875) (86,845)
The Company has not and does not currently contemplate any plans to issue equity
instruments other than options to purchase Common Stock of the Company. A
summary of the status of the Company's stock option plans and changes are
presented in the following table:
Year Ended December 31,
-------------------------------------------
1996 1995
------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------- -------- ------- --------
Options outstanding at beginning of year 1,033,500 $ .167 540,000 $ .115
Granted 779,162 .584 508,500 .223
Exercised (156,625) (.092) (15,000) (.167)
Canceled (696,468) (.214) -- --
--------- ------ --------- ------
Options outstanding at end of year 959,569 $ .484 1,033,500 $ .167
========= ====== ========= ======
Exercisable at end of year 345,944 $ .180 251,250 $ .090
========= ====== ========= ======
Weighted average fair value of options granted $ .150 $ .060
====== ======
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The following table sets for the exercise price range, number of shares
outstanding at December 31, 1996, weighted average remaining contractual life,
weighted average exercise price, number of exercisable shares and weighted
average exercise price of exercisable options by groups of similar price and
grant date:
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Outstanding Remaining Average Average
Exercise Shares at Contractual Exercise Exercisable Exercise
Price Range December 31, 1996 Life (Years) Price Options Price
-------------- ----------------- -------------- -------- ----------- --------
$ .083 135,000 1.53 $ .083 108,750 $.083
.167 157,500 2.87 .167 78,750 .167
.250 - .280 456,069 4.16 .251 158,444 .254
1.430 - 1.500 211,000 4.89 1.480 -- --
8. 401(K) RETIREMENT PLAN:
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The Company offers a 401(k) Retirement Plan (the 401(k) Plan). All employees who
are 21 years of age or older are entitled to participate in the 401(k) Plan
after completing 30 days of employment with the Company. Under the 401(k) Plan,
eligible employees are entitled to make tax-deferred contributions and the
Company may, at its discretion, make matching or discretionary contributions.
For the years ended December 31, 1996 and 1995, no matching or discretionary
contributions were made by the Company to the 401(k) Plan.
9. STOCK SPLIT:
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In February 1996, the Company effected a 3 for 1 stock split in the form of a
dividend. As such, share information for all periods presented has been restated
to reflect this split.
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