SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): August 16, 2001
I-many, Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
000-30883 01-0524931
---------------------------- ----------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
537 Congress Street
5th Floor
Portland, Maine 04101-3353
---------------------------------------- ----------------------------------
(Address of Principal Executive Offices) (Zip Code)
(207) 774-3244
------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
-----------------
(Former Name or Former Address, if Changed Since Last Report)
The undersigned Registrant hereby amends the following items of its
Current Report on Form 8-K filed August 30, 2001 for the event of August 16,
2001.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 16, 2001, the Registrant completed its acquisition of
Provato, Inc., a California corporation ("Provato"), pursuant to an Amended and
Restated Agreement and Plan of Merger, dated as of June 26, 2001 (the "Merger
Agreement"), by and among the Registrant, Lunalight, Inc., a wholly-owned
subsidiary of the Registrant ("Merger Sub"), and Provato. At the effective time
of the merger (the "Merger"), Merger Sub was merged with and into Provato, which
is continuing in existence as the surviving corporation.
The purchase price of the transaction consisted of 1,975,739 shares of
the Registrant's common stock valued at approximately $11.2 million, a warrant
to purchase 4,546 shares of the Registrant's stock valued at approximately
$25,000, the assumption of approximately $1.1 million of liabilities, and $1.7
million in convertible notes issued by the registrant to Provato during the two
month period immediately preceding the merger. In connection with the
acquisition, the Registrant has incurred transaction costs of $1.8 million,
which includes approximately $1.2 million of Provato's merger-related costs.
The Merger is intended to qualify as a tax-free reorganization within
the meaning of Sections 361 and 368 of the Internal Revenue Code of 1986, as
amended. The Registrant expects to treat the Merger as a purchase for accounting
purposes. The Registrant used authorized but previously unissued shares of its
common stock as consideration in the Merger.
The terms of the Merger Agreement and the Merger were determined on the
basis of "arm's-length" negotiations among the parties. The board of directors
of the Registrant and the board of directors and the stockholders of Provato
approved the Merger Agreement and the Merger. Prior to the execution of the
Merger Agreement, none of the Registrant, its affiliates, officers or directors
or any associate of any such officer or director, had any material relationship
with Provato or any of Provato's other stockholders.
Prior to the merger, Provato provided solutions for improving the value
of negotiated relationships between businesses. Provato focused on delivering
contract management and compliance solutions to Fortune 1000 companies in
contract-intensive industries like Consumer Packaged Goods, Electronics,
Aerospace, Telecommunications, and Financial Services. The Registrant currently
intends to continue to use the tangible assets of Provato and its intellectual
property substantially in the same manner in which they were used by Provato
immediately prior to the Merger.
The foregoing discussion of the Merger Agreement does not purport to be
complete and is qualified by reference to the full text of the Merger Agreement,
which is filed herewith.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
The following financial statements of Provato and the notes related
thereto are filed herewith:
(i) audited balance sheets as of December 31, 1999 and 2000 and
unaudited June 30, 2001;
(ii) audited statements of operations for the years ended December 31,
1999 and 2000 and unaudited for the six months ended June 30, 2000
and 2001;
(iii) audited statements of stockholders' deficit for the years ended
December 31, 1999 and 2000 and unaudited for the six months ended
June 30, 2001; and
(iv) audited statements of cash flows for the years ended December 31,
1999 and 2000 and unaudited for the six months ended June 30,
2000 and 2001.
(B) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial
statements of the Registrant and Provato and the notes related thereto are filed
herewith:
(i) balance sheet as of June 30, 2001; and
(ii) statements of operations for the year ended December 31, 2000 and
for the six months ended June 30, 2001.
(C) EXHIBITS
The Exhibits filed as part of this Current Report on Form 8-K/A are
listed on the Exhibit Index immediately preceding such Exhibits, which Exhibit
Index is incorporated herein by reference. Documents identified by footnotes are
not being filed herewith and, pursuant to Rule 12b-32 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), reference is made to such
documents as previously filed as exhibits with the Securities and Exchange
Commission. The Registrant's file number under the Exchange Act is 000-30883.
Omitted schedules shall be furnished to the Securities and Exchange Commission
upon request.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Provato:
We have audited the accompanying balance sheets of Provato (the
Company) as of December 31, 1999 and 2000, and the related statements of
operations, shareholders' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 Provato as of
December 31, 1999 and 2000, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
--------------
San Francisco, California
March 28, 2001, except as to note 8, which is as of August 16, 2001
PROVATO
BALANCE SHEETS
DECEMBER 31,
------------------------------ JUNE 30,
1999 2000 2001
------ ------ ------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $3,907 $5,659,009 $25
Accounts receivable 362,300 78,638 --
Prepaid expenses and other current assets 142,787 223,375 150,021
------------ ------------ ------------
508,994 5,961,022 150,046
Property and equipment, net 763,154 969,814 704,500
Other assets 139,678 122,398 608,024
------------ ------------ ------------
$1,411,826 $7,053,234 $1,462,570
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable $ -- $ -- $150,000
Accounts payable 697,903 572,253 593,193
Deferred revenue 272,225 60,286 13,327
Capital lease obligation - short-term 144,062 151,129 80,702
Other current liabilities 332,015 609,670 387,501
------------ ------------ ------------
Total current liabilities 1,446,205 1,393,338 1,224,723
Long-term lease obligation 170,035 18,906 66,757
Stockholders' equity (deficit):
Series A preferred stock, par value of $0.001,
liquidating preference of $1.00 per share; 3,000,000
shares authorized, issued and outstanding as
of December 31, 1999 and 2000 and June 30, 2001 2,990,740 2,990,740 2,990,740
Series B preferred stock, par value of $0.001, liquidating
preference of $1.20 per share; 4,500,000 shares
authorized, 4,166,631 shares issued and outstanding
as of December 31, 1999 and 2000 and June 30, 2001 4,999,998 4,999,998 4,999,998
Series C preferred stock, par value of $0.001,
liquidating preference of $4.83 per share; 4,500,000
shares authorized, 0, 3,738,039 and 3,742,102 shares
issued and outstanding as of December 31, 1999 and
2000 and June 30,2001, respectively -- 18,097,020 18,116,650
Common stock, par value of $0.001; 18,000,000 shares
authorized; 3,083,471, 2,814,392 and 2,945,509 shares
issued and outstanding as of December 31, 1999
and 2000 and June 30, 2001, respectively 28,941 91,344 113,511
Accumulated deficit (8,224,093) (20,538,112) (26,049,809)
------------ ------------ ------------
Total stockholders' equity (deficit) (204,414) 5,640,990 171,090
------------ ------------ ------------
Total liabilities and stockholders'
equity (deficit) $1,411,826 $7,053,234 $1,462,570
============ =========== ============
See accompanying notes to financial statements.
PROVATO
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------- -----------------------------
1999 2000 2000 2001
------ ------ ------ ------
(UNAUDITED)
Software license fees $326,799 $666,032 $666,032 $ --
Professional services 203,991 1,374,636 843,011 107,959
-------------- -------------- -------------- --------------
Total revenues 530,790 2,040,668 1,509,043 107,959
Cost of revenues:
Software license fees 32,000 65,971 42,880 21,862
Professional services 232,610 1,101,546 624,248 166,754
-------------- -------------- -------------- --------------
Total cost of revenues 264,610 1,167,517 667,128 188,616
-------------- -------------- -------------- --------------
Gross profit 266,180 873,151 841,915 (80,657)
-------------- -------------- -------------- --------------
Expenses:
Selling and marketing 1,686,132 6,203,570 2,097,152 2,748,751
Research and development 2,803,830 4,219,632 1,795,933 1,725,471
General and administrative 1,597,819 2,626,391 1,303,295 640,617
Depreciation and amortization 227,675 481,049 193,910 354,695
-------------- -------------- -------------- --------------
Total expenses 6,315,456 13,530,642 5,390,290 5,469,534
-------------- -------------- -------------- --------------
Loss from operations (6,049,276) (12,657,491) (4,548,375) (5,550,191)
Interest income 67,153 441,684 165,678 67,385
Interest expense (75,786) (93,271) (73,679) (29,685)
Other income (expense) -- (4,941) 174 794
------------- -------------- ------------- --------------
Net loss ($6,057,909) ($12,314,019) ($4,456,202) ($5,511,697)
============= ============== ============= ===============
See accompanying notes to financial statements.
PROVATO
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
SERIES A PREFERRED STOCK SERIES B PREFERRED STOCK SERIES C PREFERRED STOCK
--------------------------- ------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 3,000,000 $2,990,740 -- $ -- -- $ --
Issuance of preferred stock -- -- 4,166,631 4,999,998 -- --
Exercise of warrants -- -- -- -- -- --
Exercise of options -- -- -- -- -- --
Issuance of options for services -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Balance, December 31, 1999 3,000,000 2,990,740 4,166,631 4,999,998 -- --
Issuance of preferred stock -- -- -- -- 3,738,039 18,054,728
Issuance costs of preferred stock -- -- -- -- -- (11,423)
Exercise of options -- -- -- -- -- --
Repayment/forgiveness of loans
receivable -- -- -- -- -- --
Issuance of options for services -- -- -- -- -- --
Issuance of common stock for
services -- -- -- -- -- --
Issuance of warrants for bank
financing -- -- -- -- -- 28,585
Issuance of warrants for
equipment lease commitment -- -- -- -- -- 25,130
Repurchase of restricted stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Balance, December 31, 2000 3,000,000 2,990,740 4,166,631 4,999,998 3,738,039 18,097,020
Issuance of preferred stock
(unaudited) -- -- -- -- 4,063 19,630
Issuance of options for services
(unaudited) -- -- -- -- -- --
Exercise of options and warrants
(unaudited) -- -- -- -- -- --
Net loss (unaudited) -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Balance, June 30, 2001 (unaudited) 3,000,000 $2,990,740 4,166,631 $4,999,998 3,742,102 $18,116,650
============= ============= ============= ============= ============= =============
COMMON STOCK STOCKHOLDERS'
-------------------------------- ACCUMLULATED EQUITY
SHARES AMOUNT DEFICIT (DEFICIT)
---------- ---------- ------------- ------------
Balance, December 31, 1998 2,941,250 $11,235 ($2,166,184) $835,791
Issuance of preferred stock -- -- -- 4,999,998
Exercise of warrants 36,250 3,625 -- 3,625
Exercise of options 105,917 13,508 -- 13,508
Issuance of options for services -- 573 -- 573
Net loss -- -- (6,057,909) (6,057,909)
------------- ------------- ------------- -------------
Balance, December 31, 1999 3,083,417 28,941 (8,224,093) (204,414)
Issuance of preferred stock -- -- -- 18,054,728
Issuance costs of preferred stock -- -- -- (11,423)
Exercise of options 148,500 20,630 -- 20,630
Repayment/forgiveness of loans
receivable -- 10,000 -- 10,000
Issuance of options for services -- 14,547 -- 14,547
Issuance of common stock for
services 16,850 21,063 -- 21,063
Issuance of warrants for bank
financing -- -- -- 28,585
Issuance of warrants for
equipment lease commitment -- -- -- 25,130
Repurchase of restricted stock (434,375) (3,837) -- (3,837)
Net loss -- -- (12,314,019) (12,314,019)
------------- ------------- ------------- -------------
Balance, December 31, 2000 2,814,392 91,344 (20,538,112) 5,640,990
Issuance of preferred stock
(unaudited) -- -- -- 19,630
Issuance of options for services
(unaudited) -- 6,250 -- 6,250
Exercise of options and warrants
(unaudited) 131,117 15,917 -- 15,917
Net loss (unaudited) -- -- (5,511,697) (5,511,697)
------------- ------------- ------------- -------------
Balance, June 30, 2001 (unaudited) 2,945,509 $113,511 ($26,049,809) $171,090
============= ============= ============= =============
See accompanying notes to financial statements.
PROVATO
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------
1999 2000 2000 2001
------ ------ ------ ------
(UNAUDITED)
Cash flows from operating activities:
Net loss ($6,057,909) ($12,314,019) ($4,456,202) ($5,511,697)
Adjustments to reconcile net loss to net cash used in
operating activities:
Services provided in exchange for options and
common stock 573 35,610 -- 6,250
Amortization of interest expense for warrants issued
in connection with financing arrangements 992 31,725 28,585 12,565
Other noncash compensation -- 60,000 -- --
Depreciation and amortization 227,675 481,049 193,910 354,695
Changes in operating assets and liabilities:
Accounts receivable (362,300) 283,662 (361,075) 78,638
Prepaids and other assets (119,583) (41,318) (67,076) (427,121)
Accounts payable 588,347 (125,650) (195,553) 20,940
Deferred revenue 272,225 (211,939) (174,095) (46,959)
Other liabilities 245,899 227,655 131,784 (222,169)
------------ ------------ ----------- ------------
Net cash used in operating activities (5,204,081) (11,573,225) (4,899,722) (5,734,858)
------------ ------------ ----------- ------------
Cash flows used in investing activities - purchase of
equipment (596,523) (687,709) (492,228) (17,527)
------------ ------------ ----------- ------------
Cash flows from financing activities:
Proceeds from bank borrowing and warrants issued -- 1,360,000 1,360,000 --
Repayment of bank borrowing -- (1,360,000) (1,360,000) --
Proceeds from note payable -- -- -- 150,000
Repayment on capital leases (75,254) (144,062) (79,627) (92,146)
Proceeds from exercise of options and warrants 17,133 20,630 10,862 15,917
Proceeds from issuance of preferred stock, net 4,999,998 18,043,305 17,791,874 19,630
Repurchase of restricted stock -- (3,837) -- --
------------ ------------ ----------- ------------
Net cash provided by financing activities 4,941,877 17,916,036 17,723,109 93,401
------------ ------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents (858,727) 5,655,102 12,331,159 (5,658,984)
Cash and cash equivalents at beginning of year 862,634 3,907 3,907 5,659,009
------------ ------------ ----------- ------------
Cash and cash equivalents at end of year $3,907 $5,659,009 $12,335,066 $25
============ ============ =========== ============
Supplemental disclosure of noncash investing and
financing activities:
Property and equipment acquired under capital lease
obligation $59,164 $ -- $ -- $71,854
============ ============ =========== ============
Issuance of preferred stock warrants in connection with
equipment lease commitment $ -- $25,130 $ -- $ --
============ ============ =========== ============
Cash paid during the year for interest $75,782 $61,546 $45,094 $29,685
============ ============ =========== ============
See accompanying notes to financial statements.
PROVATO
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) ORGANIZATION
Provato (the Company) is a privately owned company incorporated in
1997 in the state of California. The Company provides a
business-to-business platform for delivering secure and tailored
information to channel partners, suppliers and customers.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of June 30, 2001 and the statements
of operations, cash flows and stockholders equity (deficit) for the six
months ended June 30, 2000 and 2001 are unaudited, but, in the opinion
of management, include all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of results for
these interim periods. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have been
omitted, although the Company believes that the disclosures included
are adequate to make the information presented not misleading. The
results of operations for the six months ended June 30, 2001 are not
necessarily indicative of the results to be expected for the entire
fiscal year or any other interim period.
(b) REVENUE RECOGNITION
The Company's revenue recognition policies are in accordance with
Statement of Position (SOP) 97-2 and SOP 98-9, SOFTWARE REVENUE
RECOGNITION. Software license fees are recognized when the software
product is shipped. If collectibility of the fee from the customer is
not reasonably assured, the Company records the license fees when
collected. Professional services revenues are recognized as such
services are performed. Maintenance revenues, including revenues
bundled with software agreements which entitle the customers to
technical support, are deferred and recognized ratably over the related
contract period, generally 12 months. Revenues recognized from
multiple-element software arrangements are allocated to each element of
the arrangement based on the fair values of the elements, such as
software products, upgrades, enhancements, post-contract customer
support, installation, or training. When arrangements contain multiple
elements and vender-specific objective evidence exists for all
undelivered elements, the Company recognizes revenue for the delivered
elements using the residual method.
(c) STOCK-BASED COMPENSATION
The Company uses the intrinsic value-based method, consistent with
Accounting Principles Board (APB) Opinion No. 25 to account for all of
its employee stock-based compensation plans.
Stock-based awards granted to nonemployees are accounted for pursuant
to the fair value method. The associated expense is recognized by the
Company over the period the services are performed by the nonemployees.
(d) CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities, at the time of purchase, of three months or less.
PROVATO
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated
depreciation. Furniture, fixtures, and computer and office equipment
are depreciated/amortized using the straight-line method over the two-
to five-year estimated useful lives of the assets. Property and
equipment held under capital leases and leasehold improvements are
amortized straight-line over the shorter of lease term or estimated
useful life of the asset.
(f) RESEARCH AND DEVELOPMENT
All research and development costs are expensed as incurred and include
salaries and expenses related to employees who conduct research and
development activities.
(g) SOFTWARE DEVELOPMENT COSTS
Under Statement of Financial Accounting Standards (SFAS) No. 86,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR
OTHERWISE MARKETED, software development costs are capitalized
beginning when a product's technological feasibility has been
established using the working model method and ending when a product is
available for general release to customers. To date, the Company has
not capitalized any software development costs because all costs
meeting the requirements of SFAS No. 86 have not been significant.
(h) INCOME TAXES
The Company accounts for income taxes under the asset and liability
method with deferred income tax assets and liabilities recognized for
the future tax consequences of differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Deferred tax assets are recognized for deductible
temporary differences, with a valuation allowance established against
the resulting assets to the extent it is more likely than not that the
related tax benefit will not be realized.
(i) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(j) ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets held and used
is measured by a comparison of the carrying amount of an asset to
future net undiscounted cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of their carrying amount or fair value
less cost to sell.
PROVATO
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(k) COMPREHENSIVE LOSS
The Company has no significant components of other comprehensive loss
and, accordingly, the comprehensive loss is the same as net loss for
all periods presented.
(l) RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation (FIN) No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS
INVOLVING STOCK COMPENSATION AND INTERPRETATION OF APB OPINION NO. 25.
FIN No. 44 provides guidance on the accounting for certain stock option
transactions and subsequent amendments to stock option transactions.
FIN No. 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998 or January
12, 2000. The adoption of FIN No. 44 did not have a material effect on
the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION IN
FINANCIAL STATEMENTS, which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed
with the SEC. Subsequently, the SEC released SAB No. 101B, which
delayed the implementation date of SAB No. 101 for the Company until
the fourth quarter of 2000. The adoption of SAB No. 101 has not had a
significant impact on the Company's financial position or results of
operations.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and hedging
activities. As amended by SFAS No. 137, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF EFFECTIVE DATE OF FASB
STATEMENT NO. 133, and SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, AN AMENDMENT OF FASB
STATEMENT NO. 133. SFAS No. 133 is effective for all quarters and
fiscal years beginning after June 15, 2000. The Company adopted SFAS
Nos. 133 and 138 effective January 1, 2001. The Company does not
believe that the adoption of SFAS Nos. 133 and 138 will have a material
effect on the Company's financial position or results of operations.
In July 2001, the FASB issued SFAS No. 141, BUSINESS COMBINATIONS and
SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141, which
requires all business combinations to be accounted for using the
purchase method, is effective for all business combinations initiated
after June 30, 2001. SFAS No. 142 applies to goodwill and intangible
assets acquired after June 30, 2001, as well as to goodwill and
intangible assets previously acquired. Under this statement, goodwill
and other certain intangible assets deemed to have an infinite life
will no longer be amortized. Instead, these assets will be reviewed for
impairment on a periodic basis. This statement is effective for the
Company on July 1, 2001 with respect to any acquisitions completed
after June 30, 2001, and on January 1, 2002 for all other goodwill and
intangible assets. The adoption of SFAS Nos. 141 and 142 will not have
a material effect on the Company's financial position or results of
operations.
PROVATO
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) PROPERTY AND EQUIPMENT
As of December 31, 1999 and 2000 and June 30, 2001, property and
equipment consisted of the following:
DECEMBER 31,
---------------------- JUNE 30,
1999 2000 2001
------- -------- -----------
(UNAUDITED)
Leasehold improvements $0 $156,926 $156,926
Computer equipment 420,903 667,638 676,531
Furniture and fixtures 338,945 503,191 503,191
Purchased software 268,048 387,850 468,338
--------- --------- ---------
1,027,896 1,715,605 1,804,986
Accumulated depreciation and amortization (264,742) (745,791) (1,100,486)
--------- --------- ---------
Property and equipment, net $763,154 $969,814 $704,500
========= ========= =========
As of December 31, 1999 and 2000 and June 30, 2001, the Company had
equipment under capital lease agreements of $394,878, $394,878 and
$466,732, respectively, and related accumulated amortization of $160,857,
$316,777 and $348,608, respectively.
(4) BANK BORROWING
In January 1998, the Company signed a loan agreement with a bank to
borrow an aggregate credit line of $750,000, which includes equipment
advances and $140,000 of letter of credit reserve. In July 1999, the
$610,000 credit line matured and the Company extended the $140,000 letter
of credit to January 2001. As of December 31, 1999 and 2000 and June 30,
2001, the Company had $0 borrowings under this agreement.
In January 2000, the Company entered into a bridge facility with a bank
for $1,360,000. Borrowings under the facility carry interest at prime
rate plus 1%. Upon issuance of Series C preferred stock, the Company
repaid the bridge loan in full. The facility was converted to a revolving
line not to exceed the lesser of $1,140,000 or the Company's borrowing
base, as defined. In connection with the loan agreement, the Company
issued warrants to the bank to purchase 40,624 shares of Series B
preferred stock at $1.20 per share. Under the terms of the financing
agreement, upon completion of an equity issuance prior to March 31, 2000,
warrants converted to 15,527 warrants to purchase Series C preferred
stock at $4.83 per share.
(5) STOCKHOLDERS' EQUITY (DEFICIT)
(a) CONVERTIBLE PREFERRED STOCK
During 2000, 1999 and 1997, the Company issued 3,742,102,
4,166,631, and 3,000,000 shares of Series C, Series B and Series A
convertible preferred stock, respectively, to investors at $4.83,
$1.20, and $1.00 per share, respectively.
PROVATO
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Dividend Provisions
The holders of shares of convertible preferred stock are entitled
to receive dividends, when, and if declared by the Company's Board
of Directors, at a rate of 8% per share per annum adjusted to
reflect stock split, dividends, and recapitalizations. No
dividends are available to common shareholders until the
declaration of dividends to the holders of preferred stock.
Liquidation Preference
In the event of any liquidation, dissolution, or winding up of the
Company, either voluntary or involuntary, the holders of Series A,
Series B and Series C convertible preferred stock are entitled to
a liquidation preference of $1.00, $1.20 and $4.83 per share,
respectively, plus all declared but unpaid dividends. Any
remaining assets shall be distributed ratably among the holders of
common stock and preferred stock; however, such pro rata
distributions to preferred holders shall cease if the holders
receive three times their original investments. A liquidation,
dissolution or winding up of the Company shall be deemed to occur
and include (i) the Company's sale of all or substantially all of
its assets or (ii) any transaction or series of related
transactions which results in the holders of outstanding voting
equity securities of the Company immediately prior to such
transaction holding less than 50% of voting equity securities of
the surviving entity.
Right to Convert
Each share of convertible preferred stock is convertible into
common stock on a one for one basis, subject to adjustments for
stock dividends, stock splits or recapitalizations. Conversion is
automatic upon the earlier of (i) the closing of a public offering
resulting in gross proceeds in excess of $15 million and the
initial share price equals or exceeds $3.60 per share or (ii) the
election of the holders of a majority of the outstanding shares of
preferred stock.
Voting Rights
The holders of convertible preferred stock shall have voting
rights and powers equal to the voting rights and powers of the
common shares. Each holder of convertible preferred stock is
entitled to the number of votes equal to the number of common
shares into which such preferred stock could be converted.
(b) STOCK OPTION PLAN
The Company established a stock option plan (the Option Plan)
during 1998. The Option Plan permits the Company to grant
employees, outside directors, and consultants qualified stock
options, nonstatutory stock options or stock purchase rights to
purchase up to 3,350,000 shares of the Company's common stock.
Options generally vest 25% with respect to the number granted upon
the first anniversary date of the option grant and the remainder
vests in equal monthly installments over the 36 months thereafter.
PROVATO
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
A summary of stock option plan activity from October 7, 1997
(inception) to June 30, 2001 is presented below:
Options Number of
available for options Weighted-average
grant outstanding exercise price
----------------- ---------------- ------------------
Balance, December 31, 1998 832,000 268,000 $ 0.10
Additional shares reserved 1,145,000 -- --
Options granted (936,894) 936,894 0.14
Exercised -- (105,917) 0.13
Options forfeited 203,917 (203,917) 0.12
----------- ------------- ------------
Balance, December 31, 1999 1,244,023 895,060 0.13
----------- ------------- ------------
Additional shares reserved 1,000,000 -- --
Options granted (1,935,889) 1,935,889 0.93
Exercised -- (148,500) 0.14
Shares repurchased 34,375 -- 0.10
Options forfeited 718,394 (718,394) 0.81
----------- ------------- ------------
Balance, December 31, 2000 1,060,903 1,964,055 0.66
----------- ------------- ------------
Options granted (343,000) 343,000 1.25
Exercised -- (97,516) 1.25
Options forfeited 724,630 (724,630) 1.03
----------- ------------- ------------
Balance, June 30, 2001 (unaudited) 1,442,533 1,484,909 $ 0.65
=========== ============= ============
The weighted-average remaining contractual life of the stock
options outstanding as of December 31, 1999 and 2000 and June 30,
2001 was 8.65, 9.11 and 8.68 years, respectively, with exercise
prices ranging from $0.10 to $1.25. There were 79,301, 351,493 and
614,003 options exercisable as of December 31, 1999 and 2000 and
June 30, 2001, respectively, with weighted-average exercise prices
of $0.10, $0.16 and $0.48, respectively.
The Company uses the intrinsic-value method prescribed by APB No.
25 in accounting for its stock-based compensation arrangements for
employees whereby compensation cost is recognized to the extent
that the fair value of the underlying common stock exceeds the
exercise price of the stock options at the date of grant. Options
were granted at the estimated fair value of the Company's common
stock, as determined by the Board of Directors, and accordingly,
no compensation cost had been recognized for options granted to
employees.
Had compensation cost for stock options granted to employees been
determined consistent with the fair value approach set forth in
SFAS No. 123, the Company's reported net loss for the years ended
December 31, 1999 and 2000 would not have been materially
impacted. The fair value of options granted is estimated to be
approximately $0.04 per share in 1999 and 2000 and $0.20 in 2001
using the minimum value method with the following weighted-average
assumptions: no dividend yield; risk-free interest rate of 5.50%
in 1999 and 2000 and 4.50% in 2001; and an expected life of four
years.
PROVATO
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
During fiscal 1999 and 2000, the Company granted 20,000 options to
nonemployee consultants. These options vest over two years. The
Company recognized $573 and $14,547 of compensation expense in
fiscal 1999 and 2000, respectively, related to these nonemployee
option grants. The fair value of the options granted to
nonemployees in fiscal 1999 and 2000 was estimated using the
Black-Scholes option pricing model with the following
weighted-average assumptions: volatility of 50%; no dividend
yield; risk-free interest rate of 5.5%; and an expected life of
ten years.
(c) WARRANTS
In connection with the bridge facility as discussed in note 4, the
Company issued warrants to the bank to purchase 15,527 shares of
Series C preferred stock at an exercise price of $4.83 per share.
The warrants are immediately exercisable and expire January 12,
2007. The weighted-average fair value of the warrants issued was
$28,585 at the grant date, which was recorded as interest expense
in the year as amounts advanced under the bridge facility were
repaid in March 2000. The fair value of the warrants was estimated
using the Black-Scholes option pricing model with the following
weighted-average assumptions: volatility of 50%; no dividend
yield; risk-free interest rate of 5.5%; and an expected life of
seven years.
During fiscal 2000, the Company granted 12,422 warrants to
purchase shares of Series C preferred stock at an exercise price
of $4.83 per share in connection with a lease commitment which
expires November 16, 2001. The warrants are immediately
exercisable and expire in five years. The weighted-average fair
value of warrants issued was $25,130 at the grant date, which was
recorded in prepaid expenses and other current assets and is being
amortized over the term of the lease commitment. As of December
31, 2000, the Company recognized $3,140 in interest expense. The
fair value of warrants was estimated using the Black-Scholes
option pricing model with the following weighted-average
assumptions: volatility of 50%; no dividend yield; risk-free
interest rate of 5.5%; and an expected life of five years.
(6) INCOME TAXES
The Company's income tax expense as of December 31, 1999 and 2000
differed from the amounts computed by applying the U.S. federal income
tax rate of 34% to pretax loss as a result of the following:
1999 2000
------------------- ------------------
Statutory tax at 34% $ (2,059,416) (4,186,766)
State income tax, net of federal tax effect 1,061 4,000
Nondeductible expenses 34,644 14,639
Unutilized net operating losses 2,023,711 4,168,127
------------------- ------------------
$ -- --
=================== ==================
PROVATO
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets (liabilities) as of December 31, 1999 and
2000 are presented below:
1999 2000
------------------- -------------------
Deferred tax assets:
Accruals and reserves $ 67,778 280,958
Tangibles and intangibles 187,500 560,172
R&D credit carryforwards 278,630 1,455,185
Net operating losses 2,966,070 7,194,415
------------------- -------------------
Total gross deferred tax assets 3,499,978 9,490,730
Deferred tax liabilities:
State taxes (546) (954)
Valuation allowance (3,499,432) (9,489,776)
------------------- -------------------
(3,499,978) (9,490,730)
------------------- -------------------
Net deferred tax assets $ -- --
=================== ===================
The Company established $9,489,776 valuation allowance as of December 31,
2000 due to the uncertainty of realizing future tax benefits from its net
operating loss carryforwards and other deferred tax assets. The net
change in the valuation allowance for the year ended December 31, 2000
was an increase of $5,990,344.
As of December 31, 2000, the Company had net operating loss (NOL)
carryforwards of approximately $18,000,000 and $17,000,000 for federal
and state income tax purposes, respectively. These carryforwards begin to
expire in 2012 for federal purposes and 2005 for state income tax
purposes. The Company also had federal and state research and development
tax credit carryforwards of approximately $734,000 and $721,000,
respectively. The federal research and development credits begin to
expire in 2012. The California research and development credits may be
carried forward indefinitely until utilized.
PROVATO
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Internal Revenue Code Section 382 and similar California rules place a
limitation on the amount of taxable income which can be offset by NOL
carryforwards after a change in control (generally greater than 50%
change in ownership). Due to these provisions, utilization of the NOL and
tax credit carryforwards may be limited.
(7) COMMITMENTS
The Company leases its facilities and equipment under noncancelable
operating and capital leases with terms exceeding one year. Rent expense
for the years ended December 31, 1999 and 2000 and the six months ended
June 30, 2001 was $223,511, $562,050 and $343,087, respectively.
Future minimum lease payments under the operating and capital leases as
of December 31, 2000 are:
Operating Capital
leases leases
------------------ -----------------
Years ending December 31:
2001 $ 529,802 168,123
2002 548,776 19,852
2003 558,121 --
2004 374,264 --
------------------ -----------------
Total minimum lease payments $ 2,010,963 187,975
==================
Less amount representing imputed interest 17,940
-----------------
Present value of minimum lease payments 170,035
Less current portion 151,129
-----------------
Long-term capital lease obligation $ 18,906
=================
In February 2001, the Company acquired computer equipment with a value of
$71,854 under a capital lease obligation. The capital lease has a term of
36 months with monthly payments of $2,284.25.
(8) SUBSEQUENT EVENTS
On June 26, 2001, the Company entered into an agreement to merge with
I-many, Inc., a Delaware corporation (I-many). In connection with this
agreement, the Company also entered into a Convertible Note Purchase
Agreement whereby the Company authorized the issuance and sale to I-many
of convertible notes totaling an amount not to exceed $2.0 million for a
time preceding a proposed merger with I-many. The notes bear interest at
prime rate plus 2% per annum and are due two years from the date of
issuance. As of August 15, 2001, $1.666 million has been advanced under
the agreement, at interest rates ranging from 8.75% - 9.00% per annum.
On August 16, 2001, the Company consummated the amended and restated
agreement dated June 26, 2001, whereby all of the issued and outstanding
capital stock of the Company was acquired by I-many. In connection with
the merger, I-many issued 1,975,739 shares of common stock to
shareholders of the Company. All outstanding stock options of the Company
were converted into options to purchase shares of I-many's common stock.
I-MANY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 2001
(IN THOUSANDS)
(UNAUDITED)
HISTORICAL PRO FORMA
----------------------- ---------------------------
COMBINED
I-MANY PROVATO ADJUSTMENTS COMPANY
-------- ---------- ---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $41,428 $ -- ($1,516)(1) $39,912
Accounts receivable, net of allowance 12,587 -- -- 12,587
Prepaid expenses and other current assets 912 150 -- 1,062
---------- ---------- --------- ----------
Total current assets 54,927 150 (1,516) 53,561
Property and Equipment, net 7,413 705 -- 8,118
Other Assets 2,703 608 (460)(1)(2) 2,851
Goodwill and Other Purchased Intangibles 23,801 -- 12,028(3) 35,829
---------- ---------- --------- ----------
Total assets $88,844 $1,463 $10,052 $100,359
========== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ -- $150 ($150)(1) $ --
Accounts payable 2,184 593 -- 2,777
Accrued expenses 5,160 469 1,465(2) 7,094
Deferred service revenue 6,704 13 -- 6,717
Unearned product revenue 1,115 -- -- 1,115
---------- ---------- --------- -----------
Total current liabilities 15,163 1,225 1,315 17,703
---------- ---------- --------- -----------
Capital Lease Obligations, net of
Current portion 90 67 -- 157
---------- ---------- --------- -----------
Stockholders' Equity:
Preferred stock -- 26,107 (26,107)(4) --
Common stock 3 114 (114)(4) 3
Additional paid-in capital 112,043 -- 11,208(1) 123,251
Deferred stock-based compensation (117) -- -- (117)
Stock subscription receivable 193 -- -- 193
Foreign currency translation account (3) -- - (3)
Accumulated deficit (38,528) (26,050) 23,750(3)(4) (40,828)
--------- ---------- --------- -----------
Total stockholders' equity 73,591 171 8,737 82,499
--------- ---------- --------- -----------
Total liabilities and stockholders' equity $88,844 $1,463 $10,052 $100,359
========= ========== ========= ===========
The accompanying notes are an integral part of these pro forma financial
statements.
I-MANY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 2001
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
The accompanying unaudited pro forma combined condensed balance sheet
has been prepared by combining the historical results of the Registrant and
Provato as of June 30, 2001 and reflects the following pro forma adjustments:
(1) Represents the issuance of 1,975,789 shares of Registrant common
stock at $5.66 per share, issuance of a common stock warrant
with a value of $25 and the payment of $1,666 in convertible
notes issued by the Registrant to Provato preceding the merger,
$150 of which had been disbursed as of June 30, 2001. The
amounts advanced to Provato pursuant to the convertible notes
were not expected to be recouped and are treated as an advance
payment of the merger consideration.
(2) Represents the accrual of estimated direct acquisition costs, in
addition to $310 in acquisition costs disbursed by the
Registrant as of June 30, 2001.
(3) Represents the estimated allocation of the purchase price to
in-process research and development, other intangible assets,
and goodwill and the related charge to operations for the
estimated value assigned to in-process research and
development. The Registrant is in the process of obtaining an
independent appraisal. The preliminary allocation of the
purchase price is as follows:
Consideration:
-------------
Stock and warrant $11,208
Cash advances 1,666
Transaction costs 1,775
-------
Total $14,649
=======
Preliminary Allocation:
----------------------
Net Tangible assets of Provato $ 321
In-process research & development 2,300
Acquired developed technology 6,700
Goodwill 5,328
-------
$14,649
=======
(4) Represents the elimination of Provato equity accounts.
I-MANY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
HISTORICAL PRO FORMA
----------------------- --------------------------
COMBINED
I-MANY PROVATO ADJUSTMENTS COMPANY
---------- ---------- ---------- ----------
Net Revenues:
Product $15,608 $666 $ -- $16,274
Services 20,859 1,375 -- 22,234
---------- --------- ---------- ---------
Total net revenues 36,467 2,041 -- 38,508
Cost of revenues 15,911 1,168 -- 17,079
---------- --------- ---------- ---------
Gross profit 20,556 873 -- 21,429
Operating expenses:
Sales and marketing 21,610 6,204 -- 27,814
Research and development 12,836 4,220 -- 17,056
General and administrative 4,943 2,626 -- 7,569
Depreciation and amortization 4,386 481 1,675 (1) 6,542
In-process research and development 2,400 -- -- 2,400
---------- --------- ---------- ---------
Total operating expenses 46,175 13,531 1,675 61,381
---------- --------- ---------- ---------
Loss from operations (25,619) (12,658) (1,675) (39,952)
Other income, net 1,444 344 -- 1,788
---------- ---------- ---------- ---------
Loss before income taxes (24,175) (12,314) (1,675) (38,164)
Provision for income taxes -- -- -- --
---------- ---------- ---------- ---------
Net loss (24,175) (12,314) (1,675) (38,164)
Accretion of dividends on redeemable
convertible preferred stock 544 -- -- 544
---------- --------- ---------- ---------
Net loss applicable to common stockholders ($24,719) ($12,314) ($1,675) ($38,708)
========== ========= ========== =========
Basic and diluted net loss per common share ($1.12) ($1.61)
========== =========
Weighted average common shares outstanding:
Basic and diluted 22,048 1,976 (2) 24,024
========== ========== =========
The accompanying notes are an integral part of these pro forma financial
statements.
I-MANY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
HISTORICAL PRO FORMA
----------------------- --------------------------
COMBINED
I-MANY PROVATO ADJUSTMENTS COMPANY
---------- ---------- ---------- ----------
Net Revenues:
Product $14,339 $ -- $ -- $14,339
Services 13,999 108 -- 14,107
---------- ------- ------ ----------
Total net revenues 28,338 108 -- 28,446
Cost of revenues 8,529 189 -- 8,718
---------- ------- ------ ----------
Gross profit 19,809 (81) -- 19,728
Operating expenses:
Sales and marketing 11,729 2,749 -- 14,478
Research and development 7,287 1,725 -- 9,012
General and administrative 4,150 641 -- 4,791
Depreciation 2,779 355 -- 3,134
Amortization of goodwill and other purchased
intangible assets 2,570 -- 838(1) 3,408
In-process research and development 1,000 -- -- 1,000
---------- ------- ------ ----------
Total operating expenses 29,515 5,470 838 35,823
---------- ------- ------ ----------
Loss from operations (9,706) (5,551) (838) (16,095)
Other income, net 1,012 39 -- 1,051
---------- ------- ------ ----------
Loss before income taxes (8,694) (5,512) (838) (15,044)
Provision for income taxes -- -- -- --
---------- ------- ------ ----------
Net loss (8,694 (5,512) (838) (15,044)
========== ======= ====== ==========
Basic and diluted net loss per common share ($0.26) ($0.42)
========== ==========
Weighted average common shares outstanding:
Basic and diluted 33,693 1,976(2) 35,669
========== ====== ==========
The accompanying notes are an integral part of these pro forma financial
statements.
I-MANY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000 AND SIX MONTHS ENDED JUNE 30, 2001
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
The accompanying unaudited pro forma combined condensed statements of
operations for the year ended December 31, 2000 and for the six months ended
June 30, 2001 have been prepared by combining the historical results of the
Registrant and Provato and reflect the following pro forma adjustments:
(1) Reflects amortization expense on acquired intangible assets other than
goodwill, based on their estimated useful life of 4 years. Goodwill is
not amortized in accordance with SFAS NO. 142.
(2) Represents the number of Registrant's shares issued to Provato
shareholders based on the terms of the Amended and Restated Agreement
and Plan of Merger.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
I-MANY, INC.
Date: October 30, 2001 By: /s/ Kevin F. Collins
----------------------------------------
Kevin F. Collins
CHIEF FINANCIAL OFFICER
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.1* Amended and Restated Agreement and Plan of Merger, dated as
of June 26, 2001, by and among the Registrant, Lunalight, Inc.,
a wholly-owned subsidiary of the Registrant and Provato, Inc.
23.1 Consent of KPMG LLP, Independent Auditors
99.1* Press Release dated August 20, 2001.
------------------------
* Previously filed with the Registrant's Current Report on Form 8-K dated August
30, 2001 and incorporated herein by reference.