EXHIBIT 99.01
BLAZE SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
Page
----
Report of Independent Accountants......................................... 2
Consolidated Balance Sheets............................................... 3
Consolidated Statements of Operations..................................... 4
Consolidated Statements of Net Parent Investment
/Stockholders' Equity (Deficit)......................................... 5
Consolidated Statements of Cash Flows..................................... 7
Notes to Consolidated Financial Statements................................ 8
</Table>
1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders/Owners
of Blaze Software, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of net parent
investment/stockholders' equity (deficit) and of cash flows present fairly, in
all material respects, the financial position of Blaze Software, Inc. and its
subsidiaries at March 31, 2000 and December 31, 2000, and the results of their
operations and their cash flows for the years ended March 31, 1999 and March 31,
2000 and for the periods from April 1, 2000 to September 29, 2000 and September
30, 2000 to December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. 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 auditing standards
generally accepted in the United States of America, 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 our opinion.
As discussed in Note 1 to the consolidated financial statements, on September
29, 2000, Brokat AG acquired the outstanding common stock of Blaze Software,
Inc. The consolidated financial statements for the period subsequent to
September 29, 2000 have been prepared on the basis of accounting arising from
the acquisition (successor period). The financial statements for the period from
April 1, 2000 to September 29, 2000 are presented on Blaze Software, Inc.'s
previous basis of accounting (predecessor period).
PricewaterhouseCoopers LLP
San Jose, California
October 26, 2001
2
BLAZE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PREDECESSOR SUCCESSOR
----------- --------------------------
MARCH 31, DECEMBER 31, JUNE 30,
2000 2000 2001
----------- ------------ ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 57,295 $ 23,722 $ --
Short-term investments 11,998 -- --
Accounts receivable, net of allowance for doubtful accounts of $512, $520 and
$247 at March 31, 2000, December 31, 2000 and June 30, 2001, respectively 4,939 6,995 3,750
Prepaid expenses and other current assets 1,108 2,105 961
--------- --------- ---------
Total current assets 75,340 32,822 4,711
Property and equipment, net 1,933 4,114 1,996
Goodwill and other intangible assets, net -- 441,755 --
Restricted cash 702 741 763
Deposits and other assets 384 406 421
--------- --------- ---------
Total assets $ 78,359 $ 479,838 $ 7,891
========= ========= =========
LIABILITIES AND NET PARENT INVESTMENT/
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,972 $ 796 $ 2,058
Accrued expenses and other current liabilities 7,446 9,245 5,782
Current portion of capital lease obligations 176 186 217
Deferred revenue 2,728 2,549 2,766
--------- --------- ---------
Total current liabilities 12,322 12,776 10,823
Long-term liabilities:
Capital lease obligations, net of current portion 256 116 28
Other long-term liabilities 12 78 --
--------- --------- ---------
Total liabilities 12,590 12,970 10,851
--------- --------- ---------
Commitments and contingencies (Note 12)
Net parent investment/stockholders' equity (deficit):
Common Stock, $0.0001 par value
Authorized: 200,000 shares at March 31, 2000
Issued and outstanding: 22,020 at March 31, 2000 2 -- --
Additional paid-in capital 144,642 -- --
Accumulated other comprehensive income (loss) 489 189 (508)
Unearned stock-based compensation (21,207) -- --
Net parent investment/accumulated deficit (58,157) 466,679 (2,452)
--------- --------- ---------
Total net parent investment/stockholders' equity (deficit) 65,769 466,868 (2,960)
--------- --------- ---------
Total liabilities and net parent investment/stockholders'
equity (deficit) $ 78,359 $ 479,838 $ 7,891
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
3
BLAZE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
PREDECESSOR SUCCESSOR
----------------------------------------------- -------------------------
FOR THE FOR THE FOR THE FOR THE
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
FOR THE YEAR ENDED APRIL 1, JANUARY 1, SEPTEMBER 30, JANUARY 1,
MARCH 31, 2000 TO 2000 TO 2000 TO 2001 TO
--------------------- SEPTEMBER 29, JUNE 30, DECEMBER 31, JUNE 30,
1999 2000 2000 2000 2000 2001
--------- --------- ------------ ---------- ----------- ------------
(UNAUDITED) (UNAUDITED)
Net revenues:
Product licenses $ 3,722 $ 8,486 $ 5,514 $ 6,435 $ 6,206 $ 5,853
Service and maintenance 5,332 9,710 8,424 7,246 5,322 9,244
--------- --------- --------- --------- --------- ---------
Total revenues 9,054 18,196 13,938 13,681 11,528 15,097
--------- --------- --------- --------- --------- ---------
Cost of revenues:
Product licenses 40 67 28 22 5 22
Services and maintenance 2,892 6,808 7,921 6,680 5,741 6,895
--------- --------- --------- --------- --------- ---------
Total cost of revenues 2,932 6,875 7,949 6,702 5,746 6,917
--------- --------- --------- --------- --------- ---------
Gross profit 6,122 11,321 5,989 6,979 5,782 8,180
Operating expenses:
Research and development 3,843 8,730 6,161 5,619 3,968 6,219
Sales and marketing 5,586 16,526 18,783 14,974 8,610 13,948
General and administrative 2,205 12,234 11,236 5,638 3,585 5,816
Restructuring expense -- -- -- -- -- 1,393
Intangible amortization and impairment expense -- -- -- -- 25,429 443,754
--------- --------- --------- --------- --------- ---------
Total operating expenses 11,634 37,490 36,180 26,231 41,592 471,130
--------- --------- --------- --------- --------- ---------
Operating loss (5,512) (26,169) (30,191) (19,252) (35,810) (462,950)
Interest expense (300) (377) (62) (96) (35) (1)
Other income (expense), net 51 275 1,952 1,233 433 (27)
--------- --------- --------- --------- --------- ---------
Net loss from continuing operations before income taxes (5,761) (26,271) (28,301) (18,115) (35,412) (462,978)
Provision for income taxes (87) (153) (14) (51) (7) --
--------- --------- --------- --------- --------- ---------
Net loss from continuing operations (5,848) (26,424) (28,315) (18,166) (35,419) (462,978)
Discontinued operations (Note 3):
Income from operations of discontinued user
interface business (net of income taxes) 248 2,657 76 769 -- --
Gain (loss) on disposal of user interface business
(net of income taxes) -- -- (197) -- -- --
--------- --------- --------- --------- --------- ---------
Net loss (5,600) (23,767) (28,436) (17,397) (35,419) (462,978)
Accretion of mandatorily redeemable preferred stock
to redemption value (1,258) (442) -- -- -- --
Beneficial conversion feature -- (11,739) -- -- -- --
--------- --------- --------- --------- --------- ---------
Net loss attributable to common stockholders (6,858) (35,948) (28,436) (17,397) (35,419) (462,978)
Other comprehensive income (loss):
Unrealized loss on investments -- (20) -- (20) -- --
Translation adjustments 180 219 742 (185) 583 (697)
--------- --------- --------- --------- --------- ---------
Comprehensive loss $ (6,678) $ (35,749) $ (27,694) $ (17,602) $ (34,836) $(463,675)
========= ========= ========= ========= ========= =========
Basic and diluted net loss per common share
attributable to common stockholders:
Loss from continuing operations $ (19.15) $ (6.68)
Earnings/(loss) from discontinued operations 0.66 0.46
--------- ---------
Basic and diluted net loss per common share
attributable to common stockholders $ (18.49) $ (6.22)
========= =========
Number of shares used in the calculation of basic
and diluted net loss per share 371 5,781
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
4
BLAZE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF NET PARENT INVESTMENT/STOCKHOLDERS'
EQUITY (DEFICIT)
(IN THOUSANDS)
MANDATORILY
REDEEMABLE SERIES B CONVERTIBLE
CONVERTIBLE CONVERTIBLE PREFERRED AND
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ---------------- ----------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ------ ------ ----------
PREDECESSOR
Balance at April 1, 1998 3,179 $ 19,624 2,272 $ -- 403 $ -- $ (552)
Issuance of Common Stock
pursuant to exercise of options -- -- -- -- 98 -- 56
Issuance of Common Stock -- -- -- -- 1 -- --
Repurchase of Common Stock -- -- 1 -- (158) -- (88)
Accretion of Mandatorily Redeemable
Convertible Preferred Stock
to redemption value -- 1,258 -- -- -- -- (1,258)
Net loss -- -- -- -- -- -- --
Cumulative translation
adjustment -- -- -- -- -- -- --
----- --------- ----- ---- ------ ------- ---------
Balance at March 31, 1999 3,179 20,882 2,273 -- 344 -- (1,842)
Issuance of Common Stock
pursuant to exercise of options -- -- -- -- 1,486 -- 755
Issuance of Common Stock
pursuant to conversion of warrants -- -- -- -- 362 -- 67
Accretion of Mandatorily Redeemable
Preferred Stock to redemption value -- 442 -- -- -- -- (442)
Beneficial conversion feature -- -- -- -- -- -- 11,739
Adjustment of Mandatorily Redeemable
Preferred Stock Series C per
anti-dilution provision 20 -- -- -- -- -- --
Conversion of Mandatorily Redeemable -- -- -- -- --
Preferred Stock to Common Stock (3,199) (21,324) -- -- 3,199 1 21,323
Conversion of Series B Stock
to Common Stock -- -- (2,273) -- 2,273 -- --
Issuance of Series AA Preferred Stock,
net of issuance costs -- -- -- -- -- -- 4,403
Issuance of Series BB Preferred Stock -- -- -- -- -- -- 13,943
Conversion of Series AA Preferred
Stock to Common Stock -- -- -- -- 8,416 1 --
Conversion of Series BB Preferred
Stock to Common Stock -- -- -- -- 1,953 -- --
Issuance of Common Stock pursuant
initial public offering -- -- -- -- 4,000 -- 57,090
Unearned compensation -- -- -- -- -- -- 37,607
Amortization of unearned
compensation -- -- -- -- -- -- --
Repurchase of Common Stock -- -- -- -- (13) -- (1)
Net loss -- -- -- -- -- -- --
Unrealized loss on investments -- -- -- -- -- -- --
Cumulative translation adjustment -- -- -- -- -- -- --
----- --------- ----- ---- ------ ------- ---------
Balances at March 31, 2000 -- -- -- -- 22,020 2 144,642
----- --------- ----- ---- ------ ------- ---------
TOTAL
NET PARENT
NOTES ACCUMULATED NET PARENT INVESTMENT/
RECEIVABLE OTHER UNEARNED INVESTMENT/ STOCKHOLDERS'
FROM COMPREHENSIVE STOCK-BASED ACCUMULATED EQUITY
STOCKHOLDERS INCOME (LOSS) COMPENSATION DEFICIT (DEFICIT)
------------ ------------- ------------ ------------ -------------
PREDECESSOR
Balance at April 1, 1998 $ (70) $ 110 $ -- $ (17,051) $ (17,563)
Issuance of Common Stock
pursuant to exercise of options -- -- -- -- 56
Issuance of Common Stock -- -- -- -- --
Repurchase of Common Stock 70 -- -- -- (18)
Accretion of Mandatorily Redeemable --
Convertible Preferred Stock
to redemption value -- -- -- -- (1,258)
Net loss -- -- -- (5,600) (5,600)
Cumulative translation
adjustment -- 180 -- -- 180
------- ------- --------- --------- ---------
Balance at March 31, 1999 -- 290 -- (22,651) (24,203)
Issuance of Common Stock
pursuant to exercise of options -- -- -- -- 755
Issuance of Common Stock
pursuant to conversion of warrants -- -- -- -- 67
Accretion of Mandatorily Redeemable
Preferred Stock to redemption value -- -- -- -- (442)
Beneficial conversion feature -- -- -- (11,739) --
Adjustment of Mandatorily Redeemable
Preferred Stock Series C per
anti-dilution provision -- -- -- -- --
Conversion of Mandatorily Redeemable -- -- -- -- --
Preferred Stock to Common Stock -- -- -- -- 21,324
Conversion of Series B Stock
to Common Stock -- -- -- -- --
Issuance of Series AA Preferred Stock,
net of issuance costs -- -- -- -- 4,403
Issuance of Series BB Preferred Stock -- -- -- -- 13,943
Conversion of Series AA Preferred
Stock to Common Stock -- -- -- -- 1
Conversion of Series BB Preferred
Stock to Common Stock -- -- -- -- --
Issuance of Common Stock pursuant
initial public offering -- -- -- -- 57,090
Unearned compensation -- -- (37,607) -- --
Amortization of unearned
compensation -- -- 16,400 -- 16,400
Repurchase of Common Stock -- -- -- -- (1)
Net loss -- -- -- (23,767) (23,767)
Unrealized loss on investments -- (20) -- -- (20)
Cumulative translation adjustment -- 219 -- -- 219
------- ------- --------- --------- ---------
Balances at March 31, 2000 -- 489 (21,207) (58,157) 65,769
------- ------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated
financial statements.
5
BLAZE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF NET PARENT INVESTMENT/STOCKHOLDERS'
EQUITY (DEFICIT)
(CONTINUED)
(IN THOUSANDS)
MANDATORILY
REDEEMABLE SERIES B CONVERTIBLE
CONVERTIBLE CONVERTIBLE PREFERRED AND
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- --------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ------ ------ ----------
Balances at March 31, 2000 -- -- -- -- 22,020 2 144,642
Issuance of common stock pursuant
to exercise of options -- -- -- -- 370 -- 313
Issuance of common stock pursuant
to Employee Stock Purchase
Agreement Plan -- -- -- -- 60 -- 669
Repurchase of common shares -- -- -- -- (20) -- (32)
Repurchase of shares related to the
Rabbi Trust -- -- -- -- (440) -- (372)
Issuance of shares related to over-
allotment in connection with the IPO -- -- -- -- 600 -- 8,728
Acceleration of options -- -- -- -- -- -- --
Unrealized gain/loss on investments -- -- -- -- -- -- --
Cumulative translation adjustment -- -- -- -- -- -- --
Amortization of unearned compensation -- -- -- -- -- -- (585)
Net loss -- -- -- -- -- -- --
---- ---- ---- ---- ------ ------- ---------
Balance at September 29, 2000 -- $ -- -- $ -- 22,590 $ 2 $ 153,363
==== ==== ==== ==== ====== ======= =========
SUCCESSOR
Balance at September 30, 2000 -- $ -- -- $ -- -- $ -- $ --
Amortization of unearned compensation -- -- -- -- -- -- --
Cumulative translation adjustment -- -- -- -- -- -- --
Parent (distribution)/contribution, net -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- --
---- ---- ---- ---- ------ ------- ---------
Balance at December 31, 2000 -- -- -- -- -- -- --
Amortization of unearned compensation -- -- -- -- -- -- --
Cumulative translation adjustment -- -- -- -- -- -- --
Parent (distribution)/contribution, net -- -- -- -- -- -- --
Net loss (unaudited) -- -- -- -- -- -- --
---- ---- ---- ---- ------ ------- ---------
Balance at June 30, 2001 (unaudited) -- $ -- -- $ -- -- $ -- $ --
==== ==== ==== ==== ====== ======= =========
TOTAL
NET PARENT
NOTES ACCUMULATED NET PARENT INVESTMENT/
RECEIVABLE OTHER UNEARNED INVESTMENT/ STOCKHOLDERS'
FROM COMPREHENSIVE STOCK-BASED ACCUMULATED EQUITY
STOCKHOLDERS INCOME (LOSS) COMPENSATION DEFICIT (DEFICIT)
------------ ------------- ------------ ----------- -------------
Balances at March 31, 2000 -- 489 (21,207) (58,157) 65,769
Issuance of common stock pursuant
to exercise of options -- -- -- -- 313
Issuance of common stock pursuant
to Employee Stock Purchase
Agreement Plan -- -- -- -- 669
Repurchase of common shares -- -- -- -- (32)
Repurchase of shares related to the
Rabbi Trust -- -- -- -- (372)
Issuance of shares related to over-
allotment in connection with the IPO -- -- -- -- 8,728
Acceleration of options -- -- 1,763 -- 1,763
Unrealized gain/loss on investments -- 20 -- -- 20
Cumulative translation adjustment -- (115) -- -- (115)
Amortization of unearned compensation -- -- 8,684 -- 8,099
Net loss -- -- -- (28,436) (28,436)
---- --------- --------- --------- ---------
Balance at September 29, 2000 $ -- $ 394 $ (10,760) $ (86,593) $ 56,406
==== ========= ========= ========= =========
SUCCESSOR
Balance at September 30, 2000 $ -- $ -- $ -- $ 526,223 $ 526,223
Amortization of unearned compensation -- -- -- 5,061 5,061
Cumulative translation adjustment -- 189 -- -- 189
Parent (distribution)/contribution, net -- -- -- (29,186) (29,186)
Net loss -- -- -- (35,419) (35,419)
---- --------- --------- --------- ---------
Balance at December 31, 2000 -- 189 -- 466,679 466,868
Amortization of unearned compensation -- -- -- 3,677 3,677
Cumulative translation adjustment -- (697) -- -- (697)
Parent (distribution)/contribution, net -- -- -- (9,830) (9,830)
Net loss (unaudited) -- -- -- (462,978) (462,978)
---- --------- --------- --------- ---------
Balance at June 30, 2001 (unaudited) $ -- $ (508) $ -- $ (2,452) $ (2,960)
==== ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
6
BLAZE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PREDECESSOR
---------------------------------------------------
FOR THE FOR THE
PERIOD FROM PERIOD FROM
FOR THE YEAR ENDED APRIL 1, JANUARY 1,
MARCH 31, 2000 TO 2000 TO
---------------------- SEPTEMBER 29, JUNE 30,
1999 2000 2000 2000
---------- -------- ------------- -----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,600) $(23,767) $(28,436) $(17,397)
Income from discontinued operations (248) (2,657) 121 (769)
-------- -------- -------- --------
Loss from continuing operations (5,848) (26,424) (28,315) (18,166)
Adjustments to reconcile net loss to net cash used in operating activities:
Bridge loan interest converted to equity 96 -- -- --
Depreciation and amortization 899 597 518 --
Amortization of stock-based compensation -- 16,400 9,862 412
Loss on write-off of equipment 129 71 -- 8,680
Goodwill and other intangible assets -- --
Write-off of in process research & development -- -- -- --
Capital lease for construction-in-progress -- 40 -- --
Changes in assets and liabilities:
Accounts receivable (557) (1,779) (830) (1,727)
Income taxes refund receivable 27 -- -- --
Prepaid expenses and other (533) (144) (504) (873)
Accounts payable 7 492 149 (540)
Accrued expenses (757) 4,573 (154) 2,642
Deferred revenue (95) (503) 75 (1,007)
Deposits and other assets 260 (156) 26 (101)
Other long-term liabilities -- 12 44 34
-------- -------- -------- --------
Net cash used in continuing operations (6,372) (6,821) (19,129) (10,646)
Net cash provided by discounted operations 2,061 3,109 412 1,821
-------- -------- -------- --------
Net cash used in operating activities (4,311) (3,712) (18,717) (8,825)
-------- -------- -------- --------
FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (779) (1,388) (1,938) (2,850)
Purchases of short-term investments -- (12,018) -- (22,876)
Proceeds and maturities of short-term investments -- -- 12,018 --
-------- -------- -------- --------
Net cash provided by (used in) investing activities (779) (13,406) 10,080 (25,726)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 129 -- -- --
Repayment of note payable -- (129) -- --
Payments of principal under capital lease financing (172) (136) (88) 31
Bank borrowings, net (1,047) (1,631) -- (2,658)
Repayment of note payable to stockholder -- -- -- --
Proceeds from issuance of Common Stock 56 57,847 9,710 66,444
Repurchase of Common Stock (18) (1) (32) (27)
Repurchase of Common Stock related to Rabbi Trust -- -- (372) --
Proceeds from issuance of Preferred Stock, Series D and Series E warrants
(net of issuance costs) -- 67 -- 31
Proceeds from issuance of Preferred Stock, Series AA (net of
issuance costs) -- 2,807 -- (53)
Proceeds from issuance of Preferred Stock, Series BB -- 13,943 -- --
Proceeds from bridge loan 1,500 -- -- --
Increase in restricted cash -- (702) (27) --
Parent (distributions)/contributions, net -- -- -- (282)
-------- -------- -------- --------
Net cash provided by (used in) financing activities 448 72,065 9,191 63,486
-------- -------- -------- --------
Effect of exchange rate changes on cash 180 219 (115) (162)
Net increase (decrease) in cash and cash equivalents (4,462) 55,166 439 28,773
Cash and cash equivalents at beginning of period 6,591 2,129 57,295 16,326
-------- -------- -------- --------
Cash and cash equivalents at end of period $ 2,129 $ 57,295 $ 57,734 $ 45,099
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year: Interest $ 202 $ 313 $ 62 $ 124
======== ======== ======== ========
Cash paid during the year: Income taxes $ 49 $ 11 $ 14 $ 17
======== ======== ======== ========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cancellation of stockholder note in exchange for Common Stock $ 70 $ -- $ -- $ --
======== ======== ======== ========
Assets acquired under capital lease obligations $ -- $ 468 $ -- $ --
======== ======== ======== ========
Accretion of cumulative dividends on Preferred Stock $ 1,258 $ 442 $ -- $ --
======== ======== ======== ========
Unearned compensation related to stock option grants $ -- $ 37,607 $ -- $ 4,874
======== ======== ======== ========
Conversion of bridge loan to Preferred Stock $ -- $ 1,596 $ -- $ --
======== ======== ======== ========
Conversion of Mandatorily Redeemable Preferred Stock to Common Stock $ -- $ 20,882 $ -- $ --
======== ======== ======== ========
Beneficial conversion feature $ -- $ 11,739 $ -- $ 11,739
======== ======== ======== ========
Write-off of property and equipment $ 3,761 $ 776 $ -- $ 304
======== ======== ======== ========
Parent permanent investment, net $ -- $ -- $ -- $ --
======== ======== ======== ========
Goodwill from acquisition $ -- $ -- $ -- $ --
======== ======== ======== ========
SUCCESSOR
---------------------------------------
FOR THE FOR THE
PERIOD FROM PERIOD FROM
SEPTEMBER 30, JANUARY 1,
2000 TO 2001 TO
DECEMBER 31, JUNE 30,
2000 2001
---------------- -----------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (35,419) $(462,978)
Income from discontinued operations -- --
---------- ---------
Loss from continuing operations (35,419) (462,978)
Adjustments to reconcile net loss to net cash used in operating activities:
Bridge loan interest converted to equity -- --
Depreciation and amortization 337 621
Amortization of stock-based compensation 5,061 3,677
Loss on write-off of equipment -- 27
Goodwill and other intangible assets 23,250 443,755
Write-off of in process research & development 2,179 --
Capital lease for construction-in-progress -- --
Changes in assets and liabilities:
Accounts receivable (1,783) 3,245
Income taxes refund receivable -- --
Prepaid expenses and other (493) 1,144
Accounts payable (1,301) 1,262
Accrued expenses 1,953 (3,463)
Deferred revenue (254) 217
Deposits and other assets (48) (15)
Other long-term liabilities 22 (78)
---------- ---------
Net cash used in continuing operations (6,496) (12,586)
Net cash provided by discontinued operations -- --
---------- ---------
Net cash used in operating activities (6,496) (12,586)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,098) (530)
Purchases of short-term investments -- --
Proceeds and maturities of short-term investments -- --
---------- ---------
Net cash provided by (used in) investing activities (1,098) (530)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable -- --
Repayment of note payable -- --
Payments of principal under capital lease financing (42) (57)
Bank borrowings, net -- --
Repayment of note payable to stockholder -- --
Proceeds from issuance of Common Stock -- --
Repurchase of Common Stock -- --
Repurchase of Common Stock related to Rabbi Trust
Proceeds from issuance of Preferred Stock, Series D and Series E warrants
(net of issuance costs) -- --
Proceeds from issuance of Preferred Stock, Series AA (net of issuance costs) -- --
Proceeds from issuance of Preferred Stock, Series BB -- --
Proceeds from bridge loan -- --
Increase in restricted cash (12) (22)
Parent (distributions)/contributions, net (26,553) (9,830)
---------- ---------
Net cash provided by (used in) financing activities (26,607) (9,909)
---------- ---------
Effect of exchange rate changes on cash 189 (697)
Net increase (decrease) in cash and cash equivalents (34,012) (23,722)
Cash and cash equivalents at beginning of period 57,734 23,722
---------- ---------
Cash and cash equivalents at end of period $ 23,722 $ --
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year: Interest $ 35 $ 52
========== =========
Cash paid during the year: Income taxes $ 7 $ 105
========== =========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cancellation of stockholder note in exchange for Common Stock $ -- $ --
========== =========
Assets acquired under capital lease obligations $ -- $ --
========== =========
Accretion of cumulative dividends on Preferred Stock $ -- $ --
========== =========
Unearned compensation related to stock option grants $ -- $ --
========== =========
Conversion of bridge loan to Preferred Stock $ -- $ --
========== =========
Conversion of Mandatorily Redeemable Preferred Stock to Common Stock $ -- $ --
========== =========
Beneficial conversion feature $ -- $ --
========== =========
Write-off of property and equipment $ -- $ 27
========== =========
Parent permanent investment, net $ (523,590) $ --
========== =========
Goodwill from acquisition $ 467,184 $ --
========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
7
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Blaze Software, Inc. (together with its wholly-owned subsidiaries, "Blaze
Software" or the "Company), formerly a NASDQ publicly traded company
("Predecessor") (commission file number: 000-29817), was acquired by Brokat AG
("Brokat") on September 29, 2000 and Brokat subsequently sold Blaze Software to
HNC Software, Inc. ("HNC"). On August 15, 2001, HNC purchased from Brokat
substantially all of the assets and certain liabilities of Brokat's Blaze
Advisor business unit for approximately $18.5 million in cash. The accompanying
consolidated financial statements reflect Blaze Software as a Brokat owned
company ("Successor") from September 30, 2000 through June 30, 2001.
The Company's principal activities include the development and licensing of
infrastructure software that enables adaptable and personalized interactions
that are consistent across all company communication channels, or touch points.
This software enables companies to implement their policies, practices and
procedures, or business rules, in e-business applications across multiple touch
points. Blaze Software also provides related maintenance and consulting
services. Blaze Software markets its products to a wide range of customers
mainly in North America, Europe and the Pacific Rim primarily through a direct
sales force.
BASIS OF PRESENTATION
Successor
The nine months ended December 31, 2000 is presented in two separate
periods in these consolidated financial statements due to the acquisition of
Blaze Software on September 29, 2000 by Brokat, which established a new basis of
accounting for certain assets and liabilities of Blaze Software. The purchase
method of accounting was used to record assets acquired and liabilities assumed
by Brokat. For the period from September 30, 2000 to December 31, 2000, Blaze
Software maintained separate financial statements, with the exception of equity
transactions.
From the period beginning January 1, 2001, Blaze Software did not maintain
separate cost of sales, research and development, sales and marketing, and
general and administrative functions. The accompanying consolidated financial
statements for the period from January 1, 2001 to June 30, 2001 (unaudited)
reflect the carve-out historical results of operations and financial position of
Blaze Software as if Blaze Software had been operating as a separate business.
For the purposes of preparing the accompanying consolidated financial
statements, costs were allocated to Blaze Software using the following
allocation method: All costs and expenses directly attributable to Blaze
Software are included in the financial statements. No Brokat corporate cost
allocations for legal, human resources, other administrative functions and
services, rent and utilities were required as the Company operated autonomously
of the Brokat parent entity for all periods presented. The Blaze Software
financial statements costs and expenses were prepared on a carve-out basis from
the other entities within that subsidiary. The statements contain all expenses
directly attributable to services, rent, utilities, and interest related to
average working capital levels from the Company and Brokat. Brokat's management
believes that the allocation methods used are reasonable and reflective of Blaze
Software's proportionate share of such expenses. However, the financial
information included herein may not reflect the financial position, operating
results, changes in equity and cash flows of the Company in the future or what
they would have been had Blaze Software been a separate, stand-alone entity from
January 1, 2001 to June 30, 2001. No interdivision interest income or expense
has been allocated to, or included in, the accompanying unaudited interim
consolidated carve-out financial statements.
Accordingly, the accompanying consolidated statement of operations for the
period from April 1, 2000 to September 29, 2000 and for the period from
September 30, 2000 to December 31, 2000 and the period from January 1, 2001 to
June 30, 2001 are not comparable in all material respects, since those
consolidated financial statements report financial position, results of
operation, and cash flows on a different basis of accounting.
8
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Predecessor and carve-out presentation
The financial results for the years ended March 31, 1999 and March 31, 2000
and the period from April 1, 2000 to September 29, 2000 reflect Blaze Software
as a stand-alone public company.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Blaze
Software, Inc. and its wholly owned subsidiaries, Blaze Software GmbH, Blaze
Software S.A.R.L., Blaze Software Canada, Blaze Software (UK) Ltd, Blaze
Software Japan, Inc., and Blaze Software Australia Pty Ltd (together, "Blaze
Software" or the "Company"). All material intercompany balances and transactions
have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The consolidated financial statements as of June 30, 2001 and for the six
months ended June 30, 2000 and 2001 are unaudited but have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and the rules of the Securities and Exchange Commission and do not
include all disclosures required by generally accepted accounting principles for
annual financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
have been included. The results of operations of any interim period are not
necessarily indicative of the results of operations for a full year.
IMPAIRMENT
Brokat incurred a net loss during the first six months of 2001 and in prior
years. As of June 30, 2001, Brokat had a substantial shareholders' deficit and
had limited financial resources available to support its ongoing operations,
fund product development programs and pay its obligations as they become due.
As a result of the aforementioned factors, Brokat announced and began to
implement a restructuring program, aimed at reducing operating costs and
improving organizational and operating efficiency. The cost reduction program
includes a hiring freeze and lower levels of external spending, as well as a
reduction in overall staffing levels.
Brokat management currently believes that Brokat's existing capital
resources and cash from operations will not be sufficient to satisfy Brokat's
expected cash funding and working capital requirements through the end of 2001.
Brokat management is evaluating available opportunities to finance the Company's
cash needs.
9
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
These or other sources of additional funding may not be available to Brokat
on a timely basis, at acceptable terms or at all. Pursuant to SFAS 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" the Company evaluated the recoverability of the long-lived
assets, including the identifiable intangible assets, goodwill and other long
lived assets recorded in connection with all of its various acquisitions. These
actions contemplate a plan to consider disposal of certain of the Brokat assets,
including Blaze. Those assets are expected to be sold or abandoned, depending on
resale market conditions. Due to the uncertainty regarding the ultimate outcome
of the actions steps within its restructuring program the accompanying financial
statements reflect an impairment loss of approximately $395.3 million.
Impairment expense has been classified within the operating statement caption
"Intangible Amortization and Impairment Expense." The impairment expense was
determined by comparing the carrying amounts of the respective assets to their
estimated fair value as of June 30, 2001. The estimated fair values of assets
held for sale are based on estimates of the expected sales price less costs to
sell. The estimated fair values for assets held for use are based on Brokat's
best estimates of discounted future cash flows. Brokat's estimates of expected
future cash flows and related fair values are based on the best information that
is currently available, but may change in subsequent periods based on a variety
of factors such as market conditions, Brokat's continuing negotiations related
to the disposal of certain assets and Brokat's continuing evaluation of the
recoverability of long-lived assets.
RESTRUCTURING
The restructuring program contemplates mainly a reduction of workforce
within Blaze. The workforce reductions commenced in the second quarter of 2001.
Blaze recorded restructuring charges of approximately $1.4 million.
Restructuring charges are disclosed separately in the consolidated statement of
operations. The restructuring charge relates primarily to severance benefits
accrued in accordance with Emerging Issues Task Force ("EITF") 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)."
FOREIGN CURRENCY TRANSLATION
The functional currency of Blaze Software's subsidiaries is the respective
local currency. Accordingly, Blaze Software applies the current exchange rate to
translate the subsidiaries' assets and liabilities and the weighted average
exchange rate to translate the subsidiaries' revenues, expenses, gains and
losses into U.S. dollars. Translation adjustments are included as a separate
component of comprehensive income within divisional surplus
(deficit)/stockholders' equity in the accompanying consolidated financial
statements.
BUSINESS RISK AND CONCENTRATION OF CREDIT RISK
Blaze Software currently operates in a single business segment and revenue
from continuing operations is principally attributable to the sale of software
products and related maintenance, consulting and training services which are
characterized by rapid technological advances, changes in customer requirements
and industry standards. Any failure by Blaze Software to anticipate or to
respond adequately to technological changes in its industry, changes in customer
requirements or changes in industry standards, could have a material adverse
effect on Blaze Software's business and operating results.
Financial instruments which potentially subject Blaze Software to
concentrations of credit risk consist primarily of temporary cash investments,
including money market accounts and accounts receivable. Blaze Software placed
its temporary cash investments with one major financial institution at December
31, 2000 and two major financial institutions at March 31, 2000. Blaze Software
performs ongoing credit evaluations of its customers' financial condition and
does not require collateral. Blaze Software maintains allowances for potential
credit losses and such losses have been within management's expectations.
10
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
At June 30, 2001, one customer accounted for approximately 15% (unaudited)
of the aggregate accounts receivable balance. At December 31, 2000, no customer
accounted for 10% or more of the aggregate accounts receivable balance. At March
31, 2000, two customers accounted for approximately 18% and 15% of the aggregate
accounts receivable balance. For the years ended March 31, 1999 and 2000, one
customer accounted for approximately 19% and 23% of total revenues,
respectively. For the periods from April 1, 2000 to September 29, 2000,
September 30, 2000 to December 31, 2000, January 1, 2000 to June 30, 2000 and
January 1, 2001 and June 30, 2001, one customer accounted for approximately 11%,
no customer accounted for more than 10%, one customer accounted for 17% and one
customer accounted for 14% of total revenues, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain Blaze Software's financial instruments
approximate fair value due to their short maturities.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
For the years ended March 31, 1999 and 2000 and for the period from April
1, 2000 to September 29, 2000 and the period from September 30, 2000 to December
31, 2000, Blaze Software invested its excess cash in money market accounts and
debt instruments and considered all highly liquid investments with an original
or remaining maturity of three months or less at the time of purchase to be cash
equivalents. Investments with an original or remaining maturity at the time of
purchase of over three months are classified as short-term investments as all
investments are classified as available-for-sale and can be readily liquidated
to meet current operational needs. The securities are carried at amortized cost,
which approximates fair value. Fair value is based upon market prices quoted on
the last day of the fiscal year.
Beginning January 1, 2001, Brokat has managed cash and cash equivalents on
a centralized basis. All changes in cash and cash equivalents have been included
as an advance from Brokat.
Unrealized gains and losses are reported as a separate component of
stockholders' equity. The amortized cost of the debt securities is adjusted for
the amortization of premiums and accretion of discounts to maturity. Such
amortization, as well as any interest on the securities, is included in interest
expense, net. Realized gains and losses and declines in value judged to be
other-than-temporary are also included in interest expense, and have not
been material. The cost of securities sold is based on the specific
identification method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the related assets,
generally three to five years for both the predecessor period and the successor
period. Leased assets are amortized on a straight-line basis over the lesser of
the estimated useful life or the lease term.
Maintenance and repairs are charged to expense as incurred. When assets are
sold or retired, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is included in operations.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price of the acquired
business over the fair value of the identifiable net assets acquired and is
amortized using the straight-line method over an estimated useful life of five
years. Acquired in-place workforce is amortized over the period of benefit of
five years. Acquired customer base and trade name are amortized over the period
of benefit of five years. Acquired technology is amortized over the periods of
benefit of five years. Amortization of goodwill and other intangible assets is
reflected in a separate line item on the consolidated statement of operations.
11
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
VALUATION OF LONG-LIVED ASSETS
Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of
its long-lived assets, including, but not limited to, property and equipment,
goodwill and certain other assets has changed. The carrying value of a
long-lived asset is considered impaired when the undiscounted cash flow from
such asset is separately identifiable and is estimated to be less than its
carrying value. In that event, a loss is recognized based on the amount by which
the carrying value exceeds the fair value of the long-lived asset. Fair value is
determined primarily using the anticipated cash flows discounted at a rate
commensurate with the involved asset. Losses on long-lived assets to be disposed
of would be determined in a similar manner, except that fair values would be
reduced by the cost of disposal.
REVENUE RECOGNITION
Blaze Software's revenues are derived from two sources; product license
revenues and service revenues. Product license revenues are derived from product
sales to end users and independent software vendors as well as royalties from
independent software vendors. Service revenues are derived from providing
consulting and training, maintenance and support services to end users.
Blaze Software recognizes revenue in accordance with the American Institute
of Certified Public Accountants Statement of Position No. 97-2, Software Revenue
Recognition, as amended. License revenues from sales to end users and systems
integrators are recognized upon shipment of the product, if an executed
agreement or purchase order has been received, the fee is fixed and determinable
and collection is deemed probable. If an acceptance period is provided, revenue
is recognized upon the earlier of customer acceptance or the expiration of that
period. For enterprise application vendors, Blaze Software receives quarterly
reports from these vendors on sell-through of Blaze Software products to end
users. Blaze Software recognizes royalty revenues upon receipt of the quarterly
reports from vendors. For sales made through distributors, Blaze Software
recognizes revenues upon shipment of the product, if an executed agreement or
purchase order has been received, the fee is fixed and determinable and
collection is deemed probable. Distributors have no right of return.
For contracts with multiple obligations (e.g., product licenses,
maintenance and other services), Blaze Software allocates revenue to each
component of the contract based on vendor specific objective evidence of its
fair value, which is based on the price when each component is sold separately,
or when not yet sold separately, the price established by management. Blaze
Software recognizes revenue allocated to undelivered products when the criteria
for product revenue set forth above are met.
Service revenues from consulting, installation and training are recognized
as the related services are performed and collectibility is reasonably assured.
Revenues from maintenance and support agreements, which include product updates,
are deferred and recognized on a straight-line basis over the term of the
related agreement. Payments of maintenance fees are generally made in advance
and are nonrefundable.
ADVERTISING
Blaze Software expenses advertising costs as they are incurred. Advertising
expense for the years ended March 31, 1999 and 2000, for the period from April
1, 2000 to September 29, 2000, for the period from September 30, 2000 to
December 31, 2000, for the period from January 1, 2000 to June 30, 2000 and for
the period from January 1, 2001 to June 30, 2001 was $431,000, $1,517,000,
$1,187,000, $517,000, $2,178,000 (unaudited) and $517,000 (unaudited),
respectively.
12
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
INCOME TAXES
Blaze Software accounts for income taxes in accordance with Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes. This statement prescribes the use of the
liability method whereby deferred tax assets and liabilities are determined
based on the differences between financial reporting and tax bases of assets and
liabilities and measured at tax rates that will be in effect when the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets where it is more likely than not the
deferred tax asset will not be realized.
As of December 31, 2000, Blaze Software was not a separate taxable entity
for federal, state or local income tax purposes and its operations are included
in the Brokat income tax returns. The provision, if any, is computed using the
separate return method.
STOCK-BASED COMPENSATION
Blaze Software has elected to adopt the disclosure provisions of Statement
of Financial Accounting Standards No. 123, Accounting for Stock-based
Compensation ("SFAS No. 123"). Blaze Software accounts for stock-based
compensation using Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, ("APB No. 25") and, accordingly, pro forma
disclosures required under SFAS No. 123 have been presented (See Note 10). Under
APB No. 25, compensation expense is based on the difference, if any, on the date
of the grant, between the deemed fair value of Blaze Software's common stock and
the exercise price. Additionally, pursuant to SFAS No. 123, common stock issued
to non-employees is accounted for at the fair value of the equity instruments
issued, or at the fair value of the consideration received, whichever is more
reliably measurable.
RESEARCH AND DEVELOPMENT EXPENDITURES
Costs related to research, design and development of products are charged
to research and development expense as incurred. Under Statement of Financial
Accounting Standards 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 and
ending when a product is available for general release to customers. To date,
attaining technological feasibility of Blaze Software's products and general
release have substantially coincided. As a result, Blaze Software has not
capitalized any software development costs.
NET LOSS PER SHARE
Blaze Software computes net loss in accordance with Statement of Financial
Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"). Under the
provisions of SFAS No. 128, basic net loss per share is computed by dividing the
net loss available to common stockholders for the period by the weighted average
number of common shares outstanding during the period. Diluted net loss per
share is computed by dividing the net loss for the period by the weighted
average number of common and common equivalent shares outstanding during the
period. Options, warrants, mandatorily redeemable convertible preferred stock
and convertible preferred stock were not included in the computation of diluted
net loss per share because of the effect would be antidilutive. Since the
Company was acquired on September 30, 2000, net loss per share is not presented
for the periods September 30, 2000 through June 30, 2001 since the Company had
no outstanding shares. Additionally, net loss per share is not presented for the
period from April 1, 2000 to September 29, 2000 because such information is not
deemed to be meaningful.
13
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A reconciliation of shares used in calculation of basic and diluted net
loss per share follows (in thousands, except per share amounts):
YEARS ENDED MARCH 31,
-----------------------
1999 2000
-------- --------
Basic and diluted net loss per share:
Numerator:
Net loss from continuing operations $ (5,848) $(26,424)
Accretion of mandatorily redeemable convertible preferred stock
to redemption value (1,258) (442)
Beneficial conversion feature of convertible preferred stock -- (11,739)
-------- --------
Net loss from continuing operations
attributable to common stockholders (7,106) (38,605)
Income (loss) from operations of discontinued
user interface business 248 2,657
-------- --------
Loss attributable to common stockholders $ (6,858) $(35,948)
======== ========
Denominator:
Weighted average common shares outstanding 444 5,913
Weighted average unvested common shares
subject to repurchase (73) (132)
-------- --------
Denominator for basic and diluted calculation 371 5,781
======== ========
Basic and diluted net loss per share
attributable to common stockholders $ (18.49) $ (6.22)
======== ========
Antidilutive securities including options, warrants and convertible
preferred stock not included in net loss per share calculation 7,392 4,479
======== ========
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133, as amended, established accounting and reporting standards for
derivative financial instruments, including certain derivatives instruments
embedded in other contracts, and for hedging activities. Blaze adopted SFAS 133,
as amended, on January 1, 2001. Blaze has not engaged in hedging activities or
invested in derivative financial instruments and accordingly, the adoption of
SFAS 133 did not have a material effect on its financial statements (unaudited).
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"). SFAS 141 requires all business combinations to be accounted for using the
purchase method of accounting and is effective for all business combinations
initiated after June 30, 2001. SFAS 142 requires goodwill to be tested for
impairment under certain circumstances, and written off when impaired, rather
than being amortized as previous standards required. SFAS 142 is effective for
fiscal years beginning after December 15, 2001 provided that the first interim
period financial statements have not been previously issued. The adoption of
SFAS 141 is not expected to have a material effect on the Company's operating
results or financial condition. The Company is currently assessing the impact of
SFAS 142 on its operating results and financial condition.
14
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
On October 3, 2001, the FASB issued Statement of Accounting Standards No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144"). FAS 144 supercedes FAS 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." FAS 144 applies to all
long-lived assets (including discontinued operations) and consequently amends
Accounting Principles Board Opinion No. 30 ("APB 30"), Reporting Results of
Operations Reporting the Effects of Disposal of Segment of a Business. FAS 144
develops one accounting model for long-lived assets that are to be disposed of
by sale. FAS 144 requires that long-lived assets that are to be disposed of by
sale be measured at the lower of book value or fair value less cost to sell.
Additionally, FAS 144 expands the scope of discontinued operations to include
all components of an entity with operations that (1) can be distinguished from
the rest of the entity and (2) will be eliminated from the ongoing operations of
the entity in a disposal transaction. FAS 144 is effective for the Company
beginning in fiscal 2002.
RECLASSIFICATIONS
Certain amounts in the fiscal year 1999 financial statements have been
reclassified to conform to the fiscal year 2000 presentation.
NOTE 2 -- ACQUISITION OF BLAZE SOFTWARE BY BROKAT:
On September 29, 2000, Brokat completed the acquisition of Blaze Software.
Under the terms of the Agreement and Plan of Merger dated June 19, 2000, among
Blaze Software and Brokat approximately 4,961,000 shares of Brokat's Common
Stock and options were issued or reserved for issuance for all outstanding
shares and options of Blaze Software. The acquisition was accounted using the
purchase method of accounting.
The purchase consideration included approximately 4,131,000 shares of
Common Stock valued at approximately $450.7 million. In addition, all of the
outstanding stock options granted under the Blaze Software Option Plan were
converted at the ratio of 1:0.1826 into stock options to purchase approximately
830,000 shares of Brokat's common stock.
The Black-Scholes option pricing model was used to determine the fair value
of the converted options. The fair value of the stock options, of approximately
$82.1 million, was included as a component of the purchase price. Brokat also
incurred approximately $11.9 million in acquisition expenses. The assumptions
used in the calculation of fair value of the options were: risk free interest
rate, 6.38%; average expected life, 2.3 years; volatility, 90%, and; 0% dividend
yield.
The total purchase price of approximately $526.2 million was allocated to
assets acquired, including tangible and intangible assets, and liabilities
assumed, based on their respected estimated fair values at the acquisition. The
estimate of fair value of the net assets acquired is based on independent
estimates.
The total purchase price was allocated as follows (in thousands):
Fair value of tangible assets $ 68,998
Acquired technology 14,166
Customer base 19,963
In-place workforce 5,950
Tradename 495
Fair value of liabilities assumed (9,959)
In-process research and development 2,179
Goodwill 424,431
---------
$ 526,223
=========
15
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the acquisition, Brokat acquired one in process project.
The existing product at the date of acquisition, Blaze Advisor Software Suite
provides customers with the ability to automatically update their sales force
with the latest information. The project is developing additional features to
ease the use and deployment of the existing Blaze Advisor Software Suite; $2.2
million was ascribed to the in-process research and development project which
was charged to operations in the period from September 30, 2000 to December 31,
2000. Amortization of in-process research and development is reflected in a
separate line item on the consolidated statement of operations.
Blaze Software used an independent appraiser firm to assist in the
valuation of the in-process technology. Blaze Software provided assumptions of
revenue, cost of revenue and operating expense to the appraiser to assist in the
valuation. The in-process research and development project was valued through
the use of a discounted cash flow analysis, taking into account projected future
cash flows associated with the project once it achieves technological
feasibility, its stage of completion as of the acquisition date, and the
expected return requirement (i.e. discount rate) for determining present value
of the future cash flows. Stages of completion were estimated by considering
time, cost and complexity of tasks completed prior to the acquisition as a
percentage of total time, cost and effort required for the total project up to
achieving technological feasibility. Earnings associated with Blaze Software's
incomplete technology were discounted at a rate of 20%.
NOTE 3 - DISCONTINUED OPERATIONS:
In December 1999, the Company's Board of Directors resolved to discontinue
Blaze Software's entire user interface line of business. The business was
subsequently sold on March 1, 2000. The accompanying financial statements have
been prepared to reflect the historical results of operations and cash flows of
the user interface business as discontinued operations for all periods
presented.
Balance sheet data (in thousands):
AS OF MARCH 31,
---------------------
1999 2000
------- -------
Current assets $ 1,183 $ 615
Current liabilities (70) (24)
------- -------
Net assets of discontinued operations $ 1,113 $ 591
======= =======
The current assets and current liabilities noted above comprise accounts
receivable and accounts payable, respectively.
Income statement data (in thousands):
FOR THE
PERIOD ENDED
APRIL 1,
YEARS ENDED MARCH 31, 2000 TO
------------------------- SEPTEMBER 29,
1999 2000 2000
------- ------- -------------
Revenues $ 9,094 $ 5,013 $ 174
Costs and expenses (8,846) (2,356) (98)
------- ------- -------
Income (loss) from discontinued operations $ 248 $ 2,657 $ 76
======= ======= =======
16
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Cash flow data (in thousands):
FOR THE
PERIOD FROM
APRIL 1,
YEARS ENDED MARCH 31, 2000 TO
--------------------------- SEPTEMBER 29,
1999 2000 2000
------- ------- -------------
Net cash provided by (used in) discontinued
operations $ 2,061 $ 3,109 $ 412
======= ======= ======
NOTE 4--TRANSACTIONS WITH BROKAT TECHNOLOGIES:
Blaze Software sells products and services to Brokat Technologies and its
subsidiaries. There were no sales to Brokat for the years ended March 31, 1999
and 2000, for the periods from April 1, 2000 to September 29, 2000, September
30, 2000 to December 31, 2000, and January 1, 2000 to June 30, 2000. Sales to
Brokat for the period January 1, 2001 to June 30, 2001 totaled $188,000.
NOTE 5 - BALANCE SHEET COMPONENTS:
PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
PREDECESSOR SUCCESSOR
----------- -----------------------------
AS OF AS OF AS OF
MARCH 31, DECEMBER 31, JUNE 30,
2000 2000 2001
----------- ------------ ----------
(UNAUDITED)
Computer equipment $ 2,636 $ 2,782 $ 1,108
Furniture and fixtures 463 753 868
Leasehold improvements 316 916 978
------- ------- -------
3,415 4,451 2,954
Less: Accumulated depreciation and amortization (1,482) (337) (958)
------- ------- -------
$ 1,933 $ 4,114 $ 1,996
======= ======= =======
17
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Property and equipment under capital leases, included in the above table,
consist of the following (in thousands):
PREDECESSOR SUCCESSOR
----------- --------------------------
AS OF AS OF AS OF
MARCH 31, DECEMBER 31, JUNE 30,
2000 2000 2000
----------- ----------- ---------
(UNAUDITED)
Computer equipment $ 705 $ 696 $ 696
Less: Accumulated depreciation (322) (451) (531)
----- ----- -----
$ 383 $ 245 $ 165
===== ===== =====
The amortization of assets recorded under capital leases is included within
depreciation expense.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consists of the following (in
thousands):
SUCCESSOR
------------------------------
AS OF AS OF
DECEMBER 31, JUNE 30,
2000 2001
----------- ---------
(UNAUDITED)
Acquired technology $ 14,166 $ 14,166
In-place workforce 5,950 5,950
Customer base 19,963 19,963
Trade name 495 495
Goodwill 424,431 424,431
--------- ---------
465,005 465,005
Less: Accumulated amortization (23,250) (69,751)
Impairment expense -- (395,254)
--------- ---------
$ 441,755 $ --
========= =========
There were no goodwill and other intangible assets of the predecessor.
18
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in
thousands):
PREDECESSOR SUCCESSOR
----------- ---------------------------
AS OF AS OF AS OF
MARCH 31, DECEMBER 31, JUNE 30,
2000 2000 2001
----------- ----------- ---------
(UNAUDITED)
Accrued compensation $1,622 $4,606 $3,972
Sales and income tax payable 1,276 718 236
Other accrued liabilities 4,548 3,921 1,574
------ ------ ------
$7,446 $9,245 $5,782
====== ====== ======
NOTE 6 - BORROWINGS:
Blaze Software had a line of credit facility with a lender, whereby Blaze
Software could borrow up to 80% of eligible United States and United Kingdom
accounts receivable with a maximum borrowing of $5,000,000. Borrowings under the
facility bore interest at the prime rate plus 3% (10.75% as of March 31, 1999)
and were collateralized by certain assets of Blaze Software. As of March 31,
1999, Blaze Software had borrowed $1,631,000 under this facility. The facility
was repaid and terminated in March 2000.
In November 1998, Blaze Software entered into a bridge loan agreement with
several of its existing investors totaling $1.5 million. The loan bore interest
at the rate of 25%, was subordinated to the agreement between Blaze Software and
Coast Business Credit, and was collateralized by certain assets of Blaze
Software. The bridge loan was converted into 2,777,778 shares of Series AA
Preferred Stock in June 1999.
NOTE 7 - INITIAL PUBLIC OFFERING:
In March 2000, Blaze Software completed its initial public offering and
issued 4,000,000 shares of its common stock to the public at a price of $16.00
per share. Blaze Software received net proceeds of approximately $57.1 million
in cash. Upon the closing the offering, all of the outstanding shares of the
Series AA and BB convertible preferred stock were converted into an aggregate of
10,369,000 shares of common stock.
In April 2000, in connection with the initial public offering, the
underwriters purchased an additional 600,000 shares of common stock as a result
of the exercise of their over-allotment option. This sale resulted in additional
net proceeds of approximately $8,800,000.
NOTE 8 - MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In June 1999, Blaze Software converted all of its outstanding mandatorily
redeemable preferred stock into common stock at the applicable conversion rates.
NOTE 9 - STOCKHOLDERS EQUITY:
19
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SERIES B PREFERRED STOCK
In June 1999, Blaze Software converted all of its outstanding Series B
preferred stock into shares of common stock. The conversion is disclosed in the
statement of net parent investment/stockholders equity (deficit) within the
column "Convertible preferred stock and common stock."
PREFERRED STOCK WARRANTS
In December 1996, warrants to purchase 107,143 shares of the Company's
Series B preferred stock were issued at a price per share of $5.60. These
warrants expired in December 1999. The fair value of these warrants was not
material to the financial statements.
SERIES AA AND BB PREFERRED STOCK
In June 1999 and September 1999, Blaze Software issued 8,134,839 and
281,376 shares, respectively, of Series AA convertible preferred stock at a
price of $0.54 per share. Net proceeds to Blaze Software were cash of $2.8
million and the cancellation of indebtedness of $1.6 million. Prior to the
issuance of Series AA convertible preferred stock, Blaze Software converted all
of its outstanding shares of Series A, Series B, Series C Series D, and Series F
convertible preferred stock into common stock and all of its warrants for Series
E preferred stock into warrants for common stock at the applicable conversion
rates in effect for each series. The issuance in September 1999 resulted in a
beneficial conversion feature of approximately $2.2 million, calculated in
accordance with Emerging Issues Task Force No. 98-5, which resulted in an
immediate charge to additional paid-in capital.
On December 31, 1999 1,952,735 shares of Series BB preferred stock were
issued for gross proceeds of approximately $13.9 million. The issuance resulted
in a beneficial conversion feature of approximately $9.5 million, calculated in
accordance with Emerging Issues Task Force No. 98-5, which resulted in an
immediate charge to additional paid-in capital.
In March 2000, all shares of Series AA and BB preferred stock were
converted to shares of common stock effective with the Company's initial public
offering. The conversion is disclosed in the statement of net parent
investment/stockholders equity (deficit) within the column "Convertible
preferred stock and common stock."
DELAWARE REINCORPORATION
In March 2000, Blaze Software reincorporated in the State of Delaware. The
par value of the preferred and common stock is $0.0001 per share. All share data
information has been restated to reflect the reincorporation.
COMMON STOCK
In March 2000, Blaze Software's stockholders approved an increase in the
authorized number of common shares from 54,000,000 shares to 200,000,000 shares.
Each share of common stock has the right to one vote. The holders of common
stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors, subject to the prior
rights of holders of all classes of stock outstanding at the time having
priority rights as to dividends.
20
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 10 - EMPLOYEE BENEFIT PLANS:
TAX DEFERRED SAVINGS PLAN
The Company has a savings plan that is intended to qualify as a deferred
salary arrangement under Sections 401(a) and 401(k) of the Internal Revenue Code
(the "Savings Plan"). All full-time employees of Blaze Software are eligible to
participate in the Savings Plan pursuant to the terms of the plan. Participants
may defer up to 15 percent of their pre-tax earnings (up to the Internal Revenue
Service limit). The Company matches 25 percent of employee contributions up to a
maximum of $1,000 per employee. The participants' as well as the Company's
matching contributions are fully vested. Company contributions to the Savings
Plan were approximately $130,000, $47,000 and $40,000 for fiscal 2001, 2000 and
1999, respectively. Effective October 16, 2001, this plan was terminated.
STOCK OPTION PLANS
In 1986, Blaze Software adopted the 1986 Stock Option Plan (the "1986
Plan") and had 1,254,500 shares of Common Stock reserved for issuance there
under. In 1996, the 1986 Plan was discontinued and replaced with the 1996 Stock
Option Plan (the "1996 Plan"). Under the 1996 Plan, Blaze Software has reserved
5,753,429 shares of common stock for issuance. In addition, in March 2000,
stockholders approved an increase in the number of shares available under the
1996 Plan by 1,250,000. In March 2000, stockholders approved the 2000 Stock Plan
(the "2000 Plan") and reserved 250,000 shares of common stock for future
issuance under this plan.
Options granted under the 1996 Plan and the 2000 Plan (the "Plans") may be
incentive stock options or nonqualified stock options and shall be granted at a
price not less than 100% or 85% of fair market value, respectively, or at a
price not less than 110% of fair market value under certain circumstances. Fair
market value (as defined in the Plans) and the vesting, of these options shall
be determined by Blaze Software's Board of Directors. The options expire no
later than 10 years from the date of grant. Unvested options on termination of
employment are canceled and returned to the Plans. Options can be exercised from
the date of issuance, even though they have not fully vested. Such shares are
subject to repurchase on a pro rata basis over a four-year period from the date
of issuance. As of March 31, 2000 and 1999, there were approximately 734,400 and
73,500 shares, respectively, subject to repurchase, at a weighted average price
of $ 0.73 per share and $0.56 per share, respectively. During fiscal year 2000
and 1999, approximately 13,100 and 157,500 shares, respectively, were
repurchased.
Shares acquired under the Plans are subject to Stock Purchase Agreements,
which provide Blaze Software with a right of first refusal and grant Blaze
Software repurchase rights for unvested shares, at their original cost.
Options granted under the Plans have a term of ten years measured from the
grant date and are initially unvested. Participants vest in the option shares
granted over a four-year period with (i) twenty-five percent of the option
shares vesting upon the completion of one year of service, and (ii) the balance
of the option shares in thirty-six successive equal monthly installments upon
the participants completion of each additional month of service.
All Blaze Software, Inc. options outstanding on September 29, 2000 were
converted into options to purchase Brokat's common stock and adjusted to give
effect to the acquisition exchange ratio.
21
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of the status of Blaze Software's stock option plans as of
September 29, 2000, March 31, 1998, 1999, and 2000 and changes during the years
ended on these dates is presented below (in thousands, except per share
amounts):
OPTIONS OUTSTANDING
------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER EXERCISE
FOR OF PRICE PER
GRANT SHARES SHARE
--------- ------ ---------
Options outstanding at April 1, 1998 5 1,306 $ 0.59
Additional shares reserved 104 -- $ --
Granted (625) 625 $ 0.80
Exercised -- (98) $ 0.57
Canceled 637 (637) $ 0.59
----- -----
Options outstanding at March 31, 1999 121 1,196 $ 0.70
Additional shares reserved 5,706 -- $ --
Granted (4,970) 4,970 $ 1.83
Exercised -- (1,486) $ 0.51
Canceled 202 (202) $ 1.42
----- -----
Options outstanding at March 31, 2000 1,059 4,478 $ 1.98
Additional shares reserved -- -- $ --
Granted (485) 485 $12.48
Exercised -- (255) $ 1.28
Canceled 164 (164) $ 7.00
----- -----
Options outstanding at September 29, 2000 738 4,544 $ 3.00
===== =====
Blaze options assumed by Brokat -- 4,544
===== =====
2000 EMPLOYEE STOCK PURCHASE PLAN
In February 2000, the Board of Directors adopted the 2000 Employee Stock
Purchase Plan (the "ESPP"), which is designated to allow eligible employees of
the Company to purchase shares of common stock at semiannual intervals through
periodic payroll deductions. An aggregate of 750,000 shares of common stock have
been reserved for the ESPP, and no shares have been issued through March 31,
2000. The ESPP permits eligible employees to purchase common stock through
payroll deductions of up to 15% of an employee's compensation, up to a maximum
of $25,000 for all purchases ending within the same calendar year. Each offering
period will run for twenty-four months and consist of four six-month purchase
periods. The price at which common stock will be purchased under the ESPP is
equal to 85% of the fair market value of the common stock on the first day of
the offering period or the last day of each purchase period, whichever is lower.
Effective September 29, 2000, this plan was terminated and assumed by Brokat.
22
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
STOCK-BASED COMPENSATION
In connection with certain stock option grants during the nine month period
ended December 31, 2000, Blaze Software recorded stock-based compensation
expense totaling $13.2 million, which is being amortized in accordance with FASB
Interpretation No. 28 over the vesting periods of the related options, which is
generally four years. Stock-based compensation amortization expense has been
allocated across the relevant functional expense categories. Amounts previously
repeated have been reclassified to conform with current period presentation. The
reclassification has no impact on the previously reported net loss. Stock-based
compensation was allocated across the relevant functional expense categories
within operating expenses as follows (in thousands):
PREDECESSOR SUCCESSOR
----------------------------------------------- -------------------------
FOR THE FOR THE FOR THE FOR THE
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
FOR THE YEAR ENDED APRIL 1, JANUARY 1, SEPTEMBER 30, JANUARY 1,
MARCH 31, 2000 TO 2000 TO 2000 TO 2001 TO
-------------------- SEPTEMBER 29, JUNE 30, DECEMBER 31, JUNE 30,
1999 2000 2000 2000 2000 2001
------- ------- ------------ ----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
Cost of sales $ -- $ 787 $ 936 $ 1,006 $ 1,013 $ 894
Research and development -- 3,651 2,038 2,126 1,499 972
Selling and marketing -- 3,513 3,032 3,326 1,624 1,000
General and administrative -- 8,449 2,093 2,222 925 811
------- ------- ------- ------- ------- -------
$ -- $16,400 $ 8,099 $ 8,680 $ 5,061 $ 3,677
======= ======= ======= ======= ======= =======
FAIR VALUE DISCLOSURES
The following information concerning Blaze Software's stock option plans is
provided in accordance with SFAS No. 123. Blaze Software accounts for such plans
in accordance with APB No. 25.
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes options-pricing model with the following weighted
average assumptions for grants:
PREDECESSOR
-----------------------------------------------------------------
FOR THE FOR THE
PERIOD FROM PERIOD FROM
FOR THE YEAR ENDED APRIL 1, JANUARY 1,
MARCH 31, 2000 TO 2000 TO
----------------------- SEPTEMBER 29, JUNE 30,
1999 2000 2000 2000
---- ---- ------------ -----------
(UNAUDITED)
Risk-free interest rate 4.7% 5.7% 6.3% 6.6%
Expected life 5 years 5 years 5 years 5 years
Dividend yield -- -- 0% 0%
Expected volatility 0% 0% 90% 90%
23
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options are amortized over the option's vesting period. Blaze Software pro forma
information follows (in thousands, except per share amounts):
PREDECESSOR PREDECESSOR
------------------------------------- -----------
FOR THE FOR THE
PERIOD FROM PERIOD FROM
FOR THE YEAR ENDED APRIL 1, JANUARY 1,
MARCH 31, 2000 TO 2000 TO
------------------- SEPTEMBER 29, JUNE 30,
1999 2000 2000 2000
---- ---- ------------ -----------
(UNAUDITED)
Net loss attributable to common stockholders $(6,858) $(35,948) $(28,436) $(15,951)
======= ======== ======== ========
Net loss--FAS 123 adjusted $(6,896) $(36,119) $(31,695) $(18,847)
======= ======== ======== ========
Net loss per share--as reported
Basic and diluted $ 18.49 $ (6.22)
======= ========
Net loss per share--FAS 123 adjusted
Basic and diluted $(18.59) $ (6.25)
======= ========
The weighted-average fair value of options granted in fiscal 2000 and 1999
was $0.44 and $0.18, respectively.
NOTE 11 - COMPREHENSIVE INCOME:
Under Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"). Blaze Software displays all items required to
be recognized under accounting standards as components of its comprehensive
income.
The comprehensive loss presented in the accompanying statements of
operations consists of the net unrealized gains and losses on
available-for-sale-investments and foreign currency translation adjustments, net
of the related tax effects for all periods presented. The tax effects for other
comprehensive income were immaterial for all periods presented. The balances for
each component of accumulated other comprehensive income are as follows (in
thousands):
PREDECESSOR SUCCESSOR PREDECESSOR SUCCESSOR
----------------------------------- ----------- ----------- -----------
FOR THE FOR THE FOR THE FOR THE
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
FOR THE YEAR ENDED APRIL 1, SEPTEMBER 30, JANUARY 1, JANUARY 1,
MARCH 31, 2000 TO 2000 TO 2000 TO 2001 TO
------------------ SEPTEMBER 29, DECEMBER 31, JUNE 30, JUNE 30,
1999 2000 2000 2000 2000 2001
---- ---- ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Cumulative translation adjustments $ 290 $ 509 $ 394 $ 189 $ 373 $(508)
Unrealized gain/(loss) on investments -- (20) -- -- (55) --
----- ----- ----- ----- ----- -----
Accumulated other comprehensive income $ 290 $ 489 $ 394 $ 189 $ 318 $(508)
===== ===== ===== ===== ===== =====
24
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12 - COMMITMENTS AND CONTINGENCIES:
Blaze Software leases administrative, engineering and sales facilities in
the United States, the United Kingdom, France, Germany, Japan and Australia
under noncancelable operating leases that expire at various dates through 2005.
Blaze Software is generally responsible for insurance and property taxes. Blaze
Software's primary lease in San Jose, California, is subject to annual payment
increases based on the consumer price index. Blaze Software also leases computer
equipment under leases classified as capital leases.
The Company's primary building lease for its corporate headquarters is
collateralized by a certificate of deposit and is classified as restricted cash
in the accompanying balance sheets.
As of December 31, 2000, the aggregate future minimum lease payments under
all noncancelable leases are as follows (in thousands):
PERIOD ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------- ------ ---------
2001 $ 218 $ 2,555
2002 123 2,428
2003 -- 2,499
2004 -- 2,592
2005 -- 2,844
2006 -- 735
---- ------ --------
Total minimum lease payments 341 $ 13,653
========
Less: Amount representing interest (39)
------
Present value of capital lease obligation 302
Current portion (186)
------
Long-term portion $ 116
======
Rent expense for the period from January 1, 2001 to June 30, 2001, from the
period from January 1, 2000 to June 30, 2000, from the period April 1, 2000 to
September 29, 2000, September 30, 2000 to December 31, 2000 and for the years
ended March 31, 2000 and 1999 was approximately $1,773,000 (unaudited),
$1,395,000 (unaudited), $1,089,000, $697,000, $976,000 and $1,002,000,
respectively.
EMPLOYMENT AGREEMENTS
Blaze Software has entered into employment agreements with certain officers
of the Company. Some employment agreements also provide for severance in the
event the individual is terminated without cause.
LITIGATION
From time to time, Blaze Software may be involved in litigation relating to
claims arising out of its ordinary course of business. Management believes that
there are no claims or actions pending or threatened against Blaze Software, the
ultimate disposition of which would have a material impact on Blaze Software's
financial position or results of operations. Blaze Software received
notification of claims from a founder and director that he may assert against
the Company. He contends that his personal equity ownership of Blaze Software
was diluted improperly in connection with a preferred stock financing. Blaze
Software believes that these assertions are without merit and intends to
vigorously defend any claims that may be brought against the Company.
25
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 13 - INCOME TAXES:
The components of income tax expense consisted of the following (in
thousands):
PREDECESSOR SUCCESSOR
------------------------------------------------ ---------------
FOR THE FOR THE
PERIOD FROM PERIOD FROM
YEARS ENDED MARCH 31, APRIL 1, 2000 SEPTEMBER 30,
----------------------- TO SEPTEMBER 29, TO DECEMBER 31,
1999 2000 2000 2000
---- ---- --------------- ---------------
Current:
Federal $ -- $ -- $ -- $ --
Foreign 82 149 9 3
State 5 4 5 4
Deferred - federal and state -- -- -- --
---- ---- ---- ----
Income tax expense
$ 87 $153 $ 14 $ 7
==== ==== ==== ====
The components of net deferred tax assets were as follows (in thousands):
PREDECESSOR SUCCESSOR
------------------------------------------------ ------------
MARCH 31,
------------------------- SEPTEMBER 29, DECEMBER 31,
1999 2000 2000 2000
-------- -------- ------------- ------------
Accrued liabilities $ 576 $ 846 $ 1,283 $ 1,667
Deferred revenue 12 20 20 20
Net operating loss carryforwards 6,702 7,906 14,627 16,525
Credit carryforwards and other 1,428 2,099 2,242 2,230
-------- -------- -------- --------
8,718 10,871 18,172 20,442
Valuation allowance (8,718) (10,871) (18,172) (20,442)
-------- -------- -------- --------
Net deferred tax assets $ -- $ -- $ -- $ --
======== ======== ======== ========
Due to the uncertainty surrounding the realization of the deferred tax
asset in future tax returns, Blaze Software has placed a valuation allowance
against its net deferred tax assets. The increase in the valuation allowance is
primarily due to net operating loss incurred.
26
BLAZE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Blaze Software's expected U.S. Federal statutory income tax rate (34%)
differs from the effective tax rate as follows:
PREDECESSOR
----------------------
FOR THE PERIOD
YEARS ENDED MARCH 31, FROM APRIL 1, 2000
---------------------- TO DECEMBER 31,
1999 2000 2000
---- ---- ------------------
"Expected" income benefit (34.0)% (34.0)% (34)%
Net operating loss not benefited 34.0 10.5 24.7
Foreign income and withholding taxes 1.6 1.0 1.0
Stock compensation -- 23.5 4.6
----- ----- ----
Effective tax rate 1.6% 1.0% (0.7)%
===== ===== ====
At June 30, 2001 (unaudited), the Company had available net operating loss
carryforwards of approximately $58,429,000 and $17,125,000 to offset future
federal and state taxable income, respectively. At June 30, 2001 (unaudited),
Blaze Software also had available research and development credit carryforwards
and other credit carryforwards of approximately $1,330,000 and $494,000 to
offset future federal and state taxable income, respectively, and foreign tax
credits of approximately $322,000 available to offset future federal taxable
income. These carryforwards expire from 2000 to 2010. The Company's results are
included in the combined income tax return of Brokat and have been computed on a
separate return basis. For federal and state tax purposes (unaudited), a portion
of Blaze Software's net operating loss carryforwards may be subject to certain
limitation on annual utilization in case of a change in ownership, as defined by
federal and state tax law.
27