Exhibit 99.4
ALTRA SOFTWARE SERVICES, INC.
UNAUDITED BALANCE SHEET AS OF SEPTEMBER 30, 2001 AND
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS AND CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
The following information represents the unaudited consolidated balance sheet of
Altra Software Services, Inc. as of September 30, 2001 and the consolidated
statements of operations and comprehensive loss, and cash flows for the nine
months ended September 30, 2001 and 2000.
Basis of Presentation
The unaudited consolidated financial statements included herein have been
prepared by Altra Software Services, Inc. ("Altra"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. These unaudited consolidated
financial statements should be read in conjunction with the financial
statements and the notes thereto included herein for the year ended December
31, 2000. The unaudited consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments),
which are, in the opinion of management, necessary to state fairly the results
for the periods presented. The results for the nine-month period ended
September 30, 2001 are not necessarily indicative of the results expected for
the full fiscal year.
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ALTRA SOFTWARE SERVICES, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2001
(IN THOUSANDS)
SEPTEMBER 30,
2001
-------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 162
Accounts receivable, net of allowance for doubtful accounts of $1,693 5,195
Prepaid expenses and other current assets 953
--------
Total Current Assets 6,310
PROPERTY AND EQUIPMENT, net 2,403
INTANGIBLE ASSETS, net 4,311
--------
Total Assets $ 13,024
========
LIABILITIES AND NET PARENT DEFICIT
CURRENT LIABILITIES:
Bank borrowings outstanding $ 97
Accounts payable 3,073
Accrued expenses and other current liabilities 7,675
Deferred revenue 5,521
--------
Total Current Liabilities 16,366
COMMITMENTS AND CONTINGENCIES
NET PARENT DEFICIT (3,342)
--------
Total liabilities and net parent deficit $ 13,024
========
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ALTRA SOFTWARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 2001
(in thousands)
September 30, September 30,
2000 2001
------------- -------------
(Unaudited) (Unaudited)
REVENUES:
Software licenses 7,332 9,263
Professional services 5,446 8,106
Maintenance 4,905 5,599
-------- --------
Total revenues 17,683 22,968
-------- --------
COSTS AND EXPENSES:
Cost of professional services and maintenance
exclusive of stock-based expense of $176 and $376,
respectively 9,995 11,760
Research and development, exclusive of stock-based
expense of $419 and $297, respectively 11,318 8,487
Selling and marketing, exclusive of stock-based
expense of $189 and $147, respectively 5,981 4,745
General and administrative, exclusive of stock-based
expense of $181 and $72, respectively 5,964 3,477
Amortization of acquired intangible assets 4,631 1,838
Stock-Based expenses 965 892
-------- --------
Total costs and expenses 38,854 31,199
-------- --------
OPERATING LOSS (21,171) (8,231)
INTEREST INCOME 55 27
INTEREST EXPENSE (1,337) (1,302)
OTHER EXPENSE (139) (76)
-------- --------
NET LOSS $(22,592) $ (9,582)
======== ========
COMPREHENSIVE LOSS:
Net loss (22,592) (9,582)
Foreign currency translation adjustment 82 (153)
-------- --------
Total comprehensive loss $(22,510) $ (9,735)
======== ========
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ALTRA SOFTWARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 2001
(in thousands)
September 30, September 30,
2000 2001
------------- -------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (22,592) (9,582)
Non-cash items included in net loss-
Depreciation 1,011 843
Amortization of acquired intangible assets 4,631 1,838
Allowance for doubtful accounts (621) 99
Stock-based expenses 965 892
Changes in operating assets and liabilities-
Accounts receivable (2,377) 2,498
Prepaid expenses and other current assets 341 (536)
Other non-current assets 520 54
Accounts payable (963) (100)
Accrued expenses and other current liabilities 1,828 943
Deferred revenue 3,655 (4,437)
-------- --------
Net cash used in operating activities (13,602) (7,488)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,592) (1,451)
Acquisitions, net of cash acquired (432) (1,855)
-------- --------
Net cash used in investing activities (2,024) (3,306)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term bank loans (3) --
Net Parent Company Investment 12,792 10,636
-------- --------
Net cash provided by financing activities 12,789 10,636
-------- --------
EFFECT OF TRANSLATION EXCHANGE RATE CHANGES ON CASH 82 (153)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,755) (311)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,782 473
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,027 $ 162
======== ========
SUPPLEMENTAL CASH FLOW AND NON-CASH INVESTING
AND FINANCING INFORMATION:
Cash paid for interest $ 2,251 $ 3,020
======== ========
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ALTRA SOFTWARE
Financial Statements
As of December 31, 2000
Together With Auditors' Report
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Caminus Corporation:
We have audited the accompanying balance sheets of Altra Software (as described
in Note 1) as of December 31, 1999 and 2000, and the related statements of
operations and comprehensive loss, net parent investment (deficit) and cash
flows for the years ended December 31, 1998, 1999 and 2000. These financial
statements are the responsibility of Altra Software's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform 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 Altra Software as of December
31, 1999 and 2000, and the results of its operations and its cash flows for the
years ended December 31, 1998, 1999 and 2000, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that Altra
Software will continue as a going concern. As discussed in Note 1 to the
financial statements, Altra Software has a limited operating history, which
includes substantial cash used in operations and losses since its inception.
These factors raise substantial doubt about Altra Software's ability to continue
as a going concern. Management's plans in regard to these matters are described
in Note 1. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts,
including intangible and other assets, or the amount and classification of
liabilities that might result should Altra Software be unable to continue as a
going concern.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
December 20, 2001
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ff ALTRA SOFTWARE
BALANCE SHEETS--DECEMBER 31, 1999 AND 2000
(In Thousands)
1999 2000
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,782 $ 473
Accounts receivable, net of allowance for doubtful accounts of $2,560
and $1,594, respectively 7,099 7,791
Prepaid expenses and other current assets 791 417
-------- --------
Total current assets 11,672 8,681
PROPERTY AND EQUIPMENT, net 3,153 1,761
INTANGIBLE ASSETS, net 15,020 4,302
OTHER ASSETS 670 54
-------- --------
Total assets $ 30,515 $ 14,798
======== ========
LIABILITIES AND NET PARENT INVESTMENT (DEFICIT)
CURRENT LIABILITIES:
Bank borrowings outstanding $ 100 $ 97
Accounts payable 2,273 3,173
Accrued and other current liabilities 4,674 6,731
Deferred revenue 5,590 9,958
-------- --------
Total current liabilities 12,637 19,959
COMMITMENTS AND CONTINGENCIES
NET PARENT INVESTMENT (DEFICIT) 17,878 (5,161)
-------- --------
Total liabilities and net parent investment (deficit) $ 30,515 $ 14,798
======== ========
The accompanying notes are an integral part of these financial statements.
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ALTRA SOFTWARE
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 1998, 1999 AND 2000
(In Thousands)
1998 1999 2000
-------- -------- --------
REVENUES:
Software licenses $ 4,868 $ 8,908 $ 11,505
Professional services 7,674 9,279 6,515
Maintenance 2,673 4,191 6,445
-------- -------- --------
Total revenues 15,215 22,378 24,465
-------- -------- --------
COSTS AND EXPENSES:
Cost of professional services and maintenance exclusive of
stock-based expenses of $-, $132 and $257, respectively 6,470 12,663 12,625
Research and development, exclusive of stock-based
expenses of $-, $118 and $611, respectively 6,790 13,549 15,116
Selling and marketing, exclusive of stock-based expenses
of $-, $36 and $276, respectively 4,890 5,632 7,734
General and administrative, exclusive of stock-based
expenses of $-, $46 and $264, respectively 2,648 4,043 7,597
Amortization of acquired intangible assets 623 3,517 12,702
Stock-based expenses -- 332 1,408
Acquired in-process research and development costs -- 1,372 --
-------- -------- --------
Total costs and expenses 21,421 41,108 57,182
-------- -------- --------
OPERATING LOSS (6,206) (18,730) (32,717)
INTEREST AND OTHER EXPENSE (248) (2,056) (2,427)
INTEREST AND OTHER INCOME -- 136 96
-------- -------- --------
NET LOSS $ (6,454) $(20,650) $(35,048)
======== ======== ========
COMPREHENSIVE LOSS:
Net loss $ (6,454) $(20,650) $(35,048)
Foreign currency translation adjustment -- (32) 37
-------- -------- --------
Total comprehensive loss $ (6,454) $(20,682) $(35,011)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
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ALTRA SOFTWARE
STATEMENTS OF NET PARENT INVESTMENT (DEFICIT)
FOR THE YEARS ENDED DECEMBER 1998, 1999 AND 2000
(In Thousands)
BALANCE, December 31, 1997 $ 1,546
Changes in net parent investment 4,247
Net loss (6,454)
--------
BALANCE, December 31, 1998 (661)
Currency translation adjustment (32)
Change in net parent investment 39,221
Net loss (20,650)
--------
BALANCE, December 31, 1999 17,878
Currency translation adjustment 37
Change in net parent investment 11,972
Net loss (35,048)
--------
BALANCE, December 31, 2000 $ (5,161)
========
The accompanying notes are an integral part of these financial statements.
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ALTRA SOFTWARE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(In Thousands)
1998 1999 2000
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,454) $(20,650) $(35,048)
Non-cash items included in net loss-
Depreciation 335 786 2,090
Amortization of acquired intangible assets 623 3,517 12,702
Acquired in-process research and development costs -- 1,372 --
Allowance for doubtful accounts 79 496 446
Stock-based expenses -- 332 1,408
Changes in operating assets and liabilities-
Accounts receivable 1,723 (962) (1,138)
Prepaid expenses and other current assets (98) 270 374
Other non-current assets -- 675 616
Accounts payable (1,507) (2,189) 900
Accrued and other current liabilities 491 (257) 645
Deferred revenue (21) 479 4,368
-------- -------- --------
Net cash used in operating activities (4,829) (16,131) (12,637)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions (329) (1,565) (1,820)
Acquisitions, net of cash acquired -- (9,967) (858)
-------- -------- --------
Net cash used in investing activities (329) (11,532) (2,678)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net parent company investment 4,247 33,021 11,972
Short-term bank loan proceeds (payments) 907 (1,660) (3)
-------- -------- --------
Net cash provided by financing activities 5,154 31,361 11,969
-------- -------- --------
EFFECT OF TRANSLATION EXCHANGE RATE CHANGES ON CASH -- (32) 37
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4) 3,666 (3,309)
CASH AND CASH EQUIVALENTS, beginning of year 120 116 3,782
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 116 $ 3,782 $ 473
======== ======== ========
The accompanying notes are an integral part of these financial statements.
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ALTRA SOFTWARE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations and Basis of Presentation
Altra Software represents the software business of Altra Energy Technologies,
Inc. and subsidiaries ("Altra"), which provides end-to-end electronic commerce
and enterprise software solutions for buying, selling and transporting energy
products. Altra was incorporated in December 1997 when the members' equity of
Altra Energy Technologies, L.L.C., the predecessor entity, was acquired by a
consortium of investors and reorganized as a Delaware corporation. Altra
Software's enterprise software systems provide mid- and back-office solutions
for managing energy trading and transportation transactions. Altra Software
markets its software solutions principally in North America using its own
employee-based direct sales organization and is headquartered in Houston, Texas.
The accompanying financial statements are presented on a carve-out basis for
Altra Software. The financial statements were prepared as if Altra Software had
operated as a stand-alone entity (separate and distinct from Altra) for 1998,
1999 and 2000. Where specific assets, liabilities and operating expenses for
Altra Software were not separately identifiable, certain allocations of those
amounts reflected in the financial statements and notes to financial statements
of Altra Software have been made. Such allocations have been made on a
systematic basis, including but not limited to ratable revenue and relative
employee headcount and other activity measures. While Altra did not allocate its
subordinated debt to Altra Software, interest expense was allocated based upon
the relative balance of the net parent investment.
Altra Software has a limited operating history, which includes substantial cash
used in operations and losses since its inception. Altra Software's future
success is dependent upon a number of factors which include, among others,
achieving broader market acceptance for its software solutions, generating
sufficient sales volume, competing successfully with other providers of similar
products and services, technological obsolescence, managing its growth,
attracting and retaining key personnel and the ability to generate positive cash
flow from operations.
Altra Software has cash and cash equivalents of $473,000 at December 31, 2000.
Altra Software used approximately $12.6 million of cash in operations during the
year ended December 31, 2000, and has continued to use cash subsequent to 2000.
Altra Software received approximately $12 million in net parent investment in
2000 and will require substantial additional cash to fund its activities. These
factors raise substantial doubt about Altra Software's ability to continue as a
going concern.
Effective November 20, 2001, Altra sold Altra Software to Caminus Corporation
("Caminus"). The sales price consisted of $30.0 million in cash and 1,975,000
shares of Caminus common stock. The sales price is subject to adjustment based
on the results of certain potential adjustments to the November 20, 2001,
balance sheet of Altra Software, as provided for in the agreement of sale.
Caminus management intends to merge the activities of Altra Software into
Caminus to enhance the existing software business of Caminus.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the use of estimates and
assumptions by management affecting the reported amounts of assets and
liabilities and revenue and expenses and the disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
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Cash and Cash Equivalents
Cash included in the accompanying balance sheets represents cash in accounts
held specifically by Altra Software. All other cash balances and transactions
are attributed to intercompany financing transactions with Altra and are
included in the accompanying balance sheets as a component of the balance and
activity of net parent investment (deficit). Altra Software considers all highly
liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
Accounts Receivable
Altra Software recorded provisions to its allowance for doubtful accounts during
the years ended December 31, 1998, 1999 and 2000, of $79,000, $496,000 and
$446,000, respectively. Write-offs totaling $-, $341,000 and $1,412,000 were
charged against the allowance during the years ended December 31, 1998, 1999 and
2000, respectively. Altra Software acquired approximately $1,510,000 of
allowance through its acquisition of TransEnergy Holdings Corporation in June
1999.
Fair Values of Financial Instruments
At December 31, 2000, Altra Software has the following financial instruments:
accounts receivable, short-term borrowings and accounts payable. Management
believes that the carrying values of these financial instruments approximate
their respective fair values due to their short-term nature.
Property and Equipment
Property and equipment is carried at cost, less accumulated depreciation.
Maintenance, repairs and minor replacements are charged to expense as incurred;
significant renewals and betterments are capitalized. For financial reporting
purposes, depreciation is computed using the straight-line method over useful
lives ranging from three to five years. Leasehold improvements are depreciated
over the lesser of the useful lives of the underlying assets or the lease term.
Intangible and Other Assets
Intangible and other assets consist of values associated with goodwill,
developed technologies, established customer accounts, assembled work force,
employee non-compete agreements and software development costs, all existing at
Altra Software's date of reorganization or acquired pursuant to other business
combinations, described in Note 2, except software development costs.
Amortization of these intangibles is calculated on a straight-line basis over
their respective useful lives, estimated to be from 12 months to 24 months for
employee non-compete agreements, 36 months for assembled work force, customer
accounts and software development costs, and from 36 months to 48 months for
developed technologies and goodwill. Acquired in-process research and
development without alternative future use is expensed when acquired (see Note
4).
Impairment of Long-Lived Assets
Altra Software has adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of the expected
future cash flows from the use of the asset and its eventual disposition is less
than the carrying amount of the asset, an impairment loss is recognized based on
the fair value of the asset.
During 2000, management identified certain intangible assets where it deemed it
appropriate to fully accelerate amortization or to write down the asset where
the carrying value was not otherwise recoverable. These intangible assets
related to specific projects that were abandoned or were related to areas of
Altra Software's business that no longer supported their carrying value based
upon environmental changes in Altra Software's industry. Management evaluated
the useful lives and recoverability of those assets based upon their expected
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future revenue potential and their relation to the changed business environment.
Based upon these evaluations, Altra Software recognized aggregate accelerated
amortization and write-downs of $6,733,000 during 2000, which has been recorded
as amortization of acquired intangible assets in the accompanying statements of
operations and comprehensive loss.
Net Parent Investment
The net parent investment represents a net balance as the result of various
transactions between Altra and Altra Software. There are no terms of settlement
or interest charges associated with this balance, except for interest incurred
on subordinated notes of Altra. The balance is the result of Altra Software's
participation in Altra's centralized finance function and cash management
program, wherein Altra funded all of Altra Software's financing of operations.
Other transactions include administrative and support expenses incurred by Altra
and allocated to Altra Software.
Revenue Recognition
Altra Software generates revenues from the sale of software licenses, services
and maintenance agreements directly to end-users.
Altra Software recognizes software revenues in accordance with American
Institute of Certified Public Accountants Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," as amended. Revenue from software license
agreements is recognized when persuasive evidence of an agreement exists,
delivery of the product has occurred, no significant vendor obligations are
remaining to be fulfilled, the fee is fixed and determinable and collection is
deemed probable.
Service revenues are primarily derived from fees for integration, consulting and
training associated with Altra Software's enterprise software systems. Service
revenues and the related costs of services are recognized on a time and
materials basis; however, revenues from certain fixed-price contracts requiring
significant post-delivery obligations are recognized on the
percentage-of-completion basis, which involves the use of estimates. Actual
results could differ from those estimates and, as a result, future gross margin
on such contracts may be more or less than planned.
Maintenance revenues are derived from customer support agreements generally
entered into in connection with initial software license sales and subsequent
renewals. Such agreements generally provide for technical support and the right
to unspecified upgrades. Maintenance revenue is recognized ratably over the term
of the maintenance period, which is generally one year. Payments for maintenance
fees are generally received in advance.
When several elements, including software licenses, maintenance and support, and
professional services, are sold to a customer through a single contract, the
revenues from such multiple-element arrangements are allocated to each element
based upon the residual method, whereby the fair value of the undelivered
elements of the contract is deferred. Altra Software has established
vendor-specific objective evidence of fair value for maintenance and support and
professional services. Accordingly, software license fees are recognized under
the residual method for arrangements in which the software is licensed with
maintenance and support and/or professional services, and where the maintenance
and support and/or professional services are not essential to the functionality
of the delivered software. In those instances where professional services are
essential to the functionality of the software licenses, contract accounting is
applied to both the software license and services elements of the arrangement.
In the event a contract contains terms which are inconsistent with Altra
Software's vendor-specific objective evidence, all revenues from the contract
are deferred.
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Deferred Revenue
Deferred revenue represents amounts billed to or received from customers under
certain software license, service and maintenance agreements in advance of
satisfying revenue recognition criteria. The amounts deferred as of each balance
sheet date are expected to be recognized as revenue within 12 months of the
respective balance sheet date and, accordingly, are classified as current
liabilities.
Software Development Costs
Financial accounting standards require the capitalization of certain software
development costs after technological feasibility of the software has been
established. In the development of Altra Software's new products and
enhancements to existing products, the technological feasibility of the software
is generally not established until substantially all product development is
complete, including the development of a working model. As a result, software
development costs qualifying for capitalization have been insignificant and have
been charged to research and development expense in the period incurred prior to
2000. However, during 2000, Altra Software capitalized $619,000 for software
development costs incurred after technological feasibility had been established
and prior to the software becoming available for sale or marketing. Capitalized
software development costs are recorded as intangibles in the accompanying
balance sheets.
Under the provisions of SOP 98-1, Altra Software capitalizes costs associated
with software developed or obtained for internal use when the preliminary
project stage is completed and Altra Software management deems completion of the
project to be probable and that the software will be used for the function
intended. Capitalized costs include only (a) external direct costs of materials
and services consumed in developing or obtaining internal-use software and (b)
payroll and payroll-related costs for employees who are directly associated
with, and who devote time to, the internal-use software project. Capitalization
of such costs ceases no later than the point at which the project is
substantially complete and ready for its intended purpose.
Advertising and Marketing Costs
Costs of marketing activities and advertising expenditures are charged to
operations when the respective activities occur or the advertising is first
released. Advertising costs totaled $880,000, $969,000 and $1,812,000 during the
years ended December 31, 1998, 1999 and 2000, respectively.
Income Taxes
Altra accounts for income taxes in accordance with the liability method
prescribed by SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred income taxes reflect the impact of temporary differences between the
financial accounting and tax bases of assets and liabilities. Such differences
relate primarily to the capitalization, amortization and write-off of certain
intangibles, the deductibility of certain accruals and reserves and the effect
of tax loss and tax credit carryforwards not yet utilized. Deferred tax assets
are evaluated for realization based on a more-likely-than-not criteria in
determining if a valuation allowance should be provided.
Stock-Based Compensation
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," Altra
elected the method that requires disclosure of stock-based compensation. Because
of this election, Altra Software accounts for its employee stock-based
compensation plan under Accounting Principles Board ("APB") Opinion No. 25 and
the related interpretations. Accordingly, deferred compensation is recorded for
stock-based compensation grants to employees based on the excess of the
estimated fair value of the common stock on the measurement date over the
exercise price. The deferred compensation is amortized over the vesting period
of each unit of stock-based compensation. If the exercise price of the
stock-based compensation grant is equal to the estimated fair value of Altra
Software's stock on the date of grant, no compensation expense is recorded.
Additionally, for stock-based compensation grants to consultants, Altra Software
recognizes as compensation expense the fair
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value of such grants as calculated pursuant to SFAS No. 123, amortized ratably
over the lesser of the vesting period of the respective option or the
individual's expected service period. The statements of operations and
comprehensive loss as presented contain stock-based expenses related to
corporate-based options issued to employees in Altra Software.
Translation of Foreign Currency
Assets and liabilities are translated at the exchange rate as of the balance
sheet date. All revenue and expense accounts are translated at a weighted
average of exchange rates in effect during the year. Translation adjustments are
recorded as a separate component of net parent investment (deficit).
Segment Information
Altra Software operates in a single operating segment. Revenues are from the
sale of enterprise software solutions for buying, selling and transporting
energy products.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires all business combinations initiated after June
30, 2001, to be accounted for using the purchase method. Under SFAS No. 142,
goodwill and intangible assets with indefinite lives are no longer amortized but
are reviewed annually (or more frequently if impairment indicators arise) for
impairment. Separable intangible assets that are deemed to have indefinite lives
will continue to be amortized over their useful lives (but with no maximum
life).
The amortization provisions of SFAS No. 142 apply to goodwill and intangible
assets acquired after June 30, 2001. With respect to goodwill and intangible
assets acquired prior to July 1, 2001, SFAS No. 142 is effective for fiscal
years beginning after December 15, 2001. SFAS No. 141 and SFAS No. 142 are not
anticipated to have an impact on Altra Software's operating results or financial
condition.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. Under this
statement, the FASB established a single accounting model for valuation of
long-lived assets. The provisions of SFAS No. 144 are required to be applied to
Altra Software for the 2002 fiscal year and, as such, Altra Software will adopt
the statement on January 1, 2002.
2. ACQUISITIONS:
Energy Imperium, Inc.
On March 18, 1999, Altra acquired Energy Imperium, Inc. ("Energy Imperium"), a
privately held developer and marketer of enterprise risk management software
solutions for the energy industry. Altra issued 500,000 shares of its common
stock in exchange for acquiring certain assets and assuming certain liabilities
of Energy Imperium. The total Energy Imperium purchase price of $5.3 million
includes the estimated fair value of $1.2 million of the common stock issued,
cash payments of $4.0 million and other direct acquisition costs of $100,000.
The acquisition was accounted for as a purchase and resulted in the purchase
price being allocated to intangible assets totaling approximately $5.2 million
in the aggregate. The fair values of specific acquired intangible assets were
determined by an independent appraisal using a combination of methods. These
intangible assets include developed technology of $1.1 million, non-compete
agreements of $600,000, assembled work force of $500,000 and in-process research
and development of $900,000. The remaining purchase price of $2.1 million was
allocated to goodwill. Amounts assigned to intangibles are being amortized over
their estimated useful lives, while amounts assigned to acquired in-process
research and development have been immediately charged to operations (see Note
4).
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TransEnergy Holdings Corporation
On June 29, 1999, Altra acquired TransEnergy Holdings Corporation and
subsidiaries (collectively, "TransEnergy"), a privately held company which
designs, develops and markets computer software products for buying, selling and
transporting energy products. The total purchase price of $8.5 million includes
cash payments of $4.4 million, the estimated fair value of the preferred stock
issued ($3.2 million), net liabilities assumed of $700,000 and other direct
acquisition costs of $150,000.
The acquisition was accounted for as a purchase and resulted in the purchase
price being allocated to intangible assets totaling approximately $8.5 million
in the aggregate. The fair values of specific intangible assets were determined
by an independent appraisal using a combination of methods. These intangible
assets include goodwill of $5.0 million, customer lists of $2.8 million and
assembled work force of $690,000, and are being amortized over their estimated
useful lives.
Unified Information, Inc.
On December 3, 1999, Altra acquired Unified Information, Inc. ("Unified
Information"), a privately held computer software company. The total acquisition
date purchase price of $4.3 million includes cash payments of $2.0 million, net
liabilities assumed of $200,000, warrants issued to purchase 350,000 shares of
common stock with an estimated fair value of $1.8 million and other direct
acquisition costs of $200,000. The total purchase price is subject to adjustment
based on contingent consideration. The purchase agreement, as amended, provides
for additional cash purchase price based upon revenues from certain Unified
Information software products through December 2002. During 2000, Altra recorded
$858,000 of additional purchase price pursuant to the purchase agreement that
has been allocated to goodwill.
The acquisition was accounted for as a purchase and resulted in the purchase
price being allocated to intangible assets totaling $5.2 million in the
aggregate. The fair values of specific intangible assets were determined by an
independent appraisal using a combination of methods. These intangible assets
include assembled work force of $180,000, non-compete agreements of $170,000,
customer list of $580,000, technology license of $85,000, developed technology
of $2.0 million and in-process research and development of $470,000. The
remaining purchase price of $1.7 million was allocated to goodwill.
Pro Forma Information for 1999 Acquisitions
The following unaudited pro forma financial information for the years ended
December 31, 1998 and 1999, assumes the acquisitions of Energy Imperium,
TransEnergy and Unified Information had occurred on January 1, 1998. The pro
forma results do not purport to be indicative of either what would have occurred
had the acquisitions been made as of the respective dates or the results which
may occur in the future.
1998 1999
-------- -------
(In Thousands)
Revenues $ 34,283 $ 31,441
Net loss (22,344) (29,913)
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3. OTHER ASSETS:
Property and equipment consist of the following (in thousands):
December 31,
--------------------------
1999 2000
------- -------
Office equipment $ 2,658 $ 3,430
Office furniture 1,292 1,303
Leasehold improvements 348 262
------- -------
4,298 4,995
Less- Accumulated depreciation (1,145) (3,234)
------- -------
$ 3,153 $ 1,761
======= =======
Intangible assets consist of the following (in thousands):
December 31,
------------------------
1999 2000
-------- --------
Goodwill $ 9,232 $ 10,593
Developed technology 3,902 3,902
Established customer accounts and other intangibles 6,071 6,690
-------- --------
19,205 21,185
Less- Accumulated amortization (4,185) (16,883)
-------- --------
$ 15,020 $ 4,302
======== ========
4. ACQUIRED IN-PROCESS
RESEARCH AND DEVELOPMENT:
Energy Imperium, Inc.
On March 18, 1999, Altra acquired Energy Imperium, a privately held developer
and marketer of enterprise risk management software solutions for the energy
industry, for an aggregate $5.3 million purchase price. Energy Imperium was
involved in the development of energy risk management systems and technology for
the energy industry. The transaction was accounted for as a purchase, and the
excess purchase price over the estimated fair value of net tangible assets was
allocated to various intangible assets as discussed in Note 2. These assets are
being amortized as follows: one year for the non-compete agreements and three
years for the work force, developed technology and goodwill. In addition to the
intangible assets acquired, a $900,000 charge was recorded, representing the
write-off of in-process research and development ("IPR&D") costs.
The allocation of $900,000 represents the estimated fair value related to
incomplete projects based on risk-adjusted cash flows. At the date of the
acquisition, the projects associated with the IPR&D efforts had not yet reached
technological feasibility and had no alternative future uses. Accordingly, these
costs were expensed. At the acquisition date, Energy Imperium was conducting
development, engineering and testing activities associated with the completion
of next generations of its risk management products. The projects under
development, at the valuation date, were expected to address requirements in the
area of standardizing the existing risk management product to be adaptable with
other commodity trading environments.
At the acquisition date, Energy Imperium was approximately 60 percent complete
with the IPR&D projects. Energy Imperium anticipated that research and
development related to this project category would be completed in late 1999,
after which Energy Imperium expected to begin generating economic benefits from
the value of the completed IPR&D.
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In making its purchase price allocation, Altra considered present value
calculations of income, an analysis of project accomplishments and completion
costs and an assessment of overall contributions, as well as project risks. The
values assigned to IPR&D were determined by estimating the costs to develop the
purchased technology into commercially viable products, estimating the resulting
net cash flows from each project, excluding the cash flows related to the
portion of each project that was incomplete at the acquisition date, and
discounting the resulting net cash flows to their present value. Each of the
project forecasts was based upon future discounted cash flows, taking into
account the state of development of each in-process project, the cost to
complete that project, the expected income stream, the life cycle of the product
ultimately developed and the associated risks. The costs to complete the IPR&D
efforts were expected to be $800,000. A risk-adjusted discount rate of 38
percent was utilized to discount projected cash flows.
Unified Information, Inc.
On December 3, 1999, Altra acquired Unified Information, a privately held
computer software company, for an aggregate $4.3 million acquisition date
purchase price. Unified Information was involved in the development of software
management systems and technology for the energy industry. The transaction was
accounted for as a purchase, and the excess purchase price over the estimated
fair value of net tangible assets was allocated to various intangible assets as
discussed in Note 2. These assets are being amortized as follows: one year for
the non-compete agreements and three years for the work force, developed
technology and goodwill. In addition to the intangible assets acquired, a
$472,000 charge was recorded, representing the write-off of IPR&D.
The allocation of $472,000 represents the estimated fair value related to
incomplete projects based on risk-adjusted cash flows. At the date of the
acquisition, the projects associated with the IPR&D efforts had not yet reached
technological feasibility and had no alternative future uses. Accordingly, these
costs were expensed. At the acquisition date, Unified Information was conducting
development, engineering and testing activities associated with the completion
of functionality and compliance with regulatory and voluntary requirements. The
projects under development, at the valuation date, were expected to address
requirements in the areas of generation dispatching, financial analysis and data
reporting, and OASIS and ISO interfacing.
At the acquisition date, Unified Information was approximately 40 percent
complete with the IPR&D projects. Unified Information anticipated that research
and development related to this project category would be completed in late
1999, after which Unified Information expected to begin generating economic
benefits from the value of the completed IPR&D.
In making its purchase price allocation, Altra considered present value
calculations of income, an analysis of project accomplishments and completion
costs and an assessment of overall contributions, as well as project risks. The
values assigned to IPR&D were determined by estimating the costs to develop the
purchased technology into commercially viable products, estimating the resulting
net cash flows from each project, excluding the cash flows related to the
portion of each project that was incomplete at the acquisition date, and
discounting the resulting net cash flows to their present value. Each of the
project forecasts was based upon future discounted cash flows, taking into
account the state of development of each in-process project, the cost to
complete that project, the expected income stream, the life cycle of the product
ultimately developed and the associated risks. The costs to complete the IPR&D
efforts were expected to be $338,000. A risk-adjusted discount rate of 35
percent was utilized to discount projected cash flows.
5. DEBT:
At December 31, 1999 and 2000, Altra Software had an outstanding balance of
$100,000 and $97,000, respectively, related to a line of credit, which is due on
demand, assumed in the acquisition of Unified Information.
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6. ACCRUED AND OTHER
CURRENT LIABILITIES:
Accrued and other current liabilities are as follows (in thousands):
December 31,
--------------------
1999 2000
------ ------
Professional services $ 614 $ 754
Payroll and other compensation 3,060 3,316
Unified Information purchase consideration -- 830
Contract services 370 635
Other 630 1,196
------ ------
$4,674 $6,731
====== ======
7. INCOME TAXES:
Income taxes for Altra have been computed on a consolidated basis. Based on
Altra's history of book and tax losses, no income tax provision has been
provided for 1998 through 2000. However, Altra has historically reported
deferred tax assets, generated in part by Altra Software, which primarily
related to net operating loss and tax credit carryforwards, amortization of
certain acquired intangibles, deferred revenue, allowance for doubtful accounts
and liabilities not currently deductible. As there was no assurance of future
taxable income, a valuation allowance was established to fully reserve Altra's
net deferred tax assets during 1998 through 2000.
8. EMPLOYEE RETIREMENT SAVINGS PLAN:
Altra has an employee retirement savings plan (the "Plan") which qualifies under
Section 401(k) of the Internal Revenue Code. The Plan is designed to provide
eligible employees with an opportunity to make regular voluntary contributions
into a long-term investment and savings program. Substantially all employees are
eligible to participate in the Plan upon commencement of employment. Employer
contributions are made solely at Altra's discretion. No employer contributions
were made to the Plan during the years ended December 31, 1998, 1999 and 2000.
9. CONCENTRATIONS OF CREDIT RISK:
Altra Software's potential concentrations of credit risk are derived from trade
accounts receivable associated with the sale of software licenses and related
services. Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of customers and their dispersion
across a number of geographic areas. Although Altra Software does not currently
foresee a concentrated credit risk associated with these receivables, repayment
is dependent upon the financial stability of these individual customers as well
as that of their respective industry sectors and national economies in which
they operate.
10. COMMITMENTS AND CONTINGENCIES:
Lease Agreements
Altra Software leases office facilities, furniture and equipment under
non-cancelable operating leases that expire at various dates through 2004. In
connection with these agreements, Altra Software incurred rental expenses
totaling $780,000, $1,725,000 and $1,525,000 for the years ended December 31,
1998, 1999 and 2000,
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respectively. During September 2001, Altra Software extended its office lease
for its corporate headquarters through July 31, 2004. Future minimum payments
related to non-cancelable lease agreements at December 31, 2000, including the
extended corporate office lease, are as follows (in thousands):
Year ending December 31-
2001 $ 1,006
2002 1,052
2003 1,067
2004 637
-------
$ 3,762
=======
Revenue-Sharing Commitments
In connection with the sale of certain customized software products, Altra
Software has entered into revenue-sharing commitments. Pursuant to these
commitments, Altra Software is required to pay, up to a limited amount, a
percentage of revenues generated from the subsequent licensing of those software
products. Through December 31, 2000, Altra Software has incurred an
insignificant amount of expense pursuant to these revenue-sharing commitments.
Litigation and Claims
Altra Software is subject to various legal proceedings and claims, either
asserted or unasserted, arising in the normal course of business. Management
believes that the outcome of any or all of these claims will not have a material
effect on the financial position of Altra Software.
Geographic Information
For management purposes, Altra Software's operations, including efforts directed
toward serving foreign customers, are operated from its principal location in
the United States. Altra Software has no significant long-lived assets located
outside the United States.
Revenues from external customers, by country of domicile, for the years ended
December 31, 1998, 1999 and 2000, are as follows (in thousands):
1998 1999 2000
------- ------- -------
United States $14,968 $18,695 $19,142
Mexico 155 194 30
Canada 93 2,504 1,652
Other -- 985 3,641
------- ------- -------
Total $15,216 $22,378 $24,465
======= ======= =======
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