SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): FEBRUARY 28, 2003
FORRESTER RESEARCH, INC.
(EXACT NAME OF REGISTRANT SPECIFIED IN CHARTER)
DELAWARE 000-21433 04-2797789
(STATE OR OTHER JURISDICTION (COMMISSION (I.R.S. EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
400 TECHNOLOGY SQUARE, CAMBRIDGE, MASSACHUSETTS 02139
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 613-6000
N/A
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
Forrester Research, Inc. hereby files Amendment No. 1 to its Current Report on
Form 8-K filed with the Securities and Exchange Commission on March 14, 2003.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The audited financial statements of Giga for the year ended December
31, 2002 and the notes thereto and the report of PricewaterhouseCoopers LLC,
independent accountants.
(b) Pro Forma Financial Information.
The unaudited pro forma combined condensed statements of income of
Forrester Research, Inc. for the year ended December 31, 2002 and the three
months ended March 31, 2003 and related notes.
(c) Exhibits.
99.1 Consent of Independent Accountants
ITEM 7 (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Giga Information Group, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' deficit and
of cash flows present fairly, in all material respects, the financial position
of Giga Information Group, Inc. and its subsidiaries at December 31, 2002 and
2001, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002 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.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 24, 2003
GIGA INFORMATION GROUP, INC
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31,
2002 2001
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 3,328 $ 1,118
Restricted cash 170 57
Trade accounts receivable, net of allowances of $1,012 and $1,128 at December 31,
2002 and 2001, respectively 18,017 15,879
Pledged accounts receivable -- 3,128
Unbilled accounts receivable 3,955 5,588
Prepaid expenses and other current assets 2,847 4,186
-------- --------
Total current assets 28,317 29,956
Restricted cash 501 620
Unbilled accounts receivable 1,603 1,399
Property and equipment, net 3,338 5,770
Goodwill 665 665
Other assets 1,390 1,346
-------- --------
Total assets $ 35,814 $ 39,756
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings $ -- $ 2,507
Current portion of capitalized lease obligations 254 325
Accounts payable 2,750 3,841
Deferred revenues 33,762 36,601
Accrued expenses and other current liabilities 7,278 7,593
-------- --------
Total current liabilities 44,044 50,867
Capitalized lease obligations, net of current portion -- 254
Deferred revenues 1,917 2,024
-------- --------
Total liabilities 45,961 53,145
-------- --------
Commitments and contingent liabilities (Note 13)
Stockholders' deficit:
Convertible Preferred Stock, $0.001 par value
Authorized - 5,000,000 shares
Issued and outstanding - none -- --
Common Stock, $0.001 par value
Authorized - 60,000,000 shares
Issued and outstanding - 10,783,529 and 10,666,021 shares at December 31,
2002 and 2001, respectively 11 11
Additional paid-in capital 83,102 82,899
Deferred compensation -- (67)
Accumulated deficit (94,687) (97,652)
Accumulated other comprehensive income 1,427 1,420
-------- --------
Total stockholders' deficit (10,147) (13,389)
-------- --------
Total liabilities and stockholders' deficit $ 35,814 $ 39,756
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
GIGA INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
Revenues:
Net research, advisory and consulting $ 60,229 $ 65,379 $ 61,737
Other, principally events 2,931 4,891 7,388
------------ ------------ ------------
Total revenues 63,160 70,270 69,125
Costs and expenses:
Cost of services 26,252 28,160 31,056
Sales and marketing 20,243 28,092 31,923
Research and development 1,041 1,102 2,174
General and administrative 9,155 9,054 9,084
Impairment and other charges -- 844 --
Restructuring charges -- 1,329 253
Depreciation and amortization 3,256 3,576 2,924
------------ ------------ ------------
Total costs and expenses 59,947 72,157 77,414
Income (loss) from operations 3,213 (1,887) (8,289)
Interest income 52 86 243
Interest expense (84) (293) 20
Other expense -- (164) --
Foreign exchange loss (35) (103) (231)
Minority interest -- 66 --
------------ ------------ ------------
Income (loss) from operations before income taxes 3,146 (2,295) (8,257)
Income tax provision (benefit) 181 140 (25)
------------ ------------ ------------
Net income (loss) $ 2,965 $ (2,435) $ (8,232)
============ ============ ============
Earnings (loss) per common share
Basic $ 0.28 $ (0.23) $ (0.80)
============ ============ ============
Diluted $ 0.26 $ (0.23) $ (0.80)
============ ============ ============
Weighted average common shares outstanding
Basic 10,726,170 10,572,594 10,270,695
============ ============ ============
Diluted 11,507,917 10,572,594 10,270,695
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
GIGA INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ADDITIONAL
COMMON PAID-IN DEFERRED COMPREHENSIVE
STOCK CAPITAL COMPENSATION INCOME (LOSS)
----- ------- ------------ -------------
Balance, December 31, 1999 $ 10 $80,664 $(983)
Issuance of 241,903 shares of common stock
under stock option plans 608
Issuance of 137,304 shares of common stock
under employee stock purchase plan 571
Exercise of warrants for 41,999 shares of
common stock in conjunction with the
Accounts Receivable Financing Agreement 126
Issuance of warrants to purchase 24,000
shares of common stock in conjunction with
the Accounts Receivable Financing Agreement 82
Compensation expense related to stock options 207 240
Deferred compensation for former employees (174) 174
Adjustment to carrying value of investment
in GigaGroup S.A. 812
Net loss $ (8,232)
Foreign currency translation adjustment 430
----- ------- ----- ----------
Total comprehensive loss $ (7,802)
==========
Balance, December 31, 2000 10 82,896 (569)
Issuance of 13,788 shares of common stock
under stock option plans 22
Issuance of 187,626 shares of common stock
under employee stock purchase plan 1 308
Revaluation of warrants 7
Issuance of 300,000 warrants 231
Compensation expense related to stock options (18) 145
Deferred compensation for former employees (547) 357
Net loss $ (2,435)
Foreign currency translation adjustment 82
----- ------- ----- ----------
Total comprehensive loss $ (2,353)
==========
Balance, December 31, 2001 11 82,899 (67)
Issuance of 5,625 shares of common stock
under stock option plans 5
Issuance of 111,883 shares of common stock
under employee stock purchase plan 161
Compensation expense related to stock options 37 67
Net income $ 2,965
Foreign currency translation adjustment 7
----- ------- ----- ----------
Total comprehensive income $ 2,972
==========
Balance, December 31, 2002 $ 11 $83,102 $ --
===== ======= =====
The accompanying notes are an integral part of the consolidated financial
statements.
GIGA INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT -- CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
INCOME DEFICIT DEFICIT
------ ------- -------
Balance, December 31, 1999 $ 908 $(86,985) $ (6,386)
Issuance of 241,903 shares of common stock
under stock option plans 608
Issuance of 137,304 shares of common stock
under employee stock purchase plan 571
Exercise of warrants for 41,999 shares of
common stock in conjunction with the
Accounts Receivable Financing Agreement 126
Issuance of warrants to purchase 24,000
shares of common stock in conjunction with
the Accounts Receivable Financing Agreement 82
Compensation expense related to stock options 447
Deferred compensation for former employees --
Adjustment to carrying value of investment
in GigaGroup S.A 812
Net loss (8,232) (8,232)
Foreign currency translation adjustment 430 430
-------- -------- --------
Total comprehensive loss
Balance, December 31, 2000 1,338 $(95,217) $(11,542)
Issuance of 13,788 shares of common stock
under stock option plans 22
Issuance of 187,626 shares of common stock
under employee stock purchase plan 309
Revaluation of warrants 7
Issuance of 300,000 warrants 231
Compensation expense related to stock options 127
Deferred compensation for former employees (190)
Net loss (2,435) (2,435)
Foreign currency translation adjustment 82 82
-------- -------- --------
Total comprehensive loss
Balance, December 31, 2001 1,420 $(97,652) $(13,389)
Issuance of 5,625 shares of common stock
under stock option plans 5
Issuance of 111,883 shares of common stock
under employee stock purchase plan 161
Compensation expense related to stock options 104
Net income 2,965 2,965
Foreign currency translation adjustment 7 7
-------- -------- --------
Total comprehensive income
Balance, December 31, 2002 $ 1,427 $(94,687) $(10,147)
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
GIGA INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31,
----------------------------------
2002 2001 2000
-------- -------- --------
Cash flows from operating activities:
Net income (loss) $ 2,965 $ (2,435) $ (8,232)
Adjustments to reconcile net income (loss) to cash provided by
(used in) operating activities, net of the effect of
acquisitions and divestitures:
Depreciation and amortization 3,256 3,576 2,924
Amortization of deferred financing costs 99 160 62
Minority interest -- (66) --
Provision for doubtful accounts and sales cancellations 77 1,192 (17)
Compensation expense related to stock options 113 (60) 444
Write-off of investment -- 164 --
Impairment and other charges - Gigaweb Information Group, Ltd. -- 844 --
Other, net (2) (2) (105)
Change in assets and liabilities:
Decrease (increase) in billed and unbilled accounts receivable 2,906 1,043 (3,509)
Decrease (increase) in prepaid expenses and other current assets 1,136 1,880 (1,290)
Decrease in other assets 112 10 17
(Decrease) increase in deferred revenues (3,370) (1,496) 2,848
(Decrease) increase in accounts payable and accrued liabilities (1,079) (3,484) 3,570
-------- -------- --------
Cash provided by (used in) operating activities 6,213 1,326 (3,288)
-------- -------- --------
Cash flows from investing activities:
Acquisition of equipment and improvements (807) (2,392) (2,765)
Purchase of Gigaweb Information Group, Ltd., net of cash acquired - -- (1,005) --
Note payable for 2001 acquisition of Gigaweb Information Group, Ltd. (642) 642 --
Investment in GigaGroup S.A (156) (250) (284)
Proceeds from maturities of marketable securities -- -- 801
Decrease (increase) in restricted cash 15 -- (365)
Other, net 6 10 (23)
-------- -------- --------
Cash used in investing activities (1,584) (2,995) (2,636)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of Common Stock under option plans and
employee stock purchase plan 166 331 1,179
Proceeds from issuance of Common Stock due to exercise of warrants -- -- 126
Net (payments ) borrowings under Accounts Receivable Financing Agreement (2,507) 1,155 1,352
Principal payments on long-term debt -- -- (426)
Principal payments under capital lease obligations (325) (304) (77)
-------- -------- --------
Cash (used in) provided by financing activities (2,666) 1,182 2,154
-------- -------- --------
Effect of exchange rates on cash 247 (35) 345
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 2,210 (522) (3,425)
Cash and cash equivalents, beginning of period 1,118 1,640 5,065
-------- -------- --------
Cash and cash equivalents, end of period $ 3,328 $ 1,118 $ 1,640
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
GIGA INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
(IN THOUSANDS, EXCEPT SHARE DATA)
Supplementary cash flow information:
Income taxes paid (refunded) $ 31 $ (20) $ --
======== ======== ========
Interest paid $ 87 $ 268 $ 78
======== ======== ========
Noncash investing and financing activities:
Purchase of equipment under capital lease obligations $ -- $ 530 $ 430
======== ======== ========
Purchase of 4,814 shares of Gigaweb Information Group, Ltd. for $1,216:
Fair value of assets acquired $ 1,588
Loss related to exercise of put option 332
Cash paid for capital stock (574)
Payable to former shareholder of Gigaweb Information Group, Ltd. (642)
--------
$ 704
========
The accompanying notes are an integral part of the consolidated financial
statements.
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
Giga Information Group, Inc. ("Giga") was incorporated on March 17, 1995
in the state of Delaware. Giga's principal business activity is to help clients
make better strategic decisions that are designed to maximize technology
investments and achieve business results. This is accomplished through a
combination of objective research, pragmatic advice and personalized consulting
on technology information available primarily through subscription-based
products. Giga derives its revenues primarily from two sources, (i) Research,
advisory and consulting services, which include Giga Advisory Service, including
Advisory Consulting, Web Site ScoreCard and TEI and (ii) Other Services, which
include principally events and conferences. Advisory Services consist of IT
research and analysis to support customers' business decisions. Services are
distributed primarily through electronic media, as well as inquiry access to
analysts and practitioners and participation in conferences, packaged into an
annually renewable subscription-based product.
On January 20, 2003, Giga entered into an Agreement and Plan of Merger
with Forrester Research, Inc. ("Forrester") to be acquired by Forrester, another
global technology advisory firm. Pursuant to the agreement, Forrester commenced
a tender offer for all of the outstanding common stock of Giga at a price of
$4.75 per share in cash. The tender offer expired at 12:00 midnight, New York
City time on February 24, 2003. 10,354,044 shares of Giga common stock were
tendered in the offer, representing approximately 93% of the outstanding common
stock of Giga as of February 24, 2003. Forrester will acquire the remaining
shares of outstanding common stock in a second-step merger in which all
remaining Giga stockholders who did not tender their shares in the tender offer
(and who do not exercise statutory appraisal rights) will receive the same $4.75
per share in cash paid in the tender offer.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of Giga Information Group, Inc.
include the accounts of Giga and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. Certain prior year
amounts have been reclassified to conform to the current year's presentation.
Giga's fiscal year end is December 31.
In July 2001, Giga purchased 2,383 shares of Gigaweb Information Group,
Ltd. ("Gigaweb Ltd"), increasing its ownership percentage from 7.8% to 53.4%.
Upon consummation of this transaction, Giga began consolidating the financial
results of Gigaweb Ltd. with its operations and recording minority interest
related to the ownership of outside stockholders of Gigaweb Ltd. Giga continued
to record the minority interest through December 31, 2001, the date on which
Giga acquired the remaining 2,431 outstanding shares of Gigaweb Ltd., increasing
its ownership of the entity from 53.4% to 100%.
Foreign Currency Translation
The functional currencies of Giga's wholly owned subsidiaries are the
respective local currencies. The financial statements of the subsidiaries are
translated to United States dollars using period-end exchange rates for assets
and liabilities and average exchange rates during the corresponding period for
revenues and expenses. Translation gains and losses as a result of this
translation are accumulated as a component of accumulated other comprehensive
(loss) income. Net losses resulting from foreign exchange transactions are
included in the consolidated statements of income for each of the years
presented.
Cash, Cash Equivalents and Restricted Cash
Cash equivalents consist primarily of highly liquid investments, with
original maturities of 90 days or less, in money market funds which are
convertible to a known amount of cash and bear an insignificant risk of change
in value.
Restricted cash in the amounts of $571,000 and $577,000 at December 31,
2002 and 2001 respectively, consists of certificates of deposit held for
irrevocable standby letters of credit that are security deposits related to
operating leases for premises located in Cambridge, Massachusetts, Munich,
Germany, and Frankfurt, Germany. Cash associated with these letters of credit
remains restricted for the term of the corresponding lease period with the
exception of $300,000, which will be reduced by $100,000 to $200,000 in 2003
since Giga achieved positive net income for the year ended December 31, 2002.
This amount may be further reduced by $100,000 to $100,000 in 2004 if Giga
achieves positive net income for the year ended December 31, 2003. The operating
lease for the premises located in Munich, Germany expired in the fourth quarter
of 2002 and was not renewed. As a result of the lease expiration, cash of
approximately 16,000 Euros associated with the letter of credit for this lease
was unrestricted as of December 31, 2002. Restricted cash in the amount of
$100,000 at December 31, 2002 and 2001 is held in a restricted certificate of
deposit as collateral for automated clearing house payments. In January 2003,
the requirement for securing the automated clearing house payments was decreased
by $70,000, thereby reducing the restricted certificate of deposit to $30,000.
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Concentration of Credit Risk
Financial instruments, which potentially subject Giga to concentrations of
credit risk, consist primarily of temporary cash investments in money market
funds, trade accounts receivable and other investments. Giga places its
temporary cash investments with high credit quality financial institutions in
accordance with its investment policy as approved by its board of directors.
Trade receivables result from contracts with various customers. Giga generally
does not require collateral or other security from these customers. Giga
performs ongoing credit evaluations of its customers and maintains reserves for
potential credit losses. Such losses have historically been within management's
expectations.
Other investments are comprised of equity securities of private companies
in which Giga makes selective investment for strategic purposes. Giga evaluates
these investments periodically to assess for impairment. During 2001, Giga
recorded an impairment loss of $164,000, included in the Consolidated Statement
of Operations under the caption "Other expense." This impairment loss was for
the write-off of an investment in a private company in the business of providing
media products pertaining to information technology. The assets of this company
were foreclosed upon by its senior secured creditor, leaving no assets with
which to pay any other creditors or common or preferred stockholders. Giga
believed the investment was permanently impaired and wrote off the full carrying
cost of the investment in 2001. Of Giga's remaining investments, aggregating
$1,240,000 at December 31, 2002, GigaGroup S.A. represents $1,215,000 (see Note
5).
Sale of Stock by Former Subsidiary
Giga records gains and losses arising from issuances of stock by its
subsidiaries directly to additional paid-in capital in accordance with the
provisions of Staff Accounting Bulletin ("SAB") No. 51, "Accounting for Sales of
Stock of a Subsidiary."
Income Taxes
Giga recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in Giga's consolidated
financial statements. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using currently enacted tax rates for the year in
which the differences are expected to reverse. Giga records a valuation
allowance against net deferred tax assets if, based upon the available evidence,
it is more likely than not that some or all of the deferred tax assets will not
be realized.
Revenue and Commission Expense Recognition
Subscription revenues from research, advisory and retainer-based
consulting are deferred and recognized monthly on a pro-rata basis over the
contract period, generally one year. Giga's policy is to record accounts
receivable and related deferred revenues for the full amount of the contract on
the date it is signed. Contracts are generally billable upon signing. Giga also
records the related commission obligation upon the signing of these contracts
and amortizes the corresponding deferred commission expense over the contract
period in which the related research, advisory and consulting revenues are
earned. In the event the customer cancels the contract, the commission is
refundable with respect to the portion related to the revenue that will not be
recognized.
Revenues from (i) Advisory Service (including Advisory Consulting), Web
Site ScoreCard and TEI are aggregated into Research, advisory and consulting and
(ii) Events and Conferences are aggregated into Other, principally events.
Revenues from project consulting, Web Site ScoreCard and TEI are recognized as
such services are completed. Revenues from events and conferences are recognized
as they occur.
Unbilled accounts receivable, the majority of which are due within one
year, primarily result from deferred billing terms offered in connection with
Giga's annual contracts.
Stock-Based Compensation
Giga has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation," and as amended by SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure - an
amendment of FAS 123," but applies APB No. 25 and related interpretations in
accounting for stock options. Accordingly, no compensation expense has been
recognized for the issuance of stock options except for grants deemed to be
compensatory options, as discussed in Note 14. Pursuant to the required pro
forma disclosure under the fair value method of estimating compensation cost,
Giga has estimated the fair value of its non-compensatory stock options by
applying the Black-Scholes method which considers volatility of the underlying
stock using risk free interest rates based on zero coupon Treasury instruments
with maturities similar to the estimated option term and assuming no dividends.
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Had compensation cost for Giga's stock option plans been determined
based on the Black-Scholes valuation at the grant date for awards in 2002, 2001
and 2000 consistent with the provisions of SFAS No. 123, Giga's net income
(loss) to common stockholders and net income (loss) per share to common
stockholders would have approximated the SFAS No. 123 pro forma amounts
indicated below (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31,
----------------------------------------
2002 2001 2000
---------- ---------- ----------
Net income (loss), as reported $ 2,965 $ (2,435) $ (8,232)
Deduct: Total stock-based employee compensation expense
determined under the fair value method for all awards, net
of related tax effects (1,898) (2,116) (2,085)
---------- ---------- ----------
Proforma net income (loss) $ 1,067 $ (4,551) $ (10,317)
========== ========== ==========
Earnings (loss) per common share
Basic - as reported $ 0.28 $ (0.23) $ (0.80)
Basic - proforma $ 0.10 $ (0.43) $ (1.00)
Diluted - as reported $ 0.26 $ (0.23) $ (0.80)
Diluted - proforma $ 0.09 $ (0.43) $ (1.00)
Since options vest over several years, the effects of applying SFAS No.
123 in this pro forma disclosure are not indicative of the effects on reported
net income for future years. SFAS No. 123 does not apply to awards prior to
1996.
Property and Equipment
Property and equipment are stated at cost. Property and equipment acquired
are recorded at the estimated fair market value of those assets at the date of
acquisition. Expenditures for maintenance and repairs are charged to expense;
expenditures for additions, renewals and betterments are capitalized.
Depreciation, which includes the amortization of assets recorded under
capital leases, is computed for financial reporting purposes principally by use
of the straight-line method over the following estimated useful lives:
Computers and related equipment 3 years
Furniture and fixtures 5 years
Motor vehicles 7 years
Leaseholds and related improvements Shorter of economic life or remaining lease term
Upon retirement or sale, the cost of assets disposed of and the related
accumulated depreciation is eliminated from the balance sheet and the resulting
gains or losses are reflected in income.
Costs incurred in connection with providing additional functions and
features to GigaWeb, Giga's interactive web site for information technology
research and discussion, are capitalized in accordance with the provisions of
Emerging Issues Task Force "("EITF") 00-02, "Accounting for Web Site Development
Costs." During 2001, Giga capitalized approximately $1.4 million of costs
incurred to upgrade GigaWeb.
Long-Lived Assets, including Goodwill
Giga regularly reviews long-lived assets for impairment. Any write-downs
are treated as permanent reductions in the carrying amount of the assets.
Management's policy regarding long-lived assets is to evaluate the
recoverability of its assets on a quarterly basis and when the facts and
circumstances suggest that these assets may be impaired. The test of such
recoverability is a comparison of the asset value to its expected undiscounted
future cash flows over the remaining life of the asset. This analysis relies on
a number of factors including operating results, business plans, budgets,
economic projections and changes in management's strategic direction or market
emphasis.
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities, (ii)
disclosure of contingent assets and liabilities at the dates of the financial
statements and (iii) the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Earnings (Loss) per Share
Giga computes basic and diluted earnings (loss) per share in accordance
with SFAS No. 128, "Earnings Per Share." Basic earnings (loss) per share is
computed using the weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed using the weighted average
number of common shares outstanding during the period plus the dilutive effect,
if any, of outstanding stock options and warrants using the treasury stock
method. Dilutive loss per share is computed using the weighted average number of
common shares outstanding during the period and excludes the dilutive potential
common shares outstanding, as their effect would be antidilutive. The table
below represents the calculation of both basic and diluted earnings (loss) per
share (in thousands, except per share data).
YEAR ENDED DECEMBER 31,
---------------------------------
2002 2001 2000
-------- -------- --------
Net income (loss) $ 2,965 $ (2,435) $ (8,232)
Basic weighted average common shares outstanding 10,726 10,573 10,271
Dilutive effect of stock options 634 -- --
Dilutive effect of warrants 148 -- --
-------- -------- --------
Diluted weighted average common shares outstanding 11,508 10,573 10,271
======== ======== ========
Basic earnings (loss) per common share $ 0.28 $ (0.23) $ (0.80)
Diluted earnings (loss) per common share $ 0.26 $ (0.23) $ (0.80)
Stock options and warrants to purchase 2,972,884 shares of common stock
for the year ended December 31, 2002 were outstanding but were not included in
the computation of diluted earnings per share because the exercise price of
these stock options and warrants was greater than the average market price of
the common stock for the period. Due to Giga's net loss for the years ended
December 31, 2001 and 2000, stock options and warrants to purchase 5,504,119 and
4,065,097 shares of common stock, respectively, were not included in the
computation of diluted loss per share, as their effect would have been
antidilutive.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes certain
changes in equity that are excluded from net income (loss). At December 31,
2002, accumulated other comprehensive income was comprised solely of cumulative
foreign currency translation adjustments. The individual components of
comprehensive income (loss) are reflected in the consolidated statement of
stockholders' deficit for the years ended December 31, 2002, 2001 and 2000.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations." SFAS No. 141 addresses financial
accounting and reporting for business combinations and supersedes APB Opinion
No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises." SFAS 141 requires that all business
combinations in the scope of this Statement to be accounted for using one
method, the purchase method. This Statement is effective for all business
combinations initiated after June 30, 2001 and for all business combinations
accounted for using the purchase
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
method for which the date of acquisition is July 1, 2001 or later. Giga followed
the guidance of SFAS No. 141 related to its acquisition of Gigaweb Ltd.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
"Intangible Assets." This Statement addresses how intangible assets that are
acquired individually or with a group of assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. This Statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. Goodwill and intangible assets acquired after June 30, 2001
are subject immediately to the nonamortization and amortization provisions of
SFAS No. 142. Giga adopted SFAS No. 142 during the first quarter of fiscal 2002.
As discussed in Note 4, Giga recorded an impairment charge related to goodwill
of $512,000 for the year ended December 31, 2001. If Gigaweb Ltd. continues to
experience a contraction in its subscription base or market conditions further
deteriorate, the remaining goodwill of $665,000 could become impaired in the
future. Since Giga acquired Gigaweb Ltd. after June 30, 2001, it did not record
amortization related to this transaction, and therefore Giga's adoption of SFAS
No. 142 did not have a significant effect on its financial position or its
results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and provides a single accounting model for long-lived
assets to be disposed of. This Statement is effective for fiscal years beginning
after December 15, 2001. Giga's adoption of SFAS No. 144 did not have a
significant effect on its financial position or its results of operations.
In January 2002, the Emerging Issues Task Force reached a final consensus
on Issue No. 01-14, "Income Statement Characterization of Reimbursements
Received for "Out-of-Pocket" Expenses Incurred" ("EITF 01-14"), formerly EITF
Abstracts, Topic No. D-103. In their final consensus, the Task Force concluded
that reimbursements received for out-of-pocket expenses incurred should be
characterized as revenue in the statement of operations. Giga incurs incidental
expenses in the delivery of its services that in practice are commonly referred
to as "out-of-pocket" expenses. These expenses include, but are not limited to,
travel and related charges. Accordingly, Giga adjusted revenue for all periods
reported to include the out-of-pocket expenses. Previously, these out-of-pocket
expense reimbursements were classified as a reduction of costs of services. This
change in classification had no effect on the current or previously reported net
income (loss) or earnings (loss) per share.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 rescinds SFAS No 4, "Reporting Gains and Losses from
Extinguishment of Debt," and an amendment of that Statement, SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," and SFAS
No. 44, "Accounting for Intangible Assets of Motor Carriers." SFAS No. 145 also
amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have the same economic effects
as sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of this Statement related to the rescission of SFAS No. 4 are
effective for fiscal years beginning after May 15, 2002. The provisions of this
Statement related to SFAS No. 13 are effective for transactions occurring after
May 15, 2002. All other provisions of this Statement are effective for financial
statements issued on or after May 15, 2002. Giga's adoption of SFAS No. 145 has
not had, and is not expected to have, a significant effect on its financial
position or its results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal." This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). SFAS No.
146 is effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. Management of Giga is
currently assessing the impact that the adoption of SFAS No. 146 will have on
Giga's financial position and results of operations.
In November 2002, the Emerging Issues Task Force reached a final consensus
on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF
00-21"). In their final consensus, the Task Force concluded that revenue
arrangements with multiple deliverables should be divided into separate units of
accounting if the deliverables meet a set of defined criteria and that
applicable revenue recognition criteria should be considered separately for
separate units of accounting. EITF 00-21 is effective for revenue arrangements
entered into in fiscal periods beginning after June 15, 2003. Management of Giga
is currently assessing the impact that the adoption of EITF 00-21 will have on
Giga's financial position and results of operations.
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, and Interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34." FIN
45 clarifies the requirements relating to guarantor's accounting for, and
disclosure of, the issuance of certain types of guarantees.
In November 2002, the FASB issued FIN No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107
and rescission of FASB Interpretation No. 34. The interpretation requires that a
guarantor recognize, at the inception of a guarantor, a liability for the fair
value of the obligation undertaken by issuing the guarantee. The interpretation
also requires additional disclosures to be made by a guarantor in its annual
financial statements about its obligations under certain guarantees it has
issued. The accounting requirements for the initial recognition of guarantees
are applicable on a prospective basis for guarantees issued or modified after
December 31, 2002. The disclosure requirements are effective for all guarantees
outstanding, regardless of when they were is sued or modified, for the year
ended December 31, 2002. The following is a summary of agreements that are
within the scope of FIN No. 45.
As permitted under Delaware law, the Company has agreements whereby it
indemnifies its officers and directors for certain events or occurrences while
the officer or director is, or was serving, at the Company's request in such
capacity. The term of the indemnification period runs until the expiration of
the applicable statute of limitations with respect to any claims against such
directors or officers arising out of such acts or omissions. The maximum
potential amount of future payments the Company could be required to make under
these indemnification agreements is unlimited; however, the Company has a
director and officer insurance policy that limits its exposure and enables it to
recover a portion of any future amounts paid. As a result of insurance policy
coverage, the Company believes the estimated fair value of these indemnification
agreements is minimal.
The Company enters into standard indemnification agreements in the
ordinary course of business. Pursuant to these agreements, the Company
indemnifies, holds harmless, and agrees to reimburse the indemnified party for
losses suffered or incurred by the indemnified party, generally business
partners or customers, in connection with any U.S. patent, or any copyright or
other intellectual property infringement claim by any third party with respect
to the Company's products. The term of these indemnification agreements is
generally perpetual any time after execution of the agreement. The maximum
potential amount of future payments the Company could be required to make under
these indemnification agreements is unlimited. The Company has never incurred
costs to defend lawsuits or settle claims related to these indemnification
agreements. As a result, the Company believes the estimated fair value of these
agreements is minimal.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FAS 123."
This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation,"
to provide alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of SFAS No. 123 to
require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. This Statement also amends Accounting Principles Board Opinion No.
28, "Interim Financial Reporting" ("APB No. 28"), to require disclosure about
those effects in interim financial statements. The amendments to SFAS No. 123
are generally effective for financial statements for fiscal years ending after
December 15, 2002. The amendment to APB No. 28 is effective for financial
reports containing condensed financial statements for interim periods beginning
after December 15, 2002. Giga's adoption of SFAS No. 148 has not had, and is not
expected to have, a significant effect on its financial position or its results
of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51," which requires all
variable interest entities (VIEs) to be consolidated by the primary beneficiary.
The primary beneficiary is the entity that holds the majority of the beneficial
interest in the VIE. In addition, the interpretation expands the disclosure
requirements for both variable interest entities that are consolidated as well
as VIEs from which the entity is the holder of a significant amount of
beneficial interests, but not the majority. FIN 46 is effective for all VIEs
created or acquired after January 31, 2003. For VIEs created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The adoption of this
interpretation is not expected to be material to Giga's consolidated financial
position or results of operations.
3. ACQUISITIONS
On July 9, 2001, Giga purchased 2,383 shares of common stock of Gigaweb
Ltd., which sells and markets Giga's research, advisory and consulting services
primarily in Israel, for $574,000. This transaction resulted from the exercise
of an option by a number of the outside shareholders of Gigaweb Ltd., pursuant
to a Stock Purchase Agreement. Under the terms of this option, Giga was required
to purchase the shares of Gigaweb Ltd. based on a fixed multiple of the
Annualized Value of Gigaweb Ltd. one month prior to the date of exercise.
Management believes the fixed multiple approximated fair value at the date of
acquisition, as compared to market multiples of other comparable companies. As a
result of this transaction, Giga's ownership of Gigaweb Ltd. increased from 7.8%
to 53.4%.
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On December 31, 2001, Giga purchased the remaining 2,431 shares of Gigaweb
Ltd. for $642,000 as a result of the exercise of the option held by the
remaining principal shareholder of Gigaweb Ltd, pursuant to a Letter Agreement
that amended the original Stock Purchase Agreement between Giga and the
shareholders of Gigaweb Ltd. ("Amended Agreement"). Under the terms of the
Amended Agreement, Giga was required to purchase the shares of Gigaweb Ltd.
based on a fixed multiple of the Annualized Value of Gigaweb Ltd. at December
31, 2001, or a defined minimum value. On the date the option was exercised, Giga
was required to pay the minimum value. The difference between the minimum value
and the fair value of the assets acquired was $332,000 and is included in the
Consolidated Statement of Operations under the caption "Impairment and other
charges." As a result of acquiring the remaining shares of Gigaweb Ltd., Giga's
ownership of Gigaweb Ltd. increased from 53.4% to 100%. As of December 31, 2001,
Giga had recorded an amount payable of $642,000 related to this transaction,
which is included in accrued expenses and other current liabilities in the
Consolidated Balance Sheet at December 31, 2001. This amount was paid in full by
April 2002.
While immaterial to Giga's consolidated results, the results of Gigaweb
Ltd.'s operations have been included in Giga's consolidated results as of the
date of acquisition.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition (in thousands):
JULY 9, 2001 DECEMBER 31, 2001 TOTAL
------------ ----------------- ---------
Current assets $ 248 $ 100 $ 348
Property and equipment 37 26 63
Goodwill 689 488 1,177
-------- -------- --------
Total assets acquired 974 614 1,588
-------- -------- --------
Current liabilities 141 73 214
Long-term liabilities 259 231 490
-------- -------- --------
Total liabilities assumed 400 304 704
-------- -------- --------
-------- -------- --------
Net assets acquired $ 574 $ 310 $ 884
======== ======== ========
The unaudited proforma information below assumes that Gigaweb Ltd. had
been acquired on January 1, 2000. This is presented for informational purposes
only and is not necessarily indicative of the results of future operations or
results that would have been achieved had the acquisition taken place at the
beginning of 2000.
YEAR ENDED DECEMBER 31,
---------------------------
(in thousands, except per share data - unaudited) 2001 2000
-------- --------
Revenue - proforma $ 70,640 $ 69,617
Net loss - proforma $ (2,632) $ (8,477)
Net loss per share (basic and diluted) - proforma $ (0.25) $ (0.83)
4. GOODWILL
Due to significant deterioration in the financial performance of Gigaweb
Ltd. during the second half of fiscal 2001 (including continued operating losses
and a 47% decline in its Annualized Value), management performed a review of the
goodwill acquired and determined that an impairment occurred in 2001. Giga's
management based its analysis on the guidance provided in SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." Management's analysis concluded that the sum of the expected
future cash flows (undiscounted and without interest charges) was less than the
carrying amount of Gigaweb Ltd. and an impairment loss was recognized in
accordance with SFAS No. 121. Giga calculated this impairment charge as the
difference between the carrying amount and fair value of the asset, with fair
value being estimated based on a multiple of Annualized Value, as determined by
the market value of other comparable businesses. Giga recorded an impairment
loss of $512,000 for the year ended December 31, 2001, which is included in the
Consolidated Statement of Operations under the caption "Impairment and other
charges."
In accordance with SFAS No. 142, Giga's management performed an annual
goodwill impairment test in 2002. Management based its analysis on the guidance
provided by SFAS No. 142 and concluded that the fair value of the asset exceeded
the carrying amount of the asset. Based on this conclusion, Giga did not record
an impairment charge for the year ended December 31, 2002.
The table below presents the changes in the carrying amount of goodwill
for the year ended December 31, 2002 and 2001 (in thousands):
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEAR ENDED DECEMBER 31,
2002 2001
-------- --------
Goodwill balance at beginning of period $ 665 $ --
Goodwill acquired during the year -- 1,177
Impairment loss -- (512)
-------- --------
Goodwill balance at end of period $ 665 $ 665
======== ========
5. SALE OF STOCK BY FORMER SUBSIDIARY:
On September 6, 2000, Giga Information Group S.A., Giga's former
wholly-owned subsidiary in Paris, France that sold and marketed research,
advisory and consulting services in France, Belgium, Luxembourg and Switzerland,
issued 482,484 shares of its common stock to new investing parties for 4,467,802
Euros or 9.26 Euros per share. Giga records gains and losses arising from
issuances of stock by its subsidiaries directly to additional paid-in capital in
accordance with the provisions of SAB No. 51, "Accounting for Sales of Stock of
a Subsidiary." Accordingly, Giga decreased the carrying value of its investment
in Giga Information Group S.A., now called GigaGroup S.A., and increased
additional paid-in capital by $812,000, representing the difference between the
carrying value of Giga's investment in GigaGroup S.A. prior to the transaction
and the fair value of the investment as determined by the transaction. As a
result of the issuance of these shares, Giga's ownership of GigaGroup S.A.
decreased from 100% to 19.9%. Since Giga no longer exercises significant
influence over this entity, the results of GigaGroup S.A. have not been included
in the consolidated financial results of Giga since the date of the stock
issuance.
In 2001, GigaGroup S.A. issued additional shares of its common stock to
its shareholders, increasing the total number of shares to 766,371. Giga
relieved GigaGroup S.A. of $250,000 of trade accounts receivables due to Giga in
exchange for an additional 29,346 shares of common stock in GigaGroup S.A.,
giving Giga a total of 149,241 shares of the common stock. As a result of this
transaction, Giga's ownership of the entity decreased from 19.9% to 19.5% as of
December 31, 2001.
In 2002, GigaGroup S.A. issued a total of 322,683 shares of its common
stock to its shareholders, increasing the total number of shares outstanding to
1,089,054 from 766,371. As a result of this issuance, Giga's ownership of the
entity decreased from 19.5% to 13.7%. Giga's investment in GigaGroup S.A. of
$1,215,000 is carried at cost and is included in other assets on Giga's
Consolidated Balance Sheet at December 31, 2002.
In 2002, GigaGroup S.A. also issued a total of 219,752 convertible bonds
with detachable warrants to purchase 219,752 shares of its common stock. Giga
purchased 8,136 of these convertible bonds with detachable warrants to purchase
8,136 shares of GigaGroup S.A. common stock for 75,339 Euros at 9.26 Euros per
convertible bond. The bonds expire on June 30, 2006 and are convertible at any
time upon the holder's request. The bonds are convertible at a conversion rate
of one share of GigaGroup S.A. common stock per one convertible bond. Upon
expiration, the conversion rate will be calculated based upon a defined target
for net income for fiscal years 2004 and 2005. If GigaGroup S.A.'s operating
results are on target, then the conversion rate will be one share of GigaGroup
S.A. common stock per one convertible bond. If GigaGroup S.A.'s operating
results are less than 70% of the target, then the conversion rate will be 1.43
shares of GigaGroup S.A. common stock per one convertible bond. If GigaGroup
S.A.'s operating results fall below target but are more than 70% of the target,
then the conversion rate will be prorated based on the percentage by which the
target was not met. The detachable warrants are exercisable at any time prior to
the expiration of the convertible bonds at an exercise price of 6.48 Euros per
share.
6. RESTRUCTURING AND EXIT COSTS:
In February 2000, Giga announced its plan to restructure its events and
conferences business. As a result, Giga eliminated a total of 4 positions in the
fourth quarter of fiscal 2000. Giga recorded a restructuring charge of $70,000
for the year ended December 31, 2000 for severance and other employee-related
costs associated with this restructuring. All amounts related to the
restructuring of the events and conferences business were paid in the fourth
quarter of 2000.
In February 2000, Giga also announced its plan to consolidate operations
in its Watford, U.K. and Windsor, U.K. locations into one common facility in the
Windsor area. Nine employees from its finance and its conferences groups elected
not to relocate to the Windsor area. In connection with this facility project,
Giga recorded a restructuring charge of $183,000 for the year ended December 31,
2000 for lease cancellation fees and related costs and severance and other
employee benefit costs. As of December 31, 2000, the remaining provision balance
was $107,000. In June 2001, Giga announced its plan to cancel the facility
project in the United Kingdom. As a result, Giga recorded a net restructuring
charge of $439,000 for the year ended December 31, 2001. This net charge
consisted of a $55,000 reduction to the provision recorded in 2000, a $778,000
charge recorded in the second quarter of 2001 for facility and other exit costs
related to the cancellation of the project, and an adjustment recorded in the
fourth quarter of 2001 for $284,000 to reverse a portion of the charge booked in
the second quarter of 2001 since the actual exit costs were lower than
contractual commitments. As of December 31,
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2002 and 2001, the remaining provision balance was $21,000. All of the remaining
amounts related to the facility project were paid in January 2003.
During 2001, Giga also recorded a restructuring charge of $890,000 for
involuntary employee termination benefit costs in connection with staff
reductions made during the second, third, and fourth quarters of 2001. There
were a total of 117 employees terminated, 99 of whom were from North America and
18 of whom were from Europe, across all departments. Employee termination
benefit costs included severance, salary continuation, medical and other
benefits. As of December 31, 2001, the remaining provision balance was $50,000.
A substantial portion of the remaining amounts related to the staff reductions
were paid during 2002. Giga carried a minimal provision balance as of December
31, 2002 for the remaining costs related to the staff reductions.
The table below outlines the restructuring charges (in thousands, except
number of employee terminations.)
YEAR ENDED DECEMBER 31,
2002 2001
-------- --------
UK Facility Project:
Accrued liability at beginning of period $ 21 $ 107
Charges to operations
Facility costs and other related fees -- 439
Costs incurred
Facility costs and other related fees -- 525
-------- --------
Accrued liability at the end of the period $ 21 $ 21
======== ========
Cash expenditures $ -- $ 525
Staff Reductions:
Accrued liability at beginning of period $ 50 $ --
Charges to operations
Severance and other employee related costs -- 890
Costs incurred
Severance and other employee related costs 44 840
-------- --------
Accrued liability at the end of the period $ 6 $ 50
======== ========
Cash expenditures $ 44 $ 840
Number of employee terminations -- 117
7. RELATED PARTIES:
In February 1998, Giga entered into an agreement with Mr. Gilmour, a
director and co-founder of Giga, relating to Mr. Gilmour's continuing
relationship with Giga. As part of this agreement, Giga received a 7.5% equity
interest in a company newly formed by Mr. Gilmour and was granted an
irrevocable, royalty-free, worldwide license to use any software, products or
technologies the new company develops during the three-year period commencing on
February 1, 1998. Effective December 31, 2002, Mr. Gilmour resigned from his
duties as a director of Giga. In connection with his resignation, Giga modified
the terms of stock options previously granted to Mr. Gilmore, and recorded
compensation expense of approximately $5,000 for the year ended December 31,
2002.
In December 1998, Giga entered into an agreement with Mr. Crandall,
Chairman of the Board and a director of Giga, for consulting services to be
provided over a two-year period ending June 30, 2000. The agreement provided for
total payments of $300,000 for consulting fees and $48,000 for operational
expenses. Also pursuant to this agreement, Giga granted Mr. Crandall options to
purchase a total of 100,000 shares at an exercise price of $3.625 per share, the
fair market value on the date of grant. The options vested over a four-year
period for services provided through June 30, 2000 (see Note 14).
In August 1999, Giga entered into an agreement with Mr. Landry, a director
of Giga, for consulting services to be provided over a two-year period ending
August 31, 2001. Pursuant to this agreement, Giga granted Mr. Landry options to
purchase a total of 25,000 shares at an exercise price of $5.75 per share, the
fair market value on the date of grant. These options vested over a two-year
period for services provided through August 31, 2001 (see Note 14).
In July 2001, Giga entered into an agreement with Mr. Faherty, a director
of Giga, for consulting services to be provided over a
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
two-year period ending July 17, 2003. Pursuant to this agreement, Giga granted
Mr. Faherty options to purchase a total of 15,000 shares at an exercise price of
$0.79 per share, the fair market value on the date of grant. These options
vested immediately and are subject to the terms of Giga's 1999 Share Incentive
Plan (see Note 14).
In August 2002, Giga entered into an agreement with Mr. Crandall, Chairman
of the Board and a director of Giga, for consulting services to be provided over
the term commencing on August 29, 2002 through the day that was thirty days
after the appointment of a new President and Chief Executive Officer of Giga
(Robert K. Weiler, Giga's former President and Chief Executive Officer, had
resigned effective November 1, 2002). Giga appointed John F. Andrews as
President and Chief Executive Officer of Giga on November 1, 2002. Pursuant to
this agreement, Giga paid Mr. Crandall a total consulting fee of $33,000. On
October 2, 2002, pursuant to this agreement, Giga granted Mr. Crandall options
to purchase a total of 30,000 shares of Giga's common stock at an exercise price
of $1.16 per share, the fair market value on the date of grant. On October 31,
2002, pursuant to this agreement, Giga granted Mr. Crandall options to purchase
a total of 5,000 shares of Giga's common stock at an exercise price of $1.25 per
share, the fair market value on the date of grant. These options vested
immediately and are subject to the terms of Giga's 1999 Share Incentive Plan
(see Note 14). Giga recorded compensation expense of approximately $31,000 for
the year ended December 31, 2002, representing the fair value of these options.
In December 2002, Giga entered into an agreement with Mr. Crandall,
chairman of the board and a director of Giga, for consulting services to be
provided over a one-year period ending November 30, 2003. Giga will pay Mr.
Crandall a consulting fee of approximately $5,500 per month for the term of the
agreement. Pursuant to this agreement, so long as Mr. Crandall performs his
services, on the last day of each month Giga will grant him options to purchase
2,500 shares of Giga's common stock. The options will be granted at an exercise
price equal to the fair market value on the date of grant, will vest
immediately, and will be subject to the terms of Giga's 1999 Share Incentive
Program (see Note 14). Pursuant to this agreement, on December 31, 2002 and
February 11, 2003, Giga granted Mr. Crandall options to purchase 2,500 shares of
Giga's common stock at exercise prices of $1.25 and $4.66 per share,
respectively, the fair market value on each date of grant. Subsequent to the
announcement of Giga's acquisition by Forrester, Mr. Crandall waived his right
to ongoing monthly grants of stock options.
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following (in
thousands):
DECEMBER 31,
--------------------------
2002 2001
-------- --------
Prepaid compensation $ 2,085 $ 3,091
Other 762 1,025
-------- --------
Total $ 2,847 $ 4,116
======== ========
9. PROPERTY AND EQUIPMENT
Property and equipment at cost, less accumulated depreciation and
amortization, consist of the following (in thousands):
DECEMBER 31,
--------------------------
2002 2001
-------- --------
Computer and related equipment $ 11,660 $ 11,399
Furniture and fixtures 2,408 2,344
Motor vehicles 32 35
Leasehold improvements 563 550
-------- --------
14,663 14,328
Less accumulated depreciation and amortization 11,325 8,558
-------- --------
Property and equipment, net $ 3,338 $ 5,770
======== ========
Depreciation expense, including amortization of assets under capital
leases, was $3,256,000 for the year ended December 31, 2002, $3,576,000 for the
year ended December 31, 2001 and $2,924,000 for the year ended December 31,
2000.
10. INCOME TAXES
For financial reporting purposes, income (loss) before income taxes includes the
following components (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------------------------
2002 2001 2000
-------- -------- --------
Pre-tax loss from continuing operations:
United States $ 3,865 $ 1,456 $ (5,778)
Foreign (719) (3,751) (2,479)
-------- -------- --------
Total $ 3,146 $ (2,295) $ (8,257)
======== ======== ========
The income tax provision (benefit) of the loss from continuing operations
consists of the following components (in thousands):
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
-------- -------- --------
U. S. Federal and state $ 141 $ 140 $ (1)
Foreign 40 -- (24)
-------- -------- --------
Income tax provision (benefit) $ 181 $ 140 $ (25)
======== ======== ========
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
A reconciliation of the Company's effective tax rate to the statutory federal
rate is as follows:
PERCENTAGES FOR THE
YEAR ENDED DECEMBER 31,
----------------------------------------
2002 2001 2000
-------- -------- --------
Income tax at the statutory rate 34.0% 34.0% 34.0%
Foreign subsidiary losses with no benefit recognized 12.5 (39.6) (9.1)
Foreign subsidiary losses benefited (3.4) 0.0 0.0
Foreign income taxed at different rates 0.0 (2.8) (0.8)
U. S. losses with no benefit recognized 0.0 0.0 (21.3)
U. S. losses benefited (43.0) 22.9 0.0
Nondeductible goodwill 0.0 (13.2) 0.0
Other items - net 5.7 (7.4) (2.5)
-------- -------- --------
Effective tax rate 5.8% (6.1%) 0.3%
======== ======== ========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts used for income tax purposes. Significant
components of Giga's deferred tax assets and liabilities are as follows (in
thousands):
YEAR ENDED DECEMBER 31,
----------------------------------------
2002 2001 2000
-------- -------- --------
Deferred tax assets:
Deferred revenue $ 1,113 $ 1,403 $ 524
Net operating loss carryforwards 32,346 33,864 32,234
Other - net 2,383 2,041 2,293
-------- -------- --------
Total deferred tax assets 35,842 37,308 35,051
Valuation allowance for deferred tax assets 35,842 37,308 35,051
-------- -------- --------
Net deferred tax assets $ -- $ -- $ --
======== ======== ========
Giga has provided a full valuation allowance for the deferred tax assets since
the realization of these future benefits is not sufficiently assured as of the
end of each related fiscal year. As Giga achieves profitability, these deferred
tax assets will be available to offset future income tax liabilities and
expenses.
Giga has available net operating loss carryforwards of approximately $82,186,000
at December 31, 2002 and $85,820,000 at December 31, 2001, which may be used to
reduce future taxable income. Of these amounts, at December 31, 2002 and 2001,
U.S. carryforwards of approximately $66,976,000 and $71,441,000 expire in
various years through 2020, certain non-U.S. carryforwards of approximately
$15,209,000 and $14,379,000 expire in various years through 2006 and the balance
may be carried forward indefinitely. If losses of acquired companies are used to
reduce future taxable income, associated tax benefits will first reduce acquired
goodwill and other non-current intangible assets before being recognized as a
reduction of income tax expense in the period the benefits are realized.
Utilization of the net operating loss carryforwards may be limited pursuant to
the provisions of Section 382 of the Internal Revenue Code of 1986, as amended.
Approximately $436,000 of the net operating loss carryforwards available for
federal income tax purposes relate to exercises of non-qualified stock options
and disqualifying disposition of incentive stock options, the benefit from
which, if realized, will be credited to additional paid-in capital.
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following
(in thousands):
DECEMBER 31,
--------------------------
2002 2001
-------- --------
Accrued compensation and benefits $ 2,784 $ 2,703
Sales tax payable 800 1,169
Other 3,694 3,721
-------- --------
Total $ 7,278 $ 7,593
======== ========
12. BORROWINGS:
Accounts Receivable Financing Agreement
As of December 31, 2002, there were no borrowings outstanding pursuant to
the accounts receivable financing agreement, dated April 7, 2000, between Giga
and a bank (the "Accounts Receivable Financing Agreement"), which Giga renewed
on March 27, 2002 (the "2002 Financing Agreement"). Giga was in compliance with
the financial covenants of the 2002 Financing Agreement as of December 31, 2002.
In April 2000, Giga established a one-year Accounts Receivable Financing
Agreement (the "Financing Agreement") with a bank, under which it could finance
up to a maximum of $5.0 million of the eligible accounts receivable, as defined
by the Financing Agreement, at an advance rate not to exceed 80%. Upon execution
of the Financing Agreement, Giga paid fees totaling $30,000. Loans under the
Financing Agreement incurred interest at the bank's prime rate plus 1.5%. A
monthly collateral handling fee of 0.375% was charged on the average daily
financed receivable balance outstanding. In connection with the Financing
Agreement, Giga issued warrants to purchase 24,000 shares of Giga common stock
(see Note 14). During the year ended December 31, 2000, Giga pledged
approximately $3.4 million of accounts receivable as collateral, and received
proceeds of approximately $2.7 million pursuant to the Financing Agreement. Giga
repaid approximately $1.4 million, leaving an outstanding balance of
approximately $1.4 million and approximately $2.6 million available to borrow as
of December 31, 2000.
In April 2001, Giga renewed the Financing Agreement for a second one-year
period under identical terms except that loans under the renewed Financing
Agreement bore interest at the bank's prime rate plus 0.5%. Upon renewal of the
Financing Agreement, Giga paid fees totaling $25,000 and modified the terms of
the warrants issued in connection with execution of the Financing Agreement in
April 2000 (see Note 14).
The Financing Agreement is collateralized by substantially all of Giga's
tangible and intangible assets, including intellectual property. The Financing
Agreement required Giga to conform to certain financial covenants, including the
requirement to increase the annualized value of Giga's subscription contracts on
a quarterly basis and the requirement to maintain an adjusted quick ratio, a
ratio of quick assets, which includes unrestricted cash, cash equivalents and
net billed receivables, to current liabilities minus deferred revenue, of at
least 1.25 to 1.00. As of June 30, 2001, Giga was not in compliance with either
of these covenants.
As a result of Giga's non-compliance, on August 31, 2001, a Loan
Modification and Forbearance Agreement (the "August Forbearance Agreement") was
entered into by and between Giga and the bank. Upon executing the August
Forbearance Agreement, Giga paid fees totaling $10,000. Under the August
Forbearance Agreement, the bank agreed to forbear until October 31, 2001 from
exercising its remedies under the Financing Agreement. Effective September 1,
2001, loans under the August Forbearance Agreement bore interest at the bank's
prime rate plus 5.5%, the monthly collateral handling fee rose to 0.875% on the
average daily financed receivable balance outstanding, the amount of eligible
receivables decreased to a maximum of $4.0 million for the remainder of the
one-year facility period and beginning September 17, 2001, was reduced further
by $312,500 on a weekly basis. However, as of September 24, 2001, the bank
ceased the weekly reductions to the amount of eligible receivables through
October 31, 2001 and reinstated the maximum amount of eligible accounts
receivable to $4.0 million. Upon executing the August Forbearance Agreement,
Giga issued warrants to purchase 300,000 shares of Giga common stock (see Note
14).
On November 6, 2001, as a result of Giga's continued non-compliance with
the financial covenants of the Financing Agreement, Giga entered into a second
Loan Modification and Forbearance Agreement (the "November Forbearance
Agreement") with the bank, under which the bank agreed to forbear from
exercising its remedies under the Financing Agreement until December 31, 2001.
The terms of the November Forbearance Agreement maintained the existing
forbearance interest rates and fees. However, beginning on November 8, 2001,
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
the maximum amount of eligible receivables was reduced by $312,500 each week
until the maximum amount of eligible accounts receivables reached $3,125,000.
During the year ended 2001, Giga pledged $19.0 million of accounts
receivable as collateral, received proceeds of $15.2 million and repaid $14.1
million pursuant to the Financing Agreement. An outstanding balance of $2.5
million remained as of December 31, 2001, fully utilizing the amount available
under the Financing Agreement.
Although Giga was not in compliance with the financial covenants of the
Financing Agreement as of December 31, 2001, the bank thereafter continued to
advance Giga funds pursuant to the terms of the November Forbearance Agreement.
During January 2002, Giga pledged $1.9 million of accounts receivable as
collateral and received proceeds of $1.5 million. During the first quarter of
fiscal 2002, Giga repaid a total of $4.0 million, leaving no borrowings pursuant
to the Financing Agreement outstanding as of March 27, 2002.
On March 27, 2002, Giga renewed the Financing Agreement for a third
one-year period (the "2002 Financing Agreement"), allowing Giga to finance up to
a maximum of $5.0 million of the eligible accounts receivable, as defined by the
2002 Financing Agreement, at an advance rate not to exceed 80%. Upon execution
of the 2002 Financing Agreement, Giga paid fees totaling $37,500. Loans under
the 2002 Financing Agreement bear interest at the bank's prime rate plus 1.0%.
The bank charges a monthly collateral handling fee of 0.25% on the average daily
financed receivable balance outstanding. The 2002 Financing Agreement is
collateralized by substantially all of Giga's tangible and intangible assets,
including intellectual property. Giga is subject to various financial covenants
under the 2002 Financing Agreement, including the requirement to maintain a
minimum adjusted quick ratio of 1.4 to 1.0 on a quarterly basis, with the
exception of the second fiscal quarter of 2002, where an adjusted quick ratio of
1.25 to 1.0 was permitted. Giga is also required to achieve a minimum net income
of $1.00 on a quarterly basis, with a one time quarterly net loss of $100,000
permitted.
Overdraft Facility
In August 2001, Giga's wholly-owned subsidiary in the United Kingdom, Giga
Information Group Ltd., established an Overdraft Facility (the "Overdraft
Facility") with a bank, under which it could borrow up to 100,000 British
pounds. Upon execution of the Overdraft Facility, Giga paid fees totaling 1,000
British pounds. Borrowings under the Overdraft Facility bore interest at the
bank's base rate plus 1.5%. The Overdraft Facility is secured by a debenture
over the assets of Giga Information Group, Ltd.
In December 2001, the terms of the Overdraft Facility were amended. Upon
execution of the amended Overdraft Facility, Giga paid fees totaling 500 British
pounds. The terms of the amended Overdraft Facility maintained the existing
interest rate and allowed Giga Information Group, Ltd. to borrow an additional
100,000 British pounds, for a total of up to 200,000 British pounds, through
March 31, 2002. The Overdraft Facility was originally scheduled to expire in
July 2002. There were no borrowings outstanding under the Overdraft
Facility as of December 31, 2001. In July 2002, the Overdraft Facility expired.
There were no short-term borrowings outstanding as of December 31, 2002.
The weighted average interest rate outstanding on all short-term borrowings was
9.9% for the year ended December 31, 2001 and 11.0% for the year ended December
31, 2000.
13. COMMITMENTS AND CONTINGENT LIABILITIES:
Lease Commitments
Giga leases certain office space and equipment under operating and capital
leases. The present value of the remaining future minimum lease payments under
capital leases is recorded as a capitalized lease asset and related capitalized
lease obligation. Assets under capital leases are summarized as follows (in
thousands):
DECEMBER 31,
--------------------------
2002 2001
-------- --------
Computer and related equipment $ 577 $ 577
Furniture and fixtures 383 383
-------- --------
960 960
Less accumulated amortization 621 301
-------- --------
Net assets under capital leases $ 339 $ 659
======== ========
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The future minimum payments under all capital leases, including those with
non-cancelable terms of less than one year, and all operating leases with
remaining non-cancelable terms of one year or more, as of December 31, 2002, are
as follows (in thousands):
CAPITAL OPERATING
LEASES LEASES
---------- ----------
2003 $ 304 $ 2,159
2004 -- 2,179
2005 -- 1,755
2006 -- 305
2007 -- 81
Thereafter -- 60
---------- ----------
Total minimum lease payments $ 304 $ 6,539
==========
Less estimated executory costs included in capital leases 42
----------
Net minimum lease payments under capital leases 262
Less amount representing interest 8
----------
Present value of net minimum lease payments under capital leases $ 254
==========
Rent expense, net of sublease income was approximately $3,380,000 for the
year ended December 31, 2002, $2,639,000 for the year ended December 31, 2001,
and $2,308,000 for the year ended December 31, 2000. Sublease income was
approximately $195,000 for the year ended December 31, 2002, $363,000 for the
year ended December 31, 2001, and $196,000 for the year ended December 31, 2000.
Giga recorded losses of $934,000 and $113,000 for the year ended December 31,
2002 and 2001, respectively. The losses pertain to rent expense associated with
vacant facility space that will continue to be incurred under the lease contract
without any economic benefit to Giga. The fair value of the losses was computed
based on the remaining lease obligations of the vacant space reduced by the
estimated sublease income Giga reasonably expects to receive for the space.
14. STOCK OPTIONS AND WARRANTS:
Stock Options
In October 1995, Giga adopted the 1995 Stock Option/Stock Issuance Plan
(the "1995 Stock Plan"). On August 28, 1996 the Board of Directors adopted the
1996 Stock Option Plan (the "1996 Stock Plan") to effectively supersede the 1995
Stock Plan. In May 1999, Giga adopted the 1999 Share Incentive Plan (the "1999
Stock Plan") to effectively supercede the 1996 Stock Plan. The 1995 Stock Plan
provided for the granting of options to purchase and for direct purchases of up
to 1,033,333 shares of common stock. The 1996 Stock Plan provided for the
granting of options to purchase up to 1,000,000 shares of common stock. On May
25, 2000, the shareholders approved an amendment to the 1999 Stock Plan,
increasing the maximum number of shares of common stock for granting of options,
stock appreciation rights, stock awards, performance awards and stock units by
2,000,000 to 3,000,000 shares directly, and up to 1,500,000 shares that are
represented by awards granted, or to be granted, under any prior plan which are
forfeited, expire, or are cancelled without the issuance of common stock. On
July 29, 2002, the shareholders approved an amendment to the 1999 Stock Plan,
increasing the maximum number of shares of common stock for granting options,
stock appreciation rights, stock awards, performance awards and stock units by
500,000 shares to 3,500,000 shares directly and permitting non-employee
directors to participate in the 1999 Stock Plan.
The 1995 Stock Plan, the 1996 Stock Plan, and the 1999 Stock Plan provide
for grants of non-qualifying and incentive options to employees of (including
officers and directors who are employed by Giga), and consultants to Giga for
the purchase of shares of Giga's common stock, generally at the fair market
value determined by the Board on the date of the grant. The 1999 Stock Plan, as
did the 1995 Stock Plan, provides for direct purchases of common stock. The
Board may determine the date on which these shares vest and become exercisable.
Shares purchased as the result of the exercise of these options or direct
purchases under the 1995 Stock Plan are subject to Giga's right to repurchase
such shares upon the occurrence of certain events and at a price equal to the
fair market value as defined on the date of repurchase.
Options granted under the 1995, 1996, and 1999 stock plans have variable
vesting periods. No options granted under these plans have a term in excess of
ten years after the date of grant.
In June 1997, Giga adopted the 1997 Director Stock Option Plan (the
"Director Plan") that provides for the granting of non-qualifying stock options
to purchase up to 50,000 shares of common stock. Under the Director Plan,
non-employee directors are entitled to receive options to purchase 2,000 shares
of common stock on July 1 of each year commencing in 1997. On May 25, 2000,
shareholders approved amendments to the Director Plan (i) increasing the number
of shares of common stock in respect of which options are to be
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
granted to non-employee directors upon their initial election as a director from
2,000 to 25,000, (ii) increasing the number of shares of common stock in respect
of which options are to be granted to non-employee directors annually from 2,000
to 10,000, (iii) increasing the maximum number of shares of common stock in
respect of which awards may be granted from 50,000 to 300,000 (of which 163,000
shares were used for the "catch-up" grants described in clause (iv) and 70,000
shares were used for the year 2000 annual grants), and (iv) providing for a
"catch-up" grant for all current non-employee directors as of the date of the
adoption of the amendments to the Director Plan. On June 4, 2001, the Board of
Directors approved an amendment to the Director Plan, commencing on July 20,
2001 and on July 20 of each year thereafter, options to purchase 10,000 shares
of common stock will be granted to each non-employee director. In addition, each
eligible non-employee director would receive an option to purchase 2,000 shares
of common stock upon the initial election to the Board of Directors. On July 29,
2002, the shareholders approved an amendment to the Director Plan increasing the
number of shares of common stock for granting options by 200,000 to 500,000
shares. The exercise price of the options, which vest in four equal installments
starting from the date of the grant, will equal the fair market value on the
date of the grant. Each option shall expire ten years after the date of the
grant.
In January, March, and May 1998 the Board voted to grant 66,535, 319,008
and 93,545 options, respectively, to certain employees at exercise prices of
$3.00, $3.00 and $10.50 per share, respectively. The estimated fair market value
of Giga's common stock at the date of each of these grants was determined to be
$8.40, $8.40 and $12.00 per share, respectively. Accordingly, such grants were
deemed to be compensatory options in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").
During the year ended December 31, 2001, options to purchase 100,000 shares were
canceled. Because these options were unvested on the cancellation date, the
cancellation of the options resulted in a credit to option-related compensation
expense of approximately $183,000.
Pursuant to an agreement effective July 1998, Giga granted options to
purchase a total of 100,000 shares to a director of Giga for consulting services
rendered over a two-year period (see Note 7). The options vested over a
four-year period for services provided through June 30, 2000. Giga recorded
compensation expense of $147,500 for the year ended December 31, 2000 and
$120,000 for the year ended December 31, 1999, representing the fair value of
the options for the six-month period of 2000 and the twelve-month period of 1999
over which services were rendered.
Pursuant to an agreement effective August 1999, Giga granted options to
purchase a total of 25,000 shares to a director of Giga for consulting services
rendered over a two-year period (see Note 7). The options vested over a two-year
period contingent upon services being provided through August 31, 2001. These
options are variable and are marked to market in accordance with FASB
Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans," which resulted in a credit to
option-related compensation expense of $18,000 for the year ended December 31,
2001 and compensation expense of $59,200 for the year ended December 31, 2000,
representing the fair value of the options for the seven-month period of 2001
and the twelve-month period of 2000 over which the services were rendered.
Pursuant to an agreement effective July 2001, Giga granted options to
purchase a total of 15,000 shares to a director of Giga for consulting services
to be rendered over a two-year period (see Note 7). These options were granted
at an exercise price equal to the fair market value on the date of grant and
vested immediately, resulting in no option-related compensation expense for the
year ended December 31, 2001.
Pursuant to an agreement effective August 2002, Giga granted options to
purchase a total of 35,000 shares to a director of Giga for consulting services
rendered over a three-month period (see Note 7). These options vested
immediately and resulted in option-related compensation expense for of $31,000
for the year ended December 31, 2002.
Pursuant to an agreement effective December 2002, Giga granted options to
purchase a total of 5,000 shares to a director of Giga for consulting services
to be rendered over a one-year period (see Note 7). These options vested
immediately and resulted in option-related compensation expense of $2,000 for
the year ended December 31, 2002.
Giga recorded total option-related compensation expense of $113,000 for
the year ended December 31, 2002. Giga recorded a net credit to option-related
compensation expense of $60,000 for the year ended December 31, 2001, as a
result of the credits of $183,000 and $18,000 to option-related compensation
expense discussed above, net of option-related expense recorded in 2001. Giga
recorded total option-related compensation expense of $444,000 for the year
ended December 31, 2000.
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
A summary of stock option activity through December 31, 2002 is presented
below:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- -----------------
Outstanding at December 31, 1999 2,803,726 $3.58
Granted 1,110,654 6.37
Exercised (241,903) 2.51
Forfeited/canceled (385,772) 4.32
---------
Outstanding at December 31, 2000 3,286,705 4.52
Granted 2,011,932 1.29
Exercised (13,788) 1.59
Forfeited/canceled (823,163) 4.38
---------
Outstanding at December 31, 2001 4,461,686 3.10
Granted 902,800 1.61
Exercised (5,625) 0.85
Forfeited/canceled (989,018) 2.51
---------
Outstanding at December 31, 2002 4,369,843 2.93
=========
Options vested and exercisable at the corresponding weighted average
exercise price at December 31, 2002, 2001 and 2000, respectively, were 2,263,755
at $3.67, 1,577,835 at $3.94 and 1,084,370 at $3.34.
In July and October 1995 Giga granted options to purchase a total of
260,000 shares of common stock other than pursuant to the 1995 Stock Plan at an
exercise price of $1.50 per share. In February 2002, options to purchase 220,000
shares of the total 260,000 shares were canceled due to termination of the
holder.
As described in Note 1, Giga applies APB No. 25 and related
interpretations in accounting for stock options. Accordingly, no compensation
expense has been recognized for the issuance of stock options except for grants
deemed to be compensatory options, as previously discussed in this footnote.
Pursuant to the required pro forma disclosure under the fair value method of
estimating compensation cost, Giga has estimated the fair value of its
non-compensatory stock options by applying the Black-Scholes method which
considers volatility of the underlying stock using risk free interest rates
based on zero coupon Treasury instruments with maturities similar to the
estimated option term and assuming no dividends, and has presented such
disclosure in Note 1. The fair value of each option granted during these years
is estimated on the date of grant using the Black-Scholes option pricing model
and the following key assumptions:
YEAR ENDED DECEMBER 31,
----------------------------------------
2002 2001 2000
-------- -------- --------
Expected volatility 100.00% 100.00% 100.00%
Dividend yield 0% 0% 0%
Weighted average expected lives, in years 6.1 6.1 6.0
Weighted average risk free interest rate 3.1% 4.6% 6.3%
Weighted average fair value $ 1.29 $ 1.04 $ 5.21
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table summarizes the status of Giga's stock options
outstanding and exercisable at December 31, 2002:
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
----------------------------------------------- ------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES PRICE
- ------------------ --------- ---------------- ---------- ------------ ----------
$0.60 to $0.79 392,458 8.55 $ 0.76 118,072 $ 0.77
$0.85 to $0.85 645,188 8.57 $ 0.85 233,162 $ 0.85
$1.03 to $1.25 75,750 7.34 $ 1.11 37,500 $ 1.18
$1.45 to $1.45 600,000 9.84 $ 1.45 -- $ 0.00
$1.50 to $2.45 455,983 8.00 $ 1.89 171,883 $ 1.79
$2.50 to $3.31 539,827 7.02 $ 2.89 373,058 $ 3.00
$3.34 to $3.94 669,653 5.51 $ 3.76 658,653 $ 3.77
$4.00 to $5.88 548,378 6.98 $ 5.15 392,375 $ 5.14
$6.25 to $12.00 437,272 7.47 $ 7.21 273,718 $ 7.28
$12.13 to $12.13 5,334 5.60 $ 12.13 5,334 $ 12.13
--------- ---------
4,369,843 2,263,755 $ 3.67
========= =========
Warrants
In connection with the issuance of Series C Convertible Preferred Stock
("Series C") in 1997, Giga issued warrants to purchase up to 1,409,127 shares of
Series C (551,574 shares of common stock on an as-converted basis) at an
exercise price of $4.50 per share ($13.50 per share of common stock on an
as-converted basis). These warrants are for a term of five years and are
scheduled to expire on various dates beginning in March 2002 through January
2003, subject to earlier expiration upon the occurrence of certain events. As of
December 31, 2002, warrants to purchase 385,716 shares had expired.
In April 1998, Giga entered into a Loan and Warrant Purchase Agreement
whereby Giga issued convertible promissory notes with a face value of
$10,000,000, at an annual rate of 12.0% and warrants to purchase up to 166,666
shares of common stock in exchange for cash proceeds of $10,000,000. These
warrants are exercisable at $3.00 per share, for a period of ten years from the
date of grant. On August 4, 1998, warrants to purchase 47,999 shares of common
stock were exercised for cash of $143,997, at an exercise price of $3.00 per
share. On January 27, 1999 and March 8, 1999, warrants to purchase a total of
12,666 shares of common stock were exercised for a cash total of $37,998 at an
exercise price of $3.00 per share. On January 28, 2000 and August 2, 2000,
warrants to purchase a total of 41,999 shares of common stock were exercised for
cash of $125,997 at an exercise price of $3.00 per share.
In connection with the issuance of Series D Convertible Preferred Stock
("Series D") in 1998, Giga issued warrants to purchase 154,285 shares of Series
D (102,857 shares of common stock on an as-converted basis) at $9.00 per share
($13.50 per share of common stock on an as-converted basis) pursuant to the Loan
and Warrant Purchase Agreement. These warrants expire on April 5, 2003.
In April 2000, Giga issued warrants to purchase 24,000 shares of common
stock in connection with the Financing Agreement (see Note 12). The warrants
were exercisable at any time at $5.00 per share and are scheduled to expire on
May 25, 2005. The estimated fair value of the warrants at the time of issuance
was approximately $82,000, which was recorded as deferred financing costs. These
costs were amortized over the original term of the Financing Agreement and were
fully amortized by the end of the first quarter of 2001. In connection with the
renewal of the Financing Agreement in April 2001, the terms of the warrants
issued and outstanding upon the original execution of the Financing Agreement
were modified such that the exercise price was reduced to $1.50 per share from
$5.00 per share. The fair value of the repricing was approximately $7,000, which
was charged to expense upon the modification of the terms of the warrants. As of
December 31, 2002, none of these warrants had been exercised.
In September 2001, upon execution of the August Forbearance Agreement (see
Note 12), Giga issued warrants to purchase 300,000 shares of Giga common stock.
The warrants are exercisable at any time at $0.97 per share and are scheduled to
expire on September 5, 2008. The estimated fair value of the warrants at the
time of issuance was approximately $231,000, which was recorded as deferred
financing costs and are included, net of accumulated amortization, in prepaid
expenses and other current assets on Giga's Consolidated Balance Sheet at
December 31, 2001. These costs were amortized over the remaining seven months of
the original term of the renewed Financing Agreement. Giga recorded charges of
$99,000 and $132,000 for the year ended December 31, 2002 and 2001,
respectively, for the amortization of the financing costs. As of December 31,
2002, none of these warrants had been exercised.
15. STOCK PURCHASE PLANS/AGREEMENTS:
Employee Stock Purchase Plan
On May 10, 1999, Giga adopted the 1999 Employee Stock Purchase Plan ("the
1999 Purchase Plan"), which enables employees to purchase shares of Giga common
stock. The 1999 Purchase Plan is administered by the Compensation Committee of
the Board of Directors. Under the 1999 Purchase Plan, eligible employees enroll
in a two-year offering period and purchase shares at the end of two, one-year,
purchase periods. Offering periods begin on the first day of January, April,
July and October of each year. The purchase price is 85% of the lesser market
value on the first day of the offering period or the last day of each purchase
period. The maximum number of shares an employee can purchase in a purchase
period is 5,000 shares. An employee's rights under the 1999 Purchase Plan
terminate upon voluntary withdrawal from an offering or termination of
employment. Giga reserved 750,000 shares, plus an annual increase to be added on
the first day of each fiscal year beginning in the year 2000, equal to the
lesser of (i) 750,000 shares, (ii) one percent of the outstanding shares on such
date, or (iii) a lesser amount determined by the Board of Directors. During
1999, offering periods began on July 1 and October 1. Under the 1999 Purchase
Plan, Giga issued 111,883 shares for the year ended December 31, 2002, 187,626
shares for the year ended December 31, 2001 and 137,304 shares for the year
ended December 31, 2000.
16. STOCKHOLDER RIGHTS PLAN:
On February 18, 2000, Giga's Board of Directors adopted a Stockholder
Rights Plan ("Plan") designed to protect Giga stockholders in the event of
takeover activity that would deny them the full value of their investment.
Terms of the Plan provide for a dividend distribution of one right for
each share of Giga common stock to holders of record at the close of business on
March 3, 2000. The rights will become exercisable only in the event, with
certain exceptions, a person or group of affiliated or associated persons
accumulates 15 percent or more of Giga's voting stock, or if a person or group
announces an offer to acquire 15 percent or more of Giga's voting stock. A
stockholder who owns 15 percent or more of Giga's voting stock as of February
18, 2000 will not trigger this provision unless the stockholder thereafter
acquires an additional one percent or more of the outstanding stock. The rights
will expire on February 18, 2010.
Each right will entitle the holder to buy one one-hundredth of a share of
a new series of preferred stock at a price of $95. In addition, upon the
occurrence of certain events, holders of the rights would be entitled to
purchase either Giga stock or shares in an "acquiring entity" at half of market
value. Further, at any time after a person or group acquires 15% or more (but
less than 50%) of Giga's outstanding voting stock, subject to certain
exceptions, the Board of Directors may, at its option, exchange part or all of
the rights (other than rights held by the acquiring person or group, which would
become void) for shares of Giga's common stock, initially on a four-for-one
basis.
Giga generally will be entitled to redeem the rights at $0.01 per right at
any time prior to the time there has been a public announcement of the
acquisition of a 15 percent position in its voting stock, subject to certain
exceptions.
17. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS:
In the United States, Giga maintains a Savings and Retirement Plan (the
"401(k) Plan") under Section 401 of the Internal Revenue Code. In 1997, Giga
amended its 401(k) Plan specifying that employees can enter the plan on the date
of hire or the first day of the month. In 1998, Giga amended its 401(k) Plan
specifying that employees can enter the plan on the first day of the month
following the date of hire. Employees must have attained the age of 21. In prior
years, employees were eligible to participate in the 401(k) Plan who worked a
minimum of one year and had attained the age of 21. Giga matched by 25% that
portion representing the first 3% of an employee's base salary and by 50% that
portion representing the next 3% of an employee's base salary. Effective in
1997, the employer contributions are discretionary after considering business
results at the conclusion of each plan year. Giga did not make any discretionary
contributions to the 401(k) Plan during the years ended December 31, 2002, 2001
and 2000.
In the United Kingdom, Giga maintains a defined contribution plan. All
permanent employees who have attained the age of 20, and are not contributing to
a personal pension plan, are eligible to participate. Giga matches a percentage
of employee contributions, which are invested at each participant's discretion
in a choice of three funds. The employer matching percentage is determined
within defined age ranges. Giga's match totaled approximately $86,000 during the
year ended December 31, 2002, $81,000 during the year ended December 31, 2001,
and $46,000 during the year ended December 31, 2000.
18. LISTING OF COMMON STOCK:
On January 4, 2001, Giga announced that the listing of its common stock
was transferred to the Nasdaq SmallCap Market from the Nasdaq National Market
effective as of the opening of business on January 5, 2001. Giga was no longer
in compliance with the minimum $50,000,000 market capitalization requirement for
continued listing on the Nasdaq National Market. On March 23, 2001, Giga
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
announced that the listing of its common stock was transferred to the OTC
Bulletin Board from the Nasdaq SmallCap Market effective as of the opening of
business on March 23, 2001. The listing of Giga's common stock was transferred
to the OTC Bulletin Board because Giga was not in compliance with the net
tangible assets/market capitalization/net income requirement, including the
minimum $35,000,000 market capitalization requirement. In February 2003, Giga's
common stock was removed from the OTC Bulletin Board.
19. SEGMENT INFORMATION:
Giga has determined that it operates in one reportable segment, advisory
services. This determination is based on Giga's method of internal reporting and
the similarities among its products and services. Giga's products and services
are similar with regard to financial performance and business risk, targeted
customer market, the methods used to market, sell and provide its products and
services to customers and their purpose which is to provide customers with
objective research and advice and personalized consulting on developments and
trends in information technology.
Revenues from the products and services within, and in support of, Giga's
advisory services are presented in detail in its Consolidated Statements of
Operations. No single customer accounted for more than 10% of Giga's revenues
for the year ended December 31, 2002, 2001, and 2000.
The accounting policies used to evaluate performance are the same as those
described in the "Summary of Significant Accounting Policies" (Note 2). Giga
evaluates performance based on income (loss) from operations.
Giga conducts business principally in the United States and United
Kingdom. Operations in France (through August 31, 2000, see Note 5), Germany,
Italy and Israel (as of July 9, 2001, see Note 3) have been aggregated
(collectively "Other International"). Revenues are reflected in the geographic
area in which the sales are recorded. The following table presents information
about Giga's reported revenues and total assets for the year ended December 31,
2002, 2001, and 2000 (in thousands):
REVENUES
YEAR ENDED DECEMBER 31,
----------------------------------------
2002 2001 2000
-------- -------- --------
United States $ 51,881 $ 58,493 $ 57,148
United Kingdom 8,967 9,143 8,846
Other International 2,312 2,634 3,131
-------- -------- --------
Consolidated revenue $ 63,160 $ 70,270 $ 69,125
======== ======== ========
TOTAL ASSETS
DECEMBER 31,
----------------------------------------
2002 2001 2000
-------- -------- --------
United States $ 28,366 $ 33,008 $ 38,613
United Kingdom 4,648 4,697 4,060
Other International 2,800 1,981 1,611
-------- -------- ---------
Consolidated total assets $ 35,814 $ 39,686 $ 44,284
======== ======== ========
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
20. QUARTERLY OPERATING RESULTS (Unaudited):
(in thousands, except per share data) THREE MONTHS ENDED
------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2002 2002 2002 2002
------------- ------------- ------------- -------------
Total revenues $ 15,689 $ 16,691 $ 14,949 $ 15,831
Costs of services 5,966 7,763 5,936 6,587
Gross profit 9,723 8,928 9,013 9,244
Net income 1,116 278 816 755
Earnings per share
Basic $ 0.10 $ 0.03 $ 0.08 $ 0.07
Diluted $ 0.10 $ 0.02 $ 0.07 $ 0.07
THREE MONTHS ENDED
------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2001 2001 2001 2001
------------- ------------- ------------- -------------
Total revenues $ 17,533 $ 18,816 $ 16,611 $ 17,310
Costs of services 7,195 9,242 5,556 6,167
Gross profit 10,338 9,574 11,055 11,143
Net income (loss) (465) (3,476) 534 972
Earnings (loss) per share
Basic $ (0.04) $ (0.33) $ 0.05 $ 0.09
Diluted $ (0.04) $ (0.33) $ 0.05 $ 0.09
21. SUBSEQUENT EVENTS:
On January 20, 2003, Giga entered into an Agreement and Plan of Merger with
Forrester Research, Inc. ("Forrester") to be acquired by Forrester, another
global technology advisory firm. Pursuant to the agreement, Forrester commenced
a tender offer for all of the outstanding common stock of Giga at a price of
$4.75 per share in cash. The tender offer expired at 12:00 midnight, New York
City time on February 24, 2003. 10,354,044 shares of Giga common stock were
tendered in the offer, representing approximately 93% of the outstanding common
stock of Giga as of February 24, 2003. Forrester will acquire the remaining
shares of outstanding common stock in a second-step merger in which all
remaining Giga stockholders who did not tender their shares in the tender offer
(and who do not exercise statutory appraisal rights) will receive the same $4.75
per share in cash paid in the tender offer.
Also in January 2003, Giga modified the terms of stock options previously
granted to its former CEO. Giga recorded compensation expense of approximately
$511,000 related to this event.
ITEM 7 (b) PRO FORMA FINANCIAL INFORMATION.
On January 20, 2003, Forrester Research, Inc. ("Forrester"), its wholly-owned
subsidiary, Whitcomb Acquisition Corp. ("the Purchaser") and Giga entered into
an Agreement and Plan of Merger (the "Merger Agreement"). In connection with the
Merger Agreement, on January 27, 2003, the Purchaser commenced a tender offer to
purchase all outstanding shares of common stock, par value $0.001 per share (the
"Shares"), of Giga, at a price of $4.75 per share, net to the seller in cash.
The tender offer expired at 12:00 midnight, New York City time on Monday,
February 24, 2003.
On February 25, 2003, the Purchaser accepted for payment all Shares validly
tendered pursuant to the tender offer. Based on information provided to
Forrester by EquiServe Trust Company, N.A., the depositary for the tender offer,
an aggregate of 10,354,044 Shares were tendered and not withdrawn in connection
with the tender offer, which constituted approximately 93.6 percent of Giga's
outstanding Shares as of that date.
The merger of the Purchaser into Giga (the "Merger") pursuant to the Merger
Agreement occurred on February 28, 2003. As part of the Merger, the Purchaser
was merged with and into Giga, resulting in Giga becoming a wholly-owned
subsidiary of Forrester. Because the Purchaser was the beneficial owner of more
than 90% of the outstanding Shares, the Merger was effected without a meeting of
stockholders of Giga. In the Merger, each issued and outstanding Share not owned
directly or indirectly by Forrester or Giga was converted into the right to
receive $4.75 in cash, without interest unless the holders of any such Shares
properly exercise their appraisal rights under Delaware law.
The aggregate purchase price of $62,477,000 consisted of $60,347,000 for the
acquisition of Giga common stock, $947,000 of estimated direct acquisition
costs, and $1,183,000 for severance related to 27 employees terminated as a
result of the acquisition. Forrester is in the process of determining whether
electing to treat this transaction as an asset purchase for tax purposes would
be beneficial; accordingly, the allocation of the purchase price is subject
to refinement, and the deductibility of the acquired intangibles for tax
purposes is unknown as of March 31, 2003. The allocation of the purchase price
is expected to be completed during the three month period ended June 30, 2003.
The following unaudited pro-forma combined condensed financial statements
illustrate Forrester's acquisition of Giga. These statements should be read in
conjunction with the historical consolidated financial statements and related
notes of Forrester which are included in the Company's annual report on Form
10-K for the year ended December 31, 2002, and the historical consolidated
financial statements and related notes of Giga which are included in this
report. The unaudited pro forma combined condensed statements of income for the
year ended December 31, 2002 and the three months ended March 31, 2003 give
effect to the acquisition of Giga by Forrester as if it had taken place on
January 1, 2002, and are based on the historical statements of income of
Forrester and Giga for the corresponding periods.
The balance sheet of Giga has been included in the consolidated balance sheet
of Forrester as of March 31, 2003 as reported in Forrester's Form 10-Q filed
with the SEC on May 12, 2003.
The pro forma adjustments are based upon available information and assumptions
that management believes are reasonable. The unaudited pro forma combined
condensed statements of income do not purport to present the results of
operations of Forrester had the acquisition of Giga occurred on the dates
specified, nor is it necessarily indicative of the results of operations that
may be achieved in the future.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Current Report on Form 8-K/A contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Words such as
"expects," "believes," "anticipates," "intends," "plans," "estimates," or
similar expressions are intended to identify these forward-looking statements.
These statements are based on our current plans and expectations and involve
risks and uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the
forward-looking statements. Important factors that could cause actual results to
differ materially from those indicated by forward-looking statements include,
among others, our ability to successfully integrate Giga into our operations,
the ability to attract and retain qualified professional staff, fluctuations in
our quarterly operating results, a decline in renewals for our membership-based
core research, loss of key management, failure to anticipate and respond to
market trends, our ability to develop and offer new products and services, and
competition. This list of factors is not exhaustive. Other risks and
uncertainties are discussed in further detail under the caption entitled "Risks
and Uncertainties" included in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2002 which has been filed with the SEC. We undertake no
obligation to update publicly any forward looking statements, whether as a
result of new information, future events, or otherwise. Unless the context
otherwise requires, references in this Current Report to "we," "us," and "our"
refer to Forrester Research, Inc. and its Subsidiaries.
FORRESTER RESEARCH, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2002
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Combined
Historical Historical Pro forma Forrester
Forrester Giga Adjustments and Giga
------------ ------------ ------------ ------------
TOTAL REVENUES $ 96,936 $ 63,160 $ 160,096
OPERATING EXPENSES
Cost of services and fulfillment 34,026 26,252 60,278
Selling and marketing 30,745 20,243 50,988
General and administrative 12,732 10,196 22,928
Depreciation and amortization 8,406 3,256 10,106(a) 21,768
Reorganization costs 12,170 -- 12,170
------------ ------------ ------------
TOTAL OPERATING EXPENSES 98,079 59,947 168,132
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,143) 3,213 (8,036)
Other income (expense), net 1,421 (67) (2,085)(b) (731)
------------ ------------ ------------
Income (loss) before income taxes 278 3,146 (8,767)
Income tax (benefit) provision (311) 181 (3,815)(c) (3,945)
------------ ------------ ------------
NET INCOME (LOSS) $ 589 $ 2,965 $ (4,822)
============ ============ ============
Basic net income (loss) per common share $ 0.03 $ (0.21)
============ ============
Diluted net income (loss) per common share $ 0.02 $ (0.21)
============ ============
Basic weighted average common
shares outstanding 23,189 23,189
============ ============
Diluted weighted average common
shares outstanding 23,653 23,189
============ ============
The accompanying notes are an integral part of these financial statements.
FORRESTER RESEARCH, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
Combined
Historical Historical Pro forma Forrester
Forrester Giga Adjustments and Giga
---------- ---------- ----------- ---------
TOTAL REVENUES $ 24,797 $ 9,513 $ 34,310
OPERATING EXPENSES
Cost of services and fulfillment 9,525 4,213 13,738
Selling and marketing 8,067 3,355 11,422
General and administrative 3,308 2,692 (511)(d)
(500)(e) 4,989
Depreciation and amortization 2,617 431 276 (a) 3,324
---------- ---------- ---------
TOTAL OPERATING EXPENSES 23,517 10,691 33,473
---------- ---------- ---------
INCOME (LOSS) FROM OPERATIONS 1,280 (1,178) 837
Other income (expense), net 1,295 (7) (799)(b) 489
---------- ---------- ---------
Income (loss) before income taxes 2,575 (1,185) 1,326
Income tax (benefit) provision 798 -- (466)(f) 332
---------- ---------- ---------
NET INCOME (LOSS) $ 1,777 $ (1,185) $ 995
========== ========== =========
Basic net income per common share $ 0.08 $ 0.04
========== ========
Diluted net income per common share $ 0.08 $ 0.04
========== =========
Basic weighted average common
shares outstanding 22,739 22,739
========== =========
Diluted weighted average common
shares outstanding 22,920 22,920
========== =========
The accompanying notes are an integral part of these financial statements.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1 - UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
The unaudited pro forma combined condensed statements of income for the year
ended December 31, 2002 and the three months ended March 31, 2003 give effect to
the acquisition of Giga by Forrester as if it had taken place on January 1,
2002, and are based on the historical statements of income of Forrester and Giga
for the corresponding periods.
(a) Represents amortization expense related to the identified intangible
assets established in connection with the acquisition. The
identified intangible asset balance is comprised primarily of
customer relationships, the value of which is being amortized on an
accelerated basis over a five year life.
(b) Represents reduction of interest income relative to interest income
earned with respect to the marketable securities used to fund
aggregate purchase price.
(c) Represents the tax effect of combining Forrester and Giga's income
before income taxes and the pro forma adjustments at the estimated
pro forma effective tax rate of 45% for the year ended December 31,
2002.
(d) Represents the elimination of compensation expense related to the
January 2003 modification of terms of stock options previously
granted to Giga's former CEO. These stock options were modified in
contemplation of the Merger.
(e) Represents the elimination of direct acquisition expenses accrued
by Giga.
(f) Represents the tax effect of combining Forrester and Giga's income
(loss) before income taxes and the pro forma adjustments at the
estimated pro forma effective tax rate of 25% for the three months
ended March 31, 2003.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FORRESTER RESEARCH, INC.
By: /s/ Warren Hadley
-----------------------------------
Name: Warren Hadley
Title: Chief Financial Officer
Dated: May 13, 2003
Exhibit Index
<Table>
<Caption>
Number Document
- ------ --------
99.1 Consent of Independent Accountants
</Table>