1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 2)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORT) FEBRUARY 5, 2001
JDA SOFTWARE GROUP, INC.
------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-27876 86-0787377
-------- ------- ----------
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.
14400 NORTH 87TH STREET, SCOTTSDALE, ARIZONA 85260-3649
- -------------------------------------------- ----------
(ADDRESS OF PRINCIPLE EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (480) 308-3000
--------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
(b) PRO FORMA FINANCIAL INFORMATION.
(c) EXHIBITS
2.1* ASSET PURCHASE AGREEMENT DATED AS OF FEBRUARY 5,
2001, BY AND AMONG JDA SOFTWARE GROUP, INC., AND
ZAPOTEC SOFTWARE, INC. AND CERTAIN SHAREHOLDERS OF
ZAPOTEC SOFTWARE, INC.
23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP.
99.1* PRESS RELEASE ISSUED FEBRUARY 5, 2001.
* INCORPORATED BY REFERENCE TO THE SAME NUMBER EXHIBIT
TO THE COMPANY'S CURRENT REPORT ON FORM 8-K DATED
FEBRUARY 5, 2001, FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON FEBRUARY 16, 2000.
SIGNATURES
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.
JDA SOFTWARE GROUP, INC.
DATE: APRIL 6, 2001 BY: /S/ KRISTEN L. MAGNUSON
------------------------
KRISTEN L. MAGNUSON
SENIOR VICE PRESIDENT, CHIEF
FINANCIAL OFFICER, SECRETARY AND
TREASURER
3
ZAPOTEC SOFTWARE, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Zapotec Software, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, changes in stockholders' deficit and cash flows present fairly, in
all material respects, the financial position of Zapotec Software, Inc. at
December 31, 1999 and 1998 and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America. 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 Unites 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has experienced difficulty in generating sufficient cash flow to meet its
obligations and sustain its operations, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Broomfield, Colorado
May 4, 2000
5
ZAPOTEC SOFTWARE, INC.
BALANCE SHEET
- --------------------------------------------------------------------------------
DECEMBER 31,
-------------------------------
1999 1998
ASSETS
Current assets:
Cash and cash equivalents $ 207,882 $ 985,734
Accounts receivable, net of allowances for doubtful
accounts of $9,868 and $9,868 129,068 61,745
Deferred contract costs 45,686 --
Other current assets 6,546 21,674
----------- -----------
Total current assets 389,182 1,069,153
Property and equipment, net 177,526 83,631
Other assets 31,363 12,559
----------- -----------
Total assets $ 598,071 $ 1,165,343
=========== ===========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 82,137 $ 31,996
Accrued liabilities 79,072 13,416
Deferred revenue 432,157 70,225
Current portion of notes payable and capital lease obligations, net
of unamortized debt discount of $228,133 and $0 816,487 41,143
----------- -----------
Total current liabilities 1,409,853 156,780
Notes payable and capital lease obligations 89,818 105,158
Other long-term liabilities 41,604 --
----------- -----------
Total liabilities 1,541,275 261,938
----------- -----------
Commitments (Note 7) -- --
Mandatorily redeemable convertible preferred stock, $.001 par value:
Series B mandatorily redeemable convertible preferred stock; 2,630,000
shares authorized; 1,686,736 shares issues and outstanding; $1,518,062
liquidation preference at December 31, 1999 and 1998 1,503,693 1,503,693
Series A mandatorily redeemable convertible preferred stock; 1,525,000
shares authorized; 1,244,250 shares issued and outstanding; $746,550
liquidation preference at December 31, 1999 and 1998 731,232 731,232
Stockholders' deficit:
Common stock; $.001 par value; 9,305,000 shares authorized; 3,764,977 and
3,732,750 shares issued and outstanding
at December 31, 1999 and 1998, respectively 3,765 3,733
Additional paid-in capital 447,234 164,691
Accumulated deficit (3,629,128) (1,499,944)
----------- -----------
Total stockholders' deficit (3,178,129) (1,331,520)
----------- -----------
Total liabilities, mandatorily redeemable convertible preferred
stock and stockholders' deficit $ 598,071 $ 1,165,343
=========== ===========
The accompanying notes are an integral part of these financial statements.
6
ZAPOTEC SOFTWARE, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998
REVENUE $ 341,107 $ 52,456
----------- -----------
OPERATING EXPENSES
Costs of revenue 273,393 62,573
Sales and marketing 679,768 432,341
Research and development 697,258 289,108
General and administrative 742,318 323,545
----------- -----------
Total operating expenses 2,392,737 1,107,567
----------- -----------
Loss from operations (2,051,630) (1,055,111)
Other income (expense):
Interest expense 60,987 107,868
Other, net (3,987) (1,337)
----------- -----------
Net loss $(2,129,184) $(1,161,642)
=========== ===========
The accompanying notes are an integral part of these financial statements.
7
ZAPOTEC SOFTWARE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
- --------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL STOCK TOTAL
--------------------- PAID-IN SUBSCRIPTION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT DEFICIT
--------- ------ -------- -------- ----------- -----------
Balance, December 31, 1997 3,732,750 $3,733 $ 70,922 $(14,935) $ (338,302) $ (278,582)
Payment of stock subscription -- -- -- 14,935 -- 14,935
receivable
Issuance of warrants in conjunction
with notes payable -- -- 93,769 -- -- 93,769
Net loss -- -- -- -- (1,161,642) (1,161,642)
--------- ------ -------- -------- ----------- -----------
Balance, December 31, 1998 3,732,750 3,733 164,691 -- (1,499,944) (1,331,520)
Options exercised 32,227 32 7,302 -- -- 7,334
Issuance of warrants in conjunction
with notes payable -- -- 275,241 -- -- 275,241
Net loss -- -- -- -- (2,129,184) (2,129,184)
--------- ------ -------- -------- ----------- -----------
Balance, December 31, 1999 3,764,977 $3,765 $447,234 $ -- $(3,629,128) $(3,178,129)
========= ====== ======== ======== =========== ===========
The accompanying notes are an integral part of these financial statements.
8
ZAPOTEC SOFTWARE, INC.
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,129,184) $(1,161,642)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense 62,487 32,581
Amortization of debt discount 47,108 111,832
Changes in:
Accounts receivable (67,323) (50,609)
Other current assets 15,128 (15,477)
Deferred contract costs (45,686) --
Other assets (18,804) (8,243)
Accounts payable 50,141 (51,345)
Accrued liabilities 65,656 13,416
Deferred revenue 361,932 70,225
Other long-term liabilities 41,604 --
----------- -----------
Net cash used in operating activities (1,616,941) (1,059,262)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (126,726) (27,166)
----------- -----------
Net cash used in investing activities (126,726) (27,166)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable -- 500,000
Proceeds from issuance of notes payable to related parties 1,000,000 24,754
Payments on capital lease obligations (34,019) (22,993)
Payments on notes payable to related parties (7,500) (64,708)
Proceeds from exercise of stock options 7,334 --
Proceeds from issuance of Series B mandatorily redeemable convertible
preferred stock and warrants, net of issuance costs -- 985,630
Proceeds from stock subscription receivable -- 14,935
----------- -----------
Net cash provided by financing activities 965,815 1,437,618
----------- -----------
Net increase in cash and cash equivalents (777,852) 351,190
Cash and cash equivalents at beginning of year 985,734 634,544
----------- -----------
Cash and cash equivalents at end of year $ 207,882 $ 985,734
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 7,713 $ 24,041
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired pursuant to capital lease obligations $ 29,656 $ 80,494
Issuance of warrants in conjunction with notes payable 275,241 93,769
Conversion of notes payable and related accrued interest into Series B
mandatorily redeemable convertible preferred stock -- 518,063
The accompanying notes are an integral part of these financial statements.
9
ZAPOTEC SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Zapotec Software, Inc. (the "Company"), formally Adsoft, Inc., was
incorporated on October 30, 1997 in the State of Delaware to develop
management software that enables retailers and distributors to effectively
organize and manage trade allowances, co-op, promotional funds and rebates
received from manufacturers. The product synchronizes the management and
processing of funds between retailers, distributors and manufacturers.
FINANCIAL CONDITION
The accompanying financial statements have been prepared on a going-concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred
losses of $2,129,184 and $1,161,642 in 1999 and 1998, respectively, and has
a stockholders' deficit of $3,178,128 as of December 31, 1999. These
factors, as well as other factors, raise substantial doubt about whether
the Company can continue as a going concern. The Company intends to seek
additional financing through the issuance of equity or debt instruments, or
other means.
RISKS AND UNCERTAINTIES
The Company has a limited operating history and its operations are subject
to certain risks and uncertainties, including those associated with the
ability to meet obligations; continuing losses, negative cash flow from
operations and fluctuations in operating results; funding expansion;
strategic alliances; managing rapid growth and expansion; international
business activities; suppliers; financing arrangement terms that may
restrict operations; regulatory issues; competition; technology trends and
evolving industry standards.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
During the fiscal year ended December 31, 1999, the Company had 2
significant customers representing approximately 23% of revenue. As of
December 31, 1999, three customers represented 37%, 15%, and 11% of
accounts receivable. At December 31, 1998, two customers represented 53%,
and 12% of accounts receivable.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments purchased with a
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of three years for
computer equipment and software and five years for furniture and fixtures.
Equipment acquired under capital lease obligations and leasehold
improvements are amortized over the shorter of their useful lives or terms
of the related leases, which is recorded as depreciation expense.
Maintenance and repairs are expensed as incurred.
LONG-LIVED ASSETS
The Company continually evaluates long-lived assets, based on fair values
or undiscounted cash flows, whichever is more readily determinable,
whenever significant events or changes in circumstances occur which
indicate the carrying amount may not be recoverable.
-1-
10
ZAPOTEC SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting
for its stock option plans and, accordingly, does not recognize
compensation cost for options granted to employees and directors whose
exercise price is equal to or exceeds the fair value of common stock as of
the grant date. Compensation expense is recognized on options to
nonemployees over the related service period based on the fair value of
such options as of their respective measurement dates.
REVENUE RECOGNITION
License fee revenue is generated from sales to end-users and is recognized
when persuasive evidence of an arrangement exists, delivery has occurred,
the fee is fixed or determinable, and collectibility is probable. Fees are
recorded as deferred revenue and any related costs are recorded as deferred
contract costs when revenue recognition criteria have not been satisfied.
Maintenance fee revenue is recorded as deferred revenue and recognized
ratably over the support period. Training, installation and consulting
service revenue is recognized as those services are performed or when the
fee becomes fixed and determinable.
SOFTWARE RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Statement of
Financial Accounting Standards ("SFAS") No. 86 requires the capitalization
of certain software development costs once technological feasibility is
established. Capitalization ceases when such software is ready for general
availability. To date, the period between achieving technological
feasibility and general availability has been short. Consequently, software
development costs qualifying for capitalization have been insignificant and
therefore, such costs have been expensed.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable earnings. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
more likely than not to be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
accounts receivable, short-term deposits, accounts payable, accrued
liabilities and notes payable. The carrying amounts of financial
instruments other than notes payable approximate fair value due to their
short maturities. The carrying amounts of notes payable approximate fair
value based upon rates currently available for similar instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the financial statements as well as the reported amounts of
revenue and expenses during the period. Actual results could differ from
those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made in prior year to conform to the
current year presentation.
-2-
11
ZAPOTEC SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
---------------------------
1999 1998
Computers and telephone equipment $ 191,289 $ 89,263
Computer software 11,909 5,566
Furniture and fixtures 35,649 26,159
Leasehold improvements 38,523 --
--------- ---------
277,370 120,988
Less accumulated depreciation (99,844) (37,357)
--------- ---------
$ 177,526 $ 83,631
========= =========
At December 31, 1999 and 1998, property and equipment under capital leases
consist of computer and office equipment with a cost basis of $80,494.
Accumulated amortization of property and equipment under capital leases
totaled $56,280 and $22,120 for the years ended December 31, 1999 and 1998,
respectively.
3. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable and capital lease obligations consist of the following:
DECEMBER 31,
1999 1998
---------- --------
Note payable to related party with interest at 6.5% dated
October 13, 1998, due October 2001; unsecured $ 61,300 $ 61,300
Note payable to related party with interest at 6.0% dated
October 13, 1998, due October 13, 2000; unsecured 10,000 10,000
Note payable to related party with interest at 10.0% dated
October 13, 1998, due October 13, 2000; unsecured 10,000 10,000
Note payable to related party with interest at 6.0% dated
October 13, 1998, due October 13, 2000; unsecured -- 7,500
Convertible notes payable to stockholders with a stated
interest rate of 8.25% and an effective interest rate of
31.4%; dated September 10, 1999, due September 10,
2000; unsecured 400,000 --
Convertible notes payable to stockholders with a stated
interest rate of 8.25% and an effective interest rate of 31.4%;
dated November 1, 1999, due November 1, 2000; unsecured 400,000 --
Convertible notes payable to stockholders with a stated
interest rate of 8.25% and an effective interest rate of 31.4%;
dated December 23, 1999, due December 23, 2000; unsecured 200,000 --
Capital lease obligations 53,138 57,501
---------- --------
$1,134,438 $146,301
========== ========
-3-
12
ZAPOTEC SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
During 1999, the Company issued $1,000,000 of notes payable ("Convertible
Promissory Notes") to stockholders of the Company. The holders of
Convertible Promissory Notes are entitled to receive warrants upon the
closing of the next qualifying equity financing to purchase shares of the
next respective financing, the number of which is determined at the date of
conversion or repayment of the related note. As of the December 31, 1999,
the Company estimated the number of warrants issuable under this agreement
were 395,010. The warrants have an exercise price of $.90 per share and
expire in 2004. The Company estimated the fair value of the warrants to be
$.65 per share using a Black-Scholes valuation model, which resulted in
$275,241 of debt discount.
Subsequent to year-end, the Company amended the Convertible Promissory
Notes agreement (see Note 9). Under the amended agreement, if the Company
issues an additional equity financing prior to the maturity of the
respective notes, whereby proceeds are at least $7,000,000, the notes will
automatically convert into the shares of the next equity financing. The
conversion rate is based upon the closing price of the next equity
financing. In addition, the amended agreement modified the warrants to be
issued under the agreement, entitling the holder to receive warrants to
purchase common stock with an exercise price of $.01 per share, the number
of shares covered by these warrants being determined at the date of
conversion or repayment. The amended notes are collateralized by assets of
the Company. Certain events may result in a default on the notes, including
a change in control, which would cause the respective notes to become
immediately due.
On July 20, 1998, the Company issued convertible notes payable bearing
interest at 8.5% annually and warrants to purchase 172,687 shares of the
Company's Series B mandatorily redeemable convertible preferred stock for
cash proceeds of $500,000. In December 1998 the notes payable and accrued
interest totaling $18,063 were converted into 575,625 shares of the
Company's Series B mandatorily redeemable convertible preferred stock. The
warrants have an exercise price of $.90 per share and expire in December
2003. As of December 31, 1999, all of the warrants were exercisable and
outstanding. The fair value of the warrants of $93,769 was estimated on the
date of grant using the Black-Scholes valuation model.
The fair value of each warrant as noted above was estimated by using its
contractual life and the following assumptions:
1999 1998
-------------- --------------
Estimated dividends None None
Expected volatility 100% 100%
Risk-free interest rate 5.80% to 6.19% 4.23% to 5.38%
-4-
13
ZAPOTEC SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Future minimum annual payments pursuant to these obligations are as follows
at December 31, 1999:
CAPITAL
NOTES LEASE
PAYABLE OBLIGATIONS TOTAL
----------- -------- -----------
2000 $ 1,108,974 $ 28,347 $ 1,137,321
2001 77,602 24,704 102,306
2002 -- 7,183 7,183
----------- -------- -----------
Total payments 1,186,576 60,234 1,246,810
Less amount representing interest (105,276) (7,096) (112,372)
----------- -------- -----------
Present value of future payments 1,081,300 53,138 1,134,438
Less debt discount (228,133) -- (228,133)
Less current portion (791,867) (24,620) (816,487)
----------- -------- -----------
Long-term portion $ 61,300 $ 28,518 $ 89,818
=========== ======== ===========
4. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
On December 24, 1998, the Company issued 1,111,298 shares of Series B
mandatorily redeemable convertible preferred stock and warrants to purchase
11,130 shares of Series B mandatorily redeemable convertible preferred
stock for cash proceeds of $985,630, net of $14,538 of issuance costs. In
addition, the holders of the convertible notes payable elected to convert
all of the notes payable and related accrued interest in exchange for
575,438 shares of Series B mandatorily redeemable convertible preferred
stock and warrants to purchase 57,544 shares of Series B mandatorily
redeemable convertible preferred stock. The warrants have an exercise price
of $0.90 per share and are exercisable until December 24, 2003. As of
December 31, 1999, all of the warrants were exercisable and outstanding.
On November 12, 1997, the Company issued 1,244,250 shares of the Company's
Series A mandatorily redeemable convertible preferred stock and warrants to
purchase 124,425 shares of Series B mandatorily redeemable convertible
preferred stock for cash proceeds of $731,232, net of $15,318 of issuance
costs. The warrants have an exercise price of $0.60 per share and are
exercisable until November 11, 2001. As of December 31, 1999, all of the
warrants were exercisable and outstanding.
The holders of mandatorily redeemable convertible preferred stock have
various rights and preferences as follows:
REDEMPTION
Automatic redemption occurs in the event of any liquidation, dissolution or
winding up of the Company, which is defined as (1) any acquisition of the
Company by means of merger or other form of corporate reorganization in
which the shareholders of the Company do not own a majority of the
outstanding shares of the surviving company, or (2) a sale of all or
substantially all of the assets of the Company.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the Company
prior to December 23, 2002, either voluntary or involuntary, the holders of
Series A and Series B mandatorily redeemable convertible preferred stock
("Preferred Stock") shall be entitled to receive prior and in preference to
any distribution of any of the assets of the Company to the holders of
common stock, an amount equal to the original issue price, as adjusted for
any stock dividends and stock splits, plus any declared but unpaid
dividends on each share. In
-5-
14
ZAPOTEC SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
the event of any liquidation, dissolution or winding up of the Company
subsequent to December 23, 2002, the distribution of any of the assets of
the Company shall be distributed on a pro rata basis based on the number of
shares of common stock held, assuming all Preferred Stock is converted.
CONVERSION
Shares of Preferred Stock are convertible, at the option of the holder, at
any time into shares of common stock as determined by dividing the original
issue price by the then applicable conversion price for the respective
series of Preferred Stock, determined at the time of conversion. The
conversion price is adjusted based upon certain antidilution provisions and
adjustments for operating revenue shortfalls. Each share of Preferred Stock
shall automatically be converted into shares of common stock upon the
earlier of: (1) a vote or written consent of two-thirds of the outstanding
shares of Preferred Stock (2) immediately upon the closing of the sale of
the Company's common stock through an initial public offering that values
the Company at a value of at least $30 million in which the aggregate
proceeds to the Company and/or any selling stockholders exceed $6 million.
VOTING RIGHTS AND BOARD SEATS
Each share of common stock is entitled to one vote, and the holder of each
share of Preferred Stock shall have the right to one vote for each share of
common stock, on an as converted basis. The eight members of the Board of
Directors shall be determined as follows: three members shall be designated
by the holders of common stock, one member shall be designated by the
holders of Series A mandatorily redeemable convertible preferred stock, two
members shall be designated by the holders of Series B mandatorily
redeemable convertible preferred stock, one member shall be determined by a
majority of the other members, who shall not be an employee or an investor,
and one member shall be designated by a specific investor, as approved by
the remaining members, so long as the investor continues to hold 100,000
shares of Series B mandatorily redeemable convertible preferred stock.
DIVIDEND RIGHTS
When and as declared by the Company's Board of Directors, the holders of
Preferred Stock are entitled to receive, out of funds legally available,
cash dividends at a rate equal to 8% of the original issue price, in
preference to any dividend on common stock. Dividends are noncumulative.
The Preferred Stock is participating stock that shares equally in any
additional dividends declared on common stock. There are no declared or any
unpaid dividends to date.
5. STOCK OPTIONS
The Company maintains a stock option plan (the "Plan") pursuant to which
the Company may grant incentive and nonqualified stock options to
employees, directors, consultants, and affiliates of the Company to
purchase up to 1,213,275 shares of the Company's common stock. In March
2000, the number of options available for grant under the Plan was
increased by 300,000 shares to 1,513,275. Under the Plan, incentive stock
options are granted at an exercise price not less than the fair value of
the stock on the date of grant, as determined by the Company's Board of
Directors. Options under the Plan generally vest in three to four years and
expire no more than ten years after the date of grant.
-6-
15
ZAPOTEC SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
A summary of stock option activity is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------ ---------------------------
NUMBER OF WEIGHTED- WEIGHTED -
OPTIONS AVERAGE AVERAGE
EXERCISE NUMBER EXERCISE
PRICE EXERCISABLE PRICE
Outstanding at January 1, 1998 424,400 $.06
Granted 205,455 .17
Forfeited (102,000) .07
-------
Outstanding at December 31, 1998 527,855 .10 25,000 .06
Granted 471,000 .30
Exercised (32,227) .23
Forfeited (184,649) .22
-------
Outstanding at December 31, 1999 781,979 .20 90,023 .15
=======
Weighted-average remaining contractual life in years 5.95
The weighted-average grant-date fair values of stock options granted during
1999 and 1998 were $.22 per share and $.12 per share respectively. As of
December 31, 1999, there were 399,069 shares of the Company's common stock
available for grant under the plan.
The Company has determined the fair value of options on the date of grant
using the Black-Scholes valuation model. The risk-free interest rate used
in the calculation is the yield on the grant date of the U.S. Treasury
Strip with maturity equal to the expected term of the option. The fair
value of each option granted to employees was estimated by using the
following assumptions:
1999 1998
-------------- --------------
Estimated dividends None None
Expected volatility 100% 100%
Risk-free interest rate 4.06% to 6.03% 4.23% to 5.38%
Expected life 4.0 years 5.0 years
The Company applies APB 25 in accounting for its stock compensation plan,
and accordingly no compensation expense has been recognized in the
financial statements for options granted to employees with an exercise
price at or above the fair value of the stock. Pro forma information
regarding net income and earnings per share is required by SFAS 123. Had
the Company recognized compensation expense for options granted to
employees based on the fair value of the options granted as of the grant
date, pro forma net loss would have been:
YEAR ENDED DECEMBER 31,
1999 1998
----------- -----------
Historical net loss (2,129,184) (1,161,642)
Pro forma net loss (2,151,184) (1,164,642)
-7-
16
ZAPOTEC SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
6. INCOME TAXES
At December 31, 1999, the Company had net operating loss carryforward of
approximately $3,099,954 and a research credit carryforward of $51,337,
both of which expire beginning in 2012. The Internal Revenue Code place
certain limitations on the annual amount of net operating loss
carryforwards which can be utilized if certain changes in the Company's
ownership occur. Future changes in the Company's ownership may limit the
use of such carryforward benefits.
Deferred tax assets are comprised of the following:
DECEMBER 31,
-----------------------------
1999 1998
Net operating loss carryforwards $ 1,186,382 $ 464,762
Research credit carryforwards 51,337 15,287
Other 2,975 --
----------- ---------
Gross deferred tax assets 1,240,694 480,049
Valuation allowance (1,240,694) (480,049)
----------- ---------
Net deferred tax assets $ -- $ --
=========== =========
A valuation allowance has been provided for the Company's net deferred tax
assets due to the fact that it is more likely than not that such benefits
will not be realized.
The income tax benefit differs from the amount computed by applying the
U.S. federal income tax rate of 34% to loss before income taxes for the
following reasons:
DECEMBER 31,
----------------------------
1999 1998
U.S. federal income tax benefit at statutory rate $ 723,923 $ 394,958
Change in valuation allowance (727,570) (413,598)
State income tax benefit, net of federal expense 61,180 35,239
Other (57,533) (16,599)
--------- ---------
Income tax benefit $ -- $ --
========= =========
-8-
17
ZAPOTEC SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
7. COMMITMENTS
The Company also maintains noncancelable operating lease arrangements for
office space and office equipment. Rent expense related to these operating
leases, approximated $72,983 and $36,347 for the years ended December 31,
1999 and 1998, respectively. At December 31, 1999, future minimum lease
payments for these leases were as follows:
2000 $ 210,777
2001 216,554
2002 225,498
2003 56,244
-------------
$ 709,073
=============
In exchange for support services received from a community organization,
the Company has agreed to pay the organization 5% of the Company's revenue
up to $40,000, $66,666 and $100,000 for the years ending 1998, 1999 and
2000, respectively, up to an aggregate amount of payments of $100,000. For
the years ended December 31, 1999 and 1998, the Company has expensed
$17,004 and $2,623, respectively, pursuant to this agreement.
8. EMPLOYEE BENEFIT PLANS
Effective March 1, 1999 the Company established a 401(k) savings plan that
allows eligible employees to contribute up to 20% of their compensation up
to a maximum amount provided by the Internal Revenue Code. The plan is a
defined contribution plan and the Company may make discretionary
contributions. The Company has made no contributions to the Plan as of
December 31, 1999.
9. SUBSEQUENT EVENT
On March 1, 2000, the Company issued an additional $1,150,000 of notes
payable with a stated annual interest rate of 12% to existing investors.
These notes are collateralized by assets of the Company. Upon closing of
the next equity financing, on or before June 1, 2000, of not less than
$7,000,000 of new capital, excluding any conversion of notes payable, the
notes payable, and all accrued interest thereon, shall be converted into
the next equity financing. The conversion rate is based upon the closing
price of the next equity financing. In conjunction with the notes payable,
the Company issued warrants to purchase common stock with an exercise price
of $.01 per share, the number of shares covered by these warrants being
determined at the date of conversion or repayment. Certain events may
result in a default on the notes, including a change in control, which
would cause the respective notes to become immediately due.
-9
18
ZAPOTEC SOFTWARE, INC.
INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited balance sheet of Zapotec Software, Inc.
("Zapotec") as of September 30, 2000, together with the unaudited statements of
operations and cash flows for the nine months ended September 30, 2000 and
September 30, 1999 should be read in conjunction with the separate historical
audited financial statements and notes thereto of Zapotec as of December 31,
1999 and 1998, and the unaudited pro forma financial information and notes
thereto, both of which are contained elsewhere herein.
The unaudited balance sheet as of September 30, 2000, together with the
unaudited statements of operations for the nine months ended September 30,
2000 and September 30, 1999 have been prepared from the internal accounting
records of Zapotec. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation,
including the effect of those proposed in connection with the audit of the
December 31, 1999 financial statements, have been included.
The Company believes there were no significant changes in the balance
sheet accounts from December 31, 1999 to September 30, 2000 other than the
issuance of an additional $2.1 million of notes payable to existing investors,
an increase of approximately $1.0 million in accounts payable which resulted
primarily from the use of third party contractors in the development activities
related to the Ad Plan software application, the purchase of over $400,000 in
third party software during the nine months ended September 30, 2000 in
connection with these development efforts, and additional interest expense
resulting from the increased borrowings needed to sustain operations.
19
ZAPOTEC SOFTWARE, INC.
UNAUDITED BALANCE SHEET
(IN THOUSANDS)
SEPTEMBER 30,
2000
-------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6
Accounts receivable, net 38
Prepaid expenses and other current assets 21
-------
Total current assets 65
PROPERTY AND EQUIPMENT, net 555
OTHER ASSETS 33
-------
Total assets $ 653
=======
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,089
Accrued expenses and other liabilities 256
Deferred revenue 107
Current portion of notes payable and capital lease obligations 3,093
-------
Total current liabilities 4,545
Notes payable and capital lease obligations 130
-------
Total liabilities 4,675
-------
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK 3
STOCKHOLDERS' DEFICIT:
Common stock 4
Additional paid in capital 2,692
Accumulated deficit (6,721)
-------
Total stockholders' deficit (4,025)
-------
Total liabilities, mandatorily redeemable convertible
preferred stock and stockholders' deficit $ 653
=======
20
ZAPOTEC SOFTWARE INC.
UNAUDITED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
------- -------
REVENUES $ 746 $ 349
OPERATING EXPENSES:
Cost of revenues 250 223
Research and development 1,528 483
Sales and marketing 626 509
General and administrative 1,024 454
------ ------
Total costs and expenses 3,428 1,669
LOSS FROM OPERATIONS (2,682) (1,320)
Other income (expense), net (410) 5
------ ------
NET LOSS ($3,092) ($1,315)
====== ======
21
ZAPOTEC SOFTWARE, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
------- -------
OPERATING ACTIVITIES:
Net loss ($3,092) ($1,315)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 165 42
Changes in operating assets and liabilities:
Accounts receivable 91 (296)
Prepaid expenses and other assets 29 (38)
Accounts payable and accrued expenses 1,173 57
Deferred revenue (325) 451
------ ------
Net cash used in operating activities (1,959) (1,099)
------ ------
INVESTING ACTIVITIES:
Purchase of property and equipment, net (542) (104)
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 2,145 400
Issuance of common stock - stock option plan 13 --
Other, net 141 6
------ ------
Net cash provided by financing activities 2,299 406
------ ------
DECREASE IN CASH AND CASH EQUIVALENTS (202) (797)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 208 986
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6 $ 189
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 19 $ 6
====== ======
22
ITEM 7(b). PRO FORMA FINANCIAL INFORMATION
On February 5, 2001, JDA Software Group, Inc. ("JDA" or the Company)
completed the acquisition of certain assets of Zapotec Software, Inc.
("Zapotec") for $1,250,000 in cash and assumed certain trade and other
liabilities and specific acquisition related liabilities for consulting and
maintenance commitments under assumed contracts. Zapotec's primary product,
ProMax, is an integrated software solution that enables retailers, suppliers and
distributors to manage their trade allowance and promotional programs by
automating the contract fulfillment, claim generation and accounts receivable
process.
In addition to ProMax, JDA acquired Zapotec's Ad Plan application.
Currently in development, Ad Plan, is designed to be a vertical Web portal that
will integrate advertising and promotional planning and enable collaborative
budgeting, secondary research, media buying merchandise content and trade
allowance tracking among a community of resellers, suppliers, advertising
agencies and media companies.
The purchase price was determined through an arms-length negotiation
between the parties, and was allocated to the underlying assets, namely the
intellectual property and other intangibles, based on the Company's estimate of
fair values and remaining economic lives.
The Acquisition has been accounted for in the pro forma consolidated
financial information using the purchase method of accounting. The unaudited
consolidated pro forma balance sheet combines the historical balance sheet of
JDA as of September 30, 2000 with the September 30, 2000 balance sheet of
Zapotec. The unaudited consolidated pro forma statements of income (loss)
combine the historical statements of income (loss) of JDA and Zapotec for the
year ended December 31, 1999 and the nine months ended September 30, 2000,
giving effect to the Acquisition as if it had occurred at the beginning of each
period.
The detailed assumptions used to prepare the pro forma consolidated
financial information are contained in the notes to the unaudited consolidated
pro forma financial information. Pro forma adjustments for the acquisition of
Zapotec are based upon preliminary estimates, available information and certain
assumptions that the management of the Company deems appropriate. Final
adjustments may differ from the pro forma adjustments presented herein. The
unaudited consolidated pro forma financial information does not purport to
represent the results of operations or the financial position of the Company
that actually would have resulted had the Acquisition occurred as of the dates
indicated, nor should it be taken as indicative of the future results of the
operations or future financial position of the Company.
The unaudited consolidated pro forma financial information should be
read in conjunction with the separate historical financial statements and notes
thereto reported by the Company in its annual report on Form 10-K for the year
ended December 31, 1999 and in its quarterly report on Form 10-Q for the quarter
ended September 30, 2000 and the financial statements of Zapotec Software, Inc.
for the years ended December 31, 1999 and 1998 (which are contained elsewhere
herein).
23
JDA SOFTWARE GROUP, INC.
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(IN THOUSANDS)
HISTORICAL
-------------------------
PRO FORMA
JDA ZAPOTEC ADJUSTMENTS PRO FORMA
--------- --------- ----------- ---------
ASSETS (1)
CURRENT ASSETS:
Cash and cash equivalents $ 46,959 $ 6 ($ 1,256) $ 45,709
Marketable securities 26,249 26,249
Accounts receivable, net 49,940 38 (24) 49,954
Income tax receivable 2,468 2,468
Deferred tax asset 3,588 3,588
Prepaid expenses and other current assets 7,936 21 (21) 7,936
--------- --------- --------- ---------
Total current assets 137,140 65 (1,301) 135,904
PROPERTY AND EQUIPMENT, net 22,360 555 (555) 22,360
GOODWILL AND OTHER INTANGIBLES 50,285 1,401 51,686
DEFERRED TAX ASSET 3,863 3,863
MARKETABLE SECURITIES 3,480 3,480
OTHER ASSETS 0 33 (33) 0
--------- --------- --------- ---------
Total assets $ 217,128 $ 653 ($ 488) $ 217,293
========= ========= ========= =========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,706 $ 1,089 ($ 1,089) $ 3,706
Accrued expenses and other liabilities 13,261 256 (131) 13,386
Deferred revenue 13,350 107 (67) 13,390
Current portion of notes payable and capital lease obligations 0 3,093 (3,093) 0
--------- --------- --------- ---------
Total current liabilities 30,317 4,545 (4380) 30,482
Notes payable and capital lease obligations 130 (130) 0
--------- --------- --------- ---------
Total liabilities 30,317 4,675 (4510) 30,482
--------- --------- --------- ---------
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK 0 3 (3) 0
STOCKHOLDERS' EQUITY:
Common stock 246 4 (4) 246
Additional paid in capital 181,710 2,692 (2,692) 181,710
Retained earnings (deficit) 7,847 (6,721) 6,721 7,847
Accumulated other comprehensive income (loss) (2,992) 0 (2,992)
--------- --------- --------- ---------
Total stockholders' equity 186,811 (4,025) 4,025 186,811
--------- --------- --------- ---------
Total liabilities, mandatorily redeemable convertible
preferred stock and stockholders' equity $ 217,128 $ 653 ($ 488) $ 217,293
--------- --------- --------- ---------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
24
JDA SOFTWARE GROUP, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL
-------------------------
PRO FORMA
JDA ZAPOTEC ADJUSTMENTS PRO FORMA
--------- --------- ----------------- ---------
REVENUES:
Software licenses $ 36,798 $ 341 ($ 121)(1) $ 37,018
Maintenance services 18,924 0 38 (1) 18,962
--------- --------- --------- ---------
Product revenues 55,722 341 (83) 55,980
Consulting services 86,941 0 83 (1) 87,024
--------- --------- --------- ---------
Total revenues 142,663 341 0 143,004
COSTS OF REVENUES:
Cost of software licenses 1,955 273 (273)(1) 1,955
Cost of maintenance services 6,245 0 133 (1)(3) 6,378
--------- --------- --------- ---------
Cost of product revenues 8,200 273 (140) 8,333
Cost of consulting services 64,362 0 167 (1)(3) 64,529
--------- --------- --------- ---------
Total cost of revenues 72,562 273 27 72,862
GROSS PROFIT 70,101 68 (27) 70,142
OPERATING EXPENSES:
Product development 25,000 698 82 (1)(3) 25,780
Sales and marketing 24,639 679 55 (1)(3) 25,373
General and administrative 17,195 742 (227)(1)(3) 17,710
Amortization of intangibles 4,409 0 188 (2) 4,597
Restructuring and asset disposition charge 2,111 0 2,111
--------- --------- --------- ---------
Total operating expenses 73,354 2,119 98 75,571
OPERATING INCOME (LOSS) (3,253) (2,051) (125) (5,429)
Other income (expense), net 3,814 (78) 15 (4) 3,751
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 561 (2,129) (110) (1,678)
Income tax provision (benefit) 224 0 (895)(5) (671)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 337 ($ 2,129) $ 785 ($ 1,007)
========= ========= ========= =========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ 0.01 ($ 0.04)
========= =========
SHARES USED TO COMPUTE:
Basic and diluted earnings per share 23,758 23,758
========= =========
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
25
JDA SOFTWARE GROUP, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL
-----------------------
PRO FORMA
JDA ZAPOTECH ADJUSTMENTS PRO FORMA
-------- -------- --------------- ---------
REVENUES:
Software licenses $ 48,753 $ 746 ($ 143)(1) $ 49,356
Maintenance services 21,479 0 75 (1) 21,554
-------- ------- ------- --------
Product revenues 70,232 746 (68) 70,910
Consulting services 58,566 0 68 (1) 58,634
-------- ------- ------- --------
Total revenues 128,798 746 0 129,544
COSTS OF REVENUES:
Cost of software licenses 2,366 250 (250) 2,366
Cost of maintenance services 5,793 0 143 (1)(3) 5,936
-------- ------- ------- --------
Cost of product revenues 8,159 250 (107) 8,302
Cost of consulting services 48,068 0 146 (1)(3) 48,214
-------- ------- ------- --------
Total cost of revenues 56,227 250 39 56,516
GROSS PROFIT 72,571 496 (39) 73,028
OPERATING EXPENSES:
Product development 20,850 1,528 93 (1)(3) 22,471
Sales and marketing 21,063 626 38 (1)(3) 21,727
General and administrative 15,047 1,024 (335)(1)(3) 15,736
Amortization of intangibles 4,725 0 141 (2) 4,866
Purchased in-process research and development 200 0 200
Restructuring and asset disposition charge 828 0 828
-------- ------- ------- --------
Total operating expenses 62,713 3,178 (63) 65,828
OPERATING INCOME (LOSS) 9,858 (2,682) 24 7,200
Other income (expense), net 3,159 (410) 369 (4) 3,118
-------- ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES 13,017 (3,092) 393 10,318
Income tax provision (benefit) 5,077 0 (1,053)(5) 4,024
-------- ------- ------- --------
NET INCOME (LOSS) $ 7,940 ($ 3,092) $ 1,446 $ 6,294
======== ======= ======= ========
BASIC EARNINGS (LOSS) PER SHARE $ 0.33 $ 0.26
======== ========
DILUTED EARNINGS (LOSS) PER SHARE $ 0.31 $ 0.25
======== ========
SHARES USED TO COMPUTE:
Basic earnings per share 24,245 24,245
======== ========
Diluted earnings per share 25,415 25,415
======== ========
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
26
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS)
The following explanations describe the assumptions used in determining the pro
forma adjustments necessary to present a pro forma consolidated balance sheet as
of September 30, 2000 and the pro forma consolidated statements of income (loss)
of the Company for the year ended December 31, 1999 and the nine months ended
September 30, 2000.
PRO FORMA CONSOLIDATED BALANCE SHEET
1. Entry records the opening balance sheet of Zapotec under the purchase
method of accounting as follows:
Working Capital $ (151)
Developed Software and Other Intangibles 1,240
In-process Research and Development 161
-------
Net cash used to purchase Zapotec $(1,250)
-------
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
The pro forma consolidated statements of income for the year ended December 31,
1999 and nine months ended September 30, 2000 do not include the effect of a
$161,000 one-time charge for purchased in-process technology. In-process
technology includes the value of products acquired from Zapotec that were in the
development stage and for which technological feasibility had not been
established. The Company does not believe these products have any alternative
future use.
1. Entry records a reclassification of the revenues, costs and expenses
reported in the Zapotec financial statements to conform with the JDA
Software Group, Inc. format.
2. Entry records the increase in amortization expense arising from the
purchase accounting adjustments as follows:
Nine Months
Amortization Year Ended Ended
Period 12-31-99 9-30-00
------------ ---------- -----------
Developed Software 7 Years $157 $118
Customer List 13 Years 4 3
Assembled Workforce 3 Years 25 19
Trade Mark 10 Years 2 1
---- ----
$188 $141
---- ----
3. Entry records the decrease in depreciation expense resulting from the
purchase accounting adjustments as follows:
Nine Months
Year Ended Ended
12-31-99 9-30-00
-------- -------
Amounts recorded in the
historical financial statements
of Zapotec for depreciation $ (63) $(165)
No property and equipment was acquired in connection with the
acquisition of Zapotec.
4. Entry reverses interest charges shown in the Zapotec financial
statements and records the opportunity costs related to interest that
would be forfeited on invested cash balances used to effect the
Acquisition as of January 1, 1999 and January 1, 2000, as appropriate.
5. Entry records the income tax effect on the net loss of Zapotec and the
purchase accounting adjustments at a blended rate of 40% for the year
ended December 31, 1999 and 39% for the nine months ended September 30,
2000.
27
EXHIBIT INDEX
23.1 Consent of PricewaterhouseCoopers LLP