EXHIBIT 99.2
INFINITY FINANCIAL TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
DECEMBER 31,
1996 1995
-------- --------
Current assets:
Cash and cash equivalents....................................... $36,952 $ 3,517
Receivables, less allowance for doubtful accounts of $250 and
$195 at December 31, 1996 and December 31, 1995, respectively.. 18,802 6,686
Deferred tax asset.............................................. 887 569
Prepaid expenses and other current assets....................... 337 212
------- -------
Total current assets........................................... 56,978 10,984
Property and equipment, net...................................... 2,896 1,449
Other assets..................................................... 430 415
------- -------
Total assets................................................... $60,304 $12,848
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 1,739 $ 218
Accrued compensation ........................................... 3,959 1,533
Payable to former stockholder................................... -- 1,277
Other accrued liabilities....................................... 2,861 665
Deferred revenue................................................ 10,399 2,806
Current portion of capital lease obligations.................... 368 213
------- -------
Total current liabilities................................... 19,326 6,712
Long-term portion of capital lease obligations................... 553 303
Other long-term liabilities...................................... -- 67
Commitments:
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized; None outstanding at December 31, 1996 and
3,083,334 outstanding at December 31, 1995.................. -- 1,053
Common stock, $0.001 par value; 50,000,000 shares authorized;
18,157,936 and 12,486,200 shares issued and outstanding as
of December 31, 1996 and 1995, respectively................. 32,207 1,570
Deferred stock compensation................................... (508) --
Notes receivable from stockholders............................ (826) (1,025)
Cumulative translation adjustment............................. (21) --
Retained earnings............................................. 9,573 4,168
------- -------
Total stockholders' equity.................................. 40,425 5,766
------- -------
Total liabilities and stockholders' equity.................. $60,304 $12,848
======= =======
See accompanying notes to consolidated financial statements.
INFINITY FINANCIAL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
Revenues:
License revenues.......................................... $32,417 $19,033 $ 9,021
Service revenues.......................................... 9,131 5,705 3,574
------- ------- -------
Total revenues........................................... 41,548 24,738 12,595
Costs and expenses:
Cost of revenues.......................................... 5,321 2,915 2,660
Sales and marketing....................................... 15,128 7,693 3,296
Research and development.................................. 9,137 6,098 3,340
General and administrative................................ 3,463 2,356 1,175
------- ------- -------
Total costs and expenses................................. 33,049 19,062 10,471
------- ------- -------
Income from operations..................................... 8,499 5,676 2,124
Other income, net.......................................... 218 31 15
------- ------- -------
Income before provision for income taxes................... 8,717 5,707 2,139
Provision for income taxes................................. 3,312 2,258 498
------- ------- -------
Net income................................................. 5,405 3,449 1,641
Series B preferred stock redemption........................ -- (1,276) --
------- ------- -------
Net income attributable to common stockholders............. $ 5,405 $ 2,173 $ 1,641
======= ======= =======
Net income per share attributable to common stockholders:
Primary.................................................. $0.28 $0.12 $0.10
======= ======= =======
Fully diluted............................................ $0.28 $0.12 $0.09
======= ======= =======
Shares used in per share calculations:
Primary.................................................. 19,208 18,312 16,354
======= ======= =======
Fully diluted............................................ 19,243 18,382 17,866
======= ======= =======
See accompanying notes to consolidated financial statements.
INFINITY FINANCIAL TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
NOTES
CONVERTIBLE DEFERRED RECEIVABLE CUMULATIVE TOTAL
PREFERRED COMMON STOCK FROM TRANSLATION RETAINED STOCKHOLDERS'
STOCK STOCK COMPENSATION STOCKHOLDERS ADJUSTMENT EARNINGS EQUITY
------------ -------- ------------- -------------- ------------ -------- --------------
Balances at December 31, 1993 $ 201 $ 76 $ -- $ (31) $ -- $ 354 $ 600
Issuance of 679,164 shares
of common stock under option
plans 32 32
Repurchase of 290,000 shares
of common stock (12) (12)
Issuance of 2,083,334 shares
of Series C preferred stock,
net of issuance costs of $904 853 853
Net income 1,641 1,641
------- ------- ------- ------- ----- ------- -------
Balances at December 31, 1994 1,054 96 -- (31) -- 1,995 3,114
Issuance of 2,494,558 shares
of common stock under option
plans 1,028 (803) 225
Issuance of 240,000 shares of
common stock 360 (200) 160
Compensation recorded for
accelerated vesting of
options 86 86
Repurchase of 1,400,000 shares
of Series B preferred stock (1) (1,276) (1,277)
Repayment of stockholder note 9 9
Net income 3,449 3,449
------- ------- ------- ------- ----- ------- -------
Balances at December 31, 1995 1,053 1,570 -- (1,025) -- 4,168 5,766
Issuance of 578,878 shares of
common stock under option
plans 229 (60) 169
Issuance of 9,524 of common
stock pursuant to purchase
agreement 100 100
Issuance of 2,000,000 shares
of common stock in initial
public offering, net of
issuance costs of $3,370 28,630 28,630
Conversion of preferred stock
into common stock (1,053) 1,053 --
Deferred stock compensation 625 (625) --
Amortization of deferred
stock compensation 117 117
Repayment of stockholder
notes 259 259
Cumulative translation
adjustment (21) (21)
Net income 5,405 5,405
------- ------- ------- ------- ----- ------- -------
Balances at December 31, 1996 $ -- $32,207 $ (508) $ (826) $ (21) $ 9,573 $40,425
======= ======= ======= ======= ===== ======= =======
See accompanying notes to consolidated financial statements.
INFINITY FINANCIAL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- -------- --------
Cash flows from operating activities:
Net income............................................................. $ 5,405 $ 3,449 $ 1,641
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation, amortization and other.................................. 1,106 847 417
Changes in assets and liabilities:
Receivables........................................................... (12,116) (2,599) (2,809)
Deferred tax asset.................................................... (318) (397) (1)
Prepaid expenses and other current assets............................. (140) (332) (189)
Accounts payable...................................................... 1,521 118 (16)
Accrued compensation.................................................. 2,426 627 634
Payable to former stockholder......................................... (1,277) 1,277 --
Other accrued liabilities and long-term liabilities................... 2,108 (114) 595
Deferred revenue...................................................... 7,593 (897) 2,578
-------- ------- -------
Net cash provided by (used in) operating activities................. 6,308 1,979 2,850
-------- ------- -------
Cash flows used in investing activities:
Capital expenditures................................................... (1,736) (650) (569)
Cash flows provided by (used in) financing activities:
Payments of notes payable.............................................. -- -- (635)
Payments of notes receivable from stockholders......................... 259 9 --
Principal payments of capital lease obligations........................ (295) (164) (84)
Proceeds from issuance of common stock................................. 28,899 385 32
Repurchase of preferred stock.......................................... -- (1,277) (12)
Net proceeds from issuance of preferred stock.......................... -- -- 853
-------- ------- -------
Net cash provided by (used in) financing activities................. 28,863 (1,047) 154
-------- ------- -------
Net increase (decrease) in cash and cash equivalents................... 33,435 282 2,435
Cash and cash equivalents at beginning of period........................ 3,517 3,235 800
-------- ------- -------
Cash and cash equivalents at end of period.............................. $ 36,952 $ 3,517 $ 3,235
======== ======= =======
SUPPLEMENTAL INFORMATION:
Cash paid during the period:
Income taxes paid.................................................... $ 2,825 $ 2,793 $ 223
======== ======= =======
Interest paid......................................................... $ 69 $ 79 $ 48
======== ======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital lease................................. $ 700 $ 464 $ 272
======== ======= =======
Issuance of common stock in exchange for notes receivable.............. $ 60 $ 1,003 $ --
======== ======= =======
Conversion of preferred stock to common stock.......................... $ 1,053 $ -- $ --
======== ======= =======
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Infinity Financial Technology, Inc. ("Infinity" or the "Company") develops,
markets and supports object-oriented, client/server software solutions for
financial trading and risk management. The Company provides a comprehensive
range of customer support services, including maintenance, training, and
consulting. Infinity's principal markets for its products and services are
primarily in North America, Western Europe and Asia/Pacific. The Company was
incorporated in California in 1989 and was reincorporated in Delaware in 1996.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Intercompany balances and transactions are
eliminated in consolidation. Certain amounts from prior years have been
reclassified to conform to current year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
which affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates, and such differences
could affect the results of operations reported in future periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Foreign Currency Translation
In 1996, the Company established subsidiaries in the United Kingdom and Japan.
The functional currency of the United Kingdom subsidiary is the U.S. dollar and
the functional currency of the Japan subsidiary is the local currency. Gains and
losses on the translation into U.S. dollars of amounts denominated in foreign
currencies are included in net income for those operations whose functional
currency is the U.S. dollar and as a separate component of stockholders' equity
for those operations whose functional currency is the local currency. Assets and
liabilities denominated in foreign currencies are translated using exchange
rates at the end of the period, and revenues and costs are translated using
average exchange rates for the period.
In order to reduce the effect of foreign currency fluctuations on its results of
operations, the Company hedges its exposure on certain intercompany and customer
receivables which are denominated in foreign currencies through the use of
forward exchange contracts. The forward exchange contracts do not subject
Infinity to significant market risk from exchange rate movements because the
contracts offset foreign currency balances and transactions being hedged. The
Company does not use financial instruments for trading or speculative purposes.
Realized and unrealized gains and losses on forward exchange contracts and the
underlying transactions being hedged are included in interest and other income,
net. There were no forward exchange contracts outstanding as of December 31,
1996 and 1995.
Concentration of Credit Risk and Significant Customers
The Company's total revenues consist primarily of license and service revenues
from financial institutions in the United States, Canada, Japan, Australia,
Germany, France and the United Kingdom. The Company sells primarily to large
institutions, and therefore does not obtain collateral against its outstanding
receivables. Infinity maintains reserves for potential credit losses and
historically such losses have been immaterial. During 1996, two customers
accounted for 11% and 10% of total revenues. During 1995, one customer accounted
for 14% of total revenues, and during 1994, three customers accounted for 18%,
15% and 10% of total revenues.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. The Company maintains deposits with
various banks and invests its excess cash in money market funds which bear
minimal risk. Cash equivalents consist of money market instruments at
December 31, 1996 and 1995.
Property and Equipment
Property and equipment are recorded at cost and depreciated on a straight-line
basis over estimated useful lives, generally three to five years. Leasehold
improvements are amortized over the lesser of the term of the lease or the
estimated useful life of the asset. Assets under capital lease obligations are
amortized over the shorter of the term of the lease or their useful lives on a
straight-line basis, and such amortization is included with depreciation.
Revenue Recognition
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position 91-1 ("SOP 91-1"), "Software
Revenue Recognition." License revenues less deferrals for warranty are
recognized upon shipment only if no significant vendor obligations remain and
collection of the resulting receivable is deemed probable. License warranty
revenues are recognized ratably over the warranty period, generally 30 to 90
days. When the Company receives payment on licenses prior to shipment and
fulfillment of significant vendor obligations, such payments are recorded as
deferred revenue. Service revenues consist primarily of maintenance and support,
training, consulting and co-development projects. Service revenues from customer
maintenance fees for ongoing customer support and product updates are recognized
ratably over the maintenance term, which is typically 12 months. Service
revenues from customer training and consulting services are recognized as the
service is performed. License and service revenues from agreements with multiple
elements containing significant vendor obligations as well as service revenues
from co-development contracts are recognized upon achievement of contractual
milestones or on a percentage-of-completion basis.
Cost of Revenues
Cost of revenues, which primarily relate to costs of service revenues, include
materials, sub-license royalties, a portion of development costs associated with
joint product development agreements, a portion of technical support costs, and
sub-contractor costs associated with purchased services. Costs of license
revenues were immaterial for all periods presented.
Research and Development
Research and development expenditures are charged to operations as incurred.
Statement of Financial Accounting Standard No. 86 "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have been
insignificant.
Net Income Per Share
Net income per share is computed using the weighted average number of common
shares outstanding and common equivalent shares arising from the assumed
exercise of stock options using the treasury stock method and the conversion of
Series A and Series C convertible preferred stock on the as-converted method.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares issued during the period commencing 12
months prior to the initial filing of the initial public offering at prices
below the assumed public offering price have been included in the calculation as
if they were outstanding for all periods presented prior to the initial public
offering (using the treasury stock method). Fully diluted net income per share
is computed using the weighted average common and common equivalent shares
outstanding plus other dilutive shares outstanding which are not common
equivalent shares. Other dilutive shares which are not common equivalent shares
include Series B convertible preferred stock during the period such shares were
outstanding.
In November 1995, the Company redeemed the Series B preferred stock for
$1,277,000. The redemption decreased the income applicable to common
stockholders in the calculation of net income per share in 1995. In October
1996, all outstanding Series A and Series C preferred stock was converted to
common stock and adjusted for a two-for-one stock split effective upon the
Company's initial public offering.
Stock-Based Compensation
The Company grants stock options to purchase a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option and employee stock purchase
plans in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees." In accordance with the provisions of the opinion, the Company has
generally not recognized compensation expense in connection with such plans. In
accordance with Statement of Financial Accounting Standard No. 123 "Accounting
for Stock-Based Compensation" (SFAS No. 123), the Company has disclosed the
estimated fair value of stock options in Note 6.
Other Fair Value Disclosures
At December 31, 1996 and 1995, the carrying value of notes receivable from
stockholders approximates their fair value. The fair values of notes receivable
from stockholders are estimated using discounted cash flow analyses, based on
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality.
3. PROPERTY AND EQUIPMENT
Property and equipment as of December 31 are as follows (in thousands):
1996 1995
-------- -------
Furniture and office equipment $ 1,570 $ 699
Computer equipment 2,980 1,672
------- ------
4,550 2,371
Accumulated depreciation and amortization (1,654) (922)
------- ------
Property and equipment, net $ 2,896 $1,449
======= ======
4. LEASE OBLIGATIONS AND OTHER COMMITMENTS
Assets acquired under non-cancelable capital leases consist of computer and
office equipment with an aggregate cost basis of approximately $1,260,000 and
$749,000 at December 31, 1996 and 1995, respectively, and accumulated
amortization of approximately $364,000 and $257,000 at December 31, 1996 and
1995, respectively. Amortization expense of assets acquired under non-cancelable
capital leases is included in depreciation expense of the Company's owned
assets.
The Company leases office space under operating leases which expire beginning in
March 1997 through March 2004. Under one lease, the Company has a two-year
renewal option. The Company also rents certain property and equipment under
operating leases. Rent expense for all operating leases for the years ended
December 31, 1996, 1995 and 1994 was approximately $1,729,000, $1,207,000 and
$705,000, respectively, and is calculated on a straight-line basis.
Minimum future lease payments under all operating and capital lease obligations
as of December 31, 1996 are as follows (in thousands):
OPERATING LEASE CAPITAL LEASE
OBLIGATIONS OBLIGATIONS
--------------- --------------
Year ending December 31,
1997 $1,429 $ 466
1998 1,082 373
1999 1,049 238
2000 1,070 --
2001 and thereafter 437 --
------ ------
Total minimum lease payments $5,067 1,077
====== ======
Less amount representing interest (156)
------
Present value of net minimum lease payments 921
Less current portion (368)
------
Long-term portion $ 553
======
5. STOCKHOLDERS' EQUITY
Preferred Stock
Conversion of all outstanding preferred stock into common stock occurred at the
Company's initial public offering of the Company's common stock in October 1996.
On January 31, 1994, the Company completed an offering of Series C preferred
stock for gross proceeds of $1,757,000. As a condition to the stock purchase,
the investors required the Company to terminate certain continuing covenants
including certain cash payments due upon subsequent rounds of financing imposed
on the Company in the 1992 settlement and buy-out of a former common
stockholder. As a result, the Company paid $876,000 to the former common
stockholder as consideration for his agreement to terminate these contractual
covenants and restrictions and for his approval of the Series C preferred stock
financing. These costs have been accounted for as issuance costs associated with
the sale of the Series C preferred stock.
In November 1995, the Company exercised its right to repurchase all of the
outstanding Series B preferred shares for $1,277,000. The excess of the
repurchase cost over the stated value of the shares at the time of issuance to
the stockholder has been recorded as a reduction of retained earnings in the
statement of stockholders' equity.
Common Stock
The Company issues shares of common stock which are subject to the Company's
right to repurchase at the original issuance price upon the occurrence of
certain events as defined in the agreements. This right expires ratably over 48
months. At December 31, 1996 and 1995, 513,091 and 824,792 shares were subject
to repurchase, respectively.
In 1995, the Company issued 200,000 shares under a stock purchase agreement. In
connection with this agreement, the Company received a secured promissory note
for $200,000. The note bears interest at 6.04% and is due and payable in March
1997.
At December 31, 1996 and 1995, the total number of shares of common stock
reserved for future issuance under all option plans and conversion of Series A
and C convertible preferred stock was 4,487,726 and 7,135,776, respectively. In
addition, at December 31, 1996, a total of 300,000 shares of common stock are
reserved for future issuance under the 1996 Employee Stock Purchase Plan.
Stock Options
The Company's 1989 Stock Option Plan (the "1989 Plan") authorizes the board of
directors to grant incentive stock options or non-qualified stock options for up
to 2,695,644 common shares to employees, consultants, officers and directors of
the Company. The 1989 Plan is administered by the board of directors with the
terms and conditions of options being generally left to the discretion of the
board of directors.
Under the 1989 Plan, options may be granted at a price not less than fair value
at the date of grant as determined by the board of directors or committee
thereof, except for options granted to a person owning greater than 10% of the
total combined voting power of all classes of stock of the Company, for which
the exercise price of the options must not be less than 110% of the fair value
at the time of grant as determined by the board of directors or committee
thereof. Options generally become exercisable over a period of four years with
1/4 of the options vesting on the first anniversary of the option grant, and the
remainder vesting ratably over the following 36 months. Options are exercisable
for a term of five years after the date of grant.
The Company's 1993 Stock Incentive Plan (the "1993 Plan") authorizes the board
of directors to grant incentive stock options or non-qualified stock options for
up to 6,104,356 common shares to employees, consultants, officers and directors
of the Company. The terms of the 1993 Plan are generally similar to the 1989
Plan, except that options are exercisable for a term of ten years after the date
of grant.
In July 1996, the Company's board of directors adopted the 1996 Stock Incentive
Plan (the "1996 Plan") which authorizes the board of directors to grant
incentive stock options or non-qualified stock options for up to 800,000 common
shares to employees, consultants, officers and directors of the Company. In
addition, the board of directors also approved an increase of 250,000 in the
number of shares authorized for issuance under the 1993 Plan. The terms of the
1996 Plan are generally the same as the 1993 Plan.
In the event of termination of employment or consulting services, the employee
or consultant shall have the right to exercise any unexercised vested options
within 30 or 90 days of the date of termination.
Under all three plans, employees may exercise options in exchange for a secured
promissory note. In 1996, the Company issued a note for $60,000 bearing interest
at 6.58% and due and payable beginning in June 1997 through June 2000. In 1995,
the Company issued two notes for $750,000 and $52,500 bearing interest at 6.04%
and 5.88%, respectively, which are due and payable beginning in September 1996
through September 2000. As of December 31, 1996, $236,250 of principal had been
repaid on these notes.
The Company has recorded deferred compensation expense of $625,000 to reflect
the difference between the grant price and the deemed fair value of certain of
the Company's common stock options granted in 1995 and 1996. This amount is
being amortized over a 48-month period consistent with the vesting period of the
individual options. Compensation expense recognized in the year ended December
31, 1996 totaled $117,000.
In July 1996, the Company's board of directors adopted the 1996 Employee Stock
Purchase Plan (the "Purchase Plan") which authorizes the issuance of 300,000
shares of common stock to its full-time employees, nearly all of whom are
eligible to participate. Under the terms of the Purchase Plan, shares may be
purchased at 85% of the lessor of the fair market value of the common stock on
the grant or purchase date. Employees can choose to have up to 10% of their
annual earnings (including base earnings, bonuses and commissions) withheld to
purchase the Company's common stock, subject to a maximum of 500 shares during
any six-month purchase period. Approximately 80% percent of eligible employees
are participating in the plan which began on October 25, 1996. No shares were
purchased under the Purchase Plan in 1996.
6. STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock issued to Employees" (APB No. 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123 requires use of options valuation models that were not developed for use
in valuing employee stock options. Under APB No. 25, because the exercise price
of the Company's employee stock option equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of the Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for the
year ended December 31:
1996 1995
---- ----
Risk-free interest rate % 6.00 6.21
Dividend yield % 0 0
Volatility of market price %(1) 51 0
Expected option life, years 2.77 2.70
(1) Since the Company was not public during 1995, the minimum-value method
was used for 1995 whereby volatility is assumed to be 0%. Options granted
in 1996 during the period in which the Company was not public were also
valued using the minimum value method. There was only one grant in 1996
that was issued subsequent to the Company's initial public offering, and
that grant was valued using the indicated volatility assumption.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Had the compensation
cost for the Company's stock option plans been determined consistent with SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below for the year ended December 31 (in
thousands, except earnings per share data):
1996 1995
-------- --------
Net income:
As reported $5,405 $2,173
Pro forma 5,218 2,135
Primary earnings per share:
As reported $ 0.28 $ 0.12
Pro forma 0.27 0.12
Fully diluted earnings per share:
As reported $ 0.28 $ 0.12
Pro forma 0.27 0.12
Because SFAS No. 123 is applicable only to options granted subsequent to 1994,
its proforma effect will not be fully reflected until 2000.
A summary of the Company's stock option activity, and related information for
the year ended December 31 follows:
1996 1995 1994
---------------------------- ------------------------------- -------------------------------
WEIGHTED WEIGHTED WEIGHTED
OPTIONS AVERAGE OPTIONS AVERAGE OPTIONS AVERAGE
(000'S) EXERCISE PRICE (000'S) EXERCISE PRICE (000'S) EXERCISE PRICE
------------ -------------- --------------- -------------- --------------- --------------
Outstanding - beginning of year 2,941 $0.49 3,831 $0.11 3,126 $0.06
Granted 1,591 5.56 2,021 1.07 1,832 0.16
Exercised (579) 0.39 (2,495) 0.42 (679) 0.05
Canceled (335) 1.33 (416) 0.22 (448) 0.07
------ ----- ------ ----- ----- -----
Outstanding - end of year 3,618 $2.66 2,941 $0.49 3,831 $0.11
====== ===== ====== ===== ===== =====
Exercisable at end of year 1,156 $0.71 741 $0.15 1,219 $0.07
Weighted average fair value of
options granted during the year $ 0.91 $ 0.16 N/A
The following table summarizes information about options outstanding at December
31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ------------------------------
WEIGHTED
AVERAGE
NUMBER REMAINING WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES (000'S) LIFE EXERCISE PRICE (000'S) EXERCISE PRICE
- ---------------- ----------- ----------- -------------- ----------- --------------
$ 0.04 to 0.15 889 5.5 $ 0.10 611 $ 0.09
0.18 to 1.50 1,159 7.4 0.78 404 0.64
2.00 to 3.50 731 8.9 3.38 136 3.29
4.00 to 6.00 474 9.3 4.51 0 0.00
10.50 to 18.75 365 9.2 10.98 5 10.50
- --------------- ----- --- ------ ----- ------
$ 0.04 to 18.75 3,618 7.7 $ 2.66 1,156 $ 0.71
=============== ===== === ====== ===== ======
7. INCOME TAXES
The provision for income taxes consist of the following (in thousands):
YEAR ENDED DECEMBER 31,
1996 1995 1994
-------- -------- --------
Current:
Federal $2,712 $1,786 $ 112
State 488 515 72
Foreign 430 354 330
------ ------ -----
3,630 2,655 514
Deferred (prepaid):
Federal (282) (328) (31)
State (36) (69) 15
------ ------ -----
$3,312 $2,258 $ 498
====== ====== =====
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes. The source and
tax effects of the differences are as follows (in thousands):
YEAR ENDED DECEMBER 31,
1996 1995 1994
-------- ------- --------
Expected tax at 34% $ 2,964 $1,940 $ 727
State income tax,
net of federal benefit 329 294 57
Research and development
credit (81) (47) (58)
Reduction in valuation
allowance -- -- (225)
FSC benefit (88) (106) --
Other 188 177 (3)
------- ------ -------
$ 3,312 $2,258 $ 498
======= ====== =======
Deferred taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred taxes are as follows (in thousands):
YEAR ENDED DECEMBER 31,
1996 1995
------ -------
Reserves and accruals $ 827 $ 324
Other - net 60 245
------ -------
Total deferred tax asset $ 887 $ 569
====== =======
Management has concluded that a valuation allowance is not required based on its
assessment that current and future levels of taxable income will be sufficient
to realize the tax benefit.
8. FOREIGN OPERATIONS
The Company markets and sells its products and services in a single industry
segment. Net sales, operating income and identifiable assets consist of the
following (in thousands):
YEAR ENDED DECEMBER 31,
1996 1995 1994
-------- -------- --------
Net Sales:
United States -
domestic $10,038 $8,748 $ 6,489
United States -
export 27,247 $15,990 6,106
Japan 4,263 -- --
------- ------- -------
Total net sales $41,548 $24,738 $12,595
======= ======= =======
Operating Income:
United States $ 8,260 $5,676 $ 2,124
Japan 239 -- --
------- ------- -------
Total operating
income $ 8,499 $5,676 $ 2,124
======= ======= =======
Identifiable Assets:
United States $59,149 $12,848 $ 8,885
Japan 1,155 -- --
------- ------- -------
Total identifiable
assets $60,304 $12,848 $ 8,885
======= ======= =======
In 1996, the Company established subsidiaries in the United Kingdom and Japan.
There were no significant foreign operations during fiscal 1996 other than
Japan. During the fiscal years ended December 31, 1995 and 1994, the Company had
no significant foreign operations.
Operating profit is total revenues less total operating expenses. In computing
operating profit, none of the following items have been added or deleted:
interest expense, interest income, foreign currency translation gain or loss, or
income taxes. Identifiable assets are those assets of the Company which are
identified with the operations of the corresponding geographic area.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Infinity Financial Technology, Inc.
We have audited the accompanying consolidated balance sheets of Infinity
Financial Technology, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Infinity Financial Technology, Inc. at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
Palo Alto, California /s/ ERNST & YOUNG LLP
January 21, 1997