SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 7, 1999
===============================================================================
TenFold Corporation
-------------------
(Exact name of registrant as specified in its charter)
Delaware 333-74057 83-0302610
- ----------------------------- ---------------------- -------------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation or Identification No.
organization)
180 West Election Road, Draper, Utah 84020
- ------------------------------------ --------
(Address of principal executive offices) (Zip Code)
================================================================================
Registrant's telephone number, including area code: (801) 495-1010
ITEM 2 - ACQUISITION OR DISPOSITION OF ASSETS
On October 14, 1999, TenFold Corporation ("TenFold") filed a current
report Form 8-K with the Securities and Exchange Commission disclosing the
acquisition of The LongView Group, Inc.
ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Pursuant to paragraph (a) (4) of Item 7 of Form 8-K, the attached financial
statements were omitted from the disclosure contained in the Registrant's
Current Report on Form 8-K dated September 30, 1999 and filed with the
Securities and Exchange Commission on October 14, 1999. Attached hereto
are the following financial statements:
(i) Audited financial statements of The LongView Group, Inc. for the 11
months ended December 31, 1998 and the unaudited financial statements
for the nine months ended September 30, 1999.
(ii) Audited financial statements of The LongView Group, Inc. for the
fiscal year ended January 31, 1998
(b) Pro Forma Financial Information.
Pursuant to paragraph (b) (2) of Item 7 of Form 8-K, the following pro
forma financial information was omitted from the disclosure contained in
the Registrant's Current Report on Form 8-K dated September 30, 1999 and
filed with the Securities and Exchange Commission on October 14, 1999.
Attached hereto are the unaudited pro forma condensed consolidated
statements of operations for the year ended December 31, 1998 and the nine
months ended September 31, 1999, reflecting the acquisition of The Longview
Group, Inc. and including the notes to the unaudited pro forma statements
of operations.
(c) Exhibits.
Exhibit No. Description
----------- -------------------------------
99.1 Consent of KPMG LLP, with respect to the audited
financial statements of The LongView Group, Inc.
for the 11 months ended December 31, 1998.
99.2 Consent of Gately & Associates, P.C. with respect
to the audited financial statements of The
LongView Group, Inc. for the year ended January
31, 1998.
99.3 Stock Purchase Agreement
* Press release dated October 5, 1999
(omitted as it was previously filed on October
14, 1999 with Form 8-K)
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TENFOLD CORPORATION
(Registrant)
Date: December 20, 1999
By: /s/ Robert P. Hughes
-----------------------------
Robert P. Hughes
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Document
- ----------- ------------------------
99.1 Consent of KPMG LLP, with respect to the audited financial
statements of The LongView Group, Inc. for the 11 months ended
December 31, 1998
99.2 Consent of Gately & Associates, P.C. with respect to the
audited financial statements of The LongView Group, Inc. for
the year ended January 31, 1998
99.3 Stock Purchase Agreement
THE LONGVIEW GROUP, INC.
Index To Financial Statements
Page
Independent Auditors' Report 1
Balance Sheets as of December 31, 1998, and September 30, 1999 (unaudited) 2
Statements of Operations for the periods February 1, 1998 to August 20,
1998 (Predecessor) and August 21, 1998 to December 31, 1998
(Successor), and the periods January 1, 1998 to August 20, 1998
(Predecessor-unaudited), August 21, 1998 to September 30, 1998
(Successor-unaudited), and January 1, 1999 to September 30, 1999
(Successor-unaudited) 3
Statements of Changes in Stockholders' Equity for the periods February 1,
1998 to August 20, 1998 (Predecessor) and August 21, 1998 to
December 31, 1998 (Successor) and the nine months ended September
30, 1999 (Successor-unaudited) 4
Statements of Cash Flows for the periods February 1, 1998 to August 20,
1998 (Predecessor) and August 21, 1998 to December 31, 1998
(Successor), and the periods January 1, 1998 to August 20, 1998
(Predecessor-unaudited), August 21, 1998 to September 30, 1998
(Successor-unaudited), and January 1, 1999 to September 30, 1999
(Successor-unaudited) 5
Notes to Financial Statements 6
Independent Auditor's' Report
The Stockholders of
The LongView Group, Inc:
We have audited the accompanying balance sheet of The LongView Group, Inc.
(Successor) as of December 31, 1998, and the related statements of operations,
changes in stockholders' equity, and cash flows for the periods from August 21,
1998 to December 31, 1998 (Successor period), and from February 1, 1998 to
August 20, 1998 (Predecessor period). These financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audits 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 aforementioned Successor financial statements present
fairly, in all material respects, the financial position of The LongView Group,
Inc. as of December 31, 1998, and the results of its operations and its cash
flows for the Successor period, in conformity with generally accepted accounting
principles. Further, in our opinion, the aforementioned Predecessor financial
statements present fairly, in all material aspects, the results of The LongView
Group, Inc.'s operations and cash flows for the Predecessor period, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective August 20, 1998,
Barclays California Corporation acquired all of the outstanding stock of The
LongView Group, Inc. in a business combination accounted for as a purchase. As
a result of the acquisition, the financial information for the periods after the
acquisition is presented on a different cost basis than that for the periods
before the acquisition and, therefore, is not comparable.
KPMG LLP
Salt Lake City, Utah
November 12, 1999
THE LONGVIEW GROUP, INC.
Balance Sheets
December 31, September 30,
1998 1999
(successor) (successor)
----------------- ------------------
Assets (Unaudited)
------
Current assets:
Cash and cash equivalents $ 304,165 1,452,089
Restricted cash 111,000 111,000
Accounts receivable, less allowance for doubtful accounts of $-0-
in 1998 and $25,529 in 1999 1,268,308 1,602,510
Prepaid expenses 31,662 126,210
Income tax receivable 146,000 --
Deferred tax asset 1,575,105 1,349,251
Other current assets 86,020 68,506
----------------- ------------------
Total current assets 3,522,260 4,709,566
----------------- ------------------
Property and equipment, net 724,489 922,719
Goodwill and other intangible assets, net 20,747,889 17,383,366
----------------- ------------------
$ 24,994,638 23,015,651
================= ==================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 122,097 48,393
Intercompany payables 1,314,327 3,884,226
Accrued expenses 1,006,401 1,275,199
Current installments of obligations under capital leases 20,620 23,001
Deferred revenue 2,375,798 4,283,226
----------------- ------------------
Total current liabilities 4,839,243 9,514,045
Obligations under capital leases, less current installments 45,843 26,909
Deferred tax liability 940,832 672,074
----------------- ------------------
Total liabilities 5,825,918 10,213,028
----------------- ------------------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value. Authorized 5,000,000 shares; issued
and outstanding 3,608,000 shares -- --
Additional paid-in capital 22,600,000 23,168,403
Accumulated deficit (3,431,280) (10,365,780)
----------------- ------------------
Total stockholders' equity 19,168,720 12,802,623
----------------- ------------------
Total liabilities and stockholders' equity $ 24,994,638 23,015,651
================= ==================
See accompanying notes to financial statements.
2
THE LONGVIEW GROUP, INC.
Statements of Operations
Eleven months ended Nine months ended
December 31, 1998 September 30, 1998
-------------------------------- ----------------------------------------------------
Predecessor Successor
-------------- --------------------------------
Predecessor Successor January 1, to August 21, to January 1, to
--------------- --------------
February 1 to August 21, to August 20, September 30, September 30,
August 20, December 31, 1998 1998 1999
1998 1998 (Unaudited) (Unaudited) (Unaudited)
--------------- -------------- -------------- --------------- ---------------
Revenues:
License 1,426,942 1,191,724 1,497,543 282,010 1,391,867
Services 574,258 474,367 699,986 230,376 1,992,604
--------------- -------------- -------------- --------------- ---------------
Total revenues 2,001,200 1,666,091 2,197,529 512,386 3,384,471
--------------- -------------- -------------- --------------- ---------------
Operating expenses:
Cost of revenues 967,598 913,423 1,085,405 260,436 2,357,231
Sales and marketing 518,355 489,333 581,466 139,519 1,262,803
Research and Development 1,624,180 1,533,244 1,821,928 437,160 3,956,781
General and Administrative 345,570 327,390 387,644 110,977 841,706
Amortization expense -- 1,682,261 -- 560,754 3,364,523
Charge for the purchase of options 1,110,572 -- 1,110,572 -- --
Write off of the acquired in-process
technology -- 700,000 -- 700,000 --
--------------- -------------- -------------- --------------- ---------------
Total operating expenses 4,566,275 5,645,651 4,987,015 2,208,846 11,783,044
--------------- -------------- -------------- --------------- ---------------
Operating loss (2,565,075) (3,979,560) (2,789,486) (1,696,460) (8,398,573)
Other income (expense):
Interest income 28,363 14,507 44,324 3,916 58,903
Interest expense (5,129) (24,352) (8,926) (1,027) (162,532)
Other 630 (480) 628 (252) (10,136)
--------------- -------------- -------------- --------------- ---------------
Total other income (expense) 23,864 (10,325) 36,026 2,637 (113,765)
--------------- -------------- -------------- --------------- ---------------
Loss before income taxes (2,541,211) (3,989,885) (2,753,460) (1,693,823) (8,512,338)
Income tax benefit -- 558,605 -- 139,964 1,577,838
--------------- -------------- -------------- --------------- ---------------
Net loss (2,541,211) $ (3,431,280) (2,753,460) (1,553,859) (6,934,500)
=============== ============== ============== =============== ===============
Basic and diluted net loss per share (0.70) (0.95) (0.76) (0.43) (1.92)
Weighted average basic and diluted common
shares outstanding 3,608,000 3,608,000 3,608,000 3,608,000 3,608,000
See accompanying notes to financial statements.
3
THE LONGVIEW GROUP, INC.
Statements of Changes in Stockholders' Equity
Additional Net
Common Stock paid-in Accumulated shareholders
------------------------
Shares Amount capital deficit equity
----------- ----------- ----------- ----------- ------------
Predecessor
- ----------
Balances at January 31, 1998 3,608,000 $ 2,719,638 -- (2,041,168) 678,470
Net loss for the period February 1 through
August 20, 1998 -- -- -- (2,541,211) (2,541,211)
----------- ----------- ----------- ----------- ------------
Balances at August 20, 1998 3,608,000 $ 2,719,638 -- (4,582,379) (1,862,741)
=========== =========== =========== =========== ============
=======================================================================================================================
Successor
- ---------
Acquisition of LongView by BarCal (Note 1) 3,608,000 $ -- 22,600,000 -- 22,600,000
Net loss for the period August 21 through
December 31, 1998 -- -- -- (3,431,280) (3,431,280)
----------- ----------- ----------- ----------- ------------
Balances at December 31, 1998 3,608,000 -- 22,600,000 (3,431,280) 19,168,720
Net loss (unaudited) -- -- -- (6,934,500) (6,934,500)
Contribution of capital to LongView United Kingdom,
Ltd. (unaudited) -- -- 568,403 -- 568,403
----------- ----------- ----------- ----------- ------------
Balances at September 30, 1999 (unaudited) 3,608,000 $ -- 23,168,403 (10,365,780) 12,802,623
=========== =========== =========== =========== ============
See accompanying notes to financial statements.
4
THE LONGVIEW GROUP, INC.
Statements of Cash Flows
Eleven months ended Nine months ended
December 31, 1998 September 30, 1998
------------------------------ -----------------------------------------------
Predecessor Successor
-----------------------------------------------
Predecessor Successor January 1, to August 21, to January 1, to
-------------- --------------
February 1 to August 21, to August 20, September 30, September 30,
August 20, December 31, 1998 1998 1999
1998 1998 (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- ------------- -------------
Cash flows from operating activities:
Net loss (2,541,211) $ (3,431,280) (2,753,460) (1,553,859) (6,934,500)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 128,405 1,787,435 172,061 590,271 3,610,439
Provision for bad debts -- -- -- -- 25,529
Write off of the acquired in-process technology -- 700,000 -- 700,000 --
Charge for the purchase of options 1,110,572 -- 1,110,572 -- --
Decrease (increase) in operating assets:
Receivables 375,239 (1,160,466) 157,750 (381,235) (359,731)
Prepaid income taxes -- (146,000) -- (44,000) 146,000
Prepaid expenses 14,124 29,581 16,087 (15,073) (94,548)
Deferred taxes -- (902,866) -- (53,260) 225,854
Other assets and deposits (156,513) 148,596 (212,108) 180,838 17,514
Increase (decrease) in operating liabilities:
Accounts payable 82,871 (47,882) 87,181 (33,663) (73,704)
Deferred taxes -- 490,612 -- (25,467) (268,758)
Deferred revenue 684,120 671,470 1,038,394 159,767 1,907,428
Intercompany payable 1,360,573 (46,246) 1,360,573 (1,110,573) 3,138,302
Accrued expenses 487,406 287,978 507,509 28,243 268,798
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in) operating
activities 1,545,586 (1,619,068) 1,484,559 (1,558,011) 1,608,623
------------- ------------- ------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures (172,653) (108,733) (205,481) (24,877) (444,146)
Decrease in restricted cash 512,188 -- -- -- --
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in) investing
activities 339,535 (108,733) (205,481) (24,877) (444,146)
Cash flows from financing activities:
Principal payments under capital lease obligation (76) (6,789) -- (1,465) (16,553)
Proceeds from issuance of common stock -- -- 487,415 -- --
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in) financing
activities (76) (6,789) 487,415 (1,465) (16,553)
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash 1,885,045 (1,734,590) 1,766,493 (1,584,353) 1,147,924
Cash and cash equivalents at beginning of period 153,710 2,038,755 272,262 2,038,755 304,165
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents at end of period 2,038,755 $ 304,165 2,038,755 454,402 1,452,089
============= ============= ============= ============= =============
Supplemental disclosures:
Noncash investing and financing activities
disclosure:
Capital lease obligation for equipment $ -- -- 55,402 -- --
Contribution of capital to LongView United
Kingdom, Ltd. -- -- -- -- 568,403
Other noncash operating activities disclosure:
Write off of accounts receivable 100,000 -- -- 100,000 --
See accompanying notes to financial statements.
5
THE LONGVIEW GROUP, INC.
Notes to Financial Statements For the Year Ended December 31, 1998
(Unaudited as to September 30, 1999)
(1) Basis of Presentation and Company Background
The LongView Group, Inc. (the "Company") was formed as a partnership in 1982
and incorporated in February 1986. The Company was primarily engaged in
systems consulting and custom systems development exclusively for investment
management firms from 1982 through 1992. In 1991, the Company began the
development of a software product called LandMark for the investment
management industry, and it started actively marketing this product in
February 1995. The LandMark product accounts for substantially all of the
Company's revenue on the accompanying statements of operations.
On August 20, 1998, 100 percent of the Company's then outstanding common
stock was acquired by Barclays California Corporation ("BarCal") in a tender
offer for cash consideration in the amount of $22,600,000. In connection
with the purchase, BarCal advanced cash of $1,110,572 to the Company to
purchase all outstanding options held by employees to purchase common stock.
The Company prior to and including August 20, 1998 is referred to as the
"Predecessor". The Company after August 20, 1998 is referred to as the
"Successor".
The total purchase price and final allocation among the tangible and
identifiable intangible assets and liabilities acquired (including acquired
in-process technology) is summarized as follows (dollars in thousands):
Amortization
Period
(Months)
--------------
Purchase Price Allocation:
Net liabilities assumed $ (752)
Intangible assets:
Workforce-in-place 400 60
Customer list 1,100 60
Core technology 1,000 60
Goodwill 19,930 60
In-process technology 700 Expensed
Deferred tax assets 672
Deferred tax liability (450)
------------
Total purchase price $ 22,600
============
6 (Continued)
THE LONGVIEW GROUP, INC.
Notes to Financial Statements For The Year Ended December 31, 1998
(Unaudited as to September 30, 1999)
As a result of the change in ownership and control, the accompanying
financial statements are presented on a "push-down accounting" basis for the
successor periods. Pushdown accounting requires that the purchase price be
allocated to the Company's tangible net assets, identifiable intangible
assets, and goodwill based upon their estimated fair values at the date of
acquisition.
As part of BarCal's acquisition of LongView, BarCal changed the Company's
year-end from January 31 to December 31.
The financial statements at December 31, 1998 include the accounts of The
LongView Group, Inc. and effective September 27, 1999 include its wholly-
owned subsidiary The LongView Group United Kingdom, Ltd. ("UK"). All
significant intercompany balances and transactions in 1999 have been
eliminated in consolidation.
(2) Summary of Significant Accounting Policies
Revenue Recognition
The Company derives its revenue from perpetual and monthly license fees,
implementation services, support, and training services.
In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 97-2, Software Revenue
Recognition, which supersedes SOP 91-1, Software Revenue Recognition.
Additionally, in 1998 the AICPA issued SOP 98-9 Modification of SOP 97-2
with Respect to Certain Transactions. Effective February 1, 1998, the
Company adopted the provisions of SOP 97-2 as modified by SOP 98-9. As such,
revenue was recognized in accordance with SOP 97-2 as modified by SOP 98-9
during the eleven-months ending December 31, 1998.
SOP 97-2 as modified by SOP 98-9 generally requires revenue earned on
software arrangements involving multiple elements such as software products,
enhancements, post-contract customer support, installation and training to
be allocated to each element based on the relative fair values of the
elements. The fair value of an element must be based on evidence which is
specific to the vendor. The revenue allocated to unspecified upgrades and
updates and post contract customer support is generally recognized as the
services are performed.
The Company recognizes revenues from product sales that do not require
significant production, modification, or customization or the services -
related element is not essential to the functionality of the software when
the following criteria are met: the Company has signed a noncancelable
license agreement; the Company has shipped the software product; there are
no uncertainties surrounding product acceptance; the fees are fixed and
determinable; and collection is considered probable.
The Company recognizes support revenue from contracts for ongoing technical
support and product updates, ratably over the term of the contract, which is
typically month to month. The Company recognizes training revenues as
services are performed.
7 (Continued)
THE LONGVIEW GROUP, INC.
Notes to Financial Statements For the Year Ended December 31, 1998
(Unaudited as to September 30, 1999)
The timing and amount of cash received from customers can vary significantly
depending on specific contract terms and can therefore have a significant
impact on the amount of deferred revenue in any given period. The Company
records cash received in excess of revenue earned as deferred revenue.
The Company has entered into agreements with certain customers requiring
royalty payments for business referrals. Royalties paid amounted to $122,768
for the period from August 21 to December 31, 1998, $81,000 for the period
from February 1 to August 20, 1998, $61,243 for the period from August 21 to
September 30, 1998 and $25,875 for the period from January 1 to September 30,
1999 (unaudited).
In addition, the Company has also entered into agreements with certain
customers, requiring royalty payments to the Company. Royalty revenue of
$37,500 was recorded for each of the periods from August 21 to December 31,
1998 and January 1 to September 30, 1999 (unaudited). No other royalty
revenue was recorded.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity to the Company of 90 days or less to be cash equivalents.
Property and Equipment
Property and equipment, including leasehold improvements, are stated at cost.
Depreciation and amortization are computed using the straight-line and
double-declining balance methods based on the estimated lives of the related
assets.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets consist primarily of goodwill and other
identifiable intangible assets recorded in connection with the push down
accounting at the time of the acquisition of the Company by BarCal on August
20, 1998. The goodwill and other identifiable intangible assets are being
amortized using the straight-line method over five years. As of December 31,
1998, accumulated amortization of goodwill and other intangible assets was
$1.7 million.
Software Development Costs
Software development costs consist primarily of costs for development and
enhancement of the LandMark application. Software development costs incurred
between achieving technology feasibility and release of the product to our
customers have been insignificant and therefore have been expensed as
incurred.
8 (Continued)
THE LONGVIEW GROUP, INC.
Notes to Financial Statements For the Year Ended December 31, 1998
(Unaudited as to September 30, 1999)
Stock-Based Compensation
The Company has adopted the footnote disclosure provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock Based
Compensation. SFAS 123 encourages entities to adopt a fair value based method
of accounting for stock options or similar equity instruments. However, it
also allows an entity to continue measuring compensation cost for stock based
compensation using the intrinsic-value method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees (APB 25). The Company has elected to continue to apply the
provisions of APB 25 and provide pro forma footnote disclosures required by
SFAS 123.
Income Taxes
The Company records income taxes using the asset and liability method.
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
basis amounts of existing assets and liabilities and their respective income
tax bases. Future tax benefits, such as net operating loss carry forwards,
and tax credits, are recognized to the extent that realization of such
benefits are more likely than not. Deferred income tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred income tax assets and liabilities of a
change in tax rates in recognized in income in the period that includes the
enactment date.
For the period August 21, 1998 through September 30, 1999, the Company was a
subsidiary of BarCal. Under the tax allocation agreement, BarCal pays the
Company for the tax benefit of utilizing the Company's operating losses.
Use of Estimates
The preparation of the 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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Advertising
Advertising costs are expensed as incurred.
Operating Segments
The Company operates in one line of business, the development and marketing
of the LandMark portfolio modeling and trading software system. As such, the
Company has only one reportable operating segment as defined by the Financial
Accounting Standards Board Statement No. 131, Disclosures About Segments of
an Enterprise and Related Information.
9 (Continued)
THE LONGVIEW GROUP, INC.
Notes to Financial Statements For the Year Ended December 31, 1998
(Unaudited as to September 30, 1999)
Recent Accounting Pronouncements
The FASB recently issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. For a
derivative not designated as a hedging instrument, changes in the fair value
of the derivative are recognized in earnings in the period of change. The
Company must adopt SFAS No. 133 by January 1, 2001. Management does not
believe the adoption of SFAS No. 133 will have a material effect on the
financial position or results of operations of the Company.
Unaudited Interim Consolidated Financial Statements
The accompanying unaudited interim financial statements for the nine months
ended September 30, 1998 (January 1, to August 20, 1998 and August 21 to
September 30, 1998), and for the nine months ended September 30, 1999, have
been prepared on substantially the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial information
set forth herein.
(3) Property and Equipment
The cost and estimated useful lives of property and equipment, including
leasehold improvements are summarized as follows:
Estimated December 31, September 30,
useful lives 1998 1999
----------------- ----------------- -----------------
(Unaudited)
Leasehold improvements 5 to 6 years $ 219,249 225,079
Office furniture and equipment 3 to 7 years 1,078,764 1,517,080
----------------- -----------------
1,298,013 1,742,159
Less accumulated depreciation and amortization (573,524) (819,440)
----------------- -----------------
$ 724,489 922,719
================= =================
(4) Leases
The Company is obligated under capital leases for equipment that expire at
various dates during the next four years. At December 31, 1998, equipment of
$87,178 and related accumulated amortization of $38,782 were recorded under
these capital leases.
The Company leases office space and equipment under operating lease
agreements that expire at various dates during the next four years. Rent
expense was $169,620, $254,620, $285,391, $51,568, and $439,897 for the
periods August 21 to December 31, 1998, February 1 to August 20, 1998,
January 1, to August 20, 1998, August 21 to September 30, 1998 and January 1
to September 30, 1999, respectively.
10 (Continued)
THE LONGVIEW GROUP, INC.
Notes to Financial statements for the Year ended December 31, 1998
(Unaudited as to September 30, 1999)
Future minimum lease payments under noncancelable leases as of December 31,
1998 are as follows:
Total Operating Capital
-------------- -------------- --------------
1999 $ 441,680 413,971 27,709
2000 425,727 402,726 23,001
2001 422,815 402,726 20,089
2002 210,762 201,363 9,399
-------------- -------------- --------------
Total minimum lease payments $ 1,500,984 1,420,786 80,198
============== ==============
Less: amount representing interest (13,735)
--------------
Present value of net minimum capital lease
payments 66,463
Less: current installments of obligations under
capital leases (20,620)
--------------
Obligations under capital leases excluding
current installments $ 45,843
=============
(5) Accrued Expenses
Accrued expenses consist of the following:
December 31, September 30,
1998 1999
----------------- -----------------
(Unaudited)
Incentive compensation $ 684,069 1,080,000
Compensation and benefits 231,390 78,170
Other 90,942 117,029
----------------- -----------------
$ 1,006,401 1,275,199
================= =================
(6) Related Party Transactions
The Company entered into a line of credit loan agreement with BarCal as of
October 9, 1998 in the amount of $3,000,000 subsequently amended to
$5,000,000 on March 25, 1999. The line bears interest at LIBOR plus 1%
(9.5% as of December 31, 1998) and allows for interest to be added back to
the loan balance. The Company may draw down on the line based upon the
working capital needs of the Company as determined by the designated
officers. As of December 31, 1998, and September 30, 1999 $1,250,000 and
$3,750,000, respectively, has been drawn down on the line. In addition, at
December 31, 1998 interest in the amount of $20,936 has been added back to
the loan.
11 (Continued)
THE LONGVIEW GROUP, INC.
Notes to Financial statements for the Year ended December 31, 1998
(Unaudited as to September 30, 1999)
In the normal course of business the Company transacts with other companies
under common control of BarCal. These transactions represent payments made
or received on the Company's behalf. Included in intercompany payables at
December 31, 1998 and September 30, 1999 is $43,391 and $134,226
respectively, related to such transactions.
Included in accrued compensation and benefits at December 31, 1998 were
$198,663 of payroll benefits owed to the President of the Company.
Included in other current assets at December 31, 1998 are loans to
employees in the amount of $55,000. During the period ended September 30,
1999, one loan for $50,000 plus accrued interest of $5,375 was forgiven and
reflected as compensation.
In April 1998, BarCal signed a monthly license agreement with the Company.
Through September 30, 1999, no revenues have been recognized in conjunction
with this agreement.
(7) Commitments And Contingencies
Under the terms of the lease agreement for the Company's office space, a
letter of credit in the amount of $111,000 is maintained with a financial
institution. The amount is recorded as restricted cash in the Company's
December 31, 1998 financial statements.
(8) Income Taxes
The components of the provision for income taxes for the periods indicated
below are comprised of the following:
Successor Predecessor Predecessor Successor
August 21 February 1, January 1 August 21 January 1
to to to to to
December 31, August 20, September 30, September 30, September 30,
1998 1998 1998 1998 1999
-------------- ----------- -------------- -------------- -------------
(Unaudited) (Unaudited) (Unaudited)
Benefit for income taxes:
Current: $
Federal 146,352 - - 43,905 1,534,934
State - - - - -
-------------- ----------- -------------- -------------- -------------
146,352 - - 43,905 1,534,934
-------------- ----------- -------------- -------------- -------------
Deferred:
Federal 412,253 - - 96,059 42,904
State - - - - -
-------------- ----------- -------------- -------------- -------------
412,253 - - 96,059 42,904
-------------- ----------- -------------- -------------- -------------
Total $ 558,605 - - 139,964 1,577,838
============== =========== ============== ============== =============
12 (Continued)
THE LONGVIEW GROUP, INC.
Notes to Financial Statements For the Year Ended December 31, 1998
(Unaudited as to September 30, 1999)
The tax table below reconciles the U.S. federal statutory income tax rate of
34% to the recorded income Tax provision
Successor Predecessor Predecessor Successor
August 21 February 1, January 1 August 21 January 1
to to to to to
December 31, August 20, September 30, September 30, September 30,
1998 1998 1998 1998 1999
------------- ------------ ------------- ------------- ------------
(Unaudited) (Unaudited) (Unaudited)
Tax Benefit at U.S. Statutory Rate $ (1,356,561) (864,012) (936,176) (575,900) (2,894,195)
In Process R & D 238,000 - - 238,000 -
Non Deductible Expenses - 447,000 447,000 - 360,000
Goodwill 508,219 - - 169,406 1,016,638
Valuation Allowance 163,000 443,000 521,000 31,000 377,000
State Benefit (Net of Federal Tax) (106,000) (87,000) (93,000) - (266,000)
Other (5,263) 61,012 61,176 (2,471) (170,881)
------------- ----------- ------------ ------------ ------------
Tax benefit $ (558,605) - - (139,964) (1,577,838)
============= =========== ============ ============ ============
The significant temporary differences that create deferred tax assets and
liabilities as of December 31, 1998 and September 30, 1999, are shown in the
table below:
September 30,
December 31, 1999
1998 (Unaudited)
----------------- -----------------
Deferred tax assets:
Recognition of revenue $ 1,050,103 1,892,687
Reserves not currently deductible - 11,284
Net operating loss carryforwards 584,689 375,361
Accrued payroll to shareholders 78,986 -
Other 269,554 83,454
----------------- -----------------
Total deferred tax assets 1,983,332 2,362,786
Less: valuation allowance (232,538) (609,430)
----------------- -----------------
Net deferred tax assets 1,750,794 1,753,356
Deferred tax liabilities:
State deferred taxes 81,388 213,300
Recognition of expenses 13,007 6,504
Intangibles 1,022,125 856,375
----------------- -----------------
Total deferred tax liabilities 1,116,520 1,076,179
----------------- -----------------
Total net deferred tax asset 634,273 677,177
Deferred income tax asset - current 1,575,105 1,349,251
Deferred income tax asset - long-term (940,832) (672,074)
----------------- -----------------
Total net deferred tax asset $ 634,273 677,177
================= =================
13 (Continued)
THE LONGVIEW GROUP, INC.
Notes to Financial statements For the Year Ended December 31, 1998
(Unaudited as to September 30, 1999)
During the period of BarCal's ownership, the Company believes that the
existing net deductible temporary differences will reverse during the
periods in which the BarCal group generates income. A valuation allowance
is provided when it is more likely than not that some portion of the
deferred tax asset may not be realized. The Company has established a
valuation allowance for net state deductible temporary differences due to
the five year carryover period and the uncertainty of realization. During
the periods when the Company was not a subsidiary of BarCal, the Company
has established a valuation allowance against its net deductible temporary
differences due to the uncertainty of realization. The Company believes
that it is more likely than not that the remaining deferred tax assets will
be utilized. The Company's beginning valuation allowance increased during
1999 due to the increase in state net deductible temporary differences.
The Company has state net operating loss carryforwards at September 30,
1999 of approximately $4,000,000. These losses begin to expire in 1999
through December 31, 2003.
(9) Stockholder's Equity
Common Stock
The Company has authorized 5,000,000 shares of common stock. Pursuant to
the acquisition of the Company by BarCal, in August 1998, all of the
outstanding options to purchase common stock were purchased by the Company
for $1,110,572. The Company was reimbursed by BarCal for the full
$1,110,572.
In September 1999, BarCal contributed the net assets in the amount of
$568,403 of the UK to the Company. The transaction was between entities
under common control, and accounted for as if a pooling-of-interests.
Accordingly, the unaudited consolidated financial statements for the period
ended September 30, 1999 include the accounts and results of operations of
the UK since its inception in 1999.
(Continued)
14
THE LONGVIEW GROUP, INC.
Notes to Financial statements For the Year Ended December 31, 1998
(Unaudited as to September 30, 1999)
Stock Option Plan
The Company has a stock incentive plan which provides for the grant of
options to officers and employees to acquire shares of the Company's common
stock at a purchase price generally equal to the fair market value on the
date of grant. Options generally vest ratably over five years and expire
ten years from the date of grant. A summary of activity follows:
Weighted.
Number of Average
options Exercise
------------- ------------
Outstanding, January 31, 1998 236,099 2.33
Options awarded 37,500 3.69
Options purchased by the Company in
connection with the business acquisition,
August 20, 1998 273,599
-------------
Outstanding, December 31, 1998 -
=============
The Company accounts for this plan under APB 25, under which no
compensation cost has been recognized.
In accordance with the terms of the stock option plan, in anticipation of
the purchase of the Company by BarCal, the Company purchased all of the
outstanding options for the Company's common stock as of August 20, 1998.
(10) Profit Sharing and Retirement Plan
The Company through BarCal has a 401(k) salary deferral and profit sharing
plan which covers substantially all full-time employees. The Company can
make matching contributions of up to 6 percent of the participant's
compensation. The Company's contributions were $119,871 for the period
ended December 31, 1998.
The Company through BarCal has a retirement plan that covers substantially
all full-time employees. The Company contributes up to 6 percent of a
participant's compensation. The Company's contribution was $71,890 for the
period ended December 31, 1998.
(Continued)
15
THE LONGVIEW GROUP, INC.
Notes to Financial statements For the Year Ended December 31, 1998
(Unaudited as to September 30, 1999)
(11) Loss Per Common Share
Loss per common share is computed based on the weighted-average number of
common shares and, as appropriate, dilutive common stock equivalents
outstanding during the period. Stock options are considered to be common
stock equivalents.
Basic loss per common share is the amount of loss for the period available
to each share of common stock outstanding during the reporting period.
Diluted loss per share is the amount of loss for the period available to
each share of common stock outstanding during the reporting period and to
each share that would have been outstanding assuming the issuance of common
shares for all dilutive potential common shares outstanding during the
period.
In calculating loss per common share, the losses were the same for both the
basic and diluted calculation. Additionally, the weighted average common
and common equivalent shares outstanding for the purposes of calculating
loss per share were the same for all periods presented.
(12) Subsequent Events
On October 7, 1999, all of the issued and outstanding shares of capital
stock of the Company and all of the ordinary shares of UK were acquired by
TenFold Corporation for consideration of $22,000,000, with estimated
acquisition costs of $330,000. Under the terms of the agreement, BarCal
waived all amounts in the nature of intercompany obligations that are
payable, due or owing by either of the LongView entities to any Barclays
group member. Additionally, BarCal agrees to pay accrued bonuses of
$1,080,000 on or before February 29, 2000 to LongView employees under the
Company's Cash Incentive Bonus Plan for staff and management.
Furthermore the monthly term license agreement between the Company and
BarCal dated May 1, 1998 remains in effect as per the terms of the license
agreement.
As a result of the transaction, the Company 401(k) and retirement plans
have been discontinued. As such, Company employees, at their discretion,
have the option of participating in the TenFold 401(k) plan.
16
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders of
The LongView Group, Inc:
We have audited the accompanying balance sheet of THE LONGVIEW GROUP, INC. (a
Massachusetts corporation) as of January 31, 1998, and the related statements of
operations, stockholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The LongView Group, Inc. as of
January 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Wellesley, Massachusetts,
April 21, 1998, except with respect to the matters referred to in Notes
2(b), 9 and 10, as to which the date is November 15, 1999.
THE LONGVIEW GROUP, INC.
-----------------------
BALANCE SHEET
-------------
JANUARY 31, 1998
----------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 153,710
Restricted cash 512,188
Accounts receivable, less allowances of $100,000 483,081
Due from stockholders 4,744
Prepaid expenses and other current assets 75,367
-------------
Total current assets 1,229,090
-------------
PROPERTY AND EQUIPMENT, at cost:
Computer and office equipment 485,546
Furniture and fixtures 320,748
Leasehold improvements 210,333
-------------
1,016,627
Less: Accumulated depreciation and amortization (339,945)
-------------
676,682
-------------
OTHER ASSETS:
Deposits and other assets 73,359
Restricted cash 111,000
-------------
184,359
-------------
Total assets $ 2,090,131
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current installments of obligations under capital leases $ 18,679
Accounts payable and accrued expenses 87,108
Accrued payroll to stockholders 231,017
Deferred revenue 1,020,208
-------------
Total current liabilities 1,357,012
-------------
OBLIGATIONS UNDER CAPITAL LEASES,
excluding current installments 54,649
-------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, no par value; 5,000,000 shares
authorized; 3,608,000 shares issued and outstanding 2,719,638
Retained deficit (2,041,168)
-------------
Total stockholders' equity 678,470
-------------
Total liabilities and stockholders equity $ 2,090,131
=============
The accompanying notes are an integral part of these financial statements.
-2-
THE LONGVIEW GROUP, INC.
------------------------
STATEMENT OF OPERATIONS
-----------------------
FOR THE YEAR ENDED JANUARY 31, 1998
-----------------------------------
REVENUES:
License $ 1,281,898
Services 739,931
-------------
Total revenues 2,021,829
-------------
OPERATING EXPENSES:
Cost of revenues 858,363
Sales and marketing 356,299
Research and development 1,337,567
General and administrative 1,053,865
-------------
Total operating expenses 3,606,094
-------------
Loss from operations (1,584,265)
OTHER INCOME (EXPENSE):
Interest income 52,628
Interest expense (11,473)
-------------
Total other income 41,155
-------------
Loss before provision for income taxes (1,543,110)
PROVISION FOR INCOME TAXES: -
-------------
Net loss $(1,543,110)
=============
Basic and diluted loss per share $ (0.46)
=============
Shares used in computation of basic and diluted
loss per share 3,389,189
=============
The accoumpanying notes are an integral part of these financial statements.
-3-
THE LONGVIEW GROUP, INC.
------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
FOR THE YEAR ENDED JANUARY 31, 1998
-----------------------------------
Common Stock, No Par Value
------------------------------ Retained
Shares Amount Deficit
---------- ----------- ------------
BALANCE, January 31, 1997 3,086,000 $ 226,500 $ (498,058)
Net loss - - (1,543,110)
Sales of common stock, net of expenses
totaling $34,368 800,000 2,905,723 -
Exercise of stock options 4,586 4,310 -
Purchase of shares of treasury stock - - -
Retirement of treasury stock (282,586) (416,895) -
---------- ----------- ------------
BALANCE, January 31, 1998 3,608,000 $ 2,719,638 $(2,041,168)
========== =========== ============
Treasury Stock Total
----------------------------- Stockholders'
Shares Amount Equity
------------ ------------ --------------
BALANCE, January 31, 1997 - $ - $ (271,558)
Net loss - - (1,543,110)
Sales of common stock, net of expenses
totaling $34,368 - - 2,905,723
Exercise of stock options - - 4,310
Purchase of shares of treasury stock 282,586 416,895 416,895
Retirement of treasury stock (282,586) (416,895) (833,790)
------------ ------------ --------------
BALANCE, January 31, 1998 - $ - $ 678,470
============ ============ ==============
The accompanying notes are an integral part of these financial statements.
-4-
THE LONGVIEW GROUP, INC.
-----------------------
STATEMENT OF CASH FLOWS
-----------------------
FOR THE YEAR ENDED JANUARY 31, 1998
-----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,543,110)
Adjustments to reconcile net loss to net cash used by
operating activities:
Bad debt expense 100,000
Depreciation 156,956
Change in operating assets and liabilities:
Accounts receivable (476,605)
Notes and interest receivable from stockholders 22,206
Prepaid expenses, deposits and other assets (56,837)
Deferred revenue 326,806
Accounts payable and accrued expenses 7,290
Accrued payroll to stockholders (3,627)
------------
Net cash used by operating activities (1,466,921)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (575,829)
Restricted cash supporting letter-of-credit (111,000)
------------
Net cash used by investing activities (686,829)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of demand notes payable to banks (112,700)
Repayments of long-term debt (17,473)
Proceeds from issuance of common stock 2,910,033
Restricted cash held in escrow (512,188)
Purchase of treasury stock (416,895)
------------
Net cash provided by financing activities 1,850,777
------------
DECREASE IN CASH AND CASH EQUIVALENTS (302,973)
Cash and cash equivalents at beginning of year 456,683
------------
Cash and cash equivalents at end of year $ 153,710
============
The accompanying notes are an integral part of these financial statements.
-5-
THE LONGVIEW GROUP, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JANUARY 31, 1998
----------------
(1) Operations
----------
The LongView Group, Inc. (the "Company") was formed as a partnership in 1982 and
incorporated in February 1986. The Company was primarily engaged in systems
consulting and custom systems development exclusively for investment management
firms from 1982 through 1992. In 1991, the Company began the development of a
software product ("LandMark") for the investment management industry, and it
started actively marketing this product in February 1995. The LandMark product
accounts for substantially all of the Company's current revenue.
(2) Summary of Significant Accounting Policies
------------------------------------------
The accompanying financial statements reflect the application of certain
accounting policies as described in this note. Other policies and practices are
described in the remaining notes to the accompanying financial statements.
(a) Cash and Cash Equivalents
-------------------------
Cash and cash equivalents included in the accompanying balance sheet
includes money market funds of $132,373. From time to time, the Company
maintains cash and cash equivalents in a bank in excess of federally
insured limits. Management believes any risk of loss of cash is mitigated
by the financial strength of their bank.
(b) Restricted Cash
---------------
As part of the stock transaction discussed in Note 6, $500,000 of the stock
proceeds was deposited in an escrow account to which the Company is a party
until the Company has delivered its system architecture documentation to
the stockholder. As of January 31, 1998, the cash plus accrued interest in
the escrow account equals $512,188. The system architecture documentation
was delivered in May 1998 and the corresponding cash was released from this
restriction.
In addition, the Company is required to maintain an $111,000 compensating
balance with a bank to support an outstanding letter of credit for $111,000
which is issued to the Company's landlord as a deposit on leased office
space. At January 31, 1998, $111,000 of cash is restricted for that
purpose.
(c) Concentration of Credit Risk
----------------------------
The Company does business with primarily domestic investment companies and
banks with significant financial resources. A significant deterioration in
economic conditions relative to these industries would have a significant
adverse impact on the Company's operations.
During 1998, one customer accounted for 12% of total revenue. At January
31, 1998, total net accounts receivable from this customer was
approximately $17,000.
-6-
THE LONGVIEW GROUP, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JANUARY 31, 1998
----------------
(2) Summary of Significant Accounting Policies (Continued)
------------------------------------------------------
(d) Property and Equipment
----------------------
For financial reporting purposes, the Company provides for depreciation and
amortization using the straight-line and double-declining balance methods
in amounts which are estimated to allocate the cost of property and
equipment over their estimated useful lives, which are as follows:
Description Useful Lives
----------- ------------
Computer and office equipment 3 - 5 Years
Furniture and fixtures 5 - 7 Years
Leasehold improvements 5 - 6 Years
For tax purposes, the Company provides for depreciation using the
accelerated lives as prescribed by the Modified Accelerated Cost Recovery
System of the Internal Revenue Code.
(e) Revenue Recognition
-------------------
The Company derives its revenue from perpetual license fees and monthly
license fees, as well as consulting, application development, installation,
training and maintenance services.
Perpetual license fees are recognized as revenue upon delivery of the
software and acceptance of the system in accordance with the American
Institute of Certified Public Accountants Statement of Position 91-1.
Monthly license fees are billed quarterly in advance and recognized as
revenue ratably over the applicable calendar quarter.
Revenues from consulting services are recognized as the services are
performed. Revenues from application development of ancillary software,
installation and training fees are recognized on a percentage-of-completion
basis. The aggregate of costs incurred and income recognized on
uncompleted contracts in excess of billings was $33,625 as of January 31,
1998 and is included in prepaid expenses and other current assets in the
accompanying balance sheet.
The Company charges for its maintenance services on licenses in two ways.
First, a minimum base charge for maintenance services is payable in advance
but recognized as revenue over the applicable maintenance term.
Additionally, a quarterly maintenance fee, payable in advance, is charged
to customers and recognized ratably over the applicable quarter. All
maintenance fees are classified as service revenues in the accompanying
statement of operations.
-7-
THE LONGVIEW GROUP, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JANUARY 31, 1998
----------------
(2) Summary of Significant Accounting Policies (Continued)
------------------------------------------------------
(f) Deferred Revenues
-----------------
Deferred revenues include amounts received in advance for license fees and
maintenance and installation services discussed above. The amount of
deferred revenues by type as of January 31, 1998 is as follows:
Deferred license fees $ 625,821
Deferred maintenance 104,262
Deferred installation services 290,125
----------
$1,020,208
==========
(g) Income Taxes
------------
The Company follows Statements of Financial Accounting Standards ("SFAS")
109, Accounting for Income Taxes, to account for income taxes. Income tax
expense includes Federal and state taxes currently payable or refundable
plus deferred taxes. Deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes also are recognized for operating losses that are
available to offset future taxable income, net of any valuation allowance
that may be required to reduce deferred tax assets to the amount expected
to be realized.
(h) Cash Flow Information
---------------------
During 1998, the Company paid income taxes of $1,732 and paid interest of
$14,465. Non-cash transactions in fiscal 1998 consist of capital lease
obligations incurred in the acquisition of property totaling $76,896.
(i) Research and Development Costs
------------------------------
Research and development costs are expensed as incurred. SFAS 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", does not materially affect the Company.
(j) Advertising Costs
-----------------
Advertising costs are expensed as incurred. There were no advertising
costs incurred by the Company during the year.
-8-
THE LONGVIEW GROUP, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JANUARY 31, 1998
----------------
(2) Summary of Significant Accounting Policies (Continued)
------------------------------------------------------
(k) Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
changes therein, and applicable disclosures at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(l) Earnings (Loss) Per Share
-------------------------
Basic earnings per share excludes any dilutive effect of common stock
equivalents. Basic earnings per share is computed using the weighted
average number of common shares outstanding during the period. Dilutive
earnings per share is computed using the weighted average number of common
and common stock equivalents outstanding during the period. Common
equivalent shares have been excluded from this calculation as their effect
is antidilutive. There are 236,099 stock options outstanding as of January
31, 1998 that could potentially dilute basic earnings per share in the
future.
(m) Operating Segments
------------------
The Company operates in one line of business, the development and marketing
of the LandMark portfolio modeling and trading software system. As such,
the Company has only one reportable operating segment as defined by the
Financial Accounting Standards Board Statement No. 131, Disclosures About
Segments of an Enterprise and Related Information.
(3) Demand Notes Payable to Banks
-----------------------------
The Company has an unsecured line-of-credit arrangement with a bank which
provides for borrowings of up to $100,000. Interest on outstanding amounts is
payable monthly at the bank's prime rate (8.5% at January 31, 1998) plus 2%.
There was no amount outstanding under this line-of-credit as of January 31,
1998.
The Company also had a $50,000 revolving business line-of-credit with a bank
which expired in fiscal 1998.
-9-
THE LONGVIEW GROUP, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JANUARY 31, 1998
----------------
(4) Capital Lease Obligations
-------------------------
The Company is the lessee of computer equipment under capital leases expiring at
various dates from April 1999 through August 2002. The assets and liabilities
under capital leases are recorded at the lower of the present value of the
minimum lease payments or the fair value of the asset. The assets are amortized
over their estimated productive lives. Amortization of assets under capital
leases is included in depreciation expense and amounted to $18,112 for the year
ended January 31, 1998. The gross amount of assets recorded under capital leases
and the related accumulated amortization as of January 31, 1998 are as follows:
Computer equipment under capital leases $ 85,438
Less: Accumulated amortization (19,821)
---------
Net book value of computer equipment
under capital leases $ 65,617
=========
Minimum future lease payments under capital leases as of January 31, 1998 for
each of the next five years are:
Year Ended
January 31, Amount
---------- ---------
1999 $ 26,605
2000 24,107
2001 19,177
2002 16,785
2003 7,289
---------
Total minimum lease payments 93,963
Less: Amount representing interest (20,635)
---------
Present value of net minimum lease payments $ 73,328
=========
Interest rates on capitalized leases vary from 5.5% to 16.5% and are imputed
based on the lower of the Company's incremental borrowing rate at the inception
of each lease or the lessor's implicit rate of return.
-10-
THE LONGVIEW GROUP, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JANUARY 31, 1998
----------------
(5) Income Taxes
------------
The Company's provision (credit) for income taxes for the year ended January 31,
1998 consists of the following components:
Federal: $ -
Current (564,873)
Deferred 564,873
Change in valuation ---------
-
---------
State:
Current -
Deferred (142,841)
Change in valuation 142,841
---------
-
---------
$ -
=========
Deferred tax assets and liabilities reflect the future income tax effects of
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and are measured
using enacted tax rates that apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The significant
temporary differences that create deferred tax assets and liabilities as of
January 31, 1998 are shown below:
Deferred tax assets:
Recognition of revenue $ 121,945
Reserves not currently deductible 43,500
Net operating loss carryforwards 724,897
Accrued payroll to shareholders 91,793
Other 2,743
---------
Total deferred tax assets 984,878
Valuation allowance (868,595)
---------
Total deferred tax assets $ 116,283
=========
Deferred tax liabilities:
State deferred taxes 64,041
Recognition of expenses 26,641
Other 25,601
---------
Total deferred tax liabilities $ 116,283
=========
-11-
THE LONGVIEW GROUP, INC.
-----------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JANUARY 31, 1998
----------------
(5) Income Taxes (Continued)
------------------------
The accompanying statement of operations reflects a change in the applicable
Federal tax rate from 15% to 34%, which had the effect of increasing the value
of deferred tax assets by approximately $106,000.
As of January 31, 1998, the Company has net operating losses, available to
reduce future taxable income, of approximately $1,635,000 for Federal purposes
and $1,780,000 for state purposes. These net operating loss deductions will
expire from fiscal 2009 through 2012 for Federal purposes and from fiscal 1999
through 2003 for state purposes.
Realization of the deferred tax assets is dependent on generating sufficient
taxable income prior to expiration of the loss carryforwards.
The difference between the Company's provision for income tax and the statutory
Federal rate is primarily due to management's election to reserve the Company's
deferred tax assets as realization of these assets is uncertain.
(6) Stockholders' Equity
--------------------
(a) Common Stock Transactions
-------------------------
During fiscal 1998, the Company amended its' Articles of Incorporation and
increased its authorized shares by 1,000,000 shares to 5,000,000 shares.
The Company also issued 800,000 shares of its common stock to a corporation
for $2,940,191 in cash, of which $500,000 is in an escrow account until
such time the Company prepares its system architecture documentation, as
described in Note 2. The new stockholder is entitled to two seats on the
board of directors and certain Company actions require an affirmative vote
of the board member including, but not limited to, extension of the
Company's indebtedness beyond $500,000, declaration of dividends,
investments or advances over $50,000, capital expenditures over $100,000 in
any fiscal year, entering into partnership or joint venture agreements and
redemption by the Company of any of its shares.
Two employees of the Company exercised stock options and purchased 4,586
shares of common stock for $4,310. The Company repurchased the 4,586
shares of common stock for $16,895.
Also, the Company repurchased 278,000 shares of common stock from a single
shareholder for $400,000 under a call provision of the stockholders'
agreement signed in 1996.
THE LONGVIEW GROUP, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JANUARY 31, 1998
----------------
(6) Stockholders' Equity (Continued)
--------------------------------
(b) Incentive Stock Options
-----------------------
The Company's 1997 Stock Option Plan provides for the grant of up to
500,000 incentive stock options (ISO's) and non-qualified stock options.
Options may be awarded to employees, officers and directors and
consultants. Options may have terms of up to 10 years. The options can be
awarded at such prices as the Board of Directors may determine, although
ISO's cannot be awarded for less than the underlying stock's fair market
value at the grant date.
Incentive stock option activity during the year ended January 31, 1998 was
as follows:
Weighted
Number of Average
Options Exercise
--------- -----------
Outstanding, January 31, 1997 181,720 $ 0.94
Awarded 64,205 3.41
Exercised (4,586) 0.94
Forfeited (5,240) 0.94
--------- -----------
Outstanding, January 31, 1998 236,099 2.33
========= ===========
Exercisable as of January 31, 1998 61,542 $ 0.97
========= ===========
All incentive stock options awarded to date have been for five-year terms
with the ability to exercise vesting 20% per year beginning at the first
anniversary of the employees' start date. The fair value of options
awarded in 1998 totaled $52,211. The weighted average remaining
contractual life of exercisable stock options was 2.38 years as of January
31, 1998. The weighted average remaining contractual life of all stock
options was 2.95 years as of January 31, 1998. Of the 236,099 options
outstanding at January 31, 1998, 178,394 are exercisable for $.94 per share
and 57,705 stock options are exercisable for $3.69 per share. There were
263,901 and 318,280 common shares available for grant under the 1997 Stock
Option Plan as of January 31, 1998 and 1997, respectively.
No compensation cost has been recognized in the accompanying statement of
operations for incentive stock options awarded. Had compensation costs for
incentive stock options been recorded based on these option values, the
Company's net loss for the year ended January 31, 1998 would have been
increased by $25,603 to $1,568,713.
The fair value of options and the compensation amount noted above were
computed using the minimum value method based on a risk-free interest rate
of 5.5% over the entire 60-month term of awarded options.
-13-
THE LONGVIEW GROUP, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JANUARY 31, 1998
----------------
(7) Commitments
-----------
The Company conducts its operations in leased facilities under an operating
lease. On May 21, 1997, the Company leased additional space and extended its
lease term through July 2002. In addition, the Company leases some of its
office furniture, computers, copier/fax and phone system under operating leases
expiring from June 1998 through November 1999.
Rental expense under the operating leases was $319,222 for the year ended
January 31, 1998. Minimum future lease payments are as follows:
Year Ended
January 31, Amount
------------- ------------
1999 $ 433,055
2000 415,922
2001 402,726
2002 402,726
2003 201,363
-------------
$1,855,792
=============
(8) Profit Sharing Plan
-------------------
The Company has a 401(k) salary deferral and profit sharing plan which covers
substantially all full-time employees. The Company can make matching
contributions of up to 3.75% of the participant's compensation. The Company's
contribution was $50,661 in 1998. In addition, the Company can elect to make
additional contributions to the plan at the Board of Director's discretion.
(9) Recent Accounting Pronouncements
--------------------------------
On October 27, 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, Software Revenue Recognition which
supercedes SOP 91-1, Software Revenue Recognition. Additionally, in 1998 the
AICPA issued SOP 98-9, Modification of SOP 97-2 with Respect to Certain
Transactions. The SOP's further standardized when revenue should be recognized
and in what amounts for licensing, selling, leasing or otherwise marketing
computer software. The Company adopted these SOP's effective February 1, 1998.
Management believes the adoption of SOP 97-2 and 98-9 will result in the need to
defer recognition of certain revenues that would have been recognized
immediately under SOP 91-1.
-14-
THE LONGVIEW GROUP, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JANUARY 31, 1998
----------------
(10) Subsequent Events
-----------------
On July 14, 1998, the Company's stockholders entered into a Stock Purchase
Agreement (the "Agreement") with Barclays California Corporation ("Barclays").
Under the Agreement, all holders of the Company's common stock sold their
interest to Barclays. On August 20, 1998, the acquisition was closed. The
Company then became a wholly-owned subsidiary of Barclays.
On September 30, 1999, Barclays entered into a Stock Purchase Agreement with
TenFold Corporation ("TenFold"), whereby Barclays sold its interest in the
Company to TenFold. On October 7, 1999, the acquisition was closed. The
Company then became a wholly-owned subsidiary of TenFold.
-15-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following pages 38 through 42 contain the Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of September 30, 1999, the Unaudited Pro Forma
Condensed Consolidated Statements of Operations for the twelve months ended
December 31, 1998 and the nine months ended September 30, 1999 and the notes
thereto.
The following Unaudited Pro Forma Condensed Consolidated Financial Statements
give effect to the Arrangement to be accounted for using the purchase method of
accounting, whereby the total cost of the Arrangement will be allocated to the
tangible and identifiable intangible assets acquired and liabilities assumed
based upon their respective fair values. The Unaudited Pro Forma Condensed
Consolidated Financial Statements have been prepared on the basis of assumptions
described in the notes thereto, including assumptions related to the allocation
of the total purchase cost to the assets and liabilities of LongView based upon
preliminary estimates of fair value. The actual allocation may differ
significantly from those assumptions after valuations and other procedures are
completed.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations were
prepared as if the Arrangement occurred as of January 1, 1998. The Unaudited
Pro Forma Condensed Consolidated Balance Sheet was prepared as if the
Arrangement occurred as of September 30, 1999. These statements are not
necessarily indicative of what the actual operating results or financial
position would have been had the Arrangement occurred on the dates and for the
periods indicated and do not purport to indicate future results of operations.
In addition, they do not reflect any cost savings or other synergies resulting
from the Arrangement.
The Unaudited Pro Form Condensed Consolidated Financial Statements should be
read in conjunction with the historical financial statements and related notes
of TenFold Corporation incorporated by reference and the historical financial
statements and related notes of LongView included elsewhere in this 8-K.
TENFOLD CORPORATION AND THE LONGVIEW GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
September 30, 1999
(in thousands)
TenFold LongView
(September (September Pro Forma Pro Forma
Assets 30, 1999) 30, 1999) adjustments combined
----------- ----------- ----------- -----------
Current assets:
Cash and cash equivalents $ 38,718 1,452 (330) (a) 39,840
Restricted cash 10,000 111 (10,000) (a) 111
Short-term investments 6,130 - 6,130
Accounts receivable, net 7,020 1,602 8,622
Other receivable - - 1,080 (l) 1,080
Unbilled accounts receivable 6,670 - 6,670
Prepaid expenses and other assets 11 196 207
Income tax receivable 1,447 - 1,447
Deferred income taxes 536 1,349 593 (k) 2,478
----------- ----------- ----------- -----------
Total current assets 70,532 4,710 (8,657) 66,585
Property and equipment, net 8,173 923 9,096
Due from stockholders 1,932 - 1,932
Other assets, net 281 17,383 (17,383) (e) 24,617
24,336 (a)
----------- ----------- ----------- -----------
$ 80,918 23,016 (1,704) 102,230
=========== =========== =========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 964 50 1,014
Income taxes payable 252 - 252
Accrued liabilities 10,160 1,275 11,435
Deferred revenue 6,551 4,283 72 (i) 10,906
Current installments of obligations under capital leases 715 23 738
Current installments of notes payable 1,416 - 12,000 (a) 13,416
Payable to Barcal - 3,883 (1,853) (l) 2,030
----------- ----------- ----------- -----------
Total current liabilities 20,058 9,514 10,219 39,791
Long-term liabilities:
Deferred income taxes 85 672 2,880 (k) 3,637
Obligations under capital leases, excluding current
installments 1,019 27 1,046
Notes payable, excluding current installments 2,085 - 2,085
----------- ----------- ----------- -----------
Total long-term liabilities 3,189 699 2,880 3,888
----------- ----------- ----------- -----------
Stockholders' equity: 57,671 12,803 (12,803) (b) 55,671
(2,000) (g)
----------- ----------- ----------- -----------
$ 80,918 23,016 (1,704) 102,230
=========== =========== =========== ===========
TENFOLD CORPORATION AND THE LONGVIEW GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the nine months ended September 30, 1999
(in thousands)
TenFold LongView
(Nine months (Nine months
ended ended
September 30, September 30, Pro Forma Pro Forma
1999) 1999) adjustments combined
----- ---- ----------- --------
Revenues:
License 23,428 1,392 24,820
Services 35,106 1,993 37,099
--------- --------- -------
Total revenues 58,534 3,385 61,919
Operating expenses:
Cost of revenues 19,950 2,357 22,307
Sales and marketing 16,965 1,263 18,228
Research and development 11,851 3,957 15,808
General and administrative 2,902 842 3,744
Amortization of deferred
compensation 1,065 - 1,065
Amortization of intangibles - 3,365 (3,365) (e) 3,650
3,650 (d)
--------- --------- ------- -------
Total operating
expenses 52,733 11,784 285 64,802
--------- --------- ------- -------
Income (loss) from operations 5,801 (8,399) (285) (2,883)
--------- --------- ------- -------
Other income (expense):
Interest income 824 59 (278) (f) 605
Interest expense (250) (162) (412)
Foreign exchange gain/(loss) - (10) (10)
--------- --------- ------- -------
Total other income 574 (113) (278) 183
Income (loss) before income taxes 6,375 (8,512) (563) (2,700)
Provision (benefit) for income taxes 2,454 (1,578) (336) (j) 540
--------- --------- ------- -------
Net income (loss) 3,921 (6,934) (227) (3,240)
--------- --------- ------- -------
Accretion of Series A and B preferred stock (391) - - (391)
--------- --------- ------- -------
Net income (loss) applicable to common stock 3,530 (6,934) (227) (3,631)
========= ========= ======= =======
Basic earnings (loss) per common share 0.14 (1.92) (0.14)
Diluted earnings (loss) per common share 0.12 (1.92) (0.14)
Weighted average common and common equivalent
shares used to calculate earnings
(loss) per share:
Basic 25,110 3,608 25,110
Diluted 29,266 3,608 25,110
39
TENFOLD CORPORATION AND THE LONGVIEW GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 1998
(in thousands)
TenFold LongView
(Year ended (Year ended
December 31 December 31 Pro Forma Pro Forma
1998) 1998) adjustments combined
---- ---- ----------- --------
Revenues:
License 13,382 2,386 15,768
Services 26,785 1,478 28,263
-------- --------- ---------
Total revenues 40,167 3,864 44,031
Operating expenses:
Cost of revenues 14,529 1,999 16,528
Sales and marketing 11,070 857 11,927
Research and development 9,690 3,569 13,259
General and administrative 2,882 713 3,595
Compensation from purchase of options - 1,111 (1,111) (h) -
Amortization of deferred compensation 153 - 153
Amortization of intangibles - 1,776 (1,776) (e) 4,867
4,867 (d)
Other charge - 700 (700) (c) -
-------- --------- ----------- -------
Total operating expenses 38,324 10,725 1,280 50,329
-------- --------- ----------- ---------
Income (loss) from operations 1,843 (6,861) (1,280) (6,298)
-------- --------- ----------- ---------
Other income (expense):
Interest income 395 60 455
Interest expense (20) (34) (54)
Other income (expense) _ (1) (1)
-------- --------- ----------- ---------
Total other income 375 25 - 400
-------- --------- ----------- ---------
Income (loss) before income taxes 2,218 (6,836) (1,280) (5,898)
Provision (benefit) for income taxes 495 (559) (578) (j) (642)
-------- --------- ----------- ---------
Net income (loss) 1,723 (6,277) (702) (5,256)
-------- --------- ----------- ---------
Accretion of Series A and B preferred stock (915) - (915)
-------- --------- ----------- ---------
Net income (loss) applicable to common stock 808 (6,277) (702) (6,171)
======== ========= =========== =========
Basic earnings (loss) per common share 0.04 (1.74) (0.29)
Diluted earnings (loss) per common share 0.03 (1.74) (0.29)
Weighted average common and common equivalent shares used
to calculate earnings (loss) per share:
Basic 21,551 3,608 21,551
Diluted 26,663 3,608 21,551
NOTES to Unaudited Pro Forma Condensed Consolidated Financial Statements
(1) Basis of Presentation
On September 30, 1999, TenFold Corporation (TenFold) entered into a Stock
Purchase Agreement ("Agreement") with Barclay's California Corporation
("BarCal") whereby upon the closing on October 7, 1999 TenFold purchased
the entire equity of BarCal in its wholly-owned subsidiary The LongView
Group, Inc ("LongView"). The Agreement provides for the combination of
TenFold and LongView in a transaction in which TenFold will acquire all of
the issued and outstanding shares of LongView for $22 million. The purchase
price of $22 million is comprised of $10 million in cash and $12 million in
the form of a promissory note to BarCal. The promissory note is due and
payable in installments of $3 million on April 15, 2000 and $9 million on
July 15, 2000. TenFold estimates its additional acquisition costs will
approximate $330,000.
BarCal has been a customer of TenFold since 1997 and, as such, has various
software license and service agreements with BarCal. BarCal signed, on
September 30, 1999, an additional Master Software License and Services
Agreement, purchasing from the Company a multi-project license to the
Universal Application and TenFold ComponentWare products for $4 million.
The $4 million was received by TenFold and has been recorded as deferred
revenue in the September 30, 1999 unaudited Proforma Condensed Consolidated
Balance Sheet pending the finalization of the valuation of the various
components, which will determine the final accounting.
On August 20, 1998, 100 percent of LongView's outstanding stock was
acquired by BarCal. Accordingly, LongView's financial statements from
August 21, 1998 forward reflect a new basis of accounting to include "push-
down accounting". The LongView unaudited Proforma Condensed Statement of
Operations for the year ended December 31, 1998 included herein includes
approximately eight months of operating information under the historical
basis of accounting and approximately four months under the new "push-down"
basis of accounting.
(2) Purchase Price Allocation and Pro Forma Adjustments
The adjustments to arrive at the Unaudited Pro Forma Condensed Consolidated
Financial Statements are as follows:
(a) The Arrangement will be accounted for under the purchase method of
accounting. In accordance with generally accepted accounting
principles, the portion of the purchase price allocable to in process
research and development projects of LongView will be expensed at the
consummation of the Arrangement. The amount of the one-time
nonrecurring charge for in-process research and development is expected
to be approximately $2 million. Since the charge is directly related to
the Arrangement and will not recur, the Unaudited Pro Forma Condensed
Consolidated Statements of Operations have been prepared excluding this
charge. TenFold has not yet determined the final allocation of the
purchase price and, accordingly, the amount shown below may differ
significantly from the ultimate allocation.
Goodwill and identifiable intangibles in the amount of $24,336 were
calculated as follows (all numbers in thousands):
Total estimated purchase ($10 million in cash, $12 million in
the form of a promissory note to BarCal) $ 22,000
Add: Estimated acquisition costs of 330
Estimated fair value of net assets acquired other than
in-process research and development (comprised of
LongView's historical stockholders equity of $12,803, less:
previously existing goodwill and identifiable intangibles of
$17,383 plus: The net write up of the deferred revenue, taxes,
assets not acquired and liabilities not assumed of $574.) 4,006
Less:
Expensed in-process research and development (2,000)
--------
Goodwill and identifiable intangibles (goodwill 15,836,
existing technology $2,000, assembled workforce $700,
customer list $5,800) $ 24,336
(b) Elimination of LongView's stockholders' equity accounts.
(c) Elimination for nonrecurring charge related to the previous write-off
of in-process research and development projects thereon of LongView in
connection with LongView being acquired by another company in August of
1998.
(d) Amortization of goodwill and identifiable intangibles recognized in the
purchase of LongView will be recognized on a straight-line basis over
the following estimated useful lives:
Goodwill 5 years
Assembled workforce 5 years
Customer list 5 years
Existing technology 5 years
(e) Elimination of previously existing goodwill and other identifiable
intangibles and amortization thereon of LongView.
(f) Decrease in interest income as a result of the reduction in cash that
would have occurred to effectuate the merger.
(g) Stockholders' equity adjustment for nonrecurring charge related to the
write-off of in-process research and development projects acquired.
(h) Elimination of the nonrecurring charge related to the purchase of
LongView options in connection with LongView being acquired by BarCal
during 1998.
(i) Increase in deferred revenue to record the present value of costs that
will be incurred to deliver future goods or services plus an allowance
for normal profit on those costs to deliver the future goods or
services.
(j) To reflect the income tax effect of decreased interest income and
increased amortization of the identifiable intangibles at the statutory
rate of 34 percent.
(k) To reflect estimated deferred income tax assets and liabilities arising
from the purchase.
(l) Adjustment for assets and liabilities that were not acquired or assumed
as part of TenFold's acquisition of LongView.
(3) Common Shares Outstanding
Basic and diluted net loss per common share, have been calculated based
upon the pro forma weighted average shares outstanding for each period
presented.