Amendment to Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405/A Amendment No. 1 to Form 10-K From 12/31/95 31 183K
2: EX-11.1 Open Environment Corporation and Subsidiaries 1 5K
3: EX-21.1 Subsidiaries of the Registrant as of 12/31/95 1 4K
4: EX-23.1 Consent of Ernst & Young LLP, Independent Auditors 1 6K
5: EX-23.2 Consent of William Buck, Chartered Accountants 1 6K
10-K405/A — Amendment No. 1 to Form 10-K From 12/31/95
Document Table of Contents
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,D.C. 20549
FORM 10-K/A
(Mark one)
[X] AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from _______ to _______.
Commission File Number 0-25794
OPEN ENVIRONMENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-3168610
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
25 Travis Street, Boston, MA 02134
(Address of principal executive offices) (Zip Code)
(617)562-0900
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of The Act: None
Securities Registered Pursuant to Section 12(g) of The Act: Common Stock,
$.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X] Yes [_] No
The aggregate market value of the Common Stock held by non-affiliates of the
registrant on March 1, 1996, based on the closing sale price of the Common Stock
on that date as reported in The Wall Street Journal was approximately
$36,732,000.
The registrant had 7,480,609 shares of Common Stock outstanding as of March 1,
1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders held May 10, 1996 are incorporated by reference into Part III
hereof.
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PART II
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from the
consolidated financial statements of OEC and its subsidiaries for the years
ended December 31, 1995, 1994 and 1993, and for the year ended December 31, 1992
from the tools division of CTG, which have been audited by Ernst & Young LLP,
the Company's independent auditors, except for the financial statements of
Jarrah Technologies, a consolidated subsidiary, for the four years ended
December 31, 1994, which were audited by other auditors. The data should be
read in conjunction with the consolidated financial statements and related notes
and other financial information included herein.
[Enlarge/Download Table]
1995 1994 1993 1992 1991
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(Restated) (Restated)
Consolidated Statements of Operations
Data
Revenues $29,881,172 $18,120,904 $13,163,307 $ 4,149,243 $778,341
Purchased research and development 1,372,116
Acquisition and integration costs 678,655
Income (loss) from operations 159,610 502,205 1,143,670 (1,158,932) 45,196
Net income (loss) 434,082 350,049 823,028 (1,041,760) 43,463
Net income per common share $.05 $.05 $.13 (a) (a)
Consolidated Balance Sheet Data
Cash, cash equivalents and marketable
securities $17,690,458 $1,787,707 $918,614 $2,011 $22,071
Working capital 22,864,500 1,499,416 161,268 88,536 35,129
Total assets 36,646,673 9,475,658 4,244,261 1,158,443 139,583
Long-term obligations, net 27,185 206,089
Series A Convertible Preferred Stock 5,854,332
Total stockholders' equity (deficiency) 28,717,151 (1,521,430) 976,010 149,807 77,592
(a) As OEC began operations in 1992 as a division of CTG, there were no shares of capital stock
outstanding in 1992 or 1991.
1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, AS AMENDED
Restatement of Financial Statements
Prior to the second quarter of 1995, the Company and certain of its customers
entered into non-cancellable letters of understanding ("Non-cancellable LOUs")
whereby the Company's customers agreed to purchase certain software and services
from the Company and which specified a future date at or on which a mutually
acceptable software license and services agreement would be finalized. In eight
instances, the parties agreed to enter into a mutually acceptable software
license and services agreement within a specified period (the "Specified
Period") after the date of execution of such Non-cancellable LOU. At the time of
revenue recognition all products were delivered, the Company believed that
persuasive evidence existed to document an agreement to license the Company's
software by the customer and there were no significant contingencies existing at
the date of revenue recognition. After a review by the staff of the Securities
and Exchange Commission (the "Staff"), the Company has agreed that the
recognition of revenue under such Non-cancellable LOUs should be delayed until
the earlier of the date such software license and services agreements were
executed by the parties (the "L&S Execution Date") or the expiration of the
Specified Period. The length of the Specified Periods ranged from two days to 45
days. The Company has restated its historical financial statements contained in
certain of its reports filed pursuant to the Securities Exchange Act of 1934
with respect to the five Non-cancellable LOUs where the earlier of the L&S
Execution Date or the end of the Specified Period occurred in the quarter
following the date of execution of the Non-cancellable LOU. The changes decrease
revenue and net income reported in the fourth quarter of 1994 and increase
revenue and net income reported in each of the first and second quarters of
1995. There was no change in the aggregate revenue and net income reported over
such three quarter period.
The following summarizes the effect of the restatement on the consolidated
financial statements of the Company for the periods presented:
[Download Table]
As Reported Restated
----------- ----------
Year ended December 31, 1995
Revenues $ 29,269,812 $ 29,881,172
Cost of software, maintenance
and services 5,323,524 5,360,206
Selling and marketing expenses 12,828,861 12,883,884
Provisions for income taxes 24,721 159,831
Net income 49,537 434,082
Net income per share 0.01 0.05
Accounts receivable 7,609,007 7,609,007
Total assets 36,646,673 36,646,673
Accrued expenses 2,981,792 2,981,792
Insured taxes payable 350,000 350,000
Stockholders' equity (deficiency) 28,717,151 28,717,151
As Reported Restated
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Year ended December 31, 1994
Revenues $ 18,732,264 $ 18,120,904
Cost of software, maintenance
and services 4,301,947 4,265,265
Selling and marketing expenses 6,976,811 6,921,788
Provision for income taxes 259,276 124,166
Net income 734,594 350,049
Net income per share 0.11 0.05
Accounts receivable 4,480,956 3,869,596
Total assets 10,087,018 9,475,658
Accrued expenses 1,492,460 1,400,755
Income taxes payable 404,370 269,260
Stockholders' equity (deficiency) (1,136,885) (1,521,430)
As Reported Restated
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Three months ended December 31, 1994
Revenues $ 6,095,404 $ 5,484,044
Cost of software, maintenance
and services 1,366,663 1,329,981
Selling and marketing expenses 2,223,980 2,168,957
Provision for income taxes 151,750 16,640
Net income 453,996 69,451
Net income per share .07 0.01
Accounts receivable 4,480,956 3,869,596
Total assets 10,087,018 9,475,658
Accrued expenses 1,492,460 1,400,755
Income taxes payable 404,370 269,260
Stockholders' equity (deficiency) (1,136,885) (1,521,430)
Overview
The Company derives revenues from product license fees and charges for services,
including education and training, on-site technical support and phone-in
customer support (maintenance). For all periods presented, the Company has
recognized revenue in accordance with Statement of Position 91-1 entitled
"Software Revenue Recognition," ("SOP 91") issued by the American Institute of
Certified Public Accountants. SOP 91 requires that software license revenues be
recognized upon shipment, provided no significant obligations to the customer
then exist, and that maintenance revenues be recognized ratably over the term of
the maintenance agreement. Revenues for other services and training are
recognized upon delivery of the service. The Company's license agreements
generally do not provide a right of return. Reserves are maintained for
potential credit losses.
On August 31, 1995, the Company issued 408,000 shares of Common Stock in
exchange for all outstanding shares of the capital stock of Jarrah Technologies.
The acquisition was accounted for as a pooling of interests and, accordingly,
the accompanying consolidated financial statements have been restated to include
the accounts and operations of Jarrah Technologies for all periods prior to the
acquisition.
Prior to 1994, the Company's focus was largely educational in nature. During
1994, the Company began to shift its focus from educational services to software
development and licensing in order to capitalize on the growing demand for its
products and services which had been generated by the Company's education
seminars. In the early stages of this transition, the Company's educational
services provided the Company with name recognition and introductory marketing
opportunities. However, as the Company has transitioned to the business of
developing and licensing software, its business is increasingly based on a
growing installed base, the continued acceptance by that installed base of the
Company's products, increased distribution and marketing channels, and
technological competitiveness, rather than a continued emphasis on educational
services. This evolution has caused the Company to shift the focus of its
education offerings from a marketing to post-sales training and customer
support. As the Company shifted its focus to software development and licensing,
it also expanded its efforts in international markets, including the
establishment of joint ventures in Japan in 1994 and Korea in 1995 and the
acquisition of Jarrah Technologies in 1995. As a result, international sales
increased to $11,952,000 in 1995 from $7,391,000 in 1994.
2
Results of Operations
The following table sets forth, for the periods indicated, certain operational
data as a percentage of total revenue.
[Download Table]
Percentage
Increase
(Decrease) Year to
Year Ended December 31, Year
----------------------------------------------------
1993 1994
1993 1994 1995 to 1994 to 1995
----------------------------------------------------
Revenues:
License fees 39% 60% 73% 113% 102%
Service 8% 17% 21% 170% 104%
Education 53% 23% 6% (38%) (56%)
----------------------------------------------------
Total revenues 100% 100% 100% 38% 65%
Cost of revenues:
Cost of software,
maintenance and
services 22% 24% 18% 47% 26%
Cost of education and
training 20% 11% 5% (23)% (24)%
----------------------------------------------------
Total cost of revenues 42% 35% 23% 13% 10%
----------------------------------------------------
Gross profit 58% 65% 77% 56% 95%
Operating expenses:
Selling and marketing 23% 38% 43% 126% 86%
General and administrative 13% 13% 12% 35% 57%
Research and development 13% 11% 14% 24% 105%
Purchased research and
development 0% 0% 5% * *
Acquisition and
integration costs 0% 0% 2% * *
----------------------------------------------------
Total operating expenses 49% 62% 76% 76% 102%
----------------------------------------------------
Operating income (loss) 9% 3% 1% (56%) (68%)
Equity in loss of joint
venture 0% (1%) (1%) * 140%
Other income 0% 1% 2% (25%) 740%
----------------------------------------------------
Total other income 0% 0% 1% (125%) (1652%)
----------------------------------------------------
Pre-tax income 9% 3% 2% (62%) 25%
Provision for income taxes 3% 1% 1% (71%) 29%
----------------------------------------------------
Net income 6% 2% 1% (57%) 24%
====================================================
* Not applicable
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total revenues increased 65% to $29,881,000 in 1995 from $18,121,000 in 1994.
The increase in total revenues was largely attributable to software license
fees, which increased 102% to $21,834,000 in 1995 from $10,812,000 in 1994.
Software revenues accounted for 73% of total revenues in 1995 as compared to 60%
of total revenues in 1994. Also contributing to the increase in total revenues
were increases in maintenance and service fees, which increased 104% to
$6,155,000 in 1995 from $3,017,000 in 1994. These increases reflect growing
market awareness and acceptance of the Company's products as well as a
broadening of the Company's installed base.
These increases were partially offset by a 56% decrease in education revenues to
$1,893,000 in 1995 from $4,292,000 in 1994. This decrease is consistent with
the Company's shift away from the use of education to further market awareness
to the use of education as technical training for software licensing.
3
Revenues from Jarrah Technologies and other international customers accounted
for $11,952,000, or 40%, of total revenues in 1995, as compared to $7,391,000,
or 41%, in 1994. This increase is attributable to a combination of direct and
channel sales to international customers as the Company continues to enter
additional markets to expand its operations outside of the United States. The
Company believes that international sales will continue to represent a
significant portion of the Company's revenues. However, the percentage of
revenue derived from international sales may fluctuate based on the timing of
orders from international customers and resellers and the addition of new
international customers and resellers.
Total cost of revenues increased 10% to $6,929,000 in 1995 from $6,321,000 in
1994 and gross margins improved to 77% for 1995 from 65% for 1994. Cost of
software, maintenance and services consists of the product packaging,
duplication, amortization of capitalized software costs, royalties and salaries
and related personnel costs for customer support and on-site technical support
employees. These improvements reflect the shift from the lower-margin
educational services business (17% gross margin in 1995) to the higher-margin
software and services business (81% gross margin in 1995).
Selling and marketing expenses, consisting primarily of salaries, commissions,
promotional costs and partner referral and marketing fees, increased to
$12,884,000 in 1995 from $6,922,000 in 1994. Selling and marketing expenses
represented 43% of total revenues for 1995 as compared to 38% in 1994. This
increase was the result of the hiring of additional personnel and increased
marketing programs as the Company continues to develop its direct sales force,
build its marketing channels and increase its promotional activities to broaden
market awareness. The Company expects to continue to invest a significant amount
of its resources in its selling and marketing efforts.
General and administrative expenses, consisting primarily of corporate, finance,
management information systems ("MIS"), legal and auditing expenses, increased
57% to $3,602,000 in 1995 from $2,300,000 in 1994. The increase is largely
attributable to the addition of infrastructure to support international
expansion, as well as to increases in general corporate expenses related to OEC
being a publicly-traded company.
Research and development expenses, consisting primarily of salaries and other
employee-related costs, increased 105% to $4,256,000 in 1995 from $2,076,000 in
1994. This increase reflects a significant increase in the number of employees
in the research and development department. Software development costs
capitalized in accordance with Statement of Financial Accounting Standards No.
86 ("FAS 86") for 1995 amounted to $726,000, while amortization of previously
capitalized software amounted to $353,000, as compared to capitalizations of
$445,000 and amortization expense of $202,000 for 1994. The increase in
software development costs capitalized under FAS 86 for 1995 is due to the
development of the Company's Entera Version 3.0 product, which was released in
1995. The Company expects to continue to increase its research and development
expenditures to keep pace with the technological demands of the marketplace.
Total operating expenses increased to 76% of revenues in 1995 because the
Company's increase in revenues in that year was lower than anticipated and
because the Company continued to invest in selling and marketing, as well as
research and development activities, in view of the fact it considers such
investments critical to its continued growth and profitability.
In connection with the acquisition of Jarrah Technologies, the Company recorded
acquisition and integration costs of $679,000 ($441,000 net of tax) in the third
quarter of 1995. Charges included professional fees and charges for regulatory
and filing matters ($265,000), travel costs ($222,000), marketing and
collaterals ($139,000), lease termination costs and miscellaneous other costs
($53,000). Substantially all of these charges were incurred prior to September
30, 1995, and as of December 31, 1995, $60,000 of these charges, related to
certain legal fees, were unpaid and were classified as accrued expenses.
Additionally, the Company acquired two technologies which were not at the point
of technological feasibility at the time of acquisition and had no alternative
future uses and, accordingly, the costs of these acquisitions, $1,372,000
($892,000 net of tax), were charged to operations as a purchased research and
development in the fourth quarter of 1995. The Company has determined that a
considerable amount of work needs to be done in the areas of completing
functionality, porting, testing and packaging these technologies into
commercially viable products. The Company estimates that the internal
development costs necessary to complete the development of the technologies will
amount to approximately $250,000 over the next twelve to eighteen months.
4
During the third quarter, the Company sold a portion of its interest in its
Japanese joint venture to its joint venture partner. The interest was sold for
an amount which approximated the Company's original cost basis. The transaction
resulted in the Company now owning 19.5% of the joint venture and, accordingly,
accounting for the joint venture under the equity method has been discontinued.
The Company will continue to recognize royalty revenue from the joint venture,
but will no longer recognize any share of the joint venture's operating income
or loss. The Company made net investments in and advances to the joint venture
of $242,000 in 1995.
Other income, consisting primarily of investment income and other miscellaneous
income, offset by interest expense, increased to $701,000 in 1995 from $83,000
in 1994. These increases reflect the investment of the net proceeds from the
initial public offering of Common Stock in April 1995.
The Company's effective tax rate of 27% in 1995 and 26% in 1994 is lower than
the statutory rate of 34% due to research & development credits.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Total revenues increased 38% to $18,121,000 in 1994 from $13,163,000 in 1993.
Software license fees increased 113% to $10,812,000 in 1994 from $5,073,000 in
1993. The principal reasons for the increase in software license fees were
increased market acceptance of the Company's products, demand for software
upgrades resulting from the release of the Company's Version 2.0 software
product in July 1994 and increased license fees to the Company's existing
customers.
Maintenance and services fees increased 170% to $3,017,000 in 1994 from
$1,118,000 in 1993. The increase was principally attributable to increased
volume of on-site technical support services and increased maintenance fees due
to the broadening of the Company's installed base.
Education and training revenues decreased 38% to $4,292,000 in 1994 from
$6,972,000 in 1993. The decrease was largely attributable to the Company's
shift away from educational programs emphasizing broad-based market awareness to
technical training and programs in support of software licensing. This change
of focus resulted in a decreased number of instructor-led education offerings.
Total cost of revenues increased 13% to $6,321,000 in 1994 from $5,585,000 in
1993 but decreased as a percentage of total revenues to 35% in 1994 from 42% in
1993. Costs of software, maintenance and services increased 47% to $4,265,000
in 1994 from $2,909,000 in 1993. The increase was attributable primarily to an
increase in the number of personnel in the on-site technical support area, an
increase in the amount of software, related amortization charges and royalties.
Cost of education and training revenues decreased 23% to $2,056,000 in 1994 from
$2,675,000 in 1993 and decreased as a percentage of total revenues to 11% in
1994 from 20% in 1993. The decrease was due to the decreased level of education
activity.
Selling and marketing expenses increased 126% to $6,922,000 in 1994 from
$3,057,000 in 1993. The increase was due principally to an increase in the
number of sales and marketing personnel, an increase in promotional and
advertising activities and an increase in sales commissions as a result of
increasing sales levels. Marketing fees paid to a major hardware vendor partner
decreased due to the renegotiation of the agreement, which resulted in the
elimination of the fees as of August 1, 1994.
General and administrative expense increased 35% to $2,300,000 in 1994 from
$1,699,000 in 1993, but decreased as a percentage of total revenue to 12% in
1994 from 13% in 1993. The increase was primarily due to the increase in
personnel in the corporate, finance and MIS areas.
5
Research and development expenses increased 24% to $2,076,000 in 1994 from
$1,679,000 in 1993. The increase represented costs associated with an increase
in personnel offset by the capitalization of $445,000 in software costs in 1994
in accordance with FAS 86. The Company capitalized $190,000 in software costs
in 1993. The amortization of software costs ($202,000 in 1994 and $5,000 in
1993) is included in cost of software, maintenance and services.
The equity in loss of joint venture represented the Company's 50% share of the
net loss of its Japanese joint venture. The Company made investments in and
advances to the joint venture of $499,000 in 1994, representing aggregate
investments of $197,000 plus approximately $302,000 of advances held in escrow
for the purpose of meeting the Company's 50% share of future capital commitments
to the joint venture.
Other income decreased 25% to $83,000 in 1994 from $111,000 in 1993 due
principally to increased interest on borrowings and a decrease in commissions
from hotels due to the decrease in education programs run at the Company's
facility in Boston.
The Company's effective tax rate decreased to 26% in 1994 from 34% in 1993 due
to an increase in available research and development credits.
Liquidity and Capital Resources
As of December 31, 1995, the Company's cash and cash equivalents increased to
$7,012,000 from $1,693,000 at December 31, 1994, and the Company also held
marketable securities amounting to $10,678,000 at December 31, 1995. The
increase in cash and cash equivalents and marketable securities was primarily
the result of the initial public offering of Common Stock in April 1995. The
Company has the positive intent and ability to hold its investment securities to
maturity. Sales of marketable securities as disclosed in the Statements of Cash
Flows represent cash received on maturity of the Company's held-to-maturity
securities.
Prior to the initial public offering, the Company had financed operations
through operating cash flow, a bank line of credit and private sales of equity
securities. Operations in 1993 and most of 1994 were financed through operating
cash flow. The Company completed a two-step private equity placement in
November 1994 pursuant to which it issued bridge notes in the amount of
$3,500,000 and issued Series A Convertible Preferred Stock in the amount of
$6,000,000. A portion of the proceeds from the Series A Convertible Preferred
Stock financing was used to repay the bridge notes.
In the first quarter of 1995, the Company renegotiated its bank line of credit
which has a demand line of credit of $2,000,000 and a revolving equipment line
of $1,000,000. Availability under the demand line of credit is based on a
percentage of qualified accounts receivable. Borrowings outstanding on January
1, 1996 under the revolving equipment line converted to a two-year term note.
Interest on the demand line of credit accrues at the prime rate, and interest on
the revolving equipment line accrues at prime plus one-quarter of one percent.
As of December 31, 1995, aggregate borrowings under the line of credit amounted
to $1,510,000, which were principally used to finance a portion of the
$2,702,000 in property and equipment additions due to the hiring of additional
personnel, the acquisition of new computer equipment and regional office
buildouts.
While the Company believes that the net proceeds from the initial public
offering, borrowings under its line of credit and cash flow from operations will
be adequate to meet its planned capital requirements for 1996, acquisition
opportunities could require the Company to seek additional capital prior to such
time. There is no assurance that, if the Company seeks additional financing,
such financing will be available upon acceptable terms, if at all.
Dividends paid in 1995 and 1993 were paid out of Jarrah Technologies prior to
its acquisition by the Company. The Company does not expect to declare or pay
dividends to stockholders in the foreseeable future.
6
Certain Factors That May Affect Future Results
In view of its transition from educational services to
software development and licensing, the Company believes that period-to-period
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance.
This Annual Report on Form 10-K contains forward-looking statements that involve
a number of risks and uncertainties. There are a number of factors that could
cause the Company's actual results to differ materially from those forecast or
projected in such forward-looking statements, including those discussed below.
Investors are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof.
A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, general economic conditions, the
Company's continued ability to develop and introduce innovative products, the
introduction of new products by competitors, pricing practices of competitors
and the Company's ability to control costs.
The Company's software is designed principally for use by large organizations
developing software applications in a client/server or other distributed
computing environment. The Company's future financial performance will depend in
large part on growth in the number of organizations adopting client/server
software environments and the number of applications developed for use in those
environments. There can be no assurance that this market will grow or that the
Company will be able to respond effectively to the evolving requirements of this
market.
A substantial percentage of the Company's sales of products and services were
initially attributable to activities or referrals by CTG or other entities
affiliated with John J. Donovan, Sr., the Company's Chairman of the Board. The
Company established its own independent marketing organization in 1993 because
it believed that in order to achieve its business objectives it had to expand
its sales and marketing efforts. The Company's products have a long sales cycle
and the Company believes that they are best marketed and sold through a series
of regional sales offices, as well as hardware vendors, business partners and
strategic alliances. If the Company is unable to successfully implement its
expanded sales and marketing efforts, its results of operations could be
materially and adversely affected.
The software application development market is extremely competitive. Certain
current and potential competitors of the Company are more established, benefit
from greater market recognition and have substantially greater financial,
technological and marketing resources than the Company. There can be no
assurance that either existing or future competitors will not develop products
that are superior to the Company's products or that achieve greater market
acceptance. The Company's future success will depend in large part upon its
ability to attract new customers, license additional products and deliver
product enhancements and services to existing customers. There can be no
assurance that future competition will not have a material adverse effect on the
Company's results of operations.
The Company does not typically carry a material backlog of unfilled orders as
software products are generally shipped within a short period after receipt of
the order. Quarterly revenues and operating results therefore depend primarily
on the volume and timing of orders received during the quarter, which are
difficult to forecast. The Company has often recognized a substantial portion
of its revenues in the last month of each quarter. A significant portion of the
Company's operating expenses are committed in advance, since personnel levels
and other expenses are based on anticipated revenues. As a substantial portion
of the Company's revenues may not be generated until the end of each quarter,
the Company may not be able to reduce spending in response to sales shortfalls
or delays and this may result in an immediate material adverse impact on the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be successful in improving its profitability or
avoiding losses in any future period.
International revenues represented approximately 40% of the Company's revenues
for fiscal 1995. There can be no assurance that the Company will be able to
maintain or increase international sales of its products or that the Company's
international distribution channels will be able to adequately service and
support the Company's products. International sales are subject to certain
risks, including unexpected changes in regulatory requirements and tariffs,
difficulties in staffing and managing foreign operations, longer payment cycles,
greater difficulty in accounts receivable collection and potentially adverse tax
consequences. Gains and losses on the conversion to U.S. dollars of receivables
and payables arising from international operations could in the future
contribute to fluctuations in the Company's results of operations and
fluctuations in exchange rates could affect demand for the Company's products.
Sales by the Company's Japanese joint venture are denominated in yen, and are
therefore subject to exchange rate variations which could impact the Company's
financial results in the future and affect the level of royalties received by
the Company on such reserves. See Note 13 to Notes To Consolidated Financial
Statements included herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and Schedule included in Item 8.
[Download Table]
Report of Ernst & Young LLP, Independent Auditors 8
Reports of William Buck, Chartered Accountants 9
Consolidated Balance Sheets at December 31, 1995 and 1994 11
(restated)
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993 (restated) 12
Consolidated Statements of Stockholders' Equity (Deficiency)
for the years ended December 31, 1995, 1994 and 1993 13
(restated)
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 (restated) 14
Notes to Consolidated Financial Statements (restated) 15-26
Schedule II-Valuation and Qualifying Accounts 29
Schedules other than that listed above have been omitted because they are
not applicable, not required, or the information required is included in the
financial statements or notes thereto.
7
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Open Environment Corporation and subsidiaries
We have audited the accompanying consolidated balance sheets of Open Environment
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity (deficiency), and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). The financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and schedule based on our audits.
We did not audit the 1994 and 1993 financial statements of Jarrah Technologies
Pty. Limited, a wholly-owned subsidiary, which statements reflect total assets
constituting 16% in 1994 and total revenues constituting 25% in 1994 and 25% in
1993 of the related consolidated totals. These statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to data included for Jarrah Technologies Pty. Limited for 1994 and 1993,
is based solely on the reports of the other auditors.
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 (including the conversion of the financial statements of Jarrah
Technologies Pty. Limited to U.S. generally accepted accounting principles) 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 and the reports of other auditors 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 Open
Environment Corporation and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, 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.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 27, 1996, except as to
the fourth paragraph of
Note 1, as to which the
date is October 4, 1996
8
WILLIAM BUCK
CHARTERED ACCOUNTANTS
REPORT OF INDEPENDENT AUDITORS
Report to the Board of Directors of Open Environment Corporation
Audit Scope
We have audited the financial statements of Jarrah Technologies Pty. Limited for
the year ending December 31, 1994. These financial statements were the
responsibility of the management of Jarrah Technologies Pty. Limited. Our
responsibility was to express an opinion on these financial statements, which
were prepared in accordance with Australian Accounting Standards, based on our
audit.
We conducted our audit in accordance with Auditing Standards in Australia which
do not differ in any significant respect from the General Standards and
Standards of Field Work contained in the Generally Accepted Auditing Standards
in the United States of America. We have not, and do not offer an opinion on
compliance with United States reporting standards as they apply to adherence
with generally accepted accounting principles in the United States.
Those auditing standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements, prepared in
accordance with Australian Accounting Standards, were free from 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.
Our audit scope included ensuring that the financial statements complied with
Australian Accounting Standards. The Australian financial statements, which
formed the basis of our audit opinion, were subsequently adjusted by Open
Environment Corporation to comply with generally accepted accounting principles
in the United States of America and included in the consolidated financial
statements of Open Environment Corporation and subsidiaries which was reported
on by Ernst & Young LLP.
Unqualified Audit Opinion
In our opinion the financial statements referred to above present fairly, and in
all material respects, the state of affairs of Jarrah Technologies Pty. Limited
at December 31, 1994 and the results of operations and cash flows for the year
then ended.
William Buck & Co.
Chartered Accountants
/s/ NT Hatzistergos
NT Hatzistergos
Partner
Sydney, Australia
September 3, 1996
9
WILLIAM BUCK
CHARTERED ACCOUNTANTS
REPORT OF INDEPENDENT AUDITORS
Report to the Board of Directors of Open Environment Corporation
Audit Scope
We have audited the financial statements of Jarrah Technologies Pty. Limited for
the year ending December 31, 1993. These financial statements were the
responsibility of the management of Jarrah Technologies Pty. Limited. Our
responsibility was to express an opinion on these financial statements, which
were prepared in accordance with Australian Accounting Standards, based on our
audit.
We conducted our audit in accordance with Auditings Standards in Australia which
do not differ in any significant respect from the General Standards and
Standards of Field Work contained in the Generally Accepted Auditing Standards
in the United States of America. We have not, and do not offer an opinion on
compliance with United States reporting standards, as they apply to adherence
with generally accepted accounting principles in the United States.
Those auditing standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements, prepared in
accordance with Australian Accounting Standards, were free from 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.
Our audit scope included ensuring that the financial statements complied with
Australian Accounting Standards. The Austrian financial statements, which formed
the basis of our audit opinion, were subsequently adjusted by Open Environment
Corporation to comply with generally accepted accounting principles in the
United States of America and included in the consolidated financial statements
of Open Environment Corporation and subsidiaries which was reported on by Ernst
& Young LLP.
Unqualified Audit Opinion
In our opinion the financial statements referred to above present fairly, and in
all material respects, the state of affairs of Jarrah Technologies Pty. Limited
at December 31, 1993 and the results of operations and cash flows for the year
then ended.
William Buck & Co.
Chartered Accountants
/s/ NT Hatzistergos
Sydney, Australia NT Hatzistergos
September 3, 1996 Partner
10
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
[Download Table]
As of December 31,
1995 1994
-----------------------------
(Restated) (Restated)
ASSETS
Current assets:
Cash and cash equivalents $ 7,012,333 $ 1,693,118
Marketable securities 10,678,125 94,589
Accounts receivable, net of allowance
of $573,856 and $100,871 in 1995 and
1994, respectively 7,609,007 3,869,596
Due from related parties 2,362,752
Prepaid expenses and other current
assets 1,411,340 328,978
Due from joint ventures 1,428,090 221,043
Deferred income taxes 265,190 56,490
-----------------------------
Total current assets 30,766,837 6,263,814
Property and equipment, net 3,214,341 2,049,392
Capitalized software costs, net of
accumulated amortization of $559,204
and $206,860 in 1995 and 1994,
respectively 800,206 427,879
Investment in and advances to joint
ventures 858,123 387,862
Deferred income taxes 547,184 137,362
Other assets 459,982 209,349
-----------------------------
$36,646,673 $ 9,475,658
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Notes payable $ 1,545,684
Accounts payable 1,162,088 $ 1,427,715
Accrued expenses 2,981,792 1,400,755
Advance billings and customer deposits 629,734 640,833
Deferred maintenance revenue 1,054,135 780,345
Income taxes payable 350,000 269,260
Current portion of obligations under
capital leases 178,904 245,489
-----------------------------
Total current liabilities 7,902,337 4,764,397
Deferred income taxes 172,270
Obligations under capital leases, less
current portion 27,185 206,089
Series A Convertible Preferred Stock,
$1.00 par value; 1,428,571 shares
authorized, issued and outstanding in
1994, liquidation value of $6,000,000;
none issued and outstanding in 1995 5,854,332
Stockholders' equity (deficiency):
Preferred Stock, $.01 par value;
authorized 1,000,000 shares; none
issued and outstanding
Common Stock, $.01 par value;
authorized 30,000,000 shares; issued
8,050,475 and 5,175,433 shares;
outstanding 7,467,141 and 4,592,100
shares in 1995 and 1994, respectively 80,505 51,754
Additional paid-in capital 30,694,500 777,126
Retained earnings 1,442,146 1,149,690
Less Treasury Stock, 583,333 of common
shares at cost (3,500,000) (3,500,000)
-----------------------------
Total stockholders' equity (deficiency) 28,717,151 (1,521,430)
-----------------------------
$36,646,673 $ 9,475,658
=============================
See accompanying notes.
11
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
[Download Table]
Year Ended December 31,
1995 1994 1993
-------------------------------------------
(Restated) (Restated)
Revenues:
License fees $21,833,688 $10,812,321 $ 5,073,229
Maintenance and service fees 6,154,658 3,016,979 1,117,631
Education and training 1,892,826 4,291,604 6,972,447
-------------------------------------------
Total revenues 29,881,172 18,120,904 13,163,307
Operating expenses:
Cost of software, maintenance and
services 5,360,206 4,265,265 2,909,482
Cost of education and training 1,568,609 2,056,214 2,675,252
Selling and marketing 12,883,884 6,921,788 3,056,515
General and administrative 3,601,860 2,299,878 1,699,209
Research and development 4,256,232 2,075,554 1,679,179
Purchased research and development 1,372,116
Acquisition and integration costs 678,655
-------------------------------------------
Total operating expenses 29,721,562 17,618,699 12,019,637
-------------------------------------------
Operating income (loss) 159,610 502,205 1,143,670
Equity in loss of joint venture (267,037) (111,434)
Interest income 756,895
Interest expense (158,931) (50,136) (8,853)
Other income 103,376 133,580 119,994
-------------------------------------------
Income before income taxes 593,913 474,215 1,254,811
Provision for income taxes 159,831 124,166 431,783
-------------------------------------------
Net income $ 434,082 $ 350,049 $ 823,028
===========================================
Net income per share $.05 $.05 $.13
===========================================
Weighted average number of common
shares outstanding 8,038,592 6,414,506 6,557,778
===========================================
See accompanying notes.
12
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
[Enlarge/Download Table]
Common Stock Treasury Stock
---------------------- -----------------------
Notes
Additional Receivable
Par Paid In From Retained
Shares Value Capital Stockholder Earnings Shares Cost Total
-------------------------------------------------------------------------------------------------------
Balance at January 1, 1993 5,028,000 $50,280 $203,570 $(72,000) $44,639 $226,489
Interest on notes receivable (5,482) (5,482)
Net income 823,028 823,028
Cash dividends ($.01 per
share) (68,026) (68,026)
--------------------------------------------------------------------------------------------------------
Balance at December 31,
1993 5,028,000 50,280 203,570 (77,482) 799,641 976,009
Issuance of Common Stock 122,500 1,225 488,775 490,000
Repurchase of Common Stock 583,333 $(3,500,000) (3,500,000)
Stock options exercised 24,933 249 84,781 85,030
Payment of notes
receivable 77,482 77,482
Net income, restated 350,049 350,049
--------------------------------------------------------------------------------------------------------
Balance at December 31,
1994, restated 5,175,433 51,754 777,126 1,149,690 583,333 (3,500,000) (1,521,430)
Initial public offering
of Common Stock 1,700,000 17,000 22,862,473 22,879,473
Conversion of Preferred
Stock 999,998 10,000 5,844,332 5,854,332
Stock options exercised 167,450 1,675 708,496 710,171
Tax benefit from exercise
of stock options 413,394 413,394
Shares issued under stock
purchase plan 7,594 76 88,679 88,755
Net income, restated 434,082 434,082
Cash dividends ($.02 per
share) (141,626) (141,626)
--------------------------------------------------------------------------------------------------------
Balance at December 31,
1995, restated 8,050,475 $80,505 $30,694,500 $1,442,146 583,333 ($3,500,000) $28,717,151
========================================================================================================
See accompanying notes.
13
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Download Table]
Year Ended December 31,
1995 1994 1993
------------------------------------------
(Restated) (Restated)
Operating activities
Net income $ 434,082 $350,049 $823,028
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 1,524,976 689,172 210,607
Amortization of capitalized
software costs 353,385 201,641 5,219
Provision for bad debts 472,985 26,371 74,500
Interest accrued on notes receivable
from stockholders (5,482)
Equity in loss of joint venture 267,037 111,434
Deferred income taxes (790,628) (7,131) (8,780)
Changes in operating assets and
liabilities:
Accounts receivable (4,236,544) (1,606,481) (2,245,133)
Due from related parties (2,362,752)
Prepaid and other current
assets (1,084,621) (115,013) (26,645)
Due from joint ventures (1,207,047) (221,043)
Other assets (250,403) (200,935) (8,414)
Accounts payable and accrued
expenses 1,353,440 1,228,076 1,400,264
Customer deposits (1,993) (176,617) 796,912
Deferred revenue 277,246 356,931 248,717
Income taxes payable 91,495 (87,937) 329,592
Due to related party (445) (154,184) 168,586
------------------------------------------
Net cash provided by (used in)
operating activities (5,159,787) 394,333 1,762,971
------------------------------------------
Investing activities
Purchase of marketable securities (42,494,016) (52,893)
Proceeds from maturities
of marketable securities 31,906,169
Investment in and advances to joint
ventures (737,224) (536,171)
Purchase of property and equipment (2,702,460) (1,537,590) (762,365)
Additions to capitalized software
costs (725,602) (445,093) (189,646)
------------------------------------------
Net cash used in investing
activities (14,753,133) (2,571,747) (952,011)
------------------------------------------
Financing activities
Notes receivable from stockholders 77,482
Net proceeds of notes payable to
bank 1,545,684
Repayment of capital lease
obligations (245,489) (112,776)
Net proceeds from issuance of
Common Stock 22,879,473 490,000 168,002
Proceeds from issuance of
Preferred Stock, net 5,854,332
Purchase of Treasury Stock (3,500,000)
Dividends paid (141,626) (68,026)
Exercise of stock options 1,123,565 85,030
Issuance of Common Stock under
stock purchase plan 88,755
------------------------------------------
Net cash provided by financing
activities 25,250,362 2,894,068 99,976
------------------------------------------
Effect of exchange rates on cash (18,227) 58,055 5,669
------------------------------------------
Net increase in cash and cash
equivalents 5,319,215 774,709 916,605
Cash and cash equivalents at
beginning of year 1,693,118 918,409 1,804
------------------------------------------
Cash and cash equivalents at end
of year $7,012,333 $1,693,118 $918,409
==========================================
See accompanying notes.
14
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
1. Basis of Presentation and Significant Accounting Policies
Business
The Company was incorporated in Delaware on September 18, 1992 to pursue
opportunities in the open client/server software and education markets. The
Company currently provides education services and sells open client/server
software tools globally. Operations commenced on January 1, 1993 with the
purchase and license of certain assets from CTG. During 1992, certain aspects
of the Company existed as the tools division of CTG, providing educational
services and selling software tools globally.
The environment of rapid technological change and intense competition which is
characteristic of the software development industry results in frequent new
products and evolving industry standards. The Company's continued success
depends on its ability to enhance current products and develop new products on a
timely basis which keep pace with the changes in technology, evolving industry
standards and increasingly sophisticated customer needs.
The Company currently derives a significant portion of its revenue from licenses
of its Entera product line and related products and services. As a result, any
factor adversely affecting sales of Entera would have a material adverse effect
on the Company.
Restatement of Financial Statements
Prior to the second quarter of 1995, the Company and certain of its customers
entered into non-cancellable letters of understanding ("Non-cancellable LOUs")
whereby the Company's customers agreed to purchase certain software and services
from the Company and which specified a future date at or on which a mutually
acceptable software license and services agreement would be finalized. In eight
instances, the parties agreed to enter into a mutually acceptable software
license and services agreement within a specified period (the "Specified
Period") after the date of execution of such Non-cancellable LOU. At the time of
revenue recognition all products were delivered, the Company believed that
persuasive evidence existed to document an agreement to license the Company's
software by the customer and there were no significant contingencies existing at
the date of revenue recognition. After a review by the staff of the Securities
and Exchange Commission (the "Staff"), the Company has agreed that the
recognition of revenue under such Non-cancellable LOUs should be delayed until
the earlier of the date such software license and services agreements were
executed by the parties (the "L&S Execution Date") or the expiration of the
Specified Period. The length of the Specified Periods ranged from two days to 45
days. The Company has restated its historical financial statements contained in
certain of its reports filed pursuant to the Securities Exchange Act of 1934
with respect to the five Non-cancellable LOUs where the earlier of the L&S
Execution Date or the end of the Specified Period occurred in the quarter
following the date of execution of the Non-cancellable LOU. The changes decrease
revenue and net income reported in the fourth quarter of 1994 and increase
revenue and net income reported in each of the first and second quarters of
1995. There was no change in the aggregate revenue and net income reported over
such three quarter period.
The following summarizes the effect of the restatement on the consolidated
financial statements of the Company for the periods presented:
[Download Table]
As Reported Restated
----------- --------
Year ended December 31, 1995
Revenues $ 29,269,812 $ 29,881,172
Cost of software, maintenance
and services 5,323,524 5,360,206
Selling and marketing expenses 12,828,861 12,883,884
Provision for income taxes 24,721 159,831
Net income 49,537 434,082
Net income per share 0.01 0.05
Accounts receivable 7,609,007 7,609,007
Total assets 36,646,673 36,646,673
Accrued expenses 2,981,792 2,981,792
Income taxes payable 350,000 350,000
Stockholders' equity (deficiency) 28,717,151 28,717,151
As Reported Restated
----------- --------
Year ended December 31, 1994
Revenues $ 18,732,264 $ 18,120,904
Cost of software, maintenance
and services 4,301,947 4,265,265
Selling and marketing expenses 6,976,811 6,921,788
Provision for income taxes 259,276 124,166
Net income 734,594 350,049
Net income per share 0.11 0.05
Accounts receivable 4,480,956 3,869,596
Total assets 10,087,018 9,475,658
Accrued expenses 1,492,460 1,400,755
Income taxes payable 404,370 269,260
Stockholders' equity (deficiency) (1,136,885) (1,521,430)
As Reported Restated
----------- --------
Three months ended December 31, 1994
Revenues $ 6,095,404 $ 5,484,044
Cost of software, maintenance
and services 1,366,663 1,329,981
Selling and marketing expenses 2,223,980 2,168,957
Provision for income taxes 151,750 16,640
Net income 453,996 69,451
Net income per share 0.07 0.01
Accounts receivable 4,480,956 3,869,596
Total assets 10,087,018 9,475,658
Accrued expenses 1,492,460 1,400,755
Income taxes payable 404,370 269,260
Stockholders' equity (deficiency) (1,136,885) (1,521,430)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned foreign subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
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 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 those estimates.
Revenue Recognition
Revenues from the license of software products are recognized upon shipment to
the customer and the agreement as to all material terms of the transaction.
Software products generally are delivered without post sale vendor obligations
and without a significant obligation to the customer. If upon delivery to the
customer, a significant obligation to the customer exists, revenue is deferred
until the obligation is satisfied. The incremental production costs associated
with license revenue such as cost of media, documentation, distribution and
amortization of capitalized software are insignificant in relation to the
related license fees and have been combined with costs of maintenance and
services.
Fees for software maintenance are recognized ratably over the contract period.
Revenues from educational and other services are recognized as the services are
performed.
15
Advance billings and customer deposits represent amounts advanced by customers
with respect to certain software products and education services. These amounts
are recognized as revenue upon shipment of the software or fulfillment of the
service.
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities at date of
purchase of three months or less.
Concentration of Business and Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of cash, cash equivalents and accounts receivable.
The Company invests its excess cash primarily in high quality securities and
limits the amount of credit exposure to any one financial institution. This
investment policy limits the Company's exposure to concentration of credit risk
and changes in market conditions.
The Company provides credit in the normal course of business, and, accordingly,
performs ongoing credit evaluations of its customers and maintains allowances
for potential credit losses. These allowances, when realized, have been within
the range of management's expectations.
Investment Securities
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (FAS 115). FAS 115 established the accounting and reporting
requirements for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. All affected investment
securities must be classified as either held-to-maturity, trading or available-
for-sale. Investment securities are deemed to be held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are carried at amortized cost basis. Trading
securities are carried at fair value with unrealized holding gains and losses
reported in the income statement. Available-for-sale securities are carried at
fair value with unrealized holding gains and losses reported as a component of
shareholders' equity. The adoption of FAS 115 had no material impact on the
Company's financial position.
All of the Company's investments are classified as held-to-maturity at December
31, 1995 and 1994. The fair market value of these investments at December 31,
1995 and 1994 approximates amortized cost basis. Based upon contractual
maturities, all of the Company's investments are scheduled to mature in 1996.
The following is a summary of these investments:
[Download Table]
1995 1994
----------------------------
U.S. Treasury securities and
obligations of U.S. government
agencies $12,135,987
Tax-exempt mutual and money
market funds 1,513,183
90-day bank notes 2,136,747 $1,000,000
-----------------------------
$15,785,917 $1,000,000
=============================
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries are translated at
the rate of exchange in effect at year-end, and revenues and expenses are
translated at the average exchange rates during the year. Gains and losses from
translation are not material for the years presented. Foreign currency
transaction gains and losses are included in the accompanying consolidated
statements of income and are not material for the years presented.
16
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are
provided by the use of the straight-line method over the following lives:
[Download Table]
Furniture, fixtures and equipment 5 years
Computer equipment 3 years
Purchased computer software 2 years
Software Development Costs and Research and Development Expenditures
Certain software development costs are capitalized when incurred.
Capitalization of software development costs begins upon the establishment of
technological feasibility. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized software development
costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life and changes in
software and hardware technologies.
Amortization of capitalized software development costs is provided on a product-
by-product basis at the greater of the amount determined using (a) the ratio of
current gross revenues for a product to the total of current and anticipated
future gross revenues or (b) the straight-line method over a period not to
exceed two years from the time the product is commercially available for
delivery to customers.
All other research and development expenditures are charged as research and
development expense in the period incurred.
Income Taxes
The Company provides for income taxes under the liability method prescribed by
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under this method, deferred income taxes are recognized for the future
tax consequences of differences between the tax and financial accounting of
assets and liabilities at each year end. Deferred income taxes are based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
Stock Based Compensation
The Company grants stock options for 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 grants in accordance with APB Opinion No.
25, Accounting for Stock Issued to Employees, and intends to continue to do so.
Accordingly, no compensation expense is recognized for the stock option grants.
Net Income Per Share
Net income per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during each period. Common and
common equivalent shares issued during the twelve-month period prior to the
initial filing date of the proposed public offering have been included in the
calculation as if they were outstanding for all periods presented using the
treasury stock method. Included in these amounts are Common Stock options and
1,428,571 shares of Series A Convertible Preferred Stock that were converted
into 999,998 shares of Common Stock on April 21, 1995 in connection with the
initial public offering of Common Stock. Fully diluted and primary earnings per
share data are the same for each period presented.
17
Reclassifications
Certain amounts in 1994 and 1993 have been reclassified to permit comparison.
2. Acquisitions
On August 31, 1995, the Company issued 408,000 shares of Common Stock in
exchange for all outstanding shares of the capital stock of Jarrah Technologies.
The acquisition was accounted for as a pooling of interests and, accordingly,
the accompanying consolidated financial statements of the Company have been
restated to include the accounts and operations of Jarrah Technologies for all
periods prior to the acquisition. Separate results of the combining entities
for the years ended December 31, 1995, 1994 and 1993 are as follows:
[Download Table]
1995 1994 1993
----------------------------------------
(Restated) (Restated)
Total revenues:
Open Environment Corporation $25,340,434 $13,438,803 $ 9,833,999
Jarrah Technologies 4,540,738 4,682,101 3,329,308
----------------------------------------
$29,881,172 $18,120,904 $13,163,307
========================================
Net income (loss):
Open Environment Corporation $ 502,281 $ 46,343 $ 483,924
Jarrah Technologies (68,199) 303,706 339,104
----------------------------------------
$ 434,082 $ 350,049 $ 823,028
========================================
Net income (loss) per share:
Open Environment Corporation $ .06 $ .01 $ .08
Jarrah Technologies (.01) .04 .05
----------------------------------------
$ .05 $ .05 $ .13
========================================
The Company recorded acquisition and integration costs of approximately $679,000
in 1995 for expenses related to the acquisition and integration of Jarrah
Technologies. Charges included professional fees and charges for regulatory and
filing matters ($265,000), travel costs ($222,000), marketing and collaterals
($139,000), lease termination costs and miscellaneous other costs ($53,000).
Substantially all of these charges were incurred prior to September 30, 1995,
and as of December 31, 1995, $60,000 of these charges, related to certain legal
fees, were unpaid and were classified as accrued expenses.
In 1995, the Company also recorded special charges of $1,372,000 related to the
purchases of certain technologies. The costs of these purchases were expensed as
purchased research and development costs, as the related technologies were not
at the point of technological feasibility at the date of purchase and had no
alternative future uses. The Company paid $686,000 of this amount in 1995, and
$686,000 is recorded in accrued expenses at December 31, 1995.
3. Property and Equipment
Major classifications of property and equipment at December 31 are summarized
below:
[Download Table]
1995 1994
------------------------
Furniture, fixtures and equipment $1,115,691 $ 623,746
Computer equipment 3,488,216 1,857,662
Purchased computer software 796,216 368,710
Leasehold improvements 307,855 174,554
------------------------
5,707,978 3,024,672
Accumulated depreciation 2,493,637 975,280
------------------------
Property and equipment, net $3,214,341 $2,049,392
========================
18
4. Investment in and Advances to Joint Ventures
On January 17, 1994, the Company entered into a joint venture with a Japanese
corporation to develop, distribute, promote and market the Company's software
products and provide related education services in Japan. Under the terms of
the agreement, the Company purchased 50% of the outstanding voting common stock
and two shares of the non-voting preferred stock.
Concurrent with this agreement, the Company executed a license agreement with
the joint venture whereby the Company granted an exclusive license to establish,
develop, distribute and promote the market for the Company's software products
and educational services and maintenance in Japan. In return for this license,
the Company receives royalties from the sale of these products and services as
follows:
[Download Table]
Software products 40%
Educational services 25%
Maintenance services 60%
Royalty income aggregating $520,584 and $801,024 was recognized in connection
with this agreement during the years ended December 31, 1995 and 1994.
On September 30, 1995, the Company sold 30.5% of the outstanding voting common
stock of the joint venture to its joint venture partner for $488,000, which
approximated the Company's cost basis in the joint venture. As a result, the
Company currently owns 19.5% of the voting common stock of the joint venture.
The Company accounted for the joint venture using the equity method from the
inception of the joint venture until September 30, 1995, resulting in the
Company recording its equity in the loss of the joint venture of $267,037 in
1995 and $111,434 in 1994. Effective October 1, 1995, the Company accounts for
its remaining investment in the joint venture using the cost method. At
December 31, 1995, investment in and advances to joint ventures consisted of
investment in and advances to the Japanese joint venture of $630,000, and
investments in other joint ventures of $228,000.
Unaudited financial information related to the Japanese joint venture at and for
the period ended December 31, 1994 is as follows:
[Download Table]
Current assets $1,623,000
Property and equipment and other assets 272,000
Current liabilities 1,724,000
Long-term liabilities 0
Net sales 2,256,000
Gross profit 761,000
Net loss (223,000)
5. Financing Agreement
The Company has a $3,000,000 credit agreement with its bank, comprised of a
$2,000,000 revolving credit facility for operating purposes and a $1,000,000
facility for capital expenditures. On January 1, 1996, amounts outstanding
against the $1,000,000 capital expenditures portion were converted to a two-year
term note, payable in equal quarterly installments of $125,000 plus interest.
Interest on the demand line of credit accrues at prime, and interest on the
capital expenditures line accrues at prime plus one-quarter percent. Amounts
drawn on the demand line of credit are limited to a percentage of qualified
accounts receivable as defined in the agreement. All borrowings under the
agreement are secured by the assets of the Company. At December 31, 1995,
$510,000 was outstanding under the demand line of credit, and $1,000,000 was
outstanding under the capital expenditures line.
19
Among other provisions, the agreement also imposes certain financial covenants
requiring the Company to maintain certain levels of working capital and minimum
leverage ratios. At December 31, 1995, the Company was in violation of its
financial covenant relating to maximum capital expenditures. The Company has
obtained a waiver of this violation.
6. Stockholders' Equity
Reverse Stock Split
On February 10, 1995, the Company declared a 7-for-10 reverse stock split of
Common Stock. Average shares outstanding and all stock option and per share
amounts included in the accompanying consolidated financial statements and notes
are based on the decreased numbers of shares giving retroactive effect to the
reverse stock split.
Preferred Stock
In November 1994, the Company issued 1,428,571 shares of Series A Convertible
Preferred Stock for $6,000,000, less offering expenses of $145,668. Of the
proceeds from this issuance, $3,500,000 was used to repurchase 583,333 shares of
Common Stock from a major shareholder. The preferred shares were converted into
999,998 shares of Common Stock upon the completion of the Company's initial
public offering on April 21, 1995.
On February 10, 1995, the Board of Directors authorized an aggregate of
1,000,000 shares of Preferred Stock, $.01 par value per share, in one or more
series, each of such series to have such rights and preferences, including
voting rights, divided rights, conversion rights, redemption privileges and
liquidation preferences, as shall be determined by the Board of Directors. At
December 31, 1995, none of these shares have been issued.
1993 Stock Plan
Under the Company's Amended and Restated 1993 Stock Plan, options for 1,589,000
shares of Common Stock are available for grant to employees, officers, directors
or consultants. The option price and exercise period is determined by the Board
of Directors on the date of grant. The option price is deemed by the Board of
Directors to be not less than fair market value at the date of grant. All
options are exercisable in installments over a two- to five-year period
commencing one year from the date of grant. Option activity was as follows:
[Download Table]
Range of
Shares Option Prices
----------------------------------
Outstanding at December 31, 1993 611,625 $.05-5.00
Granted 607,740 $5.00-6.00
Exercised (4,929) $.05-5.00
Canceled (164,786) $.05-5.00
--------------
Outstanding at December 31, 1994 1,049,650 $.05-6.00
Granted 482,314 $6.00-20.00
Exercised (167,462) $.05-6.00
Canceled (112,973) $.05-20.00
--------------
Outstanding at December 31, 1995 1,251,529 $.05-20.00
==============
Exercisable at December 31, 1995 258,506
Available for future grants 165,081
20
1994 Executive Stock Plan
The Company's 1994 Amended and Restated Executive Stock Plan provides for
651,000 shares of Common Stock to be available for grant to senior executive
employees of the Company. The option price and exercise period is determined by
the Board of Directors on the date of grant. The option price is deemed by the
Board of Directors to be not less than fair market value at the date of grant.
Option activity was as follows:
[Download Table]
Range of
Shares Option Prices
----------------------------------
Outstanding at December 31, 1993
Granted 651,000 $4.00-5.00
Exercised (20,005) $4.00
--------------
Outstanding at December 31, 1994 630,995 $4.00-5.00
Granted
Exercised
--------------
Outstanding at December 31, 1995 630,995 $4.00-5.00
==============
Exercisable at December 31, 1995 457,745
Available for future grants 0
Directors Plans
The Company's 1994 Directors Plan provides for 28,000 shares of Common Stock to
be available for grant to Directors of the Company, and the 1995 Directors
Plan provides for 70,000 shares of Common Stock to be available for grant to
senior executive employees of the Company. The option price and exercise
period is determined by the Board of Directors on the date of grant. The
option price is deemed by the Board of Directors to be not less than fair
market value at the date of grant. Option activity was as follows:
[Download Table]
Range of
Shares Option Prices
----------------------------------
Outstanding at December 31, 1993
Granted 28,000 $4.00
Exercised
--------------
Outstanding at December 31, 1994 28,000 $4.00
Granted
Exercised
--------------
Outstanding at December 31, 1995 28,000 $4.00
===============
Exercisable at December 31, 1995 7,000
Available for future grants 70,000
1995 Employee Stock Purchase Plan
On February 10, 1995, the Board of Directors adopted the 1995 Employee Stock
Purchase Plan (the Stock Purchase Plan), which authorizes the issuance of up to
70,000 shares of Common Stock to participants in amounts based on the
participant's compensation and the fair market value of the Company's stock.
Employees with at least six months of service are eligible to participate in the
stock purchase plan. In 1995, 7,594 shares were purchased by participants in
the Stock Purchase Plan, and 62,406 shares were available for issuance under the
Stock Purchase Plan at December 31, 1995.
21
7. Income Taxes
The provision for income tax expense (benefit) consists of the following:
[Download Table]
Year Ended December 31,
1995 1994 1993
----------------------------------
(Restated) (Restated)
Current
Federal $661,460 $(127,910) $182,157
State 186,800 35,500 85,901
Foreign 102,363 227,233 174,576
----------------------------------
950,623 134,823 442,634
----------------------------------
Deferred
Federal (417,000) 2,900 8,100
State (128,800) 800 2,600
Foreign (244,992) (14,357) (21,551)
----------------------------------
(790,792) (10,657) (10,851)
----------------------------------
Income tax expense $159,831 $124,166 $431,783
==================================
Significant components of deferred income tax assets and liabilities are
as follows:
[Download Table]
December 31,
1995 1994
---------------------------
Deferred tax assets:
Accounts receivable reserve $231,000 $40,600
Equity in loss of joint venture 155,100 44,900
Depreciation 96,900 49,300
Purchased research and development 365,100
Foreign NOL carryforwards 265,100 35,900
Other 97,200 23,200
---------------------------
Total deferred tax assets 1,210,400 193,900
---------------------------
Deferred tax liabilities:
Capitalized software 315,800 172,300
Capitalized leases 34,900
Other 47,400
---------------------------
Total deferred tax liabilities 398,100 172,300
---------------------------
Net deferred tax assets $ 812,300 $21,600
===========================
A reconciliation of the federal statutory rate to the effective income tax rate
follows:
[Download Table]
Year Ended December 31,
1995 1994 1993
----------------------------------
(Restated) (Restated)
Federal statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 9.4 0.6 4.4
Effect of research and development
credits ( 29.6) (13.3) (7.8)
Effect of foreign rate differences (1.0) 1.0 2.0
Non-deductible expenses 14.1 3.8 1.8
----------------------------------
Effective tax rate 26.9% 26.1% 34.4%
==================================
22
At December 31, 1995, the Company had foreign net operating loss carryforwards
of $705,000 for income tax purposes. These carryforwards have no expiration
date.
8. Commitments
In January 1994, the Company entered into a five-year lease for office space
under an operating lease agreement scheduled to expire in February 1999. The
lease includes a five-year renewal option. Leasehold improvements made by the
landlord for the Company as a condition of occupancy are secured by a $70,000
irrevocable letter of credit issued by the Company's bank.
During 1994 the Company entered into certain equipment leases which were
capitalized in accordance with generally accepted accounting principles. The
Company also leases certain equipment under noncancelable operating leases.
Future minimum lease payments are as follows at December 31, 1995:
[Download Table]
Capital Operating
Leases Leases
-------------------------------
1996 $194,848 $ 735,843
1997 29,608 691,273
1998 649,624
1999 358,686
2000 211,327
-------------------------------
Total minimum lease payments 224,456 $2,646,753
==============
Less amounts representing
interest 18,367
----------------
Present value of remaining
minimum lease payments 206,089
Less amounts due within one
year 178,904
----------------
Amounts due after one year $27,185
================
Rent expense relating to operating leases amounted to $926,578, $425,454 and
$177,688 in 1995, 1994 and 1993, respectively.
Assets under capital lease are capitalized using interest rates appropriate at
the inception of each lease. A summary of assets under capital lease are as
follows:
[Download Table]
December 31,
1995 1994
----------------------
Furniture, fixtures and equipment $358,105 $358,105
Computer equipment 206,249 206,249
----------------------
564,354 564,354
Accumulated amortization 271,562 131,193
----------------------
Net book value of assets under capital
leases $292,792 $433,161
======================
Amortization of assets under capital lease amounted to $140,369 in 1995 and
$131,193 in 1994 and is included in depreciation expense.
23
9. Employee Benefits
401(k) Retirement Plan
The Company has a 401(k) retirement plan covering all employees who are at least
21 years of age and have completed at least one year of service with the
Company. Company contributions under the plan are discretionary. No
contributions were made by the Company during 1995, 1994 or 1993.
10. Related Party Transactions
On January 1, 1993 (the date operations commenced), the Company entered into a
license agreement with CTG. CTG is principally owned by the Company's Chairman
of the Board and a stockholder. Under the terms of the license agreement, the
Company entered into a five-year agreement to license certain intellectual
property from CTG in exchange for a fee of generally 5% of net software revenues
and 1% of education revenues. The terms of the license agreement were revised
effective August 1, 1994 from 5% to 1% fee on software revenues. On November
23, 1994, the Company entered into an Assignment Agreement with CTG under which
CTG assigned all right, title and interest in the intellectual property defined
under the license agreement to the Company in exchange for the appointment of
CTG as an authorized reseller of certain of the Company's products pursuant to a
Reseller Agreement. Effective with this agreement, the license agreement was
terminated. Royalty expenses paid or accrued to CTG under the license agreement
amounted to $149,633 in 1994 and $183,410 in 1993.
Under the terms of the Reseller Agreement, as amended, CTG was appointed as a
non-exclusive reseller of the Company's products in the U.S. and Canada
effective February 1, 1995. Prior to February 1, 1995, CTG did not distribute
the Company's products. Pursuant to this agreement, CTG receives a 50% discount
from list prices of the Company's software and a 30% discount from list prices
on the Company's educational programs. The Company is permitted to cancel the
agreement at any time upon payment to CTG of a termination fee equal to
$2,500,000 less 20% of the aggregate list price value of software products sold
by CTG under the Reseller Agreement. Aggregate revenues from CTG under this
agreement in 1995 amounted to $1,653,426.
Until March 1994, the Company shared office and training facilities with CTG.
Among the activities for which the Company paid or accrued amounts to CTG
include: monthly operating, telecommunications and rental expenses for office
space used as the Company's corporate headquarters ($43,903 in 1994 and $446,467
in 1993), educational lecturing and rental services ($24,596 in 1994 and
$293,350 in 1993), monthly reimbursements for amounts paid to vendors for
expenses incurred by the Company ($37,942 in 1994 and $284,981 in 1993), and
reimbursement for new computer equipment shipped directly to the Company
($138,517 in 1993). The Company also sold its rights under a product
development agreement with a software vendor to CTG for $60,000 (included in
other income) during 1994. Amounts paid to CTG were based on actual amounts
incurred by CTG on behalf of the Company. Management of the Company believes
that these charges represent fair market value.
In 1995, the Company entered into a reseller agreement with Object Power Inc., a
Company principally owned by the Company's Chairman of the Board and a
stockholder. Under this agreement, Object Power receives a 50% discount from
list prices of the Company's software and a 25% discount from list prices on the
Company's educational programs and services. Aggregate revenues from Object
Power under this agreement in 1995 amounted to $905,965.
In 1995, the Company purchased the source code to a certain technology from
Object Power for $500,000. At the date of purchase, the technology had not yet
reached the point of technological feasibility and had no alternative future
use, and as a result the purchase price was fully expensed. The Company is
continuing the development of the technology.
24
In addition, in 1995 the Company licensed the source code to certain components
of its middleware technology to Object Power for an up-front fee of $2,200,000.
Use of the components of this technology is restricted to the development and
marketing of products that will interoperate with the Company's product line.
The amount due from related parties at December 31, 1995 represents amounts
related to the transactions described above with Object Power.
11. Supplemental Information
The Company made income tax payments of $326,443, $165,062 and $91,920 in 1995,
1994 and 1993, respectively. The Company made interest payments (which also
represented interest expense for the periods) of $158,931, $50,136 and $8,853 in
1995, 1994 and 1993, respectively.
Capital lease obligations incurred are considered noncash items and,
accordingly, are not reflected in the consolidated statements of cash flow.
Capital lease obligations incurred totaled $564,354 during the year ended
December 31, 1994.
Other assets at December 31, 1995 include $237,000 of notes receivable from
officers of the Company, with interest rates ranging from 6-7/8% to 8%.
Accrued expenses at December 31, 1994 includes $320,353 of accrued commissions.
12. Significant Customers
Approximately 11% and 15% of the Company's revenue in the years ended December
31, 1995 and 1993, respectively, were from one customer. For the year ended
December 31, 1994, no individual customer accounted for greater than 10% of the
Company's total revenue.
13. Industry Segment and Geographic Information
The Company operates in one industry segment representing the design,
development, education/training, sales and servicing of software in the open
client/server market. Net sales, operating income, and assets by major
geographic area are summarized below. Inter-area transfers were not material
for the periods presented.
[Download Table]
1995 1994 1993
----------------------------------------
(Restated) (Restated)
Revenues from unaffiliated customers:
United States (including direct
export sales) $25,340,434 $13,438,803 $9,833,999
Australia 4,540,738 4,682,101 3,329,308
----------------------------------------
$29,881,172 $18,120,904 $13,163,307
========================================
Income (loss) from operations:
United States $492,743 $106,831 $653,374
Australia (333,133) 395,374 490,296
----------------------------------------
$159,610 $ 502,205 $ 1,143,670
========================================
Identifiable assets:
United States $35,017,499 $ 7,936,505 $ 3,341,924
Australia 1,629,174 1,539,153 902,337
---------------------------------------
$36,646,673 $ 9,475,658 $ 4,244,261
========================================
25
Export sales from the United States to unaffiliated customers were as follows:
[Download Table]
1995 1994 1993
------------------------------------
Korea $1,984,157
Australia 1,299,739 $386,384
Netherlands 1,051,255 184,800
China 702,063
Japan 666,634 417,829 $205,254
England 544,669 181,230 42,825
Saudi Arabia 428,000
India 239,200
Canada 25,225 335,400 133,602
Ireland 703,200
Other international 469,838 500,204 235,361
------------------------------------
$7,410,780 $2,709,047 $617,042
====================================
14. Quarterly Results of Operations (Unaudited)
[Download Table]
Year ended December 31, 1995:
Three months ended March 31 June 30 September 30 December 31
-------------------------------------------------------
(Restated) (Restated)
Net sales $6,471,684 $7,811,158 $7,996,864 $7,601,466
Gross profit 5,104,348 6,029,796 6,183,367 5,634,846
Purchased research
and development 1,372,116
Acquisition and
integration costs 678,655
Income (loss) from
operations 771,620 971,017 185,988 (1,769,015)
Net income (loss) 349,262 848,769 266,976 (1,030,926)
Net income (loss)
per common share $.05 $.10 $.03 $(.14)
Year ended December 31, 1994:
Three months ended March 31 June 30 September 30 December 31
-------------------------------------------------------
(Restated)
Net sales $3,394,743 $3,943,660 $5,298,457 $5,484,044
Gross profit 2,103,069 2,221,436 3,704,996 3,769,924
Income (loss) from
operations 5,741 (36,219) 394,783 137,900
Net income (loss) (69,778) 71,261 279,115 69,451
Net income (loss)
per common share ($.01) $.01 $.04 $.01
The acquisition of Jarrah Technologies on August 31, 1995 was accounted for as a
pooling of interests, and, accordingly, the previously reported quarterly
financial results have been restated to include the accounts and operations of
Jarrah Technologies. Quarterly results of operations as listed above differ
from those previously reported due to the inclusion of the following amounts
related to Jarrah Technologies:
[Download Table]
Year ended December 31, 1995:
Three months ended March 31 June 30 September 30 December 31
-------------------------------------------------------
Net sales $1,000,201 $1,396,594 $1,074,059 1,069,884
Gross profit 469,229 619,928 452,003 595,632
Purchased research
and development 575,000
Acquisition and
integration costs 54,655
Income (loss) from
operations 13,369 55,719 (46,495) (440,720)
Net income (loss) 73,369 111,706 (45,302) (207,973)
Net income (loss) per
common share $.01 $.01 $(.01) $(.02)
Year ended December 31, 1994:
Three months ended March 31 June 30 September 30 December 31
-------------------------------------------------------
Net sales $939,614 $1,204,114 $1,259,008 $1,279,367
Gross profit 415,247 454,173 564,009 444,341
Income (loss) from
operations 148,417 71,771 196,230 (31,180)
Net income (loss) 137,745 62,783 118,959 (15,780)
Net income per common
share $.02 $.01 $.02 $.00
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following information is included in Item 8.
1. Financial Statements:
--------------------
Report of Ernst & Young LLP, Independent Auditors
Report of William Buck, Chartered Accountants
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993 (restated)
Consolidated Statements of Stockholders' Equity (Deficiency)
for the years ended December 31, 1995, 1994 and 1993 (restated)
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 (restated)
Notes to Consolidated Financial Statements (restated)
2. Financial Statement Schedules:
-----------------------------
Schedule II-Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable, not
required, or the information required is included in the financial
statements or notes thereto.
3. Exhibits:
--------
The exhibits are listed in the accompanying Exhibit Index immediately
following the Financial Statement Schedules.
(b) Reports on Form 8-K
None.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OPEN ENVIRONMENT CORPORATION
By: /s/ Philip R. Copeland
-----------------------------
Name: Philip R. Copeland
Title: Acting Chief Executive
Officer
Date: October 10, 1996
-----------------------------
By: /s/ James J. Driscoll
-----------------------------
Name: James J. Driscoll
Title: Vice President, Finance and
Administration, Chief Financial
Officer, Secretary and
Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
Date: October 10, 1996
-------------------------------
28
OPEN ENVIRONMENT CORPORATION
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
[Enlarge/Download Table]
--------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
--------------------------------------------------------------------------------------------------------------------------
Additions
---------------------------------
Charged to
Balance at Charged to Other
Beginning of Costs and Accounts- Deductions- Balance at End
Description Period Expenses Describe Describe (1) of Period
--------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful
accounts $100,871 $526,198 $(53,213) $573,856
----------------------------------------------------------------------------------------
$100,871 $526,198 $(53,213) $573,856
========================================================================================
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful
accounts $74,500 $152,000 $(125,629) $100,871
----------------------------------------------------------------------------------------
$74,500 $152,000 $(125,629) $100,871
========================================================================================
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful
accounts $19,700 $62,800 $(8,000) $74,500
----------------------------------------------------------------------------------------
$19,700 $62,800 $(8,000) $74,500
========================================================================================
(1) Uncollectible accounts written off, net of recoveries.
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.1* Amended and Restated Certificate of Incorporation
3.2* Amended and Restated By-laws of the Registrant
4.1* Specimen Stock Certificate
10.1* Amended and Restated 1993 Employee Stock Option Plan
10.2* 1995 Employee Stock Purchase Plan
10.3* 1995 Director Stock Option Plan
10.4* Registration Rights Agreement dated as of November 23, 1994
between the Registrant and certain of its stockholders
10.5* Stockholders Agreement dated November 23, 1994 between the
Registrant and certain of its stockholders
10.6* Management Rights Agreement dated November 16, 1994 between the
Registrant and Hancock Venture Partners IV--Direct Fund L.P.
10.7* Lease dated as of January 18, 1994 between the Registrant and The
Abbey Barrett Limited Partnership
10.8* Loan and Security Agreement between the Registrant and State
Street Bank and Trust Company
10.9* Master Promissory Note of the Registrant payable to the order of
State Street Bank and Trust Company
10.10* Equipment Note of the Registrant payable to the order of State
Street Bank and Trust Company
10.11* Employment Agreement dated March 22, 1994 between the Registrant
and Nathan P. Morton
10.12* Assignment Agreement dated as of November 23, 1994 between the
Registrant and Cambridge Technology Group, Inc.
10.13* Reseller Agreement dated November 23, 1994 between the Registrant
and Cambridge Technology Group, Inc.
10.14* Asset Purchase Agreement dated January 1, 1993 between the
Registrant and Cambridge Technology Group, Inc.
10.15* License Agreement dated January 1, 1993 between the Registrant and
Cambridge Technology Group, Inc., as amended August 1, 1994
10.16* Amendment to Reseller Agreement dated April 6, 1995 between the
Registrant and Cambridge Technology Group, Inc.
10.17** Jarrah Technologies Stock Purchase Agreement
11.1 Statement Regarding Computation of Net Income Per Share
21.1 Subsidiaries of the Registrant as of December 31, 1995
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of William Buck, Chartered Accountants
* Incorporated herein by reference from the Company's Registration Statement on
Form S-1 (File No. 33-89854) as declared effective by the Securities and
Exchange Commission (the "Commission") on April 13, 1995.
** Incorporated by reference from the Company's Form 8-K as filed with the
Commission on August 31, 1995.
Dates Referenced Herein and Documents Incorporated by Reference
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