SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
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: 000-23453
FLEXIINTERNATIONAL SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1309427
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
Two Enterprise Drive, Shelton, CT 06484
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (203) 925-3040
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
(Title of Class)
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.
Yes X 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]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act 2b-2). Yes No X
----- -----
The aggregate market value of the common equity held by non-affiliates of the
registrant, based upon the closing sales price of Common Stock, par value $0.01
per share, on March 1, 2003 as reported on the OTC Bulletin Board, was
approximately $0.8 million. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes. The registrant has no shares of non-voting Common Stock
authorized or outstanding.
As of March 1, 2003, Registrant had 17,784,185 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 2003 Annual Meeting
of Stockholders to be held on Friday, May 16, 2003 (the "2003 Proxy Statement")
which will be filed with the Securities and Exchange Commission no later than
120 days after December 31, 2002, are incorporated by reference in Part III of
this Report on Form 10-K. With the exception of the portions of the 2003 Proxy
Statement expressly incorporated into this Annual Report on Form 10-K by
reference, such document shall not be deemed filed as a part of this Form 10-K.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 that are subject to a number of risks and
uncertainties. All statements, other than statements of historical facts
included in this Annual Report on Form 10-K, regarding our strategy, future
operations, financial position, estimated revenues, projected costs, prospects,
plans and objectives of management are forward-looking statements. When used in
this Annual Report on Form 10-K, the words "will", "believe", "anticipate",
"intend", "estimate", "expect", "project" and similar expressions are intended
to identify forward-looking statements, although not all forward-looking
statements contain these identifying words. For example, we have made
forward-looking statements with respect to our future revenue growth herein. We
cannot guarantee future results, levels of activity, performance or achievements
and you should not place undue reliance on our forward-looking statements. Our
forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or strategic alliances. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the risks
described in "Certain Factors that May Affect Future Operating Results" and
elsewhere in this Annual Report on Form 10-K. You should carefully review the
risk factors included in our documents filed from time to time with the
Securities and Exchange Commission, including our Annual Report on Form 10-K for
the year ended December 31, 2002 and our Quarterly Reports on Form 10-Q. In
addition, from time to time we may also provide oral or written forward-looking
statements in other materials we release to the public. We do not assume any
obligation to update any of the forward-looking statements we make.
FLEXIINTERNATIONAL SOFTWARE, INC.
FORM 10-K
2002 ANNUAL REPORT
Table of Contents
PART I. Page
- ------- ----
Item 1. Business........................................................... 1
Item 2. Properties......................................................... 4
Item 3. Legal Proceedings.................................................. 4
Item 4. Submission of Matters to a Vote of Security Holders................ 4
Item 4A. Executive Officers of the Company.................................. 4
PART II.
- --------
Item 5. Market for Company's Common Equity and Related Stockholder Matters. 6
Item 6. Selected Consolidated Financial Data............................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 8
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.......... 19
Item 8. Financial Statements and Supplementary Data........................ 19
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 44
PART III.
- --------
Item 10. Directors and Executive Officers of the Company.................... 44
Item 11. Executive Compensation............................................. 44
Item 12. Security Ownership of Certain Beneficial Owners and Management..... 44
Item 13. Certain Relationships and Related Transactions..................... 44
Item 14. Controls and Procedures............................................ 44
PART IV.
- --------
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 45
Signatures......................................................... 46
Exhibit Index...................................................... 48
FlexiFinancials, FlexiLedger, FlexiPayables and FlexiReceivables are registered
trademarks, and the Flexi logo, FlexiAnalysis, FlexiObjects, FlexiWorkFlow,
FlexiActiveXControls, FlexiAssets, FlexiCenter, FlexiDB, FlexiDesigner,
FlexiDeveloper, FlexiFDW, FlexiInternational, FlexiInventory, FlexiProjects,
FlexiPurchasing, FlexiSecure, FlexiFRE, FlexiXL, FlexiOpenAccess, Flexi.Com,
FlexiQuery, FlexiBatch, FlexiNet, FlexiWriter, justaboutbiz, FlexiDistribute and
FlexiTools are trademarks of FlexiInternational Software, Inc. All other
trademarks or trade names referred to in this Annual Report on Form 10-K are the
property of their respective owners.
i
PART I
------
Item 1. Business
General
FlexiInternational Software, Inc., or Flexi or the Company, was organized
as a Connecticut corporation in 1990 and reincorporated in Delaware in 1993.
Flexi designs, develops, markets and supports the FlexiFinancial Enterprise
Suite of financial and accounting software applications and related tools. The
Flexi solution -- composed of FlexiFinancials, Flexi Financial Datawarehouse, or
FlexiFDW, FlexiInfoAccess and FlexiTools -- is designed to address the needs of
users with sophisticated financial accounting and operational analysis
requirements. We sell our software for use in traditional in-house accounting
operations as well as through our accounting outsourcing service to companies
desiring to outsource their back office accounting processes.
Our Financial Management Services solution, or FMS, a business process
outsourcing (BPO) service, is designed to leverage our suite of accounting
products and our expertise in back office processing of accounting data. We
believe that many mid-sized and start-up fast growing companies would benefit
substantially from outsourcing their back office accounting processes to enable
them to better focus on financial analysis, cash management and the strategic
issues of their business. As part of our BPO sales strategy to expand regional
coverage rapidly, we recruit regional resellers of our FMS solution which will
pay us a percentage of the fee they collect for using our software and related
solutions. Some resellers handle the complete BPO service while others handle
the client relationship and Flexi will handle the hosting and accounting aspects
of the service. In 2001, we signed a BPO reseller agreement in which we provided
the reseller a convertible loan, in the aggregate principal amount of $272,000,
to help launch the reseller's BPO service. According to industry analysts, the
finance and accounting outsourcing segment of the BPO market is in the early
adoption phase and is expected to continue to grow. However, we believe the full
acceptance of this solution is still several years away.
We derive our revenue primarily from:
o noncancellable software license agreements entered into with respect to
our products;
o royalties paid to us from third parties that distribute our products;
o to a lesser extent, third-party products distributed by us; and
o annual software maintenance agreements entered into with our customers.
Our revenues have been derived from both domestic sales and international
sales, with the international sales comprising 20.4% and 19.2% of total revenues
for 2002 and 2001, respectively. The international sales generally have the same
revenue and cost structure as our domestic sales. The majority of our
international sales are transacted in British pounds sterling, and an increase
in the value of the British pound relative to the currency of the country in
which we are selling our product could make our products more expensive and
potentially less competitive in these markets. In addition, our international
business may be subject to a variety of other risks, including difficulties in
collecting international accounts receivable or obtaining U.S. export licenses
for certain countries, the introduction of non-tariff barriers and higher duty
rates and fiscal and monetary policies that adversely affect non-native firms.
See "Certain Factors that May Affect Future Operating Results."
Products
The Flexi solution, FlexiFinancial Enterprise Suite, is an integrated
suite of financial accounting applications, together with related information
applications and development tools, that address the needs of users with
sophisticated financial accounting requirements, is easily customized and
supports the latest technologies as they evolve. The FlexiFinancial Enterprise
Suite is composed of the Company's three core families of products:
FlexiFinancials financial accounting systems;
Flexi Financial Datawarehouse "FlexiFDW"; and
1
FlexiTools development and customized tools.
The following table provides selected information relating to these core
products. All of our products can operate on a fully integrated basis, can be
licensed separately for use on a stand-alone basis or for integration with
products from third-party vendors, or can be purchased for use in outsourced
environments.
Commercial Commercial Commercial
FlexiFinancials Introduction FlexiFDW Introduction FlexiTools Introduction
- ----------------------- --------------- ---------- ------------- ----------------- ------------
FlexiLedger 1993 FlexiFDW 1998 FlexiControl 1993
FlexiPayables 1994 FlexiFRE 1998 FlexiCenter 1994
FlexiReceivables 1995 FlexiDeveloper 1994
FlexiPurchasing 1996 FlexiDB 1996
FlexiAssets 1997 FlexiDesigner 1996
FlexiProjects 1999 FlexiActiveXControls 1997
FlexiFIRE 1998
FlexiFinancials
o FlexiLedger. FlexiLedger, the general ledger module for
FlexiFinancials, provides the functionality required for users with
sophisticated financial accounting requirements, including the
ability to support unlimited number of currencies including Euro,
multicurrency accounts and multicurrency sets of books;
multi-company consolidations; user-defined subledgers; flexible
account validation; sophisticated summarization and allocation
structure; daily and monthly closing cycles, as well as other normal
ledger functions, with levels of security traditionally associated
with mainframes.
o FlexiPayables. FlexiPayables is an accounts payable module that
supports centralized and decentralized accounts payable processing
through sophisticated operation and accounting security controls,
while supporting the generation of invoices and payment
authorizations automatically routed for approval. Users have the
flexibility to establish payment rules, terms for payment, cash
management, and expense control and vendor management.
o FlexiReceivables. FlexiReceivables is an accounts receivable module
that supports automatic cash application, invoice aging and
discounts, as well as flexible rules for account group, payment
schedule commission and other terms. It can be easily configured to
define multiple account distribution or multiple-company accounting
for management of receivables across large organizations.
o FlexiPurchasing. FlexiPurchasing is a dynamic purchasing management
module that tracks purchases from requisition to purchase order to
invoicing, as well as delivery and storage, including data ranging
from discount levels to receipt and acceptance of goods. Users can
define, among other items, management approval levels, all relevant
report information and payment terms.
o FlexiAssets. FlexiAssets is a fixed-asset module for controlling and
tracking the physical location of all assets, while providing
depreciation calculations on a fully automated basis. The user can
maintain records on an unlimited number of assets. FlexiAssets
permits the user to choose depreciation methods, and to maintain
multiple sets of records to satisfy GAAP and federal, state and
local property tax reporting requirements.
o FlexiProjects. FlexiProjects, the most recent addition to the
FlexiFinancials integrated suite of accounting applications, allows
for the management of costs for any type of capital project, whether
it's software development, building a new facility, or building
improvements. FlexiProjects stores, tracks and analyzes all project
costs and insures that project information is always reconciled with
general ledger, purchasing, and other financial data.
Flexi FDW
The ability to produce in-depth management reports on the various aspects
of a business is crucial. FlexiFDW is a high-performance financial and
operational tool for performing analysis with multi-dimensional roll-ups, and
drill-down and multi-
2
currency capabilities. It creates a single repository of financial and
operational information for the user. It processes data according to customer
defined accounting and financial rules and offers a unified view of a company's
entire operation, giving the user the information on profitability, risk, and
new opportunities. It provides this visibility through a flexible data model.
FlexiFDW. FlexiFDW features an open client/server architecture and uses
an event-driven model to organize and track information. It processes,
reconciles, standardizes and reports information based on the business
or accounting rules established by the user in the Flexi Financial
Rules Engine "FlexiFRE" or some other type of rules engine. FlexiFDW
accepts information directly from the user's organization's source
systems - regardless of their age, complexity, or number. FlexiFDW is
fully Euro compliant.
FlexFRE. FlexiFRE provides an efficient, effective way to clean,
validate, enrich and transform data from an organization's source
systems. It creates a single, standardized layer between front- and
back-office source systems and a data warehouse or back-end reporting
system. Just as important, it enables the user to use a graphical
interface to build an organization's business logic directly into the
data capture process.
FlexiTools
FlexiTools are development and customization tools based on the open
technologies that permit users to take advantage of the object-oriented,
component-based architecture of our systems to accommodate their unique
requirements in a timely and cost-effective manner. We believe that FlexiTools
increase the flexibility of our products and facilitates seamless integration
with customer applications.
o FlexiControl permits users to define and manage system-wide
controls, such as security and server-based processing.
o FlexiDeveloper, FlexiDesigner and FlexiDB provide users with the
flexibility to extend Flexi applications and customize the interface
and database definitions. With these tools, customers may add
additional fields to any table, modify the attributes of a currently
existing database or customize their graphical user interface. Each
customer has a high degree of flexibility regarding screen or menu
structure. Through the revision control feature, subsequent updates
may be easily applied without overriding customized modifications.
o FlexiActiveXControls allows customers to create interfaces between
any Windows-based applications supporting COM (Component Object
Model) interface and FlexiFinancials modules, as well as to develop
custom interfaces for many FlexiFinancials processes using industry
standard tools, such as Visual Basic, Internet browser and Microsoft
Office applications.
o FlexiFIRE delivers high performance server-based reporting engine.
The application is extremely flexible in its inquiry capabilities
and can be used with all FlexiEnterpriseSuite applications as well
as with other relational databases for various software packages.
Financial Management Services
FlexiFMS provides the outsourcing of back office accounting processes.
Flexi handles the back office accounting functions remotely for clients who will
then have access to the data for financial management, analysis and reporting.
We believe that Flexi's experience with a broad range of accounting solutions
with its in-house managed installations as well as its ownership of the software
gives Flexi an advantage over other BPO providers.
International Operations
In June 1998, Flexi acquired The Dodge Group, a company specializing in
financial data warehouse solutions having its principal offices in the United
Kingdom. Flexi believes that the acquisition of The Dodge Group has given Flexi
a business and marketing presence in the United Kingdom's banking and financial
services industry and has helped Flexi to continue to maintain an international
business presence.
3
During the years ended December 31, 2002, 2001, and 2000, the Company's
international revenues were approximately 20.4%, 19.2%, and 18.9%, of total
revenues, respectively. The Company presently has customers in North America,
Europe, Asia, and South Africa.
Customers
The Company's customers include a wide range of financial institutions and
other organizations that require a high level of functionality from their
financial accounting software, including banks, insurance companies and other
financial services firms, as well as organizations in other industries such as
healthcare and technology. In each of the years ended December 31, 2002, 2001,
and 2000, two customers represented 10% or more of the Company's total revenues,
or an aggregate of 34.2%, 40.6%, and 38.2% of total revenues, respectively. The
two customers who each made up greater than 10% of the Company's revenue for the
year ended December 31, 2002 were Citigroup and McKesson Information Services.
Employees
As of December 31, 2002, the Company had 40 employees, 29 domestically and
11 internationally.
Item 2. Properties
Flexi is headquartered at Two Enterprise Drive, Shelton, Connecticut
06484, where it leases approximately 9,697 square feet under a lease expiring in
June 2008. In addition, Flexi maintains approximately 2,700 square feet of
leased office space in Bonita Springs, Florida, under a lease expiring in
December 2003 and 2,300 square feet in London, United Kingdom, under a lease
expiring in February 2005. Flexi believes that its leased space is sufficient
for its current operations.
Item 3. Legal Proceedings
On July 18, 2001, the Company filed for arbitration with the American
Arbitration Association in a royalty and enhancement fee dispute with its
healthcare industry reseller McKesson Information Services (formerly known as
McKesson/HBOC). The Company is continuing to negotiate with McKesson and expects
a final settlement agreement in the first half of 2003.
The Company is also a party to various disputes and proceedings arising
from the ordinary course of general business activities. The Company is also
finalizing a sales tax audit by the State of Connecticut involving past
acquisition of computer and related equipment. Although the final outcome of
these matters cannot be determined, we believe that these matters will not
seriously harm our business.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year ended December 31, 2002 there
were no matters submitted to a vote of security holders through the solicitation
of proxies or otherwise.
Item 4A. Executive Officers of the Company
The following individuals are the executive officers of Flexi as of
February 2003:
4
Name Age Position
- ---- --- --------
Stefan R. Bothe 54 Chairman of the Board,
Chief Executive Officer, President and Acting
Chief Financial Officer
Dmitry G. Trudov 30 Chief Technology Officer and
Vice President, Software Development
Maureen M. Okerstrom 41 Vice President, USA Sales
Mr. Bothe has served as Chairman of the Board and Chief Executive Officer
of the Company since March 1993 and has been Acting Chief Financial Officer
since August 2001. From November 1991 to February 1993, Mr. Bothe was President
and Chief Executive Officer of DSI Group N.V., a Dutch-based international
software company. From 1989 to 1991, Mr. Bothe was President and Chief Executive
Officer of GEAC Computer Corporation Limited, a software company. Prior to
joining GEAC, Mr. Bothe was President of the Application Products Division of
Computer Associates International, Inc., one of the largest software companies
in the industry. While at Computer Associates, Mr. Bothe held numerous senior
management positions, including President of the International Division,
President of the Micro Products Division and Senior Vice President of Marketing.
Mr. Trudov has served as Chief Technology Officer and Vice President,
Software Development responsible for software development, client services,
hotline support, quality assurance and MIS since August 2001. From April 2000 to
August 2001, Mr. Trudov served as the Company's Chief Technology Officer
responsible for all technical aspects of the Company including MIS, database
support, top-level support for Flexi customers, Company infrastructure and
technical input to the development team. Mr. Trudov also held the positions
within the Company of Manager, Technology Services from October 1999 to April
2000, Sales Support Engineer from 1998 to 1999 and Internet Development
Engineer/Webmaster and Pre-Sales Technical Engineer from 1996 to 1998.
Ms. Okerstrom has served as Vice President, USA Sales since January 2003.
She rejoined Flexi in June 2002 as Sales Manager. She is responsible for Flexi's
direct sales, partnership programs and BPO efforts. Ms. Okerstrom previously was
with Flexi from August 1994 to February 1999 in various sales management
positions. From February 1999 to June 2002 she held the position of Vice
President Sales of Alerio Corporation and then Vice President, Sales of Adivio
Corporation, a spin-off of Alerio Corporation. Ms. Okerstrom has also held sales
positions and sales management positions at IBM and Platinum Software.
Each officer serves at the discretion of the Board of Directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. With the exception of Mr. Bothe and Jennifer V.
Cheng, a director of the Company, who are husband and wife, there are no family
relationships among any of the executive officers or directors of the Company.
5
PART II
-------
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
The Company's Common Stock was traded on the Nasdaq National Market under
the symbol FLXI from December 12, 1997, the first trading day after the
Company's initial public offering was declared effective, through October 5,
1999, when, as a result of the Company's delisting from the Nasdaq National
Market, the stock began trading on the OTC Bulletin Board under the symbol
FLXI.OTC. The following table lists the high and low closing sales price for the
Company's Common Stock on the OTC bulletin board for the periods indicated:
Fiscal Year ended December 31, 2001(1)
--------------------------------------
High Low
---- ---
First Quarter........................... $0.20 $0.11
Second Quarter.......................... $0.21 $0.13
Third Quarter........................... $0.16 $0.09
Fourth Quarter.......................... $0.15 $0.08
Fiscal Year ended December 31, 2002(1)
--------------------------------------
High Low
---- ---
First Quarter........................... $0.09 $0.06
Second Quarter.......................... $0.10 $0.06
Third Quarter........................... $0.09 $0.05
Fourth Quarter.......................... $0.09 $0.05
- -----------
(1) The high and low prices may represent over-the-counter market quotations
that reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
As of March 1, 2003, the approximate number of holders of record of the
Company's Common Stock was 139. The number of holders of record of the Company's
Common Stock differs from the number of beneficial owners of such Common Stock
because a significant number of shares are held by depositories, brokers and
other nominees.
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion.
Equity Compensation Plan Information
(a) (b) (c)
Number of securities
remaining available for future
Number of securities to be issuance under equity
issued upon exercise of Weighted-average exercise compensation plans (excluding
outstanding options, warrants price of outstanding options, securities reflected in column
and rights warrants and rights (a))
Equity compensation plans
approved by security holders 1,305,435 $0.95 2,375,000
Equity compensation plans not
approved by security holders -- -- --
6
Item 6. Selected Historical Consolidated Financial Data
The following selected historical consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our audited consolidated financial
statements and related notes thereto included elsewhere in this Annual Report on
Form 10-K.
The selected historical consolidated financial data presented below as of
December 31, 2002, 2001, 2000, 1999, and 1998, and for the years then ended, are
derived from the consolidated financial statements of Flexi, which for 2002 and
2001 have been audited by Hill, Barth & King, LLC, for 2000 and 1999 by Deloitte
& Touche LLP, and for 1998 by PricewaterhouseCoopers LLP, independent certified
public accountants.
Years Ended December 31,
-------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(in thousands, except per share data)
Statement of Operations Data:
Revenues
Software license ............................ $ 839 $ 2,917 $ 4,112 $ 3,385 $ 10,542
Service and maintenance ..................... 6,119 6,598 8,324 12,169 13,754
Other operating revenue ..................... 500 -- -- -- --
-------- -------- -------- -------- --------
Total revenues ............. 7,458 9,515 12,436 15,554 24,296
-------- -------- -------- -------- --------
Cost of revenues:
Software license ............................ 155 684 636 586 1,757
Service maintenance ......................... 1,953 2,308 3,956 7,491 10,584
-------- -------- -------- -------- --------
Total cost of revenues ..... 2,108 2,992 4,592 8,077 12,341
-------- -------- -------- -------- --------
Gross Profit ............... 5,350 6,523 7,844 7,477 11,955
-------- -------- -------- -------- --------
Operating expenses:
Sales and marketing ......................... 1,591 2,552 1,632 5,919 11,233
Product development ......................... 1,439 1,616 2,689 6,887 10,752
General and administrative .................. 1,379 2,847 3,365 7,153 6,191
Goodwill impairment ......................... -- 862 -- 4,224 --
Restructuring charge ........................ -- -- -- 1,824 --
Acquired in-process research and development -- -- -- -- 1,890
-------- -------- -------- -------- --------
Total operating expenses ... 4,409 7,877 7,686 26,007 30,066
-------- -------- -------- -------- --------
Operating income (loss) ............................ 941 (1,354) 158 (18,530) (18,111)
Net interest income (expense)
(27) (29) (1) 49 880
-------- -------- -------- -------- --------
Income (loss) before income taxes .................. 914 (1,383) 157 (18,481) (17,231)
Income tax benefit ................................. (330) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) .................................. $ 1,244 $ (1,383) $ 157 $(18,481) $(17,231)
======== ======== ======== ======== ========
Income (loss) per share:
Basic ....................................... 0.07 ($0.08) $ 0.01 ($1.06) ($1.02)
======== ======== ======== ======== ========
Diluted ..................................... 0.07 ($0.08) $ 0.01 ($1.06) ($1.02)
======== ======== ======== ======== ========
Weighted average shares:
Basic ................................ 17,784 17,713 17,669 17,414 16,938
Diluted .............................. 17,784 17,713 17,669 17,414 16,938
7
Years Ended December 31,
-------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(in thousands, except per share data)
Balance Sheet Data:
Cash and cash equivalents........................... $ 892 $ 600 $ 1,389 $ 1,874 $ 7,876
Marketable securities............................... -- -- 108(1) -- 3,000
Working capital (deficit)........................... (1,952) (2,648) (3,304) (5,197) 7,497
Total assets........................................ 3,141 3,411 6,623 12,072 32,911
Stockholders' equity (deficit)...................... (1,677) (2,887) (1,515) (1,918) 16,614
- --------------
(1) Marketable securities are restricted.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read the following discussion together with the consolidated
financial statements and related notes appearing elsewhere in this Annual Report
on Form 10-K. This item contains forward-looking statements within the meaning
of section 27A of the Securities Act of 1933, as amended, and section 21E of the
Securities and Exchange Act of 1934, as amended, that involve risks and
uncertainties. Actual results may differ materially from those included in such
forward-looking statements. Factors which could cause actual results to differ
materially include those set forth under "Certain Factors that May Affect Future
Operating Results" commencing on page 14, as well as those otherwise discussed
in this section and elsewhere in this Annual Report on Form 10-K.
Overview
FlexiInternational Software, Inc., or Flexi or the Company, was organized
as a Connecticut corporation in 1990 and reincorporated in Delaware in 1993.
Flexi designs, develops, markets and supports the FlexiFinancial Enterprise
Suite of financial and accounting software applications and related tools. The
Flexi solution -- composed of FlexiFinancials, Flexi Financial Datawarehouse, or
FlexiFDW, FlexiInfoAccess and FlexiTools -- is designed to address the needs of
users with sophisticated financial accounting and operational analysis
requirements. We sell our software for use in traditional in-house accounting
operations as well as through our accounting outsourcing service to companies
desiring to outsource their back office accounting processes.
Our Financial Management Services solution, or FMS, a business process
outsourcing (BPO) service, is designed to leverage our suite of accounting
products and our expertise in back office processing of accounting data. We
believe that many mid-sized and start-up fast growing companies would benefit
substantially from outsourcing their back office accounting processes to enable
them to better focus on financial analysis, cash management and the strategic
issues of their business. As part of our BPO sales strategy to expand regional
coverage rapidly, we recruit regional resellers of our FMS solution which will
pay us a percentage of the fee they collect for using our software and related
solutions. Some resellers will handle the complete BPO service while others will
handle the client relationship and Flexi will handle the hosting and accounting
aspects of the service. In 2001, we signed a BPO reseller agreement in which we
provided the reseller a convertible loan, in the aggregate principal amount of
$272,000, to help launch the reseller's BPO service. According to industry
analysts, the finance and accounting outsourcing segment of the BPO market is in
the early adoption phase and is expected to continue to grow. However, we
believe the full acceptance of this solution is still several years away.
We derive our revenue primarily from:
o noncancellable software license agreements entered into with respect to
our products;
o royalties paid to us from third parties that distribute our products;
o to a lesser extent, third-party products distributed by us; and
o annual software maintenance agreements entered into with our customers.
8
Our revenues have been derived from both domestic sales and international
sales, with the international sales comprising 20.4% and 19.2% of total revenues
for 2002 and 2001, respectively. The international sales generally have the same
revenue and cost structure as our domestic sales. The majority of our
international sales are transacted in British pounds sterling, and an increase
in the value of the British pound relative to the currency of the country in
which we are selling our products could make our products more expensive and
potentially less competitive in these markets. In addition, our international
business may be subject to a variety of other risks, including difficulties in
collecting international accounts receivable or obtaining U.S. export licenses
for certain countries, the introduction of non-tariff barriers and higher duty
rates and fiscal and monetary policies that adversely affect non-native firms.
See "Certain Factors that May Affect Future Operating Results."
Critical Accounting Policies
Our significant accounting policies are more fully described in Note B to
our Consolidated Financial Statements. However, certain of our accounting
policies are particularly important to the portrayal and understanding of our
financial position and results of operations and require the application of
significant judgment by our management. As a result, these policies are subject
to an inherent degree of uncertainty. In applying these policies, the Company's
management uses its judgment in making certain assumptions and estimates. Our
critical accounting policies include:
o Revenue Recognition: Flexi recognizes license revenue upon shipment,
outsourcing and consulting services when they are performed and
annual maintenance contracts on a prorated monthly basis over the
term. However, revenues on all software license transactions in
which there are significant outstanding obligations are not
recognized until such obligations are fulfilled. Significant
obligations would include future promises of enhancements and/or
modifications that are essential to the product. Software license
royalties earned through our indirect sales channel are recognized
as such fees are reported to us. Revenues for maintaining,
supporting and providing periodic upgrading are deferred and
recognized ratably over the maintenance period, which is generally
one year. Revenues from training and consulting services are
recognized as such services are performed. Revenues from outsourcing
contracts are recognized monthly as the service is performed. We do
not require collateral for our receivables, and reserves are
maintained for potential losses.
o Product Development: Flexi charges all of its product development
expenses to operations in the period incurred. In accordance with
Statement of Financial Accounting Standards No. 86, Accounting for
the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed, Flexi, during the software development phase, evaluates
the technological feasibility of its various products. The time
period during which costs could be capitalized, from the point of
reaching technological feasibility until the time of general product
release is very short and, consequently, the amounts that could be
capitalized are not material to our financial position or results of
operations.
o Goodwill and Tangible Assets: Flexi reviews periodically its
goodwill and tangible assets for impairment and states them at cost
and amortizes them on a straight-line basis.
o Foreign Revenue: Flexi translates foreign revenue into U.S. dollars
at an average exchange rate.
o Cash Balances: Flexi maintains its cash balances in financial
institutions and invests excess cash in short-term interest bearing
instruments.
o Property and Equipment: Flexi evaluates periodically its equipment
and other properties for impairment and states them at cost less
accumulated depreciation.
9
Results of Operations
The following table sets forth certain financial data as a percentage of
revenues for the periods indicated.
Years Ended December 31,
-------------------------------
2002 2001 2000
------ ------ -----
Statement of Operations Data:
Revenues
Software License ............. 11.2% 30.7% 33.1%
Service and maintenance ...... 82.1% 69.3% 66.9%
Other operating revenue ...... 6.7% -- --
------ ------ ------
Total revenues ......... 100.0% 100.0% 100.0%
------ ------ ------
Cost of revenues:
Software license ............. 2.1% 7.2% 5.1%
Service maintenance .......... 26.2% 24.2% 31.8%
------ ------ ------
Total cost of revenues . 28.3% 31.4% 36.9%
------ ------ ------
Gross Profit ........... 71.7% 68.6% 63.1%
------ ------ ------
Operating expenses:
Sales and marketing .......... 21.3% 26.8% 13.1%
Product development .......... 19.3% 17.0% 21.6%
General and administrative ... 18.4% 29.9% 27.1%
Goodwill impairment .......... -- 9.1% --
------ ------ ------
Total operating expenses 59.0% 82.8% 61.8%
------ ------ ------
Operating income (loss) .............. 12.7% (14.2%) 1.3%
Net interest income (expense) ........ (.4%) (.3%) --
------ ------ ------
Income (loss) before income taxes .... 12.3% (14.5%) 1.3%
Income tax benefit ................... (4.4%) -- --
------ ------ ------
Net income (loss) .................... 16.7% (14.5%) 1.3%
====== ====== ======
- --------------
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Revenues. Total revenues, consisting of software license revenues and
service and maintenance revenues, decreased 21.6%, from $9.5 million for the
year ended December 31, 2001 to $7.5 million for the year ended December 31,
2002. Domestic revenues, those derived from sales in the U.S. decreased 22.8%
from $7.7 million for the year ended December 31, 2001 to $5.9 million for the
year ended December 31, 2002. International revenues, those derived from sales
outside of the U.S., decreased 16.8% from $1.8 million for the year ended
December 31, 2001 to $1.5 million for the year ended December 31, 2002.
Software license revenues decreased 71.2%, from $2.9 million for the year
ended December 31, 2001 to $0.8 million for the year ended December 31, 2002.
The decrease is primarily due to a significant reduction in royalties from our
resellers and lack of new license activity with respect to our products.
Service and maintenance revenues decreased 7.3%, from $6.6 million for the
year ended December 31, 2001 to $6.1 million for the year ended December 31,
2002. The decrease was attributable primarily to lower service revenue due to
fewer active implementations of our products in 2002.
Other operating revenue for the year ended December 31, 2002 is $500,000
from the sale of our rights to the URL dodge.com in the first quarter. This was
a one-time sale.
Cost of Revenues. The Company's cost of revenues consists of cost of
software license revenues and cost of service and maintenance revenues. Cost of
software license revenues consists primarily of the cost of third-party software
products distributed
10
by the Company and the cost of product media, manuals and shipping. Cost of
service and maintenance revenues consists of the cost of providing consulting,
implementation and training to licensees of the Company's products and the cost
of providing software maintenance to customers, technical support services and
periodic upgrades of software.
Cost of software license revenues decreased 77.3%, from $684,000 for the
year ended December 31, 2001 to $155,000 for the year ended December 31, 2002.
Cost of software license revenues as a percentage of software license revenues
decreased from 23.4% for the year ended December 31, 2001 to 18.5% for the year
ended December 31, 2002. The decrease in cost of revenues in dollars was
primarily due to a decrease in new software activations requiring third-party
software products distributed by the Company. The decrease in cost of revenue as
a percentage of software license revenues was primarily due to a decrease in the
proportion of third-party products sold as a percentage of total license fees.
Cost of service and maintenance revenues decreased 15.4%, from $2.3
million for the year ended December 31, 2001 to $2.0 million for the year ended
December 31, 2002. The decrease of such costs resulted primarily from reduced
staffing levels in the consulting organization, as the costs of this
organization were reduced to a level consistent with anticipated revenues. Cost
of service and maintenance revenues as a percentage of service and maintenance
revenues decreased from 35.0% for the year ended December 31, 2001 to 32.0% for
the year ended December 31, 2002, due to the aforementioned alignment of costs
to anticipated revenues (see "Revenues" above and "Restructuring" below).
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, travel and promotional expenses, and facility and
communication costs for direct sales offices. Sales and marketing expenses
decreased 37.7%, from $2.6 million for the year ended December 31, 2001 to $1.6
million for the year ended December 31, 2002. The decrease in dollar amount was
primarily attributable to decreased staffing levels in the sales and marketing
organization to a level consistent with anticipated revenue generation. Sales
and marketing expenses as a percentage of total revenues decreased from 26.8%
for the year ended December 31, 2001 to 21.3% for the year ended December 31,
2002. This decrease was primarily due to the aforementioned staff decreases.
Product Development. Product development expenses include software
development costs and consist primarily of engineering personnel costs. The
Company has made significant investments in product development in the past
several years to bring its suite of component-based, object-oriented financial
accounting products to market.
Product development expenses decreased 11.0%, from $1.6 million for the
year ended December 31, 2001 to $1.4 million for the year ended December 31,
2002. Product development expenses as a percentage of total revenues increased
from 17.0% for the year ended December 31, 2001 to 19.3% for the year ended
December 31, 2002. This decrease in product development expense was due
primarily to maintaining a "standard level" of product development staffing with
decreasing revenue. The Company expects to continue to enhance the functionality
of its core financial accounting and reporting applications and its BPO
solution, but does not anticipate the need to materially increase its
development staff from its current levels.
General and Administrative. General and administrative expenses consist
primarily of salaries of executive, administrative and financial personnel, as
well as provisions for doubtful accounts, amortization of goodwill and outside
professional fees. General and administrative expenses decreased 51.7%, from
$2.8 million for the year ended December 31, 2001 to $1.4 million for the year
ended December 31, 2002 due to reductions in administrative staffing. General
and administrative expenses as a percentage of total revenues decreased from
29.9% for the year ended December 31, 2001 to 18.4% for the year ended December
31, 2002.
Goodwill Impairment. During September 2001 management conducted a periodic
impairment assessment of the intangible assets resulting from The Dodge Group
acquisition. As a result of that review, expected future revenue and cash flows
from the acquired The Dodge Group business were revised downward significantly,
causing the impairment of goodwill. Management concluded that an impairment had
occurred with the goodwill and an $862,000 write down of goodwill to a zero
carrying value was recorded in the third quarter of 2001.
Interest Income and Interest Expense. Interest income represents income
earned on the Company's cash and cash equivalents. Net interest expense
decreased slightly from $29,000 for the year ended December 31, 2001 to $27,000
for the year ended December 31, 2002 and represents interest expense on capital
equipment leases less interest income on investable cash balances.
11
Income Taxes. Due to a strong net income for the year ended December 31,
2002, Flexi recaptured $330,000 of previously recorded valuation allowance
against deferred income taxes. No provision or benefit for federal, state or
foreign income taxes was made for the year ended December 31, 2001 due to the
operating losses incurred in the period. The Company has reported only tax
losses to date and consequently has approximately $40.3 million and $27.0
million of U.S. and foreign net operating loss carryforwards, respectively,
which expire during the years 2005 through 2021, available to offset future
taxable income. The utilization of such net operating losses is subject to
limitations as a result of ownership changes. The annual limitation and the
timing of attaining profitability will result in the expiration of net operating
loss carryforwards before utilization. The Company's deferred tax assets at
December 31, 2002 were $28.3 million, consisting primarily of net operating loss
carryforwards. The Company's benefit of deferred tax assets has been reserved as
of December 31, 2002 in the amount of $28.0 million as the realization of
deferred taxes is dependent on future events and earnings, if any, the timing
and extent of which are uncertain.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Revenues. Total revenues, consisting of software license revenues and
service and maintenance revenues, decreased 23%, from $12.4 million for the year
ended December 31, 2000 to $9.5 million for the year ended December 31, 2001.
Domestic revenues, those derived from sales in the U.S. decreased 23.7% from
$10.1 million for the year ended December 31, 2000 to $7.7 million for the year
ended December 31, 2001. International revenues, those derived from sales
outside of the U.S., decreased 22.5% from $2.4 million for the year ended
December 31, 2000 to $1.8 million for the year ended December 31, 2001.
Software license revenues decreased 29.3%, from $4.1 million for the year
ended December 31, 2000 to $2.9 million for the year ended December 31, 2001.
The decrease is primarily due to a significant reduction in royalties from our
software resellers and lack of new license activity with respect to our
products. License revenue for the year ended December 31, 2000 included
recognizing revenue from the performance of prior years' contracts. Software
license revenue for the year ended December 31, 2000 included $1.1 million of
previously deferred income from a former customer, which accounted for
approximately 26.8% of total year to date software revenue.
Service and maintenance revenues decreased 20.5%, from $8.3 million for
the year ended December 31, 2000 to $6.6 million for the year ended December 31,
2001. The decrease was attributable primarily to lower service revenue due to
fewer active implementations of our products in 2001.
Cost of Revenues. The Company's cost of revenues consists of cost of
software license revenues and cost of service and maintenance revenues. Cost of
software license revenues consists primarily of the cost of third-party software
products distributed by the Company and the cost of product media, manuals and
shipping. Cost of service and maintenance revenues consists of the cost of
providing consulting, implementation and training to licensees of the Company's
products and the cost of providing software maintenance to customers, technical
support services and periodic upgrades of software.
Cost of software license revenues increased 7.5%, from $636,000 for the
year ended December 31, 2000 to $684,000 for the year ended December 31, 2001.
Cost of software license revenues as a percentage of software license revenues
increased from 15.4% for the year ended December 31, 2000 to 23.4% for the year
ended December 31, 2001. The increase in cost of revenues in dollars was
primarily due to an increase in third-party software products distributed by the
Company. The increase in cost of revenue as a percentage of software license
revenues was primarily due to an increase in the proportion of third-party
products sold as a percentage of total license fees.
Cost of service and maintenance revenues decreased 42.5%, from $4.0
million for the year ended December 31, 2000 to $2.3 million for the year ended
December 31, 2001. The decrease in the dollar amount of such costs resulted
primarily from reduced staffing levels in the consulting organization, as the
costs of this organization were reduced to a level consistent with anticipated
revenues. Cost of service and maintenance revenues as a percentage of service
and maintenance revenues decreased from 47.5% for the year ended December 31,
2000 to 34.8% for the year ended December 31, 2001, due to the aforementioned
alignment of costs to anticipated revenues (see "Revenues" above and
"Restructuring" below).
12
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, travel and promotional expenses, and facility and
communication costs for direct sales offices. Sales and marketing expenses
increased 62.5%, from $1.6 million for the year ended December 31, 2000 to $2.6
million for the year ended December 31, 2001. The increase in dollar amount was
primarily attributable to increased staffing levels in the sales and marketing
organization to mount a BPO sales effort in the first half of 2001 which
included the hiring of a Vice-President of Sales. The costs of this organization
were reduced in the second half to a level consistent with anticipated revenues.
Sales and marketing expenses as a percentage of total revenues increased from
13.1% for the year ended December 31, 2000 to 27.4% for the year ended December
31, 2001. This increase was primarily due to the aforementioned staff increases.
Product Development. Product development expenses include software
development costs and consist primarily of engineering personnel costs. The
Company has made significant investments in product development in the past
several years to bring its suite of component-based, object-oriented financial
accounting products to market.
Product development expenses decreased 40.7%, from $2.7 million for the
year ended December 31, 2000 to $1.6 million for the year ended December 31,
2001. Product development expenses as a percentage of total revenues decreased
from 21.6% for the year ended December 31, 2000 to 16.8% for the year ended
December 31, 2001. This decrease in product development expense was due
primarily to the decrease in development personnel as a result of the completion
of development work on FlexiFinancials Release 4.3 during 2001. The Company
expects to continue to enhance the functionality of its core financial
accounting and reporting applications and its BPO solution.
General and Administrative. General and administrative expenses consist
primarily of salaries of executive, administrative and financial personnel, as
well as provisions for doubtful accounts, amortization of goodwill and outside
professional fees. General and administrative expenses decreased 17.6%, from
$3.4 million for the year ended December 31, 2000 to $2.8 million for the year
ended December 31, 2001 due to reduction in legal expenses and executive
compensation. General and administrative expenses as a percentage of total
revenues increased slightly from 27.1% for the year ended December 31, 2000 to
29.9% for the year ended December 31, 2001.
Goodwill Impairment. During September 2001 management conducted a periodic
impairment assessment of the intangible assets resulting from The Dodge Group
acquisition. As a result of that review, expected future revenue and cash flows
from the acquired The Dodge Group business were revised downward significantly,
causing the impairment of goodwill. Management concluded that an impairment had
occurred with the goodwill and an $862,000 write down of goodwill to a zero
carrying value was recorded in the third quarter of 2001.
Interest Income and Interest Expense. Interest income represents income
earned on the Company's cash, cash equivalents and marketable securities. Net
interest expense increased from $1,000 for the year ended December 31, 2000 to
$29,000 for the year ended December 31, 2001 representing interest expense on
capital equipment leases and less interest earned on investable cash balances
available to the Company during 2001.
Income Taxes. No provision or benefit for federal, state or foreign income
taxes was made for the years ended December 31, 2001 or 2000 due to the
operating losses incurred in the respective periods. The Company has reported
only tax losses to date and consequently has approximately $40.3 million and
$27.0 million of U.S. and foreign net operating loss carryforwards,
respectively, which expire during the years 2005 through 2021, available to
offset future taxable income. The utilization of such net operating losses is
subject to limitations as a result of ownership changes. The annual limitation
and the timing of attaining profitability will result in the expiration of net
operating loss carryforwards before utilization. The Company's deferred tax
assets at December 31, 2001 were $29.3 million, consisting primarily of net
operating loss carryforwards. The Company's benefit of deferred tax assets has
been fully reserved as of December 31, 2001 as the realization of deferred taxes
is dependent on future events and earnings, if any, the timing and extent of
which are uncertain.
Liquidity and Capital Resources
13
Since inception, the Company has primarily financed its operations through
private placements of its capital stock, issuance of convertible promissory
notes and loans, equipment financing and other traditional borrowing
arrangements. In addition, in December 1997 Flexi consummated an initial public
offering of common stock.
For the past three years, however, Flexi has funded its operations
primarily through cash received from license and royalty revenues, annual
maintenance contracts, and consulting services provided to its clients.
Maintenance fees represented approximately 64% of the cash resources of the
Company for fiscal 2002 and are expected to average $246,000 per month in 2003.
Given the critical nature of software to our customers' business, most
maintenance contracts are renewed regularly and cancellations are usually due to
circumstances such as mergers and acquisitions of Flexi clients with companies
that are using a competing product. For instance, Flexi was notified in 2002
that due to its client Citibank's merger with the Travellers, Citibank intends
to move to another accounting solution as part of its strategic plan. The loss
of Citibank as a customer negatively impacted Flexi's maintenance revenues by
$142,000 in 2002 and could negatively impact maintenance revenues by $995,000 in
2003.
As of December 31, 2002, the Company had cash and cash equivalents of
$892,000, an increase of $292,000 from December 31, 2001. The Company's working
capital deficit at December 31, 2002 was $2.0 million, compared to a working
capital deficit of $2.6 million at December 31, 2001.
The Company's operating activities resulted in net cash inflow of $0.8
million for the year ended December 31, 2002 which was mainly the result of the
net income from the sale of the Internet URL www.Dodge.com. The Company's
investing activities resulted in net cash outflows of $0.3 million for the year
ended December 31, 2002, which was primarily related to the purchase of property
and equipment. At December 31, 2002, the Company had no material commitments for
capital expenditures. During the year ended December 31, 2002, the Company had
net cash outflows from financing activities of $0.2 million, which was primarily
related to payments of capital lease obligations and repayments of debt.
Flexi's contractual cash obligations are outlined in the table below
including its equipment lease and office rental obligations, as well as payments
due under payment terms negotiated with companies for current debt and
settlements of payment disputes. These cash obligations are expected to amount
to approximately $89,000 per month for fiscal 2003. Flexi also has an
arbitration award of $331,000 against the Company which the Company has agreed
to pay over 24 months starting March 2003. Where appropriate, Flexi will seek to
negotiate extended payment terms with respect to its financial obligations.
Payments Due by Period
(in thousands)
Less than
1 year 1-3 years 4-5 years After 5
Contractual Obligations Total years
- ----------------------- ---------- ---------- --------- --------- --------
Facilities Obligation .............. $ 745.9 $ 279.8 $ 241.5 $ 177.3 $ 47.3
Capital Lease Obligation ........... 283.0 283.0 -- -- --
Operating Leases ................... 21.8 21.8 -- -- --
Other Obligations .................. 1,309.7 451.5 469.9 120.0 268.3
-- -- --
---------- ---------- -------- -------- --------
Total Contractual Cash Obligations . $ 2,360.4 $ 1,036.1 $ 711.4 $ 297.3 $ 315.6
========== ========== ======== ======== ========
During the year ended December 31, 2002, the Company has not engaged in:
o material off-balance sheet activities, including the use of
structured finance or special purpose entities;
o trading activities in non-exchange traded contracts; or
o transactions with persons or entities that benefit from their
non-independent relationship with the Company.
Certain Factors that May Affect Future Operating Results
14
Accumulated Deficit; Net Losses. The Company had an accumulated deficit of
$58.2 million at December 31, 2002 and a net income of $1.2 million for the year
ended December 31, 2002, incurred a net loss of $1.4 million during 2001 and
earned net income of $0.2 million in 2000. Since inception in 1990, the Company
has only been profitable for all four quarters in 2002, three quarters during
the year 2001, the full year of 2000 and during the last two quarters of 1997.
There can be no assurance that the Company will achieve profitability on a
consistent basis, or at all in the future. As of December 31, 2002, management
of the Company evaluated the positive and negative evidence impacting the
realizability of its deferred tax assets, which consist principally of net
operating loss carryforwards. Management has considered the history of losses
and concluded that, as of December 31, 2002, it is more likely than not that the
Company will not generate sufficient taxable income prior to the expiration of
the net operating losses during the years 2005 through 2021. Accordingly, the
Company has recorded a nearly full valuation allowance for its deferred tax
assets at December 31, 2002.
If our FMS Solution does not gain market acceptance, our business will be
adversely affected. The growth of our business will depend largely on the
successful implementation of our recently introduced FMS solution. This solution
is a business processing outsource service or BPO, which we anticipate will
allow us to leverage our suite of accounting software products and our expertise
in back office processing of accounting data. We expect to derive a portion of
our revenues in the future from our BPO service in conjunction with our existing
software suites. If our BPO service does not gain market acceptance, our
revenues may decline and our business may be adversely affected. Factors that
may affect the market acceptance of our BPO service, some of which are beyond
our control, may include:
the growth, acceptance and changing requirements in the BPO industry;
the performance, quality and price of our new service and our existing
product suites; and
the availability, price, quality and performance of competing products
and services.
Potential Fluctuations in Quarterly Performance; Seasonality. The
Company's revenues and operating results have varied substantially from quarter
to quarter. The Company's quarterly operating results may continue to fluctuate
due to a number of factors, including the timing, size and nature of the
Company's licensing transactions; the market acceptance of new services,
products or product enhancements by the Company or its competitors; product and
price competition; the relative proportions of revenues derived from license
fees, services and third-party channels; changes in the Company's operating
expenses; personnel changes; the timing of the introduction and the performance
of the Company's Flexi Industry Partners; foreign currency exchange rates; and
fluctuations in economic and financial market conditions.
The timing, size and nature of individual licensing transactions are
important factors in the Company's quarterly results of operations. Many such
transactions involve large dollar amounts, and the sales cycles for these
transactions are often lengthy and unpredictable. In addition, the sales cycles
associated with these transactions are subject to a number of uncertainties,
including customers' budgetary constraints, the timing of customers' budget
cycles and customers' internal approval processes. There can be no assurance
that the Company will be successful in closing such large transactions on a
timely basis or at all. Software license revenues under the Company's license
agreements are recognized upon delivery and installation of the product and when
all significant contractual obligations have been satisfied. Significant
obligations would include future promises of enhancements and/or modification
that are essential to the product. Delays in the installation of the Company's
software, including potential delays associated with contractual enhancements to
the Company's software products, could materially adversely affect the Company's
quarterly results of operations. In addition, as the Company derives a
significant proportion of total revenues from license revenues, the Company may
realize a disproportionate amount of its revenues and income in the last month
of each quarter and, as a result, the magnitude of quarterly fluctuations may
not become evident until late in, or at the end of, a given quarter.
Accordingly, delays in product delivery and installation or in the closing of
sales near the end of a quarter could cause quarterly revenues and, to a greater
degree, results of operations to fall substantially short of anticipated levels.
The Company's expense levels are based, in significant part, on its
expectations as to future revenues and are largely fixed in the short term. As a
result, the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected shortfall in revenues. Accordingly, any
significant shortfall of revenues in relation to the Company's expectations
would have an immediate and material adverse effect on the Company's business,
financial condition and results of operations.
15
The Company has experienced, and may experience in the future, significant
seasonality in its business, and the Company's financial condition or results of
operations may be affected by such trends in the future. In past years, the
Company had greater demand for its products in its fourth quarter and has
experienced lower revenues in its succeeding first quarter. These fluctuations
are caused primarily by pressures on prospects to complete purchases before
year-end to achieve their goals and use the allocated budgets.
Due to all of the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and that such comparisons cannot be relied upon as indicators of
future performance. There can be no assurance that future revenues and results
of operations will not vary substantially. It is also possible that in some
future quarter the Company's results of operations will be below the
expectations of public market analysts and investors. In either case, the price
of the Company's Common Stock could be materially adversely affected.
Dependence on Key Personnel. The Company's performance depends
substantially on the performance of its Chief Executive Officer, Stefan R.
Bothe. The Company has experienced significant turnover in its management and is
therefore operating with a limited group of executive officers and key
employees. In addition, the Company has experienced personnel turnover with
respect to its sales force and software professionals. The Company is dependent
on its ability to attract, retain and motivate high-quality personnel,
especially its management, sales staff and highly skilled development team. The
loss of the services of any of the Company's executive officers or other key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company maintains a key
person insurance policy on Stefan R. Bothe.
Lengthy Sales Cycle. The Company's software is often used for
business-critical purposes, and its implementation involves significant capital
commitments by customers. Potential customers generally commit significant
resources to an evaluation of available software and require the Company to
expend substantial time, effort and money educating potential customers about
the value of the Company's solutions. Sales of the Company's software products
requires an extensive education and marketing effort throughout a customer's
organization because decisions to license such software generally involve the
evaluation of the software by a significant number of customer personnel in
various functional and geographic areas, each having specific and often
conflicting requirements. A variety of factors, including factors over which the
Company has little or no control, may cause potential customers to favor a
competing vendor or to delay or forego a purchase. As a result of these or other
factors, the sales cycle for the Company's products is long, typically ranging
between three and nine months. Due to the length of the sales cycle for its
software products, including delays in implementing the Company's software
across several functional and geographic areas of an organization, the Company's
ability to forecast the timing and amount of specific sales is limited, and the
delay or failure to complete one or more large license transactions could have a
material adverse effect on the Company's business, financial condition or
results of operations.
Product Concentration. To date, substantially all of the Company's
revenues have been attributable to the licensing of its FlexiFinancials,
FlexilnfoAccess and FlexiTools financial accounting products and the provision
of consulting, training and software installation services in connection
therewith. Although Flexi is working to implement its BPO service, the Company
currently expects that the licensing of its financial accounting software, and
the provision of related services, will account for a substantial portion of its
revenues in the near future. As a result, factors adversely affecting the
pricing of or demand for such products and services, such as competition or
technological change, could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's future
financial performance will depend, in significant part, on the continued market
acceptance of the Company's existing products and the successful development,
introduction and customer acceptance of new and enhanced versions of its
software products and services. There can be no assurance that the Company will
be successful in developing and marketing its financial accounting products.
Rapid Technological Change and Evolving Market. The market for the
Company's products and services is characterized by rapidly changing technology,
evolving industry standards and new product introductions and enhancements that
may render existing products obsolete or less competitive. As a result, the
Company's position in the financial applications software market could erode
rapidly due to unforeseen changes in the features and functionality of competing
products, as well as the pricing models for such products. The Company's future
success will depend in part upon the widespread adoption of object-oriented,
component-based standards and the development of the Internet as a viable
commercial marketplace, as well as the Company's ability to enhance its existing
products and services and to develop and introduce new products and services to
meet changing customer requirements.
16
The process of developing products and services such as those offered by the
Company is extremely complex and is expected to become increasingly complex and
expensive in the future with the introduction of new platforms and technologies.
In addition, the Company has on occasion experienced delays in the scheduled
release of software products or the porting of such products to specific
platforms or configurations. There can be no assurance that an object-oriented,
component-based standards will be adopted, or that the Company will successfully
complete the development of new products in a timely fashion or that the
Company's current or future products will satisfy the needs of potential
customers.
Concentration of Customers. Historically, a limited number of customers
have accounted for a significant percentage of the Company's revenues in each
year. During the years ended December 31, 2002, 2001, and 2000, two customers
each represented 10% or more of the Company's total revenues (or an aggregate of
34.2%, 40.6%, and 38.2%, of total revenues in each of these years,
respectively). The Company anticipates that its results of operations in any
given period will continue to depend to a significant extent upon revenues from
a small number of customers. The failure of the Company to enter into a
sufficient number of licensing agreements during a particular period could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Competition. The market for the Company's products and services is
intensely competitive and is characterized by rapid change in technology and
user needs and the frequent introduction of new products. In recent quarters,
the Company has been observing increasingly aggressive pricing practices and/or
unusual terms and conditions offered to customers by its competitors, and
increasing competition in the middle market from competitors which previously
focused principally on larger corporations. A number of the Company's
competitors are more established, benefit from greater name recognition and have
substantially greater financial, technical and marketing resources than the
Company and its partners and distributors. In addition, the Company's partners
may develop or offer products and services that compete with the Company's
products and services. There can be no assurance that the Company's partners
will not give higher priority to the sales of these or other competitive
products and services. There can be no assurance that the Company will be able
to compete successfully against current and future competitors or that
competitive pressures faced by the Company will not materially adversely affect
its business, financial condition and results of operations.
Potential for Product Liability. The Company's license agreements with its
customers typically contain provisions designed to limit the Company's exposure
to potential product liability claims. It is possible, however, that the
limitation of liability provisions contained in the Company's license agreements
may not be effective under the laws of certain jurisdictions. The sale and
support of products by the Company and its partners may entail the risk of such
claims, and there can be no assurance that the Company will not be subject to
such claims in the future. The Company attempts to limit contractually its
liability for damages arising from negligent acts, errors, mistakes or omissions
in rendering its products and services. Despite this precaution, there can be no
assurance that the limitations of liability set forth in its contracts would be
enforceable or would otherwise protect the Company from liability for damages.
The Company maintains general liability insurance coverage, including coverage
for errors or omissions. However, there can be no assurance that such coverage
will continue to be available on acceptable terms, or will be available in
sufficient amounts to cover one or more large claims, or that the insurer will
not disclaim coverage as to any future claim. The successful assertion of one or
more large claims against the Company that exceed available insurance coverage
or changes in the Company's insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, litigation with respect to liability claims,
regardless of its outcome, could result in substantial cost to the Company and
divert management's attention from the Company's operations. Any product
liability claim or litigation against the Company could, therefore, have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company has included security features in its products that are
intended to protect the privacy and integrity of customer data. Despite the
existence of these security features, the Company's software products may be
vulnerable to break-ins and similar disruptive problems. Such computer break-ins
and other disruptions may jeopardize the security of information stored in and
transmitted through the computer systems of the Company's customers, which may
result in loss of or delay in market acceptance of the Company's products.
Addressing these evolving security issues may require significant expenditures
of capital and resources by the Company, which may have a material adverse
effect on the Company's business, financial condition or results of operations.
Software Errors or Bugs. The Company's software products are highly
complex and sophisticated and could from time to time contain design defects or
software errors that could be difficult to detect and correct. Although the
Company has not experienced
17
material adverse effects resulting from any software errors, bugs or viruses,
there can be no assurance that, despite testing by the Company and its
customers, errors will not be found in new or existing products, which errors
could result in a delay in or inability to achieve market acceptance and thus
could have a material adverse impact upon the Company's business, financial
condition and results of operations.
Limited Protection of Proprietary Rights. The Company's success is heavily
dependent upon its proprietary technology. The Company relies on a combination
of copyright, trademark and trade secret laws and license agreements to
establish and protect its rights in its software products and other proprietary
technology. In addition, the Company currently requires its employees and
consultants to enter into nondisclosure agreements to limit use of, access to
and distribution of its proprietary information. There can be no assurance that
the Company's means of protecting its proprietary rights in the United States or
abroad will be adequate to prevent misappropriation. Also, despite the steps
taken by the Company to protect its proprietary rights, it may be possible for
unauthorized third parties to copy aspects of the Company's products, reverse
engineer such products, develop similar technology independently or obtain and
use information that the Company regards as proprietary.
In the future, the Company may receive notice of claims of infringement of
other parties' proprietary rights. Although the Company does not believe that
its products infringe the proprietary rights of third parties, there can be no
assurance that infringement or invalidity claims (or claims for indemnification
resulting from infringement claims) will not be asserted or prosecuted against
the Company or that any such assertions or prosecutions will not materially
adversely affect the Company's business, financial condition or results of
operations.
Dependence on Third-Party Technology. The Company's proprietary software
is currently designed, and may in the future be designed, to work on or in
conjunction with certain third-party hardware and/or software products. If any
of these current or future third-party vendors were to discontinue making their
products available to the Company or to licensees of the Company's software or
to increase materially the cost for the Company or its licensees to acquire,
license or purchase the third-party vendors' products, or if a material problem
were to arise in connection with the ability of the Company to design its
software to properly use or operate with any third-party hardware and/or
software products, the Company may be required to identify additional sources
for such products. In such an event, interruptions in the availability or
functioning of the Company's software and delays in the introduction of new
products and services may occur until equivalent technology is obtained. There
can be no assurance that an alternative source of suitable technology would be
available or that the Company would be able to develop an alternative product in
sufficient time or at a reasonable cost. The failure of the Company to obtain or
develop alternative technologies or products on a timely basis and at a
reasonable cost could have a material adverse effect on the Company's business,
financial condition and results of operations.
Risks Associated with Third-Party Channels. The Company addresses certain
vertical and geographic markets through its partners. The Company relies on its
third-party channels to provide sales and marketing presence and name
recognition, as well as the resources necessary to offer industry-specific
financial accounting solutions. Although the Company expects to dedicate
significant resources to develop its partners, there can be no assurance that
the Company will be able to attract and retain qualified firms in its targeted
vertical markets. The failure of the Company to maintain its current third-party
channels or find other third-party channels, the Company's inability to
adequately support such channels, the development of competitive products and
services by the Company's third-party channels or the entry by such firms into
alliances with competitors of the Company would substantially limit the
Company's ability to provide its products and services and, accordingly, have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company has attempted to seek partners in
distinct vertical markets and distributors in distinct geographic markets, and
to manage them in a manner to avoid potential channel conflicts, there can be no
assurance that channel conflicts may not develop. Any such conflicts may
adversely affect the Company's relationship with third-party channels or
adversely affect its ability to develop new channels.
Risks Associated with International Operations. The Company's
international sales represented approximately 20.4%, 19.2%, and 18.9% of total
revenues during 2002, 2001, and 2000, respectively. The Company's international
presence increased by virtue of its acquisition of The Dodge Group. As a result
of the acquisition the Company now has an office in London and distributors in
Hong Kong and Japan. There can be no assurance that the Company will be able to
maintain or increase international market demand for the Company's products and
services. The Company's international sales are generally denominated in British
pounds. An increase in the value of the British pound relative to foreign
currencies could make the Company's products more expensive and,
18
therefore, potentially less competitive in those markets. Currently, the Company
does not employ currency-hedging strategies to reduce this risk. In addition,
the Company's international business may be subject to a variety of risks,
including difficulties in collecting international accounts receivable or
obtaining U.S. export licenses, potentially longer payment cycles, increased
costs associated with maintaining international marketing efforts, the
introduction of non-tariff barriers and higher duty rates and difficulties in
enforcement of contractual obligations and intellectual property rights. There
can be no assurance that such factors will not have a material adverse effect on
the Company's future international sales and, consequently, on the Company's
business, financial condition or results of operations.
Risks Associated with the European Monetary Union ("EMU"). The Company's
internal business information systems are comprised of the same commercial
application software products generally offered for license by the Company to
end user customers. The Company's latest software release contains EMU
functionality that allows for dual currency reporting and information
management. The Company is not aware of any material operational issues or costs
associated with preparing internal systems for the EMU. However, the Company
utilizes other third party software products that may or may not be EMU
compliant. Although the Company is currently taking steps to address the impact,
if any, of EMU compliance for such third party products, failure of any critical
technology components to operate properly post EMU may have an adverse impact on
business operations or require the Company to incur unanticipated expenses to
remedy any problems.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Market risk refers to the potential effects of unfavorable changes in
certain prices and rates on the Company's financial results and conditions,
primarily foreign currency exchange rates. The Company does not utilize
derivative instruments in managing its exposure to such changes. The Company
does not believe that near-term changes in foreign currency exchange rates will
have a material effect on its future earnings, fair values or cash flows.
Item 8. Financial Statements And Supplementary Data
FlexiInternational Software, Inc.
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Report............................................... 20
Independent Auditors' Report............................................... 21
Consolidated Balance Sheets as of December 31, 2002 and 2001............... 22
Consolidated Statements of Operations for the years ended December
31, 2002, 2001 and 2000................................................. 23
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 2002, 2001 and 2000..................................... 24
Consolidated Statements of Cash Flows for the years ended December 31,
2002, 2001 and 2000..................................................... 25
Notes to Consolidated Financial Statements................................. 26
Independent Auditors' Report on Financial Statement Schedule............... 41
Independent Auditors' Report on Financial Statement Schedule............... 42
Schedule II - Valuation and Qualifying Accounts............................ 43
19
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
FlexiInternational Software, Inc.
Bonita Springs, Florida
We have audited the accompanying consolidated balance sheets of
FlexiInternational Software, Inc. and subsidiary (the "Company") as of December
31, 2002 and 2001 and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
FlexiInternational Software Limited as of and for the year ended December 31,
2002. Such statements are included in the consolidated financial statements of
FlexiInternational Software, Inc. and subsidiary and represent 20% of
consolidated revenues for the year ended December 31, 2002. The financial
statements for FlexiInternational Software Limited were audited by other
auditors whose report has been furnished to us and our opinion, insofar as it
relates to amounts for FlexiInternational Software Limited, for 2002 is based
solely upon the report of the other auditors.
We conducted our audits in accordance with U.S. generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other auditors
for 2002 provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors
for 2002, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
FlexiInternational Software, Inc. and subsidiary as of December 31, 2002 and
2001 and the consolidated results of its operations and their consolidated cash
flows for the years then ended in conformity with U.S. generally accepted
accounting principles.
/s/ HILL, BARTH & KING LLC
Hill, Barth & King LLC
Certified Public Accounts
Naples, Florida
January 22, 2003, except for Note N,
as to which the date is March 4, 2003
20
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
FlexiInternational Software, Inc.
Shelton, Connecticut
We have audited the accompanying consolidated statements of operations,
stockholders' deficit, and cash flows of FlexiInternational Software, Inc. and
subsidiary (the "Company") for the year ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of
FlexiInternational Software, Inc. and subsidiary for the year ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States of America.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Hartford, Connecticut
February 27, 2001
21
FlexiInternational Software, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
(in thousands, except share data)
2002 2001
-------- --------
A S S E T S
-----------
CURRENT ASSETS
Cash and cash equivalents ................................................. $ 892 $ 600
Interest bearing deposits ................................................. 37 37
Accounts receivable, net of allowance for doubtful accounts of
$76 and $22, respectively ............................................... 1,034 1,954
Prepaid expenses and other current assets ................................. 92 126
-------- --------
TOTAL CURRENT ASSETS 2,055 2,717
-------- --------
PROPERTY AND EQUIPMENT (NOTE G) ............................................... 295 418
OTHER ASSETS
Convertible promissory note receivable (Note F) ........................... 272 85
Deposits .................................................................. 189 191
Deferred taxes ............................................................ 330 --
-------- --------
TOTAL OTHER ASSETS 791 276
-------- --------
$ 3,141 $ 3,411
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable .......................................................... $ 308 $ 511
Accrued commissions ....................................................... 14 21
Accrued expenses .......................................................... 594 1,207
Deferred revenue .......................................................... 2,480 3,478
Current portion of long-term debt (Notes H and I) ......................... 611 148
-------- --------
TOTAL CURRENT LIABILITIES 4,007 5,365
-------- --------
LONG-TERM DEBT LESS PRINCIPAL DUE WITHIN
ONE YEAR (Notes H and I) ...................................................... 811 933
STOCKHOLDERS' DEFICIT (Notes J and K):
Preferred stock, par value $.01 per share, 5,000,000 shares
authorized, no shares issued and outstanding ............................ -- --
Common stock, par value $.01 per share, 50,000,000 shares
authorized, 17,784,185 issued and outstanding ........................... 178 178
Additional paid-in-capital ................................................ 56,117 56,117
Accumulated deficit ....................................................... (58,233) (59,477)
Other accumulated comprehensive income .................................... 261 295
-------- --------
TOTAL STOCKHOLDERS' DEFICIT (1,677) (2,887)
-------- --------
$ 3,141 $ 3,411
======== ========
See accompanying notes to consolidated financial statements
22
FlexiInternational Software, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2002, 2001 and 2000
(in thousands, except per share amounts)
2002 2001 2000
-------- -------- --------
REVENUE
- -------
Software license .................................. $ 839 $ 2,917 $ 4,112
Service and maintenance ........................... 6,119 6,598 8,324
Other operating revenue ........................... 500 -- --
-------- -------- --------
TOTAL REVENUE. 7,458 9,515 12,436
-------- -------- --------
COST OF REVENUE
- ---------------
Software license .................................. 155 684 636
Service and maintenance ........................... 1,953 2,308 3,956
-------- -------- --------
TOTAL COST OF REVENUE. 2,108 2,992 4,592
-------- -------- --------
GROSS PROFIT. 5,350 6,523 7,844
-------- -------- --------
OPERATING EXPENSES
- ------------------
Sales and marketing ............................... 1,591 2,552 1,632
Product development ............................... 1,439 1,616 2,689
General and administrative ........................ 1,379 2,847 3,365
Goodwill impairment (Note E) ...................... -- 862 --
-------- -------- --------
TOTAL OPERATING EXPENSES. 4,409 7,877 7,686
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS. 941 (1,354) 158
OTHER INCOME (DEDUCTIONS)
- -------------------------
Net interest expense .............................. (27) (29) (1)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX CREDIT. 914 (1,383) 157
INCOME TAX CREDIT ........................................ (330) -- --
-------- -------- --------
NET INCOME (LOSS). $ 1,244 $ (1,383) $ 157
======== ======== ========
INCOME (LOSS) PER SHARE
- -----------------------
Basic ............................................. $ 0.07 $ (0.08) $ 0.01
======== ======== ========
Diluted ........................................... $ 0.07 $ (0.08) $ 0.01
======== ======== ========
WEIGHTED AVERAGE SHARES
- -----------------------
Basic ............................................. 17,784 17,713 17,669
======== ======== ========
Diluted ........................................... 17,784 17,713 17,669
======== ======== ========
See accompanying notes to consolidated financial statements
23
FlexiInternational Software, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 2002, 2001, and 2000
(in thousands, except share data)
Other Total
Additional accumulated stockholders'
Common Stock Paid-in Accumulated comprehensive Treasury equity
-------------------------
Shares Amount Capital Deficit income Stock (deficit)
---------- ---------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 1999 . 17,683,133 $ 177 $ 56,128 $ (58,251) $ 63 $ (35) $ (1,918)
Shares issued for stock
purchase plan ... -- -- -- -- -- 16 16
Net income ............ -- -- -- 157 -- -- 157
Currency translation
adjustment ...... -- -- -- -- 230 -- 230
----------
Comprehensive income ......... -- -- -- -- -- -- 387
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 2000 . 17,683,133 177 56,128 (58,094) 293 (19) (1,515)
Shares issued for stock
purchase plan ... 101,052 1 (11) 19 9
Net loss .............. -- -- -- (1,383) -- -- (1,383)
Currency translation
adjustment ...... -- -- -- -- 2 -- 2
----------
Comprehensive loss ........... -- -- -- -- -- -- (1,381)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 2001 . 17,784,185 178 56,117 (59,477) 295 -- (2,887)
Net income ............ -- -- -- 1,244 -- -- 1,244
Currency translation
adjustment ...... -- -- -- -- (34) -- (34)
----------
Comprehensive income ......... -- -- -- -- -- -- 1,210
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 2002 . 17,784,185 $ 178 $ 56,117 $ (58,233) $ 261 $ -- $ (1,677)
========== ========== ========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements
24
FlexiInternational Software, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2002, 2001 and 2000
(in thousands)
2002 2001 2000
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income (loss) ................................................ $ 1,244 $(1,383) $ 157
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization ............................... 197 845 1,310
Provision (credit) for doubtful accounts .................... 54 (310) 299
Goodwill impairment ......................................... -- 862 --
Deferred taxes .............................................. (330) -- --
(Gain) loss on disposal of assets ........................... -- 4 (3)
Decrease in accounts receivable ............................. 866 934 3,298
Decrease in prepaid expenses and other assets ............... 36 165 160
Increase (decrease ) in accounts payable and accrued expenses (255) 297 (1,910)
Decrease in accrued restructuring ........................... -- (27) (374)
Decrease in deferred revenue ................................ (998) (1,534) (3,396)
------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .... 814 (147) (459)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Advances on promissory note receivable ........................... (187) (85) --
Purchases of marketable securities ............................... -- -- (108)
Sales of marketable securities ................................... -- 108 --
Proceeds from sales of property and equipment .................... -- 1 40
Purchases of property and equipment .............................. (74) (23) (21)
------- ------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES .... (261) 1 (89)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Repayments on long-term debt ..................................... (146) (185) (50)
Proceeds from issuance of long-term debt ......................... 31 -- --
Proceeds from employee stock purchase plan ....................... -- 9 5
Payments on capital lease obligations ............................ (112) (432) (122)
------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES .... (227) (608) (167)
------- ------- -------
Effect of exchange rate changes on cash .......................... (34) 2 230
------- ------- -------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS ..... 292 (752) (485)
CASH AND CASH EQUIVALENTS
- -------------------------
Beginning of year ................................................ 600 1,352 1,837
------- ------- -------
End of year ...................................................... $ 892 $ 600 $ 1,352
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid .................................................... $ 44 $ 66 $ 50
======= ======= =======
Conversion of accounts payable and accrued
expenses into notes payable ................................. $ 568 $ 224 $ 748
======= ======= =======
See accompanying notes to consolidated financial statements
25
FlexiInternational Software, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
NOTE A - THE COMPANY
- --------------------
FlexiInternational Software, Inc. and subsidiary (the "Company") began
operations in 1991. The Company designs, develops, markets and supports the
Flexi Financial Enterprise Suite of financial and accounting software
applications and related tools. The Flexi solution - composed of
FlexiFinancials, Flexi Financial Datawarehouse, FlexiInfoAccess and FlexiTools -
is designed to address the needs of users with sophisticated financial
accounting and operational analysis requirements.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of FlexiInternational
Software, Inc. and its wholly-owned subsidiary, FlexiInternational Software
Limited (formerly known as The Dodge Group "Dodge") in June 1998 (NOTE E). All
significant intercompany transactions and balances have been eliminated.
REVENUE RECOGNITION:
The Company licenses software under noncancellable license agreements through
direct and indirect channels and provides services including maintenance,
training and consulting. Software license revenues through the Company's direct
sales channel are recognized when persuasive evidence of an arrangement exists,
the licensed products have been shipped, fees are fixed and determinable and
collectibility is considered probable. Customers may elect to receive the
licensed products pre-loaded and configured on a hardware unit. In this case,
revenue is recognized when the licensed products are installed on the hardware
unit, the unit is shipped and all other criteria are met. Other software license
royalties earned through the Company's indirect sales channel are recognized as
such fees are reported to the Company.
Revenues on all software license transactions in which there are significant
outstanding obligations are not recognized until such obligations are fulfilled.
Significant obligations would include future promises of enhancements and/or
modification that are essential to the product. For multiple element
arrangements and arrangements with extended payment terms, or where a
significant portion of the payment is due after inception of the license
agreement, all revenue is deferred until the final portion of the license fee
becomes due and payable and all other criteria are met. Maintenance revenues for
maintaining, supporting, and providing periodic upgrading are deferred and
recognized ratably over the maintenance period, generally one year.
Revenues from training and consulting services are recognized as such services
are performed. The Company does not require collateral for its receivables and
reserves are maintained for potential losses.
26
FlexiInternational Software, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION:
The assets and liabilities of the Company's foreign subsidiary,
FlexiInternational Software Limited, are translated into U.S. dollars at
exchange rates in effect at the balance sheet dates. Revenue and expense items
are translated into U.S. dollars at the average exchange rate for the years.
Resulting unrealized translation adjustments are included in stockholders'
deficit.
Gains and (losses) on foreign currency exchange transactions are reflected in
the consolidated statements of operations. Net transaction gains and (losses)
included in income for the years ended December 31, 2002, 2001 and 2000 were $0.
PRODUCT DEVELOPMENT COSTS:
The Company has evaluated the establishment of technological feasibility of its
various products during the development phase. The time period during which
costs could be capitalized from the point of reaching technological feasibility
until the time of general product release is very short, and consequently, the
amounts that could be capitalized are not material to the Company's consolidated
financial position or results of operations. Therefore, the Company charges all
product development expenses to operations in the period incurred.
CASH AND CASH EQUIVALENTS:
The Company considers all interest-bearing securities having original maturities
of three months or less to be cash equivalents. Additionally, the Company
maintains cash balances which at times exceed the federally insured limits. The
Company has not experienced any losses in such accounts, nor does it believe
that there is a significant exposure to credit risk on these accounts because
the credit ratings of institutions which maintain the cash balances has been
assessed by the Company.
TRADE ACCOUNTS RECEIVABLE:
Trade accounts receivable are presented in the balance sheets net of an
allowance for doubtful accounts. Receivables are written off when they are
determined to be uncollectible. The allowance for doubtful accounts is estimated
based on the Company's historical losses, existing economic conditions and the
financial stability of its customers.
PROPERTY AND EQUIPMENT:
Property and equipment is composed of furniture and equipment and is stated at
cost less accumulated depreciation. Depreciation is calculated using an
accelerated method over the estimated useful lives of the assets ranging from
three to seven years. Property and equipment are periodically reviewed for
impairment based upon anticipated cash flows generated from such underlying
assets.
27
FlexiInternational Software, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
INCOME TAXES:
Provisions for income taxes are based on taxes payable or refundable for the
current year and deferred taxes on temporary differences between the amount of
taxable income and pretax financial income and between the tax basis of assets
and liabilities and their reported amounts in the consolidated financial
statements. Deferred tax assets and liabilities are included in the consolidated
financial statements at currently enacted income tax rates applicable to the
period in which the deferred tax assets and liabilities are expected to be
realized or settled.
ACCOUNTING FOR STOCK BASED COMPENSATION:
Effective December 15, 2002, the company adopted Statement of Financial
Accounting Standards No. 148 "Accounting for Stock-Based Compensation -
Transition and Disclosure" (SFAS No. 148). This statement amends FASB statement
No. 123, "Accounting for Stock Based Compensation". It provides alternative
methods of transition for an entity that voluntarily changes to the fair value
based method of accounting for employee stock based compensation. It also amends
the disclosure provision of FASB statement No. 123 to require prominent
disclosure about the effects on reported net income of an entity's accounting
policy decisions with respect to stock-based employee compensation. As permitted
by SFAS No. 123 and amended by SFAS No. 148, the Company continues to apply the
intrinsic value method under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," to account for its stock-based
employee compensation arrangements.
No stock-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. If the Company had
recorded compensation cost based upon the fair value at the grant date for
awards under these plans, consistent with SFAS No. 123, the Company's net income
(loss) and net income (loss) per share would be the pro forma amounts indicated
below:
2002 2001 2000
------- ------- -------
Net income (loss) as reported ......................... $ 1,244 $(1,383) $ 157
Deduct: Total stock-based compensation expense
determined under fair value based method for
all awards, net of related tax effects ................ (1) (4) (450)
------- ------- -------
Net income (loss) pro forma ........................... $ 1,243 $(1,387) $ (293)
======= ======= =======
Income (loss) per share as reported - basic and diluted $ 0.07 $ (0.08) $ 0.01
======= ======= =======
Income (loss) per share pro forma - basic and diluted . $ 0.07 $ (0.08) $ (0.02)
======= ======= =======
28
FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS:
The estimated fair value of amounts reported in the consolidated financial
statements has been determined by using available market information and
appropriate valuation methodologies. The carrying value of all current assets
and current liabilities approximates fair value because of their short-term
nature. The fair value of capital lease obligations and notes payable
approximates the carrying value, based on current market prices.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS:
The Company has reviewed all new accounting pronouncements issued through 2002
and has determined that none of them would have a material impact on the
financial condition or results of operations other than as described previously.
USE OF ESTIMATES:
The preparation of financial statements, in conformity with U.S. 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.
EARNINGS PER SHARE:
Basic earnings per share ("EPS") is computed by dividing earnings available to
common stockholders by the weighted average number of common shares outstanding
for the periods. Diluted EPS reflects the potential dilution of securities that
could share in the earnings. As of December 31, 2002, 2001, and 2000, the
weighted average number of common shares are the same for both the basic and
diluted per share computations because the inclusion of common stock equivalents
would have been antidilutive.
RECLASSIFICATIONS:
The consolidated financial statements for 2001 have been reclassified to conform
with the presentation for 2002. Such reclassifications had no effect on net
results of operations.
29
FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE C - GEOGRAPHIC INFORMATION AND CONCENTRATION OF CREDIT RISK
- ----------------------------------------------------------------
The Company operates in only one business segment. The Company's international
revenues were derived primarily from the United Kingdom for the years ended
December 31, 2002, 2001, and 2000, and the Company's international long lived
assets at December 31, 2002, 2001 and 2000 resided primarily in the United
Kingdom.
REVENUES: 2002 2001 2000
------- ------- -------
United States .............. $ 5,940 $ 7,691 $10,082
International:
United Kingdom .......... 1,518 1,824 2,354
------- ------- -------
TOTALS $ 7,458 $ 9,515 $12,436
======= ======= =======
LONG LIVED ASSETS: 2002 2001 2000
------- ------- -------
United States .............. $ 266 $ 385 $ 2,043
International .............. 29 33 43
------- ------- -------
TOTALS $ 295 $ 418 $ 2,086
======= ======= =======
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. The Company
controls this risk through credit approvals, customer limits and monitoring
procedures. The Company can, however, limit the amount of support provided to
its customers in the event of non-performance. Two customers represented 10% or
more of the Company's total revenues, or an aggregate of 34.2%, 40.6%, and 38.2%
of total revenues for each of the years ended December 31, 2002, 2001, and 2000,
respectively. Two and three customers represented approximately 74.7%, and 61.9%
of the Company's net accounts receivable at December 31, 2002 and 2001,
respectively.
30
FlexiInternational Software, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE D - INCOME TAXES
- ---------------------
Significant components of the Company's deferred tax assets at December 31 are
as follows:
2002 2001
-------- --------
Net operating loss carryforwards ........... $ 24,564 $ 25,442
Other ...................................... 3,770 3,856
-------- --------
28,334 29,298
Valuation allowance ........................ (28,004) (29,298)
-------- --------
Net deferred tax asset ..................... $ 330 $ --
======== ========
At December 31, 2001, the Company had U.S. and foreign net operating loss
carryforwards of approximately $40,292 and $26,960, respectively, which expire
during the years 2005 through 2021. For tax purposes, there is an annual
limitation on the utilization of the U.S. net operating loss carryforwards
resulting from an ownership change as defined by Internal Revenue Code Section
382. Due to this annual limitation, a portion of the U.S. net operating loss
carryforward may expire prior to when otherwise utilizable.
Income tax expense consists of the following:
2002 2001 2000
---- ---- ----
Deferred income taxes:
Federal ........ $(275) $ - $ -
State .......... (55) -- --
----- ----- -----
$(330) $ - $ -
===== ===== =====
Following is a reconciliation between tax expense using federal statutory tax
rates and actual effective tax:
2002 2001 2000
----------------- ----------------- -----------------
Statutory taxes (benefits) $ 311 34% $(470) 34% $ 53 34%
Valuation allowance ...... (648) (71)% 463 (33)% (62) (40)%
Other .................... 7 1% 7 (1)% 9 6%
----- ----- ----- ----- ----- -----
Actual taxes ............. $(330) (36)% $ -- -% $ -- -%
===== ===== ===== ===== ===== =====
NOTE E - ACQUISITION
- --------------------
On June 24, 1998, the Company completed the acquisition of Dodge, a software
developer that specializes in financial data warehouse solutions. As a result of
the acquisition, the Company wrote off $1.9 million for acquired in-process
research and development in the June 1998 quarter.
31
FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE E - ACQUISITION (CONTINUED)
- --------------------------------
During June 1999, the Company reassessed the value of the intangible assets
recorded by the Company as a result of the acquisition. Prior to that
reassessment, the unamortized balance of the intangible assets was $6,263,
consisting of $1,728 of acquired software and $4,535 of goodwill. After
assessment of the acquired software asset, management concluded that the
carrying value approximated net realizable value for that software. Management
also assessed the related goodwill arising from the Dodge acquisition in
accordance with established policies. The economic factors indicated above
caused management to revise downward its estimates of future cash flows from
current and future products associated with the Dodge business as a whole. As a
result of management's analysis, and using the best information available,
management recorded a goodwill impairment charge of $4,224 in the second quarter
of 1999.
During 2001, management conducted a periodic impairment assessment of the
intangible assets resulting from the Dodge acquisition. Prior to the
reassessment, the unamortized balance of the intangible assets was $862,
consisting of $727 of acquired software and $135 of goodwill. After assessment
of the acquired intangibles, management concluded that the Company's financial
data warehouse product, based on older technologies, will not be upgraded to
current technology and therefore these products will not be competitive in the
future. While the company expects to maintain these products for its current
customers, minimal revenue is expected from future sales. As a result of
management's analysis, and using the best information available, management
recorded an intangible asset impairment charge of $862 in the third quarter of
2001.
NOTE F - CONVERTIBLE NOTE RECEIVABLE
- ------------------------------------
In January 2001, the Company entered into a convertible note receivable
arrangement where the Company agreed to loan a total of $272 to a start-up
software company and third party reseller of the Company's software products.
The loan accrues at a 0% interest factor until January 31, 2003 at which time
the loan begins to accrue at 7% per annum and will be repaid in 120 equal
monthly payments of principal and interest beginning March 1, 2003. As of
December 31, 2002 and 2001 the Company had loaned $272 and $85 under this
arrangement, respectively. After December 31, 2002 but prior to February 28,
2003 either party at their option could convert the entire loan amount into
40,000 shares of the borrower's common stock. During January 2003, the Company
exercised its option to convert the note receivable into 40,000 shares of the
borrower's common stock.
NOTE G - PROPERTY AND EQUIPMENT
- -------------------------------
The Company's property and equipment at December 31 consists of the following:
2002 2001
------ ------
Computers .............................................. $3,423 $3,427
Software ............................................... 679 652
Furniture and fixtures ................................. 508 508
Leasehold improvements ................................. 332 332
Office equipment ....................................... 68 68
Vehicles ............................................... 31 --
------ ------
5,041 4,987
Less accumulated depreciation .......................... 4,746 4,569
------ ------
NET PROPERTY AND EQUIPMENT $ 295 $ 418
====== ======
32
FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE G - PROPERTY AND EQUIPMENT (CONTINUED)
- -------------------------------------------
Depreciation expense was $197, $457, and $806 for the years ended December 31,
2002, 2001, and 2000, respectively. All property and equipment has been pledged
as collateral for a master lease agreement (NOTE I).
NOTE H - NOTES PAYABLE
- ----------------------
During 2001, the Company refinanced a note payable with one of its vendors which
also converted additional trade payables. The note is unsecured, has no stated
interest rate, and is due in monthly installments of $5 until paid in full. The
note requires any subsequent charges after the date of the note to be paid
currently in addition to the amortization of the note balance. During 2002, the
Company refinanced a settlement agreement with one of its customers which
converted other accrued liabilities. The note is unsecured, has no stated
interest rate and is due in monthly installments of $8 until paid in full. In
addition, the Company refinanced a settlement agreement on March 4, 2003 with
one of its vendors which converted other accrued liabilities. The note is
unsecured, has no stated interest rate, requires an initial payment of $55 and
monthly installments of $13 thereafter.
Following is a summary of long-term debt as of December 31:
2002 2001
------ ------
Note payable to vendor, no stated interest
$5 monthly until paid in full ........................... $ 639 $ 699
Note payable to vendor, no stated interest
$8 monthly to August 2004 ............................... 150 --
Note payable to vendor, no stated interest, initial payment of
$55, $13 monthly to January 2005 ........................ 343 --
Note payable to finance company, no stated interest
$1 monthly to December 2004, collateralized by vehicle .. 20 --
------ ------
1,152 699
Less principal due within one year ........................... 341 60
------ ------
TOTAL LONG-TERM DEBT .. $ 811 $ 639
====== ======
Following is a summary of estimated principal amounts due on long-term debt for
each of the five years and thereafter following December 31, 2002:
2003 $ 341
2004 279
2005 73
2006 60
2007 60
Thereafter 339
-------
TOTAL $ 1,152
=======
33
FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE I - CAPITAL LEASE OBLIGATION
- ---------------------------------
In December 2001, the Company restructured its existing master lease agreement
with its lease vendor. As a condition to the restructured agreement, the Company
continued the grant of a blanket lien on all of its existing fixed assets. The
original cost and accumulated depreciation of this property at December 31, 2002
is $2,586 and $2,554 respectively. The present value of the lease obligation at
December 31, 2002 is $270. Approximate maturities of such capital lease
obligation are as follows at December 31, 2002:
2003 $ 283
Less amounts representing interest ............................... 13
-------
TOTAL CAPITAL LEASE OBLIGATION ........ 270
Less amounts due within one year ................................. 270
-------
LONG-TERM PORTION OF CAPITAL OBLIGATION $ --
=======
NOTE J - STOCKHOLDERS' EQUITY
- -----------------------------
PREFERRED STOCK:
The Company has authorized capital stock that includes 5,000,000 shares of
preferred stock, $.01 par value. No shares are issued and outstanding.
The Company's board of directors is authorized, subject to any limitations
prescribed by law, without stockholder approval, to issue such shares of
preferred stock in one or more series. Each such series of preferred stock shall
have such rights, preferences, privileges and restrictions, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be determined by the board of directors.
The purpose of authorizing the board of directors to issue preferred stock and
determine its rights and preferences is to eliminate delays associated with a
stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of preferred stock.
STOCK WARRANTS:
In connection with the Company's 1995 financing arrangements, a warrant was
issued for the purchase of 5,129 shares of Series C preferred stock for $1.65
per share. This warrant allows the holder to acquire 3,846 shares of common
stock for $2.20 per share and the warrant expires in December 2006.
In connection with the Company's 1995 financing arrangements, a warrant was
issued for the purchase of 76,800 shares of Series B preferred stock for $1.50
per share. This warrant allows the holder to acquire 57,600 shares of common
stock for $2.00 per share and the warrant expires in July 2005.
In connection with the Company's capital lease obligations in 1994, a warrant
was issued for the purchase of 43,103 shares of Series A preferred stock for
$1.16 per share. This warrant allows the holder to acquire 32,327 shares of
common stock for $1.546 per share and the warrant expires in June 2004.
34
FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE K - EMPLOYEE STOCK PLANS
- -----------------------------
EMPLOYEE STOCK PURCHASE PLAN:
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") authorizes
the issuance of up to a total of 400,000 shares of common stock to participating
employees. Under the terms of the Purchase Plan, the purchase price is an amount
equal to 85% of the average market price (as defined) per share of the common
stock on either the first day or the last day of the offering period, whichever
is lower. The Purchase Plan was discontinued during 2002. Under the Purchase
Plan, the Company issued 0, 111,478, and 8,695 shares to participants during
2002, 2001, and 2000, respectively.
STOCK OPTION PLANS:
The Company's 1992 Stock Option Plan (the "1992 Plan") provided for the issuance
of up to 1,362,000 shares of common stock through the granting of stock options
to employees, officers, directors, consultants, and advisors. The board of
directors had authority to determine awards and establish the exercise price. As
of December 31, 2002, there are 34,125 options outstanding under the 1992 Plan.
Such options vest over various periods up to five years and expire on various
dates through 2007. No additional option grants will be made under the 1992
Plan.
The Company's 1997 Stock Incentive Plan (the "Incentive Plan") is intended to
replace the 1992 Plan. Up to 2,375,000 shares of common stock (subject to
adjustment in the event of stock splits and other similar events) may be issued
pursuant to awards granted under the Incentive Plan. Options may be granted at
an exercise price which may be less than, equal to, or greater than the fair
market value of the common stock on the date of grant. Officers, employees,
directors, consultants, and advisors of the Company are eligible to receive
awards under the Incentive Plan. During 2002, 2001, and 2000, 213,000, 529,760,
and 344,811 options under the Incentive Plan were granted, respectively.
Under the terms of the Company's 1997 Director Stock Option Plan (the "Director
Plan"), directors of the Company who are not employees are eligible to receive
nonstatutory options to purchase shares of common stock. A total of 150,000
shares of common stock may be issued upon exercise of options granted under the
Director Plan. The exercise price per share, for shares granted initially, was
equal to the initial public offering price ($11). The exercise price per share
for all shares thereafter will be the closing price per share of common stock on
the date of grant. All options granted under the Director Plan vest one year
from the date of grant so long as the optionee remains a director of the
Company. During 2002, 2001, and 2000, 23,250, 10,500, and 18,000 options under
the Director Plan were granted, respectively.
35
FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE K - EMPLOYEE STOCK PLANS (CONTINUED)
- -----------------------------------------
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option pricing model. Assumptions used in 2002, 2001 and 2000
include: risk free interest rate of 3.40%, 5.08%, and 6.34%, average expected
lives of 6.90, 7.91, and 3.00 years, a 0% dividend yield rate for all the years
presented, and expected volatility of 0.68, 1.04, and 1.60, respectively. In
accordance with SFAS 123, the fair value method of accounting has not been
applied to options granted prior to January 1, 1995. Therefore, the resulting
pro forma impact may not be representative of that to be expected in future
years.
At December 31, 2002, the Company has reserved 1,305,435 shares of common stock
for options outstanding under the 1992 Plan, Incentive Plan, and Director Plan,
and 93,773 shares of common stock for exercisable warrants. In addition to the
outstanding options, the Company has reserved 1,237,481 shares of common stock
at December 31, 2002, for future grants under its Incentive Plan and Director
Plan. The following table describes the Company's stock option activity under
all of its option plans:
Number of Weighted average exercise
Options price per share
-------------- -------------------------
(priced at date of grant)
Outstanding at December 31, 1999 1,422,889 $ 1.34
Granted .................. 362,811 $ 0.68
Cancelled ................ (450,656) $ 1.18
--------- --------
Outstanding at December 31, 2000 1,335,044 $ 1.17
Granted .................. 540,260 $ 0.17
Cancelled ................ (565,600) $ 0.52
--------- --------
Outstanding at December 31, 2001 1,309,704 $ 1.02
Granted .................. 236,250 $ 0.08
Cancelled ................ (240,519) $ 0.47
--------- --------
Outstanding at December 31, 2002 1,305,435 $ 0.95
========= ========
36
FlexiInternational Software, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE K - EMPLOYEE STOCK PLANS (CONTINUED)
Weighted
Number of average exercise
Options price per share
------------ ----------------
(priced at date)
(of grant)
Exercisable at December 31, 2000 ............... 392,840 $ 1.67
Exercisable at December 31, 2001 ............... 625,312 $ 1.37
Exercisable at December 31, 2002 ............... 849,997 $ 1.23
Options available for grant at December 31, 2002 1,237,481 --
The following table summarizes information regarding stock options granted under
all of the Company's option plans:
Weighted Weighted
Number of average exercise average fair
options granted price value
---------------- ---------------- ------------
2000
Options granted at market value: 362,811 $ 0.68 $ 0.62
2001
Options granted at market value: 540,260 $ 0.17 $ 0.13
2002:
Options granted at market value 236,250 $ 0.08 $ 0.08
The following table summarizes information regarding options outstanding at
December 31, 2002 under all of the Company's option plans:
Options outstanding Options exercisable
----------------------------------------------- --------------------------------
Weighted
average
remaining Weighted Weighted
Range of exercise Number contractual life average exercise Number average exercise
prices outstanding in years price exercisable price per share
----------------- ----------- ---------------- ---------------- ------------ ----------------
$0.05-$ 0.09 218,250 9.10 $ 0.09 23,250 $ 0.09
$0.15-$ 0.30 234,834 8.02 $ 0.19 99,843 $ 0.20
$0.38-$ 0.38 167,888 6.82 $ 0.38 167,888 $ 0.38
$0.59-$ 1.06 326,071 7.15 $ 0.91 228,074 $ 0.90
$1.19-$ 1.44 207,875 3.71 $ 1.27 207,035 $ 1.27
$1.63-$12.63 150,517 5.23 $ 3.69 123,907 $ 3.98
--------- ---- -------- ------- --------
TOTAL 1,305,435 $ 0.95 849,997 $ 1.23
========= ======== ======= ========
37
FlexiInternational Software, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE L - EMPLOYEE BENEFIT PLAN
- ------------------------------
The Company maintains a 401(k) Savings Plan (the "Plan"). Employees are eligible
to participate in the Plan upon completion of one month of service with the
Company. Eligible employees may contribute up to 25% of their annual
compensation to the Plan on a pre-tax basis. Participant contributions to the
Plan are immediately vested. In addition, under the terms of the Plan, the
Company, at its discretion, may match all or a portion of participant's
contribution to the Plan up to 6% of the participant's compensation. The
Company's matching contribution is made on a monthly basis. Participants become
vested in Company matching contributions to the Plan over a five-year period.
The expense under this Plan was $0, $20, and $72 for 2002, 2001, and 2000,
respectively.
NOTE M - GAIN CONTINGENCY
- -------------------------
During 2001, the Company filed suit against one of its third party resellers for
software license fees and maintenance service revenue the Company believes the
reseller did not report and pay to the Company in accordance with their
contractual agreement. At December 31, 2002, the Company was in final
negotiations for a settlement of the claim and expects to finalize it during
2003. While the Company currently believes that it will receive approximately
$450 as a result of the settlement claim, there are still ongoing disputes
regarding the terms of the settlement agreement and it has not yet been
finalized. As a result, collectibility of these amounts remains uncertain and
the Company has not recorded this transaction as of December 31, 2002. This
transaction will be recorded in the period when amounts are realized.
NOTE N - SUBSEQUENT EVENTS
- --------------------------
On March 4, 2003 the Company arranged payment terms associated with a settlement
agreement with one of its former distributors which converted other accrued
liabilities to current and long-term debt.
NOTE O - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
The Company leases space in several buildings which it uses for offices and
development facilities, as well as various equipment and vehicles, all subject
to operating leases. As of December 31, 2002, the minimum annual rental payments
under the terms of such noncancellable leases which expire at various dates are
as follows:
2003 $ 302
2004 142
2005 100
2006 86
2007 92
Thereafter 46
-----
TOTAL $ 768
=====
Rent expense for the years ended December 31, 2002, 2001, and 2000 amounted to
$407, $462 and $342, respectively.
From time to time, the Company is a party to various disputes and proceedings
arising from the ordinary course of general business activities. In the opinion
of management, resolution of these matters is not expected to have a material
adverse effect on the results of operations of the Company. However, depending
on the amount and the timing, an unfavorable resolution of some or all these
matters could materially affect the Company's future results of operations or
cash flows in a particular period.
38
FlexiInternational Software, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE P - RESTRUCTURING
- ----------------------
On February 26, 1999, management, with the approval of the board of directors,
took certain actions to reduce employee headcount in order to align its sales,
development and administrative organization with the current overall
organization structure, and to position the Company for profitable growth in the
future consistent with management's long term objectives. In this regard, the
primary actions taken included involuntary terminations of selected personnel.
Severance packages were offered to 66 employees. This reduction in headcount
also led to the Company having excess leased facility space. In addition, during
the third quarter of 1999, the Company took additional actions to reduce
employee headcount. This action also included involuntary terminations of
selected personnel. Severance packages were offered to 18 employees.
At December 31, 2000, there remained $27 of severance costs, which were paid in
installments through February 2001. The Company believes that these actions
resulted in sustainable cost savings, primarily through the elimination of
redundant functions in product development, due to completion of development
work on FlexiFinancials Release 4, and to a lesser extent in the support and
sales organizations.
Detail of the restructuring charge is as follows:
Severance Excess
and benefits facilities Total
------------ ---------- -----
Reserve balances, December 31, 1999 $ 401 $ -- $ 401
Cash payments ..................... (374) -- (374)
----- ---- -----
Reserve balances, December 31, 2000 27 -- 27
Cash payments ..................... (27) -- (27)
----- ---- -----
Reserve balances, December 31, 2001 $ -- $ -- $ --
===== ==== =====
NOTE Q - BUSINESS PLAN
- ----------------------
Throughout 2002, the Company focused its efforts on further reductions of
operating expenses, enhancing its relationships with current business partners,
resolving preexisting disputes and marketing its financial management services
solution, an accounting process outsourcing service. The Company has limited its
investment of capital to maintaining and enhancing its products to remain
competitive in the marketplace, focusing its direct sales force and expanding
its third party vendors. The Company has continued to update its products to
remain competitive. The Company is finalizing a sales tax audit with the State
of Connecticut. The Company is also pursuing an arbitration settlement with one
of its third party vendors for software license fees and maintenance service.
39
FlexiInternational Software, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
NOTE R - SELECTED QUARTERLY INFORMATION (UNAUDITED)
- ---------------------------------------------------
The following table sets forth certain unaudited quarterly data for each of the
four quarters in the years ended December 31, 2002 and 2001. The data has been
derived from the Company's unaudited consolidated financial statements that, in
management's opinion, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of such information when read in
conjunction with the Consolidated Financial Statements and Notes thereto. The
results of operations for any quarter are not necessarily indicative of the
results of operations for any future period.
First Second Third Fourth
Year ended December 31, Quarter Quarter Quarter Quarter
- ----------------------- ------- ------- ------- --------
2002
Total revenue ........ $ 2,275 $ 1,859 $ 1,723 $ 2,051
Gross profit ......... 1,671 1,304 1,195 1,624
Net income ........... 547 230 122 703
Income per share (1) . 0.03 0.01 0.01 0.04
2001
Total revenue ........ $ 3,154 $ 2,279 $ 1,858 $ 2,224
Gross profit ......... 2,267 1,777 996 1,483
Net income (loss) .... 97 29 (1,687) 178
Income (loss) per share (1) 0.01 -- (0.10) 0.01
(1) Quarterly income (loss) per share may not equal the annual reported amounts.
40
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
Board of Directors and Stockholders of
FlexiInternational Software, Inc.
Bonita Springs, Florida
We have audited the consolidated financial statements of
FlexiInternational Software, Inc. and subsidiary (the "Company") as of December
31, 2002 and 2001 and for the years then ended, and have issued our report
thereon dated January 22, 2003, except for Note N, as to which the date is March
4, 2003; such financial statements and report are included in the 2002 Annual
Report to Stockholders and are included herein. Our audit also included the
financial statement schedule of FlexiInternational Software, Inc. and subsidiary
listed in Item 15. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audit. In our opinion, such 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/ Hill, Barth & King LLC
Hill, Barth & King LLC
Certified Public Accountants
Naples, Florida
January 22, 2003
41
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
Board of Directors and Stockholders of
FlexiInternational Software, Inc.
We have audited the consolidated financial statements of
FlexiInternational Software, Inc. and subsidiary for the year ended December 31,
2000 and have issued our report thereon dated February 27, 2001; such financial
statements and report are included in your 2002 Annual Report to Stockholders
and are included herein. Our audit also included the financial statement
schedule of FlexiInternational Software, Inc. and subsidiary listed in Item 15.
This financial statement schedule is the responsibility of the Corporation's
management. Our responsibility is to express an opinion based on our audit. In
our opinion, such 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/ Deloitte & Touche LLP
Deloitte & Touche LLP
Hartford, Connecticut
February 27, 2001
42
FlexiInternational Software, Inc. and Subsidiary
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Charged to
Balance at (Credit from) Balance at
January 1, Costs and December 31,
Description 2002 Expenses Deductions 2002
- ------------------------------------- ----------- ------------- ----------- -------------
Allowance for doubtful accounts .......... $ 22 $ 288 $ (234) $ 76
Valuation allowance for deferred tax asset $29,298 $(1,294) $ -- $28,004
Balance at Charged to Balance at
January 1, Costs and December 31,
Description 2001 Expenses Deductions 2001
- ------------------------------------- ----------- ------------- ----------- -------------
Allowance for doubtful accounts .......... $ 352 $ (310) $ (20) $ 22
Valuation allowance for deferred tax asset $23,560 $ 5,738 $ -- $29,298
Balance at Charged to Balance at
January 1, Costs and December 31,
Description 2000 Expenses Deductions 2000
- ------------------------------------- ----------- ------------- ----------- -------------
Allowance for doubtful accounts .......... $ 843 $ 299 $ (790) $ 352
Valuation allowance for deferred tax asset $22,601 $ 959 $ -- $23,560
43
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------------
Financial Disclosure
--------------------
The information required by Item 304 of Regulation S-K was previously
reported in a Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 21, 2001.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
See "Executive Officers of the Registrant" in Part I of this Annual Report
on Form 10-K. The information required by Items 401 and 405 of Regulation S-K
and appearing in Flexi's definitive Proxy Statement for the 2003 Annual Meeting
of Stockholders to be held on Friday, May 16, 2003, which will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
2002, is incorporated herein by reference.
Item 11. Executive Compensation
----------------------
The information required by Item 402 of Regulation S-K and appearing in
Flexi's definitive Proxy Statement for the 2003 Annual Meeting of Stockholders
to be held on Friday, May 16, 2003, which will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 2002, is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The information required by Item 403 of Regulation S-K and appearing in
Flexi's definitive Proxy Statement for the 2003 Annual Meeting of Stockholders
to be held on Friday, May 16, 2003, which will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 2002, is
incorporated herein by reference. The information specified in Item 402(k) and
(l) of Regulation S-K and set forth in Flexi's definitive Proxy Statement for
the 2003 Annual Meeting of Stockholders is not incorporated herein by reference.
Item 13. Certain Relationships And Related Transactions
----------------------------------------------
The information required by Item 404 of Regulation S-K and appearing in
Flexi's definitive Proxy Statement for the 2003 Annual Meeting of Stockholders
to be held on Friday, May 16, 2003, which will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 2002, is
incorporated herein by reference.
Item 14. Controls and Procedures
-----------------------
Based on an evaluation of the Company's disclosure controls and procedures
performed by the Company's Chief Executive Officer and Acting Chief Financial
Officer within 90 days of the filing of this report, the Company's Chief
Executive Officer and Acting Chief Financial Officer concluded that the
Company's disclosure controls and procedures have been effective.
As used herein, "disclosure controls and procedures" means controls and
other procedures of the Company that are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms issued by the
Securities and Exchange Commission. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act is accumulated and communicated to the
Company's management, including its principal executive officer or officers and
its principal financial officer or officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.
Since the date of the evaluation described above, there were no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls, and there were no corrective actions
with regard to significant deficiencies and material weaknesses.
44
PART IV
-------
Item 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
---------------------------------------------------------------
(a)(1) Financial Statements
The consolidated financial statements filed as a part of this Annual
Report on Form 10-K are listed in the Index to Consolidated Financial Statements
under Item 8, which Index to Consolidated Financial Statements is incorporated
herein by reference.
(a)(2) Financial Statement Schedule
The Schedule of Variation and Qualifying Accounts appears on page 43 of
this Annual Report on Form 10-K. Schedules other than those listed above are
omitted because they are either not required or not applicable.
(a)(3) Exhibits
The Exhibits filed as a part of this Annual Report on Form 10-K are listed
in the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference. Documents listed on such Exhibit Index, except
for documents identified by footnotes, are being filed herewith are, pursuant to
Rule 12b-32 under the Securities Exchange Act of 1934, incorporated herein by
reference.
(b) Reports on Form 8-K
During the fourth quarter of the fiscal year ended December 31, 2002, the
Company did not file any Current Reports on Form 8-K.
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
FLEXIINTERNATIONAL SOFTWARE, INC.
Date: March 28, 2003 By: /s/ STEFAN R. BOTHE
--------------------------------
Stefan R. Bothe
Chairman of the Board, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ STEFAN R. BOTHE Chairman of the Board, Chief March 28, 2003
- ---------------------- Executive Officer, President and
Stefan R. Bothe Acting Chief Financial Officer
(Principal Executive and
Accounting Officer)
/s/ JENNIFER V. CHENG Director March 28, 2003
- ----------------------
Jennifer V. Cheng
/s/ ROBERT A. DEGAN Director March 28, 2003
- ----------------------
Robert A. Degan
46
Certification
by Chief Executive Officer
and Chief Financial Officer
Pursuant to Rule 13a-14
I, Stefan R. Bothe, certify that:
1. I have reviewed this annual report on Form 10-K of FlexiInternational
Software, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have;
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities, particularly
during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report my conclusions about the
effectiveness of the disclosure controls and procedures based on my evaluation
as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this annual report whether there were any
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 28, 2003
/s/ STEFAN R. BOTHE
------------------------------------
Stefan R. Bothe
Chairman of the Board, President, Chief
Executive Officer and Acting Chief
Financial Officer
(Principal executive officer and
principal financial officer)
47
Exhibit Exhibit Index
- ------- -------------
No.
- ---
2.1(3) Agreement and Plan of Merger dated June 24, 1998 among the
Registrant, Princess Acquisition Corporation and The Dodge Group,
Inc.
3.1(1) Amended and Restated Certificate of Incorporation.
3.2(1) Amended and Restated By-Laws.
4.1(1) Specimen Common Stock Certificate.
10.1(1)+ 1992 Stock Option Plan, as amended.
10.2(6)+ 1997 Stock Incentive Plan, including forms of incentive and
nonstatutory stock option agreements.
10.3(1)+ 1997 Director Stock Option Plan, including form of option agreement.
10.5(1) Registration Rights Agreement dated May 7, 1996, as amended, among
the Registrant and the Purchasers (as defined therein).
10.7(1) Warrant Agreement dated June 28, 1994 held by CDC Realty, Inc.
10.8(1) Warrant Agreement dated July 25, 1995 issued to Comdisco, Inc.
10.9(1) Warrant Agreement dated July 25, 1995 issued to Comdisco, Inc.
10.10(1) Warrant Agreement dated December 10, 1996 issued to Comdisco, Inc.
10.12(1) Stockholders' Voting Agreement dated May 7, 1996 among the Registrant
and the Stockholders (as defined therein).
10.13(1) Participation Agreement dated May 7, 1996 among the Registrant and
the Purchasers (as defined therein).
10.16(4) Lease Agreement, dated February 21, 2000, by and between the Company
and Sommer Holdings, Ltd. 10.17(8) Loan Agreement and Convertible
Promissory Note, dated as of January 31, 2001, by and between the
Company and Core3, Inc.
16.1(6) Letter regarding change in certifying accountant.
21.1(4) Schedule of Subsidiaries.
23.1 Consent of Hill, Barth & King, LLP, independent accountants.
23.2 Consent of Delloite & Touche LLP, independent auditors.
99 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
- ------------------------------------
(1) Incorporated herein by reference to the Company's registration statement
on Form S-1 (Registration No. 333-38403).
(2) Incorporated herein by reference to the Company's annual report on Form
10-K for the year ended December 31, 1997.
(3) Incorporated herein by reference to the Company's current report on Form
8-K, dated June 29, 1998.
(4) Incorporated herein by reference to the Company's annual report on Form
10-K for the year ended December 31, 2000.
(5) Incorporated herein by reference to the Company's registration statement
on Form S-8 filed on February 21, 2001 (Registration No. 333-83146).
(6) Incorporated herein by reference to the Company's current report on Form
8-K, dated December 21, 2001.
(7) Incorporated by reference to the Company's 2001 definitive Proxy
Statement, dated April 11, 2001.
(8) Incorporated by reference to the Company's annual report on Form 10-K for
the year ended December 31, 2001.
+ Management contract or compensation plan or arrangement required to be
filed as an exhibit pursuant to Items 14(a) and 14(c) of Form 10-K.
48