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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 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, 2000
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 of Incorporation (I.R.S. Employer Identification
or Organization) No.)
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. [ ]
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, 2001 as reported on the Nasdaq National Market, was
approximately $2.1 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, 2001, the Registrant had 17,674,757 shares of Common Stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 2001 Annual Meeting of
Stockholders to be held on Monday, May 1, 2001 (the "2001 Proxy Statement"),
which will be filed with the Securities and Exchange Commission no later than
120 days after December 31, 2000, are incorporated by reference in Items 10, 11,
and 12 of Part III of this Annual Report on Form 10-K. With the exception of the
portions of the 2001 Proxy Statement expressly incorporated by reference into
this Annual Report on Form 10-K, 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. In addition, 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 of Form 10-K
for the year ended December 31, 1999 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.
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FLEXIINTERNATIONAL SOFTWARE, INC.
FORM 10-K
2001 ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I.
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 4
Item 3. Legal Proceedings........................................... 4
Item 4. Submission of Matters to a Vote of Security Holders......... 5
Item 4A Executive Officers of the Registrant........................ 5
PART II.
Item 5. Market for Registrant'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................. 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 43
PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 43
Item 11. Executive Compensation...................................... 43
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 43
Item 13. Certain Relationships and Related Transactions.............. 43
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 44
Signatures.................................................. 45
Exhibit Index............................................... 46
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.
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PART I
ITEM 1. BUSINESS
GENERAL
FlexiInternational Software, Inc. ("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 Flexi family of financial
application software and related applications and 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. Flexi believes that
its solution distributed, object-oriented, component-based architecture provides
significant advantages over traditional financial accounting software, including
greater transaction throughput and scalability, ease of implementation,
modification and use, and reduced cost of ownership. In addition, Flexi recently
began marketing a financial management services ("FMS") solution, a business
process outsourcing ("BPO") service that will leverage Flexi's suite of
accounting products and Flexi's expertise in back office processing of
accounting data. The Company believes that mid-sized and start-up fast growing
companies desire to outsource their back office accounting processes while they
focus on financial analysis, cash management and the strategic issues of their
business.
Flexi products are designed to support new technologies as they develop,
including the Internet and corporate intranets, can be modified quickly and
efficiently by users to create tailored business solutions and can seamlessly
integrate with new applications to support evolving business processes.
Rapidly changing market conditions and intensifying competitive pressures
have in recent years increased the need for highly functional, flexible
financial accounting systems. The systems must have sufficient performance and
adaptability to continue to provide timely and accurate information as
organizations change business processes to meet evolving market and operational
requirements. This is particularly true for organizations experiencing rapid
growth in dynamic markets, and for multinational organizations, which face the
complex task of managing financial information in multiple tax jurisdictions,
currencies and languages. Furthermore, large organizations require financial
accounting systems that offer broad functionality across dispersed locations and
workgroups. These functional and technological requirements are especially
critical in businesses centered around the timely collection, analysis and
dissemination of vast amounts of numerical information, such as banking,
insurance and other financial services organizations, as well as healthcare and
technology organizations.
A new generation of object-oriented, component-based technology has evolved
in recent years to address many of the limitations associated with legacy
client/server solutions and to support the efficient use of the Internet as an
integral part of financial accounting solutions. Object-oriented development
methodologies facilitate the reuse of application logic to adapt to changing
technological and accounting requirements. Component-based architecture allows
the timely creation of tailored business solutions by simplifying and shortening
the integration of software applications from multiple sources and facilitating
use of applications over the Internet. The FlexiNet product facilitates the
transition of certain functionality of our products to the Internet, which will
take advantage of more cost effective processing. Additionally, the distributed
model of computing, in which processing logic resides at the appropriate level
within a client/server architecture, has created the potential for a higher
degree of functionality, flexibility and scalability than available with legacy
client/server or mainframe systems. The advantages inherent in these new
technologies have led many vendors of legacy client/server solutions, including
our principal competitors, to announce their intention to transition to these
new technologies -- often at the cost of replacing or rewriting their current
products.
Flexi believes that its solution is particularly suited for adoption by
users with sophisticated financial accounting requirements and intends to
continue to target its sales and marketing efforts at such users. However in
2001 we will expand our product offering of FMS and some business reengineering.
Flexi expects to offer FMS to the mid-market sector in various select
industries. Our sales channel will consist of both direct and indirect
distribution with greater emphasis placed on indirect distribution. We believe
that there is a significant market for the advanced functionality of our
products and we will exploit this both domestically and
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internationally. Our indirect sales channel consists of resellers ("Flexi
Industry Partners" or "FIPs") that address select vertical markets and
international distributors. We currently have relationships with FIPs in the
healthcare and insurance industries. In addition, we have international
distributors in Hong Kong and Japan and we expect to establish additional
distributorships to complement our direct sales force and FIPs to provide
penetration into additional geographic and vertical markets. Our customers
include Citibank, N.A., Mutual of America, Skandinaviska Enskilda Banken,
Netstock Direct, Unitil, Lloyds Treasury, Credit Lyonnais, Abbey National Bank,
Nomura International, RMB- South Africa and Washington Mutual.
Flexi's goal is to establish itself as a global provider in the mid market
financial accounting software and outsourcing market. Key elements of our
strategy include: (i) to extend technological leadership by continuing to invest
in research and development to strengthen the Flexi financial accounting
solution delivery over the Internet; (ii) to continue to target the solution to
users with sophisticated financial accounting requirements; (iii) to deliver a
reduced overall cost of ownership of financial accounting systems to current and
prospective customers; (iv) to leverage strategic relationships with key FIPs in
target industries and regional accounting firms for FMS; and (v) to expand
indirect sales and distribution capabilities both in the U.S. and
internationally.
PRODUCTS
The Flexi solution, FlexiFinancial Enterprice Suite, is an integrated set
of financial accounting applications, together with related information
applications and development tools, that address the needs of users with
sophisticated financial accounting requirements, while being easily customized
and supporting the latest technologies as they evolve. The following table
provides selected information relating to our three core families of products:
FlexiFinancials financial accounting systems, Flexi Financial Datawarehouse
("FlexiFDW") product and FlexiTools development, customization and integration
tools. All of our products can operate on a fully integrated basis, be licensed
separately for use on a stand-alone basis or for integration with products from
third-party vendors, or 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
- 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.
- 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.
- 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
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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.
- 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.
- 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.
- FlexiProjects. FlexiProjects, a 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 Financial Datawarehouse
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-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.
Fully Euro compliant, 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 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.
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 systems. Just as important, it enables the user
to use a graphical interface to build your 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.
- 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.
- FlexiControl permits users to define and manage system-wide controls,
such as security and server based processing.
- FlexiCenter is a diagnostics tool that allows for quick and efficient
support of customers.
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- 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.
- 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.
INTERNATIONAL ACQUISITIONS/OPERATIONS
In June 1998 Flexi acquired The Dodge Group, a company specializing in
financial data warehouse solutions having it principal offices in the United
Kingdom. Flexi believes that the acquisition of The Dodge Group has given Flexi
a presence in the United Kingdom's banking and financial services industry and
has helped Flexi to continue to maintain an international presence. During the
years ended December 31, 2000, 1999, and 1998, the Company's international
revenues were approximately 18.9%, 31.0%, and 30.4% of total revenues,
respectively. The Company presently has customers in North and South America,
Europe, Asia, Africa and Australia.
CUSTOMERS
Flexi'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, 2000, 1999, and 1998,
two customers represented 10% or more of the Company's total revenues, or an
aggregate of 38.2%, 39.0% and 31.7% 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, 2000, were Citigroup and McKesson/HBOC.
EMPLOYEES
As of December 31, 2000, Flexi had 58 employees, 46 domestically and 12
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
2003. In addition, Flexi maintains approximately 2,700 square feet of leased
office space in Bonita Springs, Florida, under a lease expiring in 2001 and
3,500 square feet in London, United Kingdom, under a lease expiring in 2005.
Flexi believes that its leased space is sufficient for its current operations.
ITEM 3. LEGAL PROCEEDINGS
On August 24, 1998, Client Server Solutions Limited ("CSS") filed a demand
for arbitration asserting claims for commissions allegedly owed by the Company
to CSS pursuant to an international representation agreement between the Company
and CSS. The Company filed an answering statement in response to the demand for
arbitration. An attempt to mediate this matter was unsuccessful, and the matter
proceeded to a hearing which concluded on December 14, 2000. Both parties have
filed briefs and responses, and the matter is awaiting a decision.
The Company is also a party to various disputes and proceedings arising
from the ordinary course of general business activities. Depending on the amount
and the timing, an unfavorable resolution of some or all these matters could
materially adversely affect the Company's future results of operations or cash
flows in a particular period and its financial condition.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 2000 there
were no matters were submitted to a vote of security holders through the
solicitation of proxies or otherwise.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following individuals are the executive officers of Flexi as of
February 2001:
NAME AGE POSITION
- ---- --- --------
Stefan R. Bothe........................ 52 Chairman of the Board and Chief
Executive Officer
Frank T. Grywalski..................... 57 President and Chief Operating Officer
Mr. Bothe has served as Chairman of the Board and Chief Executive Officer
of the Company since March 1993. 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. Grywalski was promoted to President in January, 2001 and has served as
Executive Vice President, Chief Operating Officer and President of the
Applications Products Division since May 1999. From April 1996 to May 1999, Mr.
Grywalski was Vice President, Sales for Avio International Corporation, a
software company. From 1991 to 1996, Mr. Grywalski was Vice President of North
American Operations for Marcam Corporation ("Marcam"), an international software
company. Prior to joining Marcam, Mr. Grywalski was President/Senior Vice
President of the U.S. Financial Division for GEAC Computer Corporation Limited,
a software company. Prior to joining GEAC, Mr. Grywalski was Senior Vice
President, Sales for Computer Associates International, Inc., one of the largest
software companies in the industry.
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.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) 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, 1999 HIGH LOW
- ----------------------------------- ----- -----
First Quarter............................................... $2.81 $0.97
Second Quarter.............................................. $1.75 $1.00
Third Quarter............................................... $1.44 $0.38
Fourth Quarter(1)........................................... $0.84 $0.25
FISCAL YEAR ENDED DECEMBER 31, 2000 HIGH LOW
- ----------------------------------- ----- -----
First Quarter(1)............................................ $1.78 $0.75
Second Quarter(1)........................................... $1.25 $0.38
Third Quarter(1)............................................ $0.42 $0.13
Fourth Quarter(1)........................................... $0.36 $0.09
- ---------------
(1) The high and low price may include those transactions entered into after
October 5, 1999, the first day of trading on the OTC Bulletin Board, and 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, 2001, there were approximately 103 holders of record of the
Company's Common Stock. 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.
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ITEM 6. SELECTED 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 consolidated financial data presented below as of December 31,
2000, 1999, 1998, 1997 and 1996 and for the years then ended are derived from
the consolidated financial statements of Flexi, which consolidated financial
statements have been audited.
YEARS ENDED DECEMBER 31,
---------------------------------------------------
2000 1999 1998(1) 1997 1996
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license........................... $ 4,112 $ 3,385 $ 10,542 $ 13,901 $ 5,205
Service and maintenance.................... 8,324 12,169 13,754 7,723 3,142
------- -------- -------- -------- --------
Total revenues..................... 12,436 15,554 24,296 21,624 8,347
------- -------- -------- -------- --------
Cost of revenues:
Software license........................... 636 586 1,757 828 311
Service and maintenance.................... 3,956 7,491 10,584 5,450 2,181
------- -------- -------- -------- --------
Total cost of revenues............. 4,592 8,077 12,341 6,278 2,492
------- -------- -------- -------- --------
Operating expenses:
Sales and marketing........................ 1,632 5,919 11,233 7,820 4,978
Product development........................ 2,689 6,887 10,752 7,880 5,733
General and administrative................. 3,365 7,153 6,191 2,316 2,453
Goodwill impairment........................ -- 4,224 -- -- --
Restructuring charge....................... -- 1,824 -- -- --
Acquired in-process research and
development............................. -- -- 1,890 -- --
------- -------- -------- -------- --------
Total operating expenses........... 7,686 26,007 30,066 18,016 13,164
------- -------- -------- -------- --------
Operating income (loss)...................... 158 (18,530) (18,111) (2,670) (7,309)
Net interest income (expense)................ (1) 49 880 27 (138)
------- -------- -------- -------- --------
Income (loss) before income taxes............ 157 (18,481) (17,231) (2,643) (7,447)
Income taxes................................. -- -- -- -- --
------- -------- -------- -------- --------
Net income (loss)............................ $ 157 $(18,481) $(17,231) $ (2,643) $ (7,447)
======= ======== ======== ======== ========
Income (loss) per share:
Basic...................................... $ .01 $ (1.06) $ (1.02) $ (0.42) $ (1.91)
======= ======== ======== ======== ========
Diluted.................................... $ .01 $ (1.06) $ (1.02) $ (0.42) $ (1.91)
======= ======== ======== ======== ========
Weighted average shares:
Basic...................................... 17,669 17,414 16,938 6,332 3,891
Diluted.................................... 17,669 17,414 16,938 6,332 3,891
DECEMBER 31,
---------------------------------------------------
2000 1999 1998(1) 1997 1996
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 1,389 $ 1,874 $ 7,876 $ 24,622 $ 3,273
Marketable securities........................ 108(2) -- 3,000 -- --
Working capital (deficit).................... (3,304) (5,197) 7,497 26,676 1,480
Total assets....................... 6,623 12,072 32,911 35,670 7,833
Redeemable convertible preferred stock....... -- -- -- -- 15,509
Stockholders' equity (deficit)............... (1,515) (1,918) 16,614 27,706 (13,823)
- ---------------
(1) Restated, see Note 15 to the consolidated financial statements.
(2) Marketable securities are restricted.
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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 "Factors that may Affect Future
Results" contained in this Item 7, as well as those otherwise discussed in this
section and elsewhere in this annual report on form 10-K.
OVERVIEW
FlexiInternational Software Inc. designs, develops, markets and supports
the FlexiFinancial Enterprise Suite of financial and accounting software
applications and related tools. The Flexi solution -- composed of
FlexiFinancials, FlexiFinancial Datawarehouse (FlexiFDW), FlexiInfoAccess and
FlexiTools -- is designed to address the needs of users with sophisticated
financial accounting and operational analysis requirements. In addition, we
recently began marketing our Financial Management Services (FMS) solution, a
business process outsourcing (BPO) service 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 want to
outsource their back office accounting processes while they focus on financial
analysis, cash management and the strategic issues of their business.
Software license revenues include (i) revenues from noncancellable software
license agreements entered into between our customers and us with respect to our
products, (ii) royalties due us from third parties that distribute our products
and, to a lesser extent, (iii) third-party products distributed by us. Software
license royalties earned through our indirect sales channel are recognized as
such fees are reported to us. 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.
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. We do not require collateral for our receivables, and
reserves are maintained for potential losses.
Historically, the Company's revenues have been derived from both domestic
sales and international sales, with the international sales comprising
approximately 18.9%, 31.0%, and 30.4% of total revenues for the years ended
December 31, 2000, 1999, and 1998, respectively. Our international sales
generally have the same 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, 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."
In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed, the Company, 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. Therefore, we charge all of our product development
expenses to operations in the period incurred.
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RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
revenues for the periods indicated.
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998(1)
----- ------ -------
Revenues:
Software license.......................................... 33.1% 21.8% 43.4%
Service and maintenance................................... 66.9% 78.2% 56.6%
----- ------ ------
Total revenues.................................... 100.0% 100.0% 100.0%
----- ------ ------
Cost of revenues:
Software license.......................................... 5.1% 3.8% 7.2%
Service and maintenance................................... 31.8% 48.1% 43.6%
----- ------ ------
Total cost of revenues............................ 36.9% 51.9% 50.8%
----- ------ ------
Operating expenses:
Sales and marketing....................................... 13.1% 38.0% 46.2%
Product development....................................... 21.6% 44.3% 44.3%
General and administrative................................ 27.1% 46.0% 25.5%
Goodwill impairment....................................... -- 27.2% --
Restructuring charge...................................... -- 11.7% --
Acquired in-process research and development.............. -- -- 7.7%
----- ------ ------
Total operating expenses.......................... 61.8% 167.2% 123.7%
----- ------ ------
Operating income (loss)..................................... 1.3% (119.1)% (74.5)%
Interest income (expense)................................... 0.0% 0.3% 3.6%
----- ------ ------
Income (loss) before income taxes........................... 1.3% (118.8)% (70.9)%
Income taxes................................................ -- -- --
----- ------ ------
Net income (loss)........................................... 1.3% (118.8)% (70.9)%
===== ====== ======
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(1) Restated, see Note 15 to the consolidated financial statements.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues. Total revenues, consisting of software license revenues and
service and maintenance revenues, decreased 20.0%, from $15.6 million for the
year ended December 31, 1999 to $12.4 million for the year ended December 31,
2000. Domestic revenues, those derived from sales in the U.S. decreased 6.4%
from $10.8 million for the year ended December 31, 1999 to $10.1 million for the
year ended December 31, 2000. International revenues, those derived from sales
outside of the U.S., decreased 50.0% from $4.8 million for the year ended
December 31, 1999 to $2.4. million for the year ended December 31, 2000.
Software license revenues increased 20.6%, from $3.4 million for the year
ended December 31, 1999 to $4.1 million for the year ended December 31, 2000.
This increase was primarily due to recognizing revenue from the performance of
prior years' contracts. Software license revenue for the twelve months ended
December 31, 2000 included $1.1 million of previously deferred income from a
former customer, which accounted for approximately 26.8% of total software
revenue. Service and maintenance revenues decreased 32.0%, from $12.2 million
for the year ended December 31, 1999 to $8.3 million for the year ended December
31, 2000. 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
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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 8.5%, from $586,000 for the
year ended December 31, 1999 to $636,000 for the year ended December 31, 2000.
Cost of software license revenues as a percentage of software license revenues
decreased from 17.3% for the year ended December 31, 1999 to 15.4% for the year
ended December 31, 2000. The increase in cost of revenues in dollars was
primarily due to an increase in third-party software products distributed by the
Company, as a result of the overall increase in software license revenues. The
decrease in cost of revenue as a percentage of software license revenues was
primarily due a decrease in the proportion of third-party products sold as a
percentage of total license fees.
Cost of service and maintenance revenues decreased 46.7%, from $7.5 million
for the year ended December 31, 1999 to $4.0 million for the year ended December
31, 2000. 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 61.6% for the year ended December 31, 1999
to 47.5% for the year ended December 31, 2000, 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 72.9%, from $5.9 million for the year ended December 31, 1999 to $1.6
million for the year ended December 31, 2000. The decrease in dollar amount was
primarily attributable to reduced staffing levels in the sales and marketing
organization, as the costs of this organization were reduced to a level
consistent with anticipated revenues. Sales and marketing expenses as a
percentage of total revenues decreased from 38.0% for the year ended December
31, 1999 to 13.1% or the year ended December 31, 2000. This decrease was
primarily due to the decreased staffing in response to the revenue decline (see
"Revenues" above and "Restructuring" below).
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 60.9%, from $6.9 million for the
year ended December 31, 1999 to $2.7 million for the year ended December 31,
2000. Product development expenses as a percentage of total revenues decrease
from 44.3% for the year ended December 31, 1999 to 21.6% for the year ended
December 31, 2000. These decreases in product development expenses was due
primarily to the decrease in development personnel as a result of the completion
of development work on FlexiFinancials Release 4 during 2000. The Company
expects to continue to enhance the functionality of its core financial
accounting and reporting and workflow applications, but does not anticipate the
need to increase its development staff greatly 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 52.8%, from
$7.2 million for the year ended December 31, 1999 to $3.4 million for the year
ended December 31, 2000. General and administrative expenses as a percentage of
total revenues decreased from 46.0% for the year ended December 31, 1999 to
27.1% for the year ended December 31, 2000. These decreases were primarily
attributed to staffing reductions.
Interest Income and Interest Expense. Interest income represents income
earned on the Company's cash, cash equivalents and marketable securities. Net
interest income (expense) decreased from $49,000 for the year ended December 31,
1999 to $(1,000) for the year ended December 31, 2000. This decrease was
primarily due the lower investable cash balances available to the Company during
2000. Interest expense represents interest expense on capital equipment leases.
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Income Taxes. No provision or benefit for federal, state or foreign income
taxes was made for the years ended December 31, 2000 or 1999 due to the
operating losses incurred in the respective periods. At December 31, 2000, the
Company has reported only tax losses to date and consequently has approximately
$47.9 million and $9.1 million of U.S. and foreign net operating loss
carryforwards, respectively, which expire during the years 2005 through 2020,
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, 2000 were $23.6 million, consisting
primarily of net operating loss carryforwards. The Company's benefit of deferred
tax assets has been fully reserved as of December 31, 2000 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, 1999 Compared to Year Ended December 31, 1998
Revenues. Total revenues, consisting of software license revenues and
service and maintenance revenues, decreased 36.0%, from $24.3 million for the
year ended December 31, 1998 to $15.6 million for the year ended December 31,
1999. Domestic revenues, those derived from sales in the U.S. decreased 36.1%
from $16.9 million for the year ended December 31, 1998 to $10.8 million for the
year ended December 31, 1999. International revenues, those derived from sales
outside of the U.S., decreased 35.1% from $7.4 million for the year ended
December 31, 1998 to $4.8 million for the year ended December 31, 1999. The
revenue decline was primarily due to delays in potential customers' buying
decisions, as they began to prepare for the new millennium (Y2K).
Software license revenues decreased 67.9%, from $10.5 million for the year
ended December 31, 1998 to $3.4 million for the year ended December 31, 1999.
The decline was due primarily to delays in potential customers' buying
decisions, as they began to prepare for the new millennium (Y2K). Service and
maintenance revenues decreased 11.5%, from $13.8 million for the year ended
December 31, 1998 to $12.2 million for the year ended December 31, 1999. The
decrease was primarily attributable to lower service revenue due to fewer active
client implementations.
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 decreased 66.6%, from $1.8 million for
the year ended December 31, 1998 to $586,000 for the year ended December 31,
1999. Cost of software license revenues as a percentage of software license
revenues increased from 16.7% for the year ended December 31, 1998 to 17.3% for
the year ended December 31, 1999. The decrease in cost of revenues in dollars
was primarily due to an decrease in third-party software products distributed by
the Company, as a result of the overall decline in software license revenues.
The increase in cost of revenue as a percentage of software license revenues was
primarily due an increase in the proportion of third-party products sold as a
percentage of total license fees.
Cost of service and maintenance revenues decreased 29.2%, from $10.6
million for the year ended December 31, 1998 to $7.5 million for the year ended
December 31, 1999. 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 77.0% for the year ended December 31,
1998 to 61.6% for the year ended December 31, 1999, 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 47.3%, from $11.2 million for the year ended December 31, 1998 to $5.9
million for the
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year ended December 31, 1999. The decrease in dollar amount was primarily
attributable to reduced staffing levels in the sales and marketing organization,
as the costs of this organization were reduced to a level consistent with
anticipated revenues. Sales and marketing expenses as a percentage of total
revenues decreased from 46.2% for the year ended December 31, 1998 to 38.0% or
the year ended December 31, 1999. This decrease was primarily due to the
decreased staffing in response to the revenue decline (see "Revenues" above and
"Restructuring" below).
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 35.9%, from $10.8 million for the
year ended December 31, 1998 to $6.9 million for the year ended December 31,
1999. The decrease in product development expenses was due primarily to the
decrease in development personnel as a result of the completion of development
work on FlexiFinancials Release 4. Product development expenses as a percentage
of total revenues remained constant at 44.3% for the years ended December 31,
1999 and 1998. The Company expects to continue to enhance the functionality of
its core financial accounting and reporting and workflow applications, but does
not anticipate the need to increase its development staff greatly 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 increased 15.5%, from
$6.2 million for the year ended December 31, 1998 to $7.2 million for the year
ended December 31, 1999. General and administrative expenses as a percentage of
total revenues increased from 25.5% for the year ended December 31, 1998 to
46.0% for the year ended December 31, 1999. The increase in general and
administrative expenses was primarily due to an increase in legal and
professional fees as a result of the costs of restating the Company's financial
statements (see "Restatement" below), increased legal fees associated with both
the Dataworks and Swagelok cases, and a full year of amortization of acquired
software and goodwill associated with the June 24, 1998 acquisition of The Dodge
Group.
Goodwill Impairment. During June 1999 management conducted a periodic
impairment assessment of the intangible assets resulting from The Dodge Group
acquisition. As a result of that review, management concluded that an impairment
had occurred with the goodwill and a $4.2 million write down of goodwill to a
carrying value of $0.3 million was recorded in the second quarter of 1999. The
Company's financial data warehouse products based on existing technologies are
expected to continue generating revenue through 2002, and thereafter, be
substantially replaced by more advanced technologies currently under
development. However, future research and development spending on follow-on
technologies will be dependent on management's prioritization of investments
under conditions of limited financial resources (see "Liquidity and Capital
Resources" below). As a result, expected future revenue and cash flows from the
acquired The Dodge Group business were revised downward significantly, causing
the impairment of goodwill.
Prior to the reassessment, the unamortized balance of the intangible assets
was $6.2 million, consisting of $1.7 million of acquired software and $4.5
million 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
Group acquisition in accordance with established policies. The economic factors
indicated above have caused management to revise downward its estimates of
future cash flows from current and future products associated with The Dodge
Group business as a whole. As a result of management's analysis, and using the
best information available, management recorded a goodwill impairment of $4.2
million in the second quarter to reduce the carrying amount of the goodwill to
$0.3 million.
In applying its policy for assessing the carrying amount of the goodwill
for impairment, management first estimated future cash flows from the acquired
The Dodge Group business generated from existing and planned future product
introductions over the next four years (estimated remaining useful life), and
assumed a terminal value factor after the fourth year based on a range of EBITDA
multiples for a sample of comparable
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public financial software companies. That estimate was then compared to the
carrying amount of the underlying assets, and on that basis management concluded
that an impairment existed. In measuring the impairment, the estimated future
cash flows were discounted to a net present value at 25%, a rate consistent with
that used in the original purchase accounting for The Dodge Group business. The
goodwill was then reduced accordingly to reflect the difference between its
carrying amount and estimated fair value.
Management will continue, periodically, to conduct reassessments of the
value of the acquired software and goodwill. Because the estimates made in these
reassessments are inherently subjective, there can be no assurance that future
reassessments will not result in further reductions of the carrying value of
these assets.
Acquired In-Process Research and Development. As a result of the June 24,
1998 acquisition of The Dodge Group, there was a one-time charge of $1.9 million
for acquired in-process research and development in the year ended December 31,
1998.
Interest Income and Interest Expense. Interest income represents income
earned on the Company's cash, cash equivalents and marketable securities. Net
interest income decreased from $880,000 for the year ended December 31, 1998 to
$49,000 for the year ended December 31, 1999. This decrease was primarily due
the lower investable cash balances available to the Company during 1999.
Interest expense represents interest expense on capital equipment leases, and
borrowings under the Company's line of credit.
Income Taxes. No provision or benefit for federal, state or foreign income
taxes was made for the years ended December 31, 1999 or 1998 due to the
operating losses incurred in the respective periods. The Company has reported
only tax losses to date and consequently has approximately $44.9 million and
$9.2 million of U.S. and foreign net operating loss carryforwards, respectively,
which expire during the years 2005 through 2019, 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, 1999 were $22.6 million, consisting primarily of net operating loss
carryforwards. The Company's benefit of deferred tax assets has been fully
reserved as of December 31, 1999 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
Since its inception, the Company has primarily financed its operations
through private placements of its stock to private investors, issuances of
convertible promissory notes and loans, equipment financing and traditional
borrowing arrangements, and in December 1997, an initial public offering of its
Common Stock, resulting in net proceeds to the Company of approximately $22.2
million.
As of December 31, 2000, the Company had cash and cash equivalents of $1.4
million, a decrease of $500,000 million from December 31, 1999, the Company also
had $108,000 in short-term marketable securities, that represented deposits paid
by a tenant in conjunction with a sublease, that are held in escrow for
restricted use at December 31, 2000. The Company's working capital deficit at
December 31, 2000 was $(3.3) million, compared to a working capital deficit of
$(5.2) million at December 31, 1999.
The Company's operating activities resulted in net cash outflows of $.5
million for the year ended December 31, 2000, which was mainly the result of the
net income offset by non-cash items included in net income, decreases in
deferred revenue and accounts receivable, and a decrease in accounts payable and
accrued expenses. The Company's investing activities resulted in net cash
outflows of $.1 million for the year ended December 31, 2000, which was
primarily related to the purchase of marketable securities. At December 31,
2000, the Company had no material commitments for capital expenditures. During
the year ended December 31, 2000, the Company had net cash outflows from
financing activities of $.2 million, which was primarily related to payments of
capital lease obligations and repayments of debt.
The Company's Board of Directors adopted a share repurchase program
authorizing the Company to purchase up to 1.0 million shares of its common stock
on the open market. As of December 31, 1998 the Company had purchased 135,000
common shares at a total cost of $463,000. The Company did not make any
additional purchases under this program during 1999 and 2000.
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Late in the second quarter of 1999, management identified a number of
factors that caused them to believe that available cash resources might not be
sufficient to fund anticipated operating losses. These included: (1) the
continued general business slowdown, which resulted in revenue levels
significantly lower than expected in the first half of 1999; (2) payment
disputes that arose in the second quarter of 1999 related to two significant
contracts for licensing of software and provision of services and; (3) delays
experienced in the second quarter of 1999 related to the release of the next
version of the Company's general ledger product. Management has taken actions to
reduce costs in response to lower revenues and is prepared to take further
actions, if necessary, in order to continue to respond to competitive and
economic pressures in the marketplace. In 2000, the Company resolved one of the
aforementioned disputed receivables which had no impact on the Company's cash
position. Subsequent to year end, the Company resolved the remaining outstanding
disputed accounts receivable which resulted in the Company receiving a cash
settlement from the customer.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") is effective for all fiscal years beginning after June
15, 2000. SFAS 133, as amended, establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Under SFAS 133, certain contracts
that were not formerly considered derivatives may now meet the definition of a
derivative. The Company will adopt SFAS 133 effective January 1, 2001. The
adoption of SFAS 133 will not have a significant impact on the consolidated
financial position, results of operations, or cash flows of the Company.
RESTRUCTURING
In the first quarter and third quarter of 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. These actions primarily involved involuntary terminations
of selected personnel. Severance packages were granted to 84 employees. This
reduction in headcount also led to the Company having excess leased facility
space. As a result of these actions, the Company recorded a charge to operations
during 1999 of approximately $1.8 million, consisting of $1.7 million related to
severance costs, payable in installments through February 2001, and $166,000
related to costs of idle facility space, which was paid in 1999. The Company
believes these actions resulted in sustainable cost savings, primarily through
the elimination of redundant functions in the product development organization,
due to completion of development work on FlexiFinancials Release 4, and to a
lesser extent in the support and sales organizations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Accumulated Deficit; Net Losses. The Company had an accumulated deficit of
$58.1 million at December 31, 2000 and incurred income of $.2 million and net
losses of $18.5 million and $17.2 million during 2000, 1999 and 1998,
respectively. To date, the Company has only been profitable during the year 2000
and during the last two quarters of 1997, and there can be no assurance that the
Company will regain its profitability on a quarterly basis. As of December 31,
2000, 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, 2000, 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 2020.
Accordingly, the Company has recorded a full valuation allowance for its
deferred tax assets at December 31, 2000.
The Company's FlexiFinancials, FlexiInfoAccess and FlexiTools financial
accounting products, which the Company anticipates will provide the principal
source of new license revenues for the foreseeable future, have a limited
history of customer acceptance and use. Accordingly, the Company has only a
limited operating history upon which an evaluation of the Company and its
prospects can be based. The Company's prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
their early stage of development, particularly companies in new and rapidly
evolving markets. To address these risks, the Company must, among other things,
respond to competitive developments, continue to attract, retain
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and motivate qualified management and other employees, continue to upgrade its
technologies and commercialize products and services that incorporate such
technologies and achieve market acceptance for its products and services. There
can be no assurance that the Company will be successful in addressing such
risks.
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.
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
were caused primarily by the Company's quota-based compensation arrangements,
typical of those used in software companies, and year-end budgetary pressures on
the Company's customers. In the second half of 1998 and throughout 1999, the
Company experienced a general slow down of business due primarily to delays in
potential customers' buying decisions, as they began to prepare for the new
millennium. This trend slowly moderated during 2000 as evidenced by the overall
negative performance of most of the major sellers of application software.
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 executive officers and key employees,
including the Company's sales force and software professionals,
15
19
particularly project managers, software engineers and other senior technical
personnel. 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 Company does not have employment contracts
with any of its key personnel. 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
required 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,
FlexiInfoAccess and FlexiTools financial accounting products and the provision
of consulting, training and software installation services in connection
therewith. 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 for the foreseeable 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. 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, 2000, 1999, and 1998, two customers
each represented 10% or more of the Company's total revenues (or an
16
20
aggregate of 38.2%, 39.0%, and 31.7% of total revenues, 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 limited 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 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
17
21
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 18.9%, 31.0%, and 30.4% of total
revenues during 2000, 1999, and 1998, respectively. The Company's international
presence increased by virtue of its acquisition of The Dodge Group. As a result
of the acquisition
18
22
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, 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 Company's financial results and conditions,
primarily foreign currency exchange rates and interest rates on marketable
securities. 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 or interest rates will have a material effect on
its future earnings, fair values or cash flows.
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23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FLEXIINTERNATIONAL SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
PAGE
-------
Independent Auditors' Report................................ 21
Report of Independent Accountants........................... 22
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... 23
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.......................... 24
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 2000, 1999 and 1998...... 25
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... 26
Notes to Consolidated Financial Statements.................. 27 - 39
Independent Auditors' Report on Financial Statement
Schedule.................................................. 40
Report of Independent Accountants on Financial Statement
Schedule.................................................. 41
Schedule II -- Valuation and Qualifying Accounts............ 42
20
24
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
FlexiInternational Software, Inc.
Shelton, Connecticut
We have audited the accompanying consolidated balance sheets of
FlexiInternational Software, Inc. and subsidiary (the "Company") as of December
31, 2000 and 1999, 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 consolidated
financial statements based on our audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of FlexiInternational Software, Inc.
and subsidiary at December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Hartford, Connecticut
February 27, 2001
21
25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
FlexiInternational Software, Inc.
In our opinion, the accompanying consolidated balance sheet as of December
31, 1998 and the related consolidated statements of operations, of stockholders'
equity (deficit) and of cash flows for each of the two years in the period ended
December 31, 1998 present fairly, in all material respects, the financial
position, results of operations and cash flows of FlexiInternational Software,
Inc. and its subsidiary at December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of FlexiInternational Software,
Inc. for any period subsequent to December 31, 1998.
As discussed in Note14, the accompanying financial statements as of
December 31, 1998 and for the year then ended have been restated with respect to
the revenue recognition of certain contracts.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the
consolidated financial statements, the Company has suffered recurring losses and
net cash outflows from operations that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 15. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
Stamford, Connecticut
January 26, 1999, except as
to Note 13 which is as of
February 26, 1999 and
to Notes 14 and 15 which
are as of
August 11, 1999
22
26
FLEXIINTERNATIONAL SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-------------------
2000 1999
-------- -------
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,389 $ 1,874
Marketable securities -- restricted.................... 108 --
Accounts receivable, net of allowance for doubtful
accounts
of $352 and $843, respectively....................... 2,558 6,155
Prepaid expenses and other current assets.............. 322 477
-------- -------
Total current assets.............................. 4,377 8,506
Property and equipment (Note 6)............................. 841 1,663
Acquired software, net of accumulated amortization of $1,080
and $648, respectively (Note 5)........................... 1,080 1,512
Goodwill, net of accumulated amortization of $5,502 and
$5,430,
respectively (Note 5)..................................... 165 237
Other assets................................................ 160 154
-------- -------
Total assets...................................... $ 6,623 $12,072
======== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 1,018 $ 1,657
Accrued commissions....................................... -- 387
Accrued restructuring costs (Note 14)..................... 27 401
Accrued expenses.......................................... 648 2,272
Short term portion of long-term debt (Notes 7 and 8)...... 976 578
Deferred revenues......................................... 5,012 8,408
-------- -------
Total current liabilities......................... 7,681 13,703
Long-term debt -- less current portion (Notes 7 and 8)...... 457 287
-------- -------
Total liabilities................................. 8,138 13,990
-------- -------
Commitments and contingencies (Note 13)
Stockholders' deficit (Notes 9 and 10):
Preferred stock: $.01 par value; 5,000,000 shares
authorized; none issued................................ -- --
Common stock: $.01 par value; 50,000,000 shares
authorized; issued shares -- 17,683,133 and outstanding
shares -- 17,672,703 and 17,664,008,
respectively........................................... 177 177
Additional paid-in capital................................ 56,128 56,128
Accumulated deficit....................................... (58,094) (58,251)
Other accumulated comprehensive income.................... 293 63
Common stock in treasury at cost -- 10,430 and 19,125
shares, respectively................................... (19) (35)
-------- -------
Total stockholders' deficit....................... (1,515) (1,918)
-------- -------
Total liabilities and stockholders' deficit....... $ 6,623 $12,072
======== =======
See accompanying notes to consolidated financial statements.
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27
FLEXIINTERNATIONAL SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- ----------
(RESTATED,
NOTE 15)
Revenues:
Software license.......................................... $ 4,112 $ 3,385 $ 10,542
Service and maintenance................................... 8,324 12,169 13,754
-------- -------- --------
Total revenues.................................... 12,436 15,554 24,296
-------- -------- --------
Cost of revenues:
Software license.......................................... 636 586 1,757
Service and maintenance................................... 3,956 7,491 10,584
-------- -------- --------
Total cost of revenues............................ 4,592 8,077 12,341
-------- -------- --------
Operating expenses:
Sales and marketing....................................... 1,632 5,919 11,233
Product development....................................... 2,689 6,887 10,752
General and administrative................................ 3,365 7,153 6,191
Goodwill impairment (Note 5).............................. -- 4,224 --
Restructuring charge (Note 14)............................ -- 1,824 --
Acquired in-process research and development (Note 5)..... -- -- 1,890
-------- -------- --------
Total operating expenses.......................... 7,686 26,007 30,066
-------- -------- --------
Operating income (loss)..................................... 158 (18,530) (18,111)
Net interest (expense) income............................... (1) 49 880
-------- -------- --------
Income (loss) before income taxes........................... 157 (18,481) (17,231)
Income taxes................................................ -- -- --
-------- -------- --------
Net income (loss)........................................... $ 157 $(18,481) $(17,231)
======== ======== ========
Income (loss) per share:
Basic.................................................. $ .01 $ (1.06) $ (1.02)
======== ======== ========
Diluted................................................ $ .01 $ (1.06) $ (1.02)
======== ======== ========
Weighted average shares:
Basic.................................................. 17,669 17,414 16,938
Diluted................................................ 17,669 17,414 16,938
See accompanying notes to consolidated financial statements.
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28
FLEXIINTERNATIONAL SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
OTHER
COMMON STOCK ADDITIONAL ACCUMULATED TOTAL
------------------- PAID-IN ACCUMULATED COMPREHENSIVE TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT INCOME STOCK EQUITY (DEFICIT)
---------- ------ ---------- ----------- ------------- -------- ----------------
Balance at January 1, 1998....... 16,492,008 $165 $49,749 $(22,208) $ -- $ -- $27,706
Stock issued in conjunction
with the acquisition of The
Dodge Group.................. 863,500 9 6,512 -- -- -- 6,521
Treasury stock acquired........ -- -- -- -- -- (463) (463)
Shares issued for stock
purchase plan................ -- -- -- (13) -- 45 32
Exercise of stock options...... 27,625 -- 47 (204) -- 204 47
Net loss (Restated, Note 15)... -- -- -- (17,231) -- -- (17,231)
Currency translation
adjustment................... -- -- -- -- 2 -- 2
Comprehensive loss (Restated,
Note 15)....................... -- -- -- -- -- -- --
---------- ---- ------- -------- ---- ----- -------
Balance at December 31, 1998
(Restated, Note 15)............ 17,383,133 174 56,308 (39,656) 2 (214) 16,614
Shares issued for stock
purchase plan................ -- -- -- (88) -- 150 62
Cancellation of options issued
in conjunction with the
acquisition of The Dodge
Group........................ -- -- (180) -- -- -- (180)
Exercise of stock options...... 300,000 3 -- (26) -- 29 6
Net loss....................... -- -- -- (18,481) -- -- (18,481)
Currency translation
adjustment................... -- -- -- -- 61 -- 61
Comprehensive loss............... -- -- -- -- -- -- --
---------- ---- ------- -------- ---- ----- -------
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............. -- -- -- -- -- -- --
---------- ---- ------- -------- ---- ----- -------
Balance at December 31, 2000..... 17,683,133 $177 $56,128 $(58,094) $293 $ (19) $(1,515)
========== ==== ======= ======== ==== ===== =======
COMPREHENSIVE
INCOME/(LOSS)
--------------
Balance at January 1, 1998.......
Stock issued in conjunction
with the acquisition of The
Dodge Group..................
Treasury stock acquired........
Shares issued for stock
purchase plan................
Exercise of stock options......
Net loss (Restated, Note 15)... $(17,231)
Currency translation
adjustment................... 2
--------
Comprehensive loss (Restated,
Note 15)....................... $(17,229)
--------
Balance at December 31, 1998
(Restated, Note 15)............
Shares issued for stock
purchase plan................
Cancellation of options issued
in conjunction with the
acquisition of The Dodge
Group........................
Exercise of stock options......
Net loss....................... $(18,481)
Currency translation
adjustment................... 61
--------
Comprehensive loss............... $(18,420)
--------
Balance at December 31, 1999.....
Shares issued for stock
purchase plan................
Net income..................... $ 157
Currency translation
adjustment................... 230
--------
Comprehensive income............. $ 387
========
Balance at December 31, 2000.....
See accompanying notes to consolidated financial statements.
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29
FLEXIINTERNATIONAL SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
------- -------- ----------
(RESTATED,
NOTE 15)
Cash flows from operating activities:
Net income (loss)........................................... $ 157 $(18,481) $(17,231)
Non-cash items:
Depreciation and amortization............................. 1,310 2,518 2,018
Acquired in-process research and development.............. -- -- 1,890
Provision for doubtful accounts........................... 299 1,643 1,450
Goodwill impairment....................................... -- 4,224 --
(Gain) loss on disposal of assets......................... (3) 198 --
Change in operating accounts:
Accounts receivable....................................... 3,298 3,223 (3,137)
Prepaid expenses and other assets......................... 160 404 (19)
Accounts payable and accrued expenses..................... (1,910) (3,115) 704
Accrued restructuring..................................... (374) 401 --
Deferred revenue.......................................... (3,396) 988 3,297
------- -------- --------
Net cash used in operating activities....................... (459) (7,997) (11,028)
Cash flows from investing activities:
Purchases of marketable securities........................ (108) -- (6,448)
Sales of marketable securities............................ -- 3,000 3,448
Acquisition of subsidiary, less cash acquired............. -- -- (774)
Proceeds from sales of property and equipment............. 40 33 33
Purchases of property and equipment....................... (21) (610) (921)
------- -------- --------
Net cash (used in) provided by investing activities......... (89) 2,423 (4,662)
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants...... -- 6 47
Repayments of line of credit.............................. -- (2,000) (1,450)
Proceeds from line of credit.............................. -- 2,000 1,450
Repayments of debt........................................ (50) -- (392)
Proceeds from employee stock purchase plan................ 5 62 32
Purchase of treasury stock................................ -- -- (463)
Payments of capital lease obligations..................... (122) (599) (278)
------- -------- --------
Net cash used in financing activities....................... (167) (531) (1,054)
Effect of exchange rate changes on cash..................... 230 103 (2)
------- -------- --------
Decrease in cash and cash equivalents....................... (485) (6,002) (16,746)
------- -------- --------
Cash and cash equivalents at beginning of year.............. 1,874 7,876 24,622
------- -------- --------
Cash and cash equivalents at end of year.................... $ 1,389 $ 1,874 $ 7,876
======= ======== ========
Supplemental disclosures:
Interest paid in cash..................................... $ 50 $ 107 $ 108
Assets acquired through capital lease obligations......... -- -- 1,232
Stock issued in connection with the acquisition of The
Dodge Group............................................ -- -- 6,521
Conversion of accounts payable into notes payable......... 748 -- --
See accompanying notes to consolidated financial statements.
26
30
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1 -- 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 (FlexiFDW), FlexiInfoAccess and
FlexiTools -- is designed to address the needs of users with sophisticated
financial accounting and operational analysis requirements.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
FlexiInternational Software, Inc. and its wholly owned subsidiary since its
acquisition of The Dodge Group ("Dodge") in June 1998 (Note 5). Intercompany
profits, transactions and balances have been eliminated in consolidation.
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 at that time. 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.
FOREIGN CURRENCY TRANSLATION:
The assets and liabilities of the Company's foreign subsidiary, Dodge, 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' equity (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, 2000, 1999 and 1998 were $0,
$2 and ($21), respectively.
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
27
31
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that could be capitalized are not material to the Company's consolidated
financial position or results of operations. Therefore, the Company charges all
the 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.
MARKETABLE SECURITIES:
Marketable securities consist of U.S. government obligations, and all are
interest-bearing having original maturities of between three months and one
year. The Company has restricted marketable securities that represent a
subleasee's security deposit and prepaid rent.
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.
GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill and other intangible assets are stated on the basis of cost and
amortized on a straight-line basis over the estimated future periods to be
benefited (5 years). Goodwill and other intangible assets are periodically
reviewed for impairment based upon anticipated cash flows generated from such
underlying assets.
INCOME TAXES:
Deferred taxes are determined under the asset and liability approach.
Deferred tax assets and liabilities are recognized on differences between the
book and tax bases of assets and liabilities using presently enacted tax rates.
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.
ACCOUNTING FOR STOCK BASED COMPENSATION:
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"). As
permitted by SFAS 123, the Company continues to apply Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," to
account for its stock-based employee compensation arrangements.
28
32
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") is effective for all fiscal years beginning after June
15, 2000. SFAS 133, as amended, establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Under SFAS 133, certain contracts
that were not formerly considered derivatives may now meet the definition of a
derivative. The Company will adopt SFAS 133 effective January 1, 2001. The
adoption of SFAS 133 will not have a significant impact on the consolidated
financial position, results of operations, or cash flows of the Company.
In December 1999, the Securities Exchange Commission ("SEC") issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101, as amended, provides guidance related to revenue recognition
issues based on interpretations and practices followed by the SEC. The adoption
of SAB 101 in 2000 did not have a material effect on the Company's consolidated
financial position, results of operations, or cash flows.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"). FIN 44 clarifies
the application of APB Opinion No. 25 regarding (a) the definition of employee
for purposes of applying APB Opinion No. 25 (b) the criteria for determining
whether a stock option plan qualifies as a non-compensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions cover specific events that occur after either December
15, 1998, or January 12, 2000. The adoption of FIN 44 did not have a material
effect on the Company's consolidated financial position, results of operations,
or cash flows.
USE OF ESTIMATES:
The accompanying consolidated financial statements reflect estimates and
assumptions made in the application of accounting principles generally accepted
in the United States of America. Actual results may vary from those estimates.
EARNINGS PER SHARE:
Basic earnings per share ("EPS") is computed be dividing earnings available
to common shareholders 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, 2000, 1999 and
1998, 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.
29
33
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- 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, Sweden
and South America for the years ended December 31, 2000, 1999 and 1998, and the
Company's international long lived assets at December 31, 2000 and 1999 resided
primarily in the United Kingdom.
REVENUES:
2000 1999 1998
------- ------- -------
United States............................................. $10,082 $10,800 $16,907
International:
United Kingdom....................................... 2,354 3,314 2,459
Sweden............................................... -- 983 2,446
Other................................................... -- 457 2,484
------- ------- -------
Total........................................... $12,436 $15,554 $24,296
======= ======= =======
LONG LIVED ASSETS:
2000 1999
------- -------
United States............................................. $ 2,043 $ 3,285
International............................................. 43 127
------- -------
Total........................................... $ 2,086 $ 3,412
======= =======
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
38.2%, 39.0%, and 31.7% of total revenues for each of the years ended December
31, 2000, 1999 and 1998, respectively. Three customers represented approximately
67.7% and 50.2% of the Company's net accounts receivable at December 31, 2000
and 1999, respectively.
NOTE 4 -- INCOME TAXES:
Significant components of the Company's deferred tax assets at December 31
are as follows:
2000 1999
------- -------
Net operating loss carryforwards............................ $21,982 $20,799
Other..................................................... 1,578 1,802
------- -------
Subtotal............................................... 23,560 22,601
Valuation allowance....................................... (23,560) (22,601)
------- -------
Net deferred tax asset.................................... $ -- $ --
======= =======
No provision or benefit for federal, state or foreign income taxes has been
made for the years ended December 31, 2000, 1999 and 1998 given the Company's
loss carryforward position. At December 31, 2000, the Company had U.S. and
foreign net operating loss carryforwards of approximately $47,890 and $9,115,
respectively, which expire during the years 2005 through 2020. The deferred tax
assets at December 31, 2000 and 1999 have been fully reserved due to the
uncertainty of their realization, primarily attributed to the Company's
historical losses.
30
34
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The following reconciles from the statutory income tax rate to the
effective tax rate:
YEARS ENDED DECEMBER 31,
------------------------
2000 1999 1998
------ ----- -----
Statutory rate.............................................. 34.0% 34.0% 34.0%
Goodwill.................................................. 109.1% (9.7)% (1.1)%
State taxes............................................... (37.9)% 4.2% 5.3%
Credit and loss carryovers................................ (721.2)% 6.5% 2.8%
Valuation allowance....................................... 610.4% (34.9)% (41.2)%
Other..................................................... 5.6% (0.1)% 0.2%
------ ----- -----
Effective tax rate..................................... 0.0% 0.0% 0.0%
====== ===== =====
NOTE 5 -- 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.
Following executive and staff cutbacks in connection with a first quarter
1999 restructuring program (Note 14), management revised its plans for the
existing Dodge financial data warehouse business acquired in 1998. As a result,
expected revenues and cash flows from these software products were revised
significantly downward. Additionally, competitive pressures and a continuation
of the general business slowdown caused management to reassess the long term
potential of the Dodge business and to reprioritize its investments.
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.
In applying its policy for assessing the carrying amount of the goodwill
for impairment, management first estimated future cash flows from the acquired
Dodge business generated from existing and planned future product introductions
over the estimated remaining useful life as of June 30, 1999, and assumed a
terminal value factor after the fourth year based on a range of EBITDA multiples
for a sample of comparable public financial software companies. That estimate
was then compared to the carrying amount of the underlying assets, and on that
basis management concluded that an impairment existed. In measuring the
impairment, the estimated future cash flows were discounted to a net present
value at 25%, a rate consistent with that used in the original purchase
accounting for the Dodge business. The goodwill was then reduced accordingly to
reflect the difference between its carrying amount and estimated fair value.
31
35
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reflects pro forma combined results of operations
(unaudited) of the Company and Dodge, giving effect to the acquisition of Dodge
at the beginning of fiscal year 1998, and excludes the one-time in-process
research and development charge of $1,890 for the period presented:
1998
-----------
(UNAUDITED)
Revenue..................................................... $ 28,742
Net loss.................................................... $ (18,174)
Net loss per diluted common share........................... $ (1.05)
Shares used in computation.................................. 17,356,000
Management determined there was no further impairment at December 31, 2000.
Management will continue, periodically, to conduct reassessments of the value of
the acquired software and goodwill. Because the estimates made in these
reassessments are inherently subjective, there can be no assurance that future
reassessments will not result in further reductions of the carrying value of
these assets.
NOTE 6 -- PROPERTY AND EQUIPMENT:
The Company's property and equipment consists of the following:
DECEMBER 31,
-----------------
2000 1999
-------- ------
Computers................................................... $ 1,108 $1,341
Computers leased............................................ 2,346 2,346
Software.................................................... 652 651
Furniture and fixtures...................................... 268 365
Furniture and fixtures leased............................... 240 240
Leasehold improvements...................................... 319 345
Office equipment............................................ 62 90
-------- ------
4,995 5,378
Accumulated depreciation.................................... (4,154) (3,715)
-------- ------
Total............................................. $ 841 $1,663
======== ======
Depreciation expense was $806, $1,446, and $1,016 for the years ended
December 31, 2000, 1999 and 1998, respectively. All property and equipment has
been pledged as collateral for a master lease agreement (Note 8).
NOTE 7 -- NOTES PAYABLE:
On December 8, 2000, the Company arranged a thirty-six month note maturing
on December 8, 2003 with one of its vendors for a trade payable. The note is
unsecured, has a stated interest rate of 0% with an imputed interest rate of 8%,
and is due in monthly installments of $16. The note requires any subsequent
charges after the date of the note to be paid currently and in addition to the
amortization of the note balance. The outstanding balance on the note at
December 31, 2000 was $505, which represents the face amount of $570 less the
unamortized discount of $65.
On November 9, 2000, the Company arranged a nine-month note maturing on
July 30, 2001 with one of its vendors for a trade payable. The note is
unsecured, has a stated interest rate of 0%, and is due in monthly installments
of $25. The note requires any subsequent charges after the date of the note to
be paid currently and in addition to the amortization of the note balance. The
outstanding balance on the note at December 31, 2000 was $185.
32
36
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term borrowings are as follows at December 31, 2000:
2001........................................................ $340
2002........................................................ 175
2003........................................................ 175
----
$690
====
NOTE 8 -- CAPITAL LEASE OBLIGATIONS:
On November 30, 2000, the Company restructured its existing master lease
agreement with its lease vendor. As a condition to the restructured agreement,
the Company granted a blanket lien on all of its existing fixed assets. The
original cost and accumulated depreciation of this property at December 31, 2000
is $2,586 and $1,962, respectively. The present value of the lease obligation at
December 31, 2000 is $743.
Approximate maturities of such capital lease obligations are as follows at
December 31, 2000:
2001........................................................ $636
2002........................................................ 156
----
Total............................................. 792
Less amounts representing interest.......................... 49
----
Total capital lease obligations................... 743
Less amounts due within one year............................ 636
----
Long-term portion capital lease obligations................. $107
====
NOTE 9 -- 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. Such warrant allows the holder to acquire 3,846 shares of common
stock for $2.20 per share. This warrant expires in December 2006.
33
37
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
NOTE 10 -- 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 300,000 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. Under the Purchase Plan, the Company issued
8,695; 54,178 and 7,989 shares to participants during 2000, 1999 and 1998,
respectively.
OPTION EXCHANGE PROGRAM:
In November 1998, the Company's board of directors approved an option
exchange program, which allowed certain employees to exchange their existing
options for new options with a lower exercise price and a longer vesting period.
Employee options with exercise prices ranging from $2.00 to $16.50, to purchase
512,160 shares of common stock were exchanged for options for 470,640 shares
ranging in price from $1.88 to $2.44, which was at or above the fair market
value at the time of the exchange. The tables below have been adjusted to
reflect these reduced exercise prices, and the extension of the options' life.
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, 2000, there are 57,675 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 1,875,000 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 2000, 1999 and 1998, 344,811; 1,303,482
and 1,446,090 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 of the Company
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 2000, 1999 and 1998, 18,000; 63,439
and 15,750 options under the Director Plan were granted, respectively.
34
38
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table describes the Company's stock option activity under its
all of its option plans:
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
---------- ------------------------
(PRICED AT DATE OF
GRANT)
Outstanding at January 1, 1998.................. 896,900 $2.92
Granted....................................... 1,476,220 $3.89
Exercised..................................... (65,125) $0.73
Canceled...................................... (1,009,552) $6.01
----------
Outstanding at December 31, 1998................ 1,298,443 $1.73
Granted....................................... 1,366,921 $1.09
Exercised..................................... (316,209) $0.01
Canceled...................................... (926,266) $1.97
----------
Outstanding at December 31, 1999................ 1,422,889 $1.34
Granted....................................... 362,811 $0.68
Canceled...................................... (450,656) $1.18
----------
Outstanding at December 31, 2000................ 1,335,044 $1.17
==========
Exercisable at December 31, 1998................ 497,004 $1.03
Exercisable at December 31, 1999................ 306,915 $2.02
Exercisable at December 31, 2000................ 392,840 $1.67
Options available for grant at December 31,
2000.......................................... 731,422 --
The following table summarizes information regarding stock options granted
under all of the Company's option plans:
WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE
OPTIONS EXERCISE FAIR
GRANTED PRICE VALUE
---------- -------- --------
1998:
Options granted at less than market value................... 50,000 $0.01 $6.87
Options granted at market value............................. 1,248,940 $4.26 $3.93
Options granted above market value.......................... 162,900 $2.44 $0.22
1999:
Options granted at market value............................. 1,366,921 $1.09 $1.01
2000:
Options granted at market value............................. 362,811 $0.68 $0.62
35
39
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information regarding stock options
outstanding at December 31, 2000 under all of the Company's option plans:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
RANGE OF CONTRACTUAL AVERAGE EXERCISE
EXERCISE NUMBER LIFE EXERCISE NUMBER PRICE
PRICES OUTSTANDING IN YEARS PRICE EXERCISABLE PER SHARE
- -------- ----------- ----------- -------------- ----------- ---------
$0.20-$ 0.30.............................. 95,000 9.65 $0.27 0 $0.00
$0.38-$ 0.38.............................. 299,083 8.82 $0.38 99,704 $0.38
$0.59-$ 1.06.............................. 406,660 9.15 $0.90 25,224 $0.66
$1.19-$ 1.44.............................. 360,825 7.90 $1.28 195,305 $1.35
$1.63-$12.63.............................. 173,476 7.62 $3.48 72,607 $4.65
If the Company had recorded compensation cost based upon the fair value at
the grant date for awards under these plans, consistent with SFAS 123, the
Company's net income (loss) and net income (loss) per share would be the pro
forma amounts indicated below:
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
----- -------- --------
Net income (loss) as reported............................... $ 157 $(18,481) $(17,231)
Net loss pro forma.......................................... $(293) $(19,063) $(18,027)
Income (loss) per share as reported -- basic and diluted.... $ .01 $ (1.06) $ (1.02)
Loss per share pro forma -- basic and diluted............... $(.02) $ (1.09) $ (1.06)
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate of 6.34%, 5.59% and 4.92% for the years
ended December 31, 2000, 1999 and 1998, respectively, an option life of 3 years
for 2000 and 5 years for 1999 and 1998, a 0% dividend rate for all the years
presented, and a volatility of 1.60, 1.61 and 1.52 for the years ended December
31, 2000, 1999 and 1998, 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, 2000 the Company has reserved 1,335,044 shares of common
stock for options outstanding under its 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 731,442 shares of common stock
at December 31, 2000, for future grants under its Incentive Plan and Director
Plan.
NOTE 11 -- RELATED PARTY TRANSACTIONS:
As a result of the June 24, 1998 acquisition of Dodge, the President of
International Operations was granted options to purchase 25,000 shares of common
stock of the Company at $0.01 each. In connection with these option grants, the
Company loaned him $180, secured by a pledge of the options as collateral. As of
December 31, 1998, no amounts were repaid with respect to the above loan.
Subsequently, he resigned his position in February 1999. As a result of his
resignation, he surrendered his options and pursuant to his loan agreement the
loan was forgiven.
NOTE 12 -- EMPLOYEE BENEFIT PLANS:
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 15% of their annual
compensation to the Plan on a pre-tax basis. Participant contributions to the
Plan are
36
40
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
immediately vested. In addition, under the terms of the Plan, the Company, at
its discretion, may match all or a portion of a 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 $72, $57 and $209 for 2000, 1999 and 1998, respectively.
NOTE 13 -- 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, 2000, the minimum annual rental payments
under the terms of such noncancellable leases which expire at various dates are
as follows:
2001........................................................ $ 406
2002........................................................ 326
2003........................................................ 228
2004........................................................ 96
------
Total minimum lease payments...................... $1,056
======
Rent expense for the years ended December 31, 2000, 1999 and 1998 amounted
to $342, $1,017 and $991, 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.
NOTE 14 -- 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.
As a result of both of these actions, the Company recorded a charge to
operations during the three month periods ended March 31, 1999 and September 30,
1999 of $1,896 and $125, respectively. Of the total amount of these charges,
$1,855 was related to severance costs, of which $1,258 was paid prior to
December 31, 1999, and $166 related to costs of idle facility space, of which
all of these amounts were paid during the year ended December 31, 1999.
Additionally, during the third quarter of 1999, one of the Company's former
employees, who was terminated earlier in the year, obtained employment
elsewhere, and the Company was no longer obligated to make payments totaling
$196. As such, the Company reversed this accrued liability during the three
months ended September 30, 1999. At December 31, 2000, there remained $27 of
severance costs, which will be 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.
37
41
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Detail of the restructuring charge is as follows:
SEVERANCE EXCESS
& BENEFITS FACILITIES TOTAL
---------- ---------- -------
Initial accruals, February 26, 1999....................... $ 1,730 $ 166 $ 1,896
Additional charge September 30, 1999...................... 125 -- 125
Change in estimate of severance costs September 30,
1999.................................................... (196) -- (196)
Cash payments............................................. (1,258) (166) (1,424)
------- ----- -------
Reserve balances, December 31, 1999....................... 401 -- 401
Cash payments............................................. (374) -- (374)
------- ----- -------
Reserve balances, December 31, 2000....................... $ 27 $ -- $ 27
======= ===== =======
NOTE 15 -- RESTATEMENT:
As a result of the Company's regular quarterly financial statement review
with its independent accountants in the second quarter of 1999, the Company
determined that it would restate the prior year amounts originally reported for
1998 and the first quarter of 1999, to reflect a change in the revenue
recognition for several software license contracts. Most of the restated amounts
relate to two contracts that the Company believes were appropriately due and
payable under their contractual terms but payments with respect to which, in the
second quarter of 1999 became subject to dispute as a result of certain
performance commitments, by the contracting parties. Any amounts stipulated in
contracts which have not been invoiced have not been recognized in the financial
statements. A summary of the effects of the restatement follows:
YEAR ENDED DECEMBER 31,
1998
------------------------
AS REPORTED RESTATED
------------ ---------
OPERATING STATEMENT:
Software license revenue.................................... $ 16,113 $ 10,542
Service and maintenance revenue............................. 14,078 13,754
-------- --------
Total revenues.............................................. 30,191 24,296
General and administrative.................................. 6,991 6,191
Total operating expenses.................................... 30,866 30,066
Operating loss.............................................. (13,016) (18,111)
Loss before income taxes.................................... (12,136) (17,231)
Net loss.................................................... (12,136) (17,231)
Loss per share:
Basic..................................................... $ (0.72) $ (1.02)
Diluted................................................... $ (0.72) $ (1.02)
NOTE 16 -- BUSINESS PLANS:
Throughout 2000 the Company focused its efforts on maintaining cost
controls, enhancing its relationships with current business partners, rebuilding
its direct sales force and resolving preexisting disputes. The Company has
limited its investment of capital to maintaining and enhancing its products to
remain competitive in the marketplace and to rebuilding its direct sales force.
The Company has continued to update its products to remain competitive and has
had three new major releases of its 32 bit product and two major new releases of
its 16 bit product in 2000. The Company also expanded its relationship with one
of its partners in the third quarter of 2000, which resulted in the Company's
receipt of additional revenue and cash from this partner. The Company resolved
the two major disputes it had with former customers. One dispute was
38
42
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
resolved in 2000 and resulted in the Company recognizing previously billed and
deferred revenue. The second dispute was resolved on February 27, 2001 and
resulted in the recognition in 2001 of approximately $1,017 of revenue, which
included approximately $410 of previously deferred revenue and an additional
cash settlement of $600. The Company hired a Vice President of Sales in the
latter part of 2000 and this individual has accelerated the rebuilding of the
direct sales force. While the Company is funding its operations internally, it
entered into two formal agreements with its vendors to convert accounts payable
to longer-term notes payable (see Note 6). The Company has developed and put in
place a business plan designed to continue to fund operations internally for at
least the next twelve months, and to set in place the infrastructure necessary
to develop a sustainable revenue stream.
NOTE 17 -- SELECTED QUARTERLY INFORMATION (UNAUDITED):
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, QUARTER QUARTER QUARTER QUARTER
- ----------------------- ------- ------- ------- -------
2000
Total revenues.............................................. $3,627 $2,897 $2,802 $3,110
Gross profit................................................ 2,279 1,829 1,925 1,811
Net income.................................................. 17 18 51 71
Income per share (1)........................................ 0.00 0.00 0.00 0.00
1999
Total revenues.............................................. $3,988 $3,936 $3,575 $4,056
Gross profit................................................ 1,319 1,868 1,915 2,376
Net loss.................................................... (7,899) (7,952) (2,023) (606)
Loss per share (1).......................................... (0.46) (0.46) (0.12) (0.03)
- ---------------
(1) Quarterly income (loss) per share may not equal the annual reported amounts.
39
43
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
Board of Directors of
FlexiInternational Software, Inc.
We have audited the consolidated financial statements of FlexiInternational
Software, Inc. and subsidiary as of December 31, 2000 and 1999 and for the years
then ended, and have issued our report thereon dated February 27, 2001; such
financial statements and report are included in your 2000 Annual Report to
Stockholders and are included herein. Our audits also included the financial
statement schedule of FlexiInternational Software, Inc. and subsidiary listed in
Item 14. This financial statement schedule is the responsibility of the
Corporation's management. Our responsibility is to express an opinion based on
our audits. 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.
Deloitte & Touche LLP
Hartford, Connecticut
February 27, 2001
40
44
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
FlexiInternational Software, Inc.
Our audits of the consolidated financial statements referred to in our
report dated January 26, 1999, except as to Note 13 which is as of February 26,
1999 and to Notes 14 and 15 which are as of August 11, 1999, appearing on page
F-3 of the 2000 Annual Report on Form 10-K of FlexiInternational Software, Inc.
also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Stamford, Connecticut
January 26, 1999, except as
to Note 13 which is as of
February 26, 1999 and
to Notes 14 and 15 which are as of
August 11, 1999
41
45
FLEXIINTERNATIONAL SOFTWARE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
CHARGED TO BALANCE AT
BALANCE AT COSTS AND DECEMBER 31,
DESCRIPTION JANUARY 1, 2000 EXPENSES DEDUCTIONS 2000
- ----------- --------------- ---------- ---------- ----------------
Allowance for doubtful accounts.......... $ 843 $ 299 $ (790) $ 352
Valuation allowance for deferred tax
asset.................................. $22,601 $ 959 $ -- $23,560
CHARGED TO BALANCE AT
BALANCE AT COSTS AND DECEMBER 31,
DESCRIPTION JANUARY 1, 1999 EXPENSES DEDUCTIONS 1999
- ----------- --------------- ---------- ---------- ----------------
Allowance for doubtful accounts.......... $ 812 $1,643 $(1,612) $ 843
Valuation allowance for deferred tax
asset.................................. $16,156 $6,445 $ -- $22,601
CHARGED TO BALANCE AT
BALANCE AT COSTS AND DECEMBER 31,
DESCRIPTION JANUARY 1, 1998 EXPENSES DEDUCTIONS 1998
- ----------- --------------- ---------- ---------- ----------------
Allowance for doubtful accounts.......... $ 672 $1,450 $(1,310) $ 182
Valuation allowance for deferred tax
asset.................................. $ 8,296 $7,860 $ -- $16,156
42
46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by Regulation S-K was previously reported in our
annual report on form 10K for the year ended December 1999.
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 Annual Meeting of
Stockholders to be held on Tuesday, May 1, 2001, which will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
2000, 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 Annual Meeting of Stockholders to be
held on Tuesday, May 1, 2001, which will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 2000, 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 Annual Meeting of Stockholders to be
held on Tuesday, May 1, 2001, which will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 2000, is
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 Annual Meeting of Stockholders to be
held on Tuesday, May 1, 2001, which will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 2000, is
incorporated herein by reference.
43
47
PART IV
ITEM 14. 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 on 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 "Valuation and Qualifying Accounts" appears on page 42 of this
Annual Report on Form 10-K.
All schedules other than as listed above to the consolidated financial
statements are omitted because they are not applicable, not required, or the
information required is included in the consolidated financial statements or
notes thereto.
(a)(3) Exhibits
The Exhibits filed as part of this Annual Report on Form 10-K are listed on
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 as exhibits herewith.
Documents identified by footnotes are not being filed herewith and, pursuant to
Rule 12b-32 under the Securities Exchange Act of 1934, reference is made to such
documents as previously filed as exhibits with the Securities and Exchange
Commission.
(a)(4) Current Reports on Form 8-K
Flexi did not file a current report on Form 8-K during the fourth quarter
of the fiscal year ended December 31, 2000.
44
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment of report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FLEXIINTERNATIONAL SOFTWARE, INC.
By: /s/ STEFAN R. BOTHE
------------------------------------
Stefan R. Bothe
Chief Executive Officer and Chairman
of the Board
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report 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 and Chief March 30, 2001
- ----------------------------------------------------- Executive Officer (Principal
Stefan R. Bothe Executive Officer)
/s/ FRANK GRYWALSKI President and Chief Operating March 30, 2001
- ----------------------------------------------------- Officer (Principal Accounting
Frank Grywalski Officer)
/s/ JENNIFER V. CHENG Director March 30, 2001
- -----------------------------------------------------
Jennifer V. Cheng
/s/ A. DAVID TORY Director March 30, 2001
- -----------------------------------------------------
A. David Tory
/s/ ROBERT A. DEGAN Director March 30, 2001
- -----------------------------------------------------
Robert A. Degan
45
49
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- -------- -----------
3.1(1) Amended and Restated Certificate of Incorporation
3.2(1) Amended and Restated By-Laws
10.1(1)+ 1992 Stock Option Plan, as amended
10.2(1)+ 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
10.4(1)+ 1997 Employee Stock Purchase Plan
10.5(1) Registration Rights Agreement dated May 7, 1996, as amended,
among the Registrant and the Purchasers (as defined therein)
10.6(1) Series C Preferred Stock Purchase Agreement dated May 7,
1996 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) Master Lease Agreement dated June 28, 1994 between the
Registrant and Comdisco, Inc.
10.11(1) Letter Agreement dated April 30, 1997 between the Registrant
and Fleet National Bank ("Fleet")
10.12(1) Accounts Receivable Security Agreement dated April 30, 1997
between the Registrant and Fleet
10.13(2) Promissory Note of the Registrant dated January 30, 1998 to
Fleet in the principal amount of $5,000,000.
10.14(1) Subordination Agreement dated April 30, 1997 between the
Registrant and the Connecticut Development Authority
10.15(1) Standard Sublease Agreement dated February 7, 1996 between
the Registrant and Symantec Corporation
10.16(1) Warrant Agreement dated December 10, 1996 issued to
Comdisco, Inc.
10.17(1) Stockholders' Voting Agreement dated May 7, 1996 among the
Registrant and the Stockholders (as defined therein)
10.18(1) Participation Agreement dated May 7, 1996 among the
Registrant and the Purchasers (as defined therein)
10.19(2) Loan modification agreement dated January 30, 1998 between
the Registrant and Fleet
10.20(3) Agreement and Plan of Merger dated June 24, 1998 among the
Registrant, Princess Acquisition Corporation and The Dodge
Group, Inc.
10.21(3)+ Severance and Settlement Agreement and Release dated
February 2, 1999 between the Registrant and Jennifer V.
Cheng
10.22(3)+ Severance and Settlement Agreement and Release dated
February 2, 1999 between the Registrant and James W. Schenck
10.23(3)+ Amendment of Options dated May 12, 1999 between the
Registrant and Jennifer V. Cheng
46
50
EXHIBIT
NO. DESCRIPTION
- -------- -----------
10.24(3)+ Amendment of Options dated May 12, 1999 between the
Registrant and James W. Schenck
10.25 Lease Agreement, dated February 21, 2000, by and between the
Company and Sommer Holdings, Ltd.
21.1 Schedule of Subsidiaries
23.1 Independent Auditors' Consent
- ---------------
(1) Incorporated herein by reference to the Company's registration statement on
Form S-1 (File 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 (File No. 000-23453).
+ 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.
47