UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 19, 2004
Commission File Number 0-15949
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
California 94-2862863
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification No.)
100 ROWLAND WAY, NOVATO, CA 94945
(Address of principal executive offices) (Zip code)
(415) 878-4000 (Registrant's telephone number
including area code)
ITEM 2 - ACQUISITION OR DISPOSITION OF ASSETS
On April 19, 2004 (the "Closing Date"), International Microcomputer Software,
Inc. ("IMSI") consummated the acquisition (the "Acquisition") of all the stock
of Aladdin Systems, Inc. ("Aladdin"), pursuant to a Stock Purchase Agreement
(the "Stock Purchase Agreement"), dated January 20, 2004, between Aladdin
Systems Holdings, Inc, the parent company of Aladdin, and IMSI.
The consideration paid in the Acquisition (which was determined as a result of
arms'-length negotiations and which was based upon an in-depth analysis of
Aladdin's current and projected business activity in addition to comparable
companies and transactions) consisted of a combination of cash in the amount of
$1,500,000, subject to a 10% escrow, 2,317,881 unregistered shares of IMSI
common stock (which are required to be registered within 90 days of the close of
the transaction) and two three-year convertible notes in the aggregate amount of
$3,000,000.Additional cash earn-out payments may be earned, up to an aggregate
of $2,000,000, based on net revenues derived from Aladdin for the three
consecutive twelve-month periods following the Closing Date.
Eligible employees of Aladdin were given the opportunity to convert their
existing Aladdin Systems Holdings Inc. common stock options into IMSI common
stock options priced at market as of the date of the closing. The newly granted
options are subject to vesting as set forth in our 2004 Incentive Stock Option
Plan. The conversion ratio was calculated using the Black-Scholes valuation
methodology and resulted in the issuance of 638,000 IMSI common stock options
with an aggregate value of $1.1 million which was included in the calculation of
the aggregate consideration paid for the acquisition.
Aladdin is a developer and publisher of utility software solutions in the areas
of information access, removal, recovery, security and distribution of
information and data for the Windows(R), Linux and Macintosh(R) platforms.
IMSI relied on its available cash balances to make the payment related to the
cash component of this transaction.
2
ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED:
The financial statements of Aladdin Systems, Inc. and the report of Grant
Thornton, LLP, the independent public accountants relating to such financial
statements, are attached hereto.
(b) PRO FORMA FINANCIAL INFORMATION:
The unaudited pro forma condensed combined consolidated financial statements of
IMSI attached hereto are not necessarily indicative of the results that actually
would have been attained if the acquisition had been in effect on the dates
indicated or which may be attained in the future. Such statements should be read
in conjunction with the historical financial statements of IMSI and Aladdin
Systems, Inc.
(c) EXHIBITS:
NUMBER EXHIBIT DESCRIPTION
--------------------------------------------------------------------------------
2.1 Aladdin Stock Purchase Agreement, dated January 20, 2004, between
Aladdin Systems Holdings, Inc. and International Microcomputer
Software, Inc. (1) (2)
99.1 Press Release, dated April 20, 2004 of International Microcomputer
Software, Inc. announcing the closing of the Aladdin Systems, Inc
acquisition. (1)
(1) Previously filed in the Current Report on Form 8-K filed by the registrant
on April 20, 2004.
(2) The exhibits to the Stock Purchase Agreement have not been filed with the
Stock Purchase Agreement. The Stock Purchase Agreement previously filed as an
exhibit to the Current Report on Form 8-K filed by the registrant on April 20,
2004 briefly describes the contents of each exhibit to the Stock Purchase
Agreement. The Registrant undertakes to furnish supplementally a copy of any
omitted exhibit to the Commission upon request. Set forth below is a list of the
omitted exhibits:
A. Form of Promissory Note B. Form of Promissory Note C. Form of Pledge
Agreement D. Form of Earn-Out Report E. Form of Escrow Agreement
F. Form of Registration Rights Agreement G. Form of Executive Employment
Agreement- Jonathan Kahn H. Form of Executive Employment Agreement- Darryl
Lovato I. Form of Purchaser's Counsel Opinion J. Form of Seller's Counsel
Opinion
3
4
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED:
ALADDIN SYSTEMS, INC.
INDEX TO AUDITED FINANCIAL STATEMENTS
DESCRIPTION PAGE
-----------------------------------------------------------------------------------------------------------------
Report of Independent Certified Public Accountants 6
Balance Sheets as of December 31, 2002 and December 31, 2003 7
Statements of Operations for the Years Ended December 31, 2002 and December 31, 2003 8
Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2002 and December 31, 2003 9
Statements of Cash Flows for the Years Ended December 31, 2002 and December 31, 2003 10
Notes to Financial Statements 11
5
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Aladdin Systems, Inc.
We have audited the accompanying balance sheets of Aladdin Systems, Inc. (the
"Company") as of December 31, 2003 and 2002 and the related statements of
operations, stockholders' equity and cash flows for each of the two years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2003 and 2002, and the results of its operations and its cash flows for each of
the two years then ended, in conformity with accounting principles generally
accepted in the United States of America.
Grant Thornton, LLP
San Francisco, California
APRIL 7, 2004 (except for Note 8 as to which the date is April 19, 2004)
6
ALADDIN SYSTEMS, INC
BALANCE SHEETS AS OF DECEMBER 31, 2002 AND DECEMBER 31, 2003
-------------------------
2003 2002
----------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 461,580 $ 583,653
Accounts receivable (net of allowance of $181,648 and $125,267, respectively) 996,587 972,912
Inventories 125,816 88,802
Prepaid expenses and other current assets 228,248 213,923
----------- -----------
TOTAL CURRENT ASSETS 1,812,231 1,859,290
Capitalized software, net 717,216 944,216
Property and equipment, net 250,083 272,352
----------- -----------
2,779,530 3,075,858
TOTAL ASSETS =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 568,796 $ 311,297
Accrued expenses and other liabilities 446,908 297,086
Current maturities of long-term debt 336,204 457,552
----------- -----------
1,351,908 1,065,935
TOTAL CURRENT LIABILITIES
Long-term debt 7,500 339,704
----------- -----------
1,359,408 1,405,639
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value: 20,000,000 shares authorized; 4,709,086 share
issued and outstanding 47,091 47,091
Additional paid in capital 438,992 1,331,895
Retained earnings 934,039 291,233
----------- -----------
Total stockholders' equity 1,420,122 1,670,219
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,779,530 $ 3,075,858
=========== ===========
See accompanying notes to financial statements.
7
ALADDIN SYSTEMS, INC
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2002 AND
DECEMBER 31, 2003
2003 2002
----------- -----------
Sales $ 8,425,915 $ 7,457,245
Cost of sales 1,100,400 745,519
----------- -----------
GROSS PROFIT 7,325,515 6,711,726
OPERATING EXPENSES:
Marketing, sales and support 3,448,853 3,044,918
Research and development 2,132,267 1,858,893
General and administrative 1,113,009 912,379
----------- -----------
Total operating expenses 6,694,129 5,816,190
INCOME FROM OPERATIONS 631,386 895,536
----------- -----------
Other income (expense):
Interest expense (18,365) (25,442)
Other 29,785 2,216
----------- -----------
INCOME BEFORE INCOME TAXES 642,806 872,310
Income taxes -- --
NET INCOME $ 642,806 $ 872,310
=========== ===========
INCOME PER SHARE - BASIC AND DILUTED $ 0.14 $ 0.19
Shares used in computing basic and diluted income
per share 4,709,086 4,709,086
See accompanying notes to financial statements.
8
ALADDIN SYSTEMS, INC
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 2002 AND DECEMBER 31, 2003
COMMON STOCK ADDITIONAL RETAINED
------------------------------ PAID -IN EARNINGS/
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------------------------------------------------------------------------
BALANCE AT JANUARY 1, 2002 4,709,086 $ 47,091 $ 883,959 $ (581,077) $ 349,973
Net investment by parent 447,936 447,936
Net income 872,310 872,310
---------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002 4,709,086 47,091 1,331,895 291,233 1,670,219
Net distribution to parent (892,903) (892,903)
Net income 642,806 642,806
---------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2003 4,709,086 $ 47,091 $ 438,992 $ 934,039 $1,420,122
===========================================================================
See accompanying notes to financial statements.
9
ALADDIN SYSTEMS, INC
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2002 AND
DECEMBER 31, 2003
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 642,806 $ 872,310
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 365,174 280,023
Loss on disposal of property and equipment -- 3,633
Changes in operating assets and liabilities:
Accounts receivable, net (23,675) (56,614)
Inventories (37,014) (31,356)
Prepaid expenses and other current assets (14,325) 8,453
Accounts payable 257,499 (177,511)
Accrued expenses and other liabilities 149,822 48,030
----------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES 1,340,287 946,968
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (65,241) (28,882)
Proceeds from sales of property and equipment -- 350
Acquisition of software rights (50,664) (210,500)
----------- -----------
CASH USED IN INVESTING ACTIVITIES (115,905) (239,032)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payment on line of credit
-- (19)
Net distribution to parent (892,903) (127,121)
Repayment of long-term debt (453,552) (94,116)
----------- -----------
CASH USED IN FINANCING ACTIVITIES (1,346,455) (221,256)
NET (DECREASE) INCREASE IN CASH (122,073) 486,680
Cash at beginning of period 583,653 96,973
----------- -----------
CASH AT END OF PERIOD $ 461,580 $ 583,653
=========== ===========
Cash paid during the period for Interest: $ 6,848 $ 16,085
See accompanying notes to financial statements.
10
ALADDIN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Aladdin Systems, Inc. (the "Company") develops, publishes, and distributes
computer software for the Macintosh, Windows, Solaris, and Linux software
markets. Products are marketed through independent distributors in the United
States and Canada, through resellers and mail order companies in other
countries, directly to corporate accounts under site licensing agreements, and
directly to end-users through direct marketing and the Internet.
Basis of Presentation
The Company is a 100% owned subsidiary of Aladdin Systems Holdings, Inc.
("Holdings"). The financial statements present the stand-alone statements of the
Company and accordingly may not be indicative of the financial condition and
results of operations had the Company operated independent of Holdings. All
intercompany transactions with Holdings have been recorded as a net investment
or distribution through additional paid in capital in shareholders' equity.
Revenue Recognition
Revenues and accounts receivable are principally derived from:
o Distributors and resellers of the Company's products
o The Company's websites
o Third party products
o Licensing contracts
Sales to distributors and resellers are subject to agreements permitting rights
of return for stock balancing. These revenues are recognized net of reserves for
returns and rebates. Return reserves are based on actual inventory held by
distributors or resellers that is in excess of levels appropriate for that
channel and is likely to be returned. Based on estimated release dates for the
next versions, the Company monitors the channel inventory and only ships product
when the sell through to the customer will be probable. The Company recognizes
revenue, net of estimated returns and rebates, upon shipment or delivery of the
product, when no significant obligations remain and collectability is probable.
Revenues from internet sales are recognized when the software is downloaded or
shipped to the customer. Revenues from third party products make up a portion of
internet sales and the Company recognizes as revenue the net fee the Company
collects for facilitating the sale. Licensing fees are recognized upon delivery
of the software or when the customer has committed to renew their annual fee, as
the Company is not obligated to provide any other deliverables in connection
with these licenses.
11
Accounts Receivable
The majority of the Aladdin Systems' accounts receivable are due from domestic
and international distributors and from Digital River, the Company's Website
partner. All customer orders that are placed directly on the Website are
processed by Digital River. Digital River collects these revenues and forwards
the funds, less appropriate fees, twice per month to Aladdin Systems. Credit is
extended based on evaluation of the customers' financial condition and
collateral is not required. The Company maintains allowances for estimated
product returns resulting from new version releases. Management regularly
evaluates the allowance for returns account. Based on historical write-off
experience, the Company currently does not maintain an allowance for doubtful
accounts. Therefore, the allowance listed on the balance sheet is only for
expected returns of software. If the financial condition of customers were to
deteriorate, resulting in an impairment of their ability to make payments, an
additional allowance for doubtful accounts would be required.
Capitalized Software
Costs incurred in the initial design phase of software development are expensed
as incurred as research and development. Once the point of technological
feasibility is reached, direct production costs are capitalized. The Company
ceases capitalizing computer software costs when the product is available for
general release to customers. Costs associated with acquired completed software
are capitalized. Total capitalized software development costs at December 31,
2003 were $2,949,772 less accumulated amortization of $2,232,556. The Company
amortizes capitalized software development costs on a product-by-product basis.
The amortization charged to operations in each period for each product is the
greater of the amount computed using (a) the ratio of current gross revenues to
the total of current and anticipated future gross revenues for the product or
(b) 60 months. In addition, the Company evaluates the net realizable value of
each software product at each balance sheet date and records write-downs to net
realizable value for any products for which the carrying value is in excess of
the estimated net realizable value. Total amortization expense for capitalized
software was $277,663 and $183,044 in fiscal years 2003 and 2002, respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
Inventories
Aladdin Systems' inventories are valued at the lower of cost or market and are
accounted for on the first-in, first-out basis. Management performs periodic
assessments to determine the existence of obsolete, slow moving and non-salable
inventories, and records necessary provisions to reduce such inventories to net
realizable value.
12
Property and Equipment
The Company's property and equipment are stated at cost. Capital leases are
recorded at the present value of the minimum lease payments at the date of
acquisition. Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets or lease term, whichever is shorter.
RESEARCH AND DEVELOPMENT The Company's research and development costs are
charged to operations when incurred.
Advertising
Aladdin Systems expenses advertising costs as they are incurred. Advertising and
related promotion expenses for fiscal years 2003 and 2002 were $748,875 and
$553,130 respectively.
Income Taxes
The Company is included in the consolidated tax return of Aladdin Systems
Holdings, Inc. All income taxes are accounted for at the parent company level
and no allocation is made to the Company. The group is in a tax loss position,
with a full valuation allowance against net deferred tax assets. Accordingly, no
tax is allocated to the Company.
Fair Value of Financial Instruments
The fair value of accounts receivable and accounts payable approximate carrying
value due to the short-term nature of such instruments. The fair value of
long-term obligations with third-parties approximates carrying value based on
terms available for similar instruments.
Stock-based Compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method described in Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and its related interpretations.
Accordingly, no compensation expense has been recognized in the accompanying
consolidated financial statements for stock-based awards to employees when the
exercise price of the award is equal to or greater than the quoted market price
of the stock on the date of the grant.
SFAS No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure - an
amendment of FASB Statement No. 123" require disclosures as if the Company had
applied the fair value method to employee awards rather than the intrinsic value
method. The fair value of stock-based awards to employees is calculated through
the use of option pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable options without
vesting restrictions, which differ significantly from the Company's stock option
awards. These models also require subjective assumptions, including future stock
price volatility and expected time to exercise, which greatly affect the
calculated values. The Company's fair value calculations for awards from stock
option plans were made using the Black-Scholes option pricing model with the
following weighted average assumptions: expected term, ten years from the date
of grants in 2003 and 2002; stock price volatility, 72% in 2003 and 112% in
2002; risk free interest rate, 4.02% in 2003, and 4.0% in 2002; and no dividends
during the expected term.
13
If the computed fair values of the stock-based awards had been amortized to
expense over the vesting period of the awards, net income and net income per
share, basic and diluted, would have been as follows:
YEAR ENDED DECEMBER 31,
2003 2002
Net income, as reported $ 642,806 $ 872,310
Stock based compensation, net of taxes,
determined under the intrinsic value method -- --
Stock-based compensation, net of taxes,
determined under the fair value method 264,004 349,575
---------- ----------
PRO FORMA NET INCOME $ 378,802 $ 522,735
========== ===========
Basic and diluted net earnings per share
AS REPORTED $ 0.14 $ 0.19
PRO FORMA $ 0.08 $ 0.11
EARNINGS PER SHARE
Basic and diluted earnings per share are computed using the weighted average
number of common shares outstanding during the period. The Company does not have
any potentially dilutive securities.
RECENT ACCOUNTING PRONOUNCEMENT
In March 2003, the Emerging Issues Task Force published Issue No. 00-21
"Accounting for Revenue Arrangements with Multiple Deliverables" (EITF 00-21).
EITF 00-21 addresses certain aspects of the accounting by a vendor for
arrangements under which it performs multiple revenue generating activities and
how to determine whether such an arrangement involving multiple deliverables
contains more than one unit of accounting for purposes of revenue recognition.
The guidance in this Issue is effective for revenue arrangements entered in
fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 on July
1, 2003 did not have any significant impact on the Company's financial
statements.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, consist of:
USEFUL LIVES (YEARS) 2003 2002
Computer equipment 5 $ 949,035 $ 889,625
Office equipment 5 183,336 182,368
Furniture and fixtures 5 306,250 306,250
Displays 5 to 7 126,166 121,302
------------------------------
1,564,787 1,499,545
Less accumulated depreciation (1,314,704) (1,227,193)
------------------------------
$ 250,083 $ 272,352
==============================
14
NOTE 3 - LONG-TERM DEBT AND RELATED PARTY NOTES
Long-term debt at December 31, consists of:
2003 2002
Capital lease obligations $ 13,704 $ 77,256
Software related payable 330,000 720,000
----------------------------------
343,704 797,256
Less current portion 336,204 457,552
----------------------------------
$ 7,500 $ 339,704
==================================
Software related payable is the amount to be paid to Vcommunications, Inc. for
the acquisition of Easy Uninstall, Internet Cleanup and ZipMagic products. The
total purchase price was $800,000 of which $155,000 was paid in 2002 and
$315,000 in 2003. The balance of $330,000 is due in quarterly installments to be
completed by October 2004. Per the agreement, Vcommunications has been assigned
a continued interest in all of the Company's rights and title to the products to
secure the Company's obligation to pay the full amount due. Fixed installments
due on debt principal are as follows:
Year ending December 31,
2004 $ 336,204
2005 7,500
--------------------
$ 343,704
====================
NOTE 4 - MAJOR CUSTOMERS
Aladdin Systems has one major customer that accounted for $2,170,803 or 26% and
$1,736,101 or 23% of revenues in 2003 and 2002, respectively.
NOTE 5 - RETIREMENT PLAN
The Company has established a 401(k) retirement plan for all employees.
Employees may elect to contribute a portion of their gross salary not to exceed
federal tax law limitations. The Company may elect to match a portion of the
employee contributions. No matching contributions were made for the years ended
December 31, 2003 and 2002.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Leases
The Company conducts its operations from one facility that is leased under an
operating lease expiring October 2010. Rent expense was $282,624 and $277,735 in
2003 and 2002, respectively.
The Company also has furniture and equipment under capital leases. The cost of
assets acquired under capital leases is $500,070. Accumulated amortization on
these assets at December 31, 2003 was $440,014.
15
Future minimum commitments under capital leases and non-cancelable operating
leases as of December 31, 2003 are as follows:
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
Year ending December 31,
2004 $ 13,704 $ 289,363
2005 -- 293,124
2006 -- 296,935
2007 -- 300,795
2008 -- 304,705
Thereafter -- 609,411
-----------------------------------------
Total minimum lease payment 13,704 2,094,333
Less amount representing interest 980 --
-----------------------------------------
$ 12,724 $ 2,094,333
-----------------------------------------
NOTE 7 - STOCKHOLDERS' EQUITY
Stock Options
The Aladdin Systems Holdings, Inc. 1999 Stock Option Plan allows for the
issuance of incentive stock options and non-qualified stock options to purchase
shares of the Holding's common stock. The option plan has authorized 3,000,000
shares of which 167,969 remain available for granting at December 31, 2003.
Under the option plan, incentive stock options may be granted to employees,
directors, and officers of the Company and non-qualified stock options may be
granted to consultants, employees, directors, and officers of the Company.
Options granted under the option plan are for periods not to exceed ten years,
and must be issued at prices not less than 100% of the fair market value of the
stock on the date of grant. Options granted to shareholders who own greater than
10% of the outstanding stock are for periods not to exceed five years and must
be issued at prices not less than 110% of the fair market value of the stock on
the date of grant. Options granted under the option plan generally vest within 4
years.
Stock option activity, at the parent company level, is summarized as follows:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ------------------
BALANCE AT JANUARY 1, 2002 2,473,528 $ 1.48
Granted 868,444 0.73
Cancelled (457,750) 1.12
-----------------------------------------
BALANCE AT DECEMBER 31, 2002 2,884,222 1.31
Granted 274,260 0.29
Cancelled (326,451) 1.22
-----------------------------------------
BALANCE AT DECEMBER 31, 2003 2,832,031 $ 1.22
=========================================
The following table summarizes information about stock options outstanding as of
December 31, 2003:
16
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF EXERCISE PRICE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
OUTSTANDING PRICE TERM (YEARS) EXERCISABLE PRICE
--------------------------------------------------------------------------------------
$0.20 - $0.63 857,302 $ 0.43 7.59 521,185 $ 0.46
$0.65 - $1.07 956,532 $ 0.90 4.26 875,282 $ 0.93
$1.15 - $1.85 616,468 $ 1.38 5.27 591,267 $ 1.37
$3.00 - $4.87 401,729 $ 3.44 2.80 393,911 $ 3.44
-----------------------------------------------------------
2,832,031 $ 1.22 2,381,645 $ 1.35
The weighted average fair value of options granted to employees was $0.19 and
$0.13 for 2003 and 2002, respectively.
NOTE 8 - SUBSEQUENT EVENTS
On January 21, 2004, Holdings and International Microcomputer Software, Inc.
("IMSI") entered into Stock Purchase Agreement for the sale of the Company to
International Microcomputer Software, Inc. The final stock purchase agreement
was signed on April 19, 2004.
17
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION:
The following selected Unaudited Pro Forma Condensed Financial Information is
based on the historical financial statements of IMSI and Aladdin Systems, Inc.
and has been prepared to illustrate the effect of IMSI's acquisition of Aladdin.
The Unaudited Pro Forma Condensed Financial Information has been prepared using
the purchase method of accounting. Aladdin reports its financial results on a
fiscal year ending December 31. The financial statements of Aladdin included in
the following unaudited pro forma condensed financial information are based on
the unaudited statements of Aladdin for the twelve months ended June 30, 2003
and the nine months ended March 31, 2004 that have been derived primarily from
the audited financial statements of Aladdin included in this report. The pro
forma statements of operations give effect to the acquisition of Aladdin as if
it occurred on July 1, 2002.
Because the selected unaudited pro forma condensed combined financial
information is based upon Aladdin's financial position and operating results
during periods when Aladdin was not under the control, influence or management
of IMSI, the information presented may not be indicative of the results that
would have actually occurred had the transaction been completed as of July 1,
2002 or March 31, 2004, as appropriate, nor is it indicative of future financial
or operating results of the combined entity.
18
ALADDIN SYSTEMS, INC.
INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
DESCRIPTION PAGE
----------------------------------------------------------------------------------------------
Balance Sheet as of March 31, 2004 20
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet 21
Statements of Operations for the Twelve Months Ended June 30, 2003 22
Statements of Operations for the Nine Months Ended March 31, 2004 23
Notes to Unaudited Pro Forma Condensed Combined Statements of Operations 24
19
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 2004
IMSI IMSI
Consolidated Aladdin Pro Forma Consolidated
Historical Historical Adjustments Pro Forma
----------- ----------- ----------- -----------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 4,904,989 $ 477,480 $(1,500,000) $ 3,882,469
Investment in Marketable Securities 1,752,462 -- -- 1,752,462
-- 2,153,821
Accounts Receivable, less allowances 1,186,714 967,107
Inventories 451,202 145,067 -- 596,269
Other Current Assets 623,551 154,977 (51,000) 727,528
----------- ----------- ----------- -----------
Total Current Assets 8,918,918 1,744,631 (1,551,000) 9,112,549
Fixed Assets, net 412,238 230,590 642,828
Intangible Assets
Capitalized Software, net 933,632 645,925 2,933,632 1,354,075
Capitalized Domain Names, net 1,643,060 -- -- 1,643,060
Capitalized Customer Names, net 262,222 -- 590,000 852,222
Capitalized Trademarks -- -- 700,000 700,000
Capitalized Distributor Agreements -- -- 400,000 400,000
Goodwill 611,404 -- 4,519,685 5,130,089
----------- ----------- ----------- -----------
Total Intangible Assets 3,450,318 645,925 7,563,760 11,660,003
Other Assets
Investment in Securities 1,436,250 -- -- 1,436,250
Receivable Long-Term 1,650,000 -- -- 1,650,000
----------- ----------- ----------- -----------
Total Other Assets -- -- 3,086,250 3,086,250
----------- ----------- ----------- -----------
Total Assets 15,867,724 2,621,146 6,012,760 24,501,630
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term Debt 986,286 257,018 1,000,000 2,243,304
Trade Accounts Payable 1,051,278 303,077 24,000 1,378,355
Accrued and Other Liabilities 633,608 490,427 -- 1,124,035
Deferred Revenue 268,012 -- 268,012
----------- ----------- ----------- -----------
Total Current Liabilities 2,939,184 1,050,522 1,024,000 5,013,706
Long-term debt and other obligations 470,846 -- 2,000,000 2,470,846
Liabilities related to discontinued operations 84,230 -- -- 84,230
----------- ----------- ----------- -----------
Total Liabilities 3,494,260 1,050,522 3,024,000 7,568,782
Stockholders' Equity
Common Stock 36,147,924 492,199 4,067,185 40,707,308
(23,672,800) 1,078,425 (1,078,425) (23,672,800)
Accumulated Deficit 1,078,425
Accumulated other loss (101,660) -- -- (101,660)
----------- ----------- ----------- -----------
Total Shareholders' Equity 12,373,464 1,570,624 2,988,760 16,932,848
----------- ----------- ----------- -----------
Total Liabilities and SH Deficit $15,867,724 $ 2,621,146 $ 6,012,760 $24,501,630
=========== =========== =========== ===========
20
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
The unaudited pro forma condensed balance sheet gives effect to the following
unaudited pro forma adjustments:
1. Adjustment reflects the acquisition entry of Aladdin in accordance with
the purchase method of accounting.
21
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS FOR THE
TWELVE MONTHS ENDED JUNE 30, 2003
ALADDIN
IMSI (HISTORICAL) (HISTORICAL)PRO FORMA ADJUSTMENTS IMSI PRO
FORMA
Amortization of Interest on
Intangibles Notes Payable
(1) (2)
Net Revenues $ 8,932,377 $ 8,204,885 $ -- $ 17,137,262
Product Costs 3,989,390 979,269 400,000 5,368,659
-------------- --------------- --------------- ------------ ------------
Gross Margin 4,942,987 7,225,616 (400,000) 11,768,603
Costs and Expenses:
Sales and Marketing 2,956,792 3,199,067 6,155,859
General and Administrative 3,082,110 2,000,237 184,667 5,267,014
Research and Development 1,513,611 937,765 2,451,376
-------------- --------------- --------------- ------------ ------------
Total Operating Expenses 7,552,513 6,137,069 184,667 13,874,249
-------------- --------------- --------------- ------------ ------------
Operating Income (Loss) (2,609,526) 1,088,547 (584,667) (2,105,646)
-------------- --------------- --------------- ------------ ------------
Other Income and (Expense):
Interest and Other, Net (890,686) (6,617) (120,000) (1,017,303)
Loss on sale of assets (40,503) -- (40,503)
Gain from Extinguishment of Debt 768,614 -- 768,614
-------------- --------------- --------------- ------------ ------------
Income (Loss) Before Income Tax (2,772,101) 1,081,930 (584,667) (120,000) (2,394,838)
Income Tax Provision 7,446 7,446
-------------- --------------- --------------- ------------ ------------
Net Income (Loss) From Continuing Operations (2,779,547) 1,081,930 (584,667) (120,000) (2,402,284)
Income from discontinued operations, net of tax 1,210,924 -- 1,210,924
Gain from the sale of discontinued operations 12,236,538 -- 12,236,538
-------------- --------------- --------------- ------------ ------------
Net Income $ 10,667,915 $ 1,081,930 $ (584,667) $ (120,000) 11,045,178
============== =============== =============== ============ ============
Basic and diluted earnings (loss) per share
Loss per share from continuing operations ($0.12) ($0.10)
Income per share from discontinued operations $0.05 $0.05
Gain per share from the sale of discontinued
operations $0.54 $0.49
Net income per share $0.47 $0.44
Shares used in computing earnings (loss) per share 22,800,795 25,118,676
22
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS FOR THE
NINE MONTHS ENDED MARCH 31, 2004
ALADDIN
IMSI (HISTORICAL) (HISTORICAL) PRO FORMA ADJUSTMENTS MSI PRO
--------------------------- FORMA
Amortization Interest on
of Intangibles Notes
Payable
(1) (2)
Net Revenues $ 7,239,029 $ 6,858,028 $ - $14,097,057
Product Costs 2,416,554 804,951 300,000 3,521,505
-------------- ---------------- ------------ ---------- --------------
Gross Margin (300,000)
4,822,475 6,053,077 10,575,552
Costs and Expenses:
Sales and Marketing 3,270,091 2,777,039 6,047,130
General and Administrative 2,537,474 1,667,002 138,500 4,342,976
Research and Development 1,654,971 975,967 2,630,938
-------------- ---------------- ------------ ---------- --------------
Total Operating Expenses 138,500
7,462,536 5,420,008 13,021,044
-------------- ---------------- ------------ ---------- --------------
Operating Income (Loss) (2,640,061) 633,069 (438,500) (2,445,492)
-------------- ---------------- ------------ ---------- --------------
Other Income and (Expense):
Interest and Other, Net 197,885 26,781 (90,000) 134,666
Realized Gain on Marketable Securities 75,997 - 75,997
Unrealized Gain on Marketable Securities 1,864,527 - 1,864,527
Gain from Extinguishment of Debt 76,110 - 76,110
-------------- ---------------- ------------ ---------- --------------
Income (Loss) Before Income Tax (438,500) (90,000)
(425,542) 659,850 (294,192)
Income Tax Provision 24,540 24,540
-------------- ---------------- ------------ ---------- --------------
Net Income (Loss) From Continuing Operations (450,082) 659,850 (438,500) (90,000) (318,732)
Gain from the sale of discontinued operations 1,000,000 - 1,000,000
-------------- ---------------- ------------ ---------- --------------
Net Income $ 549,918 $ 659,850 $ (438,500) $(90,000) $ 681,268
============== ================ ============ ========== ==============
Basic and diluted earnings (loss) per share
Income/(Loss) per share from continuing operations ($0.02) ($0.01)
Gain per share from the sale of discontinued operations $0.04 $0.04
Net income per share $0.02 $0.03
Shares used in computing earnings (loss) per share 23,331,526 25,649,407
23
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 2003 AND FOR THE NINE MONTHS ENDED
MARCH 31, 2004
The unaudited pro forma condensed statements of operations give effect to the
following unaudited pro forma adjustments:
1 Adjustment reflects the acquisition entry of Aladdin in accordance
with the purchase method of accounting.
(1) To reflect the amortization of capitalized software,
distribution agreements and customer names acquired in
the acquisition of Aladdin.
The amortization perods for these identifiable
intangibles are as follows
o Capitalized software 5 years
o Distribution Agreements 6 years
o Customer Names 5 years
(2) To reflect the interest expense associated with the
notes payable used to partially fund the acquisition of
Aladdin.
24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
DATED: JUNE 16, 2004
By: /s/ Martin Wade, III
MARTIN WADE, III
Director & Chief Executive Officer
25