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): March 12, 2004
--------------
INFORTE CORP.
(Exact name of registrant as specified in its charter)
Delaware 000-29239 36-3909334
-------- --------- ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
150 North Michigan Avenue, Suite 3400
Chicago, Illinois 60601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (312) 540-0900
(Former name or former address, if changed since last report)
The Registrant's current report on Form 8-K dated March 12, 2004, is hereby
amended to add Item 7 below.
Item 7. Financial Statements and Exhibits
(a) Financial statement of business acquired.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Compendit, Inc.
We have audited the accompanying consolidated balance sheets of Compendit, Inc.
(a Delaware corporation) and Subsidiary as of December 31, 2003 and 2002, and
the related consolidated statements of income, shareholders' equity and cash
flows for the 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 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Compendit, Inc.
and Subsidiary as of December 31, 2003 and 2002, and the consolidated 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.
/s/ Grant Thornton LLP
Chicago, Illinois
February 26, 2004, except for Note K,
which is dated March 12, 2004.
Compendit, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------------------------------------------------------------
ASSETS 2003 2002
----------------- ----------------
CURRENT ASSETS
Cash $ 1,849,606 $ 787,619
Accounts receivable 1,645,431 2,112,526
Investments - 1,490
Employee advances 23,588 9,860
Deferred tax asset 18,962 11,999
Prepaid expenses 215,440 121,009
----------------- ----------------
Total current assets 3,753,027 3,044,503
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $224,341 and $155,308 in 2003
and 2002, respectively 179,430 109,092
OTHER ASSETS
Deposits 17,604 9,815
Other 94 468
----------------- ----------------
Total other assets 17,698 10,283
----------------- ----------------
TOTAL ASSETS $ 3,950,155 $ 3,163,878
================= ================
Compendit, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31,
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 2003 2002
---------------- ----------------
CURRENT LIABILITIES
Accounts payable - trade $ 202,620 $ 140,535
Customer advanced deposits 81,395 141,431
Accrued income taxes 415,225 132,358
Accrued expenses 638,934 1,014,238
---------------- ----------------
Total current liabilities 1,338,174 1,428,562
DEFERRED INCOME TAXES 42,256 16,157
SHAREHOLDERS' EQUITY
Capital stock, common, $.001 par value; 10,000,000
shares authorized; 7,368,333 and 7,235,000 shares
issued; 7,278,333 and 7,145,000 shares outstanding
at December 31, 2003 and 2002, respectively 7,368 7,235
Additional paid-in capital 536,715 535,515
Retained earnings 1,969,678 1,176,738
Treasury stock - at cost (45,000) (45,000)
Accumulated other comprehensive income 100,964 44,671
---------------- ----------------
Total shareholders' equity 2,569,725 1,719,159
---------------- ----------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 3,950,155 $ 3,163,878
================ ================
The accompanying notes are an integral part of these statements.
Compendit, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
--------------------------------------------------------------------------------
2003 2002
---------------- ----------------
Revenues
Consulting revenue $ 8,325,325 $ 6,099,580
Reimbursable project expenses 1,294,318 673,696
---------------- ----------------
Total revenues 9,619,643 6,773,276
Operating expenses
General and administrative expenses 7,111,891 5,618,060
Reimbursable project expenses 1,294,318 673,696
---------------- ----------------
Total operating expenses 8,406,209 6,291,756
---------------- ----------------
Income from operations 1,213,434 481,520
Other income (expense)
Interest income 2,240 1,527
Interest expense (3,647) (520)
Miscellaneous income 10,761 17,936
Loss on disposition of fixed assets - (17,797)
---------------- ----------------
Total other income 9,354 1,146
---------------- ----------------
Income before income taxes 1,222,788 482,666
Income taxes 429,848 128,003
---------------- ----------------
NET INCOME $ 792,940 $ 354,663
================ ================
The accompanying notes are an integral part of these statements.
Compendit, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Two years ended December 31, 2003
--------------------------------------------------------------------------------
Common stock
-------------------- Additional Accumulated Total
Number of paid-in Retained Treasury comprehensive shareholders'
shares Amount capital earnings stock income equity
---------- ------------------- ----------- --------- ------------ -----------
Balance at January 1, 2002 7,101,666 $ 7,102 $ 534,315 $ 822,075 $(20,000) $ - $ 1,343,492
Sale of common stock 43,334 133 1,200 - - - 1,333
Purchase of 50,000 shares of treasury
stock - - - - (25,000) - (25,000)
Comprehensive income
Net income - - - 354,663 - - 354,663
Foreign currency translation adjustment - - - - - 44,671 44,671
-----------
Total comprehensive income - - - - - - 399,334
---------- -------- --------- ----------- --------- ------------ -----------
Balance at December 31, 2002 7,145,000 7,235 535,515 1,176,738 (45,000) 44,671 1,719,159
Sale of common stock 133,333 133 1,200 - - - 1,333
Comprehensive income
Net income - - - 792,940 - - 792,940
Foreign currency translation adjustment - - - - - 56,293 56,293
-----------
Total comprehensive income - - - - - - 849,233
---------- -------- --------- ----------- --------- ------------ -----------
Balance at December 31, 2003 7,278,333 $ 7,368 $ 536,715 $ 1,969,678 $(45,000) $ 100,964 $ 2,569,725
========== ======== ========= =========== ========= ============ ===========
Compendit, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
--------------------------------------------------------------------------------
2003 2002
------------- ------------
Cash flows from operating activities
Net income $ 792,940 $ 354,663
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 69,407 52,877
Loss on disposition of fixed assets - 17,797
Unrealized stock (gain) loss (1,155) 2,693
Deferred income taxes 19,137 (3,986)
(Increase) decrease in operating assets
Accounts receivable 493,048 (301,584)
Investments 1,490 1,673
Employee advances (55,972) 348,944
Prepaid expenses (53,744) (1,706)
Deposits 6,690 680
Increase (decrease) in operating liabilities
Accounts payable 52,503 11,463
Customer advanced deposits (68,052) (109,828)
Accrued income taxes 245,196 50,044
Accrued expenses (372,984) 18,209
------------ ------------
Total adjustments 335,564 87,275
------------ ------------
Net cash provided by operating activities 1,128,504 441,938
Cash flows from investing activities
Purchase of property and equipment (81,923) (15,896)
------------- ------------
Net cash used in investing activities (81,923) (15,896)
Cash flows from financing activities
Repayment of short-term debt - (1,697)
Proceeds from sale of capital stock 1,333 1,333
Acquisition of treasury stock - (25,000)
------------ ------------
Net cash provided by (used in) financing activities 1,333 (25,364)
Effect of exchange rate on cash 14,073 (24,074)
------------ ------------
NET INCREASE IN CASH 1,061,987 376,605
Cash, beginning of the year 787,619 411,013
------------ ------------
Cash, end of the year $ 1,849,606 $ 787,618
============ ============
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest expense $ 3,647 $ 520
Income tax 199,938 76,858
The accompanying notes are an integral part of these statements.
Compendit, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Compendit, Inc. (the "Company"), a C Corporation, headquartered in Chicago,
Illinois, with offices in Belmont, California, and Hamburg and Walldorf,
Germany, was incorporated in 1999. The Company is primarily engaged in the
business of providing technology strategy, implementation and support for
clients. The Company's clients are primarily located throughout the United
States and Europe.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned German subsidiary, Compendit Deutschland GmbH. All significant
intercompany transactions have been eliminated in consolidation.
Revenue Recognition
Revenue is recognized when all of the following four criteria are met:
persuasive evidence that an agreement exists, service has been rendered, the
contract price is fixed or determinable and collectibility is reasonably
assured. The revenue is generated from time-and-materials contracts that are
recognized as the services are performed.
In November 2001, the Financial Accounting Standards Board's Emerging Issues
Task Force issued Topic 01-14, "Income Statement Characterization of
Reimbursements Received for `Out-of-Pocket' Expenses Incurred," stating these
costs should be characterized as revenue in the income statement if billed to
customers. The Company included reimbursable expenses in revenue and expense.
For presentation purposes, the Company shows two components of total revenue:
(1) revenue before reimbursements, or "consulting revenue," consisting of
revenue from performing consulting services and (2) reimbursable project
expenses, consisting of reimbursements received from clients for out-of-pocket
expenses incurred.
Stock-Based Compensation
The Company accounts for stock-based employee compensation in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," related to options and warrants issued to employees. For options
issued to employees during the years ended December 31, 2003 and 2002, no
stock-based employee compensation is reflected in net income in the accompanying
consolidated statements of income, as all such options had an exercise price
equal to the market value of the underlying common stock on the date of the
grant. Had the Company applied the fair value recognition provisions of SFAS No.
123 to stock-based employee
Compendit, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Stock-Based Compensation - Continued
compensation during the years ended December 31, 2003 and 2002, net income would
have been as follows:
2003 2002
------------ -------------
Net income, as reported $792,940 $354,663
Deduct total stock-based compensation determined under fair value-based
awards, net of tax (48,263) (42,122)
-------- --------
---------------------------------------------------------------------------
Pro forma net income $744,677 $312,541
======= =======
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 certain reported amounts and disclosures.
Therefore, actual results could differ from those estimates.
Accounts Receivable
The majority of the Company's accounts receivable are due from companies in
various industries. Credit is extended based on evaluation of a customer's
financial condition and, generally, collateral is not required. Accounts
receivable are due within 30 to 45 days and are stated at amounts due from
customers. Accounts outstanding longer than the contractual payments terms are
considered past due.
The Company determines its allowance by considering a number of factors,
including the length of time accounts receivable are past due, the Company's
previous loss history, the customer's current ability to pay its obligation to
the Company and the condition of the general economy and the industry as a
whole. As of December 31, 2003 and 2002, an allowance for doubtful accounts was
not required.
Property and Equipment
Property and equipment are stated at cost. The Company has adopted an
accelerated method of depreciation. Estimated useful lives are as follows:
Furniture and fixtures 5 - 7 years
Computers and equipment 3 - 5 years
Leasehold improvements Term of lease
Compendit, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Property and Equipment - Continued
Maintenance and repairs are charged to expense as incurred; major renewals and
betterments are capitalized. When items of property or equipment are sold or
retired, the related cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in income. Depreciation expense for
the years ended December 31, 2003 and 2002, was $69,033 and $52,503,
respectively.
Advertising Costs
Advertising costs are expensed as incurred and included in general and
administrative expenses. Total advertising costs for the years ended December
31, 2003 and 2002, were $17,010 and $16,953, respectively.
Income Taxes
The Company uses an asset and liability approach, as required under SFAS No.
109, "Accounting for Income Taxes," for financial accounting and reporting of
income taxes. Deferred income taxes are provided using currently enacted tax
rates when tax laws and financial accounting standards differ with respect to
the amount of income for a year and the basis of assets and liabilities. The
Company does not provide U.S. deferred income taxes on earnings of foreign
subsidiaries that are expected to be indefinitely reinvested. Judgment is
required in determining its provision for income taxes, deferred tax assets and
liabilities and any valuation allowance recorded against its net deferred tax
assets. A valuation allowance is provided for deferred tax assets whenever it is
more likely than not that future tax benefits will not be realized.
Comprehensive Income
Comprehensive income includes net income as currently reported under accounting
principles generally accepted in the United States of America and also considers
the effect of additional economic events that are not required to be recorded in
determining net income, but are rather reported as a separate component of
shareholders' equity. The Company reports foreign currency translation
adjustments as components of comprehensive income.
Compendit, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Foreign Currency Translation
Assets and liabilities of the Company's foreign operations are translated into
U.S. dollars at the exchange rate in effect at the balance sheet date, while
income and expenses are translated at the weighted-average exchange rate for the
year. Translation adjustments are classified as a separate component of
shareholders' equity. Gains and losses arising from intercompany foreign
currency transactions that are of a long-term-investment nature are reported in
the same manner as translation adjustments.
Fair Value of Financial Instruments
The carrying values of accounts receivable and liabilities approximate their
fair values at December 31, 2003 and 2002.
--------------------------------------------------------------------------------
NOTE B - OPERATING LEASE COMMITMENTS
The Company leases its office facilities under multiple non-cancelable operating
leases, with various expiration dates. The leases require monthly rental
payments plus common area maintenance and real estate tax charges which are
subject to modifications over the term of the leases.
Rent expense for the years ended December 31, 2003 and 2002, was $241,449 and
$155,012, respectively.
Future minimum lease payments are as follows:
Year ending December 31,
------------------------
2004 $145,820
2005 144,346
2006 146,556
2007 137,612
2008 72,156
--------
$646,490
========
Compendit, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE C - RELATED-PARTY TRANSACTIONS
The Company has advanced funds to the president of the Company in the amount of
$15,000. The advance is uncollateralized, non-interest bearing and payable on
demand.
Beginning in June 2002, the Company rents a space from an officer of the
Company. Rent expense for this space for the years ended December 31, 2003 and
2002, was approximately $30,000 and $15,000, respectively.
--------------------------------------------------------------------------------
NOTE D - INCOME TAXES
Income tax expense for the years ended December 31, 2003 and 2002, was $519,427
and $191,072, respectively. The Company recognizes the tax effects of
differences between the financial and tax basis of assets and liabilities, and
for operating losses and tax credits that are available to offset future taxable
income.
Income tax expense for the years ended December 31, 2003 and 2002, consisted of
the following:
2003 2002
Current
Federal $294,991 $111,342
State 35,212 14,194
Foreign 80,508 6,453
-------- ---------
Total current provision 410,711 131,989
Deferred provision 19,137 (3,986)
-------- ---------
Total provision for income taxes $429,848 $128,003
======= =======
Compendit, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE D - INCOME TAXES - Continued
The reconciliation of income taxes computed using the Federal statutory rate of
34% for the years ended December 31, 2003 and 2002, is as follows:
2003 2002
------------- --------------
Federal statutory income tax $415,747 $164,106
State income tax, net of Federal tax benefit 23,508 9,526
Non-deductible expenses 1,980 1,034
Effect of international taxes 80,508 6,453
Difference due to U.S. graduated rates (89,579) (63,069)
Other (2,316) 9,953
--------- ---------
$429,848 $128,003
========= =========
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities at December 31, 2003 and 2002, are as follows:
2003 2002
Deferred income tax liability
Tax over book depreciation $(42,256) $(16,157)
Deferred income tax assets
Accrued vacation 18,962 11,999
---------- ---------
Total deferred tax liability $(23,294) $ (4,158)
========== =========
--------------------------------------------------------------------------------
NOTE E - STOCK OPTIONS
In 1999, the Board of Directors approved the Compendit, Inc. 1999 Equity
Incentive Plan (the "1999 Plan"). The 1999 Plan provides for the issuance of
incentive stock options and non-qualified stock options to officers and other
key employees of the Company. The Company has reserved an aggregate of 1,800,000
shares for issuance under the 1999 Plan, of which 186,417 shares were available
for grant as of December 31, 2003.
The 1999 Plan authorized the grant of stock options, when authorized by the
Company's Board of Directors, at prices generally not less than the fair market
value at the date of grant. Options granted are generally exercisable beginning
one year after the date of grant and are fully exercisable in three to four
years from the date of grant.
Compendit, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE E - STOCK OPTIONS - Continued
The Company's stock-based employee compensation, including stock options, was
accounted for under the intrinsic value-based method as prescribed by APB
Opinion No. 25. Therefore, no compensation expense was recognized for these
stock options as they had no intrinsic value on the date of grant.
If the Company were to recognize compensation expense over the relevant service
period under the fair value method of SFAS No. 123 with respect to stock options
granted and employee stock purchases for 2003, 2002 and 2001 and all prior
periods, net earnings would have decreased, resulting in pro forma net losses
and losses per share as presented below:
2003 2002
---------- -----------
Net income
As reported $792,940 $354,663
Less stock-based compensation expense determined under fair value
method for all awards, net of related taxes (as applicable)
(48,263) (42,122)
-------- --------
Pro forma $744,677 $312,541
======== ========
Basic net earnings per common share
As reported $0.11 $0.05
Pro forma 0.10 0.04
Diluted net earnings per common share
As reported $0.11 $0.05
Pro forma 0.10 0.04
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for the years ended December 31:
2003 2002
---------- -----------
Expected volatility 0.0% 0.0%
Risk-free interest rates 2.4% 3.4%
Expected lives 4.5 years 4.5 years
The Company has not paid and does not anticipate paying dividends; therefore,
the expected dividend yield is assumed to be zero.
Compendit, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE E - STOCK OPTIONS - Continued
A summary of the status of the Company's option plans is presented below:
2003 2002
-------------------------- ---------------------------
Weighted- Weighted-
average average
Number exercise Number exercise
of shares price of shares price
----------- ------------- ------------ --------------
Outstanding at beginning of year 942,000 $0.48 691,500 $0.47
Granted 30,000 0.50 279,500 0.50
Exercised - - - -
Forfeited (26,750) 0.50 (29,000) 0.50
-------- --------
Outstanding at end of year 945,250 0.48 942,000 0.48
======== ========
Exercisable at end of year 253,875 0.42 182,250 0.41
======== ========
--------------------------------------------------------------------------------
NOTE E - LINE OF CREDIT
The Company has available up to $400,000 on a secured line of credit from Wells
Fargo Bank at an interest rate of 1.875% above base rate (currently 5.875%). The
line of credit will mature on September 10, 2004. The line is collateralized by
substantially all of the assets of the Company. No balances were outstanding at
December 31, 2003 and 2002.
--------------------------------------------------------------------------------
NOTE F - MAJOR CUSTOMERS
A major portion of the Company's revenues are concentrated from a few customers.
The Company had revenues from three customers totaling approximately $7,500,000
(78% of revenue) and $6,053,000 (89% of revenue) for the years ended December
31, 2003 and 2002, respectively.
Compendit, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE G - LETTER OF CREDIT
At December 31, 2003, the Company had a secured letter of credit of $33,333
outstanding with Wells Fargo Bank. The letter of credit was collateralized with
an interest-bearing checking account at the bank. The letter of credit is used
as a security deposit by the landlord.
--------------------------------------------------------------------------------
NOTE H - ACCRUED EXPENSES
Accrued expenses at December 31 include the following:
2003 2002
---------- --------------
Accrued bonus $544,603 $ 959,526
Accrued professional fees 21,995 22,084
Accrued vacation 71,676 30,043
Accrued general 660 2,585
----------- --------------
Total accrued expenses $638,934 $1,014,238
=========== ==============
--------------------------------------------------------------------------------
NOTE I - PROFESSIONAL EMPLOYER ORGANIZATION AGREEMENT
The Company uses a professional employer organization, Administaff, to manage
its human resources. The agreement with Administaff establishes a relationship
among the Company, Administaff and the employee. Administaff provides the
Company a full range of services - employee benefits, employer liability
management and human resources administration.
--------------------------------------------------------------------------------
NOTE J - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
2003 2002
---------- --------------
Furniture and fixtures $ 305,232 $ 197,299
Computers and equipment 98,539 67,101
Less accumulated depreciation and amortization (224,341) (155,308)
----------- --------------
Property and equipment, net $ 179,430 $ 109,092
======== ========
Compendit, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
--------------------------------------------------------------------------------
NOTE K - SUBSEQUENT EVENT
On March 12, 2004, the Company was acquired by Inforte Corp., pursuant to the
terms of an agreement of merger. All the outstanding shares of the Company were
converted into the right to receive cash based on an initial aggregate cash
payment at closing of $5,500,000, with an additional payment of up to $500,000
payable based on a closing statement calculation. Additionally, the shareholders
have a right to receive an additional amount of up to $6,300,000 in 2005 and
2006 based upon 2004 performance.
Item 7.
(b) Pro Forma Financial Information
The following unaudited pro forma combined condensed financial statements have
been prepared to give effect to the acquisition by Inforte Corp.("Inforte" or
the "Company") of Compendit, Inc. ("Compendit") on March 12, 2004 (the
"Acquisition"), using the purchase method of accounting and the assumptions and
adjustments described in the accompanying notes to the unaudited pro forma
combined condensed financial statements. The pro forma combined condensed
financial statements should be read in conjunction with the historical financial
statements of Inforte, filed on Form 10-K with the Securities and Exchange
Commission as part of Inforte's Annual Report for the year ended December 31,
2003, and the historical financial statements of Compendit, which are contained
herein.
The unaudited pro forma combined statement of operations combines the respective
statements of operations as if the acquisition of Compendit had occurred at
January 1, 2003.
The unaudited pro forma combined balance sheet reflects the balance sheet of the
Company as if the acquisition of Compendit had occurred on December 31, 2003.
The unaudited pro forma combined condensed financial statements include
adjustments, which are based upon preliminary estimates, to reflect the
allocation of the purchase price to the acquired assets and assumed liabilities
of Compendit. The purchase price allocation presented herein is preliminary, and
final allocation of the purchase price will be based upon actual net tangible
and intangible assets acquired as well as liabilities assumed as of the date of
the Acquisition. Accordingly, final purchase accounting adjustments may differ,
perhaps significantly, from the pro forma adjustments presented herein.
The unaudited pro forma combined condensed financial statements are intended for
informational purposes only and, in the opinion of management, are not
indicative of the financial position or results of operations of the Company
after the Acquisition or the financial position or results of operations had the
Acquisition actually been effected as of the dates indicated, nor are they
indicative of the future financial position or results of operations.
The unaudited pro forma combined condensed financial statements do not include
potential cost savings from operating efficiencies or synergies that may result
from the Acquisition, potential integration costs that may be incurred
subsequent to the closing of the Acquisition, potential changes in employee
benefit and incentive plans, and other potential operational items that may have
been considered.
UNAUDITED PRO FORMA INFORTE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2003
(In thousands)
Historical
------------------------
Inforte Compendit, Pro forma Pro forma
Corp. Inc. Adjustments Combined
---------- ---------- ----------- ----------
ASSETS
Current assets:
Cash and cash equivalents $24,071 $ 1,850 $(6,975)(a),(b) $18,946
Short-term marketable securities 25,471 - - 25,471
Accounts receivable 4,811 1,645 - 6,456
Allowance for doubtful accounts (500) - - (500)
-------- -------- -------- --------
Accounts receivable, net 4,311 1,645 - 5,956
Prepaid expenses and other current assets 688 257 - 945
Interest receivable on investment securities 372 - - 372
Deferred income taxes 664 19 - 683
-------- -------- -------- --------
Total current assets 55,577 3,771 (6,975) 52,373
Computers, purchased software and property 2,084 403 - 2,487
Less accumulated depreciation and amortization 1,370 224 - 1,594
-------- -------- -------- --------
Computers, purchased software and property, net 714 179 - 893
Long-term marketable securities 18,187 - - 18,187
Goodwill and intangible assets - - 4,905 (c) 4,905
Deferred income taxes 326 - - 326
-------- -------- -------- --------
Total assets $74,804 $ 3,950 $(2,070) $76,684
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 573 $ 203 $ - $ 776
Income taxes payable 299 415 - 714
Accrued expenses 3,558 720 - 4,278
Accrued loss on disposal of leased property 558 - - 558
Deferred acquisition payment - - 500 (d) 500
Deferred revenue 2,617 - - 2,617
Deferred income taxes - 42 - 42
-------- -------- -------- --------
Total current liabilities 7,605 1,380 500 9,485
Stockholders' equity:
Common stock (net of treasury stock) 11 7 (7)(b) 11
Additional paid-in capital 79,791 537 (537)(b) 79,791
Cost of common stock in treasury (2,720,823
shares as of Dec. 31, 2003) (24,997) (45) 45 (b) (24,997)
Retained earnings 12,022 1,970 (1,970)(b) 12,022
Accumulated other comprehensive income 372 101 (101)(b) 372
-------- -------- -------- --------
Total stockholders' equity 67,199 2,570 (2,570) 67,199
-------- -------- -------- --------
Total liabilities and stockholders' equity $74,804 $ 3,950 $(2,070) $76,684
======== ======== ======== ========
Total cash and marketable securities $67,729 $ 1,850 $(6,975) $62,604
The accompanying notes are an integral part of these unaudited pro forma
combined condensed financial statements.
UNAUDITED PRO FORMA INFORTE CORP. AND SUBSIDIARIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
(In thousands, except per share data)
Historical
------------------------
Inforte Compendit, Pro forma Pro forma
Corp. Inc. Adjustments Combined
---------- ---------- ---------- ---------
Revenues:
Revenue before reimbursements
(net revenue) $32,655 $8,325 - $40,980
Reimbursements 4,742 1,294 - 6,036
--------- ---------- --------- ---------
Total Revenues 37,397 9,619 - 47,016
Operating expenses:
Project personnel and related expenses 17,263 - - 17,263
Reimbursed expenses 4,742 1,294 - 6,036
Sales and marketing 4,644 - - 4,644
Recruiting, retention and training 743 - - 743
Management and administrative 9,436 7,112 (122)(e) 16,426
Deferred compensation - - 106 (f) 106
Amortization of intangible assets - - 127 (g) 127
--------- ---------- --------- --------
Total operating expenses 36,828 8,406 111 45,345
Operating income 569 1,213 (111) 1,671
Interest income, net and other 1,380 9 (127)(h) 1,262
--------- ---------- --------- --------
Income before income tax 1,949 1,222 (238) 2,933
Income tax expense 201 430 (52) 579
--------- ---------- --------- --------
Net income $1,748 $792 $(186)(i) $2,354
========= ========== ========= ========
Earnings per share:
-Basic $0.16 $0.22
-Diluted $0.16 $0.21
Weighted average common shares outstanding:
-Basic 10,898 - 10,898
-Diluted 11,018 19 (j) 11,037
The accompanying notes are an integral part of these unaudited pro forma
combined condensed financial statements.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma combined condensed financial statements included herein
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission. Certain information and certain footnote
disclosures normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations; however, management
believes that the disclosures are adequate to make the information presented not
misleading.
1. BASIS OF PRO FORMA PRESENTATION
On March 12, 2004, by way of a merger of a wholly owned subsidiary of Inforte
with Compendit, Inforte acquired all of the outstanding shares of Compendit, a
leading provider of SAP Business Intelligence implementation consulting
services, for initial cash consideration of $5.5 million on closing with an
additional aggregate cash payment of $0.5 million in cash within 45 days after
closing based on a closing statement calculation of cash less transaction costs.
Supplementary cash amounts of up to $6.3 million may be paid over 2005 and 2006
based on 2004 performance. This acquisition enhanced Inforte's ability to offer
analytics and business intelligence solutions through Compendit's services
partnership with SAP.
2. PURCHASE PRICE ALLOCATION
The following represents the preliminary allocation of the purchase price paid
for Compendit based on the estimated fair values of the acquired assets and
assumed liabilities of Compendit as of December 31, 2003. Actual fair values
will be determined as more detailed analysis is completed and additional
information on the fair values of Compendit's assets and liabilities becomes
available.
The unaudited pro forma combined condensed financial statements reflect a total
initial purchase price of $6.1 million (the "Initial Purchase Price"),
consisting of the following: (i) the payment of the initial cash consideration
of $5.5 million, (ii) transaction costs of $0.1 million, and (iii) additional
cash consideration payable after closing of the Acquisition of $0.5 million.
Under the purchase method of accounting, the Initial Purchase Price is allocated
to Compendit's net tangible and intangible assets based upon their estimated
fair value as of the date of the Acquisition. The Initial Purchase Price does
not include any contingent earnout amounts. The preliminary purchase price
allocation as of December 31, 2003 is as follows (in thousands):
Tangible assets:
Cash and cash equivalents....................... $ 500
Accounts receivable and other current assets.... 1,921
Property and equipment.......................... 179
--------
Total tangible assets...................... 2,600
--------
Intangible assets:
Goodwill and other intangible assets............ 4,905
--------
Total intangible assets.................... 7,505
--------
Liabilities assumed:
Accounts payable and other accrued liabilities.. (923)
Income taxes payable............................ (415)
Deferred income taxes........................... (42)
--------
Total liabilities assumed.................. (1,380)
--------
Net assets acquired........................ $ 6,125
========
The allocation of the purchase price was based on a preliminary evaluation of
assets acquired and liabilities assumed. Goodwill represents the excess of the
purchase price
over the fair value of the tangible and intangible assets acquired. In
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill
will not be amortized but will be tested for impairment at least annually. The
purchase price allocation presented above is preliminary and final allocation of
the purchase price will be based upon the actual fair values of the net tangible
and intangible assets acquired, as well as liabilities assumed as of the date of
the Acquisition. Any change in the fair value of the net assets of Compendit
will change the amount of the purchase price allocable to goodwill. The final
purchase accounting adjustments may differ materially from the pro forma
adjustments presented herein.
There were no historical transactions between Inforte and Compendit.
3. ADJUSTMENTS TO PRO FORMA COMBINED FINANCIAL STATEMENTS
Pro Forma Combined Balance Sheet
(a) This adjustment reflects the acquisition of all of the outstanding
securities of Compendit for $5.6 million, consisting of the payment of initial
cash consideration of $5.5 million and transaction costs of $0.1 million.
(b) This adjustment removes from the combined balance sheet cash and cash
equivalents of $1.4 million that were not included among assets of Compendit as
of the date of acquisition of Compendit and eliminates Compendit's historical
stockholders' equity.
(c) This adjustment preliminarily records intangible assets and goodwill created
as a result of the acquisition of Compendit.
(d) This adjustment records an accrual of $0.5 million for additional cash
consideration payable after closing of the Acquisition.
Pro Forma Combined Statement of Operations
(e) This adjustment represents Compendit's transaction costs for investment
banking, legal fees and expense reimbursements related to the sale of
Compendit's assets to the Company.
(f) This adjustment represents stock-based compensation expense related to the
issuance of stock option grants by Inforte to Compendit's employees as of the
acquisition date at an exercise price lower than the market price of Inforte's
stock as of such grant date.
(g) This adjustment reflects the amortization of the intangible assets for the
year ended December 31, 2003.
(h) This adjustment reflects the decrease in interest income related to the
initial purchase price of $5.6 million paid to the shareholders of Compendit.
The reduction in interest income was based on an assumed interest rate of 2.25%
for the twelve months ended December 31, 2003.
(i) This adjustment reflects the tax effect of pro forma adjustments.
(j) This adjustment represents the dilutive effect of options to purchase
Inforte stock issued to Compendit's employees on the acquisition date.
Item 7.
(c) Exhibits
(a) The following exhibits are filed with the Form 8-K/A:
Exhibit 23.1 - Consent of Grant Thornton LLP
--------------------------------------------------------------------------------
SIGNATURES
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 thereunto duly authorized.
By: /s/ Nick Heyes
---------------------------------------
Nick Heyes
Chief Financial Officer
Date: May 10, 2004