-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EqP8AOMxHPxjKpBWvlf3DExcl5Hb1sJIA5PCsc1haGUshgfQ1BRQVQouBzQhAfVn q3sUZlg2IC9KCXhx4RVVEw== 0001193125-06-140657.txt : 20060630 0001193125-06-140657.hdr.sgml : 20060630 20060630155329 ACCESSION NUMBER: 0001193125-06-140657 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060630 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060630 DATE AS OF CHANGE: 20060630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPEN TEXT CORP CENTRAL INDEX KEY: 0001002638 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 980154400 STATE OF INCORPORATION: A6 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27544 FILM NUMBER: 06937697 BUSINESS ADDRESS: STREET 1: 275 FRANK TOMPA DRIVE STREET 2: WATERLOO CITY: ONTARIO CANADA STATE: A6 ZIP: N2L 0A1 BUSINESS PHONE: 519-888-7111 MAIL ADDRESS: STREET 1: 275 FRANK TOMPA DRIVE STREET 2: WATERLOO CITY: ONTARIO CANADA STATE: A6 ZIP: N2L 0A1 8-K/A 1 d8ka.htm FORM 8-K AMMENDMENT NO. 2 Form 8-K Ammendment No. 2

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


FORM 8-K/A

AMENDMENT NO. 2 TO FORM 8-K FILED ON FEBRUARY 26, 2004

 


CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): June 30, 2006

 


Open Text Corporation

(Exact name of Registrant as specified in its charter)

 


 

Canada   0-27544   98-0154400

(State or Other Jurisdiction

of Incorporation)

  (Commission File Number)  

(IRS Employer

Identification No.)

275 Frank Tompa Drive, Waterloo, Ontario, Canada N2L 0A1

(Address of principal executive offices)

(519) 888-7111

Registrant’s telephone number, including area code

 


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 



This Current Report on Form 8-K/A is filed by Open Text Corporation, an Ontario corporation (“Open Text” or the “Company”), as an amendment to that certain Current Report on Form 8-K filed with the United States Securities and Exchange Commission (the “SEC”) on February 26, 2004 (the “Original 8-K”), as amended by the Current Report on Form 8-K/A filed on May 3, 2004 (the “Amended 8-K”).

Item 9.01: Financial Statements and Exhibits

The Original 8-K related to the announcement that Open Text had closed its tender offer for the outstanding shares of IXOS Software AG (“IXOS”), a German corporation, pursuant to which a wholly owned subsidiary of Open Text acquired approximately 88% of the ordinary share capital and voting rights of IXOS.

The Amended 8-K filed the audited financial statements of IXOS for IXOS’ fiscal years ended June 30, 2003, 2002 and 2001. IXOS’ financial statements for the fiscal years ended June 30, 2003 (the “2003 Financial Statements”) filed with the Amended 8-K were audited by IXOS’ then current auditors, Ernst & Young AG. IXOS’s financial statements for the fiscal year ended June 30, 2002 (the “2002 Financial Statements”) filed with the Amended 8-K were audited by IXOS’s then former auditors, AW Treuhand GmbH. IXOS’ financial statements for the fiscal year ended June 30, 2001 (the “2001 Financial Statements”) were audited by IXOS’ then former auditors, Arthur Andersen GmbH (“Arthur Andersen”), which has since ceased operations.

Subsequent to the completion of the tender offer by Open Text, a thorough review of IXOS’ books and records was conducted. In the course of that review, Open Text discovered accounting irregularities at IXOS Software K.K., a wholly-owned Japanese subsidiary of IXOS, concentrated in the areas of revenue recognition and cost capitalization. Forensic accountants were engaged by Open Text to conduct an independent review of the transactions, records and business arrangements of IXOS Software K.K. This review revealed a cumulative overstatement of revenue by IXOS Software K.K. during the period between IXOS’ fiscal years 2001 and 2003. The transactions reviewed also had the effect of overstating certain expenses and current assets.

As part of its investigation into the aforementioned matters, Open Text and IXOS performed an extensive group-wide review of account balances. This group-wide review led to the determination that the previously issued IXOS consolidated financial statements also required restatement related to the under-accrual of personnel related expenses, maintenance revenue and sales and use taxes in IXOS’ United States operations.

Open Text is herewith filing restated financial statements of IXOS for the fiscal years ended June 30, 2002 and 2003 in order to restate the 2002 Financial Statements and the 2003 Financial Statements. The 2001 Financial Statements also require restatement and should no longer be relied upon. Because Arthur Andersen has ceased operations, a restatement of the 2001 Financial Statements herein would have involved unreasonable cost and effort. Thus, Open Text includes herein, based on discussions with the SEC, previously un-filed audited consolidated financial statements of IXOS for the period from July 1, 2003 to February 29, 2004.

As the matters leading to the restatements of the IXOS financial statements occurred prior to the acquisition of IXOS by Open Text, such restatements do not impact the reported financial position and results of operations of Open Text for its then most recently completed fiscal year ended June 30, 2004. The Company’s preliminary purchase price allocation was amended during Open Text’s fiscal year ended June 30, 2005.

The following restated financial statements and exhibits are filed as part of this Current Report, on Form 8-K/A, where indicated:

 

  (a) Financial Statements of the Business Acquired

The following audited financial statements of IXOS Software AG are included as Exhibit 99.1 to this Current Report on Form 8-K/A:

Restated Fiscal years ended June 30, 2002 and June 30, 2003:

Report of independent auditors for the fiscal year ended June 30, 2002

Report of independent auditors for the fiscal year ended June 30, 2003

Restated Consolidated Statements of Operations for the years ended June 30, 2002 and 2003

 

2


Restated Consolidated Balance Sheets as of June 30, 2002 and 2003

Restated Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2002 and 2003

Restated Consolidated Statements of Cash Flows for the years ended June 30, 2002 and 2003

Notes to the Restated Consolidated Financial Statements

For the period from July 1, 2003 to February 29, 2004

Report of independent auditors for the period from July 1, 2003 to February 29, 2004

Consolidated Statement of Operations for the period from July 1, 2003 to February 29, 2004

Consolidated Balance Sheet as of February 29, 2004

Consolidated Statement of Shareholders’ Equity for the period from July 1, 2003 to February 29, 2004

Consolidated Statement of Cash Flows for period from July 1, 2003 to February 29, 2004

Notes to the Consolidated Financial Statements

 

  (b) Pro Forma Financial Information

The following restated unaudited pro forma financial information of IXOS is included as Exhibit 99.2 to this Current Report on Form 8-K/A:

Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2003

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the fiscal year ended June 30, 2003

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the six-month period ended December 31, 2003

Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

 

  (c) Shell Company Transactions

None

 

  (d) Exhibits

Exhibit No. Description

The Exhibits that are filed with this Current Report on Form 8-K/A are set forth in the Exhibit Index to this Current Report on Form 8-K/A.

 

3


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 hereunto duly authorized.

 

  OPEN TEXT CORPORATION
June 30, 2006   By:  

/s/ Paul J. McFeeters

    Paul J. McFeeters
    Chief Financial Officer

 

4


EXHIBIT INDEX

 

Exhibit No.  

Description

23.1   Independent Auditors’ Consent of KPMG LLP
99.1   The following audited restated consolidated financial statements of IXOS:
  Fiscal years ended June 30, 2002 and 2003
  Independent Auditors Report of Ernst & Young AG Wirtschaftsprüfungsgesellschaft
  Independent Auditors Report of AW Treuhand GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft
  Restated Consolidated Statements of Operations for the years ended June 30, 2002 and 2003
  Restated Consolidated Balance Sheets as of June 30, 2002 and 2003
  Restated Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2002 and 2003
  Restated Consolidated Statements of Cash Flows for the years ended June 30, 2002 and 2003
  Notes to the Restated Consolidated Financial Statements
  For the period from July 1, 2003 to February 29, 2004
  Independent Auditors Report of KPMG LLP
  Consolidated Statement of Operations for the period from July 1, 2003 to February 29, 2004
  Consolidated Balance Sheet as of February 29, 2004
  Consolidated Statement of Shareholders’ Equity for the period from July 1, 2003 to February 29, 2004
  Consolidated Statement of Cash Flows for the period from July 1, 2003 to February 29, 2004
  Notes to the Consolidated Financial Statements
99.2   The following unaudited pro forma financial information as at December 31, 2003, for the year ended June 30, 2003 and for the six months ended December 31, 2003
  Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2003
  Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended June 30, 2003
  Unaudited Pro Forma Condensed Consolidated Statement of Operations for the six-months ended December 31, 2003
  Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

 

5

EX-23.1 2 dex231.htm INDEPENDENT AUDITORS' CONSENT OF KPMG LLP Independent Auditors' Consent of KPMG LLP

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors of

Open Text Corporation.

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-109505, 333-5474, 333-6934, 333-08606, 333-08604, 333-10220, 333-08608, 333-87024, and 333-1212377) of Open Text Corporation, of our audit report dated June 28, 2006 to the Supervisory Board and shareholders of IXOS Software AG, Munich (“the Company”) with respect to the consolidated balance sheet of the Company as of February 29, 2004 and the related consolidated statement of operations, shareholders’ equity and cash flows for the period from July 1, 2003 to February 29, 2004, which report appears in the Form 8-K/A of Open Text Corporation dated June 30, 2006.

KPMG LLP

Chartered Accountants

Toronto, Canada

June 29, 2006

EX-99.1 3 dex991.htm AUDITED RESTATED CONSOLIDATED FINANCIAL STATEMENTS OF IXOS Audited restated consolidated financial statements of IXOS

Exhibit 99.1

REPORT OF INDEPENDENT AUDITORS

The Supervisory Board and Shareholders

IXOS Software AG and subsidiaries:

We have audited the accompanying consolidated balance sheet of IXOS Software AG (the “Company”) as of June 30, 2003 and the related consolidated statements of operations, shareholders’ equity and cash flows for the year 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 audit.

We conducted our audit in accordance with auditing standards generally accepted in the 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 audit provides 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 IXOS Software AG as of June 30, 2003, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

As discussed in Note 3, the accompanying consolidated financial statements have been restated.

 

Ernst & Young AG
Wirtschaftsprüfungsgesellschaft
Klein    Völker
Wirtschaftsprüfer    Wirtschaftsprüfer

Munich, August 14, 2003, except with respect to Note 3,

as to which the date is June 28, 2006


REPORT OF INDEPENDENT AUDITORS

The Supervisory Board and Shareholders

IXOS Software AG and subsidiaries:

We have audited the accompanying consolidated balance sheet of IXOS Software AG (the “Company”) as of June 30, 2002 and the related consolidated statements of operations, shareholders’ equity and cash flows for the year 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 audit. The consolidated financial statements of IXOS Software AG as of June 30, 2001 and for the year then ended were audited by other auditors who previously ceased operations as a then foreign associated firm of the Securities and Exchange Commission Practice Section of the American Institute of Certified Public Accountants. Those auditors expressed an unqualified opinion on those consolidated financial statements in their report dated July 27, 2001, before the restatement adjustments described in Note 3.

We conducted our audit in accordance with auditing standards generally accepted in the 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 audit provides 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 IXOS Software AG at June 30, 2002, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

As discussed in Note 3, the accompanying consolidated financial statements have been restated.

 

Aw Treuhand GmbH
Wirtschaftsprüfungsgesellschaft
Steuerberatungsgesellschaft (1)
Klein    Völker
Wirtschaftsprüfer    Wirtschaftsprüfer

Munich, August 13, 2002, except with respect to Note 3, as to which the date is June 28, 2006


(1) formerly known as both Ernst & Young Revisions-und Treuhandgesellschaft mbH and Also Arthur Andersen Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft mbH


IXOS SOFTWARE AG

Restated Consolidated Statements of Operations for the years ended June 30, 2002 and 2003

 

    

2001/2002

Restated*

   

2002/2003

Restated*

 
     (in thousands, except share and per share data)  

Revenues

    

Software licenses

   52,745     48,736  

Services

   35,701     35,677  

Maintenance

   34,801     40,979  
            

Total revenues

   123,247     125,392  
            

Cost of revenues

    

Software licenses

   1,720     2,475  

Services

   26,673     28,805  

Maintenance

   10,343     10,664  
            

Total cost of revenues

   38,736     41,944  
            

Gross profit

   84,511     83,448  
            

Operating (income) expenses

    

Sales and marketing

   48,742     55,755  

Research and development

   15,701     19,117  

General and administrative

   13,138     13,751  

Other operating income

   (6,191 )   (6,049 )

Other operating expenses

   6,595     6,210  
            

Total operating expenses

   77,985     88,784  
            

Income (loss) from operations

   6,526     (5,336 )
            

Other income (expenses)

    

Interest income

   739     764  

Interest expense

   (176 )   (326 )

Foreign currency exchange gain/(loss)

   (1,242 )   (4,241 )
            

Total other income/(expenses)

   (679 )   (3,803 )
            

Income/(loss) before provision for income taxes

   5,847     (9,139 )

Income tax benefit (expense)

   (654 )   (665 )
            

Net income (loss)

   5,193     (9,804 )
            

Net income (loss) per share

    

Basic

   0.26     (0.47 )

Diluted

   0.26     (0.47 )2
            

Weighted average shares outstanding

    

Basic

   19,677,661     21,059,116  

Diluted

   19,747,471     21,059,116 1
            

* See Note 3 to the Consolidated Financial Statements for a description of the restatements.
1 Diluted average shares outstanding are identical in fiscal year 2002/03 as the Company reports losses.
2 Diluted and basic earnings per share are the same in fiscal years where the Company reports losses, as the effect would be antidilutive.

The accompanying notes are an integral part of the consolidated financial statements.


IXOS SOFTWARE AG

Restated Consolidated Balance Sheets as of June 30, 2002 and 2003

 

    

June 30, 2002

Restated*

   

June 30, 2003

Restated*

 
     (in thousands, except share and per share data)  

Assets

    

Current assets:

    

Cash and cash equivalents

   34,384     29,214  

Accounts receivable, net of allowance for doubtful accounts of € 2,312 in 2002 and € 3,343 in 2003

   42,678     36,998  

Unbilled receivables

   891     949  

Other current assets

   3,004     4,817  
            

Total current assets

   80,957     71,978  
            

Property and equipment, net

   9,717     9,659  

Intangible assets, net

   3,510     9,057  

Goodwill

   400     9,861  

Other long-term assets

   1,075     1,630  
            
   14,702     30,207  
            

Total assets

   95,659     102,185  
            

Liabilities and shareholders’ equity

    

Current liabilities:

    

Income taxes payable

   367     697  

Accrued liabilities

   14,432     16,583  

Accounts payable

   11,069     8,571  

Customer advances and other unearned revenues

   10,620     12,934  

Current portion of obligations under capital leases

   131     0  
            

Total current liabilities

   36,619     38,785  
            

Other long-term debt, net of current portion

   0     846  

Accrued pension liabilities

   1,680     1,848  
            
   1,680     2,694  
            

Commitments and contingencies

    

Shareholders’ equity

    

Common stock (no-par value shares, 34,247,542 shares authorized; 19,684,659, and 21,491,044 shares outstanding in 2002 and 2003, respectively)

   20,303     22,110  

Additional paid-in capital

   44,506     53,274  

Treasury shares, at cost

   (241 )   (241 )

Retained deficit

   (6,634 )   (16,438 )

Accumulated other comprehensive income (loss)

   (574 )   2, 001  
            

Total shareholders’ equity

   57,360     60,706  
            

Total liabilities and shareholders’ equity

   95,659     102,185  
            

* See Note 3 to the Consolidated Financial Statements for a description of the restatements

The accompanying notes are an integral part of the consolidated financial statements.


IXOS SOFTWARE AG

Restated Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2002 and 2003

(in thousands, except per share data)

 

     Common Stock   

Additional

Paid-in Capital

  

Treasury

Stock

 
     Shares    

Amount

     

Balance – June 30, 2001, as previously reported

   19,724,659     20,303    44,506    0  

Restatement – correction of errors

   0     0    0    0  
                      

Balance – June 30, 2001, as restated

   19,724,659     20,303    44,506    0  
                      

Treasury stock

   (40,000 )   0    0    (241 )

Net income

   0     0    0    0  

Translation adjustment

   0     0    0    0  
                      

Balance – June 30, 2002, restated

   19,684,659     20,303    44,506    (241 )
                      

Capital increase

   1,800,000     1,800    8,750    0  

Exercise of stock options

   6,385     7    18    0  

Treasury Stock

   0     0    0    0  

Net loss

   0     0    0    0  

Pension accrual adjustment

   0     0    0    0  

Translation adjustment

   0     0    0    0  
                      

Balance – June 30, 2003, restated

   21,491,044     22,110    53,274    (241 )
                      

 

    

Retained Earnings

(Deficit)

Restated*

   

Accumulated Other

Comprehensive

Income

Restated*

   

Total

Shareholders’

Equity

Restated*

   

Comprehensive
Income/loss

Restated*

 

Balance – June 30, 2001, as previously reported

   (8,429 )   (47 )   56,333    

Restatements – correction of errors

   (3,398 )   0     (3,398 )  
                    

Balance – June 30, 2001, restated

   (11,827 )   (47 )   52,935    
                    

Treasury stock

   0     0     (241 )   0  

Net income

   5,193     0     5,193     5,193  

Translation adjustment

   0     (527 )   (527 )   (527 )
                        

Balance – June 30, 2002, restated

   (6,634 )   (574 )   57,360     4,666  
                        

Capital increase

   0     0     10,550     0  

Exercise of stock options

   0     0     25     0  

Net loss

   (9,804 )   0     (9,804 )   (9,804 )

Pension accrual adjustment

   0     (52 )   (52 )   (52 )

Translation adjustment

   0     2,627     2,627     2,627  
                        

Balance – June 30, 2003, restated

   (16,438 )   2,001     60,706     (7,229 )
                        

* See Note 3 to the Consolidated Financial Statements for a description of the restatements

The accompanying notes are an integral part of the consolidated financial statements.


IXOS SOFTWARE AG

Restated Consolidated Statements of Cash flows for the years ended June 30, 2002 and 2003

 

     2001/2002

Restated*
   

2002/2003

Restated*

 
     (in thousands)  

Cash flows from operating activities

    

Net income (loss)

   5,193     (9,804 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Depreciation and amortization

   4,440     4,681  

Loss from disposals of property and equipment

   74     85  

Deferred income taxes

   (408 )   (651 )

Accrued pension liabilities

   363     168  

Foreign exchange loss

   105     3,536  

Changes in operating assets and liabilities:

    

Accounts receivable

   (2,110 )   9,677  

Unbilled revenue

   (891 )   (58 )

Prepaid expenses and other

   279     (1,284 )

Accounts payable

   5,099     (5,897 )

Accrued liabilities

   (309 )   (118 )

Customer advances and unearned revenues

   (1,220 )   (1,496 )

Income taxes payable

   (216 )   297  
            

Net cash provided by (used in) operating activities

   10,399     (864 )
            

Cash flows from investing activities

    

Purchase of intangible assets, property and equipment

   (4,764 )   (2,357 )

Cash used in business acquisitions, net of cash acquired

   0     (6,620 )
            

Net cash used in investing activities

   (4,764 )   (8,977 )
            

Cash flows from financing activities

    

Repayments of long-term debt

   (38 )   (4,166 )

Repayment of capital lease obligations

   (293 )   (839 )

Purchase of treasury shares

   (241 )   0  

Capital contribution

   0     10,575  
            

Net cash provided by/(used in) financing activities

   (572 )   5,570  
            

Net increase/(decrease) in cash and cash equivalents

   5,063     (4,271 )

Effect of exchange rates on cash and cash equivalents

   (691 )   (899 )

Cash and cash equivalents – beginning of year

   30,012     34,384  
            

Cash and cash equivalents – end of year

   34,384     29,214  
            

Supplemental data

    

Cash paid during the period:

    

Income taxes

   952     1,211  

Interest

   0     110  
            

* See Note 3 to the Consolidated Financial Statements for a description of the restatements

The accompanying notes are an integral part of the consolidated financial statements.


Notes to the Restated Consolidated Financial Statements

(all amounts in thousands, unless otherwise indicated, except share and per share amounts)

1. General Disclosures

IXOS SOFTWARE Aktiengesellschaft (“IXOS” and or the “Company”), founded in Germany in 1988, together with its subsidiaries, is one of the leading providers of software solutions for the management of business documents.

The balance sheet date for the financial statements of all companies included in the consolidated financial statements is June 30, 2002 and 2003, which corresponds to the closing dates of the parent company, IXOS SOFTWARE AG, Grasbrunn.

2. Consolidation

Consolidated Group

As of June 30, 2002 and June 30, 2003 IXOS held 100% of the shares in the following subsidiaries:

 

    IXOS SOFTWARE, Inc., San Mateo, California, U.S.A.

 

    IXOS SOFTWARE (International) AG, Biel, Switzerland

 

    IXOS SOFTWARE Kabushiki Kaisha, Tokyo, Japan

 

    IXOS SOFTWARE Asia PTE Ltd., Singapore

 

    IXOS SOFTWARE s. r. o., Prague, Czech Republic

 

    IXOS SOFTWARE Limited, Maidenhead, United Kingdom

 

    IXOS SOFTWARE Australia Pty. Ltd., Melbourne, Australia

 

    IXOS SOFTWARE Sdn. Bhd., Kuala Lumpur, Malaysia

 

    IXOS SOFTWARE (Austria) GmbH, Vienna, Austria

 

    IXOS (Netherlands) B. V., Hilversum, Netherlands

As of June 30, 2003 IXOS also held 99.92 % of the shares of Obtree Technologies Inc., Basel, Switzerland

At June 30, 2003, the Obtree Technologies Inc. and IXOS SOFTWARE s. r. o. subsidiaries functioned as development companies for IXOS SOFTWARE products. All other subsidiaries are sales organizations for IXOS’ products and services and assure support for local customers.

Consolidation Policies

The financial statements of the foreign and German companies included in the consolidated financial statements have all been prepared using uniform accounting policies in compliance with accounting principles generally accepted in the United States (U.S. GAAP).

IXOS SOFTWARE Aktiengesellschaft and all the majority holdings have been fully consolidated in the Company’s consolidated financial statements. The consolidated financial statements were prepared in thousands of Euros (“€”), except share and per share amounts, and in accordance with U.S. GAAP.

All intercompany transactions and balances have been eliminated.


Changes in the Consolidated Group

On January 24, 2003 IXOS announced the acquisition of Swiss-based Obtree Technologies Inc. and the purchase of the operating business of German-based PowerWork AG. Obtree Technologies Inc. is a leading supplier of content management solutions in Europe. PowerWork AG is an innovative supplier of process management and workflow technologies in Germany, Austria, and Switzerland. The two acquisitions are specifically designed to complement IXOS’ portfolio in the ECM environment. The additional technologies, successfully established products, and the new research, development, and sales resources ideally complement IXOS’ existing products in the key fields of content management, workflow, and process management.

Obtree Technologies Inc., based in Basel, was a closely held (unlisted) Swiss public company, offering software development, sales, services, and support. In fiscal year 2002, Obtree Technologies Inc. generated revenues of approximately € 11.2 million. IXOS acquired the company with a total of 86 employees through a cash purchase of the company’s shares. Initially IXOS bought 96.42% of the company’s 14,790,347 ordinary shares at a price of CHF 0.52 (€ 0.36) per share. This corresponds to a purchase price of CHF 7.7 million (€ 5.3 million) for a 100% interest. The transfer of beneficial ownership took place on February 1, 2003. Under a resolution adopted by the General Meeting, an additional 517,377 ordinary shares were purchased at a price of CHF 0.52 per share between April 2, 2003 and May 2, 2003. As of June 30, 2003, IXOS owned 14,778,330 shares representing 99.92% of the total outstanding shares. Including transaction costs of € 0.9 million, the total purchase price was € 6.2 million.

IXOS engaged an independent expert to assist in the valuation of net assets acquired. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed for Obtree Technologies Inc. as of January 31, 2003.

 

      

Current assets

   5,932  

Fixed assets

   1,644  

Intangible assets

   5,417  

Goodwill

   7,397  
      

Total assets

   20,390  
      

Current liabilities

   (8,942 )

Long-term debt

   (5,269 )
      

Total liabilities

   (14,211 )
      

Net assets acquired

   6,179  
      

In the course of the purchase accounting for Obtree Technologies Inc., goodwill was increased by another € 251 from the recognition of deferred tax liabilities on capitalized intangible assets.

The current liabilities are composed of the following items:

 

    

Deferred income

   2,372

Other liabilities

   2,193

Trade accounts payable

   1,820

Other accruals

   1,497

Advance payments

   1,060
    
   8,942
    

The acquisition was accounted for as a purchase transaction in accordance with SFAS No. 141. Of the € 5,417 capitalized intangible assets, € 4,097 was assigned to software assets and € 1,320 to support contracts. The software has a useful life of four years and is amortized on a straight-line basis. The support contracts have a useful life of five years and are amortized over the useful life of each contract. Goodwill represents the excess of the purchase price over the fair value of net tangible and identified intangible assets acquired. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill is no longer amortized, but will be tested for impairment annually or more frequently if there are indicators of impairment. This goodwill is not tax-deductible.

The results of Obtree Technologies Inc.’s operations have been included in the consolidated financial statements of IXOS SOFTWARE AG effective February 1, 2003.


IXOS also acquired the net operating assets and liabilities plus 24 employees of PowerWork AG (unlisted), based in Kempten, Germany, in return for € 1.2 million in cash. Including transaction costs of € 0.4 million the total purchase price was € 1.6 million. PowerWork AG is a software house offering development, sales and services, and support. In fiscal year 2002 the company generated revenues of € 2.2 million.

IXOS engaged an independent expert to assist in the valuation of net assets acquired. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed for PowerWork AG as of January 23, 2003:

 

      

Current assets

   338  

Fixed assets

   105  

Intangible assets

   733  

Goodwill

   1,812  
      

Total assets

   2,988  
      

Current liabilities

   (1,424 )
      

Total liabilities

   (1,424 )
      

Net assets acquired

   1,564  
      

The current liabilities are composed of the following items:

 

    

Other accruals

   519

Trade accounts payable

   332

Deferred income

   225

Other liabilities

   199

Advance payments

   149
    
   1,424
    

The acquisition of PowerWork AG was also accounted for as a purchase transaction in accordance with SFAS No. 141. The € 733 capitalized intangible assets represents acquired software. This software has a useful life and will be amortized on a straight-line basis over a period of three years. Goodwill represents the excess of the purchase price over the fair value of tangible and identified intangible assets acquired. In accordance with SFAS No. 142 goodwill is no longer amortized, but will be tested for impairment annually or more frequently if there are indicators of impairment. This goodwill is tax-deductible.

The results of PowerWork AG’s operations have been included in the consolidated financial statements of IXOS SOFTWARE AG since the date of acquisition.

The following unaudited pro-forma summary presents the consolidated results of the Company as if the acquisitions had occurred on July 1, 2001:

 

    

Unaudited

2001/2002

Restated*

   

Unaudited

2002/2003

Restated*

 

Revenues

   140,002     133,976  

Net loss

   (35,207 )   (19,728 )

Basic net loss per share

   (1.79 )   (0.94 )
            

* See Note 3 to the Consolidated Financial Statements for a description of the restatements.

The unaudited pro-forma consolidated amounts do not purport to show the actual results of operations of the Company as if the acquisition had taken place on July 1, 2001, nor can they be used to extrapolate the future results of the Company.


3. Restatements – Corrections of Errors

On October 21, 2003, the Company and Open Text Corporation (“Open Text”, a Canadian company) signed a business combination agreement resulting in the creation of a worldwide leading provider of Enterprise Content Management solutions. On December 1, 2003, “2016091 Ontario Inc., Waterloo, Ontario, Canada” (a wholly-owned subsidiary of Open Text), published a public tender offer to all Company shareholders. In its opinion of December 2, 2003, the Executive Board and the Supervisory Board of the Company advised Company shareholders to accept the tender offer. The acceptance period for this offer ended on February 19, 2004. Under the terms of the offer, Open Text acquired 87.79% of the shares in the Company.

Subsequent to the completion of the tender offer by Open Text, a thorough review of IXOS’ books and records was conducted. In the course of that review, accounting irregularities were discovered at IXOS Software K.K., a wholly-owned Japanese subsidiary of IXOS. Irregularities were concentrated in the areas of revenue recognition and cost capitalization as is discussed further below. Forensic accountants were engaged to conduct an independent review of the transactions, records and business arrangements of IXOS Software K.K.

The Japan forensic review revealed a cumulative overstatement of revenue by IXOS Software K.K. during the period between IXOS’ fiscal years 2001 and 2003. Overstatements related to the fiscal years 2002 and 2003 are quantified in further detail below. The transactions in question also had the effect of overstating certain expenses and current assets. The Company is therefore restating its previously reported consolidated financial statements for fiscal years 2002 and 2003 in order to correct these errors.

As part of its investigation into the aforementioned matters, the Company performed an extensive group-wide review of account balances. This review led to the determination that the previously issued consolidated financial statements also required restatement related to reconciliation control deficiencies existing in IXOS’ United States operations. Restatements in the United States relate primarily to incorrect accounting for deferred maintenance revenue, maintenance revenue, accounts receivable, accrued expenses and income taxes. These restatements are also quantified in further detail below.


Adjustments to the previously issued consolidated financial statements are summarized as follows:

Consolidated Statement of Operations for fiscal year ended June 30, 2002:

 

     2001/2002
as previously
reported
    Adjustments
in Japan
    Adjustments
in the USA
    2001/2002
as restated
 

Revenues

        

Software licenses

   53,021     (276 )   0     52,745  

Services

   35,701     0     0     35,701  

Maintenance

   33,278     49     1,474     34,801  
                        

Total revenues

   122,000     (227 )   1,474     123,247  
                        

Cost of revenues

        

Software Licenses

   1,632     0     88     1,720  

Services

   26,915     (691 )   449     26,673  

Maintenance

   9,948     (24 )   419     10,343  
                        

Total cost of revenues

   38,495     (715 )   956     38,736  
                        

Gross profit

   83,505     488     518     84,511  
                        

Operating income (expenses)

        

Sales and marketing

   47,715     (26 )   1,053     48,742  

Research and development

   15,663     0     38     15,701  

General and administrative

   12,425     (12 )   725     13,138  

Other operating income / expenses

   (7 )   39     372     404  
                        

Total operating expenses

   75,796     1     2,188     77,985  
                        

Income from operations

   7,709     487     (1,670 )   6,526  
                        

Other income (expenses)

   (613 )   0     (66 )   (679 )
                        

Income before income taxes and minority interest

   7,096     487     (1,736 )   5,847  

Income tax benefit (expense)

   (294 )   (235 )   (125 )   (654 )
                        

Net income

   6,802     252     (1,861 )   5,193  
                        

Net income per share

        

Basic

   0.35         0.26  

Diluted

   0.34         0.26  
                


Consolidated Balance Sheets as of June 30, 2002

 

     2001/2002
as previously
reported
    Adjustments
in Japan
    Adjustments
in the USA
    2001/2002
as restated
 

Assets

        

Current Assets

        

Cash and cash equivalents

   34,320     64     0     34,384  

Accounts receivable, net

   44,409     (858 )   (873 )   42,678  

Prepaid expenses and other

   6,113     (999 )   (144 )   4,970  
                        

Total current assets

   84,842     (1,793 )   (1,017 )   82,032  

Other assets

   13,627     0     0     13,627  
                        

Total assets

   98,469     (1,793 )   (1,017 )   95,659  
                        

Liabilities and shareholders’ equity

        

Current Liabilities

        

Accounts payable

   11,069     0     0     11,069  

Accrued liabilities

   10,495     0     3,937     14,432  

Customer advances and unearned revenues

   11,679     (796 )   (263 )   10,620  

Income tax payable

   452     229     (314 )   367  

Deferred income taxes

   1,036     0     (1,036 )   0  

Current portion of obligation under capital lease

   131     0     0     131  
                        

Total current liabilities

   34,862     (567 )   2,324     36,619  
                        

Accrued pension liability

   1,680     0     0     1,680  
                        

Shareholders’ equity

        

Common stock

   20,303     0     0     20,303  

Additional paid-in capital

   44,506     0     0     44,506  

Treasury shares, at cost

   (241 )   0     0     (241 )

Retained deficit

   (1,627 )   (1,406 )   (3,601 )   (6,634 )

Accumulated other comprehensive income

   (1,014 )   180     260     (574 )
                        

Total shareholders’ equity

   61,927     (1,226 )   (3,341 )   57,360  
                        

Total liabilities and shareholders’ equity

   98,469     (1,793 )   (1,017 )   95,659  
                        


Consolidated Statement of Operations for fiscal year ended June 30, 2003

 

     2002/2003
as previously
reported
    Adjustments
in Japan
    Adjustments
in the USA
    2002/2003
as restated
 

Revenues

        

Software Licenses

   50,371     (1,635 )   0     48,736  

Services

   35,677     0     0     35,677  

Maintenance

   41,071     (506 )   414     40,979  
                        

Total revenues

   127,119     (2,141 )   414     125,392  
                        

Cost of revenues

        

Software Licenses

   2,060     0     415     2,475  

Services

   27,142     1,398     265     28,805  

Maintenance

   10,333     0     331     10,664  
                        

Total cost of revenues

   39,535     1,398     1,011     41,944  
                        

Gross profit

   87,584     (3,539 )   (597 )   83,448  
                        

Operating Income (expenses)

        

Sales and Marketing

   55,409     (174 )   520     55,755  

Research & Development

   18,940     0     178     19,118  

General and administrative

   13,152     12     586     13,750  

Other operating income / expenses

   (49 )   210     0     161  
                        

Total operating expenses

   87,452     48     1,284     88,784  
                        

Income (loss) from operations

   132     (3,587 )   (1,881 )   (5,336 )
                        

Other income (expenses)

   (3,690 )   0     (113 )   (3,803 )
                        

Income before income taxes and minority interest

   (3,558 )   (3,587 )   (1,994 )   (9,139 )

Provisions for income taxes

   (397 )   (207 )   (61 )   (665 )
                        

Net income (loss)

   (3,955 )   (3,794 )   (2,055 )   (9,804 )
                        

Net income (loss) per share

        

Basic

   (0.19 )       (0.47 )

Diluted

   (0.19 )       (0.47 )
                


Consolidated Balance Sheets as of June 30, 2003

 

     2002/2003
as previously
reported
    Adjustments
in Japan
    Adjustments
in the USA
    2002/2003
as restated
 

Assets

        

Current Assets

        

Cash and cash equivalents

   29,214     0     0     29,214  

Accounts receivable, net

   40,493     (1,665 )   (1,830 )   36,998  

Unbilled revenue, prepaid expenses and other

   8,343     (2,307 )   (270 )   5,766  
                        

Total current assets

   78,050     (3,972 )   (2,100 )   71,978  

Other assets

   30,207     0     0     30,207  
                        

Total assets

   108,257     (3,972 )   (2,100 )   102,185  
                        

Liabilities and shareholders’s equity

        

Current Liabilities

        

Accounts payable

   7,574     997     0     8,571  

Accrued liabilities

   12,537     0     4,046     16,583  

Customer advances and unearned revenues

   13,516     (522 )   (60 )   12,934  

Income tax payable

   808     404     (515 )   697  

Deferred income taxes

   603     0     (603 )   0  
                        

Total current liabilities

   35,038     879     2,868     38,785  
                        

Other long-term debt, net of current portion

   846     0     0     846  

Accrued pension liability

   1,848     0     0     1,848  
                        
   2,694     0     0     2,694  
                        

Shareholders’ equity

        

Common stock

   22,110     0     0     22,110  

Additional paid-in capital

   53,274     0     0     53,274  

Treasury shares, at cost

   (241 )   0     0     (241 )

Retained deficit

   (5,582 )   (5,202 )   (5,654 )   (16,438 )

Other comprehensive income

   964     351     686     2,001  
                        

Total shareholders’ equity

   70,525     (4,851 )   (4,968 )   60,706  
                        

Total liabilities and shareholders’ equity

   108,257     (3,972 )   (2,100 )   102,185  
                        

Opening Shareholders Equity Balances

The aforementioned restatements had the effect of increasing the accumulated deficit (and decreasing total shareholders’ equity) of the Company by €3,398 (unaudited) at July 1, 2003.


Cash Flows

The restatement of net income (loss) and the balance sheet accounts described above also results in changes in the cash flow statement in the amounts given above. Statement of cash flow subtotals have been restated by the following amounts:

 

     2001/2002
   

2002/2003

 
     (in thousands)  

Cash flows from operating activities

   (212 )   2,813  

Cash flows from investing activities

   0     0  

Cash flows from financing activities

   0     0  

Effect of exchange rates on cash and cash equivalents

   276     (2,877 )

Cash and cash equivalents – beginning of year

   0     64  
            

Cash and cash equivalents – end of year

   64     0  
            

4. Significant Accounting Policies

Foreign Currency Translation

The functional currency of each of the Company’s subsidiaries is the local currency of the country in which the subsidiary is located. Accordingly, assets and liabilities in the balance sheets of the foreign subsidiaries in a foreign currency (except equity) are translated into euros at the closing rate. Resulting translation adjustments are recognized in other comprehensive income, which is a separate component of shareholders’ equity.

Transactions involving other currencies were translated into local currency using the exchange rates in effect at the transaction date. At year-end, assets and liabilities denominated in other currencies are translated using the closing rates. The corresponding exchange rate gains and losses are reported in the statement of operations. Intercompany transactions of a long-term investment nature are considered part of a parent’s net investment and are charged or credited to accumulated other comprehensive income in shareholders’ equity.

Revenues and expenses are translated at the average monthly exchange rate.

The following closing rates have been used to translate assets and liabilities:

 

Country

   Currency    Translation rate (1 € equal to)
      As of June 30, 2002    As of June 30, 2003

U.S.A.

   USD    0.9974    1.143

Japan

   JPY    118.1900    137.25

United Kingdom

   GBP    0.6495    0.6928

Switzerland

   CHF    1.4721    1.5505

Australia

   AUD    1.7710    1.71

Malaysia

   MYR    3.7562    4.3428

Singapore

   SGD    1.7598    2.01

Czech Republic

   CZK    29.4000    31.59

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures in the notes and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from these estimates.


Cash and Cash Equivalents

Cash and cash equivalents are carried at nominal value. The company classifies all short-term highly liquid investments with original maturity dates of 90 days or less at the time of acquisition as cash and cash equivalents.

Trade Accounts Receivable

Accounts receivable are stated at their nominal value, net of allowances for doubtful accounts. The Company estimates the allowance for doubtful accounts based on the history of bad debts, and by applying a flat percentage to the overdue accounts. Trade accounts receivable are written off against the allowance for doubtful accounts when collection efforts have ceased.

Property and Equipment

Property and equipment is carried at cost and depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 13 years. Leasehold improvements are depreciated straight-line over the shorter of the term of the rent agreement or the estimated useful life. Gains and losses on the sale of fixed assets are shown as other operating income or expenses. Maintenance and minor repairs are charged to operations as incurred.

Low-value items (with acquisition costs under € 0.410) are expensed in the year of acquisition.

Purchased Software

Purchased software is recognized at cost and amortized on a straight-line basis over the expected useful life. The amortization period is between three and five years.

Impairment of Long-lived and Intangible Assets

The Company adopted SFAS No. 144, “Accounting for the impairment or Disposal of Long-lived Assets,” on July 1, 2002. In accordance with SFAS No. 144, long-lived assets, including purchased software and property and equipment, are reviewed for impairment whenever circumstances and situations change in such a way as to indicate that the carrying amounts of such assets may not be recoverable. An impairment loss is recognized when the estimated future cash flows (undiscounted) expected to result from the use of an asset are less than the carrying amount of the asset. Measurement of an impairment loss is based on the difference between the carrying amount of the asset and its fair value computed using discounted cash flows, if the asset is expected to be held and used.

Measurement of an impairment loss for an asset held for sale would be based on the fair market value less estimated costs to sell. No impairment losses have been recognized in the years presented.

Goodwill

All business acquisitions have been accounted for using the purchase method. Where the acquisition costs for a company exceed the fair value of the share of the net assets acquired by the Company on the day of the acquisition, the difference is recognized as goodwill.

Goodwill has been amortized until June 30, 2002 over a useful life of 7 years. On July, 2002 the Company adopted SFAS No. 142, and goodwill has no longer been amortized. Goodwill is now reviewed for impairment annually or whenever circumstances and situations change in such a way as to indicate that the carrying amounts of such assets may not be recoverable. Consistent with its assessment of its reportable segments under SFAS No. 131, the Company has determined that only one reporting unit exists for purposes of allocating goodwill. An impairment loss is recognized based on the excess of the book value of the Company’s net assets over the fair value of its net assets, as estimated by management based upon the Company’s market capitalization. No impairment losses have been recognized in any periods presented.


The adoption of the Standard in fiscal year 2003 did not result in any cumulative effect adjustment, as the Company’s transition impairment test indicated that there was no impairment of goodwill. The following EPS would have resulted in fiscal year 2002 if goodwill had not been amortized:

 

    

2001/2002


Restatement*

Net income as reported

   5,193

Adjusted for goodwill amortization

   172
    

Adjusted net income

   5,365
    

Basic net income per share

   0.27

Diluted net income per share

   0.27
    

* See Note 3 to the Consolidated Financial Statements for a description of the restatements

Other Long-term Assets

The other long-term assets relate to the capitalized surrender value of a reinsurance policy covering pension liabilities to certain employees. It was measured at fair value.

Other Accruals

All estimated expenses incurred but not invoiced or paid by the balance sheet date are recorded as current or non current accrued liabilities. These include accruals for sales commissions and variable remuneration.

Software Development Costs

Under Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed” (“SFAS No. 86”), capitalization of software development costs commences upon the establishment of technological feasibility and ends upon general release of the software to the public. In accordance with SFAS No. 86 the Company defines the point of technological feasibility as the completion of a Beta version (“working model”). For the Company, the time between completion of a working model and general release of the software to the public is of short duration. As a result, the costs qualifying for capitalization under SFAS No. 86 are not material and have been expensed.

Advertising Costs

Advertising costs are expensed as they are incurred. For the years ended June 30, 2002 and 2003 advertising costs over € 5,593 and € 5,562 respectively were incurred.


Accounting for Stock-based Compensation

The Company accounts for stock-based compensation in accordance with APB No. 25, “Accounting for Stock Issued to Employees,” which requires that compensation expense be measured using the intrinsic value method. SFAS No. 123, “Accounting for Stock-Based Compensation,” requires the fair value of stock options to be included in the consolidated statements of operations or disclosed in the notes to the consolidated financial statements. The Company has adopted the disclosure provision of FASB 123, as amended by FASB Statement 148, but opted to remain under the expense recognition provision of Accounting Principles Board Opinion No. 25, and related Interpretations in accounting for options granted under the Stock Option Plan. The fair value of options granted has been estimated using the Black-Scholes model prescribed by SFAS No. 123. The actual results and pro forma results of the Company and the net income (loss) per share are shown below as if these figures were reflected in the statement of operations in accordance with SFAS No. 123.

 

    

2001/2002

Restated*

   

2002/2003

Restated*

 

Net income/(loss)

    

As reported

   5,193     (9,804 )

Total stock-based employee compensation expense determined under fair value based methods for all awards net of tax effects

   (1,330 )   (1,325 )
            

Pro forma

   3,863     (11,129 )
            

Earnings per share

    

Basic – as reported

   0.26     (0.47 )

Basic – pro forma

   0.20     (0.53 )

Diluted – as reported

   0.26     (0.47 )

Diluted – pro forma

   0.20     (0.53 )
            

* See Note 3 to the Consolidated Financial Statements for a description of the restatements

Fair values of Financial Instruments

The amounts reported in the consolidated balance sheets for cash and cash equivalents, trade receivables, accounts payable, accrued expenses, and capital leases approximate fair value based on the short-term maturity of these instruments.

The carrying amounts of the liabilities to banks are also approximately the same as their fair values, comparing both market prices for the same and similar loans and the terms offered to the Company.

As of June 30, 2002 and 2003, the Company did not hold any derivative financial instruments.

Income Taxes

The Company utilizes the liability method of accounting for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. Under the liability method, deferred taxes are recognized to take into account the net tax effects of temporary differences between the carrying amounts in the consolidated financial statements and in the tax accounts. Net deferred tax assets are reduced by a valuation allowance if it is more likely than not that the tax benefits will not be realized within a reasonable period of time. The Company estimates future taxable income for the single entities based upon operating budgets and ongoing prudent and feasible tax planning strategies, in assessing the amount of the valuation allowance.


Revenue Recognition

The Company generates revenues from licensing the rights to use its software products directly to end-users and indirectly through sublicense fees from resellers under perpetual licensing arrangements. The Company also generates revenues from sales of professional services, including consulting, implementation training, and maintenance.

Revenues from software license agreements are recognized according to SOP 97-2 “Software Revenue Recognition” if all of the following four criteria are met:

 

    persuasive evidence of an arrangement exists;

 

    delivery has occurred;

 

    the price charged is fixed or determinable; and

 

    collectibility is probable.

If a period of acceptance is stipulated in the agreement, revenues are recognized when software is accepted by the customer or when the acceptance period expires. The Company enters into reseller arrangements. Fees under these arrangements are recognized when the above mentioned criteria are fulfilled.

Service revenue is primarily related to implementation and installation services performed under separate service arrangements. Revenues from consulting and training services are recognized as the services are performed. If a license arrangement includes both software and service elements, the arrangement fee is allocated to services and other elements of the arrangement based on their fair value as established by independent sale of the respective element to customers, including the renewal rates for post-contract support services and standard hourly rates for other services. The residual arrangement fees are allocated to the software and are recognized upon delivery of the software provided that the services are not essential to the functionality of the software; the services exclude significant customization or modification of the software; and the payment terms for the software are not subject to acceptance criteria or cancellation or refund provisions. In cases where the license fee payments are contingent upon the performance of services or the services include software customization or modification, revenues from both the license and service elements are deferred and recognized under the percentage of completion method of accounting as the services are performed. The Company applies the percentage of completion method in accordance with Accounting Research Bulletin (“ARB”) 45 and Statement of Position (“SOP”) 81-1 for long-term construction contracts. Revenue is recognized based on costs incurred measured against total planned costs, and the resulting percentage is realized as a percentage of the total revenue of the project contract. Cost incurred is measured by multiplying service hours rendered by a standard hourly rate. Cost to completion is estimated as service hours to be delivered multiplied by the standard hourly rate. Remaining service hours are estimated by project managers on a quarterly base.

Maintenance includes the right to unspecified upgrades and enhancements as well as telephone support and support via remote access. Maintenance revenue is recognized ratably over the term of the maintenance period. If maintenance is included free or at a discount in a software license arrangement, the discount amounts are deferred from the software license fees and recognized ratably over the maintenance period based on their fair value as established by independent sale of maintenance to customers. The Company enters into maintenance agreements which are continued until cancelled. The minimum term of maintenance agreements is 1 year. Maintenance prices are determined as a percentage of net license fees.

Standard payment terms are 30 days after delivery.

Concentration of Credit Risk

Financial instruments which are potentially subject to a credit risk consist of cash and cash equivalents and trade receivable. Cash and cash equivalents are invested or held in solvent and reliable financial institutions. Furthermore, the Company performs periodic loan reviews of its customers and therefore does not generally require them to provide collateral. The allowances for doubtful accounts amounted to € 2,312 as of June 30, 2002 and € 3,343 as of June 30, 2003 and were based on management’s estimate of collectibility.

No more than 10% of the company’s revenues were generated with a single customer during the periods presented.


Recent accounting pronouncements

In July 2002, the FASB issued SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities.” This Standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect the provisions of SFAS No. 146 to have a material impact on the consolidated financial statements. The Company will adopt the provisions of SFAS No. 146 on July 1, 2003.

In December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation — an amendment of SFAS No. 123.” The standard provides alternative methods of accounting for a voluntary change to the fair value based method of accounting for stock-based employee compensation, and requires additional disclosures. The Company continues to account for stock compensation under APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company adopted the disclosure provisions of SFAS No. 148.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (the Interpretation). The Interpretation requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual, or other financial interests in the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. The Company will begin applying the provisions of this new pronouncement effective July 1, 2003 on a prospective basis and does not anticipate any impact on its results of operations, financial position, and cash flows.

On April 30, 2003, the FASB issued Statement of Financial Accounting Standards 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement is intended to result in more consistent reporting of contracts as either freestanding derivative instruments subject to SFAS 133 in its entirety, or as hybrid instruments with debt host contracts and embedded derivative features. SFAS No. 149 amends SFAS No. 133 as a result of:

 

    decisions previously made as part of the Derivatives Implementation Group (DIG) process;

 

    changes made in connection with other Board projects dealing with financial instruments;

 

    deliberations in connection with issues raised in relation to the application of the definition of a derivative.

In particular it clarifies:

 

    the meaning of “an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors”;

 

    the meaning of underlying;

 

    the characteristics of a derivative that contains financing components.

SFAS No. 149 does not amend the definition of a derivative; however, SFAS No. 149 does clarify the definition of a derivative by focusing on the meaning of the characteristic “an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors.” SFAS No. 149 explains that “smaller” means “smaller by more than a nominal amount.” SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 is not expected to have a material impact on the Company.

In May 2003 the FASB issued SFAS 150 “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS 150”), the new accounting standard for certain types of freestanding financial instruments and disclosure regarding possible alternatives to settling financial instruments. The Company does not anticipate any impact on its results of operations, financial position, and cash flows as a result of the adoption of the Statement.

The Statement is effective for all financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period after June 15, 2003.


In November 2002, the EITF reached a final consensus on EITF 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF 00-21 addresses certain aspects of the accounting of revenue arrangements with multiple deliverables by a vendor. EITF 00-21 outlines an approach to determine when a revenue arrangement for multiple deliverables should be divided into separate units of accounting and, if separation is appropriate, how the consideration should be allocated to the identified accounting units. The consensus reached in the Issue will be effective for IXOS in its financial statements beginning July 1, 2003. The Company is determining the impact of the adoption of EITF 00-21, although IXOS believes that the adoption will not have a material impact on its consolidated financial statements.

5. Other operating income/(expenses)

 

     2001/2002

Restated*
  

2002/2003

Restated*

Other operating income

     

Rental income

   6,191    6,049
         
   6,191    6,049
         

Other operating expenses

     

Rent expenses

   6,184    6,000

Other

   411    210
         
   6,595    6,210
         

* See Note 3 to the Consolidated Financial Statements for a description of the restatements

Other operating income includes the income from the sublease of the Technopark II office building in fiscal year 2001/02 and 2002/03; other operating expenses include the costs for the rental of this office building. The Technopark II building is 100% subleased.

6. Income Taxes

Until December 31, 2000 inclusive, German stock corporations were subject to corporate income tax at a rate of 40% on fully retained earnings, 30% on distributed earnings, and trade tax depending on the municipality in which the company operates. Based on the German Tax Reduction Act passed on July 14, 2000 by the German Federal Council, and effective January 1, 2001, the corporate income tax rate decreased to a uniform level of 25 % (exception: 26.5% for FY 2002/2003) for distributed and non-distributed profits. Trade tax remains unaffected.

In addition, German stock corporations must pay a surcharge on corporate income tax of 5.5% as a contribution to the costs of German reunification.

The provisions for income taxes consist of the following items:

 

    

2001/2002

Restated*

   

2002/2003

Restated*

Current

    

Germany (domestic)

   0     85

Rest of the world (foreign)

   1,001     530
          
   1,001     615
          

Deferred

    

Germany (domestic)

   0     0

Rest of the world (foreign)

   (347 )   50
          
   (347 )   50
          

Provisions for income taxes

   654     665
          

* See Note 3 to the Consolidated Financial Statements for a description of the restatements


A reconciliation of the provisions for income taxes to amounts computed by applying the German statutory income tax rate to the tax expense disclosed in these financial statements:

 

    

2001/2002

Restated*

   

2002/2003

Restated*

 

Statutory income tax (36.3% in 2002, 37.3% in 2003)

   2,122     (3,409 )

Increase (decrease) in income tax due to:

    

Foreign income/losses at different tax rates

   235     96  

Changes in valuation allowance on deferred tax assets

   (1,540 )   4,138  

Effect of income earned in a foreign tax jurisdiction with tax-free status

   251     470  

Foreign currency exchange gain/loss on intercompany balances with long-term investment nature

   (840 )   (445 )

Amortization of goodwill

   64     84  

Other, net

   362     (269 )
            

Provisions for income taxes

   654     665  
            

* See Note 3 to the Consolidated Financial Statements for a description of the restatements

In fiscal year 1997, the Company’s Swiss subsidiary was formed and awarded tax-free status for the following 10-year period. The Company’s Swiss subsidiary generated income beginning in fiscal year 1998 that is not subject to income tax.

Net deferred income taxes consist of the following items:

 

    

June 30, 2002

Restated*

   

June 30, 2003

Restated*

 

Deferred tax assets

    

Net operating loss carryforwards

   9,669     29,985  

Accrued pension cost

   183     140  

Unearned revenue

   762     396  

Stock offering costs

   559     559  

Other

   544     502  
            

Total deferred tax assets

   11,717     31,582  

Less: valuation allowance

   (10,628 )   (29,912 )
            

Net deferred tax assets

   1,089     1,670  
            

Deferred tax liabilities

    

Deferred tax income

   960     1,306  

Other

   129     364  
            

Total deferred tax liabilities

   1,089     1,670  
            

Net deferred tax assets (liabilities)

   0     0  
            

Current deferred tax asset, net

   0     0  

Long-term deferred tax asset, net

   0     0  
            
   0     0  
            

* See Note 3 to the Consolidated Financial Statements for a description of the restatements

The increase in deferred tax assets on tax loss carryforwards and valuation allowances on deferred tax assets was caused by the acquisition of Obtree Technologies Inc. With this company, IXOS acquired tax loss carryforwards of € 65 million.

As of June 30, 2002 and 2003 the Company did not have a recent track record of cumulative profits. For this reason and also based on Company estimates of future taxable results, management believed that it was more likely than not that its deferred tax assets would not be recoverable and accordingly provided a valuation allowance on the entirety of its deferred tax asset balance.


The significant components of net operating loss carryforward by tax jurisdictions are as follows:

 

    

June 30, 2002

  

June 30, 2003

Germany

   12,533    12,027

Switzerland (Obtree Technologies Inc.)

   0    65,785

Australia

   2,477    3,522

Singapore

   3,572    2,917

United Kingdom

   2,661    2,564

United States

   1,490    3,346

Japan

   1,179    1,536
         

The tax loss carryforwards for Germany, Australia, Singapore and the United Kingdom do not expire. For Switzerland they will expire between 2007 and 2010, for Japan between 2004 and 2010 and for the United States after 2023. The increase in deferred tax assets and valuation allowances on deferred tax assets mainly results from the acquisition of Obtree Technologies Inc.

7. Earnings Per Share

Basic earnings per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings per share are calculated by dividing net income by the weighted average number of shares outstanding and dilutive stock options outstanding.

 

    

June 30, 2002

Restated

  

June 30, 2003

Restated*

 

Net income/(loss)

   5,193    (9,804 )
           

Basic weighted average common shares outstanding

   19,677,661    21,059,116  

Dilutive effect of assumed exercise of stock options

   69,810    0 1
           

Weighted average common shares outstanding assuming dilution

   19,747,471    21,059,116  
           

Basic net income/(loss) per share

   0.26    (0.47 )

Diluted net income/(loss) per share

   0.26    (0.47 )2
           

* See Note 3 to the Consolidated Financial Statements for a description of the restatements
1 Diluted average shares outstanding are identical in fiscal year 2002/03 as the Company reports losses.
2 Diluted and basic earnings per share are the same in fiscal years where the Company reports losses, as the effect would be antidilutive.

8. Cash and Cash Equivalents

At June 30, 2002, and 2003, credit lines in the amount of € 12,534 and € 10,534 respectively were available. A total of € 2,152 and € 1,412 respectively of these amounts were used for the issuance of bank guarantees.


9. Allowance for Doubtful accounts

The following table presents changes in the allowance for doubtful accounts:

 

    

June 30, 2002

Restated*

   

June 30, 2003

Restated*

 

Beginning balance

   2,009     2,312  

Provisions for doubtful accounts

   1,223     1,530  

Utilization

   (920 )   (499 )
            

Ending balance

   2,312     3,343  
            

* See Note 3 to the Consolidated Financial Statements for a description of the restatements

10. Other Current Assets

 

    

June 30, 2002

Restated*

  

June 30, 2003

Restated*

Inventories

   978    317

Prepayments

   767    1,891

Security deposits

   693    1,070

Other

   566    1,539
         
   3,004    4,817
         

* See Note 3 to the Consolidated Financial Statements for a description of the restatements

11. Property and Equipment

Property and equipment consists of the following items:

 

    

June 30, 2002

   

June 30, 2003

 

Leasehold improvements

   8,076     8,960  

Furniture and equipment

   19,677     20,336  
            
   27,753     29,296  

Accumulated depreciation

   (18,036 )   (19,637 )
            

Property and equipment, net

   9,717     9,659  
            

The depreciation expense amounted € 4,185 for fiscal year 2002, and € 3,362 for fiscal year 2003.


12. Intangible Assets

 

    

June 30, 2002

   

June 30, 2003

 

Purchased software, gross

   4,998     11,039  

Accumulated amortization

   (1,488 )   (3,090 )
            

Purchased software, net

   3,510     7,949  
            

Maintenance contracts, gross

   0     1,320  

Accumulated amortization

   0     (212 )
            

Maintenance contracts, net

   0     1,108  
            
   3,510     9,057  
            

The amortization expense amounted to € 380 for fiscal year 2002, and € 1,864 for fiscal year 2003.

Additions in fiscal year 2003 relate to capitalized software (€ 4,097) and capitalized maintenance contracts (€ 1,320) from the purchase price allocation of Obtree Technologies Inc.; capitalized software (€ 733) from the purchase price allocation of PowerWork AG; and the customization of internal use software (€ 837).

The weighted average amortization period for intangible assets is 4 years.

The following table shows the estimated amortization expense for each of the next 5 years:

 

    

Estimated

amortization of

purchased software

  

Estimated

amortization of

maintenance contracts

  

Total

2003/2004

   2,444    554    2,998

2004/2005

   2,218    325    2,543

2005/2006

   2,007    157    2,164

2006/2007

   1,261    61    1,322

2007/2008

   19    11    30
              

Total

   7,949    1,108    9,057
              

13. Goodwill

 

    

June 30, 2002

   

June 30, 2003

 

Goodwill, gross

    

Beginning balance

   1,201     1,201  

Additions

   0     9,461  
            

Ending balance

   1,201     10,662  
            

Accumulated amortization

    

Beginning balance

   (629 )   (801 )

Additions

   (172 )   0  
            

Ending balance

   (801 )   (801 )
            

Goodwill, net

   400     9,861  
            

The additions to goodwill result from the acquisition of 99.92 % of the shares of Obtree Technologies Inc. as well as from the PowerWork AG asset deal.


14. Accrued Liabilities

Accrued liabilities primarily relate to the following items:

 

    

June 30, 2002

Restated*

  

June 30, 2003

Restated*

Accrued salaries

   8,074    8,325

Accrued vacation

   2,844    3,281

Outstanding invoices

   1,430    2,256

Other

   2,084    2,721
         
   14,432    16,583
         

* See Note 3 to the Consolidated Financial Statements for a description of the restatements

The Other long-term liability refers to a liability of Obtree Technologies Inc. to Born Informatik AG, an unrelated entity. IXOS assumed the liability in connection with the acquisition of Obtree Technologies Inc. The agreement between Obtree Technologies Inc. and Born Informatik AG provides for settlement of the liability using future revenues resulting from license sales.

Securities for liabilities are not provided, except for customary retention of title and similar rights in the software industry.

15. Customer Advances and Unearned Revenues

 

    

June 30, 2002

Restated*

  

June 30, 2003

Restated*

Unearned revenues

   10,502    11,551

Customer advances

   118    1,383
         
   10,620    12,934
         

* See Note 3 to the Consolidated Financial Statements for a description of the restatements

Unearned revenues result from deferred maintenance revenues.

16. Capital Lease Commitments

The Company leased office and factory equipment by means of non cancelable capital lease agreements that expired on various dates through 2003 at the latest. The leased assets in the prior years are accounted for as follows:

 

     June 30, 2002
 

Furniture and equipment

   1,194  

Accumulated depreciation

   (975 )
      
   219  
      

There are no future minimum annual lease payments.

Amortization of capital lease assets is included in the depreciation expense.


17. Retirement plans

IXOS SOFTWARE AG has entered into pension commitments to current Executive Board members, former Executive Board members, as well as individual pension commitments to employees. The Company’s actuarial cost method for its plan is the projected unit credit method. The Company’s policy is to deposit amounts with an insurance company to cover the actuarial present value of the expected retirement benefits. The amounts deposited of € 1,630 in fiscal 2003 and € 1,075 in fiscal 2002 respectively are invested by the insurance company in short-term investments. These amounts are included in the “other long-term assets” item. The amounts are independent of the defined benefit plan and do not constitute assets of the plan.

Pension expenses during the fiscal years can be allocated as follows:

 

    

2001/2002

  

2002/2003

Service cost

   266    15

Interest cost on projected benefit obligations

   97    101
         

Net pension cost

   363    116
         

The following table sets forth the funded status and amount recognized for the Company’s defined benefit pension plan in the consolidated financial statements.

 

    

June 30, 2002

   

June 30, 2003

 

Accumulated benefit obligations

   1,495     1,747  

Total projected benefit obligations

   1,495     2,022  
            

Projected benefit obligations in excess of plan assets

   1,495     2,022  

Unrecognized net gain/loss

   185     (226 )
            

Additional minimum liability

   0     52  
            

Accrued pension liabilities

   1,680     1,848  
            

Weighted average assumed discount rate

   6.5 %   6.0 %

Weighted average rate of Compensation increase

   2.5 %   2.5 %
            

In fiscal year 2002/03, the discount rate was adjusted to reflect standard market rates for high-quality fixed-interest securities. The resulting effects in the amount of € 52 were recognized in other comprehensive income in fiscal year 2002/03.

18. Financial commitments

Future rent payments and lease obligations from non cancelable leases for operating equipment for the next five years are as follows after June 30, 2003:

 

Fiscal year

  

2004

   13,005

2005

   11,718

2006

   10,186

2007

   9,880

2008

   9,025
    

Thereafter

   21,853
    

Rent expense amounted € 10,917 for fiscal 2001/02, and € 11,746 for fiscal year 2002/03.

For fiscal year 2001/02 € 28,329 of the financial commitments for the next five years will be offset by rental income of € 28,381. In addition, future rent payments of € 21,247 for the period after the year 2007 will be compensated by rental income of € 15,281. For fiscal year 2002/03 € 29,028 of the financial commitments for the next five years will be offset by rental income of € 27,001. In addition, future rent payments of € 15,745 for the period after the year 2008 will be compensated by rental income of € 11,296.


19. Disclosures on the Equity of IXOS SOFTWARE AG

At the General Meeting held on July 21, 1998, the Executive Board was authorized, with the approval of the Supervisory Board, to increase the share capital until July 21, 2003 by a total amount of up to DM 4,800 through the issuance of new shares “Authorized Capital I and IV”).

The General Meeting on November 25, 1999 resolved to increase the common stock to € 19,259 and to divide it into 19,259,285 new shares through a five-for-one stock split. A resolution was also adopted to increased Authorized Capital I and IV, resolved by the General Meeting on July 21, 1998, from DM 4,800 to € 4,800, and the period in which the Executive Board was authorized to implement a corresponding capital increase was extended to November 25, 2004.

The General Meeting on November 19, 2002 resolved to create new Authorized Capital (“Authorized Capital V”) of up to € 7.762. The resolution was recorded in the commercial register on November 27, 2002.

Authorized Capital I resolved by the General Meeting on November 25, 1999 up to a nominal amount of € 1.800, was utilized in full for the investment by General Atlantic Partners in the Company.

The General Meeting on March 6, 2002 resolved to contingently increase the common stock of the Company by € 500, composed of up to 500,000 no-par value bearer shares (Contingent Capital IV). The contingent capital increase serves to grant conversion rights to holders of warrants.

As of June 30, 2002 the Company holds 40,000 treasury shares. These shares were acquired in September 2001, the acquisition price was € 241. This equals 0.19 % of the total issued shares. The shares were repurchased to serve employee stock options.

The accumulated losses include legal reserves in the amount of € 347 relating to the IXOS SOFTWARE (International) AG, Biel (€ 312) and IXOS SOFTWARE s. r. o., Prag (€ 35) subsidiaries.

All shares are common shares.

In fiscal year 2002/03 1,800,000 shares were subscribed from authorized capital and 6,385 shares from contingent capital.

20. Accumulated other comprehensive income

Other comprehensive income at June 30, 2002 and 2003 includes foreign currency translation adjustments and minimum pension liability adjustments. Reclassifications from cumulative translation adjustments to foreign currency exchange losses were made in the amount of € 2,552 in fiscal year 2002/2003.

 

    

June 30, 2002

Restated*

   

June 30, 2003

Restated*

 

Foreign currency translation adjustment

   (574 )   2,053  

Minimum pension liability adjustment

   0     (52 )
            

Total

   (574 )   2,001  
            

* See Note 3 to the Consolidated Financial Statements for a description of the restatements


21. Stock Option Plans

The Company has a U.S. stock option plan, a non-U.S. stock option plan, and a worldwide stock option plan (the “stock option plans”). The U.S. and the non-U.S. plans were established in fiscal year 1998 and provide for the grant of options with a term of ten years and a vesting period of three or four years from the date of grant. The U.S. stock option plan options vest monthly over four years after an initial six-month period. The non-U.S. stock option plan options vest annually over three years. The worldwide stock option plan was established in fiscal 2000. These options vest annually over four years. All options granted on or before June 30, 2000 have a term of ten years, those options granted after June 30, 2000 have a term of six years. The General Meeting authorized the Company on several occasions over the past few fiscal years to grant stock options. To implement the Company’s stock option plans, the shareholders resolved on several occasions to create contingent capital in the total amount of € 2,426 to cover the grant of 2,425,928 shares, which can be issued to the stock option holders when stock options are exercised. As of June 30, 2002, 465,444 and as of June 30, 2003, 471,759 of the options granted have been exercised. The remaining contingent capital available at June 30, 2002 and June 30, 2003 to serve stock options thus amounts to € 1,954 and € 1,954, respectively.

In connection with the grant of certain stock options to employees in May 1998, the Company recorded deferred compensation of € 579 representing the difference between the fair value of the common stock for accounting purposes and the exercise price of such options at the date of grant. Such amount is amortized on a pro rata basis over the vesting period of the applicable options. The associated amortization expense was € 161 for fiscal 2001. The compensation expense is decreased in the period of forfeiture for any accrued but unvested compensation arising from the early termination of an option holder’s services.

The following tables provide information with respect to the stock option plans at the end of fiscal year 2001/02 and 2002/03:

 

    

Options

outstanding

   

Weighted Average

exercise price

Balance at June 30, 2001

   1,094,527     15.33
          

Granted

   74,180     7.07

Exercised

   0     0

Cancelled

   (61,431 )   20.68
          

Balance at June 30, 2002

   1,107,276     13.91
          

Granted

   365,750     5.80

Exercised

   (6,385 )   3.93

Cancelled

   (21,637 )   12.03
          

Balance at June 30, 2003

   1,445,004     11.93
          

As of June 30, 2002:

 

Exercise price €

  

Options

outstanding

  

Remaining contract

life in years

(weighted average)

  

Number

exercisable at

June 30, 2003

3.93

   172,500    5.3    172,500

7.44

   162,241    5.8    162,241

17.38

   107,150    6.3    106,385

40.80

   68,685    6,7    68,185

35.38

   3,180    6.9    3,020

33.18

   1,665    7.0    1,145

28.60

   4,770    7.2    4,450

25.02

   9,405    7.4    6,535

50,90

   8,750    7.6    8,750

19.80

   291,037    8.0    159,251

11.21

   33,633    4.6    11,213

7.39

   15,180    4.9    5,047

4.43

   56,080    5.4    7,500

6.42

   8,000    5.9    0

8.00

   165,000    5.9    165,000
              
   1,107,276    6.4    881,222
              


As of June 30, 2002 there were 881,222 exercisable stock options respectively.

As of June 30, 2003:

 

Exercise price €

  

Options

outstanding

  

Remaining contract

life in years

(weighted average)

  

Number

exercisable at

June 30, 2003

50.90

   8,750    6.63    8,750

40.80

   68,685    5.71    68,685

35.38

   3,180    5.94    3,180

33.18

   1,665    6.01    1,665

28.60

   4,770    6.17    4,700

25.02

   8,565    6.39    8,510

19.80

   283,307    6.98    221,184

17.38

   107,150    5.27    107,150

11.21

   29,980    3.63    20,644

8.00

   165,000    4.85    165,000

8.00

   60,000    5.43    60,000

8.00

   50,000    5.11    50,000

7.44

   162,241    4.84    162,241

7.39

   14,946    3.92    9,978

6.42

   8,000    4.85    2,666

5.05

   194,750    5.43    0

5.05

   3,000    5.11    0

4.43

   51,400    4.41    23,379

4.09

   53,500    5.87    0

3.93

   166,115    4.34    166,115
              
   1,445,004    5.40    1,083,847
              

As of June 30, 2003 there were 1,083,847 exercisable stock options respectively.

The fair value of these options was estimated at the date of grant using the Black-Scholes model with the following weighted-average assumptions: risk-free interest rate of 3.5 % (2002: 4.4 %), nil dividend yield for all years presented, expected volatility of 62 % (2002: 66 %) and an expected life for the options of 4 years (2002). All options granted during fiscal 2003 and 2002 had an exercise price equal to the fair market value of the shares at the date of grant. The estimated weighted average fair value of the options granted during fiscal 2003 amounts to € 2.29 (2002: € 2.41).

22. Related parties

The Company retains a member of the Supervisory Board, Hansjörg Staehle, as a legal advisor. Expenditures invoiced by Mr. Staehle during fiscal year 2002/03 were € 1, and € 19 during fiscal year 2001/02.


23. Geographical information/segment reporting

The Company is a software manufacturer and deals with the development, manufacture, marketing, and licensing of standard client-server software applications. All products and the related services are offered worldwide in the same manner. The Company believes that it only operates in a single business segment and accordingly has structured its management and internal reports to reflect this single segment.

The geographic break-down of revenues, income (loss) from operations, and identifiable assets is presented in the following:

 

    

June 30, 2002

Restated*

   

June 30, 2003

Restated*

 

Revenues

    

Germany

   66,567     66,459  

North America

   39,066     33,552  

Europe (excluding Germany)

   43,838     53,553  

Asia/Pacific

   15,527     14,867  

Consolidation

   (41,751 )   (43,039 )
            

Total

   123,247     125,392  
            

Income (loss) from operations

    

Germany

   8,863     3,738  

North America

   (1,602 )   (3,237 )

Europe (excluding Germany)

   931     (897 )

Asia/Pacific

   (1,612 )   (5,066 )

Consolidation

   (54 )   126  
            

Total

   6,526     (5,336 )
            

Identifiable assets

    

Germany

   79,515     88,424  

North America

   12,050     11,358  

Europe (excluding Germany)

   42,442     45,640  

Asia/Pacific

   13,991     12,309  

Consolidation

   (52,339 )   (55,546 )
            

Total

   95,659     102,185  
            

* See Note C to the Consolidated Financial Statements for a description of the restatements

The Europe (excluding Germany) region includes the companies in Switzerland, the Czech Republic, Austria, Netherlands, and the United Kingdom. The Asia Pacific region includes the companies in Japan, Singapore, Malaysia, and Australia.

Included in consolidation (elimination) revenues, are the impact of royalties and other intragroup charges.


REPORT OF INDEPENDENT AUDITORS

The Supervisory Board and Shareholders of IXOS Software AG, Munich:

We have audited the accompanying consolidated balance sheet of IXOS Software AG as of February 29, 2004 and the related consolidated statement of operations, shareholders’ equity and cash flows for the period from July 1, 2003 to February 29, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IXOS Software AG as of February 29, 2004 and the results of its operations and its cash flows for the period from July 1, 2003 to February 29, 2004 in conformity with U.S. generally accepted accounting principles.

KPMG LLP

Chartered Accountants

Toronto, Ontario

June 28, 2006


Consolidated Financial Statements of the IXOS SOFTWARE AG

Consolidated Statement of Operations for the period from July 1, 2003 to February 29, 2004

 

     Notes    July 1, 2003 to
February 29, 2004
 

(in thousands of Euros, except share and per share data)

     

Revenues

     

Software licenses

      27,188  

Services

      22,382  

Maintenance

      31,299  
         

Total revenues

      80,869  
         

Cost of revenues

     

Software licenses

      1,791  

Services

      20,813  

Maintenance

      7,984  
         

Total cost of revenues

      30,588  
         

Gross profit

      50,281  
         

Operating (income)/expenses

     

Sales and marketing

      39,061  

Research and development

      15,091  

General and administrative

      10,227  

Other operating income

   1    (3,966 )

Other operating expenses

   1    6,575  
         

Total operating expenses

      66,988  
         

Loss from operations

      (16,707 )
         

Other income/(expenses)

     

Interest income

      171  

Interest expense

      (18 )

Foreign currency exchange loss

      (619 )

Gain on extinguishment of debt

   2    281  
         

Total other expenses

      (185 )
         

Loss before provision for income taxes

      (16,892 )

Provision for income taxes

   3    (156 )
         

Net loss

      (17,048 )
         

Net loss per share

   4   

Basic

      (0.79 )

Diluted

      (0.79 )
         

Weighted average shares outstanding

   4   

Basic

      21,598,294  

Diluted

      21,598,294  
         

The accompanying notes are an integral part of the financial statements.


Consolidated Balance Sheet as of February 29, 2004

 

     Notes    February 29, 2004
 

(in thousands of Euros, except share data)

     

Assets

     

Current assets

     

Cash and cash equivalents

   5    32,490  

Accounts receivable, net of allowance for doubtful accounts of € 2,886

   6    28,498  

Unbilled receivables

      1,923  

Prepaid expenses and other assets

      3,130  
         

Total current assets

      66,041  
         

Property, plant and equipment, net

   7    8,990  

Intangible assets, net

   7    7,117  

Goodwill, net

   7    9,861  

Other long-term assets

      839  
         
      26,807  
         

Total assets

      92,848  
         

Liabilities and shareholders’ equity

     

Current liabilities

     

Income taxes payable

      585  

Accrued liabilities

   8    16,844  
         
      17,429  
         

Accounts payable

   8    7,540  

Customer advances and unearned revenues

   9    18,183  

Short-term borrowings

      1,763  
         
      27,486  
         

Total current liabilities

      44,915  
         

Shareholders’ equity

     

Common stock (no-par value shares, 34,247,542 shares authorized; 21,773,174 outstanding)

      22,352  

Additional paid-in capital

      54,917  

Retained deficit

      (33,482 )

Accumulated other comprehensive income

      4,146  
         

Total shareholders’ equity

      47,933  
         

Total liabilities and shareholders’ equity

      92,848  
         

The accompanying notes are an integral part of the financial statements.

Other financial commitments (note 11)

Comprehensive income (note 14)

Subsequent events (note 16)


Consolidated Statement of Shareholders’ Equity from July 1, 2003 to February 29, 2004

(in thousands of Euros except share data)

 

     Common Stock   

Additional
Paid-in Capital

  

Treasury

Stock

 
     Shares   

Amount

     

Balance – June 30, 2003

   21,491,044    22,110    53,274    (241 )
                     

Exercise of stock options

   242,130    242    1,094    0  

Stock-based compensation expense

   0    0    368    0  

Treasury Stock

   40,000    0    181    241  
                     

Balance – February 29, 2004

   21,773,174    22,352    54,917    0  
                     

 

    

Retained Earnings

(Deficit)

   

Accumulated Other

Comprehensive

Income

   

Total

Shareholders’ Equity

   

Comprehensive
Income for the
period from
July 1, 2003 to
February 29,
2004

 

Balance – June 30, 2003

   (16,438 )   2,001     60,706    
                    

Exercise of stock options

   0     0     1,336     0  

Stock-based compensation expense

   0     0     368     0  

Treasury Stock

   0     0     422     0  

Net loss

   (17,048 )   0     (17,048 )   (17,048 )

Pension liability adjustment

   0     (192 )   (192 )   (192 )

Translation adjustment

   4     2,337     2,341     2,341  
                        

Balance – February 29, 2004

   (33,482 )   4,146     47,933     (14,899 )
                        

The accompanying notes are an integral part of the financial statements.


Consolidated Statement of Cash flows for the period from July 1, 2003 to February 29, 2004

 

(in thousands)

  

February 29, 2004

 
  

Cash flows from operating activities

  

Net loss for the period

   (17,048 )

Adjustments to reconcile net loss to net cash provided by operating activities:

  

Depreciation and amortization

   4,282  

Loss from disposals of fixed assets

   282  

Deferred income taxes

   0  

Accrued pension liabilities

   (2,040 )

Foreign exchange loss

   2,526  

Share-based compensation

   368  

Other

   (281 )

Changes in operating assets and liabilities:

  

Accounts receivable

   8,500  

Unbilled revenue

   (974 )

Prepaid expenses and other

   2,467  

Accounts payable

   (1,031 )

Accrued liabilities

   261  

Customer advances and unearned revenues

   5,249  

Income taxes payable

   (112 )
      

Net cash provided by operating activities

   2,449  
      

Cash flows from investing activities

  

Purchase of fixed assets

   (2,029 )
      

Net cash used in investing activities

   (2,029 )
      

Cash flows from financing activities

  

Repayments of long-term debt

   (565 )

Proceeds from short-term bank loans

   1,852  

Capital contribution

   1,336  

Treasury Stock

   422  
      

Net cash provided by financing activities

   3,045  
      

Net increase/(decrease) in cash and cash equivalents

   3,465  

Foreign currency exchange adjustment

   (189 )

Cash and cash equivalents – beginning of period

   29,214  
      

Cash and cash equivalents – end of period

   32,490  
      

Supplemental data

  

Cash paid during the period:

  

Income taxes

   (422 )

Interest

   18  

The accompanying notes are an integral part of the financial statements.


Notes to the Consolidated Financial Statements

(All amounts in thousands, unless otherwise indicated, except share and per share amounts)

A. GENERAL DISCLOSURES

IXOS Software Aktiengesellschaft (“IXOS” or the “Company”), was founded in Germany in 1988, together with its subsidiaries, is one of the leading providers of software solutions for the management of business documents.

The regular yearly balance sheet date for the financial statements of all companies included in the consolidated financial statements is June 30, which corresponds to the closing date of the parent company, IXOS Software AG, Grasbrunn.

These financial statements represent the period from July 1, 2003 to February 29, 2004.

On October 21, 2003 IXOS SOFTWARE AG and Open Text Corporation signed and announced a business combination agreement. On December 1, 2003, 2016091 Ontario Inc., Waterloo, Ontario, Canada, a wholly-owned subsidiary of Open Text Corporation, published a public tender offer to all IXOS shareholders. In an opinion of December 2, 2003 the Executive Board and the Supervisory Board of IXOS SOFTWARE AG advised its shareholders to accept the tender offer. The acceptance period for this offer ended on February 19, 2004. Under the terms of the offer, Open Text acquired 87.79% of the shares in IXOS SOFTWARE AG and has therefore consolidated IXOS’ consolidated financial results with effect from March 1, 2004. As of June 30, 2005, 2016091 Ontario Inc. held 93.99% of the shares in IXOS SOFTWARE AG.

B. CONSOLIDATED GROUP AND CONSOLIDATION POLICIES

Consolidated group

As of February 29, 2004 IXOS held 100% of the shares in the following subsidiaries:

IXOS Software, Inc., San Mateo, California, USA

IXOS Software (International) AG, Biel, Switzerland

IXOS Software Kabushiki Kaisha, Tokyo, Japan

IXOS Asia PTE Ltd., Singapore

IXOS Software s.r.o., Prague, Czech Republic

IXOS Software Limited, Maidenhead, United Kingdom

IXOS Software Australia Pty. Ltd., Melbourne, Australia

IXOS Software Sdn. Bhd., Kuala Lumpur, Malaysia

IXOS Software (Austria) GmbH, Vienna, Austria

IXOS (Netherlands) B.V., Hilversum, Netherlands

IXOS Software Nordic A/S, Brondby; Denmark

IXOS France SAS, Paris, France

IXOS Technology S.L., Madrid, Spain

IXOS Desenvolvimento e Distribuicao de Software do Brasil LTDM, Sao Paulo, Brazil

As of February 29, 2004 IXOS held 99.92% of the shares of the following subsidiary:

IXOS Engineering Switzerland AG, Basel, Switzerland

Obtree Technologies Inc. and IXOS Software s.r.o. subsidiaries functioned as development companies for IXOS software products. All other subsidiaries are sales organizations for IXOS products and services and provide support to local customers.


Basis of Presentation

These consolidated financial statements include the accounts of IXOS and its subsidiaries. All inter-company balances and transactions have been eliminated.

These consolidated financial statements are expressed in thousands of Euros (“€”), except share and per share amount, and are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)

C. SIGNIFICANT ACCOUNTING POLICIES

Foreign currency translation

The functional currency of each of the Company’s subsidiaries is the local currency of the country in which the subsidiary is located. Accordingly, assets and liabilities in the balance sheets of the foreign subsidiaries in a foreign currency (except equity) are translated into Euro at the closing rate. Resulting translation adjustments are recognized in Other Comprehensive Income, which is a separate component of shareholders’ equity.

Transactions involving other currencies were translated into local currency using the exchange rates in effect at the transaction date. At year-end, assets and liabilities denominated in other currencies are translated using the closing rates. The corresponding exchange rate gains and losses are reported in the statement of operations. Intercompany transactions of a long-term investment nature are considered part of a parent’s net investment and are charged or credited to Other Comprehensive Income in shareholders’ equity.

Use of estimates in the preparation of the consolidated financial statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions, which are evaluated on an ongoing basis, that affect the amounts reported in the financial statements. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. In particular, significant estimates, judgments and assumptions include those related to revenue recognition, allowance for doubtful accounts, testing goodwill for impairment, the valuation of acquired intangible assets, long-lived assets, facility and restructuring accruals and the valuation allowance relating to the Company’s deferred tax assets.

Cash and cash equivalents

Cash and cash equivalents is carried at nominal value. The company classifies all short-term highly-liquid investments with original maturity dates of 90 days or less at the time of acquisition as cash and cash equivalents.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make payments. The Company evaluates the credit worthiness of its customers prior to order fulfillment and based on these evaluations, adjusts credit limits to the respective customers. The allowance is maintained for 100% of all accounts deemed to be uncollectible and, for those receivables not specifically identified as uncollectible, an allowance is maintained for a specific percentage of those receivables based upon the aging of accounts, the Company’s historical collection experience and current economic expectations.


Property and equipment

Property and equipment is carried at cost and depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 13 years. Leasehold improvements are depreciated straight-line over the shorter of the term of the rent agreement or the estimated useful life. Gains and losses on the sale of fixed assets are shown as other operating income or expenses. Maintenance and minor repairs are charged to operations as incurred.

Purchased software

Purchased software is recorded at acquisition cost and amortized on a straight-line basis over the expected useful life. The amortization period is between three and five years.

Accounting for the Impairment of Long-lived and Intangible Assets

Long-lived assets, including purchased software and property and equipment, are reviewed for impairment whenever circumstances and situations change in such a way as to indicate that the carrying amounts of such assets may not be recoverable. An impairment loss is recognized when the estimated future cash flows (undiscounted) expected to result from the use of an asset are less than the carrying amount of the asset. Measurement of an impairment loss is based on the difference between the carrying amount of the asset and its fair value computed using discounted cash flows, if the asset is expected to be held and used.

Measurement of an impairment loss for an asset held for sale would be based on fair market value less estimated costs to sell. No impairment losses have been recognized in the period presented.

Goodwill

Goodwill is reviewed for impairment annually or whenever circumstances and situations change in such a way as to indicate that the carrying amounts of such assets may not be recoverable. Consistent with its assessment of its reportable segments under SFAS No. 131, the Company has determined that only one reporting unit exists for purposes of allocating goodwill. An impairment loss is recognized based on the excess of the book value of the Company’s net assets over the fair value of its net assets, as estimated by management based upon the Company’s market capitalization. No impairment loss has been recognized in the current period.

Other long-term assets

The other long-term assets relate to the capitalized surrender value of a reinsurance policy covering pension liabilities to certain employees. It was measured at fair value.

Software Development Costs

Under Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed” (“SFAS No. 86”), capitalization of software development costs commences upon the establishment of technological feasibility and ends upon general release of the software to the public. In accordance with SFAS No. 86 the Company defines the point of technological feasibility as the completion of a Beta version (‘working model’). For the Company, the time between completion of a working model and general release of the software to the public is of short duration. As a result, the costs qualifying for capitalization under SFAS No. 86 are not material and have been expensed.

Advertising costs

Advertising costs are expensed as they are incurred. For the period from July 1, 2003 to February 29, 2004 advertising costs of € 3,819 were incurred.


Accounting for Stock-Based Compensation

On July 1, 2003 the Company had three stock-based employee compensation plans, which are described more fully in Note 13. Prior to this date the Company accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related Interpretations. No stock-based employee compensation cost was reflected in the net income of prior fiscal periods, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective July 1, 2003, the Company adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the modified prospective method of adoption selected by the Company under the provisions of SFAS148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148”), compensation cost recognized in the current fiscal period of €368 is the same as that which would have been recognized had the recognition provisions of SFAS 123 been applied from its original effective date.

The following table illustrates the effect on net loss and loss per share, if the fair value based method had been applied to all outstanding and unvested awards in the period.

 

     July 1, 2003 to
February 29, 2004
 

Net loss

   (17,048 )

Share-based employee compensation expense included in reported net loss, net of related tax effects

   368  

Deduct:

  

Total share-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects

   (368 )
      

Pro forma net loss

   (17,048 )
      

Earnings per share:

  

Basic – as reported

   (0.79 )

Basic – pro forma

   (0.79 )

Diluted – as reported

   (0.79 )

Diluted – pro forma

   (0.79 )


Fair values of financial instruments

The amounts reported in the consolidated balance sheets for cash and cash equivalents, trade receivables, accounts payable, accrued expenses, and capital leases approximate fair value based on the short-term maturity of these instruments.

The carrying amounts of the liabilities to banks are also approximately the same as their fair values, comparing both market prices for the same and similar loans and the terms offered to the Company.

In June 1998 the Financial Accounting Standards Board adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS No. 137 and SFAS No. 138. This Standard establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. The standard also requires that changes in the customary market valuation of the derivative be recorded in the Company’s operating result unless specific accounting criteria are fulfilled. If a derivative instrument qualifies for hedge accounting, the gains or losses from the derivative may offset results from the hedged item in the statement of operations or other comprehensive income, depending on the type of hedge. The relevant documentation, designations and assessment of the effectiveness of hedging transactions are necessary in order to use hedge accounting.

The application of SFAS No. 133, SFAS No. 137, and SFAS No. 138 has no impact on the financial position or results of operations of the Company.

As of February 29, 2004, the Company did not hold any derivative financial instruments.

Income taxes

The Company utilizes the liability method of accounting for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. Under the liability method, deferred taxes are recognized to take into account the net tax effects of temporary differences between the carrying amounts in the consolidated financial statements and in the tax accounts. Net deferred tax assets are reduced by a valuation allowance if it is more likely than not that the tax benefits will not be realized within a reasonable period of time. The Company estimates future taxable income for the single entities based upon operating budgets and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance.


Revenue recognition

The Company generates revenues from licensing the rights to use its software products directly to end-users and indirectly through sublicense fees from resellers under perpetual licensing arrangements. The Company also generates revenues from sales of professional services, including consulting, implementation and training and maintenance services.

Revenues from software license agreements are recognized in accordance with SOP 97-2 ‘Software Revenue Recognition’, as amended by SOP 98-9, if all of the following four criteria are met:

 

  persuasive evidence of an arrangement exists,

 

  delivery has occurred,

 

  the price charged is fixed or determinable,

 

  collectibility is probable.

If a period of acceptance is stipulated in the agreement, revenues are recognized when software is accepted by the customer or when the acceptance period expires. The Company enters into reseller arrangements. Fees under these arrangements are recognized when the above mentioned criteria are fulfilled.

Service revenue is primarily related to implementation and installation services performed under separate service arrangements. Revenues from consulting and training services are recognized as the services are performed. If a license arrangement includes both software and service elements, the arrangement fee is allocated to services and other elements of the arrangement based on their fair value as established by independent sale of the respective element to customers, including the renewal rates for post-contract customer support services and standard hourly rates for other services. The residual arrangement fees are allocated to the software and are recognized upon delivery of the software provided that the services are not essential to the functionality of the software; the services exclude significant customization or modification of the software; and the payment terms for the software are not subject to acceptance criteria or cancellation or refund provisions. In cases where the license fee payments are contingent upon the performance of services or the services include software customization or modification, revenues from both the license and service elements are deferred and recognized under the percentage of completion method of accounting as the services are performed. The Company applies the percentage of completion method in accordance with Accounting Research Bulletin (“ARB”) 45 and Statement of Position (“SOP”) 81-1 for long-term construction contracts. Revenue is recognized based on costs incurred measured against total planned costs, and the resulting percentage is realized as a percentage of the total revenue of the project contract. Cost incurred is measured by multiplying service hours rendered by a standard hourly rate. Cost to completion is estimated as service hours to be delivered multiplied by the standard hourly rate. Remaining service hours are estimated by project managers on a quarterly basis.

Maintenance includes the right to unspecified upgrades and enhancements as well as telephone support and support via remote access. Maintenance revenue is recognized ratably over the term of the maintenance period. Maintenance prices are determined as a percentage of net license fees.

Standard payment terms are 30 days after delivery.

Concentration of credit risk

Financial instruments which are potentially subject to credit risk consist of cash and cash equivalents and trade receivables. Cash and cash equivalents are invested or held in solvent and reliable financial institutions. Furthermore, the Company performs periodic credit reviews of its customers and therefore does not generally require them to provide collateral. The allowances for doubtful accounts amounted to € 2,886 at February 29, 2004 and were based on management’s estimate of collectibility.

No more than 10% of the company’s revenues were generated with a single customer during the period from July 1, 2003 to February 29, 2004.

Recent accounting pronouncements

In July 2002, the FASB issued SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities”. This Standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material impact on the consolidated financial statements of the Company.


In December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation – an amendment of SFAS No. 123”. The standard provides alternative methods of accounting for a voluntary change to the fair value based method of accounting for stock-based employee compensation, and requires additional disclosures. The Company continues to account for stock compensation under APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company adopted the disclosure provisions of SFAS No. 148. In December 2004 the Financial Accounting Standards Board issued SFAS 123R, “Share-Based Payment” (“SFAS 123R”). SFAS 123 R is effective for fiscal years beginning on or after June 15, 2005. SFAS 123 eliminates the ability to account for share-based compensation transactions using APB 25, and requires that such transactions be accounted for using a fair - value based method. The Company did not adopt SFAS 123 R and as discussed above adopted SFAS 123 effective July 1, 2003.

In November 2002, the EITF reached a final consensus on EITF 00-21, “Revenue Arrangements with Multiple Deliverables”. EITF 00-21 addresses certain aspects of the accounting of revenue arrangements with multiple deliverables by a vendor. EITF 00-21 outlines an approach to determine when a revenue arrangement for multiple deliverables should be divided into separate units of accounting and, if separation is appropriate, how the consideration should be allocated to the identified accounting units. The consensus reached in the Issue was effective for IXOS in its financial statements beginning July 1, 2003. The adoption did not have a material impact on its consolidated financial statements.

In June 2005, the Emerging Issues Task Force (“EITF”) issued Abstract No. 05-06, “Determining the Amortization Period for Leasehold Improvements” (“EITF 05-6”). The pronouncement requires that leasehold improvements acquired in a business combination, or purchased subsequent to the inception of the lease and not contemplated at or near the beginning of the lease term, be amortized over the lesser of the useful life of the asset or the lease term that includes reasonably assured lease renewals as determined on the date of the acquisition of the leasehold improvement. This pronouncement is being applied by the Company prospectively for leasehold improvements purchased or acquired on or after July 1, 2005. The adoption of EITF 05-6 did not have a material impact on the Company’s consolidated results of operations or financial condition.

D. CONSOLIDATED STATEMENT OF OPERATIONS

1. Other operating income (expenses)

 

     July 1, 2003 to
February 29, 2004

Other operating income

  

Rental income

   3,966
    
   3,966
    

Other operating expenses

  

Rent expenses

   3,960

Restructuring expenses

   2,615
    
   6,575
    

Other operating income includes the income from the sublease of the Technopark II office building. Other operating expenses include the costs for the rental of this office building, which is 100% subleased, and restructuring expenses, which relate to a restructuring charge relating primarily to work force reduction (see note 8).

2. Gain on extinguishment of debt

Gain on extinguishment of debt relates to the extinguishment of a part of a €843 debt owing by Obtree Technologies Inc. (“Obtree”) to Born Information AG (“Born”).


Obtree is a company that was acquired by IXOS by way of a business combination agreement in January 2003. The results of Obtree’s operations have been consolidated with that of IXOS’ effective February 1, 2003.

A debt extinguishment agreement, dated November 3, 2003, was signed by Obtree and Born. Within the terms of this agreement, the debt owing by Obtree was considered settled pursuant to the payment of €562 by Obtree in full and final settlement of the original debt amount owing. Such payment was made on November 5, 2003 and the Company recognized a gain of €281 on the settlement of this debt.

3. Income taxes

Until December 31, 2000 inclusive, German stock corporations were subject to corporate income tax at a rate of 40% on fully retained earnings, 30% on distributed earnings, and trade tax depending on the municipality in which the company operates. Based on the German Tax Reduction Act passed on July 14, 2000 by the German Federal Council, and effective January 1, 2001, the corporate income tax rate decreased to a uniform level of 25% (exception: 26.5% for fiscal year 2002/2003) for distributed and non-distributed profits. Trade tax remains unaffected.

In addition, German stock corporations must pay a surcharge on corporate income tax of 5.5% as a contribution to the costs of German reunification.

The provisions for income taxes consisted of the following:

 

     July 1, 2003/
February 29, 2004

Current:

  

Germany (domestic)

   85

Europe (excluding Germany), North America and Asia (foreign)

   71
    
   156
    

Deferred:

  

Germany (domestic)

   0

Europe (except Germany), North America and Asia (foreign)

   0
    
   0
    

Provision for income taxes

   156
    

Reconciliation of the provisions for income taxes to amounts computed by applying the German statutory income tax rate of 36.3% to the tax expense disclosed in these financial statements:

 

     July 1, 2003/
February 29, 2004
 

Statutory income tax (36.3% in 2004,)

   (6,132 )

Increase (decrease) in income tax due to:

  

Deferred taxable income

  

Foreign income/losses at different tax rates

   (106 )

Changes in valuation allowance on deferred tax assets

   6,176  

Effect of income earned in a foreign tax jurisdiction with tax-free status

   (472 )

Tax effects resulting from differences in the tax basis

   582  

Amortization of Stock Option Expenses

   134  

Other

   (26 )
      

Provision for income taxes

   156  
      


In fiscal year 1997, the Company’s Swiss subsidiary was formed and awarded tax-free status for the following 10-year period. The Company’s Swiss subsidiary generated income beginning in fiscal year 1998 that is not subject to income tax.

Net deferred income taxes consisted of the following:

 

     February 29, 2004
 

Deferred tax assets:

  

Net operating loss carry forwards

   28,594  

Accrued pension cost

   281  

Accrued restructuring cost

   901  

Unearned revenue

   743  

Other

   1,493  
      

Total deferred tax assets

   32,012  

Less: valuation allowance

   (30,118 )
      

Net deferred tax assets

   1,894  
      

Deferred tax liabilities:

  

Deferred taxable income

   1,270  

Foreign exchange gain

   19  

Accrued liabilities

   7  

Other

   598  
      

Total deferred tax liabilities

   1,894  
      

Net deferred tax asset (liability)

   0  
      

The Company believes that sufficient uncertainty exists regarding the realization of certain deferred tax assets and that a valuation allowance is required. The Company continues to evaluate its taxable position and considers factors by taxing jurisdiction such as estimated taxable income, the history of losses for tax purposes and the growth of the Company, among others.

The Company has net operating loss carry forwards in the following tax jurisdictions:

 

Country

   February 29, 2004

Switzerland (Obtree Technologies Inc.)

   65,554

Germany

   14,910

USA

   5,407

Japan

   4,268

Australia

   3,137

Singapore

   2,041

Other foreign subsidiaries

   4,573

The tax loss carryforwards for Germany, Australia, Singapore and the United Kingdom do not expire. For Switzerland they will expire between 2007 and 2010, for Japan between 2004 and 2010 and for the United States commencing after 2023.

4. Earnings per share

Basic earning per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earning per share is calculated by dividing net income by the weighted average number of shares outstanding and dilutive stock options outstanding.

 

     July 1, 2003 until
February 29, 2004
 

Net loss

   (17,048 )

Basic weighted average common shares outstanding

   21,598,294  

Dilutive effect of assumed exercise of stock options

   0 *
      

Weighted average common shares outstanding assuming dilution

   21,598,294  
      

Basic and diluted net loss per share

   (0.79 )

* Due to the net loss in the period from July 1, 2003 to February 29, 2004, diluted net loss per share has been calculated for that period using the basic weighted average number of Common Shares outstanding, as the inclusion of any potentially dilutive securities would be anti-dilutive.


E. CONSOLIDATED BALANCE SHEET DISCLOSURES

5. Cash and cash equivalents

At February 29, 2004 credit lines in the amount of € 7,534, were available. € 2,162 of this amount was used for the issuance of bank guarantees.

6. Allowance for doubtful accounts

The following table presents changes in the allowance for doubtful accounts:

 

     February 29, 2004
 

Beginning balance July 1, 2003

   3,343  

Provision for doubtful accounts

   394  

Utilization

   (851 )
      

Ending balance February 29, 2004

   2,886  
      

7. Long-lived Assets and Goodwill

The following table shows the movement of the fixed assets

 

     Cost
     July 1, 2003    Additions    Disposals    Currency     February 29,
2004

Intangible Assets:

             

Goodwill

   10,661    0    0    0     10,661

Purchased Software

   12,358    145    51    (3 )   12,449
   23,019    145    51    (3 )   23,110
                         

Tangible Assets:

             

Leasehold improvements

   8,960    152    290    (17 )   8,805

Factory and office equipment

   20,336    1,732    2,097    (305 )   19,666
   29,296    1,884    2,387    (322 )   28,471
                         

Total End

   52,315    2,029    2,438    (325 )   51,581
                         


     Accumulated depreciation and amortization
     July 1, 2003    Additions    Disposals    Currency     February 29,
2004

Intangible Assets:

             

Goodwill

   800    0    0    0     800

Purchased Software

   3,301    2,076    44    (1 )   5,332
   4,101    2,076    44    (1 )   6,132
                         

Tangible Assets:

             

Leasehold improvements

   3,601    683    228    (10 )   4,046

Factory and office equipment

   16,036    1,523    1,885    (239 )   15,435
   19,637    2,206    2,113    (249 )   19,481
                         

Total End

   23,738    4,282    2,157    (250 )   25,613
                         

 

     Net book value
February 29, 2004

Intangible Assets:

  

Goodwill

   9,861

Purchased Software

   7,117
   16,978
    

Tangible Assets:

  

Leasehold improvements

   4,759

Factory and office equipment

   4,231
   8,990
    

Total End

   25,968
    

The following table shows the estimated amortization for the next 5 years:

 

     Estimated amortization of
purchased software (€)
  

Estimated amortization of
maintenance

Contracts (€)

  

Total

March 1, 2004 to June 30, 2004

   815    185    1,000

2005

   2,264    325    2,589

2006

   2,060    157    2,217

2007

   1,284    61    1,345

2008

   3    11    14

2009

   2    0    2
              

Total

   6,428    739    7,167
              


8. Accrued liabilities

Accrued liabilities primarily relate to the following items:

 

     February 29, 2004

Accrued salaries

   4,312

Outstanding invoices

   2,881

Accrual for vacation accrued but not yet taken

   2,666

Accrual for restructuring

   2,616

Other

   4,369
    
   16,844
    

In the period from July 1, 2003 to February 29, 2004, the Company recorded a restructuring charge of €2.6 million relating primarily to work force reduction. The restructuring charge is included as part of other operating expenses and related entirely to the Company’s European operations. The portion related to workforce reduction is to be paid by December 31, 2005.

A reconciliation of the beginning and ending liability is as follows:

 

Restructuring Plan

  

Work force

reduction

   Facility costs    Total

Balance as of July 1, 2003

   0    0    0

Accruals

     2,610      6      2,616
                    

Balance as of February 29, 2004

   2,610    6    2,616
                    

There were no cash payments against the accrual for restructuring during the period from July 1, 2003 to February 29, 2004.

9. Customer advances and unearned revenues

 

    

February 29,

2004

Unearned revenues

   17,440

Customer advances

   743
    
   18,183
    

Unearned revenues relate to maintenance agreements which have been paid for by customers prior to the performance of those services. Generally these services will be provided within the next twelve months.


10. Retirement plans

The Company has entered into pension commitments to current Executive Board members, former Executive Board members, as well as individual pension commitments to employees. The Company’s actuarial cost method for its plan is the projected unit credit method. The Company’s policy is to deposit amounts with an insurance company to cover the actuarial present value of the expected retirement benefits. The amounts deposited of at February 29, 2004 are invested by the insurance company in short-term investments. The asset values of these insurance contracts are netted by pledging the assets to employees, as plan assets with pension commitments.

The tables shown below contain consolidated disclosures on all pension plans maintained by the company as of the reporting dates indicated.

The following table shows the changes in projected benefit obligations for the period:

 

     February 29,
2004
 

Projected benefit obligations at beginning of period

   2,022  

Service cost on benefits earned during the period

   247  

Interest cost on projected benefit obligation

   81  

Actuarial loss (profit)

   (21 )

Settlement

   (718 )
      

Projected benefit obligations at end of period

   1,611  
      

Weighted average assumed discount rate

   5.5 %

Weighted average rate of compensation increase

   3.0 %

The accumulated benefit obligation (actuarial present value) at February 29, 2004 amounts to € 1,611.

A reconciliation of the funded status to the amounts recognized in the consolidated balance sheet is as follows:

 

     February 29,
2004
 

Funded status of plans (*)

   107  

Unrecognized actuarial loss

   (244 )

Additional minimum liability

   244  
      

Amount recognized in the consolidated balance sheet

   (107 )

Less current portion

   0  
      

Noncurrent portion of pension obligations

   (107 )
      

(*) Difference between the projected benefit obligations (€ 1,611) and the fair value of plan assets (€ 1,718).

The item “Additional minimum liability” increased by € 192 during the period. This change leads to an identical effect on comprehensive income.


The components of net pension cost for the period from July 1, 2003 to February 29, 2004 is as follows:

 

     February 29,
2004
 

Service costs during the period

   247  

Interest cost on projected benefit obligation

   81  

Amortization of unrecognized actuarial losses

   (136 )
      

Net pension cost

   192  
      

The Company does not expect any disbursements from pension plans in the next ten years.

11. Other financial commitments

Future rent payments and lease obligations from non-cancelable leases for operating equipment for the next five years after February 29, 2004 are as follows:

 

Fiscal year

  

March 1, 2004-June 30, 2004

   4,149

2005

   11,897

2006

   9,943

2007

   8,965

2008

   8,311

2009

   7,832

Thereafter

   12,096

Rent expense amounted to € 7,715 for the period from June 1, 2003 to February 29, 2004.

€ 21,772 of the financial commitments for the next five years, including the period from March 1, 2004 to June 30, 2004, will be offset by rental income of € 24,002. In addition, future rent payments of € 6,353 for the period after fiscal year 2008/2009 will be compensated by rental income of € 7,201.

The sublease rental income and the financial commitments for each year are as follows:

 

Fiscal year

   Income
   Commitments

March 1, 2004 – June 30, 2004

   2,120    1,935

2005

   5,003    4,944

2006

   4,234    3,736

2007

   4,215    3,719

2008

   4,215    3,719

2009

   4,215    3,719
         

Total

   24,002    21,772

12. Disclosures on the equity of IXOS Software AG

The General Meeting held on July 21, 1998, the Executive Board was authorized with the approval of the Supervisory Board, to increase the share capital until July 21, 2003 by a total amount of up to DM 4,800 through the issuance of new shares (“Authorized Capital I and IV”).

The General Meeting on November 25, 1999 resolved to increase the common stock to € 19,259 and to divide it into 19,259,285 new shares through a five-for-one stock split. A resolution was also adopted to increase Authorized Capital I and IV, resolved by the General Meeting on July 21, 1998, from DM 4,800 to € 4,800, and the period in which the Executive Board was authorized to implement a corresponding capital increase was extended to November 25, 2004.


The General Meeting on November 19, 2002 resolved to create new Authorized Capital (‘Authorized Capital V’) of up to € 7,762. The resolution was recorded in the commercial register on November 27, 2002.

Authorized Capital I resolved by the General Meeting on November 25, 1999 up to a nominal amount of € 1,800, was utilized in full for the investment by General Atlantic Partners in the Company.

The General Meeting on March 6, 2002 resolved to contingently increase the common stock of the Company by € 500, composed of up to 500,000 no-par value bearer shares (Contingent Capital IV). The contingent capital increase serves to grant conversion rights to holders of warrants.

The Company holds 40,000 treasury shares. These shares were acquired in September 2001 and the acquisition price was € 241. In January 2004 all treasury shares held by the company (40,000) were sold for € 10.53 per share (Total € 421).

The accumulated losses include legal reserves in the amount of € 347 relating to the IXOS Software (International) AG, Biel (€ 312) and IXOS Software s.r.o., Prague (€ 35) subsidiaries.

The Company’s shares were quoted on the Prime Standard segment of the Frankfurt Stock Exchange and have been quoted on the NASDAQ National Market since October 7, 1998. Upon the approval from the shareholders general meeting the Executive Board filed an application to delist the quotation on the General Standard of the Frankfurt Stock Exchange. This became affective after July 12, 2005. The delisting of the American Deposit Shares (ADS) of the NASDAQ became affective in June 2004.

All shares are common shares.

242,130 shares have been subscribed during the period from July 1, 2003 to February 29, 2004.

13. Stock option plans

The Company has a U.S. stock option plan, a non-U.S. stock option plan and a worldwide stock option plan (the “stock option plans”). The U.S. and the Non-U.S. plans were established in fiscal year 1997 / 1998 and provide for the grant of options with a term of ten years and a vesting period of three or four years from the date of grant. The U.S. stock option plan options vest monthly over four years after an initial six-month period. The non-U.S. stock option plan options vest annually over three years. The worldwide stock option plan was established in fiscal year 1999 / 2000. These options vest annually over four years. All options granted on or before June 30, 2000 have a term of ten years, those options granted after June 30, 2000 have a term of six years. The General Meeting authorized the Company on several occasions over the past few fiscal years to grant stock options. To implement the Company’s stock option plans, the shareholders resolved on several occasions to create contingent capital in the total amount of € 2,426 to cover the grant of 2,425,928 shares, which can be issued to the stock option holders, when stock options are exercised. In total 928,189 of the options granted have been exercised as of February 29, 2004. The remaining contingent capital available at the cut-off date to serve stock options thus amounts to € 1,498.

On the basis of the acquisition by Open Text Corp., located in Waterloo, Canada, it was agreed in line with the Business Combination Agreements (“BCA”), that for all IXOS stock options which were not exercisable at the date of the takeover bid an appropriate cash compensation or an other equal compensation for the IXOS stock options will be offered. The underlying amounts for the cash offer were calculated with the Black Scholes Formula. This cash offer was directly submitted by Open Text Corp. to the owner of the options and was accepted for 941,987 stock options.


The following tables provide information with respect to the stock option plans at the end of February 29, 2004:

 

     Options outstanding    

Weighted average
exercise price

Balance at June 30, 2003

   1,445,004     11.93
          

Granted

   0     0

Exercised

   (242,130 )   5.51

Cancelled

   (31,230 )   14.54
          

Balance at February 29, 2004

   1,171,644     13.18
          

 

Exercise price €

   Options outstanding    Remaining contract life in
years (weighted average)
   Number exercisable
at February 29, 2004

50.90

   8,750    5.96    8,750

40.80

   67,745    5.05    67,745

35.38

   2,670    5.28    2,670

33.18

   1,075    5.35    1,075

28.60

   4,620    5.51    4,620

25.02

   7,235    5.73    7,235

19.80

   269,441    6.32    210,044

17.38

   109,660    4.61    109,660

11.21

   28,990    2.97    18,990

8.00

   165,000    4.19    0

8.00

   50,000    4.45    0

8.00

   60,000    4.76    0

7.44

   55,006    4.18    55,006

7.39

   6,820    3.26    2,022

6.42

   6,500    4.19    0

5.05

   3,000    4.45    0

5.05

   191,750    4.76    0

4.43

   18,872    3.75    6,798

4.09

   53,500    5.21    0

3.93

   61,010    3.68    61,010
            
   1,171,644       555,625
            

14. Comprehensive Income

Comprehensive income at February 29, 2004 includes foreign currency translation adjustments and minimum pension liability adjustments.

 

Net loss for the period

   (17,048 )

Pension liability adjustment

     (192 )

Translation adjustment

     2,341  
        

Comprehensive income

   (14,899 )
        


F. OTHER DISCLOSURES

15. Geographical information / segment reporting

IXOS is a software manufacturer and deals with the development, manufacture, marketing, and licensing of standard client-/server software applications. All products and the related services are offered worldwide in the same manner. The Company believes that it only operates in a single business segment and accordingly has structured its management and internal reports to reflect this single segment.

The geographic break-down of revenues, loss from operations, and identifiable assets is presented in the following:

 

Revenues

   February 29,
2004 €
 

Germany

   42,093  

North America

   19,315  

Europe (excluding Germany)

   40,554  

Asia Pacific

   10,312  

Consolidation

   (31,405 )
      

Total

   80,869  
      

Loss from operations

  

Germany

   (7,872 )

North America

   (3,027 )

Europe (excluding Germany)

   (1,701 )

Asia Pacific

   (4,146 )

Consolidation

   39  
      

Total

   (16,707 )
      

Identifiable assets

  

Germany

   86,787  

North America

   12,040  

Europe (excluding Germany)

   47,980  

Asia Pacific

   13,693  

Consolidation

   (67,671 )
      

Total

   92,829  
      

Included in consolidation (elimination) revenues, are the impact of royalties and other intra-group charges.

The scope (excluding Germany) region includes the companies in Switzerland, the Czech Republic, Austria, Netherlands, Denmark, Spain, France and the United Kingdom. The Asia Pacific region includes the companies in Japan, Singapore, Malaysia and Australia.


16. Subsequent Events

On October 21, 2003, we announced that we had entered into a business combination agreement with Open Text Corporation, (“Open Text”), a corporation duly incorporated under the laws of the province of Ontario, Canada. The transaction was consummated via a tender offer to purchase all of the issued and outstanding common shares of IXOS SOFTWARE AG (“IXOS”) for a combination of cash and common share purchase warrants of Open Text. As of the current date Open Text owns approximately 96% of IXOS.

On December 1, 2004, the Open Text announced that—through its wholly-owned subsidiary, 2016091 Ontario, Inc. (“Ontario I”)—it had entered into a domination and profit transfer agreement (the “Domination Agreement”) with IXOS. The Domination Agreement has been registered in the commercial register at the local court of Munich in August 2005 and it has therefore come into force. Under the terms of the Domination Agreement, Ontario I has acquired authority to issue directives to the management of IXOS. Also in the Domination Agreement, Ontario I offers to purchase the remaining Common Shares of IXOS for a cash purchase price of Euro 9.38 per share (“Purchase Price”) which was the weighted average fair value of the IXOS Common Shares as of December 1, 2004. Pursuant to the Domination Agreement, Ontario I also guarantees a payment by IXOS to the minority shareholders of IXOS of an annual compensation of Euro 0.42 per share (“Annual Compensation”). On January 14, 2005, the shareholders of IXOS confirmed that IXOS had entered into the Domination Agreement. At the same meeting, the shareholders approved the motion to delist IXOS from the Frankfurt Exchange (“Delisting”).

The Domination Agreement was registered on August 23, 2005, and thereby became effective. Certain IXOS shareholders have filed for a procedure granted under German law at the district court of Munich, Germany, asking the court to reassess the amount of the Annual Compensation and the Purchase Price (the “IXOS Appraisal Procedures”) for the amounts offered under the Domination Agreement and under the Delisting. It cannot be predicted at this stage, whether the court will increase the Annual Compensation and/or the Purchase Price in the IXOS Appraisal Procedure.

The IXOS affiliates IXOS SOFTWARE s.r.o., Prague, Czech Republic and IXOS Technology S.L., Madrid, Spain, are in liquidation. The Swiss subsidiary IXOS Engineering Switzerland AG, Basle, Switzerland was merged to IXOS SOFTWARE (International) AG, Biel, Switzerland. The entry of the merger into the commercial register was carried out on December 21 and has been backdated to July 1, 2005.

Restructuring expense amounted to € 2.78 million in the fiscal year 2005/2006. This expense resulted from extraordinary depreciation on fixtures and technical installations.

EX-99.2 4 dex992.htm UNAUDITED PRO FORMA FINANCIAL INFORMATION AS AT DECEMBER 31, 2003 Unaudited pro forma financial information as at December 31, 2003

EXHIBIT 99.2

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated balance sheet as of December 31, 2003 is presented to give effect to the acquisition of IXOS as if it occurred on December 31, 2003. As the acquisitions of Centrinity, Corechange, Eloquent and Gauss had been completed as of that date, the consolidated balance sheet of Open Text at December 31, 2003 already reflects those transactions. The unaudited pro forma condensed consolidated statement of operations of Open Text is presented as if the acquisitions of Centrinity, Corechange, Eloquent, Gauss and IXOS had taken place on July 1, 2003. As the acquisitions of Centrinity, Corechange and Eloquent had been completed as of July 1, 2003, the statement of operations of Open Text for the six-month period ended December 31, 2003 already reflects their results from operations. The unaudited pro forma condensed financial statements presented herein reflect the restated financial statements of IXOS for each of the periods presented.

The following unaudited pro forma condensed consolidated financial statements are based on the historical financial statements of Open Text, Centrinity, Corechange, Eloquent, Gauss and IXOS after giving effect to the acquisitions of Centrinity, Corechange, Eloquent, Gauss and IXOS, including the impact of restatements of IXOS, using the purchase method of accounting and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed consolidated financial statements. The acquisition of Centrinity was completed on November 1, 2002, the acquisition of Corechange was completed on February 25, 2003, the acquisition of Eloquent was completed on March 20, 2003 and the acquisition of Gauss was completed on October 16, 2003. The Company intends to acquire 100% of the common shares of IXOS and Gauss and the unaudited pro forma condensed consolidated financial statements are prepared on that basis. As of May 3, 2004, Open Text had acquired approximately 88% and 87% of the common shares of IXOS and Gauss, respectively. As of June 30, 2005 the Company had acquired approximately 94% (March 31, 2006 - 95%) of the common shares of IXOS. Certain information presented within the unaudited pro forma condensed consolidated financial statements has been presented as at June 30, 2005 to correspond to Open Text’s most recently filed audited annual financial statements filed on Form 10-K.

The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes contained in Open Text’s Annual Report on Form 10-K for its fiscal year ended June 30, 2003 and Quarterly Reports on Form 10-Q for its quarters ended September 30, 2003 and December 31, 2003 and with the restated financial statements contained herein for IXOS. The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and are not intended to represent or be indicative of the consolidated results of operations or financial condition of Open Text that would have been reported had the acquisitions been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial condition of Open Text. The pro forma condensed consolidated statements of operations do not include any non-recurring charges or credits directly attributable to the acquisition.


Open Text Corporation

Unaudited Pro Forma Condensed Balance Sheet

As of December 31, 2003

(In thousands of US Dollars)

 

     Open Text    

IXOS (restated)

(1)

   

Pro Forma

Adjustments

    Pro Forma  
                 (Note 3)        

ASSETS

        

Current Assets

        

Cash and cash equivalents

   $ 65,421     $ 31,862     $ (66,875 )A   $ 30,408  

Accounts receivable, net of allowance

     39,942       51,103       —         91,045  

Income taxes recoverable

     5,127       —         —         5,127  

Unbilled Revenue

     —         2,129       —         2,129  

Prepaid expenses and other current

     4,368       6,280       —         10,648  

Deferred taxes

     5,866       —         27,986 G     33,852  
                                
     120,724       91,374       (38,889 )     173,209  

Restricted cash

     46,837       —         —         46,837  

Capital assets

     11,850       11,639       2,086 B     25,575  

Goodwill

     50,262       12,454       153,024 C     215,740  

Deferred taxes

     13,388       —         22,105 G     35,493  

Other assets

     35,411       2,059       —         37,470  

Intangible assets

     —         9,577       89,850 D     99,427  
                                

Total Assets

   $ 278,472     $ 127,103     $ 228,176     $ 633,751  
                                

LIABILITIES AND SHAREHOLDERS’ EQUITY

        

Current Liabilities

        

Accounts payable

   $ 42,032     $ 25,373     $ 46,873 F   $ 114,278  

Deferred revenue

     38,628       19,112       (2,278 )W     55,462  

Deferred taxes

     —         424       12,508 G     12,932  

Income taxes payable

     —         782       —         782  
                                
     80,660       45,691       57,103       183,454  
                                

Long Term Liabilities

        

Deferred revenue

     1,149       —         —         1,149  

Deferred taxes

     2,557       —         32,726 G     35,283  

Pension liability

     —         1,399       —         1,399  

Accrued liabilities

     4,944       —         —         4,944  
                                
     8,650       1,399       32,726       42,775  
                                

Minority interest

     —         —         2,633 E     2,633  

Shareholders Equity

        

Share capital

     217,810       28,051       162,856 H     408,717  

Additional paid in capital, less treasury shares

     —         67,889       (67,889 )I     —    

Paid in capital – stock warrants

     —         —         24,820 J     24,820  

Translation adjustment

     2,132       2,426       (2,426 )I     2,132  

Deficit

     (30,780 )     (18,353 )     18,353 I     (30,780 )
                                
     189,162       80,013       135,714       404,889  
                                
   $ 278,472     $ 127,103     $ 228,176     $ 633,751  
                                

(1) Euro converted to USD at rate of 1.2630, the exchange rate in effect at December 31, 2003

See accompanying notes to the pro forma condensed consolidated financial statements


Open Text Corporation

Unaudited Pro Forma Condensed Consolidated Statements of Operations

For the Twelve-Month Period Ended June 30, 2003

(In thousands of US Dollars, except per share data)

 

   

Open Text

Year ended

June 30,
2003

 

Centrinity

July 1, 2002

to Oct. 31,

2002 (1)

 

Corechange

July 1, 2002
to Feb. 24,

2003

 

Eloquent

July 1, 2002

to Mar. 19,

2003

 

Gauss 12

months ended

June 30,

2003 (2)

 

IXOS 12

months ended

June 30,

2003 (restated) (2)

 

IXOS Pro

Forma

Adjustments

   

Other Pro

Forma

Adjustments

   

Total Pro

Forma

Adjustments

    Pro Forma
                            (Note 3)     (Note 3)            

Revenues:

                   

License & networking

  $ 75,991   $ 2,000   $ 1,997   $ 847   $ 8,639   $ 51,427   —       $ (64 )K   $ (64 )   $ 140,837

Customer support

    63,091     1,853     1,757     254     11,779     43,242   —         —         —         121,976

Service

    38,643     418     1,058     671     4,645     37,647   —         —         —         83,082
                                                               

Total revenues

    177,725     4,271     4,812     1,772     25,063     132,316   —         (64 )     (64 )     345,895
                                                               

Cost of revenues:

                   

License & networking

    6,550     415     882     261     3,614     2,612   (49 )P     (128 )K     (177 )     14,157

Customer support

    10,406     386     87     195     3,352     30,397   139 P     —         139       44,962

Service

    28,241     85     1,059     436     785     11,253   (669 )P     —         (669 )     41,190
                                                               

Total cost of revenues

    45,197     886     2,028     892     7,751     44,262   (579 )     (128 )     (707 )     100,309
                                                               

Gross profit

    132,528     3,385     2,784     880     17,312     88,054   579       64       643       245,586
                                                               

Operating expenses:

                   

Research and development

    29,324     825     1,950     1,587     6,233     20,173   (1,805 )P     —         (1,805 )     58,287

Sales and marketing

    54,532     2,361     7,739     2,546     12,531     58,835   (2,359 )P     —         (2,359 )     136,185

General and administrative

    13,509     3,406     1,884     2,590     2,661     14,510   (317 )P     —         (317 )     38,243


Stock based compensation

     —        178       47       184       —         —         —         (409 )L     (409 )     —    

Restructuring charge

     —        —         457       1,205       —         —         —         —         —         1,662  

Other operating income

     —        —         —         —         —         (6,383 )     —         —         —         (6,383 )

Other operating expenses

     —        —         —         —         —         6,553       (560 )P     —         (560 )     5,993  

Depreciation

     5,009      702       539       313       1,946       —         5,016 Q     —         5,016       13,525  

Amortization of acquired intangible assets

     3,236      152       —         1,160       2,649       —         14,949 R     (653 )M     14,296       21,493  

Impairment of goodwill

     —        —         —         —         2,632       —         —         (2,632 )N     (2,632 )     —    

Total operating expenses

     105,610      7,624       12,616       9,585       28,652       93,688       14,924       (3,694 )     11,230       269,005  
                                                                               

Income (loss) from operations

     26,918      (4,239 )     (9,832 )     (8,705 )     (11,340 )     (5,634 )     (14,345 )     3,758       (10,587 )     (23,419 )
                                                                               

Other income (loss)

     2,733      314       (6,803 )     (1,821 )     (693 )     (4,819 )     —         2,611 O     2,611       (8,478 )

Interest income

     1,283      64       7       102       110       806       —         —         —         2,372  
                                                                               

Income (loss) before income taxes

     30,934      (3,861 )     (16,628 )     (10,424 )     (11,923 )     (9,647 )     (14,345 )     6,369       (7,976 )     (29,525 )

Provision for income taxes

     3,177      —         —         —         333       702       —         —         —         4,212  
                                                                               

Net income (loss) for the period

   $ 27,757    $ (3,861 )   $ (16,628 )   $ (10,424 )   $ (12,256 )   $ (10,349 )   $ (14,345 )   $ 6,369     $ (7,976 )   $ (33,737 )
                                                                               

Basic net income (loss) per share

   $ 0.71                    $ (0.70 )

Diluted net income (loss) per share

   $ 0.67                    $ (0.70 )

Weighted average number of Common Shares outstanding - basic *

     39,050                    *&       48,336  

Weighted average number of Common Shares outstanding - diluted *

     41,394                    *&       48,336  

* - adjusted for stock split October 8, 2003 & - adjusted for shares issued to acquire IXOS

                     

(1) Canadian Dollar converted to USD at rate of 0.6404, the average rate of the period.
(2) Euro converted to USD at rate of 1.0552, the average rate of the period.

See accompanying notes to the pro forma condensed consolidated financial statements


Open Text Corporation

Unaudited Pro Forma Condensed Consolidated Statements of Operations

For the Six-Month Period Ended December 31, 2003

(In thousands of US Dollars, except per share data)

 

     Open Text   

Gauss

July 1, 2003

to Oct. 15,

2003 (1)

   

IXOS July 1,

2003 to

December 31,

2003 (restated) (2)

   

IXOS Pro

Forma

Adjustments

   

Other Pro

Forma

Adjustments

    Pro Forma  
                      (Note 3)     (Note 3)        

Revenues:

             

License & networking

   $ 44,760    $ 1,098     $ 32,608     $ —       $ —       $ 78,466  

Customer support

     41,348      3,105       29,650       —         —         74,103  

Service

     19,751      1,058       23,252       —         —         44,061  
                                               

Total revenues

     105,859      5,261       85,510       —         —         196,630  
                                               

Cost of revenues:

             

License & networking

     3,841      1,071       1,637       (18 )S     —         6,531  

Customer support

     7,235      781       6,455       (190 )S     —         14,281  

Service

     16,329      183       18,144       (220 )S     —         34,436  
                                               

Total cost of revenues

     27,405      2,035       26,236       (428 )     —         55,248  
                                               

Gross profit

     78,454      3,226       59,274       428       —         141,382  
                                               

Operating expenses:

             

Research and development

     17,955      1,437       34,446       (1,941 )S     —         51,897  

Sales and marketing

     32,307      3,128       13,289       (811 )S     —         47,913  

General and administrative

     8,241      3,062       8,776       (343 )S     —         19,736  

Total stub period expense

     —        1,347       —         —         —         1,347  

Depreciation

     2,666      592       —         2,763 S     105 T     6,126  

Amortization of acquired intangible assets

     2,822      576       —         7,474 S/U     (10 )U     10,862  

Other operating income

     —        —         (3,689 )     —         —         (3,689 )

Other operating expenses

     —        —         3,682       (318 )S     —         3,364  
                                               

Total operating expenses

     63,991      10,142       56,504       6,824       95       137,556  
                                               

Income (loss) from operations

     14,463      (6,916 )     2,770       (6,396 )     (95 )     3,826  
                                               

Other income (loss)

     488      555       (212 )     —         (43 )V     788  

Interest income

     437      23       59       —         —         519  
                                               

Income (loss) before income taxes

     15,388      (6,338 )     2,617       (6,396 )     (138 )     5,133  

Provision for income taxes

     4,341      (348 )     112       —         —         4,105  
                                               

Net income (loss) for the period

   $ 11,047    $ (5,990 )   $ 2,505     $ (6,396 )   $ (138 )   $ 1,028  
                                               

Basic net income (loss) per share

   $ 0.28            $ 0.02  

Diluted net income (loss) per share

   $ 0.26            $ 0.02  

Weighted average number of Common Shares outstanding - basic

     39,947            * &     49,233  

Weighted average number of Common Shares outstanding - diluted

     42,872            * &     52,158  

* - adjusted for stock split October 8, 2003

             

* adjusted for shares issued to acquire IXOS

             

(1) Euro converted to USD at rate of 1.1299, the average rate of the period.
(2) Euro converted to USD at rate of 1.1691, the average rate of the period.

See accompanying notes to the pro forma condensed consolidated financial statements


Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

(in thousands of US Dollars)

Note 1: Basis of Presentation

The unaudited pro forma condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for the purposes of inclusion in Open Text’s amended Form 8-K/A prepared in connection with the acquisition of IXOS. These unaudited pro forma condensed consolidated financial statements give effect to the acquisitions of Centrinity, Corechange, Eloquent, Gauss and IXOS.

Certain information and certain footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures provided herein are adequate to make the information presented not misleading.

The information concerning Open Text has been obtained from the audited consolidated financial statements of Open Text for the year ended June 30, 2003 and the unaudited consolidated financial statements for the six months ended December 31, 2003. The information concerning IXOS has been obtained from the audited restated consolidated financial statements of IXOS for the year ended June 30, 2003 and the unaudited restated consolidated financial statements for the six months ended December 31, 2003. The information concerning Gauss has been obtained from the audited consolidated financial statements of Gauss for the year ended December 31, 2002 and the nine months ended September 30, 2003 and the unaudited consolidated financial statements for the six months ended June 30, 2003 and 2002, the three months ended September 30, 2003 and for the period from October 1, 2003 to October 15, 2003, being the day immediately prior to the completion of the acquisition of Gauss by Open Text. The information concerning Eloquent has been obtained from the audited consolidated financial statements of Eloquent for the year ended December 31, 2002 and the unaudited consolidated financial statements for the six months ended December 31, 2002 and for the period from January 1, 2003 to March 19, 2003, being the day immediately prior to the completion of the acquisition of Eloquent by Open Text. The information concerning Corechange has been obtained from the audited consolidated financial statements of Corechange for the year ended December 31, 2002 and the unaudited consolidated financial statements for the six months ended December 31, 2002 and for the period from January 1, 2003 to February 24, 2003, being the day immediately prior to the completion of the acquisition of Corechange by Open Text. The information concerning Centrinity has been obtained from the audited consolidated financial statements for the year ended September 30, 2002 and unaudited consolidated financial statements for the three months ended September 30, 2002 and the unaudited consolidated financial statements for the four-month period ended October 31, 2002, being the day immediately prior to the acquisition date of Centrinity.

The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only and do not purport to be indicative of the Company’s financial position or results of operations which would actually have been obtained had such transactions been completed as of the date or for the periods presented, or of the financial position or results of operations that may be obtained in the future.

Note 2: Purchase Price Allocation

On February 19, 2004, Open Text closed the Tender Offer, pursuant to which, 2016091 Ontario Inc., a wholly owned subsidiary of Open Text, acquired a total of 19,157,428 IXOS shares or approximately 88% of the ordinary share capital and voting rights of IXOS, including shares acquired in the open market. Of these IXOS shares, 17,792,529 shares (approximately 93% of the tendered shares) were tendered for the Alternative Consideration of Open Text shares and warrants, with the balance, including shares purchased on the open market, tendered for approximately $15 million in cash. The Alternative Consideration for each IXOS share consists of 0.5220 of an Open Text common share and 0.1484 of a warrant. Each whole warrant is exercisable to purchase one Open Text common share for up to one year after the closing date of the Tender Offer at a strike price of US $20.75 per share.

Approximately 9.3 million Open Text shares were issued in conjunction with the tender offer for IXOS. The shares were valued at the weighted average share price two days before and after the acquisition was announced. Accordingly, the fair value of the issued shares was approximately $191 million.

Approximately 2.6 million warrants were issued in conjunction with the Alternate Consideration. The fair value of each warrant was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:

 

Volatility

   60 %

Risk-free interest rate

   3.5 %

Dividend yield

   —    

Expected life

   1 year  


Based on this methodology, the warrants were valued at $9.40 each for a total value assigned of approximately $25 million.

Open Text intends to acquire 100% of the shares of IXOS and, accordingly, these pro forma financial statements are prepared on this basis. Between the closing date of the tender offer and June 30, 2005, Open Text acquired an additional 5,592,250 common shares of IXOS. As a result of the additional purchases up to June 30, 2005, 2016091 Ontario Inc. obtained a total of 24,749,678 IXOS shares or approximately 94% ownership of IXOS.

For the purpose of these pro forma financial statements, the purchase price of IXOS has been allocated to the assets acquired and liabilities assumed based on their fair values at the dates of acquisitions giving effect to the original tender offer and subsequent step acquisitions. For certain assets and liabilities, the book values at the balance sheet date have been determined to reflect fair values. The following table summarizes the components of the total purchase price of IXOS and the pro forma allocation:

 

Current assets (excluding cash acquired)

   $ 87,498  

Non-current assets

     37,889  

Intangible assets

     99,427  

Goodwill

     165,478  
        

Total assets acquired

     390,292  

Liabilities

     (136,919 )

Minority interest

     (2,633 )
        

Purchase price, net of cash acquired

   $ 250,740  
        

Note 3: Pro Forma Adjustments

The following adjustments have been reflected in the unaudited pro forma condensed consolidated financial statements:

 

  A. Represents, as of June 30, 2005, the cash consideration paid for IXOS by Open Text at the closing of the tender offer, additional cash consideration for the subsequent step acquisitions to acquire the shares of IXOS and usage of accruals set up for acquisition related costs.

 

  B. Represents the fair value adjustment to capital assets associated with IXOS acquisition.

 

  C. To record the new goodwill related to the acquisition of IXOS and to eliminate the historical goodwill of IXOS (see Note 2).

 

Elimination of IXOS historical goodwill

   $ (12,454 )

Goodwill from IXOS acquisition

     165,478  
        
   $ 153,024  
        

 

  D. To record the new intangible assets related to the acquisition of IXOS (see Note 2).

 

Customer intangibles from IXOS acquisition

   $ 37,500  

Core technology intangibles from IXOS acquisition

     20,757  

Application technology intangibles from IXOS acquisition

     41,170  
        
     99,427  

Less existing IXOS intangible assets

     (9,577 )
        
   $ 89,850  
        

 

  E. Minority interest assumed

 

  F. To record the Company’s severance and relocation costs related to certain IXOS employees, costs of vacating certain facilities and other direct costs associated with the transaction.

 

  G. To record deferred tax assets and deferred tax liabilities related to IXOS acquisition.

 

  H. To eliminate the share capital of IXOS and to record the shares issued by Open Text to acquire IXOS as follows:

 

Share capital of IXOS

   $ (28,051 )

Shares issued to acquire IXOS

     190,907  
        
   $ 162,856  
        


  I. To eliminate the additional paid in capital, translation adjustment and accumulated deficit of IXOS.

 

  J. To record the stock warrants issued associated with the acquisition of IXOS.

 

  K. To eliminate the revenues and expenses for hosting activities, as Open Text exited Centrinity’s hosting operations upon completion of that acquisition.

 

  L. To remove the stock-based compensation recorded in Centrinity, Eloquent, and Corechange as follows:

 

Centrinity

   $ 178

Corechange

     47

Eloquent

     184
      
   $ 409
      

As Open Text acquired the entire capital structure of Centrinity, Eloquent and Corechange as part of these acquisitions, Open Text incurs no such expenses post-acquisition.

 

  M. To adjust amortization relating to the identifiable intangible assets recorded at the time of the acquisition of Centrinity, Corechange, Eloquent, and Gauss and to reflect the elimination of Centrinity’s goodwill amortization and Eloquent’s, and Gauss’ intangible asset amortization as follows:

 

Amortization of acquired intangible assets relating to Centrinity acquisition

   $ 408  

Amortization of acquired intangible assets relating to Eloquent Acquisition

     332  

Amortization of acquired intangible assets relating to Corechange Acquisition

     628  

Amortization of acquired intangible assets relating to Gauss acquisition

     1,940  

Elimination of Eloquent’s historical intangible asset amortization

     (1,160 )

Elimination of Centrinity’s historical goodwill amortization

     (152 )

Elimination of Gauss’ historical intangible asset amortization

     (2,649 )
        
   $ (653 )
        

Based on the independent valuators reports, the Company has selected amortization periods of 5–7 years for various components of the acquired technology, as well as an amortization period of 3 years for customer contracts and 7 years for customer relationships.


  N. To eliminate Gauss’ goodwill impairment charge based upon the annual impairment test performed by Gauss.

 

  O. To remove the accretion and dividends on Corechange’s preferred stock and interest expense on Corechange’s warrants recorded by Corechange, the interest on Gauss’ convertible debt which was converted to common shares at the acquisition date and the minority interest recorded in Gauss’ statement of operations.

 

Elimination of Corechange’s dividends and interest

   $ 2,563  

Elimination of Gauss’ interest on convertible debt

     197  

Elimination of Gauss’ minority interest

     (149 )
        
   $ 2,611  
        

 

  P. To adjust IXOS presentation to conform to Open Text’s presentation.

 

Cost of revenue – license

   $ (49 )

Cost of revenue – service

     (669 )

Cost of revenue – customer support

     139  
        

Total

     (579 )
        

Sales and marketing expenses

     (2,359 )

Research and development

     (1,805 )

G&A

     (317 )

Other operating expenses

     (560 )

Depreciation

     4,807  

Amortization of acquired intangibles

     813  
        

Total

     579  
        

Net adjustment

     —    
        

 

  Q. To adjust the depreciation of capital assets associated with the IXOS acquisition.

 

Depreciation of capital asset adjustment

   $ 209

Reallocation of depreciation of existing capital assets (see note P)

     4,807
      
   $ 5,016
      

 

  R. To adjust amortization relating to the identifiable intangible assets recorded at the time of the acquisition of IXOS and to reflect the elimination of IXOS’ goodwill amortization as follows:

 

Elimination of IXOS historical intangible asset amortization

   $ (813 )

Amortization of acquired intangible assets relating to IXOS acquisition

     14,949  
        
     14,136  

Re-allocation of IXOS amortization to conform with Open Text’s reporting structure (see note P for adjustment)

     813  
        
   $ 14,949  
        


  S. To adjust IXOS presentation to conform to Open Text’s presentation:

 

Cost of revenue – license

   (18 )

Cost of revenue – service

   (220 )

Cost of revenue – customer support

   (190 )
      

Total cost of sales

   (428 )
      

Sales and marketing expenses

   (811 )

Research and development

   (1,941 )

G&A

   (343 )

Other operating expenses

   (318 )

Depreciation

   2,763  

Amortization of acquired intangibles

   1,078  
      

Total operating expenses

   428  
      

Net adjustment

   —    
      

 

  T. To adjust the depreciation related to the capital assets associated with the IXOS acquisition.

 

  U. To adjust amortization relating to the identifiable intangible assets recorded at the time of the acquisition of Gauss and IXOS and to reflect the elimination of Gauss’ and IXOS’ intangible asset amortization as follows:

 

Elimination of Gauss’ historical intangible asset amortization

   $ (576 )

Amortization of acquired intangible assets relating to Gauss acquisition

     566  
        
   $ (10 )
        

 

Elimination of IXOS’ historical intangible asset amortization

     (1,078 )

Amortization of acquired intangible assets relating to IXOS acquisition

     7,474  
        
   $ 6,396  
        

 

  V. To remove the interest on Gauss’ convertible debt, which was converted to common shares at the merger date and the minority interest recorded in Gauss’ statement of operations.

 

Elimination of Gauss’ interest on convertible debt

   $ 100  

Elimination of Gauss’ minority interest

     (143 )
        
   $ (43 )
        

 

W. To eliminate a portion of deferred revenue using a valuation based on estimated costs and appropriate profit margin to perform the services related to IXOS’ deferred maintenance contracts.


Note 4: Forward-Looking Statements

This document contains forward-looking statements that are based on a number of assumptions and estimates and that involve risks and uncertainties. All statements other than statements of historical fact are forward-looking statements. If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, the actual results or performance of Open Text and its consolidated subsidiaries could differ materially from those expressed or implied by such forward-looking statements.

The risks, uncertainties and assumptions referred to above include the challenges of integration associated with the acquisitions or other planned acquisitions; the inability to achieve anticipated synergies; the costs associated with the acquisitions; the inability to maintain revenues on a combined company basis; employee management issues; the timely development, production and acceptance of products and services; the challenge of managing asset levels and expenses; and the other risks that are described from time to time in Open Text’s Securities and Exchange Commission reports, including but not limited to Open Text’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005.

Open Text assumes no obligation and does not intend to update these forward-looking statements.

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