The board believed this liquidation opportunity would exist because the merger agreement provides that if shares are allocated to shareholders who wanted only cash, Interlinq cannot voluntarily delist from the Nasdaq National Market for six months following the transaction.
And, even if Interlinq is involuntarily delisted, the Interlinq board believed that liquidity would be available to shareholders in the over the counter market;. The Interlinq board arrived at this conclusion because Interlinq had not received any acquisition proposal from any other party in recent years, and because W. During that period of time, any potential bidder could have approached Interlinq with an alternative offer with the knowledge that Interlinq had not entered into any agreement with Terlin and that, therefore, there were no restrictions on Interlinq's ability to consider an alternative proposal and terminate discussions with W.
In addition, the terms of the merger agreement permit Interlinq to abandon the merger if a superior transaction is proposed:. The foregoing discussion of the information and factors discussed by the board is not meant to be exhaustive, but includes all material factors considered by the board. The board did not assign relative weights to the above factors or determine that any factor was of particular importance. Rather, the board viewed its position and recommendations as being based on the totality of the information presented to and considered by it.
However, particular consideration was placed on:. Alternatives Considered by Interlinq's Board. Interlinq's board considered two alternative strategies for maximizing shareholder value. One strategy considered was raising the trading price of the common stock in the near term by increasing exposure to the public markets through equity analyst coverage.
Based on management's ongoing contacts with equity analysts, however, the Interlinq board determined that increased coverage by research analysts was unlikely because Interlinq's relatively small market capitalization, as well as its unique mix of products and services, served as a disincentive to equity analysts to devote time to covering Interlinq's business. The board also considered whether it would be possible to increase shareholder value through an acquisition of Interlinq by a third party.
Revenue from software license agreements with original equipment manufacturers, whereby the Company provides ongoing support over the term of the contract, is generally recognized ratably over the term of the contract. Product Development and Capitalized Software Costs Software development costs incurred in conjunction with product development are charged to product development expense in the period the costs are incurred until technological feasibility is established.
Technological feasibility is established after the completion of a working model. Thereafter, all software product development costs are capitalized and reported at the lower of unamortized cost or net realizable value.
Software costs incurred in conjunction with the acquisition of technologically feasible products developed externally are capitalized and reported at the lower of unamortized cost or net realizable value. Amortization of capitalized software costs begins when the related software is available for general release to customers and is provided for each software product based on the greater of i the ratio of current gross revenues to total current and anticipated future gross revenues for the related software or ii the straight-line method over two to five years, based on the remaining economic life of the software.
Management regularly reviews these estimates and makes adjustments as appropriate. Changes in estimates surrounding technological feasibility and the recoverability of capitalized development costs would likely materially impact the amount of costs capitalized and the period over which the capitalized costs would be amortized to expense.
This analysis includes various analytical procedures and a review of factors, including specific individual balances selected from a cross-section of the accounts that comprise total accounts receivable, our history of collections, as well as the overall economic environment.
Changes in the estimates may materially impact the amount of bad debt expense recorded by the Company. The Company attributes the increase in software license fees for fiscal year to stronger sales environment primarily due to lower mortgage-lending rates and higher refinancing volumes as previously discussed. During fiscal year , the Company announced that it had retained an investment banker to assist in a search for a strategic partner or acquirer. This project was halted in April The increase for fiscal year was due mostly to slightly higher software license fees over the prior year and higher support fees charged for certain products.
Software is deactivated by customers who a need to reduce the number of licensed users or licensed loan capacity due to a change in business conditions, b are acquired by other mortgage lenders using competitive lending technology, c decide to switch to a competitive mortgage lending product or d are going out of business. This fiscal year decrease was primarily due to the absence of a large custom programming project performed during fiscal year Custom programming revenues for fiscal year were greater than in fiscal year but were offset by lower training revenue and document referral fees, associated with lower software license fees for fiscal year Looking forward, the Company is cautiously optimistic that the mortgage-lending volume will remain relatively strong for the foreseeable future.
However, the Company is committed to driving revenue growth through sales of its loan servicing and enterprise application integration products. The Company expects these two offsetting factors to lead to a relatively flat or slightly increased software license fee revenue for fiscal year , until the release of its next-generation loan production system.
Other revenues are expected to remain consistent or increase slightly, due to training and implementation related to the new MortgageWare product, in fiscal year The decrease for fiscal year was primarily due to significantly lower amortization of capitalized software development costs, combined with slightly higher revenues for the fiscal year The increase for fiscal year compared to fiscal year was primarily due to the substantial decrease in software license fee revenue described above combined with a substantial increase in the amortization of capitalized software development costs.
The increases in amortization were due to the shortened estimated useful lives of certain products along with the fact that the Company began to amortize costs associated with certain purchased technology and new products released during fiscal year The decrease for fiscal year was primarily due to significantly lower amortization of capitalized software development costs.
This increase was due primarily to higher amortization of capitalized software development costs for three products. The amortization associated with the MortgageWare Loan Servicing product also increased due to higher development costs, but was partially offset by the write-off of a portion of previously capitalized software development costs in March Also, certain previously purchased technology was amortized beginning in July through March when the remainder of those capitalized costs were written-off.
The Company expects the dollar amount of its amortization of capitalized software development costs to decrease for fiscal year compared to fiscal year due primarily to certain products becoming fully amortized in the past year and in fiscal year Cost of software support fees includes salaries and other costs related to providing telephone support and the purchase, duplication and shipping of disks associated with software updates. The decrease in both fiscal years was due primarily to the cost of software support fees decreasing compounded in fiscal year with increasing support fee revenue.
This decrease was primarily the result of reduced headcount combined with other savings in areas such as travel and telephone expenses. Looking forward, the Company expects the dollar cost of software support fees to increase based on anticipated support for the new MortgageWare product to be released later in fiscal year Cost of other revenues consists primarily of the salaries and non-reimbursable expenses for the employees who provide training, custom programming, data conversions and consulting services.
In fiscal year , the decrease was primarily due to the reduced headcount costs, related travel and telephone expenses based on the Company lay-offs in April The decrease in fiscal year was due primarily to overall cost reductions in training and consulting services, while the other revenues remained unchanged.
Looking forward, the Company expects the cost of other revenues to increase based on implementation needs and training for the new MortgageWare product to be released later in fiscal year The dollar increase for fiscal year consisted of increasing payroll costs for a larger development team, combined with a significant decrease in the amount of capitalized software development costs compared with fiscal year The dollar increase for fiscal year consisted of increasing payroll costs for a larger development team, combined with a decrease in the amount of capitalized software development costs compared with fiscal year Looking forward, the Company believes that product development spending will increase during fiscal year In addition, the Company expects the majority of its product development costs to be related to products that will not meet capitalization requirements.
As such, the Company expects product development expenses, net of amounts capitalized, to rise during fiscal year Sales and marketing expenses also include advertising, direct marketing and trade show expenses.
Also, sales travel and spending for advertising were reduced significantly due to a decision to use more cost-effective sales and marketing tactics. In fiscal year , the full-year of reduced expenses combined with an increase in net revenues resulted in the significant reduction in the percentage of net revenues. For fiscal year , the percentage reduction in sales and marketing expenses generally followed the percentage reduction in total net revenues, therefore, the percentage of expenses to net revenues remained relatively unchanged from the prior year.
The Company expects sales and marketing expenses to increase in fiscal year based on the commissions and increased marketing efforts for the new MortgageWare product. General and administrative expenses include costs associated with finance, accounting, purchasing, order fulfillment, administration and facilities.
The decrease for fiscal year was due primarily to the absence of consulting and professional fees incurred during fiscal year relating to the evaluation of strategic alternatives for the Company and increased revenue for the year.
The increase for fiscal year was attributable to higher payroll costs, professional fees associated with strategic projects and executive recruiting fees. These expenses were combined with a significant decrease in net revenues, resulting in a higher percentage of net revenue than in fiscal year The Company expects general and administrative expenses to remain relatively flat on a dollar basis and improve slightly on a percentage of net revenues basis for fiscal year compared to fiscal year During the third quarter ended March 31, , the Company determined that purchased software intended to be an integral part of the development of its new products no longer had value for that purpose, and that there was not a viable future alternative use.
In addition, the Company determined that the net realizable value of certain of its products was less than the capitalized software assets associated with these products. The Company evaluates the net realizable value of its intangible assets and capitalized software development costs on a periodic basis and makes adjustments to these assets as necessary.
This charge consisted primarily of severance, continued health care benefits and outplacement services for affected employees. As of June 30, , the Company had no interest-bearing debt outstanding, and anticipates no new debt financing in the foreseeable future.
The Company did not record any income tax benefit during fiscal year due to the evaluation of the likelihood of recoverability of these additional deferred tax assets. The effective tax rate was lower for fiscal year , compared to fiscal year , as a result of the valuation allowance on the deferred tax assets.
The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers recent and past financial performance, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
Looking forward, the Company does not expect to record a tax benefit until it believes it can recover the related deferred tax assets. The Company believes that its existing cash, cash equivalents, short-term investments and cash generated by operations will be sufficient to satisfy its currently anticipated cash requirements for fiscal year The Company may be unable to complete such an equity financing, and even if such a financing is successfully completed, it will result in significant dilution to existing shareholders.
The Company currently does not meet these alternative requirements, and it is unlikely that it will do so by November 1, If the Company does not meet the Nasdaq National Market continuing listing requirements, Nasdaq could initiate delisting procedures at any time after November 1, As part of this procedure, the Company believes it will have an opportunity to present a plan for achieving compliance with the Nasdaq National Market continuing listing requirements.
If necessary, the Company will present such a plan. If Nasdaq accepts the plan, the Company would be granted an extension of time to comply. In that event, the Company would likely seek listing of its common stock on the Nasdaq SmallCap Market or the Over-the-Counter Bulletin Board, both of which are viewed by many investors as a less liquid marketplace.
Harland Co. John H. If the merger is completed, the Company will become a wholly owned subsidiary of Harland Financial Solutions, Inc. Accordingly, the Company has called a special meeting of shareholders for October 14, to consider the merger.
Statement No. Specifically identifiable intangible assets acquired, other than goodwill, will be amortized over their estimated useful economic life. The adoption of Statement No. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and or normal use of the asset.
The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement.
The Company adopted the provisions of Statement No. While Statement No. However, it retains the requirement in Opinion No. Among other provisions, Statement No. Accordingly, gains or losses from extinguishment of debt shall not be reported as extraordinary items unless the extinguishment qualifies as an extraordinary item under the criteria of Accounting Principles Board Opinion No.
Gains or losses from extinguishment of debt that do not meet the criteria of APB No. Accordingly, Statement No. Its financial instruments consist of cash and cash equivalents, short-term investments, trade accounts and contracts receivable and accounts payable.
ITEM 8. In connection with our audits of these financial statements, we have also audited the financial statement schedule as listed in the accompanying index. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of INTERLINQ Software Corporation as of June 30, and , and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, , in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
The Company provides business solutions to banks, savings institutions, mortgage banks, mortgage brokers, credit unions and other financial services providers. These solutions coordinate activities across legacy systems, enterprise applications, databases and Internet technologies. The Company sells its products primarily through a direct sales force. At June 30, and , consisted primarily of commercial paper.
The Company classifies investment securities as either available-for-sale or held-to-maturity depending upon its intentions at the time the securities are acquired.
Investments available-for-sale are carried at fair value, with any unrealized holding gains and losses reported as a separate component of other comprehensive income, net of income taxes. Investments held-to-maturity are carried at amortized cost. At June 30, and , the fair value of all securities approximated amortized cost and there were no material unrealized holding gains or losses.
Investments held-to-maturity consist of investment-grade corporate debt securities and have contractual maturities of less than one year. Investments available-for-sale at June 30, consist of money market auction preferred securities. These money market auction preferred securities are perpetual preferred stocks with floating rate dividends that are reset every 49 days. From to , he was the chief representative for northern China at Coca-Cola, Inc. Delafield earned a B.
Consummation of the merger is subject to a number of conditions, including, without limitation:. We expect that if the merger agreement and the merger are not approved by Interlinq shareholders, or if the merger is not consummated for any other reason, Interlinq's current management, under the direction of the Interlinq board, will continue to manage Interlinq as an on-going business.
We are not considering any other transaction as an alternative to the merger. For financial reporting purposes, we expect that the merger and all transactions contemplated by the merger agreement will be accounted for as a leveraged recapitalization.
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