-----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, WGef16Pof+WDYVzTczXTJE2ipotlMnJjknzrEPkduoR5qTsZ18w8woBL/bbTWnVN QHF8VUlUYnHM3Clzsy4dYw== 0000891618-00-000161.txt : 20000202 0000891618-00-000161.hdr.sgml : 20000202 ACCESSION NUMBER: 0000891618-00-000161 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000104 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: E PIPHANY INC CENTRAL INDEX KEY: 0001089613 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 770443392 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-27183 FILM NUMBER: 509683 BUSINESS ADDRESS: STREET 1: 2300 GENG ROAD STREET 2: SUITE 200 CITY: PALO ALTO STATE: CA ZIP: 94303 BUSINESS PHONE: 6504962430 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) January 19, 2000 (January 4, 2000) ---------------------------------- E.piphany, Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 77-0443392 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.)
1900 South Norfolk Street, Suite 310, San Mateo, California 94403 ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (650) 356-3800 -------------- N/A ------------------------------------------------------------- (Former name or former address, if changed since last report) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On November 15, 1999, the Company entered into an Agreement and Plan of Merger and Reorganization, dated as of November 15, 1999 (the "Reorganization Agreement"), by and among E.piphany, Inc., a Delaware Corporation ("Parent"), Yosemite Acquisition Corporation, a Delaware Corporation and a wholly owned subsidiary of Parent ("Sub") and RightPoint Software, Inc., a Delaware Corporation (the "Company"). The closing of the Merger took place on January 4, 2000 and the Merger was consummated by the filing of a Certificate of Merger with the Secretary of State of the State of Delaware. The description contained in this Item 2 of the transactions contemplated by the Reorganization Agreement is qualified in its entirety by reference to the full text of the Reorganization Agreement, a copy of which is attached hereto as Exhibit 2.1. The Reorganization Agreement contemplated that, subject to the satisfaction of certain conditions set forth therein, including without limitation the approval and adoption of the Reorganization Agreement by the requisite vote of the Company's stockholders and the approval of the issuance of E.piphany common stock in the Merger by E.piphany's board, Sub was merged with and into the Company (the "Merger"). As a result of the Merger, the Company became a wholly-owned subsidiary of E.piphany. The Merger was intended to be a tax-free reorganization under the Internal Revenue Code of 1986, as amended, and was intended to be accounted for as a purchase transaction. Under the terms of the Merger, 3,076,830 shares of E.piphany common stock were exchanged for all outstanding shares of RightPoint stock and 477,710 shares of E.piphany common stock were set aside as a reserve for the assumption of RightPoint options and warrants. Each share of RightPoint stock issued and outstanding immediately prior to the closing of the merger was cancelled and converted automatically into a number of shares of E.piphany common stock computed in accordance with the Reorganization Agreement. The Reorganization Agreement provided that at the closing of the merger each issued and outstanding option or right to purchase RightPoint stock, whether or not exercisable, were assumed by E.piphany. Each stock option continued to have the same terms and conditions as it had immediately prior to the closing of the merger, except that the number of shares of E.piphany common stock into which it was exercisable and its exercise price were adjusted according to the same manner as the conversion of RightPoint stock into E.piphany common stock. In connection with the Merger, fifteen percent (15%) of the number of shares of the Company's common stock issuable in respect of the RightPoint stock at the closing of the Merger were placed in escrow with U.S. Bank Trust, N.A. Subject to resolution of unsatisfied claims by E.piphany, on January 4, 2001, the escrow fund will be reduced to an amount equal to 10% of the merger consideration, with the balance of the shares distributed to the former stockholders of RightPoint. Subject to any unresolved claims, the escrow fund and the indemnity will terminate on July 4, 2001, and the remaining shares distributed to the former stockholders of RightPoint. Each RightPoint stockholder was deemed to have contributed into the escrow fund in proportion to the aggregate number of shares of the Company common stock that such stockholder would otherwise have been entitled under the Reorganization Agreement. The escrow fund will be available to compensate the Company for any losses as a result of any inaccuracy in the representations or warranties of RightPoint contained in the Reorganization Agreement or any failure to comply with any covenant contained in the Reorganization Agreement. 1 3 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) FINANCIAL STATEMENTS The financial statements required by paragraph (a) of Item 7 are filed as Exhibit 99.2 to this Form 8-K and hereby incorporated by reference into the text of this Form 8-K. (b) PRO FORMA FINANCIAL INFORMATION The pro forma financial information required by paragraph (b) of Item 7 are filed as Exhibit 99.1 to this Form 8-K and hereby incorporated by reference into the text of this Form 8-K. (c) EXHIBITS. 2.1* Agreement and Plan of Merger and Reorganization, dated November 15, 1999, by and among E.piphany, Inc., Yosemite Acquisition Corporation and RightPoint Software, Inc. 23.1 Consent of KPMG, LLP, Independent Accountants 99.1 E.piphany, Inc.'s Pro Forma Financial Statements 99.2 RightPoint Software, Inc.'s Financial Statements
- ----------- * Previously filed as an exhibit to Registrant's Registration Statement on Form S-4 (File No. 333-92013), declared effective on December 3, 1999, and incorporated herein by reference. 2 4 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. E.PIPHANY, INC. /s/ KEVIN J. YEAMAN -------------------------------------- Kevin J. Yeaman Chief Financial Officer Date: January 19, 2000 3 5 E.PIPHANY, INC. CURRENT REPORT ON FORM 8-K INDEX TO EXHIBITS
Exhibit No. Description - ----------- ----------- 2.1* Agreement and Plan of Merger and Reorganization, dated November 15, 1999, by and among E.piphany, Inc., Yosemite Acquisition Corporation and RightPoint Software, Inc. 23.1 Consent of KPMG, LLP, Independent Accountants 99.1 E.piphany, Inc.'s Pro Forma Financial Statements 99.2 RightPoint Software, Inc.'s Financial Statements
- ----------- * Previously filed as an exhibit to Registrant's Registration Statement on Form S-4 (File No. 333-92013), declared effective on December 3, 1999, and incorporated herein by reference. 4 EX-23.1 2 EX-23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors E.piphany, Inc.: We consent to the use of our report dated September 10, 1999 on the consolidated financial statements of RightPoint Software, Inc. and subsidiary as of June 30, 1998 and 1999 and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for the years then ended included in Form 8-K of E.piphany, Inc. to be filed on or about January 18, 2000. /s/ KPMG LLP Mountain View, California January 18, 2000 EX-99.1 3 EX-99.1 1 Exhibit 99.1 E.PIPHANY, INC. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements give effect to the acquisition by E.piphany, Inc. of all outstanding shares of RightPoint Software, Inc. in a transaction accounted for as a purchase. The pro forma combined condensed statements of operations of E.piphany for the twelve months ended December 31, 1998 and for the nine months ended September 30, 1999 assume that the acquisition of RightPoint took place as of the beginning of the earliest period presented. The statements combine E.piphany's and RightPoint's statements of operations for the twelve months ended December 31, 1998 and for the nine months ended September 30, 1999, respectively. The pro forma combined condensed balance sheet as of September 30, 1999 combines E.piphany's September 30, 1999 balance sheet with RightPoint's September 30, 1999 balance sheet as if the acquisition had been consummated on that date. The unaudited pro forma combined condensed information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have actually occurred if the acquisition had been consummated as of the dates indicated, nor is it necessarily indicative of future operating results or financial position. The pro forma adjustments are based on the information available at the date of this filing and are subject to change based upon completion of the transaction and final purchase price allocation, including completion of third party appraisals. E.piphany's condensed financial information included in these pro forma financial statements is derived from its December 31, 1998 and September 30, 1999 audited financial statements included elsewhere in this filing. RightPoint's condensed balance sheet included in the accompanying pro forma unaudited combined condensed balance sheet is derived from its unaudited historical consolidated balance sheet as of September 30, 1999 included elsewhere in this filing. The results of operations of RightPoint included in the unaudited pro forma condensed combined statements of operations of the year ended December 31, 1998 and the nine months ended September 30, 1999 were derived from its financial statements for the same periods that have not been included in this filing. The unaudited condensed financial information of RightPoint has been prepared in accordance with generally accepted accounting principles applicable to interim financial information and, in the opinion of RightPoint's management, includes all adjustments necessary for a fair presentation of the financial information for such interim periods. P-1 2 E.PIPHANY, INC. PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1999 (IN THOUSANDS)
PRO FORMA PRO FORMA E.PIPHANY RIGHTPOINT ADJUSTMENTS COMBINED --------- ---------- ----------- --------- ASSETS Current assets: Cash and cash equivalents....................... $ 89,701 $ 4,229 $ -- $ 93,930 Short term investments.......................... -- 1,454 -- 1,454 Accounts receivable, net........................ 3,193 1,119 -- 4,312 Prepaid expenses and other assets............... 2,155 236 -- 2,391 -------- -------- -------- -------- Total current assets.................... 95,049 7,038 -- 102,087 Property and equipment, net..................... 2,442 643 -- 3,085 Goodwill and purchased intangibles.............. -- -- 471,958(A) 471,958 Other assets.................................... 485 1 -- 486 -------- -------- -------- -------- Total assets............................ $ 97,976 $ 7,682 $471,958 $577,616 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of capital lease obligation..... $ 88 $ 243 $ -- $ 331 Current portion of notes payable................ 629 -- -- 629 Repayable grant................................. -- 130 -- 130 Trade accounts payable.......................... 1,587 830 -- 2,417 Accrued liabilities............................. 4,442 372 7,750(B) 12,564 Deferred revenue................................ 2,538 364 -- 2,902 -------- -------- -------- -------- Total current liabilities............... 9,284 1,939 7,750 18,973 Capital lease obligations, net of current portion...................................... 93 38 -- 131 Notes payable, net of current portion........... 7,737 -- -- 7,737 -------- -------- -------- -------- Total liabilities....................... 17,114 1,977 7,750 26,841 -------- -------- -------- -------- Stockholders' equity: Convertible preferred stock..................... -- 155 (155)(B) -- Common stock.................................... 5 12 (12)(B) 5 Additional paid-in capital...................... 113,781 32,408 459,505(B) 605,694 Warrants to purchase preferred stock............ 532 -- -- 532 Note receivable................................. (640) -- -- (640) Deferred compensation........................... (3,202) (3,153) 3,153(B) (3,202) Accumulated other comprehensive income.......... -- 81 (81)(B) -- Accumulated deficit............................. (29,614) (23,798) 1,798(B) (51,614) -------- -------- -------- -------- Total stockholders' equity.............. 80,862 5,705 464,208 550,775 -------- -------- -------- -------- Total liabilities and stockholders' equity................................ $ 97,976 $ 7,682 $471,958 $577,616 ======== ======== ======== ========
P-2 3 E.PIPHANY, INC. PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA PRO FORMA E.PIPHANY RIGHTPOINT ADJUSTMENTS COMBINED --------- ---------- ----------- --------- Revenues: Product license................................ $ 2,216 $ 952 $ -- $ 3,168 Services....................................... 1,161 337 -- 1,498 -------- ------- --------- --------- Total revenues......................... 3,377 1,289 -- 4,666 -------- ------- --------- --------- Cost of revenues: Product license................................ 4 24 -- 28 Services....................................... 1,396 103 -- 1,499 -------- ------- --------- --------- Total cost of revenues................. 1,400 127 -- 1,527 -------- ------- --------- --------- Gross profit..................................... 1,977 1,162 -- 3,139 -------- ------- --------- --------- Operating expenses: Research and development....................... 3,769 2,548 -- 6,317 Sales and marketing............................ 6,519 2,769 -- 9,288 General and administrative..................... 1,503 1,275 -- 2,778 Amortization of goodwill and intangibles....... -- -- 157,319(C) 157,319 Stock-based compensation....................... 799 -- -- 799 -------- ------- --------- --------- Total operating expenses............... 12,590 6,592 157,319 176,501 -------- ------- --------- --------- Loss from operations............................. (10,613) (5,430) (157,319) (173,362) Other income (expense)........................... 283 (106) -- 177 -------- ------- --------- --------- Net loss............................... $(10,330) $(5,536) $(157,319) $(173,185) ======== ======= ========= ========= Basic and diluted net loss per share............. $ (7.19) $ (6.47) $ (112.53) ======== ======= ========= Shares used in computing basic and diluted net loss per share................................. 1,437 855 1,539 ======== ======= ========= Pro forma basic and diluted net loss per share... $ (1.17) $ (0.45) $ (16.85) ======== ======= ========= Shares used in computing pro forma basic and diluted net loss per share..................... 8,833 12,186 10,281 ======== ======= =========
P-3 4 E.PIPHANY, INC. PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA PRO FORMA E.PIPHANY RIGHTPOINT ADJUSTMENTS COMBINED --------- ---------- ----------- --------- Revenues: Product license................................... $ 5,633 $ 2,892 $ -- $ 8,525 Services........................................ 4,835 909 -- 5,744 -------- ------- --------- --------- Total revenues.......................... 10,468 3,801 -- 14,269 -------- ------- --------- --------- Cost of revenues: Product license................................. 83 3 -- 86 Services........................................ 5,445 636 -- 6,081 -------- ------- --------- --------- Total cost of revenues.................. 5,528 639 -- 6,167 -------- ------- --------- --------- Gross profit...................................... 4,940 3,162 -- 8,102 -------- ------- --------- --------- Operating expenses: Research and development........................ 4,722 2,213 -- 6,935 Sales and marketing............................. 11,576 3,410 -- 14,986 General and administrative...................... 2,546 1,162 -- 3,708 Amortization of goodwill and intangibles........ -- -- 117,990(C) 117,990 Stock-based compensation........................ 2,314 500 -- 2,814 -------- ------- --------- --------- Total operating expenses................ 21,158 7,285 117,990 146,433 -------- ------- --------- --------- Loss from operations.............................. (16,218) (4,123) (117,990) (138,331) Other income (expense)............................ 83 216 -- 299 -------- ------- --------- --------- Net loss................................ $(16,135) $(3,907) $(117,990) $(138,032) ======== ======= ========= ========= Basic and diluted net loss per share.............. $ (2.90) $ (3.71) $ (24.27) ======== ======= ========= Shares used in computing basic and diluted net loss per share.................................. 5,563 1,054 5,688 ======== ======= ========= Pro forma basic and diluted net loss per share.... $ (1.00) $ (0.20) $ (7.45) ======== ======= ========= Shares used in computing pro forma basic and diluted net loss per share...................... 16,197 19,701 18,537 ======== ======= =========
P-4 5 NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION The total purchase price of RightPoint reflects the issuance of approximately 3,077,000 shares of our common stock and the assumption of options and warrants to purchase approximately 530,000 shares of our common stock. The total purchase price was determined as follows (in thousands): Value of E.piphany common stock, options and warrants....... $491,913 Other direct acquisition expenses........................... 7,750 -------- $499,663 ========
The valuation of our common stock is based on its weighted average closing price three days prior to and three days following the announcement of the acquisition. The valuation of options and warrants to purchase our common stock is based upon the Black-Scholes valuation model. The total purchase price of the RightPoint acquisition has been allocated to acquired assets based on estimates of their fair values. The purchase price of approximately $499.7 million has been assigned to the assets acquired as follows (in thousands): Tangible net assets acquired................................ $ 5,705 Acquired in-process research and development................ 22,000 Assembled work force and customer list...................... 4,100 Developed technology........................................ 35,000 Goodwill.................................................... 432,858 -------- $499,663 ========
We expect to allocate approximately $22.0 million of the purchase price to RightPoint's in-process research and development, which will be expensed upon consummation of the merger as it has not reached technological feasibility and, in the opinion of management, has no alternative future use. The estimated amount is subject to adjustment based upon completion of third party appraisals. This amount has not been reflected in the accompanying pro forma statements of operations as it is a nonrecurring charge, but has been reflected as an adjustment to accumulated deficit in the accompanying pro forma balance sheet. The adjustments to the pro forma combined condensed balance sheet as of September 30, 1999 are as follows: (A) To reflect goodwill and other intangibles of approximately $472.0 million resulting from the acquisition of RightPoint. (B) To reflect the purchase price paid as follows: issuance of our common stock, options and warrants valued at approximately $491.9 million and acquisition-related expenses of approximately $7.8 million. The adjustments to the pro forma combined condensed statements of operations for the year ended December 31, 1998 and for the nine months ended September 30, 1999 assume the acquisition occurred as of January 1, 1998 and are as follows: (C) To reflect the amortization of approximately $472.0 million of estimated goodwill and other intangibles resulting from the acquisition. The intangible assets will be amortized ratably over an estimated useful life of three years. P-5 EX-99.2 4 EX-99.2 1 Exhibit 99.2 RIGHTPOINT SOFTWARE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report................................ F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations and Comprehensive Loss...................................................... F-4 Consolidated Statements of Stockholders' Equity............. F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 2 INDEPENDENT AUDITORS' REPORT The Board of Directors RightPoint Software, Inc.: We have audited the accompanying consolidated balance sheets of RightPoint Software, Inc. and subsidiary (the Company) as of June 30, 1998 and 1999, and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of RightPoint Software, Inc. and subsidiary as of June 30, 1998 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. KPMG LLP SIGNATURE Mountain View, California September 10, 1999 F-2 3 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, ------------------- SEPTEMBER 30, 1998 1999 1999 -------- -------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 1,002 $ 4,307 $ 4,229 Short-term investments.................................... -- 3,769 1,454 Accounts receivable, net of allowance of $0, $15 and $15 at June 30, 1998, 1999 and September 30, 1999, respectively........................................... 145 728 1,119 Prepaid expenses and other current assets................. 163 153 236 -------- -------- -------- Total current assets.............................. 1,310 8,957 7,038 Property and equipment, net................................. 395 265 643 Other assets................................................ 39 1 1 -------- -------- -------- $ 1,744 $ 9,223 $ 7,682 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable............................................. $ 140 $ -- $ -- Accounts payable.......................................... 395 464 830 Accrued liabilities....................................... 201 406 372 Deferred revenue.......................................... 66 249 364 Repayable grant........................................... 330 236 130 Current portion of capital lease obligation............... 229 244 243 -------- -------- -------- Total current liabilities......................... 1,361 1,599 1,939 Capital lease obligation, less current portion.............. 318 94 38 Commitments Stockholders' equity: Convertible preferred stock, $0.01 par value; shares authorized, issued, and outstanding: Series A, 2,047 shares with liquidation preference of $1,822 as of June 30, 1998 and 1999 and September 30, 1999,........................................... 20 20 20 Series B, 1,482 shares with liquidation preference of $3,365 as of June 30, 1998 and 1999 and September 30, 1999............................................ 15 15 15 Series C, 1,673 shares with liquidation preference of $7,412 as of June 30, 1998 and 1999 and September 30, 1999............................................ 17 17 17 Series D, 2,174 shares with liquidation preference of $5,000 as of June 30, 1998 and 1999 and September 30, 1999............................................ 22 22 22 Series E, 8,100 shares with liquidation preference of $-0- as of June 30, 1998 and $11,178 as of June 30 and September 30, 1999, respectively................ -- 81 81 Common stock, $0.01 par value; 25,000, 25,000 and 30,000 shares authorized; 957, 1,108 and 1,157 shares issued and outstanding at June 30, 1998 and 1999 and September 30, 1999, respectively................................. 10 11 12 Additional paid-in capital................................ 17,537 28,708 32,408 Notes receivable from stockholders........................ (36) -- -- Deferred compensation..................................... -- -- (3,153) Accumulated other comprehensive income.................... 103 89 81 Accumulated deficit....................................... (17,623) (21,433) (23,798) -------- -------- -------- Total stockholders' equity........................ 65 7,530 5,705 -------- -------- -------- $ 1,744 $ 9,223 $ 7,682 ======== ======== ========
See accompanying notes to consolidated financial statements. F-3 4 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (IN THOUSANDS, EXCEPT IN PER SHARE DATA)
YEAR ENDED THREE MONTHS ENDED JUNE 30, SEPTEMBER 30, ------------------ ------------------ 1998 1999 1998 1999 ------- ------- ------- ------- (UNAUDITED) Revenues: License............................................. $ 428 $ 2,819 $ 456 $ 933 Service........................................... 378 728 60 356 ------- ------- ------- ------- Total revenues................................. 806 3,547 516 1,289 Cost of revenues: License........................................... 46 10 -- 3 Service........................................... 90 208 9 456 ------- ------- ------- ------- Total cost of revenues......................... 136 218 9 459 ------- ------- ------- ------- Gross margin................................... 670 3,329 507 830 Operating expenses: Research and development.......................... 2,474 2,616 592 808 Selling and marketing............................. 3,007 3,301 547 1,489 General and administrative........................ 1,221 1,323 272 432 Stock-based compensation.......................... -- -- -- 500 ------- ------- ------- ------- Total operating expenses....................... 6,702 7,240 1,411 3,229 ------- ------- ------- ------- Loss from operations........................... (6,032) (3,911) (904) (2,399) Interest income..................................... 187 188 22 22 Interest expense.................................... (123) (197) (52) (52) Other income and expenses, net...................... (60) 110 -- 64 ------- ------- ------- ------- Net loss....................................... (6,028) (3,810) (934) (2,365) Other comprehensive income (loss): Currency translation adjustment................... 49 (14) (79) (8) ------- ------- ------- ------- Net comprehensive loss......................... $(5,979) $(3,823) $(1,013) $(2,373) ======= ======= ======= ======= Basic and diluted net loss per share................ $(10.48) $ (3.83) $ (1.79) $ (2.12) ======= ======= ======= ======= Weighted average shares used in computing basic and diluted net loss per share........................ 575 995 522 1,118 ======= ======= ======= ======= Pro forma basic and diluted net loss per share...... $ (0.24) $ (0.08) $ (0.12) ======= ======= ======= Weighted average shares used in computing pro forma basic and diluted net loss per share.............. 15,788 11,853 20,549 ======= ======= =======
See accompanying notes to consolidated financial statements. F-4 5 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1998 AND 1999, AND THE THREE MONTHS ENDED SEPTEMBER 30, 1999 (IN THOUSANDS) (INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED)
CONVERTIBLE NOTES ACCUMULATED PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE OTHER --------------- --------------- PAID-IN FROM DEFERRED COMPREHENSIVE SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION INCOME ------ ------ ------ ------ ---------- ------------ ------------ ------------- Balances as of June 30, 1997....... 5,202 $ 52 1,102 $11 $12,601 $(131) -- $55 Issuance of Series D preferred stock, net of issuance costs of $43................................ 2,174 22 -- -- 4,935 -- -- -- Issuance of common stock on exercise of options.............. -- -- 85 1 19 -- -- -- Repurchase of common stock......... -- -- (441) (4) (65) 95 -- -- Issuance of common stock........... -- -- 211 2 47 -- -- -- Currency translation adjustment.... -- -- -- -- -- -- -- 48 Net loss........................... -- -- -- -- -- -- -- -- ------ ---- ----- --- ------- ----- ------ --- Balances as of June 30, 1998....... 7,376 74 957 10 17,537 (36) -- 103 Issuance of Series E preferred stock for cash and on conversion of debt, net of issuance costs of $31.............................. 8,100 81 -- -- 11,119 -- -- -- Issuance of common stock on exercise of options.............. -- -- 166 1 40 -- -- -- Repurchase of common stock......... -- -- (21) -- (3) -- -- -- Issuance of common stock and warrants in exchange for services......................... -- -- 6 -- 15 -- -- -- Repayment of notes receivable from stockholders..................... -- -- -- -- -- 36 -- -- Currency translation adjustment.... -- -- -- -- -- -- -- (14) Net loss........................... -- -- -- -- -- -- -- -- ------ ---- ----- --- ------- ----- ------ --- Balances as of June 30, 1999....... 15,476 155 1,108 11 28,708 -- -- 89 Issuance of common stock on exercise of options (unaudited)...................... -- -- 34 1 7 -- -- -- Issuance of common stock and warrants in exchange for services (unaudited)...................... -- -- 15 -- 40 -- -- -- Deferred stock compensation (unaudited)...................... -- -- -- -- 3,653 -- (3,653) -- Amortization of deferred stock compensation (unaudited)......... -- -- -- -- -- -- 500 -- Currency translation adjustment (unaudited)...................... -- -- -- -- -- -- -- (8) Net loss (unaudited)............... -- -- -- -- -- -- -- -- ------ ---- ----- --- ------- ----- ------ --- Balances as of September 30, 1999 (unaudited)...................... 15,476 $155 1,157 $12 $32,408 $ -- (3,153) $81 ====== ==== ===== === ======= ===== ====== === TOTAL ACCUMULATED STOCKHOLDERS' DEFICIT EQUITY ----------- ------------- Balances as of June 30, 1997....... $(11,595) $ 993 Issuance of Series D preferred stock, net of issuance costs of $43................................ -- 4,957 Issuance of common stock on exercise of options.............. -- 20 Repurchase of common stock......... -- 26 Issuance of common stock........... -- 49 Currency translation adjustment.... -- 48 Net loss........................... (6,028) (6,028) -------- ------- Balances as of June 30, 1998....... (17,623) 65 Issuance of Series E preferred stock for cash and on conversion of debt, net of issuance costs of $31.............................. -- 11,200 Issuance of common stock on exercise of options.............. -- 41 Repurchase of common stock......... -- (3) Issuance of common stock and warrants in exchange for services......................... -- 15 Repayment of notes receivable from stockholders..................... -- 36 Currency translation adjustment.... -- (14) Net loss........................... (3,810) (3,810) -------- ------- Balances as of June 30, 1999....... (21,433) 7,530 Issuance of common stock on exercise of options (unaudited)...................... -- 8 Issuance of common stock and warrants in exchange for services (unaudited)...................... -- 40 Deferred stock compensation (unaudited)...................... -- -- Amortization of deferred stock compensation (unaudited)......... -- 500 Currency translation adjustment (unaudited)...................... -- (8) Net loss (unaudited)............... (2,365) (2,365) -------- ------- Balances as of September 30, 1999 (unaudited)...................... $(23,798) $ 5,705 ======== =======
See accompanying notes to consolidated financial statements. F-5 6 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS YEAR ENDED ENDED JUNE 30, SEPTEMBER 30, ----------------- ----------------- 1998 1999 1998 1999 ------- ------- ------- ------- (UNAUDITED) Cash flows from operating activities: Net loss.................................................... $(6,028) $(3,810) $ (934) $(2,365) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................... 257 232 62 5 Issuance of common stock and warrants for services...... 41 15 -- 40 Stock-based compensation................................ -- -- -- 500 Provision for returns and doubtful accounts............. -- 15 -- -- Loss on disposal of property and equipment.............. 43 6 -- 18 Proceeds from sale of short-term investments............ 1,021 -- -- 2,315 Purchases of short-term investments..................... -- (3,769) -- -- Changes in operating assets and liabilities: Accounts receivable................................... 141 (599) (369) (391) Prepaid expenses and other assets..................... 31 48 44 (83) Accounts payable...................................... 205 69 (154) 366 Accrued liabilities................................... (573) 205 3 (34) Deferred revenue...................................... (15) 183 6 114 ------- ------- ------- ------- Net cash provided by (used in) operating activities....................................... (4,877) (7,405) (1,342) 485 ------- ------- ------- ------- Cash flows from investing activities: Purchases of property and equipment....................... -- (109) (16) (417) Proceeds from sale of property and equipment.............. -- 1 -- 17 Other long-term assets.................................... 31 -- -- -- ------- ------- ------- ------- Net cash provided by (used in) investing activities....................................... 31 (108) (16) (400) ------- ------- ------- ------- Cash flows from financing activities: Repayment of capital lease obligation..................... (203) (209) (55) (57) Repayment of repayable grant.............................. (260) (94) 26 (106) Proceeds from bridge loan................................. 138 1,890 1,890 -- Repayment of bridge loan.................................. (17) (2) -- -- Repayment of notes receivable from stockholders........... 29 36 -- -- Net proceeds from issuance of common stock................ 24 42 1 8 Repurchases of common stock............................... -- (3) (3) -- Net proceeds from issuance of preferred stock............. 4,956 9,172 -- -- ------- ------- ------- ------- Net cash provided (used in) by financing activities....................................... 4,667 10,832 1,859 (155) ------- ------- ------- ------- Effect of foreign currency exchange rates on cash and cash equivalents............................................... 31 (14) (79) (8) ------- ------- ------- ------- Net increase (decrease) in cash and cash equivalents........ (148) 3,305 422 (78) Cash and cash equivalents at beginning of period............ 1,150 1,002 1,002 4,307 ------- ------- ------- ------- Cash and cash equivalents at end of period.................. $ 1,002 $ 4,307 $ 1,424 $ 4,229 ======= ======= ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period: Income taxes............................................ $ 3 $ 2 $ -- $ -- ======= ======= ======= ======= Interest................................................ $ 102 $ 66 $ 12 $ 12 ======= ======= ======= ======= Noncash financing and investing activities: Issuance of preferred stock on conversion of debt....... $ -- $ 138 $ -- $ -- ======= ======= ======= ======= Property and equipment recorded under capital lease..... $ 76 $ -- $ -- $ -- ======= ======= ======= ======= Repurchase of common stock for promissory notes......... $ 66 $ -- $ -- $ -- ======= ======= ======= =======
See accompanying notes to consolidated financial statements. F-6 7 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) (1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) DESCRIPTION OF THE COMPANY RightPoint Software, Inc. was originally incorporated under the laws of France in 1991. The Company was reincorporated under the laws of California in October 1995 and reincorporated under the laws of Delaware in July 1997. The Company designs, develops, markets, and supports real-time marketing software for business environments. The Company operates as one business segment. (b) PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary, RightPoint Software France SARL (formerly neurOagent, S.A.). All significant intercompany accounts and transactions have been eliminated. (c) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents as of September 30, 1999, June 30, 1999 and 1998 consisted primarily of money market funds, recorded at cost, which approximates fair value. The Company classifies its investments as trading and records them at fair market value. (d) SOFTWARE DEVELOPMENT COSTS Statement of Financial Accounting Standard ("SFAS") No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed", requires the capitalization of software development costs once technological feasibility has been established. Software development costs are included in research and development and expensed as incurred. To date, no software development costs have been capitalized after technological feasibility was reached, as such costs have not been significant. (e) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging from three to five years. Equipment recorded under capital lease and leasehold improvements are amortized using the straight-line method over the shorter of the lease-term or estimated useful life of the asset. (f) REVENUE RECOGNITION Revenues consist of fees for licenses of the Company's software products, maintenance, support, consulting, and training. License revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable and collectibility is probable. Maintenance and support revenues are recognized ratably over the term of the contract, which is generally 12 months. Revenues from consulting and training are recognized when the services are performed. F-7 8 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) (g) FOREIGN CURRENCY The functional currency of the Company's French subsidiary is the local currency. All foreign assets and liabilities are translated into U.S. dollars at the current exchange rates as of the applicable balance sheet date. Revenues and expenses are translated at the average exchange rate prevailing during the period. Gains and losses resulting from the translation of the subsidiary's financial statements are reported as cumulative translation adjustment as a component of accumulated other comprehensive income in stockholders' equity. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and were not significant during any of the periods presented. (h) USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (i) CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. The Company maintains its cash and cash equivalents in commercial checking and money market accounts with high-quality financial institutions. As of and for the year ended June 30, 1998, two customers comprised 21% and 20%, respectively, of revenue and 0% and 16%, respectively, of accounts receivable. As of and for the year ended June 30, 1999, three customers comprised approximately 41%, 13% and 12%, respectively of revenue and 5%, 52% and 0%, respectively, of accounts receivable. As of and for the three months ended September 30, 1999, four customers comprised 42%, 20%, 14%, and 10%, respectively, of revenue and 58%, 0%, 18%, and 12%, respectively of accounts receivable. (j) INCOME TAXES Income taxes are computed using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the current enacted tax rates and laws. (k) STOCK-BASED COMPENSATION The Company accounts for its stock-based compensation using the intrinsic-value method prescribed in the Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company provides additional pro forma disclosures as required under SFAS No. 123, Accounting for Stock-Based Compensation. F-8 9 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) (l) COMPREHENSIVE INCOME AND LOSS Comprehensive loss consists of net loss and foreign currency translation adjustments, and is presented in the accompanying consolidated statements of operations and comprehensive loss. Accumulated other comprehensive loss consists entirely of cumulative foreign currency translation adjustments. No tax effects have been recorded. (m) COMPUTATION OF NET LOSS PER SHARE Basic net loss per common share has been computed using the weighted average number of shares of common stock outstanding during the period, less shares subject to repurchase. Basic and diluted pro forma net loss per common share, as presented in the statements of operations, has been computed as described above and also gives effect to the conversion of the convertible preferred stock (using the if-converted method) from the original date of issuance. Calculations of historical and pro forma net loss per share are as follows (in thousands):
YEAR ENDED THREE MONTHS ENDED JUNE 30, SEPTEMBER 30, ------------------ ------------------ 1998 1999 1998 1999 ------- ------- ------- ------- (UNAUDITED) HISTORICAL Net loss............................................ $(6,028) $(3,810) $ (934) $(2,365) Basic and diluted: Weighted average shares of common stock outstanding.................................... 1,047 1,023 947 1,142 Less: Weighted average shares subject to repurchase..................................... 472 47 425 24 ------- ------- ------- ------- Weighted average shares used in computing basic and diluted net loss per common share................. 575 976 522 1,118 ======= ======= ======= ======= Basic and diluted net loss per common share....... $(10.48) $ (3.90) $ (1.79) $ (2.12) ======= ======= ======= ======= PRO FORMA Net loss.......................................... $(6,028) $(3,810) $ (934) $(2,365) ======= ======= ======= ======= Shares used above................................. 575 976 522 1,118 Pro forma adjustment to reflect weighted effect of assumed conversion of convertible preferred stock.......................................... 14,793 11,331 19,431 ------- ------- ------- Shares used in computing pro forma basic and diluted net loss per common share.............. 15,769 11,853 20,549 ======= ======= ======= Pro forma basic and diluted net loss per common share.......................................... $ (0.24) $ (0.08) $ (0.12) ======= ======= =======
The Company has excluded all convertible preferred stock, warrants for convertible preferred stock, outstanding stock options, and shares subject to repurchase from the calculation of diluted net loss per common share because all such securities are antidilutive for all periods presented. The total number of shares excluded from the calculations of diluted net loss per share were approximately 15,098,000, 25,671,000, 26,878,000, and 14,857,000 for the years ended June 30, 1998 and 1999 and the three months ended September 30, 1998 and 1999, respectively. F-9 10 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) Pro forma diluted net loss per share gives effect to the conversion of convertible preferred stock. However, outstanding warrants, stock option, and shares subject to repurchase have been excluded from the calculations of pro forma diluted net loss per share because all such securities are antidilutive for all periods presented. The total number of shares excluded from the calculations of pro forma diluted net loss per share were approximately 6,239,000, 3,526,000 and 7,447,000 for the year ended June 30, 1999 and the three months ended September 30, 1998 and 1999, respectively. (n) NEW ACCOUNTING PRONOUNCEMENTS SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. For a derivative not designated as a hedging instrument, changes in the fair value of the derivative are recognized in earnings in the period of change. SFAS No. 133, as amended by SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133" is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Management does not believe the adoption of SFAS No. 133 will have a material effect on the Company's consolidated financial position. (2) PROPERTY AND EQUIPMENT Property and equipment as of June 30, 1998 and 1999 and September 30, 1999, consisted of the following (in thousands):
JUNE 30, JUNE 30, SEPTEMBER 30, 1998 1999 1999 -------- -------- ------------- Computer equipment and software............................. $478 $507 $ 604 Furniture, fixtures, and office equipment................... 289 312 528 Leasehold improvements...................................... 32 32 92 ---- ---- ------ 799 851 1,224 Less accumulated depreciation and amortization.............. 404 586 581 ---- ---- ------ $395 $265 $ 643 ==== ==== ======
The cost of assets recorded under capital leases included in property and equipment is approximately $723,000 as of June 30, 1998 and 1999 and September 30, 1999. The accumulated amortization associated with these assets was $363,000, $547,000, and $618,000 for the years ended June 30, 1998 and 1999 and the quarter ended September 30, 1999, respectively. Amortization of assets recorded under capital leases is included in depreciation and amortization expense. (3) LEASE COMMITMENTS The Company leases its main U.S. facilities under an operating lease agreement expiring in August 2004 and leases its facilities in France under an operating lease expiring in December 2004. In addition, the Company leases certain equipment under operating and capital lease agreements. F-10 11 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) Future minimum lease payments under capital and noncancelable operating leases as of June 30, 1999 are as follows (in thousands):
YEARS ENDING CAPITAL OPERATING JUNE 30, LEASES LEASES ------------ ------- --------- 2000........................................................ $ 289 $106 2001........................................................ 82 7 2002........................................................ 20 1 Thereafter.................................................. -- -- ----- ---- Total minimum lease payments................................ 391 $114 ==== Less amount representing imputed interest................... (53) ----- Present value of minimum lease payment...................... 338 Less current portion........................................ (244) ----- Long-term portion of capital lease obligation............... $ 94 =====
Rent expense from operating leases was approximately $417,000, $540,000 and $180,000 for the years ended June 30, 1998 and 1999 and the quarter ended September 30, 1999, respectively. In July, 1999 the Company signed a five year lease agreement for its main U.S. facilities. Annual rent is approximately $891,000 in the first year with annual incremental increases to $1,042,000 in the fifth year. The lease expires in August 2004. (4) FINANCING ARRANGEMENTS REPAYABLE GRANT AGREEMENTS As of June 30, 1998 and 1999 and September 30, 1999, the Company had $330,000, $236,000 and $130,000 respectively, outstanding in the form of an interest-free repayable grant from a French organization. Under the grant agreement, payment is due in fiscal 2000. NOTE PAYABLE As of June 30, 1998, the Company had a balance outstanding of approximately $140,000 under a bridge loan agreement that was signed in conjunction with a convertible debt offering. All outstanding debt was subsequently converted into Series E Preferred Stock in January 1999. LEASE AGREEMENT As of September 30, 1999, the Company had a lease line of credit available up to a minimum commitment amount of $400,000 and $100,000 for the financing of equipment and leasehold improvements, respectively. Upon request and formal approval by the Lessor, these lines would be extended for an additional $400,000 and $100,000, respectively. As of September 30, 1999 there was no outstanding balance under this line of credit. F-11 12 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) (5) STOCKHOLDERS' EQUITY (A) CONVERTIBLE PREFERRED STOCK The rights, preferences, and privileges of the preferred stock are as follows: - The holders of Series A, B, C, D, and E preferred stock are entitled to receive noncumulative annual dividends at the rate of $0.07, $0.18, $0.35, $0.18, and $0.11 per share, respectively, with certain adjustments for stock splits, stock dividends, recapitalization, and similar events, when and if declared by the Board of Directors, in preference and priority to any payment of dividends to holders of common stock. The liquidation preference for the Series A, B, C, D, and E preferred stock is $0.89, $2.27, $4.43, $2.30, and $1.38 per share, respectively, plus all declared but unpaid dividends. If the assets are insufficient to make payments in full to all holders of preferred stock, assets will be distributed ratably among the holders of preferred stock in proportion to the full amounts to which they would have otherwise been entitled. Any remaining assets shall be distributed ratably among the holders of common and preferred stock on an "as if converted" basis until such time that aggregate distributions to holders of Series A, B, C, D, and E preferred stock equals $1.78, $4.54, $8.86, $6.90, and $4.14 per share, respectively. After that time, any remaining assets will be distributed on a pro rata basis to the holders of common stock and preferred stock, based on the number of shares of common stock held by each, assuming conversion of all preferred stock. - At June 30, 1999, each share of Series A, B, C, D and E preferred stock is convertible into 1.51, 1.55, 2.00, 1.20, and 1.00 shares of common stock subject to future adjustments for antidilution. Each share of preferred stock will automatically convert into one share of common stock, subject to certain adjustments for antidilution, upon the closing of an underwritten public offering with a per share price reflecting a valuation of the Company of at least $50,000,000, and with gross proceeds of at least $20,000,000 or the role of two-thirds of the holders of the preferred stocks, voting together. - The holders of preferred stock have voting rights on an "as if converted" basis. - The holders of preferred stock have certain registration rights and a right of first offer in future rounds of financing under certain conditions. The Company has reserved 19,431,358 shares of common stock for the conversion of the preferred stock. (B) STOCK-BASED COMPENSATION In connection with the grant of stock options and the sale of common stock to certain employees during the three months ended September 30, 1999, the Company recorded deferred compensation of approximately $3,700,000, representing the difference between the fair value of the common stock and the option exercise price or stock sale price at the date of the option grant or stock sale. Such amount is presented as a reduction of stockholders' equity and amortized over the vesting period of the applicable options in a manner consistent with Financial Accounting Standards Board Interpretation No. 28. Approximately $500,000 was expensed during the three months ended September 30, 1999. F-12 13 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) (C) STOCK OPTION PLANS The Company adopted stock option plans in October 1995 and July 1996 that provide for the issuance of incentive and nonstatutory options to purchase shares of common stock. As of June 30, 1999, the Company has reserved 1,978,176 and 5,458,612 shares of common stock for issuance under the 1995 and 1996 plans, respectively. Nonstatutory options may be granted to employees and consultants and incentive options to employees. Options have a term no greater than 10 years and generally vest 25% at the end of the first year and at a rate of 1/48 per month thereafter. Options granted under the 1995 and 1996 plans may be exercised prior to being fully vested. However exercised and unvested shares are subject to repurchase by the Company at the exercise price. The Company's repurchase right decreases as shares vest under the original option terms. As of June 30, 1998, 1999, and September 30, 1999 the number of shares outstanding and subject to repurchase were 466,650, 31,169 and 27,487, respectively. Vesting of certain options accelerates in full upon a change in control of the Company. Nonstatutory options are exercisable at a price not less than 85% of fair market value of the stock at the date of grant, as determined by the Company's Board of Directors, unless they are granted to an individual who owns more than 10% of the voting rights of all classes of stock, in which case the exercise price shall be no less than 110% of the fair market value. Incentive stock options are exercisable at a price not less than 100% of fair market value of the stock at the date of grant, as determined by the Company's Board of Directors, except when they are granted to an employee who owns greater than 10% of the voting power of all classes of stock, in which case they are exercisable at a price not less than 110% of fair market value. The Company has elected to continue using the intrinsic-value-based method to account for all of its stock-based employee compensation plans. Pursuant to SFAS No. 123, the Company is required to disclose the pro forma effects on the net losses of the Company as if the Company had elected to use the fair value approach to account for all of its stock-based employee compensation plans. Had compensation cost for the Company's plans been determined consistent with the fair value approach enumerated in SFAS No. 123, the Company's 1998 and 1999 net losses would have increased to the following pro forma amounts (in thousands, except per share data):
YEARS ENDED JUNE 30, ------------------ 1998 1999 ------- ------- Net loss as reported........................................ $(6,028) $(3,810) Net loss pro forma.......................................... (6,043) (3,871) Net loss per share as reported.............................. $(10.48) $ (3.83) Net loss per share pro forma................................ (10.51) (3.89)
For the years ended June 30, 1998 and 1999 and the quarter ended September 30, 1999, the fair value of each option was estimated using the minimum value-based method on the date of grant with the following weighted-average assumptions: no dividend yield; a risk-free interest rate of 7%; and an expected life of five years. F-13 14 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) The following summarizes activity under the plans as of June 30, 1998 and 1999 and September 30, 1999, respectively (in thousands, except per share data):
YEAR ENDED YEAR ENDED THREE MONTHS ENDED JUNE 30, 1998 JUNE 30, 1999 SEPTEMBER 30, 1999 ------------------- ------------------- ---------------------- (UNAUDITED) WEIGHTED- WEIGHTED- WEIGHTED- NUMBER AVERAGE NUMBER AVERAGE AVERAGE OF EXERCISE OF EXERCISE NUMBER EXERCISE OPTIONS PRICE OPTIONS PRICE OF OPTIONS PRICE ------- --------- ------- --------- ---------- --------- Outstanding at beginning of period....... 750 $0.27 2,779 $0.23 5,775 $0.23 Granted.................................. 2,513 0.23 3,456 0.23 1,275 0.46 Exercised................................ (85) 0.23 (166) 0.25 (34) 0.32 Canceled................................. (399) 0.26 (294) 0.24 (36) 0.23 ----- ----- ----- Outstanding at end of period............. 2,779 0.23 5,775 0.23 6,980 0.27 ===== ===== ===== Vested at period end..................... 287 1,497 1,647 ===== ===== ===== Weighted-average fair value of options granted during the period.............. 0.16 0.16 0.28
The following table summarizes information about stock options outstanding as of June 30, 1999 (in thousands, except per share data):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------ -------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- RANGE OF REMAINING AVERAGE AVERAGE EXERCISE CONTRACTUAL EXERCISE EXERCISE PRICE OPTIONS LIFE (YEARS) PRICE OPTIONS PRICE - ------------ ------- ------------ --------- ------- ---------- 0.15 - 0.29 5,775 9.07 0.23 5,775 0.23 ====== =====
(C) WARRANTS The Company values all warrants issued using an option pricing model with the following assumptions: no dividend yield; risk-free interest rates ranging between 5.5% and 7.0%; contractual lives ranging from five to ten years, and 65% expected volatility. The fair value assigned to warrants is recorded as compensation expense by the Company. The Company has reserved the corresponding number of shares for the exercise of these warrants. The following warrants were issued and outstanding during the periods presented and as of September 30, 1999: In July, 1999, the Company issued warrants to purchase 25,000 shares of common stock at a price of $2.80 per share. These warrants are exercisable at any time prior to the expiration date of September 2004. In addition, in conjunction with the signing of the lease agreement for a lease line of credit, the Company issued warrants to the Lessor for the purchase of 16,304 shares of Series E Preferred Stock at a price of $1.38 per share. These warrants are exercisable at any time prior to the expiration date of September 2009, or 5 years from the effective date of the Company's initial public offering, whichever is earlier. An additional 16,304 shares are issuable to the Lessor at a price of $1.38 per share if the Company requests an increase to the line above the initial commitment amount discussed above under Financing Arrangements. F-14 15 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) As of June 30, 1999 and 1998, the Company has three transferable warrants to purchase 16,439, 16,948, and 18,324 shares of common stock at a price of $1.46, $2.22, and $1.91 per share, respectively, outstanding. These warrants are exercisable at any time prior to the expiration dates of February 2003, October 2003, and December 2005, respectively. As of June 30, 1999, the Company has a warrant outstanding to purchase 48,268 shares of common stock at a price of $1.91 per share. This warrant is exercisable at any time prior to the expiration date of August 2008. As of June 30, 1999, the Company has warrants outstanding to purchase a total of 294,296 shares of common stock at a price of $0.23 per share. These warrants are exercisable at any time prior to their expiration date of January 2009. (6) INCOME TAXES The types of temporary differences that give rise to significant portions of the Company's deferred tax assets and liabilities are set out below (in thousands).
AS OF JUNE 30, ------------------ 1998 1999 ------- ------- Deferred tax assets: Accruals and reserves....................................... $ 76 $ 168 Plant and equipment....................................... 24 13 State income taxes........................................ 1 1 Research credit carryforward.............................. 306 480 Net operating loss carryforwards.......................... 5,910 6,935 ------- ------- Gross deferred tax assets................................... 6,317 7,597 Valuation allowance......................................... (6,317) (7,597) ------- ------- Total deferred tax assets................................... -- -- Deferred tax liabilities.................................... $ -- $ -- ======= =======
The Company has provided a valuation allowance due to the uncertainty of generating future profits that would allow for the realization of such deferred tax assets. As of June 30, 1999, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $17,500,000 and $11,100,000, respectively, available to reduce future income subject to income taxes. The federal carryforward will expire from 2010 to 2019. The California net operating loss carryforwards expire in 2003. The Company also has credit carryforwards for federal and California income tax return purposes of approximately $269,000 and $211,000, respectively, available to reduce future income subject to income taxes. The federal credit carryforward will expire from 2010 to 2019, while the California credit may be carried forward indefinitely. As of the year ended June 30, 1998 and 1999, the Company had net deferred tax assets of approximately $6,317,000 and $7,597,000 respectively. The net deferred tax assets have been fully offset by valuation allowances. The net valuation allowance increased by $2,614,000 and $1,281,000 during the years ended June 30, 1998 and 1999, respectively. F-15 16 RIGHTPOINT SOFTWARE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) (7) RELATED PARTY TRANSACTIONS In June 1994, the Company's French subsidiary entered into an exclusive license agreement with its founder, who is also a director, to use and market certain technology in certain territories in exchange for an annual royalty fee payable in quarterly installments. The Company also has an option to purchase the technology for $700,000 in the event that the licensor fails to perform any significant obligations or during the six months prior to the contract expiration in 2004. This agreement was amended and restated in October 1995 under substantially the same terms and conditions. The amounts paid under this license arrangement for the years ended June 30, 1999 and 1998, was $51,000 per year. A second license for the technology was entered into on October 23, 1995, between the Company and the same individual owner of this technology. Annual royalties of $800 are payable under the agreement. The agreement licensed the Company to distribute the technology in certain territories. The license expires on July 18, 2004, with the licensee having the option to purchase all interests in the technology for $10,000 provided that the Company's option to purchase the first technology license is exercised. In January 1999, the Company entered into an agreement with Edify Corporation, who is also a Series E preferred shareholder, to distribute certain RightPoint software products at a discounted price to Edify for a minimum nonrefundable distribution fee payable to the Company in quarterly installments over 12 months. As of June 30, 1999 and September 30, 1999, the Company has recognized $417,000 and $667,000, respectively, of this minimum nonrefundable distribution fee as revenue. F-16 -----END PRIVACY-ENHANCED MESSAGE-----