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THE REPUBLIC OF KOREA | 7371 | NOT APPLICABLE | ||
(State or Other Jurisdiction of Incorporation or Organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
Proposed Maximum | Proposed Maximum | Amount of | ||||||
Title of Each Class of | Amount to be | Offering Price | Aggregate | Registration | ||||
Securities to be Registered | Registered(2) | Per Share(3) | Offering Price | Fee(4) | ||||
Common stock, par value W500 per share(1) | 6,900,000 | $16.00 | $110,400,000 | $12,994.08 | ||||
(1) | American depositary shares, or ADSs, evidenced by American depositary receipts issuable on deposit of the shares of common stock registered hereby will be registered under a separate registration statement on Form F-6. Each ADS will represent one share of common stock. |
(2) | Includes (a) shares of common stock represented by ADS that may be purchased by the underwriters pursuant to an overallotment option and (b) all shares of common stock represented by ADSs initially offered or sold outside the United States that are thereafter sold or resold in the United States. Offers or sales of shares of common stock represented by ADS outside the United States are being made pursuant to Regulation S under the Securities Act and are not covered by this Registration Statement. |
(3) | Estimated solely for purposes of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act. |
(4) | Previously paid. |
Jin Hyuk Park, Esq. Simpson Thacher & Bartlett LLP ICBC Tower, 7th Floor 3 Garden Road, Central Hong Kong SAR, People’s Republic of China 852-2514-7665 | Eugene C. Gregor, Esq. Davis Polk & Wardwell Izumi Garden Tower 33F 1-6-1 Roppongi, Minato-ku Tokyo, Japan 106-6033 813-5561-4566 |
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted. |
Per ADS | Total | |||||||
Initial public offering price | $ | $ | ||||||
Underwriting discounts and commissions | ||||||||
Proceeds to us before expenses | ||||||||
Proceeds to the selling shareholders before expenses |
JPMorgan | Merrill Lynch & Co. |
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EX-5.1 OPINION OF SHIN & KIM | ||||||||
EX-23.3 CONSENT OF SAMIL PRICEWATERHOUSECOOPERS | ||||||||
EX-23.4 CONSENT OF PRICEWATERHOUSECOOPERS | ||||||||
EX-23.5 CONSENT OF DELOITTE & TOUCHE |
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• | “Korea” or the “Republic” are to The Republic of Korea; | |
• | “Government” are to the government of Korea; | |
• | “U.S.” or the “United States” are to the United States of America; | |
• | “we,” “us,” “our” or “our company” are to WiderThan Co., Ltd. and its subsidiaries while “WiderThan” are to WiderThan Co., Ltd. on a standalone basis; | |
• | “WiderThan Americas” are to WiderThan Americas, Inc., our wholly-owned subsidiary formerly known as Ztango, Inc.; | |
• | “SK Business Group” are to a group of companies, including us, affiliated with SK Telecom Co., Ltd., our second largest shareholder, and SK Corp., which are considered to be related parties under Korean law; | |
• | “Securities Act” or “U.S. Securities Act” are to the Securities Act of 1933, as amended; | |
• | “Korean Won”, “Won” or “W” are to the currency of Korea; and | |
• | “U.S. dollars”, “US$” or “$” are to the currency of the United States. |
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• | Mobile Music. Mobile music was one of the first mobile entertainment services to gain widespread acceptance. According to estimates by Juniper Research, the size of the mobile music market was $3.6 billion in 2004 and is expected grow to $9.3 billion in 2009. Mobile music applications include ringback tones, ringtones and music-on-demand. Ringtones gained acceptance during the early stages of mobile phone services, while ringback tones have recently achieved a high degree of subscriber penetration where they have been introduced. Music-on-demand services are beginning to be launched in advanced mobile entertainment markets such as Korea. | |
• | Mobile Games. Mobile games usage has experienced rapid growth to become one of the most popular multimedia applications. Juniper Research expects mobile games to constitute the largest category of the mobile entertainment services industry by 2005, with total global mobile games revenues growing from $3.1 billion in 2004 to $18.5 billion in 2009. |
• | market leadership due to our unique position in advanced Korean mobile entertainment market; | |
• | proven track record of operational expertise; | |
• | high level of interaction and close relationships with major wireless carriers worldwide based on deeply embedded applications; | |
• | ability to offer a broad range of solutions to meet various carrier needs; and | |
• | attractive business model with recurring revenues and potential for increasing margins. |
• | further penetrate our existing customer base by expanding the portfolio of services that we offer to them; |
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• | expand our global customer base; | |
• | develop and commercialize new applications and services; and | |
• | pursue selective strategic acquisitions. |
• | our reliance on SK Telecom for the majority of our revenues (approximately 80% and 67% of our revenues in 2004 and in the nine months ended September 30, 2005, respectively) and to partner with us to develop and test many of our services for commercial viability; | |
• | the highly competitive nature of the mobile entertainment services market; | |
• | our carrier customers not being obligated to use or promote our services and a substantial portion of our revenue being subject to their pricing decisions; | |
• | our reliance on one type of mobile entertainment service, ringback tones, for the largest portion of our revenues (approximately 33% and 28% of our revenues in 2004 and in the nine months ended September 30, 2005, respectively, were derived from our ringback tone carrier application service, ringback tone content and ringback tone system sales combined); and | |
• | the need to upgrade our internal reporting systems in order to improve the effectiveness of our controls and financial reporting processes. |
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By us | 4,000,000 ADSs | |
By the selling shareholders | 2,000,000 ADSs (which includes 876,167 ADSs to be sold by Melody Share Corporation, a Cayman Islands company, which is included in our consolidated financial statements). | |
ADSs to be outstanding after this offering | 6,000,000 ADSs. Unless otherwise noted, the information in this prospectus assumes no exercise of the underwriters’ over-allotment option and no exercise of outstanding stock options. | |
Common shares to be outstanding immediately after this offering | 18,907,216 common shares. The number of common shares that will be outstanding immediately after this offering: | |
• reflects the conversion of all of our outstanding Series A and B preferred shares into an aggregate of 3,481,049 common shares; | ||
• reflects the conversion of all of our convertible redeemable Series C preferred shares into an aggregate of 926,167 common shares; and | ||
• excludes 1,452,626 common shares issuable upon exercise of outstanding options with a weighted average exercise price of US$6.64 per share under our stock option plan as of the date of this prospectus. | ||
Offering price | US$ per ADS. | |
Use of proceeds | We expect the net proceeds to us from this offering to be approximately US$52 million, assuming the mid-point of the offering price range set forth on the cover page of this prospectus and after deducting underwriting discounts and commissions and estimated expenses payable by us. We intend to use the net proceeds for working capital and general corporate purposes. We also may use a portion of the net proceeds for the acquisition of businesses and technologies. We have no current agreements or commitments for any such acquisition at this time. We will not receive any proceeds from the sale of the ADSs by the selling shareholders. See “Use of Proceeds”. | |
Over-allotment | We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase from us up to 900,000 ADSs solely to cover over-allotments. Unless we state otherwise, the information in this prospectus does not take into account the possible sale of these additional ADSs. | |
Listing | We have applied to have the ADSs quoted on NASDAQ under the symbol “WTHN”. | |
Trading market for common shares | Our common shares are not listed on any stock exchange or organized trading market, including in Korea. There is currently no public market for our common shares or ADSs. |
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The ADSs | Each ADS will represent one common share, par value W500 per share. Our ADSs will be evidenced by American depositary receipts, or ADRs. | |
• The depositary will be the holder of our common shares underlying your ADSs and you will have the rights as provided in the deposit agreement. | ||
• Although we do not expect to pay dividends in the foreseeable future, in the event we declare dividends on our common shares, such dividends will be paid to the depositary, which will then pay you the cash dividends and other distributions it receives on our common shares, after deducting its fees and expenses. | ||
• You may deliver your ADSs to the depositary in exchange for our common shares underlying your ADSs. The depositary will charge you fees for exchanges. | ||
• We may amend or terminate the deposit agreement without your consent, and if you continue to hold your ADSs, you agree to be bound by the deposit agreement as amended. | ||
You should carefully read the section in this prospectus entitled “Description of American Depositary Shares” as well as the deposit agreement, which is an exhibit to the registration statement that includes this prospectus, to better understand the terms of the ADSs. | ||
Deposit or withdrawal of common shares | You may deposit common shares with the custodian for the depositary and obtain ADSs, and may surrender ADSs to the depositary and receive common shares, subject in each case to certain conditions. However, under current Korean law and regulations, the depositary is required to obtain our prior consent for a deposit to the extent that, after giving effect to the deposit, the total number of common shares on deposit would exceed the maximum amount previously approved by us. As of the date of this prospectus, such maximum amount approved by us is the total number of common shares representing the ADSs issued in this offering. Upon expiry of the lock-up period described below, we intend to provide consent to the depositary to enable deposits into the ADS facility of additional common shares provided that such deposit(s) will not violate our articles of incorporation or applicable Korean law. | |
Common shares underlying the ADSs offered hereby may be withdrawn from the depositary facility established under the deposit agreement upon: | ||
• the surrender of the ADSs, and | ||
• the receipt by the depositary of proper instructions. | ||
Voting rights | Subject to the provisions of the deposit agreement, you will be entitled to instruct the depositary how to vote the common shares underlying the ADSs. |
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Dividends | We have not paid a dividend on our share capital since inception and any decision to pay dividends in the future will be subject to a number of factors, including cash requirements for future capital expenditures and investments, as well as other factors our board of directors deem relevant. We have no intention to pay dividends in the near future. | |
Lock-up | We, all of our directors and officers, all of our selling shareholders and other shareholders and option holders, holding in the aggregate 97.4% of the common shares outstanding, have agreed with the underwriters that, without the prior written consents of J.P. Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, subject to certain exceptions, neither we nor they will, for a period of 180 days following the date of this prospectus, offer, sell or contract to sell, directly or indirectly, any of our ADSs or common shares or any economic interests therein. See “Underwriting”. | |
Risk factors | For a discussion of certain factors that should be considered in evaluating an investment in our ADSs, see “Risk factors” beginning on page 10 of this prospectus. |
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For the years ended December 31, | For the nine months ended September 30, | ||||||||||||||||||||||||||||||||||
Pro forma | Pro forma | Pro forma | |||||||||||||||||||||||||||||||||
2002(1) | 2003(1) | 2004(1)(2) | 2004(3) | 2004(4) | 2004(3) | 2005(2)(4) | 2005(3) | ||||||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||||
(In thousands of $, except per share and share data and percentages) | |||||||||||||||||||||||||||||||||||
Income statement data: | |||||||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||||||
Service revenues(5): | |||||||||||||||||||||||||||||||||||
Carrier application services | $ | 4,682 | $ | 12,756 | $ | 24,670 | $ | 29,054 | $ | 15,601 | $ | 19,846 | $ | 43,540 | $ | 43,540 | |||||||||||||||||||
Content services | 4,580 | 11,448 | 18,176 | 22,223 | 11,446 | 15,351 | 13,872 | 13,872 | |||||||||||||||||||||||||||
Professional and other services | 10,892 | 10,370 | 9,423 | 9,784 | 7,231 | 7,574 | 6,415 | 6,415 | |||||||||||||||||||||||||||
Total service revenues | 20,154 | 34,574 | 52,269 | 61,061 | 34,278 | 42,771 | 63,827 | 63,827 | |||||||||||||||||||||||||||
System sales(5) | 23,212 | 24,470 | 10,563 | 10,563 | 5,907 | 5,907 | 6,248 | 6,248 | |||||||||||||||||||||||||||
Total revenues | 43,366 | 59,044 | 62,832 | 71,624 | 40,185 | 48,678 | 70,075 | 70,075 | |||||||||||||||||||||||||||
Costs and expenses: | |||||||||||||||||||||||||||||||||||
Cost of service revenues(5)(6) | 12,591 | 17,766 | 22,585 | 24,515 | 15,586 | 17,454 | 23,292 | 23,292 | |||||||||||||||||||||||||||
Cost of system sales(5)(6) | 21,260 | 20,311 | 7,813 | 7,813 | 4,919 | 4,919 | 4,049 | 4,049 | |||||||||||||||||||||||||||
Depreciation and amortization | 543 | 1,244 | 2,490 | 3,264 | 1,622 | 2,369 | 3,104 | 3,104 | |||||||||||||||||||||||||||
Selling and marketing | 1,454 | 2,841 | 2,601 | 3,335 | 1,236 | 1,945 | 3,538 | 3,538 | |||||||||||||||||||||||||||
General and administrative | 3,511 | 7,300 | 14,355 | 16,186 | 9,830 | 10,849 | 17,255 | 17,255 | |||||||||||||||||||||||||||
Research and development | 1,020 | 1,374 | 3,760 | 7,696 | 1,738 | 5,553 | 8,805 | 8,805 | |||||||||||||||||||||||||||
Stock compensation (Note A) | — | — | 3,029 | 4,531 | 2,777 | 4,047 | 2,576 | 3,182 | |||||||||||||||||||||||||||
Total costs and expenses | 40,379 | 50,836 | 56,633 | 67,340 | 37,708 | 47,136 | 62,619 | 63,225 | |||||||||||||||||||||||||||
Operating income (loss) | 2,987 | 8,208 | 6,199 | 4,284 | 2,477 | 1,542 | 7,456 | 6,850 | |||||||||||||||||||||||||||
Other income (loss) | 100 | 163 | (207 | ) | (233 | ) | 291 | 274 | 414 | 414 | |||||||||||||||||||||||||
Income (loss) before taxes, minority interest and earnings from equity method investment | 3,087 | 8,371 | 5,992 | 4,051 | 2,768 | 1,816 | 7,870 | 7,264 | |||||||||||||||||||||||||||
Income taxes | 1,153 | 2,583 | 2,156 | 2,026 | 939 | 1,033 | 2,552 | 2,552 | |||||||||||||||||||||||||||
Minority interest | — | — | — | — | — | — | 687 | 687 | |||||||||||||||||||||||||||
Earnings (loss) from equity method investment | 1 | 201 | 113 | 113 | 33 | 33 | (134 | ) | (134 | ) | |||||||||||||||||||||||||
Net income (loss) | $ | 1,935 | $ | 5,989 | $ | 3,949 | $ | 2,138 | $ | 1,862 | $ | 815 | $ | 5,871 | $ | 5,265 | |||||||||||||||||||
Accretion of preferred shares | $ | (371 | ) | $ | (283 | ) | $ | (505 | ) | $ | — | $ | (227 | ) | $ | — | $ | (871 | ) | $ | — | ||||||||||||||
Amounts allocated to participating preferred shareholders | (253 | ) | (871 | ) | (770 | ) | — | (336 | ) | $ | — | (1,537 | ) | — | |||||||||||||||||||||
Net income (loss) attributable to common stockholders | $ | 1,311 | $ | 4,835 | $ | 2,674 | $ | 2,138 | $ | 1,299 | $ | 815 | $ | 3,463 | $ | 5,265 | |||||||||||||||||||
Earning (loss) per share — basic | $ | 0.13 | $ | 0.48 | $ | 0.26 | $ | 0.15 | $ | 0.13 | $ | 0.06 | $ | 0.33 | $ | 0.35 | |||||||||||||||||||
Earning (loss)per share — diluted(7) | $ | 0.13 | $ | 0.48 | $ | 0.26 | $ | 0.15 | $ | 0.13 | $ | 0.06 | $ | 0.28 | $ | 0.35 | |||||||||||||||||||
Weighted average number of shares — basic | 10,000,000 | 10,000,000 | 10,293,151 | 14,698,883 | 10,221,612 | 14,628,828 | 10,500,000 | 14,907,216 | |||||||||||||||||||||||||||
Weighted average number of shares — diluted | 10,000,000 | 10,000,000 | 10,326,993 | 14,714,346 | 10,237,719 | 14,640,279 | 10,580,229 | 14,972,742 | |||||||||||||||||||||||||||
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Note A: | The following stock compensation expenses resulting from our stock options, our employee stock ownership association, or ESOA, our virtual stock options, or VSOs, and the VSO Cash Rights and the KSO Cancellee Cash Rights are not included in the following expense categories: |
For the years ended December 31, | For the nine months ended September 30, | |||||||||||||||||||||||||||||||
Pro forma | Pro forma | Pro forma | ||||||||||||||||||||||||||||||
2002(1) | 2003(1) | 2004(1)(2) | 2004(3) | 2004(4) | 2004(3) | 2005(2)(4) | 2005(3) | |||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
(In thousands of $, except per share and share data and percentages) | ||||||||||||||||||||||||||||||||
Cost of services revenue | $ | — | $ | — | $ | 1,024 | $ | 1,115 | $ | 994 | $ | 1,451 | $ | 202 | $ | 245 | ||||||||||||||||
Cost of system sales | — | — | 326 | 356 | 310 | 450 | 18 | 24 | ||||||||||||||||||||||||
General and administrative | — | — | 1,041 | 1,446 | 969 | 1,414 | 1,913 | 2,343 | ||||||||||||||||||||||||
Research and development | — | — | 638 | 1,614 | 504 | 732 | 443 | 570 | ||||||||||||||||||||||||
Total | $ | — | $ | — | $ | 3,029 | $ | 4,531 | $ | 2,777 | $ | 4,047 | $ | 2,576 | $ | 3,182 | ||||||||||||||||
As of September 30, | ||||||||||||||||||||
As of December 31, | ||||||||||||||||||||
Pro forma | ||||||||||||||||||||
2002(1) | 2003(1) | 2004(1)(2) | 2005(2)(4) | 2005(3) | ||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||
(In thousands of $, except per share data | ||||||||||||||||||||
and percentages) | ||||||||||||||||||||
Balance sheet data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 2,793 | $ | 10,826 | $ | 17,817 | $ | 18,853 | $ | 22,786 | ||||||||||
Restricted cash(8) | — | — | — | 8,069 | 8,069 | |||||||||||||||
Total current assets | 22,604 | 26,038 | 40,657 | 64,673 | 68,606 | |||||||||||||||
Working capital(9) | 4,903 | 11,776 | 18,890 | 26,275 | 39,417 | |||||||||||||||
Property, plant and equipment, net | 2,532 | 4,646 | 8,119 | 9,280 | 9,280 | |||||||||||||||
Total assets | 29,940 | 32,280 | 73,364 | 98,047 | 101,980 | |||||||||||||||
Short term debt | — | — | — | 9,209 | — | |||||||||||||||
Total current liabilities | 17,701 | 14,262 | 21,767 | 38,398 | 29,189 | |||||||||||||||
Total liabilities | 18,417 | 14,843 | 24,328 | 41,628 | 32,419 | |||||||||||||||
Minority interest | — | — | — | 313 | 313 | |||||||||||||||
Series A, Series B and Series C convertible redeemable preferred stock | 5,497 | 5,780 | 25,660 | 27,019 | — | |||||||||||||||
Total stockholders’ equity | 6,026 | 11,657 | 23,376 | 29,087 | 69,248 |
As of and for the nine | ||||||||
As of and for the year | months ended | |||||||
ended December 31, | September 30, | |||||||
2004 | 2005 | |||||||
Selected operational data for carrier application services: | ||||||||
Ringback tones: | ||||||||
Number of carriers(10) | 5 | 6 | ||||||
Number of accessible subscribers(11)(in millions) | 102.3 | 120.3 | ||||||
Number of ringback tone subscribers(12)(in millions) | 9.6 | 13.7 | ||||||
Inter-carrier messaging: | ||||||||
Number of carriers(10) | 18 | 27 | ||||||
Number of accessible subscribers(11)(in millions) | 95.5 | 139.0 | ||||||
Number of messages delivered(13)(in millions) | 5,895 | 11,622 | ||||||
Music-on-demand: | ||||||||
Number of carriers(10) | 1 | 1 | ||||||
Number of accessible subscribers(11)(in millions) | 18.8 | 19.3 | ||||||
Number of music-on-demand subscribers(14)(in millions) | N/A | 0.5 |
(1) | The balance sheet data as of December 31, 2003 and 2004, and the statement of operations data for the years ended December 31, 2002, 2003 and 2004 are derived from our audited financial statements and the related notes thereto included elsewhere in this prospectus. The balance sheet data as of December 31, 2002 is derived from our audited financial statements and the related notes thereto not included in this prospectus. |
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(2) | Reflects our acquisition of WiderThan Americas effective October 8, 2004. | |
(3) | The unaudited pro forma combined statements of operations data for the year ended December 31, 2004 and for the nine months ended September 30, 2004 and 2005 reflect the automatic conversion of the Series A and Series B preferred stock, the issuance and conversion of the Series C preferred stock, the cancellation of the virtual stock options issued by WiderThan Americas, the issuance of stock options and cash rights to replace the virtual stock options, the issuance of cash rights to replace 116,000 stock options forfeited, and our acquisition of WiderThan Americas as if such events occurred on January 1, 2004 and is derived from the unaudited pro forma consolidated financial information appearing elsewhere in this prospectus. The unaudited pro forma consolidated balance sheet data as of September 30, 2005 gives effect to the automatic conversion of the Series A and Series B convertible redeemable preferred stock on September 30, 2005, the conversion of 50,000 shares issued and outstanding of the Series C preferred stock, the conversion of 876,167 shares of our convertible redeemable Series C preferred stock, currently held by Melody Share Corporation, into 876,167 shares of our common stock and their sale in the form of ADSs in this offering at an assumed initial public offering price of US$15.00 per ADS, and the use of these proceeds from the sale of the 876,167 ADSs to repay the short-term debt of Melody Share Corporation. The unaudited pro forma consolidated statement of operations data and consolidated balance sheet data is not necessarily indicative of what our results would have been if the conversion, the issuance and/or the acquisition had occurred on such date and should be read in conjunction with our consolidated financial statements and the related notes thereto, the separate financial statements and the related notes thereto of WiderThan Americas, and the unaudited pro forma consolidated financial information included elsewhere in this prospectus. | |
(4) | The balance sheet data as of September 30, 2005, and the statement of operations data for the nine months ended September 30, 2004 and 2005 are derived from our unaudited financial statements and the related notes thereto included elsewhere in this prospectus. | |
(5) | The following information sets forth our related party revenues and costs from SK Telecom and other affiliated companies within the SK Business Group included in the following line items for the relevant periods. The actual and pro forma numbers are the same. |
For the years ended December 31, | For the nine months ended September 30, | |||||||||||||||||||||||||||||||
Pro forma | Pro forma | Pro forma | ||||||||||||||||||||||||||||||
2002 | 2003 | 2004 | 2004 | 2004 | 2004 | 2005 | 2005 | |||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
(In thousands of $) | ||||||||||||||||||||||||||||||||
Service revenues | $ | 18,681 | $ | 34,273 | $ | 46,646 | $ | 46,646 | $ | 32,634 | $ | 32,634 | $ | 44,415 | $ | 44,415 | ||||||||||||||||
System sales | 11,580 | 23,601 | 4,436 | 4,436 | 946 | 946 | 3,617 | 3,617 | ||||||||||||||||||||||||
Cost of service revenues | 10 | 940 | 1,464 | 1,464 | 522 | 522 | 1,046 | 1,046 | ||||||||||||||||||||||||
Cost of system sales | 6,631 | 1,018 | 9 | 9 | 4 | 4 | 79 | 79 |
(6) | Excludes depreciation and amortization. | |
(7) | Our diluted earnings per share is calculated as net income divided by our diluted weighted average shares outstanding. We have various securities, which are dilutive to the basic earnings per share calculations, including the employee stock options and the Series A, Series B and Series C convertible redeemable preferred shares. The effect of the Series A convertible redeemable preferred shares is excluded from the 2002 diluted earnings per share calculation as its effect is anti-dilutive. The effects of the Series A and Series B convertible redeemable preferred shares are excluded from the 2003 and 2004 and for the nine months ended September 30, 2004 and 2005 actual earnings per share calculation as their effects are anti-dilutive. The pro forma statements of operations assume the automatic conversion of the Series A and Series B convertible redeemable preferred shares, the issuance and conversion of the Series C preferred shares, and the issuance of VSO replacement options, which are therefore considered outstanding as common shares for the calculation of pro forma basic and diluted earnings per share. | |
(8) | Restricted cash represents cash that we are required to hold in escrow until the Series C preferred shares held by Melody Share Corporation are either converted and sold in this offering or redeemed in order to repay the short-term debt of Melody Share Corporation in the event we do not complete this offering. Upon completion of this offering and the repayment of the short-term debt, the restrictions on this cash will lapse. | |
(9) | Working capital is calculated as current assets less current liabilities. |
(10) | Represents the aggregate number of carriers with which we had a contractual arrangement to provide the relevant service during the relevant period. |
(11) | Represents the approximate aggregate number of our carrier customers’ wireless subscribers at the end of the relevant period as reported publicly by our carrier customers. |
(12) | Represents the aggregate number of subscribers to the ringback tone service provided by our carrier customers during the relevant period. |
(13) | Represents the aggregate number of messages delivered by our inter-carrier messaging service on behalf of our carrier customers during the relevant period. |
(14) | Represents the number of subscribers for SK Telecom’s MelOn music-on-demand service as publicly disclosed by SK Telecom. |
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We rely on SK Telecom, the largest wireless carrier in Korea, to generate a majority of our revenues and partner with us to develop and test many of our services for commercial viability, and any loss or deterioration of this relationship, or a material change, could materially harm our business. |
We use certain intellectual property rights belonging to SK Telecom to provide our music-on-demand carrier application service. If we are unable to secure a license on terms favorable to us, we may be prevented from providing these services or will incur significant costs to seek alternative technologies or expertise, each of which would result in loss of revenues or business opportunities or reduced margins. |
The markets in which we operate are highly competitive and many of our competitors have greater resources than we do. |
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• | substantially greater financial resources; | |
• | stronger brand recognition; | |
• | capacity to leverage their marketing expenditures across a broader portfolio of wireless and non-wireless products; | |
• | extensive relationships with customers; and | |
• | broader geographic presence. |
As we expand outside of our existing markets, we may face added business, political, regulatory, operational, financial and economic risks, any of which could increase our costs and hinder our growth. |
• | difficulties in obtaining market acceptance of our services in other global markets; | |
• | our lack of local presence and familiarity of business practices and conventions in certain markets, particularly in Europe and China; | |
• | difficulties and additional time and expenses in customizing and localizing our applications and systems for new markets; and | |
• | shortages of personnel with both local language skill and experience with our services and applications. |
• | differences in network and system requirements that may require additional time and resources to make our applications and services compatible with carrier networks; |
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• | burdens or cost of complying with a wide variety of foreign laws and regulations, including unexpected changes in regulatory requirements; | |
• | foreign exchange controls that might prevent us from repatriating income earned in countries outside Korea; and | |
• | longer payment cycles and greater difficulty collecting accounts receivable in developing countries. |
None of our carrier customer contracts obligates our carrier customers to use our services or to market or promote our services to their subscribers. |
A substantial portion of our revenue is subject to the pricing decisions of our carrier customers. |
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Consolidation among our carrier customers may result in the loss of carrier customers or reduce our potential customer base, which would negatively impact our financial performance. |
The dynamics of the wireless carrier market may hinder our ability to attract new carrier customers. |
Our carrier customers could begin developing some or all of our carrier applications services on their own or otherwise start to bring them in-house, which could result in the loss of future revenues. |
We currently depend on one type of service, ringback tones, for a significant portion of our revenue. |
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The terms of our contracts with carrier customers are relatively short-term and subject to renewal. If we are unable to renew or extend our carrier customer contracts with our existing carrier customers, our future financial condition and results of operations may be materially harmed. |
Failure to meet the level of performance on our carrier application services in accordance with our contracts with carrier customers could result in a loss of our revenues or customer relationships as well as harm the business of our carrier customers, all of which could be detrimental to our business and reputation generally. |
Usage of our applications and services may be difficult to predict and we may not be able to adequately and quickly expand capacity and upgrade our systems to meet increased demand. |
We sell to certain wireless carriers that have substantial numbers of prepaid subscribers, a high percentage of whom may discontinue subscribing to our services after the prepayment expires. |
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Failure to develop and introduce new solutions that achieve market acceptance could result in a loss of market opportunities. |
Our business and growth may suffer if we are unable to hire and retain talented personnel. |
The rate of royalties that we pay to music label companies, associations or other content licensors that license copyrighted works to us has increased recently, a continuation of which will cause our costs to increase and may adversely affect our results of operations. |
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SK Telecom will continue to have significant influence over us after this offering and could delay or prevent a change in corporate control, which could in turn reduce the market price of your ADSs. |
Third parties may sue us for intellectual property infringement, which, if successful, could require us to pay significant damage awards. |
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If we do not adequately protect our intellectual property rights, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of management attention and resources. |
The mobile entertainment services market in which we operate is fairly new and, coupled with our limited operating history, may make it difficult for you to evaluate our business. |
The acquisition of other companies, businesses or technologies could result in operating difficulties, dilution and other harmful consequences. |
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We face risks associated with currency exchange rate fluctuations. |
We have no business liability or disruption insurance coverage in Korea. |
Carrier network failures could reduce our sales, increase costs or result in a loss of customers. |
Security vulnerabilities, illegal downloads or transfers of music files may harm our music-on-demand business and the revenues we earn from it. |
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We may be required to take significant actions that are contrary to our business objectives in order to avoid being deemed an investment company as defined under the Investment Company Act of 1940, as amended. |
• | the company is primarily engaged, directly or through a wholly-owned subsidiary or subsidiaries, in a business or businesses other than that of investing, reinvesting, owning, holding or trading in securities; and | |
• | 40% or less of the fair market value of the company’s assets is represented by investment securities. |
We may be considered a passive foreign investment company, which could result in adverse U.S. tax consequences for U.S. investors. |
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Increased tensions with North Korea could adversely affect us. |
Our businesses may be adversely affected by developments affecting the Korean economy. |
We are subject to additional regulation as a result of our affiliation with the SK Business Group, which could harm our ability to compete effectively in Korea. |
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Changes in government regulation of the media and wireless communications industries may adversely affect our business. |
We may be subject to a tax audit in the near future, resulting in additional tax assessment. |
There has been no prior market for our common shares or ADSs and this offering may not result in an active or liquid market for our ADSs. |
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The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price. |
Because the initial public offering price is substantially higher than the pro forma net tangible book value per share, you will incur immediate and substantial dilution. |
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Shareholder rights under Korean law may differ from shareholder rights in the United States, which could adversely affect your ability to protect your interests. |
Your ability to deposit or withdraw common shares underlying the ADSs into and from the depositary facility may be limited, which may adversely affect the value of your investment. |
• | the aggregate number of common shares we have consented to be deposited for the issuance of ADSs (including deposits in connection with offerings of ADSs and stock dividends or other distributions relating to ADSs); and | |
• | the number of common shares on deposit with the custodian for the benefit of the depositary at the time of such proposed deposit, |
You may not be able to exercise preemptive rights or participate in rights offerings and may experience dilution of your holdings. |
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As an ADS holder, you have limited means to exercise your voting rights. |
You will not be able to exercise dissent and appraisal rights unless you have withdrawn the underlying common shares and become our direct shareholder. |
We may amend the deposit agreement and the ADRs without your consent for any reason and, if you disagree, your option will be limited to selling the ADSs or withdrawing the underlying securities. |
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We have discretion as to how we will use the net proceeds of this offering and you may not necessarily agree with how we use them. |
We will incur increased costs as a result of being a public company. |
We and our auditors have identified certain material weaknesses in our internal controls and if we fail to achieve and maintain an effective system of internal controls, we may be unable to accurately report our financial results or reduce our ability to prevent or detect fraud, and investor confidence and the market price of our ADSs may be adversely affected. |
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• | our knowledge of general accounting and specific U.S. GAAP issues and our lack of internal accounting resources and reliance on external resources for accounting, U.S. GAAP, advice and bookkeeping support; | |
• | ability to prepare timely consolidated financial statements under U.S. GAAP; and | |
• | reliance on spreadsheet programs, which are generally more prone to errors due to the absence of effective controls over such spreadsheet access and use, to perform consolidation and prepare U.S. GAAP financial statements. |
You may have difficulty bringing an original action or enforcing any judgment obtained outside Korea against us, our directors and officers or other offering participants, such as underwriters or experts, who are not U.S. persons. |
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Years ended December 31, | Low | High | Average(1) | Period-end | ||||||||||||
(Won per $1.00) | ||||||||||||||||
2000 | W | 1,105.5 | W | 1,267.0 | W | 1,130.9 | W | 1,267.0 | ||||||||
2001 | 1,234.0 | 1,369.0 | 1,292.0 | 1,313.5 | ||||||||||||
2002 | 1,160.6 | 1,332.0 | 1,250.4 | 1,186.3 | ||||||||||||
2003 | 1,146.0 | 1,262.0 | 1,192.1 | 1,192.0 | ||||||||||||
2004 | 1,035.1 | 1,195.1 | 1,145.2 | 1,035.1 | ||||||||||||
2005 (through November 17, 2005) | 997.0 | 1,059.8 | 1,023.3 | 1,034.4 | ||||||||||||
January | 1,024.0 | 1,058.0 | 1,038.0 | 1,026.9 | ||||||||||||
February | 1,000.9 | 1,044.0 | 1,023.1 | 1,000.9 | ||||||||||||
March | 997.5 | 1,023.9 | 1,007.8 | 1,015.4 | ||||||||||||
April | 997.0 | 1,019.0 | 1,010.1 | 1,001.0 | ||||||||||||
May | 997.0 | 1,009.0 | 1,001.8 | 1,005.0 | ||||||||||||
June | 1,003.0 | 1,034.5 | 1,012.5 | 1,034.5 | ||||||||||||
July | 1,018.5 | 1,054.0 | 1,036.6 | 1,026.5 | ||||||||||||
August | 1,011.6 | 1,039.2 | 1,021.7 | 1,039.0 | ||||||||||||
September | 1,024.3 | 1,042.4 | 1,029.8 | 1,042.4 | ||||||||||||
October | 1,037.3 | 1,059.8 | 1,045.9 | 1,043.5 | ||||||||||||
November (through November 17, 2005) | 1,034.4 | 1,049.0 | 1,042.2 | 1,034.4 |
(1) | Annual and monthly averages are calculated using the average of the daily rates during the relevant period. |
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• | on an actual basis; | |
• | on a pro forma basis to give effect to the conversion of all of our outstanding convertible redeemable Series A and B preferred stock into an aggregate of 3,481,049 shares of our common stock, to give effect to the conversion of 50,000 shares of our outstanding convertible redeemable Series C preferred stock into an aggregate of 50,000 shares of our common stock, to give effect to the conversion of 876,167 shares of our convertible redeemable Series C preferred stock, currently held by Melody Share Corporation, into 876,167 shares of our common stock and their sale in the form of ADSs at an assumed initial public offering price of US$15.00 per ADS, and to give effect to the use of these proceeds from the sale of the 876,167 ADSs to repay Melody Share Corporation’s short-term debt which appears on our balance sheet; and | |
• | on a pro forma basis as adjusted to give effect to the issuance and sale of the 4,000,000 ADSs (assuming no exercise of the over-allotment option) in this offering at an assumed initial public offering price of US$15.00 per ADS, after deducting underwriting discounts, commissions and estimated offering expenses payable by us. |
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As of September 30, 2005 | ||||||||||||||
Pro forma | ||||||||||||||
Actual | Pro forma | as adjusted | ||||||||||||
(unaudited) | (unaudited) | |||||||||||||
(In thousands of $, except for share | ||||||||||||||
data) | ||||||||||||||
Short-term debt | $ | 9,209 | $ | — | $ | — | ||||||||
Long-term debt | $ | — | $ | — | $ | — | ||||||||
Minority interest | 313 | 313 | 313 | |||||||||||
Convertible redeemable preferred stock: W500 par value Series A authorized 5 million shares, issued and outstanding 1,428,570, liquidation preference $4.39, no shares outstanding on a pro forma and on a pro forma as adjusted basis | 6,233 | — | — | |||||||||||
Series B authorized 5 million shares, issued and outstanding 2,052,479, liquidation preference $13.51, no shares outstanding on a pro forma and on a pro forma as adjusted basis | 20,293 | — | — | |||||||||||
Series C authorized 2 million shares, issued and outstanding 50,000, no shares outstanding on a pro forma and on a pro forma as adjusted basis(1) | 493 | — | — | |||||||||||
Shareholders’ equity: | ||||||||||||||
Common stock, W500 par value: | ||||||||||||||
30 million common shares authorized; 10,500,000 common shares issued and outstanding (14,907,216 common shares issued and outstanding on a pro forma basis and 18,907,216 common shares issued and outstanding on a pro forma as adjusted basis)(2) | 4,537 | 6,651 | 8,570 | |||||||||||
Additional paid-in capital | 4,619 | 42,666 | 92,547 | |||||||||||
Retained earnings | 15,582 | 15,582 | 15,582 | |||||||||||
Accumulated other comprehensive income | 4,349 | 4,349 | 4,349 | |||||||||||
Total shareholders’ equity | 29,087 | 69,248 | 121,048 | |||||||||||
Total capitalization | $ | 56,419 | $ | 69,561 | $ | 121,361 | ||||||||
(1) | On an actual basis, this excludes 876,167 shares of Series C preferred shares held by Melody Share Corporation, which is required to be consolidated into our financial statements. |
(2) | Assumes no exercise of over-allotment options and outstanding stock options. |
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Assumed initial public offering price per ADS | $ | 15.00 | |||||||
Net tangible book value per ADS as of September 30, 2005 | 3.29 | ||||||||
Increase in net tangible book value per ADS attributable to the sale of ADSs in the offering | 2.04 | ||||||||
Net tangible book value per ADS after giving effect to this offering | 5.33 | ||||||||
Dilution per ADS to new investors | $ | 9.67 | |||||||
ADSs or ADS equivalents | |||||||||||||||||||||
purchased | Total consideration | Average price | |||||||||||||||||||
per ADS or | |||||||||||||||||||||
Number | Percent | Amount | Percent | ADS equivalent | |||||||||||||||||
(In thousands) | (In thousands of $) | ||||||||||||||||||||
Existing shareholders | 14,907 | 78.8 | % | $ | 49,317 | 45.1 | % | $ | 3.31 | ||||||||||||
New investors | 4,000 | 21.2 | 60,000 | 54.9 | 15.00 | ||||||||||||||||
Total | 18,907 | 100.0 | % | $ | 109,317 | 100.0 | % | ||||||||||||||
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• | includes 3,531,049 ADSs that will be issued upon conversion of all of our outstanding convertible redeemable preferred stock, except that held by Melody Share Corporation; and | |
• | includes 876,167 ADSs that will be issued upon conversion of 876,167 shares of our convertible redeemable Series C preferred stock, currently held by Melody Share Corporation, which is required to be consolidated into our financial statements; but | |
• | excludes 1,452,626 ADSs that will be subject to issuance upon exercise of the stock options that we granted under our stock option plans; and | |
• | excludes 900,000 ADSs subject to issuance by us if the underwriters exercise their option in full. |
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For the nine months ended | ||||||||||||||||||||||||||||||||
For the years ended December 31, | September 30, | |||||||||||||||||||||||||||||||
Actual | 2000(1) | 2001 | 2002 | 2003 | 2004(2) | 2004 | 2005(2) | |||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||
(In thousands of $, except share and per share data) | ||||||||||||||||||||||||||||||||
Income statement data: | ||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Service revenues(3) | ||||||||||||||||||||||||||||||||
Carrier application services | $ | — | $ | — | $ | 4,682 | $ | 12,756 | $ | 24,670 | $ | 15,601 | $ | 43,540 | ||||||||||||||||||
Content services | — | 1,176 | 4,580 | 11,448 | 18,176 | 11,446 | 13,872 | |||||||||||||||||||||||||
Professional and other services | 807 | 4,328 | 10,892 | 10,370 | 9,423 | 7,231 | 6,415 | |||||||||||||||||||||||||
Total service revenues | 807 | 5,504 | 20,154 | 34,574 | 52,269 | 34,278 | 63,827 | |||||||||||||||||||||||||
System sales(3) | 878 | 14,033 | 23,212 | 24,470 | 10,563 | 5,907 | 6,248 | |||||||||||||||||||||||||
Total revenues | 1,685 | 19,537 | 43,366 | 59,044 | 62,832 | 40,185 | 70,075 | |||||||||||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||||||
Cost of service revenues (exclusive of depreciation and amortization, as shown below)(3) | 535 | 6,401 | 12,591 | 17,766 | 22,585 | 15,586 | 23,292 | |||||||||||||||||||||||||
Cost of system sales (exclusive of depreciation and amortization, as shown below)(3) | 844 | 10,172 | 21,260 | 20,311 | 7,813 | 4,919 | 4,049 | |||||||||||||||||||||||||
Depreciation and amortization | 32 | 233 | 543 | 1,244 | 2,490 | 1,622 | 3,104 | |||||||||||||||||||||||||
Selling and marketing | 39 | 227 | 1,454 | 2,841 | 2,601 | 1,236 | 3,538 | |||||||||||||||||||||||||
General and administrative | 563 | 2,369 | 3,511 | 7,300 | 14,355 | 9,830 | 17,255 | |||||||||||||||||||||||||
Research and development | — | — | 1,020 | 1,374 | 3,760 | 1,738 | 8,805 | |||||||||||||||||||||||||
Stock compensation (Note A) | — | — | — | — | 3,029 | 2,777 | 2,576 | |||||||||||||||||||||||||
Total costs and expenses | 2,013 | 19,402 | 40,379 | 50,836 | 56,633 | 37,708 | 62,619 | |||||||||||||||||||||||||
Operating income (loss) | (328 | ) | 135 | 2,987 | 8,208 | 6,199 | 2,477 | 7,456 | ||||||||||||||||||||||||
Other income (loss) | ||||||||||||||||||||||||||||||||
Interest income, net | 51 | 87 | 110 | 303 | 367 | 284 | 292 | |||||||||||||||||||||||||
Foreign exchange gain (loss), net | (18 | ) | (6 | ) | (10 | ) | 5 | (574 | ) | 7 | 122 | |||||||||||||||||||||
Investment income (loss) | — | 31 | — | (145 | ) | — | — | — | ||||||||||||||||||||||||
Total other income (loss) | 33 | 112 | 100 | 163 | (207 | ) | 291 | 414 | ||||||||||||||||||||||||
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For the nine months ended | ||||||||||||||||||||||||||||
For the years ended December 31, | September 30, | |||||||||||||||||||||||||||
Actual | 2000(1) | 2001 | 2002 | 2003 | 2004(2) | 2004 | 2005(2) | |||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||
(In thousands of $, except share and per share data) | ||||||||||||||||||||||||||||
Income (loss) before taxes, minority interest and earnings from equity method investment | $ | (295 | ) | $ | 247 | $ | 3,087 | $ | 8,371 | $ | 5,992 | $ | 2,768 | $ | 7,870 | |||||||||||||
Income taxes | (77 | ) | 70 | 1,153 | 2,583 | 2,156 | 939 | 2,552 | ||||||||||||||||||||
Income (loss) before minority interest and earnings from equity method investment | (218 | ) | 177 | 1,934 | 5,788 | 3,836 | 1,829 | 5,318 | ||||||||||||||||||||
Minority interest | (2 | ) | — | — | — | — | — | 687 | ||||||||||||||||||||
Earnings (loss) from equity method investment | — | (93 | ) | 1 | 201 | 113 | 33 | (134 | ) | |||||||||||||||||||
Net income (loss) | $ | (216 | ) | $ | 84 | $ | 1,935 | $ | 5,989 | $ | 3,949 | $ | 1,862 | $ | 5,871 | |||||||||||||
Accretion of preferred shares | $ | — | $ | — | $ | (371 | ) | $ | (283 | ) | $ | (505 | ) | $ | (227 | ) | $ | (871 | ) | |||||||||
Amounts allocated to participating preferred shareholders | — | — | (253 | ) | (871 | ) | (770 | ) | (336 | ) | (1,537 | ) | ||||||||||||||||
Net income (loss) attributable to common stockholders | $ | (216 | ) | $ | 84 | $ | 1,311 | $ | 4,835 | $ | 2,674 | $ | 1,299 | $ | 3,463 | |||||||||||||
(Loss) earning per share — basic | $ | (0.06 | ) | $ | 0.01 | $ | 0.13 | $ | 0.48 | $ | 0.26 | $ | 0.13 | $ | 0.33 | |||||||||||||
(Loss) earning per share — diluted(4) | $ | (0.06 | ) | $ | 0.01 | $ | 0.13 | $ | 0.48 | $ | 0.26 | $ | 0.13 | $ | 0.28 | |||||||||||||
Weighted average number of shares — basic | 3,725,234 | 9,610,959 | 10,000,000 | 10,000,000 | 10,293,151 | 10,221,612 | 10,500,000 | |||||||||||||||||||||
Weighted average number of shares — diluted | 3,725,234 | 9,610,959 | 10,000,000 | 10,000,000 | 10,326,993 | 10,237,719 | 10,580,229 | |||||||||||||||||||||
Note A: | The following stock compensation expenses resulting from our stock options, ESOA and VSOs and the VSO Cash Rights and the KSO Cancellee Cash Rights are not included in the following expense categories: |
For the nine months | ||||||||||||||||||||||||||||
For the years ended December 31, | ended September 30, | |||||||||||||||||||||||||||
2000(1) | 2001 | 2002 | 2003 | 2004(2) | 2004 | 2005(2) | ||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||
(In thousands of $, except share and per share data) | ||||||||||||||||||||||||||||
Cost of services revenues | $ | — | $ | — | $ | — | $ | — | $ | 1,024 | $ | 994 | $ | 202 | ||||||||||||||
Cost of system sales | — | — | — | — | 326 | 310 | 18 | |||||||||||||||||||||
General and administrative | — | — | — | — | 1,041 | 969 | 1,913 | |||||||||||||||||||||
Research and development | — | — | — | — | 638 | 504 | 443 | |||||||||||||||||||||
$ | — | $ | — | $ | — | $ | — | $ | 3,029 | $ | 2,777 | $ | 2,576 | |||||||||||||||
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As of December 31, | As of | |||||||||||||||||||||||||||
September 30, | ||||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||||||
(In thousands of $, except share and per share data) | ||||||||||||||||||||||||||||
Balance sheet data: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 471 | $ | 2,318 | $ | 2,793 | $ | 10,826 | $ | 17,817 | $ | 18,853 | ||||||||||||||||
Restricted cash(5) | — | — | — | — | — | 8,069 | ||||||||||||||||||||||
Total current assets | 6,025 | 9,347 | 22,604 | 26,038 | 40,657 | 64,673 | ||||||||||||||||||||||
Working capital(6) | 2,088 | 2,447 | 4,903 | 11,776 | 18,890 | 26,275 | ||||||||||||||||||||||
Property, plant and equipment, net | 198 | 913 | 2,532 | 4,646 | 8,119 | 9,280 | ||||||||||||||||||||||
Total assets | 7,124 | 11,077 | 29,940 | 32,280 | 73,364 | 98,047 | ||||||||||||||||||||||
Short-term debt | — | — | — | — | — | 9,209 | ||||||||||||||||||||||
Total current liabilities | 3,937 | 6,900 | 17,701 | 14,262 | 21,767 | 38,398 | ||||||||||||||||||||||
Total liabilities | 3,987 | 7,378 | 18,417 | 14,843 | 24,328 | 41,628 | ||||||||||||||||||||||
Minority interest | 157 | — | — | — | — | 313 | ||||||||||||||||||||||
Series A, Series B and Series C convertible redeemable preferred stock | — | — | 5,497 | 5,780 | 25,660 | 27,019 | ||||||||||||||||||||||
Total stockholders’ equity | 2,980 | 3,699 | 6,026 | 11,657 | 23,376 | 29,087 |
As of and for the nine | ||||||||
As of and for the year | months ended | |||||||
ended December 31, | September 30, | |||||||
2004 | 2005 | |||||||
Selected operational data for carrier application services: | ||||||||
Ringback tones: | ||||||||
Number of carriers(7) | 5 | 6 | ||||||
Number of accessible subscribers(8)(in millions) | 102.3 | 120.3 | ||||||
Number of ringback tone subscribers(9)(in millions) | 9.6 | 13.7 | ||||||
Inter-carrier messaging: | ||||||||
Number of carriers(7) | 18 | 27 | ||||||
Number of accessible subscribers(8)(in millions) | 95.5 | 139.0 | ||||||
Number of messages delivered(10)(in millions) | 5,895 | 11,622 | ||||||
Music-on-demand: | ||||||||
Number of carriers(7) | 1 | 1 | ||||||
Number of accessible subscribers(8)(in millions) | 18.8 | 19.3 | ||||||
Number of music-on-demand subscribers(11)(in millions) | N/A | 0.5 |
(1) | Represents activity from the date of our inception, which was June 16, 2000. |
(2) | Reflects our acquisition of WiderThan Americas effective October 8, 2004. |
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(3) | The following information sets forth our related party revenues and costs from SK Telecom and other affiliated companies within the SK Business Group included in the following line items for the relevant periods. |
For the nine | ||||||||||||||||||||
months ended | ||||||||||||||||||||
For the year ended | September 30, | |||||||||||||||||||
December 31, | (unaudited) | |||||||||||||||||||
Actual | 2002 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||
(In thousands of $) | ||||||||||||||||||||
Service revenues | $ | 18,681 | $ | 34,273 | $ | 46,646 | $ | 32,634 | $ | 44,415 | ||||||||||
System sales | 11,580 | 23,601 | 4,436 | 946 | 3,617 | |||||||||||||||
Cost of service revenues | 10 | 940 | 1,464 | 522 | 1,046 | |||||||||||||||
Cost of system sales | 6,631 | 1,018 | 9 | 4 | 79 |
(4) | Our diluted earnings per share is calculated as net income divided by our diluted weighted average shares outstanding. We have various securities, which are potentially dilutive to the basic earnings per share calculations, including the employee stock options and the Series A, B and C convertible redeemable preferred shares. As the Series A and Series B convertible redeemable preferred shares have redemption and beneficial conversion accretion that would be added back in the “as converted” calculation for the diluted earnings per share, which causes additional income to be added back to the basic net income, the effects of the Series A, B and C convertible redeemable preferred shares are excluded from the actual earnings per share calculation. The effect of the Series A and Series B convertible redeemable preferred shares is excluded from the 2002 and for the nine months ended September 30, 2004 and 2005 diluted earnings per share calculation as its effect is anti-dilutive. |
(5) | Restricted cash represents cash that we are required to hold in escrow until the Series C preferred shares held by Melody Share Corporation are either converted and sold in this offering or redeemed in order to repay the short-term debt of Melody Share Corporation in the event we do not complete this offering. Upon completion of this offering and the repayment of the short-term debt, the restrictions on this cash will lapse. |
(6) | Working capital is calculated as current assets less current liabilities. |
(7) | Represents the aggregate number of carriers with which we had a contractual arrangement to provide the relevant service during the relevant period. |
(8) | Represents the approximate aggregate number of our carrier customers’ wireless subscribers at the end of the relevant period as reported publicly by our carrier customers. |
(9) | Represents the aggregate number of subscribers to the ringback tone service provided by our carrier customers during the relevant period. |
(10) | Represents the aggregate number of messages delivered by means of our inter-carrier messaging service on behalf of our carrier customers during the relevant period. |
(11) | Represents the number of subscribers for SK Telecom’s MelOn music-on-demand service as publicly disclosed by SK Telecom. |
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Three months ended (unaudited) | ||||||||||||||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | March 31, | June 30, | September 30, | ||||||||||||||||||||||||
Actual | 2004 | 2004 | 2004 | 2004(1) | 2005(1) | 2005(1) | 2005(1) | |||||||||||||||||||||||
(In thousands of $, except share and per share data) | ||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||
Service revenues(2) | ||||||||||||||||||||||||||||||
Carrier application services | $ | 4,059 | $ | 5,339 | $ | 6,218 | $ | 9,251 | $ | 12,153 | $ | 13,860 | $ | 17,497 | ||||||||||||||||
Content services | 3,057 | 4,023 | 4,376 | 6,866 | 5,735 | 3,979 | 4,152 | |||||||||||||||||||||||
Professional and other services | 2,374 | 2,488 | 2,367 | 2,177 | 2,180 | 2,082 | 2,152 | |||||||||||||||||||||||
Total service revenues | 9,490 | 11,850 | 12,961 | 18,294 | 20,068 | 19,921 | 23,801 | |||||||||||||||||||||||
System sales(2) | 624 | 951 | 4,358 | 4,785 | 2,196 | 2,283 | 1,773 | |||||||||||||||||||||||
Total revenues | 10,114 | 12,801 | 17,319 | 23,079 | 22,264 | 22,204 | 25,574 | |||||||||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||||
Cost of service revenues(2)(3) | 4,495 | 5,383 | 5,716 | 7,080 | 7,168 | 7,285 | 8,824 | |||||||||||||||||||||||
Cost of system sales(2)(3) | 793 | 935 | 3,209 | 2,953 | 1,048 | 1,566 | 1,438 | |||||||||||||||||||||||
Depreciation and amortization | 443 | 527 | 653 | 883 | 980 | 1,051 | 1,072 | |||||||||||||||||||||||
Selling and marketing | 366 | 224 | 647 | 1,411 | 961 | 1,324 | 1,254 | |||||||||||||||||||||||
General and administrative | 2,895 | 3,484 | 3,454 | 4,580 | 5,673 | 5,288 | 6,290 | |||||||||||||||||||||||
Research and development | 525 | 554 | 660 | 2,092 | 2,507 | 3,041 | 3,257 | |||||||||||||||||||||||
Stock compensation (Note A) | 2 | 2,700 | 77 | 216 | 558 | 636 | 1,375 | |||||||||||||||||||||||
Total costs and expenses | 9,519 | 13,807 | 14,416 | 19,215 | 18,895 | 20,191 | 23,510 | |||||||||||||||||||||||
Operating income (loss) | 595 | (1,006 | ) | 2,903 | 3,864 | 3,369 | 2,013 | 2,064 | ||||||||||||||||||||||
Other income (loss) | 88 | 121 | 83 | (528 | ) | 182 | 160 | 73 | ||||||||||||||||||||||
Income (loss) before taxes, minority interest and earnings from equity method investment | 683 | (885 | ) | 2,986 | 3,336 | 3,551 | 2,173 | 2,137 | ||||||||||||||||||||||
Income taxes | 232 | (300 | ) | 1,013 | 1,261 | 909 | 643 | 996 | ||||||||||||||||||||||
Minority interest | — | — | — | — | — | — | 687 | |||||||||||||||||||||||
Earnings (loss) from equity method investment | (80 | ) | 26 | 88 | 83 | (115 | ) | 57 | (74 | ) | ||||||||||||||||||||
Net income (loss) | $ | 371 | $ | (559 | ) | $ | 2,061 | $ | 2,158 | $ | 2,527 | $ | 1,587 | $ | 1,754 | |||||||||||||||
Accretion of preferred shares | $ | (74 | ) | $ | (75 | ) | $ | (77 | ) | $ | (288 | ) | $ | (328 | ) | $ | (297 | ) | $ | (246 | ) | |||||||||
Amounts allocated to participating preferred shareholders | (82 | ) | — | (284 | ) | (507 | ) | (642 | ) | (586 | ) | (475 | ) | |||||||||||||||||
Net income (loss) attributable to common shareholders | $ | 215 | $ | (634 | ) | $ | 1,700 | $ | 1,363 | $ | 1,557 | $ | 704 | $ | 1,033 | |||||||||||||||
Earning (loss) per share — basic | $ | 0.02 | $ | (0.07 | ) | $ | 0.16 | $ | 0.13 | $ | 0.15 | $ | 0.08 | $ | 0.10 | |||||||||||||||
Earning (loss) per share — diluted(4) | $ | 0.02 | $ | (0.07 | ) | $ | 0.16 | $ | 0.13 | $ | 0.15 | $ | 0.08 | $ | 0.06 | |||||||||||||||
Weighted average number of shares — basic | 10,000,000 | 10,164,835 | 10,500,000 | 10,500,000 | 10,500,000 | 10,500,000 | 10,500,000 | |||||||||||||||||||||||
Weighted average number of shares — diluted | 10,000,000 | 10,164,835 | 10,500,000 | 10,500,000 | 10,523,177 | 10,510,517 | 10,580,229 | |||||||||||||||||||||||
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Note A: | The following stock compensation expenses resulting from our stock options, ESOA and VSO are not included in the following expense categories: |
Three months ended (unaudited) | ||||||||||||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | March 31, | June 30, | September 30, | ||||||||||||||||||||||
2004 | 2004 | 2004 | 2004(1) | 2005(1) | 2005(1) | 2005(1) | ||||||||||||||||||||||
(In thousands of $, except share and per share data) | ||||||||||||||||||||||||||||
Cost of services revenue | $ | — | $ | 994 | $ | — | $ | 15 | $ | 54 | $ | 57 | $ | 90 | ||||||||||||||
Cost of system sales | — | 311 | — | 12 | 5 | 7 | 7 | |||||||||||||||||||||
General and administrative | 2 | 891 | 77 | 59 | 382 | 434 | 1,087 | |||||||||||||||||||||
Research and development | — | 504 | — | 130 | 117 | 138 | 191 | |||||||||||||||||||||
$ | 2 | $ | 2,700 | $ | 77 | $ | 216 | $ | 558 | $ | 636 | $ | 1,375 | |||||||||||||||
(1) | Reflects our acquisition of WiderThan Americas effective October 8, 2004. |
(2) | The following information sets forth our related party revenues and costs from SK Telecom and other affiliated companies within the SK Business Group included in the following line items for the relevant periods. |
For the three months ended (unaudited) | ||||||||||||||||||||||||||||
March 31, 2004 | June 30, 2004 | September 30, 2004 | December 31, 2004 | March 31, 2005 | June 30, 2005 | September 30, 2005 | ||||||||||||||||||||||
(In thousands of $) | ||||||||||||||||||||||||||||
Service revenues | $ | 8,975 | $ | 11,791 | $ | 11,888 | $ | 14,147 | $ | 14,337 | $ | 13,598 | $ | 16,259 | ||||||||||||||
System sales | 601 | 316 | 25 | 3,647 | 974 | 1,596 | 1,035 | |||||||||||||||||||||
Cost of service revenues | 37 | 220 | 267 | 979 | 173 | 259 | 609 | |||||||||||||||||||||
Cost of system sales | — | 1 | 2 | 5 | 3 | 17 | 59 |
(3) | Excludes depreciation and amortization. |
(4) | Our diluted earnings per share is calculated as net income divided by our diluted weighted average shares outstanding. We have various securities, which are potentially dilutive to the basic earnings per share calculations, including the employee stock options and the Series A, Series B and Series C convertible redeemable preferred shares. As the Series A and Series B convertible redeemable preferred shares have redemption and beneficial conversion accretion that would be added back in the “as converted” calculation for the diluted earnings per share, which causes additional income to be added back to the basic net income, the effects of the Series A and Series B convertible redeemable preferred shares are excluded from the actual “earnings per share calculation.” The effects of the Series A and Series B convertible redeemable preferred shares are excluded from the actual earnings per share calculation for the three months ended March 31, 2004, June 30, 2004, September 30, 2004, December 31, 2004, March 31, 2005, June 30, 2005 and September 30, 2005 as their effects are anti-dilutive. The pro forma statements of operations assume the conversion of the Series A and Series B convertible redeemable preferred shares, the issuance and conversion of the Series C convertible redeemable preferred shares, and the issuance of VSO replacement stock options, which are therefore considered outstanding for the calculation of pro forma basic and diluted earnings per share. |
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Carrier application services |
Year ended | Nine months ended | |||||||||
December 31, 2004 | September 30, 2005 | |||||||||
Revenue share: | ||||||||||
Percentage of carrier monthly subscription fees | 56.8 | % | 41.1 | % | ||||||
Percentage of carrier transaction fees | 8.4 | 4.6 | ||||||||
Subtotal | 65.2 | 45.7 | ||||||||
Fixed fee per transaction | 7.7 | 26.0 | ||||||||
Fixed fee per period | 27.1 | 26.3 | ||||||||
Total | 100.0 | % | 100.0 | % | ||||||
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As of and for the nine | ||||||||
As of and for the year | months ended | |||||||
ended December 31, | September 30, | |||||||
2004 | 2005 | |||||||
Selected Operational Data for Carrier Application Services: | ||||||||
Ringback tones: | ||||||||
Number of carriers(1) | 5 | 6 | ||||||
Number of accessible subscribers(2)(in millions) | 102.3 | 120.3 | ||||||
Number of ringback tone subscribers(3)(in millions) | 9.6 | 13.7 | ||||||
Inter-carrier messaging: | ||||||||
Number of carriers(1) | 18 | 27 | ||||||
Number of accessible subscribers(2)(in millions) | 95.5 | 139.0 | ||||||
Number of messages delivered(4)(in millions) | 5,895 | 11,622 | ||||||
Music-on-demand: | ||||||||
Number of carriers(1) | 1 | 1 | ||||||
Number of accessible subscribers(2)(in millions) | 18.8 | 19.3 | ||||||
Number of music-on-demand subscribers(5)(in millions) | N/A | 0.5 |
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(1) | Represents the aggregate number of carriers with which we had a contractual arrangement to provide the relevant service during the relevant period. |
(2) | Represents the approximate aggregate number of our carrier customers’ wireless subscribers at the end of the relevant period as reported publicly by our carrier customers. |
(3) | Represents the aggregate number of subscribers to our ringback tone service provided by our carrier customers during the relevant period. |
(4) | Represents the aggregate number of messages delivered by our inter-carrier messaging service on behalf of our carrier customers during the relevant period. |
(5) | Represents the number of subscribers for SK Telecom’s MelOn music-on-demand service as publicly disclosed by SK Telecom. |
Content services |
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• | We issued to members of our management team 170,000 stock options in March 2004 at an exercise price of US$3.90 and 624,000 stock options in December 2004 at an exercise price of US$4.26. Total compensation expense in 2004 for these options was US$0.2 million. Based on our use of the fair value recognition method contained in Statement of Financial Accounting Standards, or SFAS, No. 123,Accounting for Stock-Based Compensationfor the accounting of stock-based employee compensation, absent any changes to the current options, we will recognize stock compensation expense with respect these stock options in the amounts of US$1.5 million, US$1.4 million and US$0.5 million during 2005, 2006 and 2007, respectively. | |
• | In June 2004, we issued 500,000 shares to our non-management employees at a price of US$0.86 per share through our employee stock ownership association. Based upon the excess of the fair market value of these shares over the purchase price, we recognized US$2.7 million of compensation expense. Because ownership of these shares is not contingent upon these employees’ continued employment with us, we recognized a one-time compensation charge in 2004. | |
• | In October 2004, WiderThan Americas granted 426,149 virtual stock options. Stock compensation expense (benefit) is recognized for changes in the fair value of the virtual stock options on each balance sheet date. In 2004, such expenses amounted to US$0.2 million. |
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• | US$1.5 million relating to stock options granted (and forfeited) prior to September 30, 2005. We granted 131,000 options in February 2005, 370,750 options in June 2005, and 52,000 options in September 2005, at exercise prices of US$6.00, US$8.45 and US$8.45, respectively. In addition, as mentioned above, in June 2005, as part of the VSO Exchange, we issued an aggregate of 326,126 stock options at an exercise price of $8.45 per share to former VSO holders, contingent upon each of the holder’s cancellation of the VSOs. As the VSOs were cancelled on August 11, 2005, the contingency was resolved and we commenced the recognition of stock compensation expense associated with these stock options. All of these options vest according to different schedules ranging from two to four years from their date of grant. We will recognize stock compensation expense with respect to these options in the amounts of US$0.7 million, US$2.7 million, US$1.2 million, US$0.3 million and US$97,000 during 2005, 2006, 2007, 2008 and 2009, respectively. | |
• | US$0.4 million for changes in the fair value of the virtual stock options between December 31, 2004 and the date of their cancellation in August 2005. | |
• | US$0.2 million for changes in the value of the VSO Cash Rights from the date they were issued in August 2005 to September 30, 2005. | |
• | US$0.4 million relating to the issuance of the KSO Cancellee Cash Rights, as explained above. |
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Service revenues |
• | Carrier application services. Our carrier application services are services that we provide to wireless carriers which, at their core, involve applications that enable or facilitate the delivery of mobile entertainment content such as ringback tones, music-on-demand, ringtones, messaging and informational services. In these carrier application services, we design and develop mobile entertainment applications that we then manage and operate for our carrier customers. We receive |
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from the carriers either a percentage of the carrier’s monthly subscription and/or transaction revenue or a fixed fee per transaction. Revenue is recognized when services are provided or when the carrier collects from its subscribers, depending upon the contract terms. Carrier application services revenues also include amounts derived from system sales when such system sales are part of a multiple element contract for which objective and reliable evidence of fair values for each of the multiple elements are not available and the majority of contracted revenue is related to a carrier application service. | ||
• | Content services. Our content services involve the delivery of content, such as ringback tones, ringtones and mobile games, to wireless subscribers through application service providers such as ourselves or through a competitor’s or a carrier’s own applications, which then make the content available to the wireless subscribers. In the majority of our content services, we license content through agreements with music label companies, game developers and other content providers. In such mobile content transactions, we act as a principal and, as a result, we recognize the entire amount paid to us by the carrier. In certain other content services, however, the carrier holds the license with the original content providers, but we handle settlement of payments to the license holders. In such cases, we recognize as revenue only the amounts net of payments to the content license holders. | |
• | Professional and other services. Our professional services consist primarily of designing, developing, and maintaining our wireless carrier customers’ websites and performing other consulting and customization services related to promotion or marketing of mobile entertainment services for our carrier customers. Our carrier customers pay us once they accept our delivery of services. For the website services, we receive from our carrier customers monthly site management fees, plus additional monthly fees for content design, promotion, site renewal and additional planning. Our other services primarily involve providing customized modifications and enhancements to existing applications requested by our carrier customers. Fees for our professional services are typically charged on a time-and-materials basis. Revenue for these services is typically recognized using the completed-contract method or upon customer acceptance in accordance with the underlying terms of the contract. |
System sales revenues |
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• | Cost of service revenuesinclude data processing costs, network costs, royalty costs, personnel costs associated with service implementation, training and customer care, and off-network database query charges. In 2002 and 2003, substantially all salaries and benefits for employees who are principally engaged in provision of services were allocated to cost of service revenues. In 2004, we introduced an enterprise resource planning system and were better able to allocate the portion of salaries and benefits that relate to general and administrative activities performed by these employees. Had we introduced our enterprise resource planning system in prior years, we would have allocated certain costs to general and administrative expenses and our cost of service revenues in 2002 and 2003 would have been lowered by a corresponding amount. | |
• | Cost of system salesinclude hardware costs, data processing costs, network costs, royalty costs, personnel costs associated with system sales, maintenance after implementation, training and customer care. In 2002 and 2003, substantially all salaries and benefits for employees who are principally engaged in provision of system sales were allocated to cost of system sales. Had we introduced our enterprise resource planning system in prior years, we would have allocated certain costs to general and administrative expenses and our cost of system sales in 2002 and 2003 would have been lowered by a corresponding amount. | |
• | Depreciation and amortization expenserelates primarily to our property and equipment including our network infrastructure facilities related to information management and other intangible assets. We expect that depreciation and amortization expense will increase during 2005 as we expand our network infrastructure to support additional carrier application service implementations at WiderThan Americas. Additionally, due to our acquisition of WiderThan Americas in the fourth quarter of 2004, we will experience a full year of depreciation and amortization expense in 2005 from the fixed assets and intangibles assets acquired in that transaction. | |
• | Selling and marketing expensesconsist of advertising, promotion and market research expenses, all of which are expensed as incurred. We expect that our selling and marketing expenses will increase as we continue to further expand our global customer base into new markets such as Europe. | |
• | General and administrative expensesconsist of salaries and benefits for employees whose activities represent administrative functions. We experienced an increase in general and administrative expenses in 2004 primarily due to our introduction of an enterprise resource planning system. Following the implementation of this system, we were better able to allocate to general and administrative expenses the portion of salaries and benefits that relate to general and administrative activities performed by employees whose principal functions related to provision of services or system sales. Had we introduced our enterprise resource planning system in prior years, we estimate that our general and administrative expenses in 2002 and 2003 would have been higher than reported. In addition, after this offering, we expect our general and administrative expenses to increase as a result of increased costs, such as legal and accounting fees and internal controls costs, related to compliance with the Sarbanes-Oxley Act of 2002 and other relevant U.S. securities laws. | |
• | Research and development costsconsist of personnel cost including payroll and benefits that are expensed as incurred. In general, we conduct our research and development activities in-house |
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unless outsourcing is specifically warranted. We do not allocate administrative, real estate related and other corporate costs to research and development. | ||
• | Stock compensation expensesinclude the costs associated with our various stock related benefit programs, including the employee stock ownership association, the stock options and the virtual stock options. |
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For the years ended | For the nine months ended September 30, | |||||||||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||||||||||
Pro forma | Pro forma | |||||||||||||||||||||||||||||||
2002 | 2003 | 2004 | 2004 | 2004 | 2005 | 2005 | ||||||||||||||||||||||||||
Total revenues: | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
Services revenues: | ||||||||||||||||||||||||||||||||
Carrier application services | 10.8 | 21.6 | 39.3 | 38.8 | 40.8 | 62.1 | 62.1 | |||||||||||||||||||||||||
Content services | 10.6 | 19.4 | 28.9 | 28.5 | 31.5 | 19.8 | 19.8 | |||||||||||||||||||||||||
Professional and other services | 25.1 | 17.6 | 15.0 | 18.0 | 15.6 | 9.2 | 9.2 | |||||||||||||||||||||||||
Total service revenues | 46.5 | 58.6 | 83.2 | 85.3 | 87.9 | 91.1 | 91.1 | |||||||||||||||||||||||||
System sales | 53.5 | 41.4 | 16.8 | 14.7 | 12.1 | 8.9 | 8.9 | |||||||||||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||||||
Cost of service revenues | 29.0 | 30.1 | 35.9 | 38.8 | 35.9 | 33.2 | 33.2 | |||||||||||||||||||||||||
Cost of system sales | 49.0 | 34.4 | 12.4 | 12.2 | 10.1 | 5.8 | 5.8 | |||||||||||||||||||||||||
Depreciation and amortization | 1.3 | 2.1 | 4.0 | 4.0 | 4.9 | 4.4 | 4.4 | |||||||||||||||||||||||||
Selling and marketing | 3.3 | 4.8 | 4.2 | 3.1 | 4.0 | 5.0 | 5.0 | |||||||||||||||||||||||||
General and administrative | 8.1 | 12.4 | 22.8 | 24.5 | 22.3 | 24.6 | 24.6 | |||||||||||||||||||||||||
Research and development | 2.4 | 2.3 | 6.0 | 4.3 | 11.4 | 12.6 | 12.6 | |||||||||||||||||||||||||
Stock compensation | — | — | 4.8 | 6.9 | 8.3 | 3.8 | 4.6 | |||||||||||||||||||||||||
Total costs and expenses | 93.1 | 86.1 | 90.1 | 93.8 | 96.8 | 89.4 | 90.2 | |||||||||||||||||||||||||
Operating income (loss) | 6.9 | 13.9 | 9.9 | 6.2 | 3.2 | 10.6 | 9.8 | |||||||||||||||||||||||||
Other income (loss) | 0.2 | 0.3 | (0.3 | ) | 0.7 | 0.6 | 0.6 | 0.6 | ||||||||||||||||||||||||
Income before income tax expenses | 7.1 | 14.2 | 9.6 | 6.9 | 3.7 | 11.2 | 10.4 | |||||||||||||||||||||||||
Income taxes | 2.7 | 4.4 | 3.5 | 2.3 | 2.1 | 3.6 | 3.6 | |||||||||||||||||||||||||
Income before minority interest and earnings (loss) from equity method investment | 4.4 | 9.8 | 6.1 | 4.6 | 1.6 | 7.6 | 6.7 | |||||||||||||||||||||||||
Minority interest | — | — | — | — | — | 1.0 | 1.0 | |||||||||||||||||||||||||
Earnings (loss) from equity method investment | — | 0.3 | 0.2 | 0.1 | 0.1 | (0.2 | ) | (0.2 | ) | |||||||||||||||||||||||
Net income | 4.4 | % | 10.1 | % | 6.3 | % | 4.6 | % | 1.7 | % | 8.4 | % | 7.5 | % | ||||||||||||||||||
Nine months ended September 30, 2005 compared to nine months ended September 30, 2004 |
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2004 compared to 2003 |
Revenues |
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Costs and expenses |
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Operating income |
Other income (loss) |
Income taxes |
Net income |
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2003 compared to 2002 |
Revenues |
Costs and expenses |
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Operating income |
Other income (loss) |
Income taxes |
Net income |
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Liquidity |
Nine months ended | |||||||||||||||||||||
Year ended December 31, | September 30, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||||
(In thousands of $) | |||||||||||||||||||||
Cash and cash equivalents at beginning of period | $ | 2,318 | $ | 2,793 | $ | 10,826 | $ | 10,826 | $ | 17,817 | |||||||||||
Net cash provided by (used in) operating activities | 760 | 9,969 | 10,048 | 2,272 | (5,004 | ) | |||||||||||||||
Net cash provided by (used in) investing activities | (5,641 | ) | (1,905 | ) | (5,931 | ) | (3,653 | ) | (4,155 | ) | |||||||||||
Net cash provided by (used in) financing activities | 5,126 | — | 720 | 430 | 10,678 | ||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 230 | (31 | ) | 2,154 | (719 | ) | (483 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | 475 | 8,033 | 6,991 | (1,670 | ) | 1,036 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 2,793 | $ | 10,826 | $ | 17,817 | $ | 9,156 | $ | 18,853 | |||||||||||
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Capital resources |
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Off-balance sheet arrangements |
Contractual cash obligations |
Payments due by period | |||||||||||||||||||||
Up to | Between 1 | Between 3 | Beyond | ||||||||||||||||||
1 Year | and 3 Years | and 5 Years | 5 Years | Total | |||||||||||||||||
(In thousands of $) | |||||||||||||||||||||
Long-term debt obligations | $ | 157 | $ | 233 | $ | — | $ | — | $ | 390 | |||||||||||
Operating lease obligations | 1,847 | 1,191 | — | — | 3,038 | ||||||||||||||||
Total | $ | 2,004 | $ | 1,424 | $ | — | $ | — | $ | 3,428 | |||||||||||
Revenue recognition |
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Impairment of goodwill, other intangible assets and long-lived assets |
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Accounting for stock-based compensation |
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Foreign currency risk |
Interest rate risk |
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Inflation |
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• | deployment of high speed, next-generation wireless networks that allow richer content to be delivered more rapidly and cost effectively; | |
• | proliferation of advanced mobile handsets with enhanced features such as music and data connectivity, superior sound quality, improved display screens and embedded application environments, such as JAVA and BREW, that support multimedia applications; | |
• | increased consumer awareness and demand due to aggressive launches and promotions by wireless carriers and greater popularity of mobile entertainment applications; and | |
• | growth in the content available for mobile usage as content providers look to generate new revenue streams. |
Mobile entertainment market categories |
Mobile music |
• | ringtones, which are songs, parts of songs or other musical or voice-recorded clips that play instead of the traditional call notification or ringing sounds the phone makes when receiving a call; | |
• | ringback tones, which are songs, parts of songs or other musical or voice-recorded clips that a caller hears, instead of the traditional electronic ringing sound, while waiting for the call recipient to answer; and | |
• | music-on-demand, which enables users to listen to “full-track” songs from their personal computers or MP3-enabled mobile phones by downloading or streaming, as well as transfer downloaded songs to certain portable audio players and listen to the songs from such players. |
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• | timely launches and promotions of the service by carriers; | |
• | improved consumer awareness due to increasing caller exposure to ringback tones as the number of subscribers using the service increases; | |
• | attractiveness of subscribers’ ability to personalize their mobile phone; | |
• | multiple usage scenarios such as celebrity voice ringback tones or ringback tones that play only at certain times of the day or only for certain callers; and | |
• | frequent content changes, particularly among youth. |
Mobile games |
Challenges for wireless carriers in offering mobile entertainment services |
• | Rapid introduction of innovative new services. In the highly competitive wireless market, carriers need to launch new entertainment services to differentiate themselves from their competitors and combat eroding profit margins in voice services. As a result, being able to introduce new entertainment applications quickly, either to beat their competitors to market or to catch up to an existing competitor, is becoming increasingly critical to their success, making time-to-market an important factor in any application introduction decision. As the mobile entertainment services market is evolving rapidly, it is challenging for carriers to stay abreast of the latest developments in both technology and services. | |
• | Limited in-house expertise. Most mobile entertainment services are difficult to develop, and since the applications are often deeply integrated into the carriers’ systems and networks, deployment of |
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such services is often complex. Mobile entertainment services often require not just network expertise, but technical capabilities such as standardized digital rights management that bar unauthorized use of copyrighted material, specific content compression technologies, billing and database modifications and enhancements not historically required of carriers. In addition, as these services have been introduced recently, implementing and launching these services pose unique pricing and operational challenges. Accordingly, only a small number of companies have the accumulated expertise to develop and integrate the applications into the carrier networks and effectively launch and manage these services in a highly reliable and cost-effective manner. | ||
• | Need to deploy cost-effective solutions. In order to develop and deploy mobile entertainment applications and systems on its own, a carrier needs to incur significant capital expenditures to acquire the necessary software, hardware and manpower. Third-party carrier application service providers, on the other hand, provide mobile entertainment solutions to multiple carriers generally based on similar application platforms and thus, can take advantage of economies of scale and leverage upon prior experience with other carriers to provide a more cost-effective solution. As a result, carriers are able to reduce their upfront expenses and other capital expenditures by purchasing technology and expertise from third parties to build their wireless entertainment services. |
Market leadership due to unique position in advanced Korean mobile entertainment market |
Proven track record of operational expertise |
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High level of interaction and close relationships with major wireless carriers worldwide |
Ability to offer a broad range of solutions to meet various carrier needs |
Attractive business model with recurring revenues and a potential for increasing margins |
Further penetrate our existing customer base |
Expand our global customer base |
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Develop and commercialize new applications and services |
Pursue selective strategic acquisitions |
Carrier application services |
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Managed service (Carrier hosts application) |
Service bureau (WiderThan hosts application) |
Ringback tones |
Subscription fee | Transaction fee | |||||||||||||||||||||||
Carrier | Service launch date | Brand name | Subscription fee | in US$(1) | Transaction fee(2) | in US$(1) | ||||||||||||||||||
SK Telecom | June 2002 | COLORing | W900/month | $0.86/month | W700 or W1,200 | (3) | $0.67 or $1.10 | |||||||||||||||||
Globe Telecom | March 2004 | MyGlobe Ringback | N/A | N/A | 30 Philippine Pesos | $0.54 | ||||||||||||||||||
Bharti Airtel | July 2004 | Hello Tunes | 30 Rupees/month | $0.68/month | 15 Rupees | $0.34 | ||||||||||||||||||
Verizon Wireless | November 2004 | Ringback Tones | $0.99/month | $0.99/month | $1.99 | $1.99 | ||||||||||||||||||
T-Mobile USA | December 2004 | CallerTunes | $1.49/month | $1.49/month | $1.99 | $1.99 | ||||||||||||||||||
Excelcom | June 2005 | My Waiting Tone | 7,000 Rupiah/month | $0.65/month | 5,000 Rupiah | $0.46 |
(1) | Using the NY Federal Reserve Bank noon buying rate as of September 30, 2005 except for the Indonesia Rupiah, which is published by Bank Indonesia, and the Philippines Peso, which is published by Banko Sentral ng Pilipinas. |
(2) | Represents transaction fee as of September 30, 2005. Transaction fee means charges subscribers pay each time they add or change their ringback tone content. |
(3) | W700 for downloads using WAP, and W1,200 for downloads over the Internet. |
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Music-on-demand |
Messaging |
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Information services |
Content services |
Music |
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Games |
Professional and other services |
System sales |
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Carrier application services and system sales |
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Content services |
Ringback tone, ringtone and other music content |
Games |
Telecommunications Business Act |
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Online Digital Contents Industry Development Act |
Juvenile Protection Act |
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December 31, | |||||||||||||
Department | 2002 | 2003 | 2004 | ||||||||||
Management, finance and administration | 25 | 35 | 42 | ||||||||||
Sales, marketing and business development | 16 | 39 | 46 | ||||||||||
Service operations | 85 | 101 | 178 | ||||||||||
Applications development | 82 | 82 | 112 | ||||||||||
Total | 208 | 257 | 378 | (1)(2) | |||||||||
(1) | Includes 78 WiderThan Americas employees. |
(2) | Excludes 42 temporary employees. |
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Directors |
Name | Age | Position | Date elected as a director | |||||
Sang Jun Park | 43 | Representative Director and Chief Executive Officer | May 27, 2003 | |||||
Jin Woo So | 43 | Non-Executive Director | April 9, 2003 | |||||
Dong Hyun Jang | 42 | Non-Executive Director | June 28, 2005 | |||||
Randolph Lee Austin, Jr. | 41 | Non-Executive Director | September 30, 2004 | |||||
Antti Kokkinen | 41 | Non-Executive Director | August 8, 2003 | |||||
Jung Woo Sung | 34 | Non-Executive Director | February 15, 2005 | |||||
Neeraj Bharadwaj | 36 | Non-Executive Director | February 15, 2005 | |||||
Lori Holland | 47 | Non-Executive Director | June 28, 2005 | |||||
Dongjin Lee | 41 | Executive Vice President and Executive Director | March 30, 2005(1) | |||||
Thomas E. Wheeler | 59 | Non-Executive Director | Pending(1) |
(1) | Thomas E. Wheeler has agreed to serve as, and our shareholders have approved the nomination of Mr. Wheeler as, our non-executor director upon completion of formal registration requirements under applicable law in Korea. Mr. Wheeler’s term as non-executive director will commence once his acceptance has been registered with the Commercial Registry in Korea, which we expect to occur in the near future. Upon commencement of Mr. Wheeler’s term, Mr. Dongjin Lee will resign from our board of directors. |
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Independent directors |
Name | Age | Date elected as a director | ||||
Randolph Lee Austin, Jr. | 41 | September 30, 2004 | ||||
Jung Woo Sung | 34 | February 15, 2005 | ||||
Neeraj Bharadwaj | 36 | February 15, 2005 | ||||
Lori Holland | 47 | June 28, 2005 | ||||
Thomas E. Wheeler | 59 | Pending(1) |
(1) | Thomas E. Wheeler has agreed to serve as, and our shareholders have approved the nomination of Mr. Wheeler as, our non-executor director upon completion of formal registration requirements under applicable law in Korea. Mr. Wheeler’s term as non-executive director will commence once his acceptance has been registered with the Commercial Registry in Korea, which we expect to occur in the near future. |
Committees of the board of directors |
• | Audit committee; | |
• | Board nomination and corporate governance committee; and | |
• | Compensation committee. |
Audit committee |
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Board nomination and corporate governance committee |
Compensation committee |
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Date appointed as an | ||||||||||
Name | Age | Position | executive officer | |||||||
F. Terry Kremian | 58 | Global President | May 16, 2005 | |||||||
Hoseok Kim | 38 | Chief Financial Officer | November 14, 2000 | |||||||
Vern Poyner | 47 | Chief Executive Officer of WiderThan Americas | October 8, 2004(1) | |||||||
Jinsoo Yoon | 41 | Vice President, Global Technology Center | December 26, 2002 | |||||||
Jay H. Kim | 42 | Vice President of Music Business Division | March 10, 2004 | |||||||
Jonathan Kim | 40 | Vice President, Products and Services | June 23, 2003 | |||||||
Jongseon Yoon | 38 | Vice President, Corporate Strategy | June 16, 2000 | |||||||
Seung Yil Kwon | 39 | Vice President, Asia Pacific Business | June 16, 2000 | |||||||
Sokbom Kim | 40 | Vice President, Application Business | June 1, 2002 | |||||||
Jinseog Lee | 40 | Vice President, Game Business | March 2, 2004 | |||||||
Dan Nemo | 36 | Vice President and General Counsel | August 11, 2005 | |||||||
Joongseok Shin | 43 | Treasurer | April 1, 2004 |
(1) | Date of our acquisition of WiderThan Americas. |
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• | Stock options may be granted to our officers and employees who have contributed to our establishment, management or innovation in technology, or who are capable of making such contribution. Notwithstanding the foregoing, no stock options may be granted to any officer or employee who is (i) a holder of 10% or more of our total shares outstanding, excluding shares without voting rights, (ii) a holder of our shares with practical influence on material aspects of our management such as appointment or dismissal of directors and auditors, or (iii) the spouse, lineal ascendants or descendents of a person covered under (i) or (ii). | |
• | Stock options may be granted by a special resolution of our shareholders, provided that the total number of shares into which the options are exercisable may not exceed 10% of the total number of our then issued and outstanding shares. | |
• | Upon exercise of stock options, we will deliver our common shares in registered form or pay in cash the difference between the market price of our common shares and the option exercise price for such shares. | |
• | Stock options granted under the stock option plan will have a minimum exercise price not less than either of the following: |
(a) if new shares are issued, the higher of (i) the fair value of such shares as of the date on which stock options are granted and (ii) the par value of such shares; or | |
(b) if the Company is transferring treasury shares, the fair value of such shares as of the date on which stock options are granted. |
• | Stock options can vest 50% after two years and 50% after three years, in each case, from the date on which stock options are granted and can be exercised during the time period determined at the general meeting of our shareholders, which must be between (i) the day immediately following the second anniversary of the date on which the stock options are granted and (ii) the tenth anniversary of the date of such grant. |
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• | Stock options may be cancelled by a resolution of our board of directors if (i) the option holder is our officer or employee who voluntarily resigns or is discharged from office; (ii) the option holder is our officer or employee who causes material damage to us by willful misconduct or negligence; (iii) we are unable to deliver our shares or pay the prescribed amount due to bankruptcy or dissolution, or (iv) any cause for cancellation of stock options specified in the stock option agreement between us and the relevant holder of the stock option materializes. |
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Shares beneficially | Shares beneficially | ||||||||||||||||||||||||
owned prior to this | Shares to be sold as | owned after this | |||||||||||||||||||||||
offering | part of this offering | offering | |||||||||||||||||||||||
5% and above shareholders | Number | Percent | Number | Percent | Number | Percent | |||||||||||||||||||
SK Telecom and Tae Won Chey(1)(2) | 3,000,000 | 20.1 | % | 171,638 | 8.6 | % | 2,828,362 | 15.0 | % | ||||||||||||||||
SK Telecom | 2,000,000 | 13.4 | — | — | 2,000,000 | 10.6 | |||||||||||||||||||
Tae Won Chey | 1,000,000 | 6.7 | 171,638 | 8.6 | 828,362 | 4.4 | |||||||||||||||||||
Nokia Venture Partners II, L.P. and affiliate(2)(3) | 2,457,570 | 16.5 | 445,835 | 22.3 | 2,011,735 | 10.6 | |||||||||||||||||||
Nokia Venture Partners II, L.P. | 2,430,735 | 16.3 | 440,920 | 22.0 | 1,989,815 | 10.5 | |||||||||||||||||||
NVP II Affiliates Fund, L.P. | 26,835 | 0.2 | 4,915 | 0.2 | 21,920 | 0.1 | |||||||||||||||||||
i-Hatch Ventures, L.P. and affiliates(2)(4) | 1,858,160 | 12.5 | 336,326 | 16.8 | 1,521,834 | 8.0 | |||||||||||||||||||
i-Hatch WTC Holdings, LLC | 1,000,000 | 6.7 | — | — | 1,000,000 | 5.3 | |||||||||||||||||||
i-Hatch Ventures, L.P. | 777,230 | 5.2 | 259,161 | 13.0 | 518,069 | 2.7 | |||||||||||||||||||
i-Hatch Advisors, L.P. | 15,063 | 0.1 | 11,298 | 0.6 | 3,765 | 0.0 | |||||||||||||||||||
ZT Holdings, LLC | 65,867 | 0.4 | 65,867 | 3.3 | — | — | |||||||||||||||||||
SAIF Capital Limited(5) | 1,600,000 | 10.7 | — | — | 1,600,000 | 8.5 | |||||||||||||||||||
WTC Investment, LLC(6) | 1,000,000 | 6.7 | — | — | 1,000,000 | 5.3 | |||||||||||||||||||
Melody Share Corporation(7) | 876,167 | 5.9 | 876,167 | 43.8 | — | — | |||||||||||||||||||
Subtotal | 10,791,897 | 72.4 | 1,829,966 | 91.5 | 8,961,931 | 47.4 | |||||||||||||||||||
Executive officers and directors | |||||||||||||||||||||||||
Jin Woo So | 334,000 | 2.2 | % | — | — | % | 334,000 | 1.8 | % | ||||||||||||||||
Sang Jun Park | 150,000 | 1.0 | — | — | 150,000 | 0.8 | |||||||||||||||||||
Dongjin Lee | 80,000 | 0.5 | — | — | 80,000 | 0.4 | |||||||||||||||||||
Jongseon Yoon | 76,000 | 0.5 | — | — | 76,000 | 0.4 | |||||||||||||||||||
Hoseok Kim | 68,000 | 0.5 | — | — | 68,000 | 0.4 | |||||||||||||||||||
Seong Yil Kwon | 68,000 | 0.5 | — | — | 68,000 | 0.4 | |||||||||||||||||||
Sokbom Kim | 25,000 | 0.2 | — | — | 25,000 | 0.1 | |||||||||||||||||||
Jinsoo Yoon | 10,000 | 0.1 | — | — | 10,000 | 0.1 | |||||||||||||||||||
Jay Hyun Kim | 10,000 | 0.1 | — | — | 10,000 | 0.1 | |||||||||||||||||||
Dan Nemo(8) | 3,640 | 0.0 | 625 | 0.0 | 3,015 | 0.0 | |||||||||||||||||||
Joong Seok Shin | 2,943 | 0.0 | — | — | 2,943 | 0.0 | |||||||||||||||||||
All current directors and executive officers as a group | 827,583 | 5.6 | 625 | 0.0 | 826,958 | 4.4 | |||||||||||||||||||
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Shares beneficially | Shares beneficially | ||||||||||||||||||||||||
owned prior to this | Shares to be sold as | owned after this | |||||||||||||||||||||||
offering | part of this offering | offering | |||||||||||||||||||||||
Other selling shareholders | Number | Percent | Number | Percent | Number | Percent | |||||||||||||||||||
General Atlantic Partners 64, L.P. and affiliate(2)(9) | 597,311 | 4.0 | % | 102,521 | 5.1 | % | 494,790 | 2.6 | % | ||||||||||||||||
General Atlantic Partners 64, L.P. | 508,061 | 3.4 | 87,202 | 4.4 | 420,859 | 2.2 | |||||||||||||||||||
GAP Coinvestment Partners II, L.P. | 89,250 | 0.6 | 15,319 | 0.8 | 73,931 | 0.4 | |||||||||||||||||||
The Washington Dinner Club, LLC(10) | 135,725 | 0.9 | 23,296 | 1.2 | 112,429 | 0.6 | |||||||||||||||||||
Mark Caron(11) | 118,862 | 0.8 | 20,401 | 1.0 | 98,461 | 0.5 | |||||||||||||||||||
Parande SAS(12) | 49,930 | 0.3 | 8,570 | 0.4 | 41,360 | 0.2 | |||||||||||||||||||
Michael Miller(13) | 32,668 | 0.2 | 5,607 | 0.3 | 27,061 | 0.1 | |||||||||||||||||||
David Warmflash(14) | 21,964 | 0.1 | 3,770 | 0.2 | 18,194 | 0.1 | |||||||||||||||||||
Harto Family Partners, L.P.(15) | 10,682 | 0.1 | 1,833 | 0.1 | 8,849 | 0.0 | |||||||||||||||||||
K&A Trust(16) | 10,682 | 0.1 | 1,833 | 0.1 | 8,849 | 0.0 | |||||||||||||||||||
Joel-Andre Ornstein(17) | 3,104 | 0.0 | 533 | 0.0 | 2,571 | 0.0 | |||||||||||||||||||
Glenn S. Dorsey(18) | 2,006 | 0.0 | 344 | 0.0 | 1,662 | 0.0 | |||||||||||||||||||
Vairam Alagappan(19) | 1,963 | 0.0 | 337 | 0.0 | 1,626 | 0.0 | |||||||||||||||||||
Maureen C. Tompkins(20) | 949 | 0.0 | 163 | 0.0 | 786 | 0.0 | |||||||||||||||||||
A. Douglas Henderson Revocable Trust(21) | 281 | 0.0 | 48 | 0.0 | 233 | 0.0 | |||||||||||||||||||
James M. Lyon(22) | 281 | 0.0 | 48 | 0.0 | 233 | 0.0 | |||||||||||||||||||
Lyon, Stubbs & Tompkins, Inc.(23) | 281 | 0.0 | 48 | 0.0 | 233 | 0.0 | |||||||||||||||||||
Dan Oakley(24) | 126 | 0.0 | 22 | 0.0 | 104 | 0.0 | |||||||||||||||||||
Mount Washington Associate LLC(25) | 105 | 0.0 | 18 | 0.0 | 87 | 0.0 | |||||||||||||||||||
Ted Nierenberg(26) | 99 | 0.0 | 17 | 0.0 | 82 | 0.0 | |||||||||||||||||||
Subtotal | 987,019 | 6.6 | 169,409 | 8.5 | 817,610 | 4.3 | |||||||||||||||||||
Others | 2,300,717 | 15.4 | % | — | — | 8,300,717 | (27) | 43.9 | |||||||||||||||||
Total | 14,907,216 | 100.0 | % | 2,000,000 | 100 | % | 18,907,216 | 100.0 | % | ||||||||||||||||
(1) | Consists of 2,000,000 common shares held by SK Telecom and 1,000,000 common shares held by Mr. Tae Won Chey. Mr. Tae Won Chey is the chairman of SK Corp., the holding company of the SK Business Group and an affiliate of us and SK Telecom. In addition to the 1,000,000 shares directly held by Mr. Chey, he also beneficially owns, by virtue of his position as the chairman of SK Corp. the 2,000,000 shares of our common stock held directly by SK Telecom. The percentage ownership of our common shares directly held by Mr. Chey was reduced from 53.3% to 9.5% due to the sale of 4,600,000 common shares held by Mr. Chey to SAIF Capital Limited, Nokia Venture Partners II, L.P., i-Hatch WTC Holdings, LLC and WTC Investment, LLC in December 2004 as described below. The address of SK Telecom is 11, Euljiro 2-ga, Jung-gu, Seoul, Korea. Mr. Chey’s address is SK Cheongam-dae 1301, Cheongam-dong 64-29, Yongsan-gu, Seoul, Korea. | |
(2) | Under the terms of the divestiture agreement, as amended, we, Nokia Venture Partners II, L.P., i-Hatch WTC Holdings, LLC, an affiliate of i-Hatch Ventures, L.P., and General Atlantic Partners 64 L.P. agreed to give SK Telecom a right of first refusal with respect to any transactions that may result in a change of control. For a more detailed description of this agreement, see “Related Party Transactions — Divestiture Agreement”. | |
(3) | Includes 1,428,570 shares of Series A preferred stock, including 15,750 shares owned by its affiliate, NVP II Affiliates Fund, L.P., and 29,000 shares of Series C preferred stock. Nokia Venture Partners II, L.P. is a Delaware limited partnership managed by its general partner, N.V.P. II, L.L.C. Nokia Venture Partners II, L.P. was formed to invest in the securities of early-stage, privately-held companies in the Internet, software, communications and related sectors. The limited partners of Nokia Venture Partners II, L.P. consist of various individuals, corporations, partnerships, insurance companies, pension plans and other institutions that have no decision-making authority over the management of the partnership. N.V.P. II, L.L.C. is a Delaware limited liability company, which is managed by John A. Malloy, John E. Gardner, W. Peter Buhl, Jonathan E. Ebinger and Tantti Oy, a Finnish corporation owned and controlled by Antti S. Kokkinen, under its operating agreement. The address of Nokia Venture Partners II, L.P. and NVP II Affiliates Funds, L.P. is 545 Middlefield Road, Suite 210, Menlo Park, CA 94025. | |
(4) | Consists of 1,000,000 shares of common stock owned by i-Hatch WTC Holdings, LLC, 756,230 shares of Series B preferred stock owned by i-Hatch Ventures, L.P., 15,063 shares of Series B preferred stock of i-Hatch Advisors, L.P. 65,867 shares of |
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Series B preferred stock of ZT Holdings LLC and 21,000 shares of Series C preferred stock owned by i-Hatch Ventures, L.P. i-Hatch Ventures, L.P. is a Delaware limited partnership managed by its general partner i-Hatch Ventures, LLC. i-Hatch Ventures, L.P. was formed to invest in the securities of early-stage, privately-owned businesses. The limited partners of i-Hatch Ventures, L.P. consist of various individuals, endowments and other institutions that have no decision-making authority over the management of the partnership. i-Hatch Ventures, LLC is a Delaware limited liability company, which is managed by Randolph L. Austin, Jr. and Bradford L. Farkas, under its operating agreement. The address of i-Hatch Ventures, L.P., i-Hach Advisors, L.P., ZT Holdings LLC and i-Hatch WTC Holdings, LLC is 599 Broadway, 8th Floor, New York, NY 10021. | ||
(5) | The address of SAIF Capital Limited is 136, St. Christopher Street, Valetta, VLT 05, Malta. | |
(6) | The address of WTC Investment, LLC is 2180 Sand Hill Road, Menlo Park, CA 94025. | |
(7) | Represents ownership of Series C preferred shares of Melody Share Corporation, which is consolidated into our financial statements. On June 23, 2005, Melody Share Corporation was incorporated as an exempt limited liability company under the laws of the Cayman Islands. The sole shareholder of Melody Share Corporation is Maples Finance Jersey Limited. Maples Finance Jersey Limited holds the shares as trustee under a declaration of trust, the ultimate beneficiaries of which will be certain charities. Maples Finance Limited is a company duly incorporated and validly existing in the Cayman Islands and licensed to undertake trust business pursuant to the provisions of the Banks and Trust Companies Law (2003 Revision). Maples Finance Limited is also a licensed mutual fund administrator pursuant to the Mutual Funds Law (2003 Revision) of the Cayman Islands and is regulated by the Cayman Islands Monetary Authority. Maples Finance Jersey Limited acts as an administrator of Melody Share Corporation pursuant to an administration agreement and is regulated by the Jersey Financial Services Commission in the carrying on of Trust Company Business. Maples Finance Limited and Maples Finance Jersey Limited are under common ownership, but are two legally separate companies. Voting control in respect of the securities issued by Melody Share Corporation is held by the person in whose name such securities are registered in its register of members. Accordingly, Messrs. Anthony Travers, Adrian Pope and Julian Reddyhough, who are the directors of Maple Finance Limited have voting control over Melody Share Corporation subject to the terms of the constituent documents of Maple Finance Limited, the directions of the shareholders of Maple Finance Limited and the terms of the trust upon which Maple Finance Limited holds the shares in Melody Share Corporation, all as permitted under the laws of the Cayman Islands. In accordance with the constitutional documents of Melody Share Corporation and as permitted by the laws of the Cayman Islands, the directors of Melody Share Corporation have dispositive powers (subject to any directions given by Maples Finance Limited, the sole shareholder) over the assets of Melody Share Corporation. The directors of Melody Share Corporation are Messrs. Colin Borman, Liam Jones and Steven Wilderspin, all of whom are officers of Maples Finance Jersey Limited, an entity that is under common ownership with Maples Finance Limited. Melody Share Corporation has entered in to an administration agreement pursuant to which a number of matters have been delegated to Maples Finance Jersey Limited. These matters include converting the Series C preferred shares into common shares and selling them in the form of ADSs in this offering. Melody Share Corporation has undertaken to us and WT Investor Corp that it will not enter into any agreements other than the administration agreement and related agreements, and that it will not vary, amend or waive the administration agreement and that it will enforce the administration agreement against Maples Finance Jersey Limited. The registered office of Melody Share Corporation is P.O. Box 1093GT, Queensgate House, George Town, Grand Cayman, Cayman Islands, British West Indies. | |
(8) | The address of Dan Nemo is 221 East 76th Street #2D, New York, NY 10021. | |
(9) | Represents ownership of Series B preferred shares. Includes 89,250 shares of Series B preferred shares owned by its affiliate, GAP Coinvestment Partners II, L.P. The investment entities affiliated with General Atlantic LLC, a Delaware limited liability company, or General Atlantic, are General Atlantic Partners 64, L.P., a Delaware limited partnership, or GAP 64, and GAP Coinvestment Partners II, L.P., a Delaware limited partnership, or GAP Coinvestment. General Atlantic is a global private equity firm that invests in innovative companies where information technology or intellectual property is a key driver of growth. General Atlantic is the general partner of GAP 64. The Managing Directors of General Atlantic are Steven A. Denning (Chairman), William E. Ford (President), Peter L. Bloom, Mark F. Dzialga, Klaus Esser, Vince Feng, William O. Grabe, Abhay Havaldar, David C. Hodgson, Braden R. Kelly, Rene M. Kern, Marc F. McMorris, Matthew Nimetz, Franchon M. Smithson, Tom Tinsley, Philip P. Trahanas and Florian P. Wendelstadt. Philip P. Trahanas was a director of Ztango, Inc. from August 2001 to October 2004. The general partners of GAP Coinvestment are Managing Directors of General Atlantic. The address of General Atlantic, GAP 64 and GAP Coinvestment is c/o General Atlantic Service Corporation, 3 Pickwick Plaza, Greenwich, Connecticut 06830. |
(10) | The Washington Dinner Club, LLC is a Virginia limited liability company, which is managed by New Vantage Group, LLC, a Virginia limited liability company, and Calvert Simmons, an individual investor, under its operating agreement. New Vantage Group, LLC is managed by John May under its operating agreement. The address of Washington Dinner Club, LLC is 402 Maple Avenue, West Vienna, VA 22180. |
(11) | The address of Mark Caron is 145 W. Ridgewood Avenue, Ridgewood, NJ 07450. Mr. Caron was the CEO of Mobile Spring, Inc., a company that was merged into Ztango, Inc. Mr Caron served as CEO of Ztango from March 2003, upon the merger, to March 2004. |
(12) | Parande, SAS is a société anonyme or a corporation established under the laws of France. The representatives of Parande, SAS are Louis Duquesne and Didier Carlier (President). The address of Parande, SAS is 83 Rue Du Faubourg Saint Honore, 75008 Paris, France. |
(13) | The address of Michael Miller is 31 Pierce Lane, Norwich, VT 05055. |
(14) | The address of David Warmflash is c/o Sexter & Warmflash, P.C., 115 Broadway, 11th Floor New York, NY 10006. |
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(15) | Harto Family Partners, L.P. is a Delaware limited partnership, which is managed by its general partner, Amano, Inc. Maxine Ganer has voting control and dispositive power over Harto Family Partners. The address of Harto Family Partners, L.P. is c/o Ganer, Grossbach & Ganer, attn: Maxine Ganer, 1995 Broadway, 16th Floor, New York, NY 10023. |
(16) | K&A Trust is a trust. Judith Pace, Alan Novich, Maxine Ganer and Joshua Karter are its trustees and have voting control and dispositive power over K&A Trust. The address of K&A Trust is c/o Ganer, Grossbach & Ganer, attn: Maxine Ganer, 1995 Broadway, 16th Floor, New York, NY 10023. |
(17) | The address of Joel-Andre Ornstein is c/o Euristates, Inc., 667 Madison Avenue, 11th Floor, New York, NY 10021. He was a director of Ztango, Inc. from September 1999 to July 2001. |
(18) | The address of Glenn S. Dorsey is c/o Jamison Prince Asset Management, 777 Third Avenue, 18th Floor, New York, NY 10017. |
(19) | The address of Vairam Alagappan is 8 Amber Lane, Oyster Bay Cove, NY 11771. |
(20) | The address of Maureen C. Tompkins is 93 Gaynor Avenue, Manhasset, NY 11030. |
(21) | A. Douglas Henderson Revocable Trust is a personal revocable trust of Douglas Henderson. The address of Douglas Henderson is 5600 N.W. 165th ST. Reddick, FL 32686. |
(22) | The address of James M. Lyon is 164 East 72nd Street Apt. 12/BC, New York, NY 10021. |
(23) | Lyon, Stubbs & Tompkins, Inc., is a Delaware corporation, closely held by its shareholders, James M. Lyon (Chairman of the Board of Directors), Maureen C. Tompkins (Director and President, Secretary and Treasurer), Glenn S. Dorsey and Michael B Stubbs. James M. Lyon, Maureen C. Tompkins and Glenn Dorsey are also selling shareholders in this offering as indicated in the footnotes above. The address of Lyon, Stubbs & Tompkins, Inc. is 777 Third Avenue, New York, NY 10017. |
(24) | The address of Dan Oakley is 2710 Lemon Tree Lane, Charlotte, NC 28211. |
(25) | Mount Washington Associates, L.L.C. is a Maryland limited liability company, managed by J.E. Corette III under its operating agreement. The address of Mount Washington Associates, L.L.C. is 1200 19th Street, NW, Washington DC 20034. |
(26) | The address of Ted Nierenberg is 15 Middle Patent Road, Armonk, NY 10504. |
(27) | Includes common shares underlying the ADSs offered to the public in this offering, including 4,000,000 common shares newly issued by us. |
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Registration rights |
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Right of first refusal and right of first offer |
Rights that expire upon the closing of this offering |
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• | up to 2,120,000 shares of our common shares (inclusive of options or warrants therefore), taking into account share splits, share dividends or other similar event, issued to (i) our employees, officers, directors, contractors, advisors or consultants or a legal entity of which we have at least 50% of shares or equity holdings, or (ii) a legal entity, a partnership or an entity for the benefit of such employees, officers, directors, contractors, advisors or consultants of us or a legal entity of which we have at least 50% of shares or equity holdings pursuant to incentive agreements or incentive plans approved by our board of directors or our shareholders, as the case may be; | |
• | any shares or share-related securities issued in connection with any stock split, dividend distribution in shares or other similar event in which the existing shareholders are entitled to participate pro rata; | |
• | any shares or share-related securities issued upon the exercise, conversion or exchange of any outstanding convertible securities, options (including the 2,120,000 shares mentioned above in connection with bona fide employment-related share purchase or option plans) or warrants; |
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• | any shares or share-related securities issued pursuant to (i) the acquisition of another corporation or entity by us or any of our subsidiaries by consolidation, merger, purchase of assets or businesses; provided, however, that should such transaction involve an affiliate (as defined in Section 4.6 of the First Amended and Restated Preferred Stock Investors Rights Agreement) of SK Telecom, such transaction must be approved by a majority of the members of the board of directors, or (ii) any other reorganization approved in accordance with Section 6.4(b) of the First Amended and Restated Preferred Stock Investors Rights Agreement; and | |
• | any shares issued pursuant to a the listing of our common stock, or depository receipts representing our common stock, on the New York Stock Exchange, the NASDAQ stock market or any other “national securities exchange” which is registered pursuant to Section 6 of the Securities Exchange Act of 1934, as amended. |
• | as necessary, or | |
• | at the request of shareholders holding an aggregate of 3% or more of our outstanding shares. |
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• | amending our articles of incorporation, | |
• | removing a director, | |
• | effecting a capital reduction, | |
• | effecting any dissolution, merger or consolidation with respect to us, | |
• | transferring all or any significant part of our business, | |
• | acquiring all of the business of any other company or a part of the business of any other company having a material effect on our business, | |
• | issuing new shares at a price below the par value, or | |
• | any other matters for which such resolution is required under relevant law and regulations. |
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How will I receive dividends and other distributions on the shares underlying my ADSs? |
• | Cash.The depositary will distribute any U.S. dollars available to it resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other distribution or portion thereof (to the extent applicable), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld, (ii) such distribution being impermissible or impracticable with respect to certain registered holders, and (iii) deduction of the depositary’s expenses in (1) converting any foreign currency to U.S. dollars to the extent that it determines that such conversion may be made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the Depositary may determine to the extent that it determines |
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that such transfer may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority required for such conversion or transfer, which is obtainable at a reasonable cost and within a reasonable time and (4) making any sale by public or private means in any commercially reasonable manner.If exchange rates fluctuate during a time when the depositary cannot convert a foreign currency, you may lose some or all of the value of the distribution. | ||
• | Shares.In the case of a distribution in shares, the depositary will issue additional ADRs to evidence the number of ADSs representing such shares. Only whole ADSs will be issued. Any shares which would result in fractional ADSs will be sold and the net proceeds will be distributed in the same manner as cash to the ADR holders entitled thereto. | |
• | Rights to receive additional shares.In the case of a distribution of rights to subscribe for additional shares or other rights, if we provide satisfactory evidence that the depositary may lawfully distribute such rights, the depositary will distribute warrants or other instruments representing such rights. However, if we do not furnish such evidence, the depositary may: |
• | sell such rights if practicable and distribute the net proceeds as cash; or | |
• | if it is not practicable to sell such rights, do nothing and allow such rights to lapse, in which case ADR holders will receive nothing. |
We have no obligation to file a registration statement under the Securities Act in order to make any rights available to ADR holders. |
• | Other Distributions.In the case of a distribution of securities or property other than those described above, the depositary may either (i) distribute such securities or property in any manner it deems equitable and practicable or (ii) to the extent the depositary deems distribution of such securities or property not to be equitable and practicable, sell such securities or property and distribute any net proceeds in the same way it distributes cash. |
How does the depositary issue ADSs? |
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How do ADR holders cancel an ADS and obtain deposited securities? |
• | temporary delays caused by closing our transfer books or those of the depositary or the deposit of shares in connection with voting at a shareholders’ meeting, or the payment of dividends; | |
• | the payment of fees, taxes and similar charges; or | |
• | compliance with any U.S. or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of deposited securities. |
• | to receive a dividend, distribution or rights, | |
• | to give instructions for the exercise of voting rights at a meeting of holders of common shares or other deposited securities, |
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• | for the determination of the registered holders who shall be responsible for the fee assessed by the depositary for administration of the ADR program and for any expenses as provided for in the ADR, or | |
• | to receive any notice or to act in respect of other matters, |
How do I vote? |
Will I be able to view our reports? |
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What fees and expenses will I be responsible for paying? |
• | to the extent not prohibited by the rules of any stock exchange or interdealer quotation system upon which the ADSs are traded, a fee of US$1.50 per ADR or ADRs for transfers of certificated or direct registration ADRs; | |
• | a fee of US$0.02 or less per ADS (or portion thereof) for any cash distribution made pursuant to the Deposit Agreement; | |
• | a fee of US$0.02 per ADS (or portion thereof) per year to cover such expenses as are incurred, and for services performed, by the depositary in administering our ADR program (which fee shall be assessed against holders of ADRs as of the record date set by the depositary not more than once each calendar year and shall be payable in the manner described in the next succeeding provision); | |
• | any other charge payable by any of the depositary, any of the depositary’s agents, including, without limitation, the custodian, or the agents of the depositary’s agents, in connection with the servicing of our shares or other deposited securities (which charge shall be assessed against registered holders of our ADRs as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such registered holders or by deducting such charge from one or more cash dividends or other cash distributions); | |
• | a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to those holders entitled thereto; | |
• | stock transfer or other taxes and other governmental charges; | |
• | cable, telex and facsimile transmission and delivery charges incurred at your request; | |
• | transfer or registration fees for the registration of transfer of deposited securities on any applicable register, or the books of a CSD, in connection with the deposit or withdrawal of deposited securities; | |
• | expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars; and | |
• | such fees and expenses as are incurred by the depositary (including without limitation expenses incurred in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable law, rule or regulation. |
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• | amend the form of ADR; | |
• | distribute additional or amended ADRs; | |
• | distribute cash, securities or other property it has received in connection with such actions; | |
• | sell any securities or property received and distribute the proceeds as cash; or | |
• | none of the above. |
How may the deposit agreement be amended? |
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How may the deposit agreement be terminated? |
Limits on our obligations and the obligations of the depositary; limits on liability to ADR holders and holders of ADSs |
• | payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the registration of transfers of shares or other deposited securities upon any applicable register and (iii) any applicable fees and expenses described in the ADR; | |
• | the production of proof satisfactory to it of (i) the identity of any signatory and genuineness of any signature and (ii) such other information, including without limitation, information as to citizenship, residence, exchange control approval, beneficial ownership of any securities, payment of applicable Korean or other taxes or governmental charges, or legal or beneficial ownership and the nature of such interest, information relating to the registration of the shares on the books maintained by or on our behalf for the transfer and registration of shares) or the books of the CSD of the shares presented for deposit, compliance with applicable law, regulations, provisions of or governing deposited securities and terms of the deposit agreement and the ADR, as it may deem necessary or proper; and | |
• | compliance with such regulations as the depositary may establish consistent with the deposit agreement. |
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• | present or future law, rule or regulation of the United States, Korea any other country, or of any governmental or regulatory authority or securities exchange or market or automated quotation system, the provisions of or governing any deposited securities, any present or future provision of our charter, any act of God, war, terrorism or other circumstance beyond its control shall prevent, delay or subject to any civil or criminal penalty any act which the deposit agreement or the ADRs provides shall be done or performed by it or them (including, without limitation, voting); | |
• | it exercises or fails to exercise discretion under the deposit agreement or the ADR; | |
• | it performs its obligations without gross negligence or bad faith; | |
• | it takes any action or refrains from taking any action in reliance upon the advice of or information from legal counsel, accountants, any person presenting shares for deposit, any registered holder of ADRs, or any other person believed by it to be competent to give such advice or information; or | |
• | it relies upon any written notice, request, direction or other document believed by it to be genuine and to have been signed or presented by the proper party or parties. |
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• | issue, register or transfer an ADR or ADRs; | |
• | effect a split-up or combination of ADRs; | |
• | deliver distributions on any such ADRs; or | |
• | permit the withdrawal of deposited securities (unless the deposit agreement provides otherwise), until the following conditions have been met: |
• | the holder has paid all taxes, governmental charges, and fees and expenses as required in the deposit agreement; | |
• | the holder has provided the depositary with any information it may deem necessary or proper, including, without limitation, proof of identity and the genuineness of any signature; and | |
• | the holder has complied with such regulations as the depositary may establish under the deposit agreement. |
• | the depositary has received collateral for the full market value of the pre-released ADSs (marked to market daily); and | |
• | each recipient of pre-released ADSs agrees in writing that he or she |
• | owns the underlying shares, | |
• | assigns all rights in such shares to the depositary, | |
• | holds such shares for the account of the depositary and | |
• | will deliver such shares to the custodian as soon as practicable, and promptly if the depositary so demands. |
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Shares eligible | ||||||
Days after date of this prospectus | for sale | Comment | ||||
Upon completion of offering | 168,880 | common shares not subject to the 180-day lock-up currently held by our existing shareholders (except for common shares beneficially owned by our “affiliates” as such term is defined in Rule 144 under the Securities Act), which were acquired in an “offshore transaction” meeting the requirements of Regulation S under the Securities Act and thus are not “restricted securities” (as such term is defined in Rule 144 under the Securities Act) and are freely tradable outside the United States pursuant to Regulation S under the Securities Act or into the United States pursuant to Section 4(1) of the Securities Act |
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Shares eligible | ||||||
Days after date of this prospectus | for sale | Comment | ||||
224,555 | common shares not subject to the 180-day lock-up currently held by our existing shareholders, who are “U.S. persons” (as such term is defined in Regulation S under the Securities Act), which were acquired in transactions exempt from registration but are “restricted securities” as defined in Rule 144 and that become tradable only upon registration or pursuant to an exemption from registration, such as Rule 144 or Rule 144(k) | |||||
180 days | 2,834,342 | common shares subject to the 180-day lock-up currently held by our existing shareholders (except for common shares beneficially owned by our “affiliates” (as such term is defined in Rule 144 under the Securities Act)), which were acquired in an “offshore transaction” meeting the requirements of Regulation S under the Securities Act and thus are not “restricted securities” (as such term is defined in Rule 144 under the Securities Act) and are freely tradable outside the United States pursuant to Regulation S under the Securities Act or into the United States pursuant to Section 4(1) of the Securities Act after the expiration of the 180-day lock-up | ||||
Thereafter | 11,679,439 | common shares (i) owned by our existing shareholders who are “affiliates” as such term is defined in Rule 144 under the Securities Act, such as SK Telecom and Mr. Tae Won Chey, our directors and executive officers listed under “Management”, and Nokia Venture Partners II and its affiliates or (ii) owned by certain other existing shareholders, including i-Hatch Ventures, its affiliates and other holders of our Series B preferred shares, who are “U.S. persons” (as such term is defined in Regulation S under the Securities Act); all of which were acquired in transactions exempt from registration but are “restricted securities” as defined in Rule 144 and that become tradable only upon registration or pursuant to an exemption from registration, such as Rule 144 or Rule 144(k), after the expiration of the 180-day lock-up |
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Shares eligible | ||||||
Days after date of this prospectus | for sale | Comment | ||||
225,500 | common shares to be acquired by our employees who are not “U.S. persons” as such term is defined in Regulation S under the Securities Act and are not our “affiliates” as such term is defined in Rule 144 under the Securities Act, pursuant to the exercise by such employees of their vested employee stock options, which exercise we believe would qualify as an “offshore transaction” meeting the requirements of Regulation S under the Securities Act and thus common shares so acquired would not be “restricted securities” (as such term is defined in Rule 144 under the Securities Act) and are freely tradable outside the United States pursuant to Regulation S under the Securities Act or into the United States pursuant to Section 4(1) of the Securities Act, after the expiration of the 180-day lock-up | |||||
1,227,126 | common shares to be acquired by our employees who are “U.S. persons” (as such term is defined in Regulation S under the Securities Act) or who are our “affiliates” (as such term is defined in Rule 144 under the Securities Act), pursuant to the exercise by such employees of their vested employee stock options, and that become tradable only upon registration or pursuant to an exemption from registration, such as Rule 144 or Rule 144(k), after the expiration of the 180-day lock-up |
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• | is not deemed to have been our affiliate at any time during the three months preceding a sale, | |
• | beneficially owned the shares proposed to be sold for at least two years (including the holding period of any prior owner except an affiliate), and | |
• | is not an affiliate at the time of the sale, |
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Dividends on the shares or ADSs |
Taxation of capital gains |
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Tax treaties |
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Inheritance tax and gift tax |
Securities transaction tax |
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• | dealers in securities or currencies; | |
• | financial institutions; | |
• | regulated investment companies; | |
• | real estate investment trusts; | |
• | tax-exempt entities; | |
• | insurance companies; | |
• | traders in securities that elect to use the mark-to-market method of accounting for their securities; | |
• | persons holding shares or ADSs as part of a hedging, integrated, conversion or constructive sale transaction or a straddle; | |
• | persons owning 10% or more of our voting stock; | |
• | persons liable for alternative minimum tax; | |
• | investors in pass-through entities; or | |
• | persons whose “functional currency” is not the U.S. dollar. |
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• | an individual citizen or resident of the United States; | |
• | a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; | |
• | an estate the income of which is subject to United States federal income taxation regardless of its source; or | |
• | a trust: |
— that is subject to the supervision of a court within the United States and the control of one or more United States persons as described in section 7701(a)(30) of the Code, or | |
— that has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. |
ADSs |
Taxation of dividends |
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• | have held ADSs or shares for less than a specified minimum period during which you are not protected from risk of loss; or | |
• | are obligated to make payments related to the dividends, |
Passive foreign investment companies |
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• | at least 75% of our gross income is passive income, or | |
• | at least 50% of the value (determined on a quarterly basis) of our assets is attributable to assets that produce or are held for the production of passive income. |
• | the excess distribution or gain will be allocated ratably over your holding period for the ADSs or shares, | |
• | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we become a PFIC, will be treated as ordinary income, and | |
• | the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
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Taxation of capital gains |
Information reporting and backup withholding |
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Name | Number of ADSs | |||
J.P. Morgan Securities Inc. | ||||
Merrill Lynch, Pierce, Fenner & Smith Incorporated | ||||
Lehman Brothers Inc. | ||||
Total | ||||
Name | Number of ADSs | |||
J.P. Morgan Securities Ltd. | ||||
Merrill Lynch International | ||||
Lehman Brothers International (Europe) | ||||
Total | ||||
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Per Share | Without Option | With Option | ||||||||||
Public offering price | $ | $ | $ | |||||||||
Underwriting discount | $ | $ | $ | |||||||||
Proceeds, before expenses, to us | $ | $ | $ | |||||||||
Proceeds, before expenses, to the selling shareholders | $ | $ | $ |
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• | Over-allotment involves sales by the underwriters of ADSs in excess of the number of ADSs the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of ADSs over-allotted by the underwriters is not greater than the number of ADSs that they may purchase in the over-allotment option. In a naked short position, the number of ADSs involved is greater than the number of ADSs in the over-allotment option. The underwriters may close out any short position by either exercising their over-allotment option and/or purchasing ADSs in the open market. | |
• | Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. | |
• | Syndicate covering transactions involve purchases of the ADSs in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of ADSs to close out the short position, the underwrites will consider, among other things, the price of ADSs available for purchase in the open market as compared to the price at which they may purchase ADSs through the over-allotment option. If the underwriters sell more ADSs than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying ADSs in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the ADSs in the open market after pricing that could adversely affect investors who purchase in the offering. | |
• | Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the ADSs originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
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General |
European Economic Area |
• | at any time to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; | |
• | at any time to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than€43,000,000 and (3) an annual net turnover of more than€50,000,000, as shown in its last annual or consolidated accounts; or | |
• | at any time in any other circumstances which do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive. |
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United Kingdom |
Singapore |
(a) | a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or | |
(b) | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, |
that shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the ADSs under Section 275 except: |
(1) | to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; | |
(2) | where no consideration is given for the transfer; or | |
�� | ||
(3) | by operation of law. |
Korea |
Hong Kong |
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Japan |
• | pursuant to an exemption from the registration requirements of, or otherwise in compliance with, the Securities and Exchange Law of Japan; and | |
• | in compliance with the other relevant laws and regulations of Japan. |
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Type of expenses | Amount | ||||
Securities and Exchange Commission registration fee | $ | 12,994 | |||
NASDAQ listing fee | 100,000 | ||||
National Association of Securities Dealers, Inc. filing fee | 11,540 | ||||
Printing and engraving expenses | 380,000 | ||||
Legal fees and expenses | 1,800,000 | ||||
Accounting fees and expenses | 1,500,000 | ||||
Depositary expense | — | ||||
Miscellaneous | 195,466 | ||||
Total | $ | 4,000,000 | |||
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Page | ||||
WIDERTHAN CO., LTD. | ||||
Unaudited Consolidated Financial Statements | ||||
Unaudited Consolidated Balance Sheet of WiderThan Co., Ltd. as of December 31, 2004 and September 30, 2005 | F-2 | |||
Unaudited Consolidated Statements of Operations of WiderThan Co., Ltd. for the nine months ended September 30, 2004 and 2005 | F-3 | |||
Unaudited Consolidated Statements of Changes in Stockholders’ Equity of WiderThan Co., Ltd. for the nine months ended September 30, 2004 and 2005 | F-4 | |||
Unaudited Consolidated Statements of Cash Flows of WiderThan Co., Ltd. for the nine months ended September 30, 2004 and 2005 | F-5 | |||
Notes to Unaudited Consolidated Financial Statements of WiderThan Co., Ltd. | F-6 | |||
Report of Independent Registered Public Accounting Firm | F-23 | |||
Consolidated Financial Statements | ||||
Consolidated Balance Sheets of WiderThan Co., Ltd. as of December 31, 2003 and 2004 | F-24 | |||
Consolidated Statements of Operations of WiderThan Co., Ltd. for the years ended December 31, 2002, 2003 and 2004 | F-25 | |||
Consolidated Statements of Changes in Stockholders’ Equity of WiderThan Co., Ltd. for the years ended December 31, 2002, 2003 and 2004 | F-26 | |||
Consolidated Statements of Cash Flows of WiderThan Co., Ltd. for the years ended December 31, 2002, 2003 and 2004 | F-27 | |||
Notes to Consolidated Financial Statements of WiderThan Co., Ltd. | F-28 | |||
ZTANGO, INC. | ||||
Report of Independent Auditors | F-48 | |||
Financial Statements | ||||
Balance Sheet of Ztango, Inc. as of October 8, 2004 | F-49 | |||
Statement of Operations of Ztango, Inc. for the period from January 1, 2004 to October 8, 2004 | F-50 | |||
Statement of Changes in Stockholders’ Equity of Ztango, Inc. for the period from January 1, 2004 to October 8, 2004 | F-51 | |||
Statement of Cash Flows of Ztango, Inc. for the period from January 1, 2004 to October 8, 2004 | F-52 | |||
Notes to Financial Statements | F-53 | |||
Report of Independent Auditors | F-62 | |||
Consolidated Financial Statements | ||||
Consolidated Balance Sheet of Ztango, Inc. as of December 31, 2003 | F-63 | |||
Consolidated Statement of Operations of Ztango, Inc. for the year ended December 31, 2003 | F-64 | |||
Consolidated Statement of Changes in Stockholders’ Equity of Ztango, Inc. for the year ended December 31, 2003 | F-65 | |||
Consolidated Statement of Cash Flows of Ztango, Inc. for the year ended December 31, 2003 | F-66 | |||
Notes to Consolidated Financial Statements | F-67 |
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September 30, 2005 | ||||||||||||||
Pro forma | ||||||||||||||
December 31, 2004 | September 30, 2005 | (Note 11) | ||||||||||||
(in thousands of US dollars, except share data) | ||||||||||||||
Assets | ||||||||||||||
Current assets | ||||||||||||||
Cash and cash equivalents | $ | 17,817 | $ | 18,853 | $ | 18,853 | ||||||||
Restricted cash | — | 8,069 | 8,069 | |||||||||||
Accounts receivable, net (from related parties of $13,050 and $14,218) | 18,763 | 24,797 | 24,797 | |||||||||||
Deferred costs | 1,116 | 11,399 | 11,399 | |||||||||||
Other current assets | 2,961 | 1,555 | 1,555 | |||||||||||
Total current assets | 40,657 | 64,673 | 64,673 | |||||||||||
Property, plant and equipment, net | 8,119 | 9,280 | 9,280 | |||||||||||
Goodwill | 18,399 | 18,092 | 18,092 | |||||||||||
Other non-current assets | 6,189 | 6,002 | 6,002 | |||||||||||
Total assets | $ | 73,364 | $ | 98,047 | $ | 98,047 | ||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||
Current liabilities | ||||||||||||||
Accounts payable (to related parties of $462 and $3,773) | $ | 11,348 | $ | 15,957 | $ | 15,957 | ||||||||
Deferred income | 1,345 | 4,618 | 4,618 | |||||||||||
Accrued expenses | 4,093 | 3,714 | 3,714 | |||||||||||
Taxes payable | 3,060 | 1,814 | 1,814 | |||||||||||
Short-term debt | — | 9,209 | 9,209 | |||||||||||
Cash rights liability | — | 1,314 | 1,314 | |||||||||||
Other current liabilities | 1,921 | 1,772 | 1,772 | |||||||||||
Total current liabilities | 21,767 | 38,398 | 38,398 | |||||||||||
Other non-current liabilities | 2,561 | 3,230 | 3,230 | |||||||||||
Total liabilities | $ | 24,328 | $ | 41,628 | $ | 41,628 | ||||||||
Commitments and contingencies | ||||||||||||||
Minority interest | — | 313 | 313 | |||||||||||
Convertible redeemable preferred stock: W500 par value | ||||||||||||||
Series A authorized 5 million shares, issued and outstanding 1,428,570, liquidation preference $4.39, no shares issued and outstanding on a pro forma basis | $ | 6,089 | $ | 6,233 | $ | — | ||||||||
Series B authorized 5 million shares, issued and outstanding 2,052,479, liquidation preference $13.51, no shares issued and outstanding on a pro forma basis | 19,571 | 20,293 | — | |||||||||||
Series C authorized 2 million shares, issued and outstanding 50,000, no shares issued and outstanding on a pro forma basis | — | 493 | — | |||||||||||
Total preferred stock | $ | 25,660 | $ | 27,019 | $ | — | ||||||||
Stockholders’ equity | ||||||||||||||
Common stock: W500 par value; | ||||||||||||||
authorized 30 million shares, issued and outstanding 10.5 million, 10.5 million and 14.0 million shares in 2004, 2005 and 2005 pro forma, respectively | $ | 4,537 | $ | 4,537 | $ | 6,231 | ||||||||
Additional paid-in capital | 3,050 | 4,619 | 29,944 | |||||||||||
Retained earnings | 10,582 | 15,582 | 15,582 | |||||||||||
Accumulated other comprehensive income | 5,207 | 4,349 | 4,349 | |||||||||||
Total stockholders’ equity | 23,376 | 29,087 | 56,106 | |||||||||||
Total liabilities and stockholders’ equity | $ | 73,364 | $ | 98,047 | $ | 98,047 | ||||||||
F-2
Table of Contents
September 30, 2004 | September 30, 2005 | |||||||||
(in thousands of US dollars, except share | ||||||||||
and per share data) | ||||||||||
Revenues | ||||||||||
Service revenues (includes revenues from related parties of $32,634 and $44,415) | ||||||||||
Carrier application services | $ | 15,601 | $ | 43,540 | ||||||
Content services | 11,446 | 13,872 | ||||||||
Professional and other services | 7,231 | 6,415 | ||||||||
Total service revenues | 34,278 | 63,827 | ||||||||
System sales (includes revenues from related parties of $946 and $3,617) | 5,907 | 6,248 | ||||||||
Total revenues | 40,185 | 70,075 | ||||||||
Costs and expenses | ||||||||||
Cost of service revenues (exclusive of depreciation and amortization, as shown below) (includes costs from related parties of $522 and $1,046) | 15,586 | 23,292 | ||||||||
Cost of system sales (exclusive of depreciation and amortization, as shown below) (includes costs from related parties of $4 and $79) | 4,919 | 4,049 | ||||||||
Depreciation and amortization | 1,622 | 3,104 | ||||||||
Selling and marketing | 1,236 | 3,538 | ||||||||
General and administrative | 9,830 | 17,255 | ||||||||
Research and development | 1,738 | 8,805 | ||||||||
Stock compensation (Note A) | 2,777 | 2,576 | ||||||||
Total costs and expenses | 37,708 | 62,619 | ||||||||
Operating income | 2,477 | 7,456 | ||||||||
Other income | ||||||||||
Interest income | 284 | 292 | ||||||||
Foreign exchange gain, net | 7 | 122 | ||||||||
Total other income | 291 | 414 | ||||||||
Income before taxes, minority interest and earnings from equity method investment | 2,768 | 7,870 | ||||||||
Income taxes | 939 | 2,552 | ||||||||
Income before minority interest and earnings from equity method investment | 1,829 | 5,318 | ||||||||
Minority interest | — | 687 | ||||||||
Gain (loss) from equity method investment | 33 | (134 | ) | |||||||
Net income | $ | 1,862 | $ | 5,871 | ||||||
Accretion of preferred shares | $ | (227 | ) | $ | (871 | ) | ||||
Amounts allocated to participating preferred shareholders | (336 | ) | (1,537 | ) | ||||||
Net income attributable to common shares | $ | 1,299 | $ | 3,463 | ||||||
Earning per share — basic | $ | 0.13 | $ | 0.33 | ||||||
Earning per share — diluted | $ | 0.13 | $ | 0.28 | ||||||
Weighted average number of shares — basic | 10,221,612 | 10,500,000 | ||||||||
Weighted average number of shares — diluted | 10,237,719 | 10,580,229 | ||||||||
Note A: | The following stock compensation expenses resulting from the Company’s stock options, ESOA, VSOs, VSO Replacement Cash Rights and KSO Cancellee Cash Rights are not included in the following categories: |
September 30, 2004 | September 30, 2005 | ||||||||
Cost of service revenues | $ | 994 | $ | 202 | |||||
Cost of system sales | 310 | 18 | |||||||
General and administrative | 969 | 1,913 | |||||||
Research and development | 504 | 443 | |||||||
Total | $ | 2,777 | $ | 2,576 | |||||
F-3
Table of Contents
Accumulated | ||||||||||||||||||||||||||
Common Stock | Additional | Other | ||||||||||||||||||||||||
Paid-in | Retained | Comprehensive | ||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income | Total | |||||||||||||||||||||
(in thousands of US dollars) | ||||||||||||||||||||||||||
Balance as of January 1, 2004 | 10,000,000 | $ | 4,322 | $ | — | $ | 7,138 | $ | 197 | $ | 11,657 | |||||||||||||||
Accretion of preferred shares | — | — | — | (227 | ) | — | (227 | ) | ||||||||||||||||||
Issuance of common shares(ESOA) | 500,000 | 215 | 2,837 | — | — | 3,052 | ||||||||||||||||||||
Stock options | — | — | 154 | — | — | 154 | ||||||||||||||||||||
Comprehensive income: | — | — | — | — | — | — | ||||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | 684 | 684 | ||||||||||||||||||||
Net income | — | — | — | 1,862 | — | 1,862 | ||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | 2,546 | ||||||||||||||||||||
Balance as of September 30, 2004 | 10,500,000 | $ | 4,537 | $ | 2,991 | $ | 8,773 | $ | 881 | $ | 17,182 | |||||||||||||||
Balance as of January 1, 2005 | 10,500,000 | $ | 4,537 | $ | 3,050 | $ | 10,582 | $ | 5,207 | $ | 23,376 | |||||||||||||||
Accretion of preferred shares | — | — | — | (871 | ) | — | (871 | ) | ||||||||||||||||||
Issuance of KSO Cancellee Cash Rights | — | — | 85 | — | — | 85 | ||||||||||||||||||||
Stock options | — | — | 1,484 | — | — | 1,484 | ||||||||||||||||||||
Comprehensive income: | — | — | — | — | — | — | ||||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | (858 | ) | (858 | ) | ||||||||||||||||||
Net income | — | — | — | 5,871 | — | 5,871 | ||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | 5,013 | ||||||||||||||||||||
Balance as of September 30, 2005 | 10,500,000 | $ | 4,537 | $ | 4,619 | $ | 15,582 | $ | 4,349 | $ | 29,087 | |||||||||||||||
F-4
Table of Contents
September 30, 2004 | September 30, 2005 | ||||||||||
(in thousands of US dollars) | |||||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 1,862 | $ | 5,871 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 1,622 | 3,104 | |||||||||
Stock compensation expenses | 2,777 | 2,576 | |||||||||
Minority interest | — | (687 | ) | ||||||||
Foreign exchange translation gain, net | (7 | ) | (122 | ) | |||||||
Equity in (gain) loss of related equity investment | (33 | ) | 134 | ||||||||
Provision for severance benefits | 678 | 842 | |||||||||
Change in operating assets and liabilities: | |||||||||||
Increase in restricted cash | — | (8,069 | ) | ||||||||
Increase in accounts receivable | (3,673 | ) | (6,171 | ) | |||||||
Increase in deferred costs | (1,597 | ) | (11,174 | ) | |||||||
Decrease in other assets | 2,750 | 2,088 | |||||||||
Increase (decrease) in trade accounts payable | (451 | ) | 4,786 | ||||||||
Increase in deferred income | 471 | 3,314 | |||||||||
Decrease in accrued expenses | (843 | ) | (376 | ) | |||||||
Decrease in taxes payable | (1,000 | ) | (1,253 | ) | |||||||
Payment of severance benefits | (17 | ) | (202 | ) | |||||||
Increase (decrease) in other liabilities | (267 | ) | 335 | ||||||||
Net cash provided by (used in) operating activities | 2,272 | (5,004 | ) | ||||||||
Cash flows from investing activities: | |||||||||||
Purchase of property, plant and equipment | (3,663 | ) | (4,399 | ) | |||||||
Proceeds from sales of property, plant and equipment | 10 | 54 | |||||||||
Refund of purchase consideration | — | 190 | |||||||||
Net cash used in investing activities | (3,653 | ) | (4,155 | ) | |||||||
Cash flows from financing activities: | |||||||||||
Issuance of common, net | 430 | — | |||||||||
Issuance of short-term debt | — | 9,209 | |||||||||
Issuance of preferred stock | — | 469 | |||||||||
Issuance of common shares by WT Investor Corp. to minority interest holders | — | 1,000 | |||||||||
Net cash provided by financing activities | 430 | 10,678 | |||||||||
Effect of exchange rate changes on cash and cash equivalents | (719 | ) | (483 | ) | |||||||
Net decrease in cash and cash equivalents | (1,670 | ) | 1,036 | ||||||||
Cash and cash equivalents: | |||||||||||
Beginning of year | 10,826 | 17,817 | |||||||||
End of period | $ | 9,156 | $ | 18,853 | |||||||
F-5
Table of Contents
1. | Basis of Presentation |
2. | Acquisition of WiderThan Americas |
F-6
Table of Contents
2004 | ||||
Revenue | $ | 48,678 | ||
Net income | 1,596 | |||
Accretion of preferred shares | (624 | ) | ||
Net income attributable to common shares | $ | 348 | ||
Earnings per share — basic | $ | 0.03 | ||
Earnings per share — diluted | $ | 0.02 | ||
Weighted average number of shares — basic | 10,221,612 | |||
Weighted average number of shares — diluted | 13,714,112 | |||
3. | VSO Exchange |
F-7
Table of Contents
4. | Restricted Cash |
5. | Allowance for Accounts Receivable |
2004 | 2005 | |||||||
Balance at beginning of year | $ | 22 | $ | 58 | ||||
Additional provision | — | 169 | ||||||
Write-offs | — | (6 | ) | |||||
Effect of foreign currency translation | 1 | (1 | ) | |||||
Balance at end of period | $ | 23 | $ | 220 | ||||
6. | Deferred Costs |
2004 | 2005 | ||||||||
Deferred costs on carrier projects: | |||||||||
Costs deferred on contracts prior to contracts being signed | $ | 296 | $ | 1,472 | |||||
Costs being amortized over the life of the contract | 1,487 | 1,614 | |||||||
Costs deferred on contracts until the project has been accepted by the customer | 291 | 2,689 | |||||||
Deferred music copyright costs | — | 3,800 | |||||||
IPO related costs | — | 2,422 | |||||||
Others | 56 | 440 | |||||||
Total deferred costs | $ | 2,130 | $ | 12,437 | |||||
Less current portion | (1,116 | ) | (11,399 | ) | |||||
$ | 1,014 | $ | 1,038 | ||||||
F-8
Table of Contents
7. | Property, Plant and Equipment |
2004 | 2005 | |||||||
Furniture and equipment | $ | 9,116 | $ | 12,466 | ||||
Software externally-purchased | 3,166 | 3,349 | ||||||
Leasehold improvements | 785 | 789 | ||||||
13,067 | 16,604 | |||||||
Less: accumulated depreciation | (4,948 | ) | (7,324 | ) | ||||
$ | 8,119 | $ | 9,280 | |||||
8. | Short-term debt |
F-9
Table of Contents
9. | Accrued Severance Benefits |
2004 | 2005 | |||||||
Balance at beginning of year | $ | 226 | $ | 399 | ||||
Provisions for severance benefits | 678 | 842 | ||||||
Severance payments | (17 | ) | (202 | ) | ||||
Effect of foreign currency translation | 15 | (17 | ) | |||||
$ | 902 | $ | 1,022 | |||||
Less: amounts placed on deposit at insurance company | (54 | ) | (92 | ) | ||||
Balance at the end of period | $ | 848 | $ | 930 | ||||
2005 | $ | 1,123 | ||
2006 | 1,123 | |||
2007 | 1,123 | |||
2008 | 1,123 | |||
2009 | 1,123 | |||
2010-2014 | 5,615 |
10. | Commitments and Contingencies |
11. | Convertible Redeemable Preferred Stock |
F-10
Table of Contents
Series A Preferred | Series B Preferred | Series C Preferred | ||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||||
January 1, 2004 | 1,428,570 | $ | 5,780 | — | $ | — | — | $ | — | $ | 5,780 | |||||||||||||||||
Accretion of redemption | — | 227 | — | — | — | — | 227 | |||||||||||||||||||||
September 30, 2004 | 1,428,570 | $ | 6,007 | — | $ | — | — | $ | — | $ | 6,007 | |||||||||||||||||
January 1, 2005 | 1,428,570 | $ | 6,089 | 2,052,479 | $ | 19,571 | — | $ | — | $ | 25,660 | |||||||||||||||||
Issuance of Series C Preferred | — | — | — | — | 50,000 | 487 | 487 | |||||||||||||||||||||
Accretion of redemption | — | 144 | — | 464 | — | 6 | 614 | |||||||||||||||||||||
Accretion of implied | ||||||||||||||||||||||||||||
Dividends | — | — | — | 258 | — | — | 258 | |||||||||||||||||||||
September 30, 2005 | 1,428,570 | $ | 6,233 | 2,052,479 | $ | 20,293 | 50,000 | $ | 493 | $ | 27,019 | |||||||||||||||||
The above table excludes the 876,167 shares of Series C Preferred purchased by Melody Share Corporation as Melody Share Corporation is consolidated into the accompanying consolidated financial statements and the issuance of 876,167 shares is eliminated. |
The Series C Preferred have no voting rights. |
After the payment of all preferential amounts required to be paid to the holders of the Series A and B Preferred upon liquidation or dissolution of WiderThan Co., Ltd., any remaining distributable assets shall be distributed ratably among the holders of common stock and the Series C Preferred of WiderThan Co., Ltd. |
F-11
Table of Contents
Each share of Series C Preferred is convertible, at the option of each holder, into one share of common stock of WiderThan Co., Ltd. at any time after the date of issuance of such share. All remaining shares of Series C Preferred shall be automatically converted into common shares of WiderThan Co., Ltd. on December 1, 2007 at the conversion rate prevailing at that time. |
The Series C Preferred may be redeemed at the election of each holder, any time from September 1, 2005 to December 1, 2007. If the Series C Preferred is redeemed on or prior to December 31, 2006, the shares will be redeemed at the issuance price per share plus an amount determined based on an annual rate of 10% of the issuance price of the Series C Preferred. If the Series C Preferred are redeemed after December 31, 2006, the Series C Preferred would be redeemed at 115% of their issuance price. |
Because the Series C Preferred are redeemable for an amount in excess of their issuance price, the difference between their redemption value and their issuance price increases their carrying value and is charged to retained earnings using the effective interest rate method from the date of issuance to the earliest date of redemption. The redemption accretion for the Series C Preferred was $0 and $6 for the nine months ended September 30, 2004 and 2005, respectively. |
Weighted-Average | Weighted-Average | ||||||||||||
Number of | Exercise Price | Fair Value at | |||||||||||
Stock Options | Per Share | Date of Grant | |||||||||||
Stock options outstanding as of January 1, 2004 | — | — | — | ||||||||||
Options granted | 170,000 | $ | 3.90 | $ | 4.40 | ||||||||
Stock options outstanding as of September 30, 2004 | 170,000 | $ | 3.90 | $ | 4.40 | ||||||||
Stock options outstanding as of January 1, 2005 | 704,000 | $ | 4.22 | $ | 5.06 | ||||||||
Options granted | 879,876 | 8.01 | 4.58 | ||||||||||
Options forfeited | (154,000 | ) | 4.44 | 5.10 | |||||||||
Stock options outstanding as of September 30, 2005 | 1,429,876 | $ | 6.49 | $ | 5.14 | ||||||||
F-12
Table of Contents
2004 | 2005 | |||||||
Expected dividend yield | 0 | % | 0 | % | ||||
Risk free interest rate | 4.55 | % | 3.77 | % | ||||
Expected volatility | 70 | % | 70 | % | ||||
Expected life (in years from vesting) | 3 years | 2.36 years | ||||||
Weighted average value of stock | $ | 6.36 | $ | 8.49 |
2005 | $ | 694 | ||
2006 | 2,702 | |||
2007 | 1,164 | |||
2008 | 308 | |||
2009 | 97 | |||
Total | $ | 4,965 | ||
F-13
Table of Contents
Accrued | Compensation | Effect of | Accrued | |||||||||||||||||
Compensation | Expense for the | Foreign | Compensation | |||||||||||||||||
Number of | Liability as at | period ended | Currency | Liability as at | ||||||||||||||||
VSOs | January 1, 2005 | August 11, 2005 | Translation | August 11, 2005 | ||||||||||||||||
Tranche A | 146,294 | $ | 238 | $ | 134 | $ | 12 | $ | 384 | |||||||||||
Tranche B | 279,855 | 86 | 277 | 5 | 368 | |||||||||||||||
Total | 426,149 | $ | 324 | $ | 411 | $ | 17 | $ | 752 | |||||||||||
14. | VSO Replacement Cash Rights |
F-14
Table of Contents
2004 | 2005 | |||||||
Stock options | $ | 154 | $ | 1,484 | ||||
ESOA | 2,623 | — | ||||||
VSOs | — | 411 | ||||||
Change in value of VSO Replacement Cash Rights | — | 208 | ||||||
Issuance of KSO Cancellee Cash Rights | — | 439 | ||||||
Issuance of Series C Preferred | — | 34 | ||||||
Balance at end of period | $ | 2,777 | $ | 2,576 | ||||
F-15
Table of Contents
2004 | 2005 | |||||||||||||||
Shares and share equivalents | Basic | Diluted | Basic | Diluted | ||||||||||||
Common Shares | 10,000,000 | 10,000,000 | 10,000,000 | 10,000,000 | ||||||||||||
Employee Stock Ownership Association Shares | 221,612 | 221,612 | 500,000 | 500,000 | ||||||||||||
Outstanding Stock Options | — | 16,107 | — | 80,229 | ||||||||||||
Weighted average shares outstanding | 10,221,612 | 10,237,719 | 10,500,000 | 10,580,229 | ||||||||||||
2004 | ||||||||
Unaudited pro forma shares and share equivalents | Basic | Diluted | ||||||
Common Shares | 10,000,000 | 10,000,000 | ||||||
Employee Stock Ownership Association Shares | 221,612 | 221,612 | ||||||
Series A Preferred | — | 1,428,570 | ||||||
Series B Preferred | — | 2,052,479 | ||||||
Outstanding Stock Options | — | 11,451 | ||||||
Pro forma weighted average shares outstanding | 10,221,612 | 13,714,112 | ||||||
F-16
Table of Contents
F-17
Table of Contents
WiderThan Co., | ||||||||||||||||||||||
Ltd. and other | ||||||||||||||||||||||
subsidiaries | ||||||||||||||||||||||
(Parent and | Melody Share | |||||||||||||||||||||
other | WT Investor Corp. | Corporation | ||||||||||||||||||||
subsidiaries) | (Guarantor) | (Debt holder) | Eliminations | Consolidated | ||||||||||||||||||
ASSETS | ||||||||||||||||||||||
Current assets | ||||||||||||||||||||||
Cash and cash equivalents | $ | 17,242 | $ | 1,000 | $ | 611 | $ | — | $ | 18,853 | ||||||||||||
Restricted cash | 8,069 | — | — | — | 8,069 | |||||||||||||||||
Accounts receivable, net | 24,797 | — | — | — | 24,797 | |||||||||||||||||
Deferred costs | 11,399 | — | — | — | 11,399 | |||||||||||||||||
Other current assets | 1,555 | — | — | — | 1,555 | |||||||||||||||||
Total current assets | 63,062 | 1,000 | 611 | — | 64,673 | |||||||||||||||||
Property, plant and equipment, net | 9,280 | — | — | — | 9,280 | |||||||||||||||||
Goodwill | 18,092 | — | — | — | 18,092 | |||||||||||||||||
Other non-current assets | 6,002 | — | 8,207 | (8,207 | ) | 6,002 | ||||||||||||||||
Total assets | $ | 96,436 | $ | 1,000 | $ | 8,818 | $ | (8,207 | ) | $ | 98,047 | |||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||
Accounts payable | $ | 15,957 | $ | — | $ | — | $ | — | $ | 15,957 | ||||||||||||
Deferred income | 4,618 | — | — | — | 4,618 | |||||||||||||||||
Accrued expenses | 3,714 | — | — | — | 3,714 | |||||||||||||||||
Taxes payable | 1,814 | — | — | — | 1,814 | |||||||||||||||||
Short-term debt | — | — | 9,209 | — | 9,209 | |||||||||||||||||
Cash rights liability | — | — | 1,314 | — | 1,314 | |||||||||||||||||
Other current liabilities | 1,476 | — | 296 | — | 1,772 | |||||||||||||||||
Total current liabilities | 27,579 | — | 10,819 | — | 38,398 | |||||||||||||||||
Other non-current liabilities | 3,230 | — | — | — | 3,230 | |||||||||||||||||
Total liabilities | $ | 30,809 | $ | — | $ | 10,819 | $ | — | $ | 41,628 | ||||||||||||
F-18
Table of Contents
WiderThan Co., | ||||||||||||||||||||||
Ltd. and other | ||||||||||||||||||||||
subsidiaries | ||||||||||||||||||||||
(Parent and | Melody Share | |||||||||||||||||||||
other | WT Investor Corp. | Corporation | ||||||||||||||||||||
subsidiaries) | (Guarantor) | (Debt holder) | Eliminations | Consolidated | ||||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||||
Minority interest | $ | — | $ | — | $ | — | $ | 313 | $ | 313 | ||||||||||||
Convertible redeemable preferred stock: W500 par value | ||||||||||||||||||||||
Series A authorized 5 million shares, issued and outstanding 1,428,570, liquidation preference $4.39 | $ | 6,233 | $ | — | $ | — | $ | — | $ | 6,233 | ||||||||||||
Series B authorized 5 million shares, issued and outstanding 2,052,479, liquidation preference $13.51 | 20,293 | — | — | — | 20,293 | |||||||||||||||||
Series C authorized 2 million shares, issued and outstanding 926,167 WiderThan Co., Ltd. and other subsidiaries, 0 WT Investor Corp., 876,167 Melody Share Corporation, 50,000 consolidated | 9,148 | — | — | (8,655 | ) | 493 | ||||||||||||||||
Total preferred stock | $ | 35,674 | $ | — | $ | — | $ | (8,655 | ) | $ | 27,019 | |||||||||||
Stockholders’ equity | ||||||||||||||||||||||
Common stock: W500 par value; authorized 30 million shares, issued and outstanding 10.5 million | $ | 4,537 | $ | — | $ | — | $ | — | $ | 4,537 | ||||||||||||
Additional paid-in capital | 5,933 | 1,000 | — | (2,314 | ) | 4,619 | ||||||||||||||||
Retained earnings | 15,154 | — | (2,001 | ) | 2,429 | 15,582 | ||||||||||||||||
Accumulated other comprehensive income | 4,329 | — | — | 20 | 4,349 | |||||||||||||||||
Total stockholders’ equity | 29,953 | 1,000 | (2,001 | ) | 135 | 29,087 | ||||||||||||||||
Total liabilities and stockholders’ equity | $ | 96,436 | $ | 1,000 | $ | 8,818 | $ | (8,207 | ) | $ | 98,047 | |||||||||||
F-19
Table of Contents
WiderThan Co., | ||||||||||||||||||||||
Ltd. and other | ||||||||||||||||||||||
subsidiaries | WT Investor | Melody Share | ||||||||||||||||||||
(Parent and other | Corp. | Corporation | ||||||||||||||||||||
subsidiaries) | (Guarantor) | (Debt holder) | Eliminations | Consolidated | ||||||||||||||||||
Revenues | ||||||||||||||||||||||
Service revenues (includes revenues from related parties of $32,634 and $44,415) Carrier application services | $ | 43,540 | $ | — | $ | — | $ | — | $ | 43,540 | ||||||||||||
Content services | 13,872 | — | — | — | 13,872 | |||||||||||||||||
Professional and other services | 6,415 | — | — | — | 6,415 | |||||||||||||||||
Total service revenues | 63,827 | — | — | — | 63,827 | |||||||||||||||||
System sales (includes revenues from related parties of $946 and $3,617) | 6,248 | — | — | — | 6,248 | |||||||||||||||||
Total revenues | 70,075 | — | — | — | 70,075 | |||||||||||||||||
Costs and expenses | ||||||||||||||||||||||
Cost of service revenues (exclusive of depreciation and amortization, as shown below) (includes costs from related parties of $522 and $1,046) | 23,292 | — | — | — | 23,292 | |||||||||||||||||
Cost of system sales (exclusive of depreciation and amortization, as shown below) (includes costs from related parties of $4 and $79) | 4,049 | — | — | — | 4,049 | |||||||||||||||||
Depreciation and amortization | 3,104 | — | — | — | 3,104 | |||||||||||||||||
Selling and marketing | 3,538 | — | — | — | 3,538 | |||||||||||||||||
General and administrative | 16,668 | — | 587 | — | 17,255 | |||||||||||||||||
Research and development | 8,805 | — | — | — | 8,805 | |||||||||||||||||
Stock compensation (Note A) | 2,893 | — | 1,314 | (1,631 | ) | 2,576 | ||||||||||||||||
Total costs and expenses | 62,349 | — | 1,901 | (1,631 | ) | 62,619 | ||||||||||||||||
Operating income | 7,726 | — | (1,901 | ) | 1,631 | 7,456 | ||||||||||||||||
Other income | ||||||||||||||||||||||
Interest income | 392 | — | (100 | ) | — | 292 | ||||||||||||||||
Foreign exchange gain, net | 122 | — | — | — | 122 | |||||||||||||||||
Total other income | 514 | — | (100 | ) | — | 414 | ||||||||||||||||
F-20
Table of Contents
WiderThan Co., | ||||||||||||||||||||||
Ltd. and other | ||||||||||||||||||||||
subsidiaries | WT Investor | Melody Share | ||||||||||||||||||||
(Parent and other | Corp. | Corporation | ||||||||||||||||||||
subsidiaries) | (Guarantor) | (Debt holder) | Eliminations | Consolidated | ||||||||||||||||||
Income before taxes, earnings from equity method investment and minority interest | 8,240 | — | (2,001 | ) | 1,631 | 7,870 | ||||||||||||||||
Income taxes | 2,552 | — | — | — | 2,552 | |||||||||||||||||
Income before earnings from equity method investment and minority interest | 5,688 | — | (2,001 | ) | 1,631 | 5,318 | ||||||||||||||||
Minority Interest | — | — | — | 687 | 687 | |||||||||||||||||
Gain (loss) from equity method investment | (134 | ) | — | — | — | (134 | ) | |||||||||||||||
Net income | $ | 5,554 | $ | — | $ | (2,001 | ) | $ | 2,318 | $ | 5,871 | |||||||||||
Accretion of preferred shares | $ | (982 | ) | $ | — | $ | — | $ | 111 | $ | (871 | ) | ||||||||||
Amounts allocated to participating preferred shareholders | (1,293 | ) | — | — | (244 | ) | (1,537 | ) | ||||||||||||||
Net income attributable to common shares | $ | 3,279 | $ | — | $ | (2,001 | ) | $ | 2,185 | $ | 3,463 | |||||||||||
Earning per share — basic | $ | 0.30 | $ | — | $ | (28.28 | ) | $ | 0.33 | |||||||||||||
Earning per share — diluted | $ | 0.28 | $ | — | $ | (28.28 | ) | $ | 0.28 | |||||||||||||
Weighted average number of shares — basic | 10,500,000 | 1,000,000 | 50,000 | 10,500,000 | ||||||||||||||||||
Weighted average number of shares — diluted | 10,580,229 | 1,000,000 | 50,000 | 10,580,229 | ||||||||||||||||||
Note A: The following stock compensation expenses resulting from the Company’s stock options, ESOA, VSOs, VSO Replacement Cash Rights and KSO Cancellee Cash Rights are not included in the following categories: | ||||||||||||||||||||||
Cost of service revenues | $ | 216 | $ | — | $ | 56 | $ | (70 | ) | $ | 202 | |||||||||||
Cost of system sales | 23 | — | 20 | (25 | ) | 18 | ||||||||||||||||
General and administrative | 2,062 | — | 627 | (776 | ) | 1,913 | ||||||||||||||||
Research and development | 592 | — | 611 | (760 | ) | 443 | ||||||||||||||||
Total | $ | 2,893 | $ | — | $ | 1,314 | $ | (1,631 | ) | $ | 2,576 | |||||||||||
F-21
Table of Contents
WiderThan Co., | ||||||||||||||||||||||
Ltd. and other | Melody | |||||||||||||||||||||
subsidiaries | WT | Share | ||||||||||||||||||||
(Parent and | Investor | Corporation | ||||||||||||||||||||
other | Corp. | (Debt | ||||||||||||||||||||
subsidiaries) | (Guarantor) | holder) | Eliminations | Consolidated | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||
Net income | $ | 5,554 | $ | — | $ | (2,001 | ) | $ | 2,318 | $ | 5,871 | |||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||
Depreciation and amortization | 3,104 | — | — | — | 3,104 | |||||||||||||||||
Stock compensation expenses | 2,893 | — | 1,314 | (1,631 | ) | 2,576 | ||||||||||||||||
Loss assigned to minority interest | — | — | — | (687 | ) | (687 | ) | |||||||||||||||
Foreign exchange translation gain, net | (122 | ) | — | — | — | (122 | ) | |||||||||||||||
Equity in gain(loss) of related equity investment | 134 | — | — | — | 134 | |||||||||||||||||
Provision for severance benefits | 842 | — | — | — | 842 | |||||||||||||||||
Change in operating assets and liabilities: | ||||||||||||||||||||||
Increase in restricted cash | (8,069 | ) | — | — | — | (8,069 | ) | |||||||||||||||
Increase in accounts receivable | (6,171 | ) | — | — | — | (6,171 | ) | |||||||||||||||
Increase in deferred costs | (11,174 | ) | — | — | — | (11,174 | ) | |||||||||||||||
Decrease in other assets | 2,088 | — | — | — | 2,088 | |||||||||||||||||
Increase (decrease) in trade accounts payable | 4,786 | — | — | — | 4,786 | |||||||||||||||||
Increase in deferred income | 3,314 | — | — | — | 3,314 | |||||||||||||||||
Decrease in accrued expenses | (376 | ) | — | — | — | (376 | ) | |||||||||||||||
Decrease in taxes payable | (1,253 | ) | — | — | — | (1,253 | ) | |||||||||||||||
Payment of severance benefits | (202 | ) | — | — | — | (202 | ) | |||||||||||||||
Increase (decrease) in other liabilities | 39 | — | 296 | — | 335 | |||||||||||||||||
Net cash provided by operating activities | (4,613 | ) | — | (391 | ) | — | (5,004 | ) | ||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||
Purchase of property, plant and equipment | (4,399 | ) | — | — | — | (4,399 | ) | |||||||||||||||
Investment in Preferred C | — | — | (8,207 | ) | 8,207 | — | ||||||||||||||||
Proceeds from sales of property, plant and equipment | 54 | — | — | — | 54 | |||||||||||||||||
Refund of purchase consideration | 190 | — | — | — | 190 | |||||||||||||||||
Net cash used in investing activities | (4,155 | ) | 0 | (8,207 | ) | 8,207 | (4,155 | ) | ||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||
Issuance of common,net | — | 1,000 | — | (1,000 | ) | — | ||||||||||||||||
Issuance of short-term debt | — | — | 9,209 | — | 9,209 | |||||||||||||||||
Issuance of Preferred C | 8,669 | — | — | (8,200 | ) | 469 | ||||||||||||||||
Increase in minority interest | — | — | — | 1,000 | 1,000 | |||||||||||||||||
Net cash provided by financing activities | 8,669 | 1,000 | 9,209 | (8,200 | ) | 10,678 | ||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (476 | ) | — | — | (7 | ) | (483 | ) | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | (575 | ) | 1,000 | 611 | — | 1,036 | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||||||||
Beginning of year | 17,817 | — | — | — | 17,817 | |||||||||||||||||
End of period | $ | 17,242 | $ | 1,000 | $ | 611 | $ | — | $ | 18,853 | ||||||||||||
F-22
Table of Contents
F-23
Table of Contents
2004 | ||||||||||||||
Pro Forma | ||||||||||||||
2003 | 2004 | Note 9 | ||||||||||||
(Unaudited) | ||||||||||||||
(In thousands of US dollars, | ||||||||||||||
except share data) | ||||||||||||||
ASSETS | ||||||||||||||
Current assets | ||||||||||||||
Cash and cash equivalents | $ | 10,826 | $ | 17,817 | $ | 17,817 | ||||||||
Short-term financial instruments | 1,674 | 1,931 | 1,931 | |||||||||||
Accounts receivable, net (from related parties of $12,180 and $13,050 | ||||||||||||||
in 2003 and 2004, respectively) | 12,771 | 18,763 | 18,763 | |||||||||||
Other current assets | 767 | 2,146 | 2,146 | |||||||||||
Total current assets | 26,038 | 40,657 | 40,657 | |||||||||||
Property, plant and equipment, net | 4,646 | 8,119 | 8,119 | |||||||||||
Leasehold and other deposits | 775 | 1,209 | 1,209 | |||||||||||
Goodwill | — | 18,399 | 18,399 | |||||||||||
Intangible assets, net | 7 | 2,802 | 2,802 | |||||||||||
Other non-current assets | 814 | 2,178 | 2,178 | |||||||||||
Total assets | $ | 32,280 | $ | 73,364 | $ | 73,364 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
Current liabilities | ||||||||||||||
Accounts payable (to related parties of $724 and $462 | ||||||||||||||
in 2003 and 2004, respectively) | $ | 7,916 | $ | 11,348 | $ | 11,348 | ||||||||
Deferred income | 471 | 1,345 | 1,345 | |||||||||||
Accrued expenses | 2,445 | 4,093 | 5,120 | |||||||||||
Taxes payable | 2,810 | 3,060 | 3,060 | |||||||||||
Other current liabilities | 620 | 1,921 | 894 | |||||||||||
Total current liabilities | 14,262 | 21,767 | 21,767 | |||||||||||
Other non-current liabilities | 581 | 2,561 | 2,561 | |||||||||||
Total liabilities | $ | 14,843 | $ | 24,328 | $ | 24,328 | ||||||||
Commitments and contingencies | ||||||||||||||
Convertible redeemable preferred stock: W500 par value | ||||||||||||||
Series A authorized 5 million shares, issued and outstanding 1,428,570, liquidation preference $4.39 | $ | 5,780 | $ | 6,089 | $ | — | ||||||||
Series B authorized 5 million shares, issued and outstanding 0, 2,052,479 and 0 in 2003, 2004 and 2004 pro forma, respectively, liquidation preference $13.51 | — | 19,571 | — | |||||||||||
Total preferred stock | $ | 5,780 | $ | 25,660 | $ | — | ||||||||
Stockholders’ equity | ||||||||||||||
Common stock: W500 par value; authorized 18 million shares, issued and outstanding 10.0 million, 10.5 million and 14.0 million shares in 2003, 2004 and 2004 pro forma, respectively | $ | 4,322 | $ | 4,537 | $ | 6,217 | ||||||||
Additional paid-in capital | — | 3,050 | 27,030 | |||||||||||
Retained earnings | 7,138 | 10,582 | 10,582 | |||||||||||
Accumulated other comprehensive income (loss) | 197 | 5,207 | 5,207 | |||||||||||
Total stockholders’ equity | 11,657 | 23,376 | 49,036 | |||||||||||
Total liabilities and stockholders’ equity | $ | 32,280 | $ | 73,364 | $ | 73,364 | ||||||||
F-24
Table of Contents
2002 | 2003 | 2004 | ||||||||||||
(In thousands of US dollars, | ||||||||||||||
except share and per share data) | ||||||||||||||
Revenues | ||||||||||||||
Service revenues (includes revenues from related parties of $18,681, $34,273 and $46,646) | ||||||||||||||
Carrier application services | $ | 4,682 | $ | 12,756 | $ | 24,670 | ||||||||
Content services | 4,580 | 11,448 | 18,176 | |||||||||||
Professional and other services | 10,892 | 10,370 | 9,423 | |||||||||||
Total service revenues | 20,154 | 34,574 | 52,269 | |||||||||||
System sales (includes revenues from related parties of $11,580, $23,601 and $4,436) | 23,212 | 24,470 | 10,563 | |||||||||||
Total revenues | 43,366 | 59,044 | 62,832 | |||||||||||
Costs and expenses | ||||||||||||||
Cost of service revenues (exclusive of depreciation and amortization, as shown below) (includes costs from related parties of $10, $940 and $1,464) | 12,591 | 17,766 | 22,585 | |||||||||||
Cost of system sales (exclusive of depreciation and amortization, as shown below) | 21,260 | 20,311 | 7,813 | |||||||||||
(includes costs from related parties of $6,631, $1,018 and $9) | ||||||||||||||
Depreciation and amortization | 543 | 1,244 | 2,490 | |||||||||||
Selling and marketing | 1,454 | 2,841 | 2,601 | |||||||||||
General and administrative | 3,511 | 7,300 | 14,355 | |||||||||||
Research and development | 1,020 | 1,374 | 3,760 | |||||||||||
Stock compensation (Note A) | — | — | 3,029 | |||||||||||
Total costs and expenses | 40,379 | 50,836 | 56,633 | |||||||||||
Operating income | 2,987 | 8,208 | 6,199 | |||||||||||
Other income (loss) | ||||||||||||||
Interest income, net | 110 | 303 | 367 | |||||||||||
Foreign exchange gain (loss), net | (10 | ) | 5 | (574 | ) | |||||||||
Investment loss | — | (145 | ) | — | ||||||||||
Total other income (loss) | 100 | 163 | (207 | ) | ||||||||||
Income before taxes, earnings from equity method investment | 3,087 | 8,371 | 5,992 | |||||||||||
Income taxes | 1,153 | 2,583 | 2,156 | |||||||||||
Income before earnings from equity method investment | 1,934 | 5,788 | 3,836 | |||||||||||
Earnings from equity method investment | 1 | 201 | 113 | |||||||||||
Net income | $ | 1,935 | $ | 5,989 | $ | 3,949 | ||||||||
Accretion of preferred shares | $ | (371 | ) | $ | (283 | ) | $ | (505 | ) | |||||
Amounts allocated to participating preferred shareholders | (253 | ) | (871 | ) | (770 | ) | ||||||||
Net income attributable to common shareholders | $ | 1,311 | $ | 4,835 | $ | 2,674 | ||||||||
Earning per share — basic | $ | 0.13 | $ | 0.48 | $ | 0.26 | ||||||||
Earning per share — diluted | $ | 0.13 | $ | 0.48 | $ | 0.26 | ||||||||
Weighted average number of shares — basic | 10,000,000 | 10,000,000 | 10,293,151 | |||||||||||
Weighted average number of shares — diluted | 10,000,000 | 10,000,000 | 10,326,993 | |||||||||||
Note A: | The following stock compensation expenses resulting from the Company’s stock options, employee stock ownership association (“ESOA”) and our virtual stock options (“VSOs”) are not included in the following expense categories: |
2002 | 2003 | 2004 | ||||||||||
Cost of services revenue | — | — | 1,024 | |||||||||
Cost of system sales | — | — | 326 | |||||||||
Selling and marketing | — | — | ||||||||||
General and administrative | — | — | 1,041 | |||||||||
Research and development | — | — | 638 | |||||||||
— | — | 3,029 | ||||||||||
F-25
Table of Contents
Accumulated | ||||||||||||||||||||||||||
Retained | Other | |||||||||||||||||||||||||
Common Stock | Additional | Earnings | Comprehensive | |||||||||||||||||||||||
Paid-in | (Accumulated | Income | ||||||||||||||||||||||||
Shares | Amount | Capital | Deficit) | (Loss) | Total | |||||||||||||||||||||
(In thousands of US dollars, except share data) | ||||||||||||||||||||||||||
Balance as of December 31, 2001 | 10,000,000 | $ | 4,322 | $ | — | $ | (132 | ) | $ | (491 | ) | $ | 3,699 | |||||||||||||
Accretion of preferred shares | — | — | — | (371 | ) | — | (371 | ) | ||||||||||||||||||
Comprehensive income: | — | — | — | — | — | — | ||||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | 763 | 763 | ||||||||||||||||||||
Net income | — | — | — | 1,935 | — | 1,935 | ||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | 2,698 | ||||||||||||||||||||
Balance as of December 31, 2002 | 10,000,000 | $ | 4,322 | $ | — | $ | 1,432 | $ | 272 | $ | 6,026 | |||||||||||||||
Accretion of preferred shares | — | — | — | (283 | ) | — | (283 | ) | ||||||||||||||||||
Comprehensive income: | — | — | — | — | — | — | ||||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | (75 | ) | (75 | ) | ||||||||||||||||||
Net income | — | — | — | 5,989 | — | 5,989 | ||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | 5,914 | ||||||||||||||||||||
Balance as of December 31, 2003 | 10,000,000 | $ | 4,322 | $ | — | $ | 7,138 | $ | 197 | $ | 11,657 | |||||||||||||||
Issuance of common shares (ESOA) | 500,000 | 215 | 2,879 | — | — | 3,094 | ||||||||||||||||||||
Accretion of preferred shares | — | — | — | (505 | ) | — | (505 | ) | ||||||||||||||||||
Stock options | — | — | 171 | — | — | 171 | ||||||||||||||||||||
Comprehensive income (loss): | — | — | — | — | — | — | ||||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | 5,010 | 5,010 | ||||||||||||||||||||
Net income | — | — | — | 3,949 | — | 3,949 | ||||||||||||||||||||
Total comprehensive income (loss) | — | — | — | — | — | 8,959 | ||||||||||||||||||||
Balance as of December 31, 2004 | 10,500,000 | $ | 4,537 | $ | 3,050 | $ | 10,582 | $ | 5,207 | $ | 23,376 | |||||||||||||||
F-26
Table of Contents
2002 | 2003 | 2004 | |||||||||||||
(In thousands of US dollars) | |||||||||||||||
Cash flows from operating activities: | |||||||||||||||
Net income (loss) | $ | 1,935 | $ | 5,989 | $ | 3,949 | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 543 | 1,244 | 2,490 | ||||||||||||
Stock compensation expenses | — | — | 3,029 | ||||||||||||
Foreign exchange translation loss (gain), net | 1 | (15 | ) | 188 | |||||||||||
Equity in loss (earnings) of related equity investment | (1 | ) | (201 | ) | (113 | ) | |||||||||
Provision for severance | 466 | 658 | 929 | ||||||||||||
Others, net | (39 | ) | 320 | 41 | |||||||||||
Change in operating assets and liabilities: | |||||||||||||||
Decrease (increase) in accounts receivable | (11,670 | ) | 5,904 | (1,748 | ) | ||||||||||
Decrease (increase) in other assets | 353 | 423 | (844 | ) | |||||||||||
Increase (decrease) in accounts payable | 7,790 | (5,053 | ) | 1,228 | |||||||||||
Increase (decrease) in deferred income | (535 | ) | (832 | ) | 1,312 | ||||||||||
Increase in accrued expenses | 916 | 1,308 | 495 | ||||||||||||
Increase (decrease) in taxes payable | 1,241 | 1,086 | (164 | ) | |||||||||||
Payment of severance benefits | (58 | ) | (1,187 | ) | (804 | ) | |||||||||
Increase (decrease) in other liabilities | (182 | ) | 325 | 60 | |||||||||||
Net cash provided by operating activities | 760 | 9,969 | 10,048 | ||||||||||||
Cash flows from investing activities: | |||||||||||||||
Increase in short-term financial instruments, net | — | (1,678 | ) | — | |||||||||||
Purchase of property, plant and equipment | (2,084 | ) | (3,472 | ) | (4,871 | ) | |||||||||
Proceeds from sales of property, plant and equipment | 100 | 1 | 26 | ||||||||||||
Disposal of equity and other investment | 120 | — | — | ||||||||||||
Business acquisition, net | — | — | (668 | ) | |||||||||||
Acquisition of intangible assets | (2 | ) | (5 | ) | (16 | ) | |||||||||
Payment of leasehold deposit | (3,775 | ) | — | (285 | ) | ||||||||||
Proceeds from leasehold deposit | — | 3,205 | — | ||||||||||||
Others, net | — | 44 | (117 | ) | |||||||||||
Net cash used in investing activities | (5,641 | ) | (1,905 | ) | (5,931 | ) | |||||||||
Cash flows from financing activities: | |||||||||||||||
Issuance of common stock | — | — | 429 | ||||||||||||
Issuance of preferred stock, net | 5,126 | — | — | ||||||||||||
Proceeds from short-term borrowings | — | — | 291 | ||||||||||||
Net cash provided by financing activities | 5,126 | — | 720 | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 230 | (31 | ) | 2,154 | |||||||||||
Net increase in cash and cash equivalents | 475 | 8,033 | 6,991 | ||||||||||||
Cash and cash equivalents: | |||||||||||||||
Beginning of year | 2,318 | 2,793 | 10,826 | ||||||||||||
End of year | $ | 2,793 | $ | 10,826 | $ | 17,817 | |||||||||
Supplemental cash flow information: | |||||||||||||||
Interest paid | $ | 47 | $ | — | $ | 12 | |||||||||
Income taxes paid | $ | 50 | $ | 1,317 | $ | 2,714 | |||||||||
Non-cash financing activities: | |||||||||||||||
The Company issued 2,052,479 Series B convertible redeemable preferred stock in exchange for outstanding shares of Ztango, Inc. | $ | — | $ | — | $ | 19,375 | |||||||||
F-27
Table of Contents
1. | Description of Business |
2. | Significant Accounting Policies |
Basis of Presentation |
Principles of Consolidation |
Stock Split |
Use of Estimates |
F-28
Table of Contents
Revenue Recognition |
Carrier application services revenues — A significant portion of revenue is earned from carrier application services integrated into the networks of the Company’s wireless carrier customers. The Company’s carrier customers charge wireless subscribers a monthly subscription fee, a transaction fee or both. The Company’s contracts then provide for payment to the Company of either a percentage of revenue earned by the carrier or a per unit usage charge. Revenue is then recognized on that basis. The Company recognizes only the amounts due from its carrier customers, i.e. on a net basis, in accordance with EITF 99-19,Reporting Revenue Gross as a Principal versus Net as an Agent. As the Company does not enter into a contractual relationship with the end-users, the carrier customer is the primary obligor in the relationship with the end-user, takes responsibility to manage the end-user’s comments and complaints, indemnifies the end-users for any loss caused by the Company, sets prices with the end-user and can select alternative service provider if the Company fails to deliver services. In addition, for those carrier application services which involve the download or use of content, the carrier customer has the non-exclusive rights to use the content and transmits the content to end-users over its network. | |
Revenue is recognized when services are provided and when the Company has reasonable estimates of ultimate revenue, or when the carrier collects from wireless subscribers, depending upon the contract terms. These estimates are based on the Company’s historical experience and summary billing statements provided to it by the Company’s carrier customers. | |
Carrier application services revenues also include amounts derived from system sales when such system sales are part of a multiple element contract for which objective and reliable evidence of fair values for all of the multiple elements are not available and the majority of contracted revenue is related to a carrier application service. | |
Costs relating to the purchase of hardware and development of software are capitalized and depreciated as operating expenses over the expected life of the contract beginning when service implementation is completed and the service is being used in a revenue-generating capacity. These costs are included within Other current and non-current assets in the Company’s consolidated balance sheet. | |
Content services revenues — Content services revenue is derived from the delivery of mobile content to wireless carrier’s subscribers, such as ringback tones, ringtones, games, graphics and other content. Carrier customers charge wireless subscribers a transaction fee for content downloaded. The Company’s contracts with its carrier customers then provide for payment to the Company of either a percentage of revenue earned by the carrier or a per unit usage charge. The Company does not recognize as revenue amounts paid by wireless subscribers to the carrier because the carrier is the primary obligor of the services to the wireless subscribers and is responsible for billing and collection |
F-29
Table of Contents
of amounts due from such subscribers and for resolving billing disputes. In addition, the carriers set the price charged to the wireless subscribers for the services. | |
In addition, in providing its content services, the Company also has a relationship with the original content provider. In the majority of its content services, the Company directly licenses content through agreements with music label companies, game developers and other content providers. In such mobile content arrangements, the Company acts as a principal and, as a result, the Company recognizes the entire amount paid to the Company by the carrier of which a portion is then paid to the original content provider. In certain other content service arrangements, however, the carrier holds the license with the original content providers, but the Company handles settlement of payments to the license holders. In such cases, the Company recognizes as revenue only the amounts net of payments to the content license holders. | |
Revenue is recognized upon content delivery and when the Company has reasonable estimates of ultimate revenue, or when the carrier collects from wireless subscribers, depending upon the contract terms. These estimates are based on the Company’s historical experience and summary billing statements provided to it by the Company’s carrier customers. | |
Professional and other services revenue — Professional and other services revenue consists primarily of fees for designing, developing, and maintaining our wireless carrier customers’ websites and other consulting and customization services. Revenue is recognized as the services are completed or upon customer acceptance in accordance with underlying contract terms. | |
System sales revenue — System sales revenue is derived from the sale of a combination of application software, computer hardware, system integration services and maintenance to wireless carrier customers or other vendors. Revenue is recognized following the percentage of completion method, as permitted under American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SoP”) No. 81-1, where reasonably dependable estimates of completion, revenue, and associated costs can be made and when the Company has enforceable rights regarding goods and services already provided. Where these conditions are not present, the Company recognizes revenue using the completed-contract method upon product delivery or upon completion of services. Typically, these system sales contracts for developed and integrated applications have relatively long contract periods and are considered complete when the remaining related maintenance costs and other obligations are considered insignificant. |
Concentration of Credit Risk |
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Cash and Cash Equivalents |
Short-term Financial Instruments |
Allowance for Doubtful Accounts |
Property and Equipment |
Goodwill and Other Intangible Assets |
Accounting for the Impairment of Long-Lived Assets |
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Research and Development Expenses |
Software Development Costs |
Advertising Expense |
Accrued Severance Benefits |
Accounting for Stock-Based Compensation |
Stock Options — The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of SFAS No. 123,Accounting for Stock Based Compensation, using the fair value method. Under this method, compensation cost for stock option grants are measured at the grant date based on the fair value of the award and recognized over the service period, which is usually the vesting period, using the method promulgated by Financial Accounting Standards Board (“FASB”) Interpretations No. 28 (“FIN 28”). | |
The Company has the option to settle the exercise of option grants in cash or stock. Although the Company has this option, the Company’s management has not and does not intend to settle grant exercises in cash. There were no option grants prior to January 1, 2004. |
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The Company uses a Black-Scholes model to determine the fair value of equity-based awards at the date of grant. The Company used an independent third party valuation specialist to determine the fair value of the common shares on the dates of stock option grants. | |
Virtual Stock Options — Virtual stock options, which are treated as stock appreciation rights, are settled in cash. Compensation expense for virtual stock options is measured at the grant date and adjusted for increases and decreases in value at each balance sheet date, with any change in value charged to compensation expense. Compensation cost associated with the virtual stock options is also recognized over the vesting period, as applicable for each Tranche, using the method promulgated by FIN 28. There were no virtual stock option grants prior to January 1, 2004. | |
The Company used an independent third party valuation specialist to determine the fair value of the virtual stock options on the date of grant and at each reporting date. |
For issuances of common stock to the Employee Stock Ownership Association, compensation expense is measured as the excess of the fair market value over the issuance cost at the date of issuance. Since no additional employee service was required as a result of the stock purchase, compensation expense was immediately recognized. The Company used an independent third party valuation specialist to determine the fair value of the employee stock ownership shares on the date of purchase of such shares. |
Earnings per Share |
Foreign Currency Translation |
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Income taxes |
Fair Value of Financial Instruments |
Risks and Uncertainties |
Recent Accounting Pronouncements |
3. | Acquisition of WiderThan Americas |
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Series B convertible redeemable preferred stock issued | $ | 19,375 | ||
Stock options exchanged for WiderThan Americas virtual stock options | 132 | |||
Cash consideration | 265 | |||
Transaction costs | 1,302 | |||
$ | 21,074 | |||
Current assets (including $899 in cash) | $ | 2,976 | ||
Property and equipment | 680 | |||
Intangible asset — technology | 350 | |||
Intangible asset — customer relationships | 2,520 | |||
Other assets | 230 | |||
Assets acquired | $ | 6,756 | ||
Current liabilities | (2,189 | ) | ||
Long term debt | (63 | ) | ||
Net assets acquired | $ | 4,504 | ||
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2003 | 2004 | |||||||
Revenue | $ | 64,391 | $ | 71,624 | ||||
Net income | 4,093 | 3,847 | ||||||
Accretion of preferred shares | (1,141 | ) | (1,141 | ) | ||||
Amounts attributable to participating preferred shareholders | (1,087 | ) | (1,061 | ) | ||||
Net income attributable to common shares | $ | 1,865 | $ | 1,645 | ||||
Earnings per share — basic and diluted | $ | 0.19 | $ | 0.16 | ||||
Weighted average number of shares — basic | 10,000,000 | 10,293,151 | ||||||
Weighted average number of shares — diluted | 10,000,000 | 10,326,993 | ||||||
4. | Allowance for Accounts Receivable |
2002 | 2003 | 2004 | ||||||||||
Balance at beginning of year | $ | — | $ | 4 | $ | 22 | ||||||
Provision for allowances | 4 | 18 | 29 | |||||||||
Write-offs | — | — | (28 | ) | ||||||||
Effect of foreign currency translation | — | — | 4 | |||||||||
Balance at end of year | $ | 4 | $ | 22 | $ | 27 | ||||||
5. | Property, Plant and Equipment |
2003 | 2004 | |||||||
Furniture and equipment | $ | 5,144 | $ | 9,115 | ||||
Software externally-purchased | 903 | 3,166 | ||||||
Leasehold improvements | 568 | 786 | ||||||
6,615 | 13,067 | |||||||
Less: accumulated depreciation | (1,969 | ) | (4,948 | ) | ||||
$ | 4,646 | $ | 8,119 | |||||
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6. | Intangible Assets |
Gross | Accumulated | Carrying | ||||||||||
Amount | Amortization | Amount | ||||||||||
Customer relationships | 2,520 | 71 | 2,449 | |||||||||
Technology and others | 376 | 23 | 353 | |||||||||
Balance at December 31, 2004 | $ | 2,896 | $ | 94 | $ | 2,802 | ||||||
Balance at December 31, 2003 | $ | 8 | $ | 1 | $ | 7 | ||||||
2005 | $ | 400 | ||
2006 | 384 | |||
2007 | 384 | |||
2008 | 384 | |||
2009 and thereafter | 1,250 | |||
$ | 2,802 | |||
7. | Accrued Severance Benefits |
2003 | 2004 | |||||||
Balance at beginning of year | $ | 758 | $ | 226 | ||||
Provisions for severance benefits | 658 | 929 | ||||||
Severance payments | (1,187 | ) | (804 | ) | ||||
Effect of foreign currency translation | (3 | ) | 48 | |||||
226 | 399 | |||||||
Less: amounts placed on deposit at insurance company | (52 | ) | (190 | ) | ||||
Balance at end of year | $ | 174 | $ | 209 | ||||
2005 | $ | 929 | ||
2006 | 929 | |||
2007 | 929 | |||
2008 | 929 | |||
2009 | 929 | |||
2010-2014 | 4,645 |
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8. | Commitments and Contingencies |
Minimum | ||||
Lease | ||||
Payments | ||||
2005 | $ | 1,847 | ||
2006 | 1,161 | |||
2007 | 30 | |||
Total | $ | 3,038 | ||
9. | Convertible Redeemable Preferred Stock |
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Series A Preferred | Series B Preferred | ||||||||||||||||||||
Shares | Amount | Shares | Amount | Total | |||||||||||||||||
December 31, 2001 | — | — | — | — | — | ||||||||||||||||
Issuance of Series A Preferred | 1,428,570 | $ | 5,126 | — | $ | — | $ | 5,126 | |||||||||||||
Accretion of beneficial conversion feature | — | 216 | — | — | 216 | ||||||||||||||||
Accretion of redemption | — | 155 | — | — | 155 | ||||||||||||||||
December 31, 2002 | 1,428,570 | $ | 5,497 | — | $ | — | $ | 5,497 | |||||||||||||
Accretion of redemption | — | 283 | — | — | 283 | ||||||||||||||||
December 31, 2003 | 1,428,570 | $ | 5,780 | — | $ | — | $ | 5,780 | |||||||||||||
Issuance of Series B Preferred | — | — | 2,052,479 | 19,375 | 19,375 | ||||||||||||||||
Accretion of redemption | — | 309 | — | 125 | 434 | ||||||||||||||||
Accretion of implied dividends | — | — | — | 71 | 71 | ||||||||||||||||
December 31, 2004 | 1,428,570 | $ | 6,089 | 2,052,479 | $ | 19,571 | $ | 25,660 | |||||||||||||
Voting |
Holders of the Preferred Stock are currently entitled to one vote per share of Preferred Stock and vote together with the holders of common stock on all matters. |
Dividends |
Holders of the Preferred Stock are entitled to receive non-cumulative dividends when declared, and such dividends are payable in preference to any dividend declared for holders of common stock. No dividends have been declared or paid through December 31, 2004. The holders of the Preferred Stock participate equally in earnings with the holders of the common shares after the allocation of preferred dividends and accretion. |
Liquidation preference |
In the event of any liquidation or dissolution of the Company, holders of Series the A Preferred are entitled to $4.39 per share, plus unpaid dividends, and holders of the Series B Preferred are entitled to $13.51 per share, plus unpaid dividends. |
Voluntary redemption |
Holders of Series A Preferred may redeem shares from May 8, 2005 until May 8, 2015 at $5.00 per share. Holders of Series B Preferred may redeem shares on a pro rata basis upon any |
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Series A Preferred redemption or during the period from October 8, 2007 until October 8, 2017 at $5.00 per share prior to October 8, 2007 or $11.38 per share after October 8, 2007, subject to a maximum of one-third of their holdings during each twelve-month period. |
Redemption upon sale |
In the event of a sale of the Company, holders of Series A Preferred may redeem shares at a price of $4.39 per share plus 4.42% per annum beginning from May 24, 2002 and holders of Series B Preferred may cause the Company to redeem their shares at a price of $9.99 plus 4.42% per annum beginning from October 8, 2004. |
Accretion of Beneficial Conversion Feature (“BCF”) |
Accretion of Redemption |
Accretion of Implied Dividends |
Unaudited Pro Forma Consolidated Balance Sheet |
10. | Common Stock |
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2003 | 2004 | |||||||
Conversion of Preferred Stock | 1,428,570 | 3,481,049 | ||||||
Outstanding common stock options | — | 704,000 | ||||||
1,428,570 | 4,185,049 | |||||||
11. | Stock Option Grants |
Weighted-Average | Weighted-Average | ||||||||||||
Number of | Exercise Price | Fair Value at | |||||||||||
Stock Options | Per Share | Date of Grant | |||||||||||
Stock options outstanding as of December 31, 2003 | — | — | — | ||||||||||
Options granted | 794,000 | $ | 4.22 | $ | 5.06 | ||||||||
Options exercised | — | — | — | ||||||||||
Options forfeited | (90,000 | ) | 4.22 | 5.06 | |||||||||
Stock options outstanding as of December 31, 2004 | 704,000 | $ | 4.22 | $ | 5.06 | ||||||||
Expected dividend yield | 0 | % | ||
Risk free interest rate | 3.42 | % | ||
Expected volatility | 70 | % | ||
Expected life (in years from vesting) | 2.11 years | |||
Weighted average value of stock | $ | 8.21 |
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2005 | $ | 1,507 | ||
2006 | 1,423 | |||
2007 | 547 | |||
Total | $ | 3,477 | ||
12. | Employee Stock Ownership Association |
13. | Virtual Stock Options |
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Accrued | ||||||||||||||||||||||||
Compensation | Included in | |||||||||||||||||||||||
Fair Value at | Liability as at | Compensation | Purchase | |||||||||||||||||||||
December 31, | Exercise | Number | December 31, | Expense for | Accounting | |||||||||||||||||||
2004 | Price | of VSOs | 2004 | 2004 | Consideration | |||||||||||||||||||
Tranche A | $ | 5.16 | $ | 3.00 | 146,294 | $ | 238 | $ | 106 | $ | 132 | |||||||||||||
Tranche B | $ | 6.26 | $ | 4.26 | 279,855 | 86 | 86 | — | ||||||||||||||||
Total | 426,149 | $ | 324 | $ | 192 | $ | 132 | |||||||||||||||||
14. | Income Taxes |
2002 | 2003 | 2004 | |||||||||||
Income before income taxes | |||||||||||||
Domestic | $ | 3,087 | $ | 8,371 | $ | 6,103 | |||||||
Foreign | — | — | (111 | ) | |||||||||
3,087 | 8,371 | 5,992 | |||||||||||
Current income taxes | |||||||||||||
Domestic | 917 | 2,685 | 1,833 | ||||||||||
Foreign | — | 16 | 218 | ||||||||||
917 | 2,701 | 2,051 | |||||||||||
Deferred income taxes | |||||||||||||
Domestic | 235 | (119 | ) | 113 | |||||||||
Foreign | — | — | — | ||||||||||
235 | (119 | ) | 113 | ||||||||||
Effect of foreign currency translation | 1 | 1 | (8 | ) | |||||||||
Total income tax expense | $ | 1,153 | $ | 2,583 | $ | 2,156 | |||||||
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2003 | 2004 | |||||||
Current deferred income tax assets (liabilities) | ||||||||
Deferred income | $ | 112 | $ | 207 | ||||
Accrued expenses | 520 | 909 | ||||||
Net operating loss carryforwards | — | 4,221 | ||||||
Other | (401 | ) | (40 | ) | ||||
231 | 5,297 | |||||||
Less: Valuation allowance | — | (3,580 | ) | |||||
$ | 231 | $ | 1,717 | |||||
2003 | 2004 | |||||||
Non-current deferred income tax assets (liabilities) | ||||||||
Depreciation and amortization | $ | (29 | ) | $ | (324 | ) | ||
Reserve for research and manpower development | (335 | ) | (496 | ) | ||||
Intangible assets | — | (1,084 | ) | |||||
Other | 153 | 94 | ||||||
(211 | ) | (1,810 | ) | |||||
Less: Valuation allowance | — | — | ||||||
$ | (211 | ) | $ | (1,810 | ) | |||
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2002 | 2003 | 2004 | ||||||||||
Tax expense (benefit) at Korean statutory tax rate | $ | 917 | $ | 2,485 | $ | 1,780 | ||||||
Tax credit | (102 | ) | (308 | ) | (639 | ) | ||||||
Stock compensation expenses | — | — | 923 | |||||||||
Provision for tax contingency | 379 | 434 | — | |||||||||
Change in valuation allowances | — | — | 102 | |||||||||
Others | (41 | ) | (28 | ) | (10 | ) | ||||||
Total income tax expense | $ | 1,153 | $ | 2,583 | $ | 2,156 | ||||||
15. | Operations by Geographic Area |
2002 | 2003 | 2004 | ||||||||||
Korea | $ | 42,670 | $ | 55,630 | $ | 51,833 | ||||||
Asia (excluding Korea) | 239 | 2,799 | 1,847 | |||||||||
Americas | 150 | — | 8,651 | |||||||||
Europe, Middle East Asia | 307 | 615 | 501 | |||||||||
$ | 43,366 | $ | 59,044 | $ | 62,832 | |||||||
16. | Earnings per share |
2002 | 2003 | 2004 | ||||||||||||||||||||||
Shares and Share Equivalents | Basic | Diluted | Basic | Diluted | Basic | Diluted | ||||||||||||||||||
Common Shares | 10,000,000 | 10,000,000 | 10,000,000 | 10,000,000 | 10,000,000 | 10,000,000 | ||||||||||||||||||
Employee Stock Ownership Association Shares | 293,151 | 293,151 | ||||||||||||||||||||||
Outstanding Stock options | 33,842 | |||||||||||||||||||||||
Weighted average shares outstanding | 10,000,000 | 10,000,000 | 10,000,000 | 10,000,000 | 10,293,151 | 10,326,993 | ||||||||||||||||||
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2003 | 2004 | |||||||||||||||
Unaudited pro forma shares and share equivalents | Basic | Diluted | Basic | Diluted | ||||||||||||
Common Shares | 10,000,000 | 10,000,000 | 10,000,000 | 10,000,000 | ||||||||||||
Employee Stock Ownership Association Shares | 293,151 | 293,151 | ||||||||||||||
Outstanding Stock options | 33,842 | |||||||||||||||
Pro forma weighted average shares outstanding | 10,000,000 | 10,000,000 | 10,293,151 | 10,326,993 | ||||||||||||
17. | Related Party Transactions |
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2002 | 2003 | 2004 | ||||||||||||||||||||||
Service | System | Service | System | Service | System | |||||||||||||||||||
Revenues | Sales | Revenues | Sales | Revenues | Sales | |||||||||||||||||||
SK Telecom, Co., Ltd. | $ | 18,463 | $ | 10,485 | $ | 34,273 | $ | 23,413 | $ | 45,846 | $ | 4,407 | ||||||||||||
SK Networks | — | — | — | — | — | — | ||||||||||||||||||
Other SK Group affiliates | 218 | 1,095 | — | 188 | 800 | 29 | ||||||||||||||||||
$ | 18,681 | $ | 11,580 | $ | 34,273 | $ | 23,601 | $ | 46,646 | $ | 4,436 | |||||||||||||
2002 | 2003 | 2004 | ||||||||||||||||||||||
Cost of | Cost of | Cost of | Cost of | Cost of | Cost of | |||||||||||||||||||
Service | System | Service | System | Service | System | |||||||||||||||||||
Revenues | Sales | Revenues | Sales | Revenues | Sales | |||||||||||||||||||
SK Telecom, Co., Ltd. | $ | 7 | $ | — | $ | 61 | $ | 50 | $ | 1,039 | $ | 9 | ||||||||||||
SK Networks | — | 6,180 | 319 | 482 | 164 | — | ||||||||||||||||||
Other SK Group affiliates | 3 | 451 | 560 | 486 | 261 | — | ||||||||||||||||||
$ | 10 | $ | 6,631 | $ | 940 | $ | 1,018 | $ | 1,464 | $ | 9 | |||||||||||||
2003 | 2004 | |||||||||||||||
Receivables | Payables | Receivables | Payables | |||||||||||||
SK Telecom, Co., Ltd | $ | 12,180 | $ | 25 | $ | 12,971 | $ | 330 | ||||||||
SK Networks | — | 630 | — | — | ||||||||||||
Other SK Group affiliates | — | 69 | 79 | 132 | ||||||||||||
$ | 12,180 | $ | 724 | $ | 13,050 | $ | 462 | |||||||||
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October 8, 2004 | ||||||
ASSETS | ||||||
CURRENT ASSETS: | ||||||
Cash | $ | 899,068 | ||||
Accounts receivable, net of $51,998 in allowance for doubtful accounts | 1,688,053 | |||||
Note receivable — related party, current portion | 161,888 | |||||
Prepaid expenses and other current assets | 227,112 | |||||
Total current assets | 2,976,121 | |||||
FIXED ASSETS, net | 679,903 | |||||
GOODWILL | 4,339,615 | |||||
INTANGIBLE ASSETS, net | 932,456 | |||||
OTHER LONG TERM ASSETS (including Note receivable — related party of $199,670) | 229,532 | |||||
TOTAL ASSETS | $ | 9,157,627 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
CURRENT LIABILITIES: | ||||||
Accounts payable | $ | 453,261 | ||||
Accrued liabilities | 493,193 | |||||
Accrued compensation | 510,878 | |||||
Accrued content licensing fees | 574,662 | |||||
Long-term debt, current portion | 89,448 | |||||
Total current liabilities | 2,121,442 | |||||
LONG-TERM DEBT | 130,465 | |||||
COMMITMENTS AND CONTINGENCIES | ||||||
SHAREHOLDERS’ EQUITY: | ||||||
Series A1 convertible preferred stock; $0.001 par value; 1,500,000 shares authorized as of October 8, 2004; 978,000 shares issued and outstanding as of October 8, 2004; liquidation preference of $5,397,783 as of October 8, 2004 | 2,154,426 | |||||
Series A2 convertible preferred stock; $0.001 par value; 7,500,000 shares authorized as of October 8, 2004; 5,091,928 issued and outstanding as of October 8, 2004; liquidation preference of $3,736,927 as of October 8, 2004 | 2,647,499 | |||||
Series A3 convertible preferred stock; $0.001 par value; 6,500,000 shares authorized as of October 8, 2004; 4,519,451 shares issued and outstanding as of October 8, 2004; liquidation preference of $7,473,853 as of October 8, 2004 | 6,630,300 | |||||
Common stock: | ||||||
$0.001 par value; 25,000,000 shares authorized; 426,682 shares issued and outstanding as of October 8, 2004 | 427 | |||||
Additional paid-in capital — common stock | 58,254,409 | |||||
Accumulated deficit | (62,781,341 | ) | ||||
Total shareholders’ equity | 6,905,720 | |||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 9,157,627 | ||||
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NET SALES | $ | 8,791,797 | ||||
Cost of sales(A) | 1,929,788 | |||||
Research and development(A) | 3,935,595 | |||||
Sales and marketing(A) | 734,275 | |||||
General and administrative(A) | 2,256,133 | |||||
Depreciation and amortization | 512,919 | |||||
Total operating expenses | 9,368,710 | |||||
OPERATING LOSS | (576,913 | ) | ||||
OTHER INCOME (EXPENSE): | ||||||
Interest income — related party | 23,941 | |||||
Interest expense | (50,445 | ) | ||||
Total other income (expense) | (26,504 | ) | ||||
LOSS BEFORE INCOME TAXES | (603,417 | ) | ||||
INCOME TAX | (5,203 | ) | ||||
NET LOSS | $ | (608,620 | ) | |||
(A) | Exclusive of depreciation and amortization shown separately below. |
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Shares Outstanding | |||||||||||||||||||||||||||||||||||||||||||||
Additional | |||||||||||||||||||||||||||||||||||||||||||||
Series A1 | Series A2 | Series A3 | Series A1 | Series A2 | Series A3 | Paid-in | |||||||||||||||||||||||||||||||||||||||
Preferred | Preferred | Preferred | Common | Preferred | Preferred | Preferred | Common | Capital — | Accumulated | ||||||||||||||||||||||||||||||||||||
Stock | Stock | Stock | Stock | Stock | Stock | Stock | Stock | Common Stock | Deficit | Total | |||||||||||||||||||||||||||||||||||
BALANCE AS OF JANUARY 1, 2004 | 978,000 | 5,091,928 | 4,519,451 | 426,682 | $ | 2,154,426 | $ | 2,647,499 | $ | 6,630,300 | $ | 427 | $ | 58,254,409 | $ | (62,172,721 | ) | $ | 7,514,340 | ||||||||||||||||||||||||||
Net loss | (608,620 | ) | (608,620 | ) | |||||||||||||||||||||||||||||||||||||||||
BALANCE AS OF OCTOBER 8, 2004 | 978,000 | 5,091,928 | 4,519,451 | 426,682 | $ | 2,154,426 | $ | 2,647,499 | $ | 6,630,300 | $ | 427 | $ | 58,254,409 | $ | (62,781,341 | ) | $ | 6,905,720 | ||||||||||||||||||||||||||
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CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (608,620 | ) | |||||
Adjustments to reconcile net loss to net cash used for operating activities: | ||||||||
Depreciation and amortization | 512,919 | |||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (175,322 | ) | ||||||
Prepaid expenses and other current assets, and other long-term assets | (7,375 | ) | ||||||
Accounts payable | 254,036 | |||||||
Accrued liabilities | 522,766 | |||||||
Net cash provided by operating activities | 498,404 | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of property and equipment | (604,651 | ) | ||||||
Payments received note receivable | 54,060 | |||||||
Net cash used in investing activities | (550,591 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Increase in long term debt | 219,913 | |||||||
Net cash provided by financing activities | 219,913 | |||||||
NET INCREASE IN CASH | 167,726 | |||||||
CASH, BEGINNING OF PERIOD | 731,342 | |||||||
CASH, END OF PERIOD | $ | 899,068 | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash paid for interest | $ | 50,445 | ||||||
NON-CASH FINANCING & INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment utilizing vendor financing | $ | 264,150 | ||||||
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1. | NATURE OF THE BUSINESS |
2. | SIGNIFICANT ACCOUNTING POLICIES |
Category | Years | |||
Computers and equipment | 3 | |||
Furniture and fixtures | 3 |
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2004 | ||||
Assumptions: | ||||
Risk free interest rate | 4.07 | % | ||
Dividend yield | 0 | % | ||
Volatility | 0 | % | ||
Expected life of option (years) | 10 |
2004 | |||||
Net loss, as reported | $ | (608,620 | ) | ||
Stock-based compensation expense | (35,237 | ) | |||
Pro forma net loss | $ | (643,857 | ) | ||
• | Messaging services based on a volume of intercarrier SMS messages routed; | |
• | Multimedia services from the download of content from a library of ringtones, graphics and other premium content. |
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3. | INTANGIBLE ASSETS |
October 8, | ||||
2004 | ||||
Software technologies | 1,359,000 | |||
Accumulated amortization | (426,544 | ) | ||
$ | 932,456 | |||
Twelve months ending October 8: | ||||
2005 | 272,000 | |||
2006 | 272,000 | |||
2007 | 272,000 | |||
2008 | 116,456 | |||
$ | 932,456 | |||
4. | NOTE RECEIVABLE — RELATED PARTY |
5. | FIXED ASSETS |
October 8, | |||||
2004 | |||||
Computers and equipment | $ | 1,365,333 | |||
Office furniture and fixtures | 36,905 | ||||
1,402,238 | |||||
Accumulated depreciation | (722,335 | ) | |||
Total | $ | 679,903 | |||
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6. | DEBT OBLIGATIONS |
October 8, | |||||
2004 | |||||
Vendor payment plan agreement | $ | 219,913 | |||
Less current portion | (89,448 | ) | |||
Total | $ | 130,465 | |||
7. | SERIES A CONVERTIBLE PREFERRED STOCK |
• | 978,000 shares of Series A1 convertible preferred stock. The Series A1 convertible preferred stock has a liquidation preference of 2.296 times the accreted value, plus any accrued dividends. At October 8, 2004, the Series A1 convertible preferred stock liquidation preference was $5,397,783; | |
• | 5,091,928 shares of Series A2 convertible preferred stock. The Series A2 convertible preferred stock has a liquidation preference of 0.305 times the accreted value, plus any accrued dividends. At October 8, 2004, the Series A2 convertible preferred stock liquidation preference was $3,736,927; | |
• | 4,519,451 shares of Series A3 convertible preferred stock. The Series A3 convertible preferred stock has a liquidation preference of 0.688 times the accreted value, plus any accrued dividends. At October 8, 2004, the Series A3 convertible preferred stock liquidation preference was $7,473,853. |
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8. | STOCK-BASED COMPENSATION |
2002 Plan |
Options Available | Total Options | Weighted-average | Weighted-average | |||||||||||||
for Future Grant | Outstanding | Exercise Price | Fair Value | |||||||||||||
Balance, December 31, 2003 | 427,010 | 1,590,067 | $ | 0.19 | $ | 0.06 | ||||||||||
Change in authorized shares | ||||||||||||||||
Granted | (249,500 | ) | 249,500 | 0.21 | 0.06 | |||||||||||
Forfeited | 47,065 | (47,065 | ) | 0.20 | ||||||||||||
Exercised | ||||||||||||||||
Balance, October 8, 2004 | 224,575 | 1,792,502 | ||||||||||||||
Vested Options Balance | ||||||||||||||||
October 8, 2004 | 1,427,735 | |||||||||||||||
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9. | INCOME TAXES |
Period from | |||||
January 1, 2004 to | |||||
October 8, 2004 | |||||
Current: | |||||
Federal | $ | 5,203 | |||
State | — | ||||
5,203 | |||||
Deferred: | |||||
Federal | — | ||||
State | — | ||||
— | |||||
Total provision before valuation allowance | 5,203 | ||||
Less valuation allowance | — | ||||
Total provision for income taxes | $ | 5,203 | |||
October 8, 2004 | |||||
Deferred tax assets: | |||||
Operating loss carryforwards | $ | 26,873,077 | |||
Allowance for bad debt | 8,665 | ||||
Accrued compensation | 188,752 | ||||
Accrued liabilities and other | 89,518 | ||||
27,160,012 | |||||
Valuation allowance | (27,160,012 | ) | |||
Net deferred tax asset | — | ||||
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Period from | ||||
January 1, 2004 to | ||||
October 8, 2004 | ||||
Federal statutory rates | 35.0 | % | ||
State taxes, net of Federal benefits | (0.2 | %) | ||
Goodwill | (12.2 | %) | ||
Non-deductible merger costs | (24.7 | %) | ||
Valuation allowance | 3.6 | % | ||
Other | (2.4 | %) | ||
(0.9 | %) | |||
10. | EMPLOYEE 401(k) PLAN |
11. | COMMITMENTS AND CONTINGENCIES |
Minimum | ||||
Lease Payments | ||||
Period Ending October 8, | ||||
2005 | $ | 420,467 | ||
2006 | 167,457 | |||
2007 | 16,688 | |||
Total | $ | 604,612 | ||
12. | SUBSEQUENT EVENTS |
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13. | OPERATING SEGMENTS |
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F-62
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ASSETS | ||||||
CURRENT ASSETS: | ||||||
Cash and cash equivalents | $ | 731,342 | ||||
Accounts receivable, less allowance for doubtful accounts of $128,034 | 1,512,732 | |||||
Note receivable — related party, current | 75,000 | |||||
Prepaid expenses and other current assets | 261,487 | |||||
Total current assets | 2,580,561 | |||||
PROPERTY AND EQUIPMENT, net | 378,321 | |||||
GOODWILL | 4,339,615 | |||||
INTANGIBLE ASSETS, net | 1,142,305 | |||||
NOTE RECEIVABLE — related party | 328,730 | |||||
TOTAL ASSETS | $ | 8,769,532 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
CURRENT LIABILITIES: | ||||||
Accounts payable | $ | 199,225 | ||||
Accrued and other current liabilities | 312,559 | |||||
Accrued compensation | 375,238 | |||||
Accrued content licensing fees | 368,170 | |||||
Total current liabilities | 1,255,192 | |||||
LONG-TERM DEBT | — | |||||
COMMITMENTS AND CONTINGENCIES — See Note 13 | ||||||
SHAREHOLDERS’ EQUITY: | ||||||
Series A1 convertible preferred stock; | ||||||
$0.001 par value; 1,500,000 shares authorized; 978,000 shares issued and outstanding; and liquidation value of $5,189,831 as of December 31, 2003 | 2,154,426 | |||||
Series A2 convertible preferred stock; | ||||||
$0.001 par value; 7,500,000 authorized; 5,091,928 shares issued and outstanding; and liquidation value of $3,592,961 as of December 31, 2003 | 2,647,499 | |||||
Series A3 convertible preferred stock; | ||||||
$0.001 par value; 6,500,000 authorized; 4,519,451 shares issued and outstanding; and liquidation value of $7,185,920 as of December 31, 2003, | 6,630,300 | |||||
Common stock, | ||||||
$0.001 par value; 25,000,000 shares authorized; 426,682 shares issued and outstanding as of December 31, 2003 | 427 | |||||
Additional paid-in capital — common stock | 58,254,409 | |||||
Accumulated deficit | (62,172,721 | ) | ||||
Total shareholders’ equity | 7,514,340 | |||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 8,769,532 | ||||
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NET SALES | $ | 5,346,279 | ||||
Cost of sales(A) | 1,277,868 | |||||
Research and development(A) | 3,593,436 | |||||
Sales and marketing(A) | 623,480 | |||||
General and administrative(A) | 1,575,573 | |||||
Depreciation and amortization | 482,650 | |||||
Total operating expenses | 7,553,007 | |||||
OPERATING LOSS | (2,206,728 | ) | ||||
OTHER INCOME (EXPENSE): | ||||||
Interest income | 26,807 | |||||
Interest expense | (25,421 | ) | ||||
Total other income | 1,386 | |||||
NET LOSS | $ | (2,205,342 | ) | |||
(A) | Exclusive of depreciation and amortization shown separately below. |
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Shares Outstanding | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series B | Series C | Series A1 | Series A2 | Series A3 | Series B | Series C | Series A1 | Series A2 | Series A3 | Paid-in | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred | Preferred | Preferred | Preferred | Preferred | Common | Preferred | Preferred | Preferred | Preferred | Preferred | Common | Shareholder | Capital— | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||
Stock | Stock | Stock | Stock | Stock | Stock | Stock | Stock | Stock | Stock | Stock | Stock | Receivable | Common Stock | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2002 | 129,587 | 1,400 | — | — | — | 23,000 | $ | 1,399,601 | $ | 2,154,426 | — | — | — | $ | 23 | $ | (1,339,409 | ) | $ | 58,200,372 | $ | (59,967,379 | ) | $ | 447,634 | ||||||||||||||||||||||||||||||||||||||||
Collection of shareholder receivable | 1,339,409 | 1,339,409 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recapitalization and issuance of preferred stock | (129,587 | ) | (1,400 | ) | 978,000 | 5,091,928 | 4,519,451 | 403,682 | (1,421,809 | ) | (2,154,426 | ) | 2,154,426 | 2,647,499 | 6,630,300 | 404 | 76,245 | 7,932,639 | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of preferred shares for accrued interest | 22,208 | — | — | — | (22,208 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | (2,205,342 | ) | (2,205,342 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2003 | — | — | 978,000 | 5,091,928 | 4,519,451 | 426,682 | $ | — | $ | — | $ | 2,154,426 | $ | 2,647,499 | $ | 6,630,300 | $ | 427 | $ | — | $ | 58,254,409 | $ | (62,172,721 | ) | $ | 7,514,340 | ||||||||||||||||||||||||||||||||||||||
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CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net loss | $ | (2,205,342 | ) | ||||
Adjustments to reconcile net loss to net cash used for operating activities: | |||||||
Depreciation and amortization | 482,650 | ||||||
Equity issued for interest on note payable and dividends | 9,568 | ||||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (945,801 | ) | |||||
Prepaid expenses and other current assets | (69,945 | ) | |||||
Accounts payable | 27,861 | ||||||
Accrued and other current liabilities | (135,122 | ) | |||||
Accrued compensation | 375,238 | ||||||
Accrued content licensing fees | 368,170 | ||||||
Net cash used for operating activities | (2,092,723 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Purchases of property and equipment | (240,076 | ) | |||||
Cash received from acquisition of Mobilespring, Inc. | 1,165,713 | ||||||
Cash paid in connection with note payable assumed from acquisition of | |||||||
Mobilespring, Inc. | (426,694 | ) | |||||
Net cash used in investing activities | 498,943 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Net proceeds from issuance of preferred stock | 1,339,409 | ||||||
Net cash provided by financing activities | 1,339,409 | ||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (254,371 | ) | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 985,713 | ||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 731,342 | |||||
SUPPLEMENTAL DISCLOSURES OF | |||||||
CASH FLOW INFORMATION: | |||||||
Cash paid for interest | $ | 6,219 | |||||
NON-CASH FINANCING & INVESTING ACTIVITIES: | |||||||
The Company issued 978,000 shares of Series A1 Preferred Stock in exchange for 1,400 shares of Series C Preferred Stock | $ | 2,154,426 | |||||
The Company issued 5,091,928 shares of Series A2 Preferred Stock in exchange for 129,587 of Series B Preferred Stock and $1,232,071 of principal and interest of the 8% Secured Notes | $ | 2,647,499 | |||||
The Company issued 4,519,451 shares of Series A3 Preferred Stock and 403,682 shares of Common Stock in exchange for the outstanding shares of MobileSpring, Inc. | $ | 6,706,949 | |||||
Issuance of preferred shares for interest and dividends | $ | 22,208 | |||||
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F-67
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Assumptions: | ||||
Risk free interest rate | 4.10 | % | ||
Dividend yield | 0 | % | ||
Volatility | 0 | % | ||
Expected life of option (years) | 10 |
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Net loss, as reported | $ | (2,205,342 | ) | ||
Total stock-based employee compensation expense determined under fair-value based method for all awards, net of related tax expense | (29,563 | ) | |||
Pro forma net loss | $ | (2,234,905 | ) | ||
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Recapitalization |
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Acquisition of Mobilespring Inc. |
Current assets, including cash and cash equivalents of $1,165,713 | $ | 1,782,000 | ||
Fixed assets | 105,000 | |||
Intangibles | 1,359,000 | |||
Goodwill, including transaction costs | 4,339,615 | |||
Current liabilities | (585,000 | ) | ||
Net assets acquired | $ | 7,000,615 | ||
Revenue | $ | 5,697,872 | ||
Operating loss | $ | (2,498,489 | ) | |
Net loss | $ | (2,605,165 | ) |
Software technologies | 1,359,000 | |||
Accumulated amortization | (216,695 | ) | ||
$ | 1,142,305 | |||
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Year ending December 31: | ||||
2004 | $ | 272,000 | ||
2005 | 272,000 | |||
2006 | 272,000 | |||
2007 | 272,000 | |||
2008 | 54,305 | |||
$ | 1,142,305 | |||
Computers and equipment | $ | 764,973 | |||
Office furniture and fixtures | 32,614 | ||||
797,587 | |||||
Accumulated depreciation | (419,266 | ) | |||
Total | $ | 378,321 | |||
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F-73
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Options Available | Total Options | Weighted-average | Weighted-average | |||||||||||||
for Future Grant | Outstanding | Exercise Price | Fair Value | |||||||||||||
Balance, December 31, 2002 | 68,000 | 351,000 | $ | 0.19 | ||||||||||||
Change in authorized shares | 1,598,077 | |||||||||||||||
Granted | (1,268,067 | ) | 1,268,067 | $ | 0.19 | $ | 0.06 | |||||||||
Forfeited | 29,000 | (29,000 | ) | $ | 0.19 | |||||||||||
Balance, December 31, 2003 | 427,010 | 1,590,067 | ||||||||||||||
Vested option balance at December 31, 2003 | 1,096,287 | |||||||||||||||
1999 Plan |
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Deferred tax assets: | |||||
Operating loss carryforwards | $ | 26,998,689 | |||
Allowance for bad debt | 49,934 | ||||
Accrued compensation | 107,650 | ||||
Accrued liabilities | 38,693 | ||||
27,194,966 | |||||
Valuation allowance | (27,194,966 | ) | |||
Net deferred tax asset | $ | — | |||
Federal statutory rates | 35.0% | |||
State taxes, net of Federal benefits | 4.0% | |||
Goodwill and other intangibles | (3.4% | ) | ||
Valuation allowance and others | (35.6% | ) | ||
—% | ||||
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Year Ending December 31, | ||||
2004 | $ | 303,669 | ||
2005 | 359,089 | |||
2006 | 13,438 | |||
Total | $ | 676,196 | ||
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Page | ||||
Unaudited Pro Forma Consolidated Financial Information | ||||
Introduction to Unaudited Pro Forma Consolidated Financial Information | P-2 | |||
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2005 | P-3 | |||
Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2005 | P-4 | |||
Unaudited Pro Forma Consolidated Statement of Operations for the twelve months ended December 31, 2004 | P-5 | |||
Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2004 | P-6 | |||
Notes to Unaudited Pro Forma Consolidated Financial Information | P-7 |
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• | on an actual basis; | |
• | on a pro forma basis, to give effect to the automatic conversion of the Series A and Series B convertible redeemable preferred stock into 3,481,049 shares of common stock as if the conversion occurred on September 30, 2005, to give effect to the conversion of 50,000 shares of Series C convertible redeemable preferred stock into 50,000 shares of common stock, as if the conversion occurred on September 30, 2005, to give effect to the conversion of 876,167 shares of our convertible redeemable Series C preferred stock, currently held by Melody Share Corporation, into 876,167 shares of our common stock and their sale in the form of ADSs at an assumed initial public offering price of US$15.00 per ADS as if the conversion and sale occurred on September 30, 2005, and to give effect to the use of these proceeds from the sale of the 876,167 ADSs to repay Melody Share Corporation’s short-term debt as if the repayment had occurred on September 30, 2005. |
• | on an actual basis; | |
• | on a pro forma basis, to give effect to the automatic conversion of the Series A and Series B convertible redeemable preferred stock on January 1, 2004, to give effect to the conversion of 50,000 shares of Series C convertible redeemable preferred stock into 50,000 shares of common stock, to give effect to the cancellation of the VSOs issued by WiderThan Americas, to give effect to the issuance of 326,126 options and certain cash rights in replacement of the VSOs and issued in replacement of 116,000 stock options forfeited, to give effect to our acquisition (the “Acquisition”) of WiderThan Americas, Inc. (formerly, Ztango, Inc.), to give effect to the conversion of 876,167 shares of our convertible redeemable Series C preferred stock, currently held by Melody Share Corporation, into 876,167 shares of our common stock and their sale in the form of ADSs at an assumed initial public offering price of US$15.00 per ADS, and to give effect to the use of these proceeds from the sale of the 876,167 ADSs to repay Melody Share Corporation’s short-term debt as if such events had occurred on January 1, 2004. |
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Actual | Adjustments | Pro forma | ||||||||||||
(In thousands of US dollars, | ||||||||||||||
except per share data) | ||||||||||||||
Assets | ||||||||||||||
Current assets | ||||||||||||||
Cash and cash equivalents | $ | 18,853 | 3,933 | (a) | $ | 22,786 | ||||||||
Restricted cash | 8,069 | 8,069 | ||||||||||||
Accounts receivable, net | 24,797 | 24,797 | ||||||||||||
Deferred costs | 11,399 | 11,399 | ||||||||||||
Other current assets | 1,555 | 1,555 | ||||||||||||
Total current assets | 64,673 | 3,933 | 68,606 | |||||||||||
Property, plant and equipment, net | 9,280 | 9,280 | ||||||||||||
Goodwill | 18,092 | 18,092 | ||||||||||||
Other non-current assets | 6,002 | 6,002 | ||||||||||||
Total assets | $ | 98,047 | 3,933 | $ | 101,980 | |||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||
Current liabilities | ||||||||||||||
Accounts payable | $ | 15,957 | $ | 15,957 | ||||||||||
Deferred income | 4,618 | 4,618 | ||||||||||||
Accrued expenses | 3,714 | 3,714 | ||||||||||||
Taxes payable | 1,814 | 1,814 | ||||||||||||
Short-term debt | 9,209 | (9,209 | )(a) | — | ||||||||||
Cash rights liability | 1,314 | 1,314 | ||||||||||||
Other current liabilities | 1,772 | 1,772 | ||||||||||||
Total current liabilities | 38,398 | (9,209 | ) | 29,189 | ||||||||||
Other non-current liabilities | 3,230 | 3,230 | ||||||||||||
Total liabilities | $ | 41,628 | (9,209 | ) | $ | 32,419 | ||||||||
Commitments and contingencies | ||||||||||||||
Minority interest | $ | 313 | $ | 313 | ||||||||||
Convertible redeemable preferred stock; W500 par value | ||||||||||||||
Series A authorized 5.0 million shares, issued and outstanding 1,428,570, liquidation preference $4.39 | $ | 6,233 | $ | (6,233 | )(a) | $ | — | |||||||
Series B authorized 5.0 million shares, issued and outstanding 2,052,479, liquidation preference $13.51 | 20,293 | (20,293 | )(a) | — | ||||||||||
Series C authorized 2.0 million shares, issued and outstanding 50,000 | 493 | (493 | )(a) | — | ||||||||||
Total preferred stock | $ | 27,019 | $ | (27,019 | ) | $ | — | |||||||
Stockholders’ equity | ||||||||||||||
Common stock: W500 par value; authorized 30 million shares, issued and outstanding 10.5 million and 14.9 million shares actual and pro forma, respectively | $ | 4,537 | $ | 2,114 | (a) | $ | 6,651 | |||||||
Additional paid-in capital | 4,619 | 38,047 | (a) | 42,666 | ||||||||||
Retained earnings | 15,582 | 15,582 | ||||||||||||
Accumulated other comprehensive income | 4,349 | 4,349 | ||||||||||||
Total stockholders’ equity | 29,087 | 40,161 | 69,248 | |||||||||||
Total liabilities and stockholders’ equity | $ | 98,047 | $ | 3,933 | $ | 101,980 | ||||||||
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Actual | Adjustments | Pro Forma | ||||||||||||
(amounts in thousands of US dollars, | ||||||||||||||
except share and per share data) | ||||||||||||||
Revenue | ||||||||||||||
Service revenues | ||||||||||||||
Carrier application services | $ | 43,540 | $ | 43,540 | ||||||||||
Content services | 13,872 | 13,872 | ||||||||||||
Professional and other services | 6,415 | 6,415 | ||||||||||||
Total service revenues | 63,827 | 63,827 | ||||||||||||
System sales | 6,248 | 6,248 | ||||||||||||
Total revenues | 70,075 | 70,075 | ||||||||||||
Costs and expenses | ||||||||||||||
Cost of service revenues (exclusive of depreciation and amortization, as shown below) | 23,292 | 23,292 | ||||||||||||
Cost of system sales (exclusive of depreciation and amortization, as shown below) | 4,049 | 4,049 | ||||||||||||
Depreciation and amortization | 3,104 | 3,104 | ||||||||||||
Selling and marketing | 3,538 | 3,538 | ||||||||||||
General and administrative | 17,255 | 17,255 | ||||||||||||
Research and development | 8,805 | 8,805 | ||||||||||||
Stock compensation (Note A) | 2,576 | 606 | (j) | 3,182 | ||||||||||
Total costs and expenses | 62,619 | 606 | 63,225 | |||||||||||
Operating income | 7,456 | 6,850 | ||||||||||||
Other income | ||||||||||||||
Interest income, net | 292 | 292 | ||||||||||||
Foreign exchange gain, net | 122 | 122 | ||||||||||||
Total other income | 414 | 414 | ||||||||||||
Income before taxes, minority interest and earnings from equity method investment | 7,870 | 7,264 | ||||||||||||
Income taxes | 2,552 | — | (g) | 2,552 | ||||||||||
Income before minority interest and earnings from equity method investment | 5,318 | (606 | ) | 4,712 | ||||||||||
Minority interest | 687 | 687 | ||||||||||||
Loss from equity method investment | (134 | ) | (134 | ) | ||||||||||
Net income | $ | 5,871 | $ | (606 | ) | $ | 5,265 | |||||||
Accretion of preferred shares | $ | (871 | ) | $ | 871 | (h) | $ | — | ||||||
Amounts allocated to participating preferred shareholders | (1,537 | ) | 1,537 | (h) | — | |||||||||
Net income attributable to common shareholders | $ | 3,463 | $ | 1,802 | $ | 5,265 | ||||||||
Earnings per share — basic | $ | 0.33 | (i) | $ | 0.35 | |||||||||
Earnings per share — diluted | $ | 0.28 | (i) | $ | 0.35 | |||||||||
Weighted average number of shares — basic | 10,500,000 | (i) | 14,907,216 | |||||||||||
Weighted average number of shares — diluted | 10,580,229 | (i) | 14,972,742 | |||||||||||
Note A: | The following stock compensation expenses resulting from the Company’s stock options, ESOA and VSOs and the VSO Cash Rights and KSO Cancellee Cash Rights are not included in the following expense categories: |
Actual | Adjustments | Pro Forma | |||||||||||
(amounts in thousands of US dollars) | |||||||||||||
Cost of service revenues | $ | 202 | $ | 43 | $ | 245 | |||||||
Cost of system sales | 18 | 6 | 24 | ||||||||||
General and administrating | 1,913 | 430 | 2,343 | ||||||||||
Research and development | 443 | 127 | 570 | ||||||||||
Total | $ | 2,576 | $ | 606 | $ | 3,182 | |||||||
P-4
Table of Contents
Actual | Adjustments | Pro forma | ||||||||||||
(amounts in thousands of US dollars, | ||||||||||||||
except share and per share data) | ||||||||||||||
Revenues | ||||||||||||||
Service revenues | ||||||||||||||
Carrier application services | $ | 24,670 | $ | 4,384 | (b) | $ | 29,054 | |||||||
Content services | 18,176 | 4,047 | (b) | 22,223 | ||||||||||
Professional and other services | 9,423 | 361 | (b) | 9,784 | ||||||||||
Total service revenues | 52,269 | 8,792 | 61,061 | |||||||||||
System sales | 10,563 | — | 10,563 | |||||||||||
Total revenues | 62,832 | 8,792 | 71,624 | |||||||||||
Costs and expenses | ||||||||||||||
Cost of service revenues (exclusive of depreciation and amortization, as shown below) | 22,585 | 1,930 | (b) | 24,515 | ||||||||||
Cost of system sales (exclusive of depreciation and amortization, as shown below) | 7,813 | — | 7,813 | |||||||||||
Depreciation and amortization | 2,490 | 513 | (b) | 3,264 | ||||||||||
309 | (c) | |||||||||||||
(48 | )(d) | |||||||||||||
Selling and marketing | 2,601 | 734 | (b) | 3,335 | ||||||||||
General and administrative | 14,355 | 2,257 | (b) | 16,186 | ||||||||||
(426 | )(e) | |||||||||||||
Research and development | 3,760 | 3,936 | (b) | 7,696 | ||||||||||
Stock compensation (Note A) | 3,029 | 576 | (f) | 4,531 | ||||||||||
926 | (j) | |||||||||||||
Total costs and expenses | 56,633 | 10,707 | 67,340 | |||||||||||
Operating income | 6,199 | (1,915 | ) | 4,284 | ||||||||||
Other income (loss) | ||||||||||||||
Interest income, net | 367 | (26 | )(b) | 341 | ||||||||||
Foreign exchange loss, net | (574 | ) | — | (b) | (574 | ) | ||||||||
Total other loss | (207 | ) | (26 | ) | (233 | ) | ||||||||
Income before taxes, earnings from equity method investment | 5,992 | (1,941 | ) | 4,051 | ||||||||||
Income taxes | 2,156 | (130 | )(g) | 2,026 | ||||||||||
Income before earnings from equity method investment | 3,836 | (1,811 | ) | 2,025 | ||||||||||
Earnings from equity method investment | 113 | — | 113 | |||||||||||
Net income | $ | 3,949 | $ | (1,811 | ) | $ | 2,138 | |||||||
Accretion of preferred shares | $ | (505 | ) | $ | 505 | (h) | $ | — | ||||||
Amounts allocated to participating preferred shareholders | (770 | ) | 770 | (h) | — | |||||||||
Net income attributable to common shareholders | $ | 2,674 | $ | (536) | $ | 2,138 | ||||||||
Earnings per share — basic | $ | 0.26 | (i) | $ | 0.15 | |||||||||
Earnings per share — diluted | $ | 0.26 | (i) | $ | 0.15 | |||||||||
Weighted average number of shares — basic | 10,293,151 | (i) | 14,698,883 | |||||||||||
Weighted average number of shares — diluted | 10,326,993 | (i) | 14,714,346 | |||||||||||
Note A: | The following stock compensation expenses resulting from the Company’s stock options, ESOA and VSOs are not included in the following expense categories: |
Actual | Adjustments | Pro forma | ||||||||||
(amounts in thousands of US dollars) | ||||||||||||
Cost of services revenues | $ | 1,024 | $ | 91 | $ | 1,115 | ||||||
Cost of system sales | 326 | 30 | 356 | |||||||||
General and administrative | 1,041 | 405 | 1,446 | |||||||||
Research and development | 638 | 976 | 1,614 | |||||||||
$ | 3,029 | $ | 1,502 | $ | 4,531 | |||||||
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Actual | Adjustments | Pro Forma | ||||||||||||
(amounts in thousands of US dollars, | ||||||||||||||
except share and per share data) | ||||||||||||||
Revenue | ||||||||||||||
Service revenues | ||||||||||||||
Carrier application services | $ | 15,601 | $ | 4,245 | (b) | $ | 19,846 | |||||||
Content services | 11,446 | 3,905 | 15,351 | |||||||||||
Professional and other services | 7,231 | 343 | (b) | 7,574 | ||||||||||
Total service revenues | 34,278 | 8,493 | 42,771 | |||||||||||
System sales | 5,907 | — | 5,907 | |||||||||||
Total revenues | 40,185 | 8,493 | 48,678 | |||||||||||
Costs and expenses | ||||||||||||||
Cost of service revenues (exclusive of depreciation and amortization, as shown below) | 15,586 | 1,868 | (b) | 17,454 | ||||||||||
Cost of system sales (exclusive of depreciation and amortization, as shown below) | 4,919 | — | 4,919 | |||||||||||
Depreciation and amortization | 1,622 | 494 | (b) | 2,369 | ||||||||||
301 | (c) | |||||||||||||
(48 | )(d) | |||||||||||||
Selling and marketing | 1,236 | 709 | (b) | 1,945 | ||||||||||
General and administrative | 9,830 | 1,445 | (b) | 10,849 | ||||||||||
(426 | )(e) | |||||||||||||
Research and development | 1,738 | 3,815 | (b) | 5,553 | ||||||||||
Stock compensation (Note A) | 2,777 | 576 | (f) | 4,047 | ||||||||||
694 | (j) | |||||||||||||
Total costs and expenses | 37,708 | 9,428 | 47,136 | |||||||||||
Operating loss | 2,477 | (935 | ) | 1,542 | ||||||||||
Other income | ||||||||||||||
Interest income, net | 284 | (17 | )(b) | 267 | ||||||||||
Foreign exchange gain, net | 7 | — | (b) | 7 | ||||||||||
Total other income | 291 | (17 | ) | 274 | ||||||||||
Income before taxes, earnings from equity method investment | 2,768 | (952 | ) | 1,816 | ||||||||||
Income taxes | 939 | 94 | (g) | 1,033 | ||||||||||
Income before earnings from equity method investment | 1,829 | (1,047 | ) | 782 | ||||||||||
Earnings from equity method investment | 33 | — | 33 | |||||||||||
Net income | $ | 1,862 | $ | (1,047 | ) | $ | 815 | |||||||
Accretion of preferred shares | $ | (227 | ) | $ | 227 | (h) | $ | — | ||||||
Amounts allocated to participating preferred shareholders | (336 | ) | 336 | (h) | — | |||||||||
Net loss attributable to common shareholders | $ | 1,299 | $ | (484 | ) | $ | 815 | |||||||
Earnings per share — basic | $ | 0.13 | (i) | $ | 0.06 | |||||||||
Earnings per share — diluted | $ | 0.13 | (i) | $ | 0.06 | |||||||||
Weighted average number of shares — basic | 10,221,612 | (i) | 14,628,828 | |||||||||||
Weighted average number of shares — diluted | 10,237,719 | (i) | 14,640,279 | |||||||||||
Note A: | The following stock compensation expenses resulting from the Company’s stock options, ESOA and VSOs and the VSO Cash Rights and the KSO Cancellee Cash Rights are not included in the following expense categories: |
Actual | Adjustments | Pro Forma | |||||||||||
(amounts in thousands of US dollars) | |||||||||||||
Cost of service revenues | $ | 994 | $ | 457 | $ | 1,451 | |||||||
Cost of system sales | 310 | 140 | 450 | ||||||||||
General and administrating | 969 | 445 | 1,414 | ||||||||||
Research and development | 504 | 228 | 732 | ||||||||||
Total | $ | 2,777 | $ | 1,270 | $ | 4,047 | |||||||
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(a) | To record the automatic conversion of the Series A and Series B convertible redeemable preferred stock into 3,481,049 of common stock on September 30, 2005. In addition to give effect to the conversion of 50,000 shares of Series C convertible preferred stock into 50,000 shares of common stock at September 30, 2005. To record the issuance and conversion of 876,167 shares of our convertible redeemable Series C preferred stock into 876,167 shares of our common stock and their sale at an assumed initial public offering price of US$15.00 per share and to record the use of these proceeds from the sale of the 876,167 shares of our common stock to repay our short-term debt of $9,156 at September 30, 2005. The common stock is issued at par value of W500, resulting in an additional $2,114 of common stock, and $38,047 of additional paid-in capital at September 30, 2005. |
(b) | Adjustment to include the results of operations for WiderThan Americas prior to acquisition on October 8, 2004. WiderThan Americas’s income for the period from January 1, 2004 through October 8, 2004, and for the six-month period ended September 30, 2004: |
For the period from | For the period from | |||||||||
January 1, 2004 | January 1, 2004 | |||||||||
through | through | |||||||||
October 8, 2004 | September 30, 2004 | |||||||||
Revenues | ||||||||||
Service revenues | ||||||||||
Carrier application services | $ | 4,384 | 4,245 | |||||||
Content services | 4,047 | 3,905 | ||||||||
Professional and other services | 361 | 343 | ||||||||
Total service revenues | 8,792 | 8,493 | ||||||||
System sales | — | — | ||||||||
Total revenues | 8,792 | 8,493 | ||||||||
Costs and expenses | ||||||||||
Cost of service revenues (exclusive of depreciation and amortization, as shown below) | 1,930 | 1,868 | ||||||||
Cost of system sales(exclusive of depreciation and amortization, as shown below) | — | — | ||||||||
Depreciation and amortization | 513 | 494 | ||||||||
Selling and marketing | 734 | 709 | ||||||||
General and administrative | 2,256 | 1,445 | ||||||||
Research and development | 3,936 | 3,815 | ||||||||
Stock compensation | — | — | ||||||||
Total costs and expenses | 9,369 | 8,331 | ||||||||
Operating income (loss) | (577 | ) | 162 | |||||||
Other income (loss) | ||||||||||
Interest income (expense), net: | (26 | ) | (17 | ) | ||||||
Total other income (loss) | (26 | ) | (17 | ) | ||||||
Income (loss) before taxes, earnings from equity method investments | $ | (603 | ) | 145 | ||||||
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(c) | To record additional amortization of the finite-lived intangible assets recorded upon acquisition of WiderThan Americas, as follows: |
For the period | ||||||||
For the period | from January 1, | |||||||
from January 1, | 2004 through | |||||||
2004 through | September 30, | |||||||
October 8, 2004 | 2004 | |||||||
Technology | $ | 66 | 64 | |||||
Customer relationship | 243 | 237 | ||||||
$ | 309 | 301 | ||||||
(d) | To reduce depreciation expenses of US$48 and US$48 for the period from January 1, 2004 through October 8, 2004 and for the nine-month period ended September 30, 2004, respectively, to conform the useful lives of property and equipment assigned by WiderThan after the Acquisition. |
(e) | To remove costs incurred by WiderThan Americas totaling US$426 and US$426, for the period from January 1, 2004 through October 8, 2004 and for the nine-month period ended September 30, 2004, respectively, relating to the Acquisition. |
(f) | To record an increase in compensation expense of US$576 and US$576 for the period from January 1, 2004 through October 8, 2004 and for the nine-month period ended September 30, 2004, respectively, due to the virtual stock options, which were issued to employees of WiderThan Americas, in connection with the Acquisition. The actual compensation expense for the year ended December 31, 2004, if the Acquisition had occurred on January 1, 2004, would represent the difference between the liability at January 1, 2004 and December 31, 2004, however, for the purposes of these pro forma financial statements, the incremental expense is calculated based upon a pro rata allocation of the actual compensation expense recorded in the period from October 8, 2004 through December 31, 2004. A similar pro rata allocation was made to calculate the pro forma expense in the nine month period ended September 30, 2004. |
(g) | To record the tax effect of the pro forma adjustments of $94 additional expense, $130 benefit and $0, at prevailing statutory rates of 29.7%, 29.7% and 27.5% during the year ended December 31, 2004, and during the nine months ended September 30, 2004 and 2005, respectively. The Company’s stock compensation expenses are not deductible for tax purposes, and therefore, the stock compensation adjustments have been excluded from the computation of the pro forma tax adjustments. |
(h) | To record the automatic conversion of the Series A and Series B convertible redeemable preferred stock into 3,481,049 shares of common stock on January 1, 2004, thereby eliminating accretion of preferred shares of US$505, US$227 and US$871 and amounts allocated to participating preferred shareholders of US$770, US$336 and US$1,537 for the year ended December 31, 2004 and for the nine-month periods ended September 30, 2004 and 2005, respectively. |
(i) | Pro forma earnings per share calculations for the year ended December 31, 2004 and for the nine-month periods ended September 30, 2004 and 2005 are based on the assumption that shares and share equivalents outstanding as of September 30, 2005 were outstanding for the year and do not give |
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effect to the offering. The Pro forma weighted average shares outstanding, basic and diluted, were calculated based on: |
Year ended | Nine months ended | Nine months ended | ||||||||||||||||||||||
December 31, 2004 | September 30, 2004 | September 30, 2005 | ||||||||||||||||||||||
Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||
Common share and common share equivalents | ||||||||||||||||||||||||
Common shares | 10,000,000 | 10,000,000 | 10,000,000 | 10,000,000 | 10,000,000 | 10,000,000 | ||||||||||||||||||
Employee stock ownership association shares | 291,667 | 291,667 | 221,612 | 221,612 | 500,000 | 500,000 | ||||||||||||||||||
Stock options | — | 15,463 | — | 11,451 | — | 65,526 | ||||||||||||||||||
Series A convertible redeemable preferred stock | 1,428,570 | 1,428,570 | 1,428,570 | 1,428,570 | 1,428,570 | 1,428,570 | ||||||||||||||||||
Series B convertible redeemable preferred stock | 2,052,479 | 2,052,479 | 2,052,479 | 2,052,479 | 2,052,479 | 2,052,479 | ||||||||||||||||||
Series C convertible redeemable preferred stock | 926,167 | 926,167 | 926,167 | 926,167 | 926,167 | 926,167 | ||||||||||||||||||
Weighted average shares outstanding | 14,698,883 | 14,714,346 | 14,628,828 | 14,640,279 | 14,907,216 | 14,972,742 | ||||||||||||||||||
Nine months | Nine months | |||||||||||
ended | ended | |||||||||||
Year ended | September 30, | September 30, | ||||||||||
December 31, 2004 | 2004 | 2005 | ||||||||||
Basic earnings per share | ||||||||||||
Net income (loss) available to common shareholders | $ | 2,138 | $ | 815 | $ | 5,265 | ||||||
Weighted average shares outstanding | 14,698,883 | 14,628,828 | 14,907,216 | |||||||||
Basic earnings per share | $ | 0.15 | $ | 0.06 | $ | 0.35 | ||||||
Nine months | Nine months | |||||||||||
ended | ended | |||||||||||
Year ended | September 30, | September 30, | ||||||||||
December 31, 2004 | 2004 | 2005 | ||||||||||
Diluted earnings per share | ||||||||||||
Net income (loss) | $ | 2,138 | $ | 815 | $ | 5,265 | ||||||
Weighted average shares outstanding | 14,714,346 | 14,640,279 | 14,972,742 | |||||||||
Diluted earnings per share | $ | 0.15 | $ | 0.06 | $ | 0.35 | ||||||
For the nine months ended September 30, 2004, the basic and the diluted share amounts are the same as there is a loss. In a loss situation dilutive securities are not permitted as this would be anti-dilutive. As such stock options are excluded from the diluted calculation. |
(j) | To record an increase in compensation expense associated with the cash rights awarded and the stock options issued in replacement of the VSOs, and for the cash rights issued to replace 116,000 stock options forfeited of US$926, US$694, US$606, for the year ended December 31, 2004, for each of the nine month periods ended September 30, 2004, and 2005, respectively, as if the VSO Cash Rights and KSO Cancellee Cash Rights were awarded and the stock options were issued on January 1, 2004. The 326,126 stock options vest after two years and the Company has estimated pro forma compensation expense using the FIN 28 model, using the fair value on the date of grant of US$1,269. Any change in the fair value of the cash rights obligation is recognized as compensation expense by the Company and as a change in the cash rights liability. As the calculation of the cash rights obligation is similar to the historical VSO liability, for the purposes of the pro forma consolidated statements of operations, the Company has used the historical VSO compensation cost to estimate the pro forma compensation expense relating to the cash rights. |
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JPMorgan | Merrill Lynch & Co. |
Table of Contents
Item 6. | Indemnification of Directors and Officers |
Item 7. | Recent Sales of Unregistered Securities |
II-1
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Purchase | ||||||||||||||||||
Discount | ||||||||||||||||||
and | ||||||||||||||||||
Principal Underwriters and | Underwriting | |||||||||||||||||
Date of Issuance | Securities | Exemption from registration | Consideration paid | Purchasers | Commissions | |||||||||||||
(In thousands of $) | ||||||||||||||||||
May 8, 2002 | Series A preferred shares | 142,857(1 | ) | Section 4(2) | $ | 5,126 | Nokia Venture Partners II, L.P.(2) | None | ||||||||||
March 31, 2004 | Stock options | 80,000 | (3) | Regulation S | — | Employees | None | |||||||||||
June 2, 2004 | Common shares | 500,000 | Regulation S | 3,094 | Employee Stock Ownership Association | None | ||||||||||||
October 8, 2004 | Series B preferred shares | 2,052,479 | Section 4(2) | 19,375 | Ztango existing shareholders and employees | None | ||||||||||||
October 8, 2004 | Virtual stock options | 426,149 | Rule 701 | — | Ztango employees | None | ||||||||||||
December 21, 2004 | Stock options | 486,000 | (4) | Regulation S for non-U.S. directors and employees and Rule 701 for U.S. directors and employees | — | Directors and employees | None | |||||||||||
February 15, 2005 | Stock options | 115,000 | (5) | Regulation S for non-U.S. employees and Rule 701 for U.S. directors and employees | — | Directors and employees | None | |||||||||||
June 28, 2005 | Stock options | 692,626 | (6) | Regulation S for non-U.S. employees and Rule 701 for U.S. directors and employees | — | Directors and employees | None | |||||||||||
August 12, 2005 | Series C preferred shares | 926,167 | Regulation S for Melody Share Corporation and Section 4(2) for Nokia Venture Partners II, L.P. and i-Hatch Ventures, L.P. | 8,703 | Melody Share Corporation, Nokia Venture Partners II, L.P. and i-Hatch Ventures, L.P. | None | ||||||||||||
September 2, 2005 | Stock options | 47,000 | (7) | Regulation S for non-U.S. employees and Rule 701 for U.S. employees | — | Employees | None | |||||||||||
October 5, 2005 | Stock options | 32,000 | (8) | Regulation S for non-U.S. employees and Rule 701 for U.S. directors and employees | — | Directors and employees | None |
(1) | On August 30, 2003, these shares underwent a 10-for-1 stock split, resulting in 1,428,570 shares. |
(2) | Includes 15,750 shares of series A preferred options owned by its affiliate, NVP II Affiliates Fund, L.P. |
(3) | 170,000 options were granted but 90,000 options were forfeited in December 2004. |
(4) | 624,000 options were granted but 38,000 options were forfeited in January 2005 and 100,000 options were forfeited in August 2005. |
(5) | 131,000 options were granted but 16,000 options were forfeited in August 2005. |
(6) | 4,250 options were forfeited in November 2005. |
(7) | 52,000 options were granted but 5,000 options were forfeited in November 2005. |
(8) | 34,500 options were granted but 2,500 options were forfeited in November 2005. |
Item 8. | Exhibits and Financial Statement Schedules |
(a) | Exhibits |
(b) | Financial Statement Schedules |
Item 9. | Undertakings |
II-2
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(1) For purposes of determining any liability under the Securities Act of 1933, as amended, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended, shall be deemed to be part of this Registration Statement as of the time it was declared effective. | |
(2) For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof. |
II-3
Table of Contents
WIDERTHAN CO., LTD. |
By: | /s/ Sang Jun Park |
Name: Sang Jun Park | |
Title: Chief Executive Officer |
Name | Title | Signature | ||
Sang Jun Park | Representative Director and Chief Executive Officer (Principal Executive Officer) | /s/ Sang Jun Park* | ||
Hoseok Kim | Chief Financial Officer (Principal Financial and Accounting Officer) | /s/ Sang Jun Park* | ||
Jin Woo So | Director | /s/ Sang Jun Park* | ||
Dong Hyun Jang | Director | /s/ Sang Jun Park* | ||
Randolph Lee Austin, Jr. | Director | /s/ Sang Jun Park* | ||
Antti Kokkinen | Director | /s/ Sang Jun Park* | ||
Jung Woo Sung | Director | /s/ Sang Jun Park* | ||
Neeraj Bharadwaj | Director | /s/ Sang Jun Park* | ||
Lori Holland | Director | /s/ Sang Jun Park* | ||
Dongjin Lee | Director | /s/ Sang Jun Park* | ||
* | See Power of Attorney executed by each such officer and director on the Registration Statement on Form F-1 previously filed with the Securities and Exchange Commission on November 18, 2005, appointing Sang Jun Park, as such person’s true and lawful attorney-in-fact with full power to sign this and any and all amendments, including post-effective amendments to this Registration Statement and to sign any and all additional registration statements relating to the same offering of securities as this Registration Statement that are filed pursuant to Rule 462(b) of the Securities Act. |
II-4
Table of Contents
WiderThan Americas Inc. |
By: | /s/ Vernon C. Poyner |
Name: Vernon C. Poyner | |
Title: Chief Executive Officer |
II-5
Table of Contents
Number | Description | |||
1 | .1* | Form of Underwriting Agreement among Registrant, the selling shareholders and the underwriters | ||
3 | .1* | Articles of Incorporation of Registrant (translation in English) | ||
4 | .1* | Form of Stock Certificate of Registrant’s common stock, par value W500 per share (translation in English) | ||
4 | .2* | Form of Deposit Agreement among Registrant, JPMorgan Chase Bank, N.A., as depositary, and all holders and beneficial owners of American depositary shares evidenced by American depositary receipts, including the form of American depositary receipt (incorporated by reference to the Registrant’s Registration Statement on Form F-6 (file number 333-129817) | ||
5 | .1 | Opinion of Shin & Kim regarding the legality of common stock being registered | ||
8 | .1 | Opinion of Shin & Kim as to matters of Korean tax law (included as part of its opinion filed as Exhibit 5.1 and incorporated herein by reference) | ||
8 | .2* | Opinion of Simpson Thacher & Bartlett LLP as to U.S. tax matters | ||
10 | .1* | First Amended and Restated Investor Rights Agreement, dated December 28, 2004, by and among certain investors named therein, as further amended as of August 10, 2005 | ||
10 | .2* | Second Amendment and Restatement of Divestiture Agreement, dated as of August 24, 2005, by and among Tae Won Chey and certain investors named therein | ||
10 | .3*† | Agreement on COLORing ASP and Business Cooperation, dated May 31, 2002, between SK Telecom Co., Ltd. and Registrant (English translation) | ||
10 | .4* | Agreement, dated as of June 28, 2004, by and among Registrant, WiderThan.com USA Inc., Ztango, Inc., Sang Jun Park, as agent, and the participating Ztango stockholders | ||
10 | .5* | Lease Agreement, dated October 2005, between K1 Corporate Restructuring Real Estate Investment Co., Ltd. and Registrant | ||
10 | .6* | Amendment to Lease Agreement, dated April 21, 2004, between K1 Corporate Restructuring Real Estate Investment Co., Ltd. and Registrant | ||
10 | .7* | Form of Share Purchase Agreement | ||
10 | .8* | Form of Agreement on Share Transfer Restrictions | ||
10 | .9* | Form of Agreement of the Right of First Refusal | ||
10 | .10* | Form of VSO Cash Right Agreement, dated August 11, 2005, by and among Registrant, Melody Share Corporation and the VSO Holder | ||
10 | .11* | Form of Korean Stock Option Agreement, dated June 28, 2005, by and between Registrant and the Grantee | ||
10 | .12* | Form of KSO Cash Right Agreement, dated August 11, 2005, by and among Registrant, Melody Share Corporation and KSO cancellees | ||
21 | .1* | List of subsidiaries of Registrant | ||
23 | .1 | Consent of Shin & Kim (included as part of its opinion filed as Exhibit 5.1 and incorporated herein by reference) | ||
23 | .2* | Consent of Simpson Thacher & Bartlett LLP (included as part of its opinion filed as Exhibit 8.2 and incorporated herein by reference) | ||
23 | .3 | Consent of Samil PricewaterhouseCoopers | ||
23 | .4 | Consent of PricewaterhouseCoopers LLP | ||
23 | .5 | Consent of Deloitte & Touche LLP | ||
24 | .1* | Power of Attorney (reference is made to the signature page on page II-4 of this registration statement) | ||
99 | .1* | Consent of Juniper Research | ||
99 | .2* | Consent of Thomas E. Wheeler |