SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: February 16, 2000
Date of earliest event reported: February 1, 2000
DITECH COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
000-26209 94-2935531
(Commission File No.) (IRS Employer Identification No.)
825 E. MIDDLEFIELD ROAD
MOUNTAIN VIEW, CA 94043
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (650) 623-1300
------------------------
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 1, 2000, Ditech Communications Corporation (the "Company")
completed an acquisition (the "Acquisition") in which it acquired: (i)
substantially all of the assets (the "Telinnovation Assets") from Telinnovation,
a California general partnership, Telinnovation Corporation, a California
corporation, and Telinnovation Service Corporation, a California corporation
(collectively, the "Telinnovation Entities"), and (ii) all of the assets
relating to voice enhancement and echo cancellation technology (the "Hardy
Assets," and together with the Telinnovation Assets, the "Assets") from Richard
Hardy, an individual ("Hardy"). The Assets were acquired pursuant to (i) the
Asset Purchase Agreement (the "Telinnovation Purchase Agreement"), dated as of
December 8, 1999, among the Company, the Telinnovation Entities, Charles Davis,
an individual ("Davis"), and David Shvarts, an individual ("Shvarts, together
with Davis, the "General Partners"); and (ii) the Asset Purchase Agreement (the
"Hardy Purchase Agreement," and together with the Telinnovation Purchase
Agreement, the "Purchase Agreements"), dated as of December 8, 1999, between the
Company and Hardy. Pursuant to the Purchase Agreements, the Telinnovation
Entities and Hardy received in exchange for the Assets an aggregate total of six
hundred thousand (600,000) shares of the common stock of the Company, a portion
of which will be held in escrow and released upon certain events.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
See Exhibit 99.1 for audited financial statements of the Telinnovation
Entities.
(b) PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma condensed combined financial
statements, including the notes thereto, are qualified in their entirety by
reference to, and should be read in conjunction with, the historical
financial statements and notes thereto of the Company included in the
Company's Registration Statement on Form S-1 (File No. 333-86691) filed
September 8, 1999, as amended October 4, 1999, and its final prospectus
contained therein filed October 5, 1999 under Rule 424(b) of the Securities
Act of 1933, as amended, and the Company's October 31, 1999 unaudited
quarterly financial statements on Form 10-Q filed December 14, 1999, with the
Securities and Exchange Commission, and the historical financial statements
and notes thereto of the Telinnovation Entities, included as exhibits herein.
The unaudited pro forma condensed combined financial statements
assume a business combination between the Company and the Telinnovation
Entities accounted for on a purchase basis and are based on each entity's
respective historical financial statements and notes thereto, which are
included herein or are otherwise publicly available. The unaudited pro forma
condensed combined balance sheet combines the Company's condensed balance
sheet as of October 31, 1999 with the Telinnovation Entities' condensed
combined balance sheet as of October 31, 1999, giving effect to the
Acquisition as if it had occurred on October 31, 1999. The unaudited pro
forma condensed combined statements of operations combine the Company's
historical results for the six months ended October 31, 1999 and the year
ended April 30, 1999 with the Telinnovation Entities' historical results for
the six months ended October 31, 1999 and the year ended April 30, 1999,
respectively, giving effect to the Acquisition as if it had occurred at
May 1, 1999 and 1998, respectively. The combined statements of operations of
the Telinnovation Entities included in the pro forma statements have been
adjusted to conform the fiscal periods with those of the Company.
The unaudited pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the Acquisition had been
consummated at the beginning of the earliest period presented, nor is it
necessarily indicative of future operating results or financial position.
DITECH COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF OCTOBER 31, 1999
(IN THOUSANDS)
PRO FORMA PRO FORMA
DITECH TELINNOVATION ADJUSTMENTS COMBINED
---------------- ---------------- ---------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 59,176 $ 2,814 $ (2,814)a $ 59,176
Investments - 2,778 (2,778)a -
Accounts receivable, net 17,118 80 - 17,198
Inventories 4,038 - - 4,038
Prepaids and other current assets 1,225 6 - 1,231
---------------- ---------------- ---------------- ---------------
Total current assets 81,557 5,678 (5,592) 81,643
Investments - 11,425 (11,425)a -
Property and equipment, net 2,144 53 - 2,197
Other assets 3,556 12 3,500 b 7,068
Goodwill and other intangibles - - 37,127 b 37,127
---------------- ---------------- ---------------- ---------------
Total assets $ 87,257 $ 17,168 $ 23,610 $ 128,035
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
LIABILITIES
Current liabilities:
Accounts payable $ 4,729 $ 14 $ - $ 4,743
Accrued expense 1,842 48 - 1,890
Income tax payable 5,176 - - 5,176
Deferred revenue 1,065 - - 1,065
Current portion of long term obligation 64 - - 64
---------------- ---------------- ---------------- ---------------
Total current liabilities 12,876 62 - 12,938
Long term obligations 43 - - 43
Deferred income taxes 34 - - 34
---------------- ---------------- ---------------- ---------------
Total liabilities 12,953 62 - 13,015
STOCKHOLDERS' EQUITY
Common stock 91,755 15 (15)a 160,605
68,850 b
Partners' capital - (1,883) 1,883 a -
Deferred stock compensation (1,064) - (22,950)b (24,014)
Accumulated deficit (16,387) 7,817 (7,817)a (21,571)
(5,184)b
Accumulated other comprehensive income - 11,157 (11,157)a -
---------------- ---------------- ---------------- ---------------
Total stockholders' equity 74,304 17,106 23,610 115,020
---------------- ---------------- ---------------- ---------------
Total liabilities and stockholders' equity $ 87,257 $ 17,168 $ 23,610 $ 128,035
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
The accompanying notes are an integral part of these
unaudited pro forma condensed combined financial statements.
2
DITECH COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED APRIL 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA PRO FORMA
DITECH TELINNOVATION ADJUSTMENTS COMBINED
--------------- --------------- ---------------- ----------------
Revenues $ 25,364 $ 2,175 $ (1,065)d $ 26,474
Cost of goods sold 11,858 - (1,065)d 10,793
--------------- --------------- ---------------- ----------------
Gross profit 13,506 2,175 - 15,681
--------------- --------------- ---------------- ----------------
Operating expenses:
Sales and marketing 5,759 - - 5,759
Research and development 3,860 308 - 4,168
General and administrative 2,399 301 - 2,700
Amortization of goodwill
and other intangibles - - 7,426 c 7,426
Amortization of deferred stock
compensation - - 7,650 c 7,650
--------------- --------------- ---------------- ----------------
Total operating expenses 12,018 609 15,076 27,703
--------------- --------------- ---------------- ----------------
Income (loss) from operations 1,488 1,566 (15,076) (12,022)
--------------- --------------- ---------------- ----------------
Interest income (expense) (500) 366 (366)a (500)
Income (loss) before provision
for (benefit from) income taxes 988 1,932 (15,442) (12,522)
Provision for (benefit from) income taxes 413 - (5,445)f (5,032)
--------------- --------------- ---------------- ----------------
Net income (loss) 575 1,932 (9,997) (7,490)
--------------- --------------- ---------------- ----------------
Accretion of mandatorily redeemable
preferred stock 1,497 - - 1,497
--------------- --------------- ---------------- ----------------
Net income (loss) attributable to
common stockholders $ (922) $ 1,932 $ (9,997) $ (8,987)
--------------- --------------- ---------------- ----------------
--------------- --------------- ---------------- ----------------
Net loss per share - basic and diluted $ (2.27)
----------------
----------------
Shares used in per share computation -
basic and diluted 3,966
----------------
----------------
The accompanying notes are an integral part of these
unaudited pro forma condensed combined financial statements.
3
DITECH COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA PRO FORMA
DITECH TELINNOVATION ADJUSTMENTS COMBINED
---------------- ---------------- ---------------- ----------------
Revenues $ 35,798 $ 3,977 $ (3,591)d $ 36,184
Cost of goods sold 11,665 - (631)d 11,034
---------------- ---------------- ---------------- ----------------
Gross profit 24,133 3,977 (2,960) 25,150
---------------- ---------------- ---------------- ----------------
Operating expenses:
Sales and marketing 3,841 - - 3,841
Research and development 2,378 280 - 2,658
General and administrative 2,007 172 - 2,179
Amortization of goodwill
and other intangibles - - 3,712 c 3,712
Amortization of deferred
stock compensation - - 3,825 c 3,825
---------------- ---------------- ---------------- ----------------
Total operating expenses 8,226 452 7,537 16,215
---------------- ---------------- ---------------- ----------------
Income from operations 15,907 3,525 (10,497) 8,935
---------------- ---------------- ---------------- ----------------
Other income - 1,790 (1,790)e -
Interest income, net 40 65 (65)a 40
---------------- ---------------- ---------------- ----------------
Income before provision for
(benefit from) income taxes 15,947 5,380 (12,352) 8,975
---------------- ---------------- ---------------- ----------------
Provision for (benefit from) income taxes 6,692 - (2,810)f 3,882
---------------- ---------------- ---------------- ----------------
Net income 9,255 5,380 (9,542) 5,093
---------------- ---------------- ---------------- ----------------
Accretion of mandatorily redeemable
preferred stock 99 - - 99
---------------- ---------------- ---------------- ----------------
Net income attributable to
common stockholders $ 9,156 $ 5,380 $ (9,542) $ 4,994
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
Net income per share - basic $ 0.47
----------------
----------------
Net income per share - diluted $ 0.39
----------------
----------------
Shares used in per share computation
Basic 10,600
----------------
----------------
Diluted 12,948
----------------
----------------
The accompanying notes are an integral part of these
unaudited pro forma condensed combined financial statements.
4
DITECH COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Effective February 1, 2000, the Company acquired from the
Telinnovation Entities the operating assets relating to an echo cancellation
business.
The allocation of the stock purchase price is summarized below (in
thousands):
Developed technology $ 25,914
In-process research and development 8,684
Goodwill 11,213
Net assets acquired 89
----------------
Total purchase price $ 45,900
----------------
----------------
The amount allocated to in-process research and development represents
the purchased in-process technology for projects that, as of the date of the
acquisition, had not yet reached technological feasibility and had no
alternative future use. Based on preliminary assessments, the value of these
projects was determined by estimating the resulting net cash flows from the
sale of the products resulting from the completion of the projects, reduced
by the portion of the revenue attributable to core technology and the
percentage completion of the project. The resulting cash flows were then
discounted back to their present value at appropriate discount rates.
The nature of the efforts to develop the purchased in-process research
and development into commercially viable products principally relates to the
completion of all planning, designing, prototyping and testing activities
that are necessary to establish that the product can be produced to meet is
design specification including function, features and technical performance
requirements. The resulting net cash flows from such products are based on
estimates of revenue, cost of revenue, research and development costs, sales
and marketing costs, and income taxes from such projects.
The amount allocated to in-process research and development will be
charged to the statement of operations in the period of the acquisition.
The Telinnovation Purchase Agreement includes the issuance of 200,000
restricted shares to the General Partners with a value of $22,950,000. These
restricted shares vest over a three year period following the closing of the
Acquisition. This stock has been recorded as deferred stock compensation and
will be charged to the statement of operations as stock compensation over the
three year vesting period.
2. PRO FORMA ADJUSTMENTS
(a) To eliminate the Telinnovation Entities' assets, equity,
revenues or expenditures not relating to the portion of the
business acquired or assumed in the acquisition of the echo
cancellation business.
(b) To reflect the purchase price and deferred stock compensation
and the resulting in-process research and development charge,
as if the acquisition had occured on October 31, 1999.
(c) To reflect the amortization of stock compensation, developed
technology and goodwill, as if the acquisition had occurred on
May 1, 1998 or 1999 as applicable. In-process research and
development has not been charged in the pro forma adjustments
to the statements of operations due to its non-recurring
nature.
(d) To reflect elimination of inter-company transactions, being the
payment of royalties and the purchase of technology.
(e) To reflect elimination of proceeds from sale of the Company's
common stock by the Telinnovation Entities.
(f) To reflect income taxes/benefits on pro forma profits/(losses)
of the Telinnovation Entities at an assumed rate of 40.3%.
5
(c) EXHIBITS.
EXHIBIT NUMBER
2.1 Asset Purchase Agreement, dated as of December 8,
1999, among Ditech Communications Corporation,
Telinnovation, Telinnovation Corporation, and
Telinnovation Service Corporation, Charles Davis,
and David Shvarts
2.2 Asset Purchase Agreement, dated as of December 8,
1999, between Ditech Communications Corporation
and Richard Hardy
99.1 Financial Statements for Telinnovation, Telinnovation
Corporation and Telinnovation Service Corporation
99.2 Press Release, dated December 9, 1999, entitled
"Ditech Communications to Acquire Telinnovation ---
Acquisition Gives Ditech a Leadership Role in
Voice-Over-Packet Market"
99.3 Agreement, dated as of January 31, 2000, among
Ditech Communications Corporation, Telinnovation,
Telinnovation Corporation, and Telinnovation
Service Corporation, Charles Davis, and David
Shvarts, providing for the closing date
99.4 Agreement, dated as of January 31, 2000, between
Ditech Communications Corporation and Richard
Hardy, providing for the closing date
99.5 Press Release, dated February 9, 2000, entitled
"Ditech Communications Completes Acquisition of
Telinnovation --- Acquisition Gives Ditech Major
Voice-Over-Packet Customers"
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DITECH COMMUNICATIONS CORPORATION
a Delaware corporation
Dated: February 16, 2000 By: /s/ Timothy Montgomery
--------------------------
Timothy Montgomery
Chief Executive Officer and
President
INDEX TO EXHIBITS
EXHIBIT NUMBER
2.1 Asset Purchase Agreement, dated as of December 8,
1999, among Ditech Communications Corporation,
Telinnovation, Telinnovation Corporation, and
Telinnovation Service Corporation, Charles Davis,
and David Shvarts
2.2 Asset Purchase Agreement, dated as of December 8,
1999, between Ditech Communications Corporation
and Richard Hardy
99.1 Financial Statements for Telinnovation, Telinnovation
Corporation and Telinnovation Service Corporation
99.2 Press Release, dated December 9, 1999, entitled
"Ditech Communications to Acquire Telinnovation ---
Acquisition Gives Ditech a Leadership Role in
Voice-Over-Packet Market"
99.3 Agreement, dated as of January 31, 2000, among
Ditech Communications Corporation, Telinnovation,
Telinnovation Corporation, and Telinnovation
Service Corporation, Charles Davis, and David
Shvarts, providing for the closing date
99.4 Agreement, dated as of January 31, 2000, between
Ditech Communications Corporation and Richard
Hardy, providing for the closing date
99.5 Press Release, dated February 9, 2000, entitled
"Ditech Communications Completes Acquisition of
Telinnovation --- Acquisition Gives Ditech Major
Voice-Over-Packet Customers"