EXHIBIT 99.1
Financial Statements
Tradex Technologies, Inc.
Tradex Technologies, Inc.
Financial Statements
CONTENTS
Report of Ernst & Young LLP............................................... 1
Report of Pender Newkirk & Company........................................ 2
Financial Statements
Balance Sheets March 31, 1999 and 1998, and December 31, 1999
(unaudited)............................................................... 3
Statements of Operations Years ended March 31, 1999 and 1998 and
nine months ended December 31, 1999 and 1998 (unaudited) ................ 5
Statements of Changes in Stockholders' Equity (Deficiency) Years ended
March 31, 1999 and 1998................................................... 6
Statements of Cash Flows Years ended March 31, 1999 and 1998 and
nine months ended December 31, 1999 and 1998 (unaudited).................. 7
Notes to Financial Statements............................................. 8
Report of Independent Certified Public Accountants
Board of Directors
Tradex Technologies, Inc.
We have audited the accompanying balance sheet of Tradex Technologies, Inc.
(formerly TRADE'ex Electronic Commerce Systems, Inc.) as of March 31, 1999 and
the related statements of operations, changes in stockholders' equity
(deficiency), and cash flows for the year then ended. These financial statements
are the responsibility of the management of the Company. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tradex Technologies, Inc.
(formerly TRADE'ex Electronic Commerce Systems, Inc.) as of March 31, 1999
and the results of its operations and cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Tampa, Florida
June 3, 1999
1
Independent Auditors' Report
Board of Directors
TRADE'ex Electronic Commerce Systems, Inc.
Tampa, Florida
We have audited the accompanying balance sheet of TRADE'ex Electronic
Commerce Systems, Inc. as of March 31, 1998 and the related statements of
operations, changes in stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the management of
the Company. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TRADE'ex Electronic Commerce
Systems, Inc. as of March 31, 1998 and the results of its operations and cash
flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
June 8, 1998
2
Tradex Technologies, Inc.
Balance Sheets
DECEMBER 31 MARCH 31
1999 1999 1998
----------- ---------- ----------
(unaudited)
ASSETS
Current assets:
Cash $16,705,320 $ 903,240 $ 65,098
Accounts receivable:
Trade, net of allowance for doubtful
accounts of $314,152 $163,443 and $30,384
at December 31, 1999, and March 31, 1999
and 1998, respectively 1,711,135 813,634 57,692
Other - 188,967 -
Stock subscription receivable - - 2,750,000
Prepaid expenses 163,446 125,768 18,150
Other current assets 40,745 22,160 13,353
----------- ---------- --------------
Total current assets 18,620,646 2,053,769 2,904,293
Property and equipment, net 3,740,271 904,090 254,395
Long-term investments 568,214 - -
----------- ---------- ----------
Total assets $22,929,131 $2,957,859 $3,158,688
=========== ========== ==========
3
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Accounts payable $ 462,261 $ 657,581 $ 203,151
Accrued expenses 2,058,014 621,810 175,300
Prepaid and deferred income 13,338,643 223,142 -
Notes payable to shareholders 921,333 2,217,750 -
Note payable to bank 750,000 750,000 -
Other current liabilities - 32,750 -
------------- ----------- -----------
Total current liabilities 17,530,251 4,503,033 378,451
Commitments (Note 6)
Series A convertible preferred stock;
$.01 par value; 257,465 shares issued
and outstanding at December 31, 1999,
March 31, 1999 and 1998; liquidation
preference of $2,075,000 at March 31,
1999 and 1998 2,034,824 2,034,824 2,034,824
Series B convertible preferred stock; $.01
par value; 566,658, 549,000 and
399,000 shares issued and outstanding at
December 31, 1999, March 31,1999
and 1998, respectively; liquidation
preference of $5,490,000 and $3,990,000 at
March 31, 1999 and 1998 5,587,228 5,337,228 3,880,699
Series C convertible preferred stock: $.01
par value; 8,284,651 shares issued
and outstanding at December 31, 1999 19,922,561 -- --
------------- ----------- -----------
Total convertible preferred stock 27,544,613 7,372,052 5,915,523
Stockholders' equity (deficiency):
Common stock; $.01 par value; 30,000,000
shares authorized; 5,451,213, 4,593,160 and
4,521,160 shares issued and outstanding at
December 31, 1999, March 31, 1999 and 1998 54,512 45,931 45,211
Additional paid-in capital 528,467 198,880 123,070
Accumulated deficit (22,728,712) (9,162,037) (3,303,567)
------------- ----------- -----------
Total stockholders' equity (deficiency) (22,145,733) (8,917,226) (3,135,286)
------------- ----------- -----------
Total liabilities and stockholders'
equity (deficiency) $ 22,929,131 $ 2,957,859 $3,158,688
============ =========== ==========
SEE ACCOMPANYING NOTES.
4
Tradex Technologies, Inc.
Statements of Operations
NINE MONTHS ENDED DECEMBER 31, YEAR ENDED MARCH 31
1999 1998 1999 1998
------------ ------------ ----------- -----------
(unaudited)
Revenue:
License fees $ 2,544,110 $ 909,000 $ 909,001 $ 616,000
Service fees 3,269,874 1,003,556 1,766,806 96,457
------------ ----------- ----------- -----------
Total revenue 5,813,984 1,912,556 2,675,807 712,457
Costs and expenses:
Costs of revenue 4,388,841 1,684,225 2,648,173 436,930
Selling, general, and
administrative expenses 14,320,061 3,782,691 5,819,202 1,565,321
----------- ----------- ----------- -----------
Total costs and expenses 18,708,902 5,466,916 8,467,375 2,002,251
Operating loss (12,894,918) (3,554,360) (5,791,568) (1,289,794)
Other income (expense):
Interest income 445,714 76,069 82,412 11,120
Interest expense (187,232) (13,824) (74,333) (8,212)
Loss on investments - - (74,000) (59,590)
----------- ----------- ----------- -----------
Total other income (expense) 258,482 62,245 (65,921) (56,682)
----------- ----------- ----------- -----------
Net loss $(12,636,436) $(3,492,115) $(5,857,489) $(1,346,476)
Preferred dividend (930,239) - - -
----------- ----------- ----------- -----------
Net loss applicable to
common stockholders $(13,566,675) $(3,492,115) $(5,857,489) $(1,346,476)
============ =========== =========== ===========
Basic and diluted
net loss per common
share $ (2.70) $ (0.77) $ (1.29) $ (0.30)
============ =========== =========== ===========
Shares used for basic
and diluted net loss
per common share 5,022,187 4,549,180 4,557,160 4,439,368
============ =========== =========== ===========
SEE ACCOMPANYING NOTES.
5
Tradex Technologies, Inc.
Statements of Changes in Stockholders' Equity (Deficiency)
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
------------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIENCY)
--------------------------------------------------------------------
Balances at April 1, 1997 4,357,576 $43,575 $ 119,585 $(1,957,091) $ (1,793,931)
Issuance of common stock 48,000 480 1,020 - 1,500
Exercise of common stock options 115,584 1,156 2,465 - 3,621
Net loss - - - (1,346,476) (1,346,476)
--------------------------------------------------------------------
Balances at March 31, 1998 4,521,160 45,211 123,070 (3,303,567) (3,135,286)
Issuance of protection warrants - - 23,549 - 23,549
Exercise of common stock options 72,000 720 8,280 - 9,000
Issuance of warrants to debt holders - - 43,000 - 43,000
Accretion of Series B convertible
preferred stock - - 981 (981) -
Net loss - - - (5,857,489) (5,857,489)
--------------------------------------------------------------------
Balances at March 31, 1999 4,593,160 $45,931 $ 198,880 $(9,162,037) $(8,917,226)
====================================================================
6
Tradex Technologies, Inc.
Statements of Cash Flows
NINE MONTHS ENDED DECEMBER 31,
1999 1998
------------ ------------
(unaudited)
OPERATING ACTIVITIES
Net loss $(12,636,436) $ (3,492,115)
Adjustments to reconcile net loss to net cash used by operating activities:
Preferred dividend (930,239) --
Depreciation 833,465 255,432
Provision for bad debts 1,222,366 30,128
Changes in operating assets and liabilities:
Trade accounts receivable (1,930,901) (263,540)
Prepaid expenses and other current assets (56,262) (21,456)
Accounts payable (195,320) 36,108
Accrued expenses 1,182,256 67,766
Prepaid and deferred income and other current liabilities 14,258,032 90,438
------------ ------------
Net cash used by operating activities 1,746,961 (3,297,239)
INVESTING ACTIVITIES
Purchases of property and equipment (3,660,740) (758,131)
Purchase of investments (568,214) --
------------ ------------
Net cash used by investing activities (4,228,954) (758,131)
FINANCING ACTIVITIES
Proceeds from the sale of stock, including the exercise of options 20,501,823 4,237,079
Proceeds from the issuance of notes payable and warrants -- 1,000,000
Payments on debt and notes payable (2,217,750) --
------------ ------------
Net cash provided by financing activities 18,284,073 5,237,079
------------ ------------
Net increase in cash 15,802,080 1,181,709
Cash at beginning of period 903,240 65,098
------------ ------------
Cash at end of period $ 16,705,320 $ 1,246,807
============ ============
YEAR ENDED MARCH 31
1999 1998
------------ ------------
OPERATING ACTIVITIES
Net loss $ (5,857,489) $ (1,346,476)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation 374,224 56,793
Provision for bad debts 133,059 30,384
Loss on investments 74,000 59,590
Accretion of discount on notes payable 10,750 --
Stock compensation expense -- 3,067
Changes in operating assets and liabilities:
Trade accounts receivable (889,001) 18,321
Other accounts receivable (188,967) --
Inventories -- 8,445
Prepaid expenses and other current assets (116,425) 35,564
Accounts payable 454,430 140,886
Accrued expenses 446,510 140,235
Prepaid and deferred income and other current liabilities 255,892 --
------------ ------------
Net cash used by operating activities (5,303,017) (853,191)
INVESTING ACTIVITIES
Purchases of property and equipment (1,023,919) (158,778)
Purchase of investments (74,000) (59,590)
------------ ------------
Net cash used by investing activities (1,097,919) (218,368)
FINANCING ACTIVITIES
Proceeds from the sale of stock, including the exercise of options 4,239,078 892,753
Proceeds from the issuance of notes payable and warrants 3,000,000 340,000
Payments on debt and notes payable -- (100,000)
------------ ------------
Net cash provided by financing activities 7,239,078 1,132,753
------------ ------------
Net increase in cash 838,142 61,194
Cash at beginning of year 65,098 3,904
------------ ------------
Cash at end of year $ 903,240 $ 65,098
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND
NONCASH INVESTING AND FINANCING ACTIVITIES
Cash paid during the year for interest $ 30,833 $ 8,212
============ ============
During fiscal 1998, the Company converted $240,000 of notes payable into 24,000
shares of Series B convertible preferred stock.
SEE ACCOMPANYING NOTES.
7
Tradex Technologies, Inc.
Notes to Financial Statements
March 31, 1999
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Tradex Technologies, Inc. (the Company) is engaged in the development,
marketing, licensing and support of enterprise application electronic
commerce software solutions. The Company's software solutions enable its
customers to engage in business-to-business electronic communications and
transactions. In addition, the Company provides a wide range of professional
and business consulting services surrounding the implementation and support
of the enterprise application software.
The Company was incorporated under the laws of the State of Delaware.
Effective May 3, 1999, the Company changed its name from TRADE'ex Electronic
Commerce Systems, Inc. to Tradex Technologies, Inc.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
INTERIM FINANCIAL DATA
The financial statements for the nine months ended December 31, 1999 and 1998
and the related amounts in the Notes to Financial Statements are unaudited,
but in the opinion of management reflect all normal and recurring adjustments
necessary for a fair presentation of the results of those periods. Operating
results for the nine months ended December 31, 1999 are not necessarily an
indication of the results that may be expected for the year ended March 31,
2000.
8
Tradex Technologies, Inc.
Notes to Financial Statements (continued)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company has adopted the American Institute of Certified Public Accountants'
Statement of Position 97-2, SOFTWARE REVENUE RECOGNITION (SOP 97-2), as amended
by Statement of Position 98-4, DEFERRAL OF THE EFFECTIVE DATE OF A PROVISION OF
SOP 97-2, and Statement of Position 98-9, MODIFICATION OF SOP 97-2, SOFTWARE
REVENUE RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS. SOP 97-2, as amended,
generally requires revenue earned on software arrangements involving multiple
elements to be allocated to each element based on the relative fair values of
the elements. Revenue from license fees and from sales of software products is
recognized when persuasive evidence of an arrangement exists, delivery of the
product has occurred, no significant Company obligation with regards to
implementation remains, the fee is fixed or determinable and collectibility is
probable. Service revenue is primarily comprised of revenue from consulting and
the implementation of the Company's software product, maintenance and support,
and training. Service revenues from consulting and implementation are generally
recognized as performed except in circumstances where the consulting and
implementation services represent an essential element to the functionality of
the delivered software product, in which case contract accounting is applied.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over the estimated
useful lives of the respective categories, using the straight-line method.
Office and computer equipment is depreciated over two to five years.
Office furniture and other assets are depreciated over seven years.
Internal use software is amortized generally over three years. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or the estimated useful life of the underlying asset.
In accordance with Statement of Financial Accounting Standards No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, the Company reviews its long-lived assets for impairment when
events or changes in circumstances indicate the carrying value of such assets
may not be recoverable. This review consists of a comparison of the carrying
value of the assets with the assets' expected future undiscounted cash flows,
without
9
Tradex Technologies, Inc.
Notes to Financial Statements (continued)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
interest costs. Estimates of expected future cash flows represent management's
best estimate based on reasonable and supportable assumptions and projections.
If the expected future cash flow exceeds the carrying value of the asset, no
impairment indicator is considered present. If the carrying value exceeds the
future cash flow, an impairment indicator would be considered present. Such
impairment, if any, would be measured and recognized using a discounted cash
flow method.
DEFERRED SOFTWARE COSTS
The Company accounts for internally generated software development costs in
accordance with Statement of Financial Accounting Standards No. 86, ACCOUNTING
FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED
(SFAS 86). Initial costs, including program design and testing, are charged to
expense as incurred. Capitalization of computer software development costs
commences upon the establishment of a working model (technological feasibility)
for the product and ends upon product release, whereupon the costs are amortized
over the useful economic life of the product and included in the costs of earned
revenue. The Company has not capitalized any of these costs for the years ended
March 31, 1999 and 1998 due to the amounts being insignificant.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. The amount charged to
operations for the years ended March 31, 1999 and 1998 amounted to approximately
$1,247,000 and $0, respectively.
STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensations arrangements in
accordance with Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES (APB No. 25), and related Interpretations. Accordingly,
where exercise prices equal or exceed fair market value (as determined by
management), the Company recognizes no compensation expense for its stock option
grants. In cases where exercise prices are less than fair value,
10
Tradex Technologies, Inc.
Notes to Financial Statements (continued)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
compensation expense is recognized over the period of performance or vesting
period. Under APB No. 25, the Company incurred approximately $3,000 of
compensation expense during 1998 (none in 1999).
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, which requires an
asset and liability approach in accounting for income taxes. Deferred income
taxes are recognized for the estimated future tax consequences attributable to
differences between the financial statements' carrying amounts of existing
assets and liabilities and their respective income tax bases. Valuation
allowances are established to reduce net deferred assets, principally related to
net operating loss carryforwards, to net realizable value.
STOCK SPLIT
All common stock share information presented in the accompanying financial
statements and notes has been restated to reflect a stock dividend paid in the
form of an 8-for-1 stock split. The stock dividend was paid to holders of record
on September 21, 1998.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
CHANGE IN ESTIMATE
In 1999, the Company changed the estimated useful life of computer equipment
from five to two years. This change in estimate resulted in additional
depreciation expense of approximately $177,000.
RECENTLY ISSUED ACCOUNTING STANDARDS
On December 3, 1999, the Securities and Exchange Commission (SEC) issued its
views of revenue recognition in Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements." The SAB provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
and will be effective for the Company's fiscal year beginning April 1, 2000.
Management is currently evaluating the impact of this SAB on the financial
statements, but does not at this time anticipate a material impact.
LOSS PER SHARE
The Company has applied the provisions of Financial Accounting Standards No.
128, Earnings Per Share, which establishes standards for computing and
presenting earnings and loss per share. Using this method there were no
dilutive securities in any period presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments, consisting primarily of cash,
accounts receivable, and accounts payable approximates carrying value due to
the liquid nature of the instruments. The fair value of short-term borrowings
approximates carrying value based on borrowing rates available to the Company
for borrowings with similar terms and maturities.
11
Tradex Technologies, Inc.
Notes to Financial Statements (continued)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of:
1999 1998
------------------------------------
Office equipment and furniture $ 131,799 $ 29,793
Computer equipment and software 1,036,690 293,337
Trade show booths 66,062 58,469
Leasehold improvements 170,967 -
------------------------------------
1,405,518 381,599
Less accumulated depreciation (501,428) (127,204)
====================================
$ 904,090 $ 254,395
====================================
Depreciation expense on property and equipment amounted to $374,224 and $56,793
during the years ended March 31, 1999 and 1998.
3. NOTES PAYABLE
The Company has a bank line of credit in the amount of $750,000 due on January
29, 2000. Interest, at the bank's prime rate plus 1% (8.75% at March 31, 1999),
is payable monthly. The loan is secured by substantially all of the Company's
assets.
In October 1998, the Company issued a $250,000 note payable to a shareholder.
The Company has the option of satisfying the debt in whole or in part by
conversion into Series B convertible preferred stock at a price of $14.16 per
share upon closing a subsequent arm's-length investment in Series C convertible
preferred stock.
In February 1999, the Company issued $2,000,000 12% notes payable (Bridge Notes)
with detachable warrants for approximately 166,000 shares of Series C
convertible preferred stock. The Bridge Notes are payable on June 28, 1999, to
certain preferred shareholders. The warrants are exercisable for a period of ten
years from the date of issuance at a formula exercise price of $2.41. The
proceeds from the Bridge Notes were allocated between the notes payable and the
warrants based on the relative fair value of each instrument. The fair value of
the warrants was estimated at $43,000 and was recorded as additional paid-in
capital. The remainder of the proceeds were allocated to the Bridge Notes. The
Company has accreted into interest expense $10,750 of the resulting discount on
the notes payable as of March 31, 1999.
12
Tradex Technologies, Inc.
Notes to Financial Statements (continued)
4. STOCKHOLDERS' EQUITY
STOCK OPTIONS
On November 11, 1997, and as subsequently amended, the Board of Directors
authorized the establishment of a qualified employee stock option plan whereby
the Company may grant employees stock options to purchase up to 1,440,000 shares
of common stock. The exercise price of each option is equal to the market price
of the Company's common stock on the date of grant, as determined by the Board
of Directors of the Company. Employee stock options generally vest over a
four-year period and expire on the tenth anniversary of their issuance. The
Company has granted 1,030,250 and 416,000 options as of March 31, 1999 and 1998,
respectively, to employees under the plan.
In addition to the plan described above, the Company has granted nonqualified
common stock options to directors under various discrete option agreements. The
Company has granted 225,760 nonqualified options to directors, as of March 31,
1999 and 1998.
The following table sets forth the activity for all common stock options during
the years ended March 31, 1999 and 1998:
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
-----------------------------------------
Outstanding, April 1, 1997 307,088 $0.64
Granted 550,256 0.38
Exercised (115,584) 0.01
Expired (100,000) 1.25
----------------------------------------
Outstanding, March 31, 1998 641,760 0.43
Granted 797,450 0.20
Exercised (72,000) 0.13
Expired (183,200) 0.24
----------------------------------------
Outstanding, March 31, 1999 1,184,010 $0.32
========================================
13
Tradex Technologies, Inc.
Notes to Financial Statements (continued)
4. STOCKHOLDERS' EQUITY (CONTINUED)
The following table sets forth stock options outstanding at March 31, 1999:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
---------------------------------------- ----------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE REMAINING REMAINING
PRICE NUMBER CONTRACTUAL LIFE NUMBER CONTRACTUAL LIFE
---------------- -------------- ------------------------- -------------- -------------------------
0.13 638,400 9.03 387,353 9.03
0.25 342,250 9.66 54,297 9.54
0.73 11,200 7.79 11,200 7.79
0.79 69,104 0.75 69,104 0.75
1.25 123,056 2.29 123,056 2.29
-------------- -------------
1,184,010 645,010
============== =============
The Company applies APB Opinion 25 in accounting for its stock options and
warrants. On an unaudited pro forma basis, had compensation cost been determined
on the basis of fair value pursuant to Statements of Financial Standards of
Accounting No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, net loss would have
been as follows for the years ended:
MARCH 31
1999 1998
------------------------------------
Net loss, as reported $(5,857,489) $(1,346,479)
Unaudited pro forma net loss (5,864,876) (1,359,429)
The pro forma effect of applying SFAS No. 123 is not likely to be representative
of the effects on reported net income for future years.
14
Tradex Technologies, Inc.
Notes to Financial Statements (continued)
4. STOCKHOLDERS' EQUITY (CONTINUED)
The weighted average fair value of the options at their grant date during 1999
was $.05. The estimated fair value of each option granted is calculated using
the Black-Scholes option-pricing model. The following summarizes the weighted
average of the assumptions used in the model:
MARCH 31
1999 1998
-----------------------------------
Risk-free interest rate 5.55% 5.79%
Expected years until exercised 2-4 3-4
Expected dividend yield 0.00 0.00
Estimated fair market value of underlying stock $.13 $.68
Additionally, not included in the above schedules are 120,000 warrants
associated with the notes payable of the Company issued and converted into
the Series B convertible preferred stock of the Company during the prior
year, contingent and protective warrants associated with the Series B
convertible preferred stock of the Company (as further discussed below),
warrants associated with the 12% notes payable of the Company (as further
discussed in Note 3) and options issued to the investment partners in
TRADE'ex Electronic Commerce (Pacific), Inc. (as further discussed below) to
convert the partners' shares of stock in TRADE'ex Electronic Commerce
(Pacific), Inc. into 296,000 shares of common stock of the Company.
CONVERTIBLE PREFERRED STOCK AND CONTINGENT WARRANTS
The Company has 2,000,000 authorized shares of convertible preferred stock, of
which 257,465 shares have been designated as Series A convertible preferred
stock, 549,000 have been designated as Series B convertible preferred stock and
1,243,535 are undesignated. Each share of convertible preferred stock is
convertible into shares of common stock at a rate computed by multiplying the
number of preferred shares to be converted by the preferred issue price, and
dividing the result by the conversion price then in effect. At March 31, 1999,
the conversion rate was one share of convertible preferred for eight shares of
common stock.
The preferred stockholders are entitled to the same dividend and voting
privileges as the common stockholders, except that the preferred stockholders
are entitled to elect three of the five directors of the Company. However, upon
liquidation of the Company, all preferred stockholders shall be
15
Tradex Technologies, Inc.
Notes to Financial Statements (continued)
4. STOCKHOLDERS' EQUITY (CONTINUED)
entitled to receive the amount of consideration paid by the holders for issuance
of said shares before distribution of assets is made to the holders of any other
capital stock (the Liquidation Preference).
SERIES A CONVERTIBLE PREFERRED STOCK: The Series A convertible preferred stock
is redeemable at the option of the Series A shareholders commencing on June 3,
2003 at a price equal to the original purchase price paid by the Series A
shareholders for the preferred stock. These securities also contain certain
covenants which must be met by the Company. Failure to do so could result in
acceleration of the redemption. The Series A convertible preferred shares are
automatically converted into 2,059,720 shares of common stock upon the closing
of an initial public offering of the Company's common stock or upon the sale or
acquisition of the Company (or substantially all of its assets) for more than
$47,500,000. The owners of the Series A convertible preferred stock have certain
antidilution clauses in the stock purchase agreements.
SERIES B CONVERTIBLE PREFERRED STOCK: The Series B convertible preferred stock
possesses the same general terms and conditions as the Series A and are
convertible into 4,392,000 shares of common stock. In addition, if the Company
has not consummated its first public offering or a conversion event on or before
June 3, 2003, on receipt of a sale request from the stockholders of at least 50
percent of the Series B convertible preferred stock, the Company will take such
action as may be necessary to effect a sale of the Company.
SERIES C CONVERTIBLE PREFERRED STOCK: The Series C convertible preferred
stock possesses the same general terms and conditions as the Series A and are
convertible into an equal number of shares of common stock. Additionally, the
holders of Series C convertible preferred have liquidation preference over
the other classes of convertible preferred stock and are entitled to receive
cumulative dividends at a rate of 8% per annum.
CONTINGENT WARRANTS: Concurrent with the sale of Series B convertible preferred
stock, the Company issued contingent protection warrants to the Series B
convertible preferred shareholders to purchase up to approximately 94,000 shares
of common stock at an exercise price of $.01 per share. The contingent
protection warrants became exercisable upon the exercise of the Put Option,
described below. Due to their contingent nature, no value was ascribed to the
contingent protection warrants on the date of issuance. Upon the exercise of the
Put Option, such contingency was lifted, and the Company recorded the estimated
fair value on the date of issuance ($23,549) as additional paid-in capital. The
protection warrants expire March 31, 2001.
In addition, concurrent with the sale of Series B convertible preferred stock,
the Company issued contingent performance warrants to the Series B convertible
preferred shareholders. The contingent performance warrants would have become
exercisable at a nominal price per common
16
Tradex Technologies, Inc.
Notes to Financial Statements (continued)
4. STOCKHOLDERS' EQUITY (CONTINUED)
share upon the failure of the Company to achieve, among other things, certain
future sales levels. The contingent performance warrants were canceled in May
1999, in connection with the sale of Series C convertible preferred stock,
discussed in Note 7.
PUT OPTION
In April 1998, the Company granted a put option (the Put Option) to a Series A
convertible preferred shareholder and investment partner in a joint venture by
name of TRADE'ex Electronic Commerce (Pacific), Inc. as an inducement to approve
the sale of Series B convertible preferred stock. The Put Option granted the
counterparty the option to put its shares of the investee to the Company in
exchange for 296,000 shares of the Company's common stock. The Company's
investment had been written off in the amounts of $59,500 and $345,121 in the
fiscal years ended March 31, 1998 and 1997, respectively, and the investee
subsequently ceased operations. On March 31, 1999, the counterparty elected to
exercise the Put Option. As a result, the Company recorded an additional loss on
the investee for its fiscal year ended March 31, 1999 in an amount of $74,000.
This amount represented the estimated value of the common stock due to the
counterparty on the date exercised.
5. INCOME TAXES
As of March 31, 1999 and 1998, the Company had temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
their respective income tax bases, as measured by enacted state and federal tax
rates, as follows:
1999 1998
------------------ -------------------
Deferred tax liabilities:
Depreciation and amortization $ - $ (10,600)
Deferred tax assets:
Net operating loss carryforward 3,135,668 581,400
Loss on investment 180,139 -
Depreciation and amortization 42,576 -
Other 61,504 87,000
------------------ -------------------
Net deferred tax assets 3,419,887 668,400
Less valuation allowance (3,419,887) (657,800)
------------------ -------------------
$ - $ -
================== ===================
17
Tradex Technologies, Inc.
Notes to Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
As of March 31, 1999, the Company has available approximately $8,300,000 of net
tax operating loss carryforwards that may be available to offset future taxable
income through the year ended 2019.
6. COMMITMENTS
LEASES
The Company leases space utilized for its corporate headquarters and other
satellite offices under noncancelable operating leases expiring during 2000,
2001 and 2002. The Company also leases certain telecommunications and office
equipment and fixtures under noncancelable operating leases expiring during 2001
and 2002.
The following is a schedule by year of the approximate future minimum rental
payments required under these leases:
YEAR ENDING MARCH 31
2000 $380,934
2001 126,616
2002 49,279
-------------------
$556,829
===================
For the years ended March 31, 1999 and 1998, rent expense under these leases
amounted to $283,639 and $69,190, respectively.
7. SUBSEQUENT EVENT (UNAUDITED)
On March 8, 2000, Ariba, Inc. ("Ariba") and the Company consummated a merger
which merged the Company into a wholly owned subsidiary of Ariba. Pursuant to
the merger agreement, each share of common stock and preferred share
equivalent was exchanged for .68356 shares of Ariba Common Stock. In
addition, each employee stock option was converted into an equivalent number
of Ariba stock options using the same exchange ratio.
18
Tradex Technologies, Inc.
Notes to Financial Statements (continued)
8. YEAR 2000 MATTERS (UNAUDITED)
The Company is devoting significant resources to minimize the risk of potential
disruption from the Year 2000 (Y2K) problem. This problem is a result of
computer programs having been written using two digits (rather than four) to
define the applicable year and extends to time-sensitive software and to many
operating and control systems that rely on embedded chip systems. Like every
other business enterprise, the Company is at risk from Y2K failures on the part
of its major business counterparts, including suppliers, distributors, licensees
and manufacturers, as well as potential failures in public and private
infrastructure services, including electricity, water, gas, transportation,
communications and financial services.
Based upon its analysis to date, the Company believes that the vast majority of
its products, software and equipment, including all critical and important
systems, will remain up and running after January 1, 2000. Accordingly, the
Company does not currently anticipate that internal systems failures will result
in any material adverse effect to its operations or financial condition.
During 1999, the Company will expand its efforts to ensure that major
third-party business affiliates and public and private providers of
infrastructure services will also be prepared for the year 2000, developing
contingency plans to address any failures on their part to become Y2K compliant.
The nature and focus of the Company's efforts to address the Year 2000 problem
may be revised periodically as interim goals are achieved or new issues are
identified. In addition, it is important to note that the description of the
Company's efforts necessarily involves estimates and projections with respect to
activities required in the future. These estimates and projections are subject
to change as work continues, and such changes may be substantial.
19