U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 4, 2000
Commission File 000-25687
Phone.com, Inc.
(A Delaware Corporation)
I.R.S. Employer Identification No. 94-3219054
800 CHESAPEAKE DRIVE, REDWOOD CITY, CA 94063
(650) 562-0200
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
On March 4, 2000, Phone.com, Inc. ("Phone.com") filed a Form 8-K to
report its acquisition of Paragon Software (Holdings) Limited, a private limited
company incorporated in England and Wales ("Paragon"). Pursuant to Item 7 of
Form 8-K, Phone.com indicated that it would file certain financial information
no later than the date required by Item 7 of Form 8-K. This Amendment No. 1 is
filed to provide the required financial information.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Paragon Software (Holdings) Limited
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31,
1999 and 1998
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended December 31,
1999 and 1998
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Paragon Software (Holdings) Limited
We have audited the accompanying consolidated balance sheets of Paragon Software
(Holdings) Limited as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with United Kingdom auditing standards,
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Paragon Software
(Holdings) Limited at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the two years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young
Reading, England
May 12, 2000
Paragon Software (Holdings) Limited
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and 1998
1999 1998
(Pounds) (Pounds)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 7,407,405 830,739
Receivables 243,713 224,768
Inventories 218,529 114,121
Prepaid expenses 38,787 35,443
Other current assets 88,028 6,400
---------- ----------
Total current assets 7,996,462 1,211,471
FIXED ASSETS
Equipment, fixtures and fittings, net 69,460 19,835
Intangible assets, net - 82,900
---------- ----------
TOTAL ASSETS 8,065,922 1,314,206
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft 72,483 -
Accounts payable 386,019 175,648
Obligations under finance leases 7,148 -
Corporation tax - 1,250
Other taxation and social security 65,830 41,768
Accruals 631,149 172,108
Deferred revenue 260,406 480,000
---------- ----------
Total current liabilities 1,423,035 870,774
Capital lease obligations less current portion 15,600 -
---------- ----------
TOTAL LIABILITIES 1,438,635 870,774
---------- ----------
`C' Redeemable convertible preferred shares of par value 10p per share 8,564,020 -
---------- ----------
SHAREHOLDERS' EQUITY
Ordinary shares of par value 10p per share (1998 - par value (Pounds)1 per share):
Authorised - 44,197,222 (1998 - 4,692,437)
Issued and outstanding - 10,000,000 (1998 - 1,000,000) 1,000,000 1,000,000
`A' Preferred convertible shares of par value 10p per share (1998 - (Pounds)1 each):
Authorised, issued and outstanding - 1,441,650 (1998 - 144,165) 144,165 144,165
`B' Preferred convertible shares of par value 10p per share (1998 - (Pounds)1 each):
Authorised, issued and outstanding - 1,633,980 (1998 - 163,398) 163,398 163,398
Additional paid-in capital 5,381,988 770,041
Deferred share compensation (3,027,987) -
Retained deficit (5,598,297) (1,634,172)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY (1,936,733) 443,432
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 8,065,922 1,314,206
========== ==========
See notes to consolidated financial statements
Paragon Software (Holdings) Limited
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1999 and 1998
1999 1998
(Pounds) (Pounds)
NET SALES 1,861,643 586,194
Cost of sales (729,373) (623,642)
Selling, general and administrative expenses (5,178,667) (1,588,827)
Interest income 85,413 5,381
Interest expense (3,141) (16,120)
---------- ----------
LOSS BEFORE TAXATION (3,964,125) (1,637,014)
Tax - 4,994
---------- ----------
NET LOSS (3,964,125) (1,632,020)
========== ==========
See notes to consolidated financial statements
Paragon Software (Holdings) Limited
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1999 and 1998
Total
Share capital Additional Deferred Share-
Ordinary `A' preferred `B'preferred Paid-in Share Retained holders'
shares shares shares Capital Compensation Earnings Equity
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
At January 1, 1998 2 - - - - (2,152) (2,150)
Proceeds from issues of
shares,
net of issue costs 999,998 144,165 163,398 361,066 - - 1,668,627
Unearned deferred
share compensation - - - 408,975 (408,975) - -
Amortisation of deferred
share
compensation - - - - 408,975 - 408,975
Retained loss for period - - - - - (1,632,020) (1,632,020)
--------- ------------- ------------ --------- ----------- ---------- ----------
At 31 December 1998 1,000,000 144,165 163,398 770,041 - (1,634,172) 443,432
Unearned deferred
share compensation - - - 4,611,947 (4,611,947) - -
Amortisation of
deferred share
compensation - - - - 1,583,960 - 1,583,960
Retained loss for period - - - - - (3,964,125) (3,964,125)
--------- ------------- ------------ --------- ---------- ---------- ----------
At 31 December 1999 1,000,000 144,165 163,398 5,381,988 (3,027,987) (5,598,297) (1,936,733)
========== ============= ============ ========= ========== ========== ==========
The group has no comprehensive income other than the retained losses for the periods presented.
See notes to consolidated financial statements
Paragon Software (Holdings) Limited
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1999 and 1998
1999 1998
(Pounds) (Pounds)
OPERATING ACTIVITIES
Net loss (3,964,125) (1,632,020)
Adjustments to reconcile net loss to cash provided
by operations
Depreciation 26,867 16,820
Amortisation of intangible fixed assets 82,900 84,646
Amortisation of deferred share compensation 1,583,960 408,975
(Increase) in receivables (103,917) (167,715)
(Increase) in stocks (104,408) (78,737)
Increase in creditors 472,630 778,835
---------- ----------
NET CASH USED BY OPERATING ACTIVITIES (2,006,093) (589,196)
INVESTING ACTIVITIES
Payments to acquire tangible fixed assets (76,492) (7,155)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (76,492) (7,155)
FINANCING ACTIVITIES
Issue of ordinary share capital - 1,668,725
Issue of redeemable convertible shares 8,564,020 -
Capital element of capital lease rental payments 22,748 (5,483)
Borrowings 72,483 (130,384)
Loan from director (116,295)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,659,251 1,416,563
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,576,666 820,212
CASH AND CASH EQUIVALENTS AT 1 JANUARY 830,739 10,527
---------- ----------
CASH AND CASH EQUIVALENTS AT 31 DECEMBER 7,407,405 830,739
========== ==========
Supplemental cash flow information:
Interest paid (3,141) (16,120)
========== ==========
Interest received 85,413 5,381
========== ===========
Tax paid (1,250) 6,455
========== ==========
See notes to consolidated financial statements
Paragon Software (Holdings) Limited
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Accounting convention
The financial statements are prepared in accordance with accounting
principles generally accepted in the United States.
Basis of consolidation
The financial statements consolidate the accounts of Paragon Software
(Holdings) Limited (the "Company") and all its subsidiary undertakings drawn
up to 31 December each year. As more fully described in note 2, on 10
February 1998 the company merged with Paragon Software Limited and Paragon
Software (Developments) Limited. The transaction was accounted for as a
combination of entities under common control in a manner similar to pooling
of interests and, accordingly, all financial data provided herein includes
the results of these companies.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Revenue recognition
Paragon recognises revenue upon shipment when no significant vendor
obligations remain and collection of the receivable, net of provisions for
estimated future returns, is probable. Paragon offers the right of return of
its products under various programs. The company estimates and maintains
reserves for product returns.
Cash equivalents
Paragon considers investments in highly liquid instruments purchased with an
original maturity of 90 days or less to be cash equivalents. All of the
company's cash equivalents are classified as available for sale as of the
balance sheet date. These securities are reported at fair market value.
Development costs
Development costs on separately identified specific projects, the outcome of
which has been assessed with reasonable certainty, are capitalised to the
extent that their recovery can reasonably be regarded as assured and are
amortised on a unit basis over a maximum of 30 months. Other development
expenditure is written off against profits in the year in which it is
incurred.
Intellectual Property Rights
Intellectual property rights have been recorded at cost and are being
amortised evenly over a period of three years, their expected useful life.
Paragon Software (Holdings) Limited
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES (continued)
Depreciation
Depreciation is provided on all tangible fixed assets at rates calculated to
write off cost, less estimated residual value, of each asset evenly over its
expected useful life, as follows:
Computer equipment over 3 years
Software over 3 years
Office equipment over 4 years
Fixtures and fittings over 4 years
Inventories
Inventories, consisting principally of consumable products, are stated at
the lower of cost and net realisable value. Cost is determined on a first in
first out basis.
Deferred taxation
Deferred taxation is provided on the liability method on all timing
differences which are expected to reverse in the future, calculated at the
rate at which it is estimated that tax will be payable.
Foreign currencies
Transactions in foreign currencies are recorded at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the rate of exchange ruling at the balance
sheet date. All differences are taken to the profit and loss account.
The accounts of overseas subsidiary companies are translated at the rate of
exchange ruling at the balance sheet date. The exchange difference arising
on the retranslation of opening net assets is taken directly to reserves.
All other translation differences are taken to the profit and loss account.
Leasing
Assets acquired under capital leases are capitalised as fixed assets. The
amount capitalised is that sum for which the leased asset could be purchased
at the start of the lease, this sum also being treated as a liability.
Depreciation on such leased assets is provided at rates calculated to write
off the capitalised cost over the shorter of the lease term and the asset's
economic life. Lease payments are apportioned between financing charges
(computed on the basis of implicit interest rates) and a reduction in the
original liability.
Rentals paid under operating leases are expensed on a straight line basis
over the term of the lease.
Share based compensation
Where share options are granted to employees the company recognises as a
charge in the profit and loss account the difference between the fair market
value of the shares at the date the award is made to participants in the
scheme and the amount of the consideration that participants may be required
to pay for the shares. This charge is spread evenly over the period the
share options vest.
For share options granted under Stock Appreciation Right plans (SAR), the
compensation related to the grant of the option is determined based on the
market price at the date the recipient exercises their option. Until
exercise has occurred, the compensation is determined by reference to the
market price at the end of each accounting period. The difference in value
of the option using the current accounting period's market price and the
last accounting period's market price is charged to the profit and loss
account.
Share options were also granted to a consultant. The difference between the
fair value of the shares at the date of the grant and the amount of
consideration that the participants may be required to pay for the shares is
recorded as a charge to the profit and loss account over the vesting period.
Paragon Software (Holdings) Limited
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS COMBINATIONS
On 10 February 1998, 948,998 (Pounds)1 ordinary shares were issued fully
paid in consideration on the merger with Paragon Software Limited and
Paragon Software (Developments) Limited (the `subsidiaries'). The
subsidiaries principal activities are the development, marketing and selling
of software products linking mobile phones to personal computers worldwide.
The combination has been accounted for as a combination of interests under
common control in a manner similar to the pooling of interests and
accordingly all financial data presented herein has been restated to include
the results of the subsidiaries. The following table sets forth the
composition of combined net revenue and net loss for the periods indicated.
Information for 1998 with respect to the subsidiaries reflects the period
from 1 January 1998 to 10 February 1998, the date of the combination.
Paragon Paragon
Software Paragon Software
(Holdings) Software (Develop-
Ltd Ltd ments) Ltd Total
1998 1998 1998 1998
Net sales 586,194 - - 586,194
Net loss (1,557,020) (50,000) (25,000) (1,632,020)
The accounting policies for the subsidiaries conform with those of the
company.
3. BUSINESS SEGMENT INFORMATION
Net sales represents the amounts derived from one business segment - the
development, and marketing of software products linking mobile phones to
personal computers worldwide.
The following table analyses worldwide operations by geographical segment,
based on the location of the group's facilities.
Year ended December 31,
1999 1998
(Pounds) (Pounds)
NET SALES:
United States 1,037,793 223,134
United Kingdom 823,850 363,060
---------- ----------
Total net revenue 1,861,643 586,194
========== ==========
LOSS FROM OPERATIONS:
United States (720,204) -
United Kingdom (3,243,921) (1,632,020)
---------- ----------
(3,964,125) (1,632,020)
========== ==========
As of December 31,
1999 1998
LONG-LIVED ASSETS:
United States 32,950 -
United Kingdom 36,510 102,735
---------- ----------
69,460 102,735
========== ==========
Paragon Software (Holdings) Limited
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. DEVELOPMENT COSTS
Year ended December 31
1999 1998
(Pounds) (Pounds)
Development costs written off 732,744 361,368
Amortisation of capitalised costs 77,718 77,723
-------- ----------
810,462 439,091
======== ==========
5. TAXATION
Year ended December 31,
1999 1998
(Pounds) (Pounds)
Tax expense (benefit)
Current
United Kingdon corporation tax at 21% 1998 - (4,994)
United States - -
------- ----------
Total current - (4,994)
======= ==========
Due to continuing losses and the recovery of previous years taxation
payments the group has achieved a negative effective tax rate.
Loss before taxation is analysed as follows:
Year ended 31 December
1999 1998
(Pounds) (Pounds)
United States (720,204) -
United Kingdom (3,243,921) (1,632,020)
----------- ----------
(3,964,125) (1,632,020)
=========== ==========
Deferred income taxes:
As of December 31,
1999 1998
(Pounds) (Pounds)
Deferred tax assets
Losses carried forward 746,625 373,860
Valuation allowance for deferred tax assets (746,625) (373,860)
--------- ----------
Net tax asset - -
========= ==========
The realisation of the deferred tax asset is dependent on the group's
ability to generate approximately (Pounds)2.5 million of taxable income.
Management are currently unable to estimate the timing of the generation of
this income and have therefore set a valuation allowance in full against the
asset. This allowance will be reviewed annually.
Paragon Software (Holdings) Limited
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. TANGIBLE FIXED ASSETS
As of December 31,
1999 1998
(Pounds) (Pounds)
Computer equipment 46,344 33,985
Software 11,033 12,751
Office equipment 54,786 7,992
Fixtures and fittings 984 1,430
--------- -------
Equipment, fixtures and fittings - at cost 113,147 56,158
Less : accumulated depreciation (43,687) (36,323)
-------- -------
69,640 19,835
======== =======
The above figures include assets under capital leases as follows:
As of December 31,
1999 1998
(Pounds) (Pounds)
Cost 26,948 -
Less : accumulated depreciation (2,235) -
-------- -------
24,713 -
======== =======
7. INTANGIBLE ASSETS
As of December 31,
1999 1998
(Pounds) (Pounds)
Development expenditure 155,441 155,441
Intellectual Property Rights 12,104 12,104
--------- -------
Intangible assets 167,545 167,545
Less : accumulated amortisation (167,545) (84,645)
--------- -------
Intangible assets - net - 82,900
========= =======
8. OBLIGATIONS UNDER CAPITAL LEASES
Future minimum capital lease obligations are as follows:
As at December 31,
1999
(Pounds)
Amounts payable:
within one year 9,514
in two to three years 9,514
in three to four years 8,550
-------
27,578
Less: finance charges allocated to future periods 4,830
-------
22,748
=======
Paragon Software (Holdings) Limited
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. `C' REDEEMABLE CONVERTIBLE PREFERRED SHARES (`C' SHARES)
During 1999, 2,727,148 `C' shares of par value 10p per share were allotted
for (Pounds)8,564,020, gross of issue costs of (Pounds)108,386.
`C' shares rank pari passu in all respects to voting rights with other
classes of shareholders.
The `C' preferred shareholders have priority over all other shareholders to
a non-cumulative dividend of 8%. After accounting for the preferential
dividend all classes rank pari passu in respect of further dividends.
On a winding up of the company, the `C' preferred shareholders have the
right to receive, in priority to all other shareholders, the subscription
price of the `C' preferred shares plus any dividends in arrears, the `B'
preferred shareholders then have the right to receive, in priority to `A'
preferred and ordinary shareholders, the subscription price of the `B'
preferred shares plus any dividends in arrears. The `A' preferred
shareholders have the right to receive, subject to the rights of the `B' and
`C' preferred shareholders, but in priority to ordinary shareholders, the
subscription price of the `A' preferred shares plus any dividends in
arrears. Any remaining balance will then be shared pari passu between the
`B' and `C' preferred shareholders and the ordinary shareholders.
A holder of any class of preferred shares is entitled to convert each share
held into such number of fully paid ordinary shares as determined by the
Articles of Association.
If approval of 50% of the `C' preferred shareholders is given, the company
shall redeem at the subscription price the shares of such holder giving
notice.
10. SHARE CAPITAL
On 10 February 1998, 948,998 (Pounds)1 ordinary shares were issued fully
paid in consideration on merger with Paragon Software Limited and
Paragon Software (Developments) Limited. Also on this date, 50,000 (Pounds)1
ordinary shares were issued fully paid for a cash consideration of
(Pounds)50,000.
On 12 February 1998, 144,165 (Pounds)1 ordinary shares were issued fully
paid for a cash consideration of (Pounds)450,000. Issue costs of
(Pounds)27,282 were incurred.
On 12 February 1998, 163,398 (Pounds)1 ordinary shares were issued fully
paid for a cash consideration of (Pounds)1,249,995. Issue costs of
(Pounds)54,100 were incurred.
During 1999 the company subdivided each (Pounds)1 ordinary, `A' preferred
and `B' preferred shares into 10 10p ordinary, `A' preferred and `B'
preferred shares respectively.
The company has an unapproved share option plan under which options to
subscribe for the company's shares have been awarded to consultants and
employees. The Board of Directors determines the term of each award and the
award price. The awards are made at the discretion of the Board of
Directors. At the beginning of 1998 there were no options under the plan
in place. During 1998 options under this plan were granted over 615,000
shares exercisable at 10p each, between 25 October 2001 and 25 October 2007.
During 1999 further options were granted over 1,360,000 ordinary shares
exercisable at 10p each, between 1 April 2002 and 1 April 2008. No options
were exercised or lapsed during 1998 or 1999.
Paragon Software (Holdings) Limited
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SHARE CAPITAL (CONTINUED)
The `C' preferred shareholders have priority over all other shareholders to
a non-cumulative dividend of 8%. After accounting for the preferential
dividend all classes rank pari passu in respect of further dividends.
On a winding up of the company, the `C' preferred shareholders have the
right to receive, in priority to all other shareholders, the subscription
price of the `C' preferred shares plus any dividends in arrears, the `B'
preferred shareholders then have the right to receive, in priority to `A'
preferred and ordinary shareholders, the subscription price of the `B'
preferred shares plus any dividends in arrears. The `A' preferred
shareholders have the right to receive, subject to the rights of the `B' and
`C' preferred shareholders, but in priority to ordinary shareholders, the
subscription price of the `A' preferred shares plus any dividends in
arrears. Any remaining balance will then be shared pari passu between the
`B' and `C' preferred shareholders and the ordinary shareholders.
A holder of any class of preferred shares is entitled to convert each share
held into such number of fully paid ordinary shares as determined by the
Articles of Association.
If approval of 50% of the `C' preferred shareholders is given, the company
shall redeem at the subscription price the shares of such holder giving
notice.
11. COMMITMENTS
As at December 31, 1999 the group had commitments under operating leases as
set out below:
1999
(Pounds)
Minimum lease commitments
Within one year 154,491
In one to two years 139,491
In two to three years 139,491
In three to four years 39,750
-------
473,223
=======
During the years ended 31 December 1999 and 1998 rent expense totalled
(Pounds)83,194 and (Pounds)31,358 respectively.
12. POST BALANCE SHEET EVENT
On 4 March 2000, the entire share capital of the company was acquired by
Phone.com Inc., a company incorporated in the United States of America.
(b) PRO FORMA FINANCIAL INFORMATION
PHONE.COM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the combined financial position or results of operations for future periods
or the results of operations or financial position that actually would have been
realized had Phone.com, and the WAP business of APiON, AtMotion, and Paragon
("the Companies") been a combined company during the specified periods. The
unaudited pro forma combined condensed financial statements, including the
related notes, are qualified in their entirety by reference to, and should be
read in conjunction with, the historical consolidated financial statements and
related notes thereto of Phone.com and the Companies, included elsewhere in this
submission and in Phone.com's S-1 Registration Statement filed October 28, 1999,
and in Phone.com's Current Report on Form 8-K, as amended, dated February 8,
2000. The following unaudited pro forma combined condensed financial statements
give effect to Phone.com's acquisitions of the Companies using the purchase
method of accounting. The pro forma combined condensed financial statements are
based on the respective historical audited and unaudited financial statements
and related notes of Phone.com and the Companies.
The pro forma adjustments are preliminary and are based upon available
information and certain assumptions that management believes are reasonable.
The pro forma financial data do not necessarily reflect the results of
operations or the financial position of the Company that would have resulted had
the acquisitions been consummated as of the date or for
the period indicated, and the pro forma financial data exclude the non-recurring
effects of certain purchase adjustments related to the acquisitions that will be
reflected in financial statements prepared in accordance with generally accepted
accounting principles. The pro forma adjustments are based on management's
preliminary assumptions regarding purchase accounting adjustments that will be
determined in accordance with the purchase accounting provisions of Accounting
Principles Board Opinion No. 16, "Business Combinations" and related
pronouncements. The actual allocation of the purchase price will be adjusted in
accordance with Statement of Financial Accounting Standards No. 38, "Accounting
for Preacquisition Contingencies of Purchase Enterprises," to the extent that
actual amounts differ from management's estimates. The actual adjustments may
differ materially from those presented in these pro forma financial statements.
A change in the pro forma adjustments would result in a reallocation of the
purchase price affecting the value assigned to the long-term tangible and
intangible assets or, in some circumstances, resulting in a charge to the
statement of operations. The effect of these changes on the statement of
operations will depend on the nature and amounts of the assets and liabilities
adjusted. See notes to the pro forma combined condensed financial
statements.
The unaudited pro forma combined condensed balance sheet assumes that the
acquisitions of AtMotion and Paragon took place on December 31, 1999, and
combines Phone.com's December 31, 1999 consolidated balance sheet with
AtMotion's and Paragon's December 31, 1999 balance sheets. The Phone.com
December 31, 1999 balance sheet includes assets and liabilities relating to the
acquisition of the WAP business of APiON, which was completed October 26, 1999.
The pro forma combined condensed statements of operations assumes the
acquisitions took place on July 1, 1998, and combines Phone.com's consolidated
statement of operations for the year ended June 30, 1999, and consolidated
statement of operations for the six months ended December 31, 1999, with the WAP
business of ApiON's statement of operations for the year ended March 31, 1999
and statement of operations for the six months ended December 31, 1999, and
AtMotion's and Paragon's statements of operations for the year ended June 30,
1999 and statements of operations for the six months ended December 31, 1999,
respectively.
PHONE.COM INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1999
(In thousands)
HISTORICAL PRO FORMA
---------------------------------------- --------------------------
PHONE.COM ATMOTION PARAGON ADJUSTMENTS COMBINED
----------- ---------- --------- -------------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 276,976 $ 1,353 $ 12,222 $ (3,555) (b) $ 286,996
Short-term investments 228,543 - - - 228,543
Accounts receivable 11,564 - 402 - 11,966
Prepaid expenses and other current assets 2,703 133 570 - 3,406
---------- ---------- --------- ------------ ----------
Total current assets 519,786 1,486 13,194 (3,555) 530,911
Property and equipment, net 9,672 3,305 115 - 13,092
Deposits and other assets 1,789 146 - 1,935
Goodwill and intangible assets, net 231,852 - - 285,174 (a)
460,809 (b) 977,835
---------- ---------- --------- ------------ ----------
$ 763,099 $ 4,937 $ 13,309 $ 742,428 $ 1,523,773
========== ========== ========= ============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of equipment loan
and capital lease obligations $ 424 $ 537 $ 12 $ - 973
Accounts payable and accrued liabilities 19,986 1,320 1,906 2,000 (a)
32,545 (b) 57,757
Deferred revenue 46,581 - 430 - 47,011
---------- ---------- --------- ------------ ----------
Total current liabilities 66,991 1,857 2,348 34,545 105,741
Equipment loans and capital lease obligations,
less current portion 272 1,784 26 - 2,082
---------- ---------- --------- ------------ ----------
Total liabilities 67,263 3,641 2,374 34,545 107,823
---------- ---------- --------- ------------ ----------
Stockholders' equity:
Redeemable convertible preferred stock - 13,486 14,638 (13,486) (a)
(14,638) (b) -
Common stock 68 770 1,650 2 (a)
(770) (a)
3 (b)
(1,650) (b) 73
Additional paid-in capital 772,522 - 8,880 285,157 (a)
(596) (b)
453,721 (b) 1,511,400
Deferred stock-based compensation (9,183) - (4,996) 4,996 (b) (9,183)
Treasury stock (196) - - - (196)
Notes receivable from stockholders (484) (689) - - (1,173)
Accumulated deficit (66,891) (12,271) (9,237) 12,271 (a)
(8,843) (b) (84,971)
---------- ---------- --------- ------------ ----------
Total stockholders' equity 695,836 1,296 10,935 707,883 1,415,950
---------- ---------- --------- ------------ ----------
$ 763,099 $ 4,937 $ 13,309 $ 742,428 $1,523,773
========== ========== ========= ============ ===========
See accompanying notes to unaudited pro forma combined condensed financial
statements.
PHONE.COM INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1999
(In thousands, except per share data)
HISTORICAL PRO FORMA
-------------------------------------------------------- --------------------------
PHONE.COM APION ATMOTION PARAGON ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- ----------- -----------
Revenues:
License $ 5,229 $ - $ - $ 2,185 $ - $ 7,414
Maintenance and support services 5,921 - - - - 5,921
Consulting services 2,292 - - - - 2,292
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 13,442 - - 2,185 - 15,627
----------- ----------- ----------- ----------- ----------- -----------
Cost of revenues:
License 371 - - 544 - 915
Maintenance and support services 3,022 - - - - 3,022
Consulting services 1,146 - - - - 1,146
----------- ----------- ----------- ----------- ----------- -----------
Total cost of revenues 4,539 - - 544 - 5,083
----------- ----------- ----------- ----------- ----------- -----------
Gross profit 8,903 - - 1,641 - 10,544
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development 13,082 432 4,671 792 - 18,977
Sales and marketing 10,840 227 - 1,680 - 12,747
General and administrative 4,432 425 1,489 925 - 7,271
Stock-based compensation 1,011 - - 601 3,821 (c)
(601)(k) 4,832
Amortization of goodwill and
intangible assets - - - - 81,160 (d)
- 95,058 (f)
153,603 (i) 329,821
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses 29,365 1,084 6,160 3,998 333,041 373,648
----------- ----------- ----------- ----------- ----------- -----------
Operating loss (20,462) (1,084) (6,160) (2,357) (333,041) (363,104)
Interest income(expense), net 1,803 - (141) - - 1,662
----------- ----------- ----------- ----------- ----------- -----------
Loss before income taxes (18,659) (1,084) (6,301) (2,357) (333,041) (361,442)
Income taxes 2,104 147 - - - 2,251
----------- ----------- ----------- ----------- ----------- -----------
Net loss (20,763) (1,231) (6,301) (2,357) (333,041) (363,693)
Preferred stock accretion - - (363) - 363 (h) -
----------- ----------- ----------- ----------- ----------- -----------
Net loss attributable to
common shareholders $ (20,763) $ (1,231) $ (6,664) $ (2,357) $ (332,678) $ (363,693)
=========== =========== =========== =========== =========== ===========
Basic and diluted net loss
per share $ (1.49) $ (16.99)
=========== ===========
Shares used in computing basic
and diluted net loss per share 13,932 2,393 (e)
=========== 2,025 (g)
3,051 (j) 21,401
===========
See accompanying notes to unaudited pro forma combined condensed financial
statements.
PHONE.COM INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1999
(In thousands, except per share data)
HISTORICAL PRO FORMA
------------------------------------------------------ ----------------------------
PHONE.COM APION ATMOTION PARAGON ADJUSTMENTS COMBINED
----------- ----------- ----------- ---------- ----------- -----------
Revenues:
License $ 12,918 $ 473 $ - $ 1,337 $ - $ 14,728
Maintenance and support services 5,509 - - - - 5,509
Consulting services 2,902 - - - - 2,902
----------- ----------- ----------- ---------- ----------- -----------
Total revenues 21,329 473 - 1,337 - 23,139
----------- ----------- ----------- ---------- ----------- -----------
Cost of revenues:
License 519 310 - 896 - 1,725
Maintenance and support services 4,249 - - - - 4,249
Consulting services 1,744 - - - - 1,744
----------- ----------- ----------- ---------- ----------- -----------
Total cost of revenues 6,512 310 - 896 - 7,718
----------- ----------- ----------- ---------- ----------- -----------
Gross profit 14,817 163 - 441 - 15,421
----------- ----------- ----------- ---------- ----------- -----------
Operating expenses:
Research and development 13,700 197 2,897 773 - 17,567
Sales and marketing 10,540 276 - 1,911 - 12,727
General and administrative 4,713 241 1,250 1,275 - 7,479
Stock-based compensation 1,720 - - 2,392 637 (c)
(2,392)(k) 2,357
Amortization of goodwill and
intangible assets 13,752 - - - 27,053 (d)
47,529 (f)
76,802 (i) 165,136
----------- ----------- ----------- ---------- ----------- -----------
Total operating expenses 44,425 714 4,147 6,351 149,629 205,266
----------- ----------- ----------- ---------- ----------- -----------
Operating loss (29,608) (551) (4,147) (5,910) (149,629) (189,845)
Interest income(expense), net 5,592 - (42) - - 5,550
----------- ----------- ----------- ---------- ----------- -----------
Loss before income taxes (24,016) (551) (4,189) (5,910) (149,629) (184,295)
Income taxes 925 68 - - - 993
----------- ----------- ----------- ---------- ----------- -----------
Net loss (24,941) (619) (4,189) (5,910) (149,629) (185,288)
Preferred stock accretion - - (501) - 501 (h) -
----------- ----------- ----------- ---------- ----------- -----------
Net loss attributable to
common shareholders $ (24,941) $ (619) $ (4,690) $ (5,910) $ (149,128) $(185,288)
=========== =========== =========== ========== =========== ===========
Basic and diluted net loss
per share $ (0.39) $ (2.64)
=========== ===========
Shares used in computing basic
and diluted net loss per share 63,530 1,561 (e)
=========== 2,025 (g)
3,051 (j) 70,167
===========
See accompanying notes to unaudited pro forma combined condensed
financial statements.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) Unaudited Pro Forma Combined Condensed Balance Sheet
The WAP Business of APiON
On October 26, 1999, the Company acquired all of the outstanding capital
stock of APiON Telecom Limited ("APiON") in exchange for 2,393,026 shares of its
common stock. In addition, the Company also agreed to issue cash and common
stock with an aggregate value of up to approximately $14,100,000 to current and
former employees of APiON. APiON is a provider of WAP software products to GSM
network operators in Europe and has expertise in GSM Intelligent Networks,
wireless data and WAP technology. Former employees of APiON will receive
consideration totaling up to approximately $6.5 million of which one third was
paid in cash (approximately $2.2 million) upon the closing of the Company's
secondary offering in November 1999 and two thirds is payable in common stock of
the Company on the one year anniversary of the closing of the acquisition of
APiON and is subject to forfeiture upon the occurrence of certain events.
Current employees of APiON will receive consideration totaling up to
approximately $7.6 million of which one third was paid in cash upon the closing
of the Company's secondary offering and one third is payable in common stock of
the Company on each of the first two anniversaries of the closing of the
acquisition of APiON contingent upon continued employment. The actual number of
Phone.com shares to be issued to current and former employees of APiON will
depend upon the fair value of Phone.com common stock on the distribution date.
Common stock issued to former shareholders and cash paid to current and
former employees of APiON at the closing of the acquisition was included in the
purchase price. Contingent common stock issuable in the future to former
employees of APiON has been treated as contingent consideration. The then fair
value of the common stock that is issued to the former employees of APiON upon
the satisfaction of certain future events will be added to goodwill and
amortized over the remaining useful life. Common stock issuable in the future to
current employees of APiON has been recorded as deferred stock-based
compensation.
Total consideration given, including direct acquisition costs, aggregated
approximately $245.9 million. The acquisition was accounted for as a purchase
with the results of APiON included from the acquisition date. The excess of the
purchase price over the fair value of tangible net assets acquired amounted to
approximately $243.6 million, with $241.6 million attributable to goodwill, $1.7
million attributable to assembled workforce, $170,000 attributable to developed
technology and $110,000 attributable to in-process research and development. The
in-process research and development has been expensed on the acquisition date,
and the intangible assets are being amortized on a straight-line basis over an
estimated life of 3 years. In connection with the acquisition, the Company
recorded deferred stock-based compensation in the amount of $5.1 million, which
is being amortized on an accelerated basis over the vesting period of 24 months,
consistent with the method described in FASB Interpretation No. 28.
The historical balance sheet of Phone.com as of December 31, 1999 reflects
the acquisition of APiON which was completed October 28, 1999.
Under purchase accounting, the total purchase price was allocated to
APiON's assets and liabilities based on their relative fair values as of the
closing date of October 26, 1999.
The amounts and components of the purchase price along with the allocation of
the purchase price to assets purchased are as follows (in thousands):
Cash (including $2,547 paid to current employees of APiON)........ $ 4,786
Common stock...................................................... 235,761
Transaction costs................................................. 5,330
--------
Total purchase price............................................ $245,877
========
Cash and cash equivalents......................................... $ 417
Other current assets.............................................. 5,971
Property, plant and equipment and other noncurrent assets......... 507
Liabilities assumed............................................... (4,609)
--------
Book value of net tangible assets of APiON...................... 2,286
In-process research and development............................... 110
Developed and core technology..................................... 170
Assembled workforce............................................... 1,730
Goodwill.......................................................... 241,581
--------
Net assets acquired............................................. $245,877
========
AtMotion
On December 21, 1999, Phone.com entered into a Merger Agreement to acquire
AtMotion, Inc. ("AtMotion"), an emerging provider of Voice Portal technology. In
connection with the acquisition, which was completed on February 8, 2000, the
Company issued 2,280,287 shares of its common stock in exchange for all of the
outstanding common stock and redeemable convertible preferred stock of AtMotion,
and assumed options and warrants of AtMotion for total consideration valued at
approximately $285.2 million. The stock-for-stock transaction will be accounted
for using purchase accounting.
The pro forma combined condensed balance sheet as of December 31, 1999
gives effect to the merger as if it had occurred on December 31, 1999.
The following adjustment has been reflected in the unaudited pro forma
combined condensed balance sheet:
(a) To record common stock issued to stockholders of AtMotion and record
applicable purchase accounting entries.
Under purchase accounting, the total purchase price will be allocated to
AtMotion's assets and liabilities based on their relative fair values.
Allocations are subject to valuations as of the date of the consummation of the
acquisition. Amounts allocated to goodwill and other intangible assets will be
amortized on a straight-line basis over estimated useful lives of 3 years. The
amounts and components of the purchase price along with the preliminary
allocation of the purchase price to assets purchased are as follows (in
thousands):
Common stock...................................................... $277,174
Fair value of options and warrants assumed........................ 7,985
Estimated transaction costs....................................... 2,000
--------
Total purchase price............................................ $287,159
========
Cash and cash equivalents......................................... $ 1,353
Other current assets.............................................. 133
Property and equipment............................................ 3,305
Other assets...................................................... 146
Notes receivable from stockholders................................ 689
Liabilities assumed............................................... (3,641)
--------
Book value of net tangible assets of AtMotion................... 1,985
Developed and core technology..................................... 42,542
Assembled workforce............................................... 655
Goodwill and other intangible assets.............................. 241,977
--------
Net assets acquired............................................. $287,159
========
The actual allocation of the purchase price will depend on AtMotion's net
assets on the closing date and Phone.com's evaluation of the fair value of the
net assets as of the date indicated. Consequently, the actual allocation of the
purchase price could differ from that presented above.
Paragon
On February 8, 2000, Phone.com entered into a definitive agreement to
acquire Paragon Software (Holdings) Limited ("Paragon"), a provider of
synchronization technology allowing PC-based personal information to be easily
transferred to mobile devices. In connection with the acquisition, which was
completed on March 4, 2000, the Company issued 3,051,015 shares of its common
stock in exchange for all of the outstanding common stock of Paragon, and
assumed options of Paragon for up to 397,672 shares of Phone.com common stock
valued at approximately $453.7 million, together with a cash payment of $3
million and two additional deferred installments of $17 million in the aggregate
to Colin Calder, payable in approximately 142,950 shares of Phone.com common
stock at his election or in cash with the consent of Phone.com, and cash
payments of $555,000 at closing and $3.9 million in deferred installments to be
allocated among certain employees of Paragon, and estimated transaction costs of
$11.6 million. The transaction will be accounted for using purchase accounting.
The pro forma combined condensed balance sheet as of December 31, 1999
gives effect to the merger as if it had occurred on December 31, 1999.
The following adjustment has been reflected in the unaudited pro forma
combined condensed balance sheet:
(b) To record common stock issued to stockholders of Paragon and record
applicable purchase accounting entries.
Under purchase accounting, the total purchase price will be allocated to
Paragon's assets and liabilities based on their relative fair values.
Allocations are subject to valuations as of the date of the consummation of the
acquisition. Amounts allocated to goodwill and other intangible assets will be
amortized on a straight-line basis over estimated useful lives of 3 years. The
amounts and components of the purchase price along with the preliminary
allocation of the purchase price to assets purchased are as follows (in
thousands):
Common stock...................................................... $401,686
Fair value of options assumed..................................... 52,038
Consideration paid and payable to Colin Calder.................... 20,000
Cash payments paid and payable to certain employees............... 4,500
Estimated transaction costs....................................... 11,600
--------
Total purchase price............................................. $489,824
========
Cash and cash equivalents......................................... $ 12,222
Other current assets.............................................. 972
Property and equipment............................................ 115
Liabilities assumed............................................... (2,374)
--------
Book value of net tangible assets of Paragon..................... 10,935
In-process research and development............................... 18,080
Developed and core technology..................................... 7,210
Non-compete agreements............................................ 2,290
Assembled workforce............................................... 980
Goodwill and other intangible assets.............................. 450,329
--------
Net assets acquired............................................. $489,824
========
The actual allocation of the purchase price will depend on Paragon's net
assets on the closing date and Phone.com's evaluation of the fair value of the
net assets as of the date indicated. Consequently, the actual allocation of the
purchase price could differ from that presented above.
(2) Unaudited Pro Forma Combined Condensed Statements of Operations
The pro forma combined condensed statements of operations give effect to
the acquisitions as if they had occurred on July 1, 1998.
The WAP Business of APiON
The following adjustments have been reflected in the unaudited pro forma
combined condensed statement of operations:
(c) To reflect the accelerated amortization of deferred stock-based
compensation associated with common stock of the Company to be issued to current
employees of APiON in a manner consistent with Financial Accounting Standards
Board Interpretation No. 28. The accelerated amortization results in 75% and 25%
of the deferred stock-based compensation being amortized in the first year and
second year after the closing of the acquisition of APiON, respectively.
(d) Adjustment to record the amortization of goodwill and intangible
assets resulting from the allocation of the APiON purchase price. The pro forma
adjustment reflects goodwill and other intangible assets amortized on a
straight-line basis over an estimated life of three years.
(e) To reflect the shares issued as consideration for the acquisition.
AtMotion
The following adjustments have been reflected in the unaudited pro forma
combined condensed statement of operations:
(f) Adjustment to record the amortization of goodwill and intangible
assets resulting from the allocation of the AtMotion purchase price. The pro
forma adjustment assumes goodwill and other intangible assets amortized on a
straight-line basis over an estimated life of three years.
(g) To reflect common stock issued to shareholders of AtMotion. Shares
to be issued for options and warrants and shares subject to repurchase until
vested are excluded as they are antidilutive.
(h) To reverse historical accretion on preferred stock.
Paragon
The estimated charge of $18.1 million for the fair value of acquired in-
process research and development will be recorded during the quarter ending
March 31, 2000, and has not been reflected in the unaudited pro forma combined
condensed statements of operations.
The following adjustments have been reflected in the unaudited pro forma
combined condensed statement of operations:
(i) Adjustment to remove the amortization of historical goodwill and
intangible assets previously recorded by Paragon and to record the amortization
of goodwill and intangible assets resulting from the allocation of the Paragon
purchase price. The pro forma adjustment assumes goodwill and other intangible
assets amortized on a straight-line basis over an estimated life of three years.
(j) To reflect common stock issued to shareholders of Paragon. Shares to
be issued for options are excluded as they are antidilutive.
(k) To reverse historical amortization of stock-based compensation.
ITEM 7. (c) EXHIBIT
The following exhibit is filed herewith:
23.01 Consent of Ernst & Young, Independent Auditors
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this amendment to report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHONE.COM, INC.
DATE: May 12, 2000 By: /s/ ALAN BLACK
------------------------------
Alan Black
Vice President of Finance and
Administration, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)