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): April 14, 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 May 15, 2000, Phone.com, Inc. ("Phone.com") filed a Form 8-K to report its
acquisition of Onebox.com, Inc., a Delaware Corporation ("Onebox"). 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
Onebox.com, Inc.
(a development stage company)
For the year ended December 31, 1999 and
the periods from inception (May 20, 1998)
to December 31, 1999 and 1998
Report of Independent Auditors
Audited Financial Statements
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Onebox.com, Inc.
We have audited the accompanying balance sheets of Onebox.com, Inc. (a
development stage company) as of December 31, 1999 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for the year
ended December 31, 1999 and the periods from inception (May 20, 1998) to
December 31, 1999 and 1998. 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 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 audits provide 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 Onebox.com, Inc. (a development
stage company) at December 31, 1999 and 1998, and the results of its operations
and its cash flows for the year ended December 31, 1999 and the periods from
inception (May 20, 1998) to December 31, 1999 and 1998, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young
February 18, 2000
Onebox.com, Inc.
(a development stage company)
Balance Sheets
December 31,
1999 1998
-----------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,198,503 $2,293,584
Short-term investments 1,543,616 -
Accounts receivable 76,451 -
Prepaids and other current assets 1,717,223 53,159
-----------------------------------------------
Total current assets 4,535,793 2,346,743
Property and equipment, net 6,436,136 764,339
Purchased software 1,150,000 -
Deposits 755,675 17,965
-----------------------------------------------
$ 12,877,604 $3,129,047
===============================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 935,569 $ 597,602
Accrued expenses 2,938,735 95,726
Short-term capital lease obligations 1,608,347 -
-----------------------------------------------
Total current liabilities 5,482,651 693,328
Long-term capital lease obligations 2,745,148 -
Long-term debt 700,000 -
Other long-term liabilities 32,921 -
Commitments
Stockholders' equity:
Series A convertible preferred stock, par value $0.001; 9,776,250 shares
authorized, 9,776,250 and 9,765,000 shares issued and outstanding at
December 31, 1999 and 1998, respectively (liquidation preference of
$9,776,250) 9,776 9,765
Series B convertible preferred stock, par value $0.001; 7,800,000 shares
authorized, 7,064,684 shares issued and outstanding (liquidation preference
of $40,409,992) 7,065 -
Common stock, par value $0.001; 37,500,000 shares authorized, 13,189,779 and
6,666,862 shares issued and outstanding at December 31, 1999 and 1998,
respectively 13,190 6,667
Additional paid-in capital 17,096,915 3,230,435
Deficit accumulated during the development stage (13,210,062) (811,148)
-----------------------------------------------
Total stockholders' equity 3,916,884 2,435,719
-----------------------------------------------
$ 12,877,604 $3,129,047
===============================================
See notes to consolidated financial statements.
Onebox.com, Inc.
(a development stage company)
Statements of Operations
Period from inception
Year ended (May 20, 1998) to
December 31, December 31,
---------------------------------
1999 1998 1999
-----------------------------------------------------
Revenues $ 84,751 $ - $ 84,751
Cost of revenues 3,238,866 - 3,238,866
Operating expenses:
Research and development 2,714,556 610,277 3,324,833
Sales and marketing 4,593,457 63,157 4,656,614
General and administrative 1,888,455 154,308 2,042,763
-----------------------------------------------------
Total operating expenses 9,196,468 827,742 10,024,210
-----------------------------------------------------
Loss from operations (12,350,583) (827,742) (13,178,325)
Interest and other income 216,245 16,594 232,839
Interest and other expense (264,576) - (264,576)
-----------------------------------------------------
Net loss $(12,398,914) $(811,148) $(13,210,062)
=====================================================
See notes to consolidated financial statements.
Onebox.com, Inc.
(a development stage company)
Statement of Stockholders' Equity
Period from inception (May 20, 1998) to December 31, 1999
Deficit
Accumulated
Convertible Preferred Stock Additional During the Total
----------------------------------------
Series A Series B Common Stock Paid-In Development Stockholders'
--------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Capital Stage Equity
-------------------------------------------------------------------------------------------------------------
Issuance of common
stock at $0.001 per
share to founders for
cash in August 1998 - $ - - $ - 8,565,300 $ 8,565 $ (2,855) $ - $ 5,710
Issuance of Series A
convertible preferred
stock at $0.33 per
share in October
1998, less issuance
costs of $12,578 9,765,000 9,765 - - - - 3,232,657 - 3,242,422
Repurchase of common
stock in September
1998 at $0.0007 per
share - - - - (1,898,438) (1,898) 633 - (1,265)
Net loss since
inception - - - - - - - (811,148) (811,148)
-------------------------------------------------------------------------------------------------------------
Balances at December
31, 1998 9,765,000 9,765 - - 6,666,862 6,667 3,230,435 (811,148) 2,435,719
Issuance of Series A
convertible preferred
stock at $0.33 in
January 1999 11,250 11 - - - - 3,739 - 3,750
Issuance of Series B
convertible preferred
stock at $1.91 per
share in June 1999,
less issuance costs
of $33,484 - - 7,064,684 7,065 - - 13,434,157 - 13,441,222
Issuance of warrants
to purchase Series A
preferred stock in
connection with lease
financing - - - - - - 70,461 - 70,461
Issuance of common
stock to employees
and consultants at
$0.03-$0.33 per share
for cash and services - - - - 544,895 545 25,763 - 26,308
Exercise of options to
purchase common stock
in August 1999 -
October 1999 at
$0.0007-$0.03 per
share - - - - 6,520,286 6,520 340,997 - 347,517
Repurchase of common
stock at $0.03-$0.33
per share - - - - (542,264) (542) (8,637) - (9,179)
Net loss - - - - - - - (12,398,914) (12,398,914)
-------------------------------------------------------------------------------------------------------------
Balances at December
31, 1999 9,776,250 $9,776 7,064,684 $7,065 13,189,779 $13,190 $17,096,915 $(13,210,062) $ 3,916,884
=============================================================================================================
See notes to consolidated financial statements.
Onebox.com, Inc.
(a development stage company)
Statements of Cash Flows
Increase (decrease) in cash and cash equivalents
Periods from inception
Year ended (May 20, 1998) to
December 31, December 31,
---------------------------
1999 1998 1999
---------------------------------------------
Operating activities
Net loss $(12,398,914) $ (811,148) $(13,210,062)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 1,257,285 8,396 1,265,681
Warrant expense 17,615 - 17,615
Changes in assets and liabilities:
Accounts receivable (76,451) - (76,451)
Prepaids and other current assets (1,611,218) (53,159) (1,664,377)
Deposits (737,710) (17,965) (755,675)
Accounts payable 337,967 597,602 935,569
Accrued expenses 2,843,009 95,726 2,938,735
Other long-term liabilities 32,921 - 32,921
---------------------------------------------
Net cash used in operating activities (10,335,496) (180,548) (10,516,044)
---------------------------------------------
Investing activities
Capital expenditures (6,929,082) (772,735) (7,701,817)
Purchase of capitalized software (1,150,000) - (1,150,000)
Purchase of marketable securities (1,543,616) - (1,543,616)
---------------------------------------------
Net cash used in investing activities (9,622,698) (772,735) (10,395,433)
---------------------------------------------
Financing activities
Proceeds from capital lease obligations 5,010,822 - 5,010,822
Proceeds from debt 700,000 - 700,000
Principal payments under capital lease obligations (657,327) - (657,327)
Proceeds from issuance of preferred stock, net 13,444,972 3,242,422 16,687,394
Proceeds from issuance of common stock 373,825 5,710 379,535
Repurchase of common stock (9,179) (1,265) (10,444)
---------------------------------------------
Net cash provided by financing activities 18,863,113 3,246,867 22,109,980
Net increase in cash and cash equivalents (1,095,081) 2,293,584 1,198,503
Cash and cash equivalents at beginning of period 2,293,584 - -
---------------------------------------------
Cash and cash equivalents at end of period $ 1,198,503 $2,293,584 $ 1,198,503
=============================================
Supplemental schedule of cash flow information
Interest paid $ 153,634 $ - $ 153,634
=============================================
Supplemental disclosure of noncash financing activities
Warrants issued in connection with lease financing $ 70,461 $ - $ 70,461
=============================================
See notes to consolidated financial statements.
Onebox.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Nature of Operations
Onebox.com, Inc. (the "Company") was incorporated in the state of Delaware on
May 20, 1998. The Company is engaged in web-based services that simplify and
reduce the cost of communications for consumers and businesses.
The Company has incurred losses to date of approximately $13,200,000. The
Company expects such losses to continue until the Company successfully completes
development and market introduction of its products. Consequently, management
recognizes the need to raise additional funds from outside sources. Management
believes currently available resources along with proceeds from Series C
preferred stock offering (see Note 8) will provide sufficient funds to enable
the Company to meet its obligations through at least December 31, 2000. If
anticipated operations are not achieved, management has the intent and believes
it has the ability to delay or reduce expenditures so as not to require
additional financial resources if such resources were not available.
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 the accompanying
notes. Actual results could differ materially from these estimates.
Revenue Recognition
Revenues are derived principally from short-term on-line advertising contracts
in which the Company guarantees a minimum number of impressions (a view of an
advertisement by a consumer) for a fixed fee. These revenues are generally
recognized ratably over the term of the agreements, provided that the Company
does not have any significant remaining obligations and collection of the
resulting receivable is probable. To the extent that impression deliveries do
not meet the guarantees, the Company defers recognition of the corresponding
revenues.
Revenues are derived principally from a Service Distribution Agreement (see Note
4) in which the Company agrees to co-brand an Internet Website. The Company
receives 25% of the advertising revenue generated by the co-branded Website,
which is determined and remitted to Onebox.com directly by the Website's co-
owner.
8
1. Organization and Summary of Significant Accounting Policies (continued)
Cash, Cash Equivalents, and Short-Term Investments
Onebox.com generally invests its excess cash in money market accounts,
certificates of deposits and U.S. Treasury bills. Onebox.com considers all
highly liquid investments with a maturity from date from original purchase of
three months or less to be cash equivalents. The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair value.
Onebox.com classifies its short-term investment as "available-for-sale."
Onebox.com considers all investments with a maturity date of one year from date
of original purchase to be short-term investments. These investments are
recorded at fair value based on quoted market prices. The amortized cost of
these investments approximates their fair value. Unrealized gains and losses are
not material and have, therefore, not been shown separately.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation which
is provided using the straight-line method over the estimated useful lives of
the assets, generally three to five years. Equipment purchased under capital
lease is amortized on a straight-line basis over the lesser of the estimated
useful life of the asset or the lease term.
Advertising Expense
Advertising is expensed as incurred. Advertising expense was approximately
$2,600,000 and none for the year ended December 31, 1999 and the period from
inception (May 20, 1998) to December 31, 1998, respectively.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees ("APB 25")," and has adopted the disclosure only
alternative of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123").
9
1. Organization and Summary of Significant Accounting Policies (continued)
Research and Development
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between completion
of the working model and the point at which the product is ready for general
release have been insignificant. Accordingly, the Company has charged all such
costs to research and development expense in the period incurred.
Onebox.com adopted SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" during 1999, which requires
capitalization of certain costs incurred during the development of internal use
software. Through December 31, 1999 capitalizable costs incurred have not been
significant for any development project. Accordingly, Onebox.com has charged all
costs to research and development expense in the periods they were incurred.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." ("SFAS No. 133"). SFAS No. 133 establishes methods for
derivative financial instruments and hedging activities related to those
instruments, as well as other hedging activities. Because Onebox.com does not
currently hold any derivative instruments and does not engage in hedging
activities, the adoption of SFAS No. 133 is not expected to have a significant
impact on its financial position, results of operations or cash flows.
Onebox.com will be required to implement SFAS No. 133, as amended, for the year
ending December 31, 2001.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101").
SAB 101 summarizes the Staff's views in applying generally accepted accounting
principles to revenue recognition. The Company believes that its current revenue
recognition principles comply with SAB 101.
10
1. Organization and Summary of Significant Accounting Policies (continued)
Other Comprehensive Income (Loss)
Other comprehensive income (loss) includes revenues and expenses and gains and
losses that are not included in net loss, but, rather are recorded directly in
stockholders' equity. To date, Onebox.com has not had any significant
transactions that are required to be reported in other comprehensive income
(loss).
2. Property and Equipment
Property and equipment are stated at cost and consist of the following:
December 31,
1999 1998
----------------------------------------
Computer equipment and software $2,549,553 $652,894
Furniture and equipment 175,648 119,841
Leased equipment 4,976,616 -
----------------------------------------
7,701,817 772,735
Accumulated depreciation 1,265,681 8,396
----------------------------------------
$6,436,136 $764,339
========================================
3. Purchased Software License
In December 1999, the Company signed a $1,840,000 Software License Agreement.
Under the agreement, the Company paid $1,150,000 for a software license for
software to be integrated into the Onebox.com product, subject to maximum of 35
million users. The license will be amortized to cost of goods sold as products
are sold. In addition to the license, the Company purchased three years of
technical support and maintenance for $690,000, which will be amortized over the
three years, beginning in December 1999.
11
4. Service Distribution Agreement
In September 1999, the Company entered into a two-year Service Distribution
Agreement to co-brand an Internet website. The agreement calls for Onebox.com to
pay $2,250,000 for distribution, marketing, and advertising of the co-branded
site. The payment will be made in two installments; $1,500,000 on the effective
date of the agreement and $750,000 payable on the first anniversary of the
effective date. These fees are being amortized over the two years, beginning in
September 1999, and are classified as a current asset on the balance sheet. In
addition to these payments, Onebox.com will be paid 25% of the advertising
revenue generated by the co-branded website. Revenue related to this agreement
was $84,559 for the year ended December 31, 1999.
5. Commitments
As of December 31, 1999, minimum payments under all noncancelable lease
agreements were as follows:
Capital Operating
Leases Leases
-----------------------------------------
Years ending December 31:
2000 $ 1,927,841 $1,357,624
2001 1,927,841 1,397,090
2002 1,036,543 680,600
2003 - -
2004 and thereafter - -
-------------------- -------------------
Total minimum lease payments 4,892,225 $3,435,314
===================
Less amount representing interest (538,730)
--------------------
Present value of future payments 4,353,495
Less current portion (1,608,347)
--------------------
Long-term portion $ 2,745,148
====================
The Company leases its main facility under a noncancelable operating lease
agreement, which expires in 2002. Rent expense was approximately $700,000 and
$65,000 for the year ended December 31, 1999 and for the period from inception
(May 20, 1998) to December 31, 1998, respectively. The Company subleases a
portion of its facility under a noncancelable operating lease agreement, which
expires in February 2002. Sublease rental income was approximately $163,000 for
the year ended December 31, 1999 and none for the period from inception (May 20,
1998) to December 31, 1998.
12
5. Commitments (continued)
In March 1999, the Company entered into a Master Lease Agreement with a
financial institution for the purchase of up to $3,000,000 of equipment,
software and leasehold improvements. Advances under this agreement are treated
as capital leases and may only be used to finance purchases of equipment and
software, subject to certain limitations. Advances are secured by the assets
acquired. The advances bear interest at 7% per annum and are payable in 36
monthly installments of principal and interest. At December 31, 1999, none
remained available and the Company owed approximately $2,700,000 under this
agreement.
In June 1999, the Company entered into a $700,000 Loan and Security Agreement
with a lender for the purchase of equipment. The loan bears interest at a rate
of 8.75% per annum and is payable beginning in December 2002. The loan is
secured by the assets acquired.
In August 1999, the Company entered into a lease agreement with a financial
institution for the purchase of approximately $400,000 in equipment. The lease
is payable in 30 equal monthly payments of approximately $13,500 beginning in
September 1999. As of December 31, 1999 the Company owed approximately $346,000
under this lease agreement.
In September 1999, the Company entered into a Master Lease Agreement for the
purchase of approximately $1,400,000 in equipment. Advances under this agreement
are treated as capital leases and are secured by the assets acquired. The
advances bear interest at approximately 14% per annum and are payable in 36
monthly installments of principal and interest. At December 31, 1999, the
Company owed approximately $1,300,000 under this agreement.
6. Stockholders' Equity
Convertible Preferred Stock
In October 1998, the Company issued 9,765,000 Series A convertible preferred
shares at a price of $0.33 per share under a stock purchase agreement. In May
1999, the Company issued 7,064,684 Series B convertible preferred shares at a
price of $1.91 per share under a stock purchase agreement.
13
6. Stockholders' Equity (continued)
Convertible Preferred Stock (continued)
Each share of Series A and B convertible preferred stock is, at the option of
the holder, convertible into one share of common stock, subject to certain
adjustments for dilution, if any, resulting from future stock issuances. The
outstanding shares of convertible preferred stock automatically convert into
common stock (i) upon the affirmative vote of the majority of each class of
preferred stock or (ii) immediately prior to the closing of an underwritten
public offering of common stock under the Securities Act of 1933 provided that,
with respect to Series A, the Company receives at least $15,000,000 in gross
proceeds and the price per share is at least $2.50 and, with respect to Series
B, the product of the price per share to the public and the aggregate number of
shares of the Company's common stock outstanding prior to such an offering is at
least $150,000,000 and aggregate proceeds to the Company are not less than
$15,000,000.
Series A and B convertible preferred stockholders are entitled to noncumulative
dividends of $0.03 and $0.15 per share, respectively. Dividends will be paid
only when declared by the board of directors out of legally available funds. No
dividends have been declared as of December 31, 1999.
Series A and B convertible preferred stock have liquidation preferences of $0.33
and $3.81 per share, respectively, with the remaining liquidation occurring on a
pro rata basis between common and preferred stock until holders of Series A and
B preferred stock have received an aggregate, which includes the initial
liquidation preference, of $1.00 and $5.72 per share, respectively.
The Series A and B convertible preferred stockholders have voting rights equal
to the common shares issuable upon conversion of their preferred shares.
Common Stock
The Company has sold 9,110,195 shares of common stock to employees and investors
for $0.001 to $0.50 per share. Of these shares, 8,565,300 are subject to
repurchase by the Company, at the price paid by the stockholder, in the event of
termination of services by the stockholder to the Company; the repurchase right
lapses over a 48-month period. Of these shares, 310,200 are subject to
repurchase until the sooner of the date on which the last of four milestones are
met or five years from April 1999. During the period from inception (May 20,
1998) to December 31, 1999, 2,440,702 shares of common stock were repurchased.
As of December 31, 1999, the Company had 2,377,800 shares of common stock
outstanding subject to repurchase.
14
6. Stockholders' Equity (continued)
Common Stock (continued)
At December 31, 1999, an aggregate of 20,066,049 shares of common stock were
reserved for issuance upon exercise of warrants, the conversion of preferred
stock, outstanding stock options and stock options reserved for issuance.
Stock Warrants
In conjunction with a capital lease agreement, the Company issued the lenders
warrants to purchase an aggregate of 81,301 shares of its Series A convertible
preferred stock at $1.47 per share. The warrants shall be exercisable for a
period of (i) seven years or (ii) three years from the effective date of the
company's initial public offering, whichever is earlier. The warrants were
valued using the Black-Scholes model (0.5 volatility, seven year life, $1.47
exercise price, and a 6% risk-free interest rate). The total value of $70,461
will be amortized to interest expense over the term of the capital lease.
1999 Incentive Stock Plan
As discussed in Note 1, the Company has elected to follow APB 25 and related
interpretations in accounting for its employee stock options. The alternative
fair value accounting provided for under Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, when the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
During the period ended December 31, 1999, the Company adopted the 1999 Stock
Plan (the "Plan"). Under the Plan, up to 9,664,100 shares of the Company's
common stock may be granted as options or sold to eligible participants. Under
the Plan, options to purchase common stock may be granted at no less than 85% of
the fair value on the date of the grant (110% of fair value in certain
instances), as determined by the board of directors. Options generally vest over
a 48-month period and have a maximum term of ten years.
15
6. Stockholders' Equity (continued)
1999 Incentive Stock Plan (continued)
Pro forma information regarding net income is required by FAS 123, which also
requires that the information be determined as if the Company has accounted for
its employee stock options under the fair value method of FAS 123. The fair
value of these options was estimated at the date of grant using the minimum
value method option pricing model with the following weighted-average
assumptions for the period from inception (May 20, 1998) to December 31, 1999:
risk-free interest rates of 6%; a dividend yield of 0%; and a weighted-average
expected life of the option of five years.
The effect of applying FAS 123 to the Company's stock option awards did not
result in pro forma net loss that was materially different from amounts
reported. Therefore, such pro forma information is not separately presented
herein. Future pro forma net income/loss results may be materially different
from actual amounts reported.
Information with respect to stock option activity is summarized as follows:
Options Outstanding
Options ---------------------------------------- Weighted-
Available for Number of Shares Price Per Average Exercise
Grant Share Price
------------------------------------------------------------------------------
Shares authorized 6,833,137 - -
Options granted (1,480,702) 1,480,702 $ 0.03 $0.03
-----------------------------------------------------------
Balance at December 31, 1998 5,352,435 1,480,702 $ 0.03 $0.03
Additional shares authorized 2,830,963 - - -
Options granted (7,249,350) 7,249,350 $0.03-$0.33 $0.10
Options exercised - (6,520,286) $0.03-$0.33 $0.05
Options canceled 628,767 (628,767) $0.03-$0.33 $0.09
-----------------------------------------------------------
Balance at December 31, 1999 1,562,815 1,580,999 $0.03-$0.33 $0.33
===========================================================
16
6. Stockholders' Equity (continued)
1999 Incentive Stock Plan (continued)
The weighted-average fair value of options granted was $0.02 during the year
ended December 31, 1999 and $0.01 during the period from inception (May 20,
1998) to December 31, 1998.
As of December 31, 1999, no options to purchase shares were exercisable. The
weighted-average remaining contractual life of all outstanding options is 9.2
years.
7. Income Taxes
As of December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $13.2 million and $10.2 million, respectively.
The Company also had federal research and development tax credit carryforwards
of approximately $100,000. The federal and state net operating loss and credit
carryforwards will expire at various dates beginning in the year 2006 through
2019, if not utilized.
Utilization of the federal and state net operating loss and credit carryforwards
may be subject to a substantial annual limitation due to the "change in
ownership" provisions of the Internal Revenue Code of 1986. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
17
7. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting and the amount
used for income tax purposes. Significant components of the Company's deferred
tax assets for federal and state income taxes as of December 31 are as follows:
1999 1998
-----------------------------------------
(In thousands)
Deferred tax assets:
Net operating loss carryforwards $ 5,100 $ 300
Research and development credits 100 -
Capitalized research and development
expenses 200 -
Other, net - -
-----------------------------------------
Total deferred tax assets 5,400 300
Valuation allowance (5,400) (300)
-----------------------------------------
Net deferred taxes $ - $ -
=========================================
Due to the Company's lack of earnings history, the net deferred tax assets have
been fully offset by a valuation allowance. The valuation allowance increased by
$300,000 during the year ended December 31, 1998, respectively.
8. Subsequent Events
Stock Split
In February 2000, the Company effected a three-for-two stock split of its
preferred and common stock. All share and per share information included in
these financial statements has been retroactively adjusted to reflect this stock
split.
Series C Preferred Stock
In February 2000, the Company issued 1,856,374 Series C convertible preferred
shares at a price of $7.45 per share under a stock purchase agreement.
18
8. Subsequent Events (continued)
Series C Preferred Stock (continued)
Each share of Series C convertible preferred stock is, at the option of the
holder, convertible into one share of common stock, subject to certain
adjustments for dilution, if any, resulting from future stock issuances. The
outstanding shares of convertible Series C preferred stock automatically convert
into common stock immediately prior to the closing of an underwritten public
offering of common stock under the Securities Act of 1933 in which the Company
receives at least $25,000,000 in gross proceeds and the price per share is at
least $1.67.
Series C convertible preferred stockholders are entitled to noncumulative
dividends of $0.60 per share.
Series C convertible preferred stock has an initial liquidation preference of
$14.90, with the remaining liquidation occurring on a pro rata basis between
common and preferred stock until holders of Series C preferred stock have
received an aggregate, which includes the initial liquidation preference, of
$22.35 per share.
The Series C convertible preferred stockholders have voting rights equal to the
common shares issuable upon conversion of their preferred shares.
Merger with Phone.com
In February 2000, the Company signed a merger agreement with Phone.com, Inc.
Under the agreement, Phone.com agreed to purchase all of Onebox.com's
outstanding common and preferred stock and assume all unexpired and unexercised
outstanding options, warrants, and other rights for 6,469,413 shares of
Phone.com common stock.
19
Onebox.com, Inc.
(a development stage company)
Index to Unaudited Condensed Financial Statements
Unaudited Condensed Balance Sheet as of March 31, 2000
Unaudited Condensed Statements of Operations for the three months ended
March 31, 2000 and 1999
Unaudited Condensed Statements of Cash Flows for the three months ended
March 31, 2000 and 1999
Notes to Unaudited Condensed Financial Statements
ONEBOX.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED BALANCE SHEET
As of March 31, 2000
(in thousands)
Assets
Current assets:
Cash and cash equivalents $ 7,293
Accounts receivable 93
Prepaids and other current assets 2,467
-------
Total current assets 9,853
Property and equipment, net 7,141
Deposits 756
-------
$ 17,750
=======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 726
Accrued expenses 1,315
Short-term capital lease obligations 28
------
Total current liabilities 2,069
Long-term capital lease obligations 3,965
Long-term debt -
Other long-term liabilities 32
-------
Total liabilities 6,066
-------
Stockholders' equity
Convertible preferred stock 24
Common stock 9
Additional paid-in capital 30,973
Notes receivable from stockholders (122)
Deficit accumulated during the development stage (19,200)
-------
Total stockholders' equity 11,684
-------
$ 17,750
=======
ONEBOX.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2000 and 1999
(in thousands)
Three months ended March 31,
2000 1999
----- ----
Revenues $ 92 $ -
Cost of revenues 1,932 46
Operating expenses:
Research and development 1,263 354
Sales and marketing 2,086 95
General and administrative 778 281
------ -----
Total operating expenses 4,127 730
------ -----
Loss from operations (5,967) (776)
Interest and other income 92 13
Interest and other expense (115) (3)
------ -----
Net loss $ (5,990) $ (766)
====== =====
ONEBOX.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENTS OF CASH FLOWS
For the 3 months ended March 31, 2000 and 1999
(in thousands)
2000 1999
---- ----
Operating activities
Net loss $(5,990) $ (766)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 1,461 66
Changes in assets and liabilities:
Accounts receivable (17) -
Prepaids and other current assets (750) (34)
Deposits - (93)
Accounts payable (210) (451)
Accrued expenses (1,596) (29)
Other long-term liabilities (1) -
------- -------
Net cash used in operating activities (7,103) (1,307)
------- -------
Investing activities
Capital expenditures (1,016) (2,068)
Sales of short-term investments 1,544 -
------- -------
Net cash provided by (used in) investing activities 528 (2,068)
------- -------
Financing activities
Proceeds from capital lease obligations 6 2,418
Debt repayments (700) -
Principal payments under capital lease obligations (394) (39)
Proceeds from issuance of preferred stock, net 13,761 103
Proceeds from issuance of common stock 1 1
Repurchase of common stock (5) (2)
------- -------
Net cash provided by financing activities 12,669 2,481
------- -------
Net increase (decrease) in cash and cash equivalents 6,094 (894)
Cash and cash equivalents at beginning of period 1,199 2,294
------- -------
Cash and cash equivalents at end of period $ 7,293 $ 1,400
======= =======
ONEBOX.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000
1. BASIS OF PRESENTATION
The unaudited condensed financial statements included herein have been
prepared by the Company in accordance with generally accepted accounting
principles and reflect all adjustments, consisting only of normal recurring
adjustments which in the opinion of management are necessary to fairly state the
Company's financial position, results of operations, and cash flows for the
periods presented. Through March 31, 2000, the Company was active in product
development, the acquisition of equipment and facilities, raising capital, and
had virtually no revenues. Accordingly, the Company was in the development
stage, and the financial statements have been prepared on a going-concern basis.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for any subsequent quarter.
2. SUBSEQUENT EVENT
On February 14, 2000, the Company signed a definitive agreement to be
acquired by Phone.com, Inc. In connection with the acquisition, which was
completed on April 14, 2000, Phone.com issued approximately 6.5 million shares
of its common stock in exchange for all of the outstanding common stock and
preferred stock of Onebox, and assumed options and warrants of Onebox for total
consideration valued at approximately $800 million.
(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, Onebox, AtMotion, Paragon and the WAP business of
APiON ("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 Reports on Form 8-K, as amended, dated
February 8, and March 4, 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
acquisition of Onebox took place on March 31, 2000, and combines Phone.com's
March 31, 2000 consolidated balance sheet with Onebox's March 31, 2000 balance
sheet. The Phone.com March 31, 2000 balance sheet includes assets and
liabilities relating to the acquisition of the WAP business of APiON, which was
completed October 26, 1999, the acquisition of AtMotion, which was completed
February 8, 2000 and the acquisition of Paragon, which was completed March 4,
2000. The unaudited 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 the
nine months ended March 31, 2000 with the WAP business of APiON's statement of
operations for the year ended March 31, 1999 and the nine months ended December
31, 1999, respectively; and AtMotion's, Paragon's and Onebox's statement of
operations for the year ended June 30, 1999 and the nine months ended March 31,
2000, respectively, with the results of operations for each company acquired
included in the respective company's historical results of operations up to the
respective dates of acquisition.
PHONE.COM INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 2000
(In thousands)
HISTORICAL PRO FORMA
-------------------------------- -----------------------------------
PHONE.COM ONEBOX ADJUSTMENTS COMBINED
---------------- -------------- ---------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 123,782 $ 7,293 $ - $ 131,075
Short-term investments 373,157 - - 373,157
Accounts receivable 33,061 93 - 33,154
Prepaid expenses and other current assets 4,888 2,467 - 7,355
---------------- -------------- ---------------- ------------
Total current assets 534,888 9,853 - 544,741
Property and equipment, net 17,172 7,141 (3,787) (a) 20,526
Deposits and other assets 3,153 756 3,909
Goodwill and intangible assets, net 934,126 - 805,536 (b) 1,739,662
---------------- -------------- ---------------- ------------
$ 1,489,339 $ 17,750 $ 801,749 $ 2,308,838
================ ============== ================ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of equipment loan
and capital lease obligations $ 1,014 $ - $ - $ 1,014
Accounts payable 4,259 2,017 - 6,276
Accrued liabilities - acquisition related 30,764 - 20,000 (b) 50,764
Other accrued liabilities 23,101 28 - 23,129
Deferred revenue 62,993 23 - 63,016
---------------- -------------- ---------------- ------------
Total current liabilities 122,131 2,068 20,000 144,199
Equipment loans and capital lease obligations,
less current portion 1,766 3,998 - 5,764
---------------- -------------- ---------------- ------------
Total liabilities 123,897 6,066 20,000 149,963
---------------- -------------- ---------------- ------------
Stockholders' equity:
Convertible preferred stock - 24 (24) (b) -
Common stock 75 9 (9) (b)
6 (b) 81
Additional paid-in capital 1,515,199 30,973 (30,973) (b)
797,849 (b) 2,313,048
Deferred stock-based compensation (7,322) - - (7,322)
Treasury stock (196) - - (196)
Notes receivable from stockholders (837) (122) - (959)
Accumulated deficit (141,477) (19,200) (4,300) (b)
19,200 (b) (145,777)
---------------- -------------- ---------------- ------------
Total stockholders' equity 1,365,442 11,684 781,749 2,158,875
---------------- -------------- ---------------- ------------
$ 1,489,339 $ 17,750 $ 801,749 $ 2,308,838
================ ============== ================ ============
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 HISTORICAL PRO FORMA
------------------- --------------------- -------------------------- -----------------------
PHONE.COM ONEBOX ADJUSTMENTS COMBINED APION ATMOTION PARAGON ADJUSTMENTS COMBINED
--------- ------ ----------- -------- ------ -------- ------- ----------- --------
Revenues:
License $ 5,229 $ - $ - $ 5,229 $ - $ - $ 2,185 $ - $ 7,414
Maintenance and
support services 5,921 - - 5,921 - - - - 5,921
Consulting services 2,292 - - 2,292 - - - - 2,292
--------- ------ ----------- -------- ------ -------- ------- ----------- --------
Total revenues 13,442 - - 13,442 - - 2,185 - 15,627
--------- ------ ----------- -------- ------ -------- ------- ----------- --------
Cost of revenues:
License 371 461 - 832 - - 544 - 1,376
Maintenance and
support services 3,022 - - 3,022 - - - - 3,022
Consulting services 1,146 - - 1,146 - - - - 1,146
--------- ------ ----------- -------- ------ -------- ------- ----------- --------
Total cost of revenues 4,539 461 - 5,000 - - 544 - 5,544
--------- ------ ----------- -------- ------ -------- ------- ----------- --------
Gross profit 8,903 (461) - 8,442 - - 1,641 - 10,083
--------- ------ ----------- -------- ------ -------- ------- ----------- --------
Operating expenses:
Research and development 13,082 1,231 - 14,313 432 4,671 792 - 20,208
Sales and marketing 10,840 377 - 11,217 227 - 1,680 - 13,124
General and administrative 4,432 1,349 - 5,781 425 1,489 925 - 8,620
Stock-based compensation 1,011 - - 1,011 - - 601 3,821 (c)
(601)(k) 4,832
Amortization of goodwill
and other intangible assets - - 268,512 (1) 268,512 - - - 81,160 (d)
- 95,058 (f)
153,603 (i) 598,333
--------- ------ ----------- -------- ------ -------- ------- ----------- --------
Total operating expenses 29,365 2,957 268,512 300,834 1,084 6,160 3,998 333,041 645,117
--------- ------ ----------- -------- ------ -------- ------- ----------- --------
Operating loss (20,462) (3,418) (268,512) (292,392) (1,084) (6,160) (2,357) (333,041) (635,034)
Interest income(expense), net 1,803 48 - 1,851 - (141) - - 1,710
--------- ------ ----------- -------- ------ -------- ------- ----------- --------
Loss before income taxes (18,659) (3,370) (268,512) (290,541) (1,084) (6,301) (2,357) (333,041) (633,324)
Income taxes 2,104 - - 2,104 147 - - - 2,251
--------- ------ ----------- -------- ------ -------- ------- ----------- --------
Net loss (20,763) (3,370) (268,512) (292,645) (1,231) (6,301) (2,357) (333,041) (635,575)
Preferred stock accretion - - - - - (363) - 363 (h) -
--------- ------ ----------- -------- ------ -------- ------- ----------- --------
Net loss attributable
to common stockholders $(20,763) $(3,370) $(268,512) (292,645) $(1,231) $(6,664) $(2,357) $(332,678) $(635,575)
========= ====== ========= ======== ====== ======== ======= =========== ========
Basic and diluted net loss
per share $ (1.49) (14.53) $ (23.02)
========= ======== ========
Shares used in computing
basic and diluted net loss
per share 13,932 6,208 (m) 20,140
========= ======= 2,393 (e)
2,025 (g)
3,051 (j) 27,609
======
See accompanying notes to unaudited pro forma combined condensed financial
statements.
PHONE.COM INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 2000
(In thousands, except per share data)
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------------------- -------------------- ---------------------------- -----------------------
PHONE.COM ONEBOX ADJUSTMENTS COMBINED APION ATMOTION PARAGON ADJUSTMENTS COMBINED
--------- -------- ---------- -------- ----- ------- ------- ----------- --------
Revenues:
License $ 24,751 $ 177 - $24,928 $ 473 $ - $ 1,843 $ - $ 27,244
Maintenance and
support services 9,448 - - 9,448 - - - - 9,448
Consulting services 5,791 - - 5,791 - - - - 5,791
--------- -------- --------- -------- ----- ------- ------- ----------- --------
Total revenues 39,990 177 - 40,167 473 - 1,843 - 42,483
--------- -------- --------- -------- ----- ------- ------- ----------- --------
Cost of revenues:
License 1,086 4,709 - 5,795 310 - 1,127 - 7,232
Maintenance and
support services 6,862 - - 6,862 - - - - 6,862
Consulting services 3,433 - - 3,433 - - - - 3,433
--------- -------- --------- -------- ----- ------- ------- ----------- --------
Total cost of
revenues 11,381 4,709 - 16,090 310 - 1,127 - 17,527
--------- -------- --------- -------- ----- ------- ------- ----------- --------
Gross profit 28,609 (4,532) - 24,077 163 - 716 - 24,956
--------- -------- --------- -------- ----- ------- ------- ----------- --------
Operating expenses:
Research and
development 25,051 2,777 - 27,828 197 3,563 1,745 - 33,333
Sales and marketing 21,958 6,186 - 28,144 276 - 2,485 - 30,905
General and
administrative 8,113 2,202 - 10,315 241 1,757 3,292 - 15,605
Stock-based
compensation 3,581 - - 3,581 - - 3,189 955 (c)
(3,189)(k) 4,536
Amortization of
goodwill and
other intangible
assets 62,939 - 201,384(1) 264,323 - - - 47,185 (d)
71,294 (f)
115,202 (i)498,004
In-process research
and development 18,190 - 18,190 - - - - 18,190
--------- -------- --------- -------- ----- ------- ------- ----------- --------
Total operating
expenses 139,832 11,165 201,384 352,381 714 5,320 10,711 231,447 600,573
--------- -------- --------- -------- ----- ------- ------- ----------- --------
Operating loss (111,223) (15,697) (201,384) (328,304) (551) (5,320) (9,995) (231,447) (575,617)
Interest income(expense),
net 12,791 (103) - 12,688 - (68) 13 - 12,633
--------- -------- --------- -------- ----- ------- ------- ----------- --------
Loss before
income taxes (98,432) (15,800) (201,384) (315,616) (551) (5,388) (9,982) (231,447) (562,984)
Income taxes 1,095 - - 1,095 68 - - - 1,163
--------- -------- --------- -------- ----- ------- ------- ----------- --------
Net loss (99,527) (15,800) (201,384) (316,711) (619) (5,388) (9,982) (231,447) (564,147)
Preferred stock accretion - - - - - (752) - 752 (h) -
--------- -------- --------- -------- ----- ------- ------- ---------- ---------
Net loss
attributable to
common
stockholders $ (99,527) $(15,800) $(201,384) (316,711) $(619) $(6,140) $(9,982) $(230,695) $(564,147)
========= ======== ========= ======== ===== ======= ======= =========== =========
Basic and diluted net loss
per share $ (1.51) $ (4.38) $ (7.28)
========= ======== =========
Shares used in computing
basic and diluted net
loss per share 66,051 6,208 (m) 72,259
========= ======== 798 (e)
1,688 (g)
2,798 (j)
77,543
======
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
Onebox
On February 14, 2000, the Company signed a definitive agreement to acquire
Onebox.com, Inc. ("Onebox"), a communications application service provider. In
connection with the acquisition, which was completed on April 14, 2000, the
Company issued 6,207,865 shares of its common stock in exchange for all of the
outstanding common stock and preferred stock of Onebox, and assumed 1,962,975
options of Onebox for up to 261,548 shares of Phone.com common stock valued at
approximately $818 million including estimated transaction costs. The
transaction will be accounted for using purchase accounting.
The pro forma combined condensed balance sheet as of March 31, 2000 gives
effect to the merger as if it had occurred on March 31, 2000.
The following adjustments have been reflected in the unaudited pro forma
combined condensed balance sheet:
(a) To adjust property and equipment to estimated fair value.
(b) To record common stock issued to stockholders of Onebox and record
applicable purchase accounting entries.
Under purchase accounting, the total purchase price will be allocated to
Onebox'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 .................................................. $ 766,609
Fair value of options assumed ................................. 31,246
Estimated transaction costs ................................... 20,000
---------
Total purchase price .................................... $ 817,855
=========
Cash and cash equivalents ..................................... $ 7,293
Other current assets .......................................... 2,560
Property and equipment (after adjustment in (a) above) ........ 3,354
Other assets .................................................. 878
Liabilities assumed ........................................... (6,066)
---------
Book value of net tangible assets of Onebox ............. $ 8,019
Developed and core technology ................................. 14,730
Assembled workforce ........................................... 590
Covenants not to compete....................................... 4,810
In-process research and development............................ 4,300
Goodwill and other intangible assets .......................... 785,406
---------
Net assets acquired ..................................... $ 817,855
=========
The actual allocation of the purchase price will depend on Onebox'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
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 March 31, 2000 reflects the
acquisition of APiON which was completed October 26, 1999.
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 was accounted
for using purchase accounting.
The historical balance sheet of Phone.com as of March 31, 2000 reflects the
acquisition of AtMotion which was completed February 8, 2000.
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 was accounted for using purchase accounting.
The historical balance sheet of Phone.com as of March 31, 2000 reflects the
acquisition of Paragon which was completed March 2000.
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
A charge of $18.1 million for the fair value of acquired in-process
research and development was recorded during the quarter ending March 31, 2000,
and has not been reflected in the unaudited pro forma combined condensed
statements of operations for the year ended June 30, 1999.
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.
Onebox
(l) Adjustment to record the amortization of goodwill and intangible
assets resulting from the allocation of the Onebox 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.
(m) To reflect common stock issued to shareholders of Onebox. Shares to be
issued for options and warrants and shares subject to repurchase until vested
are excluded as they are antidilutive.
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: June 28, 2000 By: /s/ ALAN BLACK
------------------------------
Alan Black
Vice President of Finance and
Administration, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)