<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
December 3, 1999
ASPEC TECHNOLOGY, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware
----------------------------------------------
(State or other jurisdiction of incorporation)
000-2256S 77-0298386
- --------------------- ------------------------------------
(Commission File No.) (IRS Employer Identification Number)
830 E. Arques Avenue
Sunnyvale, California 94086
----------------------------------------------------
(Address of principal executive offices)
(408) 774-2199
----------------------------------------------------
(Registrant's telephone number, including area code)
ASPEC TECHNOLOGY, INC.
FORM 8K/A
AMENDMENT OF CURRENT REPORT
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its current report on Form 8-K
originally filed with the Securities and Exchange Commission on December 17,
1999.
TABLE OF CONTENTS
(a) HISTORICAL FINANCIALS OF INBOX SOFTWARE, INC.
Balance Sheets as of December 31, 1998 and December 3, 1999
Statements of Operations for the year ended December 31, 1998 and the
period from January 1 to December 3, 1999
<PAGE> 2
Statements of Shareholders' Equity for the year ended December 31, 1998
and the period from January 1 to December 3, 1999
Statements of Cash Flows for the year ended December 31, 1998 and the
period from January 1 to December 3, 1999
Notes to Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Combined Balance Sheet as of August 31, 1999
Notes to Unaudited Pro Forma Combined Balance Sheet
Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended November 30, 1998
Unaudited Pro Forma Condensed Combined Statement of Operations for the
nine months ended August 31, 1999
Notes to Unaudited Pro Forma Condensed Combined Statement of Operations
ITEM 7. FINANCIAL STATEMENTS PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Inbox
<PAGE> 3
INBOX SOFTWARE, INC.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Inbox Software, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of cash flows, and of changes in shareholder's equity present
fairly, in all material respects, the financial position of Inbox Software, Inc.
at December 31, 1998, and December 3, 1999, and the results of its operations
and its cash flows for the year ended December 31, 1998 and for the period from
January 1, 1999 to December 3, 1999, in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
February 15, 2000
3
<PAGE> 4
INBOX SOFTWARE, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 3
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 593,000 $ 37,000
Accounts receivable - 22,000
Prepaid expenses and other current assets 15,000 29,000
----------- -----------
Total current assets 608,000 88,000
Property and equipment, net 32,000 162,000
----------- -----------
Total assets $ 640,000 $ 250,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 28,000 $ 273,000
Accrued liabilities 30,000 503,000
Deferred revenue 132,000 204,000
Accrued payroll and deferred compensation 32,000 438,000
Note payable to related parties - 580,000
----------- -----------
Total current liabilities 222,000 1,998,000
Deferred compensation, long term 300,000 -
----------- -----------
Total liabilities 522,000 1,998,000
----------- -----------
Redeemable convertible preferred stock:
2,222,222 shares authorized; 1,555,556 and 2,222,222 shares
issued and outstanding as of December 31, 1998 and December 3, 1999
respectively; liquidation preference of $0.5625 per share 875,000 1,250,000
----------- -----------
Commitments (note 7)
Shareholders' deficit:
Common stock;
25,000,000 shares authorized; 5,000,000 and 6,449,153 shares
outstanding as of December 31, 1998 and December 3, 1999, respectively 1,143,000 2,223,000
Accumulated deficit (1,622,000) (4,068,000)
Note receivable - (187,000)
Unearned compensation (278,000) (966,000)
----------- -----------
Total shareholders' deficit (757,000) (2,998,000)
----------- -----------
Total liabilities, redeemable convertible
preferred stock and shareholders' deficit $ 640,000 $ 250,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE> 5
INBOX SOFTWARE, INC.
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1,
DECEMBER 31, TO DECEMBER 3,
1998 1999
----------- -------------
<S> <C> <C>
Product revenue $ 151,000 $ 169,000
Service revenue 112,000 158,000
----------- -----------
Total revenue 263,000 327,000
----------- -----------
Cost of product revenue 146,000 372,000
Cost of service revenue 91,000 157,000
----------- -----------
Total cost of revenue 237,000 529,000
----------- -----------
Gross profit/(loss) 26,000 (202,000)
----------- -----------
Operating expenses:
Research & development 326,000 867,000
Sales and marketing 111,000 372,000
General and administrative 68,000 720,000
Stock based compensation 135,000 179,000
----------- -----------
Total operating expenses 640,000 2,138,000
----------- -----------
Loss from operations (614,000) (2,340,000)
Interest (expense) income, net (6,000) 2,000
----------- -----------
Net loss $ (620,000) $(2,338,000)
Accretion of redeemable convertible
preferred stock 215,000 108,000
----------- -----------
Loss attributable to common shareholders (835,000) (2,446,000)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
INBOX SOFTWARE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------- ACCUMULATED NOTES UNEARNED SHAREHOLDERS'
SHARES AMOUNT DEFICIT RECEIVABLE COMPENSATION DEFICIT
--------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1997 4,691,781 690,000 (787,000) - (97,000)
Issuance of common
stock in exchange for
services @ 14.6 cents
per share 308,219 40,000 - - 40,000
* Accretion of redeemable
convertible preferred stock (215,000) (215,000)
Unearned compensation related
to grants of stock options 413,000 - (413,000) -
Amortization of unearned
stock compensation 135,000 135,000
Net loss - - (620,000) - (620,000)
--------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 1998 5,000,000 1,143,000 (1,622,000) (278,000) (757,000)
--------- ----------- ----------- ----------- ----------- -----------
Issuance of common stock
@ 14.6 cents per share in
conjunction with exercise
of stock options 1,449,153 213,000 - (187,000) 26,000
Accretion of redeemable (108,000) (108,000)
convertible preferred stock
Unearned compensation related
to grants of stock options 867,000 (867,000) -
Amortization of unearned
stock compensation 179,000 179,000
Balances, December 31, 1999
Net loss - - (2,338,000) - (2,338,,000)
--------- ----------- ----------- ----------- ---------- -----------
Balances, December 3, 1999 6,449,153 $ 2,223,000 $(4,068,000) $ (187,000) (966,000) $(2,998,000)
========= =========== =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
INBOX SOFTWARE, INC.
STATEMENT OF CASHFLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1
DECEMBER 31, TO DECEMBER 3
1998 1999
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (620,000) $(2,338,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 29,000 30,000
Stock based compensation expense for options granted 135,000 179,000
Changes in operating assets and liabilities:
Accounts receivable - (22,000)
Prepaid expenses and other assets (13,000) (14,000)
Accounts payable 28,000 245,000
Accrued liabilities 15,000 473,000
Deferred revenue 132,000 72,000
Payroll liabilities and deferred compensation 137,000 106,000
Repayment of note receivable from employee 47,000 -
----------- -----------
Net cash used in operating activities (110,000) (1,269,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (8,000) (160,000)
----------- -----------
Net cash used in investing activities (8,000) (160,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock 660,000 267,000
Proceeds from exercise of stock options 40,000 26,000
Proceeds from (repayments of)notes payable (4,000) 580,000
----------- -----------
Net cash provided by financing activities 696,000 873,000
----------- -----------
Net increase / (decrease) in cash and cash equivalents 578,000 (556,000)
Cash and cash equivalents at beginning of year 15,000 593,000
----------- -----------
Cash and cash equivalents at end of year $ 593,000 $ 37,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for interest $ 6,000 $ -
=========== ===========
Common stock issued for services $ 40,000 $ -
=========== ===========
Stock issued in exchange for notes receivable $ - $ 187,000
=========== ===========
Accretion of redeemable preferred stock 215,000 108,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
INBOX SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Inbox Software, Inc. (the "Company") is a California
Corporation, formed in 1995 and is a provider of internet-
based business to business, content management software
solutions for enterprises and their internet-connected
vendors.
(b) 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 reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and reported results of operations during the reporting
period. Actual results could differ from those estimates.
(c) REVENUE RECOGNITION
The Company derives revenue from the licensing of its content
management software products as well as the performance of
consulting, development, training and installation services.
Product revenue is recognized in accordance with AICPA
Statement of Position 97-2 on Software Revenue Recognition.
This means that the Company typically recognizes revenue upon
shipment to final customers, providing no significant
obligations remain and collection is considered probable.
Service revenue is recognized in accordance with AICPA
Statement of Position 81-1 on contract revenue accounting. In
the case of the Company, revenue is recognized when the
services contract has been completed due to the Company's
inability to measure its progress to completion. The
Company's services contracts typically extend for less than
three months.
(d) CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to
concentrations of credit risk consist primarily of cash and
cash equivalents, accounts receivable and notes receivable.
The Company maintains all of its cash with one financial
institution. Cash equivalents are comprised of money market
funds. Management believes the financial risks associated with
these financial instruments are minimal. The note receivable
is due from an employee of the Company and management believe
that the risk of credit loss is low.
With respect to accounts receivable, the Company performs
credit evaluations of its customers and maintains reserves for
potential credit losses when considered necessary.
Five customers accounted for 32%, 19%, 17%, 17%, and 13% of
the revenues respectively during the period January 1 through
December 3, 1999. In 1998, three customers accounted for 47%,
37% and 17% of revenue respectively.
(e) FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial
instruments, including cash and cash equivalents, accounts
receivable, accounts payable, notes payable and other accrued
liabilities, approximate fair value due to their short
maturities.
(f) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is calculated
using the straight-line method over the estimated useful lives
of the equipment, generally three years.
In March 1998, the American Institute of Public Accountants
issued Statement of Position No. 98-1 (SOP 98-1), "Accounting
for the Costs of Computer Software Developed or Obtained for
Internal Use." This standard requires companies to capitalize
qualifying computer software costs, which are incurred during
the application development stage and amortize them over the
software's estimated useful life. SOP 98-1 is effective for
the period from January 1 through December 31, 1999. To date
the Company has not developed software for internal use and,
accordingly, no costs have been capitalized.
(g) SOFTWARE DEVELOPMENT COSTS
Software development costs not qualifying for capitalization
are included in research and development and are expensed as
incurred. After technological feasibility is established,
material software development costs are capitalized. The
capitalized cost is then amortized on a straight-line basis
over the greater of the estimated product life or on the ratio
of current revenues to total projected product revenues. The
Company defines technological feasibility as the establishment
of a working model, which typically occurs upon completion of
the first beta version. To date, the period between achieving
technological feasibility, and the general availability of
such software has been short and software development costs
qualifying for capitalization have been insignificant.
Accordingly, the Company has not capitalized any software
development costs.
(h) INCOME TAXES
The Company utilizes the asset and liability method of
accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. A valuation allowance is recorded to reduce deferred
tax assets to an amount that is more likely than not to be
realized. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date.
8
<PAGE> 9
INBOX SOFTWARE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(i) STOCK-BASED COMPENSATION
The Company accounts for its employee stock option plan in
accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant when the current
market price of the underlying stock exceeds the exercise
price. Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation, permits entities
to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. The Company
has elected to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
Stock issued to non-employees has been accounted for in
accordance with SFAS No. 123 and valued using the
Black-Scholes model.
(j) ACCUMULATED OTHER COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 130, Reporting Comprehensive Income. SFAS No.
130 establishes standards of reporting and display of
comprehensive income and its components of net income and
"Other Comprehensive Income" in a full set of general-purpose
financial statements. Other comprehensive income refers to
revenues, expenses, gains, and losses that are not included in
net income but rather are recorded directly in stockholders'
equity. SFAS No. 130 was adopted by the Company in 1998 but
the Company has no elements of other comprehensive income.
(k) STOCK SPLIT
All share and per share amounts for all periods presented have
been restated to reflect a fourteen point six-for-one stock
split, which was effective December 10, 1998.
(l) IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, management evaluates the Company's long-lived assets for
impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be
recoverable. As of December 3, 1999, the Company does not
consider any assets to be impaired.
(m) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. Inbox Software
Inc. is required to adopt SFAS No. 133 in fiscal 2001. SFAS
No. 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those
instruments as well as other hedging activities. To date, the
Company has not entered into any derivative financial
instruments or hedging activities.
9
<PAGE> 10
INBOX SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(n) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an
original maturity of 90 days or less to be cash equivalents.
Cash equivalents consist principally of money market funds.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of
December 31, 1998 and December 3, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 3,
1998 1999
----------- -----------
<S> <C> <C>
PROPERTY AND EQUIPMENT, NET:
Leasehold improvements $ 2,000 $ 10,000
Computer equipment and purchased software 35,000 159,000
Office equipment 36,000 64,000
--------- ---------
73,000 233,000
Less: Accumulated depreciation and amortization (41,000) (71,000)
--------- ---------
$ 32,000 $ 162,000
========= =========
</TABLE>
Depreciation and amortization expense was $29,000 and $30,000
in the year ended December 31, 1998 and the period ending
December 3, 1999 respectively.
3. RELATED PARTY TRANSACTIONS
(a) NOTE PAYABLE
During 1999, the Company issued promissory notes in the
principal amounts of $430,000 and $150,000.
Inbox issued a promissory note in the principal amount of
$150,000 to a shareholder of the Company. The note had no
listed maturity, bore no interest and was not collateralized.
This note was payable upon the demand of the holder and was
repaid as part of the acquisition of the Company (see Note 8).
The remaining balance consists of a bridge loan of $430,000
received from Aspec Technology Inc. (Aspec). This note is
payable upon the demand of the holder and does not bear
interest. On December 3, 1999, the Company was acquired by
Aspec (see Note 8).
(b) DEFERRED COMPENSATION
The Company did not pay the salary of an officer who is also a
significant shareholder and a member of the board of
directors, for three years between July 1, 1996 and June 30,
1999. The Company expects to fully pay this within the next
six months. As of December 3, 1999, the total balance
outstanding was $360,000.
10
<PAGE> 11
INBOX SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK
At December 31, 1998 and December 3, 1999, the amounts of redeemable
convertible preferred stock were as follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING NET AMOUNT
---------------------------------- ----------------------------------
SHARES DECEMBER 31, DECEMBER 3, DECEMBER 31, DECEMBER 3,
AUTHORIZED 1998 1999 1998 1999
---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
2,222,222 1,555,556 2,222,222 $ 875,000 $1,250,000
========= ========= ========= ========== ==========
</TABLE>
As part of the acquisition of the Company, all redeemable
convertible preferred stock converted to common stock of the
Company on a one-for-one basis (see Note 8.)
The rights, preferences, and privileges of the holders of
redeemable convertible preferred stock are as follows:
- The holders of redeemable convertible Preferred stock
were entitled to receive dividends, at a rate of
$0.04 per share per annum payable out of funds
legally available therefor, when and if declared by
the Company's Board of Directors. The dividend rights
were not cumulative.
- The holders of redeemable convertible Preferred stock
had the right to redeem their shares for $0.5625 per
share, plus any declared but unpaid dividends, if
any, in preference to the holders of Common stock in
the event of any liquidation, dissolution or winding
up of the Company. For purposes of this redemption
feature, a merger or consolidation of the Company
into another corporation was considered to be a
liquidation of the Company. After payment of the
maximum liquidation distribution to holders of
Preferred stock, any remaining assets of the Company
will be distributed pro rata to holders of Common
stock.
- In recognition of this redemption right, the Company
recorded charges against accumulated deficit of
$215,000 and $108,000 for the year ended December 31,
1998 and the period from January 1, 1999 through
December 3, 1999 to accrete the preferred shares up
to their redemption amount.
- Each share of redeemable convertible preferred stock
was convertible, at the option of the holder thereof,
at any time after the date of issuance of such share,
into such number of fully paid and nonassessable
shares of Common, as is determined by dividing $0.45
by the Conversion Price. The conversion price used in
the conversion was $0.45.
- Conversion would have occurred automatically upon
either an initial public offering with a price of not
less than $3.00 per share and proceeds not less than
$10,000,000, or on the date agreed in writing by the
holders of at least a majority of the shares of
redeemable convertible preferred stock.
- Holders of redeemable convertible preferred stock
voted equally with shares of common stock on an
"as-if-converted" basis.
No dividends have been declared or paid on preferred stock or
common stock since inception of the Company.
11
<PAGE> 12
INBOX SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
5. SHAREHOLDER'S DEFICIT
(a) COMMON STOCK
The Company's Articles of Incorporation, as amended,
authorizes the Company to issue 25,000,000 shares of common
stock. Each share of common stock has the right to one vote.
The holders of common stock are also entitled to receive
dividends whenever funds are legally available and when
declared by the Board of Directors, subject to the prior
rights of holders of all classes of stock at the time
outstanding having priority rights as to dividends.
At December 31, 1998 and December 3, 1999, the Company had
reserved 1,555,556 and 2,222,222 shares of common stock for
the conversion of redeemable convertible preferred stock
respectively. Also, 5,000,000 shares of common stock have been
reserved for issuance under the Company's 1998 Stock Option
Plan (see below).
(b) 1998 STOCK OPTION PLAN
The Company's 1998 Stock Option Plan (the "Plan") authorizes
the granting of incentive and nonstatutory common stock
options to employees and nonemployees at exercise prices no
less than 85% of the fair market value of the common stock on
the grant date, as determined by the Board of Directors. The
options may be exercised immediately upon issuance and
generally have a term of 10 years. The common stock issued
upon the exercise of stock options vests 25% after one year of
service and thereafter ratably over the next 36 months of
service. Upon termination of service, an employee's unvested
shares may be repurchased by the Company at the option
exercise price.
(c) ACCOUNTING FOR STOCK-BASED COMPENSATION
In accordance with the requirements of APB25, Inbox has
recorded unearned compensation for the differences between the
purchase price of stock issued to employees under stock
purchase rights or the exercise price of the stock options and
the deemed fair market value of Inbox's stock at the date of
grant. This unearned compensation is amortized to expense over
the period during which Inbox's right to repurchase the stock
lapses or options became exercisable, generally four years. At
December 3, 1999 Inbox has recorded unearned compensation
related to these options in the total amount of $1,294,000 of
which $314,000 has been amortized to expense during fiscal
year 1998 and 1999.
The fair value of employee options granted was estimated on
the date of grant using the minimum-value method. The fair
value of nonemployee options granted was estimated on the date
of grant using the Black-Scholes option-pricing model. The
following weighted-average assumptions were used in these
calculations: risk-free interest rate of approximately 5.5%
for the periods ended 1999 and 1998, expected life of five
years; no dividends and expected volatility of 55% for
employee and nonemployee options.
Had compensation expense for the stock plans been determined
based on the fair value at the grant date for options granted
in December 31, 1998 and December 3, 1999, consistent with the
provisions of SFAS 123, the pro forma loss attributable to
common shareholders would have been reported as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
----------- ------------
<S> <C> <C>
Loss attributable to common shareholders - as reported........ 795 2,413
Loss attributable to common shareholders - pro forma.......... 796 2,431
</TABLE>
Such pro forma disclosure may not be representative of future
compensation cost because options generally vest over several
years and additional grants are made each year.
12
<PAGE> 13
INBOX SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
A summary of activity under the Company's option plan for the
period from January 1, 1998 to December 3, 1999, is presented
below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
OPTIONS WEIGHTED
AVAILABLE AVERAGE
FOR EXERCISE
GRANT SHARES PRICE
--------- --------- --------
<S> <C> <C> <C>
Balances as of January 1, 1998 -- -- --
Authorized 5,000,000 -- $0.15
Granted (1,600,000) 1,600,000 $0.15
--------- --------- -----
Balances as of December 31, 1998 3,400,000 1,600,000 $0.15
Authorized -- -- --
Granted (1,661,443) 1,661,443 $0.15
Exercised -- (1,449,153) $0.15
Canceled 397,292 (397,292) $0.15
--------- --------- -----
Balances as of December 3, 1999 2,135,849 1,414,998 $0.15
========= =========
All options granted during the year-end December 31, 1998 and
the period from January 1 to December 3, 1999 were granted at
exercise pries less than the fair market value of the
underlying stock.
Weighted-average fair value of options
granted during the year:
1999 $0.63
-----
1998 $0.33
-----
</TABLE>
The weighted-average remaining contractual life of outstanding options
is 8.9 years.
13
<PAGE> 14
INBOX SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
6. INCOME TAXES
Income tax expense for the periods ended December 31, 1998 and December
3, 1999, consisted of state income tax payable of $800 each year. Such
amount has been included as other expense in the statement of
operation. The difference between the statutory income tax rate of 34%
and the Company's effective tax rate is primarily due to the valuation
allowance provided for deferred tax assets. The Company has provided a
full valuation allowance due to the uncertainty of generating future
taxable income that would allow for the realization of such deferred
tax assets.
The types of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 3,
1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 3,
1998 1999
------------ -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Accruals and reserves 144,000 365,000
Deferred revenue 53,000 92,000
Net operating loss carryforwards 65,000 618,000
Fixed assets 1,000 (13,000)
--------- -----------
Total gross deferred tax assets 263,000 1,062,000
Less: Valuation allowance (263,000) (1,062,000)
--------- -----------
Total deferred tax assets $ -- $ --
--------- -----------
</TABLE>
The Company has net operating loss carryforwards for federal and state
tax purposes of approximately $1,551,000 and $1,550,000, respectively.
The federal carryforwards expire from 2018 to 2019. The state net
operating loss carryforwards expire from 2003 to 2004.
The Internal Revenue Code of 1986, and applicable state tax laws,
impose substantial restrictions on the ability of the Company to
utilize net operating loss carryforwards in the event of an ownership
change, as defined. On December 3, 1999, the Company underwent an
ownership change (see Note 8), and, as a result, the federal and state
tax losses incurred through that date are subject to an annual
limitation.
14
<PAGE> 15
INBOX SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
7. LEASE COMMITMENTS
The Company leases certain equipment and its facilities under various
noncancelable operating leases.
Future minimum lease payments under operating leases as of December 3,
1999, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING OPERATING
DECEMBER 31, LEASES
------------ ----------
<S> <C>
2000 182,000
2001 191,000
2002 196,000
2003 50,000
Thereafter --
----------
Total minimum lease payments $ 619,000
==========
</TABLE>
Rent expense was $72,000 and $130,000 for the periods ended December
31, 1998 and December 3, 1999, respectively.
8. MERGER WITH ASPEC TECHNOLOGY (UNAUDITED)
On December 3, 1999, the Company was acquired by Aspec Technology, Inc.
(Aspec) in a purchase transaction. Following the merger, the Company
became a wholly-owned subsidiary of Aspec. In conjunction with the
merger, all outstanding redeemable convertible preferred stock of the
Company converted to common stock of the Company. The outstanding
balance of the Company's common stock of 8,671,375 shares then
converted into $7,640,000 of cash plus 1,205,866 shares of Aspec common
stock. All outstanding common stock options of InBox at the time of the
merger converted to 1,194,134 Aspec common stock options with an
exercise price of $0.18 per share. The conversion ratio for common
stock options was 0.844 Aspec options for each Inbox option held. The
converted options maintained their original vesting schedule.
15
<PAGE> 16
(a) Financial Statements of Inbox
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements give
effect to the merger of Aspec Technology, Inc. (Aspec) and Inbox Software, Inc.
(Inbox) using the purchase method of accounting in accordance with generally
accepted accounting principles. Aspec is considered the accounting acquirer.
Aspec completed its acquisition of Inbox on December 3, 1999.
The unaudited pro forma condensed combined financial statements are based upon
the historical financial statements of the respective companies. The unaudited
pro forma condensed combined balance sheet assumes that the merger took place
on August 31, 1999 and combines InBox's September 30, 1999 unaudited historical
balance sheet with Aspec's August 31, 1999 historical unaudited consolidated
balance sheet. The unaudited pro forma condensed combined statements of
operations for the twelve months ended November 30, 1998 and the nine months
ended August 31, 1999 assume the merger took place as of December 1, 1997
and combine Aspec's consolidated statement of operations for the twelve months
ended November 30, 1998 with InBox's statements of operations for the twelve
months ended December 31, 1998 (unaudited). The unaudited pro forma condensed
combined statement of operations for the nine months ended August 31, 1999
combine Aspec's condensed consolidated statement of operations for the nine
months ended August 31, 1999 (unaudited) with InBox's condensed statement of
operations for the nine months ended September 30, 1999 (unaudited). The
unaudited pro forma condensed combined financial statements are based on the
estimates and assumptions set forth in the notes to such statements.
The pro forma adjustments are based on a preliminary valuation of Inbox, that
has yet to be finalized, made in connection with the development of the pro
forma information for illustrative purposes to comply with the disclosure
requirements of the Securities and Exchange Commission. The pro forma
adjustments included in the unaudited pro forma condensed combined financial
statements may be revised upon the finalization of the valuation of the net
assets acquired by Aspec. The unaudited pro forma condensed combined financial
statements do not purport to be indicative of the results of operations for
future periods or the combined financial position or results that would have
been realized had the companies been a single entity during these periods.
These unaudited pro forma condensed combined financial statements should be read
in conjunction with the historical consolidated financial statements of Aspec
included in Aspec's November 30, 1998 Annual Report on Form 10-K and August 31,
1999 Quarterly Report on Form 10-Q previously filed with the Securities and
Exchange Commission.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF AUGUST 31,1999
Pro forma Pro forma
ASPEC InBox Combined adjustments Combined
--------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents 30482 7 30489 37 30526
Accounts receivable:
Billed 3198 3198 22 3220
Unbilled 357 357 357
Prepaid expenses 565 565 565
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
Pro forma Pro forma
Aspec InBox Combined adjustments combined
--------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Inventory 99 99 99
Deferred income taxes 2100 2100 2100
------- ------ ------- ------- --------
Total current assets 36801 7 36808 59 36867
Property and equipment - net 9444 135 9579 162 9741
Investments 2538 2538 2538
Other assets 3010 29 3039 10379 13418
------- ------ ------- ------- --------
TOTAL ASSETS 51793 171 51964 10600 62564
======= ====== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable 3740 111 3851 3851
Accrued liabilities 2067 662 2729 2729
Income taxes payable 272 272 272
Customer advances 3346 34 3380 3380
------- ------ ------- ------- -------
Total current liabilities 9425 807 10232 10232
Deferred liabilities - rent 52 52 52
------- ------ ------- ------- -------
Total current liabilities 9477 807 10284 10284
------- ------ ------- ------- -------
Deferred compensation -- 360 360 360
------- ------ ------- ------- -------
Total liabilities 9477 1167 10644 10644
======= ====== ======= ======= =======
Stockholders' equity (deficiency):
Preferred stock 1177 1177 (1177) --
Common stock 86299 943 87242 7482 94724
Stockholders notes receivable (175) (187) (362) -- (362)
Treasury Stock (927) (927) -- (927)
CTA (46) (46) -- (46)
Unearned compensation (10.15) (10.15) -- (1015)
Retained deficit (42835) (19.14) (44749) 4295 (40454)
------- ------ ------- ------- --------
Total stockholders' equity (deficiency) 42316 (996) 41320 10600 51920
======= ====== ======= ======= ========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) 51793 171 51964 62564
======= ====== ======= ======= ========
</TABLE>
16
<PAGE> 19
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30,1998.
(in thousands)
<TABLE>
<CAPTION>
Pro forma Pro forma
Aspec InBox Combined adjustments combined
-------------- -------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenue $23090 $ 263 23353 $ 23353
Cost of revenue 16688 237 16925 16925
Gross profit 6402 26 6428 6428
Operating expenses:
Research and development 2640 326 2966 2966
Sales and marketing 5952 111 6063 6063
General and administrative 4576 68 4644 4644
Write-off of purchased technology 700 700 700
Amortization of intangibles 418 418 3790 4208
Stock based compensation 135 135 135
Total operating expenses 14286 640 14926 3790 18716
Income (loss) from operations (7884) (614) (8498) (3790) (12288)
Interest income (expense) net 1614 (6) 1608 1608
Income (loss) before income taxes (6270) (620) (6890) (3790) (10680)
Provision for income taxes 264 -- 264 264
Net income (loss) (6534) (620) (7154) (3790) (10944)
Accretion of redeemable
preferred stock 4328 215 4543 4543
Income (loss) attributable to
common stockholders (10862) (835) (11697) (3790) (15487)
</TABLE>
17
<PAGE> 20
Basic earnings (loss) per share $ (0.43) $ (0.59)
Basic average shares outstanding 25,258 26,464
Diluted earnings (loss) per share $ 0.43 $ (0.59)
Diluted average shares outstanding 25,258 26,464
18
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED AUGUST 31,1999.
<TABLE>
<CAPTION>
Pro forma Pro forma
Aspec InBox Combined adjustments combined
-------------- -------------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue 5989 327 6316 6316
Cost of revenue 10266 370 10636 10636
Gross profit (4277) (43) (4320) (4320)
Operating expenses:
Research and development 4805 651 5456 5456
Sales and marketing 3357 254 3611 3611
General and administrative 3410 536 3946 3946
--
Amortization of intangibles 502 502 2843 3345
Stock based compensation 130 130 130
Total operating expenses 12074 1571 13645 2843 16488
Income (loss) from operations (16351) (1614) (17965) (2843) (20808)
Interest income, net 1270 2 1272 1272
Equity loss from joint venture (585) (585) (585)
Income (loss) before income taxes (15666) (1612) (17278) (2843) (20121)
--
Net income (loss) (15666) (1612) (17278) (2843) (20121)
Accretion of redeemable
preferred stock -- (81) (81) (81)
Loss attributable to
common stockholders (15666) (1693) (17359) (2843) (20202)
Basic earnings (loss) per share $ (0.56) $ (0.69)
Basic average shares outstanding 27945 29151
Diluted earnings (loss) per share $ 0.56 $ 0.69
Diluted average shares outstanding 27945 29151
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
Pro forma Pro forma
Aspec InBox Combined adjustments combined
-------------- -------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Income (loss) attributable to
common stockholders (15,666) (1,482) (17,148)
Basic earnings (loss) per share
Basic average shares outstanding
Diluted earnings (loss) per share
Diluted average shares outstanding
</TABLE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
1. The Acquisition
The pro forma condensed combined financial information reflects the acquisition
of InBox on December 3, 1999 for 2,400,000 shares of Aspec Common Stock and
$7,640,000 cash. The purchase price of the acquisition of $18,158,000, which
includes $95,000 of estimated acquisition related costs, was used to acquire the
net assets of InBox. The purchase price for pro forma purposes was allocated to
assets acquired and liabilities assumed based on the book value of InBox's
current assets and liabilities, which management believes approximates their
fair value, the estimated fair value of property and equipment, based on
management's estimates of fair value, and an independent appraisal for all other
identifiable assets. The excess of the purchase price over the net tangible and
intangible assets acquired and liabilities assumed has been allocated to
goodwill. The allocation of the purchase price is as follows (in thousands):
<TABLE>
<S> <C>
Property and equipment $ 162,000
Current and other assets 88,000
Liabilities assumed 1,999,000
Goodwill 14,571,000
Acquired in-process research and development 925,000
Acquired developed technology and workforce
and other intangibles 2,412,000
</TABLE>
2. Unaudited Pro forma Condensed Combined Statement of Operations
The following adjustments were applied to the historical statements of
operations for Aspec and InBox for the year ended November 31, 1998 and the
nine months ended August 31, 1999 to arrive at the pro forma unaudited
condensed combined statement of operations of the respective periods as though
the acquisition took place on December 1, 1997:
(b) Shares used in the per share calculation reflect 1,205,866 shares issued to
shareholders as if they were outstanding from the beginning of each period
presented. Basic and diluted weighted average shares outstanding are the
same in each period because of the pro forma combined net loss.
The one time charge to expense for the fair value of the in-process research
and development has been excluded from the unaudited pro forma condensed
combined statement of operations since it is a non-recurring charge.
The nine months ended September 30, 1999 for InBox is unaudited.
2. Unaudited Pro Forma Condensed Combined Balance Sheet
The following adjustments were applied to the historical balance sheet of Aspec
and InBox at August 31, 1999 to arrive at the pro forma condensed combined
balance sheet:
(a) To record the net increase in fair value of property and equipment over
their historical book value.
(b) To record intangible assets acquired at their fair values, as follows (in
thousands):
<TABLE>
<S> <C>
Developed technology $ 1,983,000
Work force 331,000
Goodwill 14,571,000
</TABLE>
(c) Adjustment to record the estimate of transaction costs related to the
merger. Estimated costs include all costs directly incurred as a result of
the agreement including, but not limited to, accounting and attorney fees,
consultants and other miscellaneous items.
20
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ASPEC TECHNOLOGY, INC.
Dated: February 16, 2000 By: /s/ Michael J. Carroll
----------------------------------------
Michael J. Carroll
President and Chief Executive Officer
