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As filed with the Securities and Exchange Commission on March 3, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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ANNUNCIO SOFTWARE, INC.
(Exact name of Registrant as specified in its charter)
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California (before 7389 94-3278563
reincorporation) (Primary Standard Industrial (I.R.S. Employer
Delaware (after Classification Code Number)Identification Number)
reincorporation)
(State or other
jurisdiction of
incorporation or
organization)
Annuncio Software, Inc.
2440 El Camino Real, Suite 300
Mountain View, CA 94040
(650) 314-6000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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Didier Moretti
Chief Executive Officer
Annuncio Software, Inc.
2440 El Camino Real, Suite 300
Mountain View, CA 94040
(650) 314-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Page Mailliard Robert A. Koenig
Jonathan D. Levy Namee Lee
Lynn Y. Hashimoto Latham & Watkins
Deanna M. Butler 135 Commonwealth Drive
Wilson Sonsini Goodrich & Rosati Menlo Park, CA 94025
Professional Corporation (650) 328-4600
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]_____________
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]_____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]_____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Maximum Amount of
Title of Each Class of Securities to be Aggregate Registration
Registered Offering Price(1)(2) Fee
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<S> <C> <C>
Common stock, $0.0001 par value................ $46,000,000 $12,144
</TABLE>
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(1) Includes shares which the underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and it is not soliciting an offer to buy +
+these securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 3, 2000
LOGO OF ANNUNCIO SOFTWARE
4,000,000 Shares
Common Stock
Annuncio Software, Inc. is offering 4,000,000 shares of its common stock.
This is our initial public offering and no public market currently exists for
our shares. We have applied for approval for quotation of our common stock on
the Nasdaq National Market under the symbol "ANNC." We anticipate that the
initial public offering price will be between $ and $ per share.
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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<TABLE>
<CAPTION>
Per
Share Total
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<S> <C> <C>
Public Offering Price............................................... $ $
Underwriting Discounts and Commissions.............................. $ $
Proceeds to Annuncio Software, Inc.................................. $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is criminal
offense.
Annuncio Software, Inc. has granted the underwriters a 30-day option to
purchase up to an additional 600,000, shares of common stock to cover over-
allotments. FleetBoston Robertson Stephens Inc. expects to deliver the shares
of common stock to purchasers on , 2000
--------------
Robertson Stephens
Chase H&Q
U.S. Bancorp Piper Jaffray
The date of this Prospectus is , 2000
<PAGE>
[Description of Artwork to be provided]
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock.
Until , 2000, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to
deliver a prospectus. This requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Note Regarding Forward Looking Statements................................ 19
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 23
Selected Financial Data.................................................. 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 25
Business................................................................. 32
Management............................................................... 46
Certain Transactions..................................................... 58
Principal Stockholders................................................... 61
Description of Capital Stock............................................. 63
Shares Eligible for Future Sale.......................................... 66
Underwriting............................................................. 68
Legal Matters............................................................ 70
Experts.................................................................. 70
Where You Can Find Additional Information................................ 70
Index to Financial Statements............................................ F-1
Exhibit Index............................................................ II-4
</TABLE>
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PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
and the financial statements and notes thereto appearing elsewhere in this
prospectus. Unless otherwise indicated, this prospectus assumes that the
underwriters have not exercised their option to purchase additional shares, all
shares of preferred stock have been automatically converted into shares of
common stock, we have completed a 3-for-2 stock split and we have completed our
reincorporation in Delaware.
Annuncio Software
We provide customer interaction software and services that enable companies
to build long-term, personalized customer relationships that drive revenues and
profitability. Companies ranging from Internet startups to global enterprises
can use our suite of e-marketing applications to initiate a broad range of
proactive customer interactions, maximize the value of each interaction and act
quickly to capitalize on market opportunities. Using our solution, companies
can reach out to customers with targeted messages and draw them back to their
Web site for a personalized shopping experience. By personalizing an integrated
series of customer interactions, companies can drive repeat visits and turn
prospects into customers. Companies can then test and measure the effectiveness
of their marketing activities in real time, allowing them to identify
successful strategies that optimize their marketing efforts.
Our suite of e-marketing applications includes Annuncio Live and Annuncio
Bright. These products allow business users to define, automate and analyze
personalized marketing campaigns and merchandising programs. Annuncio ToGo, our
full-service hosting option, offers Annuncio Live on a hosted basis. We also
provide professional services for marketing consulting, implementation services
and customer support.
Our objective is to be the leading provider of customer interaction
software and services that enable companies to build long-term, personalized
customer relationships that drive revenues and profitability. Specifically, we
plan to:
. extend our market leadership;
. extend and enhance our product offerings;
. expand our Annuncio ToGo service;
. continue to provide superior customer service; and
. expand our sales and distribution capabilities and partnerships.
We generate revenues by licensing or hosting our software, as well as
through related marketing consulting, implementation and integration services,
and maintenance fees. We began selling our solution through our direct sales
force in June 1999. As of March 1, 1999, our customers include ARTISTdirect,
Beyond.com, Charles Schwab, eBay, iVillage, JD Edwards, Lucent Technologies,
NBCi, Netscape Communications, Quokka Sports, Tower Records, Wells Fargo and
Xerox Corporation. Each of these customers has agreed to purchase over $100,000
in software and related services from us.
4
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Brightinfo.com Acquisition
In March 2000, we acquired Brightinfo.com, Inc. Brightinfo.com was
incorporated in Delaware in 1998. Brightinfo.com develops, markets and supports
software designed to automate and optimize the effectiveness of, marketing
programs for companies with e-commerce Web sites. Brightinfo.com's software
enables marketing professionals to create and manage real-time, personalized
Web merchandising programs, analyze program effectiveness and make changes
using a point-and-click Web-based user interface. Brightinfo.com is based in
Redwood City, California and has 30 employees. In connection with the
acquisition, we issued or became obligated to issue, a total of 7,500,000
shares of our common stock to the former holders of Brightinfo.com's capital
stock, options and warrants. All options and warrants to purchase shares of
Brightinfo.com capital stock became exercisable for shares of our capital stock
following the acquisition. Brightinfo.com is now our wholly owned subsidiary.
Corporate Information
We were incorporated in California as Annuncio Software, Inc. in 1997. We
intend to reincorporate in Delaware prior to the completion of this offering.
Our headquarters are currently located at 2440 El Camino Real, Suite 300,
Mountain View, California 94040 and our telephone number at that location is
(650) 314-6000. Our Internet site is www.annuncio.com. Information contained on
our Web site does not constitute a part of this prospectus.
"Annuncio Software," "Annuncio Live," "Annuncio Bright" and "Annuncio ToGo"
are trademarks of Annuncio Software, Inc. Other service marks, trademarks and
trade names referred to in this prospectus are the property of their respective
owners.
The Offering
Common stock offered by Annuncio........ 4,000,000 shares
Common stock to be outstanding after 41,168,027 shares
the offering............................
Use of proceeds......................... For general corporate purposes,
including working capital. See "Use
of Proceeds."
Proposed Nasdaq National Market ANNC
symbol..................................
The number of shares of common stock outstanding after the offering is
based on the number of shares outstanding as of March 2, 2000. This number
excludes:
. 3,413,297 shares issuable upon the exercise of outstanding options at a
weighted average exercise price of $0.4394 per share;
. 573,406 shares issuable upon the exercise of outstanding warrants at a
weighted average exercise price of $1.3404 per share;
. 2,132,920 shares available for future issuance under our 1997 Stock
Option Plan, 8,400,000 shares available for future issuance under our
2000 Stock Plan, 750,000 shares available for future issuance under our
2000 Director Option Plan and 1,125,000 shares available for future
issuance under our 2000 Employee Stock Purchase Plan.
5
<PAGE>
Summary Financial Data
The summary financial data presented below is derived from the financial
statements of Annuncio. The as adjusted balance sheet data summarized below
reflects the conversion of our preferred stock into 19,539,012 shares of common
stock upon the completion of this offering and the application of the net
proceeds from the sale of the 4,000,000 shares of common stock offered by
Annuncio at an assumed initial public offering price of $ per share after
deducting the underwriting discounts and commissions and our estimated offering
expenses. See Note 1 to our financial statements for an explanation of the
determination of the number of shares used in computing per share data.
<TABLE>
<CAPTION>
Period from
August 8, 1997
(Inception) to
December 31, Years Ended December 31,
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1997 1998 1999
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<S> <C> <C> <C>
Statements of Operations Data:
Revenues:
License............................ $ -- $ -- $ 853,390
Hosting............................ -- -- 191,417
Professional services.............. -- -- 638,517
Total revenues.................. -- -- 1,683,324
Gross loss........................... -- -- (41,304)
Loss from operations................. (383,168) (3,225,407) (10,583,818)
Net loss............................. (338,999) (3,072,670) (10,729,986)
Basic and diluted net loss per
share.............................. $ (0.18) $ (0.78) $ (1.80)
Shares used in computing basic and
diluted net loss per share......... 1,879,266 3,943,519 5,976,565
Pro forma basic and diluted net loss
per share (unaudited).............. -- -- $ (0.50)
Shares used in computing pro forma
basic and diluted net loss per
share (unaudited).................. -- -- 21,555,812
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
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Actual As Adjusted
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<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................ $ 1,115,458
Working deficit...................................... (1,070,984)
Total assets......................................... 5,211,311
Capital lease obligations, net of current portion.... 466,212
Redeemable convertible preferred stock............... 12,267,287
Accumulated deficit.................................. (14,141,655)
Total stockholders' deficit.......................... (12,052,007)
</TABLE>
6
<PAGE>
RISK FACTORS
Any investment in shares of our common stock involves a high degree of
risk. You should consider carefully the following information about these
risks, together with the other information contained in this prospectus, before
you decide to buy our common stock. If we are adversely affected by any of the
following risks, our business, results of operations and financial condition
would likely suffer. In these circumstances, the market price of our common
stock could decline, and you may lose all or part of the money you paid to buy
our common stock.
Risks Related to Our Business
Because we have a limited operating history, it is difficult to evaluate our
business and prospects.
We were founded in 1997, released our product in June 1999 and began
recognizing revenues in July 1999. Our limited operating history makes it
difficult to forecast our future operating results. Our revenue and income
potential is unproven. Because we do not have a long history upon which to base
forecasts of future operating results, any predictions about our future
revenues and expenses may not be as accurate as they would be if we had a
longer operating history.
We have a history of losses, we expect losses in the future and we may never
become profitable.
We incurred net losses of $3.1 million for the year ended December 31, 1998
and $10.7 million for the year ended December 31, 1999. We had an accumulated
deficit of $14.1 million as of December 31, 1999. As we grow our business, we
expect to incur significant expenditures for marketing, recruiting and hiring
additional personnel, research and development and application hosting. As a
result, we expect that our operating expenses will increase significantly in
the near term and, consequently, we expect to incur losses in the foreseeable
future. Although our revenues grew rapidly in 1999, we may not be able to
maintain this revenue growth. In addition, increased competition or slower than
anticipated growth in our market could also affect our revenue growth.
Also, as a result of the Brightinfo.com acquisition, we expect that our
losses will increase even more significantly because of additional costs and
expenses related to:
.an increase in the number of our employees;
.an increase in research and development activities;
.an increase in sales and marketing activities; and
.assimilation of operations and personnel.
We cannot be certain that we will achieve profitability or that, if we do
achieve profitability, we will be able to sustain or increase profitability on
a quarterly or annual basis.
We depend on sales of Annuncio Live and a decrease in sales would harm our
business.
We currently derive substantially all of our revenues from Annuncio Live
and related hosting and consulting services. We expect that revenues related to
Annuncio Live will continue to comprise a substantial portion of our revenues
for the foreseeable future. As a result, a decline in the price of Annuncio
Live, or its failure to receive broad market acceptance, would harm our
business.
7
<PAGE>
If we fail to expand our direct and indirect sales capabilities, we will not be
able to increase revenues.
To grow our business, we need to increase market awareness and sales of our
products and services by increasing our direct sales capabilities. Our
financial success also depends to a large degree on the ability of our direct
sales force to increase sales to a level required to adequately fund marketing
and product development activities. If we fail to do so, this failure could
harm our ability to increase revenues. We currently receive substantially all
of our revenues from direct sales. Therefore, our ability to grow our business
and increase revenues in the future depends considerably upon our success in
recruiting, training and retaining additional direct sales personnel and the
success of our direct sales force. We will need to expand our direct sales
force by hiring additional salespersons, product consultants, telemarketing
personnel and sales management. Competition for qualified sales personnel is
intense, and we may not be able to hire the kind and number of sales personnel
we are targeting. New hires may require extensive training and may require a
long period of time before becoming productive members of our sales force. Our
business will be harmed if we fail to hire or retain qualified sales personnel,
or if newly hired salespeople fail to develop the necessary sales skills or
develop these skills more slowly than we anticipate.
We intend to develop our indirect sales capabilities by selling our
software through value-added resellers. These resellers would offer our
software products to their customers together with consulting and
implementation services or integrate our software solutions with other
software. We also intend to increasingly offer our software through application
service providers, who install our software on their own computer servers and
charge their customers for access to our software. We need to expand our
indirect sales capabilities by entering into strategic relationships with these
third parties. We cannot be certain that we will be able to enter into such
agreements on favorable terms, if at all.
We have not derived any revenues from international sales to date, but we
plan to add international sales in the future. To do so, we will be even more
dependent on indirect sales channels. We also plan to use direct sales
personnel internationally and therefore must hire additional sales personnel
outside the United States. We cannot be certain that we will be able to hire
qualified sales personnel for our international sales effort or that, once they
are hired, we will not face difficulties managing international operations.
New product introductions and pricing strategies by our competitors could
adversely affect our ability to sell our products and could result in slower
revenue growth or reduced revenues, as well as pressure to price our products
in a manner that reduces our margins.
The market for our products is competitive, subject to rapid change and
significantly affected by new product introductions and other market activities
by industry participants. We expect the intensity of competition to increase in
the future. Competition could seriously harm our ability to sell additional
software and services on terms favorable to us. Competitive pressures could
reduce our market share, require us to reduce the prices of our products and
services, or result in reduced gross margins, any of which could harm our
business. Competitors could offer new products with features or functionality
that are equal to or better than our products. We may not have sufficient
engineering staff, competitive awareness, management initiative, equipment, or
time to modify our products to match our competitors. As a result, we could
lose existing customers or new customers to competitors.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources, significantly
greater name recognition and a larger installed base of customers than do we.
As a result, our competitors may be able to respond more quickly to new or
emerging opportunities, technologies and changes in customer requirements or
devote greater resources to the development, promotion and sale of their
products than we can. Existing and potential competitors may have more
extensive customer bases that could be leveraged, thereby gaining market share
to our detriment.
Our competitors have made, and may also continue to make, strategic
acquisitions, or establish cooperative relationships among themselves or with
other software vendors. As a result, new competitors or
8
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alliances among competitors may emerge and rapidly acquire significant market
share. We may not be able to compete successfully against current and future
competitors, and competitive pressures may seriously harm our business.
If the market does not accept our products and services or we fail to develop
new products or improve our existing products to meet or adapt to the changing
needs and standards of our industry, our sales may suffer.
Our products and Brightinfo.com's products were introduced in 1999 and have
a limited market history. Of our total revenues of $1.7 million for the twelve
months ended December 31, 1999, $853,000 were derived from product licenses,
$191,000 were derived from hosting services and $639,000 were derived from
professional services. Of Brightinfo.com's total revenues of $573,000 for the
twelve months ended December 31, 1999, $532,000 were derived from product
licenses and $41,000 from professional services. We are not certain that our
target customers will widely adopt and deploy our products and services.
Our future success also depends on our ability to address the rapidly
changing needs of our current and potential customers. We must maintain and
improve our products and develop new products that include new technological
developments, keep pace with products of our competitors and satisfy the
changing requirements of our customers. Our future financial performance will
depend on the successful development, introduction and customer acceptance of
new and enhanced versions of our products and services. In the future, we may
not successfully market our products and services or any new or enhanced
products. If we are not successful, we may not achieve market acceptance and we
may be unable to attract new customers or lose sales to competitors. We may
also lose existing customers, to whom we seek to sell additional software,
hosting solutions and professional services.
Variations in quarterly operating results due to such factors as changes in
demand for our products and services and changes in our mix of revenues may
cause our stock price to decline.
Our quarterly revenues, expenses and operating results have varied in the
past and may vary significantly from quarter-to-quarter in the future. As a
result, we believe that quarter-to-quarter comparisons of our operating results
may not be a good indication of our future performance, and you should not rely
on them to predict our future performance or the future performance of our
stock price. Our short-term expense levels are relatively fixed and are based
on our expectations of future revenues. As a result, a reduction in revenues in
a quarter may harm our operating results for that quarter. If our operating
results in future quarters fall below the expectations of market analysts and
investors, the trading price of our common stock will fall. Factors that may
cause our operating results to fluctuate on a quarterly basis include:
. varying size, timing and contractual terms of orders for our products;
. our ability to complete our implementation and service obligations
related to product sales in a timely manner;
. loss of significant customers;
. changes in the mix of revenues attributable to higher-margin product
license revenues as opposed to substantially lower-margin hosting or
consulting services revenues;
. customers' decisions to defer orders or implementations from one
quarter to the next;
. changes in demand for our software products or for e-marketing software
solutions generally;
. announcements or introductions of new products by our competitors;
. software defects and other product quality problems; and
. seasonal trends in sales of business software.
9
<PAGE>
The Brightinfo.com acquisition may result in disruptions to our business and
management due to difficulties in assimilating personnel and operations.
We acquired Brightinfo.com in March 2000. Integrating the operations and
personnel of Annuncio and Brightinfo.com is a complex process, and we are
uncertain that the integration will be completed rapidly or will achieve the
anticipated benefits of the acquisition. The successful integration of Annuncio
and Brightinfo.com will require, among other things, integration of our
finance, human resources, and sales and marketing groups and coordination of
development efforts. The diversion of the attention of our management and any
difficulties encountered in the process of combining the companies could cause
the disruption of, or a loss of momentum in, the activities of our business.
Further, the process of combining Annuncio and Brightinfo.com could negatively
affect employee morale and our ability to retain some of our key employees
after the acquisition.
In connection with the Brightinfo.com acquisition, we issued or became
obligated to issue, a total of 7,500,000 shares of our common stock to the
former holders of Brightinfo.com's capital stock, options and warrants. All
options and warrants to purchase shares of Brightinfo.com capital stock became
exercisable for shares of our capital stock following the acquisition. The
issuance of these securities is dilutive to our existing stockholders. In
addition, our profitability will suffer because of acquisition-related costs
and amortization costs for acquired goodwill and other intangible assets.
If we do not successfully integrate Brightinfo.com or the acquisition's
benefits do not meet the expectations of financial or industry analysts, the
value of our common stock may decline.
The value of our common stock may decline as a result of the acquisition
if:
.the integration of Annuncio and Brightinfo.com is unsuccessful;
. we do not achieve the perceived benefits of the acquisition as rapidly
as, or to the extent, anticipated by financial or industry analysts; or
. the effect of the acquisition on our financial results is not
consistent with the expectations of financial or industry analysts.
If we acquire additional companies, products or technologies, we may face risks
similar to those faced in the Brightinfo.com acquisition.
If we are presented with appropriate opportunities, we intend to make other
investments in complementary companies, products or technologies. We may not
realize the anticipated benefits of any other acquisition or investment. If we
buy another company, we will likely face the same risks, uncertainties and
disruptions as discussed above with respect to the Brightinfo.com acquisition.
Furthermore, we may have to incur debt or issue equity securities to pay for
any additional future acquisitions or investments, the issuance of which could
be dilutive to us or our existing stockholders. In addition, our profitability
may suffer because of acquisition-related costs or amortization costs for
acquired goodwill and other intangible assets.
Our licensing revenues depend on a small number of large orders from our top
customers and if we fail to complete one or more large orders, our revenues
will be reduced.
To date, we have received a significant portion of our licensing revenues
from a small number of large orders from our top customers. For the year ended
December 31, 1999, Netscape Netcenter accounted for 22% of our total revenues
and e-stamp.com accounted for 16% of our total revenues. Our operating results
may be harmed if we are not able to complete one or more substantial product
sales in any future period or attract new customers.
10
<PAGE>
Our products have a long sales cycle that makes it difficult to plan our
expenses and forecast our results.
Our products have a long sales cycle, typically between one and six months
or longer. As a result, it is difficult to predict the quarter in which a
particular sale will occur and to plan our expenses accordingly. The delay or
failure to complete sales in a particular quarter could reduce our revenues in
that quarter, as well as subsequent quarters, over which revenues for the sale
would likely be recognized. If our sales cycle unexpectedly lengthens for one
or more large orders, it would adversely affect the timing of our revenues, and
could harm our ability to meet our forecasts.
We have grown very quickly, and if we fail to manage our growth, our ability to
generate new revenues and achieve profitability would be harmed.
Since we began operations in 1997, we have significantly increased the size
of our operations and thus our operating expenses. The number of our employees
has increased from 18 as of December 31, 1998 to 86 as of December 31, 1999. We
expect to continue to hire new employees at a rapid pace. For example, we added
47 employees between January 1, 2000 and February 18, 2000, and 30 new
employees as a result of the Brightinfo.com acquisition. In addition, we will
need to assimilate substantially all of Brightinfo.com's operations into our
operations. This recent growth has placed, and we expect that any future growth
we experience will continue to place, a significant strain on our management,
personnel, systems and other resources. To manage any future growth
effectively, we must improve our financial and accounting systems, controls,
reporting systems and procedures, integrate new employees and manage expanded
operations. Any failure to manage growth effectively could negatively affect
the quality of our products, our ability to respond to customers and retain key
personnel and our business generally. We plan to expand or move our facilities
in the near future, which could disrupt our business and operations and impede
our ability to increase revenues and could harm our business.
We may be unable to hire and retain the skilled personnel necessary to develop
our engineering, sales, professional services and support capabilities in order
to continue to grow.
Our business cannot continue to grow if we cannot attract qualified sales,
marketing, engineering, professional services and product management personnel
in the near future. Competition for these individuals is intense, and we may
not be able to attract, assimilate or retain highly qualified personnel in the
future. Our failure to attract and retain highly trained personnel in these
areas may limit the rate at which we can develop and install new products or
product enhancements. This would harm our business. We expect to face greater
difficulty attracting qualified personnel with equity incentives as a public
company than we did as a privately held company.
If we are unable to safeguard the confidential information in our data
warehouse, our reputation may be harmed and we may be exposed to liability.
In connection with our Annuncio ToGo service, we currently retain
confidential customer information in a secure data warehouse. Any unauthorized
access to our servers could result in the misappropriation of confidential
customer information or cause interruptions in our services. We cannot assure
you that we will be able to prevent unauthorized individuals from gaining
access to this data warehouse. If any compromise or breach of security were to
occur, it could harm our reputation and expose us to possible liability. It is
also possible that one of our employees could attempt to misuse confidential
customer information, exposing us to liability. In addition, our reputation may
be harmed if we lose customer information maintained in our data warehouse due
to systems interruptions or other reasons.
11
<PAGE>
Loss of any key personnel, including our Chief Executive Officer and President,
could harm our business.
Our future success depends upon the continued service of our executive
officers, in particular our Chief Executive Officer and President, Didier
Moretti, and other key sales, engineering and technical staff. The loss
of the services of our executive officers and other key personnel would harm
our operations. We would also be harmed if one or more of our officers or key
employees decided to join a competitor or otherwise compete with us.
Our products are new, and if they contain defects or are not perceived as high
quality, we could lose potential customers and our business may suffer.
We released our products during the second quarter of 1999. Our products
are complex and may contain errors, defects or failures, particularly since
they are new and recently released. In the past we have discovered software
errors in some of our products after introduction. We may not be able to detect
and correct errors before releasing our products commercially. If our
commercial products contain errors, we may be required to expend significant
resources to locate and correct the error or delay introduction of new products
or commercial shipment of products. We may also experience reduced sales and
harm to our reputation from dissatisfied customers.
Our customers also may encounter system configuration problems which
require us to spend additional consulting or support resources to resolve. In
addition, our new products could contain defects that introduce a breach of
security to our own or our customers' systems and proprietary information. A
breach of security could be exploited by third parties, resulting in harm to
our business.
Because our software products are used for important decision-making
processes by our customers, product defects may also give rise to product
liability claims. Although our license agreements with customers typically
contain provisions designed to limit our exposure, some courts may not enforce
all or part of these limitations. Although we have not experienced any product
liability claims to date, we may encounter these claims in the future. Product
liability claims, whether or not successful, could:
.divert the attention of our management and key personnel from our
business;
.be expensive to defend; and
.result in large damage awards.
Our product liability insurance may not be adequate to cover all of the
expenses resulting from a claim. In addition, if our customers do not find our
services to be of high quality, they may elect to use other training,
consulting and product integration firms rather than contract for our services.
If customers are dissatisfied with our services, we may lose revenues.
If our internal professional services organization does not provide
implementation services effectively and according to schedule, our revenues and
profitability would be harmed.
Customers that license our products typically require consulting,
implementation, maintenance and training services. We provide these services
through our internal professional services organization. We recognize revenue
from the licensing of our software products when the implementation services
are complete. If our internal professional services organization does not
effectively implement and support our products, or if we are unable to expand
our internal professional services organization as needed to meet our
customers' needs, our ability to sell software and our revenues will be harmed.
In addition, delays in providing implementation services will delay our
recognition of revenues. If we are unable to expand our internal professional
services organization to keep pace with sales, we will be required to increase
our use of subcontractors to help meet our implementation and service
obligations, which will result in
12
<PAGE>
lower gross margins. In addition, we may be unable to negotiate agreements with
subcontractors to provide a sufficient level and quality of services. If we
fail to retain sufficient subcontractors, our ability to sell software for
which these services are required will be harmed and our revenues will suffer.
Technical problems with either our internal or our outsourced computer and
communications systems could interrupt our Annuncio ToGo service.
The success of our Annuncio ToGo service depends on the efficient and
uninterrupted operation of our own and outsourced computer and communications
hardware and software systems. These systems and operations are vulnerable to
damage or interruption from human error, natural disasters, telecommunications
failures, break-ins, sabotage, computer viruses, intentional acts of vandalism
and similar adverse events. We have entered into an Internet hosting agreement
with Exodus Communications to maintain all of our Annuncio ToGo servers. Our
operations depend on Exodus Communications's ability to protect its and our
systems in its data center against damage or interruption. Exodus
Communications does not guarantee that our Internet access will be
uninterrupted, error-free or secure. We have no formal disaster recovery plan
in the event of damage or interruption, and our insurance policies may not
adequately compensate us for any losses that we may incur. Any system failure
that causes an interruption in our service or a decrease in responsiveness
could harm our relationships with our customers and result in reduced revenues.
We intend to expand our operations internationally, which could divert
management attention and expose us to additional risks, including increased
regulation and privacy protection laws.
Although we have not had any revenues from international sales to date, we
intend to develop our international operations in the future which will require
substantial financial resources. We have very limited experience in marketing,
selling and supporting our products and services abroad. If we are unable to
grow our international operations successfully and in a timely manner, our
business and operating results could be seriously harmed. In addition, doing
business internationally involves greater expense and many additional risks,
particularly:
.longer sales cycles and collection of accounts receivable;
.unexpected changes in regulatory requirements, taxes, trade laws and
tariffs;
.reduced protection of intellectual property rights in some countries;
.differing labor regulations;
.changes in a specific country's or region's political or economic
conditions;
.difficulty in staffing and managing foreign operations;
.increased international privacy regulations that may limit the collection
and use of user information;
.increased financial accounting and reporting burdens and complexities;
and
.fluctuating exchange rates.
We cannot be certain that our investments in establishing operations in
other countries will produce desired revenues or profitability.
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<PAGE>
Our intellectual property protection may be limited.
We rely upon trademarks, copyrights, patents and trade secrets to protect
our proprietary rights, which may not be sufficient to protect our intellectual
property. We also rely on contractual restrictions, such as confidentiality
agreements and licenses, to establish and protect our proprietary rights.
However, despite any precautions that we have taken:
. laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technology or deter others from developing
similar technologies;
. current federal laws that prohibit software copying provide only
limited protection from software "pirates", and effective trademark,
copyright and trade secret protection may be unavailable or limited in
foreign countries;
. other companies may claim common law trademark rights based upon state
or foreign laws that precede the federal registration of our marks; and
. policing unauthorized use of our products and trademarks is difficult,
expensive and time-consuming, and we may be unable to determine the
extent of this unauthorized use.
Also, the laws of other countries in which we market our products may offer
little or no effective protection of our proprietary technology. Reverse
engineering, unauthorized copying or other misappropriation of our proprietary
technology could enable third parties to benefit from our technology without
paying us for it, which would significantly harm our business.
We may become involved in litigation over proprietary rights, which could be
costly and time consuming.
We expect that software in our industry may be increasingly subject to
third-party infringement claims as the number of competitors grows and the
functionality of products in different industry segments overlaps. Third
parties may currently have, or may eventually be issued, patents on which our
products or technology infringe. Any of these third parties might make a claim
of infringement against us. Many of our software license agreements require us
to indemnify our customers from any claim or finding of intellectual property
infringement. Any litigation, brought by us or others, could result in the
expenditure of significant financial resources and the diversion of
management's time and efforts. In addition, from time to time we have
encountered, and may continue to encounter, disputes over rights and
obligations concerning intellectual property. We cannot assume that we will
prevail in all intellectual property disputes regarding infringement,
misappropriation or other disputes. Litigation in which we are accused of
infringement or misappropriation might cause product shipment delays, require
us to develop non-infringing technology, or require us to enter into royalty or
license agreements, which might not be available on acceptable terms, or at
all. If a successful claim of infringement were made against us and we could
not develop non-infringing technology or license the infringed or similar
technology on a timely and cost-effective basis, our business could be
significantly harmed.
We are recording a significant amount of deferred stock compensation relating
to recent stock option grants. The amortization of this compensation expense
will result in a charge to our earnings over the next four years.
Amortization of deferred stock compensation represents an expense
associated with the amortization of the difference between the deemed fair
market value of common stock at the time of an option grant and the option
exercise price. Deferred stock compensation is amortized over the life of the
options generally four years. The amortization of deferred stock compensation
will result in a charge to our earnings over the next four years, which will
harm our operating results. To date, we have recorded aggregate deferred stock
compensation charges of $4.3 million. In addition, we expect to record an
additional deferred compensation charge relating to option grants made after
December 31, 1999 but prior to the completion of the offering. We estimate the
charge relating to these additional grants will be approximately $ million
based upon an assumed offering price of $ per share, for the year ending
December 31, 2000.
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<PAGE>
Risks Related to E-marketing and the Internet
If the delivery of our e-mails is limited or blocked, then our business will be
harmed.
Our ability to provide the Annuncio ToGo service relies on our ability to
deliver e-mails over the Internet through Internet service providers and to
recipients in major corporations. In particular, a significant percentage of
our e-mails are sent to recipients who use America Online. We do not have, and
we are not required to have, an agreement with America Online to deliver e-
mails to their customers. However, America Online uses a proprietary set of
technologies to handle and deliver e-mail and the value of our services will be
reduced if we are unable to provide e-mails compatible with these technologies.
In addition, America Online and other Internet service providers are able to
block unwanted messages to their users. If these companies limit or halt the
delivery of our e-mails, or if we fail to deliver e-mails in such a way as to
be compatible with these companies' e-mail handling technologies, then our
clients may discontinue their use of our services.
New regulations and uncertainties regarding the application of existing laws
and regulations to e-marketing and the Internet could harm our business.
Various states have enacted, and other states have proposed, legislation to
regulate or prohibit unsolicited commercial e-mail. In addition, legislation is
pending on the federal level and less than half a dozen countries around the
world have enacted prohibitions or regulations restricting the sending of
unsolicited commercial e-mail. We do not send unsolicited commercial e-mail
and, where possible, we prohibit our customers from doing so contractually.
Nevertheless, there is a risk that our business could be negatively impacted by
new laws or regulations applicable to e-marketing or the Internet. Moreover,
due to the increasing popularity and use of the Internet, it is likely that
additional laws and regulations will be adopted covering issues such as
privacy, pricing, content, copyrights, distribution, taxation, antitrust,
characteristics and quality of services and consumer protection. The adoption
of any additional laws or regulations may impair the growth of the Internet or
e-marketing, which could, in turn, decrease the demand for our services and
prohibit or limit our business or increase our cost of doing business.
We may face claims for activities of our clients using our products and
services which could harm our business.
Our products and services involve the transmission of information over the
Internet. Our products or services could be used to transmit harmful
applications, negative messages, unauthorized reproduction of copyrighted
material, inaccurate data or computer viruses to end users. Any transmission of
this kind could damage our reputation or give rise to legal claims against us.
We could spend a significant amount of time and money defending against these
legal claims.
In addition, our clients may not comply with federal, state and local laws
when promoting their products and services. We cannot predict whether our role
in facilitating these marketing activities would expose us to liability under
these laws. Any claims made against us could be costly and time-consuming to
defend. If we are exposed to this kind of liability, we could be required to
pay substantial fines or penalties, redesign our business methods, discontinue
some of our services or otherwise expend resources to avoid liability.
If businesses and consumers fail to accept e-marketing, demand for our services
may not develop.
The market for e-marketing is new and rapidly evolving, and our business
will be harmed if sufficient demand for our products and services does not
develop as anticipated. If the market for e-marketing software does not grow as
quickly or become as large as we anticipate, our revenues will not increase as
anticipated. Demand for e-marketing, including our products and services, may
not materialize because:
. businesses that have already invested substantial resources in other
methods of marketing and communications may be reluctant to adopt new
marketing strategies and methods;
.businesses may not understand the benefits of using our products;
15
<PAGE>
.consumers and businesses may choose not to accept e-marketing messages;
. businesses may elect not to engage in e-marketing because consumers may
confuse permission-based e-mail with unsolicited commercial e-mail; and
. the effectiveness of direct marketing through the use of e-mails may
diminish significantly if the volume of direct marketing e-mail
saturates consumers.
If our products do not remain compatible with currently popular software
programs, we may lose sales and revenues.
Our products must work with commercially available software programs that
are currently popular. If these software programs do not remain popular, or we
do not update our software to be compatible with newer versions of these
programs, we may lose customers.
In order to operate, our products must be installed on both a computer
server running the Microsoft Windows NT or Sun Solaris computer operating
system and a computer server running database software from Microsoft or
Oracle. In addition, users access the Annuncio Live client from any Windows
based personal computer, and users access the Annuncio Bright client using
browsers from Microsoft or Netscape. Annuncio Bright also integrates with
third-party e-commerce systems, and we need to maintain compatibility with
these products. If we fail to obtain access to developer versions of these
software products, we may be unable to build and enhance our products on
schedule.
We depend on increasing use of the Internet and on the growth of electronic
commerce. If the use of the Internet and electronic commerce do not grow as
anticipated, our business will be seriously harmed.
Our future revenues depend upon the increased acceptance and use of the
Internet and other online services as a medium of commerce. Acceptance and use
may not continue to develop as anticipated and a sufficiently broad base of
customers may not adopt or continue to use the Internet and other online
services as a medium of commerce. Demand and market acceptance for recently-
introduced services and products over the Internet are subject to a high level
of uncertainty and few proven services and products exist.
In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
development of enabling technologies and performance improvements. To the
extent that the Internet continues to experience significant expansion in the
number of users, frequency of use or bandwidth requirements, the infrastructure
for the Internet may be unable to support the demands placed upon it. In
addition, the Internet could lose its viability as a commercial medium due to
delays in the development or adoption of new standards and protocols required
to handle increased levels of Internet activity, or due to increased
governmental regulation. Changes in, or insufficient availability of,
telecommunications services to support the Internet also could result in slower
response times and adversely affect usage of the Internet generally.
Our business, financial condition and results of operations would be
seriously harmed if:
. use of the Internet, the Web and other online services does not
continue to increase or increases more slowly than expected;
. the infrastructure for the Internet, the Web and other online services
does not effectively support expansion that may occur; or
. the Internet, the Web and other online services do not become a viable
commercial marketplace, which would inhibit the development of
electronic commerce and of the need for our e-marketing products and
services.
16
<PAGE>
Potential year 2000 problems with our internal systems, our software products,
or the products with which our software integrates, could adversely affect our
business.
We cannot assure you that we will not experience unanticipated negative
consequences relating to year 2000 problems. If tests of our products and
inquiries of our customers and vendors did not uncover all year 2000 problems,
we could be exposed to damages resulting from incorrect data produced by our
software, product defect or otherwise.
If our professional services organization does not adequately address
existing year 2000 issues of our customers, or there are preexisting errors in
our customer databases, the usefulness of our software may be impaired.
Although we cannot control the year 2000 compliance of our customers and their
third-party vendors, we may still be subject to claims and liability based on
the fact that our products provided incorrect data. These claims could divert
significant management, financial and other resources and we may not have
adequate commercial insurance to cover these claims.
Risks Related to this Offering
Our stock price may be volatile and you may not be able to resell your shares
at or above the initial public offering price.
There has been no public market for our common stock prior to this
offering. The initial public offering price for our common stock will be
determined through negotiations between the underwriters and us. This initial
public offering price may vary from the market price of our common stock after
the offering. If you purchase shares of common stock, you may not be able to
resell those shares at or above the initial public offering price. The market
price of our common stock may fluctuate significantly in response to factors,
some of which are beyond our control, including the following:
.actual or anticipated fluctuations in our annual and quarterly operating
results;
.changes in market valuations of other technology companies;
.changes in financial estimates by securities analysts;
. variations in our operating results which may cause us to fail to meet
analysts' or investors' expectations;
. announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
.additions or departures of key personnel;
.future sale of equity or debt securities; and
.general economic, industry and market conditions.
In addition, the stock market, and the stock of Internet companies in
particular, have experienced extreme volatility that often has been unrelated
to the performance of these companies. These market fluctuations may cause our
stock price to fall regardless of our performance. In the past, companies that
have experienced volatility in the market price of their stock have been the
object of securities class action litigation. If we were involved in securities
class action litigation, it could result in substantial costs and a diversion
of management's attention and resources.
We may be unable to meet our future capital requirements, and if we issue
additional equity securities to raise capital, our stockholders may experience
additional dilution.
We may be required to seek additional funding to meet our capital
requirements, particularly if we elect to acquire complementary businesses,
products or technologies. In the event we are required to raise additional
funds, we may not be able to do so on favorable terms, if at all. Further, if
we issue new equity securities,
17
<PAGE>
stockholders may experience dilution or the holders of new equity securities
may have rights, preferences or privileges senior to those of existing holders
of common stock. If we are unable to raise additional capital on acceptable
terms, we may not be able to develop or enhance our products, take advantage of
future opportunities or respond to customers and competition.
Substantial future sales of our common stock in the public market may depress
our stock price.
Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market in the near future. Sales of a
substantial number of shares of our common stock after this offering could
cause our stock price to fall. In addition, the sale of these shares could
impair our ability to raise capital through the sale of additional stock. You
should read "Shares Eligible for Future Sale" for a full discussion of shares
that may be sold in the public market in the future.
You will experience immediate and substantial dilution in the book value of
your shares.
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
Accordingly, if you purchase common stock in the offering, you will incur
immediate dilution of approximately in the book value of our common
stock from the price you pay for our common stock beneficially.
Because our directors and officers beneficially own 70.2% of our capital stock
prior to the offering and will beneficially own 63.6% after the offering, the
voting power of other stockholders, including purchasers in this offering, may
be limited.
After this offering, it is anticipated that our officers and directors will
beneficially own or control, directly or indirectly, 63.6% of our shares of
common stock. As a result, if our directors and officers choose to act
together, they will have the ability to control all matters submitted to our
stockholders for approval, including the election and removal of directors and
the approval of any business combinations. This concentration of ownership may
delay or prevent an acquisition, which could prevent our stockholders from
realizing a premium over the market price for their common shares or cause the
market price of our stock to decline. Our directors and officers may have
interests different from yours. For example, they may be less interested than
other investors in selling our company or pursuing different business
strategies.
The provisions of our charter documents may inhibit potential acquisition bids
that a stockholder may believe are desirable, and the market price of our
common stock may be lower as a result.
Upon completion of this offering, our board of directors will have the
authority to issue up to ten million shares of preferred stock. Our board of
directors can fix the price, rights, preferences, privileges and restrictions
of the preferred stock without any further vote or action by our stockholders.
The issuance of shares of preferred stock may delay or prevent a change in
control transaction. As a result, the market price of our common stock and the
voting and other rights of our stockholders may be adversely affected. The
issuance of preferred stock may result in the loss of voting control to other
stockholders. We have no current plans to issue any shares of preferred stock.
Our charter documents also contain other provisions which may discourage,
delay or prevent a merger or acquisition, including:
.only one of the three classes of directors is elected each year;
.our stockholders have limited rights to remove directors without cause;
.our stockholders have no right to act by written consent;
.our stockholders have limited rights to call a special meeting of
stockholders; and
. stockholders must comply with advance notice requirements to nominate
directors or submit proposals for consideration at stockholder
meetings.
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<PAGE>
These provisions could also have the effect of discouraging others from
making tender offers for our common stock. As a result, these provisions may
prevent the market price of our common stock from increasing substantially in
response to actual or rumored takeover attempts. These provisions may also
prevent changes in our management.
We have broad discretion in how we use the proceeds of this offering, and we
may not use these proceeds effectively.
Our management has broad discretion in the use of the net proceeds of this
offering and could spend the net proceeds in ways that do not yield a favorable
return or to which stockholders object. We may also use the proceeds to acquire
complementary businesses or technologies, although no such acquisitions are
currently planned. Until we need to use the proceeds of this offering, we plan
to invest the net proceeds in investment grade, interest-bearing securities.
NOTE REGARDING FORWARD LOOKING STATEMENTS
You should not rely on forward-looking statements in this prospectus
because they are inherently uncertain. This prospectus contains forward-looking
statements that involve risks and uncertainties. We use words such as
"anticipates," "believes," "plans," "expects," "future," "intends" and similar
expressions to identify such forward-looking statements. You should not place
undue reliance on these forward-looking statements, which apply only as of the
date of this prospectus. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks faced by us described above and elsewhere in this prospectus.
19
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the 4,000,000 shares of common stock we
are offering are estimated to be $ million ($ million if the
underwriters' over-allotment option is exercised in full) assuming an initial
public offering price of $ per share and after deducting the underwriting
discount and our estimated offering expenses.
We intend to use the proceeds for general corporate purposes, including
working capital, expansion in our sales and marketing, professional services,
and research and development organizations. We may also use some of the
proceeds to acquire other companies, technology or products that complement our
business, although we are not currently planning any of these transactions.
Pending these uses, the net proceeds of this offering will be invested in
short-term, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain our future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.
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<PAGE>
CAPITALIZATION
The actual column in the following table sets forth our capitalization as
of December 31, 1999.
The pro forma column in the following table gives effect to:
. the filing of an amendment to our certificate of incorporation to
provide for authorized capital stock consisting of 200,000,000 shares
of common stock and 10,000,000 shares of preferred stock;
. the conversion of all outstanding shares of Series A, B, C and D
redeemable convertible preferred stock into 19,539,012 shares of common
stock upon completion of this offering; and
. the issuance of 7,500,000 shares of common stock at $5.33 per share in
exchange for all outstanding common stock, preferred stock, warrants
and options of Brightinfo.com and the conversion of convertible
subordinated debentures of Brightinfo.com related to the acquisition of
Brightinfo.com
The as adjusted column in the following table reflects the sale of
4,000,000 shares of common stock in this offering at an assumed initial
offering price of $ per share and the receipt by the Company of the
estimated net proceeds, after deducting underwriting discounts and estimated
offering expenses.
You should read this table in conjunction with the financial statements and
the accompanying notes and "Management's Discussion and Analysis of Financial
Condition and Result of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------
Actual Pro Forma As Adjusted
------------ ------------ -----------
<S> <C> <C> <C>
Current portion of long-term debt and
capital lease obligations............. $ 314,086 $ 314,086 $
------------ ------------ ---
Long-term debt......................... 481,398 481,398
------------ ------------ ---
Redeemable convertible preferred stock,
$.0001 par value, 18,750,000 shares
authorized actual, none pro forma and
as adjusted, issuable in series:
Series A redeemable convertible
preferred stock: 9,000,000 shares
designated, 7,429,689 shares issued
and outstanding, actual, none pro
forma and as adjusted............... 3,154,527 --
Series B redeemable convertible
preferred stock: 5,250,000 shares
designated, 5,071,428 shares issued
and outstanding, actual, none pro
forma and as adjusted............... 3,531,160 --
Series C redeemable convertible
preferred stock: 4,500,000 shares
designated, 4,197,450 shares issued
and outstanding, actual, none pro
forma and as adjusted............... 5,581,600 --
Stockholders' equity (deficit):
Preferred stock, $0.0001 par value:
Authorized shares--none actual,
10,000,000 pro forma and as
adjusted; issued and outstanding
shares--none actual, pro forma and
as adjusted........................ -- --
Common stock, $0.0001 par value:
Authorized shares--33,750,000 actual
and 200,000,000 pro forma and as
adjusted; issued and outstanding
shares--9,664,015 actual,
37,168,027 pro forma and 41,168,027
as adjusted........................ 966 3,717
Additional paid-in capital........... 5,004,277 72,968,413
Deferred stock compensation.......... (2,915,595) (2,915,595)
Accumulated deficit.................. (14,141,655) (14,141,655)
------------ ------------ ---
Total stockholders' equity
(deficit)........................ (12,052,007) 55,914,880
------------ ------------ ---
Total capitalization.............. $ 1,010,764 $ 56,710,364 $
============ ============ ===
</TABLE>
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<PAGE>
The data in the table above excludes:
. 1,523,662 shares of common stock issuable upon the exercise of
outstanding stock options as of December 31, 1999 at a weighted average
exercise price of $0.29 per share;
. 295,177 shares of common stock issuable upon the exercise of
outstanding warrants as of December 31, 1999 at a weighted average
exercise price of $1.29 per share; and
. 62,323 shares of common stock available for issuance as of December 31,
1999 under our 1997 Stock Plan.
Subsequent to December 31, 1999 we reserved 8,400,000 additional shares of
common stock for issuance under our 2000 Stock Plan, 750,000 additional shares
of common stock for issuance under our 2000 Director Option Plan, and 1,125,000
additional shares of common stock for issuance under our 2000 Employee Stock
Purchase Plan.
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DILUTION
Our net tangible book value as of December 31, 1999 was approximately
$ million, or approximately $ per share of common stock. Net tangible
book value per share represents the amount of tangible assets less total
liabilities, divided by shares of common stock outstanding.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of common
stock outstanding immediately after this offering. After giving effect to our
sale of shares of common stock in this offering at an assumed public
offering price of $ per share and after deduction of the underwriting
discount and estimated offering expenses, our pro forma net tangible book value
as of December 31, 1999 would have been approximately $ million, or
$ per share. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $ per
share to purchasers of common stock in this offering.
<TABLE>
<S> <C> <C>
Public offering price per share.......................... $
Net tangible book value per share before offering........ $
Increase per share attributable to new investors.........
------
Pro forma net tangible book value per share after
offering...............................................
---
Net tangible book value dilution per share to new
investors.............................................. $
</TABLE>
The following table sets forth the total consideration paid and the average
price per share paid by the existing stockholders and by new investors, before
deducting estimated underwriting discounts and commissions and offering
expenses payable by us at an assumed public offering price of $ per share.
<TABLE>
<CAPTION>
Shares Total Average
Purchased Consideration Price
-------------- -------------- Per
Number Percent Amount Percent Share
------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... % $ % $
New investors.............................
--- ----- ---- -----
Total................................ 100.0% $ 100.0%
=== ===== ==== =====
</TABLE>
The foregoing computations exclude as of December 31, 1999:
. 1,523,662 shares issuable upon the exercise of outstanding options at a
weighted average exercise price of $0.29; and
. 295,177 shares issuable upon the exercise of outstanding warrants at a
weighted average exercise price of $1.29
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<PAGE>
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
our financial statements and the notes related thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The statement of operations data for the
period from August 8, 1997 (inception) to December 31, 1997 and the years ended
December 31, 1998 and 1999 and the balance sheet data as of December 31, 1998
and 1999 are derived from our financial statements that have been audited by
Ernst & Young LLP, independent auditors, and are included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Period from
August 8, 1997
(inception) to
December 31, Year Ended December 31,
-------------- -------------------------
1997 1998 1999
-------------- ----------- ------------
<S> <C> <C> <C>
Statements of Operations Data
Revenues:
License........................... $ -- $ -- $ 853,390
Hosting........................... -- -- 191,417
Professional services............. -- -- 638,517
---------- ----------- ------------
Total revenues................. -- -- 1,683,324
Cost of revenues:
License........................... -- -- 72,811
Hosting........................... -- -- 212,072
Professional services............. -- -- 1,439,745
---------- ----------- ------------
Total cost of revenues......... -- -- 1,724,628
---------- ----------- ------------
Gross loss.......................... -- -- (41,304)
Operating expenses:
Research and development.......... 185,938 1,871,697 3,429,514
Sales and marketing............... 52,356 843,660 3,687,020
General and administrative........ 144,874 479,316 2,030,387
Amortization of deferred stock
compensation.................... -- 30,734 1,395,593
---------- ----------- ------------
Total operating expenses....... 383,168 3,225,407 10,542,514
---------- ----------- ------------
Loss from operations................ (383,168) (3,225,407) (10,583,818)
Interest expense.................... -- (4,707) (331,805)
Interest and other income, net...... 44,169 157,444 185,637
---------- ----------- ------------
Net loss............................ $ (338,999) $(3,072,670) $(10,729,986)
========== =========== ============
Basic and diluted net loss per
share............................. $ (0.18) $ (0.78) $ (1.80)
========== =========== ============
Number of shares used in calculation
of basic and diluted net loss per
share............................. 1,879,266 3,943,519 5,976,565
========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................... $ 3,602,745 $ 1,115,458
Working capital (deficit)........................... 3,204,080 (1,070,984)
Total assets........................................ 3,877,666 5,211,311
Capital lease obligations, net of current portion... 25,526 466,212
Redeemable convertible preferred stock.............. 6,685,687 12,267,287
Accumulated deficit................................. (3,411,669) (14,141,655)
Total stockholders' deficit......................... (3,371,601) (12,052,007)
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth under "Risk Factors" and elsewhere in this
prospectus.
Overview
We were founded on August 8, 1997. From inception through June 1999, we
focused our activities primarily on research and product development, as well
as on building our infrastructure. In June 1999, we released our first product,
Annuncio Live, an e-marketing automation solution, and in July 1999 began
generating revenues from software license fees and professional services
related to this product. In 1999, Brightinfo.com introduced vMerchant, an
online merchandising and personalization solution. vMerchant was renamed
Annuncio Bright following our acquisition of Brightinfo.com in March 2000. In
September 1999, we introduced Annuncio ToGo, which provides application hosting
and marketing consulting services for Annuncio Live. In connection with the
introduction of our Annuncio ToGo service, expenses related to our professional
services organization increased. In 1999, we increased spending significantly
to continue to develop our technology and products, market our products and
services, build our direct sales force, marketing services and hosting
organizations, and to expand our general and administrative infrastructure. We
increased the number of our employees from 18 as of December 31, 1998 to 86 as
of December 31, 1999. We intend to hire a significant number of employees in
the future. From January 1, 2000 to February 18, 2000, we added 47 new
employees, and 30 employees joined us as a result of the Brightinfo.com
acquisition.
We provide customer interaction software and services that enable companies
to build long-term, personalized customer relationships that drive revenues and
profitability. Companies ranging from Internet startups to global enterprises
can use our suite of e-marketing applications to initiate a broad range of
proactive customer interactions, maximize the value of each interaction and act
quickly to capitalize on market opportunities. Using our solution, companies
can reach out to customers with targeted messages and draw them back to their
Web site for a personalized shopping experience. By personalizing an integrated
series of customer interactions companies can drive repeat visits and turn
prospects into customers. Companies can then test and measure the effectiveness
of their marketing activities in real time, allowing them to identify
successful strategies that optimize their marketing efforts.
Our revenues, which consist of software license, hosting and professional
services fees, totaled $1.7 million for 1999. We did not have any revenues in
1997 or 1998. As of December 1999, all of our revenues have been derived from
sales within the United States through our direct sales force.
We have incurred net losses in each fiscal quarter since inception and, as
of December 31, 1999, had an accumulated deficit of $14.1 million. We expect
that our operating expenses will increase substantially for the foreseeable
future as we expand our product development, sales and marketing, marketing
services and hosting staff. As a result, we expect to incur net losses for the
foreseeable future.
We derive our revenues from three sources: software licenses, hosting
services and professional services. Revenues are recognized in accordance with
Statement of Position No. 97-2, Software Revenue Recognition. In December 1998,
the American Institute of Certified Public Accountants issued Statement of
Position 98-9, Modification of 97-2, Software Revenue Recognition with Respect
to Certain Transactions which we have adopted without material impact on
revenue recognition. Our license revenues are generated from licensing our
products directly to end users. Hosting revenues are generated from providing
hosting services which are a combination of our software products, technical
support and the required hardware, to support our software products.
Professional services revenues are generated from consulting services and
maintenance and support.
25
<PAGE>
License revenues are recognized when a non-cancelable license agreement has
been signed, the product has been installed, the fees are fixed and
determinable, collectibility is probable and vendor-specific objective evidence
exists to allocate the total fee to elements of the arrangement. Vendor-
specific objective evidence is based on the price charged when an element is
sold separately, or when not sold separately, the price for that element
established by management having the relevant authority to do so. Our licensing
agreements with our customers do not contain product return rights.
Revenues from hosting services are recognized ratably over the term of the
contract, generally one year. Professional services revenues are recognized as
the services are performed. Revenues from maintenance and support agreements
which consist of fees for ongoing support and unspecified, when and if
available, product updates are recognized ratably over the term of the
contract, typically one year.
We have recorded aggregate deferred stock compensation charges of $4.3
million in conjunction with options granted to personnel at a price deemed to
be below the fair market value of the underlying common stock on the date of
grant for financial reporting purposes. Deferred stock compensation is
amortized over the life of the options, generally four years. During 1998, we
recorded charges relating to the amortization of deferred stock compensation of
$31,000 and during 1999, we recorded charges relating to the amortization of
deferred stock compensation of $1.4 million. In addition, we expect to record
an additional deferred stock compensation charge relating to option grants made
after December 31, 1999, but prior to the completion of the offering. We
estimate the charge relating to these additional grants will be approximately
$ million based upon an assumed initial public offering price of $ per
share, for the year ending December 31, 2000. We amortize deferred stock
compensation on an accelerated basis. The amortization of deferred stock
compensation will result in a charge to our earnings over the next four years.
We expect to record charges relating to the amortization of deferred stock
compensation of $ million for 2000.
We believe that period-to-period comparisons of our operating results are
not meaningful and should not be relied upon as indicative of future
performance. Our prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in early stages of
development, particularly companies in new and rapidly evolving markets. There
can be no assurance we will be successful in addressing such risks and
difficulties. In addition, although we have experienced significant revenue
growth recently, this trend may not continue. In addition, we may not achieve
or maintain profitability in the future.
Brightinfo.com Acquisition
In March 2000, we closed an acquisition of Brightinfo.com pursuant to which
Brightinfo.com became our wholly owned subsidiary. In connection with the
acquisition, we issued or became obligated to issue, a total of 7,500,000
shares of our common stock to the former holders of Brightinfo.com's capital
stock, options and warrants. All options and warrants to purchase shares of
Brightinfo.com capital stock became exercisable for shares of our capital stock
following the acquisition. We accounted for the Brightinfo.com acquisition as a
purchase with a total purchase price of approximately $41.2 million. The
purchase price was primarily allocated to acquired tangible assets of
$1.8 million, offset by $1.9 million in assumed liabilities, intangible assets
of $35.9 million and an in-process research and development charge of
$5.4 million.
The acquired in-process research and development had not achieved
technological feasibility at the time of the acquisition and, therefore, did
not qualify for capitalization under generally accepted accounting principles.
Accordingly, the portion of the purchase price allocated to acquired in-process
research and development will be charged to operations in the first quarter of
2000. Intangible assets are made up of $8.8 million of developed and core
technology, $612,000 of acquired workforce, $581,000 of patents and
$25.8 million of goodwill. The acquired workforce will be amortized over two
years and result in a $306,000 charge against income in 2000 and 2001. Core
technology and goodwill will be amortized over three years and result in a
charge against income of approximately $9.4 million per year. Developed
technology and patents will be amortized over five years and result in a charge
against income of approximately $1.5 million per year.
26
<PAGE>
Brightinfo.com was incorporated in Delaware in 1998. Brightinfo.com's
revenues totaled $573,000 for 1999, of which $532,000 were derived from
licenses and $41,000 were derived from professional services. Brightinfo.com
did not have any revenues in 1998.
Results of Operations
Revenues
Total revenues in 1999 were $1.7 million. We had no revenues in 1997 or
1998.
We began recognizing license revenues in July 1999. License revenues were
$853,000 in 1999. License revenues were derived from the introduction of
Annuncio Live and the market acceptance of our products. License revenues
represented approximately 51% of total revenues for 1999.
We began recognizing hosting revenues in September 1999. Hosting revenues
were $191,000 in 1999. Hosting revenues were derived from hosting our products,
technical support and hardware. Hosting revenues represented 11% of total
revenues for 1999.
We began recognizing professional services revenues in July 1999.
Professional services revenues were $639,000 in 1999. Professional services
revenues are primarily related to technical and marketing outsourcing services
arrangements. Professional services revenues represented 38% of total revenues
for 1999.
Cost of Revenues
Total cost of revenues in 1999 were $1.7 million. We did not have revenues
in 1998 and 1997 and thus had no cost of revenues for those years.
Cost of license revenues includes royalties for sub-licensing third party
software, production duplication and manuals. Our cost of license revenues were
$73,000 in 1999. As a percentage of license revenues, cost of license revenues
was 9% in 1999.
Cost of hosting revenues primarily includes personnel costs, data center
costs, and depreciation of capital equipment used in hosting our network. Our
cost of hosting revenues was $212,000 in 1999. As a percentage of hosting
revenues, cost of hosting revenues was 111% in 1999. We expect cost of hosting
revenues to exceed hosting revenues for the foreseeable future.
Cost of professional services revenues includes personnel and other costs
related to consulting services, technical support and training. Our cost of
services revenues were $1.4 million in 1999. As a percentage of services
revenues, cost of professional services revenues were 225% in 1999. Cost of
professional services revenues has exceeded professional services revenues due
to the growth of our professional services organization to manage and support
our rapidly growing customer base.
Operating Expenses
Research and development expenses were $186,000 for 1997, $1.9 million for
1998 and $3.4 million for 1999, representing increases of $1.7 million from
1997 to 1998, and $1.5 million from 1998 to 1999. The increases from 1997
through fiscal 1999 primarily reflect our increase in engineering and quality
assurance personnel and related costs associated with our product development
efforts.
Sales and marketing expenses were $52,000 in 1997, $844,000 in 1998 and
$3.7 million in 1999, representing increases of $792,000 from 1997 to 1998 and
$2.9 million from 1998 to 1999. The increases in sales and marketing expenses
from 1997 to 1999 primarily reflect our investment in marketing infrastructure,
which included significant expenses such as salaries, benefits and recruiting,
travel and marketing programs. The increase from 1998 to 1999 also reflects our
investment in our sales force.
27
<PAGE>
General and administrative expenses were $145,000 in 1997, $479,000 in 1998
and $2.0 million in 1999, representing increases of $334,000, from 1997 to
1998, and $1.6 million from 1998 to 1999. The increases from 1997 to 1999
primarily reflect the addition of finance, human resources, administrative and
legal personnel, and fees for outside professional services to support the
growth of our business during this period.
Interest expense of $332,000 for the year ended December 31, 1999 primarily
reflects interest paid on subordinated loans and the amortization interest
expense related to warrants issued in conjunction with those subordinated
loans.
Interest and other income, net was $44,000 in 1997, $157,000 in 1998 and
$186,000 in 1999. The income we received primarily reflects interest earned on
money market funds.
As of December 31, 1999 we had net operating loss carryforwards for federal
and state income tax reporting purposes of approximately $10.0 million which
expire at various dates beginning in 2012. The U.S. tax laws contain provisions
that limit the use in any future period of net operating loss and credit
carryforwards upon the occurrence of certain events, including a significant
change in ownership.
Quarterly Results of Operations
The following table sets forth unaudited statements of operations data for
the four quarters ended December 31, 1999. This data has been derived from our
unaudited financial statements that have been prepared on the same basis as the
audited financial statements and, in the opinion of our management, include all
adjustments necessary for a fair presentation of the information when read in
conjunction with the financial statements and notes thereto. Our quarterly
results have been, and may in the future be, subject to significant
fluctuations. As a result, we believe that results of operations for interim
periods should not be relied upon as any indication of the results to be
expected in any future periods.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
License................. $ -- $ -- $ 441,034 $ 412,356
Hosting................. -- -- 12,900 178,517
Professional services... -- -- 176,957 461,560
----------- ----------- ----------- -----------
Total revenues....... -- -- 630,891 1,052,433
----------- ----------- ----------- -----------
Cost of revenues:
License ................ -- -- 12,943 59,868
Hosting................. -- -- 49,840 162,232
Professional services... 84,688 146,834 275,415 932,808
----------- ----------- ----------- -----------
Total cost of
revenues........... 84,688 146,834 338,198 1,154,908
----------- ----------- ----------- -----------
Gross profit (loss)....... (84,688) (146,834) 292,693 (102,475)
----------- ----------- ----------- -----------
Operating expenses:
Research and
development........... 729,949 771,588 872,044 1,055,933
Sales and marketing..... 334,936 536,384 1,126,509 1,689,191
General and
administrative........ 209,921 413,444 502,287 904,735
Amortization of
deferred stock
compensation.......... 78,759 247,026 441,582 628,226
----------- ----------- ----------- -----------
Total operating
expenses........... 1,353,565 1,968,442 2,942,422 4,278,085
----------- ----------- ----------- -----------
Loss from operations...... (1,438,253) (2,115,276) (2,649,729) (4,380,560)
Interest expense.......... (5,047) (104,781) (107,995) (113,982)
Interest and other income,
net..................... 32,749 52,324 62,719 37,845
----------- ----------- ----------- -----------
Net loss.................. $(1,410,551) $(2,167,733) $(2,695,005) $(4,456,697)
=========== =========== =========== ===========
</TABLE>
28
<PAGE>
We released our first product, Annuncio Live, in June 1999, and first began
recognizing revenues in July 1999. Our revenues increased through the balance
of 1999 as we expanded our customer base, introduced a full-service solution,
Annuncio ToGo, and built our direct sales force. Costs of revenues increased
each quarter primarily due to the development of our operations for application
hosting and increased personnel cost to support increased customer demand for
marketing and technical services. Research and development expenses increased
substantially in the quarter ended December 31, 1999 due to increased personnel
costs associated with our product development efforts. Sales and marketing
expenses increased substantially during the quarters ended September 30, 1999
and December 31, 1999 due to increased sales personnel costs and marketing
programs associated with the launch of Annuncio Live and Annuncio ToGo. General
and administrative expenses increased substantially during the quarters ended
September 30, 1999 and December 31, 1999 due to increased finance, human
resources, administrative and legal personnel, and fees for outside
professional services to support the growth of our business. In each of the
four quarters of 1999, we recognized expense for the amortization of deferred
stock compensation to personnel who had been granted options with an exercise
price deemed to be below the fair market value of the underlying common stock
on the date of grant for financial reporting purposes.
We have incurred operating losses since inception, and we may not achieve
profitability in the future. Our operating results have fluctuated in the past,
and we expect them to fluctuate in future quarters as a result of a variety of
factors, many of which are outside our control. Factors that may cause our
operating results to fluctuate on a quarterly basis include:
. varying size, timing and contractual terms of orders for our products;
. our ability to complete our implementation and service obligations
related to product sales in a timely manner;
. loss of significant customers;
. changes in the mix of revenue attributable to higher-margin license
revenue as opposed to substantially lower-margin professional services
and hosting revenue;
. customers' decisions to defer orders or implementations from one
quarter to the next;
. changes in demand for our Annuncio Live software or for e-marketing
software solutions generally;
. announcements or introductions of new products by our competitors;
. software defects and other product quality problems; and
. seasonal trends in sales of business software.
Liquidity and Capital Resources
From inception through December 31, 1999, we have financed our operations
primarily from private sales of redeemable convertible preferred stock totaling
$12.3 million and, to a lesser extent, debt financing.
Net cash used in operating activities was $289,000 in 1997, $2.8 million in
1998 and $7.1 million in fiscal 1999. For such periods, net cash used by
operating activities was primarily to fund ongoing operations.
Since 1997, our investing activities have consisted primarily of property
and equipment purchases. Capital expenditures totaled $40,000 in fiscal 1997,
$196,000 in 1998 and $784,000 in 1999. We finance the acquisition of property
and equipment primarily through capital leases. We anticipate increasing our
capital expenditures and lease commitments consistent with our expected growth
in operations, infrastructure and personnel.
Our financing activities provided $3.2 million in 1997, $3.7 million in
1998 and $5.6 million in fiscal 1999. In fiscal 1997, cash provided by
financing activities consisted primarily of $3.2 million received in
29
<PAGE>
connection with the sale of Series A redeemable convertible preferred stock. In
1998, cash provided by financing activities consisted primarily of $3.5 million
received in connection with the sale of Series B redeemable convertible
preferred stock and $228,000 in proceeds from an equipment loan. In 1999, cash
provided by financing activities consisted primarily of $5.6 million received
in connection with the sale of Series C redeemable convertible preferred stock
offset by $117,000 principal payments on capital lease financing.
As of December 31, 1999, we had a line of credit with a bank for $750,000
that bears interest at the lending bank's prime rate plus 1.25%. Borrowings
were limited to the lesser of 80% of our eligible accounts, and $750,000, and
were secured by substantially all of our non-leased assets. This line of credit
terminates in September, 2000. In the event we are not in compliance with the
financial covenants of this line of credit and a waiver has not been obtained,
the funds may not be available. As of December 31, 1999, we had not borrowed
under the line of credit. In addition, we have a subordinated debt facility
under which we are entitled to borrow up to $3.0 million. This facility bears
interest at a fixed rate of 12%. Borrowings under the subordinated debt
facility are secured by substantially all of our assets after the rights of
senior creditors. This debt facility terminates in April 2000. As of December
31, 1999, we had not borrowed under this debt facility. See Note 4 of the notes
to financial statements.
In February 2000, we completed the closing of our Series D redeemable
convertible preferred stock financing. In connection with this financing, we
raised approximately $15.1 million, net of issuance cost. See Note 10 of the
notes to financial statements.
Our capital requirements depend on numerous factors. We expect to invest
substantial resources to continue our research and development efforts, expand
our sales, hosting, professional services, marketing and product development
organizations, establish additional facilities worldwide and build the
infrastructure necessary to support our growth. We have experienced substantial
increases in our expenditures since our inception consistent with growth in our
operations and personnel, and we anticipate that our expenditures will increase
for the foreseeable future.
We believe that the proceeds of this offering and Series D financing,
together with our current cash balances, will be sufficient to meet our working
capital needs for at least the next 12 months. Our forecast of the period of
time through which our financial resources will be adequate to support
operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary materially as a result of factors
described above. We expect to incur losses for the foreseeable future. We may
need to raise additional capital to fund more rapid expansion, including
significant increases in personnel, and facilities, to develop or enhance
products and services or to acquire complementary technologies and businesses.
In order to meet our long-term liquidity needs, we may seek to sell additional
equity or debt securities or secure an additional bank line of credit. If we do
require additional financing, however, we cannot be certain that it will be
available when required, on favorable terms or at all. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
our then-current stockholders will be reduced.
Year 2000 Compliance
In late 1999, we completed a remediation and testing of our systems. As a
result of these efforts, we experienced no significant disruptions in our
mission-critical information technology and non-information technology systems
and believe those systems successfully responded to the year 2000 date change.
We incurred minimal expense during 1999 in connection with remediating our
systems. We are not aware of any material problems resulting from year 2000
issues, either with our products, our internal systems, or the products and
services of third parties. We will continue to monitor our mission-critical
computer applications and those of our suppliers and vendors throughout 2000 to
ensure that any latent year 2000 matters that may arise are addressed promptly.
30
<PAGE>
Recent Accounting Pronouncements
In June 1998, the FASB issued FAS 133, Accounting for Derivative
Instruments and Hedging Activities, which we will be required to adopt for the
years beginning after June 15, 2000. This statement establishes a new model for
accounting for derivatives and hedging activities. FAS 133 establishes methods
of accounting for derivative financial instruments and hedging activities
related to those instruments as well as other hedging activities. Because we
currently hold no derivative financial instruments and do not currently engage
in hedging activities, the adoption of FAS 133 is expected to have no material
impact on our financial condition or results of operations.
Qualitative and Quantitative Disclosures About Market Risk
Our revenues from inception to date have been derived from U.S. sales and,
as a result, we have not had any exposure to factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets.
However, in future periods, we expect to sell in foreign markets. As our sales
are made in U.S. dollars, a strengthening of the U.S. dollar could make our
products less competitive in foreign markets. At December 31, 1999, we did not
hold any short or long-term investments and, therefore, did not have any market
risk exposure related to changes in interest rates. Therefore, no quantitative
tabular disclosures are required. At December 31, 1999, our cash and cash
equivalents consisted primarily of money market funds held by large
institutions in the U.S.
31
<PAGE>
BUSINESS
Overview
We provide customer interaction software and services that enable companies
to build long-term, personalized customer relationships that drive revenues and
profitability. Companies ranging from Internet startups to global enterprises
can use our suite of e-marketing applications to initiate a broad range of
proactive customer interactions, maximize the value of each interaction and act
quickly to capitalize on market opportunities. Using our solution companies can
reach out to customers with targeted messages and draw them back to their Web
site for a personalized shopping experience. By personalizing an integrated
series of customer interactions, companies can drive repeat visits and turn
prospects into customers. Companies can then test and measure the effectiveness
of their marketing activities in real time, allowing them to identify
successful strategies that optimize their marketing efforts.
Industry Background
The rapid adoption of the Internet has created a strategic imperative--
companies must now transform themselves into e-businesses. Both Internet-based
businesses and traditional enterprises must determine how to build revenues and
profitability on the Internet. As these companies seek to leverage the Internet
to gain and maintain competitive advantage, they have discovered that customer
loyalty is crucial. With heightened customer expectations, increased customer
acquisition costs, and competitors just a click away, companies must build
long-term, personalized relationships that drive repeat business. All of these
forces are prompting companies to fundamentally change the way they interact
with their customers.
During the last few years, companies have made significant investments to
leverage the Internet as a means of driving revenues and building better
customer relationships. These companies have invested in a broad range of
software solutions, including content management solutions to develop and
manage Web sites, e-commerce solutions to support Internet transactions,
analytic applications to gather customer data for offline analysis and e-
service solutions to manage inbound customer inquiries.
Despite these investments, most companies have had limited success
exploiting the strategic opportunity presented by the Internet--building long-
term, profitable customer relationships. To take advantage of this opportunity,
companies need to:
. Proactively reach out and engage customers. Due to significant
competition, companies have realized that they can no longer passively
wait for customers to visit their Web site. These companies have also
discovered that they can not afford to spend money only to acquire
customers while ignoring customer development and retention. Instead,
companies need to use online and offline channels proactively to reach
and engage customers with newsletters and communications, promotions to
market complementary and higher-end products, customer loyalty
programs, and other innovative marketing campaigns.
. Develop a rich understanding of their customers. Companies must learn
more about each customer's needs and interests to improve customer
interactions. To develop useful customer profiles, companies must
leverage both online and traditional sources of information. As
importantly, they must build their knowledge about the most effective
messages and interactions for each individual customer.
. Personalize interactions in real time. Companies are unlikely to succeed
if they send untargeted, mass-media messages to online customers. To
develop customer loyalty, companies must use their understanding of
individual customers to deliver targeted messages and offers through
emails, Web site content and in the Web storefront. To maximize the
return from these efforts, companies must personalize interactions in
real time to engage and retain customers.
. Manage ongoing relationships. Companies have realized that multiple
interactions are necessary to develop a long-term relationship with a
customer. To strengthen customer relationships, companies must engage
customers in an ongoing dialogue with increasing personalization over
time.
32
<PAGE>
For companies to build long-term customer relationships that drive revenue
and profitability, they require new software solutions for e-marketing. E-
marketing solutions apply established marketing principles to the real-time
capabilities of the Internet. These software solutions should allow companies
to:
. initiate a broad range of proactive customer interactions, including
newsletters and communications, sweepstakes and contests, promotions
for complementary (cross-sell) and higher-end (up-sell) products,
customer loyalty programs, customer surveys and other innovative
marketing and merchandising campaigns;
. increase revenues and profitability by optimizing the return on their
marketing investments;
. maximize the value of each interaction by personalizing messages and
offers for each customer;
. capitalize on market opportunities by reacting quickly to competitive
pressures and customer needs; and
. provide a high volume of real-time, personalized interactions with
customers while maintaining reliability.
The Annuncio Solution
We provide customer interaction software and services that enable companies
to build long-term, personalized customer relationships that drive revenues and
profitability. Our solution applies established marketing principles to the
Internet and allows companies to define, automate and analyze personalized
marketing campaigns and merchandising programs. Our solution enables companies
to initiate a broad range of proactive customer interactions, increase revenue
and profitability, maximize the value of each interaction, move quickly to
capitalize on market opportunities and deliver high-volume, real-time
interactions. Annuncio ToGo, our full-service hosting option, offers Annuncio
Live a hosted basis. Our solution:
. Provides an e-marketing platform for proactive customer
interactions. Our solution allows businesses to initiate a broad range
of customer interactions to attract, engage and retain customers. We
enable companies to define, automate and analyze personalized marketing
campaigns. Our solution supports a variety of Internet marketing
campaigns including e-mail newsletters and communications, sweepstakes
and contests, promotions for complementary (cross-sell) and higher-end
(up-sell) products, customer loyalty programs, customer surveys and
other innovative marketing and merchandising campaigns.
. Increases revenues and profitability. Our solution allows companies to
maximize return on their marketing investments. Using our solution,
companies can reach out to customers with targeted messages and draw
them back to their Web site to drive traffic and purchases. Companies
can then test and measure the effectiveness of their marketing
campaigns in real time, allowing them to identify successful strategies
that optimize their marketing efforts. Our solution provides rapid time
to value since implementations can yield tangible results in less than
30 days, with breakeven on the investment attainable in as little as 30
to 60 days.
. Engages customers through personalized interactions. Our solution
allows companies to personalize their online interactions with
customers. Companies can define rules to personalize content based on
customer profiles, including customer behavior and purchase history.
Companies can also use a wide variety of merchandising techniques to
convert shoppers into buyers and increase revenues per customer.
. Enables companies to address market opportunities rapidly. Our solution
puts control in the hands of business professionals so they can respond
to fast-moving Internet opportunities without waiting for help from
information technology personnel. In addition, our Annuncio ToGo
hosting service allows companies to achieve rapid time-to-market by
allowing companies to have an e-marketing solution up and running
quickly.
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. Supports high-volume, real-time Internet interactions. Our solution is
designed to meet the demands of online businesses. In particular,
Annuncio Live scales to support real-time interactions with millions of
potential customers, 24 hours a day, seven days a week. Our customers
have proven our solution in demanding environments. For example, one of
our customers uses our solution to manage in excess of fifty million
customer interactions per month, across a wide range of concurrent
marketing campaigns.
. Integrates marketing expertise. Our solution applies established
marketing principles, including direct marketing and merchandising, to
the Internet. We have assembled a team of seasoned marketing
professionals with specialties in a broad range of marketing
disciplines, such as direct marketing, merchandising, Internet
marketing and database marketing. This marketing expertise enables us
to develop superior e-marketing products and allows our professional
services organization to help our customers optimize their e-marketing
campaigns.
. Provides flexible delivery options. By providing both licensed software
and hosted application options, we allow our customers the flexibility
to choose the delivery option that best meets their needs. Customers
receive the same high level of e-marketing capabilities regardless of
the delivery option selected. Customers can also choose the level of
marketing services that best complement their in-house marketing
resources. In addition, customers can change their delivery option as
their needs change. For example, they can start with a hosted solution
and then migrate to an in-house implementation.
Annuncio Strategy
Our objective is to be the leading provider of customer interaction
software and services that enable companies to build long-term, personalized
customer relationships that drive revenues and profitability. Specifically, we
plan to:
. Extend our market leadership. Our objective is to extend our position as
a leading provider of customer interaction software and services. We
intend to leverage our current technology leadership, e-marketing
expertise, and strategic customer base to establish our products and
services as the premier e-marketing solution. We also believe that by
broadening our e-marketing platform, we can address a wider range of
opportunities and establish ourselves as a leading provider of
comprehensive solutions for managing customer interactions.
. Extend and enhance our product offerings. We intend to build on our e-
marketing platform, as well as our marketing and technology expertise,
to provide new applications, functions and features. In particular, we
intend to significantly expand our analytic capabilities. In the future,
we plan to offer versions of our software and services designed
specifically for vertical industries such as retail, financial services
and telecommunications. We intend to use the industry expertise of our
services organization, along with input from system integrators,
marketing agencies, and consulting firms with which we have
relationships, to help us develop software and services aimed at solving
a broader range of business problems. We also plan to actively build
alliances with leading Internet software and service providers to
provide a greater breadth and depth of product and service
functionality.
. Expand our Annuncio ToGo service. Because of the time-to-market benefits
provided by our Annuncio ToGo service, we expect that this service will
continue to grow as companies look to expand their e-marketing
activities. We intend to expand the breadth and depth of the
functionality and services we offer through Annuncio ToGo to address a
broader range of e-marketing requirements, such as marketing data mart
management and analytics.
. Continue to provide superior customer service. We believe that we have a
leading position with sophisticated online businesses which provides a
key competitive advantage for our company. One way in which we have
achieved this position is by focusing on customer needs to deliver
superior customer service. We intend to maintain a high level of
customer satisfaction within our customer base so that we may continue
to use them as references. We plan to invest extensively throughout our
organization to ensure that we deliver world-class customer
satisfaction.
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. Expand our sales and distribution capabilities and partnerships. To
expand our sales capabilities both domestically and internationally, we
intend to continue to grow our direct sales force and to develop
indirect sales channels. In addition, we intend to develop relationships
with consultants, systems integrators, marketing agencies and other
technology solution providers to extend our sales presence. We also plan
to use these relationships to enhance our ability to implement and
support our software across a broader set of customers.
Products and Services
Annuncio provides e-marketing software and services that enable companies
to build long-term, personalized customer relationships that drive revenues and
profitability. Annuncio offers both licensed software and hosted application
options.
Annuncio Live. Annuncio Live is an e-marketing automation solution that
enables marketing professionals to design, automate, personalize and analyze
marketing campaigns using the Internet and traditional channels. With Annuncio
Live, marketing professionals can:
. segment and target specific audiences;
. reach out to customers through e-mail and the Web;
. gather responses from the Internet and traditional communications
channels;
. build customer profiles and personalize customer interactions based on
those profiles;
. automate customer contact and follow-up sequences; and
. analyze campaign results in real time.
Annuncio Live accommodates a wide range of campaigns for customer
acquisition, development and retention, including:
. customer newsletters;
. incentive promotions and online coupons;
. sweepstakes and contests;
. cross-sell and up-sell promotions;
. loyalty and relationship programs;
. announcements and communications;
. customer surveys;
. banner ad tracking;
. lead qualification and follow-up; and
. customer registration.
Annuncio Live consists of four application modules, an application server
and a database that are designed to automate marketing campaigns through e-mail
and the Web.
LiveProfile allows companies to personalize their marketing efforts by
progressively building more detailed customer profiles. With each campaign,
additional information is added to the customer profile, including information
provided by the customer, a history of all campaign interactions and data from
e-commerce applications and other external systems. LiveProfile allows
marketing professionals to design and manage custom profiles. For example,
marketers can define permission marketing profiles, which are profiles that
allow customers to control the types of campaigns in which they would like to
participate.
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LiveAudience allows companies to segment their customers for targeted
marketing communications. Using a point-and-click interface, marketing
professionals can segment their customers into groups, or audiences, based on a
wide variety of criteria. LiveAudience supports sophisticated direct marketing
practices, including the creation of random test cells, control groups and
holdouts. Using these practices to test, measure and refine campaigns in real
time, marketers can greatly improve campaign results.
LiveCampaign allows marketing professionals to design and manage both
simple and sophisticated marketing campaigns. Through a guided, easy-to-use
interface, marketers can define both the content of each campaign and the rules
that will automate interactions with customers. LiveCampaign supports the
entire lifecycle of a campaign by providing staging and testing capabilities
that allow for review and quality control of each campaign.
LiveResults allows marketing professionals to track critical campaign
metrics and analyze detailed results needed to maximize response rates and
increase revenues and profitability. Marketing professionals can review results
in real time and adapt campaigns to optimize effectiveness. LiveResults enables
marketing professionals to determine which messages and offers are working best
with each targeted group. In addition, marketing professionals can use closed-
loop reporting to track responses through each step of a campaign.
Live Campaign Server automates real-time interactions with customers based
on rules defined by marketing professionals. Live Campaign Server is based on a
scalable, Web-based architecture that allows companies to simultaneously manage
high volumes of outbound e-mails and Web responses. Live Campaign Server also
manages all aspects of outbound e-mail, which include eliminating duplication
of audience members, creating personalized content, delivering e-mails and
handling bounced e-mails and e-mail replies. When customers respond, the Live
Campaign Server assembles Web forms and pages tailored to each customer. The
Live Campaign Server also captures and updates customer profile information and
manages follow-up actions.
Live Database is a transactional database that stores and updates customer
profile data in real time. As customers interact with a campaign, the Live
Database tracks their activities and gathers information about preferences and
interests.
Annuncio Live is licensed based on a pricing model that depends on the
level of usage.
Annuncio Bright. Annuncio Bright is an online merchandising and
personalization solution that allows marketing professionals to provide
targeted offers and content to Web site and Web storefront visitors. With
Annuncio Bright, marketing professionals can:
. implement a wide variety of pre-defined merchandising campaigns;
. apply merchandising rules across product lines and customer segments;
. segment Web site visitors into target groups;
. personalize offers and content based on customer profiles and Web site
behavior;
. analyze results and refine campaigns in real time; and
. automate the assembly and delivery of offers and content into the
existing Web site or Web storefront.
Annuncio Bright accommodates a wide range of merchandising campaigns that
drive revenues by converting shoppers to buyers, including:
.cross-sell and up-sell promotions;
.personalized product assortments;
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. impulse buy promotions;
. new product introductions;
. ad banners;
. daily, weekly and monthly specials;
. holiday and gift promotions;
. theme-based product assortments; and
. service promotions.
Annuncio Bright consists of five functional areas and an application server
that automates merchandising and personalization on Web sites and Web
storefronts:
Offer Management allows marketing professionals to create and manage a
personalized online selling environment. Using an easy-to-use, browser-based
interface, marketers can control designated areas on their web pages to display
product, content and service offers. By using one of our 30 pre-defined
campaign types and customized style templates, the marketer can apply
established marketing principles while creating a unique shopping experience.
Annuncio Bright provides offer display features that allow the marketing
professional to control how many products or services to display within an
offer and the order and frequency of the impressions for those items on a
random, sequential and priority basis.
Rules-Based Merchandising automates the real-time display of offers and
content based on rules defined by the marketing professional. Through a guided,
intuitive interface, the marketer can create and maintain merchandising rules
based on various criteria, such as product attributes, customer profiling and
catalog structure. Rules-based merchandising allows marketing professionals to
promote numerous product, content and service offers efficiently.
Target Groups allow marketing professionals to segment their known online
customers into target groups based on customer profiles. The marketing
professional can define various profiling attributes, which can then be used to
create custom target groups that match their unique customer market segments.
Customer profiling information, captured during online registration and in
subsequent updates, is used to determine the specific target group in which a
customer belongs. This segmentation is then used to deliver appropriate offers
in real time and for customer analysis.
Personalization allows marketing professionals to deliver relevant,
targeted offers and content that engage customers, turns shoppers into buyers,
and increases revenue per customer. Annuncio Bright delivers a personalized
online experience based on a visitor's profile data, click stream information
and purchase history. Annuncio Bright can also select content and offers to
display based on other relevant content and products on a Web page.
Reporting provides real-time summarization of data that allows marketing
professionals to analyze, test and refine their marketing and merchandising
campaigns. Standard reports provide analysis on campaign results, profiled site
visitors and navigation patterns. In addition, Annuncio Bright automates the
scheduling and routing of reports.
Bright Merchant Server automates the real-time assembly and display of
offers and content on the Web site and Web storefront. Bright Merchant Server
assembles offers by linking the offer display criteria to the product, content
and service catalogs. Using the personalization and merchandising rules, in
addition to the desired style templates, the server creates an online
experience that is individualized for each customer, with a product assortment
and promotional offers that match that customer's interests, purchasing history
and current site behavior. Bright Merchant Server is based on a scalable, Web-
based architecture that allows companies to manage high volumes of Web
interactions.
Annuncio Bright is licensed based on a per server pricing model.
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Annuncio ToGo. Annuncio ToGo is our marketing service provider offering
that delivers full-service hosting of e-marketing campaign automation. Annuncio
ToGo provides application hosting of Annuncio Live along with value-added
marketing services. Companies can choose to host Annuncio Live on a
subscription basis and select from a broad set of marketing services, including
campaign design, production, analysis and data management.
The Annuncio ToGo service is hosted at a data center, which provides
redundant, high speed Internet access and redundant power systems. Each
customer is provided with a dedicated, individually configured system managed
by Annuncio to support the unique needs of that customer. Systems are monitored
24 hours a day, seven days a week to ensure reliability and minimize service
interruptions. Annuncio ToGo:
. Accelerates e-marketing initiatives. With Annuncio ToGo, customers
receive access to their individually configured systems without needing
to purchase, install or integrate software. Companies can then
immediately begin to implement marketing and merchandising campaigns,
enabling them to get results faster.
. Delivers the same sophisticated e-marketing capabilities as Annuncio
Live. Annuncio ToGo delivers the full functionality of Annuncio Live,
allowing customers to conduct sophisticated marketing and merchandising
campaigns in a hosted environment.
. Reduces the burden on information technology resources. Annuncio's
services team installs and manages the on-going operations of the
system, freeing up our customers' scarce information technology
resources.
. Offers marketing services to complement internal resources. When using
Annuncio ToGo for application hosting, companies can also select the
additional level of marketing services required to meet their
individual needs. They can choose anywhere from self-service, where
they create their own campaigns, to full-service, where they take
advantage of Annuncio's e-marketing expertise to completely outsource
campaign design, development and management.
Annuncio ToGo is licensed with a fixed setup fee for installation and
configuration and a tiered monthly fee based on the number of monthly customer
interactions.
Professional Services
Our professional services team provides a key competitive advantage by
applying e-marketing expertise to complement our product offerings. Our team
provides services that promote rapid return on our customers' investments and
high levels of customer satisfaction. Our professional services include:
Marketing consulting services. Our marketing consultants bring extensive e-
marketing expertise to all of our customer engagements. Senior members of this
team act as account managers to ensure that our customers maximize the value
they receive from our products and services. Customers choose the level of
service they want and draw from resources for campaign design, campaign
development and database marketing. Our marketing consultants can act as part
of a customer's extended marketing team, or provide outsourced online marketing
and merchandising campaigns.
Technical consulting services. Our technical consultants assist customers
with installation, configuration and integration of our products. Our
installations typically require integration with other systems, including
marketing databases, content management systems, product catalogs, analytical
applications and commerce systems. Our technical consultants work closely with
our customers' marketing and technical teams to determine key integration
points and the most effective approach for performing the integration to meet
our customers' needs and expectations.
Customer education. Our customer education group provides training and
other educational services to customers. By attending our one-day, end-user
training classes, our customers' marketing professionals become proficient at
using our products to design and launch marketing and merchandising campaigns.
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Technical support. Our technical support group provides extensive support
for customers and engages in problem solving for both software licensing and
hosting customers. Our technical support group, through its system for
assigning, tracking, and managing customer requests, ensures timely resolution
of customer issues and high customer satisfaction.
Customers
Our customers include leading Internet-based and traditional companies. As
of March 1, 2000, our customer list consisted of over 20 customers in four key
target markets. The following is a representative list of our customers:
Internet Portals/Intermediaries/Communities:
Internet Retailers:
eBay 6gear
fusionOne ARTISTdirect
iVillage Astrology.net
NBCi Beyond.com
Netscape Communications e-stamp.com
Quokka Sports Tower Records
snowball.com
Financial Services:
High Technology: Charles Schwab
JD Edwards Wells Fargo
Lucent Technologies Other:
Peachtree Software Phillips Interactive Health
Xerox Corporation
For the year ended December 31, 1999, Netscape Communications accounted for
22% of our total revenues and e-stamp.com accounted for 16% of our total
revenues.
Customer Case Studies
The following examples provide brief descriptions of how a select set of
our customers are using Annuncio Live for delivery of effective e-marketing
campaigns.
Netscape Communications--Proven Scalability
Netscape Communications, a division of America Online, Inc., is a leading
provider of software and services, including the Netcenter portal, which
provides a wide range of information resources and shopping services. At the
end of 1999, Netcenter had 24 million members, and has been growing at a rate
of more than one million new members per month.
The Challenge. One of Netscape's key requirements was scalability. With ten
million users when it began using our solution and growth of more than one
million users per month, Netscape needed a system that would scale to meet
their growing needs. Netscape also wanted a system that would allow their
marketers to develop and deploy campaigns without assistance from information
technology personnel. The company needed its campaigns to be targeted, and
wanted testing and measurement capabilities that would allow it to improve
response rates, build customer loyalty and provide measurable return on
investment.
The Solution. Netscape conducted over 100 campaigns with Annuncio Live in
1999, sending more than 50 million e-mails per month. It uses Annuncio Live to
drive traffic to the portal, build member profiles and increase customer
loyalty. Netscape also uses Annuncio Live to create test audiences, measure the
effectiveness of alternative creative concepts and promotional offers, and
improve response rates. Specific campaigns include the delivery and tracking of
targeted newsletters, member surveys and new offering announcements. Netscape
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began using a pre-release version of Annuncio Live in February 1999 and moved
to full production in June 1999. Netscape has since experienced improved
customer loyalty, significantly increased campaign response rates, and
delivered more effective communications due to ongoing customer feedback and
personalization.
eBay--Fast Return on Marketing Investment
eBay is the world's largest personal online trading community.
The Challenge. eBay's member base has grown explosively over the past few
years. Having attracted many new users, a key to eBay's future success is
retaining those members and making them active participants in the trading
community. eBay needed a solution that would allow it to target users based on
their interests and past trading activities, and personalize both e-mails and
web interactions in campaigns for new members, inactive traders, and active
traders. It needed to track and control the frequency and types of
communications sent to individuals, and have real-time reporting capabilities
to measure the return on their marketing investments. Finally, eBay wanted a
completely outsourced solution for application hosting, campaign development
and execution, so it could minimize the impact on its internal information
technology and marketing resources.
The Solution. eBay selected the Annuncio ToGo full-service hosting solution
to provide a completely outsourced e-marketing solution for design,
development, execution and management of its e-marketing campaigns. Through
Annuncio ToGo, eBay is using Annuncio Live to deliver updates on new services
and item availability to its traders. It is also using personalized e-mail
campaigns to bring inactive traders back to the community, and to help new
members through the registration process. It is using e-mail and Web
interactions to profile, develop and retain their members to make them more
active participants in the trading community. Other programs include incentive
and reward programs with on-line retailers, such as CDNow and PlanetRx. eBay
uses Annuncio Live's profiling capabilities to deliver targeted communications
to its members. eBay has been using Annuncio Live since September 1999. Its
first campaign was launched in under three weeks, and provided a measurable
return in under 30 days.
Wells Fargo, Wholesale Internet Services Group-- Building Customer Loyalty
Wells Fargo is one of the largest US banks. The Wholesale Internet Services
Group is currently developing Wells Fargo's online services for its business
customers.
The Challenge. The Wholesale Internet Services Group wanted to outsource
its initial e-marketing solution in order to minimize the impact on its
internal information technology resources as it piloted online direct
marketing. It wanted to explore using the interactive capabilities of the
Internet to personalize its customer relationships in an effort to deliver more
targeted communications and services, thus providing a higher level of service
to its customers.
The Solution. The Wholesale Internet Services Group uses Annuncio Live
through Annuncio ToGo to pilot a series of innovative and targeted e-marketing
campaigns. With Annuncio Live, the Wholesale Internet Services Group can
respond more quickly and accurately to meet customer needs while increasing the
effectiveness of existing offline channels. The group launched its first
campaign in November 1999 with a customer survey geared to build its Annuncio
Live profile database of customer preferences and interests. The business
customer profiles will be expanded and updated in real-time through on-going e-
marketing programs created and deployed with Annuncio Live. Future programs
will include an e-newsletter targeted for individual customer interests, new
product and service announcements, event information as well as other direct
marketing campaigns and programs.
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6gear--Rapid Time to Market
6gear, Inc. is a provider of e-business solutions for the automotive
industry, and serves a market of 22,000 dealerships with over 50 million
customers. Through hosted access to 6gear's AutoBridge solution, automobile
dealers can create and control an online e-marketing database, view reports in
real time and access a range of functions, including tools for making service
appointments online, sweepstakes for e-mail list acquisition and interactively
searchable contact forms.
The Challenge. As a start up trying to establish its market presence, time
to market was critical to 6gear's success. Working with automotive retailers,
6gear faces many challenges. For example, automobile retailers are saddled with
legacy systems that do not lend themselves to doing business over the Internet.
6gear needed an e-marketing solution that could integrate with multiple
applications and database sources to provide a comprehensive, Web-enabled,
real-time solution that its customers could use to deploy effective, targeted
online communications. In addition, 6gear acts as an application service
provider for many automobile dealerships, so it needed a solution that could
manage campaigns for these dealerships through a single system.
The Solution. Within two weeks of receiving Annuncio Live, 6gear was able
to integrate Annuncio Live with its AutoBridge applications and databases,
deploy the customized solution and launch campaigns with its customers. In
tandem with 6gear's customized applications, Annuncio Live allowed 6gear to
deploy and manage simultaneous e-marketing initiatives for multiple automobile
dealerships. Marketing campaigns include surveys, conversion of online leads to
sales for service departments, trade-in campaigns, warranty and lease
expiration notifications and e-mail newsletters. Response rates for these
campaigns have been as high as 30%. 6gear expects to launch, monitor and
analyze over 5,000 campaigns in the coming year.
Technology
Our software technology is designed for scalability, reliability and
integration into standard computing environments.
Scalability. Our products are built on a highly-scalable Web architecture.
Each application has been designed with independent server components that can
be distributed onto separate servers in order to eliminate performance
bottlenecks and minimize system response time. In addition, critical components
can be run on multiple servers in order to support high-volume campaigns.
Reliability. Our architecture enhances the reliability of our solution by
providing backup and recovery operations in the event of system failure. We
have also developed a specialized monitoring tool, Annuncio WatchDog, which
continuously monitors each system component and automatically notifies
information technology personnel of any issues.
Integrates into standard computing environments. Our products support
industry standards, allowing them to integrate easily into existing computing
environments. Our products:
. are developed in Java, allowing for support of both Windows NT and UNIX
environments;
. work with industry-standard databases, including Oracle and Windows SQL
Server;
. connect to e-mail servers through standard SMTP and POP protocols; and
. connect to standard Web servers, including Netscape Enterprise Server
and Microsoft IIS.
Sales and Marketing
We sell our products and services primarily through our direct sales force.
We have sales offices located in Mountain View and Pleasanton, California, and
New York City, and additional sales personnel located in Atlanta, Boston,
Chicago, Los Angeles, Philadelphia and Seattle. We generally sell to senior
marketing management, or, in some organizations, a senior manager of an e-
commerce business unit. Each potential
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customer's information technology group also plays an advisory role in
evaluating our products and services. Our sales team consists of sales
representatives, product consultants who provide in-depth product information
during the sales cycle, and telemarketing representatives who identify and pre-
qualify sales leads. Our professional services group also participates in the
sales process by defining implementation and integration requirements based on
an individual customer's needs. The sales process generally ranges from one to
six months.
Our marketing organization builds market awareness of our company, our
company brand and products through public relations activities, direct mail
programs, product and strategy updates with industry analysts, seminars, trade
shows, speaking engagements and Web marketing. Our marketing organization also
produces marketing materials to support our sales efforts.
Our solution plays a central role in our marketing activities for customer
acquisition and retention. We use our solution to manage registration campaigns
on our Web site and maintain awareness among our existing and prospective
customers, partners, and industry analysts by providing ongoing company and
industry information. We also use our solution to run a variety of campaigns in
conjunction with trade shows, product releases and other promotional
opportunities.
Our marketing organization also plays a key role in gathering feedback from
customers, prospects, our internal sales and service organizations as well as
other industry sources. We use such feedback to provide direction for our
product development. In addition, we gather information through market
research, customer surveys and focus groups. We also intend to implement an
ongoing series of user group meetings and executive roundtables.
Strategic Relationships
We intend to continue building strategic relationships to enhance our e-
marketing solution. These relationships enhance the breadth and depth of our
product offerings and complement our sales, marketing and implementation
efforts. We invest in relationships that provide meaningful value to our
business and customers. Our strategic relationships fall into three categories:
Technology and product relationships. We have formed, and are currently
expanding, our joint marketing, sales and technical support relationships with
vendors whose products complement our offerings. The majority of these
relationships involve product integration. Annuncio Live has been formally
integrated with Oracle's front office solution and net.Genesis's net.Analysis
product.
We use third-party technology to enhance and advance our product
functionality. We have entered into agreements with carefully selected original
equipment manufacturers for key technology components, including with Netscape
Communications for application server technology. In addition, we have an
agreement with Exodus Communications to provide Internet hosting services for
our Annuncio ToGo hosting business.
Marketing agency relationships. Many companies work with marketing agencies
and consultants who provide strategy and design services for marketing
campaigns, Web site development, advertising, events and other activities.
These marketing agencies often have close, long-term relationships with their
clients. Although most companies need a complete solution that includes
software technology in addition to strategy and design services, many marketing
agencies do not have the technological resources or expertise to deliver a
complete e-marketing solution.
We are developing relationships with marketing agencies that will provide
strategy and design while we provide software and hosting services. Together,
we can jointly provide customers with both advanced e-marketing technology,
innovative strategy and design services. In addition, these relationships allow
the agencies to offer value-added services based on the our solution. Marketing
agencies will receive user training, solution sales tools, and may participate
in lead referral programs.
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Systems integrator relationships. Systems integrators provide
implementation and integration of broad e-business solutions. Interactive
integrators provide a combination of Internet technology integration, strategy
and marketing expertise. We currently work with these firms on a project-by-
project basis for implementation and value-added marketing capabilities. We are
developing formal relationships with selected integrators, which will expand
our implementation and distribution capabilities. We plan to exchange sales
leads and conduct joint marketing activities to expand awareness and create
demand for our products.
Research and Development
Our research and development organization is responsible for developing new
software products, product architecture and core technologies, as well as
product testing, quality assurance and ensuring the compatibility of our
products with hardware and software platforms. This organization is divided
into teams consisting of development engineers, quality assurance engineers and
technical writers. Our research and development organization works closely with
our product management organization to define features for future releases of
our products, and to define new products that we will develop. Within our
development organization, we have a team dedicated to develop integrations with
complementary products. These integrations support our alliances with
technology vendors to extend the value of the solution we offer to our
customers.
Our total expenses for research and development were $3.4 million for the
year ended December 31, 1999 and $1.9 million for the year ended December 31,
1998.
Competition
The market for e-marketing products and services is highly competitive,
evolving and subject to rapid technological change. We expect the intensity of
competition to increase in the future.
Our current competitors include:
. providers of e-marketing solutions, such as MarketFirst, Rubric
(Broadbase) and Responsys.com;
. traditional campaign management solutions, such as Exchange
Applications and Prime Response;
. e-mail marketing service providers, such as Digital Impact and Post
Communications; and
. merchandising and personalization platforms, such as Blue Martini,
Broadvision and Art Technology Group.
In addition, other companies are developing or may develop competing
products or services, including customer relationship management vendors, such
as Siebel, E.piphany and Kana Communications, and online advertising vendors,
such as DoubleClick and CMGI.
We believe that the key competitive factors relevant to our business are:
. the ability to increase customer revenues and profitability;
. the breadth of product features and capabilities;
. ease of use;
. scalability and reliability;
. endorsement by industry-leading customers;
. e-marketing expertise; and
. flexibility to provide either a licensed or hosted solution, along with
an easy migration path between the two.
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Intellectual Property and Proprietary Rights
Our future success depends in part on legal protection of our technology.
To protect our technology, we rely on a combination of the following methods,
among others:
. license agreements;
. employee and third-party nondisclosure agreements and confidentiality
procedures;
. copyright laws;
. trade secret laws;
. trademark laws; and
. patent laws.
Our end-user licenses are designed to prohibit unauthorized use, copying
and disclosure of our software and technology. However, these provisions may be
unenforceable under the laws of some jurisdictions and foreign countries. In
addition, some of our licensed users may allow unauthorized users to install
our software, and if we do not detect such use we could lose potential license
fees. Unauthorized third parties may be able to copy some portions of our
products or reverse engineer or obtain and use information and technology that
we regard as proprietary. Third parties could also independently develop
competing technology or design around our technology. If we are unable to
successfully detect infringement and enforce our rights in our technology, we
may lose competitive position in the market. We cannot assure you that our
means of protecting our proprietary rights in the United States or abroad will
be adequate or that competing companies will not independently develop similar
technology.
We have encountered, and may continue to encounter, disputes over rights
and obligations concerning intellectual property. We do not believe that our
products infringe or misappropriate the intellectual property rights of third
parties. However, we cannot assure you that we will prevail in all intellectual
property disputes. We have not conducted a search for existing patents and
other intellectual property registrations, and we cannot assure you that our
products do not infringe upon issued patents. In addition, because patent
applications in the United States are not publicly disclosed until the patent
is issued, applications may have been filed which would relate to our products.
We indemnify some of our customers against claims that our products
infringe upon the intellectual property rights of others. We could incur
substantial costs in defending ourselves and our customers against infringement
claims. In the event of a claim of infringement, our customers or we may be
required to obtain one or more licenses from third parties. We cannot assure
you that such licenses could be obtained from third parties at a reasonable
cost, or at all. Defense of any lawsuit or failure to obtain any such required
license would have a material adverse effect on our business.
We have received a trademark registration and applied for additional
trademarks. Our pending trademark applications may not be allowed. Our
trademarks may not provide us a competitive advantage. Competitors may
successfully challenge the validity and scope of our trademarks.
Employees
As of December 31, 1999, we had a total of 86 full time employees. We added
47 employees between January 1, 2000 and February 18, 2000, and 30 new
employees who will join us as a result of the Brightinfo.com acquisition.
Currently, none of our employees is subject to a collective bargaining
agreement, and we believe that our relationship with our employees is
satisfactory. From time to time we also employ independent contractors to
support our professional services, product development, sales, marketing,
business development and administration organizations.
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Facilities
Our corporate headquarters are located in 21,500 square feet of office
space in Mountain View, California. This lease terminates on January 2005. We
also have a 6,900 square foot office in Redwood City, California and sales and
service offices in Pleasanton, California and New York City. We currently plan
to expand our office space to accommodate our continued growth. We expect to
open sales and service offices in Atlanta, Boston, Chicago, Los Angeles,
Philadelphia and Seattle. We currently have existing staff in each of these
areas.
We do not own any real estate. We do not consider any specific leased
location to be material to our operations, and we believe that equally suitable
alternative locations are available in all areas where we currently operate.
Legal Proceedings
We are not currently a party to any other material legal proceedings. We
may in the future be party to litigation arising in the course of our business.
45
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MANAGEMENT
Officers and Directors
The following table sets forth certain information with respect to the
executive officers, directors and other key employees of Annuncio as of March
2, 2000.
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- --- -----------------------------------------------
<S> <C> <C>
Didier R. Moretti.......... 41 President, Chief Executive Officer and Director
Maurizio A. Gianola........ 45 Senior Vice President of Engineering
Yufeng Li.................. 33 Vice President of Engineering
Karil A. Reibold........... 34 Vice President of Finance and Operations
Christopher P. McClain..... 39 Vice President of Worldwide Sales
Monica L. Nester........... 43 Senior Vice President of Marketing
Scott M. Fletcher.......... 40 Vice President of Professional Services
Dawn C. Neisser............ 41 Vice President, Business Development
Kimberly P. Weins.......... 36 Vice President of Product Marketing
Amir Assar................. 33 Vice President of Technology Alliances
Promod Haque (1), (2)...... 51 Director
Jos C. Henkens (1)......... 47 Director
Mark A. Pine............... 45 Director
Andre Touma (1), (2)....... 42 Director
Cheryl E. Traverse......... 54 Director
</TABLE>
- --------
(1)Member of the Audit Committee
(2)Member of the Compensation Committee
Didier R. Moretti is one of the founders of Annuncio, and has also served
as President and Chief Executive Officer since the company was founded in
August 1997. From December 1996 until June 1997, Mr. Moretti was the Chief
Executive Officer of MarketFirst Software, an Internet marketing software
company. From November 1994 until April 1996, Mr. Moretti was the President and
Chief Executive Officer of Cambio Networks, a client/server network management
software company. From 1983 to 1994, Mr. Moretti worked at UB Networks, a
networking company, most recently as Vice President and General Manager. Mr.
Moretti earned an M.S. in Computer Science and an M.S. in Business and
Technology from Massachusetts Institute of Technology and a B.S. in Engineering
from Ecole Polytechnique in France.
Maurizio A. Gianola is one of the founders of Annuncio, and has also served
as our Senior Vice President of Engineering since August 1997. From June 1996
to July 1997, Mr. Gianola was Vice President of Engineering at Extensity, an
Internet-based software applications provider. From August 1990 to June 1996,
Mr. Gianola was Vice President of Strategic Development with Plexus, a division
of Banctec and supplier of client-server based, Internet-enabled imaging and
workflow software. Mr. Gianola holds an M.S. in Computer Science from the
Universita di Pisa in Italy.
Yufeng Li has served as our Vice President of Engineering since March 2000.
Mr. Li was Vice President of Engineering from July 1998 through March 2000 at
Brightinfo.com. From March 1998 to July 1998, Mr. Li served as a senior
software engineer at Cisco Systems. From January 1994 to March 1998, Mr. Li was
senior software engineer with Sun Microsystems. Mr. Li holds an M.S. in
Computer Science from Kansas State University and a B.S. in Computer Science
from Taiyuan University of Technology in China.
Karil A. Reibold has served as our Vice President of Finance and Operations
since January 2000. Ms. Reibold was a consultant to Annuncio, serving as Acting
Vice President of Finance and Operations, from October 1999 through January
2000. From January 1997 to January 2000, Ms. Reibold was a partner at David
Powell, Inc., working as an acting chief financial officer with various start-
up companies, such as NetRatings,
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<PAGE>
Inc., a Web measurement company, Cloudscape Inc., a database software company,
Categoric Software, an event notification software company, and Agile Software,
a product content management software company. From May 1996 through January
1997, Ms. Reibold took a sabbatical. From August 1993 through May 1996, Ms.
Reibold worked at S&R Precision Company, a manufacturing company, most recently
as Chief Operating Officer and Vice President, Operations and Planning. Ms.
Reibold holds a B.A. in Finance and Accounting from Western Connecticut State
University.
Christopher P. McClain has served as our Vice President of Worldwide Sales
since May 1999. From April 1995 until he joined Annuncio in May 1999, Mr.
McClain held sales management positions with PeopleSoft, Inc., a supplier of
enterprise resource planning software. He served as National Sales Vice-
President from January 1997 through January 1998 and Vice President and General
Manager from February 1998 until May 1999. From March 1990 until March 1995,
Mr. McClain held several positions at Oracle Corporation, including Regional
Director. Mr. McClain graduated from California State University, Sacramento
with a B.S. in Business Administration, MIS and Production and Operation
Management.
Monica L. Nester has served as the Senior Vice President of Marketing for
Annuncio since February 1998. From January 1996 through July 1997, Ms. Nester
served as Vice President of Marketing for Intrinsa Corporation, a maker of
software development tools. From March 1994 through January 1996, Ms. Nester
worked as Senior Director of Channel Marketing and Planning for Symantec
Corporation, a maker of development tools, utilities, network administration,
communications and contact management software. Ms. Nester holds an M.B.A. from
the University of California, Berkeley and a B.S. from the Philadelphia College
of Textiles and Science.
Scott M. Fletcher became our Vice President of Professional Services in
November 1999. Since July 1993 and prior to joining Annuncio, he served as Vice
President of PeopleSoft, Inc., a software applications provider. Mr. Fletcher
holds a B.S. in Finance from Boston University and an M.B.A. from Babson
College.
Dawn C. Neisser has served as Vice President of Business Development for
Annuncio since August 1999. From September 1998 until August 1999, Ms. Neisser
was employed by Compaq Computers as Director of Business Development, Internet
and Electronic Commerce. From June 1998 until September 1998, Ms. Neisser
worked at VMWare, a software company, as Vice President of Marketing. From
September 1997 until June 1998, Ms. Neisser worked as Business Development
Manager of Internet and Electronic Commerce for Tandem Computers, a
manufacturer of computer hardware and automated systems. From September 1996
until September 1997, Ms. Neisser served as Director of Marketing for the San
Jose Lasers, a team in the American Basketball League. From June 1996 until
August 1996, Ms. Neisser was with Informix Software as Manager of Business
Development. From 1993 until May 1996, Ms. Neisser worked for Tandem Computers
in the Business Development, Interactive Multimedia Business Unit. Ms. Neisser
holds an M.B.A. from the University of Southern California and a B.A. from
Stanford University.
Kimberly P. Weins has held the position of Vice President of Product
Marketing at Annuncio since January 1998. From April 1997 until October 1997,
Ms. Weins served as Vice President of Marketing for Extricity Software, a
business-to-business electronic commerce software company. From August 1996
until April 1997, Ms. Weins was a Director of Marketing for T.R.A.D.E. Inc.,
which produces software and information products. From April 1989 until July
1996, Ms. Weins was Director of Marketing for Hyperion Software, a maker of
financial and analysis software. Ms. Weins holds a B.S.E. from Duke University.
Amir Assar. Amir Assar has served as our Vice President of Technology
Alliances since March 2000. From September 1999 until March 2000, Mr. Assar
served as Director of Business Development at Brightinfo.com. From January 1999
until August 1999, he served as Regional Sales Director for Vicinity
Corporation, a provider of Internet marketing infrastructure services. From
June 1995 until January 1999, Mr. Assar worked as regional sales manager, and
later, Director of Western U.S. Sales for Actel Corporation, a semiconductor
manufacturer. From March 1992 until June 1995, Mr. Assar worked as a regional
sales manager for ICT, a semiconductor company. Mr. Assar earned a B.S. in
Chemical Engineering and Petroleum Refining from the Colorado School of Mines.
47
<PAGE>
Promod Haque has served as one of our directors since September 1997. Dr.
Haque has been a partner with Norwest Venture Partners, a venture capital firm,
since November 1989. During that time, Dr. Haque has served as a general
partner of various Norwest Venture Partners venture capital funds. Dr. Haque is
a director of Redback Networks, Inc., Extreme Networks, Inc., OnDisplay, Inc.,
Primus Knowledge Solutions, Showcase Corporation and several privately held
companies. Dr. Haque holds an M.B.A. and a Ph.D. in Electrical Engineering from
Northwestern University and a B.S. in Electrical Engineering from the
University of Delhi in India.
Jos C. Henkens has served as one of our directors since July 1997. Since
1983, Mr. Henkens has been a general partner of Advanced Technology Ventures, a
venture capital firm. Mr. Henkens serves as a director of Actel Corporation,
Credence Systems Corp. and Seagull Business Software, Ltd. Mr. Henkens holds an
M.B.A. and an M.S. in Engineering-Economic Systems from Stanford University.
Mark A. Pine has served as one of our directors since February 2000. Mr.
Pine is the Chief Executive Officer and a member of the board of directors of
OnDisplay, an internet software company, a position he has held since August
1996. From 1994 to August 1996, Mr. Pine served as a part-time consultant to
various software companies. From 1990 to 1994, Mr. Pine was the Vice President
of Engineering and Senior Vice President of Sybase, Inc., a database software
company, overseeing Sybase's largest product division. Mr. Pine holds a B.A.
from University of California, San Diego.
Andre Touma has served as one of our directors since September 1997. Mr.
Touma is a consultant specializing in venture-backed startup software
companies. From March 1997 to June 1999 he was an Entrepreneur In Residence at
Crosspoint Venture Partners, a venture capital firm, and from November 1996 to
March 1997 he was a consultant to Viador, Inc. From 1990 to November 1996, Mr.
Touma worked at Oracle Corporation, most recently as Senior Director, Product
Planning. Mr. Touma serves as a director of several privately held companies.
Mr. Touma holds an M.S. from Massachusetts Institute of Technology, an M.S.
from Ecole Nationale des Ponts et Chaussees in France and a B.S. from Ecole
Polytechnique in France.
Cheryl E. Traverse has served as one of our directors since March 2000. Ms.
Traverse has served as President and Chief Executive Officer of Brightinfo.com
since March 1999. In 1998 Ms. Traverse consulted with various technology
companies, including working as a General Manager with Apptivity/Progress, an
enterprise Java application server manufacturer. From April 1997 to January
1998, Ms. Traverse served as Vice President, General Manager of the Emerging
Technology Division of Netmanage, Inc., a remote access and e-mail software
manufacturer. From October 1996 to March 1997, she was Senior Vice President of
Sales/Marketing and Director of Sales for Iband/Macromedia. Prior to that Ms.
Traverse was Vice President of Direct Marketing for Gupta Corporation. Ms.
Traverse earned an M.S. from Hofstra University and a B.A. from Wilkes College.
Committees of the Board of Directors
Our audit committee consists of Mr. Haque, Mr. Henkens and Mr. Touma. The
audit committee makes recommendations to the board of directors regarding the
selection of our independent auditors, reviews the results and scope of the
audit and other services provided by our independent auditors, and reviews and
evaluates our control functions.
Our compensation committee consists of Mr. Haque and Mr. Touma. The
compensation committee makes recommendations regarding our various incentive
compensation and benefit plans and determines salaries for our executive
officers and incentive compensation for our employees and consultants.
Board Composition
Our board of directors currently consists of six directors. Our certificate
of incorporation and bylaws that become effective upon the completion of this
offering provide that our board of directors will be divided into three
classes, Class I, Class II and Class III, with each class serving staggered
three-year terms. The terms of the Class I directors, Mr. Touma, Ms. Traverse
and Mr. Pine, will expire in 2001. The terms of the Class II
48
<PAGE>
directors, Messrs. Haque and Henkens, will expire in 2002. The terms of the
Class III director, Mr. Moretti, will expire in 2003. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This staggered classification of
the board of directors may have the effect of delaying or preventing changes in
control or management. There are no family relationships among any of our
directors, officers or key employees.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee was, at any time since
our formation, an officer or employee of Annuncio. None of our executive
officers serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of
our board of directors or compensation committee. See "Certain Transactions"
for a description of transactions between Annuncio and entities affiliated with
members of our compensation committee.
Director Compensation
We do not currently pay any cash compensation to our directors for their
services as members of the board of directors, although we reimburse them for
certain expenses in connection with attending our board and committee meetings.
We do not provide compensation for committee participation or special
assignments of the board of directors. From time to time, we have granted our
non-employee directors options to purchase common stock under our 1997 Stock
Plan. Pursuant to our 2000 Director Option Plan, each of our non-employee
directors will receive an option to purchase 37,500 shares of our common stock
effective upon the closing of this offering.
We have entered into consulting agreements with two of our directors, Mr.
Touma and Ms. Traverse, for services unrelated to their position as directors.
In addition, in connection with the Brightinfo.com acquisition, Brightinfo.com
entered into a settlement agreement with Ms. Traverse. Please see "Certain
Transactions-- Other Transactions--Agreements with Directors."
49
<PAGE>
Executive Compensation
The following table sets forth the compensation paid by us during the year
ended December 31, 1999, to our Chief Executive Officer and to our four other
most highly compensated executive officers whose total annual salary and bonus
exceeded $100,000 during the year ended December 31, 1999. This prospectus
refers to these executives as the Named Executive Officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
---------------- ------------
Securities
Underlying All Other
Name and Principal Position Salary Bonus Options Compensation
--------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Didier Moretti..................... $140,000 $71,000 -- $ --
Chief Executive Officer and
President
Christopher McClain (1)............ 67,841 42,000 375,000 --
Vice President of Worldwide Sales
Scott Fletcher (2)................. 6,250 55,000 -- --
Vice President of Professional
Service
Dawn Neisser (3)................... 49,333 5,000 112,500 --
Vice President, Business
Development
Monica Nester...................... 140,000 $40,000 -- --
Senior Vice President of
Marketing
</TABLE>
- --------
(1)Mr. McClain joined us in May 1999.
(2)Mr. Fletcher joined us in November 1999.
(3)Ms. Neisser joined us in August 1999.
Option Grants in Last Fiscal Year
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the year ended December 31,
1999. All such options were awarded under our 1997 Stock Option Plan.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
Potential
Realizable Value
at Assumed
Annual Rates of
Number of Percent of Stock Price
Securities Total Options Appreciation for
Underlying Granted Options Term(4)
Options in Fiscal Exercise Expiration ----------------
Name Granted(1) 1999(2) Price(3) Date 5% 10%
---- ---------- ------------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Didier Moretti.......... -- -- -- -- -- --
Christopher McClain..... 375,000 18.5% $0.23 6/22/09 $55,028 $139,452
Scott Fletcher.......... -- -- -- -- -- --
Dawn Neisser............ 112,500 5.6 0.47 9/23/09 33,017 83,671
Monica Nester........... -- -- -- -- -- --
</TABLE>
- --------
(1) Options were granted under our 1997 Stock Option Plan and generally vest
over four years from the date of grant.
(2) Based on an aggregate of 2,024,062 options granted by Annuncio in the year
ended December 31, 1999 to our employees, directors and consultants,
including the Named Executive Officers.
(3) Options were granted at an exercise price equal to the fair market value
per share of common stock on the grant date, as determined by our board of
directors.
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<PAGE>
(4) The potential realizable value is calculated based on the term of the
option at its time of grant, or 10 years. In accordance with the rules of
the Securities and Exchange Commission, the following table also sets forth
the potential realizable value over the term of the options, the period
from the grant date to the expiration date, based on assumed rates of stock
appreciation of 5% and 10% compounded annually. These amounts do not
represent our estimate of future stock price performance. Actual realizable
values, if any, of stock options will depend on the future performance of
the common stock.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information for each of the Named Executive
Officers concerning option exercises for the fiscal year ended December 31,
1999, and exercisable and unexercisable options held at December 31, 1999.
The "Value of Unexercised In-the-Money Options at December 31, 1999" is
based on a value of $ per share of our common stock, which is the initial
public offering price, less the per share exercise price, multiplied by the
number of shares issued upon exercise of the option. All options were granted
under our 1997 Stock Option Plan.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at December 31, 1999 at December 31, 1999
Acquired ---------------------------- --------------------
Name On Exercise Exercisable Exercisable
---- ----------- ---------------------------- --------------------
<S> <C> <C> <C>
Didier Moretti.......... -- -- --
Christopher McClain..... 150,000 225,000
Scott Fletcher.......... -- -- --
Dawn Neisser............ 37,500 75,000
Monica Nester........... 466,992 -- --
</TABLE>
Stock Plans
1997 Stock Option Plan
Our 1997 Stock Option Plan was adopted by the board of directors in
September 1997 and amended in January 2000. The 1997 Stock Option Plan, as
amended, provides for the granting to our employees of incentive stock options
within the meaning of Section 422 of the United States tax code, and for the
granting to our employees, including officers and directors, non-employee
directors and consultants of non-statutory stock options.
We reserved for issuance under the 1997 Stock Option Plan a total of
8,625,000 shares of common stock. As of March 2, 2000, options to purchase
2,967,749 shares of common stock were outstanding under this plan; 3,524,325
shares had been issued upon exercise of options, net of repurchases, and
2,132,920 shares were available for future grants. Unless terminated sooner,
the 1997 Stock Option Plan will terminate automatically in 2007. After our 2000
Stock Plan becomes effective, any shares which were reserved but unissued under
our 1997 Stock Option Plan, and any shares that are returned to the 1997 Stock
Option Plan as a result of termination or repurchase of shares, will be
available for issuance under our 2000 Stock Plan.
The 1997 Stock Option Plan is administered by the board of directors, or a
committee of our board of directors, who determine the terms of the options
granted, including exercise price, the number of shares subject to each option,
and the vesting schedule. In addition, the board of directors has complete and
full power and authority to suspend or terminate the plan, provided that no
such action may affect any optionees' rights and obligations under their
outstanding options. The board of directors has authority to amend the plan,
provided that it obtain shareholder approval of any amendment to the extent
necessary and desirable to comply with applicable laws. In addition, the Board
of Directors has the exclusive authority to interpret and apply the provisions
of the 1997 Stock Option Plan.
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During the lifetime of the optionee, the option shall be exercisable only
by the optionee and shall not be assignable or transferable other than by will
or the laws of descent and distribution following the optionee's death. Unless
the terms of optionee's option agreement provide for an earlier termination, in
the event of the optionee's cessation of his or her relationship with us due to
death or disability, options granted under the 1997 Stock Option Plan must
generally be exercised within three months of the end of optionee's status as
our employee or consultant, or within twelve months after his or her
termination by death or disability, but in no event later than the expiration
of the option's ten year term.
The exercise price of the incentive options granted under the 1997 Stock
Option Plan must be at least equal to the fair market value of our common stock
on the date of grant and exercise price of the non-statutory options granted
under the 1997 Stock Option Plan shall not be less than 85% of the fair market
value of our common stock on the date of grant. With respect to any
participants of the plan who own stock possessing more than 10% of the voting
power of all classes of our outstanding capital stock, the exercise price of
the option must equal at least 110% of the fair market value on the date of
grant and the term of such option must not exceed five years.
The board of directors has the discretion to determine the vesting schedule
of the options, although the board of directors may not impose a vesting
schedule upon any option of the common stock which is more restrictive than 20%
per year vesting, with the initial vesting to occur not later that one year
after the date of grant. However, this minimum vesting requirement shall not be
applicable with respect to any option granted to an officer, director or
consultant.
Brightinfo.com 1999 Stock Option Plan
Pursuant to the acquisition of Brightinfo.com, we assumed the
Brightinfo.com 1999 Stock Option Plan and all of the options granted under it.
The Brightinfo.com 1999 Stock Option Plan provides for the grant of incentive
stock options to employees and the grant of nonstatutory stock options to
employees, directors and consultants. As of March 2, 2000 there were options to
purchase 445,548 shares of our common stock outstanding under the plan. We do
not anticipate granting any further options pursuant to this stock option plan.
2000 Stock Plan
Our 2000 Stock Plan was adopted by our board of directors on February 24,
2000, and we expect our stockholders to approve the plan in March 2000. This
stock plan provides for the grant of incentive stock options to our employees,
within the meaning of Section 422 of the United States tax code, and
nonstatutory stock options and stock purchase rights to our employees,
directors and consultants. As of March 2, 2000, no shares of our common stock
have been issued pursuant to the exercise of options granted under our stock
plan and we have no outstanding options to purchase shares of common stock.
Our stock plan will automatically terminate in 2010, unless terminated
sooner. In addition, our board of directors has the authority to suspend or
terminate or amend, with shareholder approval to the extent necessary and
desirable to comply with applicable laws, the stock plan provided it does not
adversely affect any option previously granted under our stock option plan.
As of March 2, 2000, a total of 8,400,000 shares of our common stock have
been reserved for issuance pursuant to our 2000 Stock Plan. In addition, our
plan provides for annual increases in the number of shares available for
issuance under the plan beginning in 2001 equal to the lesser of: (1) 5% of the
outstanding shares of our common stock on the first day of our fiscal year, (2)
3,750,000 shares or (3) such lesser amount as our board of directors may
determine. In addition, any shares which were reserved but unissued under our
1997 Stock Option Plan, and any shares that are returned to the 1997 Stock
Option Plan as a result of termination or repurchase of shares, will be
available for issuance under our 2000 Stock Plan.
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Our board of directors or a committee of our board administers the 2000
Stock Plan. The 2000 Stock Plan may be administered by different committees
with respect to different groups of service providers. The committee must
consist of two or more "outside directors" to satisfy certain tax and
securities requirements. The administrator has the power to determine the terms
of the options or stock purchase rights granted, including the exercise price,
the number of shares subject to each option or stock purchase right, the
exercisability of the options and the form of consideration payable upon
exercise.
The administrator determines the exercise price and term of options granted
under our stock plan. With respect to incentive stock options, however, the
exercise price must at least be equal to the fair market value of our common
stock on the date of grant and its term may not exceed ten years.
No employee, director or consultant may be granted an option to purchase
more than 3,000,000 shares in any fiscal year. In connection with his or her
initial service, an employee, director or consultant may be granted an
additional option to purchase up to 3,000,000 shares of our common stock.
After termination of one of our employees, directors or consultants, he or
she may exercise his or her option for the period of time stated in the option
agreement. If termination is due to death, the option will generally remain
exercisable for 12 months following such termination. If termination is due to
disability, the option will generally remain exercisable for 12 months
following such termination. In all other cases, the option will generally
remain exercisable for three months. However, an option may never be exercised
later than the expiration of its term. If, on the date of termination, the
optionee is not vested as to his or her entire option, the shares covered by
the unvested portion of the option will revert to the plan.
Unless the administrator determines otherwise, the restricted stock
purchase agreement will grant us a repurchase option that we may exercise upon
the voluntary or involuntary termination of the purchaser's service with us for
any reason (including death or disability). The purchase price for shares we
repurchase will generally be the original price paid by the purchaser. The
administrator determines the rate at which our repurchase option will lapse.
Our 2000 Stock Plan generally does not allow for the transfer of options or
stock purchase rights and only the optionee may exercise an option and stock
purchase right during his or her lifetime.
Our 2000 Stock Plan provides that in the event of our merger with or into
another corporation or a sale of substantially all of our assets, the successor
corporation will assume or substitute an equivalent option or right for each
outstanding option or stock purchase right. If the outstanding options or stock
purchase rights are not assumed or substituted, all outstanding options and
stock purchase rights will vest and become exercisable and terminate.
2000 Employee Stock Purchase Plan
Our board of directors adopted the 2000 Employee Stock Purchase Plan in
February 2000 and our stockholders are expected to approve the plan in March
2000. A total of 1,125,000 shares of our common stock have been reserved for
issuance and no shares have been issued under the plan. In addition, our plan
provides for annual increases in the number of shares available for issuance
under the purchase plan beginning in 2001, equal to the lesser of: (1) 2% of
the outstanding shares of our common stock on the first day of our fiscal year,
(2) 1,500,000 shares, or (3) such other lesser amount as may be determined by
our board of directors.
Our board of directors or a committee of our board administers the plan.
Our board of directors or its committee has full and exclusive authority to
interpret the terms of the plan and determine eligibility.
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All of our employees are eligible to participate if they are customarily
employed by us or any participating subsidiary for at least 20 hours per week
and more than five months in any calendar year. However, an employee may not be
granted an option to purchase stock under the plan if such employee:
. immediately after grant would own stock possessing 5% or more of the
total combined voting power or value of all classes of our capital
stock; or
. whose rights to purchase stock under all of our employee stock
purchase plans accrues at a rate that exceeds $25,000 worth of stock
for each calendar year.
Our plan is intended to qualify for special tax treatment and contains
consecutive, overlapping 24-month offering periods. Each offering period
includes four six-month purchase periods. The offering periods generally start
on the first trading day on or after May 1 and November 1 of each year, except
for the first such offering period which will commence on the first trading day
on or after the effective date of this offering and will end on the last
trading day on or after April 30, 2002.
The plan permits participants to purchase common stock through payroll
deductions of up to 15% of their eligible compensation which includes a
participant's base straight time gross earnings and commissions but excluding
all other compensation paid to our employees. A participant may purchase no
more than 3,000 shares during any six-month purchase period.
Amounts deducted and accumulated by the participant are used to purchase
shares of our common stock at the end of each six-month purchase period. The
price is 85% of the lower of the fair market value of our common stock at the
beginning of an offering period or after a purchase period ends. If the fair
market value at the end of a purchase period is less than the fair market value
at the beginning of the offering period, participants will be withdrawn from
the current offering period following their purchase of shares on the purchase
date and will be automatically re-enrolled in a new offering period.
Participants may end their participation at any time during an offering period,
and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
A participant may not transfer rights granted under our employee stock
purchase plan other than by will, the laws of descent and distribution or as
otherwise provided under the plan. In the event of our merger with or into
another corporation or a sale of all or substantially all of our assets, a
successor corporation may assume or substitute each outstanding option. If the
successor corporation refuses to assume or substitute for the outstanding
options, the offering period then in progress will be shortened, and a new
exercise date will be set.
Our plan will terminate by its terms in 2010. Our board of directors has
the authority to amend or terminate our plan, except that, subject to certain
exceptions described in the plan, no such action may adversely affect any
outstanding rights to purchase stock under our plan.
2000 Director Option Plan
Our board of directors adopted the 2000 Director Option Plan in February
2000 and we expect our stockholders to approve it in March 2000. The director
option plan provides for the periodic grant of nonstatutory stock options to
our non-employee directors.
As of March 2, a total of 750,000 shares were reserved for issuance under
our director option plan, none of which were issued and outstanding.
All grants of options to our non-employee directors under the director
option plan are automatic and non-discretionary. We will grant an option to
purchase 37,500 shares to: (1) each non-employee director who holds such
position upon the closing of this public offering and (2) each non-employee
director when such person first becomes a non-employee director (except for
those directors who became non-employee directors by
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<PAGE>
ceasing to be employee directors). All non-employee directors who have been
directors for at least six months receive an option to purchase 15,000 shares
each year on the date of our annual stockholders meeting.
All options granted under our director option plan have a term of ten years
and an exercise price equal to the fair market value on the date of grant. The
option granted initially to non-employee directors becomes exercisable over
four years as follows: 25% of the shares on the first anniversary of the date
of grant and 1/48th per month thereafter, provided the non-employee director
remains a director on such dates. The option granted to non-employee directors
on the date of our annual stockholders meeting becomes exercisable as to 100%
of the shares subject to the option on the first anniversary of the date of
grant.
After termination of his or her services as a non-employee director, an
optionee must exercise an option at the time set forth in his or her option
agreement. If termination is due to disability, the option will remain
exercisable for six months. If termination is due to death, the option will
remain exercisable for 12 months. In all other cases, the option will remain
exercisable for a period of three months. However, an option may never be
exercised later than the expiration of its term.
A non-employee director may not transfer options granted under our director
option plan other than by will or the laws of descent and distribution. Only
the non-employee director may exercise the option during his or her lifetime.
In the event of our merger with or into another corporation or a sale of
substantially all of our assets, the successor corporation will assume or
substitute an equivalent option for each outstanding option. If such assumption
or substitution occurs, the options will continue to be exercisable according
to the same terms as before the merger or sale of assets. Following such
assumption or substitution, if a non-employee director is terminated other than
by voluntary resignation, the option will become fully exercisable. If the
outstanding options are not assumed or substituted for, our board of directors
will notify each non-employee director that he or she has the right to exercise
the option as to all shares subject to the option for a period of 30 days
following the date of the notice. The option will terminate upon the expiration
of the 30-day period.
Unless terminated sooner, our director option plan will automatically
terminate in 2010. Our board of directors has the authority to amend, alter,
suspend or discontinue the director option plan, but no such action may
adversely affect any grant made under the director option plan.
401(k) Profit Sharing Plan and Trust
In December 1997, we adopted a 401(k) Profit Sharing Plan and Trust
covering our full-time employees, which became effective in January 1998. The
401(k) Profit Sharing Plan and Trust is intended to qualify under Section
401(k) of the Internal Revenue Code, so that contributions to the 401(k) Profit
Sharing Plan and Trust by employees or by us, and the investment earnings
thereon, are not taxable to employees until withdrawn from the 401(k) Profit
Sharing Plan and Trust, and so that we can deduct our contributions, if any,
when made. Pursuant to the 401(k) Profit Sharing Plan and Trust, employees may
elect to reduce their current compensation by up to the statutorily prescribed
annual limit ($10,500 in 2000) and to have the amount of such reduction
contributed to the 401(k) Profit Sharing Plan and Trust. The 401(k) Profit
Sharing Plan and Trust permits, but does not require, that we provide
additional matching contributions to the 40l(k) plan on behalf of all
participants in the 401(k) Profit Sharing Plan and Trust. To date, we have not
made any contributions to the 401(k) Profit Sharing Plan and Trust.
Employment Agreements and Change of Control Arrangements
Didier Moretti. In August 1997, we entered into a Founders Stock Purchase
Agreement with Didier Moretti, our Chief Executive Officer and President. The
agreement provides for the purchase by Mr. Moretti of 4,687,500 shares of
common stock at a purchase price of $.00067 per share. Two-thirds of the shares
purchased by Mr. Moretti are subject to a repurchase option by us within 90
days of Mr. Moretti's cessation of employment with us. The repurchase option
lapses over a three-year period. The agreement provides that if
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<PAGE>
there is a sale of our assets or a merger with or into another entity which
occurs after September 1, 1998, one-half of the shares which are still subject
to repurchase shall be released from the repurchase option. In addition, if,
among other factors, Mr. Moretti's duties or position is changed in a
detrimental manner toward him within six months following the closing of a sale
of our assets or a merger with or into another entity, all shares which are
still subject to repurchase shall be released from the repurchase option.
Monica Nester. In January 1998, we entered into an employment agreement
with Monica Nester, our Senior Vice President of Marketing. The agreement
provides for an annual base salary of $140,000 and an annual bonus up to 20% of
her then annual salary per year, upon meeting a combination of company and
individual goals. The agreement also provides Ms. Nester with incentive stock
options to purchase an aggregate of 466,992 shares of common stock. Of those
shares, 25% vested on the first anniversary of her commencement date, and the
remaining shares vest monthly thereafter through the fourth anniversary of the
grant. The agreement provides that Ms. Nester is an employee at will, which
means that her employment may be terminated at any time in our sole discretion.
The agreement also provides that if there is a sale of our assets or a merger
with or into another entity where ownership of more than 50% of our voting
stock changes control, we will accelerate the vesting of some of her option
shares, and if she is terminated within six months following the closing of a
sale of our assets or a merger with or into another entity for reasons other
than for cause, we will accelerate the vesting of some of her unvested shares.
Christopher McClain. In May 1999, we entered into an employment agreement
with Christopher McClain, our Vice President of Worldwide Sales. The agreement
provides for an annual base salary of $150,000 and an annual bonus of up to
$75,000, upon meeting a combination of company and individual goals. The
agreement also provides Mr. McClain with incentive stock options to purchase an
aggregate of 375,000 shares of common stock. Of those shares, 25% will vest on
the first anniversary of his commencement date, and the remaining shares will
vest monthly thereafter through the fourth anniversary of the grant. The
agreement provides that Mr. McClain is an employee at will, which means that
his employment may be terminated at any time in our sole discretion. The
agreement also provides that if, among other factors, Mr. McClain's duties or
position is changed in a detrimental manner towards him within six months
following the closing of a sale of our assets or a merger with or into another
entity where ownership of more than 50% of our voting stock changes control, we
will accelerate the vesting of one-fourth or all of his option shares depending
on whether his duties or position is changed on or prior to the third
anniversary of his employment. The agreement also provides that in the event
Mr. McClain is terminated for reasons other than cause during the first year of
his employment, he will receive severance pay in the form of six months of
salary.
Dawn Neisser. In July 1999, we entered into an employment agreement with
Dawn Neisser, our Vice President, Business Development. The agreement provides
for an annual base salary of $145,000 and an annual bonus up to 20% of her then
annual salary, upon meeting a combination of company and individual goals, plus
a one-time signing bonus of $5,000. The agreement also provides Ms. Neisser
with incentive stock options to purchase an aggregate of 112,500 shares of
common stock. Of those shares, 25% vested on the first anniversary of her
commencement date, and the remaining shares vest monthly thereafter through the
fourth anniversary of the grant. The agreement provides that Ms. Neisser is an
employee at will, which means that her employment may be terminated at any time
in our sole discretion.
Scott Fletcher. In October 1999, we entered into an employment agreement
with Scott Fletcher, our Vice President of Professional Development. The
agreement provides for an annual base salary of $150,000 and an annual bonus of
up to $75,000 upon meeting a combination of company and individual goals, plus
a $25,000 signing bonus and a $30,000 relocation bonus. The agreement also
provides Mr. Fletcher with incentive stock options to purchase an aggregate of
279,486 shares of common stock. The agreement provides that Mr. Fletcher is an
employee at will, which means that his employment may be terminated at any time
in our sole discretion. The agreement also provides that if, among other
factors, Mr. Fletcher's duties or position is changed in a detrimental manner
towards him within six months following the closing of a sale of our assets or
a merger with or into another entity where ownership of more than 50% of our
voting stock changes control, we will accelerate the vesting of some of his
option shares.
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<PAGE>
Limitations of Liability and Indemnification Matters
Our certificate of incorporation that will be in effect at the time of this
offering limits the liability of directors to the maximum extent permitted by
Delaware law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, except liability for any of the following:
.any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
.unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
.any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our other officers and employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity, regardless of whether the bylaws would
permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, indemnify our directors and executive officers
for certain expenses, including attorneys' fees, judgments, fines and
settlement amounts incurred by any such person in any action or proceeding,
including any action by us arising out of such person's services as our
director or executive officer, any of our subsidiaries or any other company or
enterprise to which the person provides services at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
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<PAGE>
CERTAIN TRANSACTIONS
Our Formation
In connection with our incorporation in August 1997, we issued 4,687,500
shares of common stock to Didier Moretti and 2,812,500 shares of common stock
to Maurizio Gianola at a purchase price of $0.00067 per share, paid in cash. We
have the right to repurchase for $0.00067 per share any unvested founders'
shares in the event of termination of employment. With respect to Mr. Moretti's
shares, this repurchase right applies to only two-thirds of the shares
initially, and lapses on a cumulative monthly basis over a period of 36 months.
Mr. Moretti's shares will become fully vested in September 2000. With respect
to Mr. Gianola's shares, the repurchase right applies to all of his shares and
lapsed as to one-fourth of the shares upon the first anniversary of the vesting
start date, which was August 1997. The repurchase right lapses on a cumulative
monthly basis over a period of 48 months thereafter. Mr. Gianola's shares will
become fully vested in August 2001.
Preferred Stock Financings
In September 1997 and October 1997, Annuncio issued to various investors a
total of 7,429,687 shares of Series A preferred stock at a purchase price of
$0.4267 per share. In July 1998, Annuncio issued to various investors a total
of 5,071,425 shares of Series B preferred stock at a purchase price of $0.70
per share. In April 1999, June 1999, July 1999 and August 1999, Annuncio issued
to various investors a total of 4,197,450 shares of Series C preferred stock at
a purchase price of $1.33 per share. In February 2000, Annuncio issued to
various investors 2,840,445 shares of Series D preferred stock at a purchase
price of $5.33 per share. Each share of each series of preferred stock will
convert into common stock prior to the closing of this public offering.
The holders of our preferred stock include, among others, the following
directors, officers and holders of more than 5% of our outstanding stock:
<TABLE>
<CAPTION>
Preferred Stock
-------------------------------------
Series
Preferred Stockholder Series A Series B Series C D
--------------------- --------- --------- --------- -------
<S> <C> <C> <C> <C>
Holders of More than 5%:
Advanced Technology Ventures IV, L.P.
(1)................................. 3,457,032 2,413,021 750,000 557,961
Norwest Venture Partners VI, L.P
(2)................................. 3,457,032 2,413,021 2,250,000 684,385
Directors:
Andre Touma........................... 199,219 66,484 26,250 24,606
Mark Pine (3)......................... -- -- -- 40,012
Didier Moretti........................ -- -- -- 9,375
Officers:
Maurizio Gianola (4).................. -- -- -- 9,375
Christopher McClain................... -- -- -- 9,375
Monica Nester......................... -- -- -- 9,375
Scott Fletcher........................ -- -- -- 9,375
Kimberly Weins........................ -- -- -- 9,375
Others:
Rene Moretti (5)...................... -- -- -- 46,875
</TABLE>
- --------
(1) Jos Henkens, a member of our board of directors, is a general partner of
Advanced Technology Ventures, an entity affiliated with Advanced Technology
Ventures IV, L.P. Mr. Henkens disclaims beneficial ownership of the
securities held by Advanced Technology Ventures IV, L.P., except for his
proportional interest in the entity.
(2) Promod Haque, a member of our board of directors, is a general partner of
Norwest Venture Capital, an entity affiliated with Norwest Venture Partners
VI, L.P. Mr. Haque disclaims beneficial ownership of the securities held by
Norwest Venture Partners VI, L.P., except for his proportional interest in
the entity.
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<PAGE>
(3) The shares are held by the Pine Family Trust u/t/d 3/16/93, of which Mr.
Pine is a trustee.
(4) The shares are held by the Gianola Family 1990 Trust, of which Mr. Gianola
is a trustee.
(5) The shares are held by Padirel Ltd., a Personal Holding Company, of which
Mr. Moretti is a beneficiary.
Acquisition of Brightinfo.com
Agreement and Plan of Reorganization
Pursuant to an agreement and plan of reorganization, dated March 2, 2000,
among the Company, Annuncio Acquisition, Inc., Brightinfo.com, Inc., Mr. Bo Li,
Ms. Cheryl Traverse, Mr. Sheng Zhu and Mr. Yufeng Li, we acquired
Brightinfo.com. The acquisition was effective on March 2, 2000 and, as a
result, Brightinfo.com became our wholly owned subsidiary.
We issued an aggregate of 7,500,000 shares of common stock as consideration
for the Brightinfo.com acquisition, in exchange for all outstanding shares of
Brightinfo.com's stock, and all options and warrants to purchase shares,
options and warrants. Ms. Traverse received 445,689 of such shares, Mr. Bo Li
received 774,195 of such shares, Mr. Zhu received 566,484 of such shares, and
Mr. Yufeng Li received 774,195 of such shares.
As collateral security for the payment of any indemnification obligations
of the former shareholders of Brightinfo.com, subject to a deductible of
$50,000, 750,000 shares of the common stock we issued to such shareholders were
pledged to us. Such shares were withheld from the former shareholders, on a pro
rata basis, and will be held in escrow with an escrow agent. Generally, all of
the pledged shares to be issued to the former shareholders of Brightinfo.com,
approximately 750,000 shares, will be released from the escrow on March 2,
2001, other than shares subject to pending claims.
In connection with the acquisition, Brightinfo.com's CEO and director,
Cheryl Traverse was appointed to our board of directors. Certain employees of
Brightinfo.com entered into noncompetition agreements. In addition, we granted
to the former holders of Brightinfo.com preferred stock registration and other
rights similar to those held by our current preferred stockholders.
Other Transactions
Investor Rights Agreement
We have entered into an agreement with the preferred stockholders described
above pursuant to which these and other preferred stockholders will have
registration rights with respect to their shares of common stock following this
offering. For a description of these registration rights, see "Description of
Capital Stock." Upon the completion of this offering, all shares of our
outstanding preferred stock will be automatically converted into an equal
number of shares of common stock.
Stock Option Grants to Certain Officers and Directors
Since the beginning of fiscal year 1999, we have granted the following
options to purchase our common stock to our officers, directors and
stockholders who beneficially own 5% or more of our common stock.
<TABLE>
<CAPTION>
Date of Exercise Price
Name Grant Options Per Share
- ---- ------- ------- --------------
<S> <C> <C> <C>
Didier Moretti................................... 1/31/00 524,100 $0.467
Karil Reibold.................................... 1/31/00 226,995 0.467
Christopher McClain.............................. 6/22/99 375,000 0.233
Scott Fletcher................................... 1/31/00 279,485 0.467
Dawn Neisser..................................... 9/23/99 112,500 0.467
Kimberly Weins................................... 1/31/00 139,500 0.467
</TABLE>
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<PAGE>
Indemnification and Employment Agreements
We have entered into indemnification agreements with each of our directors
and officers that are described in this prospectus under the caption
"Management--Limitations of Liability and Indemnification Matters."
Officer Loans
In January 2000, we made a loan to Mr. Fletcher in order to fund the
exercise of the stock options held by him. The loan, in the amount of $130,427,
was made under a full-recourse promissory note secured by pledge of the
purchased shares. The note will mature in January 2002 and bears interest at a
rate of 6% per year. We have the right to repurchase unvested shares if Mr.
Fletcher's employment is terminated under certain circumstances.
Agreements with Directors
Andre Touma. We have entered into a consulting agreement with Mr. Touma,
one of our directors, under which Mr. Touma advises us on business strategy and
plans, and assists with business development activities. Under the terms of the
agreement, we grant Mr. Touma options to purchase shares of our common stock in
exchange for his services. During our last fiscal year, we granted Mr. Touma
options to purchase 5,850 shares at an exercise price of $0.067 per share, and
options to purchase 787 shares at an exercise price of $0.233 per share in
exchange for services rendered by him.
Cheryl Traverse. In connection with our acquisition of Brightinfo.com, we
plan to enter into a consulting agreement with Cheryl Traverse, one of our
directors. Under the terms of the consulting agreement, Ms. Traverse is to
assist with the Brightinfo.com integration and provide us with advice on
business strategy and plans, and assist with business development activities.
The consulting agreement will terminate on March 31, 2000, unless terminated
earlier by either Ms. Traverse or us, at which time a lump sum payment of
$14,583 will be made. If Ms. Traverse voluntarily terminates the agreement, or
if we terminate the agreement for cause, no payment is due. Cause is defined in
the agreement as gross misconduct in the performance of the services, or an act
of dishonesty in connection with the performance of the services. We will also
enter into a non-competition agreement with Ms. Traverse, which will expire on
December 31, 2000. In addition, in connection with a settlement agreement and
release entered into between Brightinfo.com and Ms. Traverse, we will pay Ms.
Traverse a lump sum of $160,416.67, less applicable withholding, on March 31,
2000. We have also agreed to extend the repayment date of the promissory note
issued in connection with Ms. Traverse's purchase of our capital stock to a
date which is the earlier of (1) fifteen months following the closing of a
public offering of our capital stock or (2) March 1, 2002.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 2, 2000, by the following individuals
or groups:
. each person, or group of affiliated persons, whom we know beneficially
owns more than 5% of our outstanding stock;
. each of our Named Executive Officers;
. each of our directors; and
. all of our directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder on this table
is c/o Annuncio Software, Inc., 2440 El Camino Real, Mountain View, California
94040. Except as otherwise noted, and subject to applicable community property
laws, to the best of our knowledge, the persons named in this table have sole
voting and investing power with respect to all of the shares of common stock
held by them.
This table lists applicable percentage ownership based on 37,362,621 shares
of common stock outstanding as of March 2, 2000, as adjusted to reflect the
conversion of all outstanding shares of preferred stock upon the closing of
this offering, and also lists applicable percentage ownership based on
41,362,621 shares of common stock outstanding after completion of this
offering. Options and warrants to purchase shares of our common stock that are
exercisable within sixty days of March 2, 2000 are deemed to be beneficially
owned by the persons holding these options or warrants for the purpose of
computing percentage ownership of that person, but are not treated as
outstanding for the purpose of computing any other person's ownership
percentage.
<TABLE>
<CAPTION>
Shares Beneficially Owned
----------------------------
Percent Percent
Before After
Beneficial Owner Number Offering Offering
- ---------------- ---------- -------- --------
<S> <C> <C> <C>
Norwest Venture Partners......................... 8,804,437 23.6% 21.3%
245 Lytton Avenue
Palo Alto, CA 94301
Advanced Technology Ventures..................... 7,178,014 19.2 17.4
485 Ramona Street, Suite 201
Palo Alto, CA 94301
Didier Moretti .................................. 4,439,725 11.7 10.6
Maurizio Gianola (1)............................. 2,900,625 7.8 7.0
Yufeng Li ....................................... 774,195 2.1 1.9
Karil Reibold (2)................................ 226,995 * *
Christopher McClain (3).......................... 410,625 1.1 1.0
Monica Nester (4)................................ 536,367 1.4 1.3
Scott Fletcher .................................. 288,861 * *
Kimberly Weins (5)............................... 459,070 1.2 1.1
Amir Assar (6)................................... 66,090 * *
Dawn Neisser(7).................................. 112,500 * *
Promod Haque (8)................................. 8,804,437 23.6 21.3
Jos Henkens (9).................................. 7,178,014 19.2 17.4
Andre Touma ..................................... 355,006 1.0 *
Cheryl Traverse ................................. 445,689 1.2 1.1
Mark A. Pine (10)................................ 77,512 * *
All directors and executive officers as a group
(15 persons) (11).............................. 27,075,711 70.2 63.6
</TABLE>
- --------
* Less than 1% of the outstanding shares of common stock.
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<PAGE>
(1) Consists of 2,821,875 shares held by the Gianola Family 1990 Trust, of
which Mr. Gianola is a trustee, and 78,750 shares of common stock
issuable upon the exercise of options within 60 days of March 2, 2000.
(2) Consists of 226,995 shares of common stock issuable upon the exercise of
options within 60 days of March 2, 2000.
(3) Includes 26,250 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 2, 2000.
(4) Includes 60,000 shares of common stock issuable upon the exercise of
options within 60 days of March 2, 2000.
(5) Includes 139,500 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 2, 2000.
(6) Consists of 66,090 shares of common stock issuable upon the exercise of
options within 60 days of March 2, 2000.
(7) Includes 75,000 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 2, 2000.
(8) Consists of common stock issuable upon automatic conversion of 8,804,437
shares of preferred stock held by Norwest Venture Partners VI, L.P. Mr.
Haque, one of our directors, is a general partner of Norwest Venture
Partners. Mr. Haque disclaims beneficial ownership of the shares held by
Norwest Venture Partners VI, L.P., an entity affiliated with Norwest
Venture Partners, except to the extent of his pecuniary interest therein.
(9) Consists of common stock issuable upon automatic conversion of 7,178,014
shares of preferred stock held by Advanced Technology Ventures IV. Mr.
Henkens, one of our directors, is a general partner of Advanced
Technology Ventures. Mr. Henkens disclaims beneficial ownership of the
shares held by Advanced Technology Ventures IV, an entity affiliated
Advanced Technology Ventures, except to the extent of his pecuniary
interest therein.
(10) Consists of 40,012 shares held by the Pine Family Trust u/t/d 3/16/93 and
37,500 shares of common stock issuable upon the exercise of options
exercisable within 60 days of March 2, 2000.
(11) Includes 1,234,185 shares of common stock issuable upon the exercise of
options exercisable within 60 days of March 2, 2000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our certificate of incorporation that becomes effective upon the closing of
this offering authorizes the issuance of up to 200,000,000 shares of common
stock, $0.0001 par value, and authorizes the issuance of 10,000,000 shares of
undesignated preferred stock, no par value. From time to time, our board of
directors may establish the rights and preferences of the preferred stock. As
of March 2, 2000, 17,823,615 shares of common stock and 19,539,012 shares of
preferred stock were issued and outstanding and held by 160 stockholders. Upon
the closing of this offering, all outstanding shares of preferred stock will
convert into an aggregate of 19,539,012 shares of common stock. The following
description of our capital stock is, by necessity, not complete. We encourage
you to refer to our certificate of incorporation and bylaws, which are included
as exhibits to the registration statement of which this prospectus forms a
part, and applicable provisions of Delaware law for a more complete
description.
Common Stock
Each holder of common stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared time to time by the board of directors
out of funds legally available for that purpose. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of Annuncio, the holders of
common stock are entitled to share in our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable. The
rights, preferences and privileges of the holders of common stock are subject
to, and may be adversely affected by the rights of the holders of shares of any
series of preferred stock which we may designate in the future.
Preferred Stock
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may
be greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:
. restricting dividends on the common stock;
. diluting the voting power of the common stock;
. impairing the liquidation rights of the common stock; or
. delaying or preventing a change in control of Annuncio without further
action by the stockholders.
Upon the closing of this offering, no shares of preferred stock will be
outstanding, and we have no present plans to issue any shares of preferred
stock.
Warrants and Other Obligations to Issue Capital Stock
As of March 2, 2000, there were outstanding warrants to purchase an
aggregate of 573,406 shares of our preferred stock with a weighted average
exercise price $1.3404 per share. These warrants are currently exercisable in
full. Upon the closing of this offering, the outstanding warrants to purchase
preferred stock will automatically convert to warrants to purchase common
stock.
63
<PAGE>
Registration Rights of Certain Holders
After this offering, holders of 23,416,585 shares of common stock or
warrants to purchase common stock (the "registrable securities") or their
transferees will have rights to register those shares under the Securities Act
of 1933. These rights are provided under the terms of an agreement between us
and the holders of the registrable securities. Subject to limitations in the
agreement, beginning 180 days following the date of this prospectus, the
holders of at least 50% of the registrable securities may require, on two
occasions, that we use our best efforts to register the registrable securities
for public resale. We are obligated to register these shares only if the
outstanding registrable securities have an anticipated aggregate public
offering price of at least $5,000,000, after underwriting discounts and
commissions. Also, holders of 20% of the registrable securities may require, no
more than once per year, that we register their shares for public resale on
Form S-3 or similar short-form registration if the anticipated aggregate public
offering price of the shares to be registered would exceed $2,500,000.
Furthermore, in the event we elect to register any of our shares of common
stock for purposes of effecting any public offering, the holders of registrable
securities are entitled to include their shares of common stock in the
registration, but we may reduce the number of shares proposed to be registered
in view of market conditions. These registration rights have been waived with
respect to this offering. We will bear all expenses in connection with any
registration, other than underwriting discounts and commissions. All
registration rights will terminate five years following the consummation of
this offering, or with respect to each holder of registrable securities, at
such time as the holder is entitled to sell all of its shares in any 90-day
period under Rule 144 of the Securities Act.
Certain Charter and Bylaw Provisions and Delaware Law
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make the following more difficult:
. the acquisition of Annuncio by means of a tender offer;
. acquisition of Annuncio by means of a proxy contest or otherwise; or
. the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
Annuncio to first negotiate with our board of directors. We believe that the
benefits of increased protection of its potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure
Annuncio outweigh the disadvantages of discouraging such proposals because
negotiation of such proposals could result in an improvement of their terms.
Election And Removal Of Directors.
Our board of directors is divided into three classes. The directors in each
class will serve for a three-year term, with our stockholders electing one
class each year. See "Management--Board Composition." This system of electing
and removing directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of Annuncio, because it
generally makes it more difficult for stockholders to replace a majority of the
directors.
Stockholder Meetings.
Under our bylaws, only the board of directors, the chairman of the board,
the president and the holders of a majority of the outstanding capital stock
may call special meetings of stockholders.
Requirements For Advance Notification Of Stockholder Nominations And
Proposals.
Our bylaws establish advance notice procedures for stockholder proposals
and the nomination of candidates for election as directors, other than
nominations made by or at the direction of the board of directors or a
committee of the board.
64
<PAGE>
Delaware Anti-takeover Law.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became
an interested stockholder, unless the "business combination" or the transaction
in which the person became an interested stockholder is approved in a
prescribed manner. Generally, a "business combination" includes a merger, asset
or stock sale, or other transaction resulting in a financial benefit to the
interested stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns or within three years prior to
the determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision may have an anti-
takeover effect with respect to transactions not approved in advance by the
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.
Elimination Of Stockholder Action By Written Consent.
Our certificate of incorporation eliminates the right of stockholders to
act by written consent without a meeting.
No Cumulative Voting.
Our certificate of incorporation and bylaws do not provide for cumulative
voting in the election of directors.
Undesignated Preferred Stock.
The authorization of undesignated preferred stock makes it possible for the
board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
Annuncio. These and other provisions may have the effect of deferring hostile
takeovers or delaying changes in control or management of Annuncio.
Amendment Of Charter Provisions.
The amendment of any of the provisions described above would require
approval by holders of at least 66 2/3% of the outstanding common stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Norwest Bank
Minnesota, N.A.
Nasdaq National Market Listing
We will apply to list our common stock on the Nasdaq Stock Market's
National Market under the symbol "ANNC."
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for the common stock will
develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market following this offering could
adversely affect market prices prevailing from time to time and could impair
our ability to raise capital through sale of our equity securities. Sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 41,168,027
shares of common stock based upon shares outstanding as of March 2, 2000,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants that do not expire prior to completion of
this offering. Of these shares, the 4,000,000 shares sold in this offering will
be freely tradable without restriction under the Securities Act, except for any
shares held by our "affiliates" as Rule 144 under the Securities Act of 1933
defines that term. The remaining 37,362,421 shares of common stock held by
existing stockholders are "restricted shares" as Rule 144 defines that term.
All of such restricted shares are subject to lock-up agreements providing that,
with certain limited exceptions, the stockholder will not offer, sell, contract
to sell or otherwise dispose of any common stock or any securities that are
convertible into common stock for a period of 180 days after the date of this
prospectus without the prior written consent of FleetBoston Robertson Stephens
Inc. or Annuncio. As a result of these lock-up agreements, notwithstanding
possible earlier eligibility for sale under the provisions of Rules 144, 144(k)
and 701, none of these shares will be resellable until 181 days after the date
of this prospectus. Beginning 181 days after the date of this prospectus,
approximately restricted shares will be eligible for sale in the public
market (subject in some cases to volume restrictions under Rule 144 or
repurchase rights in favor of Annuncio). In March 2001, approximately
restricted shares will be eligible for sale in the public market, all of which
are subject to volume limitations under Rule 144. In addition, as of March 2,
2000, there were outstanding options to purchase 3,413,297 shares of common
stock. All such options are subject to lock-up agreements. In addition, as of
March 2, 2000, there were outstanding warrants to purchase 573,406 shares of
common stock that are subject to lock-up agreements. FleetBoston Robertson
Stephens Inc. may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements,
however any release shall apply pro-rata to all stockholders subject to such
lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year including the holding period of any prior owner
except an affiliate would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 413,626 shares immediately after this offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about Annuncio. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Annuncio at any time during the three months preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years including the holding period of any prior owner except an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee,
66
<PAGE>
officer or director of or consultant to Annuncio who purchased shares pursuant
to a written compensatory plan or contact may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements of
Rule 144. Rule 701 further provides that non-affiliates may sell such shares in
reliance on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling such shares. However, most Rule 701 shares are
subject to lock-up agreements and will only become eligible for sale at the
earlier of the expiration of the 180-day lock-up agreements or no sooner than
90 days after the offering upon obtaining the prior written consent of
FleetBoston Robertson Stephens.
After this offering, we intend to file a registration statement on Form S-8
registering shares of common stock subject to outstanding options or reserved
for future issuance under our stock plans. As of March 2, 2000, options to
purchase a total of 3,413,297 shares were outstanding and 12,407,920 shares
were reserved for future issuance under our stock plans. Common stock issued
upon exercise of outstanding vested options or issued pursuant to our employee
stock purchase plan, other than common stock issued to our affiliates is
available for immediate resale in the open market.
Also beginning six months after the date of this offering, holders of
23,079,214 restricted shares will be entitled to certain rights with respect to
registration of such shares for sale in the public market. See "Description of
Capital Stock--Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act, except for shares purchased by
affiliates, immediately upon the effectiveness of such registration.
67
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Chase Securities Inc. and U.S. Bancorp
Piper Jaffray Inc., have entered into an underwriting agreement with us to
purchase the number of shares of common stock listed opposite their names
below. The underwriters are obligated to purchase and pay for all the shares
listed below if any are purchased.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
FleetBoston Robertson Stephens Inc.........................
Chase Securities Inc.......................................
U.S. Bancorp Piper Jaffray Inc.............................
Total....................................................
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the initial public offering price
set forth on the cover page of this prospectus and to certain dealers at that
price less a concession of not more than $ per share, of which $ may be
reallowed to other dealers. After this offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
such reduction shall change the amount of proceeds to be received by us as set
forth on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. The
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have agreed
to purchase. If the underwriters exercise their over-allotment option to
purchase any of the additional shares of common stock, the underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage of these additional shares as the number of shares of
common stock to be purchased by each of them shown in the above table bears to
the total number of shares of common stock offered in this offering. If
purchased, these additional shares will be sold by the underwriters on the same
terms as those on which the shares offered hereby are being sold. We will be
obligated, pursuant to the over-allotment option, to sell shares to the
underwriters to the extent the over-allotment option is exercised. The
underwriters may exercise the over-allotment option only to cover over-
allotments made in connection with the sale of the shares of common stock
offered in this offering.
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
Total
---------------------------------------
Without With
Per Share Over-allotment Over-Allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions
payable by us....................... $ $ $
</TABLE>
We estimate expenses payable by us in connection with this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $1,200,000.
Indemnification. The underwriting agreement contains covenants of indemnity
among the underwriters and us against specified civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Each of our officers, directors and substantially all
of our security holders have agreed, during the period of 180 days after the
effective date of this prospectus, subject to specified exceptions, not to
sell, contract to sell or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any
68
<PAGE>
shares of common stock or any options or warrants to purchase shares of common
stock or any securities convertible into, or exchangeable for, shares of common
stock, owned as of the date of this prospectus or thereafter acquired directly
by those holders or with respect to which they have the power of disposition,
without the prior written consent of FleetBoston Robertson Stephens Inc. or us.
FleetBoston Robertson Stephens Inc. may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. All of the shares of common stock subject to the lock-up agreements
will be eligible for sale in the public market upon the expiration of the lock-
up agreements, subject to holding period requirements, volume limitations and
other conditions of Rule 144.
Future Sales. In addition, we have agreed that, during the period of 180
days after the effective date of this prospectus, we will not, without the
prior written consent of FleetBoston Robertson Stephens Inc., subject to
certain exceptions, issue, sell, contract to sell or otherwise dispose of any
shares of common Inc., any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock, other than our sale of shares in this offering, the
issuance of common stock upon the exercise of outstanding options, our grant of
options to purchase shares of common stock under existing stock option or stock
purchase plans, and issuances of stock in connection with acquisitions.
No Prior Public Market. Prior to this offering, there was no public market
for our common stock. Consequently, the initial public offering price for the
common stock in this offering was determined through negotiations among us and
the representatives of the underwriters. The factors considered in these
negotiations included prevailing market conditions, our financial information,
the market valuation of other companies that we and the representatives believe
to be comparable to us, estimates of our business potential and the business
potential of the industry in which we compete, and assessment of our
management, our past and present operation and the prospects for our future
revenues.
Stabilization. The representatives have advised us that, based on
Regulation M under the Securities Exchange Act of 1934, some persons
participating in this offering may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, which may have the effect of stabilizing or maintaining the market price
of the common stock at a level above that which might otherwise prevail in the
open market. A "stabilizing bid" is a bid for or the purchase of common stock
on behalf of the underwriters that is intended to fix or maintain the price of
the common stock. A "syndicate covering transaction" is the bid for or the
purchase of common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with the offering. A
"penalty bid" is an arrangement that permits the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with the offering if the common stock originally sold by the
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction, and has therefore not been effectively placed
by this underwriter or syndicate member. The representatives have advised us
that these transactions may be effected on the Nasdaq National Market and, if
commenced, may be discontinued at any time.
Directed Shares. At our request, the underwriters have reserved up to five
percent of the common stock to be issued by us in this offering for sale, at
the initial public offering price, to directors, officers, employees, business
associates and related persons of Annuncio. The number of shares available for
sale to the general public will be reduced to the extent these persons purchase
the reserved shares. The underwriters will offer any reserved shares not so
purchased to the general public on the same basis as other shares in this
offering described above.
69
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Annuncio by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters in connection with this offering will
be passed upon for the underwriters by Latham & Watkins, Menlo Park,
California. As of the date of this prospectus, Wilson Sonsini Goodrich & Rosati
and its members beneficially owned an aggregate of 67,789 shares of common
stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999, and for the period from August 8,
1997 (inception) through December 31, 1997 and each of the two years ended
December 31, 1998 and December 31, 1999, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given upon
their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited Brightinfo.com's
financial statements at December 31, 1998 and 1999 and for the period from
August 12, 1998 (inception) through December 31, 1998 and for the year ended
December 31, 1999, as set forth in their report. We have included
Brightinfo.com's financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given upon
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Annuncio has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to Annuncio and our
common stock, reference is made to the registration statement and the exhibits
and schedules filed as a part thereof. Statements contained in this prospectus
as to the contents of any contract or any other document referred to are not
necessarily complete. In each instance, reference is made to the copy of such
contract or document filed as an exhibit to the registration statement, and
each such statement is qualified in all respects by such reference. Copies of
the registration statement, including exhibits and schedules thereto, may be
inspected without charge at the Securities and Exchange Commission's principal
office in Washington, D.C., or obtained at prescribed rates from the Public
Reference Section of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. The Securities and Exchange Commission
maintains a web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Securities and Exchange Commission. The address of the site is
http://www.sec.gov.
70
<PAGE>
INDEX TO FINANCIAL INFORMATION
ANNUNCIO SOFTWARE, INC. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
Equity (Deficit)....................................................... F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
BRIGHTINFO.COM, INC. FINANCIAL INFORMATION
Report of Ernst & Young LLP, Independent Auditors........................ F-19
Balance Sheets........................................................... F-20
Statements of Operations................................................. F-21
Statements of Stockholders' Equity....................................... F-22
Statements of Cash Flows................................................. F-23
Notes to Financial Statements............................................ F-24
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Overview................................................................. F-33
Balance Sheet............................................................ F-34
Statement of Operations.................................................. F-35
Notes to the Unaudited Pro Forma Condensed Combined Financial
Information............................................................ F-36
</TABLE>
F- 1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Annuncio Software, Inc.
We have audited the accompanying balance sheets of Annuncio Software, Inc.
as of December 31, 1998 and 1999, and the related statements of operations,
redeemable convertible preferred stock and stockholders' equity (deficit), and
cash flows for the period from August 8, 1997 (inception) to December 31, 1997
and for the years ended December 31, 1998 and 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 Annuncio Software, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash
flows for the period from August 8, 1997 (inception) to December 31, 1997 and
for the years ended December 31, 1998 and 1999, in conformity with accounting
principles generally accepted in the United States.
San Jose, California
February 5, 2000
Except for Note 10, as to which the date is March 2, 2000.
- -------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the
completion of the reincorporation of Annuncio Software, Inc. in Delaware as
described in Note 10 of Notes to Financial Statements.
San Jose, California
March 2, 2000
F-2
<PAGE>
ANNUNCIO SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
December 31, Stockholders'
------------------------- Equity (Deficit) at
1998 1999 December 31, 1999
----------- ------------ -------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 3,602,745 1,115,458
Accounts receivable, net of
allowance of $50,000 at
December 31, 1999........... -- 2,020,879
Prepaid expenses and
deposits.................... 33,077 307,312
----------- ------------
Total current assets....... 3,635,822 3,443,649
Property and equipment, net..... 237,530 1,534,754
Restricted cash................. -- 204,000
Other assets.................... 4,314 28,908
----------- ------------
Total assets............... $ 3,877,666 5,211,311
=========== ============
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............. $ 58,315 868,930
Accrued compensation and
related benefits............ 163,930 1,126,325
Other accrued liabilities..... 106,117 621,733
Deferred revenue.............. -- 1,583,559
Current portion of equipment
loan........................ 91,116 91,121
Current portion of capital
lease obligations........... 12,264 222,965
----------- ------------
Total current liabilities.. 431,742 4,514,633
Long-term portion of equipment
loan.......................... 106,312 15,186
Long-term portion of capital
lease obligations............. 25,526 466,212
Commitments
Redeemable convertible preferred
stock, $.0001 par value,
18,750,000 shares authorized,
issuable in series:
Series A redeemable
convertible: 9,000,000
shares designated,
7,429,689 shares issued and
outstanding at December 31,
1998 and 1999 (none pro
forma); aggregate
liquidation preference of
$3,170,000.................. 3,154,527 3,154,527 $ --
Series B redeemable
convertible: 5,250,000
shares designated,
5,071,428 shares issued and
outstanding at December 31,
1998 and 1999 (none pro
forma); aggregate
liquidation preference of
$3,550,000.................. 3,531,160 3,531,160 --
Series C redeemable
convertible: 4,500,000
shares designated,
4,197,450 shares issued and
outstanding at December 31,
1999 (none at December 31,
1998) and (none pro forma);
aggregate liquidation
preference of $5,596,600.... -- 5,581,600 --
Stockholders' Equity (Deficit):
Common stock, $.0001 par
value, 33,750,000 shares
authorized; 7,605,304 and
9,664,015 shares issued and
outstanding at December 31,
1998 and 1999, respectively
and 26,362,582 shares pro
forma....................... 761 966 2,636
Additional paid-in capital.... 162,075 5,004,277 17,269,894
Deferred stock compensation... (122,768) (2,915,595) (2,915,595)
Accumulated deficit........... (3,411,669) (14,141,655) (14,141,655)
----------- ------------ ------------
Total stockholders' equity
(deficit)................ (3,371,601) (12,052,007) $ 215,280
=========== ============ ============
Total liabilities,
redeemable convertible
preferred stock and
stockholders' equity
(deficit)................ $ 3,877,666 $ 5,211,311
=========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
ANNUNCIO SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
August 8, 1997
(Inception) to Years Ended December 31,
December 31, -------------------------
1997 1998 1999
-------------- ----------- ------------
<S> <C> <C> <C>
Revenues:
License............................ $ -- $ -- $ 853,390
Hosting............................ -- -- 191,417
Professional services.............. -- -- 638,517
---------- ----------- ------------
Total revenues.................. -- -- $ 1,683,324
Cost of revenue:
License -- -- 72,811
Hosting............................ -- -- 212,072
Professional services.............. -- -- 1,439,745
---------- ----------- ------------
Total cost of revenue........... -- -- 1,724,628
Gross loss........................... -- -- (41,304)
Operating expenses:
Research and development........... 185,938 1,871,697 3,429,514
Sales and marketing................ 52,356 843,660 3,687,020
General and administrative......... 144,874 479,316 2,030,387
Amortization of deferred stock
compensation..................... -- 30,734 1,395,593
---------- ----------- ------------
Total operating expenses........ 383,168 3,225,407 10,542,514
---------- ----------- ------------
Loss from operations................. (383,168) (3,225,407) (10,583,818)
Interest expense..................... -- (4,707) (331,805)
Interest and other income, net....... 44,169 157,444 185,637
---------- ----------- ------------
Net loss............................. $ (338,999) $(3,072,670) $(10,729,986)
========== =========== ============
Basic and diluted net loss per
share.............................. $ (0.18) $ (0.78) $ (1.80)
========== =========== ============
Shares used in computing basic and
diluted net loss per share......... 1,879,266 3,943,519 5,976,565
========== =========== ============
Pro forma basic and diluted net loss
per share (unaudited).............. $ (0.50)
============
Shares used in computing pro forma
basic and diluted net loss per
share (unaudited).................. 21,555,812
============
</TABLE>
See accompanying notes.
F-4
<PAGE>
ANNUNCIO SOFTWARE, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
Period from August 8, 1997 (inception) to December 31, 1999
<TABLE>
<CAPTION>
Redeemable Convertible Total
Preferred Stock Common Stock Additional Deferred Stockholders'
---------------------- ---------------- Paid in Stock Accumulated Equity
Shares Amount Shares Amount Capital Compensation Deficit (Deficit)
---------- ----------- --------- ------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
to founders at
$0.00067 per share
in August 1997 for
cash.................. -- $ -- 7,500,000 $750 $ 4,250 $ -- $ -- $ 5,000
Issuance of Series A
redeemable convertible
preferred stock at
$0.43 per share, net
of issuance costs..... 7,429,689 3,154,527 -- -- -- -- -- --
Net and comprehensive
loss.................. -- -- -- -- -- -- (338,999) (338,999)
---------- ----------- --------- ---- ---------- ----------- ------------ ------------
Balance at December 31,
1997................. 7,429,689 3,154,527 7,500,000 750 4,250 -- (338,999) (333,999)
Issuance of Series B
redeemable convertible
preferred stock at
$0.70 per share, net
of issuance costs..... 5,071,428 3,531,160 -- -- -- -- -- --
Issuance of common stock
upon exercise of
options............... -- -- 105,304 11 4,323 -- -- 4,334
Deferred stock
compensation.......... -- -- -- -- 153,502 (153,502) -- --
Amortization of deferred
stock compensation.... -- -- -- -- -- 30,734 -- 30,734
Net and comprehensive
loss.................. -- -- -- -- -- -- (3,072,670) (3,072,670)
---------- ----------- --------- ---- ---------- ----------- ------------ ------------
Balance at December 31,
1998................. 12,501,117 6,685,687 7,605,304 761 162,075 (122,768) (3,411,669) (3,371,601)
Issuance of Series C
redeemable convertible
preferred stock at
$1.33 per share, net
of issuance costs..... 4,197,450 5,581,600 -- -- -- -- -- --
Issuance of common stock
upon exercise of
options, net of
repurchases........... -- -- 2,073,711 205 193,810 -- -- 194,015
Issuance of warrants.... -- -- -- -- 459,972 -- -- 459,972
Deferred stock
compensation.......... -- -- -- -- 4,188,420 (4,188,420) -- --
Amortization of deferred
stock compensation.... -- -- -- -- -- 1,395,593 -- 1,395,593
Net and comprehensive
loss.................. -- -- -- -- -- -- (10,729,986) (10,729,986)
---------- ----------- --------- ---- ---------- ----------- ------------ ------------
Balance at December 31,
1999................. 16,698,567 $12,267,287 9,664,015 $966 $5,004,277 $(2,915,595) $(14,141,655) $(12,052,007)
========== =========== ========= ==== ========== =========== ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
ANNUNCIO SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
August 8,
1997 (Inception) Years Ended December 31,
to December 31, -------------------------
1997 1998 1999
---------------- ----------- ------------
<S> <C> <C> <C>
Operating activities
Net loss.......................... $ (338,999) $(3,072,670) $(10,729,986)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation expense............. 907 44,199 254,630
Amortization of deferred stock
compensation and interest
expense related to warrants.... -- 30,734 1,695,896
Changes in operating assets and
liabilities:
Accounts receivable............. -- -- (2,020,879)
Prepaid expenses and deposits... -- (33,077) (143,474)
Other assets.................... (4,714) 400 4,314
Accounts payable................ 31,964 26,351 810,615
Accrued compensation and
related benefits.............. -- 163,930 962,395
Other accrued liabilities....... 21,819 84,298 515,616
Deferred revenue................ -- -- 1,583,559
---------- ----------- ------------
Net cash used in operating
activities.................. (289,023) (2,755,835) (7,067,314)
---------- ----------- ------------
Investing activities
Purchases of property and
equipment....................... (39,674) (196,092) (783,875)
Increase in restricted cash....... -- -- (204,000)
---------- ----------- ------------
Net cash used in investing
activities.................. (39,674) (196,092) (987,875)
---------- ----------- ------------
Financing activities
Proceeds from issuances of
preferred stock, net............ 3,154,527 3,531,160 5,581,600
Proceeds from issuances of common
stock, net...................... 5,000 4,334 194,015
Proceeds from equipment loan...... -- 227,802 --
Payments on equipment loan........ -- (30,374) (91,121)
Payments on capital lease
obligations..................... -- (9,080) (116,592)
---------- ----------- ------------
Net cash provided by financing
activities.................. 3,159,527 3,723,842 5,567,902
---------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents................. 2,830,830 771,915 (2,487,287)
Cash and cash equivalents at
beginning of period.............. -- 2,830,830 3,602,745
---------- ----------- ------------
Cash and cash equivalents at end of
period........................... $2,830,830 $ 3,602,745 $ 1,115,458
========== =========== ============
Supplemental cash flow information
Cash paid for interest............ $ -- $ 4,707 $ 47,619
Noncash investing and financing
activities
Deferred stock compensation
relating to stock options....... $ -- $ 153,502 $ 4,188,420
Property and equipment acquired
through capital leases.......... $ -- $ 46,870 $ 767,979
Issuance of warrants.............. $ -- $ -- $ 459,972
</TABLE>
See accompanying notes.
F-6
<PAGE>
ANNUNCIO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
December 1, 1999
1. Organization and Summary of Significant Accounting Policies
Description of the Company
Annuncio Software, Inc. (Annuncio) was incorporated in California on August
8, 1997 and is engaged in the sale and development of software designed to
automate and improve the effectiveness of Internet marketing programs.
Annuncio has incurred operating losses to date and has an accumulated
deficit of $14,141,655 at December 31, 1999. Annuncio's activities have been
primarily financed through private placements of equity securities and capital
lease financings. Annuncio may need to raise additional capital through the
issuance of debt or equity securities. This financing may not be available on
terms satisfactory to Annuncio, if at all.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Revenue Recognition
Annuncio derives its revenue from three sources--software licenses, hosting
and professional services. Revenues are recognized in accordance with Statement
of Position No. 97-2 Software Revenue Recognition. In December 1998, the
American Institute of Certified Public Accountants issued Statement of Position
98-9, Modification of 97-2, Software Revenue Recognition with Respect to
Certain Transactions which Annuncio has adopted without material impact on
revenue recognition. Annuncio's license revenues are generated from licensing
Annuncio's products directly to end users. Hosting revenues are generated from
providing hosting services which are a combination of Annuncio's software
products, technical support and the required hardware, to support Annuncio's
software product. Professional service revenues are generated from consulting
services and maintenance and support.
License revenues are recognized when a noncancelable license agreement has
been signed, the product has been installed, the fees are fixed and
determinable, collectibility is probable and vendor-specific objective evidence
exists to allocate the total fee to elements of the arrangement. Vendor-
specific objective evidence is based on the price charged when an element is
sold separately, or when not sold separately, the price for that element
established by management having the relevant authority to do so. Annuncio's
licensing agreement with its customers do not contain product return rights.
Revenues from hosting are recognized ratably over the term of the contract,
generally one year. Professional service revenues are recognized as the
services are performed. Revenues from maintenance and support agreements which
consist of fees for ongoing support and unspecified, when and if available,
product updates are recognized ratably over the term of the contract, typically
one year.
Deferred revenue consists of deferred maintenance and support fees and
accounts receivable recorded in advance of recognizing revenue for license and
hosting fees.
For the year ended December 31, 1999, two customers accounted for 22% and
16% of net revenues. There were no sales to customers outside of the United
States since inception through December 31, 1999.
F-7
<PAGE>
ANNUNCIO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Research and Development
Research and development expenditures are 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. Through December 31, 1999,
software development has been completed concurrently with the establishment of
technological feasibility and, as a result, Annuncio has charged all costs to
research and development expense in the periods incurred.
Cash and Cash Equivalents
Annuncio's cash equivalents as of December 31, 1998 and 1999, consist of
money market funds with qualified financial institutions and their carrying
value approximates fair value. Annuncio considers all highly liquid investments
with an original maturity from date of purchase of three months or less to be
cash equivalents.
Property and Equipment
Property and equipment are stated at cost, net of accumulated amortization
and depreciation. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets, generally three to five
years. Equipment under capital leases is depreciated over the lesser of its
lease term or its estimated useful life.
Stock-Based Compensation
Annuncio has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion No. 25), and related
interpretations in accounting for its employee stock options because, as
discussed in Note 6, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards 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 Opinion
No. 25, when the exercise price of Annuncio's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. See pro forma disclosures of applying FAS 123 included
in Note 6.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards (FAS) No. 107, "Disclosures
About Fair Value of Financial Instruments", requires that fair values be
disclosed for most of Annuncio's financial instruments. The carrying amounts of
cash and cash equivalents, accounts receivable, current liabilities, and
capital lease obligations are considered to be representative of their
respective fair values.
Comprehensive Loss
In June 1997, the Financial Accounting Standards Board issued FAS No. 130,
"Reporting Comprehensive Income" (FAS 130). FAS 130 establishes standards for
the reporting and display of comprehensive income and its components in a full
set of general purpose financial statements and is effective for fiscal years
beginning after December 15, 1997. Annuncio adopted FAS 130 in the year ended
December 31, 1998. There was no impact on Annuncio's financial statements as a
result of the adoption of FAS 130, as there is no difference between Annuncio's
net loss reported and the comprehensive net loss under FAS 130 for the periods
presented.
F-8
<PAGE>
ANNUNCIO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Segment Information
In June 1997, the Financial Accounting Standards Board issued FAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (FAS
131). FAS 131 changes the way companies report selected segment information in
annual financial statements and requires companies to report selected segment
information in interim financial reports to stockholders. FAS 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Annuncio adopted FAS 131 in the year
ended December 31, 1998. Annuncio has only one operating segment, and therefore
there is no impact on Annuncio's financial statements of adopting FAS 131.
Concentration of Credit Risk
Financial instruments that potentially subject Annuncio to a concentration
of credit risk consist of cash, cash equivalents, and accounts receivable. Cash
and cash equivalents are deposited with a high-credit quality financial
institution. Accounts receivable consists of balances due to a limited number
of customers. Annuncio markets, sells and grants credit to its customers
without requiring collateral or third-party guarantees. To date, all of
Annuncio's customers are private and public companies who do business on the
Internet. Annuncio monitors its exposure for credit losses and maintains
appropriate allowances. To date, Annuncio has not experienced any material
losses with respect to its accounts receivable.
Net Loss Per Share, Pro Forma Net Loss Per Share, and Pro Forma
Stockholder's Equity
Basic and diluted net loss per share are presented in conformity with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS
128), for all periods presented. Basic and diluted net loss per share have been
computed using the weighted average number of shares of common stock
outstanding during the period, less the weighted average number of shares
subject to repurchase.
Pro forma net loss per share has been computed as described above but also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of redeemable convertible preferred stock not included above that
will automatically convert upon completion of Annuncio's initial public
offering into common stock (using the as-converted method). If the offering is
consummated, all of the redeemable convertible preferred stock outstanding as
of December 31, 1999 will automatically be converted into an aggregate of
16,698,567 shares of common stock. Unaudited pro forma stockholders' equity at
December 31, 1999, as adjusted for the conversion of the redeemable convertible
preferred stock, is disclosed on the balance sheet.
F-9
<PAGE>
ANNUNCIO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Historical and pro forma basic and diluted net loss per share are as
follows:
<TABLE>
<CAPTION>
Period From
August 8, 1997
(Inception) to
December 31, Years Ended December 31,
-------------- ------------------------- ---
1997 1998 1999
-------------- ----------- ------------
<S> <C> <C> <C> <C>
Historical:
Net loss....................... $ (338,999) $(3,072,670) $(10,729,986)
========== =========== ============
Basic and diluted shares:
Weighted average shares of
common stock outstanding.. 7,500,000 7,559,403 8,154,516
Less weighted average shares
subject to repurchase..... (5,620,734) (3,615,884) (2,177,951)
---------- ----------- ------------
Weighted average shares of
common stock outstanding
used in computing basic
and diluted net per loss
share..................... 1,879,266 3,943,519 5,976,565
========== =========== ============
Basic and diluted net loss
per share................. $ (0.18) $ (0.78) $ (1.80)
========== =========== ============
Pro Forma (unaudited):
Net loss....................... $(10,729,986)
============
Weighted average shares of
common stock outstanding
used in computing basic and
diluted net loss per share... 5,976,565
Adjustment to reflect the
assumed conversion of
redeemable convertible
preferred stock from the
date of issuance............. 15,579,247
============
Weighted average shares used
in computing pro forma basic
and diluted net loss per
share........................ 21,555,812
============
Pro forma basic and diluted
net loss per share........... $ (0.50)
============
</TABLE>
If Annuncio had reported net income, diluted net income per share would
have included the shares used in the computation of pro forma net loss per
share as well as the treasury stock impact of approximately 225,000, 1,823,114
and 1,818,839 shares purchasable under outstanding options and warrants not
included above for the period from August 8, 1997 (inception) to December 31,
1997, and for the years ended December 31, 1998 and 1999, respectively. The
number of common equivalent shares from options and warrants would be
determined on a weighted average basis using the treasury stock method.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133), which is required to be adopted in years
beginning after June 15, 2000. Annuncio currently holds no derivative
instruments and does not currently engage in hedging activities, and management
anticipates that the adoption of FAS 133 will not have a material impact on
Annuncio's results of operations or financial position.
F-10
<PAGE>
ANNUNCIO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Restricted Cash
Restricted cash is comprised of a $155,000 security deposit on a facility
lease, and two other restricted deposits totaling $49,000 pertaining to other
financing arrangements. These restricted deposits are required by the various
contractual agreements, are held by a bank and have fixed maturities extending
beyond the next 12 months.
3. Property and Equipment
Property and equipment are stated at cost and consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
-------- ----------
<S> <C> <C>
Computer equipment and software......................... $214,065 $1,162,313
Office equipment and furniture and fixtures............. 68,571 411,881
Leasehold improvements.................................. -- 215,190
-------- ----------
282,636 1,789,384
Less: accumulated depreciation and amortization......... 45,106 254,630
-------- ----------
Property and equipment, net............................. $237,530 $1,534,754
======== ==========
</TABLE>
Depreciation has been provided on the straight-line basis over the
estimated useful lives of three to five years. As of December 31, 1998 and
1999, assets acquired under equipment financings were $46,870 and $767,979,
respectively, with related accumulated amortization of $1,073 and $103,244,
respectively.
4. Financing Arrangements
In 1997, Annuncio entered into a $750,000 equipment loan with a bank. The
loan, which bears interest equal to the bank's prime rate plus 1.25% (8.5% at
December 31, 1999) and is secured by all tangible property, and is for
equipment acquisition purposes. As of December 31, 1999, $106,307 was
outstanding. As of December 31, 1999, the aggregate principal payments under
this arrangement were $91,121 and $15,186 in 2000 and 2001, respectively.
In April 1999, Annuncio entered into a $3,000,000 subordinated loan
agreement with a leasing company which bears interest at 12.0% per year.
Borrowings under this arrangement are secured by substantially all of
Annuncio's assets after the rights of senior creditors. At December 31, 1999
Annuncio had no outstanding borrowings under this loan. The loan expires in
April 2000.
In October 1999, Annuncio entered into a line of credit arrangement with a
bank, which provides for borrowings up to $750,000, based upon 80% of eligible
assets, as defined. Borrowings under the line bear interest at the bank's prime
rate plus 1.25% (8.5% at December 31, 1999). Borrowings are secured by
substantially all of Annuncio's non-leased assets. As of December 31, 1999,
Annuncio was in violation of the line's financial covenants. This violation has
been waived by the bank. The line of credit expires in September 2000. At
December 31, 1999, Annuncio had no borrowings under the line of credit and
approximately $155,000 of outstanding stand by letters of credit.
5. Commitments
Annuncio acquires equipment through capital leases and leases its office
facilities and some equipment under various operating lease agreements.
Annuncio currently subleases space under an operating lease which expires on
December 31, 2000. Future minimum sublease income is $233,220. Future payments
under
F-11
<PAGE>
ANNUNCIO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
noncancelable capital and operating lease agreements, excluding sublease
income, at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ----------
<S> <C> <C>
2000.................................................... $266,659 $ 910,026
2001.................................................... 285,275 731,871
2002.................................................... 195,214 767,336
-------- ----------
Total minimum lease payments............................ $747,148 $2,409,233
==========
Less amount representing interest....................... 57,971
========
Present value of future minimum lease payments.......... 689,177
Less current portion.................................... 222,965
--------
Noncurrent portion of capital lease obligations......... $466,212
========
</TABLE>
Rent expense was $8,700, $215,280, and $811,691 for the period from August
8, 1997 (inception) to December 31, 1997 and for the years ended December 31,
1998 and 1999, respectively. For the period from August 8, 1997 (inception) to
December 31, 1997 and for the year ended December 31, 1998 there was no
sublease income. Annuncio earned sublease income of $106,893 for the year ended
December 31, 1999.
6. Redeemable Convertible Preferred Stock
Each share of Series A, B, and C redeemable 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 redeemable convertible preferred
stock automatically convert into common stock on the closing of an underwritten
public offering of common stock under the Securities Act of 1933 in which
Annuncio receives at least $10,000,000 in gross proceeds and the offering price
per share is at least $2.00.
Series A, B, and C redeemable convertible preferred stockholders are
entitled to noncumulative dividends of $0.0341, $0.056, and $0.1067 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.
The Series A, B, and C redeemable convertible preferred stockholders are
entitled to receive, upon liquidation, an amount per share equal to the
issuance price, $0.43, $0.70, and $1.33 per share, respectively, plus all
declared but unpaid dividends. Thereafter, any remaining assets and funds shall
be distributed on a pro rata basis among the holders of the common stock.
If, upon liquidation, the assets and funds distributed among the preferred
stockholders are insufficient to permit the entitled payment, the entire assets
and funds of Annuncio legally available for distribution shall be distributed
ratably among the holders of Series A, B, and C preferred stock in proportion
to the number of shares of Series A, B, and C preferred stock held by each such
holder.
Each holder of Series A, B, and C redeemable convertible preferred stock is
entitled to the number of votes equal to the number of shares of common stock
into which such preferred stock are convertible. Each share of Series A, B and
C preferred stock automatically converts into one share of common stock upon
the closing of an underwritten public offering with aggregate proceeds of $10
million.
At the election of at least 66 2/3% of the holders of shares of Series A,
B, and C redeemable convertible preferred stock, Annuncio shall redeem on a pro
rata basis, commencing on the date that is five years after the
F-12
<PAGE>
ANNUNCIO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
original issue date of the Series C preferred stock (the "redemption date"),
the number of Series A, B, and C redeemable convertible preferred shares
outstanding as of the redemption date by paying in cash, in three equal annual
installments of 33 1/3% each, the original purchase price for each share of the
Series A, B, and C redeemable convertible preferred shares (as adjusted for any
stock dividends, combinations or splits with respect to such shares) plus all
declared but unpaid dividends on such shares.
7. Stockholders' Equity
Warrants
In August 1998, in connection with an equipment financing agreement,
Annuncio issued a fully vested warrant that entitles the holder to purchase up
to 21,427 shares of Annuncio's Series B preferred stock at $0.70 per share, on
or before August 31, 2008. Additionally, in April 1999, in connection with an
equipment financing agreement, Annuncio issued a fully vested warrant that
entitles the holder to purchase up to 11,250 shares of Annuncio's Series C
preferred stock at $1.33 per share, on or before April 2009. The value ascribed
to these financial instruments is immaterial for financial statement purposes.
In April 1999, in connection with a subordinated loan agreement, Annuncio
issued and committed to issue warrants that entitle the holder to purchase up
to 262,500 and 52,500 shares of Annuncio's Series C preferred stock,
respectively, at an exercise price of $1.33 per share. The warrants were fully
vested at the date of grant. Both warrants have a contractual term of ten years
from the date of grant. Pursuant to the provisions of FAS 123, the fair value
for these warrants was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions: a risk free interest rate
of approximately 6.5%, no dividend yield, volatility factor of 0.7, and the
contractual life of the warrants of ten years. The fair market value of these
warrants was estimated to be approximately $396,900 and is being expensed as a
cost of financing over the term of the loan agreement.
In November 1999, in connection with the sale of a license to a customer,
the Company granted to this customer a right to a fully vested warrant to
purchase up to $123,075 of the Company's Series D preferred stock. The
underlying warrant is exercisable for the number of Series D preferred shares
equal to $123,075 divided by the per share price of the Series D preferred
stock financing. The license arrangement and the warrant required no
performance obligations from the customer. Accordingly, the value of this right
was recorded as a sales discount on the license arrangement. As of December 31,
1999, the estimated fair value of this right was approximately $63,000. The
fair value for this right was estimated at the date of grant using a Black-
Scholes option pricing model with the following assumptions: a risk free
interest rate of approximately 6.5%, no dividend yield, a volatility factor of
0.7, and the contractual life of three years.
Common Stock
Annuncio has sold 7,500,000 shares of common stock to its founders for
$0.00067 per share of which 1,856,880 shares are subject to repurchase at
December 31, 1999. At December 31, 1999, Annuncio has reserved 18,750,000
shares of its common stock for issuance upon conversion of its Series A, B, and
C redeemable convertible preferred stock and an additional 3,750,000 shares of
its common stock for issuance under the 1997 Stock Plan.
1997 Stock Plan
During 1997, Annuncio adopted the 1997 Stock Plan (the "Plan"). Under the
Plan, up to 3,750,000 shares of Annuncio'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 ratably over a 48-month period and
have a maximum term of 10 years.
F-13
<PAGE>
ANNUNCIO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
A summary of activity under the Plan is as follows:
<TABLE>
<CAPTION>
Shares Weighted-
Available Average
for Options Price Per Exercise
Grant Outstanding Share Price
---------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Shares authorized............ 3,750,000 -- -- --
Options granted.............. (225,000) 225,000 $ 0.04 $0.04
---------- ---------- ------------- -----
Balance at December 31, 1997... 3,525,000 225,000 $ 0.04 $0.04
Options granted.............. (1,834,180) 1,834,180 $0.04--$ 0.07 $0.05
Options exercised............ -- (105,304) $0.04--$ 0.07 $0.04
Options canceled............. 152,189 (152,189) $ 0.04 $0.04
---------- ---------- ------------- -----
Balance at December 31, 1998... 1,843,009 1,801,687 $0.04--$ 0.07 $0.04
Options granted.............. (2,024,062) 2,024,062 $0.07--$ 0.47 $0.29
Options exercised............ -- (2,073,711) $0.07--$ 0.47 $0.09
Options canceled............. 228,376 (228,376) $0.04--$ 0.47 $0.08
Options repurchased.......... 15,000 -- $ 0.47 $0.47
---------- ---------- ------------- -----
Balance at December 31, 1999... 62,323 1,523,662 $0.04-- $0.47 $0.29
========== ========== =============
</TABLE>
The following table summarizes information concerning outstanding options
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
----------------------------------------------------------
Weighted
Average
Remaining Weighted
Contractual Average
Number of Life Exercise
Exercise Prices Shares (in Years) Price
--------------- --------- ----------- --------
<S> <C> <C> <C>
$0.04 123,825 8.26 $0.04
$0.06 249,562 8.95 $0.07
$0.23 490,725 9.40 $0.23
$0.46 659,550 9.77 $0.47
--------- ---- -----
1,523,662 9.34 $0.29
=========
</TABLE>
As of December 31, 1999, options to purchase 729,934 shares of common stock
were fully vested.
Pro forma information regarding net income is required by Statement 123,
which also requires that the information be determined as if Annuncio has
accounted for its employee stock options granted subsequent to December 31,
1994 under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using the minimum value method
option pricing model assuming no dividend yield or volatility factors and the
following weighted-average assumptions for 1997, 1998 and 1999: risk-free
interest rate of 6.5%, and weighted-average expected lives of the options of
five, five and four years, respectively.
F-14
<PAGE>
ANNUNCIO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The weighted average fair value of options granted during 1997, 1998 and
1999 with an exercise price equal to the fair value of Annuncio's common stock
on the date of grant was $0.01, $0.01 and $0.07, respectively.
<TABLE>
<CAPTION>
Period From
August 8, 1997
(Inception) to
December 31, Years Ended December 31,
-------------- -------------------------
1997 1998 1999
-------------- ----------- ------------
<S> <C> <C> <C>
Pro forma net loss............... $(339,177) $(3,076,935) $(10,752,849)
========= =========== ============
Pro forma basic and diluted net
loss per share................. $ (0.18) $ (0.78) $ (1.80)
========= =========== ============
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
above options is amortized over the vesting period of the option. The effects
of applying FAS 123 for pro forma disclosures are not likely to be
representative of the effects on reported net loss for future years.
Deferred Stock Compensation
Annuncio recorded deferred stock compensation of $153,502 and $4,188,420 in
1998 and 1999, respectively. This amount represents the difference between the
exercise price and the deemed fair value of Annuncio's common stock on the date
the stock options were granted. This amount is being amortized using the
accelerated vesting method, in accordance with FASB Interpretation No. 28, over
the corresponding vesting period of each respective option, generally four
years.
8. Income Taxes
As of December 31, 1999, Annuncio had net operating loss carryforwards for
federal and state income tax purposes of approximately $10,000,000 which will
begin to expire in the years 2012 and 2005, respectively.
Utilization of the net operating loss may be subject to a substantial
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of the net operating losses before
utilization.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of Annuncio's deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 1,318,012 $ 4,018,918
Research credit carryforwards.................... 104,114 297,652
Other............................................ -- 890,076
----------- -----------
Total deferred tax assets..................... 1,422,126 5,206,646
Valuation allowance................................ (1,422,126) (5,206,646)
----------- -----------
Net deferred tax assets............................ $ -- $ --
=========== ===========
</TABLE>
Based upon the weight of available evidence, which includes Annuncio's
historical operating performance, the reported net losses for the period from
inception through December 31, 1997 and the years
F-15
<PAGE>
ANNUNCIO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
ended December 31, 1998 and 1999, and the uncertainties regarding Annuncio's
future results of operations, a full valuation allowance has been provided
against it net deferred tax assets. It is more likely than not that the
deferred tax assets will not be realized. The valuation allowance increased by
$3,784,520 during the year ended December 31, 1999.
9. Employee Savings and Retirement Plan
Annuncio has a 401(k) plan that allows eligible employees to contribute up
to 20% of their salary, subject to annual limits. Under the plan, eligible
employees may defer a portion of their pretax salaries but not more than
statutory limits. Contributions by Annuncio are at the discretion of the Board
of Directors. No discretionary contributions have been made by Annuncio to
date.
10. Subsequent Events
On February 24, 2000 the Board of Directors authorized Annuncio to proceed
with an initial public offering of its common stock. If the offering is
consummated as presently anticipated, all of the outstanding preferred stock
will automatically convert into common stock. The unaudited pro forma
stockholders' equity (deficit) at December 31, 1999 gives effect to the
conversion of all outstanding shares of redeemable convertible preferred stock
at December 31, 1999 into 16,698,567 shares of common stock upon the completion
of the offering. The Board also approved, subject to stockholder approval, the
amendment of Annuncio's Articles of Incorporation, which included, among other
things, reincorporation of Annuncio in the State of Delaware and a change in
the total number of shares which Annuncio is authorized to issue to 210,000,000
shares, of which 200,000,000 will be common stock and 10,000,000 will be
preferred stock.
Series D Preferred Stock
In February 2000, Annuncio issued 2,840,445 shares of its Series D
redeemable convertible preferred stock raising approximately $15.1 million, net
of issuance cost. The Series D redeemable convertible preferred stock has
similar rights and preferences as the previously issued Series A, B, and C
redeemable convertible preferred stock.
Stock Split
In February 2000, Annuncio's Board of Directors approved a three-for-two
stock split of Annuncio's common and preferred stock. All share and per share
amounts have been adjusted retroactively.
Stock Plans
In January 2000, Annuncio's stockholders approved a proposal to increase
the available shares under the 1997 Stock Plan by an additional 4,875,000
shares.
In February 2000, the board of directors adopted Annuncio's 2000 Stock
Plan, subject to shareholder approval. This plan provides for the grant of
incentive stock options, nonstatutory stock options and restricted stock
purchase awards to eligible participants. A total of 8,400,000 shares of common
stock has been reserved for issuance under this plan.
In February 2000, the board of directors adopted Annuncio's 2000 Director
Option Plan, subject to stockholder approval. A total of 750,000 shares of
common stock has been reserved for issuance under the director's plan. The
director's plan provides for automatic grant of options to non-employee
directors.
F-16
<PAGE>
ANNUNCIO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In February 2000, the board of directors adopted Annuncio's 2000 Employee
Stock Purchase Plan subject to stockholder approval. A total of 1,125,000
shares of common stock has been reserved for issuance under this purchase plan.
Eligible employees may purchase common stock at 85% of the lesser of the fair
value of Annuncio's common stock on the first day of the applicable two-year
offering period or the last day of the applicable six-month purchase period.
Deferred Stock Compensation
In January and February 2000, Annuncio granted options to employees to
purchase 2,742,601 shares of common stock at an exercise price of $0.47 per
share. Annuncio estimated it will record additional deferred stock compensation
of approximately $13.3 million related to these grants.
Brightinfo.com. Acquisition--unaudited
In March 2000, we closed a merger with Brightinfo.com, Inc.
("Brightinfo.com") pursuant to which Brightinfo.com became our wholly owned
subsidiary. In connection with the merger, we issued a total of 7,500,000
shares of our common stock at $5.33 per share in exchange for all outstanding
common shares and preferred shares, warrants and options of Brightinfo.com. We
have accounted for the Brightinfo.com merger as a purchase with a total
purchase price of approximately $41.2 million, which includes approximately
$1.2 million in acquisition costs. As there is no readily determinable market
for Annuncio's stock, and the price per share of its common stock will be based
on the price of Series D redeemable convertible preferred stock, this price
could be materially different than the fair value of the shares.
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on approximate fair values as follows:
<TABLE>
<S> <C>
Tangible assets acquired........................................ $ 1,771,937
Developed technology............................................ 2,150,633
Core technology................................................. 6,695,669
In-process research and development............................. 5,462,821
Acquired work force............................................. 611,523
Patents......................................................... 581,018
Assumed liabilities............................................. (1,862,402)
Preliminary goodwill............................................ 25,788,801
-----------
$41,200,000
===========
</TABLE>
Annuncio determined that $5,462,821 of the purchase price represented in-
process research and development that had not yet reached technological
feasibility and had no alternative future use. Accordingly, this amount was
expensed at the time of the acquisition. The value assigned to in-process
research and development was determined by identifying research projects in
areas for which technological feasibility had not been achieved and assessing
the stage of completion date of the research and development effort. The stage
of completion was determined by estimating the costs and time incurred to date
relative to the costs and time to be incurred to develop the in-process
research and development into commercially viable products, estimating the
resulting net cash flows only from the percentage of research and development
efforts completed at the date of acquisition, and discounting the net cash
flows back to their present value. A discount rate of 30% was utilized which
took into account the uncertainty surrounding the successful development of the
in-process research and development projects.
F-17
<PAGE>
ANNUNCIO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The value of the developed technology of $2,150,633 and core technology of
$6,695,669 was determined by discounting expected future cash flows of the
existing developed technologies taking into account the characteristics and
future markets, as well as an evaluation of past and anticipated service-life
cycles. Discount rates of 20% and 25%, respectively, were utilized which took
into account the uncertainty surrounding the successful delivery of the
developed and core technology.
The following (unaudited) pro forma summary information represents the
consolidated results of operations as if the acquisition of Brightinfo.com had
occurred at the beginning of the period presented and is not intended to be
indicative of future results:
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
Pro forma net revenue.................................... $ 2,256,458
Pro forma net loss....................................... $(30,877,493)
Pro forma basic and diluted net loss per share........... $ (1.05)
Number of shares used in pro forma basic and diluted per
share calculation...................................... 29,520,813
</TABLE>
The number of shares used in the above pro forma per share calculation
assumes that the common stock issued to Brightinfo.com in February 2000 was
issued and outstanding for the entire year of 1999. Additionally, the proforma
number of shares assumes the conversion of Series A, B and C redeemable
convertible preferred stock and the convertible subordinated debentures of
Brightinfo.com The pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition had been effected at the
beginning of the period presented and are not intended to be a projection of
future results.
F-18
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Report of Ernst & Young LLP Independent Auditors
The Board of Directors and Stockholders
Brightinfo.com, Inc.
We have audited the accompanying balance sheets of Brightinfo.com, Inc. as
of December 31, 1998 and 1999, and the related statements of operations,
redeemable convertible preferred stock and stockholders' equity (deficit), and
cash flows for the period from August 12, 1998 (inception) through December
31, 1998 and the year ended December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 consolidated financial position of
Brightinfo.com, Inc. at December 31, 1998 and 1999, and the consolidated
results of its operations and its cash flows for the period from August 12,
1998 (inception) through December 31, 1998 and the year ended December 31,
1999, in conformity with accounting principles generally accepted in the
United States.
The accompanying financial statements have been prepared assuming that
Brightinfo.com, Inc. will continue as a going concern. As further described in
Note 1 to the financial statements, the Company has incurred operating losses
since inception. This condition raises substantial doubt about its ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments to reflect the possible effects on the recoverability
and classification of assets or the amounts and classifications of liabilities
that may result from the outcome of this uncertainty.
San Jose, California
February 11, 2000
F-19
<PAGE>
BRIGHTINFO.COM SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
-------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................. $279,662 $ 1,028,303
Accounts receivable (including $100,000 from a
related party at
December 31, 1999).................................... -- 196,000
Prepaid expenses and other current assets............. -- 86,250
-------- -----------
Total current assets............................... 279,662 1,310,553
Property and equipment, net............................. 9,011 321,684
Deposits................................................ 11,070 139,700
-------- -----------
Total assets....................................... $299,743 $ 1,771,937
======== ===========
Liabilities, redeemable convertible preferred stock and
stockholders' equity (deficit)
Current liabilities:
Accounts payable and accrued liabilities.............. $ -- $ 859,736
Deferred revenue...................................... -- 102,666
Borrowings under lines of credit...................... -- 300,000
-------- -----------
Total current liabilities.......................... -- 1,262,402
Convertible subordinated debentures..................... -- 600,000
Commitments
Redeemable convertible preferred stock, $0.001 par
value, issuable in series; authorized shares--
5,000,000; issued and outstanding shares 1,000,000 and
3,166,668 at December 31, 1998 and 1999, respectively,
(liquidation preference at December 31, 1999--
$2,900,002)........................................... 300,000 2,853,341
Stockholders' equity (deficit):
Common stock, $0.001 par value; authorized shares--
15,000,000; issued and outstanding shares--
3,340,000 and 3,988,000 at December 31, 1998 and
1999, respectively.................................. 3,340 3,988
Additional Paid in Capital............................ 13,360 3,507,114
Deferred compensation................................. -- (99,900)
Note Receivable from Stockholders..................... -- (2,727,609)
Accumulated deficit................................... (16,957) (3,627,399)
-------- -----------
Total stockholders' equity (deficit)............... (257) (2,943,806)
-------- -----------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity (deficit)......... $299,743 $ 1,771,937
======== ===========
</TABLE>
See accompanying notes.
F-20
<PAGE>
BRIGHTINFO.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
August 12, 1998
(Inception) to Year Ended
December 31, December
1998 31, 1999
--------------- -----------
<S> <C> <C>
Revenues:
License (including $202,500 from a related
party)........................................ -- $ 532,133
Professional services (including $7,000 from a
related party)................................ -- 41,001
---------- -----------
Total revenues............................... -- 573,134
Cost of revenue:
License......................................... -- --
Professional services........................... -- 45,051
---------- -----------
Total cost of revenue........................ -- 45,051
---------- -----------
Gross profit...................................... -- 528,083
Operating expenses:
Product development............................. -- 1,075,950
Sales and marketing............................. -- 1,762,782
General and administrative...................... 18,534 781,161
Amortization of deferred compensation........... -- 561,331
---------- -----------
Total operating expense...................... 18,534 4,181,224
---------- -----------
Loss from operations.............................. (18,534) (3,653,141)
Interest income, net.............................. 1,577 42,699
---------- -----------
Net loss.......................................... $ (16,957) $(3,610,442)
========== ===========
Net loss per share:
Basic and diluted............................... $ (0.01) $ (1.07)
========== ===========
Shares used in calculation of net loss per share:
Basic and diluted............................... 1,145,479 3,387,975
========== ===========
</TABLE>
See accompanying notes.
F-21
<PAGE>
BRIGHTINFO.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Stockholders' Equity (Deficit)
----------------------------------------------------------------------------------
Redeemable
Convertible Notes
Preferred Stock Common Stock Additional Receivables
-------------------- ----------------- Paid in Deferred From Accumulated
Shares Amount Shares Amount Capital Compensation Stockholders Deficit Total
--------- ---------- --------- ------ ---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock at $0.005
per share to
founders......... -- $ -- 3,340,000 $3,340 $ 13,360 $ -- $ -- $ -- $ 16,700
Issuance of Series
A preferred stock
at $0.30 per
share............ 1,000,000 300,000 -- -- -- -- -- -- --
Net loss and
comprehensive
loss............. -- -- -- -- -- -- -- (16,957) (16,957)
--------- ---------- --------- ------ ---------- ----------- -------- ----------- -----------
Balance at
December 31,
1998............ 1,000,000 300,000 3,340,000 3,340 13,360 -- -- (16,957) (257)
Issuance of Series
B preferred stock
and $1.20 per
share, net of
issuance costs of
$46,661.......... 2,166,668 2,553,341 -- -- -- -- -- -- --
Exercise of stock
options.......... -- -- 622,000 622 30,478 -- -- -- 31,100
Exercise of stock
options for notes
receivable....... -- -- 111,000 111 99,789 -- (99,900) -- --
Issuance of
warrants in
connection with
bank financing
and consulting
services......... -- -- -- -- 78,712 -- -- -- 78,712
Repurchase of
common stock..... -- -- (85,000) (85) (4,165) -- -- -- (4,250)
Deferred
compensation..... -- -- -- -- 3,288,940 (3,288,940) -- -- --
Amortization of
deferred
compensation..... -- -- -- -- -- 561,331 -- -- 561,331
Net loss and
comprehensive
loss............. -- -- -- -- -- -- -- (3,610,442) (3,610,442)
--------- ---------- --------- ------ ---------- ----------- -------- ----------- -----------
Balance at
December 31,
1999............ 3,166,668 $2,853,341 3,988,000 $3,988 $3,507,114 $(2,727,609) $(99,900) $(3,627,399) $(2,943,806)
========= ========== ========= ====== ========== =========== ======== =========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
BRIGHTINFO.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
August 12,
1998 (inception) Year ended
through December December
31, 1998 31, 1999
---------------- -----------
<S> <C> <C>
Operating activities
Net loss........................................ $(16,957) $(3,610,442)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................... 522 28,715
Amortization of warrant valuations............. -- 23,345
Amortization of deferred compensation.......... -- 561,331
Changes in operating assets and liabilities:
Accounts receivable........................... -- (196,000)
Prepaid expenses and other current assets..... -- (30,910)
Deposits...................................... (11,070) (128,603)
Accounts payable and accrued liabilities...... -- 859,736
Deferred revenue.............................. -- 102,666
-------- -----------
Net cash used in operating activities....... (27,505) (2,390,162)
Investing activities
Purchases of property and equipment............. (9,533) (341,388)
-------- -----------
Net cash used in investing activities....... (9,533) (341,388)
Financing activities
Proceeds from issuance of preferred stock, net.. 300,000 2,553,341
Proceeds from issuance of common stock, net..... 16,700 31,100
Repurchase of common stock...................... -- (4,250)
Proceeds from issuance of convertible
subordinated debenture........................ -- 600,000
Borrowings under bank line of credit............ -- 300,000
-------- -----------
Net cash provided by financing activities... 316,700 3,480,191
-------- -----------
Change in cash and cash equivalents.............. 279,662 748,641
Cash and cash equivalents at beginning of
period......................................... -- 279,662
-------- -----------
Cash and cash equivalents at end of period....... $279,662 $ 1,028,303
======== ===========
Noncash investing and financing activities
Issuance of warrants in connection with bank
financing and consulting services............. $ -- $ 78,712
======== ===========
Issuance of common stock for notes receivable... $ -- $ 99,900
======== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
BRIGHTINFO.COM, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Description of the Company
Brightinfo.com, Inc. (the "Company") was incorporated in Delaware on August
12, 1998 and is engaged in the development and sale of software designed to
automate and improve the effectiveness of marketing programs for companies with
e-commerce Web sites. The Company's products enable marketing professionals to
create and manage real-time personalized web merchandising programs, analyze
program effectiveness, and make changes using a point-and-click web-based user
interface.
The Company has incurred operating losses to date and has an accumulated
deficit of $3,627,399 as at December 31, 1999. The Company's activities have
been primarily financed through private placements of equity securities and
debt financings. The Company will need to raise additional capital through the
issuance of debt or equity securities in order to finance operations through
December 31, 2000. This financing may not be available on terms satisfactory to
The Company, if at all. The accompanying financial statements do not include
any adjustments to reflect the possible effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the outcome of this uncertainty.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
The Company generates revenue through software licenses, professional
services and providing maintenance and support. The Company's license revenues
are generated from licensing the Company's products directly to end-users.
Professional services revenues are generated from training and consulting
services performed for those customers that license the Company's products.
Maintenance and support revenues are generated from technical support and
product updates provided for those customers that license the Company's
products.
License revenues are recognized when a noncancelable license agreement has
been signed, the product has been installed, the fees are fixed and
determinable, collectibility is probable and vendor-specific objective evidence
exists to allocate the total fee to elements of the arrangement. In certain
cases where the Company does not execute a licenses agreement revenues are
recognized on a cash basis after the product has been installed and there is
persuasive evidence that an arrangement exist.
Revenues from maintenance, which consists of fees for ongoing technical
support and product updates, are recognized ratably over the term of the
maintenance contract, which is typically one year. Revenues from training and
consulting services are recognized as services are performed.
Deferred revenue includes license, maintenance, and consulting fees for
which payment has been received but delivery or performance has not occurred.
Software Development Costs
Development costs incurred in the research and development of new software
products are expensed as incurred until technological feasibility in the form
of a working model has been established. To date, the Company's software
development projects have been completed concurrent with the establishment of
technological feasibility, and, accordingly, all software development costs
have been charged to product development expense in the accompanying statements
of operations.
F-24
<PAGE>
BRIGHTINFO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents
The Company's cash equivalents as of December 31, 1998 and 1999 consist of
money market funds with qualified financial institutions and their carrying
value approximates fair value. The Company considers all highly liquid
investments with an original maturity from date of purchase of three months or
less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, net of accumulated amortization
and depreciation. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets, generally three to five
years.
Stock-Based Compensation
The Company accounts for employee stock option grants using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25 and
has adopted the disclosure-only alternative of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123").
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires the use of the liability method in accounting for income
taxes. Under SFAS 109, deferred tax assets and liabilities are measured based
on differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
Concentrations of Credit Risk and Credit Evaluations
The Company is subject to concentrations of credit risk from its holdings
of cash and cash equivalents, which are held with two domestic financial
institutions. Also, the Company sells its products in the United States on a
credit basis. The Company performs ongoing credit evaluations, does not require
collateral and maintains reserves for potential credit losses on customer
accounts when deemed necessary. As of December 31, 1999, four customers
accounted for 51%, 20%, 10% and 10% of accounts receivable. For the year ended
December 31, 1999, four customers accounted for 37%, 14%, 11% and 11% of
revenues.
Net Loss Per Share
Basic and diluted net loss per share information for all periods is
presented under the requirement of SFAS No. 128, "Earnings per Share". Basic
earnings per share has been computed using the weighted-average number of
common shares outstanding during the period, less shares subject to repurchase,
and excludes any dilutive effects of stock options, warrants, and convertible
securities. Potentially dilutive securities have been excluded from the
computation of diluted net loss per share as their inclusion would be
antidilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included above that will automatically
convert upon completion of the Company's initial offering, using the if-
converted method.
F-25
<PAGE>
BRIGHTINFO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The calculation of historical and pro forma basic and diluted net loss per
share is as follows (in thousands, expect share and per share amounts):
<TABLE>
<CAPTION>
Period ended Year ended
December 31, December
1998 31, 1999
------------ -----------
<S> <C> <C>
Historical:
Net loss........................................ $ (16,957) $(3,610,442)
---------- -----------
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share.................... 1,145,479 3,387,975
Basic and diluted net loss per share............ $ (0.01) $ (1.07)
========== ===========
</TABLE>
Advertising Expense
The cost of advertising is expensed as incurred. Advertising costs, which
is included in sales and marketing expense, was approximately $91,200 and none
for the year ended December 31, 1999 and the period from August 12, 1998
(inception) to December 31, 1998, respectively.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative and Hedging
Activities" ("FAS 133") was issued. FAS 133 is required to be adopted in years
beginning after June 15, 2000. FAS 133 establishes accounting and reporting
standards of derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Company will adopt
FAS 133 in its year ending December 31, 2000 and does not expect such adoption
to have a material impact on the Company's results of operations, financial
position or cash flows.
2. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------ --------
<S> <C> <C>
Computer equipment and software............................ $9,533 $194,514
Property, fixtures and improvements........................ -- 156,407
------ --------
9,533 350,921
Less accumulated depreciation.............................. (522) (29,237)
------ --------
$9,011 $321,684
====== ========
</TABLE>
F-26
<PAGE>
BRIGHTINFO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1999
------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $ 6,666 $ 1,159,085
Other................................................ -- 60,040
------- -----------
Total deferred tax assets......................... 6,666 1,219,125
Valuation allowance.................................... (6,666) (1,219,125)
------- -----------
Net deferred tax assets................................ $ -- $ --
======= ===========
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any, of which the timing and amount are uncertain. Accordingly, the net
deferred tax assets have been fully offset by a valuation allowance. The
valuation allowance increased by $6,666 and $1,212,459 during the period ended
December 31, 1998 and the year ended December 31, 1999, respectively.
As of December 31, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $2,897,000 which begins to
expire in the years 2018 through 2019. The Company had net operating loss
carryforwards for state income tax purposes of approximately $2,897,000
expiring in 2006.
Utilization of the Company's net operating loss carryforwards may be
subject to substantial annual limitation due to the ownership change limitation
provided by the Internal Revenue Code and a similar state provision. Such an
annual limitation could result in the expiration of the net operating loss
carryforwards before utilization.
4. Related Party Transactions
A member of the Company's board of directors, who is also a stockholder of
the Company, is a board of directors member and a stockholder in a company
which has purchased the Company's products. Amounts received from this the
related entity was approximately $150,000 during the year ended December 31,
1999.
5. Financing Arrangements
In June 1999, the Company entered into a line of credit agreement with a
bank that provides for borrowings of up to $1,350,000. The agreement allows for
two lines of credit; a revolving line of credit and an equipment line of
credit. The maximum borrowing under the revolving line of credit at December
31, 1999 is $300,000 and increases to $1,000,000 in April 2000. The maximum
borrowing under the equipment line of credit is $350,000 at December 31, 1999.
Outstanding borrowings under the revolving line of credit is $300,000 at
December 31, 1999, which bear interest at the bank's prime rate plus 1.0% or
9.5%. There were no outstanding borrowings under the equipment line of credit
as of December 31, 1999. Amounts outstanding under these financing arrangements
are due on December 15, 2000.
At December 31, 1999, the Company was not in compliance with certain
financial covenants required under the revolving line of credit agreement.
Amounts outstanding under the revolving line of credit are
F-27
<PAGE>
BRIGHTINFO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
classified as current at December 31, 1999. Failure to comply with financial
covenants may result in the acceleration of principal and interest payments due
under the terms of the agreement and the unavailability of scheduled increases
in the line of credit.
6. Convertible Subordinated Debentures
In June 1999, the company issued convertible subordinated debentures to an
investor in exchange for $600,000 in cash. The debentures are subordinate to
principal, premium and interest on all Senior Debt. The debentures accrue
interest at 8% per annum and are convertible into shares of Series B preferred
stock as described below. Accrued interest is payable annually beginning
December 31, 1999. All outstanding principal and any unpaid accrued interest
are due and payable in sixteen equal quarterly installments beginning September
29, 2004. Accrued interest due may be waived at the option of the holder by
written notice within 14 days after the interest payment due date. Repayment of
accrued interest is deemed waived if the holder of the debentures fails to
notify the Company within 14 days after the interest payment due date.
The principal amount of the debentures is convertible into fully paid and
nonassessable shares of Series B preferred stock of the Company at $1.20 per
share, subject to adjustment under certain circumstances such as a stock-split.
Conversion occurs (i) at the option of the Holder, (ii) upon the closing of a
qualified public offering of the Company, (iii) upon the liquidation,
dissolution or winding up of the Company, or upon a bankruptcy, insolvency or
reorganization; (iv) after four years from the date of the debenture.
7. Redeemable Convertible Preferred Stock
The Company is authorized to issue 5,000,000 shares of redeemable
convertible preferred stock with a par value of $0.001 per share. At of
December 31, 1999, the Company's designated redeemable convertible preferred
stock series are as follows: 1,500,000 shares remained undesignated.
<TABLE>
<CAPTION>
Shares Issued and Aggregate
Outstanding Liquidation
December 31, Preference
------------------- at
Designated December 31,
Series Shares 1998 1999 1999
------ ---------- --------- --------- ------------
<S> <C> <C> <C> <C>
A............................... 1,000,000 1,000,000 1,000,000 $ 300,000
B............................... 2,500,000 -- 2,166,668 2,600,002
--------- --------- --------- ----------
Total......................... 3,500,000 1,000,000 3,166,668 $2,900,002
</TABLE>
Conversion
Each share of redeemable preferred stock is convertible into fully paid and
nonassessable shares of common stock at the option of the holder. The
conversion rates, 1:1 for Series A and Series B, are subject to adjustment in
certain circumstances such as a stock-split. Conversion is automatic upon the
closing of a qualified public offering of common stock with net proceeds of at
least $15,000,000 or a public offering price of not less than $5.00 per share.
Dividends
The holders of shares of Series A and Series B redeemable convertible
preferred stock are entitled to receive dividends at the rates of $0.021 and
$0.096 per annum, respectively (as adjusted for any stock dividends,
combinations or splits with respect to such shares). Dividends are payable in
preference and priority to any payment of any dividend on common stock of the
Company.
F-28
<PAGE>
BRIGHTINFO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Such dividends are payable only when, as and if declared by the Board of
Directors, but only out of funds that are legally available, and are
noncumulative. No dividends have been declared or paid as of December 31, 1999.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Company,
the holders of redeemable convertible preferred stock are entitled to receive
an amount equal to the sum of $0.30 for each share of Series A redeemable
convertible preferred stock and $1.20 for each share of Series B redeemable
convertible preferred stock plus any declared but unpaid dividends with respect
to such shares. The remaining assets, if any, are to be distributed ratably to
the holders of common and preferred stock on an as-if-converted to common stock
basis. If the assets and funds distributed among the holders of the preferred
stock are insufficient to permit the payment to holders of the full
preferential amount, then all assets and funds of the Company are to be
distributed ratably among the holders of preferred stock, in proportion to the
preferential amount each such holder is otherwise entitled to receive.
Redemption
Upon written notice, any time after five years from issuance, the holders
of not less than a majority of the outstanding shares of Series A and Series B
redeemable convertible preferred stock may require the Company to redeem all
outstanding shares of Series A and Series B redeemable convertible preferred
stock. Redemption occurs in three equal annual installments beginning two
months from the receipt of written notice. The redemption price is the original
issue price plus all declared but unpaid dividends. If the Company does not
have sufficient funds to redeem all the shares to be redeemed at the redemption
date, then such unredeemed shares will be carried forward to the next
redemption date until all such shares have been converted or redeemed.
Voting
The holders of preferred stock are entitled to the number of votes equal to
the number of shares of common stock into which each share of preferred stock
could be converted.
Antidilution Provisions
The conversion price of the Company's preferred stock is subject to
adjustment to prevent dilution in the event that the Company issues additional
shares of preferred stock, common stock or common stock equivalents at a
purchase price less than the then-effective conversion price. However, without
triggering antidilution adjustments, the Company may issue to directors,
officers, employees, or consultants shares of common stock that are reserved
for issuance under the Company's stock option plan or in connection with
financing or other transactions which involve consideration and which are
approved by the Board of Directors.
8. Stockholders' Equity
The Company is authorized to issue 15,000,000 shares of common stock with a
par value of $0.001 per share.
Common Stock Issued to Founders
In August 1998, the Company issued 3,340,000 shares of common stock to the
founders at $0.005 per share for cash. These common shares are subject to
repurchase rights that allow the Company to repurchase the
F-29
<PAGE>
BRIGHTINFO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
shares at the original purchase price in the event of termination of
employment, death or disability. This repurchase right expires ratably over
four years. At December 31, 1998 and 1999, 2,833,250 and 1,778,666 shares were
subject to repurchase rights, respectively.
Warrants
In December 1999, in connection with a line of credit agreement, the
Company issued a warrant that entitles the holder to purchase up to 9,750
shares of the Company's Series B preferred stock at $2.00 per share. The
warrant has a contractual term of 10 years from the date of grant. The fair
value for these warrants was estimated at the date of grant using a Black-
Scholes pricing model with the following assumptions: a risk free interest rate
of approximately 5.5%, no dividend yield, volatility factor of 0.7, and a
weighted-average expected life of the options of ten years. The fair value of
these warrants was estimated to be approximately $63,300 and will be expensed
as a cost of financing over the term of the loan agreement.
In April 1999, in connection with certain consulting services, the Company
issued a warrant to purchase 7,650 shares of the Company's common stock at
$0.05 per share. The warrant has a term of 5 years from date of the grant. The
fair value of these warrants was estimated to be approximately $15,435 and was
expensed in the year ended December 31, 1999
Stock Option Plan
The Company has reserved 1,460,000 shares of common stock under the 1999
Stock Option Plan (the "Plan"). The Plan provides for incentive stock options,
as defined by the Internal Revenue Code, to be granted to employees, at an
exercise price not less than 100% of the fair value at the grant date as
determined by the Board of Directors, unless the optionee is a 10% shareholder,
in which case the option price will not be less than 110% of such fair market
value. The Plan also provides for nonqualified stock options to be issued to
employees and consultants at an exercise price of not less than 85% of the fair
value at the grant date.
Options granted generally have a maximum term of 10 years from grant date,
are exercisable upon vesting, unless otherwise designated for early exercise by
the Board of Directors at the time of grant, and generally vest over a 4-year
period with a 25% cliff vesting after one year and then ratably on a monthly
basis for 3 years thereafter. Options exercised early are subject to the
vesting provisions mentioned above and any unvested shares are subject to
repurchase at the original price upon termination of employment, death, or
disability. At of December 31, 1999, 644,000 shares were subject to repurchase.
A summary of the stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number of Exercise
Shares Price
---------- ---------
<S> <C> <C>
Outstanding balance at December 31, 1997 $ -- $ --
Granted............................................. 1,247,149 0.20
Exercised........................................... (733,000) 0.18
Canceled............................................ (40,000) 0.05
---------- -----
Balance at December 31, 1998.......................... 474,149 $0.24
========== =====
</TABLE>
As of December 31, 1999, options to purchase 252,851 shares of common stock
were available for future grant under the Plan.
F-30
<PAGE>
BRIGHTINFO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, exercisable shares totaled 9,150. The following table
summarizes information about stock options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------------------------------
Weighted-
Average
Remaining Weighted-
Contractual Average
Exercise Number of Life (in Exercise
Price Shares Years) Price
-------- --------- ----------- ---------
<S> <C> <C> <C>
$ 0.05-0.90 474,149 9.25 $0.18
</TABLE>
Shares Reserved for Future Issuance
As of December 31, 1999, shares of common stock reserved for future
issuance were as follows:
<TABLE>
<S> <C>
Stock Option Plan................................................. 767,000
Conversion of preferred stock..................................... 3,166,668
Warrants.......................................................... 17,400
---------
Total shares reserved for future issuance....................... 3,951,068
=========
</TABLE>
Pro Forma Disclosure of the Effect of Stock-Based Compensation
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires the use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals or exceeds the market price of the underlying
common stock on the grant date, no compensation expense is recorded.
Pro forma information regarding net income (loss) is required by SFAS 123.
Under this method, the estimated fair value of the options is amortized to
expense over the vesting period of the options. The effect of applying the fair
value method of SFAS 123 to the Company's stock-based awards results in net
losses that are not significantly different from historical amounts reported.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<S> <C>
Risk-free interest rate............................................. 5.5%
Expected life of the option......................................... 4 years
Expected volatility................................................. 0.7%
Expected dividend yield............................................. 0%
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimates, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
The weighted-average fair value of options granted to employees during the
year ended December 31, 1999 was $2.69.
F-31
<PAGE>
BRIGHTINFO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Commitments
Leases
The Company leases its facilities under noncancelable operating lease
through 2002. The lease requires the Company to pay operating costs, including
property taxes, normal maintenance and insurance. Future minimum payments under
operating leases are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
2000............................................................... $337,681
2001............................................................... 120,199
2002............................................................... 1,974
--------
Total............................................................ $459,854
========
</TABLE>
Rent expense under operating lease arrangements for the year ended December
31, 1999 totaled approximately $9,500 and the period from August 12, 1998
(inception) through December 31, 1998, totaled approximately $98,300.
10. Risks Associated with Year 2000 (Unaudited)
The Company evaluated its internal and network systems and software
products and experienced no significant disruptions in mission critical
information technology systems, non-information technology systems, or software
products and believes those systems and products successfully responded to the
Year 2000 date change. Remediation costs incurred to date have not been
material.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors
throughout the year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly. However, failure to fully identify all Year 2000
dependencies in the Company's existing systems, in the systems of its
suppliers, and the systems of its financial institutions could have material
adverse consequences.
11. Retirement Plan
The Company has a defined contribution plan for all full-time employees
which qualifies under Section 401(k) of the Internal Revenue Code. Under the
terms of the plan, employees may contribute up to 15%, subject to Internal
Revenue Service limitation, of their annual compensation. The Plan does not
provided for matching contributions from the Employer.
12. Subsequent Events
On February 8, 2000, the Company signed a memorandum of understanding that
confirms the terms and structure of a proposed acquisition of the Company.
F-32
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION OVERVIEW
The Merger
Annuncio Software, Inc. (Annuncio) and Brightinfo.com (BrightInfo) have
entered into a definitive agreement to merge (the Merger) whereby all the
issued and outstanding common stock, preferred stock, options and warrants of
Brightinfo.com will be exchanged for 7,500,000 shares of Annuncio common stock.
The exchange ratio will be approximately .63 Annuncio shares per each
BrightInfo share outstanding.
The Boards of Directors of Annuncio and Brightinfo.com have unanimously
approved the Merger. The Merger will become effective subject to regulatory
approval and approval by Brightinfo.com stockholders.
The Merger provides that both Annuncio and Brightinfo.com will merge into
Annuncio, the surviving corporation.
As there is no readily determinable market for Annuncio's shares, the price
per share of its common stock was based on the price of the Series D redeemable
convertible preferred stock issued by Annuncio on February 22, 2000. This price
could be materially different than the fair value of the shares.
Unaudited Pro Forma Condensed Combined Financial Statements of Annuncio and
Brightinfo.com
The following unaudited pro forma condensed combined financial statements
combine the historical balance sheets and statement of operations of Annuncio
and Brightinfo.com after giving effect to the merger. The unaudited pro forma
condensed combined balance sheet as of December 31, 1999, set forth below,
gives effect to the Merger as if it had occurred on December 31, 1999. The
unaudited pro forma condensed combined statement of operations for the year
ended December 31, 1999 gives effect to the Merger as if it occurred on January
1, 1999. These statements have been prepared assuming the merger will be
accounted for as a purchase business combination as set forth in the notes to
these unaudited pro forma condensed combined financial statements.
The following unaudited pro forma financial information has been prepared
from, and should be read in conjunction with, the audited historical financial
statements of Annuncio and Brightinfo.com. The unaudited pro forma condensed
combined financial statements are not necessarily indicative of the financial
position or operating results that would have occurred had the Merger been
completed on December 31, 1999 or at the beginning of the period for which the
Merger is being given effect, nor is it necessarily indicative of future
financial position or operating results.
F-33
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------- ----------------------------------
Annuncio Brightinfo.com Adjustments Note Combined
------------ -------------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents.......... $ 1,115,458 $ 1,028,303 $ -- $ 2,143,761
Accounts receivable,
net.................. 2,020,879 196,000 -- 2,216,879
Prepaid expenses and
deposits............. 307,312 86,250 -- 393,562
------------ ----------- ------------ ------------
Total current
assets............. 3,443,649 1,310,553 -- 4,754,202
Property and equipment,
net................... 1,534,754 321,684 -- 1,856,438
Restricted cash......... 204,000 204,000
Intangible assets and
other assets.......... 28,908 139,700 24,753,400 A,C,D 24,922,008
------------ ----------- ------------ ------------
Total assets......... $ 5,211,311 $ 1,771,937 $ 24,753,400 $ 31,736,648
============ =========== ============ ============
Current liabilities:
Accounts payable and
accrued liabilities.. $ 2,616,988 $ 859,736 $ 1,200,000 A $ 4,676,724
Deferred revenue....... 1,583,559 102,666 -- 1,686,225
Borrowings under line
of credit............ -- 300,000 -- 300,000
Current portion of
equipment loan....... 91,121 -- -- 91,121
Current portion of
capital lease
obligations.......... 222,965 -- -- 222,965
------------ ----------- ------------ ------------
Total current
liabilities........ 4,514,633 1,262,402 1,200,000 6,977,035
Convertible subordinated
debentures............ -- 600,000 (600,000) F --
Long-term portion of
equipment loan........ 15,186 -- -- 15,186
Long-term portion of
capital lease
obligations........... 466,212 -- -- 466,212
Commitments
Redeemable convertible
preferred stock....... 12,267,287 2,853,341 (15,120,628) A,B,E --
Stockholders' equity
(deficit):
Common stock........... 966 3,988 (1,779) A,B,E,F 3,175
Additional paid-in
capital.............. 5,004,277 3,507,114 49,357,964 A,B,F 57,869,355
Note receivable from
stockholders......... -- (99,900) 99,900 A,B --
Deferred stock
compensation......... (2,915,595) (2,727,609) 2,727,609 A,B (2,915,595)
Accumulated deficit.... (14,141,655) (3,627,399) (12,909,666) A,B,C,D (30,678,720)
------------ ----------- ------------ ------------
Total stockholders'
equity (deficit)... (12,052,007) (2,943,806) 39,274,028 24,278,215
------------ ----------- ------------ ------------
Total liabilities,
redeemable convertible
preferred stock and
stockholders' equity
(deficit)............. $ 5,211,311 $ 1,771,937 $ 24,753,400 $ 31,736,648
============ =========== ============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
F-34
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------- --------------------------------
Annuncio Brightinfo.com Adjustments Notes Combined
------------ -------------- ------------ ----- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
License................ $ 853,390 $ 532,133 $ -- $ 1,385,523
Hosting................ 191,417 -- -- 191,417
Professional services.. 638,517 41,001 -- 679,518
------------ ----------- ------------ ------------
Total revenues........ 1,683,324 573,134 -- 2,256,458
Cost of revenues:
License................ 72,811 -- -- 72,811
Hosting................ 212,072 -- -- 212,072
Professional services.. 1,439,745 45,051 -- 1,484,796
------------ ----------- ------------ ------------
Total cost of
revenues............ 1,724,628 45,051 -- 1,769,679
------------ ----------- ------------ ------------
Gross profit (loss)..... (41,304) 528,083 -- 486,779
Operating expenses:
Research and
development.......... 3,429,514 1,075,950 -- 4,505,464
Sales and marketing.... 3,687,020 1,762,782 -- 5,449,802
General and
administrative....... 2,030,387 781,161 -- 2,811,548
In process research and
development.......... -- -- 5,462,821 A 5,462,821
Amortization of
deferred stock
compensation......... 1,395,593 561,331 -- 1,956,924
Amortization of
goodwill and
identified
intangibles.......... -- -- 11,074,244 C,D 11,074,244
------------ ----------- ------------ ------------
Total operating
expenses............ 10,542,514 4,181,224 16,537,065 31,260,803
------------ ----------- ------------ ------------
Loss from operations.... (10,583,818) (3,653,141) (16,537,065) (30,774,024)
Interest (expense)
income and other,
net................... (146,168) 42,699 -- (103,469)
------------ ----------- ------------ ------------
Net loss................ $(10,729,986) $(3,610,442) $(16,537,065) $(30,877,493)
============ =========== ============ ============
Basic and diluted net
loss per share........ $ (1.80) $ (1.07) E $ (1.05)
============ =========== ============
Shares used in computing
basis and diluted net
loss per share........ 5,976,565 3,387,975 29,520,813
============ =========== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
F-35
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
1. Basis of Presentation
The unaudited pro forma condensed combined balance sheet as of December 31,
1999, gives effect to the Merger as if it had occurred on December 31, 1999.
The unaudited pro forma combined statement of operations for the year ended
December 31, 1999 gives effect to the Merger as if it had occurred on January
1, 1999. These statements have been prepared assuming the merger will be
accounted for as a purchase business combination.
2. Purchase Price and Purchase Price Allocation
The Merger will result in an allocation of purchase price to the tangible
and intangible assets of Brightinfo.com, as well as a write-off of the portion
of the purchase price allocated to in-process research and development. The
transaction is not expected to result in an incremental deferred tax liability.
The allocation of the aggregate purchase price reflects the estimated fair
value of assets acquired by Brightinfo.com based upon information available at
the date of the accompanying unaudited pro forma condensed combined financial
statements. Such allocation will be adjusted based on the final determination
of such values and the final purchase price.
Brightinfo.com's common stock outstanding, the fair value per share of
common stock, Annuncio's fair value per share used to calculate the exchange
ratio, the equivalent Annuncio common stock exchanged, and the resulting
Annuncio consideration exchanged for Brightinfo.com common stock were based on
information available on February 25, 2000, the latest practicable date.
As there is no readily determinable market for Annuncio's shares, the price
per share of its common stock was based on the price of the Series D preferred
stock issued by Annuncio on February 22, 2000. This price could be materially
different than the fair value of the shares.
<TABLE>
<S> <C>
Equivalent Annuncio common stock exchanged..................... 7,500,000
Estimated fair value of Annuncio common stock.................. $ 5.3333
-----------
Subtotal....................................................... $40,000,000
Estimated legal, accounting fees and other costs............... 1,200,000
-----------
Total consideration.......................................... $41,200,000
===========
The aggregate purchase price was allocated to the tangible and intangible
assets and assumed liabilities of Brightinfo.com as follows:
Tangible assets acquired....................................... $ 1,771,937
Developed technology........................................... 2,150,633
Core technology................................................ 6,695,669
In-process research and development............................ 5,462,821
Acquired work force............................................ 611,523
Patents........................................................ 581,018
Assumed liabilities............................................ (1,862,402)
Preliminary goodwill........................................... 25,788,801
-----------
Aggregate purchase price....................................... $41,200,000
===========
</TABLE>
F-36
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION--(Continued)
3. Pro Forma Adjustments
(A)To record the anticipated value of intangible assets as described in the
above. The in-process research and development cost is treated as an
expense and therefore increases the accumulated deficit. To reflect the
estimated acquisition expenses of $1.2 million. To reflect the issuance of
7.5 million shares of Annuncio's common stock valued at approximately $40
million in exchange for all of Brightinfo.com's issued and outstanding
common stock, options and warrants.
(B)To eliminate the historical equity accounts of Brightinfo.com.
(C)To record the amortization of identifiable intangible assets related to the
acquisition of Brightinfo.com. as if the transaction occurred on January 1,
1999. Identifiable intangible assets recorded in relation to the
acquisition were approximately $10 million and are being amortized on a
straight-line basis. Core technology and patents are being amortized over a
period of five years. The acquired work force is being amortized over two
years. Developed technology is being amortized over three years.
(D)To record the amortization of goodwill related to the acquisition of
Brightinfo.com as if the transaction occurred on January 1, 1999. Goodwill
recorded in relation to the acquisition was approximately $26 million is
being amortized on a straight-line basis over three years.
(E)Weighted average shares used to calculate basic and diluted net loss per
share for the period presented is computed using the weighted average
number of common shares outstanding, including the pro forma effects of the
conversion of Annuncio's Series A, B, and C redeemable convertible
preferred stock into shares of Annuncio's common stock that will
automatically convert upon the completion of Annuncio's initial public
offering as if such conversion occurred on the later of January 1, 1999 or
issuance date, and the shares to be issued in conjunction with the
acquisition of Brightinfo.com as if such shares were outstanding as of
January 1, 1999. All share and per share information have been adjusted to
reflect Annuncio's three-for-two stock split.
(F)To reflect the automatic conversion of Brightinfo.com's convertible
subordinated debentures into common stock upon the completion of Annuncio's
initial public offering.
F-37
<PAGE>
[LOGO OF ANNUNCIO SOFTWARE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses payable by Annuncio
in connection with the registration of the common stock hereunder. All of the
amounts shown are estimates except for the SEC registration fee and the NASD
filing fee.
<TABLE>
<CAPTION>
Amount
To Be Paid
----------
<S> <C>
SEC Registration Fee............................................ $ 12,144
NASD Filing Fee................................................. 5,100
Nasdaq National Market Listing Fee.............................. 95,000
Printing and Engraving Expenses................................. 200,000
Legal Fees and Expenses......................................... 500,000
Accounting Fees and Expenses.................................... 300,000
Transfer Agent and Registrar Fees and Expenses.................. 15,000
Miscellaneous Expenses.......................................... 72,756
----------
Total...................................................... $1,200,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our certificate of incorporation and our bylaws provide for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General
Corporation Law. We have also entered into agreements with our directors and
executive officers that require Annuncio among other things to indemnify them
against certain liabilities that may arise by reason of their status or
service as directors and executive officers to the fullest extent permitted by
Delaware law. We have also purchased directors and officers liability
insurance, which provides coverage against certain liabilities including
liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since August 1997, we have issued and sold the securities described
below:
(1) In August 1997, we issued and sold an aggregate of 7,500,000 shares
of unregistered common stock at a price per share of $0.000667 to our two
founders, Didier Moretti and Maurizio Gianola, for an aggregate cash
consideration of approximately $5,000. We relied upon Section 4(2) of the
Securities Act of 1933 in connection with the issuance of these
securities.
(2) In September and October 1997, we issued and sold 7,429,689 shares
of unregistered Series A preferred stock at a price per share of $0.4267
to nine investors for aggregate cash consideration of approximately
$3,170,000. These shares were sold pursuant to a Series A preferred stock
purchase agreement between such investors and us. We relied upon Section
4(2) of the Securities Act of 1933 and Regulation D, Rule 506, in
connection with the sale of these securities. The sale of Series A
preferred stock was made in compliance with all the terms of Rules 501 and
502 of Regulation D, there were no more than 35 investors, as calculated
pursuant to Rule 501(e) of Regulation D, and each investor who was not an
accredited investor represented to us that it had such knowledge and
experience in financial and business matters that it was capable of
evaluating the merits and risks of the investment.
II-1
<PAGE>
(3) In July 1998, we issued and sold 5,071,428 shares of unregistered
Series B preferred stock at a price per share of $0.70 to nine investors
for aggregate cash consideration of approximately $3,550,000. These shares
were sold pursuant to a Series B preferred stock purchase agreement
between such investors and us. We relied upon Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506, in connection with the
sale of these securities. The sale of Series B preferred stock was made in
compliance with all the terms of Rules 501 and 502 of Regulation D, there
were no more than 35 investors, as calculated pursuant to Rule 501(e) of
Regulation D, and each investor who was not an accredited investor
represented to us that it had such knowledge and experience in financial
and business matters that it was capable of evaluating the merits and
risks of the investment.
(4) In August 1998, in connection with obtaining a line of credit, we
issued unregistered warrants to purchase an aggregate of 21,427 shares of
Series B preferred stock, with an exercise price per share of $0.70, to
Comdisco, Inc. We relied upon Section 4(2) of the Securities Act of 1933
and Regulation D, Rule 506, in connection with the sale of these
securities. The issuance of the warrants was made in compliance with all
the terms of Rules 501 and 502 of Regulation D, there were no more than 35
investors, as calculated pursuant to Rule 501(e) of Regulation D, and each
investor who was not an accredited investor represented to us that it had
such knowledge and experience in financial and business matters that it
was capable of evaluating the merits and risks of the investment.
(5) In April, June, July and August 1999, we issued and sold 4,197,450
shares of unregistered Series C preferred stock at a price per share of
$1.33 to fifteen investors for aggregate cash consideration of $5,596,600.
These shares were sold pursuant to a Series C preferred stock purchase
agreement between such investors and us. We relied upon Section 4(2) of
the Securities Act of 1933 and Regulation D, Rule 506, in connection with
the sale of these securities. The sale of Series C preferred stock was
made in compliance with all the terms of Rules 501 and 502 of Regulation
D, there were no more than 35 investors, as calculated pursuant to Rule
501(e) of Regulation D, and each investor who was not an accredited
investor represented to us that it had such knowledge and experience in
financial and business matters that it was capable of evaluating the
merits and risks of the investment.
(6) In April 1999, in connection with obtaining equipment leases and
loans, we issued unregistered warrants to purchase an aggregate of 262,500
shares of Series C preferred stock, with an exercise price per share of
$1.33, to Comdisco, Inc. We relied upon Section 4(2) of the Securities Act
of 1933 and Regulation D, Rule 506, in connection with the sale of these
securities. The issuance of the warrants was made in compliance with all
the terms of Rules 501 and 502 of Regulation D, there were no more than 35
investors, as calculated pursuant to Rule 501(e) of Regulation D, and each
investor who was not an accredited investor represented to us that it had
such knowledge and experience in financial and business matters that it
was capable of evaluating the merits and risks of the investment.
(7) In February 2000, we issued and sold 2,840,445 shares of
unregistered Series D preferred stock at a price per share of $5.33 to 43
investors for aggregate cash consideration of $15,149,040. These shares
were sold pursuant to a Series D preferred stock purchase agreement
between such investors and us. We relied upon Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506, in connection with the
sale of these securities. The sale of Series D preferred stock was made in
compliance with all the terms of Rules 501 and 502 of Regulation D, there
were no more than 35 investors, as calculated pursuant to Rule 501(e) of
Regulation D, and each investor who was not an accredited investor
represented to us that it had such knowledge and experience in financial
and business matters that it was capable of evaluating the merits and
risks of the investment.
(8) In February 2000, pursuant to the terms of a software outsourcing
agreement, we issued unregistered warrants to purchase an aggregate of
23,076 shares of Series D preferred stock, with an exercise price per
share of $5.33, to eBay, Inc. We relied upon Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506, in connection with the
sale of these securities. The issuance of the warrants was made in
compliance with all the terms of Rules 501 and 502 of Regulation D, there
were no more than 35 investors, as calculated pursuant to Rule 501(e) of
Regulation D, and each investor who was not
II-2
<PAGE>
an accredited investor represented to us that it had such knowledge and
experience in financial and business matters that it was capable of
evaluating the merits and risks of the investment.
(9) In March 2000, we issued and sold to the shareholders, option
holders and warrant holders of Brightinfo.com, Inc. (1) 6,799,288 shares
of unregistered common stock valued at $5.33 per share, (2) unregistered
options to purchase 445,548 shares of unregistered common stock at
exercise prices ranging from $0.053 to $0.9532, and (3) unregistered
warrants to purchase 255,153 shares of unregistered common stock at
exercises prices ranging from $0.9532 to $2.11833, in exchange for all of
the outstanding stock, options and warrants of Brightinfo.com, Inc. These
securities were issued pursuant to an agreement and plan of
reorganization. We relied upon Section 4(2) of the Securities Act of 1933
and Regulation D, Rule 506, in connection with the sale of these
securities. The issuance these securities was made in compliance with all
the terms of Rules 501 and 502 of Regulation D, there were no more than 35
investors, as calculated pursuant to Rule 501(e) of Regulation D, and each
investor who was not an accredited investor represented to us that it had
such knowledge and experience in financial and business matters that it
was capable of evaluating the merits and risks of the investment.
(10) From September 9, 1997 to March 2, 2000, we granted options and
stock purchase rights to purchase 6,900,200 shares of unregistered common
stock to directors, officers, employees, former employees and consultants
under our 1997 stock option plan at exercise prices ranging from $0.04 to
$1.33 per share. Of the 6,900,200 shares granted, 2,967,749 remain
outstanding, 408,120 have been canceled and returned to the plan, and we
have issued and sold an aggregate of 3,542,882 shares of unregistered
common stock pursuant to exercises of stock options for aggregate cash
consideration of approximately $683,887, of which approximately $130,427
is subject to outstanding promissory notes payable to us. As to each of
our directors, officers, employees, former employees and consultants who
were issued such securities, we relied upon Rule 701 of the Securities Act
of 1933. Each such person purchased our securities pursuant to a written
contract between such person and us. In addition, we met the conditions
imposed under Rule 701(b).
The recipients of securities in each transaction represented their
intentions to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof. Appropriate
legends were affixed to the share certificates issued in the transactions
described above. All recipients had adequate access, through their
relationships with us or by information furnished by us to them, to
information about us.
(b) There were no underwritten offerings employed in connection with any
of the transactions set forth in Item 15(a).
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Reorganization, dated as of March 2, 2000,
between the registrant, Annuncio Acquisition, Inc.,
Brightinfo.com, Inc., and Messrs. Bo Li, Cheryl Traverse, Chun
Xia, Sheng Zhu, and Yufeng Li.
2.2* Agreement and Plan of Merger between the registrant and Annuncio
Software, Inc., a Delaware corporation.
3.1* Certificate of Incorporation of registrant.
3.2* Form of Amended and Restated Certificate of Incorporation of
registrant to be filed upon the closing of the offering made under
the registration statement.
3.3* Bylaws of the registrant.
4.1* Form of registrant's common stock certificate.
4.2* Amended and Restated Investors Rights Agreement, dated March 2,
2000, between the registrant and the parties named therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1* Form of Indemnification Agreement entered into by registrant with
each of its directors and executive officers.
10.2* 1997 Stock Option Plan (as Amended and Restated January 18, 2000)
and forms of agreements thereunder.
10.3* 1999 Brightinfo, Inc. Stock Option Plan and forms of agreements
thereunder.
10.4* 2000 Stock Plan and forms of agreements thereunder.
10.5* 2000 Employee Stock Purchase Plan.
10.6* 2000 Director Option Plan.
10.7.1* Lease between the registrant and The Dialog Corporation dated
March 4, 1999 for office space located at 2440 El Camino Real,
Suite 300, Mountain View, California.
10.7.2* Lease between the registrant and VANTAS dated July 16, 1999 for
office space located at 4900 Hopyard Road, Suite 100, Pleasanton,
California.
10.7.3* Lease between the registrant and Agresso Corp. Dated February 1,
2000 for office space at 2440 El Camino Real, Mountain View,
California.
10.7.4* Master Office Service Agreement, dated November 1, 1999, by and
between registrant and HQ Global Workplaces.
10.8.1* OEM Software Order Form, dated May 19, 1998, by and between
registrant and Netscape Communications Corporation.
10.8.2* Software License Agreement, dated December 23, 1998, by and
between registrant and Netscape Communications Corporation.
10.8.3* Software Outsourcing Agreement, dated November 30, 1999, by and
between registrant and eBay Inc.
10.8.4* License Agreement by and between registrant and SixGear, Inc.,
dated September 9, 1999.
10.8.5* Software License and Services Agreement, dated August 17, 1999, by
and between registrant and Artist Direct.
10.8.6* Software License and Services Agreement, dated October 6, 1999, by
and between registrant and Wells Fargo Bank, N.A.
10.8.7* Software License Agreement, dated December 29, 1999, by and
between registrant and NBCi, Inc.
10.8.8* License Agreement, dated December 30, 1999, by and between
registrant and E-Stamp Corporation.
10.8.9* Software License Agreement, dated December 30, 1999, by and
between registrant and Phillips Interactive Health.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.8.10* Software License Agreement, dated May 19, 1999, by and between
registrant and Tidestone Technologies, Inc.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in exhibit 5.1).
23.2 Consent of Ernst & Young LLP, independent auditors.
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(b)Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
Insofar as indemnification by Annuncio for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Annuncio, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Annuncio of expenses incurred or paid by a director, officer or
controlling person of Annuncio in the successful defense of any action, suit
or proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by Annuncio is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
We hereby undertake that:
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by Annuncio pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Annuncio has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Mountain View, State of California, on the 3rd day of March, 2000.
ANNUNCIO SOFTWARE, INC.
/s/ Didier Moretti
By: _________________________________
Didier Moretti
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Didier Moretti and Karil Reibold and
each of them, his attorneys-in-fact, each with the power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same Offering
covered by this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as
amended, and all post-effective amendments thereto, and to file the same, with
all exhibits thereto in all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that such attorneys-in-fact and
agents or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Didier Moretti Chief Executive Officer, March 3, 2000
______________________________________ President and Director
Didier Moretti (Principal Executive
Officer)
/s/ Karil Reibold Vice President of Finance March 3, 2000
______________________________________ and Operations (Principal
Karil Reibold Financial and Accounting
Officer)
/s/ Promod Haque Director March 3, 2000
______________________________________
Promod Haque
/s/ Jos Henkens Director March 3, 2000
______________________________________
Jos Henkens
/s/ Andre Touma Director March 3, 2000
______________________________________
Andre Touma
/s/ Mark Pine Director March 3, 2000
______________________________________
Mark Pine
/s/ Cheryl Traverse Director March 3, 2000
______________________________________
Cheryl Traverse
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Reorganization, dated as of March 2, 2000,
between the registrant, Annuncio Acquisition, Inc., Brightinfo.com,
Inc., and Messrs. Bo Li, Cheryl Traverse, Chun Xia, Sheng Zhu, and
Yufeng Li.
2.2* Agreement and Plan of Merger between the registrant and Annuncio
Software, Inc., a Delaware corporation.
3.1* Certificate of Incorporation of registrant.
3.2* Form of Amended and Restated Certificate of Incorporation of
registrant to be filed upon the closing of the offering made under
the registration statement.
3.3* Bylaws of the registrant.
4.1* Form of registrant's common stock certificate.
4.2* Amended and Restated Investors Rights Agreement, dated March 2, 2000,
between the registrant and the parties named therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1* Form of Indemnification Agreement entered into by registrant with
each of its directors and executive officers.
10.2* 1997 Stock Option Plan (as Amended and Restated January 18, 2000) and
forms of agreements thereunder.
10.3* 1999 Brightinfo, Inc. Stock Option Plan and forms of agreements
thereunder.
10.4* 2000 Stock Plan and forms of agreements thereunder.
10.5* 2000 Employee Stock Purchase Plan.
10.6* 2000 Director Option Plan.
10.7.1* Lease between the registrant and The Dialog Corporation dated March
4, 1999 for office space located at 2440 El Camino Real, Suite 300,
Mountain View, California.
10.7.2* Lease between the registrant and VANTAS dated July 16, 1999 for
office space located at 4900 Hopyard Road, Suite 100, Pleasanton,
California.
10.7.3* Lease between the registrant and Agresso Corp. Dated February 1, 2000
for office space at 2440 El Camino Real, Mountain View, California.
10.7.4* Master Office Service Agreement, dated November 1, 1999, by and
between registrant and HQ Global Workplaces.
10.8.1* OEM Software Order Form, dated May 19, 1998, by and between
registrant and Netscape Communications Corporation.
10.8.2* Software License Agreement, dated December 23, 1998, by and between
registrant and Netscape Communications Corporation.
10.8.3* Software Outsourcing Agreement, dated November 30, 1999, by and
between registrant and eBay Inc.
10.8.4* License Agreement by and between registrant and SixGear, Inc., dated
September 9, 1999.
10.8.5* Software License and Services Agreement, dated August 17, 1999, by
and between registrant and Artist Direct.
10.8.6* Software License and Services Agreement, dated October 6, 1999, by
and between registrant and Wells Fargo Bank, N.A.
10.8.7* Software License Agreement, dated December 29, 1999, by and between
registrant and NBCi, Inc.
10.8.8* License Agreement, dated December 30, 1999, by and between registrant
and E-Stamp Corporation.
10.8.9* Software License Agreement, dated December 30, 1999, by and between
registrant and Phillips Interactive Health.
10.8.10* Software License Agreement, dated May 19, 1999, by and between
registrant and Tidestone Technologies, Inc.
23.1 * Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in exhibit 5.1).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
23.2 Consent of Ernst & Young LLP, independent auditors.
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
* To be filed by amendment.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 5,
2000 except for Note 10, as to which the date is March , 2000, with respect to
the financial statements of Annuncio Software, and to the use of our report
dated February 11, 2000, with respect to the financial statements of
Brightinfo.com, Inc. in the Registration Statement (Form S-1) and related
Prospectus of Annuncio Software, Inc. for the registration of shares of its
common stock.
March 2, 2000
San Jose, California
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the
completion of the reincorporation of Annuncio Software, Inc. in Delaware as
described in Note 10 of Notes to Financial Statements.
March 2, 2000
San Jose, California
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 3,602,745 1,115,458
<SECURITIES> 0 0
<RECEIVABLES> 0 2,070,879
<ALLOWANCES> 0 (50,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,635,822 3,443,649
<PP&E> 282,636 1,789,384
<DEPRECIATION> (45,106) (254,630)
<TOTAL-ASSETS> 3,877,666 5,211,311
<CURRENT-LIABILITIES> 431,742 4,514,633
<BONDS> 0 0
0 0
6,685,687 12,267,287
<COMMON> 706 966
<OTHER-SE> (3,372,307) (12,052,973)
<TOTAL-LIABILITY-AND-EQUITY> 3,877,666 5,211,311
<SALES> 0 1,683,324
<TOTAL-REVENUES> 0 1,683,324
<CGS> 0 1,724,628
<TOTAL-COSTS> 0 1,724,628
<OTHER-EXPENSES> 3,225,407 10,542,514
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (152,737) 146,168
<INCOME-PRETAX> (3,072,670) (10,729,986)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 1,683,324
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,072,670) (10,729,986)
<EPS-BASIC> (0.78) (1.80)
<EPS-DILUTED> (0.78) (1.80)
</TABLE>
