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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO__________
COMMISSION FILE NUMBER: 000-26655
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WINK COMMUNICATIONS, INC.
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DELAWARE 7372 94-3212322
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
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1001 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA 94501
(510) 337-2950
WWW.WINK.COM
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.001
PAR VALUE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing price of the Common Stock on February 29,
2000 as reported by NASDAQ, was approximately $1,291,950,000.
The number of outstanding shares of the registrant's Common Stock on
February 29, 2000 was 30,569,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders
in connection with the Annual Meeting of Stockholders to be held May 2, 2000 are
incorporated by reference into Part III.
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FORWARD LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF
RISKS AND UNCERTAINTIES, INCLUDING THE RISK FACTORS SET FORTH IN THIS FORM 10-K.
SEE "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" BELOW. STATEMENTS MADE HEREIN ARE AS OF THE
DATE OF THE FILING OF THIS FORM 10-K WITH THE SECURITIES AND EXCHANGE COMMISSION
AND SHOULD NOT BE RELIED UPON AS OF ANY SUBSEQUENT DATE. WE EXPRESSLY DISCLAIM
ANY OBLIGATION TO UPDATE INFORMATION PRESENTED HEREIN, EXCEPT AS MAY OTHERWISE
BE REQUIRED BY LAW.
PART I
ITEM 1. BUSINESS
Wink Communications provides a complete end-to-end system for low-cost
electronic commerce on television. Our system, Wink Enhanced Broadcasting,
allows advertisers, merchants and broadcast and cable networks to create
interactive enhancements to traditional television advertisements and programs.
With a click of their remote control during an enhanced program or
advertisement, viewers can purchase merchandise or request product samples,
coupons or catalogues. Similarly, viewers can use Wink to access program-related
information such as news, sports and weather, participate in votes and polls,
and play along with various games.
Our business plan is to derive the primary portion of our future revenues
from transaction fees charged to advertisers and merchants for each purchase
order or other requests for information. As a result, our principal customers
are expected to be advertisers and merchants. In order for merchants and
advertisers to use Wink, many participants in the television industry must
license our technology and work with us to make Wink Enhanced Broadcasting
possible. We believe that wide acceptance of Wink by major television industry
participants is essential for us to attract merchants and advertisers. We have
established relationships with, and licensed our technology to, 80 key industry
participants from many segments of the television industry. For example:
- the four largest broadcast networks, NBC, ABC, CBS and FOX, and 27 cable
networks have agreed to air Wink-enhanced programming and advertising;
- five of the six largest cable operators in the United States, including
AT&T Broadband and Internet Services, Time Warner Cable, Comcast Cable
Communications, Cox Communications and Charter Communications, have
agreed to distribute Wink-enhanced programming and advertising in some of
their local markets;
- the largest direct broadcast satellite operator in the United States,
DIRECTV, has agreed to distribute Wink-enhanced programming and
advertising nationwide and, although the current agreement with DIRECTV
contains no minimum deployment commitments, DIRECTV has announced that it
expects to deploy approximately four million Wink-enabled set-up boxes by
January 1, 2002;
- Microsoft Corporation has agreed to develop, market and distribute
Wink-enhanced programming and advertising on Microsoft's television
platforms;
- several of the leading set-top box and television manufacturers,
including General Instrument, Scientific Atlanta, Pioneer, Toshiba,
Matsushita, Thomson Consumer Electronics, Hughes Network Systems, Sony
Electronics, Phillips Electronics and Zenith Electronics Corporation have
agreed to incorporate Wink's technology into their products;
- several of the leading set-top box operating system and "middleware"
software developers, including Liberate Technologies, PowerTV, Inc., and
Source Media, Inc., have agreed to integrate Wink's technology into their
products, and
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- Several national advertisers, including AT&T, J. Walter Thompson USA,
Inc. on behalf of Ford Motor Company, The Goodyear Tire & Rubber Company,
Charles Schwab, Protcor and Gamble, Levi Strauss, The Clorox Company,
Universal Pictures, General Electric, Wells Fargo, DaimlerChrysler,
Pfizer, General Motors, Kraft, The Walt Disney Company, Paramount
Pictures and American Honda Motor Corporation have agreed to create and
air Wink-enhanced advertisements.
A number of key strategic and financial investors have invested in Wink,
including set-top box and television manufacturers, such as General Instrument,
Scientific Atlanta and Toshiba, as well as Microsoft, GE Capital, Vulcan
Ventures (controlled by Paul Allen) and Hughes Electronics Corporation, the
parent of DIRECTV.
We began the roll-out of our service in the United States in June 1998, and
we currently serve viewers in select cable markets in California, Connecticut,
Illinois, Michigan, Missouri, New York, Tennessee and Texas. In addition, Wink
Enhanced Broadcasting has been offered by Wink licensees in Japan since October
1996.
MARKET OPPORTUNITY
Television is one of the most pervasive communications media in society
today. According to Nielsen Media Research, there were approximately 100.8
million television households in the United States in January 2000. On average
those households watch an estimated seven hours of television programming per
day. With recent advances in technology, new televisions and advanced analog and
digital set-top boxes can provide a platform for interactive television. Paul
Kagan Associates, a leading industry analysis firm, estimates over 10 million
digital cable subscribers by year-end 2000. By 2008, Paul Kagan Associates
expects that the number of digital cable subscriptions will reach 47 million, or
65% of all cable subscribers.
Television advertising is considered to be one of the most effective
methods of building brand recognition and general consumer awareness of products
and services. According to Veronis Suhler & Associates, the total amount spent
on television advertising in the United States in 1998 was approximately $49
billion. Despite the fact that traditional television broadcasting, cable and
direct broadcast satellite television systems do not provide an integrated means
for viewers to respond to programs and advertisements, the Direct Marketing
Association estimates approximately $91 billion of goods and services were
purchased through direct response television programming and advertising in
1998. The Direct Marketing Association predicts this amount will grow to
approximately $127 billion by 2002. In addition, we believe that electronic
commerce conducted through television viewing devices will benefit from the
rapid growth in internet online shopping, as consumers become more accustomed to
purchasing goods and services electronically. We believe that an opportunity
exists for a simple, immediate, inexpensive and automated method of responding
to direct response advertising on television.
In addition, many advertisers are using television advertisements to
generate requests for product information, which in turn serve as sales leads
for their products and services. Today, most direct response television
purchases and requests for information require a telephone call, which typically
cause advertisers to incur a significant cost per transaction. We believe that
television viewers, advertisers and merchants will respond favorably to a
simple, immediate, inexpensive and automated method for them to participate in
television commerce.
THE WINK EXPERIENCE
The Wink service is free to viewers and easy-to-use which we believe will
encourage broad and frequent usage. Viewers can receive Wink Enhanced
Broadcasting through Wink-enabled televisions and new and existing advanced
analog and digital set-top boxes. Many existing set-top boxes already installed
in consumers' homes can be activated through a remote cable download to receive
Wink Enhanced Broadcasting. To access
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a Wink enhancement, a television viewer simply clicks the remote control when
the Wink icon appears on the screen. For example, with a few clicks of the
remote control, Wink allows viewers to:
- access additional information about a specific news story from CNN
Headline News;
- respond to an offer for information about services offered by Charles
Schwab,
- access the local weather forecast instantly from The Weather Channel or
find weather forecasts for other cities;
- obtain coupons and product samples from Clorox or a new car brochure from
DaimlerChrysler;
- access real-time game scores on demand or search for statistics relating
to a specific sporting event while watching ESPN;
- purchase music compact discs by an artist featured on the Tonight Show
with Jay Leno on NBC; or
WINK AND THE TELEVISION INDUSTRY
Wink Enhanced Broadcasting is designed to benefit the following
participants in the television industry:
- Viewers. Wink Enhanced Broadcasting offers viewers an easy-to-use,
enhanced television viewing experience. To date, Wink Enhanced
Broadcasting has been offered to viewers for free in all markets in which
it has been launched. Wink Enhanced Broadcasting allows viewers to obtain
a variety of additional content related to the programming they watch and
to request information about or purchase advertised products. The viewer
controls access to these broadcast enhancements or electronic commerce
opportunities through the viewer's existing remote control.
- Advertisers and Merchants. Wink Enhanced Broadcasting is designed to
allow advertisers and merchants the ability to provide additional
information to viewers, generate sales leads, sell products directly to
viewers and collect detailed market information. In addition, advertisers
and merchants can promote their brands by sponsoring Wink programming
enhancements. We believe that the use of Wink Enhanced Broadcasting will
provide advertisers and merchants a lower-cost alternative for capturing
sales leads and orders than traditional telemarketing methods.
- Broadcast and Cable Networks. We believe that Wink Enhanced Broadcasting
offers networks a new approach to increasing the number of viewers,
viewer loyalty and viewer involvement. As a result, the value of network
advertising space may be increased, allowing networks to charge
advertisers and merchants premiums for airing Wink-enhanced commercials.
The Wink enhancements may also provide opportunities for selling
additional advertising space. In addition, networks can use Wink Enhanced
Broadcasting to offer merchandise to viewers and to promote other
programming on their channels. Moreover, information obtained through the
Wink Response Network can be used by networks to offer advertisers
targeted audience information.
- Cable and Direct Broadcast Satellite System Operators. Wink Enhanced
Broadcasting is designed to offer cable and direct broadcast satellite
system operators an expanded menu of services to provide to their
subscribers, thus helping to attract new subscribers, maintain current
subscribers and encourage all subscribers to upgrade to premium services
and purchase pay-per-view programming. In addition, in order to encourage
cable and direct broadcast satellite system operators to offer Wink
Enhanced Broadcasting, we have offered to share a portion of the revenues
generated from subscribers' responses to Wink-enhanced programming,
advertising and dedicated interactive channels.
- Set-top Box and Television Set Manufacturers. Wink Enhanced Broadcasting
is designed to offer set-top box and television set manufacturers an
opportunity to enhance their products with increased functionality and to
extend their product lines at a relatively low incremental cost. We
believe Wink Enhanced Broadcasting can assist manufacturers in
encouraging consumers and cable system operators to upgrade to higher
performance devices. In addition, in order to encourage television
manufacturers to incorporate Wink Enhanced Broadcasting into their
products, we have offered to share a portion of
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the revenues generated from responses to Wink-enhanced programming and
advertising from users of their devices.
BUSINESS STRATEGY
Our strategy is to capitalize on the pervasiveness and popularity of
television to create a mass market medium for sales lead generation and
electronic commerce. Our strategy to achieve this objective includes the
following key elements:
- Increase the Presence of Wink Enhanced Broadcasting in Television
Households. We intend to promote deployment of Wink-enabled set-top boxes
and televisions and the launch of Wink Enhanced Broadcasting through
these devices. We have entered into and will continue to target licensing
relationships with leading manufacturers of set-top boxes and television
sets. We are working with certain large cable and digital broadcasting
satellite system operators to encourage both the downloading of the Wink
Engine software to Wink-capable set-top boxes already installed in
consumer homes and the deployment of new Wink-capable set-top boxes. We
are also working with Microsoft to enable Microsoft television platforms
to generate and capture Wink viewer responses. Viewers in approximately
120,000 homes receive Wink Enhanced Broadcasting as of December 31, 1999.
- Promote Use by Viewers. We believe that increased development and
broadcasting of Wink-enhanced advertising and programming and other
on-demand information and entertainment services are critical to
attracting viewers to Wink Enhanced Broadcasting. Consequently, we
actively encourage the broadcast and cable networks with whom we have
strategic relationships to air Wink enhancements that offer viewers an
easy-to-use, entertaining and informative interactive television
experience. We also intend to actively encourage usage of Wink Enhanced
Broadcasting through advertising, direct mail and promotions in
collaboration with cable and direct broadcast satellite operators,
equipment manufacturers and broadcast and cable networks.
- Expand Use of Wink-Enhanced Direct Response Offers. We believe that the
simplicity and convenience of the Wink transaction response mechanism
will encourage viewers to respond to Wink-enhanced advertising and
promotions. We intend to work with our broadcast and cable network
partners to encourage advertisers to add Wink enhancements to their
television advertisements. We believe that the low cost of response
collection and the ease with which viewers can respond to Wink-enhanced
advertising will encourage advertisers to complement their television
advertisements with direct response offers. In addition, we believe that
existing direct response television advertisers will utilize Wink to
lower their cost of capturing an order. We intend to introduce
interactive shopping services featuring a targeted selection of products
suitable for electronic commerce via television. To this end, we plan to
enter into relationships with merchants to create dedicated interactive
channels that offer viewers the ability to request product information,
coupons, samples and other offers and to purchase products and services.
- Benefit Multiple Participants in the Television Industry. We believe that
generating economic value for broadcast and cable networks, cable and
direct broadcast satellite system operators, set-top box and television
manufacturers, advertisers and merchants is critical to the success of
Wink Enhanced Broadcasting. Our business model has been designed to
deliver new opportunities for generating revenue and cost savings
directly to these industry participants. In addition, since Wink
enhancements are integrated with existing programming and advertising and
are under the control of the broadcast or cable networks, we believe Wink
Enhanced Broadcasting will not threaten the existing revenue streams and
customer relationships of these industry participants.
- Leverage Industry Relationships. We have formed strategic relationships
with key participants in the television industry. We believe that our
relationships with broadcast and cable networks and cable and direct
broadcast satellite system operators will assist us in attracting
interest from advertisers. Conversely, we believe our relationships with
national advertisers reinforce both the broadcast and cable networks' and
the cable and direct broadcast satellite operators' interest in launching
Wink Enhanced Broadcasting. We also believe our relationships with the
three leading cable set-top box and
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three satellite set-top box manufacturers in North America will encourage
cable operators to adopt Wink Enhanced Broadcasting. We intend to seek
additional relationships and believe that increasing the breadth and
depth of our existing relationships will facilitate these efforts.
- Promote the Wink Icon and the Wink Brand. We believe that developing and
maintaining a strong brand identity is important to our ability to
attract viewers and obtain and retain key strategic relationships with
industry participants. Our goal is to make the Wink icon and the Wink
brand synonymous with interactive enhanced programming and advertising
that is appealing to viewers and easy to use. In addition to encouraging
content providers, broadcast and cable networks and advertisers to
produce compelling Wink-enhanced programming and advertising, we intend
to build brand recognition and to increase the visibility of the Wink
icon through a variety of marketing and promotional activities, including
targeted pre-deployment televised advertising campaigns to generate a
high level of initial interest, cooperative promotional programming with
cable operators, and advertising campaigns following deployment in
selected regions across a variety of media, including through
Wink-enhanced programming itself.
STRATEGIC RELATIONSHIPS
We believe that development of strategic relationships with television
industry participants is critical to the acceptance of Wink Enhanced
Broadcasting, the promotion of the Wink brand and ultimately the success of our
business model. We are currently focused on developing strategic relationships
in each sector of the television industry. We have initially targeted larger,
established participants in each of the following sectors:
- Advertisers and Merchants. We encourage advertisers to utilize Wink
Enhanced Broadcasting through the advertising sales efforts of our
broadcast and cable network partners. To facilitate this process, we
established a "Charter Advertiser" program in 1998 under which leading
advertisers could obtain a fixed rate quote for all Wink products and
services during a charter period ending in the second half of 2000 in
exchange for a commitment to air a specific number of Wink-enhanced
advertisements. Wink charter advertisers include AT&T, J. Walter Thompson
USA, Inc. on behalf of Ford Motor Company, The Goodyear Tire & Rubber
Company, Charles Schwab, Levi Strauss, The Clorox Company, Universal
Pictures, General Electric, Pfizer, Wells Fargo, DaimlerChrysler,
Paramount, General Motors, the Walt Disney Company, American Honda Motor
Company and Kraft. We expect to add more advertisers through our own
sales efforts and those of our broadcast and cable network partners. We
expect that a substantial portion of our future advertising arrangements
will not include commitments to air a specific number of Wink-enhanced
advertisements, may be short term and cancelable and may involve payment
on a fee-per-transaction basis. We also anticipate offering products from
one or several merchants for sale through Wink dedicated interactive
channels.
- Broadcast and Cable Networks. We have license agreements with all four of
the major broadcast networks and 28 cable networks, which collectively
offer a variety of programming types, including prime time entertainment,
news, sports, weather, movies, shopping and music programming. These
license agreements generally range in length from one to eight years and
provide that the networks will air a specific number of hours of
Wink-enhanced programming per week. Wink is the only interactive
television company that has announced agreements with all four major
broadcast networks. The following is a list of networks that are
currently airing or have aired Wink-enhanced programming:
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NETWORK TYPES OF PROGRAMMING TYPICAL ENHANCEMENTS
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ABC Entertainment/Sports Talk Show Facts,
Sports, Merchandise
CNN News/Talk Shows Show Facts
CNN Headline News News News Headlines and
Stories
CBS News/Talk Shows Show Facts
Court TV Trials Trial Facts
ESPN Sports Sports Scoreboards
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NETWORK TYPES OF PROGRAMMING TYPICAL ENHANCEMENTS
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ESPN2 Sports Sports Scoreboards
NBC Entertainment/Sports Talk Show Facts,
Sports, Merchandise
Nickelodeon/Nick-at-Nite Entertainment Show Facts, Trivia
Showtime Entertainment Polls, Show Facts,
Subscriptions
The Nashville Network Entertainment Music, News, Trivia
TBS* Entertainment Games, Show Facts,
Trivia
TNT* Entertainment Games, Show Facts,
Trivia
The Weather Channel News Weather Forecasts
CNBC Financial News Financial Market
Statistics
E! Entertainment News, Variety Entertainment News
Lifetime Entertainment, Documentary Show Facts
VH-1 Entertainment/Music CD Purchases, Games
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* Our agreement with these networks has expired. The networks currently
continue to air Wink enhanced programming. We are currently negotiating
renewal of this agreement.
- Cable and Direct Broadcast Satellite System Operators. We focus on
establishing relationships with national cable and direct broadcast
satellite system operators and with local cable operators in order to
transmit the Wink Enhanced Broadcasting signal to viewers. The cable and
direct broadcast satellite system operators with which we have entered
into strategic relationships include DIRECTV, AT&T/ TCI, Time Warner
Cable, Comcast Cable Communications, Cox Communications, Charter
Communications Inc., Insight Communications and Century Communications
Corp. With the exception of our agreements with Charter Communications
and Insight Communications, who have agreed to deploy Wink on digital
set-tops nationwide, our agreements with cable system operators generally
provide a framework and pricing for deployment of Wink Enhanced
Broadcasting by the operators' local systems, and actual deployments may
require us to negotiate and enter into additional agreements with local
system management. In June 1999, we amended our agreement with DIRECTV,
whereby DIRECTV increased their commitment to deploy Wink technology in
their direct broadcast satellite set-top boxes. Although the amendment
contains no minimum deployment levels, DIRECTV has announced that it
expects to deploy approximately four million Wink-enabled set-top boxes
by January 1, 2002.
- Cable and Direct Broadcast Satellite Set-Top Box Manufacturers. We have
licensed the Wink software to General Instrument, Pioneer and
Scientific-Atlanta, three of the leading U.S. cable set-top box
manufacturers. While we intend to license our software to other equipment
manufacturers, we believe our relationships with these three companies
are critical to our success in the cable business. General Instrument and
Scientific-Atlanta have licensed Wink technology for incorporation into
certain of their advanced analog and digital set-top boxes, and have each
begun shipment of certain Wink-capable advanced analog and digital
set-top boxes. In addition, Pioneer has begun shipping Wink-enabled
advanced analog cable set-top boxes. The agreement with DIRECTV calls for
DIRECTV to launch Wink enhanced broadcasting to Wink-enabled
DIRECTV-compatible set-top boxes. We have entered into agreements with
Thomson Consumer Electronics, Hughes Network Systems, Phillips
Electronics B.V. and Sony Electronics -- the four largest suppliers of
DIRECTV-compatible set-top boxes.
- Television Manufacturers. We are developing strategic relationships with
leading worldwide television manufacturers, including Toshiba, Matsushita
and Zenith Electronics. Toshiba recently introduced the first U.S.
television models incorporating Wink technology. In addition, Matsushita
and Toshiba have incorporated Wink technology software in televisions
currently marketed in Japan.
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- Set-top box operating system software developers We are developing
strategic relationships with leading set-top box operating system and
"middleware" software developers, including Microsoft (see below),
Liberate Technologies, PowerTV, Inc. and Source Media, Inc. These
agreements typically require Wink and the third party to jointly
integrate Wink's functionality into the third party's operating system or
software platform, as applicable.
Strategic Relationship with Microsoft. Our relationship with Microsoft
focuses on three areas: development, distribution and marketing.
- Microsoft's operating system and other software for set-top boxes and
televisions that comply with the Advanced Television Enhancement Forum's
proposed Internet-based standard for enhanced television will be modified
to capture viewer responses for processing by the Wink Response Network.
We have agreed to modify all components of Wink Enhanced Broadcasting to
support this standard and these Microsoft television platforms.
- Microsoft has agreed to enable its operating system for set-top boxes and
televisions to use the Wink Response Network to collect, aggregate and
process viewer responses to applications complying with Internet-based
standards delivered as part of video programming and advertising for
set-top boxes and televisions. Wink will be the exclusive provider of
such services for deployments of such devices where Microsoft exclusively
controls the operating system, application environment and content and
data services. Microsoft has also agreed to use efforts to make other
set-top boxes and televisions which use a Microsoft operating system
capable for the Wink Response Network service. Microsoft is not obligated
to use the Wink Response Network for responses other than purchases and
requests for information, or when viewers respond by connecting directly
to an advertiser's website, via e-mail or other similar mechanisms. Wink
has agreed to make Microsoft the exclusive licensor of the Wink Engine,
except for rights previously granted to other customers and with respect
to platforms for which the Wink Engine is already available or under
development and with respect to platforms which do not support
Microsoft's technology. As part of our agreement with Microsoft, we have
agreed to share a portion of the revenues we generate from viewer
responses and to provide minimum revenue guarantees. See Note 7 of Notes
to Consolidated Financial Statements.
- Microsoft and Wink have agreed to work together to promote the Wink
Response Network to current and prospective customers for set-top boxes
and televisions which utilize Microsoft software. Microsoft and Wink have
also agreed to work together to promote Microsoft's technology for
set-top boxes and televisions, and to promote products, services and
content that comply with Internet-based standards.
Strategic Relationships for Japan. As of December 31, 1999, approximately
160,000 Wink-enabled television sets have been shipped for distribution in Japan
under the brand names of Toshiba, Sony, JVC and Panasonic. We utilize Toshiba's
broadcast equipment sales team to sell Wink server and authoring tool products
to Japanese networks and direct broadcast satellite system operators. We have
server development and royalty agreements directly with Toshiba for these
products.
Wink Enhanced Broadcasting service was launched in the fourth quarter of
1996 in collaboration with the Intertext ITVision Promotion Consortium, a
consortium that has been formed to establish interactive television in Japan.
The Consortium includes companies such as Toshiba, Matsushita, Sony, Pioneer,
NTT and Dentsu, Japan's largest advertising agency. Several Japanese
broadcasters are currently using Wink technology to enhance their programming up
to seven days per week, including TV-Tokyo, TV-Osaka, TV-Aichi and Wowow.
Mitsui, Toshiba, Matsushita, NTT, Dentsu, Sony and other companies have
established MediaServe, a data center that collects responses from Wink-enabled
televisions through the Japanese public phone system. Viewers have used Wink
Enhanced Broadcasting to purchase women's apparel and to order groceries and
other products. We also have produced and licensed versions of our software
localized for Japan. The Wink programming enhancements currently airing in Japan
are similar to those being aired in the United States. Because Wink was not a
participant in the MediaServe data center in 1999 and prior, we did not receive
any transaction fee revenue from responses to Wink Enhanced Broadcasting in
Japan. In February 2000, Wink entered into an agreement with MediaServe under
which it is expected that Wink will invest
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$3.0 million in MediaServe as part of MediaServe's latest private financing
round. This transaction is expected to be completed in April 2000.
COMPONENTS OF WINK ENHANCED BROADCASTING
Wink Enhanced Broadcasting provides an end-to-end solution for sending
interactive applications along with broadcast video to viewers' televisions.
This system is composed of core, proprietary technologies developed by us as
well as off-the-shelf electronic commerce and database solutions. Wink Enhanced
Broadcasting consists of:
- the Wink Studio and Wink Server Studio authoring tools and associated
templates that allow networks, advertisers and cable operators to design
interactive Wink applications;
- the Wink Broadcast Server and extensions that manage the timing and
delivery of those applications;
- the Wink Client software that enables the generation and capture of
viewer responses to Wink applications; and
- the Wink Response Server and Wink Response Network that are designed to
efficiently process viewer responses to applications and forward them to
advertisers or merchants.
WINK STUDIO AND WINK SERVER STUDIO
Wink Studio is a high-level authoring tool that allows non-technical
designers to create interactive programming and advertising applications. Wink
Studio is Windows-based and graphically oriented, and enables the creation of
simple interactive applications. A designer simply drags objects from an object
palette onto forms to create enhancements. More complex applications can be
created by fully utilizing the Wink Basic scripting language to control the
behavior of objects and forms. Wink Server Studio is a high-level authoring tool
for server modules that provide live data updates to Wink applications. In
particular, Wink Server Studio is designed to make it easy to incorporate or
transpose data from web sites and databases for broadcast updates.
WINK BROADCAST SERVER
The Wink Broadcast Server manages the scheduling and insertion of
applications designed with Wink Studio into television programming. The Wink
Broadcast Server is designed to integrate with station management equipment such
as commercial insertion systems, when available, to enable broadcast and cable
networks to automate the delivery of interactive enhancements to programs and
advertisements. Local network affiliates and cable operators can also add
interactivity on a local level using the Wink Broadcast Server. We are currently
testing the capability to schedule and insert applications conforming to the
Advanced Television Enhancement Forum's Internet-based standard for enhanced
television (ATVEF) into television programming through the Wink Broadcast
Server.
WINK CLIENT SOFTWARE
We expect to offer two versions of the Wink Client software. In
Internet-enabled set-top boxes and televisions, the Wink Client software will
enable the generation of Wink viewer responses to broadcast Internet-based
applications. In other set top boxes and televisions, the Wink Client software,
in this case known as the Wink Engine, displays the Wink applications and
enables the generation of viewer responses. Wink Client software can be
installed in Wink-capable televisions and most new advanced analog and digital
set-top boxes at the factory or downloaded through cable systems, satellite
systems or telephone modems into certain of such set-top boxes already installed
in a viewer's household.
WINK RESPONSE SERVER
The Wink Response Server collects viewer response data, or response
packets, which are generated by Wink applications. These response packets are
retrieved directly from televisions and satellite set-top boxes
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through phone dial-up and from cable set-top boxes through cable head-end
systems. The Wink Response Server aggregates response packets and delivers them
to the Wink Response Network.
WINK RESPONSE NETWORK
The Wink Response Network is designed to enable the collection and
aggregation of viewer responses, requests for information and purchase orders
for transmission to and use by advertisers, merchants, broadcast and cable
networks and cable and direct broadcast satellite system operators. The Wink
Response Network includes two databases: one database correlates device serial
numbers to customer address and billing information, while the second correlates
a unique code for each interactive application to routing instruction and
product information. When a consumer responds to a Wink application and orders a
product, a response packet is generated by the Wink Engine in the set-top box or
television. A response packet includes the device serial number, the unique
application code and application specific data. These response packets are
collected, aggregated, converted into full electronic orders (name, address, and
credit information, if appropriate), and delivered to the advertiser or network.
In the case of set-top boxes, the customer database is maintained by the
satellite or cable operator's billing system, and Wink links to this database.
The Wink Response Network is operated by General Electric Information Services
at a data center located in Rockville, Maryland and with a backup in Brookpark,
Ohio. The Wink Response Network was activated in August 1998 following our first
launch of Wink Enhanced Broadcasting in Kingsport, Tennessee, and is currently
being used to route viewers' responses to interactive advertisements and
programming to the appropriate advertisers and/or fulfillment companies.
In addition to aggregating and delivering responses, we can provide
industry participants with additional reporting. For example, participating
networks are receiving aggregated information regarding all Wink applications
that run on their networks. Cable and direct broadcast satellite system
operators can obtain information regarding all applications that run on their
systems. Advertisers can obtain information regarding how their ads perform
across all networks. The Wink Response Network combines custom data processing
solutions developed by Wink with off-the-shelf electronic commerce systems to
provide a complete end-to-end solution for customers.
EMERGING STANDARDS
We believe that the most important aspects of our business relate to
capturing, aggregating and routing TV-viewer responses to interactive
programming and advertising. In contrast, we believe it is less important which
protocol or "language" is used to design interactive applications. Recently,
several formal and informal industry groups have proposed competing standards
for the language in which interactive programming and advertising should be
written. While we may support other proposed standards in the future, we became
an early adopter of the Advanced Television Enhancement Forum's proposal for an
Internet-based standard for enhanced television in the summer of 1998. In
conjunction with our agreements with Microsoft, Liberate and PowerTV, we have
accelerated the development of a version of the Wink Broadcast Server that is
compatible with this standard, and a means of capturing and generating Wink
response packets from broadcast applications that are compatible with this
standard. The founders of the Advanced Television Enhancement Forum include
Microsoft Corporation, Intel Corporation, Liberate Technologies, Sony, DIRECTV,
Cable Labs, NBC, The Walt Disney Company and Discovery Communications. We are
also monitoring the standardization efforts of the Advanced Television Systems
Committee.
TECHNICAL SUPPORT AND CUSTOMER SERVICE
We believe that comprehensive, high-quality support is an essential element
of our business approach. We provide users of our software with installation
services, training, documentation, technical and network support, and system
maintenance for all Wink server and authoring software. Upon request and for an
additional fee, we will provide customized technical consulting and support for
applications and server module development. We provide telephone technical
support for our products 24 hours a day, seven days a week, providing services
that include system monitoring, problem resolution and preventive
troubleshooting. We are
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also providing customer service to Wink viewers 24 hours a day, seven days a
week, through an agreement with Softbank that provides call- center support.
Whenever possible, we seek to connect viewers directly with advertisers and
merchants to lower customer service costs.
COMPETITION
We face competition from a number of companies, many of which have
significantly greater financial, technical, manufacturing and marketing
resources than Wink and may be in a better position to compete in the industry.
Current and potential competitors in one or more aspects of our business include
television and other system software companies, interactive television system
providers and multimedia authoring tool providers. We also face competition from
other providers and companies operating in the direct marketing business,
especially operators of toll-free response call centers.
A number of companies are developing system software for the general
interactive television market, including At Home Corporation, Intel Corporation,
Liberate Technologies, Sun Microsystems, OpenTV and Canal Plus. OpenTV and Canal
Plus already offer certain products with features similar to Wink Enhanced
Broadcasting. Many of these competitors have the support of, or relationships
with, industry participants with which we also have relationships, which could
adversely affect the extent of support these market participants give to Wink
Enhanced Broadcasting. In addition, Microsoft, which has recently purchased a
substantial equity stake in Wink and agreed to collaborate with us to develop,
market and distribute Wink Enhanced Broadcasting on Microsoft television
platforms, has been active in a variety of aspects of the interactive television
market.
There also are a number of interactive system providers that have developed
proprietary software and hardware for adding interactivity to existing
television technologies, including Gemstar International Group Limited,
Worldgate Communications, Inc., Source Media and ACTV Inc. In addition, one or
more of these entities or smaller companies might choose to pursue
hardware-independent, cross-platform opportunities directly competitive with
Wink Enhanced Broadcasting. If we are not able to compete successfully against
current or future competitors, our business, operating results and financial
condition will be materially adversely affected.
INTELLECTUAL PROPERTY
Our ability to compete is dependent in part upon our internally developed,
proprietary intellectual property. We rely on patent, trademark, trade secret
and copyright law, as well as confidentiality procedures and licensing
arrangements to establish and protect our rights in our technology. Others may
develop technologies that are similar or superior to our technology. We
typically enter into confidentiality or license agreements with our employees,
consultants, customers, strategic partners and vendors, and typically control
access to and distribution of our software, documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use our products or technology without
authorization, or to develop similar technology independently through reverse
engineering or other means. Policing unauthorized use of our products is
difficult. The steps we take may not prevent misappropriation of our technology
or such agreements may not be enforceable. In addition, effective patent,
copyright and trade secret protection may be unavailable or limited in certain
foreign countries. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, or to determine the
validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of resources and could materially
adversely affect our business.
On August 6, 1998, John L. Berman, an individual, filed suit against us in
the U.S. District Court in the Northern District of California, alleging that we
infringed his patents for an interactive television graphics interface and for a
method and apparatus for applying overlay images. On September 15, 1999, a suit
was filed in the United States District Court for the Middle District of
Florida, Fort Myers Division by Fort Myers Broadcasting Company claiming certain
federal trademark infringements. We believe that the resolution of these matters
will not have a material adverse effect on us.
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From time to time, we receive notices of claims of infringement of other
parties' proprietary rights or claims for indemnification resulting from
infringement claims. Irrespective of the validity or the successful assertion of
such claims, we may incur significant costs and diversion of resources with
respect to the defense of any claims brought, which could materially adversely
affect our business. In addition, the assertion of such infringement claims
could result in injunctions preventing us from distributing certain products,
which could materially adversely affect our operating results and financial
condition. In addition, the assertion of such infringement claims could result
in injunctions preventing us from distributing certain products, which could
materially adversely affect our business. If any claims or actions are asserted
against us, we may seek to obtain a license under a third party's intellectual
property rights. However, a license under such circumstances may not be
available on reasonable terms, if at all.
The Wink Response Network is designed to collect and utilize data derived
from viewer responses to Wink-enhanced programming. This data can be used for
several purposes, including product inquiry and order fulfillment, advertising
impact research and polling. Although we believe we have a right to use and
compile such data, copyright, trade secret or other protection may not be
available for such data and information or others may claim rights to it. We are
also obligated to keep certain information regarding networks' and cable
systems' programming services and system technology confidential.
We have licensed in the past and expect that we may license in the future
elements of our technology and trademarks to third parties in the United States,
Japan and other countries. We attempt to ensure that the quality of our brand is
maintained by such business partners. However, such partners may take actions
that could adversely affect the value of our proprietary rights or the
reputation of our technologies.
Wink is a registered trademark of Wink Communications, Inc. Wink
Communications, the Wink Communications, Inc. logo, the stylized "i" logo, Wink
Engine, Wink Broadcast Server, Wink Response Server, Wink Server Studio, Wink
Response Network and Wink Enhanced Broadcasting are trademarks of Wink
Communications, Inc.
EMPLOYEES
As of December 31, 1999, we employed 110 full-time equivalents, excluding
temporary personnel and consultants. Of the total number, 51 full-time
equivalents were involved in product development, 17 in sales, marketing and
customer service, 13 in accounting, finance and administration and 29 in
operations. We are not subject to any collective bargaining agreements and
believe our relationship with our employees is good.
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RISK FACTORS
The risks and uncertainties described below are not the only risks we face.
In addition to the following risk factors, we refer you to those risk factors
described elsewhere in this Form 10-K Report. Additional risks and uncertainties
not currently known to us or that we currently believe are immaterial could also
impair our business operations.
Keep these risk factors in mind when you read "forward-looking" statements
elsewhere in these Form 10-K Report. These are statements that relate to our
expectations for future events and time periods. Generally, the words
"anticipate," "expect," "intend" and similar expressions identify
forward-looking statements. Forward-looking statements involve risk and
uncertainties. Future events and circumstances could differ significantly from
those described in forward-looking statements.
WE EXPECT TO INCUR SUBSTANTIAL OPERATING AND NET LOSSES
We have a limited operating history, which makes the prediction of future
results difficult. We have incurred significant net losses since inception and,
at December 31, 1999, had an accumulated deficit of $49.5 million. To date, we
have recognized minimal revenue, and our ability to generate revenue is subject
to substantial uncertainty. In addition, we currently intend to incur
substantial operating expenses to fund additional technological development,
sales, marketing, transaction processing and general activities. We expect that
our total operating expenses for the year ended December 31, 2000 will be $40 to
$45 million.
OUR LIMITED OPERATING HISTORY AND THE EMERGING MARKET FOR INTERACTIVE TELEVISION
MAKE OUR FUTURE FINANCIAL RESULTS UNPREDICTABLE
Our future revenue prospects, particularly those derived from viewer
response activities, are subject to a high degree of uncertainty. Currently, we
derive revenue from license fees and engineering fees. In the future, however,
we anticipate that our revenues will depend substantially on the level of viewer
response activity. Our experience with viewer responses is extremely limited. In
addition, our expense levels are based largely on our operating plans and
estimates of future revenue. We may be unable to adjust spending in a timely
manner to compensate for any unexpected shortfall in revenues. As a result, a
shortfall in actual revenues as compared to estimated revenues could have an
immediate material adverse effect on our financial performance.
OUR BUSINESS IS DEPENDENT UPON CONTENT PROVIDERS, DISTRIBUTORS AND CONSUMERS
EMBRACING THE WINK TECHNOLOGY
Since our business plan is premised upon receiving the primary portion of
our revenue directly from advertisers and merchants, our business will suffer if
advertisers and merchants do not create and use Wink-enhanced advertising.
Additionally, if Wink Enhanced Broadcasting is not broadly accepted by cable and
direct broadcast satellite system operators, our business plan will not succeed.
These operators may choose not to implement Wink Enhanced Broadcasting for a
variety of reasons. Our success will depend heavily upon broad acceptance of
Wink Enhanced Broadcasting by television viewers. If significant numbers of
viewers do not request information or purchase goods and services in response to
Wink-enhanced programming and advertising, advertisers and merchants are likely
to terminate their use of Wink-enhanced advertising or never adopt Wink Enhanced
Broadcasting. Viewers may not react favorably to Wink Enhanced Broadcasting for
various reasons, including they may feel it is too complex or they may be
concerned about security or privacy issues.
WE WILL INCUR SUBSTANTIAL LIABILITY IF WINK ENHANCED BROADCASTING FAILS TO
GENERATE SUFFICIENT REVENUE TO MEET OUR REVENUE GUARANTEES AND OTHER OBLIGATIONS
We have entered into agreements with Microsoft, cable and direct broadcast
satellite system operators and other market participants to share with these
entities a portion of revenues, if any, we generate from viewer responses to
Wink Enhanced Broadcasting. For certain cable and direct broadcast satellite
system operators, we have provided a minimum revenue guarantee if the operator
meets a minimum volume threshold for Wink Engines deployed. These guarantees
range from $2 to $5 per year per Wink-enabled home. In
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addition, we have made minimum revenue guarantees to Microsoft ranging from $2
to $4 per year per Wink-enabled device in which Microsoft controls the operating
system, application environment and content and data services, in exchange for
certain rights to process viewer responses to enhanced television offers. If
Wink Enhanced Broadcasting fails to generate sufficient revenue to meet the
guaranteed amount per Wink subscriber, we are required to pay the difference
between the guaranteed amount and the amount actually earned by the operator or
Microsoft. These liabilities may be substantial.
We have also agreed to provide marketing and technical development funds to
a number of cable and direct broadcast satellite system operators, contingent
upon the commercial launch of Wink Enhanced Broadcasting, including in some
cases a per set-top box fee of up to $3.50.
THE EMERGING NATURE OF THE MARKET FOR INTERACTIVE TELEVISION MAY CREATE
SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS, WHICH COULD RESULT
IN A DECLINE IN THE TRADING PRICE OF OUR COMMON STOCK
Our future quarterly operating results may fluctuate significantly due to a
number of factors related to the emerging market including:
- the amount of transaction-processing activity through the Wink Response
Network;
- the timing and success of infrastructure upgrades necessary to support
deployment by industry participants;
- the timing of the change, if any, in the basis of our relationships with
advertisers and merchants from a fixed flat fee arrangement to a
fee-per-transaction arrangement; and
- the effect of stock-based incentives provided to various industry
participants.
Due to these factors, it is possible that our operating results in one or
more future quarters will fail to meet or exceed the expectations of securities
analysts or investors. In such event, the trading price of our common stock
would likely decline.
WE FACE COMPETITION FROM A NUMBER OF COMPANIES
Many of our competitors may be in a better position to produce and market
their services due to their greater financial, technical, manufacturing and
marketing resources. As a result, we may not be able to compete effectively. Our
competitors may also have the support of, or relationships with, important
industry participants which could adversely affect the extent of support these
market participants give to Wink Enhanced Broadcasting.
Current and potential competitors in one or more aspects of our business
include television and other system software companies, interactive television
system providers and multimedia authoring tool providers. We also face
competition from other providers and companies operating in the direct marketing
business, especially operators of toll-free response call centers.
WE NEED TO ADAPT TO TECHNOLOGICAL CHANGE IN A MARKET THAT MAY NEVER FULLY
DEVELOP OR MAY DEVELOP WITH STANDARDS THAT ARE NOT COMPATIBLE WITH OUR
TECHNOLOGY
The emerging and unsettled market for interactive television will require
that we continually improve the performance, features and reliability of Wink
Enhanced Broadcasting, particularly in response to competitive offerings. We may
not be successful in responding quickly, cost-effectively and adequately to
these developments. The introduction of new technologies or standards for
enhanced broadcasting could render Wink Enhanced Broadcasting obsolete or
unmarketable. In addition, the widespread adoption of new television
technologies or standards, cable-based or otherwise, could require us to make
substantial expenditures to modify or adapt our technology, products, services,
network or business model.
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INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS MAY BE ASSERTED AGAINST US, WHICH
COULD DISRUPT OUR BUSINESS
If third parties assert claims of infringement of their proprietary rights
against us, we will incur significant costs and a diversion of resources with
respect to the defense of these claims. If any claims or actions are asserted
against us, we may seek to obtain a license under a third party's intellectual
property rights. However, a license under such circumstances may not be
available on reasonable terms, if at all.
On August 6, 1998, John L. Berman, an individual, filed suit against us in
the U.S. District Court in the Northern District of California, alleging that we
infringed his patents for an interactive television graphics interface and for a
method and apparatus for applying overlay images. On September 15, 1999, a suit
was filed in the United States District Court for the Middle District of
Florida, Fort Myers Division by Fort Myers Broadcasting Company claiming certain
federal trademark infringements. If we fail to defend these allegations
successfully, our business and financial performance may be adversely affected.
OUR COMPUTER SYSTEMS AND SOFTWARE AND THOSE OF OUR SOFTWARE AND HARDWARE
PROVIDERS AND THIRD PARTY NETWORK PROVIDERS MAY NOT BE YEAR 2000 COMPLIANT,
WHICH MAY DISRUPT OUR OPERATIONS
We face risks associated with the fact that many electronic devices,
systems and applications may not recognize calendar dates beginning in the Year
2000. This could result in system failures or miscalculations causing
disruptions of our operations, including a temporary inability to transmit our
enhancements and receive and process viewer responses.
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ITEM 2. PROPERTIES
As of December 31, 1999, our principal administrative, marketing and
product development facilities were located in approximately 38,000 square feet
of office space in Alameda, California under a sublease that expired in January
2000. We recently renewed the sublease covering approximately 48,000 square feet
in the same building as its existing space. This lease expires in September
2004. We believe that our existing facilities are adequate to meet our needs for
the immediate future and that future growth can be accommodated by leasing
additional or alternative space near our current facilities.
ITEM 3. LEGAL PROCEEDINGS
On August 6, 1998, John L. Berman, an individual, filed suit against us in
the U.S. District Court in the Northern District of California, alleging that we
infringed his patents for an interactive television graphics interface and for a
method and apparatus for applying overlay images.
On September 15, 1999, a suit was filed against us in the United States
District Court for the Middle District of Florida, Fort Myers Division by Fort
Myers Broadcasting Company claiming certain federal trademark infringements.
We believe we have meritorious defenses and plans to vigorously defend
ourselves in each of the above matters, and while the results of such litigation
and claims cannot be predicted with certainty, we believe that the resolution of
these matters will not have a material adverse effect on our consolidated
statement of operations or on our cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE TO SECURITY HOLDERS
There were no submissions of matters to a vote of security holders during
the quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Wink's Common Stock has been traded on The Nasdaq Stock Market under the
symbol "WINK" since August 19, 1999. The following table sets forth the high and
low sales prices of our Common Stock for the periods indicated, and as reported
on The Nasdaq Stock Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year ended December 31, 1999
Third Quarter............................................... $55.25 $28.13
Fourth Quarter.............................................. $65.75 $21.75
</TABLE>
As of February 29, 2000, there were approximately 380 stockholders of
record of the our Common Stock, although we believe that there is a
significantly larger number of beneficial owners of its Common Stock.
DIVIDEND POLICY
We have never paid cash dividends on our stock, and anticipate that we will
continue to retain our earnings, if any, to finance the growth of our business.
USE OF PROCEEDS OF INITIAL PUBLIC OFFERING AND PREFERRED STOCK SALE
On August 18, 1999, we commenced an initial public offering ("IPO") of
5,462,500 shares of common stock (including 200,000 shares sold by existing
stockholders and an underwriters' over-allotment option of 712,500 shares) at
$16.00 per share pursuant to a registration statement (No. 333-80221) (the
"Initial Registration Statement") and a related registration statement
(333-85531) filed pursuant to Rule 462(b) of
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the Securities Act. The Initial Registration Statement was declared effective by
the Securities and Exchange Commission on August 18, 1999. The offering has been
completed, and all shares have been sold. The aggregate gross proceeds from the
offering were $84.2 million for the shares sold by us and $3.2 million for the
shares sold by the selling stockholders. The managing underwriters for the
initial public offering were Donaldson, Lufkin & Jenrette Securities
Corporation, Deutsche Bank Securities Inc. and Bear, Stearns & Co. Inc.
We incurred the following expenses in connection with the offering:
underwriters' discounts and commissions of $5,894,000 and approximately $1.0
million in other expenses, for total expenses of approximately $6,894,000. After
deducting expenses of the offering, we received net offering proceeds of $77.3
million.
In June and July 1999, we sold and issued an aggregate of 4,958,333 shares
of Series D Convertible Preferred Stock at a price of $12.00 per share to
Microsoft Corporation, Hughes Electronics Corporation, General Instrument
Corporation, Goldman Sachs Group, Inc., and GFI Company. Each share of Series D
Convertible Preferred Stock converted into one share of common stock upon the
closing of our initial public offering in August 1999. We relied upon the
exemptions from registration provided by Section 4(2) under the Securities Act
of 1933, as amended, in the foregoing financing.
We have used, and continue to expect to use, the proceeds from the offering
for general corporate purposes, including working capital. A portion of the
proceeds may also be used for the acquisition of businesses that are
complementary to ours. Pending such uses, we have invested the net proceeds of
the IPO and Series D Convertible Preferred Stock in interest-bearing securities
that management considers to be credit worthy.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
Wink's consolidated statement of operations for each of the years ended December
31, 1997, 1998 and 1999 and with respect to Wink's consolidated balance sheet as
of December 31, 1998 and 1999 have been derived from the audited financial
statements of Wink which are included elsewhere herein. The selected
consolidated financial data set forth with respect to Wink's consolidated
statement of operations for each of the periods ended December 31, 1995 and 1996
and with respect to Wink's consolidated balance sheet as of December 31, 1995,
1996 and 1997 are derived from the audited financial statements of Wink which
are not included herein. The selected consolidated financial data set forth
below is qualified in its entirety by, and should be read in conjunction with,
Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the consolidated financial statements and the notes to those
statements included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
------- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Licenses -- related parties................ $ -- $ -- $ 384 $ 174 $ 488
Licenses -- third parties.................. -- -- -- 224 602
Services -- related parties................ 100 155 148 -- 356
Services -- third parties.................. -- 193 87 119 155
------- ------- ------- -------- --------
Total revenues........................ 100 348 619 517 1,601
------- ------- ------- -------- --------
</TABLE>
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
------- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Costs and expenses(a):
Cost of services -- related parties........ 98 323 162 -- 256
Cost of services -- third parties.......... -- 235 376 513 63
Research and development................... 851 2,595 4,384 6,549 10,381
Sales and marketing........................ 899 2,263 3,510 5,578 9,816
General and administrative................. 472 1,068 1,843 2,572 4,657
------- ------- ------- -------- --------
Total costs and expenses.............. 2,320 6,484 10,275 15,212 25,173
------- ------- ------- -------- --------
Loss from operations......................... (2,220) (6,136) (9,656) (14,695) (23,572)
Interest and other income.................... 72 279 684 813 5,435
Interest expense............................. -- (27) (194) (154) (87)
------- ------- ------- -------- --------
Net loss..................................... $(2,148) $(5,884) $(9,166) $(14,036) $(18,224)
======= ======= ======= ======== ========
Net loss per share(b):
Basic and diluted.......................... $ (0.37) $ (0.91) $ (1.25) $ (1.57) $ (1.06)
======= ======= ======= ======== ========
Weighted average shares.................... 5,860 6,432 7,337 8,954 17,150
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 2,909 $ 4,157 $ 8,530 $ 16,892 $ 58,032
Short-term investments....................... -- -- 5,452 4,441 91,167
Working capital.............................. 2,218 2,886 11,367 17,443 145,211
Total assets.......................... 3,317 5,642 15,629 23,920 155,809
Long-term obligations, less current
portion.................................... -- 1,114 767 365 --
Stockholders' equity......................... 2,530 3,135 11,925 19,125 149,419
</TABLE>
- -------------------------
(a) Costs and expenses include non-cash charges for stock compensation and
warrant amortization totaling $283,000, $4,000, $455,000, $1,256,000, and
$5,018,000 for years ended December 31, 1995, 1996, 1997, 1998 and 1999,
respectively. See Notes 2, 8 and 9 of Notes to Consolidated Financial
Statements.
(b) See Note 2 of Notes to Consolidated Financial Statements for a discussion of
the computation of historical basic and diluted net loss per share and
weighted average shares outstanding.
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QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
statement of operations data for the eight quarters ended December 31, 1999.
This information is unaudited, but in the opinion of management, it has been
prepared substantially on the same basis as the audited consolidated financial
statements appearing elsewhere in this Form 10-K, and all necessary adjustments,
consisting only of normal recurring adjustments, have been included in the
amounts stated below to present fairly the unaudited consolidated quarterly
results of operations. The consolidated quarterly data should be read in
conjunction with our audited consolidated financial statements and the notes to
such statements appearing elsewhere in this report. The results of operations
for any quarter are not necessarily indicative of the results of operations for
any future period.
<TABLE>
<CAPTION>
QUARTER
----------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Net revenues............................................ $ 339 $ 281 $ 469 $ 512
Gross profit............................................ 249 166 369 498
Net loss................................................ (5,497) (3,704) (4,532) (4,491)
Net loss per share, basic and diluted................... $ (0.55) $ (0.37) $ (0.24) $ (0.15)
YEAR ENDED DECEMBER 31, 1998
Net revenues............................................ $ 141 $ 149 $ 103 $ 124
Gross profit............................................ 71 86 23 (300)
Net loss................................................ (2,656) (3,121) (3,752) (4,507)
Net loss per share, basic and diluted................... $ (0.33) $ (0.33) $ (0.40) $ (0.47)
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OVERVIEW
OVERVIEW
Wink Communications was founded in 1994 and our activities to date have
consisted of:
- developing and adapting our technology for operation in televisions and
advanced analog and digital set-top boxes;
- licensing our Wink Studio authoring tool software to major broadcast and
cable networks, third-party developers and advertisers to enable them to
develop Wink Enhanced Broadcasting;
- licensing our Wink Server software to broadcast and cable networks and
cable system operators to incorporate Wink enhancements into their
television programming;
- developing the Wink Response Network for collecting and managing
responses to Wink Enhanced Broadcasting;
- marketing the concept of Wink Enhanced Broadcasting and establishing the
Wink brand; and
- establishing relationships with and licensing our technology to key
television industry participants.
Revenues. Through December 31, 1999, our revenues were derived from license
fees relating to the Wink Engine, Wink Studio, and Wink Broadcast Server
software, non-recurring engineering services under agreements to port the Wink
Engine software to various televisions and set-top boxes, charter advertising
fees and service fees relating to software installation and post-installation
customer support. We recognize software license revenues relating to the Wink
Engine on a "sell-through" basis upon notification of shipment of Wink-enabled
products by the original equipment manufacturer. License fees from Wink Studio
and Wink Broadcast Server software are recognized ratably over the term of the
subscription license agreement. Non-recurring engineering services are
recognized using the percentage-of-completion method, using labor hours as a
measure of progress towards completion. Fees from installation services are
recognized as services are provided, and post-installation customer support fees
are recognized ratably over the term of the support agreement. Fees received in
advance of revenue recognition are included on the balance sheet as deferred
revenue.
Our business plan is to derive the primary portion of our future revenues
from the Wink Response Network by charging transaction fees to advertisers and
merchants for each information request or purchase order obtained from viewers
who respond to Wink Enhanced Broadcasting. The Wink Response Network was
activated on a limited basis in the second half of 1998. However, no transaction
fee revenue has been recognized to date. All advertising agreements in place as
of December 1999 provide for a flat fee to be paid to us without any transaction
fees. These fees are recognized ratably over the life of the agreement,
generally one year.
We may also derive revenue in the future from sales of products by Wink
through our dedicated interactive channels. Additionally, we expect that in
future periods revenues may result from the Wink Server Studio application. This
application is being licensed to customers under monthly subscription fee
arrangements with terms ranging from one to five years and with periodic fee
increases based upon changes in the Consumer Price Index and other events.
Revenues derived from such arrangements will be recognized ratably over the term
of the subscription license agreement. We do not expect that non-recurring
engineering services will represent a significant component of future revenues.
We have incurred net losses since inception and, at December 31, 1999, had
an accumulated deficit of approximately $49.5 million. We may never achieve
favorable operating results or profitability. See "Risk Factors -- We have a
history of losses and expect future losses."
Cost of Services. Cost of services is composed primarily of direct
engineering labor and materials associated with our arrangements to provide
non-recurring engineering services. In future periods, cost of services is also
expected to include costs of providing installation services and the costs of
operating the Wink Response Network, including processing and telecommunication
costs.
20
<PAGE> 21
Research and Development. Research and development expense includes costs
associated with our engineering and operations departments, including personnel
costs, non-cash charges for stock compensation, allocated facilities-related
expenses and payments to third-party consultants. We expect research and
development expense to increase in the future as additional personnel are hired
and additional third-party consultants are used to support anticipated growth.
Sales and Marketing. Sales and marketing expense includes salaries,
non-cash charges for stock compensation and warrant amortization, consulting
fees, travel-related costs, advertising expenses and allocated
facilities-related expenses associated with our cable sales, consumer marketing
and content departments. In future periods, sales and marketing expense is
expected to increase significantly and to include the portion of transaction
fees shared with and guaranteed to certain television industry participants,
matching development funds, costs incurred by our customer service center to
register and respond to inquiries from Wink television viewers, costs of
marketing materials, commercial spots and training for the launch of Wink
Enhanced Broadcasting in new cable systems, as well as costs of sales
performance incentives to various consumer electronics retailers to encourage
them to register their customers as Wink users.
General and Administrative. General and administrative expense includes
administrative and executive personnel costs, non-cash charges for stock
compensation, allocated facilities-related expenses and other administrative
costs. We expect general and administrative expense to increase in the future as
additional personnel are hired to support anticipated growth.
RESULTS OF OPERATIONS
Since inception, we have been engaged primarily in the development and
licensing of Wink Enhanced Broadcasting. Accordingly, our historical results of
operations are not indicative of and should not be relied upon as an indicator
of future performance.
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
REVENUES
Total revenues were $1.6 million, $517,000, and $619,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. The increase of 210% from
the year ended December 31, 1998 to the year ended December 31, 1999 resulted
primarily from a significant increase in license revenue of $692,000, or 174%.
The increase in license revenue included increases in Wink Engine royalties,
from both related and third parties, due to increases in the shipment of
Wink-enabled televisions and set-top boxes, as well an increase in Wink Studio
and Wink Broadcast Server license fees from charter advertisers and programmers.
Non-recurring engineering fees also increased in 1999 from 1998, as the major
portion of work on certain development agreements were completed. During 1999,
transactions with General Instrument and Toshiba each accounted for at least 10%
of our total revenues. The decrease of 16% from the year ended December 31, 1997
to the year ended December 31, 1998 was related primarily to a decline in
non-recurring engineering fees from related parties, as certain development
agreements were completed in 1997, and to a decline in royalties from Wink
Engine software from related parties, resulting from lower shipments of
Wink-enabled television sets. These decreases were partially offset by an
increase in software license fees with third parties totaling $224,000. During
1998, transactions with Toshiba, Pioneer and a subsidiary of Thomson Multimedia
S.A. each accounted for at least 10% of our total revenues. During 1997,
transactions with Toshiba, Scientific-Atlanta and General Instrument each
accounted for at least 10% of our total revenues.
COSTS AND EXPENSES
Total costs and expenses were $25.2 million, $15.2 million, and $10.3
million for the years ended December 31, 1999, 1998 and 1997, respectively. The
increases of 65% from the year ended December 31, 1998 to the year ended
December 31, 1999, and 48% from the year ended December 31, 1997 to the year
ended December 31, 1998 were primarily a result of increased non-cash charges
for stock compensation and warrant amortization and additional operating costs
associated with the development, testing and deployment of the Wink Engine
software, the Wink Broadcast Server software and the Wink Response Network, as
well as
21
<PAGE> 22
substantial sales and marketing expenses. We believe that continued expansion of
our operations and our sales and marketing efforts is critical to the
achievement of our goals. Therefore, we believe that costs and expenses will
continue to increase.
Costs and expenses include non-cash charges for stock compensation and
warrant amortization as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Research and development..................... $ 372,000 $ 204,000 $ 71,000
Sales and marketing.......................... 4,131,000 846,000 312,000
General and administrative................... 515,000 206,000 72,000
---------- ---------- --------
$5,018,000 $1,256,000 $455,000
========== ========== ========
</TABLE>
Cost of Services. Cost of services were $319,000, $513,000, and $538,000
for the years ended December 31, 1999, 1998, and 1997, respectively. The
decrease of 38% for the year ended December 31, 1998 to the year ended December
31, 1999 was due to a $450,000 decrease in costs associated with significant
engineering efforts incurred to complete certain nonrecurring engineering
contracts with third parties in 1998, offset by an increase in related party
cost of services of $256,000 in 1999 related to the completion of certain
nonrecurring engineering services with related parties. The decrease of 5% from
the year ended December 31, 1997 to the year ended December 31, 1998 was due
primarily to the completion of various engineering projects during 1998.
Changes in gross margins from services revenues realized during the years
ended December 31, 1999, 1998 and 1997 were primarily attributed to varying
engineering efforts required to meet the terms of individual non-recurring
engineering agreements. We do not expect that non-recurring engineering fees
will represent a significant component of future revenues.
Cost over-runs on non-recurring engineering service agreements with related
parties and third parties during the years ended December 31, 1998 and 1997
resulted in costs incurred in excess of revenues recognized. At each reporting
period, we record an accrued liability for the total remaining loss on non-
recurring engineering services agreements that are expected to result in an
overall loss.
Research and Development. Research and development expenses were $10.4
million, $6.5 million, and $4.4 million for the years ended December 31, 1999,
1998 and 1997, respectively. The increases of 59% and 49% from the years ended
December 31, 1998 to the year December 31, 1999 and December 31, 1997 to the
year ended December 31, 1998, respectively, were due primarily to additional
engineering and operations personnel costs incurred to support increased product
deployment activities and our expanded operations.
Sales and Marketing. Sales and marketing expenses were $9.8 million, $5.6
million, and $3.5 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The increase of 76% from the year ended December 31, 1998 to the
year ended December 31, 1999 was primarily due to non-cash charges for stock
compensation and warrant amortization totaling $4.1 million. The increase of 60%
from the year ended December 31, 1997 to the year ended December 31, 1998 was
primarily due to resources expended to support the initial deployment of Wink
Enhanced Broadcasting and increases in non-cash charges for stock compensation
and warrant amortization in 1998.
In June 1997, we granted warrants to purchase an aggregate of 375,000
shares of common stock to a broadcasting company, which is affiliated with one
of our stockholders. The broadcasting company has agreed to use reasonable
efforts to develop and air Wink-enhanced programming over approximately the
18-month period ending in December 1998. A warrant to purchase 75,000 of these
shares was exercisable on the grant date and had an estimated fair value of
$20,000, which was immediately recognized as a sales and marketing expense.
Vesting of a warrant to purchase the remaining 300,000 shares was originally
contingent upon specified future performance criteria over the 18-month period.
At December 31, 1997, the warrants had an estimated fair value at the
prospective vesting date of $726,000, of which $220,000 was recognized as a
sales and marketing expense during 1997. Effective February 1, 1998, the
agreement with the broadcasting company was amended to remove all remaining
performance vesting criteria, and the warrants became fully
22
<PAGE> 23
exercisable. The $506,000 difference between the February 1, 1998 estimated fair
value of $726,000 and the previously recognized expense is included in sales and
marketing expense over the period in which we received benefits from the
broadcaster's services, which was completed during the year ended December 31,
1998.
In August 1998, as consideration for consulting services, we granted a
fully exercisable warrant to purchase common stock to a company that is one of
our stockholders. The warrant enables the holder to purchase 25,000 shares of
common stock at $8.00 per share and expires in August 2003. The estimated fair
value of the warrant totaled $135,000 and is included in sales and marketing
expense for the year ended December 31, 1998.
During February and March 1999, we granted fully exercisable warrants to
purchase 325,000 shares of common stock at $12.00 per share, subject to
adjustment, as incentive for signing definitive software licensing agreements
and to promote the development of Wink-enhanced programming. The fair value of
these warrants on the measurement date totaled $2.0 million and was recognized
as a sales and marketing expense, as there were no remaining performance
obligations on behalf of the holders and no significant license revenues are
expected to be derived from the agreements. The warrants were exercised in
August 1999 immediately prior to our initial public offering.
In May 1999, we granted to Microsoft a fully exercisable warrant to
purchase 500,000 shares of common stock at $12.00 per share, subject to
adjustment, in connection with the signing of a 10-year software distribution
agreement. The fair value of this warrant on the measurement date totaled $4.1
million, was recognized as a component of stockholders' equity and is being
amortized as a sales and marketing expense over the estimated period of benefit
of ten years. During the year ended December 31, 1999, amortization recognized
totaled $473,000.
In June 1999, we issued an aggregate of 50,000 shares of common stock to
employees as incentive bonuses. The fair value of these shares on the issuance
date totaled $600,000 and was recognized as a sales and marketing expense, as
the shares were fully vested on the date of grant.
In July 1999, we granted a fully exercisable warrant to purchase 75,000
shares of common stock at $12.00 per share, subject to adjustment, as incentive
for the licensee to sign a definitive software licensing agreement and agree to
promote the development of Wink-enabled programming. The fair value of this
warrant on the measurement date totaled $734,000 and was recognized as a sales
and marketing expense during the year ended December 31, 1999, as there was no
remaining performance obligation on behalf of the holder and no significant
license revenues are expected to be derived from the agreement. The warrants
were exercised in August 1999 immediately prior to our initial public offering.
General and Administrative. General and administrative expense was $4.7
million, $2.6 million, and $1.8 million for the years ended December 31, 1999,
1998, and 1997, respectively. The year-to-year increase from the year ended
December 31, 1998 to the year ended December 31, 1999 of 81% resulted primarily
from legal fees related to a patent infringement case filed in 1998, the hiring
of administrative and executive personnel to support anticipated future growth.
Increased non-cash charges for stock compensation amortization also contributed
to the overall increase. The 44% increase from 1997 to 1998 resulted primarily
from recognizing $375,000 of costs in 1998 associated with our planned initial
public offering that was postponed in the second half of 1998 and the hiring of
administrative and executive personnel in 1998 to begin to position us to
achieve our long-term goals.
Stock-based Costs and Expenses. During the years ended December 31, 1999,
1998 and 1997, we recognized non-cash charges for stock compensation and warrant
amortization (including those described under sales and marketing) totaling $5.0
million, $1.3 million, and $455,000, respectively. These amounts consist of the
amortization of unearned compensation related to certain stock option grants,
sales of restricted stock to employees and warrants granted for services
rendered to Wink.
During the years ended December 31, 1999, 1998 and 1997, we recognized
unearned compensation totaling $6.6 million, $600,000, and $700,000,
respectively, with respect to stock option grants and sales of restricted stock
to employees. Amortization of unearned compensation totaled $1.7 million,
$615,000, and $215,000 during the years ended December 31, 1999, 1998 and 1997,
respectively. The remaining unearned
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<PAGE> 24
compensation at December 31, 1999, totaling $9.5 million, and unearned
compensation recognized subsequent to December 31, 1999, will be amortized in
future periods over the respective stock and option vesting periods.
In December 1998, we issued to Vulcan Ventures Incorporated, a stockholder,
warrants to purchase up to an aggregate of 250,000 shares of common stock,
subject to certain exercisability and performance conditions. Any exercise of
the warrants is conditioned upon cable television system operators affiliated
with Vulcan deploying set-top boxes containing Wink Engines to at least 200,000
households between January 1, 1999 and December 31, 2001. Vulcan may exercise
the warrants on or after February 1, 2001 for a number of shares equal to
one-fifth the number of households in which a Wink-enabled set-top box is
deployed by a Vulcan affiliate during calendar 1999, which box remains deployed
for at least one year after deployment. The exercise price for such shares is
$12.00 per share. Vulcan may exercise the warrants on or after February 1, 2002
for an additional number of shares equal to one-fifth the number of households
in which a Wink-enabled set-top box is deployed during calendar 2000, which box
remains deployed for at least one year thereafter, less the number of shares
which became exercisable in 2001, up to the aggregate maximum of 250,000 shares.
The exercise price of such additional shares is $16.00 per share. At December
31, 1998, the lowest aggregate fair value of the warrant totaled $1.2 million.
At December 31, 1999, the lowest aggregate fair value of the warrant totaled
$13.9 million. This amount will be remeasured at each reporting date until the
deployment of Wink-enabled technology to the specified number of cable
subscribers is achieved. When and if it becomes probable that the performance
criteria will be achieved, we will record the then fair value associated with
the units meeting the performance criteria as a charge to sales and marketing
expense.
Interest and Other Income, Net of Interest Expense. Net interest and other
income was $5.3 million, $659,000, and $490,000 for the years ended December 31,
1999, 1998 and 1997, respectively. These increases were primarily due to
interest earned on increases in the average cash and investment balances in
later years as a result of the receipt of the proceeds from sales of the our
common and convertible preferred stock. The increase from 1998 to 1999 also
included the recognition of other income totaling $1.0 million resulting from a
termination agreement with a third party customer for cancellation of a
development and license agreement. Under this termination agreement, the third
party paid us $1.1 million. Of this amount, $1.0 million was included in other
income. The remaining amount related to a non-recurring engineering agreement
and was included in services revenues from third parties during the year ended
December 31, 1999. We have no material remaining obligations under these
agreements.
Income Taxes. We have not generated taxable income since inception and, as
a result, the provision for income taxes consists solely of the Delaware and
California minimum franchise taxes of approximately $10,000 in 1999 and $1,000
in 1998 and 1997, respectively, which are included in general and administrative
expenses. At December 31, 1999, we had federal and state net operating loss
carryforwards of approximately $39.0 million available to reduce future taxable
income. Under the Tax Reform Act of 1986, the amount of benefit from net
operating loss carryforwards may be impaired or limited as the Company has
incurred a cumulative ownership change of more than 50%, as defined, over a
three-year period. Based on a number of factors, including the lack of a history
of profits, management believes that there is sufficient uncertainty regarding
the realization of deferred tax assets such that a full valuation allowance has
been provided.
Net Loss. We have incurred net losses since inception, including net losses
of $18.2 million, $14.0 million, and $9.2 million for the years ended December
31, 1999, 1998, and 1997, respectively. The year-to-year increases in net losses
were due primarily to significant increases in expenses as a result of
additional business activities and stock-based costs and expenses.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our activities largely through the sale
of equity securities and through proceeds from capital lease financing. At
December 31, 1999, we had raised an aggregate $104.5 million through various
sales of convertible preferred stock. In August 1999, we raised net proceeds of
approximately $77.3 million from an initial public offering of common stock. We
had approximately $149.2 million of cash, cash equivalents and short-term
investments at December 31, 1999.
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<PAGE> 25
Net cash used in operating activities totaled $13.5 million, $10.9 million,
and $7.0 million, for the years ended December 31, 1999, 1998 and 1997,
respectively, primarily as a result of our net losses.
Net cash used in investing activities totaled $88.0 million for the year
ended December 31, 1999 and was attributable mainly to the net purchases of
short-term investments totaling $86.2 million and the acquisition of $1.8
million of property and equipment. For the year ended December 31, 1998, net
cash used in investing activities was $358,000 and was attributable to the
acquisition of $1.4 million of property and equipment, which was partially
offset by $1.0 million of net proceeds from short-term investment maturities.
Net cash used in investing activities was $5.8 million for the year ended
December 31, 1997, attributable primarily to net purchases of short-term
investments.
Net cash provided by financing activities for the year ended December 31,
1999 was $142.6 million, consisting primarily of proceeds from our initial
public offering of Common Stock of $77.3 million, $44.3 million from the sale of
Series D Convertible Preferred Stock and proceeds totaling $15.1 million from
the issuance of a convertible promissory note to Microsoft, a related party. In
July 1999, Microsoft exercised its right to exchange the convertible promissory
note for 1,260,000 shares of our Series D Convertible Preferred Stock. For the
years ended December 31, 1998 and 1997, net cash provided by financing
activities was $19.6 million and $17.2 million, respectively, consisting
primarily of net proceeds from sales of Series C Convertible Preferred Stock and
Common Stock in each year.
We have entered into agreements with Microsoft, cable and direct broadcast
satellite system operators and other television industry participants who
support Wink-enhanced programming to share with these entities a portion of
revenues, if any, we generate from viewer responses to Wink Enhanced
Broadcasting. These revenue sharing commitments are based upon the level of the
commitment the particular participant has made to support Wink Enhanced
Broadcasting. To date, no transaction fee revenue has been recognized. To the
extent that future transaction fee revenue is generated, we will record the
revenue sharing as a charge to sales and marketing in the period the revenue is
recognized.
For Microsoft and certain cable and direct broadcast satellite system
operators, we have also provided a minimum revenue guarantee. We have also
agreed to provide marketing and technical development funds to a number of cable
and direct broadcast satellite system operators, contingent upon the commercial
launch of Wink Enhanced Broadcasting, including in some cases a per set-top box
fee of up to $3.50. If Wink Enhanced Broadcasting fails to generate sufficient
revenue to meet the guaranteed amount per Wink subscriber, we are obligated to
pay the difference between the guaranteed amount and the amount actually earned.
Such revenue guarantees will be recognized in the period incurred. See Note 7 of
the Notes to Consolidated Financial Statements.
We believe that our existing cash, cash equivalents and short-term
investments will be sufficient to meet our currently anticipated business
requirements, including capital expenditures and strategic operating programs,
for at least the next 12 months. Thereafter, if any, we may need to sell
additional equity or debt securities or obtain additional credit facilities. The
sale of additional equity or convertible debt securities may result in
additional dilution to our stockholders. We may not be able to raise any such
capital on terms acceptable to us, if at all.
YEAR 2000 COMPLIANCE
To date our systems and software have not experienced any material
disruption due to the onset of the Year 2000, and we have completed our Year
2000 preparedness activities and have not incurred any significant expenses to
date. However, we cannot assure that we will not experience disruptions in the
future as a consequence of the Year 2000 bug. We cannot quantify the amount of
our potential exposure, but do not believe it to be material.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS
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<PAGE> 26
No. 133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivatives Instruments and Hedging
Activities -- Deferral of Effective Date of FASB Statement No. 133" ("SFAS No.
137"). SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, with earlier
application encouraged. We do not currently, nor do we currently intend to in
the future, to use derivative instruments and therefore do not expect that the
adoption of SFAS No. 133 will have any impact on our financial position or
results of operations.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements." ("SAB No. 101"). SAB No. 101, which was effective January 1, 2000,
requires that license and other upfront fees received from research
collaborators be recognized over the term of the agreement, unless the fee is in
exchange for products delivered or services performed that represent the
culmination of a separate earnings process. Implementation of SAB No. 101 is not
anticipated to have a material change on the financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
INTEREST RATE SENSITIVITY. Our exposure to market risk for interest rate
changes relates primarily to its short-term investment portfolio. We had no
derivative financial instruments as of December 31, 1999 or December 31, 1998.
We invest our marketable securities in accordance with our investment policy and
maintain our portfolio in the form of managed investment accounts comprised of
money market accounts, corporate bonds and government bonds and notes. We
consider all highly liquid investments with an original maturity of three months
or less to be cash equivalents. The primary objective of our portfolio is to
maintain proper liquidity to meet the operating needs of the business. Our
policy specifies credit quality standards for the investments and limits the
amount of credit exposure to any single issue, issuer or type of investment. The
weighted average maximum maturity of the portfolio is based on the Lehman 1-3
index.
Our holdings are subject to interest rate risk and will fall in value in
the event market interest rates increase. If market interest rates were to
increase immediately and uniformly by 50 basis points from levels as of December
31, 1999, the fair value of the portfolio would decline by an immaterial amount.
FOREIGN CURRENCY EXCHANGE RISK. The principal portion of our business is in
the United States. Additionally, contracts we have entered into with companies
headquartered in foreign countries have been denominated in US dollars.
Accordingly, we are not subject to exposure from adverse movements in foreign
currency exchange rates. We may be subject to exposure in the future from our
Japanese subsidiary, which to date has not recognized any revenues or expenses.
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<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WINK COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---- ----
(DOLLARS AND SHARES IN
THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 58,032 $ 16,892
Short-term investments.................................... 91,167 4,441
Accounts receivable -- related parties.................... 61 52
Accounts receivable -- third parties, net................. 429 187
Prepaid expenses -- related party......................... 375 --
Prepaid expenses and other current assets................. 1,537 301
-------- --------
Total current assets................................... 151,601 21,873
Property and equipment, net................................. 2,538 1,762
Other assets -- related party............................... 1,493 107
Other assets................................................ 177 178
-------- --------
$155,809 $ 23,920
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,070 $ 995
Accrued expenses.......................................... 2,636 1,243
Deferred revenue -- related parties....................... 200 671
Deferred revenue -- third parties......................... 1,119 1,119
Current portion of capital lease obligations.............. 365 402
-------- --------
Total current liabilities.............................. 6,390 4,430
-------- --------
Capital lease obligations, less current portion............. -- 365
-------- --------
Commitments and contingencies (Note 7)
Stockholders' equity:
Convertible Preferred Stock, $0.001 par value, issuable in
series; aggregate liquidation amount $0 and $45,512 at
December 31, 1999 and 1998, respectively; 5,000 shares
authorized; 0 and 7,806 shares issued and
outstanding............................................ -- 8
Preferred Stock, $0.001 par value; 5,000 shares
authorized;
0 shares issued and outstanding........................ -- --
Common Stock, $0.001 par value; 100,000 shares authorized;
30,017 and 10,517 shares issued and outstanding........ 30 11
Additional paid-in capital................................ 210,601 51,890
Stockholder notes receivable.............................. (2,749) (1,046)
Unearned compensation..................................... (9,458) (479)
Accumulated deficit....................................... (49,483) (31,259)
Accumulated other comprehensive income.................... 478 --
-------- --------
Total stockholders' equity............................. 149,419 19,125
-------- --------
$155,809 $ 23,920
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 28
WINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---- ---- ----
(DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Licenses -- related parties............................... $ 488 $ 174 $ 384
Licenses -- third parties................................. 602 224 --
Services -- related parties............................... 356 -- 148
Services -- third parties................................. 155 119 87
-------- -------- -------
Total revenues......................................... 1,601 517 619
-------- -------- -------
Costs and expenses:
Cost of services -- related parties....................... 256 -- 162
Cost of services -- third parties......................... 63 513 376
Research and development.................................. 10,381 6,549 4,384
Sales and marketing....................................... 9,816 5,578 3,510
General and administrative................................ 4,657 2,572 1,843
-------- -------- -------
Total costs and expenses............................... 25,173 15,212 10,275
-------- -------- -------
Loss from operations........................................ (23,572) (14,695) (9,656)
Interest and other income................................... 5,435 813 684
Interest expense............................................ (87) (154) (194)
-------- -------- -------
Net loss.................................................... $(18,224) $(14,036) $(9,166)
======== ======== =======
Net loss per share:
Basic and diluted......................................... $ (1.06) $ (1.57) $ (1.25)
======== ======== =======
Weighted average shares outstanding....................... 17,150 8,954 7,337
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 29
WINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
----------------
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCKHOLDER
---------------- --------------- PAID-IN NOTES UNEARNED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION DEFICIT
------ ------ ------ ------ ---------- ----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996....... 3,484 $ 4 9,340 $ 9 $ 11,742 $ (554) $ (9) $ (8,057)
Issuance of Series C Convertible
Preferred Stock, net.............. 2,191 2 -- -- 17,436 -- -- --
Exercise of Common Stock options... -- -- 537 1 64 -- -- --
Issuance of Common Stock for
stockholder note.................. -- -- 215 -- 430 (430) -- --
Repurchase of Common Stock......... -- -- (277) -- (3) -- -- --
Issuance of warrants for
services.......................... -- -- -- -- 240 -- -- --
Issuance of Common Stock for
services.......................... -- -- 1 -- 1 -- -- --
Unearned compensation.............. -- -- -- -- 700 -- (700) --
Amortization of unearned
compensation...................... -- -- -- -- -- -- 215 --
Net loss........................... -- -- -- -- -- -- -- (9,166)
------- ---- ------ --- -------- ------- ------- --------
BALANCE AT DECEMBER 31, 1997....... 5,675 6 9,816 10 30,610 (984) (494) (17,223)
Issuance of Series C Convertible
Preferred Stock, net.............. 2,131 2 -- -- 16,732 -- -- --
Exercise of Common Stock options... -- -- 287 -- 207 -- -- --
Issuance of Common Stock for
cash.............................. -- -- 389 1 3,000 -- -- --
Issuance of Common Stock for
stockholder note.................. -- -- 25 -- 100 (100) -- --
Unearned compensation.............. -- -- -- -- 600 -- (600) --
Amortization of unearned
compensation...................... -- -- -- -- -- -- 615 --
Collection of stockholder note
receivable........................ -- -- -- -- -- 38 -- --
Issuance of warrants for
services.......................... -- -- -- -- 641 -- -- --
Net loss........................... -- -- -- -- -- -- -- (14,036)
------- ---- ------ --- -------- ------- ------- --------
BALANCE AT DECEMBER 31, 1998....... 7,806 8 10,517 11 51,890 (1,046) (479) (31,259)
Issuance of Series D Convertible
Preferred Stock, net.............. 3,698 4 -- -- 44,318 -- -- --
Issuance of Series D Convertible
Preferred Stock upon conversion of
note payable...................... 1,260 1 -- -- 15,119 -- -- --
Issuance of Common Stock in initial
public offering, net of issuance
costs of $1,049................... -- -- 5,263 5 77,252 -- -- --
Conversion of Series A, Series B,
Series C, and Series D Convertible
Preferred Stock in conjunction
with the initial public
offering.......................... (12,764) (13) 12,764 13 -- -- -- --
Exercise of Common Stock options... -- -- 466 -- 618 -- -- --
Issuance of warrants for
services.......................... -- -- -- -- 6,763 -- (4,050) --
Exercise of Common Stock
warrants.......................... -- -- 879 1 5,652 -- -- --
Repurchase of Common Stock and
cancellation of related
stockholder note.................. -- -- (122) -- (245) 245 -- --
Issuance of Common Stock for
stockholder Note.................. -- -- 250 -- 2,000 (2,000) -- --
Contribution of Company Common
Stock by a principal
stockholder....................... -- -- (50) -- -- -- -- --
Issuance of Common Stock for
employee Bonuses.................. -- -- 50 -- 600 -- -- --
Repayment of Stockholder note...... -- -- -- -- -- 52 -- --
Unearned compensation.............. -- -- -- -- 6,634 -- (6,634) --
Amortization of unearned
compensation...................... -- -- -- -- -- -- 1,705 --
Net loss........................... -- -- -- -- -- -- -- (18,224)
Unrealized gain on short-term
investments....................... -- -- -- -- -- -- -- --
Total comprehensive loss...... -- -- -- -- -- -- -- --
------- ---- ------ --- -------- ------- ------- --------
BALANCE AT DECEMBER 31, 1999....... -- $ -- 30,017 $30 $210,601 $(2,749) $(9,458) $(49,483)
======= ==== ====== === ======== ======= ======= ========
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS
INCOME EQUITY
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE AT DECEMBER 31, 1996....... $ -- $ 3,135
Issuance of Series C Convertible
Preferred Stock, net.............. -- 17,438
Exercise of Common Stock options... -- 65
Issuance of Common Stock for
stockholder note.................. -- --
Repurchase of Common Stock......... -- (3)
Issuance of warrants for
services.......................... -- 240
Issuance of Common Stock for
services.......................... -- 1
Unearned compensation.............. -- --
Amortization of unearned
compensation...................... -- 215
Net loss........................... -- (9,166)
---- --------
BALANCE AT DECEMBER 31, 1997....... -- 11,925
Issuance of Series C Convertible
Preferred Stock, net.............. -- 16,734
Exercise of Common Stock options... -- 207
Issuance of Common Stock for
cash.............................. -- 3,001
Issuance of Common Stock for
stockholder note.................. -- --
Unearned compensation.............. -- --
Amortization of unearned
compensation...................... -- 615
Collection of stockholder note
receivable........................ -- 38
Issuance of warrants for
services.......................... -- 641
Net loss........................... -- (14,036)
---- --------
BALANCE AT DECEMBER 31, 1998....... -- 19,125
Issuance of Series D Convertible
Preferred Stock, net.............. -- 44,322
Issuance of Series D Convertible
Preferred Stock upon conversion of
note payable...................... -- 15,120
Issuance of Common Stock in initial
public offering, net of issuance
costs of $1,049................... -- 77,257
Conversion of Series A, Series B,
Series C, and Series D Convertible
Preferred Stock in conjunction
with the initial public
offering.......................... -- --
Exercise of Common Stock options... -- 618
Issuance of warrants for
services.......................... -- 2,713
Exercise of Common Stock
warrants.......................... -- 5,653
Repurchase of Common Stock and
cancellation of related
stockholder note.................. -- --
Issuance of Common Stock for
stockholder Note.................. -- --
Contribution of Company Common
Stock by a principal
stockholder....................... -- --
Issuance of Common Stock for
employee Bonuses.................. -- 600
Repayment of Stockholder note...... -- 52
Unearned compensation.............. -- --
Amortization of unearned
compensation...................... -- 1,705
Net loss........................... --
Unrealized gain on short-term
investments....................... 478
Total comprehensive loss...... -- (17,746)
---- --------
BALANCE AT DECEMBER 31, 1999....... $478 $149,419
==== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 30
WINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(18,224) $(14,036) $(9,166)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,004 710 543
Stock-based costs and expenses......................... 5,018 1,256 455
Allowance for doubtful accounts........................ 30 -- --
Changes in assets and liabilities:
Accounts receivable -- related parties............... (9) 76 (78)
Accounts receivable -- third parties................. (272) (187) --
Prepaid expenses -- related party.................... (375) -- --
Prepaid expenses and other current assets............ (1,236) (107) (122)
Other assets -- related Party........................ (1,386) (63) (41)
Other assets......................................... 1 -- (83)
Accounts payable..................................... 1,075 709 208
Accrued expenses..................................... 1,393 580 430
Deferred revenues -- related parties................. (471) 21 80
Deferred revenues -- third parties................... -- 128 778
-------- -------- -------
Net cash used in operating activities....................... (13,452) (10,913) (6,996)
-------- -------- -------
Cash flows from investing activities:
Net (purchase) proceeds of short-term investments......... (86,248) 1,011 (5,452)
Property and equipment purchases.......................... (1,780) (1,369) (381)
-------- -------- -------
Net cash used in investing activities....................... (88,028) (358) (5,833)
-------- -------- -------
Cash flows from financing activities:
Proceeds from Preferred Stock issuances, net.............. 44,322 16,734 17,438
Proceeds from sale of Common Stock issuance............... -- 3,001 --
Proceeds from stockholder note receivable................. 52 38 --
Proceeds from issuance of convertible promissory
note -- related party.................................. 15,120 -- --
Proceeds from sale of Common Stock in initial public
offering, net.......................................... 77,257 -- --
Proceeds from the issuance of Common Stock from the
exercise of warrants and options....................... 6,271 207 65
Principal payments on capital lease obligations........... (402) (347) (298)
Repurchase of Common Stock................................ -- -- (3)
-------- -------- -------
Net cash provided by financing activities................... 142,620 19,633 17,202
-------- -------- -------
Net increase in cash and cash equivalents................... 41,140 8,362 4,373
Cash and cash equivalents at beginning of period............ 16,892 8,530 4,157
-------- -------- -------
Cash and cash equivalents at end of period.................. $ 58,032 $ 16,892 $ 8,530
======== ======== =======
Supplemental cash flow information:
Cash paid for interest.................................... $ 87 $ 154 $ 194
======== ======== =======
Supplemental noncash activities:
Common Stock issued for stockholder note.................. $ 2,000 $ 100 $ 430
======== ======== =======
Repurchase of Common Stock and cancellation of related
stockholder note....................................... $ 245 $ -- $ --
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE> 31
WINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
THE COMPANY
Wink Communications, Inc. (the "Company") was incorporated in California on
October 7, 1994 and reincorporated in Delaware on August 12, 1999. The Company
offers an enhanced television broadcasting system that adds interactivity and
electronic commerce opportunities to traditional television programming and
advertising.
REINCORPORATION
As a result of the Company's reincorporation in Delaware in August 1999,
the Company is authorized to issue 100,000,000 shares of $0.001 par value Common
Stock and 5,000,000 shares of $0.001 par value undesignated Preferred Stock. The
Board of Directors has the authority to issue the undesignated Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof.
INITIAL PUBLIC OFFERING
On August 24, 1999, the Company completed its initial public offering of
5,262,500 shares of its Common Stock at $16.00 per share, the net proceeds of
which aggregated approximately $77.3 million. At the closing of the offering,
all issued and outstanding shares of the Company's Convertible Preferred Stock
were converted into an aggregate of 12,764,333 shares of Common Stock.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Wink Japan, Inc. All intercompany
transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the
current year presentation.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents represent cash and highly liquid investments with
a remaining contractual maturity at the date of purchase of three months or
less.
The Company classifies its investments in marketable securities as
available-for-sale. Accordingly, these investments are carried at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity. The Company recognizes gains and losses when
securities are sold using the specific identification method. For the years
ended December 31, 1999, 1998, and 1997, the Company did not recognize any
material realized gains or losses upon the sale of securities.
31
<PAGE> 32
At December 31, 1999, cash and cash equivalents and investments in
marketable securities consist of the following (in thousands):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
COST LOSS GAIN FAIR VALUE
---- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents:
Cash................................... $ 166 $ -- $ -- $ 166
Money market funds..................... 36,407 -- -- 36,407
Government bonds and notes............. 3,014 -- 6 3,020
Corporate securities................... 18,340 -- 99 18,439
------- ----- ---- -------
$57,927 $ -- $105 $58,032
======= ===== ==== =======
Investments in marketable securities:
Government bonds and notes............. $32,978 $(403) $ -- $32,574
Corporate securities................... 57,817 -- 776 58,593
------- ----- ---- -------
$90,795 $(403) $776 $91,167
======= ===== ==== =======
</TABLE>
At December 31, 1998, the fair value of investments in marketable
securities approximated cost and the unrealized holding gains or losses were not
material. The following schedule summarizes the estimated fair value of the
Company's cash, cash equivalents and investments in marketable securities as of
December 31, 1998 (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents:
Cash........................................................ $ 223
Money market funds.......................................... 2,551
Corporate securities........................................ 14,118
-------
$16,892
=======
Investments in marketable securities:
Corporate securities........................................ $ 4,441
=======
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, deposits and accounts payable are carried at cost, which
approximates fair value because of the short-term nature of those instruments.
PROPERTY AND EQUIPMENT
Property and equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which range
from three to five years. Amortization of leasehold improvements is computed
using the straight-line method over the shorter of the remaining lease term or
the estimated useful life of the related asset, typically three years. Purchased
internal-use software consists primarily of amounts paid to third parties for
software applications that support the Wink Response Network and the Company's
computer equipment. Purchased internal-use software is depreciated over its
useful life, generally three years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
("SFAS No. 121"). SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the estimated
future undiscounted cash flows attributable to such assets. The Company had no
such impairments as of December 31, 1999.
32
<PAGE> 33
REVENUE RECOGNITION
The Company's historical revenues have been derived from license fees
relating to royalties earned from the Wink Engine software, license fees
relating to Wink Studio and Wink Broadcast Server software, non-recurring
engineering services under agreements to port the Wink Engine software to
various televisions and set-top terminals, and service fees relating to software
installation and post-contract customer support. The Company recognizes software
license revenues relating to the Wink Engine on a "sell-through" basis upon
notification of shipment of Wink-enabled products by the original equipment
manufacturer. License fees from Wink Studio software are recognized monthly over
the term of the subscription agreement, generally one year. Non-recurring
engineering services are recognized using the percentage-of-completion method,
using labor hours as a measure of progress towards completion. Fees from
installation services are recognized as services are provided, and post-contract
customer support fees are recognized ratably over the term of the support
agreement. Fees received in advance of revenue recognition are included in the
balance sheet as deferred revenue.
All advertising agreements in place as of December 1999 provide for a fixed
fee to be paid to the Company without any transaction fees. These fees are
recognized ratably over the life of the agreement. Revenue derived from the Wink
Broadcast Server software application is recognized monthly based upon the
applicable subscription fee. This application is being offered to customers
under monthly license fee arrangements with terms ranging from one to five
years, with periodic fee increases based upon changes in the Consumer Price
Index and other events.
REVENUE SHARING AND GUARANTEES
The Company has entered into a number of agreements with cable system
operators and certain other market participants to share with these entities a
portion of revenues, if any, the Company generates from viewer responses to Wink
Enhanced Broadcasting. To date, no transaction fee revenue has been recognized
from the Wink Response Network. Any amounts payable to third parties in future
periods resulting from revenue sharing will be included in sales and marketing
in the period revenue is recognized.
The Company has also provided minimum revenue guarantees that become
effective once the relevant participant begins deployment or achieves specified
deployment levels of Wink Enhanced Broadcasting. For contracts that do not
require minimum deployment levels, the revenue guarantee will be recognized as
incurred as sales and marketing expense over the contract term as Wink-enabled
devices are deployed. For contracts that do require minimum deployment levels,
the revenue guarantee will be recognized as incurred over the contract term
beginning in the period the minimum deployment level is achieved.
SALES TO SIGNIFICANT CUSTOMERS
During the years ended December 31, 1999, 1998 and 1997, sales to customers
comprising 10 percent or more of the Company's total revenues for the periods
indicated were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1999 1998 1997
CUSTOMER ---- ---- ----
<S> <C> <C> <C>
A -- related party.......................................... 25% 43% 62%
B -- related party.......................................... 12% -- --
C -- related party.......................................... -- -- 21%
D -- third party............................................ -- 40% --
E -- third party............................................ -- 15% --
F -- third party............................................ -- -- 14%
</TABLE>
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
short-term investments and trade accounts receivable, which
33
<PAGE> 34
are not collateralized. The Company limits its exposure to credit loss by
placing its cash and cash equivalents with financial institutions that
management believes are credit worthy and by placing its short-term investments
in corporate commercial paper issues, government and agency treasuries, and
short-term asset-backed obligations of various entities. Concentrations of
credit risk with respect to trade accounts receivable are considered to be
limited due to the assessed credit quality of the customers comprising the
Company's customer base. The Company performs ongoing credit evaluations of its
customers' financial condition to determine the need for an allowance for
doubtful accounts. The Company has not experienced significant credit losses to
date. At December 31, 1999, one third party customer accounted for 12% of the
accounts receivable balance. At December 31, 1998, five customers individually
accounted for more than 10% of the entire accounts receivable balance. These
five customers, in aggregate, accounted for 76% of the total accounts receivable
balance at December 31, 1998. One of these five customers was a related party
and accounted for 22% of the total accounts receivable balance at December 31,
1998.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred in accordance with
Statement of Financial Accounting Standards No. 2 ("SFAS No. 2"), "Accounting
for Research and Development Costs."
SOFTWARE DEVELOPMENT COSTS
Costs incurred in the research and development of new products and
enhancements to existing products are charged to expense as incurred until the
technological feasibility of the product or enhancement has been established
through the development of a working model. After establishing technological
feasibility, additional development costs incurred through the date the product
is available for general release would be capitalized and amortized over the
estimated product life. No costs have been capitalized to date, as the effect on
the financial statements for all periods presented is immaterial.
ADVERTISING COSTS
Advertising costs are expensed as incurred in accordance with Statement of
Position ("SoP") No. 93-7, "Reporting on Advertising Costs." Advertising expense
for the years ended December 31, 1999, 1998 and 1997 totaled $1.2 million,
$904,000 and $147,000, respectively.
FOREIGN CURRENCY TRANSLATION
The functional currency of the consolidated foreign subsidiary in Japan is
its local currency. Accordingly, all assets and liabilities of this entity are
translated at the current exchange rates at each balance sheet date. To date,
the subsidiary in Japan has not recognized revenues or expenses. In the event
that the subsidiary has revenue and expense components in future periods, such
amounts will be translated at weighted average exchange rates in effect during
the year. Gains and losses resulting from foreign currency translation have not
been material to the consolidated financial statements through December 31,
1999. To the extent these gains or losses are recognized in future periods, such
amounts will be recorded directly into a separate component of stockholders'
equity and comprehensive income. Foreign currency transaction gains and losses
are included in the determination of net income or loss. During the years ended
December 31, 1999, 1998 and 1997, net foreign currency transaction gains and
losses did not have a material impact on the consolidated financial statements.
STOCK-BASED COSTS AND EXPENSES
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation cost is recognized based on the difference, if any, on the date of
grant between the fair value of the Company's stock and the amount an employee
must pay to acquire the stock.
34
<PAGE> 35
The Company accounts for equity instruments issued in exchange for the
receipt of goods or services from other than employees in accordance with SFAS
No. 123 and the consensus reached by the Emerging Issues Task Force in Issue No.
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in conjunction with Selling, Goods or Services."
Costs are measured at the fair market value of the consideration received or the
fair value of the equity instruments issued, whichever is more reliably
measurable. The value of equity instruments issued for consideration other than
employee services is determined on the earlier of the date on which there first
exists a firm commitment for performance by the provider of goods or services or
on the date performance is complete using the Black-Scholes pricing model.
Costs and expenses include non-cash charges for stock compensation and
warrant amortization as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Research and development............................... $ 372 $ 204 $ 71
Sales and marketing.................................... 4,131 846 312
General and administrative............................. 515 206 72
------ ------ ----
$5,018 $1,256 $455
====== ====== ====
</TABLE>
INCOME TAXES
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The measurement of current and deferred tax liabilities and assets are based on
provisions of the enacted tax law; the effects of future changes in tax laws or
rates are not anticipated. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available evidence,
are not expected to be realized.
NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of
common shares outstanding. Diluted net loss per share is computed using the
weighted average number of common and potential common shares outstanding.
Potential common shares consist of the incremental number of common shares
issuable upon conversion of Convertible Preferred Stock (using the if-converted
method) and common shares issuable upon the exercise of stock options and
warrants (using the treasury stock method). Potential common shares are excluded
from the computation if their effect is anti-dilutive. Net loss per share
computations are in accordance with SFAS No. 128, "Earnings Per Share," and the
Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 98.
35
<PAGE> 36
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except for per share
amounts):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net loss..................................... $(18,224) $(14,036) $(9,166)
======== ======== =======
Denominator:
Weighted average shares...................... 17,839 10,072 9,077
Weighted average unvested common shares
subject to repurchase..................... (689) (1,118) (1,740)
-------- -------- -------
Denominator for basic and diluted............ 17,150 8,954 7,337
======== ======== =======
Net loss per share:
Basic and diluted............................ $ (1.06) $ (1.57) $ (1.25)
======== ======== =======
</TABLE>
Weighted average potential common shares, which are excluded from the
determination of basic and diluted net loss per share as their effect is
anti-dilutive, are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Convertible Preferred Stock............................. -- 6,244 4,873
Common Stock options.................................... 2,880 2,537 1,997
Convertible Preferred Stock warrants.................... -- 18 18
Common Stock warrants................................... 815 1,588 1,042
Common Stock subject to repurchase...................... 689 1,118 1,740
----- ------ -----
4,384 11,505 9,670
===== ====== =====
</TABLE>
SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for the way companies report information about operating segments in financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. In accordance with the
provisions of SFAS No. 131, the Company has determined that it operates in only
one geographic area, the United States and one operating segment by which the
chief operating decision-maker evaluates performance and allocates resources.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting comprehensive income
and its components in financial statements. Comprehensive income, as defined,
includes all changes in equity during a period from non-owner sources. The
primary differences between net loss and comprehensive loss, for the Company, is
due to the unrealized gains on available-for-sale securities. Comprehensive loss
did not vary materially from the reported net loss for the years ended December
31, 1998 and 1997. Comprehensive loss for the year ended December 31, 1999 was
$17,746,000.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
36
<PAGE> 37
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. In June 1999, the FASB
issued Statement of Financial Accounting Standards No. 137, "Accounting for
Derivatives Instruments and Hedging Activities -- Deferral of Effective Date of
FASB Statement No. 133" ("SFAS No. 137"). SFAS No. 133, as amended by SFAS No.
137, is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000, with earlier application encouraged. The Company does not
currently nor does it intend in the future to use derivative instruments and
therefore does not expect that the adoption of SFAS No. 133 will have any impact
on its financial position or results of operations.
NOTE 3 -- RELATED PARTY TRANSACTIONS
REVENUES AND COSTS
The Company has entered into various agreements with certain holders of the
Company's Common Stock. These agreements consist primarily of royalties derived
from the sale of Wink enabled products, non-recurring engineering services and
costs related to deployments. Revenues and related costs of revenues together
with deferred revenues and accounts receivable from these related parties are
separately disclosed in the statement of operations and balance sheet. In the
third and fourth quarters of 1999, the Company paid $750,000 to a holder of
Common Stock in connection with a research and development agreement for the
period from July 1, 1999 through July 31, 2000. Of this amount, $375,000 is
separately disclosed in the balance sheet as prepaid expenses -- related party
and will be amortized ratably over six months starting in January 2000, and
$375,000 is included in research and development expense in the statement of
operations for the year ended December 31, 1999.
In December 1999 the Company paid $951,000 to a Common Stockholder in
relation to a development agreement. The payment was for equipment and services
related to a future deployment. For the months from October to December 1999 the
Company also capitalized and accrued $333,000 related to matching development
funds for the same agreement. Both amounts are included in other long-term
assets -- related party on the balance sheet. The amounts will begin to be
amortized upon the launch of the Wink-enhanced service provided by the
related-party in the year 2000 and will be amortized over the remaining life of
the contract, which is approximately 40 months.
NOTES RECEIVABLE FROM STOCKHOLDERS
At December 31, 1999 and 1998, the Company held notes receivable from
officers totaling $2.8 million and $1.0 million, respectively, representing
amounts owed to the Company from the purchase of restricted Common Stock subject
to repurchase by the Company. These full recourse notes bear interest at a rate
of 6.4% per annum. Interest and the principal are due ten years from the
execution of the notes, starting in December 2006. (See Note 7 to the
consolidated financial statements.)
NOTE 4 -- BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable -- third parties, net:
Accounts receivable -- third parties..................... $ 459 $ 187
Less allowance for doubtful accounts..................... (30) --
------- -------
$ 429 $ 187
======= =======
Prepaid expenses and other current assets:
Interest receivable -- short-term investments............ $ 1,187 $ 128
Other.................................................... 350 173
------- -------
$ 1,537 $ 301
======= =======
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Property and equipment, net:
Computer equipment....................................... $ 3,134 $ 1,521
Office furniture and equipment........................... 759 575
Leasehold improvements................................... 358 358
Purchased internal-use software.......................... 992 1,009
------- -------
5,243 3,463
Less accumulated depreciation and amortization........... (2,705) (1,701)
------- -------
$ 2,538 $ 1,762
======= =======
Other assets -- related party:
Equipment costs.......................................... $ 951 $ --
Prepaid matching development funds....................... 333 --
------- -------
Interest receivable, stockholder notes receivable........ 209 107
------- -------
$ 1,493 $ 107
======= =======
</TABLE>
Assets acquired under capital lease obligations are included in property
and equipment and totaled $1.4 million at December 31, 1999 and 1998. Related
accumulated depreciation and amortization was $1.4 million and $1.0 million at
December 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Accrued expenses:
Compensation and benefits................................. $1,921 $1,083
Development fees -- related party......................... 333 --
Other..................................................... 382 160
------ ------
$2,636 $1,243
====== ======
</TABLE>
NOTE 5 -- CONTRACT TERMINATION AGREEMENT
In May 1999, the Company and a third party executed an agreement that
terminated a development and license agreement dated April 1998. Under this
termination agreement, the third party paid the Company $1,112,000. Of this
amount, $1,000,000 was included in other income. The remaining $112,000 related
to a non-recurring engineering agreement and was included in services revenues
from third parties during the year ended December 31, 1999. The Company has no
material remaining obligations under these agreements.
NOTE 6 -- INCOME TAXES
No current provision or benefit for federal or state income taxes has been
recorded for the years ended December 31, 1999, 1998 and 1997, as the Company
has incurred net operating losses and has no carryback potential.
At December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $39.0 million and $33.0 million available to
reduce future taxable income, which will begin to expire in 2012 for federal and
2002 for state tax purposes, respectively. Under the Tax Reform Act of 1986, the
amount of benefit from net operating loss carryforwards may be impaired or
limited as the company has
38
<PAGE> 39
incurred a cumulative ownership change of more than 50%, as defined, over a
three-year period. Net deferred tax assets are composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carryforwards......................... $ 15,296 $ 10,700
Deferred revenues........................................ 404 700
Reserves and accruals.................................... 515 100
Depreciation and amortization............................ 143 --
Credits.................................................. 729 --
Capitalized research and development..................... 306 --
-------- --------
Gross deferred tax assets................................ 17,393 11,500
Deferred tax asset valuation allowance................... (17,393) (11,500)
-------- --------
Net deferred tax assets.................................. $ -- $ --
======== ========
</TABLE>
Based on a number of factors, including the lack of a history of profits,
management believes that there is sufficient uncertainty regarding the
realization of deferred tax assets such that a full valuation allowance has been
provided. The valuation allowance increased by $5.9 million from December 31,
1998 to December 31, 1999. The valuation allowance increased by $5.0 million
from December 31, 1997 to December 31, 1998.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its main office facilities under a noncancelable
operating sublease that expires in January 2000. The Company renewed the
sublease in December 1999 and obtained additional space in the same building as
its existing space. This sublease expires in September 2004. Under the terms of
the sublease, the Company is required to pay property taxes, insurance and
normal maintenance costs. The Company also leases certain equipment under
operating and capital lease obligations.
Future minimum lease payments under noncancelable operating and capital
leases are as follows at December 31, 1999:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------ --------- -------
(IN THOUSANDS)
<S> <C> <C>
2000...................................................... $1,251 $ 387
2001...................................................... 1,370 --
2002...................................................... 1,395 --
2003...................................................... 1,145 --
2004...................................................... 885 --
------ -----
$6,046 387
======
Less amount representing interest........................... (22)
-----
Present value of capital lease obligations.................. 365
Less current portion........................................ (365)
-----
Long-term portion........................................... $ --
=====
</TABLE>
The Company recognizes rent expense on a straight-line basis over the life
of the lease period and had accrued rent expense at December 31, 1999 and 1998
of $6,000 and $72,000, respectively. Rent expense on noncancelable operating
leases for the years ended December 31, 1999, 1998 and 1997, totaled $758,000,
$714,000 and $694,000, respectively.
39
<PAGE> 40
REVENUE SHARING, GUARANTEES AND OTHER COMMITMENTS
The Company has entered into a number of agreements with cable operators,
direct broadcast satellite operators ("DBS operators") and certain other market
participants to share with these entities a portion of revenues, if any, the
Company generates from viewer responses to Wink Enhanced Broadcasting. To date,
no transaction fee revenue has been recognized from the Wink Response Network.
For certain cable and DBS operators, related parties of the Company, the
Company has also provided a minimum revenue guarantee if the operator makes a
minimum volume commitment for Wink Engines deployed. If these minimum volume
requirements are met, and Wink Enhanced Broadcasting fails to generate
sufficient revenue to meet the guaranteed amount per Wink subscriber, the
Company is obligated to pay the difference between the guaranteed amount and the
amount earned by the operator. If no amounts are earned by the operators and the
minimum deployment levels are achieved, the aggregate three year revenue
guarantee based on contracts in place on December 31, 1999 totaled approximately
$8,317,000.
In May 1999, the Company entered into a 10 year definitive software
distribution agreement with Microsoft Corporation (the "distributor"), a related
party, that entitles the distributor to share a portion of revenues, if any, the
Company generates from viewer responses to Wink Enhanced Broadcasting on
Microsoft-controlled Wink-enabled devices. The Company has also provided a
minimum revenue guarantee ranging from $2 to $4 per year, per
Microsoft-controlled Wink-enabled device. If such devices are enabled by
Microsoft and Wink Enhanced Broadcasting fails to generate sufficient revenue to
meet the guaranteed amount per Wink subscriber, the Company is obligated to pay
the difference between the guaranteed amount and the amount earned by the
distributor. Such costs, if and when incurred, shall be recorded as sales and
marketing expense. The agreement does not provide for a minimum level of
deployments, and accordingly, the Company is unable to reasonably estimate the
amounts, if any, that could become payable under this agreement. As of December
31, 1999, the service related to this contract has not been launched.
In addition, the Company has provided a minimum revenue guarantee to one
cable industry participant totaling $2.50 over 18 months for each deployment of
a Wink-enabled device. The master agreement does not provide for a minimum level
of deployments, and accordingly, the Company is unable to reasonably estimate
the amounts, if any, that could become payable under this master agreement. In
November of 1998, the Company entered into a operator system addendum to the
master agreement that provided for a minimum level of deployments and revenue
guarantee of $3.50 over 18 months. If no amounts are earned by the system
operator and the minimum deployment level is achieved, the aggregate revenue
guarantee based on the addendum in place on December 31, 1999 is $263,000.
The Company has also agreed to provide marketing development funds to
certain cable and digital broadcast satellite operators, contingent upon the
commercial launch of Wink enhanced broadcasting. The Company has agreed to
provide development funds at the rate of $1.00 per subscriber with a guaranteed
minimum of $1,000,000 to a major digital broadcast satellite provider.
Additional marketing development and networking equipment funds committed to in
contractual agreements with cable and direct broadcast system operators total
approximately $495,000 and $5,389,000 at December 31, 1998 and December 31,
1999, respectively. Marketing development fund costs, if and when incurred,
shall be recorded as sales and marketing expense.
LEGAL PROCEEDING
In 1998, a patent claim arising in the ordinary course of business, seeking
monetary damages and other relief was filed against the Company. In 1999, a suit
was filed against the Company by a radio distribution company claiming certain
federal trademark infringements. Both suits are pending as of December 31, 1999.
In both cases, the amount of liability, if any, from such claims cannot be
determined with certainty; however, in the opinion of management, the ultimate
liability for such claims will not have a material adverse effect on the
Company's financial position, results of operations or cash flows.
40
<PAGE> 41
NOTE 8 -- STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized, subject to limitations prescribed by Delaware
law, to provide for the issuance of Preferred Stock in one or more series, to
establish from time to time the number of shares included within each series, to
fix the rights, preferences and privileges of the shares of each wholly unissued
series and any qualifications, limitations or restrictions thereon, and to
increase or decrease the number of shares of any such series (but not below the
number of shares of such series then outstanding) without any further vote or
action by the stockholders. At December 31, 1999, there were 5,000,000 shares of
Preferred Stock authorized for issuance, and no shares issued or outstanding.
CONVERTIBLE PREFERRED STOCK
Convertible Preferred Stock prior to the initial public offering at August
19, 1999 was composed of the following, (in thousands):
<TABLE>
<CAPTION>
SHARES GROSS LIQUIDATION
AUTHORIZED OUTSTANDING PROCEEDS VALUE
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Series A............................ 1,250 1,250 $ 2,000 $ 2,000
Series B............................ 2,251 2,234 8,936 8,936
Series C............................ 4,500 4,322 34,576 34,576
Series D............................ 5,000 4,958 59,500 59,500
------ ------ -------- --------
13,001 12,764 $105,012 $105,012
====== ====== ======== ========
</TABLE>
On August 24, 1999, the Company completed its initial public offering of
Common Stock. At that time, all issued and outstanding shares of the Company's
Series A, Series B, Series C and Series D Convertible Preferred Stock were
converted into an aggregate of 12,764,333 shares of Common Stock.
SERIES D CONVERTIBLE PREFERRED STOCK FINANCING
In June 1999, the Company sold an aggregate of 3,698,333 shares of Series D
Convertible Preferred Stock at $12.00 per share for gross proceeds totaling
$44,380,000.
CONVERTIBLE PROMISSORY NOTE
In May 1999, the Company issued a convertible promissory note to Microsoft
Corporation in exchange for cash totaling $15,120,000. The convertible
promissory note was convertible, at the discretion of the holder, into 1,260,000
shares of the Company's Series D Convertible Preferred Stock at $12.00 per
share. The convertible promissory note accrued interest at 10 percent, per
annum. In July 1999, Microsoft Corporation exercised its right to exchange the
convertible promissory note for 1,260,000 shares of the Company's Series D
Convertible Preferred Stock.
COMMON STOCK
REPURCHASE RIGHTS
In May 1999, the Company entered into an employment agreement with a member
of management. In connection with this employment agreement, the Company sold to
the officer 250,000 shares of Common Stock at a price of $8.00 per share in
exchange for a full-recourse, ten-year $2,000,000 promissory note. The note
bears interest at a rate of 6.40% per annum. The Company has the right to
repurchase the shares at the original issuance cost of $8.00 per share. These
repurchase rights lapse progressively over a four-year period. In connection
with the sale of these shares, the Company recognized unearned compensation
totaling $1,000,000, which is being amortized over the four-year vesting period.
At December 31, 1999, the Company had the right to repurchase the unvested
portion of 3,063,000 shares of Common Stock sold to certain key employees at a
weighted average price of $0.90 per share. In the
41
<PAGE> 42
event the Company is acquired by or merged into another company prior to full
vesting of the shares subject to repurchase rights, the key employees
automatically vest in 50% of any unvested shares. The Common Stock repurchase
rights reside solely with the Company. At December 31, 1999 and 1998, a
cumulative total of 461,000 and 831,000 shares were subject to repurchase rights
of the Company, respectively.
EMPLOYEE BONUS
In June 1999, the Company issued an aggregate of 50,000 shares of Common
Stock to employees as incentive bonuses. The fair value of these shares of
Common Stock on the issuance date totaled $600,000 and was recognized as sales
and marketing expense, as there were no remaining performance obligations on
behalf of the holders.
RESERVED SHARES
At December 31, 1999, the Company had reserved 7,980,000, 1,675,000 and
250,000 shares of Common Stock to for future issuance for the exercise of
options under the stock opinion plans, exercise of warrants outstanding and
issuance of shares under the employee stock purchase plan, respectively.
WARRANTS
In April 1997, the Company granted a fully exercisable warrant to purchase
Common Stock to certain holders of Series C Convertible Preferred Stock
providing business development services. The warrant enabled the holders to
purchase 75,000 shares of Common Stock at $0.80 per share. The warrant and
related services had an immaterial fair value on the date of grant. The warrant
was exercised in August 1999 immediately prior to the initial public offering.
In June 1997, the Company granted a fully exercisable warrant to purchase
Common Stock in connection with the issuance of Series C Convertible Preferred
Stock. The warrant enables the holders to purchase 525,000 shares of Common
Stock at $8.00 per share and expires in June 2009. The estimated fair value of
the warrant totaled $142,000 and is included in additional paid-in capital. At
December 31, 1999 the warrant had not been exercised.
In June 1997, the Company granted a warrant to purchase Common Stock to a
broadcasting company that agreed to use its reasonable best efforts to develop
and air Wink-enhanced programming over an approximate 18 month period. The
broadcasting company is affiliated with a holder of the Company's Common Stock.
The warrant enables the holder to purchase 375,000 shares of Common Stock at
$8.00 per share and expires in June 2009. On the date of grant, the warrant was
exercisable with respect to 75,000 shares (the "fixed shares") and was
exercisable with respect to the remaining 300,000 shares (the "variable shares")
contingent upon the completion of specified future performance obligations of
the broadcasting company. The grant date fair value of the warrant relating to
the fixed shares totaled $20,000, which was charged to sales and marketing
expense in the year ending December 31, 1997. The fair value of the warrant
relating to the variable shares on December 31, 1997, totaled $726,000. Of this
amount, $220,000 was recognized as sales and marketing expense during the year
ended December 31, 1997. On February 1, 1998, the Company amended the terms of
the warrant to eliminate any future performance obligation of the broadcasting
company. The fair value of the warrant relating to the variable shares on the
date the performance obligation was eliminated had not changed from the
estimated fair value on December 31, 1997. Accordingly, the unamortized value of
the warrant totaling $506,000 was recognized as sales and marketing expense
during the year ended December 31,
1998 over the period in which the Company received benefits from the
broadcaster's services. At December 31, 1999 the warrant had not been exercised.
In November 1997, the Company granted a fully exercisable warrant to
purchase Common Stock to a company providing business development services. The
warrant enabled the holder to purchase 38,200 shares of Common Stock at $4.00
per share. The warrant and related services had an immaterial fair value on the
date of grant. The warrant was exercised in August 1999 immediately prior to the
initial public offering.
In January 1998, the Company granted a fully exercisable warrant to
purchase Common Stock in connection with the issuance of Series C Convertible
Preferred Stock. The warrant enabled the holder to purchase 50,000 shares of
Common Stock at $0.80 per share. The estimated fair value of the warrant totaled
$226,000 and is included in additional paid-in capital. The warrant was
exercised in August 1999 immediately prior to the initial public offering.
42
<PAGE> 43
In August 1998, the Company granted a fully exercisable warrant to purchase
Common Stock to a holder of Series C Convertible Preferred Stock providing
consulting services. The warrant enables the holder to purchase 25,000 shares of
Common Stock at $8.00 per share and expires in August 2003. The estimated fair
value of the warrant totaled $135,000 and is included in sales and marketing
expense in the year ended December 31, 1998. At December 31, 1999 the warrant
had not been exercised.
In December 1998, the Company granted a warrant to purchase Common Stock to
a cable operator company that is a holder of Common Stock as consideration for
the future deployment of Wink-enabled technology to at least 200,000 households.
The warrant enables the holder to purchase 250,000 shares of Common Stock at
either $12.00 or $16.00 per share, contingent upon achieving the deployment
criteria and the timing of such achievement. In the event the $12.00 exercise
price is earned, the warrant will expire in January 2004. In the event the
$16.00 exercise price is earned, the warrant will expire in January 2005. At
December 31, 1999 and 1998, the lowest aggregate fair value of the warrant
totaled approximately $13,915,000 and $1,218,000, respectively. This amount will
be remeasured at each reporting date until the deployment of Wink-enabled
technology to the specified number of cable subscribers is achieved. When and if
it becomes probable that the performance criteria will be achieved, the Company
will record the then fair value associated with the units meeting the
performance criteria as a charge to sales and marketing expense.
In February 1999, the Company granted a fully exercisable warrant to
purchase Common Stock to a company affiliated with a broadcasting company as an
incentive for signing a definitive software licensing agreement with the
broadcasting company. The warrant enabled the holder to purchase 200,000 shares
of Common Stock at $12.00 per share. The fair value of the warrant on the
measurement date totaled $1,220,000 and was recognized as sales and marketing
expense in 1999 as there was no remaining performance obligation on behalf of
the warrant holder and no significant license revenues are expected to be
derived from the agreements. The warrant expired unexercised upon the initial
public offering in August 1999.
In March 1999, the Company granted a fully exercisable warrant to purchase
Common Stock to a separate broadcasting company as an incentive for signing a
definitive software licensing agreement. The warrant enabled the holder to
purchase 125,000 shares of Common Stock at $12.00 per share. The fair value of
the warrant on the measurement date totaled $760,000 and was recognized as sales
and marketing expense in the year ended December 31, 1999 as there was no
remaining performance obligation on behalf of the warrant holder and no
significant license revenues are expected to be derived from the agreement. The
warrant was exercised in August 1999 immediately prior to the initial public
offering.
In May 1999, the Company granted a fully exercisable warrant to purchase
Common Stock to Microsoft Corporation in connection with a 10 year definitive
software distribution agreement. The warrant enables the holder to purchase
500,000 shares of Common Stock at $12.00 per share, subject to adjustment, and
expires in May 2004. The fair value of the warrant on the measurement date
totaled $4,050,000. During 1999, amortization recognized as sales and marketing
expense totaled $473,000 and the remaining $3,577,000 will be recognized as
sales and marketing expense ratably over the remainder of the ten year term of
the agreement. Due to the possibility of rapid technological change and the high
level of competition in the Company's industry, there is a possibility that the
estimated period of benefit from this arrangement may ultimately be less than
the contractual term of ten years. In the event that future events or
transactions reduce or eliminate the period of future benefit, the then
unamortized value of the warrant will be recognized as a charge to sales and
marketing expense either over the remaining period of benefit or immediately at
the time of such change, as applicable. At December 31, 1999 the warrant had not
been exercised.
In July 1999, the Company granted a fully exercisable warrant to purchase
Common Stock to a broadcasting company as an incentive for signing a definitive
software licensing agreement and to promote the development of Wink-enhanced
programming. The warrant enabled the holder to purchase 75,000 shares of Common
Stock at $12.00 per share. The fair value of the warrant on the measurement date
totaled $734,000 and was recognized as sales and marketing expense during the
year ended December 31, 1999, as there was no remaining performance obligation
on behalf of the warrant holder and no significant license revenues are expected
to be derived from the agreement. The warrant was exercised in August 1999
immediately prior to the initial public offering.
43
<PAGE> 44
OTHER
Through December 31, 1999, no dividends on the Convertible Preferred,
Preferred or Common Stock have been declared by the Board of Directors.
NOTE 9 -- EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
The 1994 Stock Plan (the "1994 Plan"), as amended, provides for the
issuance of up to 7,000,000 shares of Common Stock in connection with incentive
stock option awards granted to employees and directors and nonstatutory stock
option awards granted to employees, directors and consultants to the Company.
Stock purchase rights may also be granted under the 1994 Plan. In June 1999, the
Board of Directors adopted and in August 1999 the Company's stockholders
approved, the 1999 Stock Plan (the "1999 Plan"). The 1999 Plan became effective
on the date of the initial public offering. The 1999 Plan provides for the grant
to employees of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and for grants to employees,
directors and consultants of nonstatutory stock options and stock purchase
rights. Unless terminated sooner, the 1999 Plan will terminate automatically in
2009. A total of 2,500,000 shares of Common Stock have been reserved for
issuance pursuant to the 1999 Plan. The amount reserved under the Plan will
automatically increase at the end of each year by the lesser of (1) 1,000,000
shares, (2) 4% of outstanding shares on such date or (3) a lesser amount
determined by the Board of Directors.
Under the 1994 Plan and 1999 Plan (collectively "the Plans"), options must
be issued at prices not less than 100 percent and 85 percent, for incentive and
non-statutory options, respectively, of the estimated fair value of the Common
Stock on the date of grant and are exercisable for periods not exceeding ten
years from the date of grant. Options granted to stockholders who own greater
than 10 percent of the outstanding stock at the time of grant are exercisable
for periods not exceeding five years from the date of grant and must be issued
at prices not less than 110 percent of the estimated fair value at the date of
grant. Options granted under the Plans generally vest ratably over four years
following the date of grant, although the Board of Directors may issue options
that vest over a period up to five years. The Company has certain repurchase
rights and rights of first refusal on shares purchased under the Plans.
In June 1999, the 1999 Director Option Plan (the "Director Plan") was
adopted by the Board of Directors and became effective on the date of the
Company's initial public offering. The Director Plan provides for the automatic
grant of a nonstatutory option to purchase 40,000 shares of Common Stock to each
new non-employee director who becomes a director after the date of the Company's
initial public offering on the date that such person becomes a director. Each
current and future non-employee director will automatically be granted an
additional nonstatutory option to purchase 40,000 shares on the fourth
anniversary of the date of grant of his or her last option if he or she served
on the Board of Directors continuously during such period. A total of 250,000
shares of Common Stock have been reserved for issuance pursuant to the Director
Plan.
During the years ended December 31, 1999, 1998, and 1997, the Company
recognized unearned compensation totaling $6.6 million, $600,000, and $700,000,
respectively, with respect to certain stock option grants and sales of
restricted stock to employees. These expenses are generally being amortized over
the respective four-year vesting periods. Amortization of unearned compensation
totaled $1.7 million, $615,000 and $215,000 for the years ended December 31,
1999, 1998 and 1997, respectively, and has been allocated to operating costs and
expenses based upon the primary activity of the applicable employees or services
performed.
Prior to the Company's initial public offering, the fair value of each
option grant was determined using the minimum value method prescribed by SFAS
No. 123. Subsequent to the offering, the fair value was determined using the
Black-Scholes model stipulated by SFAS No. 123. The effect of compensation cost
on
44
<PAGE> 45
net income and earnings per share for the years ended December 31, 1999, 1998
and 1997 is as follows, (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss:
As reported.................................... $(18,224) $(14,036) $(9,166)
Pro forma...................................... $(18,772) $(14,342) $(9,235)
Basic and diluted net loss per share:
As reported.................................... $ (1.06) $ (1.57) $ (1.25)
Pro forma...................................... $ (1.09) $ (1.60) $ (1.26)
</TABLE>
The weighted average estimated grant date fair value, as defined by SFAS
123, for options granted during 1999, 1998, and 1997 was $8.12, $1.23, and $.67,
per option, respectively. Under SFAS No. 123, the minimum fair value of each
option grant is estimated on the grant date using the Black-Scholes option
pricing model. This model requires highly subjective assumptions, including
future stock price volatility and expected time until exercise, which greatly
affect the calculated grant date fair value. The following weighted average
assumptions are included in the estimated grant date fair value calculations for
the Company's stock option awards:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected lives, in years.......................... 5 5 5
Risk free interest rates.......................... 5.40% 5.00% 6.30%
Dividend yield.................................... 0.00% 0.00% 0.00%
Expected volatility............................... 14% 0.00% 0.00%
</TABLE>
The following table summarizes information about stock option transactions
under the Plans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
Period.................................... 2,813 $2.90 2,122 $1.06 1,759 $0.23
Granted..................................... 2,264 11.87 1,092 5.66 1,099 1.82
Exercised................................... (461) 1.23 (287) 0.62 (537) 0.13
Canceled.................................... (539) 5.72 (114) 2.59 (199) 0.44
----- ----- -----
Outstanding at end of period................ 4,077 7.74 2,813 2.90 2,122 1.06
----- ----- -----
Options vested at period end................ 1,211 971 289
----- ----- -----
</TABLE>
45
<PAGE> 46
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
------------------------------------ -----------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE VESTED PRICE
- --------------- ----------- ----------- -------- ------ --------
(IN THOUSANDS, EXCEPT YEARS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
$0.01 -- $0.25 162 5.7 years $0.10 161 $0.10
0.40 -- 0.80 450 6.87 0.49 352 0.48
1.00 -- 2.00 348 7.54 1.41 214 1.38
4.00 -- 6.00 862 8.10 4.95 426 4.72
8.00 1,665 9.24 8.00 50 8.00
12.00 412 9.51 12.00 8 12.00
33.50 70 9.83 33.50 -- --
42.25 -- 45.25 31 9.89 44.77 -- --
59.50 77 10.00 59.50 -- --
----- -----
4,077 8.51 $7.74 1,211 $2.47
===== =====
</TABLE>
1999 EMPLOYEE STOCK PURCHASE PLAN
In June 1999, the 1999 Employee Stock Purchase Plan (the "Purchase Plan")
was adopted by the Board of Directors. The Purchase Plan became effective on the
date of the initial public offering. The Purchase Plan permits participants to
purchase Common Stock through payroll deductions of up to 15% of the
participant's compensation, up to a maximum aggregate deduction of $21,250 for
all offering periods ending in any calendar year. Each purchase period will be
six months in duration and will begin on February 1 and August 1, with the
exception of the first purchase period that began on August 19, 1999, the date
of the initial public offering, and will end on January 31, 2000. The price at
which the Common Stock is purchased under the Purchase Plan is 85% of the lesser
of the fair market value of the Company's Common Stock on the first day of the
applicable offering period or on the last day of that purchase period A total of
250,000 shares of Common Stock have been reserved for issuance pursuant to the
Purchase Plan. The amount reserved under the Plan will automatically increase at
the end of each year by the lessor of (1) 75,000 shares, (2) 0.3% of outstanding
shares on such date or (3) a lesser amount determined by the Board of Directors.
The Purchase Plan will terminate after a period of ten years unless terminated
earlier as permitted by the Purchase Plan.
401(K) PLAN
Effective July 1996, the Company adopted the Wink Communications, Inc.
401(k) Profit Sharing Plan (the "401(k) Plan"), which qualifies as a deferred
salary arrangement under Section 401 of the Internal Revenue Service Code. Under
the 401(k) Plan, participating employees may defer a portion of their pretax
earnings not to exceed 15% of their total compensation. The Company, at its
discretion, may make contributions for the benefit of eligible employees. The
Company made no contributions through December 31, 1999.
NOTE 10 -- SUBSEQUENT EVENTS
In February 2000, the Company entered into an agreement under which it is
expected that the Company will invest $3.0 million in the latest private
financing round of a Japanese company which provides electronic commerce and
response routing services for interactive television platforms. This transaction
is expected to be completed in April of 2000.
46
<PAGE> 47
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Wink Communications, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Wink
Communications, Inc. and its subsidiary (the "Company") at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Jose, California
January 27, 2000
47
<PAGE> 48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors may be found under the caption
"Election of Directors" on page 3 of the Company's Proxy Statement dated March
31, 2000, for the Annual Meeting of Stockholders to be held May 2, 2000 (the
"Proxy Statement"). Such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information in the Proxy Statement set forth under the captions
"Executive Officer Compensation" on pages 12 through 14 and "Report of the
Compensation Committee of the Board of Directors" on pages 16 to 17 is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Beneficial Security Ownership
of Stockholders, Directors, and Management and Certain Beneficial Owners" on
page 10 of the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions" on page
14 to 15 of the Proxy Statement is incorporated herein by reference. The
information in Notes to Consolidated Financial Statements on page 37 of is
incorporated herein.
48
<PAGE> 49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
The financial statements as set forth under Item 8 of this report on Form
10-K are incorporated herein. Financial statement schedules have been omitted
since they are either not required, not applicable, or the information is
otherwise included.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of fiscal 1999.
(c) Exhibit Listing
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of the
Registrant's California predecessor.(1)
3.2 Certificate of Incorporation of the Registrant.(1)
3.3 Form of Amended and Restated Certificate of Incorporation of
the Registrant.(1)
3.4 Second Amended and Restated Certificate of Incorporation of
the Registrant to be filed following the closing of the
offering.(1)
3.5 Bylaws of the Registrant.(1)
4.2 Fourth Investor Rights Agreement dated as of June 30, 1999
between the Registrant and the individuals and entities
listed in the exhibit thereto.(1)
10.1 Form of Indemnification Agreement between the Registrant and
each of its officers and directors.(1)
10.2 1994 Stock Plan and form of agreement thereunder.(1)
10.3 1999 Stock Plan and form of agreement thereunder.(1)
10.4 1999 Director Stock Option Plan and form of agreement
thereunder.(1)
10.5 1999 Employee Stock Purchase Plan and form of agreement
thereunder.(1)
10.6 Charter Programmer Affiliation Agreement dated February 23,
1999 between the Registrant and ABC, Inc.(1)
10.7 Charter Programmer Affiliation Agreement dated March 23,
1999 between the Registrant and CBS Corporation.(1)
10.8 Equity Side Letter dated March 23, 1999 between the
Registrant and CBS Corporation and warrant issued to CBS
Corporation dated March 23, 1999.(1)
10.9 Letter Agreement dated June 3, 1997 between the Registrant
and NBC Multimedia, Inc. dba NBC Interactive Media.(1)
10.10 Cable Affiliation Agreement dated October 8, 1997 between
the Registrant and Charter Communications, Inc., as
amended on March 16, 1998 and March 12, 1999.(1)
10.11 Cable Affiliation Agreement dated December 10, 1998 between
the Registrant and Comcast Programming.(1)
10.12 Cable Affiliation Agreement dated January 15, 1999 between
the Registrant and Coxcom, Inc. d/b/a Cox Communications
Palos Verdes.(1)
10.13 Master Affiliation Agreement dated December 22, 1998 between
the Registrant and DIRECTV, Inc., as amended on December
22, 1998.(1)
10.14 Master Cable Affiliation Agreement dated September 23, 1998
between the Registrant and Time Warner Cable.(1)
10.15 Development and License Agreement dated June 8, 1995 between
the Registrant and General Instrument Corporation of
Delaware, as amended on January 24, 1997 and August 18,
1997.(1)
10.16 Development and License Agreement dated January 15, 1996
between the Registrant and Scientific-Atlanta, Inc., as
amended on January 27, 1998.(1)
10.17 Application Server License Agreement dated September 30,
1997 between the Registrant and Toshiba Corporation, as
amended on September 30, 1997 and December 31, 1998.(1)
</TABLE>
49
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.18 Engine License Agreement dated September 30, 1997 between
the Registrant and Toshiba Corporation, as amended on
September 30, 1997 and December 31, 1998.(1)
10.19 Engine License Agreement dated October 6, 1997 between the
Registrant and Toshiba America Consumer Products, Inc.(1)
10.20 ATVEF Adapter License Agreement dated November 9, 1998
between the Registrant and INTEL Corporation.(1)
10.21 Development and License Agreement dated May 17, 1999 between
the Registrant and Thomson Consumer Electronics, Inc.(1)
10.22 Personnel Services Agreement dated November 10, 1997 between
GE Information Services, Inc. and the Registrant.(1)
10.23 Letter Agreement dated September 10, 1998 between Registrant
and General Electric Capital Corporation.(1)
10.24 Agreement dated January 1, 1999 between Registrant and
Satellite Services, Inc.(1)
10.25 Master Service Agreement dated June 8, 1998 between the
Registrant and Softbank Services Group.(1)
10.26 System Addendum dated November 25, 1998 between the
Registrant and Time Warner Cable of New York City.(1)
10.27 Agreement of Development of Demonstration Software dated
January 25, 1999 between the Registrant and Toshiba
Corporation.(1)
10.28 Equity Side Letter dated February 23, 1999 between the
Registrant and The Walt Disney Company.(1)
10.29 Agreement dated May 25, 1999 between the Registrant and
Microsoft Corporation.(1)
10.30 Sublease by and between Computer Associates International,
Inc. and the Registrant dated November 28, 1995, as
amended on March 21, 1996.(1)
10.31 Loan Agreement dated as of September 18, 1996 between the
Registrant and Venture Lending & Leasing, Inc.(1)
10.32 Warrant issued to GE Capital Corporation dated June 18,
1997.(1)
10.33 Amended and Restated Warrant issued to NBC Multimedia, Inc.
dated June 18, 1997.(1)
10.34 Warrant issued to Venture Lending and Leasing, Inc. dated
September 18, 1996.(1)
10.35 Warrant issued to GE Capital Corporation dated August 27,
1998.(1)
10.36 Warrant Issuance Agreement dated November 30, 1998 between
the Registrant and Vulcan Ventures Incorporated and
warrants issued to Vulcan Ventures Incorporated.(1)
10.37 Warrant issued to The Walt Disney Company dated February 25,
1999.(1)
10.38 Restricted Stock Purchase Agreement dated December 2, 1996
between the Registrant and Mary Agnes Wilderotter.(1)
10.39 Restricted Stock Purchase Agreement dated January 15, 1998
between the Registrant and Mary Agnes Wilderotter.(1)
10.40 Restricted Stock Purchase Agreement dated May 17, 1999
between the Registrant and Howard Schrott.(1)
10.41 Employment Letter from the Registrant to Mary Agnes
Wilderotter dated October 21, 1996.(1)
10.42 Employment Letter from the Registrant to Howard L. Schrott
dated May 6, 1999.(1)
10.43 Second Amendment to Master Affiliation Agreement dated June
28, 1999 between Registrant and DIRECTV, Inc.(1)
10.44 Warrant issued to Microsoft Corporation dated May 30,
1999.(1)
10.45 Information Services Agreement effective May 1, 1998 between
the Registrant and GE Information Services, Inc.(1)
10.46 Warrant issued to Fox Broadcasting Company dated July 26,
1999.(1)
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
(1) Incorporated by reference to Registration Statement 333-80221 on Form S-1/A
dated August 18, 1999.
50
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Alameda, State of California, on this day of March 2000.
WINK COMMUNICATIONS, INC.
By: *
------------------------------------
Name: Mary Agnes Wilderotter
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Mary Agnes Wilderotter and Howard L.
Schrott, his or her attorneys-in-fact, with full power of substitution, for him
or her in any and all capacities, to sign any and all amendments to this Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact or their substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March , 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
President and Chief Executive Officer; Director
- ------------------------------------------ (principal executive officer)
Mary Agnes Wilderotter
Chief Financial Officer; Senior Vice President
- ------------------------------------------ (principal financial officer and principal accounting
Howard L. Schrott officer)
Chairman of the Board of Directors and Chief Technical
- ------------------------------------------ Officer
Brian P. Dougherty
Director
- ------------------------------------------
Bruce W. Dunlevie
Director
- ------------------------------------------
Hidetaka Yamamoto
Director
- ------------------------------------------
F. Philip Handy
Director
- ------------------------------------------
Jeffrey Coats
Director
- ------------------------------------------
William Schleyer
Director
- ------------------------------------------
Michael Fuchs
Director
- ------------------------------------------
Lawton Fitt
</TABLE>
51
<PAGE> 1
EXHIBIT 20.1
Wink Japan, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-85517) of Wink Communications, Inc. of our
report dated January 27, 2000 relating to the financial statements and
financial statement schedules, which appears in this Form 10-K.
PricewaterhouseCoopers
San Jose, California
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 58,032
<SECURITIES> 91,167
<RECEIVABLES> 520
<ALLOWANCES> (30)
<INVENTORY> 65
<CURRENT-ASSETS> 151,601
<PP&E> 5,243
<DEPRECIATION> (2,705)
<TOTAL-ASSETS> 155,809
<CURRENT-LIABILITIES> 6,390
<BONDS> 0
0
0
<COMMON> 30
<OTHER-SE> 149,389
<TOTAL-LIABILITY-AND-EQUITY> 149,419
<SALES> 1,601
<TOTAL-REVENUES> 1,601
<CGS> 319
<TOTAL-COSTS> 319
<OTHER-EXPENSES> 24,854
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (87)
<INCOME-PRETAX> (18,224)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,224)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,224)
<EPS-BASIC> (1.06)
<EPS-DILUTED> (1.06)
</TABLE>
