<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) OCTOBER 7, 1999
STUDENT ADVANTAGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-26173 04-3263743
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) NUMBER) IDENTIFICATION
NUMBER)
280 SUMMER STREET, BOSTON, MA 02210
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(617) 912-2011
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE> 2
THE UNDERSIGNED REGISTRANT HEREBY AMENDS ITEM 7, OF ITS CURRENT REPORT ON FORM
8-K DATED OCTOBER 7, 1999 TO READ IN ITS ENTIRETY AS FOLLOWS:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF VOICE FX CORPORATION
THE FOLLOWING FINANCIAL FINANCIAL STATEMENTS REQUIRED BY ITEM 7 WITH
RESPECT TO THE REGISTRANT'S ACQUISITION OF VOICE FX ARE FILED AS PART OF
THIS REPORT:
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS P. 3
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997, 1998 AND
JUNE 30, 1999 (UNAUDITED) P. 4
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 (UNAUDITED)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED P. 5
DECEMBER 31, 1997 AND 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED) P. 6
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 (UNAUDITED) P. 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P. 8
</TABLE>
(b) PRO FORMA FINANCIAL INFORMATION
THE FOLLOWING PRO FORMA FINANCIAL INFORMATION REQUIRED BY ITEM 7 WITH
RESPECT TO THE REGISTRANT'S ACQUISITION OF VOICE FX IS FILED AS PART OF
THIS REPORT:
<TABLE>
<CAPTION>
<S> <C>
STUDENT ADVANTAGE, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS P. 17
PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1999 (UNAUDITED) P. 18
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED) P. 19
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1998 (UNAUDITED) P. 20
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS P. 21
</TABLE>
(c) EXHIBITS
2.1* AGREEMENT AND PLAN OF MERGER AMONG STUDENT ADVANTAGE, INC., SA
ACQUISITION II, INC. AND VOICE FX CORPORATION DATED SEPTEMBER 27,
1999.
23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP
- -------------------
* previously filed
2
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Voice FX Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Voice FX
Corporation at December 31, 1997 and 1998, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles. 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 generally accepted auditing standards, 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.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
September 15, 1999, except as to Note 11
which is as of October 7, 1999
3
<PAGE> 4
VOICE FX CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998 1999
---- ---- ----
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,996,381 $ 193,189 $ 264,339
Restricted cash 500,000 -- --
Accounts receivable (net of allowance of $39,074, $30,106 and $30,106
at December 31, 1997 and 1998 and June 30, 1999 (unaudited), respectively) 281,899 499,977 829,667
Prepaid expenses and other current assets 479,970 64,023 29,470
----------- ----------- -----------
Total current assets 5,258,250 757,189 1,123,476
Property and equipment, net 1,029,455 711,102 645,602
Other assets 21,821 27,472 27,413
----------- ----------- -----------
Total assets $ 6,309,526 $ 1,495,763 $ 1,796,491
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 671,737 $ 234,706 $ 436,663
Accrued expenses 101,355 96,228 160,746
Current portion of capital lease obligation 31,673 36,763 24,892
Income taxes payable 220,000 -- --
Deferred revenue 695,468 575,221 495,814
----------- ----------- -----------
Total current liabilities 1,720,233 942,918 1,118,115
----------- ----------- -----------
Capital lease obligation, net of current portion 46,844 10,080 4,255
----------- ----------- -----------
Commitments (Note 9)
Stockholders' equity:
Common stock, $0.01 par value; 4,000,000 shares authorized; 2,344,924, 3,010,095
and 3,010,095 shares issued and 2,344,924, 796,711 and 796,711 shares
outstanding at December 31, 1997 and 1998 and June 30, 1999 (unaudited),
respectively 23,449 30,101 30,101
Additional paid-in capital 5,382,831 5,796,816 6,851,449
Accumulated deficit (825,550) (2,120,891) (3,130,827)
Treasury stock, at cost, 2,213,384 shares at December 31, 1998 and June 30, 1999
(unaudited) -- (3,076,602) (3,076,602)
----------- ----------- -----------
4,580,730 629,424 674,121
Less: notes receivable from stockholders (38,281) (86,659) --
----------- ----------- -----------
Total stockholders' equity 4,542,449 542,765 674,121
----------- ----------- -----------
Total liabilities and stockholders' equity $ 6,309,526 $ 1,495,763 $ 1,796,491
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial statements
4
<PAGE> 5
VOICE FX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1997 1998 1998 1999
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Hardware $ 637,832 $ 637,166 $ 637,166 $ 39,885
Services 595,279 1,397,923 484,363 2,590,712
----------- ----------- ----------- -----------
Total revenue 1,233,111 2,035,089 1,121,529 2,630,597
----------- ----------- ----------- -----------
Cost of revenues:
Cost of hardware 443,492 444,076 444,076 33,425
Cost of services 819,985 1,179,786 520,576 1,357,906
----------- ----------- ----------- -----------
Total cost of revenues 1,263,477 1,623,862 964,652 1,391,331
----------- ----------- ----------- -----------
Gross margin (30,366) 411,227 156,877 1,239,266
----------- ----------- ----------- -----------
Operating expenses:
Product development 454,674 507,967 213,274 225,833
Sales and marketing 601,146 463,657 263,359 492,000
General and administrative 1,078,071 466,583 268,744 389,069
Stock-based compensation -- 326,672 326,672 1,142,837
----------- ----------- ----------- -----------
Total operating expenses 2,133,891 1,764,879 1,072,049 2,249,739
----------- ----------- ----------- -----------
Operating loss (2,164,257) (1,353,652) (915,172) (1,010,473)
Other income (expense):
Interest income 141,243 68,217 59,376 3,505
Interest expense (214,998) (9,906) (5,419) (2,968)
----------- ----------- ----------- -----------
Loss from continuing operations before extraordinary loss (2,238,012) (1,295,341) (861,215) (1,000,936)
----------- ----------- ----------- -----------
Discontinued operations:
Loss from discontinued operations (613,846) -- -- --
Gain on disposal of discontinued operations, net of
income taxes of $220,000 6,739,187 -- -- --
----------- ----------- ----------- -----------
Total income from discontinued operations 6,125,341 -- -- --
----------- ----------- ----------- -----------
Extraordinary loss on early extinguishment of debt (Note 4) (838,193) -- -- --
----------- ----------- ----------- -----------
Net income (loss) $ 3,049,136 $(1,295,341) $ (861,215) $(1,009,936)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial statements
5
<PAGE> 6
VOICE FX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED TREASURY STOCK
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT
------ ------ ---------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 2,316,524 $ 23,165 $ 5,353,146 $(3,874,686) -- $ --
Exercise of common stock options 28,400 284 29,685
Net income -- -- -- 3,049,136 -- --
--------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 2,344,924 23,449 5,382,831 (825,550) -- --
Exercise of common stock warrant 378,807 3,788
Exercise of common stock options 286,364 2,864 87,313
Purchase of common stock for treasury (2,213,384) $(3,076,602)
Compensation expense related to common
stock options 326,672
Repayment of loans from stockholders
Interest on notes receivable from
stockholders
Net loss -- -- -- (1,295,341) -- --
--------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 3,010,095 30,101 5,796,816 (2,120,891) (2,213,384) (3,076,602)
Interest on notes receivable from
stockholders (unaudited)
Forgiveness of notes receivable from
stockholders (unaudited) 1,054,633
Net loss (unaudited) -- -- -- (1,009,936) -- --
--------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1999 (unaudited) 3,010,095 $ 30,101 $ 6,851,449 $(3,130,827) (2,213,384) $(3,076,602)
========= =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
NOTES
RECEIVABLE TOTAL
FROM STOCKHOLDERS'
STOCKHOLDERS EQUITY
------------ -------------
<S> <C> <C>
Balance, December 31, 1996 $ (38,281) $ 1,463,344
Exercise of common stock options 29,969
Net income -- 3,049,136
----------- -----------
Balance, December 31, 1997 (38,281) 4,542,449
Exercise of common stock warrant 3,788
Exercise of common stock options (85,177) 5,000
Purchase of common stock for treasury (3,076,602)
Compensation expense related to common
stock options 326,672
Repayment of loans from stockholders 38,281 38,281
Interest on notes receivable from
stockholders (1,482) (1,482)
Net loss -- (1,295,341)
----------- -----------
Balance, December 31, 1998 (86,659) 542,765
Interest on notes receivable from
stockholders (unaudited) (1,545) (1,545)
Forgiveness of notes receivable from
stockholders (unaudited) 88,204 1,142,837
Net loss (unaudited) -- (1,009,936)
----------- -----------
Balance, June 30, 1999 (unaudited) $ -- $ 674,121
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL STATEMENTS
6
<PAGE> 7
VOICE FX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1997 1998 1998 1999
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations $(2,238,012) $(1,295,341) $ (861,215) $(1,009,936)
Adjustments to reconcile net loss from continuing operations
to net cash provided by (used in) operating activities:
Depreciation and amortization 431,624 417,383 193,037 210,131
Write off of previously capitalized deferred public offering costs 442,577 -- -- --
Compensation expense related to common stock options -- 326,672 326,672 --
Accrued interest on notes receivable from stockholders -- (1,482) -- (1,545)
Forgiveness of notes receivable from stockholders -- -- -- 1,174,846
Changes in operating assets and liabilities:
Accounts receivable 645,905 (218,078) 105,682 (329,690)
Prepaid expenses and other current assets (370,947) 415,947 327,833 2,544
Other assets 175,419 (5,651) (6,001) 59
Accounts payable and accrued expenses (129,104) (442,158) (651,530) 266,475
Income taxes payable -- (220,000) (200,000) --
Deferred revenue 858,925 (120,247) (206,652) (79,407)
----------- ----------- ----------- -----------
Cash provided by (used in) operating activities (183,613) (1,142,955) (972,174) 233,477
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (225,421) (99,030) (60,551) (144,631)
Restricted cash (500,000) 500,000 -- --
----------- ----------- ----------- -----------
Cash provided by (used in) investing activities (725,421) 400,970 (60,551) (144,631)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Common stock issued upon option and warrant exercises 29,969 8,788 8,788 --
Payments on capital lease obligation (27,287) (31,674) (15,246) (17,696)
Purchase of common stock for treasury -- (3,076,602) (2,678,194) --
Payments received on notes receivable from stockholders -- 38,281 37,301 --
Payments on long-term debt (3,300,000) -- -- --
----------- ----------- ----------- -----------
Cash used in financing activities (3,297,318) (3,061,207) (2,647,351) (17,696)
----------- ----------- ----------- -----------
Net cash and cash equivalents provided by discontinued operations 7,914,345 -- -- --
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 3,707,993 (3,803,192) (3,680,076) 71,150
Cash and cash equivalents, beginning of period 288,388 3,996,381 3,996,381 193,189
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period $ 3,996,381 $ 193,189 $ 316,305 $ 264,339
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 92,026 $ 9,906 $ 5,419 $ 2,968
Cash paid for income taxes $ -- $ 212,284 $ 200,000 $ --
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for notes receivable from stockholders $ -- $ 85,177 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE> 8
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Voice FX Corporation (the "Company") provides Internet and interactive
voice response telephone services, primarily to colleges and universities.
These services include telephone and Internet grade reporting, financial
aid status reporting, fee payment reporting, registration, and telephone
and Internet transcript ordering. To date, all of the Company's revenues
have been in the U.S. and are reported through one operating segment.
During 1997, the Company sold its corporate teleservices division and its
FX Direct, Inc. product sample distribution subsidiary business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Voice FX
Corporation and its wholly-owned subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation. The Company sold
its only wholly-owned subsidiary during 1997.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents. Restricted
cash represents amounts held in escrow associated with certain
representations and warranties made by the Company in connection with its
sale of its teleservices division in 1997. The restricted cash was released
to the Company in full during 1998.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash equivalents and
accounts receivable. The Company invests its excess cash primarily in money
market funds of major financial institutions. The Company provides credit
to customers in the normal course of business. Collateral is not required
for accounts receivable, but credit evaluations of customers' financial
conditions are performed periodically. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
Revenues of approximately $638,000 (52%) were attributable to one customer
during 1997. Revenues of approximately $637,000 (31%) and $309,000 (15%)
were attributable to two customers during 1998. Revenues of approximately
$637,000 (57%) were attributable to one customer during the six months
ended June 30, 1998 (unaudited). Revenues of approximately $2.1 million
(79%) were attributable to one customer during the six months ended June
30, 1999 (unaudited). Accounts receivable from three customers accounted
for approximately $160,000 (50%), from two customers accounted for
approximately $403,000 (76%) and from one customer accounted for
approximately $550,000 (65%) (unaudited) of the total amounts due to the
Company at December 31, 1997 and 1998 and June 30, 1999, respectively.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
At December 31, 1997, prepaid expenses and other current assets included
approximately $437,000 of hardware equipment which was installed and
recognized as revenue during 1998.
8
<PAGE> 9
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight line method over their estimated useful lives. Property and
equipment held under capital leases are stated at the lower of the fair
market value of the related asset or the present value of the minimum lease
payments at the inception of the lease and are amortized using the
straight-line method over the life of the related asset or the term of the
lease. Upon retirement or sale, the cost of the assets disposed of and the
related accumulated depreciation and amortization are removed from the
accounts and any resulting gain or loss is included in the determination of
net income (loss). Maintenance and repair costs are expensed as incurred.
The Company adopted Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use, on December 31,
1997. In accordance with SOP 98-1, the Company capitalizes costs of
software development for internal use which meet certain criteria and
amortizes such costs on a straight-line basis over the life of the
software. These assets are included in property and equipment.
SOFTWARE DEVELOPMENT COSTS
Costs associated with purchased software, new products and enhancements to
existing products are generally capitalized, after the establishment of
technological feasibility, and amortized as the greater of the ratio of
current revenues to total expected revenues from the product or the
straight-line method over the remaining estimated economic life of the
product. To date, costs of internally developed software which qualify for
capitalization have not been material. All other research and development
expenditures are charged to product development expense in the period
incurred.
REVENUE RECOGNITION
The Company derives revenue from annual membership fees from colleges and
universities that allow the college or university's students to utilize the
Company's Internet and telephone services. Revenue from these memberships
is recognized ratably over the annual term of the agreement. The Company
also derives revenue from corporate sponsors who advertise on the Company's
Internet website and through the Company's telephone services. Revenue from
the corporate sponsors is generally a set price per "play" of the sponsor's
advertisement; accordingly, revenue from corporate sponsors is recognized
as such plays are provided. Revenue from hardware sales is recognized when
the hardware is delivered and all implementation services have been
provided. Amounts invoiced or received in advance of revenue being earned
are recorded as deferred revenue.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense for the year ended December 31, 1997
included costs of approximately $636,000 previously capitalized in
anticipation of an initial public offering of the Company's common stock.
This anticipated offering did not occur and the Company no longer has plans
for such an offering; accordingly, costs previously capitalized were
expensed.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the differences
between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse. Valuation allowances are provided if, based upon the
weight of available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized.
9
<PAGE> 10
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense is recorded for
options issued to employees in fixed amounts and with fixed exercise prices
equal to the fair market value of the Company's common stock at the date of
grant. The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
("SFAS 123") through disclosure only. All stock-based awards to
nonemployees are accounted for in accordance with SFAS No. 123.
COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 requires the reporting of comprehensive income (loss) in
addition to net income (loss). Comprehensive income (loss) is a more
inclusive reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income (loss). Comprehensive income (loss) is comprised
of two components, net income (loss) and other comprehensive income (loss).
During the years ended December 31, 1997 and 1998 and the six months ended
June 30, 1998 and 1999, the Company had no items qualifying as other
comprehensive income (loss); accordingly, the adoption of SFAS 130 had no
impact on the Company's financial statements.
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, the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
UNAUDITED INTERIM FINANCIAL DATA
The interim financial data as of June 30, 1999 and for the six months ended
June 30, 1998 and 1999 has been derived from unaudited financial statements
of the Company. Management believes the Company's unaudited financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position
and results of operations for such periods. Results for the six months
ended June 30, 1998 and 1999 have not be audited and are not necessarily
indicative of results to be expected for the full fiscal year.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes
accounting and reporting standards for derivative financial instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. SFAS
133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000 and is effective for the Company's fiscal year ending
December 31, 2001. The Company does not expect the adoption of SFAS 133 to
have a material effect on its financial position or results of operations.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product
10
<PAGE> 11
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
or service, conducting business in a new territory, conducting new business
with a new class of customer, commencing some new operation or organizing a
new entity. Under SOP 98-5, the cost of start-up activities should be
expensed as incurred. SOP 98-5 is effective for financial statements for
years beginning after December 15, 1998. The Company does not expect the
adoption of this standard to have a material effect on its financial
position or results of operations.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
(YEARS) 1997 1998
------- ---- ----
<S> <C> <C> <C>
Computer equipment 5 $1,361,641 $1,432,575
Office furniture and equipment 5 12,114 14,230
Software 3 502,830 528,810
Leasehold improvements Shorter of estimated useful
life or life of lease 18,309 18,309
---------- ----------
1,894,894 1,993,924
Less: accumulated depreciation
and amortization 865,439 1,282,822
---------- ---------
$1,029,455 $ 711,102
========== =========
</TABLE>
At December 31, 1997 and 1998, fixed assets under capital leases included
computer equipment with a cost of approximately $145,000 and accumulated
depreciation of approximately $77,000 and $106,000, respectively.
Depreciation expense for the years ended December 31, 1997 and 1998 was
approximately $397,000 and $417,000, respectively.
4. STOCKHOLDERS' EQUITY:
NOTES RECEIVABLE FROM STOCKHOLDERS
At December 31, 1997, notes receivable from stockholders included two notes
payable to the Company for common stock option exercises during 1993. These
notes, which did not have a stated interest rate, were due and paid in full
during January 1998.
In September 1998, two officers and directors exercised stock options to
purchased 243,364 shares of the Company's common stock, through the
issuance of non- recourse notes payable to the Company in the amount of
$85,177. These notes had an interest rate of 6% and are due in September
2003. Interest earned during the year ended December 31, 1998 and the six
months ended June 30, 1999 was $1,482 and $1,545, respectively, and is
included in interest income. In April 1999, the Company's Board of
Directors approved the forgiveness of all amounts due under these notes,
resulting in a compensation charge of $1,142,837, based on the fair value
of the underlying common stock on the date the notes were forgiven. This
expense has been included in stock-based compensation expense for the six
months ended June 30, 1999.
11
<PAGE> 12
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WARRANTS
During 1996, the Company received cash proceeds totaling $3,000,000 from
the issuance of two separate notes payable. The notes had an interest rate
of 13.5%. The noteholders were issued stock purchase warrants with the
right to purchase 378,807 shares of the Company's common stock at a price
of $0.01 per share. These warrants were immediately exercisable. The
warrants were ascribed a value of $954,593, which was recorded as
additional paid-in capital and as a discount to the value of the note. This
discount was recognized over the term of the note. The accretion of debt
discount for these warrants during 1996 was $116,400. The notes were repaid
in full during 1997 and accordingly, the remaining unamortized discount of
$838,193 was recognized as an extraordinary loss on early extinguishment of
debt in 1997. These warrants were exercised in full during 1998.
TREASURY STOCK
On January 2, 1998, the Company repurchased 2,213,384 shares (approximately
80%) of its outstanding common stock. These purchases were made in
privately negotiated transactions at a price per share of $1.39. The
Company paid $1.21 per share of the repurchase price in January 1998 and
made payments of $0.18 per share during July 1998 upon the release of the
restricted cash balance. The Company plans to use these repurchased shares
for its employee stock option plans.
5. STOCK OPTIONS AND WARRANTS:
During 1990, the Company adopted the 1990 Stock Option Plan (the "1990
Plan"), which provides for the grant of incentive and non-qualified stock
options for the purchase of up to 800,000 shares of the Company's common
stock by officers, employees, consultants and directors of the Company. On
March 20, 1998, the Board of Directors approved the adoption of the 1998
Stock Option Plan (the "1998 Plan"), which provides for the grant of
incentive and non-qualified stock options up to an aggregate of 400,000
shares of the Company's common stock to employees, officers, directors and
consultants of the Company. The Board of Directors is responsible for the
administration of the 1990 Plan and the 1998 Plan. The Board determines the
term of each option, the option price, the number of shares for which each
option is granted and the rate at which each option is exercisable.
Generally, options have a term of ten years and vest over a period of three
to four years. Incentive stock options may be granted to any officer or
employee at an exercise price per share of not less than the fair value per
common share on the date of the grant (not less than 110% of fair value in
the case of holders of more than 10% of the Company's voting stock) and
with a term not to exceed ten years from the date of grant (five years for
incentive stock options granted to holders of more than 10% of the
Company's voting stock). Non-qualified stock options may be granted to any
officer, employee, consultant or director.
12
<PAGE> 13
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes activity of the Company's option plans since
January 1, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Outstanding at December 31, 1996 515,426 $ 2.73
Granted -- --
Exercised (28,400) 1.06
Canceled (132,600) 2.86
-------
Outstanding at December 31, 1997 354,426 2.82
Granted, at fair value 57,000 1.39
Granted, at below fair value 314,108 0.35
Exercised (286,364) 0.31
Canceled (334,426) 2.73
-------
Outstanding at December 31, 1998 104,744 $ 0.69
=======
</TABLE>
As of December 31, 1997 and 1998, options to purchase 117,849 and 85,244
shares of common stock, respectively, were exercisable with
weighted-average exercise prices of $2.38 and $0.53, respectively. The
weighted average fair value per share of options granted at fair value and
below fair value during 1998 was approximately $0.95 and $1.22,
respectively. As of December 31, 1998, 28,892 shares were available for
future grant under the 1998 Plan.
The following table summarizes the stock options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING
EXERCISE CONTRACTUAL SHARES
PRICE SHARES LIFE EXERCISABLE
-------- ------ ----------- -----------
<S> <C> <C> <C>
$ 0.35 70,744 9.7 years 70,744
$ 1.39 34,000 9.6 years 14,500
------- ------
104,744 85,244
======= ======
</TABLE>
13
<PAGE> 14
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1998, the Company's Board of Directors authorized that all employee
options under the 1990 Plan would be eligible to be exchanged for options
with an exercise price at the then fair market value, as determined by the
Board of Directors, of $1.39 per share. Prior to the repricing, these
options had exercise prices ranging from $2.92 to $3.04 per share. This
cancellation and reissuance of stock options affected options for 286,426
shares.
During 1998, the Company granted stock options to purchase 314,108 shares
of common stock with an exercise price of $0.35 per share. Relating to
these options, the Company recorded compensation expense of $326,672,
representing the aggregate difference between the estimated fair value of
the common stock on the date of grant and the exercise price of those
options. As the options were immediately exercisable, the compensation
expense was fully recognized in 1998 and was also recorded as a component
of additional paid-in capital within stockholders' equity.
Had compensation cost been determined based on the fair value at the grant
date for awards in fiscal years 1996, 1997 and 1998 consistent with the
provisions of SFAS No. 123, the Company's net losses from continuing
operations before extraordinary loss for 1997 and 1998 would have been
$2,334,379 and $1,669,647, respectively. For this purpose, the fair value
of each option grant was estimated on the grant date using the
Black-Scholes option-pricing model with the following assumptions: no
dividend yield; no volatility; risk-free interest rate of 5.5%; and an
expected option term of four years. Because options vest over several years
and additional option grants are expected to be made in future years, the
above pro forma results are not representative of the pro forma results for
future years.
6. RELATED PARTY TRANSACTIONS:
In January 1998, the Company advanced a total of $32,009 to two officers
and directors. These advances were payable upon demand and did not have a
stated interest rate. In April 1999, the Company's Board of Directors
approved the forgiveness of these advances, resulting in a compensation
charge of $32,009. This expense has been included in general and
administrative expenses for the six months ended June 30, 1999.
7. DISCONTINUED OPERATIONS:
During 1997, the Company sold its sample distribution business and its
corporate teleservices division. The acquirer purchased all related assets
and assumed certain related liabilities of these businesses, including
accounts receivable, accounts payable, accrued and prepaid expenses and
deferred revenue. As of December 31, 1997 and 1998, there were no assets or
liabilities related to these businesses recorded in the Company's financial
statements.
Operating results of these businesses from January 1, 1997 through the date
of disposition have been reflected within the statement of operations as
discontinued operations. Revenue of the sold businesses for the year ended
December 31, 1997 was approximately $1,124,000, which has been included
within the loss from discontinued operations.
14
<PAGE> 15
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES:
At December 31, 1997 and 1998, the Company's deferred tax assets of
approximately $150,000 and $300,000, respectively, consisted primarily of
net operating loss carryforwards. The Company has provided a valuation
allowance for the full amount of its net deferred tax assets as the
realization of these future benefits cannot be reasonably assured at
December 31, 1998.
At December 31, 1998, the Company had federal and state net operating loss
carryforwards of approximately $600,000 and $950,000, respectively,
available to reduce future taxable income. The federal and state net
operating loss carryforward begin to expire in 2011.
As a result of the 1997 sale of the teleservices and sample distribution
businesses, the Company recognized a gain of approximately $6.7 million.
The Company utilized approximately $3.5 million of its federal tax loss
carryforwards and approximately $1.0 million of its state tax loss
carryforwards to reduce the taxable gain. As a result, total federal and
state corporate income taxes for 1997 were approximately $220,000, which
are included within the gain on disposal of discontinued operations.
9. COMMITMENTS:
The Company leases its office space under noncancelable operating leases.
Total rent expense under these operating leases for the years ended
December 31, 1997 and 1998 was approximately $76,000 and $68,000,
respectively. The Company also leases certain equipment under a capital
lease.
Future minimum lease payments under all noncancelable operating and capital
leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASE
--------- -------
<S> <C> <C>
1999 $ 81,582 $ 41,332
2000 20,433 10,333
-------- --------
$102,015 51,665
========
Less: amount representing interest 4,822
--------
Present value of future minimum lease payments 46,843
Less: amounts due within one year 36,763
--------
Long-term portion $ 10,080
========
</TABLE>
10. 401(k) SAVINGS PLAN:
The Company has established a retirement savings plan under Section 401(k)
of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers
substantially all employees of the Company who meet certain requirements
and allows participants to defer a portion of their annual compensation on
a pre-tax basis. The terms of the plan provide for the Company to assume
the cost of plan administration. The Company may make contributions to the
401(k) Plan at the discretion of management; to date, no contributions by
the Company have been made to the 401(k) Plan.
15
<PAGE> 16
VOICE FX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SUBSEQUENT EVENT:
On October 7, 1999, the Company completed a merger with Student Advantage,
Inc. whereby Student Advantage acquired all of the common stock of the
Company by paying approximately $1.1 million in cash and issuing 430,082
shares of Student Advantage common stock. Assets acquired by Student
Advantage consist of all tangible assets of the Company, as well as
customer relationships, patents, completed technology and the Company's
workforce.
16
<PAGE> 17
(b) PRO FORMA FINANCIAL INFORMATION
STUDENT ADVANTAGE, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On October 7, 1999, SA Acquisition II, Inc. ("SA"), a wholly owned subsidiary of
Student Advantage, Inc. (the "Company"), merged into Voice FX Corporation ("FX")
pursuant to an Agreement and Plan of Merger by and among the Company, SA and FX,
dated September 27, 1999. At the close of the transaction, FX became a
wholly-owned subsidiary of the Company. Voice FX provides Internet and
interactive voice response telephone services to college and university
students, primarily grade reporting, transcript ordering and financial aid
status reporting.
All of the outstanding capital stock of FX was converted into 430,082
shares of Common Stock, $.01 par value, of the Company and $1.1 million in cash.
Additionally the Company assumed outstanding FX stock options, which were
converted into options to purchase an aggregate of 59,687 shares of Company
Common Stock. The exchange rate used to convert the capital stock and options of
FX into Common Stock and options of the Company and cash were determined as a
result of arms length negotiation.
The accompanying unaudited pro forma combined financial statements are
presented as if the Company and FX had been operating as a combined entity. The
unaudited pro forma combined balance sheet as of June 30, 1999 presents the
financial position of the Company assuming the acquisition had occurred on June
30, 1999. The unaudited pro forma combined statements of operations for the six
months ended June 30, 1999 and the year ended December 31, 1998 present the
results of operations of the Company assuming the acquisition had occurred on
January 1, 1998 and January 1, 1999, respectively, and included all material pro
forma adjustments necessary for this purpose. All material adjustments to
reflect the acquisition are set forth in the column "Pro Forma Adjustments."
The pro forma data is for informational purposes only and may not
necessarily reflect future results of operations and financial position or what
the results of operations or financial position would have been had the Company
and FX been operating as a combined entity for the specified periods. The
unaudited pro forma combined financial statements should be read in conjunction
with the historical financial statements of the Company, including the notes
thereto.
17
<PAGE> 18
STUDENT ADVANTAGE, INC.
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1999
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Student Pro Pro
Advantage, Voice FX Forma Forma
Inc. Corporation Adjustments Combined
---------- ------------ ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 26,235 $ 264 $ (1,133)(a) $ 25,366
Marketable securities 20,582 -- -- 20,582
Accounts receivable, net 2,190 830 -- 3,020
Prepaid expenses and other current assets 788 29 -- 817
-------- -------- -------- --------
Total current Assets 49,795 1,123 (1,133) 49,785
Property and equipment, net 2,205 646 -- 2,851
Intangible assets, net 1,636 -- 6,255(b) 7,891
Other Assets -- 27 -- 27
-------- -------- -------- --------
TOTAL ASSETS $ 53,636 $ 1,796 $ 5,122 $ 60,554
======== ======== ======== ========
LIABILITIES
Borrowings under line of credit $ 60 $ -- $ -- $ 60
Accounts payable 3,276 437 -- 3,713
Accrued compensation 1,079 -- -- 1,079
Other accrued expenses 3,675 161 150(a) 3,986
Deferred revenue 8,532 496 -- 9,028
Current portion of capital lease obligation -- 25 -- 25
-------- -------- -------- --------
Total current liabilities 16,622 1,119 150 17,891
-------- -------- -------- --------
Notes payable 430 -- -- 430
Capital lease obligation, net of current portion -- 4 -- 4
-------- -------- -------- --------
STOCKHOLDER'S EQUITY
Common stock 338 30 (26)(a) 342
Additional paid-in capital 73,839 6,851 (1,210)(a) 79,480
Accumulated deficit (34,557) (3,131) 3,131(a) (34,557)
Deferred compensation (3,036) -- -- (3,036)
Treasury stock, at cost -- (3,077) 3,077 --
-------- -------- -------- --------
Stockholder's equity 36,584 673 4,972 42,229
-------- -------- -------- --------
Total liabilities and stockholder's equity $ 53,636 $ 1,796 $ 5,122 $ 60,554
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
18
<PAGE> 19
STUDENT ADVANTAGE, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Student Pro Pro
Advantage, Voice FX Forma Forma
Inc. Corporation Adjustments Combined
---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Revenue
Subscription $ 4,034 $ -- $ -- $ 4,034
Other 5,665 2,631 -- 8,296
-------- -------- -------- --------
Total revenue 9,699 2,631 -- 12,330
Costs and expenses
Cost of subscription revenue 804 -- -- 804
Cost of other revenue 4,822 1,391 (198)(d) 6,015
Product development 2,810 226 -- 3,036
Sales and marketing 4,957 492 -- 5,449
General and administrative 4,374 389 (12)(d) 4,751
Depreciation and amortization 734 -- 949(c)(d) 1,683
Stock-based compensation 554 1,143 -- 1,697
-------- -------- -------- --------
Total costs and expenses 19,055 3,641 739 23,435
-------- -------- -------- --------
Loss from operations (9,356) (1,010) (739) (11,105)
Interest income (expense), net 124 1 -- 125
-------- -------- -------- --------
Net loss $ (9,232) $ (1,009) $ (739) $(10,980)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.47) $ (0.54)
======== ========
Shares used in computing basic and
diluted net loss per share 19,792 430(e) 20,222
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
19
<PAGE> 20
STUDENT ADVANTAGE, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Student Pro Pro
Advantage, Voice FX Forma Forma
Inc. Corporation Adjustments Combined
---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Revenue
Subscription $ 7,174 $ -- $ -- 7,174
Other 12,186 2,035 -- 14,221
-------- -------- -------- --------
Total revenue 19,360 2,035 -- 21,395
Costs and expenses
Cost of subscription revenue 2,442 -- -- 2,442
Cost of other revenue 7,867 1,624 (396)(d) 9,095
Product development 4,948 508 -- 5,456
Sales and marketing 7,313 464 -- 7,777
General and administrative 5,484 466 (21)(d) 5,929
Depreciation and amortization 1,155 -- 1,895(c)(d) 3,050
Stock-based compensation 808 327 -- 1,135
-------- -------- -------- --------
Total costs and expenses 30,017 3,389 1,478 34,884
-------- -------- -------- --------
Loss from operations (10,657) (1,354) (1,478) (13,489)
Interest income (expense), net 121 58 -- 179
-------- -------- -------- --------
Net loss $(10,536) $ (1,296) $ (1,478) $(13,310)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.59) $ (0.73)
======== ========
Shares used in computing basic and
diluted net loss per share 17,710 430(g) 18,140
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements
20
<PAGE> 21
STUDENT ADVANTAGE, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
a.) To give effect to the elimination of Voice FX's stockholder's equity and to
record the total consideration of $6.9 million paid in the acquisition of
Voice FX.
In connection with the acquisition, Student Advantage paid $1.1 million in
cash to Voice FX shareholders, issued 430,082 shares to Voice FX
shareholders, valued at $5.0 million, in exchange for all the outstanding
capital stock of Voice FX. In addition, Student Advantage agreed to assume
all outstanding options to purchase Voice FX common stock through issuing
59,687 options to purchase common stock, valued at approximately $700,000.
Student Advantage also incurred fees of approximately $150,000 in
connection with the transaction.
b.) To give effect to the intangible assets acquired including completed
technology ($1.2 million), assembled work force ($0.5 million), and
goodwill ($4.6 million).
c.) To reflect the amortization (on a straight-line basis) had the acquisition
occurred at the beginning of the periods presented of completed technology,
assembled work force, and goodwill recorded in connection with the
acquisition, over expected useful lives of between three and five years.
d.) To reclassify certain expenses within cost of other revenue and general and
administrative expenses to conform to Student Advantage's historical
presentation.
e.) The calculation of pro forma weighted-average number of shares outstanding
includes the weighted-average number of common shares outstanding of
Student Advantage for the respective periods, adjusted to give effect to
the issuance of 430,082 shares of Student Advantage's common stock in
connection with the acquisition. For the six months ended June 30, 1999
and the year ended December 31, 1998, the calculation does not include the
effect of common stock equivalents as their inclusion would be
antidilutive.
21
<PAGE> 22
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED HEREUNTO DULY AUTHORIZED.
STUDENT ADVANTAGE, INC.
DATE: NOVEMBER 15, 1999 BY: /s/ CHRISTOPHER B. ANDREWS
----------------- ----------------------
CHRISTOPHER B. ANDREWS
VICE PRESIDENT FINANCE AND ADMINISTRATION
AND CHIEF FINANCIAL OFFICER
(PRINICIPAL FINANCIAL AND ACCOUNTING
OFFICER)
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT INDEX
- -------------
<S> <C>
2.1* Agreement and Plan of Merger among Student Advantage, Inc., SA Acquisition II,
Inc. and Voice FX Corporation dated September 27, 1999.
23.1 Consent of PricewaterhouseCoopers LLP
</TABLE>
- -------------
* previously filed
23
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 333-81003, 333-81005, 333-81007, 333-81075 and
333-82295) of Student Advantage, Inc. of our report dated September 15, 1999,
except as to Note 11 which is as of October 7, 1999, relating to the financial
statements of Voice FX Corporation, which appears in this Current Report on Form
8-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 12, 1999
24
