<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: October 22,1999
MPATH INTERACTIVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 000-25399 94-3217317
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) identification No.)
665 CLYDE AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(Address of principal executive offices) (Zip code)
(650) 429-3900
(Registrant's telephone number, including area code)
1
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On September 27, 1999, Mpath Interactive, Inc. ("Mpath" or " Company") entered
into an Agreement and Plan of Merger (the "Merger Agreement") with Resounding
Technology, Inc. ("RTI"), a Delaware corporation. The Merger Agreement provided
for the merger of a newly formed wholly owned subsidiary of Mpath with and into
RTI. RTI became a wholly owned subsidiary of Mpath. The merger is being
accounted for under the purchase method of accounting. The merger was
consummated on October 20, 1999.
The purchase price of approximately $22,915,000 includes $22,031,000 of stock,
issued at fair value (fair value being determined as the average price of the
Mpath stock for a period three days before and after the announcement of the
merger) less a discount of $1,479,000 due to the restricted nature of the stock,
$1,908,000 in RTI stock option costs (being determined under the Black Scholes
formula), $175,000 in cash and $280,000 in estimated expenses of the
transaction. The purchase price was allocated as follows: $260,000 to the
estimated fair value of RTI net tangible assets purchased (as of September 27,
1999), $2,600,000 to purchased existing technology, ($1,840,000) to establish
deferred tax liabilities associated with certain intangibles acquired, $850,000
to purchased in-process research and development, $700,000 to
workforce-in-place, $1,300,000 to non-compete agreements and $19,045,000 to
goodwill. The allocation of the purchase price to intangibles was based upon an
independent, third party appraisal and management's estimates.
The intangible assets and goodwill acquired have estimated useful lives and
estimated amortization for the remainder of the year ending December 31, 1999,
as follows:
<TABLE>
<CAPTION>
Estimated
Estimated Useful 1999
Amount Life Amortization
---------- ---------- ------------
<S> <C> <C> <C>
Purchased existing technology $ 2,600,000 2 years $ 152,000
Workforce-in-place 700,000 2 years 41,000
Executive covenants 1,300,000 2 years 76,000
Goodwill 19,045,000 2 years 1,907,000
</TABLE>
The value assigned to purchased in-process research and development ("IPR&D")
was determined by identifying research projects in areas for which technological
feasibility had not been established. These include projects for the development
of a next generation version of RTI's Roger Wilco product, a software
developers' kit as well as other specialized technologies totaling $850,000. The
value was determined by estimating the expected cash flows from the projects
once commercially viable, applying a percentage of completion to the calculated
value as defined below and then discounting the net cash flows back to their
present value.
The net cash flows from the identified projects are based on the Company's
estimates of revenues, cost savings from those projects, estimated charges for
use of assets by the projects and income taxes from those projects. These
estimates are based on the assumptions mentioned below.
The estimated revenues are based on management projections of each in-process
project. Estimated total revenues from the IPR&D product areas are expected to
peak in the second quarter of 2001 and decline to zero by the third quarter of
2002 as other new products are expected to become available. These projections
are based on estimates of market size and growth, expected trends in technology
and the nature and expected timing of new project introductions by our
competitors and us.
Projected gross profits from RTI's technology products are in line with
comparable industry margins. The estimated charges for use of assets are
consistent with RTI's historical cost structure, which is in line with industry
averages at approximately 5% of revenues.
Discounting the net cash flows back to their present value is based on the
industry weighted average cost of capital ("WACC"). The industry WACC is
approximately 31%. The discount rate used in discounting the net cash flows from
IPR&D is 35%, a 40 basis point increase from the industry WACC. This discount
rate is higher than the
2
<PAGE>
industry WACC due to inherent uncertainties surrounding the successful
development of the IPR&D, market acceptance of the technology, the useful life
of such technology and the uncertainty of technological advances which could
potentially impact the estimates described above.
The percentage of completion for each project was determined using costs
incurred to date on each project as compared to the remaining research and
development to be completed to bring each project technological feasibility. The
percentage of completion varied by individual project ranging from 25% to 80%.
If the projects discussed above are not successfully developed, the sales and
profitability of the combined company may be adversely affected in future
periods.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Mpath Interactive, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of Resounding Technology, Inc. (a development
stage company) at December 31, 1998, and the results of its operations and its
cash flows for the period from October 1, 1998 (inception) through December 31,
1998, 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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
November 5, 1999
4
<PAGE>
RESOUNDING TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMER 30,
1998 1999
(unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 96 $ 543
Other current assets 1 1
------- -------
Total current assets 97 544
Computer equipment, net 5 86
------- -------
$ 102 $ 630
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable $ 12 $ 65
Accrued liabilities 23 96
Short-term debt - 6
------- -------
Total current liabilities 35 167
Long-term liabilities:
Notes payable 75 10
------- -------
Total liabilities 110 177
Stockholders' equity:
Common stock: $ .01 par value, 10,000,000
shares authorized, 3,270,000 and 3,583,000
shares issued and outstanding respectively - 3
Preferred stock: $ .01 par value, 5,000,000
shares authorized, 0 and 1,250,000 shares
issued and outstanding respectively - 13
Additional paid-in capital 73 1,382
------- -------
Notes receivable from shareholders (6) -
Deficit accumulated during the development stage (75) (945)
------- -------
Total stockholders' equity (deficit) (8) 453
------- -------
$ 102 $ 630
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
RESOUNDING TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 1,
1998) NINE MONTHS
THROUGH ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(unaudited)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues ......................... $ - $ -
Cost of net revenues ................. - -
------ ------
Gross profit ......................... - -
------ ------
Operating expenses:
Research and development ......... 45 600
Sales and marketing .............. 7 56
General and administrative ....... 23 214
------ ------
Total operating expenses ..... 75 870
------ ------
Loss before provision for income taxes (75) (870)
------ ------
Provision for income taxes ........... - -
Net loss .................. $ (75) $ (870)
------ ------
------ ------
Net loss per common share:
Basic & diluted .................. $(1.72) $(1.82)
------ ------
------ ------
Weighted average shares outstanding:
Basic & diluted .................. 43 477
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
RESOUNDING TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 1,
1998)
THROUGH
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (75) $ (870)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization - 6
Non-cash capital contribution 12
Changes in assets and liabilities:
Other assets (1) -
Accounts payable 12 53
Accrued expenses 23 73
------------ ------------
Net cash used in operating activities (29) (738)
Cash flows used in investing activities:
Acquisition of property and equipment (5) (87)
------------ ------------
Net cash used in investing activities (5) (87)
Cash flows from financing activities:
Proceeds from capital lease transactions - 18
Payments under capital lease obligations - (2)
Proceeds from notes payable 75 -
Repayment of stockholders' notes - 6
Proceeds from issuance of Series A preferred stock - 1,250
Proceeds from issuance of common stock 55
------------ ------------
Net cash provided by financing activities 130 1,272
------------ ------------
Net increase in cash and cash equivalents 96 447
Cash and cash equivalents, beginning of period - 96
------------ ------------
Cash and cash equivalents, end of period $ 96 $ 543
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
RESOUNDING TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED COMMON STOCK
---------- STOCK ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Capital contribution by founders -
Issuance of common stock for notes 3,270 -
Non cash capital contribution -
Net loss - -
------- ----- ------- -------
Balance at December 31, 1998 3,270 -
Issuance of Series A convertible preferred (unaudited) 1,250 $ 13
Conversion of notes for common stock (unaudited) 313 3
Repayment of stockholders notes (unaudited)
Net loss (unaudited)
------- ----- ------- -------
Balance at September 30, 1999 (unaudited) 1,250 $ 13 3,583 $ 3
------- ----- ------- -------
------- ----- ------- -------
<CAPTION>
DEFICIT
NOTES ACCUMULATED TOTAL
ADDITIONAL RECEIVABLE DURING THE STOCKHOLDERS'
PAID-IN FROM DEVELOPMENT EQUITY
CAPITAL STOCKHOLDERS STAGE (DEFICIT)
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Capital contribution by founders $ 55 - - $ 55
Issuance of common stock for notes 6 $ (6) - -
Non cash capital contribution 12 - - 12
Net loss - - $ (75) (75)
------- ----- ------- -------
Balance at December 31, 1998 $ 73 $ (6) $ (75) $ (8)
Issuance of Series A convertible preferred 1,237 1,250
Conversion of notes for common stock (unaudited) 72 75
Repayment of stockholders notes (unaudited) 6 6
Net loss (unaudited) $ (870) (870)
------- ----- ------- -------
Balance at September 30, 1999 (unaudited) $ 1,382 - $ (945) $ 453
------- ----- ------- -------
------- ----- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
RESOUNDING TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. FORMATION AND BUSINESS OF THE COMPANY:
Resounding Technology, Inc. (the Company), was incorporated in Delaware and
commenced operations on October 1, 1998 ("inception"). Resounding designs and
develops voice-enabled applications for the Internet.
Since its inception, the Company has been primarily involved in research and
development and financing activities. In addition, the Company has not completed
the development of its anticipated product; accordingly, it has been considered
to be in the development stage since its inception.
In September 1999, the Company announced plans to be acquired by Mpath
Interactive, Inc. ("Mpath") in a purchase transaction, which was consummated in
October 1999. All of the shares of outstanding stock of the Company were
exchanged for shares of Mpath common stock at a determined exchange ratio. All
outstanding options to purchase common stock of the Company were converted to
options to purchase Mpath common stock at a determined ratio.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with original maturities of
three months or less, to be cash equivalents. Cash and cash equivalents are
stated at cost, which approximates market.
CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of cash. The Company deposits its cash and cash
equivalents with one major bank. The Company has not experienced any losses on
its deposits of cash and cash equivalents. Management believes that these banks
are financially sound and, accordingly, minimal credit risk exists.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets, generally three years.
INCOME TAXES:
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
RESEARCH AND DEVELOPMENT COSTS:
Research and development expenditures are charged to operations as incurred.
CERTAIN RISKS AND UNCERTAINTIES:
The Company is subject to all of the risks inherent in an development stage
company in the technology industry. The risks include but are not limited to
limited operating history, limited management resources, dependence on the
Internet and related security risks and the changing nature of the Internet
industry.
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, 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.
9
<PAGE>
RESOUNDING TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
COMPREHENSIVE INCOME:
The Company has adopted the accounting treatment prescribed by Statements of
Financial Accounting Standards No. 130, "Comprehensive Income." The adoption of
this statement had no impact on the Company's financial statements for the
periods presented.
3. NOTES PAYABLE:
In November 1998, four individuals granted the Company notes payable totaling
$75,000. These notes bear interest at 6% per annum and mature in 2001. These
notes payable were converted to 313,000 shares of common stock in March and July
of 1999.
4. STOCKHOLDERS' EQUITY
The Company has authorized a total of 10,000,000 shares of common stock and
5,000,000 shares of preferred stock.
In November 1998, the Company issued a total of 3,269,965 shares of common stock
to its founders and key individuals at a price of $.0019 per share of this
amount, 2,993,503 shares were subject to repurchase by the Company.
5. TAXES
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets are as follows (in thousands):
Net operating loss carryforwards $ 30
Research and development tax credits 3
----
33
Valuation allowance (33)
----
Net deferred tax assets $ -
----
----
Due to uncertainty surrounding the realization of the favorable tax attributes
in future tax returns, the Company has placed a valuation allowance against its
deferred tax assets. At such time as it is determined that it is more likely
than not that the deferred tax assets are realizable, the valuation allowance
will be reduced.
At December 31, 1998, the Company has net operating loss carryforwards and
research and development tax credits of approximately $75,000 and $3,000,
respectively, available to reduce future taxable income, which expire through
2018. Pursuant to Section 382 of the Internal Revenue Code, utilization of the
net operating loss carryforwards may be subject to annual limitations due to
certain changes ownership.
6. SUBSEQUENT EVENTS
In June through August 1999, the Company sold 1,250,000 shares of Series A
convertible preferred stock for $1.00 per share.
10
<PAGE>
(b) Pro forma financial statements
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements are presented
for illustrative purposes only and are not necessarily indicative of the
combined financial position or results of operations of future periods or the
results that actually would have been realized had Mpath Interactive, Inc.
("Mpath" or the "Company") and Resounding Technologies, Inc. ("Resounding") been
a combined company during the specified periods. The pro forma combined
financial statements, including the notes thereto, are qualified in their
entirety by reference to, and should be read in conjunction with, the historical
consolidated financial statements, including the notes thereto of Mpath,
incorporated herein by reference, and Resounding, included in this filing.
The following pro forma combined financial statements give effect to the merger
of Mpath and Resounding using the purchase method of accounting. The pro forma
combined financial statements are based on the respective historical audited and
unaudited consolidated financial statements and the notes thereto of Mpath,
which are incorporated herein by reference, and Resounding, which are included
in this filing. The pro forma adjustments are based on management's estimates of
the value of the tangible and intangible assets acquired. A valuation of the
intangible assets acquired has been conducted by an independent third-party
appraisal company.
Based on timing of the closing of the transaction, the finalization of the
integration plans and other factors, the actual adjustments may differ
materially from those presented in these pro forma financial statements. A
change in the pro forma adjustments would result in a reallocation of the
purchase price affecting the value assigned to long-term tangible and intangible
assets. The statement of operations effect of these changes will depend on the
nature and amount of the assets or liabilities adjusted (see note 2 to the pro
forma financial statements).
The pro forma combined balance sheet assumes that the Merger took place
September 30, 1999 and combines Mpath's unaudited September 30, 1999
consolidated balance sheet and Resounding's unaudited September 30, 1999 balance
sheet. The pro forma combined statements of operations assume the Merger took
place as of October 1, 1998 and combines Mpath's consolidated statement of
operations for the year ended December 31, 1998 and Resounding's statement of
operations for the period from inception (October 1, 1998) through December 31,
1998 as well as combining Mpath's unaudited consolidated statement of operations
for the nine month period ended September 30, 1999 and Resounding's unaudited
statement of operations for the nine month period ended September 30, 1999.
11
<PAGE>
MPATH INTERACTIVE, INC.
PROFORMA COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MPATH RESOUNDING PRO FORMA PRO FORMA
SEPTEMBER 30, SEPTEMBER 30, ADJUSTMENTS COMBINED
1999 1999
------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 45,790 $ 543 - $ 46,333
Short-term investments 30,436 - - 30,436
Accounts receivable, net 3,220 - - 3,220
Intangibles - - - -
Other current assets 1,861 1 - 1,862
--------- -------- ----------- ---------
Total current assets 81,307 544 - 81,851
Property and equipment, net 3,357 86 - 3,443
Other assets 427 - 23,452(c) 23,879
--------- -------- ----------- ---------
$ 85,091 $ 630 $23,452 $ 109,173
--------- -------- ----------- ---------
--------- -------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 514 $ 65 $ 455(d) $ 1,034
Accrued liabilities 4,173 96 - 4,269
Deferred revenue 304 - - 304
Short-term debt - 6 - 6
Current portion of long-term liabilities 585 - - 585
--------- -------- ----------- ---------
Total current liabilities 5,576 167 455 6,198
Long-term liabilities 180 10 1,840(e) 2,030
--------- -------- ----------- ---------
5,756 177 1,840 8,228
Redeemable Common Stock - - 2,000(f) 2,000
Stockholders' equity:
Common stock and APIC 160,588 1,398 19,062(a,f) 181,048
Warrants 2 - - 2
Notes receivable from stockholders (2,328) - - (2,328)
Deferred compensation (9,986) - - (9,986)
Accumulated deficit (68,941) (945) 95(b) (69,791)
--------- -------- ----------- ---------
Total stockholders' equity 79,335 453 19,157 98,945
--------- -------- ----------- ---------
$ 85,091 $ 630 $ 23,452 $ 109,173
--------- -------- ----------- ---------
--------- -------- ----------- ---------
</TABLE>
12
<PAGE>
MPATH INTERACTIVE, INC.
PROFORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MPATH RESOUNDING
NINE MONTHS NINE MONTHS
ENDED ENDED PRO FORMA PRO FORMA
SEPTEMBER 30, SEPTEMBER 30, ADJUSTMENTS COMBINED
1999 1999
------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Net revenues ................................ $ 9,492 $ - $ - $ 9,492
Cost of net revenues ........................ 4,120 - - 4,120
-------- -------- ------- --------
Gross profit ................. 5,372 - - 5,372
Operating expenses:
Research and development ............... 5,167 600 - 5,767
Sales and marketing ................. 9,941 56 - 9,997
General and administrative .......... 4,605 214 - 4,819
Stock based compensation ............ 2,857 - - 2,857
Goodwill and intangibles amortization - - 8,794(c) 8,794
-------- -------- ------- --------
Total operating expenses ..... 22,570 870 8,794 32,234
-------- -------- ------- --------
Loss from operations ......... (17,198) (870) (8,794) (26,862)
Interest and other income (expense), net..... 1,563 - - 1,563
-------- -------- ------- --------
Loss before provision for income taxes ...... (15,635) (870) (8,794) (25,299)
Provision for income taxes .................. - - - -
-------- -------- ------- --------
Net loss ................ $(15,635) $ (870) $(8,794) $(25,299)
-------- -------- ------- --------
-------- -------- ------- --------
Net loss per common share:
Basic & diluted ........................ $ (1.20) $ (1.82) $ (1.18)
-------- -------- --------
-------- -------- --------
Weighted average shares outstanding:
Basic & diluted ........................ 13,268 477 14,335
-------- -------- --------
-------- -------- --------
</TABLE>
13
<PAGE>
MPATH INTERACTIVE, INC.
PROFORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RESOUNDING
FROM
INCEPTION
MPATH (OCTOBER 1,
YEAR ENDED 1998) THROUGH PRO FORMA PRO FORMA
DECEMBER 31, DECEMBER 31, ADJUSTMENTS COMBINED
1998 1998
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
Net revenues ................................ $ 8,027 $ - $ - $ 8,027
Cost of net revenues: ....................... 3,011 - - 3,011
-------- ------ ------- --------
Gross profit ................. 5,016 - - 5,016
Operating expenses:
Research and development ............... 3,132 45 - 3,177
Sales and marketing ................. 7,847 7 - 7,854
General and administrative .......... 3,274 23 - 3,297
Stock based compensation ............ 2,601 - - 2,601
Goodwill and intangibles amortization - - 1,954(c) 1,954
-------- ------ ------- --------
Total operating expenses ..... 16,854 75 1,954 18,883
-------- ------ ------- --------
Loss from operations ......... (11,838) (75) (1,954) (13,867)
Interest and other income (expense), net .... (111) - - (111)
-------- ------ ------- --------
Loss before provision for income taxes ...... (11,949) (75) (1,954) (13,978)
Provision for income taxes .................. (2) - - (2)
-------- ------ ------- --------
Net loss ................ $(11,951) $ (75) $(1,954) $(13,980)
-------- ------ ------- --------
Net loss per common share:
Basic & diluted ........................ $ (5.39) $(1.72) $ (6.27)
-------- ------ --------
-------- ------ --------
Weighted average shares outstanding:
Basic & diluted ........................ 2,217 43 2,231
-------- ------ --------
-------- ------ --------
</TABLE>
14
<PAGE>
Notes to Pro Forma Financial Statements
Note 1: Basis of Presentation
The pro forma combined balance sheet assumes that the Merger took place
September 30, 1999 and combines Mpath's unaudited September 30, 1999
consolidated balance sheet and Resounding's September 30, 1999 unaudited balance
sheet.
The pro forma combined statements of operations assume the Merger took place as
of October 1, 1998 and combines Mpath's unaudited consolidated statements of
operations for the nine-month period ended September 30, 1999 and the year ended
December 31, 1998 and Resounding's unaudited statement of operations for the
nine-month period ended September 30, 1999 and the period from inception
(October 1, 1998) through December 31, 1998.
On a combined basis, there were no transactions between Mpath and Resounding
during the period presented. There are no material differences between the
accounting policies of Mpath and Resounding.
The pro forma combined provision for income taxes may not represent the amounts
that would have resulted had Mpath and Resounding filed consolidated income tax
returns during the periods presented.
Note 2. Pro Forma Adjustments
The pro forma adjustments are preliminary and based on Mpath management's
estimates and a third-party valuation of the value of the tangible and
intangible assets acquired.
The purchase price of approximately $22,915,000 includes $22,031,000 of stock,
issued at fair value (fair value being determined as the average price of the
Mpath stock for a period of three days before and after the announcement of the
merger), less a discount of $1,479,000 due to the restricted nature of the
stock, $1,908,000 in Resounding stock option costs (being determined under the
Black-Scholes option pricing model), $175,000 in cash and $280,000 in estimated
expenses of the transaction. The purchase price was allocated on a pro forma
basis as follows: $453,000 to the estimated fair value of Resounding's net
tangible assets purchased, $2,600,000 to purchased existing technology,
$(1,840,000) to establish deferred tax liabilities associated with certain
intangibles acquired, $850,000 to purchased in-process research and development,
$700,000 to workforce-in-place, $1,300,000 to non-compete agreements and
$18,852,000 to goodwill.
The intangible assets and goodwill acquired have estimated useful lives and
estimated amortization for the remainder of the year ending December 31, 1999,
as follows:
<TABLE>
<CAPTION>
Estimated
Estimated Useful 1999
Amount Life Amortization
===------ ---------- ------------
<S> <C> <C> <C>
Purchased existing technology $ 2,600,000 2 years $ 152,000
Workforce-in-place .......... 700,000 2 years 41,000
Executive covenants ......... 1,300,000 2 years 76,000
Goodwill .................... 19,045,000 2 years 1,907,000
</TABLE>
The value assigned to purchased in-process research and development ("IPR&D")
was determined by identifying research projects in areas for which technological
feasibility had not been established. These include projects for the development
of a next generation version of RTI's Roger Wilco product, a software
developers' kit as well as other specialized technologies totaling $850,000. The
value was determined by estimating the expected cash flows from the projects
once commercially viable, applying a percentage of completion to the calculated
value as defined below and then discounting the net cash flows back to their
present value.
If the projects discussed above are not successfully developed, the sales and
profitability of the combined company may be adversely affected in future
periods.
15
<PAGE>
Based on the timing of the closing of the transaction, the finalization of the
integration plans and other factors, the pro forma adjustments may differ
materially from those presented in these pro forma combined financial
statements. A change in the pro forma adjustments would result in a reallocation
of the purchase price affecting the value assigned to long-term tangible and
intangible assets. The statement of operations effect of these changes will
depend on the nature and amount of the assets or liabilities adjusted.
(a) Adjustments to record the components of the purchase price - $22,031,000
of stock, issued at fair value, less a discount of $1,479,000 due to the
restricted nature of the stock and $1,908,000 in Resounding stock option
costs. The Mpath common stock will be issued in exchange for outstanding
shares of Resounding common stock and options to purchase Mpath common
stock will be issued in exchange for outstanding options to purchase
Resounding common stock.
Adjustment also reflects the elimination of Resounding's stockholders'
equity.
(b) Adjustment includes $850,000 for purchased in-process research and
development ("IPR&D"). As discussed in Note 2, the value of this IPR&D was
based upon a valuation prepared by an independent, third-party appraisal
company. This amount will be expensed as a non-deductible charge upon the
consummation of the merger. This amount has been reflected as an increase
to accumulated deficit and has not been included in the pro forma combined
statements of operations due to its non-recurring nature. Adjustment also
reflects the elimination of Resounding's stockholders' equity.
(c) Adjustments include the recording of intangible assets of $23,452,000
which are comprised of purchased existing technology of $2,600,000,
$700,000 of workforce-in-place, $1,300,000 of non-compete agreements and
$18,852,000 of goodwill.
The estimated annual amortization charge to income related to intangible
assets acquired approximates $11,726,000. This charge is reflected in the
pro forma combined statement of operations and is based upon a two year
estimated useful life for all of the intangible assets.
(d) Adjustment to reflect estimated Merger-related expenses. The impact of the
fees and expenses has been reflected in the pro forma combined balance
sheet as an increase in the purchase price of the transaction and is
allocated to the assets acquired and liabilities assumed, based upon their
estimated fair value.
(e) Adjustment reflects the recording of deferred tax liabilities associated
with non-goodwill intangible assets recorded as part of this transaction.
These liabilities were recorded using statutory rates of 40%.
(f) Adjustment reflects the recording of Mpath Common Stock Put Rights granted
to Resounding's employees to enable them to sell their pro-rata portion of
200,000 shares of Mpath common stock to Mpath at a price of $10.00 per
share. Such Put Rights expire in October 2001.
Note 3. Pro Forma Earnings Per Common Share
Basic pro forma earnings per common share was calculated based on the conversion
of 4.8 million and 276,000 shares of Resounding common and preferred stock
outstanding at September 30, 1999 and December 31, 1998, respectively, into 1.6
million and 91,500 shares of shares of Mpath common stock, respectively. The
earnings per shares calculations also take into account the stock repurchase
provisions of the merger agreement whereby one third of the RTI founders' shares
vest at the time of the merger, with another third vesting on the one year
anniversary of the merger and the remaining third upon the second anniversary of
the completion of the merger, and the assumption that the merger was consummated
at the beginning of the period presented. Diluted earnings per common share did
not include equivalent Mpath common shares as their effect was antidilutive
during all periods presented.
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(c) Exhibits
Exhibit 23.1 Consent of Independent Accountants
Reports on Form 8-K
On October 21, 1999, the Registrant filed a report on Form 8-K relating to the
acquisition by the Registrant of Resounding Technology, Inc., which acquisition
was consummated on October 20, 1999, and on November 16, 1999 the Registrant
filed on Form 8-K/A an amendment to such report for the purpose of amending its
Report on form 8-K filed with the Securities and Exchange Commission on October
21, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Mpath Interactive, Inc.
(Registrant)
Date: December 22, 1999 By: /s / Linda Palmor
- ----------------------- -------------------------------------
Linda Palmor, Chief Financial Officer
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-78503 and 333-89605) of Mpath Interactive, Inc.
of our report dated November 5, 1999 relating to the financial statements of
Resounding Technologies, Inc., which appears in this Current Report on Form
8-K/A.
PricewaterhouseCoopers LLP
San Jose, California
December 20, 1999
