<PAGE>
U.S. 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 (Date of earliest event reported): February 8, 2000
Commission File 000-25687
Phone.com, Inc.
(A Delaware Corporation)
I.R.S. Employer Identification No. 94-3219054
800 CHESAPEAKE DRIVE, REDWOOD CITY, CA 94063
(650) 562-0200
<PAGE>
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
On February 24, 2000, Phone.com, Inc. ("Phone.com") filed a Form 8-K to report
its acquisition of AtMotion, Inc.,("AtMotion"). Pursuant to Item 7 of Form 8-K,
Phone.com indicated that it would file certain financial information no later
than the date required by Item 7 of Form 8-K. This Amendment No. 1 is filed to
provide the required financial information.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
ATMOTION, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
December 31, 1999
Unaudited Condensed Balance Sheet as of December 31, 1999
Unaudited Condensed Statements of Operations for the six
months ended December 31, 1999 and 1998
Unaudited Condensed Statements of Cash Flows for the six
months ended December 31, 1999 and 1998
Notes to Unaudited Condensed Financial Statements
<PAGE>
ATMOTION INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED BALANCE SHEET
As of December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,353
Other current assets 133
--------
Total current assets 1,486
Property and equipment, net 3,305
Other long-term assets 146
--------
Total assets $ 4,937
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of equipment loans and
capital lease obligations $ 537
Accounts payable and accrued liabilities 1,320
--------
Total current liabilities 1,857
Equipment loans and capital lease obligations, less
current 1,784
--------
Total liabilities 3,641
--------
Shareholders' equity:
Redeemable convertible preferred stock 13,486
Common stock 770
Notes receivable from shareholders (689)
Accumulated deficit (12,271)
--------
Total shareholders' equity 1,296
--------
Total liabilities and shareholders' equity $ 4,937
========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
<PAGE>
ATMOTION, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the Six Months Ended December 31, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Net revenues $ - $ -
--------- --------
Operating expenses:
Research and development 2,897 2,035
General and administrative 1,250 640
--------- --------
Total operating expenses 4,147 2,675
--------- --------
Loss from operations (4,147) (2,675)
Other expenses, net (42) (39)
--------- --------
Net loss (4,189) (2,714)
--------- --------
Preferred stock accretion (501) -
--------- --------
Net loss attributable to common
shareholders $ (4,690) $ (2,714)
========= ========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
<PAGE>
ATMOTION, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended December 31, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,690) $(2,714)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 542 124
Preferred stock accretion 501 -
Changes in operating assets and liabilities:
Other assets (88) (181)
Accounts payable and accrued liabilities 319 528
------- -------
Net cash used in operating activities (3,416) (2,243)
------- -------
Cash flows from investing activities:
Capital expenditures (1,929) (733)
Proceeds from sale of short-term investments 1,025 -
------- -------
Net cash used in investing activities (904) (733)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of convertible
redeemable preferred stock 116 1,023
Net proceeds from issuance of common stock 41 24
Proceeds from borrowings, net of payments 801 1,206
------- -------
Net cash provided by financing activities 958 2,253
------- -------
Decrease in cash and cash equivalents (3,362) (723)
Cash and cash equivalents, beginning of period 4,715 885
------- -------
Cash and cash equivalents, end of period $ 1,353 $ 162
======= =======
</TABLE>
See accompanying notes to unaudited condensed financial statements.
<PAGE>
ATMOTION, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION
The unaudited condensed financial statements included herein have been
prepared by the Company in accordance with generally accepted accounting
principles and reflect all adjustments, consisting only of normal recurring
adjustments which in the opinion of management are necessary to fairly state the
Company's financial position, results of operations, and cash flows for the
periods presented. Through December 31, 1999, the Company was active in product
development, the acquisition of equipment and facilities, raising capital, and
had no revenues. Accordingly, the Company was in the development stage, and the
financial statements have been prepared on a going-concern basis. The results of
operations for the six months ended December 31, 1999 are not necessarily
indicative of the results to be expected for any subsequent quarter or for the
entire fiscal year ended June 30, 2000.
2 SUBSEQUENT EVENT
On December 21, 1999, the Company signed a definitive agreement to be
acquired by Phone.com, Inc. In connection with the acquisition, which was
completed on February 8, 2000, Phone.com issued 2,280,287 shares of its common
stock in exchange for all of the outstanding common stock and preferred stock of
AtMotion, and assumed options and warrants of AtMotion for total consideration
valued at approximately $285.2 million.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
For the year ended June 30, 1999 and
the periods from November 10, 1997
(date of incorporation) to June 30, 1998 and 1999
Report of Independent Auditors
Audited Financial Statements
Balance Sheets
Statements of Operations
Statements of Shareholders' Equity
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
AtMotion Inc.
We have audited the accompanying balance sheets of AtMotion Inc. (a development
stage company, formerly known as Arabesque Communications, Inc.) as of June 30,
1999 and 1998, and the related statements of operations, shareholders' equity,
and cash flows for the year ended June 30, 1999 and for the periods from
November 10, 1997 (date of incorporation) to June 30, 1998 and 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AtMotion Inc. at June 30, 1999
and 1998, and the results of its operations and its cash flows for the year
ended June 30, 1999 and for the periods from November 10, 1997 (date of
incorporation) to June 30, 1998 and 1999, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
San Jose, California
August 6, 1999
<PAGE>
AtMotion Inc.
(a development stage company
formerly known as Arabesque Communications, Inc.)
Balance Sheets
<TABLE>
<CAPTION>
June 30,
1999 1998
--------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,714,868 $ 885,366
Short-term investments 1,025,693 -
Prepaid expenses and other current assets 80,001 6,345
--------------------------------------------
Total current assets 5,820,562 891,711
Property and equipment:
Computers 2,180,987 338,877
Software 48,903 26,961
Furniture and equipment 100,098 3,672
--------------------------------------------
2,329,988 369,510
Accumulated depreciation 448,521 26,560
--------------------------------------------
1,881,467 342,950
Other assets 111,463 -
--------------------------------------------
Total assets $ 7,813,492 $ 1,234,661
============================================
</TABLE>
<TABLE>
<CAPTION>
June 30,
1999 1998
--------------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 414,611 $ 246,693
Accrued payroll and related expenses 347,313 1,466
Payable to related parties 240,458 25,910
Current portion of line of credit 660,825 -
Current portion of capital lease obligations 192,608 -
--------------------------------------------
Total current liabilities 1,855,815 274,069
Long-term liabilities:
Line of credit, less current portion 43,342 -
Long-term capital lease obligations 587,183 -
--------------------------------------------
Total long-term liabilities 630,525 -
Commitments
Shareholders' equity:
Redeemable convertible preferred stock,
no par value:
Authorized shares - 8,829,365
Issued and outstanding shares - 6,877,690
in 1999 and 1,912,500 in 1998, net of
issuance costs 12,868,747 1,871,879
Aggregate liquidation preference -
$12,530,606 and $1,912,500 at
June 30, 1999 and 1998
Common stock, no par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 3,204,400
in 1999 and 2,895,000 in 1998 99,816 36,600
Notes receivable from shareholders (59,970) (30,900)
Deficit accumulated during the development
stage (7,581,441) (916,987)
--------------------------------------------
Total shareholders' equity 5,327,152 960,592
--------------------------------------------
Total liabilities and shareholders' equity $ 7,813,492 $ 1,234,661
============================================
</TABLE>
See accompanying notes.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
NOVEMBER 10, NOVEMBER 10,
1997 1997
(DATE OF (DATE OF
INCORPORATION) INCORPORATION)
YEAR ENDED TO TO
JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999
--------------------------------------------------
<S> <C> <C> <C>
Net revenues $ - $ - $ -
Operating expenses:
Research and development 4,670,879 591,745 5,262,624
General and administrative 1,488,927 320,142 1,809,069
--------------------------------------------------
Total operating expenses 6,159,806 911,887 7,071,693
--------------------------------------------------
Loss from operations (6,159,806) (911,887) (7,071,693)
Interest and other expense (196,965) (7,548) (204,513)
Interest and other income 55,725 2,448 58,173
--------------------------------------------------
Net loss (6,301,046) (916,987) (7,218,033)
Accretion of preferred stock (363,408) - (363,408)
--------------------------------------------------
Net loss applicable to common shareholders $ (6,664,454) $ (916,987) $ (7,581,441)
==================================================
</TABLE>
See accompanying notes.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Statements of Shareholders' Equity
Period from November 10, 1997 (date of incorporation) to June 30, 1999
<TABLE>
<CAPTION>
Deficit
Convertible Notes Accumulated
Preferred Stock Common Stock Receivable During the
-------------------------------------------------------------- From Development
Shares Amount Shares Amount Shareholders Stage Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock to founders
in February and
April 1998 - $ - 2,810,000 $ 28,100 $ (23,400) $ - $ 4,700
Issuance of common
stock upon exercise
of options from
January to May 1998 - - 85,000 8,500 (7,500) - 1,000
Issuance of Series A
convertible preferred
stock at $1.00 per
share for cash and
conversion of notes
payable and accrued
interest, net of
issuance costs in
April 1998 1,912,500 1,871,879 - - - - 1,871,879
Net loss - - - - - (916,987) (916,987)
-----------------------------------------------------------------------------------------------------------
Balance at June 30,
1998 1,912,500 1,871,879 2,895,000 36,600 (30,900) (916,987) 960,592
Issuance of common
stock upon exercise
of options from
August 1998 to May
1999 - - 301,000 59,245 (52,470) _ 6,775
Sale of common stock
in February 1999 - - 8,400 1,428 - - 1,428
Issuance of warrants
for common stock - - - 2,543 - - 2,543
Collection of notes
receivable from
shareholders - - - - 23,400 - 23,400
Issuance of Series A
convertible preferred
stock at $1.00 per
share, net of issuance
costs in September
1998 500,000 493,905 - - - - 493,905
Issuance of Series A1
convertible preferred
stock at $1.40 per
share, net of issuance
costs in October 1998 357,143 495,428 - - - - 495,428
Issuance of warrants
for Series A
convertible preferred
stock - 33,750 - - - - 33,750
Issuance of Series B
convertible preferred
stock at $2.25 per
share for cash
and conversion of
notes payable and
accrued interest, net
of issuance costs in
April 1999 3,358,047 7,505,491 - - _ - 7,505,491
Issuance of warrants
for Series B
convertible preferred
stock - 50,625 - - - - 50,625
Issuance of Series B1
convertible preferred
stock at $2.75 per
share for cash and
conversion of notes
payable and accrued
interest, net of
issuance costs in
April 1999 750,000 2,054,261 - - - - 2,054,261
Accretion of
preferred stock - 363,408 - - - (363,408) -
Net loss - - - - - (6,301,046) (6,301,046)
-----------------------------------------------------------------------------------------------------------
Balance at June 30,
1999 6,877,690 $12,868,747 3,204,400 $ 99,816 $ (59,970) $(7,581,441) $ 5,327,152
===========================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly Arabesque Communications, Inc.)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period From Period From
November 10, November 10,
1997 1997
(Date of (Date of
Year Ended Incorporation) Incorporation)
June 30, to June 30, to June 30,
1999 1998 1999
---------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net loss $(6,301,046) $ (916,987) $(7,218,033)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 421,961 26,560 448,521
Warrants 64,540 - 64,540
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (73,656) (6,345) (80,001)
Accounts payable 359,676 272,603 632,279
Accrued payroll and related expenses 368,637 1,466 370,103
Other assets (111,463) - (111,463)
---------------------------------------------------
Net cash used in operating activities (5,271,351) (622,703) (5,894,054)
Investing activities
Purchases of property and equipment (1,022,687) (369,510) (1,392,197)
Purchases of available-for-sale securities (1,025,693) - (1,025,693)
---------------------------------------------------
Net cash used in investing activities (2,048,380) (369,510) (2,417,890)
Financing activities
Proceeds from issuance of preferred stock,
net of issuance costs 9,942,247 1,471,879 11,414,126
Proceeds from notes payable 606,838 400,000 1,006,838
Proceeds from issuance of common stock 8,203 5,700 13,903
Officer note receivable - (35,000) (35,000)
Payment of officer note receivable 23,400 35,000 58,400
Payments on capital leases (135,999) - (135,999)
Proceeds from loan payable 750,000 - 750,000
Repayment of loan payable (45,456) - (45,456)
---------------------------------------------------
Net cash provided by financing activities 11,149,233 1,877,579 13,026,812
---------------------------------------------------
Net increase in cash and cash equivalents 3,829,502 885,366 4,714,868
Cash and cash equivalents at beginning of year 885,366 - -
---------------------------------------------------
Cash and cash equivalents at end of year $ 4,714,868 $ 885,366 $ 4,714,868
===================================================
Supplemental disclosures of cash flow information
Cash paid for interest $ 113,253 $ 7,464 $ -
Supplemental schedules of noncash investing
and financing activities
Notes payable and accrued interest converted to preferred stock $ 606,838 $ 400,000 $ 1,006,838
Issuance of common stock to shareholders for notes receivable $ 52,470 $ 30,900 $ 83,370
Fixed assets acquired under capital leases $ 937,791 $ - $ 937,791
</TABLE>
See accompanying notes.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements
June 30, 1999
1. Organization and Significant Accounting Policies
Description of Business
AtMotion, Inc. (the Company), a California corporation, formerly known as
Arabesque Communications, Inc., was incorporated on November 10, 1997 for the
purpose of designing, developing, producing, and marketing an enhanced wireless
telecommunications services platform. This platform will provide a suite of
applications, including wireless access to the Internet, that enhances
productivity for the user. Through June 30, 1999, the Company was active in
product development, the acquisition of equipment and facilities, raising
capital, and had no revenues. Accordingly, the Company was in the development
stage.
Basis of Presentation
The Company's primary activities since inception have been devoted to developing
its product offerings and related technologies, recruiting of key management and
technical personnel, and raising capital to fund operations. The Company has
been unprofitable since inception. As a result, the financial statements are
presented in accordance with Statement of Financial Accounting Standards No. 7,
"Accounting and Reporting by Development Stage Enterprises."
For the year ended June 30, 1999, the Company incurred a net loss of $6,301,046.
The financial statements have been prepared on a going-concern basis. The
Company will require additional financing during fiscal 2000. The Company
anticipates raising capital through the sales of preferred stock and believes
that sufficient outside financing sources will be available to meet its
requirements. If sufficient outside financing is not available, the Company
believes it can reduce expenses within the limits of current financial resources
and still make progress toward accomplishing its business objectives, although
at a slower pace.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
Financial Instruments
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents are
invested in money market funds with major financial institutions.
The Company has classified all investments as available-for-sale. Available-for-
sale securities are carried at fair market value based on quoted market prices
with unrealized gains and losses, net of tax, reported in shareholders' equity.
Realized gains and losses and declines in value judged to be other than
temporary on available-for-sale securities are included in interest income. The
Company invests its excess cash in high-quality, short-term debt instruments.
None of the Company's debt security instruments have maturities greater than one
year. Interest and dividends on the investments are included in interest income.
As of June 30, 1999 and 1998, there were no material realized gains or losses on
investments.
The following table presents the estimated fair value of the Company's
investments by balance sheet classification:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------------------------- -----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Money market funds $ 846,274 $ 846,274 $ 703,084 $703,084
Commercial paper 1,999,608 1,999,608 - -
------------------------------- -----------------------------
Amounts included in cash
and cash equivalents 2,845,882 2,845,882 703,084 703,084
Commercial paper 1,025,693 1,025,693 - -
------------------------------- -----------------------------
Amounts included in
short-term investments 1,025,693 1,025,693 - -
------------------------------- -----------------------------
Total available-for-sale
securities $ 3,871,575 $3,871,575 $ 703,084 $703,084
=============================== =============================
</TABLE>
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
Fair Value of Other Financial Instruments
The carrying and estimated fair values of the Company's other financial
instruments at June 30, 1999 were as follows:
<TABLE>
<CAPTION>
Carrying Estimated Fair
Value Value
-------------------------------
<S> <C> <C>
Line of credit $704,167 $704,167
Capital leases $779,791 $779,791
</TABLE>
The Company had no outstanding debt at June 30, 1998. The fair value of the
Company's obligations under lines of credit and capital leases are based on
current rates offered to the Company for similar debt instruments of the same
remaining maturities.
Research and Development
Research and development expenses include costs of developing new products and
processes as well as design and engineering costs. Such costs are charged to
expense as incurred.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Property and equipment are depreciated for financial reporting purposes using
the straight-line method over the estimated useful lives of three years.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
Accounting for Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion No. 25), and related
interpretations in accounting for its employee stock options because, as
discussed in Note 4, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB Opinion No. 25,
when the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. As permitted under FAS 123, the Company has elected to
follow APB Opinion No. 25 and related interpretations in accounting for stock-
based awards to employees and to adopt the "disclosure only" alternative
described in FAS 123.
Concentration of Credit Risk
The Company maintains its investments with two financial institutions. The
Company performs periodic evaluations of the relative credit standing of the
institutions that are considered in the Company's investment strategy. To date,
the Company has not incurred losses related to these investments.
Accounting for Internal-Use Computer Software
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance
on accounting for the costs of computer software developed or obtained for
internal use and identifies the characteristics of internal-use software. The
Company's accounting policy with respect to accounting for computer software
developed or obtained for internal use is consistent with SOP 98-1. Software is
amortized for financial reporting purposes using the straight-line method over
the estimated useful life of three years.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
Financial Presentation
Certain prior year amounts on the financial statements have been reclassified to
conform to the current year presentation.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). FAS 130 establishes standards for the reporting and display of
comprehensive income and its components and was effective for fiscal 1999. The
adoption of FAS 130 had no impact on net loss or shareholders' equity.
2. Notes Payable and Line of Credit
The Company has a $750,000 line of credit that expires on December 4, 2000, of
which $0 was available on June 30, 1999. Borrowings under the line of credit
bear interest at the bank's prime rate (7.75% at June 30, 1999). The line of
credit requires the Company to place all of its assets as collateral and
restricts the payments of cash dividends on the Company's stock. As of June 30,
1999, the Company had approximately $704,000 outstanding under the line of
credit.
In connection with the line of credit, the Company issued warrants to purchase
up to 3,333 shares of Series B preferred stock at a price of $2.25 per share.
The warrants are exercisable immediately and expire ten years from the date of
grant. The fair value of the warrants was approximately $5,600 and is being
amortized as interest expense over the term of the line of credit.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
2. Notes Payable and Line of Credit (continued)
In February 1999, the Company issued $600,000 of promissory notes that bear
interest at 8.00% per annum to related parties. In connection with such notes,
the Company issued warrants to purchase up to 26,667 shares of Series B
preferred stock at a price of $2.25 per share. The warrants are exercisable
immediately and expire ten years from the date of grant. The fair value of the
warrants was approximately $45,000 and was originally recorded as capitalized
debt issuance costs. In April 1999, the Company converted the promissory notes
into Series B preferred stock (see Note 4), which resulted in expensing the
unamortized portion of the debt issuance costs.
3. Lease Obligations
The Company leases its facility under a noncancelable operating lease, expiring
in January 2003. The agreement provides for a rent escalation each year. Rent
expense under operating leases was $360,000 and $47,000 for the year ended June
30, 1999 and for the period from November 10, 1997 (date of incorporation) to
June 30, 1998, respectively.
The Company entered into two lease agreements during the year and the total
available credit available under these agreements was approximately $1,200,000
as of June 30, 1999. As of June 30, 1999, the Company had $779,791 outstanding
under its capital lease agreements. Borrowings under the lease agreements bear
interest at the weighted average interest rate of 14.9% as of June 30, 1999. For
the assets financed under these agreements, the Company has accounted for the
leases as a capital lease. Property and equipment at June 30, 1999 and 1998
include assets under capitalized leases of $937,791 and $0, respectively.
Accumulated amortization related to leased assets was $251,038 and $0 at June
30, 1999 and 1998, respectively. In connection with the lease agreements, the
Company issued warrants to purchase up to 45,000 shares of Series A preferred
stock at a price of $1.00 per share. The warrants are exercisable immediately
and expire ten years from the date of grant. The fair value of the warrants was
approximately $33,750 and is being amortized as interest expense over the term
of the lease agreements.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
3. Lease Obligations (continued)
Future minimum lease payments under capital leases and operating leases are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------------------------------
<S> <C> <C>
Years ending June 30:
2000 $ 298,929 $ 467,555
2001 329,529 483,402
2002 328,500 500,321
2003 43,074 297,727
2004 - -
Thereafter - -
-------------------------------
Total minimum lease and principal payments 1,000,032 $1,749,005
==========
Amount representing interest 220,241
------------
Present value of future lease payments 779,791
Current portion of capital lease obligations 192,608
------------
Noncurrent portion of capital lease obligations
$ 587,183
============
</TABLE>
4. Shareholders' Equity
Founders' Shares
During the year ended June 30, 1998, the Company issued 2,810,000 shares of
common stock at $0.01 per share to the founders of the Company for cash proceeds
of $4,700 and full-recourse notes receivable of $23,400. The founders' shares
are subject to adjustment for certain events, including mergers, stock
dividends, stock splits, and other events. The founders' stock rights have
provisions whereby 1,275,000 shares vested immediately upon purchase. The
remaining shares vest over a four-year period beginning on the purchase date. In
the event a founder's employment with the Company is terminated, the Company has
the right to repurchase all unvested shares from the founder at $0.01 per share.
At June 30, 1999 and 1998, approximately 950,000 and 1,405,000 shares,
respectively, were subject to repurchase by the Company at the original issuance
price.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
4. Shareholders' Equity (continued)
Convertible Preferred Stock
The following is a summary of the authorized and issued preferred stock:
<TABLE>
<CAPTION>
Shares Issued and Outstanding
-------------------------------
Shares June 30,
Series Authorized 1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A 2,500,000 2,412,500 1,912,500
A1 357,143 (1) 357,143 -
B 4,222,222 (1) 3,358,047 -
B1 1,750,000 (1) 750,000 -
------------------------------------------------------
Total preferred stock 8,829,365 6,877,690 1,912,500
======================================================
</TABLE>
(1) Shares were authorized during the current fiscal year.
All preferred shareholders have the same voting rights as common shareholders.
Each share of Series A, A-1, B, and B-1 preferred stock has a number of votes
equal to the number of shares of common stock into which it is convertible. As
long as a majority of the Series A, A-1, B, and B-1 preferred stock shares
originally issued remain outstanding, the holders of the Series A, A-1, B, and
B-1 preferred stock, voting as a separate class, shall be entitled to elect one
director to the Board of Directors.
In the event of any voluntary or involuntary liquidation of the Company, Series
A, A-1, B, and B-1 holders are entitled to liquidation preferences of $1.00,
$1.40, $2.25, and $2.75, respectively, per share plus any accrued dividends. Any
remaining assets would be distributed to the holders of common stock and
preferred stock on a pro rata basis, as if such preferred stock was converted to
common stock, until the holders of Series A, A-1, B, and B-1 preferred stock
shall have received an additional amount of $2.00, $2.80, $4.50, and $5.50 per
share, respectively. All remaining assets would be distributed on a pro rata
basis solely among the holders of common stock.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
4. Shareholders' Equity (continued)
Convertible Preferred Stock (continued)
At any time after March 24, 2004, upon written request from the holders of two-
thirds or more of the then outstanding shares of any preferred stock, all of the
shares requested of such holders' shares of preferred stock shall be redeemed.
The redemption amount shall be equal to $1.00, $1.40, $2.25, and $2.75 per share
plus any declared but unpaid dividends plus interest at the rate of $0.08,
$0.112, $0.18, and $0.22 per share, per annum for Series A, A-1, B, and B-1
preferred stock, respectively.
The holders of preferred stock are entitled to receive dividends when and if
declared by the Board of Directors. The dividends are payable in preference and
priority to any payment of any dividend on common stock of the Company. Such
dividends are not cumulative, and no right accrues to the holders of preferred
stock. No dividends have been declared to date.
Each share of preferred stock is convertible at the option of the holder and is
determined by dividing $1.00, $1.40, $2.25, and $2.75 for Series A, A-1, B, and
B-1 preferred stock, respectively, by the applicable conversion price.
Therefore, at the current conversion price, each share of any preferred stock
will convert into one share of common stock. The conversion price per share for
any preferred stock shall be adjusted for certain recapitalizations, splits, and
combinations. The preferred stock automatically converts into shares of common
stock at the conversion price in effect upon the earlier of (i) the closing of
an underwritten public offering registered under the Securities Act of 1933, as
amended, covering the offer and sale of common stock at a public offering price
of not less than $7.00 per share (adjusted for stock dividends, stock splits, or
recapitalizations) with aggregate cash proceeds to the Company of at least
$15,000,000; or (ii) the date specified by written consent or agreement of the
holders of two-thirds of the then outstanding shares of preferred stock.
The Company recorded accretion of preferred stock of $363,408 in 1999 for the
interest accrued to the holders of preferred stock.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
4. Shareholders' Equity (continued)
Common Stock
The Company is authorized to issue up to 50,000,000 shares of common stock. As
of June 30, 1999 and 1998, a total of 3,204,400 and 2,895,000 shares of common
stock, respectively, were issued and outstanding.
Common stock was reserved for issuance as follows:
June 30,
1999
---------
Convertible preferred stock outstanding 6,877,690
Stock options 1,114,000
---------
7,991,690
=========
Stock Plan
The Company's 1998 Stock Plan (the Plan) provides for the granting of incentive
stock options and nonstatutory stock options as determined by the Board of
Directors. Per the Plan, the exercise price of incentive stock options and
nonstatutory stock options granted to an employee or service providers, who
respectively at the time of grant own stock representing more than 10% of the
voting power of all classes of the stock of the Company, shall be granted at no
less than 110% of the fair market value per share of the common stock on the
date of grant. The exercise price of nonstatutory stock options granted to other
service providers shall be at no less than 85% of the fair market value per
share of the common stock on the date of grant. Except in the case of options
granted to officers, directors, and consultants, options shall become
exercisable at a rate of no less than 20% per year over five years from the date
of the option grant. All option grants shall be eligible for early exercise, but
unvested shares shall be subject to repurchase. The term of each option grant
will be no more than ten years. However, in the case of an incentive stock
option issued to an optionee who, at the time of grant, owns stock representing
more than 10% of the voting power of all classes of the stock of the Company,
the term of the option will be no more than five years.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
4. Shareholders' Equity (continued)
Stock Plan (continued)
Rights to immediately purchase stock may also be granted under the Plan with
terms, conditions, and restrictions determined by the Board of Directors. Except
for shares purchased by officers, directors, and consultants, shares acquired
through stock purchase rights vest over a period not to exceed five years with
20% vesting each year. Any unvested shares acquired are subject to repurchase by
the Company.
Information with respect to the Plan is summarized as follows:
<TABLE>
<CAPTION>
Outstanding Options
Shares ---------------------------------------
Available For Number of Weighted Average
Grant Shares Price Per Share
---------------------------------------------------------------
<S> <C> <C> <C>
Shares reserved 1,500,000 - $ -
Options granted (280,500) 280,500 $0.10
Options exercised - (85,000) $0.10
Options canceled 35,000 (35,000) $0.10
----------------------------------
Balance at June 30, 1998 1,254,500 160,500 $0.10
Shares reserved - - $ -
Options granted (1,264,700) 1,264,700 $0.21
Options exercised - (301,000) $0.20
Options canceled 110,200 (110,200) $0.11
----------------------------------
Balance at June 30, 1999 100,000 1,014,000 $0.22
==================================
</TABLE>
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
4. Shareholders' Equity (continued)
Stock Plan (continued)
The following table summarizes information about stock options outstanding and
exercisable at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------------------
Number Weighted Average
Outstanding as of Remaining Weighted Average
Range of June 30, Contractual Life Exercise Price
Exercise Prices 1999
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$0.10 337,500 9.16 $0.10
$0.17 349,500 9.65 $0.17
$0.35 327,000 9.90 $0.35
------------
Total 1,014,000 9.58 $0.22
============
</TABLE>
At June 30, 1999, 67,382 options were vested, and 319,231 shares were subject to
repurchase by the Company at the original issuance price. At June 30, 1998, no
options were vested, and 85,000 shares were subject to repurchase by the Company
at the original issuance price.
Stock-Based Compensation
Pro forma information regarding net loss is required by FAS 123, which also
requires that the information be determined as if the Company has accounted for
its employee stock options granted during the years ended June 30, 1999 and 1998
under the fair value method of FAS 123. The fair value for options was estimated
at the date of grant using the minimum value method with the following weighted
average assumptions: a risk-free interest rate of 6.4% and 5.4% for 1999 and
1998, respectively; no dividend yield or volatility factors of the expected
market price of the Company's common stock for both years; and a weighted
average expected life of the option of ten years for both years.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
4. Shareholders' Equity (continued)
Stock-Based Compensation (continued)
The option valuation models were developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions, including the expected life of the option. Because the Company's
employee stock options have characteristics significantly different from those
of traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
The difference between the reported loss and the pro forma loss for the years
ended June 30, 1999 and 1998 was not material.
The options' weighted average grant-date fair value, which is the value assigned
to the options under FAS 123, was $0.10 and $0.04 for options granted during
1999 and 1998, respectively.
The pro forma impact of options on the net loss for the year ended June 30, 1999
is not representative of the effects on net income (loss) for future years, as
future years will include the effects of options vesting as well as the impact
of multiple years of stock option grants. The full effect of FAS 123 will not be
fully reflected until 2001.
Warrants to Consultants
During the year ended June 30, 1999, the Company issued warrants to consultants
to purchase up to 27,900 shares of common stock at a price ranging from $0.10 to
$0.35 per share. The warrants are exercisable immediately, and the vesting terms
range from immediately to two years. The fair value of the warrants was
approximately $2,500 and was expensed during the year. The warrants will be
remeasured to fair value until they have vested.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
5. Related Parties
During the year ended June 30, 1999 and the period from November 10, 1997 (date
of incorporation) to June 30, 1998, the Company incurred legal fees of
approximately $87,000 and $53,000, respectively, for services rendered by Wilson
Sonsini Goodrich & Rosati, a law firm in which a current member of the Board of
Directors of the Company is a senior partner. As of June 30, 1999 and 1998, the
amount owed to Wilson Sonsini Goodrich & Rosati was approximately $23,000 and
$26,000, respectively.
During the year ended June 30, 1999, one of the Company's suppliers became an
investor in the Company. During the year, the Company purchased approximately
$500,000 from the supplier. As of June 30, 1999, the Company had an outstanding
payable balance to the supplier of approximately $218,000.
6. Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" (FAS 109),
which provides for the establishment of deferred tax assets and liabilities for
the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. As of June 30, 1999 and 1998, the Company has total
deferred tax assets of approximately $3,003,000 and $391,000, respectively,
relating primarily to federal and California net operating loss carryforwards
and research and development credits. The valuation allowance increased by
$2,612,000 and $391,000 during the years ended June 30, 1999 and 1998,
respectively. The net deferred asset has been fully offset by a valuation
allowance as it is "more likely than not" that the Company will realize the
benefit of this asset in the future. The federal and California net operating
loss carryforwards of approximately $5,766,000 expire in 2013 and 2019,
respectively. Utilization of the net operating losses may be subject to a
substantial annual limitation due to the ownership change regulations provided
by the Internal Revenue Code and similar state provisions, which may result in
the expiration of net operating losses before utilization.
<PAGE>
AtMotion Inc.
(a development stage company,
formerly known as Arabesque Communications, Inc.)
Notes to Financial Statements (continued)
7. Subsequent Event (Unaudited)
In September 1999, the Company entered into a new equipment line of credit
agreement with the same financial institution in which it has a $750,000
equipment lease (see Note 3). The new equipment line of credit increases the
Company's borrowing capacity with the financial institution from $750,000 to
$2,000,000. The total amount borrowed under the two agreements shall not exceed
$2,000,000. Borrowings under the equipment line of credit bear interest at 13%.
The equipment line of credit requires the Company to place all of the assets
financed under the line as collateral.
In connection with the equipment line of credit, the Company issued warrants to
purchase up to 17,818 shares of Series B-1 preferred stock at a price of $2.75
per share. The warrants are exercisable immediately and expire ten years from
the date of grant. The fair value of the warrants is approximately $37,000 and
will be amortized as interest expense over the term of the equipment line of
credit.
8. Year 2000 (Unaudited)
The Company has determined that its current computer systems are year 2000
compliant and would function properly with respect to dates in the year 2000 and
beyond. The Company has not noted any year 2000 issues with its products;
however, the Company has not performed significant testing with respect to its
products. The cost of year 2000 initiatives is not expected to be material to
the Company's results of operations or financial position. The Company has yet
to initiate discussions with all of its third-party relationships to ensure that
those parties have appropriate plans in place to correct all of their year 2000
issues. While the Company believes its planning efforts are adequate to address
its year 2000 concerns, there can be no assurance that the systems and products
of other companies on which the Company's operations rely will be converted on a
timely basis and will not have a material adverse effect on the Company's
results of operations.
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION
PHONE.COM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the combined financial position or results of operations for future periods
or the results of operations or financial position that actually would have been
realized had Phone.com, and the WAP business of APiON and AtMotion ("the
Companies") been a combined company during the specified periods. The unaudited
pro forma combined condensed financial statements, including the related notes,
are qualified in their entirety by reference to, and should be read in
conjunction with, the historical consolidated financial statements and related
notes thereto of Phone.com and the Companies, included elsewhere in this
submission and in Phone.com's S-1 Registration Statement filed October 28, 1999.
The following unaudited pro forma combined condensed financial statements give
effect to Phone.com's acquisitions of the Companies using the purchase method of
accounting. The pro forma combined condensed financial statements are based on
the respective historical audited and unaudited financial statements and related
notes of Phone.com and the Companies.
The pro forma adjustments are preliminary and are based upon available
information and certain assumptions that management believes are reasonable.
The pro forma financial data do not necessarily reflect the results of
operations or the financial position of the Company that would have resulted had
the acquisitions been consummated as of the date or for
<PAGE>
the period indicated, and the pro forma financial data exclude the non-recurring
effects of certain purchase adjustments related to the acquisitions that will be
reflected in financial statements prepared in accordance with generally accepted
accounting principles. The pro forma adjustments are based on management's
preliminary assumptions regarding purchase accounting adjustments that will be
determined in accordance with the purchase accounting provisions of Accounting
Principles Board Opinion No. 16, "Business Combinations" and related
pronouncements. The actual allocation of the purchase price will be adjusted in
accordance with Statement of Financial Accounting Standards No. 38, "Accounting
for Preacquisition Contingencies of Purchase Enterprises," to the extent that
actual amounts differ from management's estimates. 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 the long-term tangible and
intangible assets or, in some circumstances, resulting in a charge to the
statement of operations. The effect of these changes on the statement of
operations will depend on the nature and amounts of the assets and liabilities
adjusted. See notes to the pro forma combined condensed financial
statements.
The unaudited pro forma combined condensed balance sheet assumes that the
acquisition of AtMotion took place on December 31, 1999, and combines
Phone.com's December 31, 1999 consolidated balance sheet with AtMotion's
December 31, 1999 balance sheet. The Phone.com December 31, 1999 balance sheet
includes assets and liabilities relating to the acquisition of the WAP business
of APiON, which was completed October 26, 1999. The pro forma combined condensed
statements of operations assumes the acquisition took place on July 1, 1998, and
combines Phone.com's consolidated statement of operations for the year ended
June 30, 1999, and consolidated statement of operations for the six months ended
December 31, 1999, with the WAP business of ApiON's statement of operations for
the year ended March 31, 1999 and statement of operations for the six months
ended December 31, 1999, and AtMotion's statement of operations for the year
ended June 30, 1999 and statement of operations for the six months ended
December 31, 1999, respectively.
<PAGE>
PHONE.COM INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1999
(In thousands)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- --------------------------------
PHONE.COM ATMOTION ADJUSTMENTS COMBINED
----------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 276,976 $ 1,353 $ - $ 278,329
Short-term investments 228,543 - - 228,543
Accounts receivable 11,564 - - 11,564
Prepaid expenses and other current assets 2,703 133 - 2,836
---------- ---------- ------------ -----------
Total current assets 519,786 1,486 - 521,272
Property and equipment, net 9,672 3,305 - 12,977
Deposits and other assets 1,789 146 - 1,935
Goodwill and intangible assets, net 231,852 - 285,174 (a) 517,026
---------- ---------- ------------ -----------
$ 763,099 $ 4,937 $ 285,174 $ 1,053,210
========== ========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of equipment loan
and capital lease obligations $ 424 $ 537 $ - $ 961
Accounts payable and accrued liabilities 19,986 1,320 2,000 (a) 23,306
Deferred revenue 46,581 - - 46,581
---------- ---------- ------------ -----------
Total current liabilities 66,991 1,857 2,000 70,848
Equipment loans and capital lease obligations,
less current portion 272 1,784 - 2,056
---------- ---------- ------------ -----------
Total liabilities 67,263 3,641 2,000 72,904
---------- ---------- ------------ -----------
Stockholders' equity:
Redeemable convertible preferred stock - 13,486 (13,486) (a) -
Common stock 68 770 2 (a)
(770) (a) 70
Additional paid-in capital 772,522 - 285,157 (a) 1,057,679
Deferred stock-based compensation (9,183) - - (9,183)
Treasury stock (196) - - (196)
Notes receivable from stockholders (484) (689) - (1,173)
Accumulated deficit (66,891) (12,271) 12,271 (a) (66,891)
---------- ---------- ------------ -----------
Total stockholders' equity 695,836 1,296 283,174 980,306
---------- ---------- ------------ -----------
$ 763,099 $ 4,937 $ 285,174 $ 1,053,210
========== ========== ============ ===========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
<PAGE>
PHONE.COM INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------------- ------------------------------
PHONE.COM APION ATMOTION ADJUSTMENTS COMBINED
----------- --------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
License $ 5,229 $ - $ - $ - $ 5,229
Maintenance and support services 5,921 - - - 5,921
Consulting services 2,292 - - - 2,292
----------- --------- ---------- ------------- ----------
Total revenues 13,442 - - - 13,442
----------- --------- ---------- ------------- ----------
Cost of revenues:
License 371 - - - 371
Maintenance and support services 3,022 - - - 3,022
Consulting services 1,146 - - - 1,146
----------- --------- ---------- ------------- ----------
Total cost of revenues 4,539 - - - 4,539
----------- --------- ---------- ------------- ----------
Gross profit 8,903 - - - 8,903
----------- --------- ---------- ------------- ----------
Operating expenses:
Research and development 13,082 432 4,671 - 18,185
Sales and marketing 10,840 227 - - 11,067
General and administrative 4,432 425 1,489 - 6,346
Stock-based compensation 1,011 - - 3,821 (b) 4,832
Amortization of goodwill and
intangible assets - - - 81,160 (c)
95,058 (e) 176,218
----------- --------- ---------- ------------- ----------
Total operating expenses 29,365 1,084 6,160 180,039 216,648
----------- --------- ---------- ------------- ----------
Operating loss (20,462) (1,084) (6,160) (180,039) (207,745)
Interest income(expense), net 1,803 - (141) - 1,662
----------- --------- ---------- ------------- ----------
Loss before income taxes (18,659) (1,084) (6,301) (180,039) (206,083)
Income taxes 2,104 147 - - 2,251
----------- --------- ---------- ------------- ----------
Net loss (20,763) (1,231) (6,301) (180,039) (208,334)
Preferred stock accretion - - (363) 363 (g) -
----------- --------- ---------- ------------- ----------
Net loss attributable to
common shareholders $ (20,763) $ (1,231) $ (6,664) $ (179,676) $ (208,334)
=========== ========= ========== ============= ==========
Basic and diluted net loss
per share $ (1.49) $ (11.35)
=========== ==========
Shares used in computing basic
and diluted net loss per share 13,932 2,393 (d)
=========== 2,025 (f) 18,350
==========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
<PAGE>
PHONE.COM INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------- ------------------------------
PHONE.COM APION ATMOTION ADJUSTMENTS COMBINED
----------- --------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
License $ 12,918 $ 473 $ - $ - $ 13,391
Maintenance and support services 5,509 - - - 5,509
Consulting services 2,902 - - - 2,902
----------- --------- ---------- ------------ ----------
Total revenues 21,329 473 - - 21,802
----------- --------- ---------- ------------ ----------
Cost of revenues:
License 519 310 - - 829
Maintenance and support services 4,249 - - - 4,249
Consulting services 1,744 - - - 1,744
----------- --------- ---------- ------------ ----------
Total cost of revenues 6,512 310 - - 6,822
----------- --------- ---------- ------------ ----------
Gross profit 14,817 163 - - 14,980
----------- --------- ---------- ------------ ----------
Operating expenses:
Research and development 13,700 197 2,897 - 16,794
Sales and marketing 10,540 276 - - 10,816
General and administrative 4,713 241 1,250 - 6,204
Stock-based compensation 1,720 - - 637 (b) 2,357
Amortization of goodwill and
intangible assets 13,752 - - 27,053 (c)
47,529 (e) 88,334
----------- --------- ---------- ------------ ----------
Total operating expenses 44,425 714 4,147 75,219 124,505
----------- --------- ---------- ------------ ----------
Operating loss (29,608) (551) (4,147) (75,219) (109,525)
Interest income(expense), net 5,592 - (42) 5,550
----------- --------- ---------- ------------ ----------
Loss before income taxes (24,016) (551) (4,189) (75,219) (103,575)
Income taxes 925 68 993
----------- --------- ---------- ------------ ----------
Net loss (24,941) (619) (4,189) (75,219) (104,968)
Preferred stock accretion - - (501) 501 (g) -
----------- --------- ---------- ------------ ----------
Net loss attributable to
common shareholders $ (24,941) $ (619) $ (4,690) $ (74,718) $ (104,968)
=========== ========= ========== ============ ==========
Basic and diluted net loss
per share $ (0.39) $ (1.56)
=========== ==========
Shares used in computing basic
and diluted net loss per share 63,530 1,561 (d)
=========== 2,025 (f) 67,116
==========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed
financial statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) Unaudited Pro Forma Combined Condensed Balance Sheet
The WAP Business of APiON
On October 26, 1999, the Company acquired all of the outstanding capital
stock of APiON Telecom Limited ("APiON") in exchange for 2,393,026 shares of its
common stock. In addition, the Company also agreed to issue cash and common
stock with an aggregate value of up to approximately $14,100,000 to current and
former employees of APiON. APiON is a provider of WAP software products to GSM
network operators in Europe and has expertise in GSM Intelligent Networks,
wireless data and WAP technology. Former employees of APiON will receive
consideration totaling up to approximately $6.5 million of which one third was
paid in cash (approximately $2.2 million) upon the closing of the Company's
secondary offering in November 1999 and two thirds is payable in common stock of
the Company on the one year anniversary of the closing of the acquisition of
APiON and is subject to forfeiture upon the occurrence of certain events.
Current employees of APiON will receive consideration totaling up to
approximately $7.6 million of which one third was paid in cash upon the closing
of the Company's secondary offering and one third is payable in common stock of
the Company on each of the first two anniversaries of the closing of the
acquisition of APiON contingent upon continued employment. The actual number of
Phone.com shares to be issued to current and former employees of APiON will
depend upon the fair value of Phone.com common stock on the distribution date.
Common stock issued to former shareholders and cash paid to current and
former employees of APiON at the closing of the acquisition was included in the
purchase price. Contingent common stock issuable in the future to former
employees of APiON has been treated as contingent consideration. The then fair
value of the common stock that is issued to the former employees of APiON upon
the satisfaction of certain future events will be added to goodwill and
amortized over the remaining useful life. Common stock issuable in the future to
current employees of APiON has been recorded as deferred stock-based
compensation.
Total consideration given, including direct acquisition costs, aggregated
approximately $245.9 million. The acquisition was accounted for as a purchase
with the results of APiON included from the acquisition date. The excess of the
purchase price over the fair value of tangible net assets acquired amounted to
approximately $243.6 million, with $241.6 million attributable to goodwill, $1.7
million attributable to assembled workforce, $170,000 attributable to developed
technology and $110,000 attributable to in-process research and development. The
in-process research and development has been expensed on the acquisition date,
and the intangible assets are being amortized on a straight-line basis over an
estimated life of 3 years. In connection with the acquisition, the Company
recorded deferred stock-based compensation in the amount of $5.1 million, which
is being amortized on an accelerated basis over the vesting period of 24 months,
consistent with the method described in FASB Interpretation No. 28.
The historical balance sheet of Phone.com as of December 31, 1999 reflects
the acquisition of APiON which was completed October 28, 1999.
Under purchase accounting, the total purchase price was allocated to
APiON's assets and liabilities based on their relative fair values as of the
closing date of October 26, 1999.
<PAGE>
The amounts and components of the purchase price along with the allocation of
the purchase price to assets purchased are as follows (in thousands):
<TABLE>
<S> <C>
Cash (including $2,547 paid to current employees of APiON)........ $ 4,786
Common stock...................................................... 235,761
Transaction costs................................................. 5,330
--------
Total purchase price............................................ $245,877
========
Cash and cash equivalents......................................... $ 417
Other current assets.............................................. 5,971
Property, plant and equipment and other noncurrent assets......... 507
Liabilities assumed............................................... (4,609)
--------
Book value of net tangible assets of APiON...................... 2,286
In-process research and development............................... 110
Developed and core technology..................................... 170
Assembled workforce............................................... 1,730
Goodwill.......................................................... 241,581
--------
Net assets acquired............................................. $245,877
========
</TABLE>
AtMotion
On December 21, 1999, Phone.com entered into a Merger Agreement to acquire
AtMotion, Inc. ("AtMotion"), an emerging provider of Voice Portal technology. In
connection with the acquisition, which was completed on February 8, 2000, the
Company issued 2,280,287 shares of its common stock in exchange for all of the
outstanding common stock and redeemable convertible preferred stock of AtMotion,
and assumed options and warrants of AtMotion for total consideration valued at
approximately $285.2 million. The stock-for-stock transaction will be accounted
for using purchase accounting.
The pro forma combined condensed balance sheet as of December 31, 1999
gives effect to the merger as if it had occurred on December 31, 1999.
The following adjustment has been reflected in the unaudited pro forma
combined condensed balance sheet:
(a) To record common stock issued to stockholders of AtMotion and record
applicable purchase accounting entries.
Under purchase accounting, the total purchase price will be allocated to
AtMotion's assets and liabilities based on their relative fair values.
Allocations are subject to valuations as of the date of the consummation of the
acquisition. Amounts allocated to goodwill and other intangible assets will be
amortized on a straight-line basis over estimated useful lives of 3 years. The
amounts and components of the purchase price along with the preliminary
allocation of the purchase price to assets purchased are as follows (in
thousands):
<TABLE>
<S> <C>
Common stock...................................................... $277,174
Fair value of options and warrants assumed........................ 7,985
Estimated transaction costs....................................... 2,000
--------
Total purchase price............................................ $287,159
========
Cash and cash equivalents......................................... $ 1,353
Other current assets.............................................. 133
Property and equipment............................................ 3,305
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Other assets...................................................... 146
Notes receivable from stockholders................................ 689
Liabilities assumed............................................... (3,641)
--------
Book value of net tangible assets of AtMotion................... 1,985
Developed and core technology..................................... 42,542
Assembled workforce............................................... 655
Goodwill and other intangible assets.............................. 241,977
--------
Net assets acquired............................................. $287,159
========
</TABLE>
The actual allocation of the purchase price will depend on AtMotion's net
assets on the closing date and Phone.com's evaluation of the fair value of the
net assets as of the date indicated. Consequently, the actual allocation of the
purchase price could differ from that presented above.
(2) Unaudited Pro Forma Combined Condensed Statements of Operations
The pro forma combined condensed statements of operations give effect to
the acquisitions as if they had occurred on July 1, 1998.
The WAP Business of APiON
The following adjustments have been reflected in the unaudited pro forma
combined condensed statement of operations:
(b) To reflect the accelerated amortization of deferred stock-based
compensation associated with common stock of the Company to be issued to current
employees of APiON in a manner consistent with Financial Accounting Standards
Board Interpretation No. 28. The accelerated amortization results in 75% and 25%
of the deferred stock-based compensation being amortized in the first year and
second year after the closing of the acquisition of APiON, respectively.
(c) Adjustment to record the amortization of goodwill and intangible
assets resulting from the allocation of the APiON purchase price. The pro forma
adjustment reflects goodwill and other intangible assets amortized on a
straight-line basis over an estimated life of three years.
(d) To reflect the shares issued as consideration for the acquisition.
AtMotion
The following adjustments have been reflected in the unaudited pro forma
combined condensed statement of operations:
(e) Adjustment to record the amortization of goodwill and intangible
assets resulting from the allocation of the AtMotion purchase price. The pro
forma adjustment assumes goodwill and other intangible assets amortized on a
straight-line basis over an estimated life of three years.
(f) To reflect common stock issued to shareholders of AtMotion. Shares
to be issued for options and warrants and shares subject to repurchase until
vested are excluded as they are antidilutive.
(g) To reverse accretion on preferred stock.
ITEM 7. (c) EXHIBIT
The following exhibit is filed herewith:
23.01 Consent of Ernst & Young LLP, Independent Auditors
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this amendment to report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHONE.COM, INC.
DATE: April 24, 2000 By: /s/ ALAN BLACK
------------------------------
Alan Black
Vice President of Finance and
Administration, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)
<PAGE>
Exhibit 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use in the Current Report on Form 8-K/A of Phone.com dated
February 8, 2000 of our report dated August 16, 1999, with respect to the
balance sheets of AtMotion Inc. (a development stage company, formerly known as
Arabesque Communications, Inc.) as of June 30, 1999 and 1998, and the related
statements of operations, shareholders' equity, and cash flows for the year
ended June 30, 1999 and for the periods from November 10, 1997 (date of
incorporation) to June 30, 1998 and 1999.
/s/ Ernst & Young LLP
San Jose, California
April 24, 2000
