<PAGE>
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UNITED STATES
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) October 22, 1999
-----------------------------
Stamps.com Inc.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-26427 77-0454966
- ------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3420 Ocean Park Boulevard, Suite 1040, Santa Monica, California 90405
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
---------------------------
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
The undersigned registrant hereby amends Item 7 of its Current Report on Form 8-
K dated October 22, 1999 and files such amended Item 7 with this report.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
Balance Sheets of iShip.com, Inc. at December 31, 1997 and 1998,
and at September 30, 1999 (unaudited) and the related statements
of operations, stockholders' equity and cash flows for (i) the
period from May 27, 1997 (date of inception) to December 31, 1997;
(ii) the fiscal year ended December 31, 1998; and (iii) the nine
months ended September 30, 1999 (unaudited).
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
iShip.com, Inc.
We have audited the accompanying balance sheets of iShip.com, Inc. (a
development stage company) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity and cash flows for the period
from inception (May 27, 1997) to December 31, 1997 and for the year ended
December 31, 1998. 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 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 iShip.com, Inc. as of December
31, 1997 and 1998, and the results of its operations and its cash flows for the
period from inception (May 27, 1997) to December 31, 1997 and for the year ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/Moss Adams LLP
Seattle, Washington
March 12, 1999
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------- September 30,
1997 1998 1999
--------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................................... $ 218,876 $ 386,384 $ 5,521,919
Investments................................................... -- 990,676 --
Stock subscriptions receivable................................ 96,098 -- --
Prepaid expenses and other.................................... 37,850 12,516 102,270
--------- ----------- -----------
Total current assets....................................... 352,824 1,389,576 5,624,189
--------- ----------- -----------
Equipment, net.................................................. 175,936 237,094 2,224,403
--------- ----------- -----------
$ 528,760 $ 1,626,670 $ 7,848,592
========= =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts Payable.............................................. $ 2,377 $ 42,320 $ 605,131
Accrued liabilities........................................... 201 19,514 82,771
Advances from shareholders.................................... 4,525 -- --
Current portion of long-term debt............................. -- 7,200 389,920
Current portion of capital lease obligations.................. 46,140 48,900 46,900
--------- ----------- -----------
Total current liabilities.................................. 53,243 117,934 1,124,722
--------- ----------- -----------
Long-term debt, net of current portion.......................... -- 79,218 1,281,164
Deferred compensation........................................... 150,000 168,750 168,750
Deferred rent payable........................................... -- 50,845 96,606
Capital lease obligations, net of current portion............... 128,386 79,486 45,050
--------- ----------- -----------
Total long-term liabilities................................ 278,386 378,299 1,591,570
--------- ----------- -----------
Shareholders' equity
Series A Preferred stock, $.0005 par value, 8,986,668
shares authorized, shares issued and outstanding;
1,600,000 at December 31, 1997, 8,986,668 at
December 31, 1998 and September 30, 1999,
liquidation preference of $600,000 at December 31,
1997, and $3,369,801 at December 31, 1998 and
September 30, 1999.......................................... 800 4,493 4,493
Series B Preferred stock, $.0005 par value, 12,800,000
shares authorized, shares issued and outstanding;
none at December 31, 1997 and 1998, 10,133,334 at
September 30, 1999, liquidation preference of
$7,600,000 at September 30, 1999............................ -- -- 5,067
Common stock, $0.0005 par value, 60,000,000 shares
Authorized, shares issued and outstanding; 6,132,448
at December 31, 1997, 6,543,448 at December 31,
1998, and 7,238,014 at September 30, 1999................... 3,066 3,272 3,619
Additional paid-in capital.................................... 599,570 3,383,120 10,998,903
Deficit accumulated during the development stage.............. (406,305) (2,260,448) (5,879,782)
--------- ----------- -----------
197,131 1,130,437 5,132,300
--------- ----------- -----------
$ 528,760 $ 1,626,670 $ 7,848,592
========= =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
Inception Inception
(May 27, Nine Months Ended (May 27,
1997) to Year Ended September 30, 1997) to
December 31, December 31, --------------------------- September 30,
1997 1998 1998 1999 1999
--------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues............................... $ -- $ -- $ -- $ -- $ --
--------- ----------- ----------- ----------- -----------
Operating Expenses:
General and administrative............ 254,746 1,038,911 756,126 2,028,446 3,322,103
Research and development.............. 203,966 778,814 504,542 1,418,641 2,401,421
Selling and marketing................. 500 79,224 5,978 233,731 313,455
Product implementation................ 19,297 53,574 32,324 74,158 147,029
--------- ----------- ----------- ----------- -----------
478,509 1,950,523 1,298,970 3,754,976 6,184,008
--------- ----------- ----------- ----------- -----------
Operating loss......................... (478,509) (1,950,523) (1,298,970) (3,754,976) (6,184,008)
--------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income....................... -- 73,030 49,657 152,609 225,639
Interest expense...................... -- (8,879) (6,252) (17,872) (26,751)
Other income.......................... 72,204 32,229 31,795 905 105,338
--------- ----------- ----------- ----------- -----------
72,204 96,380 75,200 135,642 304,226
--------- ----------- ----------- ----------- -----------
Net loss............................... $(406,305) $(1,854,143) $(1,223,770) $(3,619,334) $(5,879,782)
========= =========== =========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock Deficit
------------------- -------------------- Additional Accumulated
Common Stock Series A Series B ------------ During the
------------------- ------------------- -------------------- Paid-in Development
Shares Amount Shares Amount Shares Amount Capital Stage
--------- ------- --------- ------- ---------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 27, 1997
(inception)................... -- $ -- -- $ -- -- $ -- $ -- $ --
Common stock issued............ 6,132,448 3,066 -- -- -- -- 370 --
Preferred stock issued......... -- -- 1,600,000 800 -- -- 599,200 --
Net loss....................... -- -- -- -- -- -- -- (406,305)
--------- ------ --------- ------ ---------- ------- ----------- -----------
Balance, December 31,
1997.......................... 6,132,448 3,066 1,600,000 800 -- -- 599,570 (406,305)
--------- ------ --------- ------ ---------- ------- ----------- -----------
Common stock issued............ 411,000 206 -- -- -- -- 15,207 --
Preferred stock issued......... -- -- 7,386,668 3,693 -- -- 2,766,308 --
Stock and stock options
granted to consultants........ -- -- -- -- -- -- 2,035 --
Net loss....................... -- -- -- -- -- -- -- (1,854,143)
--------- ------ --------- ------ ---------- ------- ----------- -----------
Balance, December 31,
1998.......................... 6,543,448 3,272 8,986,668 4,493 -- -- 3,383,120 (2,260,448)
--------- ------ --------- ------ ---------- ------- ----------- -----------
Common stock issued
(unaudited)................... 694,566 347 -- -- -- -- 18,028 --
Preferred stock issued
(unaudited)................... -- -- -- -- 10,133,334 5,067 7,594,933 --
Stock and stock options
granted to consultants
(unaudited)................... -- -- -- -- -- -- 2,822 --
Net loss for nine months
ended September 30,
1999 (unaudited).............. -- -- -- -- -- -- -- (3,619,334)
--------- ------ --------- ------ ---------- ------- ----------- -----------
Balance, September 30,
1999 (unaudited).............. 7,238,014 $3,619 8,986,668 $4,493 10,133,334 $ 5,067 $10,998,903 $(5,879,782)
========= ====== ========= ====== ========== ======= =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
iSHIP.COM, INC.
(A Development State Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From Period from
Inception Inception
(May 27, 1997) Year Ended Nine Months Ended (May 27, 1997)
to December 31, December 31, September 30, to September 30,
--------------------------
1997 1998 1998 1999 1999
--------------- ------------ ----------- ----------- ----------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................ $(406,305) $(1,854,143) $(1,223,770) $ (3,619,334) $ (5,879,782)
Adjustments to reconcile net loss to net cash
from operating activites.......................
Depreciation................................... 15,511 80,872 54,986 343,953 440,336
Amortization of discount of investments........ -- (48,445) (25,171) (146,561) (195,006)
Stock and stock options issued for services.... 375 2,448 2,210 2,100 4,923
Changes in assets and liabilites:
Prepaid expenses and other..................... (37,850) 25,334 37,400 (89,754) (102,270)
Accounts payable............................... 2,377 39,943 45,841 562,811 605,131
Accrued liabilities............................ 201 19,313 19,299 63,257 82,771
Deferred compensation.......................... 150,000 18,750 18,750 -- 168,750
Deferred rent payable.......................... -- 50,845 35,592 45,761 96,606
--------- ----------- ----------- ------------ ------------
Net cash used in operating activities............ (275,691) (1,665,083) (1,034,863) (2,837,767) (4,778,541)
--------- ----------- ----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.............. (5,321) (142,030) (107,347) (2,331,262) (2,478,613)
Proceeds from sale of investments............... -- 1,050,000 197,206 21,098,602 22,148,602
Purchase of investments......................... -- (1,992,231) (1,992,231) (19,961,365) (21,953,596)
--------- ----------- ----------- ------------ ------------
Net cash used in investing activities............ (5,321) (1,084,261) (1,902,372) (1,194,025) (2,283,607)
--------- ----------- ----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt.................... -- 86,418 38,686 1,591,866 1,678,284
Proceeds from issuance of common stock.......... 3,061 15,000 15,000 19,097 37,158
Proceeds from issuance of preferred stock....... 600,000 2,770,001 2,770,001 7,600,000 10,970,001
Net change in stock subscription receivable..... (96,098) 96,098 96,098 -- --
Net change in shareholder advance............... 4,525 (4,525) (4,525) -- --
Payments on capital lease obligations........... (11,600) (46,140) (34,305) (36,436) (94,176)
Payments on long-term debt...................... -- -- -- (7,200) (7,200)
--------- ----------- ----------- ------------ ------------
Net cash provided by financing activities........ 499,888 2,916,852 2,880,955 9,167,327 12,584,067
--------- ----------- ----------- ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 218,876 167,508 (56,280) 5,135,535 5,521,919
CASH AND CASH EQUIVALENTS
Beginning of period............................. -- 218,876 218,876 386,384 --
--------- ----------- ----------- ------------ ------------
End of period................................... $ 218,876 $ 386,384 $ 162,596 $ 5,521,919 $ 5,521,919
========= =========== =========== ============ ============
NONCASH TRANSACTIONS
Equipment purchased through capital lease....... $ 186,126 $ -- $ -- $ -- $ 186,126
========= =========== =========== ============ ============
CASH PAID FOR INTEREST........................... $ -- $ 8,879 $ 6,336 $ 17,872 $ 26,751
========= =========== =========== ============ ============
</TABLE>
See accompanying notes.
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
Development Stage Operations--iShip.com, Inc. (the Company), a Washington
corporation, was incorporated on May 27, 1997 under the name MoveIt! Software,
Inc. On May 18, 1998, the Company changed its name to iShip.com, Inc. The
Company's office is located in Bellevue, Washington.
Since inception, the Company has been developing and marketing software
applications that enable customers to price, ship and track packages using its
website. The Company has devoted significant time to raising capital, obtaining
financing and administrative functions. These activities are expected to
continue until such time the software is released commercially. During 1998, a
"beta" version of the software was released. Limited revenues have been
recognized since inception related to miscellaneous service fees.
Unaudited Interim Financial Information--The interim financial statements of
the Company for the nine months ended September 30, 1998 and 1999 and the period
from May 27, 1997 (date of inception) to September 30, 1999, included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations relating to interim financial
statements. In the opinion of management, the accompanying unaudited interim
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of the
Company at September 30, 1998 and 1999, the results of operations and its cash
flows for the nine months ended September 30, 1998 and 1999 and the period from
May 27, 1997 (date of inception) to September 30, 1999.
Use of Estimates--The preparation of the 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.
Cash and Cash Equivalents--For the purposes of the statement of cash flows,
cash and cash equivalents are defined as short-term, highly liquid investments
that are readily convertible to cash and are so near maturity that fluctuations
in interest rates lead to insignificant risk of changes in investment value.
Equipment--Equipment is stated at cost. The Company provides depreciation on
the cost of its equipment using straight-line methods over estimated useful
lives of three years. Expenditures for repairs and maintenance are charged to
expense as incurred.
Research and Development Costs--Research and development costs are charged to
expense as incurred. These costs primarily consist of salaries, development
materials, supplies and applicable overhead expenses of personnel directly
involved in the research and development of new technology.
Stock-Based Compensation--The Company accounts for stock-based compensation
to employees using the intrinsic value method, whereby, compensation cost is
recognized when the exercise price at the date of grant is less than the fair
market value of the Company's common stock. The Company discloses the proforma
effect of compensation cost based on the fair value method for determining
compensation cost. Stock-based compensation awarded to non-employees is
determined using the fair value method. Compensation cost is recognized over the
service or vesting period.
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income Taxes--Income taxes are accounted for using an asset and liability
approach which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
financial statement and tax basis of assets and liabilities at the applicable
enacted tax rates. Generally accepted accounting principles require a valuation
allowance against deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some or all of its deferred tax assets
will not be realized.
Risk Concentrations--At times, cash balances exceed federally-insured limits.
However, cash is held on deposit in major financial institutions and is
considered subject to minimum credit risk.
Note 2--Investment Securities
Investment securities are classified as "available-for-sale" under generally
accepted accounting principles. Available-for-sale securities are recorded at
estimated fair value, with the net unrealized gain or loss included as a
separate component of shareholders' equity, net of the related tax effect.
Realized gains or losses on dispositions are based on the net proceeds and the
adjusted carrying amount of securities sold, using the specific identification
method.
At December 31, 1998, the Company had commercial paper with an amortized cost
of $990,676, which approximates fair value. The expected maturities of the
securities range from 25 to 106 days.
Note 3--Equipment
Equipment is recorded at cost and consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------------- ------------
<S> <C> <C>
Computer hardware........................................ $141,787 $245,865
Computer software........................................ 49,660 87,612
-------- --------
191,447 333,477
Accumulated depreciation................................. (15,511) (96,383)
-------- --------
$175,936 $237,094
======== ========
</TABLE>
Note 4--Long-Term Debt
The Company has an equipment line of credit with a bank providing for
equipment purchase advances up to $500,000 through September 4, 1999. Advances
are collateralized by substantially all assets of the Company. Interest on the
borrowings are at the bank's prime rate plus 0.5%. Monthly interest payments are
required through September 4, 1999. Commencing on October 4, 1999, the unpaid
principal balance of the advances shall be paid in 36 equal monthly installments
of principal plus interest.
Maturities of long-term debt for years ending December 31 are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 7,200
2000............................................................ 28,800
2001............................................................ 28,800
2002............................................................ 21,618
-------
$86,418
=======
</TABLE>
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 5--Deferred Compensation
Three key officers of the Company deferred their salaries during the first
nine months of development stage operations. The deferred compensation amounts
to $150,000 and $168,750 as of December 31, 1997 and 1998, respectively. The
deferred salaries will be paid when the Company generates positive cash flows
from operations.
Note 6--Preferred Stock
Transactions--The Company issued 1,600,000 shares in 1997 and 7,386,668
shares in 1998 of Series A Preferred Stock at $0.375 per share. No direct costs
were incurred in relation to the shares issued.
Preference in Liquidation--In the event of voluntary or involuntary
liquidation, distribution of assets, dissolution or winding-up of the Company
before any distribution or payment to holders of the Company's common stock, the
holders of Series A Preferred Stock are entitled to receive payment of $0.375
per outstanding share held by them.
Dividends--Dividends payable to holders of Series A Preferred Stock are at
the discretion of the Company's Board of Directors. As of December 31, 1997 and
1998, no dividends had been declared.
Conversion Rights--A holder of Series A Preferred Stock, at the holder's
option, has the right to convert shares of Series A Preferred Stock into common
stock on a one-for-one basis, subject to adjustment for stock splits and
dilutive issuances. In addition, Series A Preferred Stock would automatically
convert to common stock in the event of the closing of an underwritten public
offering which establishes a valuation of the Company of at least $50 million
and results in gross proceeds of at least $10 million or upon the conversion of
two-thirds of the shares of Series A Preferred Stock originally issued.
Voting Rights--The holders of Series A Preferred Stock are entitled to one
vote for each share and are entitled to vote on all matters on which the holders
of common stock have the right to vote.
Note 7--Stock Option Plan
The Company has a stock option plan under which employees and consultants may
be awarded incentive or nonstatutory stock options. The plan authorizes the
grant of options for the purchase of up to 5,660,000 shares of common stock.
Under the plan, the option exercise price is generally no less than fair market
value at the date of grant. Options expire no later than ten years from the
grant date, and vesting is established at the time of grant provided that
options shall become exercisable at the rate of at least 20% per year over five
years.
As the Company uses the intrinsic value method in accounting for its stock
option plan, no compensation costs have been recognized for stock options issued
to employees. Had the compensation cost for stock options been determined using
the fair value method, the proforma net loss would have increased by $11,000 to
$417,305 for the period from inception to December 31, 1997 and by $9,000 to
$1,863,143 for the year ended December 31, 1998.
The weighted average fair value of the options granted during 1998 and the
period from inception is estimated to be $0.015 using the Black-Scholes option-
pricing model with the following assumptions on the date of grant: 0% dividend
yield and volatility, 5% forfeitures per year, risk-free interest rate of 4.47%
to 5.80%, expected lives of nine years.
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted
--------
Average
-------
Exercise
--------
Common Shares Price
-------------------------- -----
Available Options
--------- -------
for Grant Outstanding
--------- -----------
<S> <C> <C> <C>
Inception, May 27, 1997.................................................. -- -- --
Authorized............................................................. 5,660,000 -- --
Granted................................................................ (1,785,000) 1,785,000 $0.0375
Exercised.............................................................. -- (10,000) $0.0375
---------- ---------
Balance, December 31, 1997............................................... 3,875,000 1,775,000 $0.0375
Granted................................................................ (759,000) 759,000 $0.0430
Exercised.............................................................. -- (411,000) $0.0365
---------- ---------
Balance, December 31, 1998............................................... 3,116,000 2,123,000 $0.0390
========== =========
</TABLE>
The following summarizes options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Remaining Average
Number Contractual Exercise Number
Range of Exercise Price Outstanding Life Price Exercisable
----------------------- ----------- ---- ----- -----------
<S> <C> <C> <C> <C>
$0.0375-0.050 2,123,000 9.1 years $0.039 420,312
</TABLE>
Included in common stock issued are 10,500 shares granted to certain
consultants for services provided. These shares were granted from shares
authorized for issue under the option plan. The fair value of the shares granted
to the consultants was $375 for the period from inception to December 31, 1997
and $413 for the year ended December 31, 1998.
In December 1998, the Board of Directors approved additional grants of up to
24,000 shares of common stock to consultants for services to be provided in
1999.
Note 8--Income Taxes
At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $1.9 million and research credit
carryforwards of $109,000 available to offset future federal taxable income, if
any. The net operating loss and research credit carryforwards generally expire
in 2018. The Internal Revenue Code may limit the net operating loss
carryforwards to be used in any given year upon the occurrence of certain
events, including significant change in ownership interest.
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred taxes are comprised of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets (liabilities)
Net operating loss carryforwards................. $ 70,500 $ 643,000
Research credits................................. 16,500 109,000
Deferred compensation............................ 51,000 57,000
Other............................................ (1,200) 17,300
--------- ---------
Total deferred tax asset............................ 136,800 826,300
Valuation allowance................................. (136,800) (826,300)
--------- ---------
$ -- $ --
========= =========
</TABLE>
A valuation allowance for the full amount of the net deferred tax asset has
been recorded as realization in the near term is not reasonably assured. The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate of 34% to earnings before taxes due to the
valuation allowance established for the current year's net operating loss and
nondeductible items.
Note 9--Capital Lease Obligation
At December 31, 1997 and 1998, the Company was obligated under the terms of a
capital lease for certain computer hardware and software from a related party.
The implicit interest rate for the leases ranges from 4.4% to 7.5% and requires
monthly payments of $4,534. Required minimum lease payments for the years ending
December 31 are as follows:
<TABLE>
<S> <C>
1999.............................................. $ 54,413
2000.............................................. 54,413
2001.............................................. 28,435
--------
137,261
Less amount representing interest................. 8,875
--------
$128,386
========
</TABLE>
Included in equipment at December 31, 1997 and 1998 is $186,126 held under
capital lease with accumulated amortization of $15,511 and $77,552,
respectively.
Note 10--Commitments and Contingency
Lease Commitments--The Company leases its office space and certain leasehold
improvements and office furniture under operating leases through June 30, 2001
from a related party. Rent expense under all leases was $23,452 for the period
from inception to December 31, 1997 and $269,885 for the year ended December 31,
1998. Future minimum lease payments required under non cancelable operating
leases are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
- -------------------------
<S> <C>
1999.............................. $295,287
2000.............................. 295,287
2001.............................. 147,643
--------
$738,217
========
</TABLE>
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Given the Company's development stage operations, only a portion of the
standard lease payments are required in early months. The difference between the
actual lease payments and the standard monthly payments are recorded as deferred
rent payable. Total deferred rent was $50,845 as of December 31, 1998.
The Company subleases a portion of the office space to an unrelated party.
The sublease commenced on June 15, 1998 and provides for monthly rent of $7,708.
The original lease term is twelve months. The subtenant has the right to extend
the sublease for two additional periods of three months each. Rental income from
the sublease totaled $58,069 in 1998.
The Company also leases certain furniture and leasehold improvements to the
third party. Rental income from these leases amounted to $24,044 in 1998.
Note 11--Events Subsequent to the Date of the Auditors' Report (Unaudited)
Series B Preferred Stock--In April 1999 the Board of Directors, approved the
sale of Series B Preferred Stock. In April, May and August, 1999 the Company
issued 10,133,334 shares of its Series B Preferred Stock at $0.75 per share. No
direct costs were incurred in relation to the shares issued. The proceeds of
$7.6 million have been used to fund the operations of the Company with excess
funds at September 30, 1999 invested in short-term, highly-liquid investments
classified as cash equivalents. In the event of voluntary or involuntary
liquidation, distribution of assets, dissolution or winding-up of the Company
before any distribution or payment to holders of the Company's common stock, the
holders of Series B Preferred Stock are entitled to receive payment of $0.75 per
outstanding share held by them. Dividends payable to holders of Series B
Preferred Stock are at the discretion of the Company's Board of Directors. A
holder of Series B Preferred Stock, at the holder's option, has the right to
convert shares of Series B Preferred Stock into common stock on a one-for-one
basis, subject to adjustment for stock splits and dilutive issuances. In
addition, the Series B Preferred Stock would automatically convert to common
stock in the event of the closing of an underwritten public offering which
establishes a valuation of the Company of at least $75 million and results in
gross proceeds of at least $15 million or upon the conversion of two-thirds of
the shares of Series B Preferred Stock originally issued. The holders of Series
B Preferred Stock are entitled to one vote for each share and are entitled to
vote on all matters on which the holders of common stock have the right to vote.
Stock Warrant--On April 27, 1999 the Company issued a warrant to a strategic
partner for a maximum of 2,666,666 shares of the Company's Series B Preferred
Stock at a purchase price of $1.50 per share. The actual number of shares
purchasable under the warrant is determined by a performance measure based on
qualifying revenues generated during a one year period beginning March 1, 2000.
Lease Commitment--In July, 1999 the Company entered into a facility lease
agreement for its corporate headquarters with minimum lease payments
approximating $2.4 million over five years.
Stock Split--On August 6, 1999 the Board of Directors approved a 2 for 1
split of the Company's Common and Preferred Stock and an increase in the number
of authorized Common Stock shares to 60,000,000 and authorized Preferred Stock
shares to 21,786,688. Accordingly, the share information in the accompanying
financial statements and footnotes have been restated to reflect the stock
split.
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Finance Agreement--On August 20, 1999, the Company entered into a Loan and
Security Agreement with a bank for $2,950,000 of which $2.5 million is available
for equipment purchases through February 19, 2003 and $450,000 is available
through a revolving line maturing on August 19, 2000. Advances are
collateralized by substantially all assets of the Company. Interest on
borrowings are at the bank's prime rate plus 0.5%. Borrowings for equipment
purchases are payable in 30 equal monthly installments beginning March 19, 2000.
In connection with the agreement, the Company issued a Common Stock purchase
warrant which permits the holder to purchase up to 10,000 shares of the
Company's Common Stock at a purchase price of the lesser of $2.50 per share and
the price per share received by the Company in the next round of financing. The
warrant is exercisable only (i) after the Company's initial public offering,
(ii) immediately prior to a change in control and (iii) with the written consent
of the Company.
Proposed Merger Agreement--In October 1999, the Company entered into a merger
agreement with Stamps.com, Inc. a development stage enterprise developing an
Internet-based postage service for end-users. In connection with the proposed
merger, the Company will receive an aggregate 8 million shares of Stamps.com
Common Stock in exchange for all the outstanding Common and Preferred Stock, and
outstanding options and warrants of the Company. The agreement is subject to
shareholder approval by both companies and regulatory approval.
Stock Options--The following tabulation summarizes certain information
related to options for common stock for the period from January 1, 1999 through
September 30, 1999:
<TABLE>
<CAPTION>
Weighted
Available Average
for Options Exercise
Grant Outstanding price
--------- ----------- --------
<S> <C> <C> <C>
Balance, December 31, 1998................ 3,116,000 2,123,000 $0.039
Granted (unaudited)....................... (1,641,606) 1,641,606 $0.159
Exercised (unaudited)..................... -- (694,566) $0.046
Balance, September 30, 1999............... 1,474,394 3,070,040 $0.102
</TABLE>
<PAGE>
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On October 22, 1999, Stamps.com entered into a merger agreement to acquire
iShip.com in exchange for 8,000,000 shares of Stamp.com's common stock.
Stamps.com's management has prepared the following unaudited pro forma condensed
combined financial information to give effect to this acquisition. The Unaudited
Pro Forma Condensed Combined Statements of Operations for the year ended
December 31, 1998 and for the nine months ended September 30, 1999 give effect
to the iShip.com acquisition as if it had taken place at the beginning of each
period. The Unaudited Pro Forma Condensed Combined Balance Sheet as of September
30, 1999 gives effect to the iShip.com acquisition as if it had taken place on
such date.
The pro forma adjustments, which are based upon available information and
certain assumptions that Stamps.com believes are reasonable in the
circumstances, are applied to the historical financial statements of Stamps.com
and iShip.com. The iShip.com acquisition will be accounted for using the
purchase method of accounting. Stamps.com allocation of purchase price is based
upon management's current estimates of the fair value of assets acquired and
liabilities assumed in accordance with Accounting Principles Board No. 16. The
purchase price allocations reflected in the accompanying unaudited pro forma
condensed combined financial statements may be different from the final
allocation of the purchase price and such differences may be material. The
Company expects to complete a valuation and other procedures during the fourth
quarter of 1999.
The accompanying unaudited pro forma condensed combined financial information
should be read in conjunction with the historical financial statements and the
notes thereto for both Stamps.com and iShip.com, which are included elsewhere in
this prospectus. The unaudited pro forma condensed combined financial
information is provided for informational purposes only and does not purport to
represent what Stamps.com's financial position or results of operations would
actually have been had the iShip.com acquisition occurred on such dates or to
project Stamps.com's results of operations or financial position for any future
period.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
PRO FORMA
STAMPS.COM ISHIP.COM ADJUSTMENTS TOTAL
---------- --------- ----------- --------
ASSETS
------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $61,198 $5,522 $ -- $ 66,720
Prepaid expenses........................................ 7,216 102 -- 7,318
------- ------ ----------- --------
Total current assets.................................... 68,414 5,624 -- 74,038
Property and equipment, net............................. 5,339 2,225 -- 7,564
Intangibles, net........................................ -- -- 470,546 (2) 470,546
Other assets............................................ 432 -- -- 432
------- ------ ----------- --------
Total assets.......................................... $74,185 $7,849 $ 470,546 $552,580
======= ====== =========== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
Current liabilities:
Line of credit.......................................... $ 1,000 $ -- $ -- $ 1,000
Accounts payable........................................ 2,331 605 -- 2,936
Accrued expenses........................................ 3,230 83 -- 3,313
Current portion of capital lease obligations............ 472 437 -- 909
------- ------ ----------- --------
Total current liabilities............................... 7,033 1,125 -- 8,158
Long-term liabilities................................... 500 1,591 -- 2,091
Stockholders' equity (deficit).......................... 66,652 5,133 (44,321)(3) 542,331
514,867 (4)
------- ------ ----------- --------
Total liabilities and stockholders' equity
(deficit)........................................... $74,185 $7,849 $ 470,546 $552,580
======= ====== =========== ========
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
-----------
STAMPS.COM ISHIP.COM ADJUSTMENTS TOTAL
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues................................................ $ -- $ -- $ -- $ --
Cost of sales........................................... -- -- -- --
------- ------- ----------- ---------
Gross profit............................................ -- -- -- --
Operating expenses:
Research and development................................ 1,532 832 -- 2,364
Sales and marketing..................................... 632 79 -- 711
General and administrative.............................. 2,016 1,039 128,717 (5) 131,772
------- ------- ----------- ---------
4,180 1,950 128,717 134,847
Loss from operations.................................... (4,180) (1,950) (128,717) (134,847)
Other income (expense):
Interest expense........................................ (28) (9) -- (37)
Interest income......................................... 12 73 -- 85
Other, net.............................................. -- 32 -- 32
------- ------- ----------- ---------
Net loss................................................ $(4,196) $(1,854) $ (128,717) $(134,767)
======= ======= =========== =========
Basic and diluted net loss per share.................... $ (0.85) $ (11.97)
======= =========
Pro forma basic and diluted net loss
per share.............................................. $ (0.36) $ (7.53)
======= =========
Weighted average shares outstanding used in
basic and diluted per share calculation................ 4,956 6,304 11,260
======= =========== =========
Weighted average shares outstanding used in
pro forma basic and diluted per share
calculation............................................ 11,593 6,304 17,897
======= =========== =========
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
-----------
STAMPS.COM ISHIP.COM ADJUSTMENTS TOTAL
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues...................................................... $ -- $ -- $ -- $ --
Cost of sales................................................. -- -- -- --
-------- ------- ---------- ---------
Gross profit.................................................. -- -- -- --
Operating expenses:
Research and development...................................... 5,049 1,493 -- 6,542
Sales and marketing........................................... 10,856 234 -- 11,090
General and administrative.................................... 8,276 2,028 96,538 (6) 106,842
-------- ------- ---------- ---------
24,181 3,755 96,538 124,474
Loss from operations.......................................... (24,181) (3,755) (96,538) (124,474)
Other income (expense):
Interest expense.............................................. (122) (18) -- (140)
Interest income............................................... 1,200 153 -- 1,353
Other, net.................................................... -- 1 -- 1
-------- ------- ---------- ---------
Net loss...................................................... $(23,103) $(3,619) $ (96,538) $(123,260)
======== ======= ========== =========
Basic and diluted net loss per share.......................... $ (1.59) $ (5.93)
======== =========
Pro forma basic and diluted net loss per share................ $ (0.74) $ (3.28)
======== =========
Weighted average shares outstanding used in basic
and diluted per share calculation............................ 14,496 6,304 20,800
======== ========== =========
Weighted average shares outstanding used in pro
forma basic and diluted per share calculation................ 31,260 6,304 37,564
======== ========== =========
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The pro forma financial information gives effect to the following pro forma
adjustments:
The iShip.com merger will be accounted for using the purchase method of
accounting. In connection with the acquisition, Stamps.com will issue up to 8
million shares of Common Stock in exchange for all of the outstanding shares of
iShip.com capital stock, options and warrants. The aggregate estimated purchase
price is approximately $520 million based on $65.00 per share for purposes of
these pro forma financial statements, which is the price to public of
Stamps.com's follow-on public offering that was completed under a Registration
Statement on Form S-1 declared effective by the Securities and Exchange
Commission on December 6, 1999.
The iShip.com shares were first converted to Stamps.com equivalent shares by
taking the number of iShip.com shares over the total number of iShip.com shares
multiplied by 8,000,000 to arrive at Stamps.com shares for each iShip.com share.
This calculation has been made for purposes of these financial statements only
and does not represent the final exchange ratio, which will be determined on the
third trading day prior to the closing of the transaction.
The purchase price was determined as follows (in thousands):
<TABLE>
<CAPTION>
Stamps.com
iShip shares shares Fair Value
------------ ------ ----------
<S> <C> <C> <C>
Shares........................................................................ 25,240 6,304 $409,766
Warrants...................................................................... 2,690 672 43,671
Vested stock options.......................................................... 1,370 342 22,242
Unvested stock options........................................................ 2,730 682 44,321
------ ----- --------
32,030 8,000 $520,000
====== ===== ========
</TABLE>
The fair value of "shares" was calculated by taking the fair value of the
Stamps.com shares ($65.00 per share) times the number of Stamps.com shares to be
exchanged.
With respect to stock options exchanged as part of the iShip.com merger, all
vested and unvested iShip.com options exchanged for Stamps.com options are
included as part of the purchase price based on their fair value. The fair value
of the shares underlying options and warrants was calculated by taking the
vested and unvested options and warrants to purchase Stamps.com shares
(1,696,000 options and warrants) times the fair value of the stock ($65.00 per
share). Proceeds to be received from the option and warrant holders upon
exercise were excluded as the amounts are immaterial.
The pro forma financial information has been prepared on the basis of
assumptions described in these notes and include assumptions relating to the
allocation of the consideration paid for the assets and liabilities of iShip.com
based on preliminary estimates of their fair value. The actual allocation of
such consideration may differ from that reflected in the pro forma financial
information after valuations and other procedures to be performed after the
closing of the iShip.com acquisition. Below is a table of the estimated
acquisition cost, purchase price allocation and annual amortization of the
intangible assets acquired (in thousands):
<TABLE>
<CAPTION>
Amortization Annual Amortization
Life of Intangibles
---- --------------
<S> <C> <C> <C>
Estimated Acquisition Cost:
Estimated purchase price.............................................. $520,000
Purchase Price Allocation:
Estimated fair value of net tangible assets of
iShip.com at September 30, 1999...................................... 5,133
Deferred compensation on unvested stock
options assumed...................................................... 44,321 4 11,080
Intangible assets acquired:
Goodwill.............................................................. 470,546 4 117,637
--------
$520,000
========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION--(Continued)
Tangible assets of iShip.com acquired in the iShip.com merger principally
include cash and fixed assets. Liabilities of iShip.com assumed in the iShip.com
merger principally include accounts payable, accrued payroll and long-term debt.
2. The pro forma adjustment is for goodwill allocation of $470.5 million.
3. The pro forma adjustment is for deferred stock compensation associated
with the unvested iShip.com stock options to acquire approximately 2.73 million
shares of iShip.com common stock to be assumed by Stamps.com.
4. The pro forma adjustment to "shareholders' equity" reflects the
elimination of iShip.com's shareholders' equity ($5.1 million) and the impact of
the issuance of Stamps.com's common stock ($520.0 million) in connection with
the iShip.com merger.
5. The pro forma adjustment is for amortization of deferred stock
compensation associated with the unvested iShip.com stock options assumed by
Stamps.com over the remaining vesting period of $11.1 million and amortization
of goodwill of $117.6 million for the year ended December 31, 1998.
6. The pro forma adjustment is for amortization of deferred stock
compensation of $8.3 million and amortization of goodwill of $88.2 million for
the nine months ended September 30, 1999.
<PAGE>
(c) Exhibits.
2.1 Agreement and Plan of Merger by and among the Registrant,
Rocket Acquisition Corp. and iShip.com, Inc. dated as of
October 22, 1999.(1)
99.1 Press Release issued by the Registrant on October 25,
1999 (Announcing Agreement to Acquire iShip.com).(1)
99.2 Press Release issued by the Registrant on October 28,
1999 (Announcing Third Quarter 1999 Financial
Results).(1)
(1) Previously filed with original Current Report on Form 8-K
dated October 22, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Stamps.com Inc.
--------------------------------------------------
(Registrant)
December 28, 1999 /s/John W. LaValle
- --------------------------- --------------------------------------------------
Date John W. LaValle
Sr. VP Operations and Chief Financial Officer
