<PAGE> 1
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): September 30, 1999
ACCRUE SOFTWARE, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 000-26437 94-3238684
<S> <C> <C>
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
48634 Milmont Drive
FREMONT, CALIFORNIA 94538-7353
(Address of principal executive offices) (Zip code)
(510) 580-4500
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 30, 1999, Accrue Software, Inc., a Delaware corporation (the
"Company"), acquired Marketwave Corporation, a Washington corporation
("Target"), by the statutory merger (the "Merger") of Marketwave Acquisition
Corp., a Washington corporation and a wholly-owned subsidiary of the Company
("Merger Sub"), with and into Target. The Merger was accomplished pursuant to an
Agreement and Plan of Merger and Reorganization, dated as of September 14, 1999,
among the Company, Merger Sub, Target and the shareholders of Target (the
"Merger Agreement") and a related Agreement of Merger (collectively, the "Merger
Agreements"). As a result of the Merger, the Company became the owner of 100% of
the issued and outstanding shares of Target's Common Stock and each outstanding
share of Target Common Stock was converted into 0.1858 shares of the Company's
Common Stock.
A total of approximately 3,446,414 shares of the Company's Common Stock
will be issued to former Target shareholders and optionholders in exchange for
the acquisition by the Company of all outstanding Target capital stock and all
unexpired and unexercised options to acquire Target capital stock. The shares
issued to Target shareholders were issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, constitute "restricted securities" within
the meaning of the Securities Act. Target options to purchase Target Common
Stock were assumed by the Company and remain outstanding as options to purchase
shares of the Company's Common Stock. The Company has granted certain
registration rights for the shares issued in connection with the Merger.
Under the terms of the Merger Agreement and a related Escrow Agreement
dated September 30, 1999, ten percent of the shares of the Company's Common
Stock issued in connection with the Merger will be held in escrow for the
purpose of indemnifying the Company, Merger Sub, and each of their respective
affiliates, officers, directors, employees, representatives and agents against
any damages that relate to or arise from a breach of any of Target's
representations and warranties contained in the Merger Agreement. Such escrow
will expire on the earlier of (i) the date of the issuance of the audit report
on the first financial statements of the Company containing combined operations
of Target and the Company and (ii) September 30, 2000.
<PAGE> 3
In connection with the Merger, certain employees of Target entered into
noncompetition agreements with the Company, which agreements restrict the
ability of such persons to compete with Target or the Company during the period
commencing on the effective date of the Merger and ending on the later of (a)
two years after the effective date of the Merger and (b) one year after the date
of such person's termination of employment with the Company.
Effective upon the closing of the Merger, Steven Podradchik, an executive
officer of Target, was appointed as a member of the Company's Board of
Directors.
For accounting purposes, the Merger will be accounted for as a "pooling of
interests".
The number of shares of the Company's Common Stock to be issued to the
shareholders of Target was determined by arm's-length negotiations among the
parties.
Target is a developer and licensor of e-business intelligence and Web
mining software products that allow Internet marketers and Web developers to
identify and analyze how their Internet/Intranet presence is being used by
visitors. The Company intends to continue to use the assets acquired to conduct
such business.
-3-
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
(a) Financial Statements of Business Acquired.
(1) The balance sheets of Marketwave Corporation as of March 31, 1999
and 1998 and the results of its operations and its cash flows for the years then
ended are filed as an amendment to the initial report filed October 12, 1999.
(2) The unaudited balance sheet of Marketwave Corporation as of
September 30, 1999 and the results of its operations for the six months ended
September 30, 1999 and September 30, 1998 are filed as an amendment to the
initial report filed October 12, 1999.
(b) Unaudited Pro Forma Combined Condensed Statements of Operations
The unaudited pro forma combined condensed statements of operations
for the years ended March 31, 1997, 1998 and 1999 are filed as an amendment to
the initial report filed October 12, 1999.
<PAGE> 5
Report of Independent Accountants
Board of Directors
Marketwave Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations, of shareholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Marketwave Corporation at
March 31, 1998 and 1999, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
October 14, 1999
<PAGE> 6
MARKETWAVE CORPORATION
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1999 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 261,958 $ 1,261,612 $ 355,467
Restricted cash 91,752
Accounts receivable, net 103,708 369,190 1,153,859
Prepaid expenses and other current assets 29,188 44,032 69,211
----------- ----------- -----------
Total current assets 486,606 1,674,834 1,578,537
=========== =========== ===========
Property and equipment, net 104,491 197,190 266,354
Other assets, net of accumulated amortization of
$12,500, $29,166 and $37,500 (unaudited) 49,995 33,328 24,995
----------- ----------- -----------
Total assets $ 641,092 $ 1,905,352 $ 1,869,886
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 80,340 $ 179,789 $ 317,789
Accrued liabilities 62,390 146,188 204,201
Deferred revenue 42,816 156,215 816,213
----------- ----------- -----------
Total current liabilities 185,546 482,192 1,338,203
=========== =========== ===========
Commitments and contingencies
Shareholders' equity
Series A convertible preferred stock, $0.001 par value; 2,500,000 shares
authorized; issued and outstanding, 1,575,630, 2,352,950 and 2,352,950
shares (preference in liquidation of $750,000, $1,120,002 and $1,120,002) 750,000 1,120,002 1,120,002
Series B convertible preferred stock, $0.001 par value;
5,000,000 shares authorized; issued and outstanding, none, 4,558,822 and
4,558,822 shares (preference in liquidation of $1,549,999) 1,520,978 1,520,978
Common stock, $0.001 par value; 22,500,000 shares
authorized; issued and outstanding, 7,753,125
7,815,625, 8,398,271 shares 7,753 7,816 8,399
Additional paid-in capital 20,332 258,976 450,491
Unearned compensation (203,901) (349,038)
Accumulated deficit (322,539) (1,280,711) (2,219,149)
----------- ----------- -----------
Total shareholders' equity 455,546 1,423,160 531,683
=========== =========== ===========
Total liabilities and shareholders' equity $ 641,092 $ 1,905,352 $ 1,869,886
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
MARKETWAVE CORPORATION
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
-------------------------- --------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue
Software revenue $ 879,359 $ 1,448,467 $ 591,115 $ 1,826,464
Maintenance and service 57,561 284,463 94,760 411,479
----------- ----------- ----------- -----------
Total revenue 936,920 1,732,930 685,875 2,237,943
----------- ----------- ----------- -----------
Cost of revenue 86,671 242,426 99,818 180,254
----------- ----------- ----------- -----------
Gross profit 850,249 1,490,504 586,057 2,057,689
----------- ----------- ----------- -----------
Operating expenses
Research and development 170,964 279,111 144,069 384,930
Sales and marketing 782,780 1,552,126 617,166 2,040,413
General and administrative 190,425 601,442 222,734 555,099
Amortization of unearned compensation 30,556 29,463
----------- ----------- ----------- -----------
Total operating expenses 1,144,169 2,463,235 983,969 3,009,905
----------- ----------- ----------- -----------
Loss from operations (293,920) (972,731) (397,912) (952,216)
Other income (expense), net 13,658 14,559 3,431 13,778
----------- ----------- ----------- -----------
Net loss $ (280,262) $ (958,172) $ (394,481) $ (938,438)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
MARKETWAVE CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------- ----------- ----------- ----------- ---------- -----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1997 -- $ -- -- $ -- 7,500,000 $ 7,500
Exercise of stock
options 253,125 253
Issuance of Series A
preferred stock 1,575,630 $ 750,000
Net loss
--------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1998 1,575,630 750,000 7,753,125 7,753
Issuance of common
stock 37,500 38
Issuance of Series A
preferred stock 777,320 370,002
Exercise of stock
options 484,375 484
Repurchase of common
stock (459,375) (459)
Issuance of Series B
preferred stock, net
of offering costs of
$ 29,021 4,558,822 1,520,978
Unearned compensation
related to grants of
stock options
Amortization of unearned
compensation
Net loss
--------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1999 2,352,950 1,120,002 4,558,822 1,520,978 7,815,625 7,816
========== =========== =========== =========== =========== ===========
Unearned compensation
related to grants of
stock options (unaudited)
Exercise of stock options
(unaudited) 582,646 583
Amortization of unearned
compensation (unaudited)
Net loss (unaudited)
--------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 1999
(unaudited) 2,352,950 $ 1,120,002 4,558,822 $ 1,520,978 8,398,271 $ 8,399
========= =========== =========== =========== =========== ===========
<CAPTION>
ADDITIONAL
PAID-IN UNEARNED ACCUMULATED
CAPITAL COMPENSATION DEFICIT TOTAL
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, April 1, 1997 $ 14,961 $ -- $ (42,277) $ (19,816)
Exercise of stock
options 5,371 5,624
Issuance of Series A
preferred stock 750,000
Net loss (280,262) (280,262)
-------- ----------- ----------- -----------
Balance, March 31, 1998 20,332 (322,539) 455,546
Issuance of common
stock 2,962 3,000
Issuance of Series A
preferred stock 370,002
Exercise of stock
options 10,992 11,476
Repurchase of common
stock (9,767) (10,226)
Issuance of Series B
preferred stock, net
of offering costs of
$29,021 1,520,978
Unearned compensation
related to grants of
stock options 234,457 (234,457) --
Amortization of unearned
compensation 30,556 30,556
Net loss (958,172) (958,172)
-------- ----------- ----------- -----------
Balance, March 31, 1999 258,976 (203,901) (1,280,711) 1,423,160
======== =========== =========== ===========
Unearned compensation
related to grants of
stock options (unaudited) 174,600 (174,600) --
Exercise of stock options
(unaudited) 16,915 17,498
Amortization of unearned
compensation (unaudited) 29,463 29,463
Net loss (unaudited) (938,438) (938,438)
-------- ----------- ----------- -----------
Balance, September 30, 1999
(unaudited) $450,491 $ (349,038) $(2,219,149) $ 531,683
======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
MARKETWAVE CORPORATION
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
--------------------------- -------------------------
1998 1999 1998 1999
----------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (280,262) $ (958,172) $(394,481) $ (938,438)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 33,010 68,526 27,376 67,488
Stock-based compensation expense 30,556 29,463
Changes in assets and liabilities
Restricted cash (91,752) 91,752 36,743
Accounts receivable (92,019) (265,482) (90,266) (784,669)
Prepaid expenses and other current assets (28,818) (14,844) 25,847 (25,179)
Other assets (12,495)
Accounts payable 50,827 99,449 (2,345) 138,000
Accrued expenses 48,640 83,798 6,473 58,013
Deferred revenue 32,419 113,399 19,166 659,998
----------- ----------- --------- -----------
Net cash used in operating activities (340,450) (751,018) (371,487) (795,324)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (104,143) (144,558) (50,073) (128,319)
Purchase of software license (50,000)
----------- ----------- --------- -----------
Net cash used in investing activities (154,143) (144,558) (50,073) (128,319)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 3,000 3,000
Repurchase of common stock (10,226)
Proceeds from issuance of Series A preferred stock 750,000 370,002 370,002
Proceeds from issuance of Series B preferred stock 1,520,978
Exercise of stock options 5,624 11,476 1,250 17,498
----------- ----------- --------- -----------
Net cash provided by financing activities 755,624 1,895,230 374,252 17,498
----------- ----------- --------- -----------
Net increase (decrease) in cash and cash equivalents 261,031 999,654 (47,308) (906,145)
Cash and cash equivalents
Beginning of period 927 261,958 261,958 1,261,612
----------- ----------- --------- -----------
End of period $ 261,958 $ 1,261,612 $ 214,650 $ 355,467
=========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
MARKETWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Marketwave Corporation (the "Company") was originally incorporated in the State
of Washington as a limited liability company ("LLC") on May 6, 1996. On August
19, 1997, the Company was re-incorporated in the State of Washington as a C
Corporation without changing its ownership. The Company develops and sells
computer software designed to monitor and analyze Internet and intranet traffic.
The Company's products allow web marketers and webmasters to identify and
examine how their Internet and intranet web sites are being used by visitors.
This is accomplished by providing information about how visitors found the site,
what paths visitors use once at the site, what type of information visitors are
searching for when at the site, and which parts of the site are getting the most
traffic.
CERTAIN RISKS AND CONCENTRATIONS
The market in which the Company competes is characterized by rapid technological
change, frequent new product introductions, changes in customer requirements and
emerging industry standards. Significant technological change could adversely
affect the Company's operating results and subject the Company to returns of
products. While the Company has ongoing programs to minimize the adverse affect
of such changes and considers technological changes in estimating its allowance,
such estimates could change in the future.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original or remaining maturity of three months or less at the date of purchase
to be cash equivalents.
RESTRICTED CASH
Restricted cash represents funds set aside in a certificate of deposit to secure
an irrevocable letter of credit obtained by the Company in connection with a
sublease agreement. The letter of credit expired January 31, 1999.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts, based on specific identification of
balances and included in accounts receivable was $1,890, $15,995 and $23,985
(unaudited) as of March 31, 1998, 1999 and September 30, 1999, respectively.
<PAGE> 11
MARKETWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is recorded
using the straight-line method over the estimated useful lives of the respective
assets, generally three to five years. When assets are sold or retired, the cost
and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in operations.
OTHER ASSETS
Other assets consist of purchased software as well as rental and security
deposits. Software in the amount of $50,000 was purchased from the founder of
the Company in 1997 and is being amortized over three years.
REVENUE RECOGNITION
The Company adopted the provisions of Statement of Position 97-2, or SOP 97-2,
Software Revenue Recognition, as amended by Statement of Position 98-4, Deferral
of the Effective Date of Certain Provisions of SOP 97-2, Software Revenue
Recognition, effective April 1, 1998. SOP 97-2 supersedes Statement of Position
91-1, Software Revenue Recognition, and delineates the accounting for software
product, products including software that is not incidental to the product, and
maintenance revenues. Under SOP 97-2, the Company recognizes product revenues
upon shipment if a signed contract exists, the fee is fixed and determinable,
collection of the resulting receivables is probable and product returns are
reasonably estimable. The Company allows for product returns for 30 days
following the purchase of a software license. Therefore, provision for estimated
product returns are recorded at the time the products are shipped.
For contracts with multiple obligations (e.g. software licenses and training),
revenue is allocated to each component of the contract based on objective
evidence of its fair value, which is specific to the Company. The Company
recognizes revenue allocated to undelivered products when the criteria for
product revenue set forth above are met. The Company recognizes revenue for
annual upgrades and support (AUS) ratably over the service period. Payments for
AUS are generally made in advance and are non-refundable. For revenue allocated
to consulting services, such as installation and training, the Company
recognizes revenue as the related services are performed.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred. Software
development costs are capitalized beginning when a product's technological
feasibility has been established and ending when a product is available for
general release to customers. Amounts that could have been capitalized under
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer
<PAGE> 12
MARKETWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Software to be Sold, Leased or Otherwise Marketed, have been
insignificant and therefore no costs have been capitalized to date.
ADVERTISING EXPENSE
The Company accounts for advertising costs as expense in the period in which
they are incurred. Advertising expense for the fiscal years ended March 31, 1998
and 1999 was $26,605 and $52,447, respectively. For the six months ended
September 30, 1998 and 1999, the advertising expense was $52,106 and $168,854
(unaudited).
COMPREHENSIVE INCOME
The Company has adopted the provisions of Statement of Financial Accountings
Standards No. 130, "Reporting Comprehensive Income", or SFAS No. 130, effective
March 31, 1998. SFAS No. 130 requires the disclosure of comprehensive income and
its components in a full set of general-purpose financial statements.
Comprehensive income is the change in equity from transactions and other events
and circumstances other than those resulting from investments by owners and
distributions to owners. SFAS No. 130 had no impact on the Company, and
accordingly, a separate statement of comprehensive income has not been
presented.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25, or
APB 25, Accounting for Stock Issued to Employees.
INCOME TAXES
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of September 30, 1999 and for the six months ended
September 30, 1998 and 1999 is unaudited; however, in the opinion of management,
the interim data includes all adjustments consisting only of normal recurring
adjustments, necessary to present fairly the Company's financial position as of
September 30, 1999 and the results of its operations for the six months ended
September 30, 1998 and 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities, recorded amounts
approximate fair value due to the relatively short maturity period.
<PAGE> 13
MARKETWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants, or AICPA
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." This statement requires that once
certain capitalization criteria have been met, the direct costs of developing or
obtaining computer software for internal use be capitalized. The statement will
be effective for fiscal years beginning after December 15, 1998. On April 1,
1999, the Company adopted this statement. As of September 30, 1999, the Company
had capitalized computer software costs of $26,284 and recognized the related
amortization expense $4,516 for the six months ended September 30, 1999
(unaudited).
In April 1998, the AICPA issued Statement of Position 98-5, or SOP 98-5,
"Reporting on the Costs of Start-Up Activities." SOP 98-5 requires companies to
expense the costs of start-up activities and organization costs as incurred. In
general, SOP 98-5 is effective for fiscal years beginning after December 15,
1998. The Company believes the adoption of SOP 98-5 will not have a material
impact on its results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, or SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
derivative instrument embedded in other contracts, and hedging activities SFAS
No. 133 is effective for all fiscal quarters beginning after June 15, 2000. The
Company does not expect SFAS No. 133 to have significant effect on its financial
condition or results of operations.
In December 1998, the AICPA, issued Statement of Position 98-9, or SOP 98-9,
"Modification of SOP 97-2, `Software Revenue Recognition,' With Respect to
Certain Transactions." SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence, or VSOE, of the
fair value of all the undelivered elements that are not accounted for by means
of long-term contract accounting, and (2) VSOE of fair value does not exist for
one or more of the delivered elements, and (3) all the revenue recognition
criteria of SOP 97-2 have been met. SOP 98-9 will be effective for transactions
that are entered into in fiscal years beginning after March 15, 1999.
Retroactive application is prohibited. The Company does not expect SOP 98-9 to
have any effect on its results of operations.
<PAGE> 14
MARKETWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
<TABLE>
<CAPTION>
MARCH 31,
------------------------- SEPTEMBER 30,
1998 1999 1999
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment $ 115,161 $ 209,676 $ 324,056
Equipment 6,057 22,950 35,971
Furniture and fixtures 5,960 39,110 40,029
--------- --------- ---------
127,178 271,736 400,056
Accumulated depreciation (22,687) (74,546) (133,702)
--------- --------- ---------
$ 104,491 $ 197,190 $ 266,354
========= ========= =========
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at:
<TABLE>
<CAPTION>
MARCH 31,
------------------------ SEPTEMBER 30,
1998 1999 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued commissions $ 6,444 $ 25,285 $ 97,918
Technical support 30,005 30,005 10,005
Accrued vacation 7,977 37,539 21,491
Other 17,964 53,359 74,787
-------- -------- --------
$ 62,390 $146,188 $204,201
======== ======== ========
</TABLE>
<PAGE> 15
MARKETWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INCOME TAXES
Upon inception, the Company's shareholders elected to file income taxes as
a Limited Liability Corporation. On August 19, 1997, the Company changed
its status from a LLC to a C corporation and from a cash-basis to an
accrual-basis taxpayer. The cash-to-accrual adjustment increased the book
loss for tax purposes. The Company's total deferred taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial statement purposes and the amounts used for
federal income tax purposes. The Company's deferred tax assets at March 31
are as follows:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Depreciation and amortization $1,736 $3,642
Other accruals and allowances 13,557 28,404
Federal net operating loss carryforwards 90,919 386,425
Federal tax credit carryforwards 9,158 29,023
--------- ---------
115,370 447,494
Less: Valuation allowance (115,370) (447,494)
--------- ----------
Net deferred tax assets $ -- $ --
======== =========
</TABLE>
The Company has fully reserved for any benefit from temporary differences
and net operating loss or tax credit carryforwards as realization of such
benefits is not reasonably assured. The Company's net operating loss and
tax credit carryforward expires in 2012 through 2019.
5. SHAREHOLDERS' EQUITY
AUTHORIZED SHARES
There are 30,000,000 shares authorized in total, of which 22,500,000 have
been designated as common stock, 2,500,000 as Series A preferred stock, and
5,000,000 as Series B preferred stock.
On August 19, 1997, the Board of Directors amended the Company's
certificate of incorporation and changed its status from a limited
liability corporation to a C corporation. The change was effected in the
form of issuance of 15 shares of common stock in exchange for each unit of
Marketwave, LLC. The unit information in the statement of shareholders'
equity (deficit) and in Note 6 to the financial statements has been
restated to reflect this exchange.
<PAGE> 16
MARKETWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STOCK SPLIT
On October 5, 1998, the Board of Directors authorized a four-for-one common
and preferred stock split. Each holder of common and preferred stock
received four shares of their respective stock for each share of stock
issued and outstanding. This stock split was effected in the form of a
stock dividend. All applicable share and per share data has been
retroactively adjusted for this stock split.
CONVERTIBLE PREFERRED STOCK
The convertible preferred stock is issuable in one or more series, each
with such designations, rights, qualifications, limitations and
restrictions as the Board of Directors of the Company may determine at the
time of issuance. The terms of the Company's convertible preferred stock
are as follows:
Conversion: Each share of preferred stock is convertible at the option
of the holder into such number of common stock as is determined by
dividing the original issue price by the conversion price in effect at
the time of conversion. Under the terms of the agreement, preferred
stock will be automatically converted into shares of common stock upon
the closing of a public offering at not less than $5.00 per share
($7.15 per share prior to amendment of articles of incorporation on
October 9, 1998) or at least $15,000,000 in the aggregate or the date
specified by agreement of the holders of a majority of the then
outstanding Series A and Series B preferred stock.
Liquidation: In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of Series A and
Series B preferred stock will be entitled to receive, prior to and in
preference to any distribution of any of the assets of the Company to
the holders of the common stock, the amount of $0.476 and $0.34 per
share, respectively plus an amount equal to all declared but unpaid
dividends on the Series A and Series B convertible preferred stock.
After such distributions have been made and assets still remain in the
Company, the shareholders of the common stock will receive the
remaining assets based upon their pro-rata ownership.
Dividends: The holders of record of outstanding shares of preferred
stock shall be entitled to receive a noncumulative cash dividend, if
and when declared by the Board of Directors in its discretion. No
dividend may be declared or paid on common stock if the net assets of
the Company after such an event would be insufficient to make the
liquidation payment.
Voting: Each holder of shares of Series A and Series B preferred stock
has one vote for each full share of common stock into which its
respective shares of Series A and Series preferred stock would be
convertible on the
<PAGE> 17
MARKETWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
record date for the vote. The holders of Series A and Series B
convertible preferred stock have certain registration rights.
6. STOCK OPTION PLAN
On August 19, 1997, the Company adopted a stock option plan (the Plan)
which provides for the issuance of up to 4,750,000 shares of common stock
to employees, directors, and officers of the Company. This stock option
plan replaced a unit option plan established in 1996 for Marketwave, LLC.
Under the Plan, the term of each option is ten years from the date of
grant. The options may be incentive or non-statutory options and vest
ratably over periods from one to four years.
The Company accounts for stock-based employee compensation in accordance
with APB 25. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the fair value of the Company's stock at the date
of grant over the exercise price. During fiscal year 1999, the Company
issued stock options to certain employees under the Plan with exercise
prices below the deemed fair market value of the Company's common stock at
the date of grant. The Company has recorded unearned compensation for the
differences between the exercise price of the stock options and the deemed
fair market value of the Company's stock at the grant date. This unearned
compensation is amortized to expense over the period during which the
options become exercisable. At March 31, 1999, the Company recorded
unearned compensation related to these options in the total amount of
$234,457, of which $30,556 had been amortized during the fiscal year ended
March 31, 1999.
Option activity under the Plan is as follows:
<PAGE> 18
MARKETWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------------------------------------
WEIGHTED-
SHARES AVERAGE
AVAILABLE NUMBER EXERCISE AGGREGATE EXERCISE
FOR GRANT OF SHARES PRICE PRICE PRICE
---------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Balances, April 1, 1997 825,000 2,175,000 $.02 - $.03 $ 49,048 $ 0.02
Options exercised (253,125) $ 0.02 (5,624) $ 0.02
Options granted (504,500) 504,500 $.05 - $.08 26,875 $ 0.03
Options canceled 140,625 (140,625) $.02 - $.03 (3,460) $ 0.02
---------- --------- ----------- --------- --------
Balances, March 31, 1998 461,125 2,285,750 $.02 - $.08 66,839 $ 0.03
Shares reserved 2,003,125
Options granted (1,711,678) 1,711,678 $.07 - $.08 136,434 $ 0.08
Options exercised (484,375) $.02 - $.05 (11,476) $ 0.02
Options canceled 77,500 (77,500) $.05 - $.08 (4,550) $ 0.06
---------- --------- ----------- --------- --------
Balances, March 31, 1999 830,072 3,435,553 $.02 - $.08 $ 187,247 $ 0.05
========== ========== =========== ========= ========
</TABLE>
<PAGE> 19
MARKETWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes information with respect to stock options
outstanding at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------------------
WEIGHTED-
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL OPTIONS
PRICE OUTSTANDING LIFE EXERCISABLE
-------- ----------- ----------- -----------
<S> <C> <C> <C>
$ 0.02 1,246,875 8.39 1,246,875
$ 0.03 75,000 8.39 65,625
$ 0.05 369,500 8.56 161,342
$ 0.07 50,000 9.06 45,833
$ 0.08 1,694,178 9.67 194,644
------ --------- ---- ---------
3,435,553 1,714,319
========= =========
</TABLE>
At March 31, 1998 and 1999, options to purchase 1,392,093 and 1,714,319
shares of common stock, respectively, were exercisable.
The following information is presented in accordance with the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation. The fair value of each option
grant to employees has been estimated on the date of grant using the
minimum value method allowed for non-public companies and using the
following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Risk-free interest rates 6.04% 5.18%
Expected life 5 years 5 years
Expected dividends 0 0
</TABLE>
The weighted-average fair value of the options granted was $0.01 and $0.04
per share for the years ended March 31, 1998 and 1999, respectively.
Had compensation expense for the stock option plans been determined based
on the fair value at the grant date for options granted in 1998 and 1999,
the pro forma net loss would have been $305,387 and $1,031,260,
respectively.
During 1999, options to purchase 1,106,168 shares of the Company's stock,
with a weighted average exercise price of $0.08 per share and a weighted
average fair
<PAGE> 20
MARKETWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
value of $0.04 per share were granted with an exercise price below the
estimated market value at the date of the grant.
7. COMMITMENTS
The Company has operating leases for corporate facilities and various
equipment. The lease for corporate facilities expires June 30, 2001. Rental
expense is amortized on a straight-line basis over the periods in which
benefit from the property is derived. Rent expense under the operating
leases was $48,795 and $115,225 for the years ended March 31, 1998 and
1999, respectively. Rent expense for the six months ended September 30,
1998 and 1999 was $54,315 (unaudited) and $65,422 (unaudited).
Future minimum rental payments required under the noncancellable operating
leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
<S> <C>
2000 $125,412
2001 125,412
2002 31,353
--------
$282,177
========
</TABLE>
8. RELATED PARTY TRANSACTIONS
A member of the Company's Board of Directors entered into a consulting
contract with the Company to provide general consulting services relating
to sales, marketing, operational and business development issues for the
period from July 16, 1998 through November 30, 1998. Total cash payments to
the director for this period was $15,000. The arrangement also provided for
additional compensation of $3,000 in the form of 37,500 shares of the
Company's common stock and a grant of nonqualified options to purchase an
additional 125,000 shares of common stock at an exercise price of $0.08 per
share.
9. SUBSEQUENT EVENTS
On September 30, 1999, the Company entered into a business combination
agreement that was accounted for by the acquirer using the pooling of
interest accounting method.
<PAGE> 21
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
On September 30, 1999, Accrue Software, Inc. (Accrue) completed the acquisition
of Marketwave Corporation (Marketwave), a Washington State corporation. Under
the terms of the acquisition, which was accounted for as a pooling of interests,
Accrue exchanged approximately 3,446,414 shares of Accrue Common Stock for all
of the Marketwave outstanding common stock and unexpired and unexercised options
to acquire Marketwave common stock
The following unaudited pro forma combined condensed statements of operations
give effect to the merger between Accrue and Marketwave accounted for on a
pooling-of-interests basis and are based on each company's respective historical
statements of operations. The pro forma combined condensed consolidated
statements of operations assume the merger occurred at the beginning of the
earliest year presented.
The results of operations of Accrue and Marketwave for the years ended March 31,
1997, 1998 and 1999 have been derived from their respective historical financial
statements. The pro forma financial statements should be read in conjunction
with the accompanying notes thereto and with the historical financial statements
and related notes thereto.
Accrue and Marketwave estimate that they will incur direct transaction costs of
approximately $3.6 million associated with the merger, consisting of transaction
fees for investment bankers, attorneys, accountants, financial printing and
other related charges. These nonrecurring transaction costs have been charged to
operations. There can be no assurance that Accrue and Marketwave will not incur
additional charges to reflect costs associated with the merger or that
management will be successful in its efforts to integrate the operations of the
two companies.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred if the merger had been consummated at the beginning of the
earliest period presented, nor is it necessarily indicative of future operating
results.
<PAGE> 22
Accrue Software, Inc.
Pro Forma Combined Condensed Statements of Operations
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Accrue
Accrue Software, Inc. Marketwave Corporation Pro Forma Combined
May 6, 1996
(Inception)
Year ended March 31, to March 31, Year ended March 31, Year ended March 31,
------- ------- ------- ------------- ------------------- ------- ------- --------
1997 1998 1999 1997 1998 1999 1997 1998 1999
------- ------- ------- ------------- --------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue:
Software license $ 163 $ 978 $ 2,192 $ 231 $ 879 $ 1,448 $ 394 $ 1,857 $ 3,640
Maintenance and service 19 142 760 17 58 284 36 200 1,044
------- ------- ------- ----- ------- ------- ------- ------- --------
Total revenue 182 1,120 2,952 248 937 1,732 430 2,057 4,684
Cost of revenue 22 141 227 8 87 242 30 228 469
------- ------- ------- ----- ------- ------- ------- ------- --------
Gross profit 160 979 2,725 240 850 1,490 400 1,829 4,215
Operating expenses:
Research and development 909 2,232 2,887 38 171 279 947 2,403 3,166
Sales and marketing 670 1,961 3,896 148 783 1,552 818 2,744 5,448
General and administrative 616 772 1,326 95 190 601 711 962 1,927
Stock-based compensation
expense -- -- 1,294 -- -- 31 -- -- 1,325
------- ------- ------- ----- ------- ------- ------- ------- --------
Total operating expenses 2,195 4,965 9,403 281 1,144 2,463 2,476 6,109 11,866
======= ======= ======= ===== ======= ======= ======= ======= ========
Loss from operations (2,035) (3,986) (6,678) (41) (294) (973) (2,076) (4,280) (7,651)
Other income, net 108 83 81 (1) 14 15 107 97 96
Interest expense -- (18) (46) -- -- -- -- (18) (46)
------- ------- ------- ----- ------- ------- ------- ------- --------
Net loss $(1,927) $(3,921) $(6,643) $ (42) $ (280) $ (958) $(1,969) $(4,201) $ (7,601)
======= ======= ======= ===== ======= ======= ======= ======= ========
Net loss per share,
basic and diluted $ (0.72) $ (1.37) $ (2.06) $(10.50) $ (0.20) $ (0.66) $(0.73) $ (0.99) $ (1.63)
======= ======= ======= ===== ======= ======= ======= ======= ========
Shares used in per
share calculation,
basic and diluted 2,686 2,859 3,223 4 1,405 1,447 2,690 4,264 4,670
======= ======= ======= ===== ======= ======= ======= ======= ========
</TABLE>
(See notes to unaudited pro forma combined condensed statements of operations)
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
1. BASIS OF PRESENTATION
The unaudited pro forma combined condensed consolidated statements of operations
combine the results of Accrue's and Marketwave's operations for the years ended
March 31, 1999, March 31, 1998, and the year ended March 31, 1997 and the period
from May 6, 1996 (date of inception) to March 31, 1997, respectively.
2. UNAUDITED PRO FORMA COMBINED NET LOSS PER SHARE
The unaudited pro forma combined basic and diluted net loss per share is based
on the combined weighted average number of common shares of Accrue and
Marketwave common stock for each period. Marketwave's weighted average shares
are based upon the share exchange ratio of .1858 of Accrue common stock. The
assumed share exchange ratio of .1858 shares is calculated based on the number
of shares of Marketwave common stock and options to purchase Marketwave common
stock outstanding as of September 30, 1999. Options, warrants and shares subject
to repurchase were not included in the diluted net loss per share because the
effect would be antidilutive.
3. PRO FORMA UNAUDITED COMBINED SHARES OUTSTANDING
The unaudited pro forma combined net loss per share reflects the issuance of
2,880,482 shares of Accrue common stock in exchange for an aggregate of
15,503,131 shares of Marketwave common stock outstanding, based on the
outstanding Marketwave common stock and potential common shares as of September
30, 1999. Marketwave optionholders have 90 days subsequent to the date of the
merger to exercise their stock options to purchase 565,932 shares of Accrue. The
following table details the pro forma share issuance in connection with the
Merger, assuming no conversion of Marketwave options into Accrue common stock:
<TABLE>
<S> <C>
Marketwave common stock outstanding as of
September 30, 1999 15,503,131
Assumed exchange rate 0.1858
Number of shares of Accrue common stock exchanged
for Marketwave common stock 2,880,482
Total number of shares of Accrue common stock as
of September 30, 1999 21,874,844
Number of Accrue common shares outstanding after
the completion of the Merger as of September 30, 1999 24,755,326
</TABLE>
<PAGE> 24
4. TRANSACTION COSTS AND MERGER RELATED EXPENSES
Accrue and Marketwave estimate that they will incur direct transaction costs of
approximately $3.6 million associated with the merger, consisting of transaction
fees for investment bankers, attorneys, accountants, financial printing and
other related charges. These nonrecurring transaction costs have been charged to
operations. There can be no assurance that Accrue and Marketwave will not incur
additional charges to reflect costs associated with the merger or that
management will be successful in its efforts to integrate the operations of the
two companies.
<PAGE> 25
<TABLE>
<CAPTION>
(c) Exhibits.
---------
<S> <C>
2.1* Form of Agreement and Plan of Merger and Reorganization dated as of
September 14, 1999, among the Company, Merger Sub, Target and the
shareholders of Target.
4.1* Form of Investor Rights Agreement, dated September 30, 1999, among the
Company and the shareholders of Target.
20.1* Press release dated September 15, 1999 announcing the execution of
the Agreement and Plan of Merger and Reorganization.
</TABLE>
- ----------
* Incorporated by reference from Current Report on Form 8-K previously filed
by the Registrant on October 12, 1999 with the Securities and Exchange
Commission via Edgar, and dated September 30, 1999.
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ACCRUE SOFTWARE, INC.
Date: November 15, 1999 By: /s/ GREGORY C. WALKER
-------------------------------------
Gregory C. Walker
Vice President of Finance and
Chief Financial Officer
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1* Form of Agreement and Plan of Merger and Reorganization,
dated as of September 14, 1999, among the Company, Merger
Sub, Target and the shareholders of Target.
4.1* Form of Investor Rights Agreement, dated September 30, 1999,
among the Company and the shareholders of Target.
20.1* Press Release dated September 15, 1999 announcing the
execution of the Agreement and Plan of Merger and
Reorganization.
</TABLE>
- ----------
* Incorporated by reference from Current Report on Form 8-K previously filed
by the Registrant on October 12, 1999 with the Securities and Exchange
Commission via Edgar, and dated September 30, 1999.
