<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported) January 19, 2000 (January 4, 2000)
----------------------------------
E.piphany, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 77-0443392
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</TABLE>
1900 South Norfolk Street, Suite 310, San Mateo, California 94403
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 356-3800
--------------
N/A
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 15, 1999, the Company entered into an Agreement and Plan of
Merger and Reorganization, dated as of November 15, 1999 (the "Reorganization
Agreement"), by and among E.piphany, Inc., a Delaware Corporation ("Parent"),
Yosemite Acquisition Corporation, a Delaware Corporation and a wholly owned
subsidiary of Parent ("Sub") and RightPoint Software, Inc., a Delaware
Corporation (the "Company"). The closing of the Merger took place on January 4,
2000 and the Merger was consummated by the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware. The description contained
in this Item 2 of the transactions contemplated by the Reorganization Agreement
is qualified in its entirety by reference to the full text of the Reorganization
Agreement, a copy of which is attached hereto as Exhibit 2.1.
The Reorganization Agreement contemplated that, subject to the satisfaction
of certain conditions set forth therein, including without limitation the
approval and adoption of the Reorganization Agreement by the requisite vote of
the Company's stockholders and the approval of the issuance of E.piphany common
stock in the Merger by E.piphany's board, Sub was merged with and into the
Company (the "Merger"). As a result of the Merger, the Company became a
wholly-owned subsidiary of E.piphany. The Merger was intended to be a tax-free
reorganization under the Internal Revenue Code of 1986, as amended, and was
intended to be accounted for as a purchase transaction.
Under the terms of the Merger, 3,076,830 shares of E.piphany common stock
were exchanged for all outstanding shares of RightPoint stock and 477,710 shares
of E.piphany common stock were set aside as a reserve for the assumption of
RightPoint options and warrants. Each share of RightPoint stock issued and
outstanding immediately prior to the closing of the merger was cancelled and
converted automatically into a number of shares of E.piphany common stock
computed in accordance with the Reorganization Agreement.
The Reorganization Agreement provided that at the closing of the merger
each issued and outstanding option or right to purchase RightPoint stock,
whether or not exercisable, were assumed by E.piphany. Each stock option
continued to have the same terms and conditions as it had immediately prior to
the closing of the merger, except that the number of shares of E.piphany common
stock into which it was exercisable and its exercise price were adjusted
according to the same manner as the conversion of RightPoint stock into
E.piphany common stock.
In connection with the Merger, fifteen percent (15%) of the number of
shares of the Company's common stock issuable in respect of the RightPoint stock
at the closing of the Merger were placed in escrow with U.S. Bank Trust, N.A.
Subject to resolution of unsatisfied claims by E.piphany, on January 4, 2001,
the escrow fund will be reduced to an amount equal to 10% of the merger
consideration, with the balance of the shares distributed to the former
stockholders of RightPoint. Subject to any unresolved claims, the escrow fund
and the indemnity will terminate on July 4, 2001, and the remaining shares
distributed to the former stockholders of RightPoint. Each RightPoint
stockholder was deemed to have contributed into the escrow fund in proportion to
the aggregate number of shares of the Company common stock that such stockholder
would otherwise have been entitled under the Reorganization Agreement. The
escrow fund will be available to compensate the Company for any losses as a
result of any inaccuracy in the representations or warranties of RightPoint
contained in the Reorganization Agreement or any failure to comply with any
covenant contained in the Reorganization Agreement.
1
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS
The financial statements required by paragraph (a) of Item 7 are filed as
Exhibit 99.2 to this Form 8-K and hereby incorporated by reference into the text
of this Form 8-K.
(b) PRO FORMA FINANCIAL INFORMATION
The pro forma financial information required by paragraph (b) of Item 7 are
filed as Exhibit 99.1 to this Form 8-K and hereby incorporated by reference into
the text of this Form 8-K.
(c) EXHIBITS.
<TABLE>
<S> <C>
2.1* Agreement and Plan of Merger and Reorganization,
dated November 15, 1999, by and among E.piphany,
Inc., Yosemite Acquisition Corporation and RightPoint
Software, Inc.
23.1 Consent of KPMG, LLP, Independent Accountants
99.1 E.piphany, Inc.'s Pro Forma Financial Statements
99.2 RightPoint Software, Inc.'s Financial Statements
</TABLE>
- -----------
* Previously filed as an exhibit to Registrant's Registration Statement on
Form S-4 (File No. 333-92013), declared effective on December 3, 1999, and
incorporated herein by reference.
2
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
E.PIPHANY, INC.
/s/ KEVIN J. YEAMAN
--------------------------------------
Kevin J. Yeaman
Chief Financial Officer
Date: January 19, 2000
3
<PAGE> 5
E.PIPHANY, INC.
CURRENT REPORT ON FORM 8-K
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1* Agreement and Plan of Merger and Reorganization,
dated November 15, 1999, by and among E.piphany,
Inc., Yosemite Acquisition Corporation and RightPoint
Software, Inc.
23.1 Consent of KPMG, LLP, Independent Accountants
99.1 E.piphany, Inc.'s Pro Forma Financial Statements
99.2 RightPoint Software, Inc.'s Financial Statements
</TABLE>
- -----------
* Previously filed as an exhibit to Registrant's Registration Statement on
Form S-4 (File No. 333-92013), declared effective on December 3, 1999, and
incorporated herein by reference.
4
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
E.piphany, Inc.:
We consent to the use of our report dated September 10, 1999 on the consolidated
financial statements of RightPoint Software, Inc. and subsidiary as of June 30,
1998 and 1999 and the related consolidated statements of operations and
comprehensive loss, stockholders' equity, and cash flows for the years then
ended included in Form 8-K of E.piphany, Inc. to be filed on or about January
18, 2000.
/s/ KPMG LLP
Mountain View, California
January 18, 2000
<PAGE> 1
Exhibit 99.1
E.PIPHANY, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the acquisition by E.piphany, Inc. of all outstanding shares of
RightPoint Software, Inc. in a transaction accounted for as a purchase.
The pro forma combined condensed statements of operations of E.piphany for
the twelve months ended December 31, 1998 and for the nine months ended
September 30, 1999 assume that the acquisition of RightPoint took place as of
the beginning of the earliest period presented. The statements combine
E.piphany's and RightPoint's statements of operations for the twelve months
ended December 31, 1998 and for the nine months ended September 30, 1999,
respectively.
The pro forma combined condensed balance sheet as of September 30, 1999
combines E.piphany's September 30, 1999 balance sheet with RightPoint's
September 30, 1999 balance sheet as if the acquisition had been consummated on
that date.
The unaudited pro forma combined condensed information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have actually occurred if the
acquisition had been consummated as of the dates indicated, nor is it
necessarily indicative of future operating results or financial position. The
pro forma adjustments are based on the information available at the date of this
filing and are subject to change based upon completion of the transaction and
final purchase price allocation, including completion of third party appraisals.
E.piphany's condensed financial information included in these pro forma
financial statements is derived from its December 31, 1998 and September 30,
1999 audited financial statements included elsewhere in this filing.
RightPoint's condensed balance sheet included in the accompanying pro forma
unaudited combined condensed balance sheet is derived from its unaudited
historical consolidated balance sheet as of September 30, 1999 included
elsewhere in this filing. The results of operations of RightPoint included in
the unaudited pro forma condensed combined statements of operations of the year
ended December 31, 1998 and the nine months ended September 30, 1999 were
derived from its financial statements for the same periods that have not been
included in this filing.
The unaudited condensed financial information of RightPoint has been
prepared in accordance with generally accepted accounting principles applicable
to interim financial information and, in the opinion of RightPoint's management,
includes all adjustments necessary for a fair presentation of the financial
information for such interim periods.
P-1
<PAGE> 2
E.PIPHANY, INC.
PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
E.PIPHANY RIGHTPOINT ADJUSTMENTS COMBINED
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 89,701 $ 4,229 $ -- $ 93,930
Short term investments.......................... -- 1,454 -- 1,454
Accounts receivable, net........................ 3,193 1,119 -- 4,312
Prepaid expenses and other assets............... 2,155 236 -- 2,391
-------- -------- -------- --------
Total current assets.................... 95,049 7,038 -- 102,087
Property and equipment, net..................... 2,442 643 -- 3,085
Goodwill and purchased intangibles.............. -- -- 471,958(A) 471,958
Other assets.................................... 485 1 -- 486
-------- -------- -------- --------
Total assets............................ $ 97,976 $ 7,682 $471,958 $577,616
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligation..... $ 88 $ 243 $ -- $ 331
Current portion of notes payable................ 629 -- -- 629
Repayable grant................................. -- 130 -- 130
Trade accounts payable.......................... 1,587 830 -- 2,417
Accrued liabilities............................. 4,442 372 7,750(B) 12,564
Deferred revenue................................ 2,538 364 -- 2,902
-------- -------- -------- --------
Total current liabilities............... 9,284 1,939 7,750 18,973
Capital lease obligations, net of current
portion...................................... 93 38 -- 131
Notes payable, net of current portion........... 7,737 -- -- 7,737
-------- -------- -------- --------
Total liabilities....................... 17,114 1,977 7,750 26,841
-------- -------- -------- --------
Stockholders' equity:
Convertible preferred stock..................... -- 155 (155)(B) --
Common stock.................................... 5 12 (12)(B) 5
Additional paid-in capital...................... 113,781 32,408 459,505(B) 605,694
Warrants to purchase preferred stock............ 532 -- -- 532
Note receivable................................. (640) -- -- (640)
Deferred compensation........................... (3,202) (3,153) 3,153(B) (3,202)
Accumulated other comprehensive income.......... -- 81 (81)(B) --
Accumulated deficit............................. (29,614) (23,798) 1,798(B) (51,614)
-------- -------- -------- --------
Total stockholders' equity.............. 80,862 5,705 464,208 550,775
-------- -------- -------- --------
Total liabilities and stockholders'
equity................................ $ 97,976 $ 7,682 $471,958 $577,616
======== ======== ======== ========
</TABLE>
P-2
<PAGE> 3
E.PIPHANY, INC.
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
E.PIPHANY RIGHTPOINT ADJUSTMENTS COMBINED
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product license................................ $ 2,216 $ 952 $ -- $ 3,168
Services....................................... 1,161 337 -- 1,498
-------- ------- --------- ---------
Total revenues......................... 3,377 1,289 -- 4,666
-------- ------- --------- ---------
Cost of revenues:
Product license................................ 4 24 -- 28
Services....................................... 1,396 103 -- 1,499
-------- ------- --------- ---------
Total cost of revenues................. 1,400 127 -- 1,527
-------- ------- --------- ---------
Gross profit..................................... 1,977 1,162 -- 3,139
-------- ------- --------- ---------
Operating expenses:
Research and development....................... 3,769 2,548 -- 6,317
Sales and marketing............................ 6,519 2,769 -- 9,288
General and administrative..................... 1,503 1,275 -- 2,778
Amortization of goodwill and intangibles....... -- -- 157,319(C) 157,319
Stock-based compensation....................... 799 -- -- 799
-------- ------- --------- ---------
Total operating expenses............... 12,590 6,592 157,319 176,501
-------- ------- --------- ---------
Loss from operations............................. (10,613) (5,430) (157,319) (173,362)
Other income (expense)........................... 283 (106) -- 177
-------- ------- --------- ---------
Net loss............................... $(10,330) $(5,536) $(157,319) $(173,185)
======== ======= ========= =========
Basic and diluted net loss per share............. $ (7.19) $ (6.47) $ (112.53)
======== ======= =========
Shares used in computing basic and diluted net
loss per share................................. 1,437 855 1,539
======== ======= =========
Pro forma basic and diluted net loss per share... $ (1.17) $ (0.45) $ (16.85)
======== ======= =========
Shares used in computing pro forma basic and
diluted net loss per share..................... 8,833 12,186 10,281
======== ======= =========
</TABLE>
P-3
<PAGE> 4
E.PIPHANY, INC.
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
E.PIPHANY RIGHTPOINT ADJUSTMENTS COMBINED
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product license................................... $ 5,633 $ 2,892 $ -- $ 8,525
Services........................................ 4,835 909 -- 5,744
-------- ------- --------- ---------
Total revenues.......................... 10,468 3,801 -- 14,269
-------- ------- --------- ---------
Cost of revenues:
Product license................................. 83 3 -- 86
Services........................................ 5,445 636 -- 6,081
-------- ------- --------- ---------
Total cost of revenues.................. 5,528 639 -- 6,167
-------- ------- --------- ---------
Gross profit...................................... 4,940 3,162 -- 8,102
-------- ------- --------- ---------
Operating expenses:
Research and development........................ 4,722 2,213 -- 6,935
Sales and marketing............................. 11,576 3,410 -- 14,986
General and administrative...................... 2,546 1,162 -- 3,708
Amortization of goodwill and intangibles........ -- -- 117,990(C) 117,990
Stock-based compensation........................ 2,314 500 -- 2,814
-------- ------- --------- ---------
Total operating expenses................ 21,158 7,285 117,990 146,433
-------- ------- --------- ---------
Loss from operations.............................. (16,218) (4,123) (117,990) (138,331)
Other income (expense)............................ 83 216 -- 299
-------- ------- --------- ---------
Net loss................................ $(16,135) $(3,907) $(117,990) $(138,032)
======== ======= ========= =========
Basic and diluted net loss per share.............. $ (2.90) $ (3.71) $ (24.27)
======== ======= =========
Shares used in computing basic and diluted net
loss per share.................................. 5,563 1,054 5,688
======== ======= =========
Pro forma basic and diluted net loss per share.... $ (1.00) $ (0.20) $ (7.45)
======== ======= =========
Shares used in computing pro forma basic and
diluted net loss per share...................... 16,197 19,701 18,537
======== ======= =========
</TABLE>
P-4
<PAGE> 5
NOTES TO THE UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
The total purchase price of RightPoint reflects the issuance of
approximately 3,077,000 shares of our common stock and the assumption of options
and warrants to purchase approximately 530,000 shares of our common stock. The
total purchase price was determined as follows (in thousands):
<TABLE>
<S> <C>
Value of E.piphany common stock, options and warrants....... $491,913
Other direct acquisition expenses........................... 7,750
--------
$499,663
========
</TABLE>
The valuation of our common stock is based on its weighted average closing
price three days prior to and three days following the announcement of the
acquisition. The valuation of options and warrants to purchase our common stock
is based upon the Black-Scholes valuation model.
The total purchase price of the RightPoint acquisition has been allocated
to acquired assets based on estimates of their fair values. The purchase price
of approximately $499.7 million has been assigned to the assets acquired as
follows (in thousands):
<TABLE>
<S> <C>
Tangible net assets acquired................................ $ 5,705
Acquired in-process research and development................ 22,000
Assembled work force and customer list...................... 4,100
Developed technology........................................ 35,000
Goodwill.................................................... 432,858
--------
$499,663
========
</TABLE>
We expect to allocate approximately $22.0 million of the purchase price to
RightPoint's in-process research and development, which will be expensed upon
consummation of the merger as it has not reached technological feasibility and,
in the opinion of management, has no alternative future use. The estimated
amount is subject to adjustment based upon completion of third party appraisals.
This amount has not been reflected in the accompanying pro forma statements of
operations as it is a nonrecurring charge, but has been reflected as an
adjustment to accumulated deficit in the accompanying pro forma balance sheet.
The adjustments to the pro forma combined condensed balance sheet as of
September 30, 1999 are as follows:
(A) To reflect goodwill and other intangibles of approximately $472.0
million resulting from the acquisition of RightPoint.
(B) To reflect the purchase price paid as follows: issuance of our
common stock, options and warrants valued at approximately $491.9 million
and acquisition-related expenses of approximately $7.8 million.
The adjustments to the pro forma combined condensed statements of
operations for the year ended December 31, 1998 and for the nine months ended
September 30, 1999 assume the acquisition occurred as of January 1, 1998 and are
as follows:
(C) To reflect the amortization of approximately $472.0 million of
estimated goodwill and other intangibles resulting from the acquisition.
The intangible assets will be amortized ratably over an estimated useful
life of three years.
P-5
<PAGE> 1
Exhibit 99.2
RIGHTPOINT SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations and Comprehensive
Loss...................................................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
RightPoint Software, Inc.:
We have audited the accompanying consolidated balance sheets of RightPoint
Software, Inc. and subsidiary (the Company) as of June 30, 1998 and 1999, and
the related consolidated statements of operations and comprehensive loss,
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of RightPoint
Software, Inc. and subsidiary as of June 30, 1998 and 1999, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG LLP SIGNATURE
Mountain View, California
September 10, 1999
F-2
<PAGE> 3
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
------------------- SEPTEMBER 30,
1998 1999 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,002 $ 4,307 $ 4,229
Short-term investments.................................... -- 3,769 1,454
Accounts receivable, net of allowance of $0, $15 and $15
at June 30, 1998, 1999 and September 30, 1999,
respectively........................................... 145 728 1,119
Prepaid expenses and other current assets................. 163 153 236
-------- -------- --------
Total current assets.............................. 1,310 8,957 7,038
Property and equipment, net................................. 395 265 643
Other assets................................................ 39 1 1
-------- -------- --------
$ 1,744 $ 9,223 $ 7,682
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 140 $ -- $ --
Accounts payable.......................................... 395 464 830
Accrued liabilities....................................... 201 406 372
Deferred revenue.......................................... 66 249 364
Repayable grant........................................... 330 236 130
Current portion of capital lease obligation............... 229 244 243
-------- -------- --------
Total current liabilities......................... 1,361 1,599 1,939
Capital lease obligation, less current portion.............. 318 94 38
Commitments
Stockholders' equity:
Convertible preferred stock, $0.01 par value; shares
authorized, issued, and outstanding:
Series A, 2,047 shares with liquidation preference of
$1,822 as of June 30, 1998 and 1999 and September
30, 1999,........................................... 20 20 20
Series B, 1,482 shares with liquidation preference of
$3,365 as of June 30, 1998 and 1999 and September
30, 1999............................................ 15 15 15
Series C, 1,673 shares with liquidation preference of
$7,412 as of June 30, 1998 and 1999 and September
30, 1999............................................ 17 17 17
Series D, 2,174 shares with liquidation preference of
$5,000 as of June 30, 1998 and 1999 and September
30, 1999............................................ 22 22 22
Series E, 8,100 shares with liquidation preference of
$-0- as of June 30, 1998 and $11,178 as of June 30
and September 30, 1999, respectively................ -- 81 81
Common stock, $0.01 par value; 25,000, 25,000 and 30,000
shares authorized; 957, 1,108 and 1,157 shares issued
and outstanding at June 30, 1998 and 1999 and September
30, 1999, respectively................................. 10 11 12
Additional paid-in capital................................ 17,537 28,708 32,408
Notes receivable from stockholders........................ (36) -- --
Deferred compensation..................................... -- -- (3,153)
Accumulated other comprehensive income.................... 103 89 81
Accumulated deficit....................................... (17,623) (21,433) (23,798)
-------- -------- --------
Total stockholders' equity........................ 65 7,530 5,705
-------- -------- --------
$ 1,744 $ 9,223 $ 7,682
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 4
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT IN PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
------------------ ------------------
1998 1999 1998 1999
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License............................................. $ 428 $ 2,819 $ 456 $ 933
Service........................................... 378 728 60 356
------- ------- ------- -------
Total revenues................................. 806 3,547 516 1,289
Cost of revenues:
License........................................... 46 10 -- 3
Service........................................... 90 208 9 456
------- ------- ------- -------
Total cost of revenues......................... 136 218 9 459
------- ------- ------- -------
Gross margin................................... 670 3,329 507 830
Operating expenses:
Research and development.......................... 2,474 2,616 592 808
Selling and marketing............................. 3,007 3,301 547 1,489
General and administrative........................ 1,221 1,323 272 432
Stock-based compensation.......................... -- -- -- 500
------- ------- ------- -------
Total operating expenses....................... 6,702 7,240 1,411 3,229
------- ------- ------- -------
Loss from operations........................... (6,032) (3,911) (904) (2,399)
Interest income..................................... 187 188 22 22
Interest expense.................................... (123) (197) (52) (52)
Other income and expenses, net...................... (60) 110 -- 64
------- ------- ------- -------
Net loss....................................... (6,028) (3,810) (934) (2,365)
Other comprehensive income (loss):
Currency translation adjustment................... 49 (14) (79) (8)
------- ------- ------- -------
Net comprehensive loss......................... $(5,979) $(3,823) $(1,013) $(2,373)
======= ======= ======= =======
Basic and diluted net loss per share................ $(10.48) $ (3.83) $ (1.79) $ (2.12)
======= ======= ======= =======
Weighted average shares used in computing basic and
diluted net loss per share........................ 575 995 522 1,118
======= ======= ======= =======
Pro forma basic and diluted net loss per share...... $ (0.24) $ (0.08) $ (0.12)
======= ======= =======
Weighted average shares used in computing pro forma
basic and diluted net loss per share.............. 15,788 11,853 20,549
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 5
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998 AND 1999, AND THE THREE MONTHS ENDED SEPTEMBER 30,
1999
(IN THOUSANDS)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS
UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE OTHER
--------------- --------------- PAID-IN FROM DEFERRED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION INCOME
------ ------ ------ ------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of June 30, 1997....... 5,202 $ 52 1,102 $11 $12,601 $(131) -- $55
Issuance of Series D preferred
stock, net of issuance costs of
$43................................ 2,174 22 -- -- 4,935 -- -- --
Issuance of common stock on
exercise of options.............. -- -- 85 1 19 -- -- --
Repurchase of common stock......... -- -- (441) (4) (65) 95 -- --
Issuance of common stock........... -- -- 211 2 47 -- -- --
Currency translation adjustment.... -- -- -- -- -- -- -- 48
Net loss........................... -- -- -- -- -- -- -- --
------ ---- ----- --- ------- ----- ------ ---
Balances as of June 30, 1998....... 7,376 74 957 10 17,537 (36) -- 103
Issuance of Series E preferred
stock for cash and on conversion
of debt, net of issuance costs of
$31.............................. 8,100 81 -- -- 11,119 -- -- --
Issuance of common stock on
exercise of options.............. -- -- 166 1 40 -- -- --
Repurchase of common stock......... -- -- (21) -- (3) -- -- --
Issuance of common stock and
warrants in exchange for
services......................... -- -- 6 -- 15 -- -- --
Repayment of notes receivable from
stockholders..................... -- -- -- -- -- 36 -- --
Currency translation adjustment.... -- -- -- -- -- -- -- (14)
Net loss........................... -- -- -- -- -- -- -- --
------ ---- ----- --- ------- ----- ------ ---
Balances as of June 30, 1999....... 15,476 155 1,108 11 28,708 -- -- 89
Issuance of common stock on
exercise of options
(unaudited)...................... -- -- 34 1 7 -- -- --
Issuance of common stock and
warrants in exchange for services
(unaudited)...................... -- -- 15 -- 40 -- -- --
Deferred stock compensation
(unaudited)...................... -- -- -- -- 3,653 -- (3,653) --
Amortization of deferred stock
compensation (unaudited)......... -- -- -- -- -- -- 500 --
Currency translation adjustment
(unaudited)...................... -- -- -- -- -- -- -- (8)
Net loss (unaudited)............... -- -- -- -- -- -- -- --
------ ---- ----- --- ------- ----- ------ ---
Balances as of September 30, 1999
(unaudited)...................... 15,476 $155 1,157 $12 $32,408 $ -- (3,153) $81
====== ==== ===== === ======= ===== ====== ===
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Balances as of June 30, 1997....... $(11,595) $ 993
Issuance of Series D preferred
stock, net of issuance costs of
$43................................ -- 4,957
Issuance of common stock on
exercise of options.............. -- 20
Repurchase of common stock......... -- 26
Issuance of common stock........... -- 49
Currency translation adjustment.... -- 48
Net loss........................... (6,028) (6,028)
-------- -------
Balances as of June 30, 1998....... (17,623) 65
Issuance of Series E preferred
stock for cash and on conversion
of debt, net of issuance costs of
$31.............................. -- 11,200
Issuance of common stock on
exercise of options.............. -- 41
Repurchase of common stock......... -- (3)
Issuance of common stock and
warrants in exchange for
services......................... -- 15
Repayment of notes receivable from
stockholders..................... -- 36
Currency translation adjustment.... -- (14)
Net loss........................... (3,810) (3,810)
-------- -------
Balances as of June 30, 1999....... (21,433) 7,530
Issuance of common stock on
exercise of options
(unaudited)...................... -- 8
Issuance of common stock and
warrants in exchange for services
(unaudited)...................... -- 40
Deferred stock compensation
(unaudited)...................... -- --
Amortization of deferred stock
compensation (unaudited)......... -- 500
Currency translation adjustment
(unaudited)...................... -- (8)
Net loss (unaudited)............... (2,365) (2,365)
-------- -------
Balances as of September 30, 1999
(unaudited)...................... $(23,798) $ 5,705
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 6
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
JUNE 30, SEPTEMBER 30,
----------------- -----------------
1998 1999 1998 1999
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(6,028) $(3,810) $ (934) $(2,365)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 257 232 62 5
Issuance of common stock and warrants for services...... 41 15 -- 40
Stock-based compensation................................ -- -- -- 500
Provision for returns and doubtful accounts............. -- 15 -- --
Loss on disposal of property and equipment.............. 43 6 -- 18
Proceeds from sale of short-term investments............ 1,021 -- -- 2,315
Purchases of short-term investments..................... -- (3,769) -- --
Changes in operating assets and liabilities:
Accounts receivable................................... 141 (599) (369) (391)
Prepaid expenses and other assets..................... 31 48 44 (83)
Accounts payable...................................... 205 69 (154) 366
Accrued liabilities................................... (573) 205 3 (34)
Deferred revenue...................................... (15) 183 6 114
------- ------- ------- -------
Net cash provided by (used in) operating
activities....................................... (4,877) (7,405) (1,342) 485
------- ------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... -- (109) (16) (417)
Proceeds from sale of property and equipment.............. -- 1 -- 17
Other long-term assets.................................... 31 -- -- --
------- ------- ------- -------
Net cash provided by (used in) investing
activities....................................... 31 (108) (16) (400)
------- ------- ------- -------
Cash flows from financing activities:
Repayment of capital lease obligation..................... (203) (209) (55) (57)
Repayment of repayable grant.............................. (260) (94) 26 (106)
Proceeds from bridge loan................................. 138 1,890 1,890 --
Repayment of bridge loan.................................. (17) (2) -- --
Repayment of notes receivable from stockholders........... 29 36 -- --
Net proceeds from issuance of common stock................ 24 42 1 8
Repurchases of common stock............................... -- (3) (3) --
Net proceeds from issuance of preferred stock............. 4,956 9,172 -- --
------- ------- ------- -------
Net cash provided (used in) by financing
activities....................................... 4,667 10,832 1,859 (155)
------- ------- ------- -------
Effect of foreign currency exchange rates on cash and cash
equivalents............................................... 31 (14) (79) (8)
------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (148) 3,305 422 (78)
Cash and cash equivalents at beginning of period............ 1,150 1,002 1,002 4,307
------- ------- ------- -------
Cash and cash equivalents at end of period.................. $ 1,002 $ 4,307 $ 1,424 $ 4,229
======= ======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period:
Income taxes............................................ $ 3 $ 2 $ -- $ --
======= ======= ======= =======
Interest................................................ $ 102 $ 66 $ 12 $ 12
======= ======= ======= =======
Noncash financing and investing activities:
Issuance of preferred stock on conversion of debt....... $ -- $ 138 $ -- $ --
======= ======= ======= =======
Property and equipment recorded under capital lease..... $ 76 $ -- $ -- $ --
======= ======= ======= =======
Repurchase of common stock for promissory notes......... $ 66 $ -- $ -- $ --
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 7
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS
UNAUDITED)
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF THE COMPANY
RightPoint Software, Inc. was originally incorporated under the laws of
France in 1991. The Company was reincorporated under the laws of California in
October 1995 and reincorporated under the laws of Delaware in July 1997. The
Company designs, develops, markets, and supports real-time marketing software
for business environments. The Company operates as one business segment.
(b) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the financial
statements of the Company and its wholly owned subsidiary, RightPoint Software
France SARL (formerly neurOagent, S.A.). All significant intercompany accounts
and transactions have been eliminated.
(c) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. Cash
equivalents as of September 30, 1999, June 30, 1999 and 1998 consisted primarily
of money market funds, recorded at cost, which approximates fair value.
The Company classifies its investments as trading and records them at fair
market value.
(d) SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standard ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed",
requires the capitalization of software development costs once technological
feasibility has been established. Software development costs are included in
research and development and expensed as incurred. To date, no software
development costs have been capitalized after technological feasibility was
reached, as such costs have not been significant.
(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, ranging
from three to five years. Equipment recorded under capital lease and leasehold
improvements are amortized using the straight-line method over the shorter of
the lease-term or estimated useful life of the asset.
(f) REVENUE RECOGNITION
Revenues consist of fees for licenses of the Company's software products,
maintenance, support, consulting, and training.
License revenues are recognized when persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed and determinable and
collectibility is probable.
Maintenance and support revenues are recognized ratably over the term of
the contract, which is generally 12 months. Revenues from consulting and
training are recognized when the services are performed.
F-7
<PAGE> 8
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS
UNAUDITED)
(g) FOREIGN CURRENCY
The functional currency of the Company's French subsidiary is the local
currency. All foreign assets and liabilities are translated into U.S. dollars at
the current exchange rates as of the applicable balance sheet date. Revenues and
expenses are translated at the average exchange rate prevailing during the
period. Gains and losses resulting from the translation of the subsidiary's
financial statements are reported as cumulative translation adjustment as a
component of accumulated other comprehensive income in stockholders' equity. Net
gains and losses resulting from foreign exchange transactions are included in
the consolidated statements of operations and were not significant during any of
the periods presented.
(h) USE OF ESTIMATES
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(i) CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments and accounts receivable. The Company maintains its cash
and cash equivalents in commercial checking and money market accounts with
high-quality financial institutions.
As of and for the year ended June 30, 1998, two customers comprised 21% and
20%, respectively, of revenue and 0% and 16%, respectively, of accounts
receivable. As of and for the year ended June 30, 1999, three customers
comprised approximately 41%, 13% and 12%, respectively of revenue and 5%, 52%
and 0%, respectively, of accounts receivable. As of and for the three months
ended September 30, 1999, four customers comprised 42%, 20%, 14%, and 10%,
respectively, of revenue and 58%, 0%, 18%, and 12%, respectively of accounts
receivable.
(j) INCOME TAXES
Income taxes are computed using the asset and liability method. Under this
method, deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the current enacted tax rates and laws.
(k) STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation using the
intrinsic-value method prescribed in the Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations.
The Company provides additional pro forma disclosures as required under
SFAS No. 123, Accounting for Stock-Based Compensation.
F-8
<PAGE> 9
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS
UNAUDITED)
(l) COMPREHENSIVE INCOME AND LOSS
Comprehensive loss consists of net loss and foreign currency translation
adjustments, and is presented in the accompanying consolidated statements of
operations and comprehensive loss. Accumulated other comprehensive loss consists
entirely of cumulative foreign currency translation adjustments. No tax effects
have been recorded.
(m) COMPUTATION OF NET LOSS PER SHARE
Basic net loss per common share has been computed using the weighted
average number of shares of common stock outstanding during the period, less
shares subject to repurchase. Basic and diluted pro forma net loss per common
share, as presented in the statements of operations, has been computed as
described above and also gives effect to the conversion of the convertible
preferred stock (using the if-converted method) from the original date of
issuance.
Calculations of historical and pro forma net loss per share are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
------------------ ------------------
1998 1999 1998 1999
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
HISTORICAL
Net loss............................................ $(6,028) $(3,810) $ (934) $(2,365)
Basic and diluted:
Weighted average shares of common stock
outstanding.................................... 1,047 1,023 947 1,142
Less: Weighted average shares subject to
repurchase..................................... 472 47 425 24
------- ------- ------- -------
Weighted average shares used in computing basic and
diluted net loss per common share................. 575 976 522 1,118
======= ======= ======= =======
Basic and diluted net loss per common share....... $(10.48) $ (3.90) $ (1.79) $ (2.12)
======= ======= ======= =======
PRO FORMA
Net loss.......................................... $(6,028) $(3,810) $ (934) $(2,365)
======= ======= ======= =======
Shares used above................................. 575 976 522 1,118
Pro forma adjustment to reflect weighted effect of
assumed conversion of convertible preferred
stock.......................................... 14,793 11,331 19,431
------- ------- -------
Shares used in computing pro forma basic and
diluted net loss per common share.............. 15,769 11,853 20,549
======= ======= =======
Pro forma basic and diluted net loss per common
share.......................................... $ (0.24) $ (0.08) $ (0.12)
======= ======= =======
</TABLE>
The Company has excluded all convertible preferred stock, warrants for
convertible preferred stock, outstanding stock options, and shares subject to
repurchase from the calculation of diluted net loss per common share because all
such securities are antidilutive for all periods presented. The total number of
shares excluded from the calculations of diluted net loss per share were
approximately 15,098,000, 25,671,000, 26,878,000, and 14,857,000 for the years
ended June 30, 1998 and 1999 and the three months ended September 30, 1998 and
1999, respectively.
F-9
<PAGE> 10
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS
UNAUDITED)
Pro forma diluted net loss per share gives effect to the conversion of
convertible preferred stock. However, outstanding warrants, stock option, and
shares subject to repurchase have been excluded from the calculations of pro
forma diluted net loss per share because all such securities are antidilutive
for all periods presented. The total number of shares excluded from the
calculations of pro forma diluted net loss per share were approximately
6,239,000, 3,526,000 and 7,447,000 for the year ended June 30, 1999 and the
three months ended September 30, 1998 and 1999, respectively.
(n) NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. SFAS No. 133, as amended by SFAS No. 137,
"Deferral of the Effective Date of FASB Statement No. 133" is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. Management does
not believe the adoption of SFAS No. 133 will have a material effect on the
Company's consolidated financial position.
(2) PROPERTY AND EQUIPMENT
Property and equipment as of June 30, 1998 and 1999 and September 30, 1999,
consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, SEPTEMBER 30,
1998 1999 1999
-------- -------- -------------
<S> <C> <C> <C>
Computer equipment and software............................. $478 $507 $ 604
Furniture, fixtures, and office equipment................... 289 312 528
Leasehold improvements...................................... 32 32 92
---- ---- ------
799 851 1,224
Less accumulated depreciation and amortization.............. 404 586 581
---- ---- ------
$395 $265 $ 643
==== ==== ======
</TABLE>
The cost of assets recorded under capital leases included in property and
equipment is approximately $723,000 as of June 30, 1998 and 1999 and September
30, 1999. The accumulated amortization associated with these assets was
$363,000, $547,000, and $618,000 for the years ended June 30, 1998 and 1999 and
the quarter ended September 30, 1999, respectively. Amortization of assets
recorded under capital leases is included in depreciation and amortization
expense.
(3) LEASE COMMITMENTS
The Company leases its main U.S. facilities under an operating lease
agreement expiring in August 2004 and leases its facilities in France under an
operating lease expiring in December 2004. In addition, the Company leases
certain equipment under operating and capital lease agreements.
F-10
<PAGE> 11
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS
UNAUDITED)
Future minimum lease payments under capital and noncancelable operating
leases as of June 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING CAPITAL OPERATING
JUNE 30, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
2000........................................................ $ 289 $106
2001........................................................ 82 7
2002........................................................ 20 1
Thereafter.................................................. -- --
----- ----
Total minimum lease payments................................ 391 $114
====
Less amount representing imputed interest................... (53)
-----
Present value of minimum lease payment...................... 338
Less current portion........................................ (244)
-----
Long-term portion of capital lease obligation............... $ 94
=====
</TABLE>
Rent expense from operating leases was approximately $417,000, $540,000 and
$180,000 for the years ended June 30, 1998 and 1999 and the quarter ended
September 30, 1999, respectively.
In July, 1999 the Company signed a five year lease agreement for its main
U.S. facilities. Annual rent is approximately $891,000 in the first year with
annual incremental increases to $1,042,000 in the fifth year. The lease expires
in August 2004.
(4) FINANCING ARRANGEMENTS
REPAYABLE GRANT AGREEMENTS
As of June 30, 1998 and 1999 and September 30, 1999, the Company had
$330,000, $236,000 and $130,000 respectively, outstanding in the form of an
interest-free repayable grant from a French organization. Under the grant
agreement, payment is due in fiscal 2000.
NOTE PAYABLE
As of June 30, 1998, the Company had a balance outstanding of approximately
$140,000 under a bridge loan agreement that was signed in conjunction with a
convertible debt offering. All outstanding debt was subsequently converted into
Series E Preferred Stock in January 1999.
LEASE AGREEMENT
As of September 30, 1999, the Company had a lease line of credit available
up to a minimum commitment amount of $400,000 and $100,000 for the financing of
equipment and leasehold improvements, respectively. Upon request and formal
approval by the Lessor, these lines would be extended for an additional $400,000
and $100,000, respectively. As of September 30, 1999 there was no outstanding
balance under this line of credit.
F-11
<PAGE> 12
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS
UNAUDITED)
(5) STOCKHOLDERS' EQUITY
(A) CONVERTIBLE PREFERRED STOCK
The rights, preferences, and privileges of the preferred stock are as
follows:
- The holders of Series A, B, C, D, and E preferred stock are entitled to
receive noncumulative annual dividends at the rate of $0.07, $0.18,
$0.35, $0.18, and $0.11 per share, respectively, with certain adjustments
for stock splits, stock dividends, recapitalization, and similar events,
when and if declared by the Board of Directors, in preference and
priority to any payment of dividends to holders of common stock.
The liquidation preference for the Series A, B, C, D, and E preferred
stock is $0.89, $2.27, $4.43, $2.30, and $1.38 per share, respectively,
plus all declared but unpaid dividends. If the assets are insufficient to
make payments in full to all holders of preferred stock, assets will be
distributed ratably among the holders of preferred stock in proportion to
the full amounts to which they would have otherwise been entitled. Any
remaining assets shall be distributed ratably among the holders of common
and preferred stock on an "as if converted" basis until such time that
aggregate distributions to holders of Series A, B, C, D, and E preferred
stock equals $1.78, $4.54, $8.86, $6.90, and $4.14 per share,
respectively. After that time, any remaining assets will be distributed
on a pro rata basis to the holders of common stock and preferred stock,
based on the number of shares of common stock held by each, assuming
conversion of all preferred stock.
- At June 30, 1999, each share of Series A, B, C, D and E preferred stock
is convertible into 1.51, 1.55, 2.00, 1.20, and 1.00 shares of common
stock subject to future adjustments for antidilution. Each share of
preferred stock will automatically convert into one share of common
stock, subject to certain adjustments for antidilution, upon the closing
of an underwritten public offering with a per share price reflecting a
valuation of the Company of at least $50,000,000, and with gross proceeds
of at least $20,000,000 or the role of two-thirds of the holders of the
preferred stocks, voting together.
- The holders of preferred stock have voting rights on an "as if converted"
basis.
- The holders of preferred stock have certain registration rights and a
right of first offer in future rounds of financing under certain
conditions.
The Company has reserved 19,431,358 shares of common stock for the
conversion of the preferred stock.
(B) STOCK-BASED COMPENSATION
In connection with the grant of stock options and the sale of common stock
to certain employees during the three months ended September 30, 1999, the
Company recorded deferred compensation of approximately $3,700,000, representing
the difference between the fair value of the common stock and the option
exercise price or stock sale price at the date of the option grant or stock
sale. Such amount is presented as a reduction of stockholders' equity and
amortized over the vesting period of the applicable options in a manner
consistent with Financial Accounting Standards Board Interpretation No. 28.
Approximately $500,000 was expensed during the three months ended September 30,
1999.
F-12
<PAGE> 13
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS
UNAUDITED)
(C) STOCK OPTION PLANS
The Company adopted stock option plans in October 1995 and July 1996 that
provide for the issuance of incentive and nonstatutory options to purchase
shares of common stock. As of June 30, 1999, the Company has reserved 1,978,176
and 5,458,612 shares of common stock for issuance under the 1995 and 1996 plans,
respectively. Nonstatutory options may be granted to employees and consultants
and incentive options to employees. Options have a term no greater than 10 years
and generally vest 25% at the end of the first year and at a rate of 1/48 per
month thereafter. Options granted under the 1995 and 1996 plans may be exercised
prior to being fully vested. However exercised and unvested shares are subject
to repurchase by the Company at the exercise price. The Company's repurchase
right decreases as shares vest under the original option terms. As of June 30,
1998, 1999, and September 30, 1999 the number of shares outstanding and subject
to repurchase were 466,650, 31,169 and 27,487, respectively.
Vesting of certain options accelerates in full upon a change in control of
the Company.
Nonstatutory options are exercisable at a price not less than 85% of fair
market value of the stock at the date of grant, as determined by the Company's
Board of Directors, unless they are granted to an individual who owns more than
10% of the voting rights of all classes of stock, in which case the exercise
price shall be no less than 110% of the fair market value. Incentive stock
options are exercisable at a price not less than 100% of fair market value of
the stock at the date of grant, as determined by the Company's Board of
Directors, except when they are granted to an employee who owns greater than 10%
of the voting power of all classes of stock, in which case they are exercisable
at a price not less than 110% of fair market value.
The Company has elected to continue using the intrinsic-value-based method
to account for all of its stock-based employee compensation plans. Pursuant to
SFAS No. 123, the Company is required to disclose the pro forma effects on the
net losses of the Company as if the Company had elected to use the fair value
approach to account for all of its stock-based employee compensation plans. Had
compensation cost for the Company's plans been determined consistent with the
fair value approach enumerated in SFAS No. 123, the Company's 1998 and 1999 net
losses would have increased to the following pro forma amounts (in thousands,
except per share data):
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
------------------
1998 1999
------- -------
<S> <C> <C>
Net loss as reported........................................ $(6,028) $(3,810)
Net loss pro forma.......................................... (6,043) (3,871)
Net loss per share as reported.............................. $(10.48) $ (3.83)
Net loss per share pro forma................................ (10.51) (3.89)
</TABLE>
For the years ended June 30, 1998 and 1999 and the quarter ended September
30, 1999, the fair value of each option was estimated using the minimum
value-based method on the date of grant with the following weighted-average
assumptions: no dividend yield; a risk-free interest rate of 7%; and an expected
life of five years.
F-13
<PAGE> 14
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS
UNAUDITED)
The following summarizes activity under the plans as of June 30, 1998 and
1999 and September 30, 1999, respectively (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1999 SEPTEMBER 30, 1999
------------------- ------------------- ----------------------
(UNAUDITED)
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE AVERAGE
OF EXERCISE OF EXERCISE NUMBER EXERCISE
OPTIONS PRICE OPTIONS PRICE OF OPTIONS PRICE
------- --------- ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period....... 750 $0.27 2,779 $0.23 5,775 $0.23
Granted.................................. 2,513 0.23 3,456 0.23 1,275 0.46
Exercised................................ (85) 0.23 (166) 0.25 (34) 0.32
Canceled................................. (399) 0.26 (294) 0.24 (36) 0.23
----- ----- -----
Outstanding at end of period............. 2,779 0.23 5,775 0.23 6,980 0.27
===== ===== =====
Vested at period end..................... 287 1,497 1,647
===== ===== =====
Weighted-average fair value of options
granted during the period.............. 0.16 0.16 0.28
</TABLE>
The following table summarizes information about stock options outstanding
as of June 30, 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------ --------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICE OPTIONS LIFE (YEARS) PRICE OPTIONS PRICE
- ------------ ------- ------------ --------- ------- ----------
<S> <C> <C> <C> <C> <C>
0.15 - 0.29 5,775 9.07 0.23 5,775 0.23
====== =====
</TABLE>
(C) WARRANTS
The Company values all warrants issued using an option pricing model with
the following assumptions: no dividend yield; risk-free interest rates ranging
between 5.5% and 7.0%; contractual lives ranging from five to ten years, and 65%
expected volatility. The fair value assigned to warrants is recorded as
compensation expense by the Company. The Company has reserved the corresponding
number of shares for the exercise of these warrants. The following warrants were
issued and outstanding during the periods presented and as of September 30,
1999:
In July, 1999, the Company issued warrants to purchase 25,000 shares of
common stock at a price of $2.80 per share. These warrants are exercisable
at any time prior to the expiration date of September 2004. In addition, in
conjunction with the signing of the lease agreement for a lease line of
credit, the Company issued warrants to the Lessor for the purchase of
16,304 shares of Series E Preferred Stock at a price of $1.38 per share.
These warrants are exercisable at any time prior to the expiration date of
September 2009, or 5 years from the effective date of the Company's initial
public offering, whichever is earlier. An additional 16,304 shares are
issuable to the Lessor at a price of $1.38 per share if the Company
requests an increase to the line above the initial commitment amount
discussed above under Financing Arrangements.
F-14
<PAGE> 15
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS
UNAUDITED)
As of June 30, 1999 and 1998, the Company has three transferable warrants
to purchase 16,439, 16,948, and 18,324 shares of common stock at a price of
$1.46, $2.22, and $1.91 per share, respectively, outstanding. These
warrants are exercisable at any time prior to the expiration dates of
February 2003, October 2003, and December 2005, respectively. As of June
30, 1999, the Company has a warrant outstanding to purchase 48,268 shares
of common stock at a price of $1.91 per share. This warrant is exercisable
at any time prior to the expiration date of August 2008.
As of June 30, 1999, the Company has warrants outstanding to purchase a
total of 294,296 shares of common stock at a price of $0.23 per share.
These warrants are exercisable at any time prior to their expiration date
of January 2009.
(6) INCOME TAXES
The types of temporary differences that give rise to significant portions
of the Company's deferred tax assets and liabilities are set out below (in
thousands).
<TABLE>
<CAPTION>
AS OF JUNE 30,
------------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves....................................... $ 76 $ 168
Plant and equipment....................................... 24 13
State income taxes........................................ 1 1
Research credit carryforward.............................. 306 480
Net operating loss carryforwards.......................... 5,910 6,935
------- -------
Gross deferred tax assets................................... 6,317 7,597
Valuation allowance......................................... (6,317) (7,597)
------- -------
Total deferred tax assets................................... -- --
Deferred tax liabilities.................................... $ -- $ --
======= =======
</TABLE>
The Company has provided a valuation allowance due to the uncertainty of
generating future profits that would allow for the realization of such deferred
tax assets.
As of June 30, 1999, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $17,500,000 and
$11,100,000, respectively, available to reduce future income subject to income
taxes. The federal carryforward will expire from 2010 to 2019. The California
net operating loss carryforwards expire in 2003.
The Company also has credit carryforwards for federal and California income
tax return purposes of approximately $269,000 and $211,000, respectively,
available to reduce future income subject to income taxes. The federal credit
carryforward will expire from 2010 to 2019, while the California credit may be
carried forward indefinitely.
As of the year ended June 30, 1998 and 1999, the Company had net deferred
tax assets of approximately $6,317,000 and $7,597,000 respectively. The net
deferred tax assets have been fully offset by valuation allowances. The net
valuation allowance increased by $2,614,000 and $1,281,000 during the years
ended June 30, 1998 and 1999, respectively.
F-15
<PAGE> 16
RIGHTPOINT SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS THEN ENDED IS
UNAUDITED)
(7) RELATED PARTY TRANSACTIONS
In June 1994, the Company's French subsidiary entered into an exclusive
license agreement with its founder, who is also a director, to use and market
certain technology in certain territories in exchange for an annual royalty fee
payable in quarterly installments. The Company also has an option to purchase
the technology for $700,000 in the event that the licensor fails to perform any
significant obligations or during the six months prior to the contract
expiration in 2004. This agreement was amended and restated in October 1995
under substantially the same terms and conditions. The amounts paid under this
license arrangement for the years ended June 30, 1999 and 1998, was $51,000 per
year.
A second license for the technology was entered into on October 23, 1995,
between the Company and the same individual owner of this technology. Annual
royalties of $800 are payable under the agreement. The agreement licensed the
Company to distribute the technology in certain territories. The license expires
on July 18, 2004, with the licensee having the option to purchase all interests
in the technology for $10,000 provided that the Company's option to purchase the
first technology license is exercised.
In January 1999, the Company entered into an agreement with Edify
Corporation, who is also a Series E preferred shareholder, to distribute certain
RightPoint software products at a discounted price to Edify for a minimum
nonrefundable distribution fee payable to the Company in quarterly installments
over 12 months. As of June 30, 1999 and September 30, 1999, the Company has
recognized $417,000 and $667,000, respectively, of this minimum nonrefundable
distribution fee as revenue.
F-16
