<PAGE> 1
EXHIBIT 99.3
THOUGHTSTAR, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
6
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Thoughtstar, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Thoughtstar, Inc. (a
development stage company) (the "Company") at December 31, 1998 and 1999, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1999 and for the period from inception (February
5, 1997) through December 31, 1999 in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States 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/ Pricewaterhouse Coopers LLP
Salt Lake City, Utah
May 5, 2000, except for
Note 10, as to which the
date is June 21, 2000
7
<PAGE> 3
THOUGHTSTAR, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 10 $ 45
Related party receivables 1 --
------- -------
Total current assets 11 45
Property and equipment, net 151 138
Other assets 4 3
------- -------
Total assets $ 166 $ 186
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 15 $ 313
Accrued liabilities 29 53
Deferred revenue -- 50
Note payable, current portion -- 44
Advances from stockholder 881 956
------- -------
Total current liabilities 925 1,416
Note payable, net of current portion -- 186
------- -------
Total liabilities 925 1,602
------- -------
Commitments (Note 9)
Stockholders' equity (deficit):
Preferred stock, $0.000001 par value; authorized:
5,000,000 shares; no shares issued and outstanding -- --
Common stock, $0.000001 par value; authorized:
30,000,000 shares; issued and outstanding:
8,058,400 and 9,029,600 respectively -- --
Additional paid-in capital 158 900
Deferred stock-based compensation (95) (245)
Deficit accumulated during the development stage (822) (2,071)
------- -------
Total stockholders' equity (deficit) (759) (1,416)
------- -------
Total liabilities and stockholders'
equity (deficit) $ 166 $ 186
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 4
THOUGHTSTAR, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 5,
1997) THROUGH
DECEMBER 31, DECEMBER 31,
1998 1999 1999
------- ------- -------
<S> <C> <C> <C>
Operating expenses:
Sales and marketing $ 111 $ 256 $ 370
Research and development 227 300 543
General and administrative 407 613 1,070
Stock-based compensation 8 55 63
------- ------- -------
Total operating expenses 753 1,224 2,046
------- ------- -------
Loss from operations (753) (1,224) (2,046)
Interest expense -- (32) (32)
Other income -- 7 7
------- ------- -------
Net loss $ (753) $(1,249) $(2,071)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 5
THOUGHTSTAR, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DEFERRED STOCK DURING THE
--------------------- PAID-IN STOCK-BASED SUBSCRIPTION DEVELOPMENT
SHARES AMOUNT CAPITAL COMPENSATION RECEIVABLE STAGE TOTAL
---------- ------- ------- ------- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued for cash on
February 5, 1997 at $0.00067 per share 7,491,600 $ -- $ 5 $ 5
Net loss (69) (69)
---------- ------- ------- ------- ----- -------- --------
Balance at December 31, 1997 7,491,600 -- 5 (69) (64)
Common stock issued for stock
subscription receivable on September 24,
1998 at $0.09 per share 566,800 -- 50 (50)
Repayment of stock subscription
Receivable 50 50
Deferred stock-based compensation 103 (103)
Amortization of deferred stock-based
Compensation 8 8
Net loss (753) (753)
Balance at December 31, 1998 8,058,400 -- 158 (95) (822) (759)
Common stock issued for cash on
September 22, 1999 at $1.00 per share 350,000 -- 350 350
Issuance of common stock under
anti-dilution agreement 433,200
Common stock issued for cash on
November 2, 1999 at $1.00 per share 100,000 100 100
Common stock issued for cash on
December 15, 1999 at $1.00 per share 75,000 75 75
Common stock issued as extinguishment
of note payable on December 16, 1999
at $1.00 per share 12,000 12 12
Deferred stock-based compensation 205 (205)
Amortization of deferred stock-based
Compensation 55 55
Net loss (1,249) (1,249)
---------- ------- ------- ------- ----- -------- --------
Balance at December 31, 1999 9,028,600 $ -- $ 900 $ (245) $ (2,071) $ (1,416)
========== ======= ======= ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 6
THOUGHTSTAR, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 5,
1997) THROUGH
DECEMBER 31, DECEMBER 31,
1998 1999 1999
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (753) $ (1,249) $ (2,071)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 38 64 106
Amortization of deferred stock-based compensation 8 55 63
Consulting services performed as payment of related
party receivable -- 1 1
Changes in operating assets and liabilities:
Other assets 7 4 --
Accounts payable 13 298 313
Accrued liabilities 22 24 53
Deferred revenue -- 50 50
------- -------- --------
Net cash used in operating activities (665) (753) (1,485)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (99) (34) (183)
Proceeds from related party note receivable -- 1 1
Issuance of related party note receivable (1) -- (1)
------- -------- --------
Net cash used in investing activities (100) (33) (183)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock -- 525 530
Proceeds from advances from stockholder 692 270 1,107
Proceeds from stock subscription receivable 50 -- 50
Repayment of advances from stockholder -- (211) (211)
Proceeds from notes payable -- 262 262
Repayment of notes payable -- (21) (21)
Payment of financing costs -- (4) (4)
------- -------- --------
Net cash provided by financing activities 742 821 1,713
------- -------- --------
Net increase (decrease) in cash (23) 35 45
Cash at beginning of period 33 10 --
------- -------- --------
Cash at end of period $ 10 $ 45 $ 45
======= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ -- $ 31 $ 31
======= ======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Issuance of common stock as payment of note payable $ -- $ 12 $ 12
======= ======== ========
Issuance of common stock in exchange for stock
subscription receivable $ 50 $ -- $ 50
======= ======== ========
Sale of property and equipment for related party note
receivable $ 1 $ -- $ 1
======= ======== ========
Property and equipment advanced by stockholder $ 28 $ 17 $ 61
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 7
THOUGHTSTAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
1. ORGANIZATION AND NATURE OF OPERATIONS
Thoughtstar, Inc. (the "Company"), formerly Radio Alive, Inc., supplies
e-business collaboration management software that provides organizations with an
internet-based, unified content platform that enables them to manage, organize
and deliver information in a centralized manner throughout the extended
enterprise.
The Company originally incorporated in Utah as Radio Alive, Inc., an S
corporation, on February 5, 1997. The Company reincorporated in Delaware as
Thoughtstar, Inc., a C corporation, in October 1999. The Company's primary
activities to date have involved developing software, planning strategy and
obtaining financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE ENTERPRISE
From the date of inception (February 5, 1997) through December 31, 1999, the
Company was a development stage company, as planned principal operations had not
yet begun to generate significant revenue. All pre-operating costs have been
expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect 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.
CERTAIN RISKS AND CONCENTRATIONS
The Company maintains substantially all of its cash balances with one major
financial institution domiciled in Utah. From time to time, cash balances may
exceed the federally insured levels.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives of three to seven years.
Depreciation for leasehold improvements is recorded using the straight-line
method over the lesser of the estimated useful lives of the assets or the lease
term, generally three years.
The Company reviews property and equipment for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability is measured by comparison of its carrying amount
to future net cash flows the assets are expected to generate. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the projected
discounted future cash flows arising from the asset. Through December 31, 1999,
since the time of inception, no impairments have been recorded.
SOFTWARE DEVELOPMENT COSTS
Costs related to research and development of new software products are charged
to research and development expense as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established, which to date has been when the Company has a working model of the
software, and ending when a product is available for general release to
customers. Substantially all development costs to date have been incurred prior
to establishing a working model. As a result, through December 31, 1999, the
Company had not capitalized any software development costs.
12
<PAGE> 8
THOUGHTSTAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
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," effective
January 1, 1998. SOP 97-2 supersedes Statement of Position 91-1, "Software
Revenue Recognition," and delineates the accounting for software license and
support and services revenues. Under SOP 97-2, the Company recognizes license
revenues upon shipment if a signed contract exists, the fee is fixed and
determinable, collection of resulting receivables is probable and, if
applicable, acceptance criteria have been met. The deferred revenue at December
31, 1999 relates to a single contract where acceptance criteria have not been
met.
INCOME TAXES
During the period that the Company operated as an S Corporation, the tax effects
of the Company's operations were passed directly to the stockholders of the
Company.
Since becoming a C Corporation, income taxes are accounted for using the
liability method under which deferred tax assets and liabilities are determined
based on differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the period in which the
differences are expected to affect taxable income. A valuation allowance is
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25 or APB 25,
"Accounting for Stock Issued to Employees" and has elected to adopt the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, or SFAS 123, "Accounting for Stock-Based Compensation."
ADVERTISING
The Company expenses advertising costs as incurred. During 1998 and 1999, the
Company incurred $11 and $24 of advertising costs, respectively. From the period
of inception (February 5, 1997) through December 31, 1999, the Company incurred
advertising expense of $36.
SEGMENTS
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, or SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company operates in one disclosable segment, using one
measurement of profitability for its business. All long-lived assets are
maintained in Utah.
INTERNAL USE SOFTWARE COSTS
Effective January 1, 1999, the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Through December 31, 1999, the only costs required to be
capitalized under the provisions of this standard relate to purchased software.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101 or SAB 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenues in financial statements. SAB 101 is effective for the
Company beginning April 1, 2000. The Company does not expect this guidance to
materially impact the financial statements.
3. LIQUIDITY
The Company incurred a net loss of $1,249 for the year ended December 31, 1999,
bringing the deficit accumulated during the development stage to $2,071 as of
December 31, 1999. The Company anticipates
13
<PAGE> 9
THOUGHTSTAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
that revenues generated from its continuing operations will not be sufficient to
fund ongoing operations during the year ending December 31, 2000. As discussed
in Note 10, the Company was acquired by iManage, Inc. iManage, Inc. has
committed it will provide the resources necessary to fund ongoing operations
into 2001.
4. PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE 1998 1999
----------- ----- -----
<S> <C> <C> <C>
Furniture and fixtures 7 years $ 45 $ 49
Purchased computer software and equipment 3 years 131 171
Leasehold improvements 3 years 16 16
----------- ----- -----
192 236
Less accumulated depreciation (41) (98)
----- -----
$ 151 $ 138
===== =====
</TABLE>
Depreciation expense was $38 and $64 for 1998 and 1999, respectively.
14
<PAGE> 10
THOUGHTSTAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
5. NOTE PAYABLE
In January 1999, the Company obtained a five year, $250 note payable bearing
12.75% interest from Utah Technology Finance Corporation ("UTFC"). The note
provided for interest only payments until April 1999, after which equal monthly
payments of interest and principal are required until maturity on February 28,
2004. The note is collateralized by substantially all of the Company's assets,
is guaranteed by an officer of the Company and may be prepaid without penalty.
At December 31, 1999, the note had an outstanding principal balance of $230.
Principal payments due under the note payable as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
2000 $44
2001 50
2002 56
2003 64
2004 16
----
$230
====
</TABLE>
6. STOCKHOLDERS' EQUITY
COMMON STOCK
Each share of outstanding common stock has the right to one vote. The holders of
common stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors, subject to prior rights
of holders of all classes of stock outstanding having priority rights as to
dividends. No dividends have been declared or paid on the Company's common stock
through December 31, 1999.
STOCK OPTION PLAN
The Company has reserved 1,500,000 shares of common stock for issuance under the
1998 Stock Option Plan, as amended (the "Plan"). Under the Plan, the Board of
Directors may issue incentive stock options to employees and nonqualified stock
options to consultants or nonemployee directors of the Company. The Board of
Directors has the authority to determine to whom options will be granted, the
number of shares, the term and exercise price. The options vest and are
exercisable at times and increments as specified by the Board of Directors, and
expire ten years from the date of grant. Options granted under the Plan
generally vest and become exercisable ratably over 5 years from the date of
grant.
15
<PAGE> 11
THOUGHTSTAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-------------------------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER OF EXERCISE EXERCISE
FOR GRANT SHARES PRICE PRICE
--------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Shares reserved at Plan inception 1,500,000
Options granted (1,000,000) 1,000,000 $ 0.00005 $ 0.00005
Options exercised -- -- -- --
Options canceled -- -- -- --
--------- --------- -------------- ---------
Balances, December 31, 1998 500,000 1,000,000 $ 0.00005 $ 0.00005
Options granted (498,000) 498,000 $1.00-$0.00005 $ 0.10
Options exercised -- -- -- --
Options canceled -- -- -- --
--------- --------- -------------- ---------
Balances, December 31, 1999 2,000 1,498,000 $1.00-$0.00005 $ 0.03
========= ========= ============== =========
</TABLE>
The options outstanding and currently exercisable by exercise price at December
31, 1999 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS CURRENTLY
-------------------------------------------------------------- EXERCISABLE
WEIGHTED ------------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE AVERAGE
EXERCISE SHARES CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
--------- ----------- ------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.00005 1,448,000 8.66 $ 0.00005 200,000 $ 0.00005
1.00 50,000 9.84 1.00 -- N/A
--------- -------
1,498,000 200,000 0.00005
--------- -------
</TABLE>
16
<PAGE> 12
THOUGHTSTAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
STOCK-BASED COMPENSATION
The Company has adopted the disclosure only provision of SFAS 123. Had
compensation cost been determined for options issued under the Plan based on the
fair value of the options at the grant date for awards in 1998 and 1999
consistent with the provisions of SFAS 123, the Company's net loss would have
been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 5, 1997)
THROUGH
DECEMBER 31, DECEMBER 31,
1998 1999 1999
------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported $ (753) $ (1,249) $ (2,071)
------- -------- --------
Proforma $ (753) $ (1,249) $ (2,071)
------- -------- --------
</TABLE>
As the provisions of SFAS 123 have only been applied to stock options granted
since the Plan's inception in 1998, the impact of the pro forma stock
compensation cost will likely continue to increase as the vesting period for the
Company's options and the period over which the stock compensation is charged to
expense is generally five years.
The estimated weighted average minimum value of options granted during 1998 and
1999 was $0.10 and $0.51 per share, respectively. The minimum value of each
option grant is estimated on the date of grant using the minimum value method
with the following weighted-average assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
---- ----
<S> <C> <C>
Expected life of option 5.0 4.8
Risk-free interest rate 4.99% 4.89%
Dividends -- --
</TABLE>
DEFERRED STOCK COMPENSATION
During 1998 and 1999, the Company issued options to purchase common stock to a
director and certain employees totaling 1,000,000 and 498,000, respectively,
under the Plan with weighted average exercise prices of $0.00005 and $0.10 per
share, respectively, which are below the deemed fair value of the Company's
common stock at the date of grant. The weighted average deemed fair value of the
underlying common stock was $0.10 and $0.51 in 1998 and 1999, respectively. In
accordance with the requirements of APB 25, the Company has recorded deferred
stock based compensation for the difference between the exercise price of the
stock options and the deemed fair value of the Company's stock at the date of
grant. This deferred compensation is amortized to expense over the period during
which the options become exercisable, which is generally five years. At December
31, 1999, the Company had recorded deferred compensation related to these
options in an amount of $308 of which $8 and $55 had been amortized to expense
during 1998 and 1999, respectively.
WARRANTS
On January 29, 1999, the Company issued 60,400 warrants to purchase common stock
at an exercise price of $0.83 per share in connection with a $250 note payable
(Note 5). No value was assigned to these warrants. The detachable warrants
survive the note payable agreement and will expire the later of five years from
the date of the agreement or five years from the date of repayment of the note
payable.
17
<PAGE> 13
THOUGHTSTAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
During 1999, in connection with the issuance of common stock, the Company issued
900,000 warrants to purchase common stock. 450,000 warrants are exercisable at
$1.25 per share and the remaining 450,000 are exercisable at $2.00 per share.
During 1999, the Company received $12 cash from an employee for a note payable.
The note bore interest at 5% per year and was payable on demand. In December
1999, the note payable was converted to 12,000 shares of common stock at $1.00
per share and the Company issued 24,000 warrants to purchase common stock.
12,000 warrants are exercisable at $1.25 per share and the remaining 12,000 are
exercisable at $2.00 per share. No value was assigned to these warrants.
With the exception of the 60,400 warrants issued on January 29, 1999, all
warrants granted may only be exercised between October 1, 2000 and October 31,
2001. In the event that the Company enters into a binding agreement to
consummate a transaction on or prior to September 30, 2000 that values the
Company at $14 million or more, the warrants will expire immediately and not be
exercisable. A transaction is defined as either (1) a sale of the outstanding
common stock to a single purchaser, (2) a merger with a publicly traded company
with a market capitalization of at least $100,000 or (3) a sale of substantially
all of the Company's assets.
PERFORMANCE-BASED ISSUANCE OF COMMON STOCK
In February 1997, the Company entered into an incentive agreement with an
employee. Under this agreement, the employee may be issued up to 150,000 shares
of common stock upon the completion of certain performance criteria, which are
linked to increases in users and sales amounts for a one year period from the
date of the Company's initial sale of its core product. As of December 31, 1999,
no amounts have been recorded related to this agreement as it is not considered
likely the performance criteria will be achieved. Upon a change in control of
the Company, the employee's right to these shares vests immediately and in full
as if all of the performance criteria had been met. In connection with the
acquisition discussed in Note 10, these rights became fully vested.
ANTI-DILUTION AGREEMENT WITH STOCKHOLDER-DIRECTOR
As of September 24, 1998, an officer of the Company owed an unrelated individual
$50. The Company issued 566,800 shares of common stock at $0.09 per share in
exchange for the right to this note receivable. The note was subsequently paid
by the officer prior to December 31, 1998.
In connection with the issuance of this common stock, the purchaser became a
director of the Company and obtained an anti-dilution agreement from the
Company. The agreement gives the director the right to 10% of the Company's
outstanding common stock. In the event of future issuances of common stock, the
director is entitled, for no consideration, to the additional shares required to
maintain 10% of the Company's outstanding common stock, not to exceed a total of
1,000,000 shares.
On September 21, 1999, the Company issued the director 433,200 shares of common
stock in accordance with this anti-dilution agreement due to the issuance of
common stock to new investors. As a result of the additional issuance, the
director owns 1,000,000 shares of common stock at December 31, 1999.
7. INCOME TAXES
As of December 31, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $223 which begin to expire in 2019.
Realization of the related deferred tax asset is dependent on generating
sufficient taxable income prior to the expiration of the carryforwards. A full
valuation allowance has been recorded for the deferred tax asset as the Company
has yet to generate sufficient income.
18
<PAGE> 14
THOUGHTSTAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
8. RELATED PARTY TRANSACTIONS
The President and stockholder of the Company elected to forgo salary owed to him
for services rendered during 1998 and 1999. Had the officer required payment,
the Company would have recorded additional compensation expense of $150 and $113
for 1998 and 1999, respectively.
During 1998, the Company sold new property and equipment to an employee for a
note receivable of $1. The note was repaid in 1999.
Also during 1998, the Company loaned $1 to a relative of an officer of the
Company. The amount was repaid through consulting services provided by the
relative during 1999.
9. 401(k) PLAN
The Company sponsors an employee savings and retirement plan intended to qualify
under Section 401(k) of the Internal Revenue Code. Eligible employees, at least
21 years old and having completed 1 hour of service, may contribute up to 15% of
eligible compensation, subject to annual limitations, and are fully vested in
their own contributions. The Company makes matching contributions of $1.00 per
$1.00 contributed by participants up to 3% of eligible compensation. During 1998
and 1999, the Company made matching contributions of $7 and $9 respectively.
10. SUBSEQUENT EVENTS
On January 11, 2000, the Company issued 400,000 shares of common stock for $400
cash.
On June 21, 2000, the Company was acquired by iManage, Inc., a publicly traded
company based in San Mateo, California for cash and stock.
For the period from inception (February 5, 1997) through December 31, 1999, the
Company's principal stockholder (and President) advanced funds to the Company.
At December 31, 1998 and 1999, the net amount due the stockholder was $881 and
$956, respectively. In February 2000, in connection with an equity funding, the
stockholder was required to convert his net advance to equity.
19
