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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _____________
Commission file number 000-28105
GetThere.com, Inc. (Exact name of Registrant as Specified in its Charter)
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4045 Campbell Avenue
Menlo Park, California 94025
(Address of Principal Executive Offices including Zip Code)
(650) 752-1500
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.0001 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.4054 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The Registrant hereby amends and restates in its entirety Part II, Item 8 of its Annual Report on Form 10-K for the fiscal year ended January 31, 2000 as set forth in the pages attached thereto.
GetThere.com, Inc. (the "Company"), by this Form 10-K/A, Amendment No. 1 to Form 10-K, hereby amends Item 8 of Part II of the Annual Report on Form 10-K of the Company for the year ended January 31, 2000.
EXPLANATORY NOTE TO AMENDMENT NO. 1 TO 2000 ANNUAL REPORT ON FORM 10-K
In this Amendment the Company is revising the table under the caption "Concentration of Credit Risk" in Note 1 to its Consolidated Financial Statements and is omitting the reference under the caption "1999 Stock Incentive Plan" in Note 8 to its Consolidated Financial Statements to the availability under the 1999 Stock Incentive Plan of unused shares under the 1996 Stock Plan.
In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, Item 8 of Part II to the 2000 Annual Report as amended by this Amendment is set forth in its entirety on pages numbered 2 through 24.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to its Annual Report on Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized.
GetThere.com, Inc. |
(Registrant) |
By: | /s/ Kenneth R. Pelowski |
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Kenneth R. Pelowski | |
(Signing on behalf of Registrant as a duly authorized officer of Registrant and as the Principal Financial Officer of Registrant) |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The following consolidated financial statements and the related notes thereto, of GetThere.com, Inc. and the Report of Independent Accountants are filed as a part of this Form 10-K.
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Report of Independent Accountants |
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Consolidated Balance Sheets |
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Consolidated Statements of Operations |
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Consolidated Statements of Stockholders' Equity (Deficit) |
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Consolidated Statements of Cash Flows |
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Notes to Consolidated Financial Statements |
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of GetThere.com, Inc.
In our opinion, the accompanying balance sheet and the related statements of operations, of stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of GetThere.com, Inc.
at January 31, 1999 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2000, 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.
PricewaterhouseCoopers LLP |
San Jose, California
May 10, 2000
GETTHERE.COM, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
January 31, ---------------------- 1999 2000 ---------- ---------- ASSETS Current assets: Cash and cash equivalents ............................. $8,268 $78,314 Short-term investments ................................ 7,534 69,932 Restricted cash ....................................... -- 805 Accounts receivable, net of allowance for doubtful account of $540 in 1999 and $451 in 2000, respectively ........................................ 1,203 3,134 Prepaid expenses and other current assets ............. 136 631 ---------- ---------- Total current assets ................................ 17,141 152,816 Property and equipment, net ............................. 3,621 9,640 Other assets ............................................ 44 815 Intangible assets ....................................... -- 10,907 ---------- ---------- Total assets ...................................... $20,806 $174,178 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT): Current liabilities: Accounts payable ...................................... $1,000 $1,894 Accrued liabilities ................................... 1,667 5,639 Deferred revenue ...................................... 1,072 2,402 Capital lease obligation, current ..................... 1,313 3,484 ---------- ---------- Total current liabilities ........................... 5,052 13,419 Capital lease obligations, long-term .................... 3,235 4,347 ---------- ---------- Total liabilities ................................... 8,287 17,766 Redeemable convertible preferred stock and warrants ..... 32,901 -- Stockholders' equity (deficit): Common stock: $0.0001 par value, 200,000 shares authorized; 4,544 and 32,591 shares issued and outstanding at January 31, 1999 and 2000, respectively ........................................ -- 5 Additional paid-in capital ............................ 11,753 256,871 Note receivable from stockholders ..................... -- (2,528) Unearned compensation ................................. (6,503) (24,311) Accumlated other comprehensive loss ................... -- (195) Accumulated deficit ................................... (25,632) (73,430) ---------- ---------- Total stockholders' equity (deficit) ................ (20,382) 156,412 ---------- ---------- Total liabilities and stockholders' equity (deficit) $20,806 $174,178 ========== ==========
See accompanying notes to consolidated financial
statements.
GETTHERE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share ampunts)
Year Ended January 31, --------------------------------- 1998 1999 2000 ---------- ---------- ----------- Revenues: Transaction ............................... $2,098 $4,932 $14,142 Professional service ...................... 903 1,515 1,310 ---------- ---------- ----------- Total revenues .......................... 3,001 6,447 15,452 Cost of revenues ............................ 1,680 4,292 10,923 ---------- ---------- ----------- Gross profit ................................ 1,321 2,155 4,529 ---------- ---------- ----------- Operating expenses: Research and development .................. 2,266 4,113 5,274 Sales and marketing ....................... 2,393 5,732 8,822 General and administrative ................ 2,887 6,127 17,491 Stock-based compensation .................. 103 2,005 22,185 ---------- ---------- ----------- Total operating expenses ................ 7,649 17,977 53,772 ---------- ---------- ----------- Loss from operations ........................ (6,328) (15,822) (49,243) Interest income/(expense), net .............. (30) 173 1,445 ---------- ---------- ----------- Net loss .................................... (6,358) (15,649) (47,798) Accretion of series B, C, and E redeemable convertible preferred stock ............... (51) (309) (1,094) ---------- ---------- ----------- Net loss attributable to common stockholders ($6,409) ($15,958) ($48,892) ========== ========== =========== Basic and diluted net loss per share ........ ($1.81) ($4.03) ($5.16) ========== ========== =========== Shares used in computing basic and diluted net loss per share ........................ 3,537 3,957 9,478 ========== ========== ===========
See accompanying notes to consolidated financial
statements.
GETTHERE.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
Note Accum- Receiv- ulated Total Addi- able Other Stock- Common Stock tional from Unearned Compre- Accum- holders' Compre- -------- -------- Paid-in Stock- Compen- hensive ulated Equity hensive Shares Amount Capital holders sation Loss Deficit (Deficit) Loss -------- -------- --------- ---------- --------- --------- --------- --------- --------- Balance at January 31, 1997 3,772 -- $120 $ -- ($53) $ -- ($3,625) ($3,558) Net loss ........................... -- -- -- -- -- -- (6,358) (6,358) Issuance of common stock for services 40 -- 6 -- (6) -- -- -- Exercise of common stock options ... 108 -- 10 -- -- -- -- 10 Accretion of series B and C redeemable convertible preferred stock ............................. -- -- (51) -- -- -- -- (51) Unearned compensation .............. -- -- 414 -- (414) -- -- -- Amortization of unearned compensation -- -- -- -- 103 -- -- 103 -------- -------- --------- ---------- --------- --------- --------- --------- Balance at January 31, 1998 3,920 -- 499 -- (370) -- (9,983) (9,854) Net loss ........................... -- -- -- -- -- -- (15,649) (15,649) Issuance of restricted common stock for services ............... 692 -- 1,118 -- (1,118) -- -- -- Issuance of warrant in connection with equipment lease line ........ -- -- 13 -- -- -- -- 13 Exercise of common stock options ... 83 -- 12 -- -- -- -- 12 Issuance of common stock options in connection with preferred stock ... -- -- 3,400 -- -- -- -- 3,400 Accretion of series B and C redeemable convertible preferred stock ............................. -- -- (309) -- -- -- -- (309) Unearned compensation .............. -- -- 7,035 -- (7,035) -- -- -- Amortization of unearned compensation -- -- -- -- 2,005 -- -- 2,005 Forfeiture of common stock ......... (151) -- (15) -- 15 -- -- -- -------- -------- --------- ---------- --------- --------- --------- --------- Balance at January 31, 1999 4,544 -- 11,753 -- (6,503) -- (25,632) (20,382) Net loss ........................... -- -- -- -- -- -- (47,798) (47,798) ($47,798) Other comprehensive loss - unrealized loss on securities, net of tax ... -- -- -- -- -- (195) -- (195) (195) --------- Comprehensive loss ................. ($47,993) Issuance of restricted common stock ========= for employment ................... 125 -- 1,186 -- (1,186) -- -- -- Issuance of warrant in connection with equipment and lease line .... -- -- 136 -- -- -- -- 136 Exercise of common stock options in exchange for notes receivable .... 2,707 -- 2,707 (2,707) -- -- -- -- Exercise of common stock options ... 900 -- 1,899 -- -- -- -- 1,899 Repurchase of common stock ......... (306) -- (276) 272 -- -- -- (4) Conversion of mandatorily redeemable convertible preferred stock into common stock: Series A ...................... 3,706 1 4,200 -- -- -- -- 4,201 Series B ...................... 3,914 1 6,498 -- -- -- -- 6,499 Series C ...................... 5,486 1 28,609 -- -- -- -- 28,610 Series E ...................... 4,841 1 61,115 -- -- -- -- 61,116 Common stock issued in IPO, net of issuance costs of $2,597 ......... 5,750 1 82,963 -- -- -- -- 82,964 Warrants exercised for common stock 761 -- 6,543 -- -- -- -- 6,543 Conversion of notes payable to common stock ...................... 162 -- 1,681 -- -- -- -- 1,681 Interest receivable related to shareholders notes receivable .... -- -- -- (93) -- -- -- (93) Accretion of series B, C and E redeemable convertible preferred stock ............................ -- -- (1,094) -- -- -- -- (1,094) Intangible Assets .................. -- -- 10,144 -- -- -- -- 10,144 Unearned compensation .............. -- -- 38,807 -- (38,807) -- -- -- Amortization of unearned compensation -- -- -- -- 22,185 -- -- 22,185 -------- -------- --------- ---------- --------- --------- --------- --------- Balance at January 31, 2000 32,590 $5 $256,871 ($2,528) ($24,311) ($195) ($73,430) $156,412 ======== ======== ========= ========== ========= ========= ========= =========
See accompanying notes to consolidated financial
statements.
GETTHERE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended January 31, ----------------------------- 1998 1999 2000 --------- --------- --------- Cash Flows From Operating Activities: Net loss ..................................... ($6,358) ($15,649) ($47,798) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization .............. 413 1,462 5,308 Amortization of unearned compensation ...... 103 2,005 22,185 Provision for doubtful accounts ............ 82 508 635 Non-cash interest expense .................. 72 261 175 Changes in assets and liabilities: Accounts receivable ...................... (627) (937) (2,447) Restricted cash .......................... -- -- (785) Accounts payable ......................... 951 (271) 904 Accrued liabilities ...................... 259 981 (1,958) Deferred revenue ......................... 591 317 1,330 Prepaid expenses and other assets ........ (73) (54) 1,419 --------- --------- --------- Net cash used in operating activities .. (4,587) (11,377) (21,033) --------- --------- --------- Cash Flows From Investing Activities: Purchase of property and equipment ........... (2,006) (2,925) (9,514) Acquisition of business ...................... -- -- (800) Proceeds from sale of short-term investments . -- -- 21,033 Purchase of short-term investments ........... -- (7,534) (83,607) --------- --------- --------- Net cash used in investing activities .. (2,006) (10,459) (72,888) --------- --------- --------- Cash Flows From Financing Activities: Proceeds from issuance of series B redeemable convertible preferred stock and warrants .... 6,498 -- -- Proceeds from issuance of series C redeemable convertible preferred stock, options and warrants ............................... -- 25,208 22,481 Proceeds from issuance of series E redeemable convertible preferred stock and warrants ... -- -- 50,263 Proceeds from borrowing on capital lease obligations ................................ 494 3,972 4,308 Principal payments on capital lease obligations (125) (279) (2,234) Payment on bank borrowings ................... 469 (141) (94) Repurchase of common stock ................... -- -- (276) Proceeds from issuance of common stock ....... 10 12 89,518 --------- --------- --------- Net cash provided by financing activities . 7,346 28,772 163,967 --------- --------- --------- Net Increase in Cash and Cash Equivalents ...... 753 6,936 70,046 Cash and Cash Equivalents at Beginning of Period 579 1,332 8,268 --------- --------- --------- Cash and Cash Equivalents at End of Period ..... $1,332 $8,268 $78,314 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid for interest ....................... $57 $339 $742 ========= ========= ========= Supplemental non-cash investing and financing activities: Warrants issued to acquire redeemable convertible preferred stock ................ $363 $4,139 $ -- ========= ========= =========
See accompanying notes to consolidated financial
statements.
GETTHERE.COM, INC.
Notes to Consolidated Financial Statements
Note 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
GetThere.com, Inc. ("GetThere" or the "Company") was incorporated as Internet Travel Network in California on August 7, 1995. The Company changed its name to GetThere.com, Inc. on July 15, 1999. GetThere is a leading provider of Internet- based business-to-business travel procurement and supply solutions primarily for businesses and travel suppliers. The Company's Internet-based solutions are designed to reduce current inefficiencies in the travel procurement and supply process by decreasing the role of intermediaries, such as travel agents, by providing customers with valuable travel information and by streamlining the internal procurement and supply processes of the Company's customers. The Company offers corporate customers a service that allows the Corporation's employees to gain access to a restricted web site where they can make travel reservations. GetThere customizes the web site, provides the software and servers which processes the reservation, provides reports on reservation activities, answers phone inquiries and either prints and delivers tickets, or passes the reservation to the Company's travel agent for ticketing. The Company offers Travel Suppliers and other customers public web sites where customers can make travel reservations. GetThere provides the software and servers that process the reservation, provides phones and email based traveler support, prints and delivers tickets, and provides reporting on travel activities.
Reincorporation
In August 1999, the Company's Board of Directors authorized the reincorporation of the Company in the State of Delaware. As a result of the reincorporation, the Company is authorized to issue 200 million shares of $0.0001 par value common stock and 10 million shares of $0.0001 par value preferred stock. The Board of Directors has the authority to issue undesignated preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. Share and per share information for each of the periods presented has been retroactively adjusted to reflect the reincorporations.
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 financial statements and reported results of operations during the reporting period. Actual results could differ from those estimates.
Revenue recognition
All revenues arise from providing Internet-based services. Transaction revenues are largely derived from on-line orders, hosting fees, advertising, and traveler support services. Hosting fees are charged to gain access to the Company's on-line travel reservation service. Support fees are charged to customers who elect to utilize traveler support services, and are earned on either a fixed monthly basis or per minute of call time used. Revenues from on-line hotel and car reservations are recognized when the commission is received. Commission revenues from on-line air travel reservations are recognized upon the completion of the transaction. Completion is generally defined as either the placement of an order with a third-party supplier or the fulfillment of an order by printing and delivering tickets, depending upon the nature of the agreement with the customer. Hosting fees are recognized monthly when invoiced. Advertising revenues are primarily derived from advertising contracts in which the Company is obligated to provide a minimum number of "impressions" or times that an advertisement is viewed. Advertising revenues are recognized as a percentage of completion of the guaranteed minimum number of impressions is achieved, provided that no significant obligations remain. If obligations remain, revenues from advertising are deferred until such obligations are fulfilled. Revenues from traveler support services are recognized as the services are performed.
Professional service revenues are primarily derived from fees for implementation and customization of customer web sites utilizing the Company's technology. These fees are recognized over the term of the agreement for standard implementations or on a percentage of completion basis for custom development projects. Payments received in advance of the performance of services are recorded as deferred revenue. Provisions are made in full for any contracts during the period in which a loss on a particular contract becomes probable.
Cost of revenues
Cost of revenues is predominantly comprised of transaction and personnel costs including software and telecommunications costs associated with operating the Company's transaction systems, traveler support and travel service center. Costs associated with outside consultants, commission sharing with ePartners and travel suppliers, content licensing, printing and delivery costs of tickets, computer reservation service charges and advertising agency fees are also included as cost of revenues. It is impracticable for the Company to allocate the costs of facilities or other expense items that are not directly attributable to revenue generation activities; these common costs and expenses are primarily included in general and administrative expenses.
Cash, cash equivalents, short-term investments and restricted cash
The Company considers all highly liquid investments purchased with a maturity of three months or less at the date of acquisition to be cash equivalents; those with original maturities greater than three months and current maturities less than twelve months from the balance sheet date are considered short-term investments.
Both cash equivalents and short-term investments are considered available- for-sale securities and are reported at fair value.
In May 1999, the Company entered into an operating lease for new office facilities in Menlo Park, California that expires in May 2004. Under the terms of this agreement, $805,000 of cash was pledged as collateral on an outstanding letter of credit and was classified as restricted cash at January 31, 2000. The restricted cash balance will be reduced by $109,000 after the first year of the lease and by $174,000 each year thereafter provided no event of default has occurred. The Company was in compliance with such covenants at January 31, 2000.
Concentration of credit risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, short-term investments and accounts receivable. Cash, cash equivalents and short-term investments are deposited with high credit, quality financial institutions. The Company's accounts receivable are derived from revenue earned from customers located primarily in the United States. The Company performs credit evaluations of its customers' financial condition and, generally, requires no collateral. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of such accounts.
% of Total Revenue % of Accounts Receivable ----------------------- ----------------------- 1998 1999 2000 1998 1999 2000 ------- ------- ------- ------- ------- ------- Customer A ........ --% 25% 47% 12% 19% 46% Customer B ........ --% --% --% 14% 13% --% Customer C ........ --% --% --% --% 13% --% Customer D ........ --% --% 6% --% --% 14%
Capitalization of internal-use software costs
In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective for financial statements for years beginning after December 15, 1998 and provides guidance on accounting for the costs incurred for computer software developed or obtained for internal use including the requirement to capitalize specified costs and amortization of such costs. The Company adopted the provisions of SOP 98-1 in its fiscal year beginning February 1999.
Product development costs include expenses incurred by the Company to maintain, monitor and manage the Company's web site. The Company recognizes web site development costs in accordance with Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." As such, the Company expenses all costs incurred that relate to the planning and post implementation phases of development. Costs incurred in the development phase are capitalized and recognized over the product's estimated useful life if the product is expected to have a useful life beyond one year. Costs associated with repair or maintenance of the existing site or the development of web site content are included in product development expense in the accompanying consolidated statement of income.
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, generally three years. Leasehold improvements are amortized over the shorter of the remaining term of the lease or the estimated useful lives of the assets.
Intangible Assets
Intangible assets consist of goodwill related to acquisition and an intangible assets related to equity issuance. These amounts are generally being amortized over two to four years using the straight-line method. Gross intangible asset was $12.4 million and related accumulated amortization was $1.5 million at January 31, 2000.
Impairment of long-lived assets
The Company periodically evaluates the carrying value of long-lived assets to be held and used, including but not limited to capital assets and intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long- lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost of disposal. No losses from impairment have been recognized in the financial statements.
Advertising
Advertising is expensed as incurred. Advertising and public relations expenses for the fiscal years ended January 1998, 1999 and 2000 totaled $536,000, $1,077,000 and $743,000, respectively.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees" using the multiple option approach and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock- Based Compensation." The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS 123 and the Emerging Issues Task Force in Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or In Conjunction with Selling, Goods or Services."
Income taxes
Income taxes are accounted for using an asset and liability approach which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The measurement of current and deferred tax liabilities and assets are based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.
Net loss per share
The Company computes net loss per share in accordance with Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS 128 and SAB 98, basic net loss per share is computed by dividing the net loss attributed to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period excluding shares of Common Stock subject to repurchase. Such shares of common stock subject to repurchase for the fiscal years ended January 1998, 1999 and 2000 aggregated 275,464, 401,831 and 1,793,240, respectively. These shares primarily vest with the passage of time subject to continued employment by certain executives.
The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:
Years ended January 31, ----------------------------------------- 1998 1999 2000 ------------- ------------- ------------- Net loss attributable to common stockholders ....................... ($6,409,000) ($15,958,000) ($48,892,000) Basic and diluted: Weighted-average shares of common stock outstanding ......... 3,873,540 4,474,073 11,277,032 Less weighted-average shares subject to repurchase ............ (337,005) (516,681) (1,799,396) ------------- ------------- ------------- Weighted-average shares used in computing basic and diluted net loss per common share .......... 3,536,535 3,957,392 9,477,636 Basic and diluted net loss per common share ................... ($1.81) ($4.03) ($5.16)
The following table sets forth potential shares of common stock that are not included in the diluted net loss per share calculation above because to do so would be anti-dilutive for the periods indicated:
Years ended January 31, ----------------------------------------- 1998 1999 2000 ------------- ------------- ------------- Weighted average effect of common stock equivalents: Common stock options .............. 544,136 1,188,637 5,318,161 Shares of common stock subject to repurchase .. 337,005 516,681 1,799,396 Shares issuable pursuant to warrants to purchase common and convertible preferred stock ................. 351,386 2,814,579 4,734,208 Shares of convertible preferred stock on an "as if converted" basis ........................... 6,804,929 10,568,524 3 ------------- ------------- ------------- 8,037,456 15,088,421 11,851,768 ============= ============= =============
Pro forma net loss per share (unaudited)
Pro forma net loss per share is computed using the weighted average number of shares of common stock outstanding, including the pro forma effects of the automatic conversion of the Company's series A, B and C preferred stock and the exercise of series B and E warrants into shares of the Company's common stock effective upon the closing of the Company's initial public offering as if such conversion occurred at the beginning of the period, or at the date of issuance, if later. The resulting pro forma adjustment for the fiscal year ended January 31, 1999 and 2000 includes (i) an increase in the weighted average shares used to compute the basic net loss per share of 10,959,969 and 34,763,152, respectively, and (ii) a decrease in the net loss attributable to common stockholders for the accretion of redeemable convertible preferred stock of $309,000 and $1,094,000, respectively. The calculation of diluted net loss per share excludes potential shares of common stock, as the effect of their inclusion would be anti-dilutive. Pro forma potential common stock consists of common stock subject to repurchase rights and incremental shares of common stock issuable upon the exercise of stock options. The following table presents the unaudited pro forma net loss per share (in thousands, except per share amounts):
Years Ended January 31, --------------------------- 1999 2000 ------------- ------------- Pro forma net loss .......................... ($15,649) ($47,798) Shares used in computing pro forma basic and diluted net loss per common share ..... 14,917 33,136 Pro forma basic and diluted net loss per common share .......................... ($1.05) ($1.44)
Comprehensive income
Effective February 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 130 ("SFAS 130"). "Reporting Comprehensive Income". SFAS 130 establishes standards for reporting comprehensive income and its components in financial statements. "Other Comprehensive Income" refers to revenues, expenses, gains and losses that are not included in net income but rather are recorded directly in stockholders' equity. Tax effects of comprehensive income (loss) are not considered material. The components of the comprehensive loss at January 31, 1999 and 2000 were as follows (in thousands):
January 31, --------------------- 1999 2000 ---------- ---------- Net loss .............................. ($15,649) ($47,798) Unrealized loss on securities ......... -- (195) ---------- ---------- Comprehensive loss .................... ($15,649) ($47,993) ========== ==========
The components of the accumulated other comprehensive loss at January 31, 2000 and October 31, 1999 were as follows (in thousands):
October 31, January 31, 1999 2000 ---------- ---------- Unrealized loss on securities ......... $ -- ($195) ---------- ---------- Accumulated other comprehensive loss .. $ -- ($195) ========== ==========
Segment information
Effective February 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information." The Company identifies its operating segments based on business activities and management responsibility. During the fiscal years ended January 31, 1998, 1999 and 2000, the Company operated in a single business segment providing Internet-based services.
Recent accounting pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 is effective for all fiscal quarters beginning with the quarter ending July 31, 1999. In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" which deferred the effective date until the fiscal quarter ending July 31, 2000. The adoption of SFAS No. 133 is not expected to have a material effect on the Company's results of operations, financial position or cash flows.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles (GAAP) to revenue recognition in financial statements. The Company is required to adopt SAB 101 in the second quarter beginning after December 15, 1999. Although the Company believes its revenue recognition policies are in accordance with GAAP, the Company is currently studying SAB 101 and has not determined its impact on the Company's financial statements.
In April 2000, FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44") was issued. FIN 44 clarifies the application of APB No. 25 for only certain issues. Among other issues, FIN 44 clarifies the definition of employee for purposes of applying APB No. 25, the criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in this interpretation over specific events that occur after either December 15, 1998 or January 12, 2000. The Company has not yet determined the impact, if any, of adopting FIN 44.
NOTE 2 - RELATED PARTY TRANSACTIONS:
In September 1997, the Company and United Air Lines entered into a service agreement with an initial term of one year with renewal options. Under the terms of the agreement, the Company receives a fixed fee per transaction processed together with additional variable amounts due for telephone call support and maintenance services. During the fiscal years ended January 31, 1998, 1999 and 2000, the Company provided services to United Air Lines, an investor of the Company. Services provided to the investor totaled (in thousands):
Year Ended January 31, -------------------------------- 1998 1999 2000 ---------- ---------- ---------- Transaction revenues .................. $47 $1,143 $6,920 Professional services revenue ......... 145 351 341 ---------- ---------- ---------- Total ............................... $192 $1,494 $7,261 ========== ========== ==========
Amounts due from United Air Lines totaled $111,000, $336,000 and $1,270,000 at January 31, 1998, 1999 and 2000, respectively. Commissions paid to United Air Lines totaled $0, $0 and $1,262,000 for the fiscal years ended January 31, 1998, 1999 and 2000, respectively.
NOTE 3 - BALANCE SHEET COMPONENTS:
The following is a summary of available-for-sale securities (in thousands):
January 31, 1999 --------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Loss Value --------- --------- --------- --------- Money market funds ................... $3,725 $ -- $ -- $3,725 Certificates of deposit ............... 629 -- -- 629 Corporate notes ....................... 5,173 -- -- 5,173 U.S. government debt securities ....... 4,889 -- -- 4,889 Foreign debt securities ............... 1,019 -- -- 1,019 --------- --------- --------- --------- $15,435 $ -- $ -- $15,435 ========= ========= ========= ========= Includes in cash and cash equivalents . $7,901 $ -- $ -- $7,901 Includes in short-term investment ..... 7,534 -- -- 7,534 --------- --------- --------- --------- $15,435 $ -- $ -- $15,435 ========= ========= ========= ========= January 31, 2000 --------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Loss Value --------- --------- --------- --------- Money market funds .................... $14,564 $ -- $ -- $14,564 Commerical paper ...................... 81,958 2 22 81,938 Corporate notes ....................... 27,987 -- 167 27,820 U.S. government debt securities ....... 1,001 -- 3 998 Foreign debt securities ............... 1,252 -- 5 1,247 Auction rate securities ............... 20,100 -- -- 20,100 --------- --------- --------- --------- $146,862 $2 $197 $146,667 ========= ========= ========= ========= Includes in cash and cash equivalents . $76,930 $2 $189 $76,743 Includes in short-term investment ..... 69,932 -- 8 69,924 --------- --------- --------- --------- $146,862 $2 $197 $146,667 ========= ========= ========= =========
The following is a summary of contractual maturities of the Company's available-for-sales securities (in thousands):
January 31, --------------------- 1999 2000 ---------- ---------- Amounts maturing within one year ........... $15,435 $146,862 ---------- ---------- $15,435 $146,862 ========== ========== Year Ended January 31, --------------------- 1999 2000 ---------- ---------- Accounts receivable: Accounts receivable .............................. $1,743 $3,584 Less: Allowance for doubtful accounts ........... (540) (450) ---------- ---------- $1,203 $3,134 ========== ========== Property and equipment, net: Computer equipment ............................... $4,055 $10,453 Software ......................................... -- 1,689 Furniture and fixtures ........................... 537 970 Leasehold improvements ........................... 1,023 2,325 ---------- ---------- 5,615 15,437 Less: Accumulated depreciation and amortization . (1,994) (5,797) ---------- ---------- $3,621 $9,640 ========== ==========
Equipment subject to capital leases included above totaled $5,244,000 and $10,292,000 at January 31, 1999 and 2000, respectively. Accumulated amortization on such equipment total $1,614,000 and $8,000,000 at January 31, 1999 and 2000, respectively.
Accrued liabilities consist of the following (in thousands):
Year Ended January 31, --------------------- 1999 2000 --------------------- Accrued liabilities: Payroll and related expenses ..................... $724 $1,822 Bonuses and commission ........................... -- 1,479 Other ............................................ 943 2,338 ---------- ---------- Total .......................................... $1,667 $5,639 ========== ==========
NOTE 4 - BORROWINGS:
In April 1997, the Company entered into a financing agreement with a bank, which provides for a term loan with borrowings up to $500,000 of capital expenditure purchases. Borrowings are secured by all of the Company's assets except leased assets. The term loan requires the Company to meet certain financial covenants including quick ratio, tangible net worth and profitability requirements. As of January 31, 2000, the term loan had been repaid and cancelled.
Equipment lease line
In April 1996, the Company entered into an equipment financing arrangement, which provided for borrowings of up to $250,000, secured by the assets acquired. In conjunction with the financing agreement, the Company issued a warrant to purchase 17,647 additional shares of series A redeemable convertible preferred stock with an exercise price of $1.1333 per share. The warrant can be exercised up to the earlier of May 2003 and two years from the effective date of the Company's initial public offering.
The Company determined that the fair value of the warrant approximated $10,000 using the Black Scholes model and has recorded the fair value as additional interest expense. In February 1998, the Company extended the equipment lease line to $3,250,000 through January 1999. The conditions and covenants of the extended agreement remain unchanged from the previous agreement. In association with this extension, the Company issued a warrant to purchase 54,216 shares of series B redeemable convertible preferred stock for $1.66 per share. The Company determined that the fair value of the warrant approximated $13,000 using the Black Scholes model and has recorded the fair value as additional interest expense.
In March 1997, the Company entered into another equipment financing arrangement, which provided for borrowings of up to $500,000, secured by the assets acquired. In February 1998, the Company extended the equipment lease line to $2,100,000 through January 1999. The conditions and covenants of the extended agreement remain unchanged from the previous agreement. In association with this extension, the Company issued warrants to purchase 28,916 shares of series B redeemable convertible preferred stock for $1.66 per share. The Company determined the fair value of the warrant approximated $15,000 using the Black Scholes model and has recorded the fair value as additional interest expense.
In June 1999, the Company entered into an agreement to extend the Company's then current $3,250,000 equipment lease line to $5,750,000 through June 2000. The conditions and covenants of the extended agreement remain unchanged from the previous agreement. In association with this extension, the Company issued warrants to purchase 19,500 shares of series B convertible preferred stock at a price equal to 85% of the next financing in excess of $10,000,000. The Company determined the fair value of the warrant approximately $121,000 using the Black Scholes model and has recorded the fair value as additional interest expense.
In November 1999, the Company entered into an equipment financing arrangement, which provided for borrowings of up to $700,000, secured by the assets acquired. The lease term commenced on December 1999, and is for 36 months.
NOTE 5 - COMMITMENTS:
Leases
The Company leases office space and equipment under non-cancelable operating and capital leases with various expiration dates through the year 2004. Rent expense for the years ended January 31, 1998, 1999 and 2000 totaled $196,000, $463,000 and $1,377,000, respectively.
In May 1999, the Company entered into an operating lease for new office facilities in Menlo Park, California that expires in May 2004. Under the terms of this agreement, $805,000 of cash was pledged as collateral on an outstanding letter of credit and was classified as restricted cash at January 31, 2000. The restricted cash balance will be reduced by $109,000 after the first year of the lease and by $174,000 each year thereafter provided no event of default has occurred. The Company was in compliance with such covenants at January 31, 2000.
In association with the lease arrangement, the Company issued warrants to purchase 16,407 share of series E convertible preferred stock at an exercise price equal to the next equity financing or $10 per share if the Company fails to close a financing by September 30, l999. The Company determined that the fair value of the warrant approximated $28,000 using the Black Scholes model with an exercise price of $10 and has recorded the fair value as additional interest expense in the second quarter of fiscal 2000.
Future minimum lease payments under all non-cancelable operating and capital leases, as of January 31, 2000, are as follows (in thousands):
Capital Operating Lease Lease ---------- ---------- Fiscal year Ending January 31, 2001 ............................................. $4,095 $1,684 2002 ............................................. 3,171 1,516 2003 ............................................. 1,403 1,519 2004 ............................................. 7 1,535 2005 ............................................. -- 494 Thereafter ....................................... -- -- ---------- ---------- 8,676 $6,748 Less: Amount representing interest ............... (845) ========== ---------- 7,831 Less: Current portion ........................... (3,484) ---------- Long-term portion of capital lease obligation .... $4,347 ==========
The Company has entered into employment agreements with certain officers and employees of the Company. The agreements generally provide for annual bonuses and incentive stock options as determined by the board of directors as well as covenants not-to-compete during the employment term and for a period thereafter. The employment agreements also generally provide for severance in the event that the individual is terminated without cause.
NOTE 6 - REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS:
Convertible Preferred Stock
In April and June 1996, the Company issued 3,705,991 shares of series A convertible preferred stock at $1.133 per share. In April 1997, the Company issued 3,914,448 shares of series B convertible preferred stock at $1.66 per share. From May 1999 through September 1999, the Company issued 5,986,298 shares of series C convertible preferred stock at $5.125 per share. In September 1999, the Company issued 5,041,076 shares of series E convertible preferred stock at $12.50 per share. In November 1999, we repurchased 500,000 shares of series C convertible preferred stock and 200,000 shares of series E convertible preferred stock for an aggregate amount of $5.1 million. All outstanding shares of the Company's convertible preferred stock automatically converted into Common Stock on a one-for-one basis upon completion of the Company's initial public offering.
Warrants and options for Redeemable Convertible Preferred Stock
In connection with the issuance of series B redeemable convertible preferred stock on April 17, 1997, the Company issued warrants to purchase 391,445 additional shares of series B redeemable convertible preferred stock with an exercise price of $1.66 per share. The warrants can be exercised prior to April 2002. The Company determined the fair value of the warrants approximated $338,000 using the Black Scholes pricing model. This amount has been accreted ratably over the life of the instrument.
In April 1997, the Company issued a warrant to purchase 30,120 additional shares of series B redeemable convertible preferred stock with an exercise price of $1.66 per share in conjunction with a banking arrangement. The warrant can be exercised prior to April 15, 2002. The Company determined the fair value of the warrants approximated $25,000 and has recorded the fair value as additional interest expense in 1997.
In November 1999, the Company issued 278,876 shares of common stock for no proceeds in the cashless exercise of these warrants. Also, in November 1999, the Company issued 90,361 shares of common stock for $150,000 for cash exercise of these warrants.
In connection with the issuance of series C redeemable convertible preferred stock in May 1998, the Company is required, at the request of the holder, to immediately issue a warrant to purchase 807,698 additional shares of series C redeemable convertible preferred stock with an exercise price of $0.01 per share. Proceeds from the warrant totaled $4,139,000. The Company determined that the fair value of the warrant approximated the proceeds using the Black Scholes pricing model and included such amount in redeemable convertible preferred stock in the fiscal 1999 financial statements. The warrant is exercisable immediately and has an indefinite exercise period. Upon the closing of a public offering in which the Company's outstanding series C redeemable convertible preferred stock is converted into common stock, the warrant will be exercisable for the number of shares of common stock that would have resulted from the conversion of the warrant immediately prior to such public offering. In addition, on this date the Company granted the holder an option to purchase, at its choice, up to 2,473,392 shares of series C preferred stock at a price of $5.125 per share or, for a purchase price of $5.125 per share, a warrant to purchase up to 2,473,392 shares of series C preferred stock at an exercise price of $0.01 per share. As a result of an unsatisfied contingency, the holder currently has the right to receive either an option to purchase 1,424,539 shares of series C preferred stock or a warrant to purchase 1,424,539 shares of series C preferred stock. These options terminate on the earlier of November 10, 2000 or the date the Company is acquired. The Company valued the fixed portion of the option grant on the date of issuance at approximately $3.4 million using the Black Scholes pricing model. As discussed above, a portion of the total proceeds received was allocated to this instrument which resulted in a discount on the series C preferred stock that is being accreted ratably over the period from issuance until the first redemption date.
In calculating the fair value of the warrants the Company uses interest risk free rate of 5.5%, volatility rate of 70% and the respective instrument exercise period.
NOTE 7 - COMMON STOCK:
The Company has granted stock to certain founders and employees under a restricted stock plan. As of January 31, 2000, the Company had 231,355 shares of common stock that were subject to certain repurchase rights by the Company. The Company's right to repurchase such shares declines on a percentage basis, usually over three years, based on the length of the employees' continual employment with the Company.
On November 29, 1999 the Company completed an initial public offering in which it sold 5,750,000 shares of Common Stock, including 750,000 shares in connection with the exercise of the underwriters' over-allotment option, at $16.00 per share. The Company received $83.0 million in cash, net of underwriting discounts, commissions and other offering costs.
NOTE 8 - EMPLOYEE BENEFIT PLANS:
401(k) Savings Plan
The Company has a savings plan (the "Savings Plan") that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Savings Plan, participating employees may defer a percentage (not to exceed 25%) of their eligible pretax earnings up to the Internal Revenue Service's annual contribution limit. All employees on the United States payroll of the Company are eligible to participate in the Savings Plan. The Company is not required to contribute to the Savings Plan and has made no contributions since the plan's inception.
1996 Stock Option Plan
Under the Company's 1996 Stock Incentive Plan (the "Plan"), the Board of Directors may grant either incentive stock options ("ISO") or nonqualified stock options ("NSO"). ISOs may be granted only to Company employees (including officers and directors). NSOs may be granted either to Company's employees or consultants. There are 12,491,190 shares reserved under the Plan. As of January 31, 2000, the Company has 4,330,793 shares available for grant under the Plan.
Options under the plans may be granted for periods up to ten years and at prices no less than 85% of the estimated fair value of the shares on the date of grant as determined by the Board of Directors provided, however, that (i) the exercise price of an ISO may not be less than 100% of the estimated fair value of the shares on the date of grant, and (ii) the exercise price of an ISO granted to a 10% shareholder may not be less than 110% of the estimated fair value of shares on the date of grant. Options are exercisable immediately, subject to repurchase rights held by the Company which lapse over a maximum period of ten years, at such times and under such conditions as determined by the board of directors. Options generally vest at a rate of 12.5% after six months and 2.08% per month thereafter ratably over 42 months of service and generally have a term of 10 years.
Certain options exercised during the year ended January 31, 2000, were issued in exchange for notes receivable, which are fully recourse and additionally collateralized by the underlying shares of common stock and other personal property. These notes receivable are payable on the earlier of June 21, 2004 or 180 days after the borrower's employment with the Company terminates for any reason and bear interest at rates ranging from 5.22% to 5.37% of the unpaid principal balance each year. These notes receivable have been included in stockholders' equity.
1999 Stock Incentive Plan
The Company's Board of Directors approved the 1999 Stock Incentive Plan (the "Incentive Plan") on August 16, 1999 under which 5,000,000 shares have been reserved for issuance. The number of shares reserved under the Incentive Plan will automatically increase annually beginning on February 1, 2000 by the lesser of 3,000,000 shares or 4% of the total amount of shares of common stock outstanding. As of January 31, 2000, the Company has 4,989,760 shares available for grant under the Incentive Plan.
1999 Directors' Stock Option Plan
The Company's Board of Directors adopted the 1999 Directors' Stock Option Plan (the "Directors Plan") on August 16, 1999 under which 750,000 shares have been reserved for issuance. Each non-employee member of the board of directors on the date of the Company's initial public offering automatically received, on that date, an option to purchase 50,000 shares. Each non-employee director who joins the board after the effective date of the plan will receive an initial option of 50,000 shares. The initial options vest 25% at the end of year one, and the balance in 36 equal monthly installments. At each annual stockholder's meeting, beginning in 2000, each non-employee director will automatically be granted an annual option for 12,500 shares of the common stock. A new non-employee director who receives the initial option will not receive the 12,500 share annual option in the same calendar year. These options vest in equal monthly installments over the one-year period following the date of the grant. The exercise price of the option will be equal to the fair market value of the common stock on the option grant date. The non-employee directors' options have a 10-year term, and expire one year after a director leaves the board. Upon a change of control of the Company, the options become fully vested. Vesting also accelerates in the event of the optionee's death or disability.
The following table summarizes the activity under all the Plans for the fiscal years ending January 31, 1998, 1999 and 2000:
Fiscal Year Ended January 31, ----------------------------------------------------------------- 1998 1999 2000 -------------------- -------------------- --------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ---------- --------- ---------- --------- ----------- --------- Outstanding at beginning of period ..... 448,950 $0.10 1,081,525 $0.14 2,085,292 $0.65 Granted .............................. 965,350 0.15 1,554,250 0.83 7,292,712 2.85 Exercised ............................ (108,261) 0.10 (82,933) 0.13 (3,598,982) 0.97 Cancelled ............................ (224,514) 0.11 (467,550) 0.18 (391,320) 0.92 ---------- ---------- ----------- Outstanding at end of period ........... 1,081,525 0.14 2,085,292 0.65 5,387,702 4.95 ========== ========== =========== Outstanding exercisable at end of period 1,081,525 1,915,292 4,167,861 ========== ========== =========== Weighted average fair value of options granted during the period ............ $0.81 $3.88 $4.00 ========= ========= =========
The following table summarizes information about stock options outstanding and exercisable at January 31, 1999:
Options Outstanding Options Exercisable at January 31, 1999 at January 31, 1999 ------------------------------------ ---------------------- Weighted- Number Average Weighted- Number Weighted- of Remaining Average of Average Shares Contractual Exercise Shares Exercise Exercise Prices Outstanding Life (Years) Price Exercisable Price --------------------- ------------ ------------ ---------- ----------- ---------- $0.1000 ......... 233,750 7.9 $0.1000 233,750 $0.1000 $0.1600 ......... 455,086 8.8 $0.1600 455,086 $0.1600 $0.6000 ......... 366,456 9.3 $0.6000 366,456 $0.6000 $1.0000 ......... 1,030,000 9.8 $1.0000 860,000 $1.0000 ------------ ----------- 2,085,292 1,915,292 ============ ===========
The following table summarizes information about stock options outstanding and exercisable at January 31, 2000:
Options Exercisable Options Outstanding at January 31, 2000 at January 31, 2000 --------------------------------------- ---------------------- Weighted- Number Average Weighted- Number Weighted- of Remaining Average of Average Shares Contractual Exercise Shares Exercise Exercise Prices Outstanding Life (Years) Price Exercisable Price --------------------- ------------ ------------ ---------- ----------- ---------- $0.1000 ......... 126,834 7.1 $0.1000 126,834 $0.1000 $0.1600 ......... 218,451 7.7 $0.1600 218,451 $0.1600 $0.6000 ......... 192,827 8.3 $0.6000 192,827 $0.6000 $1.0000 ......... 2,288,676 9.1 $1.0000 2,084,206 $1.0000 $3.0000 ......... 284,800 9.5 $3.0000 278,133 $3.0000 $7.0000 ......... 1,044,325 9.5 $7.0000 1,043,450 $7.0000 $12.5000 ......... 533,460 9.7 $12.5000 223,960 $12.5000 $13.0000 ......... 691,100 9.8 $13.0000 -- $ -- $26.1875 ......... 8,240 9.8 $26.1875 -- $ -- ------------ ----------- 5,388,713 4,167,861 ============ ===========
Employee Stock Purchase Plan
The Company's Board of Directors adopted the Employee Stock Purchase Plan (the "Purchase Plan") on August 16, 1999 under which 2,500,000 shares have been reserved for issuance. The number of Common Stock reserved for issuance under the Purchase Plan shall automatically increase to restore the number of shares of Common Stock available for issuance to its original level of 2,500,000 as of June 1 of each year, beginning with June 1, 2000. The Purchase Plan enables eligible employees to purchase Common Stock at 85% of the lower of the fair market value at the beginning and the end of each designated purchase period. In the case of the first purchase period under the Purchase Plan, the fair market value of the Company's Common Stock is the price at which one share of Common Stock is offered to the public in the initial public offering. As of January 31, 2000, there have been no shares issued under the Purchase Plan and 2,500,000 are available for future issuance.
Unearned Compensation
In connection with certain stock option grants the Company recognized unearned compensation which is being amortized over the vesting periods of the related options, usually four years. The total unearned compensation recorded by the Company from August 7, 1995 (inception) through January 31, 2000 was $47,611,000. The fair value per share used to calculate unearned compensation was derived by reference to the preferred stock values and initial public offering price, reduced by a nominal discount factor. Future compensation charges are subject to reduction for any employee who terminated employment prior to the expiration of such employee's option vesting period. The amortization of unearned compensation during the fiscal year ended January 31, 1998, 1999 and 2000 totaled $87,000, $1,919,000 and $22,185,000, respectively. Additionally, the Company recorded unearned compensation for restricted common stock granted to service providers, which is being amortized over the related vesting period.
Fair Value Disclosures
The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes a fair value based method of accounting for stock-based compensation plans. In accordance with the provisions of SFAS No. 123, the Company applies APB Opinion 25 and related Interpretations in accounting for its stock option and stock purchase plans and accordingly, do not record compensation costs. If the Company had elected to recognized costs based on fair value of the options granted at grant date as prescribed by SFAS No. 123, net loss and net loss per share would have been reduced to the pro forma amounts indicated in the table below (in thousands, except per share amounts):
Year Ended January 31, ----------------------------- 1998 1999 2000 --------- --------- --------- Net loss: As reported.................... ($6,409) ($15,958) ($48,892) Pro-forma...................... (6,440) (16,543) (53,516) Basic and diluted net loss per share: As reported.................... ($1.81) ($4.03) ($5.16) Pro-forma...................... (1.82) (4.18) (5.65)
The value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
Year Ended January 31, ----------------------------- 1998 1999 2000 --------- --------- --------- Expected life (years) .......... 4 4 2 Risk-free interest rate ........ 6.48% 5.14% 5.89% Expected volatility ............ 0% 0% 75% Dividend yield ................. 0% 0% 0%
NOTE 9 - INCOME TAXES:
No provisions for income taxes were recorded from inception through January 31, 1999 and 2000 as the Company incurred net operating losses during the period.
The components of the Company's net deferred tax assets consist of the following (in thousands):
January 31, ------------------- 1999 2000 --------- --------- Net operating loss carryforwards ....... $7,920 $1,074 Other reserves and accruals ............ 545 15,888 Fixed assets ........................... -- 699 --------- --------- Total deferred tax assets ............ 8,465 17,661 Less: valuation allowance .............. (8,465) (17,661) --------- --------- $ -- $ -- ========= =========
Reconciliation of the statutory federal income tax to the Company's effective tax:
January 31, ------------------- 1999 2000 --------- --------- Tax at federal statutory rate .......... -34% -34% State, net of federal benefit .......... -2% -2% Change in valuation allowance .......... 36% 19% Cheap stock amortization ............... -% 17% Other .................................. -% -% --------- --------- Provision for taxes .................... -% -% ========= =========
Management believes, based on the available objective evidence, that sufficient uncertainty exists regarding the realization of the deferred tax assets such that a full valuation allowance has been recorded.
At January 31, 2000, the Company had approximately $41.0 million of federal and $24.0 million of state net operating tax loss carryforwards available to offset future taxable income. Such carryforwards expire in varying amounts through 2020. Under the Tax Reform Act of 1986, the amounts of and the benefit from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which may cause limitations in the utilization of net operating losses in any one year include, but are not limited to, a cumulative stock ownership change of greater then 50%, as defined, over a three year period. Such change may have occurred as a result of the preferred stock issuance.
NOTE 10 - ACQUISITION:
In July 1999, the Company entered into an agreement to purchase certain assets of Oasis Reservation Services, Inc. in Fort Lauderdale, Florida. The purchase price totaled $2.45 million, which comprised of $800,000 cash and a $1,650,000 convertible note. The note bears interest at a rate of 5% per annum and is payable in full on April 14, 2000. The note is convertible into redeemable convertible preferred stock or common stock of the Company. The note holder may elect to convert this note into shares of equity securities issued by the Company, either through a private placement or an initial public offering at the price of the respective offering. This right shall terminate on the earlier of the note maturity date or the closing of the IPO. The note shall be convertible into the number of shares of equity securities based on the principal amount of the note plus accrued and unpaid interest divided by the price paid for the equity securities by third parties. In November 1999, the holder of the convertible note elected to convert this note into 162,412 shares of the Company common stock.
This acquisition was accounted for using the purchase method of accounting. The aggregate purchase price was allocated to the net assets acquired, based upon their respective fair market value with the remainder allocated to intangible assets, including goodwill. The Company is amortizing goodwill and other intangible assets on a straight-line basis over 24 months.
The following summarizes the unaudited pro forma results of operations, on a combined basis, as if the acquisition occurred as of the beginning of each of the periods presented, after including the impact of certain adjustments such as amortization of costs in excess of net assets acquired. This information may not necessarily be indicative of the future combined results of operations of the Company (in thousands, except per share amount):
Year Ended January 31, ------------------- 1999 2000 --------- --------- Net revenue .............................. $6,447 $15,452 Net loss ................................. (16,464) (48,778) Basic and diluted net loss per share ..... ($4.16) ($1.20)
NOTE 11 - SUBSEQUENT EVENTS
In February 2000, the Company paid $1.0 million in cash to purchase 134,229 shares of Series B Preferred Stock of Encryptix, Inc., a subsidiary of Stamps.com. Encryptix's Internet-based technology enables sellers and distributors of tickets and financial instruments to deliver value-bearing instruments such as tickets, vouchers, boarding passes, checks and gift certificates over the Internet through a customer's existing laser or inkjet printer. As of the purchase date, the Company's investment in Encryptix, Inc. represent less then 5% voting interest and will be accounted for under the cost method.
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