<PAGE>
As filed with the Securities and Exchange Commission on December 11, 2000
Registration No. 333-43488
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 2
To
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
DOVEBID, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7389 94-3331411
(State or other jurisdiction
of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
</TABLE>
--------------
1241 E. Hillsdale Boulevard
Foster City, California 94404
(650) 571-7400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------
Ross Dove
Chief Executive Officer
1241 E. Hillsdale Boulevard
Foster City, California 94404
(650) 571-7400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
<TABLE>
<S> <C>
Gordon K. Davidson, Esq. William M. Kelly, Esq.
Daniel J. Winnike, Esq. Davis Polk & Wardwell
Fenwick & West LLP 1600 El Camino Real
Two Palo Alto Square Menlo Park, California 94025
Palo Alto, California 94306 (650) 752-2000
(650) 494-0600
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Proposed Maximum
Title of Each Class Maximum Aggregate Amount of
of Securities to be Amount to be Offering Price Offering Registration
Registered Registered(1) Per Share Price(2) Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value per share....... 5,980,000 $10 $59,800,000 $15,840
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</TABLE>
(1) Includes 780,000 shares that the underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(3) Previously paid for maximum aggregate offering price of $60,000,000.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting offers to sell these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 11, 2000
5,200,000 Shares
[LOGO]
Common Stock
---------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $8 and $10 per
share. We have applied to list our common stock on The Nasdaq National Market
under the symbol "DOVE."
The underwriters have an option to purchase a maximum of 780,000 additional
shares to cover over-allotment of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 6.
<TABLE>
<CAPTION>
Underwriting
Price Discounts Proceeds
to and to
Public Commissions DoveBid
------ ------------ --------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about ,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Thomas Weisel Partners LLC
U.S. Bancorp Piper Jaffray
The date of this prospectus is , 2000.
<PAGE>
Cover Artwork
Inside Front Cover of Prospectus
In the background is a picture of Ross Dove conducting a live auction, with the
DoveBid logo behind him and people attending the auction in the foreground.
Centered at the top of the page is a blue rectangle. Directly below the blue
rectangle is the DoveBid logo
Caption centered on the page: " We are a global provider of capital asset
disposition and valuation services. Our auction services combine the experience
and market expertise we developed from our 63 years as an auctioneer, with the
speed and global reach of the Internet."
At the bottom of the page is a blue rectangle spanning the width of the page.
Centered at the top of the blue rectangle, in orange, is the caption "Our
Clients Include." Below this caption, in white, are the following company
names: "Boeing" "DaimlerChrysler" "IBM" "KAO Day" "Lockheed Martin" "MEMC
Electronic Materials" "NEC" "Northrop Grumman" "Quantum" "Raytheon" "Rockwell"
"Thiokol"
GATE FOLD PAGES
Caption centered at top of page: "DoveBid"
Caption directly below above caption, spanning the width of the gatefold:
"Business Auctions Worldwide For Used Capital Assets"
Caption at upper far left of gatefold: "Webcast Auctions"
The middle far left of gatefold has two pictures, one superimposed on another.
Background picture is of an auctioneer conducing a live webcast auction.
Overlapping picture shows a webcast web page that displays a picture and
description of the asset being sold.
Caption at lower far left of gatefold: "Our live Webcast Auctions enable remote
buyers to participate, increasing liquidity and opening fragmented regional
markets to the global marketplace.
Caption at upper near left of gatefold: "Online Auctions"
Caption at middle near left of gatefold: "Our Online Auctions enable companies
to buy and sell used capital assets 24 hours a day, seven days a week through
Featured and continuous Online Auctions."
The lower near left of the gatefold has a picture of a DoveBid web page
featuring an online auction of DaimlerChrysler used capital assets.
Caption at upper near right of the gatefold: "Valuation Services"
The middle near right of the gatefold has a picture of a person holding a
laptop standing in front of a machine inside a plastic manufacturing plant. The
laptop screen has a picture of the same machine in front of which the person is
standing.
Caption at lower near right of the gatefold: "We provide accurate and timely
asset inspection and appraisal services." Immediately below this caption is a
picture of a cover sheet and sample page of a valuation report for ABC Company
by DoveBid.
Caption at upper far right of the gatefold: "Transaction Support Services"
Caption at middle far right of the gatefold: "We provide or arrange for
transaction support services including logistics, freight and refurbishment, to
facilitate the purchase of used capital assets.
The lower far right of the gatefold has a collage of pictures: in the upper
left, a picture of the outside of one of our warehouse facilities; in the lower
left, a picture one of the arm of a person's shirt resting on auction bid
sheets; in the upper right, a picture of an Epson digital camera; in the lower
right, a picture of goods on shelves in one of our warehouse facilities.
At the bottom of the page, spanning the width of the gatefold is a blue
rectangle with the captions "Experience Global Results" on the left hand side
of the gatefold in the rectangle, in orange.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Special Note Regarding Forward-Looking Statements........................ 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 35
</TABLE>
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Page
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<S> <C>
Management................................................................ 48
Certain Transactions...................................................... 57
Principal Stockholders.................................................... 61
Description of Capital Stock.............................................. 64
Shares Eligible for Future Sale........................................... 67
Underwriting.............................................................. 69
Notice to Canadian Residents.............................................. 72
Legal Matters............................................................. 73
Experts................................................................... 73
Where You Can Find More Information....................................... 74
Index to Financial Statements............................................. F-1
</TABLE>
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only where it is
legal to sell these securities. The information contained in this document may
only be accurate on the date of this document.
Dealer Prospectus Delivery Obligation
Until (25 days after the commencement of this offering), all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealer's obligation to deliver a prospectus when acting as an underwriter
and with respect to unsold allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
DoveBid, Inc.
We are a global auctioneer of used capital assets. Our auction services
combine the experience and market expertise we developed from our 63 years as
an auctioneer, with the speed and global reach of the Internet. We conduct
Webcast auctions broadcast live from the factory floor, in which remote online
buyers compete with on-site buyers in real time in auctions led by an
auctioneer, and 24x7 online auctions, in which buyers compete exclusively
online without an auctioneer or a physical auction site. Our Webcast auctions
are utilized for the disposition of aggregated capital assets from a single
corporate seller in a date-certain event. Our 24x7 online auctions include
featured auction events of aggregated assets for which we undertake significant
marketing efforts and continuous auctions of unaggregated assets, which are
individual assets or small groups of assets that become eligible for resale in
the ordinary course of business. Since January 1, 2000, we have conducted more
than 100 Webcast and featured online auction events, during which time we also
conducted a similar number of traditional on-site auctions, that is, auctions
that were not Webcast for remote participants. The traditional auctions
conducted subsequent to the introduction of Webcast auctions have consisted of,
and future traditional auctions are expected to be, auctions of small amounts
of assets or previously scheduled auctions of businesses that we have acquired.
We derive our revenues from commissions earned on asset auctions, principal
asset sales and fee-based services, which represented approximately 34%, 53%
and 13%, respectively, of our revenue for the nine months ended September 30,
2000.
We auction used capital assets in 19 vertical markets, or functional asset
categories, including metalworking and machine tools, semiconductor
fabrication, computers, computer peripherals and data processing, disk drive
and media manufacturing, biotechnology, medical and pharmaceutical, textile
apparel manufacturing, and electronic test and measurement, which includes
devices used in testing and measuring the performance of electronic components.
Currently we are most dependent on these seven vertical markets and we have not
been active to a material respect in on-site auctions in the 12 other vertical
markets in our marketplace. Our vertical markets currently consist of assets
that are primarily used indoors, such as on factory floors, and are frequently
referred to as inside-the-building assets. Examples of assets sold in our
auctions include drill presses, computers, etchers, microscopes and
oscilloscopes.
We have been engaged in the traditional auction business for 63 years. We
began offering continuous online auctions in November 1999, Webcast auctions in
January 2000 and featured online auction events in March 2000. We operate in
highly competitive markets. Consequently, it may be difficult to assess our
prospects for success. We have incurred aggregate losses from operations over
the last three years and the first nine months of 2000 totaling $60.9 million
and expect to continue to incur substantial operating losses in the future.
The Internet is an important medium for business-to-business e-commerce and
it presents new opportunities to increase liquidity in the market for used
capital assets. However, because the expertise and value-added services offered
by auctioneers and dealers are frequently necessary to facilitate the sale of
used capital assets, a stand-alone Internet-based marketplace is an incomplete
distribution channel. In order to conduct capital asset auctions, an auctioneer
must orchestrate a complex, end-to-end process, including marketing, project
management, settlement and logistical support, and complete financial
reporting.
Our objective is to become the leading global auctioneer of inside-the-
building, used capital assets, and to establish our auctions as the preferred
distribution channel for used capital assets. We provide buyers and sellers
with the following:
. Integrated Auction Services--We accommodate sellers by providing a
complete range of auction services and formats for capital asset
disposition, from sales of individual assets to sales of aggregated
assets in an entire facility. Similarly, buyers can participate in both
our Webcast auction events and our 24x7 online
3
<PAGE>
auctions. We provide a full range of such integrated auction services and
formats for the inside-the-building, used capital asset market.
. Global Participation--Our live Webcast auctions enable remote buyers to
preview assets and to bid against on-site buyers in real time,
eliminating the necessity to travel to the auction site. Broadening the
pool of buyers increases liquidity and prices for sellers, opening
fragmented regional markets to the global marketplace.
. Asset Valuation Services--We offer valuation services on a global basis
for a wide range of inside-the-building, used capital assets. Financial
institutions and corporations utilize these services for selling,
lending, insurance and tax purposes.
. Value-Added Services--We provide, or can arrange for, the value-added
services needed to facilitate the purchase and sale of used capital
assets. The services that we provide consist of inspection, repair and
refurbishment, calibration, warehousing, and digital photography. We
also have a referral network for these and other services, including
logistics, rigging, freight, escrow, insurance and financing.
. Industry Credibility--We leverage the reputation and experience that we
have established over our 63 years in the used capital asset market to
lend industry credibility to our new online services.
The value of the DoveBid community can increase significantly as the number
of buyers and sellers increases, a concept commonly known as "network effects."
An increased number of sellers will result in a wider range and a larger
quantity of assets available for sale, thus making our community more
attractive to buyers. An increased number of buyers should result in more
competitive bidding and higher prices for assets, likewise making our community
more attractive to sellers. We believe our community will achieve network
effects that will enable it to become the primary forum for the purchase and
sale of used capital assets. We expect the expanded audience reached by our
integrated online auctions to attract sellers seeking to maximize the
recoverable value of their used capital assets. Network effects will be
realized as the growing number of sellers in our community provide an
increasing capital asset supply, thereby attracting more buyers and increasing
the demand for these assets.
Our referral network is comprised of approximately 20 value-added service
providers that facilitate various aspects of an asset sale. We have referral
relationships with providers of rigging, freight, escrow and photography
services under which we receive payments when our clients use their services.
In other cases, we do not have a formal relationship with these service
providers but are familiar with their skills as a result of our years of
experience in used capital asset auctions.
Since December 1999, we have acquired 14 businesses. These acquisitions
extend our ability to provide global services to corporate sellers, increase
the supply of assets to our marketplace, extend our vertical market expertise
and value-added services, and provide additional relationships with corporate
customers.
We incorporated in Delaware on June 4, 1999. From March 1995 through June
1999, we conducted our business through Dove Brothers, LLC. Prior to March
1995, we conducted our business as Ross-Dove Company, Inc., which was the
successor to Ross Mercantile Co., formed in 1937. Our address is 1241 E.
Hillsdale Boulevard, Foster City, California 94404, and our telephone number is
(650) 571-7400. "DoveBid," "DoveBid.com" and our logo are trademarks of
DoveBid. All other trademarks or service marks appearing in this prospectus are
trademarks of the respective companies that use them.
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
. the conversion of all outstanding shares of preferred stock into shares
of common stock on a share-for-share basis upon the consummation of this
offering;
. the conversion of all outstanding convertible subordinated notes into
shares of common stock upon the consummation of this offering;
. no exercise of the underwriters' over-allotment option;
. the filing of our amended and restated certificate of incorporation in
Delaware after the completion of this offering; and
. the completion in October 2000 of a 3 for 1 reverse stock split.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by DoveBid..................... 5,200,000 Shares
Common stock to be outstanding after this offering.. 47,819,417 Shares
Use of Proceeds..................................... For general corporate
purposes, including
working capital and
potential acquisitions.
See "Use of Proceeds."
Nasdaq National Market symbol....................... "DOVE"
</TABLE>
Summary Financial Data
<TABLE>
<CAPTION>
Nine Months
Nine Months Year Ended Ended
Years Ended December 31, Ended December 31, September 30,
----------------------------------------- September 30, 1999 2000
1995 1996 1997 1998 1999 2000 Pro Forma Pro Forma
------- ------- ------- ------- ------- ------------- ------------ -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues..................... $19,533 $16,786 $13,679 $10,801 $12,504 $ 55,007 $ 93,386 $ 84,147
Gross profit................. 7,913 8,221 6,675 5,122 6,716 20,282 33,003 28,875
Total operating expenses..... 7,586 7,689 16,471 6,054 10,656 66,501 42,899 79,314
Net income (loss)
attributable to common
stockholders................ 369 581 (9,758) (867) (5,027) (74,264) (13,623) (79,370)
Basic and diluted net income
(loss) per common share..... $ 0.05 $ 0.06 $ (1.01) $ (0.09) $ (0.53) $ (9.44) $ (1.43) $ (10.09)
Shares used to compute basic
and diluted net income
(loss) per common share..... 7,733 9,666 9,663 9,539 9,468 7,866 9,468 7,866
</TABLE>
<TABLE>
<CAPTION>
September 30, 2000
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................... $ 35,022 $ 35,022 $ 77,046
Working capital............................... 46,462 47,024 89,048
Total assets.................................. 192,457 192,457 234,481
Long-term liabilities......................... 33,190 3,263 3,263
Convertible preferred stock subject to
redemption................................... 177,276 -- --
Total stockholders' equity (deficit).......... (67,568) 140,197 182,221
</TABLE>
See Note 2 of the Notes to our Financial Statements for a description of the
method that we used to compute the net loss per share amounts.
The pro forma statement of operations data for the year ended December 31,
1999 and the nine months ended September 30, 2000 gives effect to nine
acquisitions which occurred in February through July 2000 as if these
acquisitions had occurred on January 1, 1999. The basis for these presentations
is described in our pro forma financial information appearing elsewhere in this
prospectus under Index to Financial Statements.
The pro forma balance sheet gives effect to the automatic conversion into
common stock upon completion of this offering of all preferred stock and
convertible subordinated notes with an aggregate principal amount of $29.9
million plus $562,000 of accrued interest, as if this had occurred on
September 30, 2000.
The pro forma as adjusted information gives further effect to the
application of the net proceeds from the sale of 5,200,000 shares of common
stock in this offering at an assumed initial public offering price of $9.00 per
share, after deducting the estimated underwriting discount of $0.63 per share
and offering expenses of $0.29 per share.
The pro forma data exclude the effect of acquisitions which are
insignificant for the purpose of this presentation.
5
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and all other information
contained in this prospectus before purchasing our common stock. Any of the
following risks could materially harm our business, operating results and
financial condition. You could lose all or part of your investment as a result
of these risks.
Risks Related To Our Business
We have experienced losses, anticipate incurring losses in the foreseeable
future and may never achieve profitability.
We expect to continue to incur substantial operating losses in the
foreseeable future. We have experienced losses from operations in each of the
last three years, including a loss from operations of $3.9 million for the year
ended December 31, 1999 and $46.2 million for the nine months ended September
30, 2000. As of September 30, 2000, we had an accumulated deficit of $81.3
million. We have generated limited revenue from our Webcast and 24x7 online
auctions, with revenues from these auctions totaling $35.8 million for the nine
months ended September 30, 2000. If our revenue does not increase substantially
or if our expenses increase more rapidly than we expect, we may never become
profitable.
We anticipate that our operating losses will increase in the future, as we
expect substantial increases in our costs and expenses in a number of areas,
including:
. marketing and promotion of our brand and services;
. expanding our sales force and the number of vertical markets in which we
operate;
. expanding and enhancing our operating infrastructure, including hardware
and software systems and administrative personnel;
. enhancing the functionality of our online services; and
. expanding our offering of value-added services.
At this time we are not able to quantify the level of increases in these
costs and expenses due to our recent entry into the online auction business,
the dynamic nature of our industry and the possibility that we may complete
future acquisitions. However, our operating results for the fourth quarter of
1999 and first nine months of 2000 have begun to reflect the significant
increases in these costs and expenses over our historical levels. As discussed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Operating Results," we expect our sales and marketing, general and
administrative, and depreciation and amortization expenses to increase beyond
the most recently reported levels.
Our revenues and operating results are volatile and difficult to predict, and
if we fail to meet the expectations of investors, the market price of our
common stock would likely decline significantly.
Our revenues and operating results are likely to fluctuate significantly
from quarter to quarter, due to a number of factors. These factors include:
. the amount and timing of acquisitions that we consummate and strategic
relationships that we establish;
. variability in the number of used capital assets that we auction, and the
number of auctions that we conduct in a given quarter;
. changes in the fees or commissions we charge our customers;
. variability in the number and size of major liquidation contracts;
. problems arising from the integration of acquired companies;
. fluctuations in the economic conditions in our vertical markets; and
. changes in general economic and market conditions.
The latter two of these factors are entirely outside of our control, and
there are many facets of the other factors over which we have limited control,
such as the availability of acquisition and strategic relationship
6
<PAGE>
opportunities and how quickly the other parties to these opportunities may move
to consummate them as well as the number of and size of asset disposition and
liquidation requirements our customers bring to us.
In addition to the potential impact of these factors on our quarterly
results, our long term operating results could also be adversely impacted by
these factors. If we are not able to increase the amount of used capital assets
that we auction, our business will not grow. Our profitability could be
adversely affected if we are forced to lower our commissions. Problems arising
from acquisitions could divert management resources and focus, and cause us to
incur substantial expenses, over an extended period of time. Changes in general
economic conditions, or in conditions within our target markets, could diminish
the demand for used capital assets and cause a reduction in attempts to sell
such assets or reduce the number of assets sold in a given sale event, in
either of which events the amount of commissions we receive would be adversely
affected.
As a result of these factors, the emerging nature of our market and the
evolving nature of our business model, we may be unable to forecast our
revenues accurately. We incur expenses based predominantly on operating plans
and estimates of future revenues. We may be unable to adjust our spending in a
timely manner to compensate for any unexpected revenue shortfalls. Accordingly,
a failure to meet our revenue projections would have an immediate and negative
impact on profitability and cash flow. If this were to happen, the market price
of our common stock would likely decline significantly. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Because we have only recently introduced our online auction services and
because we operate in a new and rapidly evolving market, you may have
difficulty assessing our business and our future prospects.
We commenced online auctions in November 1999. Because this represents a new
and untested line of business for us, it may be difficult for you to evaluate
our business and our future prospects. Online auctions of used capital assets
are new and rapidly evolving, and it is difficult to predict whether the market
will accept our online auction services and what level of revenue we will
derive from these services. Our business will be seriously harmed, and may fail
entirely, if we do not successfully execute our new online business strategy or
if we do not successfully address the risks that we face.
If buyers and sellers of used capital assets do not accept our business model
of providing online auctions, demand for our services may not develop.
Our online auctions, which aggregate buyers and sellers of used capital
assets, are a new and unproven auction format and rely upon buyers and sellers
in this market adopting a new means of purchasing and selling. If buyers and
sellers of used capital assets do not accept our business model, demand for our
services may not develop and our growth will be impaired. Buyers and sellers
may prefer to use traditional methods of buying and selling used capital
assets, such as on-site auctions and transacting privately in person or by
phone, for many reasons, including:
. comfort with existing purchasing habits, such as participating in live,
on-site auctions;
. reluctance to adopt the technology necessary to engage in the online sale
and purchase of used capital assets;
. failure of the market to develop the necessary infrastructure for
Internet-based communications, such as widespread Internet access, high-
speed modems, high-speed communication lines and computer availability;
. concerns with security and confidentiality; and
. investment in existing purchasing and distribution methods and the costs
required to switch to new methods.
In addition, many of the buyers of used capital assets may not currently
have ready access to the Internet for commercial purposes and may be unwilling
to use the Internet to purchase used capital assets. Even if buyers and sellers
accept the Internet as a means of buying and selling used capital assets, they
may choose not to participate in our auctions. Reluctance of buyers and sellers
to use our services would seriously harm our business.
7
<PAGE>
If we cannot quickly build a "critical mass" of buyers and sellers of used
capital assets, we will not achieve network effects and our business may not
succeed.
Our strategy of building a competitive advantage through growth in our
customer base requires us to build quickly a critical mass of online buyers and
sellers. Our user community currently numbers approximately 14,000 registered
users. We believe that we will have achieved a critical mass if we become
recognized as a leading global auctioneer for used capital assets, but we
cannot specify the size of the user community we must develop in order to
achieve this status within the vertical markets in which we operate. If another
competitor builds a critical mass before we do, we may be at a competitive
disadvantage. To encourage sellers to list their assets with us, we need to
increase the number of buyers who participate in our auctions by providing a
broad range of used capital assets from a large number of sellers. If we are
unable to expand our customer base substantially, buyers and sellers of used
capital assets may not continue to use our services.
We have limited experience with a number of the vertical markets in our
marketplace, and if we do not become recognized as a leading auctioneer in
these markets, our growth will be inhibited.
We believe that our success depends on our ability to offer used capital
assets across the range of vertical markets that we serve. If we do not rapidly
increase the range of our asset listings in a number of our vertical markets,
our growth will be impaired because we will not have achieved our goal of being
recognized as the sponsor of a broad based marketplace for used capital assets.
Currently we are most dependent on the metalworking and machine tools,
semiconductor fabrication, computer, peripherals and data processing, disk
drive and media manufacturing, biotechnology, medical and pharmaceutical,
textile and apparel manufacturing, and electronic test and measurement vertical
markets. To date, we have not been active to a material respect in on-site
auctions in the 12 other vertical markets in our marketplace, including,
electronic components, food and chemical processing, power production and
printing. We may never be recognized as a viable auction alternative for the
disposition of assets in those markets in which we have historically had
limited experience.
We have recorded a large amount of goodwill and other intangible assets as a
result of recent acquisitions and our results of operations will be adversely
affected if we do not realize value commensurate with these assets.
As a result of recent acquisitions, as of September 30, 2000, we have
recorded intangible assets of approximately $94.3 million, including
approximately $88.5 million of goodwill. The valuation of intangible assets is
inherently uncertain. If we do not recover value from our acquisitions
commensurate with these substantial amounts of goodwill and other intangible
assets, we may be required to accelerate their write off. If that were to
occur, we could incur substantial charges in the period of such acceleration
and our operating results would be adversely affected.
Our recent growth has placed significant strains on our information systems and
management resources, and if we fail to manage further growth successfully, we
may not be able to conduct our business efficiently or execute our business
plan.
If we are unable to manage our business successfully during a period of
rapid growth in the size of our company, our business could be seriously
harmed. As a result of our internal expansion and our recent acquisitions, the
volume of business we manage (from actual revenues in 1999 of $12.5 million to
pro forma 1999 revenues of $93.4 million), the number of our employees (from 78
at December 31, 1999 to 488 at October 31, 2000) and the number of our
locations (from six at December 31, 1999 to 24 at October 31, 2000) have grown
rapidly. We will need to continue growing in order to execute our business
strategy. Our growth has placed significant demands on management as well as on
our administrative, operational and financial resources and internal controls.
We expect our future growth to cause similar, and perhaps increased, strains on
our systems and internal controls. For example, our rapid growth requires us to
integrate and manage a large number of new employees. In addition, we will need
to upgrade substantially or replace our information systems. Any failure to
upgrade successfully our systems and internal controls could result in
inefficiencies in our business and could prevent us from executing our business
plan.
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Recent upgrades to our accounting system could impede the successful
implementation of our business plan.
In July 2000 we completed the upgrade of our accounting system at our
corporate headquarters at a total cost of $800,000. In addition, we have been
integrating the accounting systems of our acquired businesses and we expect to
incur additional costs of up to $2,000,000. We cannot assure you that we will
be successful in minimizing the impact of this integration effort on our
business operations or that the aggregate costs will not exceed our estimates.
The failure to successfully integrate our accounting systems at a reasonable
cost could result in a disruption of our business operations and could impede
the successful implementation of our business plan.
We may be unable to effect our growth strategy if we are unable to consummate
future business acquisitions.
Our growth is subject to the risk that we will be unable to identify
additional suitable acquisition candidates available for sale at reasonable
prices or on reasonable terms. Additionally, regardless of whether suitable
candidates are available, we may not be able to consummate future acquisitions
for other reasons, such as competition from other bidders. If we are unable to
consummate future acquisitions, our strategies of creating liquidity in target
markets, expanding globally, expanding our value-added services and broadening
our product offerings may not succeed and we may not be successful in expanding
the size of our business.
Future acquisitions may dilute our stockholders.
Since December 1999, we have acquired 14 businesses and we expect to
continue to acquire the assets or businesses of dealers, auctioneers and
appraisers in order to expand our business and the services we offer. Future
acquisitions could result in potentially dilutive issuances of equity
securities or the incurrence of debt, which could adversely affect our
operating results.
In the future we will be exposed to greater risks associated with ownership and
management of inventory, and we could incur losses from carrying and disposing
of our own inventory.
Commencing with our acquisitions in December 1999, we have begun to acquire
the businesses of dealers which include capital asset inventories, and we also
have acquired assets for sale independent of acquisitions and intend to
continue to do so. Owning inventory subjects us to the costs of warehousing
such inventory and to risks of loss both from depreciation and obsolescence of
this inventory while we are carrying it, and from the disposition of this
inventory for a price below our carrying value. These losses, such as we
incurred during the second quarter of 2000, adversely affect our operating
results and could cause our stock price to decline. As auctioneers, we
historically have not carried inventory and have generally sold the assets of
others without incurring a risk of loss. We have limited experience in managing
the carrying and disposition of inventory and may not be successful in doing
so. At September 30, 2000, the book value of the used capital assets we owned
was approximately $14.2 million. These assets consist of equipment used in the
printed circuit board, electronic test and measurement, computer, semiconductor
fabrication and biotechnology vertical markets.
We may incur losses resulting from guarantees of auction proceeds.
Occasionally, we guarantee a minimum amount of auction proceeds that a
corporate customer will receive from a sale of its assets through a Webcast
auction. In the event that actual auction proceeds do not equal or exceed a
guaranteed amount, we are obligated to pay any shortfall to the seller, and
this could adversely affect our operating results. We have made guarantees in
the past in our traditional on-site auctions and expect to continue to do so
from time to time for our Webcasts. Since January 1, 1997, our guarantees of
auction proceeds have ranged in amount up to $3.5 million. During the nine
months ended September 30, 2000, we incurred aggregate losses of approximately
$379,000 as a result of auction proceeds which fell short of the guaranteed
amount.
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If we are unable to maintain our key marketing and supply agreements or enter
into new ones, we may be unable to attract customers to our marketplace.
Our business strategy includes entry into marketing and supply agreements to
increase our customer base, increase the number and variety of our asset
listings and provide additional value-added services to our customers. For
example, in March 2000 we entered into an agreement with Comdisco under which
we have the right for a one year period to auction Comdisco assets that fall
within two of our markets and in March 2000 we entered into a marketing
agreement with Yahoo! with an initial term of one year for it to promote our
services as a business to business auctioneer for a flat fee of $10 million. We
may not achieve material benefits from these agreements and to date neither
agreement has generated significant auction revenue. In addition, if any
existing relationship is terminated or is not renewed upon its expiration, or
we are unable to enter into new relationships, we may be unable to attract
assets and traffic to our website as intended by these relationships. Many of
the companies with whom we have these relationships may develop multiple
relationships and may pursue agreements with our competitors or develop or
acquire services that compete with our services. In addition, in many cases
these companies may terminate these relationships if we do not perform as
contemplated by our agreements.
Sellers of used capital assets may set unreasonable prices for their assets,
adversely affecting our ability to grow.
If sellers in our auctions establish unreasonable prices for their assets,
these assets will be unlikely to sell. Since our commissions are based on asset
sales, our revenues will be adversely affected if sales are inhibited for this
reason. In addition, our ability to develop a broad network of buyers could be
impaired if buyers do not perceive that the assets offered for sale through our
auctions are reasonably priced.
We depend heavily on the contacts of Ross and Kirk Dove in the market for used
capital assets and our business would be harmed if for any reason either or
both of them ceased to be active as our senior executives.
We believe that our success depends on the continued employment by us of
senior management. In particular, if Ross or Kirk Dove were no longer committed
to our business in the capacity of senior executive officers, our business
would be adversely affected. Each of these two officers has substantial
relationships and contacts in the market for used capital assets, and we could
lose important customers if either of them were no longer active in our
business. In addition, they have years of experience in conducting auctions.
Several of the executive officers who have recently joined us do not share this
experience and likely would not be as capable as the Doves in the auction
business for a substantial period of time, if ever. Ross and Kirk Dove are
employed by us at-will, and we cannot assure you that they will be employed by
us for any period of time.
Many of our executives and other employees have recently joined our company,
and if they are unable to work together effectively, we may not be able to
manage our growth and operations effectively.
As of September 30, 2000, nine members of our senior management have worked
for us less than one year. We cannot assure you that they will be able to work
together effectively to manage our growth and continuing operations. In
addition to Ross and Kirk Dove, the key employees that we depend on are: our
chief financial officer, Cory M. Ravid, who joined us in October 1999; our
president and chief operating officer, Jeffrey M. Crowe, who joined us in
November 1999; our chief technical officer and vice president of e-commerce,
Francis M. Juliano, who joined us in November 1999; our vice president of
operations, James Hume, who joined us in January 2000; our president of
international auction services, Robert C. Levy, who joined us in March 2000;
our president of valuation services, David S. Gronik, who joined us in March
2000; our vice president of business development, Timothy J. Reed, who joined
us in March 2000; our vice president of human resources, Lynn Corsiglia, who
joined us in March 2000; and our vice president of corporate marketing and
strategy, Daphne Li, who joined us in March 2000.
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If we are unable to attract qualified personnel or retain our key personnel, we
may not be able to compete successfully in our industry.
Should we fail to attract qualified personnel, we may not be able to compete
successfully in our industry, and our business would be harmed. Our success
depends on our ability to attract and retain qualified, experienced employees.
Our recent expansion into online auctions and our plans for aggressively
pursuing opportunities in this area have necessitated our hiring of a number of
new executives with expertise in areas such as finance, marketing and
technology where we did not have sufficient capabilities. In addition to the
hiring of these executives, we have also hired, and will need to continue to
hire, additional skilled employees in a number of additional areas to support
our growth. Competition for qualified, experienced employees in the Internet
industry, particularly in the San Francisco Bay Area, is intense, and we may
not be able to compete effectively to retain and attract employees. In addition
to the importance of attracting qualified employees, it is also important to
the success of our business that we not lose the services of our key personnel,
primarily our executive officers and senior sales personnel. Our employees,
including our executives, serve at-will and may elect to pursue other
opportunities at any time. Other than the limited key person life insurance
policies for Ross and Kirk Dove, we do not maintain any key person life
insurance.
If our online systems are unable to provide acceptable performance as the
traffic on our online systems increases, we could lose customers and we would
have to spend capital to expand and adapt our network infrastructure, either of
which could harm our business and results of operations.
If our online systems do not continue to provide acceptable performance as
use of our services increases, our reputation may be damaged and we may lose
customers. We introduced our continuous online auctions in November 1999 and
conducted our first Webcast auction in January 2000. Accordingly, we have
processed a limited number and variety of transactions on our website. Our
Webcast and 24x7 online auctions are operated on two different systems of
servers. The systems upon which our Webcast auctions are run currently
experience approximately 220 hits per minute at peak usage. The system capacity
is 1,300 to 1,500 hits per minute. However, our systems may not be able to
accommodate increased use while continuing to provide acceptable overall
performance.
To date we have not experienced unscheduled system interruptions of our
online marketplace, although outages may occur from time to time as system
usage increases. We may be unable to predict accurately the rate or timing of
increases, if any, in the use of our services or to expand and upgrade our
systems and infrastructure to accommodate increased use of our marketplace. Any
failure to expand or upgrade our systems to keep pace with the growth in demand
for capacity could cause our website to become unstable and possibly cease to
operate for indefinite periods of time. Unscheduled downtime could negatively
affect our business.
Our infrastructure and systems are susceptible to natural disasters and other
unexpected events, and if any of these events of a significant magnitude were
to occur, they could adversely affect our ability to operate our business for a
sustained period.
The performance of our server and networking hardware and software
infrastructure is critical to our business and reputation and our ability to
process transactions, provide high quality customer service and attract and
retain users of our services. Currently, our infrastructure and systems are
located at one site in Sunnyvale, California, which is an area susceptible to
earthquakes. We depend on our single-site infrastructure, and any disruption to
this infrastructure resulting from a natural disaster or other event could
result in an interruption in our service, reduce the number of transactions we
are able to process and, if sustained or repeated, could impair our reputation
and the attractiveness of our services, or prevent us from providing our
services entirely.
Our systems and operations are susceptible to damage or interruption from
human error, natural disasters, power loss, telecommunications failures, break-
ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. We rely on a third party for our hosting services and we do not have a
formal disaster recovery plan. In addition, we may not carry sufficient
business interruption insurance to compensate us for losses that we
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may sustain. Any failure on our part to expand our system or Internet
infrastructure to keep up with the demands of our users, or any system failure
that causes an interruption in service or a decrease in responsiveness of our
online services or website, could result in fewer transactions and, if
sustained or repeated, could damage our reputation and the attractiveness of
our services or prevent us from providing our services entirely.
We face intense competition, and if we are unable to compete effectively we
may be unable to maintain or expand our customer base, and we may lose market
share or sustain revenue shortfalls.
The online market for used capital assets is new and rapidly evolving and
we expect it to be intensely competitive. We believe that the principal
competitive factors in our market include the following: an integrated auction
capability; vertical market expertise; a critical mass of buyers and sellers;
relationships with capital asset dealers; customer service; a user friendly
technology interface; and an ability to implement an array of value-added
services. Some of our current and potential competitors may have longer online
operating histories, greater name recognition, larger customer bases, more
expertise in certain vertical markets and greater financial, technical and
marketing resources than do we. As a result of these factors, our current and
potential competitors may be able to respond more quickly to market forces,
undertake more extensive marketing campaigns, devote substantially more
resources to technical and system development and offer additional value-added
services more effectively than we can.
Our competition includes traditional auctioneers that have established
online marketplaces for used capital assets, as well as new online entrants
that seek to use the Internet to sell or auction used capital assets. We also
face potential competition from a number of other sources. Many Internet
portals and e-commerce providers have created, or are creating, websites and
functions that may serve the needs of our customers and compete with our
services. In addition, providers of online marketplaces and online auction
services that currently focus on other industries could expand the scope of
their services to include used capital assets. Buyers and sellers that we
currently consider to be customers may also establish competing online
marketplaces, either on their own or by partnering with other companies.
Moreover, additional auctioneers focusing on used capital assets may establish
or partner with others to establish online auction services.
Competition is likely to intensify as our market matures. As competitive
conditions intensify, competitors may:
. enter into strategic or commercial relationships with larger, more
established Internet companies;
. secure assets from sellers on more favorable terms; and
. secure exclusive or preferential arrangements with buyers and sellers
that limit sales through our auctions.
We may be unable to compete successfully against current and future
competitors and competition could result in reduced commissions, revenues,
gross margins and operating margins and loss of market share.
If we are unable to increase recognition of the DoveBid brand name, our
ability to attract customers will be limited and our operating results will
suffer.
We believe that recognition and positive perception of the DoveBid brand
name in the online market for used capital assets is important to our success.
We are devoting significant resources toward increasing the awareness of our
brand name. We may not achieve our desired goal of increasing the awareness of
the DoveBid brand name to justify these expenditures. Even if recognition of
our brand name increases, it may not lead to an increase in our customer base.
Expanding our services globally exposes us to additional operational
challenges and if we fail to meet these challenges, our growth will be limited
and our operating results may be harmed.
We face risks doing business internationally. We have recently acquired
companies in the Netherlands, Singapore, Hong Kong, Thailand and Australia. In
order to increase the market awareness and the use of our
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services by buyers and sellers of used capital assets, we intend to expand our
services in other areas of the world. We currently plan to expand our presence
in the European and Asian markets and to enter the Latin American market within
a two-year period, but we may be unsuccessful in carrying out these plans in a
timely fashion, if at all. If we fail to execute this strategy, our growth will
be limited and our operating results may be harmed.
As we increase our international activities, we will be exposed to
additional operational challenges that we would not face if we conducted our
operations only in the United States. These include:
. the development of logistical support necessary to facilitate the
delivery and receipt of payment to and from, and delivery of assets by
and to, buyers and sellers;
. fluctuations in currency exchange rates, particularly if we accept
payment for auction items or value-added services in currencies other
than United States dollars;
. seasonal fluctuations in purchasing patterns in other countries;
. tariffs, export controls and other trade barriers;
. difficulties in collecting accounts receivable in other countries;
. the burdens of complying with a wide variety of foreign laws;
. reduced protection of intellectual property rights in some countries;
. challenges in staffing and managing foreign operations;
. differences in technology standards in foreign countries;
. political and economic instability; and
. potentially adverse tax consequences, including those resulting from
unexpected changes in tax laws.
We have limited experience operating outside the United States and with
marketing our services globally. Our entry into global markets may require
significant management attention and financial resources which may adversely
affect our ability to effectively manage our existing business. Further, entry
into some global markets would require us to develop additional foreign
language versions of our services. There may also be cultural barriers to the
acceptance of our services internationally, particularly in regions that have
not traditionally relied upon auctions as a way to dispose of used capital
assets. Competitors with greater local market knowledge may exist or arise in
these international markets and impede our ability to successfully expand in
these markets. Accordingly, our planned global expansion may be unsuccessful.
If we cannot meet our future capital requirements, we may be unable to develop
and enhance our products and services, take advantage of business opportunities
and respond to competitive pressures.
We currently anticipate that the net proceeds from this offering, together
with our existing working capital immediately prior to this offering, will be
sufficient to meet our anticipated working capital and capital expenditure
requirements through at least the next twelve months. The time period for which
we believe our capital is sufficient is an estimate; the actual time period may
differ materially as a result of a number of factors, risks and uncertainties.
We may need to raise additional funds in the future through public or private
debt or equity financings in order to:
. accelerate our expansion through acquisitions of dealers, auctioneers and
other businesses or technologies;
. develop new products or services; or
. respond to competitive pressures.
To the extent that we raise additional capital through the sale of equity or
convertible debt securities, the issuance of such securities could result in
dilution to our existing stockholders. If additional funds are raised through
the issuance of debt securities, the terms of such debt could impose additional
restrictions on our operations. Additional financing may be unavailable on
terms acceptable to us, if at all. If adequate funds are not available or are
not available on acceptable terms, we may be unable to take advantage of
acquisition opportunities, develop new products or services or otherwise
respond to unanticipated competitive pressures. In such cases, our business
results and financial condition could be harmed.
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If we are unable to safeguard the security and privacy of a customer's
confidential information, customers may stop using our services.
A significant barrier to the widespread adoption of e-commerce is the secure
transmission of personally identifiable information of Internet users as well
as other confidential information over public networks. For example, our users
may provide us with the name of a personal representative, a tax identification
number, and for sellers, reserve prices of assets for sale. If any compromise
or breach of security were to occur, it could harm our reputation and expose us
to liability. Despite our efforts to protect customer information, a party may
be able to circumvent our security measures and could misappropriate
proprietary information or cause interruptions in our operations. We may be
required to make significant expenditures to protect against security breaches
or to alleviate problems caused by any breaches.
We may be subject to litigation for defects in used capital assets sold in our
marketplace, which may be costly and time-consuming to defend.
Because we facilitate the sale of used capital assets in our marketplace, we
may become subject to legal proceedings arising from defects in such assets,
even though we generally do not take title to, or provide a warranty with
respect to, such assets. We may also become involved in disputes regarding the
terms of the sale through our marketplace, including disputes arising from the
failure of sellers to deliver assets or buyers to pay for assets. Any claims,
with or without merit, could:
. be time-consuming to defend;
. result in costly litigation; and
. divert management's attention and resources.
As we continue to acquire and sell more assets on a principal basis, whether
through business acquisitions or other acquisitions of assets for sale, the
risk that we may be subject to claims related to defective assets may increase.
In cases where we believe that repair or refurbishment will enhance the value
of a used asset, we may repair or refurbish the asset and provide a limited
warranty to a buyer. When we provide a limited warranty for assets we sell, we
may be subject to product claims if a breach of warranty occurs.
If we are unable to protect our intellectual property, third parties may gain
access to these rights and harm our business.
We regard our intellectual property, as it relates to our ability to
broadcast and conduct live auctions, as critical to our success. If we are
unable to protect these rights, we would lose a capability that we regard as a
key strategic advantage. We rely on trademark, patent, copyright and trade
secret laws to protect these and our other proprietary rights. It is possible
that by virtue of using our intellectual property, we could receive claims of
infringement of other parties' proprietary rights or claims that our own
trademarks, patents or other intellectual property rights are invalid. Any
claims of this type, with or without merit, could be time-consuming to defend,
result in costly litigation, divert management's attention and resources or
require us to enter into royalty or license agreements. In addition, there has
been a recent increase in the number of patent applications related to the use
of the Internet to perform business processes. Enforcement of intellectual
property rights in the Internet sector will become a greater source of risk as
the number of business process patents increases.
We currently possess the following intellectual property which we consider
important: trademarks on DoveBid and "DoveBid Business Auctions Worldwide" for
which worldwide applications are pending, our databases of customers and
businesses, our databases of transactions and appraisals, our proprietary
Webcast auction process and a provisional patent for our proprietary auction
engine technology. In addition, we have secured our domestic URL and domain
registration and are in the process of extending those registrations globally.
Our trademark registration applications may not be approved or granted, and
our provisional patent may not be upheld and patents may not be granted for any
future patent applications that we file. In addition any trademarks or patents
that we hold may be successfully challenged by others or invalidated through
administrative process or litigation.
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We rely on third-party software and technology without which we may not be able
to operate our online auctions.
We rely on software and technology that we have licensed from a number of
suppliers. We currently use software or technology from MCI Worldcom,
Microsoft, Oracle, Slingshot, Mshow and Cisco. These licenses may not continue
to be available to us on commercially reasonable terms, if at all. In addition,
we may fail to integrate licensed technology into our services successfully,
which could similarly harm development and market acceptance of our services.
For example, we use licensed software to provide part of our website
infrastructure and to provide a substantial part of the functionality of our
auction services, and we use licensed information retrieval software to provide
part of our search capabilities. In addition, the licensors may not continue to
support or enhance the licensed software. In the future, we expect to license
other third party technologies to enhance our services, to meet evolving user
needs or to adapt to changing technology standards. Failure to license, or the
loss of any licenses of, necessary technologies could impair our ability to
operate our online auctions until equivalent software is identified, licensed
and integrated or developed by us.
If we fail to adapt to the rapidly changing technologies of the Internet or if
the Internet cannot support the demands of our business, our business would be
harmed.
To succeed, we will need to adapt effectively to rapidly changing
technologies and continually improve the performance, features and reliability
of our services. For example, we recently implemented a new technology platform
for our 24x7 online auctions, and we expect that over time technological
developments will be achieved that will further enhance our 24x7 online
auctions and our Webcast auctions. We could incur substantial costs in
modifying our products, services or infrastructure to incorporate future
technological enhancements, and we may also lose customers and revenues if our
services fail to use the latest Internet technology.
Risks Related To Our Industry
If regulations with respect to how auctions may be conducted are imposed by
states or municipalities, our business costs may increase, which would harm our
results of operations.
Numerous states (including California, where our headquarters are located)
and municipalities have regulations regarding the conduct of auctions and the
liability of auctioneers. We are not aware that any legal determination has
been made with respect to the applicability of these regulations to our online
business, and little precedent exists in this area. One or more states or
municipalities may attempt to impose these regulations upon us in the future,
which could increase our cost of doing business.
The imposition of additional state and local taxes on Internet-based
transactions would increase our cost of doing business and harm our ability to
become profitable.
We file state tax returns as required by law based on principles applicable
to traditional businesses. However, one or more states could seek to impose
additional income tax obligations or sales and use tax collection obligations
on out-of-state companies such as ours that engage in or facilitate Internet-
based commerce. A number of proposals have been made at state and local levels
that could impose taxes on the sale of products and services through the
Internet or the income derived from those sales. These proposals, if adopted,
could substantially impair the growth of Internet-based commerce and harm our
ability to become profitable.
United States federal law limits the ability of the states to impose taxes
on Internet-based transactions. Until October 21, 2001, state and local taxes
on Internet-based commerce that are discriminatory against Internet access are
prohibited, unless the taxes were generally imposed and actually enforced
before October 1, 1998. It is possible that this tax moratorium will not be
renewed by October 21, 2001 or at all. Failure to renew this legislation would
allow various states to impose taxes on Internet-based commerce. The imposition
of state and local taxes could harm our ability to become profitable.
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Risks Related To This Offering
New investors in our common stock will experience immediate and substantial
dilution.
The initial public offering price will be substantially higher than the book
value per share of our common stock. Investors purchasing common stock in this
offering will, therefore, incur immediate dilution of $6.76 per share of common
stock in net tangible book value, based on an assumed initial public offering
price of $9.00 per share. In addition, we have issued options and warrants to
acquire common stock at prices significantly below the assumed initial public
offering price.
The price of our common stock may fluctuate significantly, which could lead to
losses for individual stockholders.
The trading prices of many stocks of Internet-related companies have
experienced extreme price and volume fluctuations. These fluctuations often
have been unrelated or out of proportion to the operating performance of these
companies. Because we are an Internet-related company, we expect our stock
price to be similarly volatile. These broad market fluctuations may continue
and could harm our stock price. Any negative change in the public's perception
of the prospects of Internet-related companies could also depress our stock
price, regardless of our results.
Broad market fluctuations in our stock price could result in the loss of
market makers for our common stock, which could, in turn, result in a decline
in the price of our common stock. In order to maintain our eligibility for
listing on Nasdaq, we must maintain a minimum number of market makers and meet
and maintain other eligibility requirements, including a minimum trading value
of our common stock. A prolonged decline in the price of our common stock could
effect the operation of our business by severely limiting our ability to raise
capital or to use our common stock in connection with acquisitions. In
addition, a decline in the price of our common stock below $5 per share could
also affect the disclosure and suitability obligations for broker dealers and
would limit the marketability of our common stock.
We have implemented anti-takeover provisions that could discourage or prevent a
takeover, even if an acquisition would be beneficial in the opinion of our
stockholders.
Provisions of our charter and bylaws could make it more difficult for a
third party to acquire us, even if doing so would be beneficial in the opinion
of our stockholders. These provisions include:
. authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
. establishing a classified board of directors, which could discourage a
takeover attempt;
. prohibiting cumulative voting in the election of directors, which would
limit the ability of less than a majority of stockholders to elect
director candidates;
. limiting the ability of stockholders to call special meetings of
stockholders;
. prohibiting stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
. establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted upon
by stockholders at stockholder meetings.
In addition, section 203 of the Delaware General Corporation Law may
discourage, delay or prevent a change in control of DoveBid. Generally stated,
section 203 prohibits stockholders who, alone or together with their affiliates
and associates, own more than 15% of the subject company from engaging in
certain business combinations for a period of three years following the date
that the stockholder became an interested stockholder with their subject
company without approval of the board or two-thirds of the independent
stockholders.
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Our directors, executive officers and major stockholders will own approximately
two thirds of our outstanding common stock after this offering, which could
limit your ability to influence the outcome of key transactions, including
changes of control.
After this offering, directors, executive officers, and current holders of
5% or more of our outstanding common stock, including SOFTBANK Corp., Fremont
Ventures, entities associated with the Mayfield Fund and the Texas Pacific
Group, will, in the aggregate, own approximately two thirds of our outstanding
common stock. As a result, these stockholders will be able to control all
matters requiring approval by our stockholders, including the election of
directors and the approval of significant corporate transactions. This
concentration of ownership may also delay, deter or prevent a change in control
of our company and will make some transactions more difficult or impossible
without the support of these stockholders.
We have broad discretion to use the offering proceeds, and our investment of
these proceeds may not yield a favorable, or any, return.
The net proceeds of this offering are not allocated for specific uses. Thus,
our management has broad discretion over how these proceeds are used and could
spend the proceeds in ways with which you may not agree. We cannot assure you
that the proceeds will be invested in a way that yields a favorable, or any,
return for us.
Substantial sales of our common stock by our stockholders could depress our
stock price regardless of our operating results.
Sales of substantial amounts of our common stock in the public market after
this offering could reduce the prevailing market prices for our common stock.
Of the 47,819,417 shares of common stock to be outstanding upon the closing of
this offering, the 5,200,000 shares offered by this prospectus will be freely
tradable without restriction or further registration. Substantially all of the
remaining 42,619,417 shares of our common stock held by existing stockholders
upon the completion of this offering are subject to lock-up agreements with the
underwriters not to sell such shares for a 180 day period after the date of
this prospectus. The underwriters have no current intention to waive any lock-
up agreements. Approximately 30,176,971 of these shares will be eligible for
resale upon the expiration of the 180 day period, subject in some cases to
sales volume restrictions under Rule 144. The remaining shares will become
freely tradeable at various times after the 181st day following the date of
this prospectus through July 2004 as repurchase restrictions and Rule 144
holding periods lapse. In addition the 2,594,021 shares (based on an average
conversion rate of $9.00 per share, except in one case at $31.50 per share) of
common stock that will be issued upon the automatic conversion of convertible
subordinated notes with an aggregate principal amount of $29.9 million plus
$562,000 of accrued interest issued in connection with acquisitions completed
between December 1999 and July 31, 2000 will become eligible for resale between
December 2000 and July 31, 2001 pursuant to Rule 144.
17
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "potential," "predicts," "should" or "will" or the negative of these
terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors, including
the risks outlined under "Risk Factors," that may cause our, or our industry's,
actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance
or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock offered
by us will be approximately $ , or approximately $ if the underwriters'
over-allotment option is exercised in full, at an assumed initial public
offering price of $9.00 per share and after deducting estimated underwriting
discounts and commissions and offering expenses.
The principal purposes of this offering are to increase our working capital,
to create a public market for our common stock, to facilitate future access to
the public capital markets and to increase our visibility in the marketplace.
We have not made specific plans with respect to the proceeds of this offering
and, therefore, cannot specify with certainty the particular uses for the net
proceeds. Our management will have significant flexibility in applying the net
proceeds of the offering.
We intend to use our existing cash and the net proceeds from this offering
to expand our sales and marketing efforts, enhance our technology and add to
our online content and for general corporate purposes, including working
capital needs. We may use a portion of the net proceeds of this offering to
acquire or invest in complementary businesses or technologies, although we have
no present commitments or agreements with respect to any material acquisition
or investment. Pending the application of the proceeds towards one of the above
uses, we intend to invest the net offering proceeds in short-term, interest-
bearing, investment-grade securities.
DIVIDEND POLICY
We have not paid any cash dividends on our capital stock since we
incorporated in June 1999. However, prior to our incorporation, we were a
limited liability company and made various cash and non-cash distributions to
our members. We intend to retain any future earnings to finance future growth
and do not anticipate paying any cash dividends in the future.
19
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2000:
. on an actual basis;
. on a pro forma basis to reflect the automatic conversion into common
stock upon completion of this offering of all preferred stock and
convertible subordinated notes in an aggregate principal amount of $29.9
million plus $562,000 of accrued interest, at an assumed conversion
price of $9.00 per share (the mid-point of the range set forth on the
cover page of this prospectus) or, from one transaction, at $31.50 per
share;
. on a pro forma as adjusted basis to reflect the sale of shares of common
stock in this offering at an assumed initial public offering price of
$9.00 per share, after deducting estimated underwriting discounts and
commissions and offering expenses.
The table does not reflect 2,289,301 shares issuable upon the exercise of
outstanding stock options at a weighted average exercise price of $7.42 per
share, as of September 30, 2000; and additional shares authorized for issuance
under our plans. It also does not include an immediately exercisable warrant
for 468,333 shares of Series C preferred stock at an exercise price of $8.01
per share.
This table should be read in conjunction with our Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 2000
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share data)
<S> <C> <C> <C>
Convertible subordinated notes................. $ 29,927 $ -- $ --
Convertible preferred stock subject to
redemption, $0.001 par value; 74,000,000
shares authorized, 26,403,597 shares issued
and outstanding, actual; 89,000,000 shares
authorized, none issued and outstanding, pro
forma; and 89,000,000 shares authorized, none
issued and outstanding pro forma as adjusted.. 177,276 -- --
Stockholders' equity (deficit):
Common stock, $0.001 par value per share;
150,000,000 shares authorized, 13,621,799
shares issued and outstanding, actual;
165,000,000 shares authorized, 42,619,417
shares issued and outstanding, pro forma;
165,000,000 shares authorized,
47,819,417 shares issued and outstanding,
pro forma as adjusted....................... 13 42 47
Additional paid-in capital................... 20,648 228,384 270,403
Deferred stock-based compensation............ (1,569) (1,569) (1,569)
Notes receivable from stockholders........... (5,349) (5,349) (5,349)
Translation adjustment....................... (3) (3) (3)
Accumulated deficit.......................... (81,308) (81,308) (81,308)
-------- -------- --------
Total stockholders' equity (deficit)....... (67,568) 140,197 182,221
-------- -------- --------
Total capitalization..................... $139,635 $140,197 $182,221
======== ======== ========
</TABLE>
20
<PAGE>
DILUTION
As of September 30, 2000, our pro forma net tangible book value was
approximately $50.9 million, or $1.19 per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by shares of common stock outstanding
after giving effect to the automatic conversion into common stock upon
completion of this offering of all preferred stock and convertible subordinated
notes in an aggregate principal amount of $29.9 million plus $562,000 of
accrued interest, at an assumed conversion price of $9.00 per share (the mid-
point of the range set forth on the cover page of this prospectus) or, from one
transaction, at $31.50 per share.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by buyers of shares of our common stock in
this offering and the net tangible book value per share of our common stock
immediately following this offering.
After giving effect to the receipt of the net proceeds from the sale of the
shares of our common stock at an assumed initial public offering price of $9.00
per share and after deducting underwriting discounts and commissions and the
estimated offering expenses, our pro forma net tangible book value as of
September 30, 2000 would have been approximately $93.0 million, or $1.94 per
share. This represents an immediate increase in pro forma net tangible book
value of $0.75 per share to existing stockholders and an immediate dilution of
$7.06 per share to new investors purchasing shares at the initial public
offering price. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $9.00
Pro forma net tangible book value per share as of September 30,
2000............................................................ $1.19
Increase per share attributable to new investors................. 0.75
-----
Pro forma net tangible book value per share after this offering.... 1.94
-----
Dilution per share to new investors................................ $7.06
=====
</TABLE>
The following table summarizes as of September 30, 2000, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid to us and the average price per share paid by
existing stockholders and by new investors purchasing shares of common stock in
this offering, before deducting estimated underwriting discounts and
commissions and offering expenses:
<TABLE>
<CAPTION>
Total
Shares Purchased Consideration Average
------------------ ---------------- Price
Number Percent Amount Percent Per Share
---------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 42,619,417 89.1% $191,536 80.4% $4.49
New Investors..................... 5,200,000 10.9% 46,800 19.6% 9.00
---------- ----- -------- -----
Total........................... 47,819,417 100.0% $238,336 100.0%
========== ===== ======== =====
</TABLE>
If the underwriters' over-allotment option is exercised in full, the
following will occur:
. the number of shares of common stock held by existing stockholders will
decrease to approximately 87.7% of the total number of shares of our
common stock outstanding after this offering; and
. the number of shares held by new investors will be increased to
5,980,000, or approximately 12.3% of the total number of our shares of
our common stock outstanding after this offering.
The above discussion and tables assume no exercise of any stock options or
warrants for common stock outstanding as of September 30, 2000. As of September
30, 2000, there were outstanding options to purchase a total of 2,289,301
shares of common stock at a weighted average exercise price of $7.42 per share
and an immediately exercisable warrant to purchase 468,333 shares of Series C
preferred stock. If any of these options are exercised, there will be further
dilution to new public investors. Please see "Capitalization," and
"Management--Employee Benefit Plans."
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, our Financial Statements and Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The statements of
operations for the years ended December 31, 1997, 1998 and 1999, and the
balance sheet data at December 31, 1998 and 1999, are derived from, and are
qualified by reference to, the financial statements that have been audited by
Ernst & Young LLP, independent auditors, which are included elsewhere in this
prospectus. The statements of operations data for the years ended December 31,
1995 and 1996 and the balance sheet data at December 31, 1995, 1996 and 1997
are derived from our unaudited financial statements not included in this
prospectus. The historical results presented below are not necessarily
indicative of future results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The statements of operations data for the nine months ended September 30,
1999 and 2000 and the balance sheet data at September 30, 2000 are derived from
unaudited interim financial statements included elsewhere in this prospectus.
The unaudited financial statements have been prepared on substantially the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
except for the mark down of inventory of $8.2 million, necessary for a fair
presentation of the results of operations and financial condition for such
periods. Historical results are not necessarily indicative of the results to be
expected in the future, and results of interim periods are not necessarily
indicative of results for the entire year or any future period.
The pro forma financial information for the year ended December 31, 1999 and
the nine months ended September 30, 2000 are derived from, and are qualified by
reference to, the pro forma financial data appearing elsewhere in this
prospectus. The pro forma statement of operations data for the year ended
December 31, 1999 and the nine months ended September 30, 2000 gives effect to
nine acquisitions which occurred in February through July 2000 as if those
acquisitions had occurred on January 1, 1999.
The pro forma information excludes the effects of acquisitions which are
insignificant for the purpose of this presentation.
22
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Nine Months Nine Months Year Ended Ended
Years Ended December 31, Ended Ended December 31, September 30,
------------------------------------------------- September 30, September 30, 1999 2000
1995 1996 1997 1998 1999 1999 2000 Pro Forma Pro Forma
----------- ----------- ------- ------- ------- ------------- ------------- ------------ -------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Capital asset
sales............. $ -- $ -- $ -- $ -- $ -- $ -- $ 29,074 $ 62,428 $ 53,618
Auctions, appraisal
and other
revenues.......... 19,533 16.786 13,679 10,801 12,504 9,627 25,933 30,958 30,529
------- ------- ------- ------- ------- ------- -------- -------- --------
Total revenues.... 19,533 16,786 13,679 10,801 12,504 9,627 55,007 93,386 84,147
Cost of capital
asset sales....... -- -- -- -- -- -- 22,602 49,167 41,317
Cost of auction,
appraisal and
other revenues.... 11,620 8,565 7,004 5,679 5,788 3,939 12,123 11,216 13,955
------- ------- ------- ------- ------- ------- -------- -------- --------
Total cost of
revenues......... 11,620 8,565 7,004 5,679 5,788 3,939 34,725 60,383 55,272
------- ------- ------- ------- ------- ------- -------- -------- --------
Gross profit....... 7,913 8,221 6,675 5,122 6,716 5,688 20,282 33,003 28,875
Operating expenses:
Provision for
unusual
inventory
markdown......... -- -- -- -- -- -- 8,200 -- 8,200
Sales and
marketing........ 1,792 1,527 1,195 1,079 2,271 651 24,417 12,807 30,040
General and
administrative... 5,373 5,327 5,321 4,787 7,818 3,180 17,759 19,129 21,457
Technology and
development...... -- -- -- -- 378 36 5,722 821 6,034
Goodwill
amortization..... -- -- -- -- -- -- 4,629 9,149 7,475
Depreciation and
other
amortization..... 421 835 204 188 138 88 4,213 942 4,547
Amortization of
deferred
compensation(1).. -- -- -- -- 51 -- 1,561 51 1,561
Impairment of
goodwill......... -- -- 9,751 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------- -------- --------
Total operating
expenses....... 7,586 7,689 16,471 6,054 10,656 3,955 66,501 42,899 79,314
------- ------- ------- ------- ------- ------- -------- -------- --------
Income (loss) from
operations........ 327 532 (9,796) (932) (3,940) 1,733 (46,219) (9,896) (50,439)
Offering costs..... -- -- -- -- -- -- (3,073) -- (3,073)
Interest and other
income (expense),
net............... 42 49 38 65 168 179 1,219 (2,604) 202
------- ------- ------- ------- ------- ------- -------- -------- --------
Income (loss)
before income
taxes............. 369 581 (9,758) (867) (3,772) 1,912 (48,073) (12,500) (53,310)
Income tax
provision (credit)
.................. -- -- -- -- -- -- (22) (132) (153)
------- ------- ------- ------- ------- ------- -------- -------- --------
Net income (loss).. 369 581 (9,758) (867) (3,772) 1,912 (48,051) (12,368) (53,157)
Deemed dividend on
preferred stock... -- -- -- -- (369) (94) (6,379) (369) (6,379)
Accretion of
redemption price
differential on
redeemable
convertible
preferred stock... -- -- -- -- (886) -- (19,834) (886) (19,834)
------- ------- ------- ------- ------- ------- -------- -------- --------
Net income (loss)
attributable to
common
stockholders...... $ 369 $ 581 $(9,758) $ (867) $(5,027) $ 1,818 $(74,264) $(13,623) $(79,370)
======= ======= ======= ======= ======= ======= ======== ======== ========
Basic and diluted
net income (loss)
per common share.. $ 0.05 $ 0.06 $ (1.01) $ (0.09) $ (0.53) $ 0.19 $ (9.44) $ (1.43) $ (10.09)
======= ======= ======= ======= ======= ======= ======== ======== ========
Weighted average
common shares used
to compute basic
and diluted net
income (loss) per
common share...... 7,733 9,666 9,663 9,539 9,468 9,474 7,866 9,468 7,866
======= ======= ======= ======= ======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
---------------------------------------------------- September 30, 2000
1995 1996 1997 1998 1999 2000 Pro Forma
----------- ----------- ----------- ------- ------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 168 $ 4,545 $ 267 $ 229 $ 6,969 $ 35,022 $ 35,022
Working capital
(deficit).............. (302) 775 (173) (1,407) 7,471 46,462 47,024
Total assets............ 21,905 21,545 8,054 4,351 19,032 192,457 192,457
Long-term liabilities... -- -- 461 235 3,109 33,190 3,263
Convertible preferred
stock subject to
redemption............. -- -- -- -- 17,718 177,276 --
Total stockholders'
equity (deficit)....... 10,369 10,950 (268) (1,435) (7,944) (67,568) 140,197
</TABLE>
--------
(1) Amortization of deferred compensation relates to equity related
compensation for three executive officers whose other compensation costs
are classified under General and Administrative operating expenses.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Recent Acquisitions" for a description of our recently
completed acquisitions that will affect our reported operating results in
future periods.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial statements and related notes.
Overview
We incorporated in June 1999 as the successor to Dove Brothers, LLC. From
March 1995 through June 1999, we conducted business as Dove Brothers, LLC.
Prior to March 1995, we conducted business as Ross-Dove Company, Inc., which
was the successor to Ross Mercantile Co., a sole proprietorship formed in 1937.
In the past ten years, we have conducted industry-specific auctions across
multiple vertical markets that have generated more than $3 billion in gross
asset sales on behalf of corporations, government agencies and financial
institutions, with net revenues to us of approximately $150 million.
We facilitate the sale of used capital assets over the Internet through
Webcast auctions and 24x7 online auctions. We began offering continuous online
auctions in November 1999, and commenced our Webcast auctions in January 2000.
Our Webcast auctions enable remote online buyers to compete with on-site buyers
in real time for auctions of aggregated assets. Our 24x7 online auctions, which
include featured online and continuous online auctions, offer both aggregated
and unaggregated assets for sale. We generally do not take title to assets in
our auctions or offer warranties on the assets sold. As a result of our recent
acquisitions of capital asset dealers, we may buy assets for our own account
and resell them through our online auctions. In addition, we may take title to
assets for an auction sale to create a competitive advantage in securing a
corporate seller's auction business, and where we believe there is an
opportunity to earn a greater profit than we can achieve simply as an
intermediary. In instances where we act as the principal seller in a
transaction, we may refurbish or repair assets prior to selling them and
provide a limited warranty. The cost of goods we sell as principal is included
in cost of revenues. Through fiscal 1999, revenues and costs from capital asset
sales were not significant. For the nine months ended September 30, 2000
revenues from capital asset sales represented approximately 53% of our total
revenues and those principal sales contributed to the increase in cost of
revenues for this period. We expect that in future periods we will continue to
sell capital assets as a principal at a greater rate than was the case in the
first nine months of 2000.
Revenues are generated from commissions earned on asset auctions, capital
asset sales and fee-based services. Although fees are often negotiated and
subject to competitive forces, the following description indicates the range of
our operating fees, which may vary over time:
Webcast auctions:
Commission of 10%-12% paid by the buyer; commission of 0-10% plus
reimbursement of our expenses paid by the seller.
24x7 online auctions:
Featured online auctions: Commission of 0-10% paid by the buyer;
commission of 0-10% plus reimbursement of our expenses paid by the
seller.
Continuous online auctions: Commission of 5% paid by the seller.
Revenues from commissions earned from Webcast and 24x7 online auctions are
recognized upon closing of the related auction, at which time both the buyer
and seller have agreed to the terms of the transaction and we have performed
all services necessary to earn our commission. All direct auction costs,
consisting primarily of outside labor, direct facilities, materials and
supplies, are deferred until the related auction revenue is recognized.
24
<PAGE>
Revenues from sale of our inventory are recognized upon title transfer and
shipment of the equipment. We recognize revenue from appraisal and other fee-
based services when the services are completed.
On occasion we may guarantee the minimum proceeds that a seller in an
auction will receive from the auction of specified assets. Of the more than 150
auctions that we conducted in the first nine months of 2000, minimum proceeds
were guaranteed in four of these auctions, and in two instances the proceeds of
the auction did not exceed the guaranteed amount.
In 1995 Ross-Dove Company, Inc. joined with Koll Management Services, or
KMS, to form our predecessor, Dove Brothers, LLC to focus on the auction of
real estate. Goodwill of approximately $10 million was recorded at that time.
In 1997 KMS withdrew from the business, as we determined to withdraw from the
real estate auction business. At that time the remaining carrying value of the
goodwill was written off.
Recent Acquisitions
Since December 1999, we have acquired 14 businesses. These acquisitions
increase the supply of assets to our auctions and extend our vertical market
expertise, value-added services, and relationships with dealers and corporate
customers. Our acquisitions have also extended our operations to Europe, Asia
and Australia. A brief description of each of these acquisitions follows.
On December 30, 1999, we acquired the businesses of two San Jose, California
based printed circuit board equipment dealers, B&B Custom Circuit Supplies,
Inc. (B&B) and Unidyne International, Inc. (Unidyne), for $3.25 million each.
The consideration paid in each transaction consisted of $1.75 million in cash,
$500,000 retained by us for a limited period as a holdback for breaches of
seller's representations and warranties and $1.0 million in convertible
subordinated promissory notes. In connection with each of these acquisitions,
we recorded $2.0 million of goodwill and other intangible assets. For the year
ended June 30, 1999, B&B recorded revenues of $1.9 million and net income of
$14,000. For the period July 1, 1999 through December 30, 1999, B&B recorded
revenues of $1.6 million and a net loss of $965,000. For the period January 1,
1999 through December 30, 1999, Unidyne recorded revenues of $1.3 million and
net income of $89,000.
On February 29, 2000, we acquired all of the outstanding stock of a
Branford, Connecticut based auctioneer and appraiser of used capital assets,
Greenwich Industrial Services, LLC (Greenwich), for $6.25 million. The
consideration paid consisted of $3.25 million in cash, $2.0 million of
convertible subordinated promissory notes, and a $1.0 million cash earn-out.
The earn-out is based on defined performance goals of one of the selling
shareholders of Greenwich who joined DoveBid as part of the acquisition. The
earn-out is treated as contingent consideration and will be recorded as
compensation expense when the contingency is resolved and the consideration is
paid or becomes payable. In connection with this acquisition, we recorded $4.4
million of goodwill and other intangible assets. For the year ended December
31, 1999, Greenwich recorded revenues of $7.8 million and net income of
$790,000.
On March 3, 2000, we acquired all of the outstanding stock of two affiliated
Mequon, Wisconsin based companies, an appraiser, AccuVal Associates, Inc.
(AccuVal), and an auctioneer, LiquiTec Industries, Incorporated (LiquiTec), for
a total of $5.5 million. The consideration paid consisted of $1.65 million in
cash, $2.85 million in convertible subordinated promissory notes and $1.0
million in subordinated promissory notes. In connection with the acquisition,
we recorded $5.4 million of goodwill and other intangible assets. For the year
ended December 31, 1999, AccuVal and LiquiTec recorded revenues of $3.7 million
and net income of $723,000.
On March 3, 2000, we acquired all of the outstanding stock of a Chicago,
Illinois based auctioneer and appraiser of used capital assets, Philip Pollack
& Company, Inc. (Pollack), for $4.5 million. The consideration paid consisted
of $1.3 million in cash, $442,000 retained by us for a limited period as a
holdback for breaches of seller's representations and warranties and
$2.75 million in convertible subordinated promissory notes. In
25
<PAGE>
connection with the acquisition, we recorded $4.5 million of goodwill and other
intangible assets. For the ten months ended December 31, 1999, Pollack recorded
revenues of $1.7 million and a net loss of $95,000.
On March 3, 2000, we acquired all of the outstanding stock of a Mountain
View, California based electronic test and measurement equipment dealer, Haltek
Electronics dba Test Lab Company (Test Lab), for $6.75 million in cash and
$250,000 retained by us for a limited period as a holdback for breaches of
seller's representations and warranties. In connection with the acquisition, we
recorded $4.8 million of goodwill and other intangible assets. For the year
ended December 31, 1999, Test Lab recorded revenues of $7.4 million and net
income of $479,000.
On March 24, 2000, we acquired all of the outstanding stock of Norman Levy
Associates, Inc. (Norman Levy), a Detroit, Michigan based auctioneer and
appraiser of used capital assets, for $27.8 million. The consideration paid
consisted of $17.55 million in cash, $250,000 retained by us for a limited
period as a holdback for breaches of seller's representations and warranties
and $10.0 million in convertible subordinated promissory notes. In connection
with the acquisition, we recorded $29.6 million of goodwill and other
intangible assets. For the eleven months ended March 24, 2000, Norman Levy
recorded revenues of $9.7 million and a net loss of $41,000.
On March 27, 2000, we acquired all of the outstanding stock of a Mountain
View, California based software development company, One Web Place, Inc. (OWP),
for an aggregate of 217,739 shares of our common stock that were issued in the
transaction and our assumption of options that are exercisable for
60,038 shares of our common stock. The aggregate purchase price was $3.0
million, based on a per share value of $12.00, the fair market value of our
common stock on March 27, 2000, as determined by our Board of Directors, and we
recorded $3.0 million of goodwill and other intangible assets. Based upon an
assumed initial public offering price of $9.00, the value of the shares issued
and options assumed is $2.3 million. For the year ended September 30, 1999, OWP
recorded revenues of $78,000 and a net loss of $278,000.
On May 18, 2000, we acquired all of the outstanding stock of a U.K. based
dealer of used capital assets, Robert Carl Corporation (Carl), for total
consideration of $2.2 million in cash. In connection with the acquisition, we
recorded $700,000 of goodwill and other intangible assets. For the year ended
December 31, 1999, Carl recorded revenues of $3.3 million and net income of
$27,000.
On June 15, 2000, we acquired all of the outstanding stock of a Netherlands
based auction company and equipment dealer, Fairfield Industries B.V.,
(Fairfield) for $11.0 million. The consideration paid consisted of $6.0 million
in cash and a $5.0 million convertible subordinated promissory note. In
connection with the acquisition, we recorded $11.7 million of goodwill and
other intangible assets. For the year ended September 30, 1999, Fairfield
recorded revenues of $4.1 million and a net loss of $1.0 million.
On July 3, 2000, we acquired all of the outstanding stock of an Alpharetta,
Georgia based dealer of used, surplus and refurbished computers and computer-
related equipment, Champion Computer Products, Inc. (Champion), for $11.3
million. The consideration paid consisted of $5.8 million in cash, $500,000
retained by us for a limited period as a holdback for breaches of seller's
representations and warranties, $2.5 million in convertible subordinated
promissory notes, $2.0 million in subordinated promissory notes, and a $500,000
cash earn-out. The earn-out is based on defined performance goals of one of the
selling shareholders of Champion who joined DoveBid as part of the acquisition.
The earn-out is treated as contingent consideration and will be recorded as
compensation expense when the contingency is resolved and the consideration is
paid or becomes payable. In connection with the acquisition, we recorded
$10.6 million of goodwill and other intangible assets. For the year ended
December 31, 1999, Champion recorded revenues of $42.9 million and net income
of $218,000.
On July 6, 2000, we acquired all of the outstanding stock of a Singapore
based auction company, Victor Morris Team Pte Ltd. (Morris), along with certain
related entities based in Thailand, Malaysia and Hong Kong, for $8.6 million.
The consideration paid consisted of $4.3 million in cash, $2.4 million retained
by
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<PAGE>
us for a limited period as a holdback for breaches of seller's representations
and warranties, $1.1 million in convertible subordinated promissory notes and
an $800,000 cash earn-out. The earn-out is based on meeting net income
requirements over the next three years. The earn-out is treated as contingent
consideration and will be recorded as additional purchase price when the
contingency is resolved and the consideration is paid or becomes payable. In
connection with the acquisition, we recorded $7.4 million of goodwill and other
intangible assets. For the year ended March 31, 2000, Victor Morris and its
related entities recorded revenues of $1.6 million and net income of $49,000.
On July 18, 2000, we acquired all of the outstanding stock of a Netherlands
based auction company, C.L. Van Beusekom B.V. (Van Beusekom), for $3.9 million.
The consideration paid consisted of $2.5 million in cash, $1.0 million in
convertible subordinated promissory notes and $400,000 in subordinated
promissory notes. In connection with the acquisition, we recorded $3.8 million
of goodwill and other intangible assets. For the year ended December 31, 1999,
Van Beusekom recorded revenues of $1.6 million and net income of $330,000.
On July 28, 2000, we acquired substantially all of the assets and assumed
certain of the liabilities of an Australian auction company, Masongreene
Australasia Pty Ltd. (Masongreene), for $2.1 million. The consideration paid
consisted of $1.0 million in cash, $350,000 initially retained by us for a
limited period as a
holdback for breaches of seller's representations and warranties and a $750,000
convertible subordinated promissory note. In connection with the acquisition,
we recorded $2.6 million of goodwill and other intangible assets. For the year
ended June 30, 2000, Masongreene recorded revenues of $2.0 million and net
income of $457,000.
Each of the transactions described above has been accounted for as a
purchase. The convertible subordinated promissory notes issued in these
transactions convert into shares of our common stock automatically upon
consummation of this offering, at a per share conversion rate equal to the mid-
point of the offering range set forth on the final registration statement,
except for the convertible subordinated promissory notes issued in connection
with the Norman Levy transaction, which convert at $31.50 per share on the
first day of the calendar month following the date of this offering. The
convertible subordinated promissory notes issued in each of these transactions
bear interest at rates between 5.74% and 7.0%.
Please see "Index to Financial Statements" for pro forma financial
statements reflecting these acquisitions and for the historical financial
statements of each of the acquired businesses.
Results of Operations
Nine Months Ended September 30, 2000 and 1999.
Capital Asset Sales. Capital asset sales increased from zero for the nine
months ended September 30, 1999 to $29.1 million for the nine months ended
September 30, 2000. The increase in revenues was attributed to our recently
completed acquisitions of equipment dealers and our purchase of assets for sale
through our auctions. For the nine months ended September 30, 2000,
approximately $21 million of revenues from capital asset sales were generated
by businesses we acquired. We expect that capital asset sales will constitute
the majority of our total revenues through the balance of 2000 and 2001.
Auction, Appraisal and Other Revenues. Auction, appraisal and other revenues
increased from $9.6 million for the nine months ended September 30, 1999 to
$25.9 million for the nine months ended September 30, 2000. This increase in
revenues was attributed primarily to our recently completed business
acquisitions, the launch of our continuous online auctions in November 1999 and
the commencement of our Webcast auctions in January 2000. For the nine months
ended September 30, 2000, approximately $12 million of auction, appraisal and
other revenues were generated by businesses we acquired.
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Cost of Capital Asset Sales. Cost of capital asset sales includes our cost
of assets sold. Cost of capital asset sales increased from zero for the nine
months ended September 30, 1999 to $22.6 million, or 77% of related revenue,
for the nine months ended September 30, 2000. Cost of assets sold will vary as
a percentage of capital asset sales revenue based upon the mix of assets we
sell in future periods.
Cost of Auction, Appraisal and Other Revenues. Cost of auction, appraisal
and other revenues includes advertising and promotion expenses, commissions,
and outside labor and services incurred in connection with on-site and Webcast
auctions. In addition, cost of auction, appraisal and other revenues includes
direct appraisal cost, Webcast facilities cost, and technology equipment cost
attributable to Webcasts and online auctions. Cost of auction, appraisal and
other revenues increased from $3.9 million, or 41% of related revenues, for the
nine months ended September 30, 1999 to $12.1 million, or 47% of related
revenues, for the nine months ended September 30, 2000. The increase in
absolute dollars resulted from the overall increase in auction and appraisal
revenues. The increase as a percentage of revenues was due primarily to
increased costs associated with the commencement of our online auctions.
Provision for Unusual Inventory Markdown. In March 2000, we entered into an
asset supply agreement with Comdisco. Pursuant to that agreement, we acquired
inventory assets from Comdisco in exchange for shares of our Series C preferred
stock, and entered into a marketing relationship providing us for a one year
period the right of first refusal to auction Comdisco assets that fall within
two of our vertical markets. We subsequently recorded an $8.2 million charge
for the decline in value of these inventory assets, which were originally
valued at $13.0 million. One of the two groups of assets received from Comdisco
consisted of a portion of the assets held by a disk drive manufacturer (the
debtor) that was involved in a bankruptcy proceeding. Due to the fact that we
were subsequently awarded the right to conduct the liquidation and auction of
all the debtor's assets, the bankruptcy court ordered that we must not sell the
assets we received from Comdisco until we sold the majority of similar assets
held by the debtor. This was ordered by the court to avoid any conflict issues
with the creditors of the debtor. As a result of the court order, we were
forced to sell the assets we had received in a market that was saturated with
the debtor's other equipment. The remaining group of assets consisted of assets
used in the biotechnology industry. These assets were removed from their
operating location before the sale, which typically has an adverse effect on
the sales price of the asset. We considered that the assets would be sold
outside their operating environment when we negotiated the purchase price with
Comdisco; however, the decline in value was more than anticipated. As of
September 30, 2000 we had sold substantially all of this inventory. No gain or
loss was recorded upon the sale.
Sales and Marketing. Sales and marketing expenses consist primarily of
advertising and promotional costs and salaries for sales and marketing
personnel. Sales and marketing expenses increased from $651,000, or 7% of
revenues, for the nine months ended September 30, 1999 to $24.4 million, or 44%
of revenues, for the nine months ended September 30, 2000. The increase in
absolute dollars and as a percentage of revenues was primarily due to
advertising costs associated with the development of our business and promotion
of our brand. We expect that our sales and marketing expenses will increase in
future periods as we continue to promote our brand and our auction services. In
addition, we entered into an agreement in March 2000 whereby we committed to
purchase advertising and promotion services from Yahoo! for twelve months
ending March 2001. As of September 30, 2000, we had paid $7.6 million under
this agreement, with $5.8 million expensed and $1.8 million recorded as a
prepaid expense. The remaining balance due under this agreement is
$2.4 million.
General and Administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, operational, finance
and administrative personnel, professional service fees, and general corporate
expenses. General and administrative expenses increased from $3.2 million, or
33% of revenues, for the nine months ended September 30, 1999 to $17.8 million,
or 32% of revenues, for the nine months ended September 30, 2000. The increase
in absolute dollars was primarily due to our recent business acquisitions, and
increased costs arising from the development and implementation of our online
auction operations. We expect that general and administrative expenses will
continue to increase in future periods as we continue to expand our business,
and to a lesser extent as we bear the increased costs associated with operating
as a public company.
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Technology and Development. Technology and development expenses consist
primarily of salaries for technology personnel, costs associated with
developing and supporting our Webcast and 24x7 online auctions, and technology
and system consultant fees. We did not hire any technology personnel or begin
development of our Webcast and online auctions until the third quarter of 1999
and therefore incurred only $36,000 of technology and development expenses for
the nine months ended September 30, 1999. For the nine months ended
September 30, 2000, technology and development expenses were $5.7 million or
10% of revenue. We expect that technology and development expenses will
increase in future periods as we continue to support the expansion of our
business.
Amortization of Goodwill. Amortization of goodwill is calculated on goodwill
recorded as a result of business acquisitions. Goodwill is amortized over
twelve to fifteen years, except for $3 million of goodwill from the acquisition
of a software development company in March 2000 which is being amortized over
one year. The increase in goodwill amortization is a result of acquisitions we
completed in December 1999 and February through July 2000. Amortization expense
is likely to increase if we acquire additional businesses.
Depreciation and Other Amortization. Depreciation expense is calculated on
property and equipment utilized in our business, including office furniture,
computers, vehicles and leasehold improvements. Depreciation expense is
recorded over the estimated useful lives of the respective asset or lease
terms, typically three to five years. Other amortization expense is calculated
on intangible assets and on the fair market value ascribed to a warrant to
purchase 468,333 shares of Series C preferred stock issued in March 2000 in
conjunction with a marketing agreement. Intangible assets are amortized over a
four-year period. The warrant value is being amortized over the twelve-month
term of the agreement. Depreciation and other amortization increased
substantially in the nine months ended September 30, 2000, compared to the same
period in 1999, primarily due to our recent business acquisitions and
infrastructure additions.
Amortization of Deferred Stock Compensation. Deferred stock compensation
results from the grant of stock options and sales of restricted stock to
employees at exercise prices subsequently deemed to be less than the fair value
of the common stock on the grant date. We are amortizing this amount on an
accelerated basis over the terms of the related agreements, typically four
years. For the nine months ended September 30, 2000, we amortized $1.6 million
of deferred stock compensation expense. We expect to incur additional
amortization expense of approximately $337,000 in 2000, $731,000 in 2001 and
$394,000 in 2002 as a result of equity awards made to date.
Offering Costs. Offering costs consist primarily of audit, consulting and
legal fees incurred in connection with our registration statement filed in
March 2000, which was subsequently withdrawn and our current registration
statement, originally filed in August 2000. These costs were expensed in the
nine months ended September 30, 2000, as we do not expect to consummate an
initial public offering until 2001.
Interest Income, net. Interest income, net, is derived from interest earned
on cash and cash equivalents offset by interest expense arising from notes
payable. Interest income increased from $179,000 for the nine months ended
September 30, 1999 to $2.4 million for the nine months ended September 30,
2000. The increase was a result of higher average cash and cash equivalents
balances, primarily due to the sale of our Series C preferred stock. We
recorded interest expense of zero and $1.2 million for the nine months ended
September 30, 1999 and 2000, respectively.
Net Income (Loss). Net income (loss) decreased from net income of $1.9
million for the nine months ended September 30, 1999 to a net loss of $(48.1
million) for the nine months ended September 30, 2000.
Years Ended December 31, 1997, 1998 and 1999
Auction, Appraisal and Other Revenues. Auction, appraisal and other revenues
were $13.7 million in 1997, $10.8 million in 1998, and $12.5 million in 1999.
The decrease in 1998 revenues compared to 1997 was attributed primarily to a
decline in our personal computer auctions as a result of fewer computers being
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available for auction because of the increasing popularity of build-to-order
personal computer manufacturing and competing distribution channels, including
manufacturer-owned resale stores and Internet sales and auctions. In addition,
we dissolved our real estate auction business. Revenues in 1999 increased
compared to 1998 as a result of our expansion into the textiles and
biotechnology markets, and our increased revenues derived from auctions in the
printed circuit board, disk drive and semiconductor vertical markets. In
November 1999, we began offering 24x7 online auctions with the launch of our
online marketplace. Revenues from our 24x7 online auctions were $371,000 in
1999. We launched our Webcast auctions in January 2000, and thus, we recorded
no revenues from Webcast auctions in 1999.
In 1998 and 1999, no single customer accounted for more than 10% of
revenues. In 1997, one customer accounted for approximately 10% of our
revenues.
Cost of Auction, Appraisal and Other Revenues. Cost of auction, appraisal
and other revenues includes advertising and promotion expense, commissions, and
outside labor and service cost incurred in connection with on-site and Webcast
auctions. Cost of auction, appraisal and other revenues decreased from $7.0
million in 1997 to $5.7 million in 1998, and increased to $5.8 million in 1999.
Cost of revenues as a percentage of revenues increased from 51% in 1997 to 53%
in 1998, and decreased to 46% in 1999. The percentage increase in 1998 compared
to 1997 resulted primarily from incremental outside labor and service costs
which we incurred in connection with international on-site auctions. The
percentage decrease from 1998 to 1999 was primarily due to our expansion into
less labor-intensive vertical markets.
Sales and Marketing. Sales and marketing expenses consist primarily of
advertising and promotional costs and salaries for sales and marketing
personnel. Sales and marketing expenses were $1.2 million in 1997, $1.1 million
in 1998 and increased to $2.3 million in 1999. Sales and marketing expenses as
a percentage of revenues increased from 9% in 1997 to 10% in 1998 and to 18% in
1999. The percentage increase in 1998 compared to 1997 resulted from
incremental business development costs associated with our efforts to expand
into additional vertical markets. The increase in absolute dollars and as a
percentage of revenues in 1999 compared to 1998 was primarily due to
advertising costs associated with our entry into the online auction market.
General and Administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, operational,
technical, finance and administrative personnel, professional service fees, and
general corporate expenses. General and administrative expenses decreased from
$5.3 million in 1997 to $4.8 million in 1998, and increased to $7.8 million in
1999. General and administrative expenses as a percentage of revenues increased
from 39% in 1997 to 44% in 1998 and to 63% in 1999. The decrease in absolute
dollars in 1998 compared to 1997 was primarily due to the downsizing of our
real estate auction operations. The increase in absolute dollars and as a
percentage of revenues in 1999 compared to 1998 was primarily due to increased
costs incurred in connection with the development and implementation of our
online auctions.
Technology and Development. Technology and development expenses consist
primarily of salaries for technology personnel, costs associated with
developing and supporting our Webcast and online auctions and technology, and
system consultant fees. We did not hire any technology personnel or begin
development of our Webcast and online auctions until the third quarter of 1999.
For the year ended December 31, 1999, technology and development expenses were
$378,000 or 3% of revenue.
Depreciation and other Amortization. Depreciation expense is calculated on
property and equipment utilized in our business, including office furniture,
computers, vehicles and leasehold improvements. Depreciation expense is
recorded over the estimated useful lives of the respective asset or lease
terms, typically three to five years. Depreciation decreased from $204,000 in
1997 to $188,000 in 1998 and to $138,000 in 1999.
Amortization of Deferred Stock Compensation. Deferred stock compensation
results from the grant of stock options and sales of restricted stock to
employees at exercise prices deemed to be less than the fair value of the
common stock on the grant date. We are amortizing this amount on an accelerated
basis over the terms of the related agreements, typically four years. We
incurred total deferred stock compensation of $2.7 million
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in 1999 and amortized $51,000 of related expense in that period. We expect to
incur amortization expense of at least $1.9 million in 2000, $731,000 in 2001
and $394,000 in 2002.
Impairment of Goodwill. As a result of the withdrawal of KMS from our
predecessor in 1997, we determined that future cash flows from the real estate
asset line of business, if any, would not be sufficient to recover the carrying
value of the goodwill recorded in connection with the establishment of our
predecessor in 1995. The remaining goodwill was written off by a charge to
earnings of approximately $9.8 million in 1997.
Interest Income, net. Interest income, net, is derived from interest earned
on cash and cash equivalents offset by interest expense arising from notes
payable. Interest income increased from $86,000 in 1997 to $121,000 in 1998 and
to $229,000 in 1999. The increases between the comparative periods were
primarily a result of higher average cash and cash equivalents balances. The
average cash balance increased in 1999 compared to 1998 primarily due to the
sale of our Series A and Series B preferred stock. We recorded interest expense
of $48,000 in 1997, $56,000 in 1998 and $61,000 in 1999.
Income Taxes. Prior to June 1999, we operated as a limited liability company
that was treated as a partnership for federal and state income tax purposes. As
a limited liability company, we were subject to minimal taxes and fees in
certain states; income or losses realized by the company were generally passed
through to the individual members of the limited liability company. We incurred
a net taxable loss in 1999 and therefore did not record a provision for income
taxes in that period.
As of December 31, 1999, we had $4.5 million of net operating loss
carryforwards for federal income tax reporting purposes available to offset
future taxable income. We may use these operating loss carryforwards to offset
future federal income taxes. The carryforwards expire in years 2013 to 2015.
Utilization of these operating loss carryforwards may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in expiration of the operating loss carryforwards before
full utilization.
Net Income (Loss). Net loss decreased from $(9.8 million) in 1997 to
$(867,000) in 1998, and increased to $(3.8 million) in 1999.
Liquidity and Capital Resources
We have historically satisfied our cash requirements primarily through a
combination of revenues from operations, private sales of convertible preferred
stock, and to a lesser extent, borrowings under lines of credit. To date, we
have raised net proceeds of $140.0 million through the sale of preferred stock.
Net cash provided by (used in) operating activities totaled $(44,000) in
1997, $249,000 in 1998, $(4.6 million) in 1999 and $(39.4 million) in the nine
months ended September 30, 2000. Operating cash flows resulted primarily from
net losses we have experienced and changes in cash in trust, accounts
receivable and trust account liability balances.
Net cash used in investing activities totaled $156,000 in 1997, $69,000 in
1998, $4.2 million in 1999 and $51.3 million in the nine months ended September
30, 2000. In 1999 and the nine months ended September 30, 2000, cash used in
investing activities was primarily attributable to our 14 business
acquisitions, and the purchase of computer hardware and software to support our
auction business and growing employee base. In the future, we anticipate a
substantial increase in capital expenditures and lease commitments consistent
with anticipated growth in operations and personnel.
Net cash provided by (used in) financing activities totaled $(4.1 million)
in 1997, $(218,000) in 1998, $15.6 million in 1999 and $118.8 million in the
nine months ended September 30, 2000. In 1997 and 1998, cash used in financing
consisted primarily of repayment of short-term obligations. Cash provided in
1999 and in the nine months ended September 30, 2000 was principally generated
from the net proceeds from the issuance of preferred stock totaling $123.0
million.
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At September 30, 2000, we had cash and cash equivalents of $35.0 million.
Our current material capital commitments include $10.1 million of future
payment obligations in connection with our recent acquisitions. In addition, we
are committed to pay $2.4 million through March 2001 under the terms of an
Internet marketing and promotion agreement, and have operating lease
commitments for facilities and equipment through February, 2007 totaling $12.7
million. We also have $29.9 million of convertible subordinated notes
outstanding that were issued in connection with our acquisitions and will
automatically convert into shares of our common stock following completion of
this offering. We expect to experience significant growth in our operating
costs for the foreseeable future in order to continue our efforts to execute
our business plan, particularly in the areas of technology and development,
sales and marketing and general and administrative. As a result, we estimate
that these operating costs will constitute a significant use of the balance of
our cash resources. In addition, we may use cash resources to fund acquisitions
of complementary businesses and technologies. Although we are regularly
involved in discussions regarding business combinations, we do not have any
present commitments or understandings to proceed with any transactions of this
type regarding any acquisitions. We believe that our existing cash and cash
equivalents will be sufficient to meet our working capital needs for at least
the next 12 months. Thereafter, we may find it necessary to obtain additional
equity or debt financing. If such additional debt or equity financing is
required, we may seek to obtain it in one or more of a number of possible
forms, including additional sales of our common stock, sales of notes that are
convertible into our common stock, sales of debt securities, the establishment
of a secured or unsecured credit facility with a financial institution or
syndicate of financial institutions, or the sale of preferred stock. In the
event that additional financing is required, we may not be able to raise it on
terms acceptable to us, if at all. If we are unable to raise additional capital
when required, our business, operations and results will likely suffer.
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Quarterly Operating Results
The following table presents our statement of operations data for each of
the last seven quarters. This information has been derived from our unaudited
financial statements. The unaudited financial statements have been prepared on
substantially the same basis as the audited financial statements included
elsewhere in this prospectus and include all adjustments, consisting only of
normal recurring adjustments, except for the mark down of inventory of $8.2
million, that we consider necessary for a fair presentation of this
information. You should read this information in conjunction with our audited
financial statements and related notes included elsewhere in this prospectus.
We expect our quarterly operating results to vary significantly from quarter to
quarter and you should not draw any conclusions about our future results from
the results of operations for any quarter.
<TABLE>
<CAPTION>
Three Months Ended (unaudited)
-------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1999 1999 1999 1999 2000 2000 2000
-------- -------- --------- -------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Capital asset sales..... $ -- $ -- $ -- $ -- $ 1,997 $ 5,794 $ 21,283
Auction, appraisal and
other revenues......... 2,531 4,427 2,669 2,877 3,667 9,722 12,544
------ ------ ------ ------- -------- -------- --------
Total revenues...... 2,531 4,427 2,669 2,877 5,664 15,516 33,827
Cost of capital asset
sales.................. -- -- -- -- 1,387 4,135 17,080
Cost of auction,
appraisal and other
revenues............... 1,169 1,404 1,366 1,849 2,031 4,562 5,530
------ ------ ------ ------- -------- -------- --------
Total cost of
revenues........... 1,169 1,404 1,366 1,849 3,418 8,697 22,610
------ ------ ------ ------- -------- -------- --------
Gross profit............ 1,362 3,023 1,303 1,028 2,246 6,819 11,217
Operating expenses:
Provision for unusual
inventory markdown... -- -- -- -- -- 8,200 --
Sales and marketing... 226 220 205 1,620 4,687 9,285 10,445
General and
administrative....... 1,048 1,426 706 4,638 5,634 6,183 5,942
Technology and
development.......... -- -- 36 342 1,593 1,856 2,273
Amortization of
goodwill............. -- -- -- -- 365 1,970 2,294
Depreciation and other
amortization......... 31 30 27 50 563 1,501 2,149
Amortization of
deferred
compensation(1)...... -- -- -- 51 417 793 351
------ ------ ------ ------- -------- -------- --------
Total operating
expenses........... 1,305 1,676 974 6,701 13,259 29,788 23,454
------ ------ ------ ------- -------- -------- --------
Income (loss) from
operations............. 57 1,347 329 (5,673) (11,013) (22,969) (12,237)
Offering costs.......... -- -- -- -- -- -- (3,073)
Interest and other
income (expense), net.. (5) 178 6 (11) 395 653 171
------ ------ ------ ------- -------- -------- --------
Income (loss) before
income taxes........... 52 1,525 335 (5,684) (10,618) (22,316) (15,139)
Income tax provision
(credit)............... -- -- -- -- -- -- (22)
------ ------ ------ ------- -------- -------- --------
Net income (loss)....... $ 52 $1,525 $ 335 $(5,684) $(10,618) $(22,316) $(15,117)
====== ====== ====== ======= ======== ======== ========
</TABLE>
--------
(1) Amortization of deferred compensation relates to equity related
compensation for three executive officers whose other compensation costs
are classified under General and Administrative operating expenses.
The increase in general and administrative expenses commencing in the fourth
quarter of 1999 was due primarily to increased costs incurred in connection
with the development and implementation of our online auction business. The
operating results for the first three quarters of 2000 include the effects of
businesses we acquired from December 1999 through July 2000. These operating
results are also impacted by increased costs incurred in connection with the
development and implementation of our online auction business.
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Our quarterly revenues and operating results may vary significantly as a
result of a variety of factors including, without limitation:
. our ability to retain our current customers and attract new customers;
. the amount and timing of operating costs relating to the expansion of
our business;
. the announcement or introduction of new products or services by us or
our competitors;
. costs related to acquisitions of businesses or new technology; and
. changes in general economic and market conditions.
As a result of these factors, and our recent migration to an Internet-based
auction platform, we believe that period-to-period comparisons of our results
of operations are not necessarily meaningful and should not be relied upon as
indications of future performance.
Qualitative and Quantitative Disclosures about Market Risk
We are exposed to market risks inherent in our operations primarily related
to interest rate and foreign currency risks. These risks arise from
transactions and operations entered into in the normal course of business.
Our exposure to changes in interest rates is principally confined to our
cash and cash equivalents and notes payable. Our interest income is sensitive
to changes in the general level of U.S. interest rates, particularly since our
investments are in short term instruments. We do not plan to use derivative
financial instruments in our investment portfolio. Our exposure to changes in
interest expense on notes payable is limited by use of fixed interest rate
terms. Due to the short-term nature of our investments and obligations, we
believe that there is no material financial market risk exposure. Therefore, no
quantitative tabular disclosures have been provided.
Four of the businesses we have acquired operate in foreign markets and use
the local currency as their functional currency. Our primary exposure is due to
our U.S. dollar investments in these businesses. Accordingly, our financial
results could be significantly affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in these foreign markets.
To mitigate some of the short-term effect of changes in currency exchange rates
on our functional currency-based costs and expenses, we expect to occasionally
enter into foreign exchange forward and option contracts to hedge budgeted
costs and expenses of our foreign operations. Since the acquisitions of these
businesses through September 30, 2000, we have not hedged any costs and
expenses.
Year 2000 Impact
We have not experienced any problems with our computer systems relating to
their inability to recognize appropriate dates related to the year 2000. We are
also not aware of any material problems with our clients or vendors.
Accordingly, we do not anticipate incurring material expenses or experiencing
any material operational disruptions as a result of any year 2000 issues.
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BUSINESS
Overview
We are a global auctioneer of used capital assets. Our auction services
combine the experience and market expertise we developed from our 63 years as
an auctioneer with the speed and global reach of the Internet. Our customers
buy and sell assets through our Webcast auctions, which broadcast live auctions
via the Internet, and through our 24x7 online auctions. We expect the expanded
audience reached by our Webcast auction and 24x7 online auctions to attract
sellers seeking to maximize the recoverable value of their used capital assets.
Network effects will be realized as more sellers provide an increasing capital
asset supply, thereby attracting an increasing number of buyers and increasing
the demand for these assets.
Since December 1999, we have acquired 14 businesses. These acquisitions
extend our ability to provide global service to our corporate sellers, increase
the supply of assets to our marketplace, extend our vertical market expertise
and value-added services, and provide additional relationships with corporate
customers.
Industry Background
Dynamics of the Market for Used Capital Assets
The market for used capital assets is currently fragmented and inefficient.
Used capital assets can be characterized as either inside-the-building assets
such as semiconductor fabrication, machine tools and food processing equipment,
or outside-the-building assets such as maritime, aviation and construction
equipment. We believe that the global market for used capital assets is at
least $100 billion per year, based on the U.S. Census Bureau's published
statistics regarding used capital asset expenditures in the U.S. and estimates
of international market size based on the relative size of the international
economy compared with the U.S. economy. We also believe that inside-the-
building assets represent approximately 60% of this total, based on our
analysis of the inside-the-building and outside-the-building asset categories
in a recent U.S. Department of Commerce report on the total installed base of
capital equipment stock in the U.S.
Capital assets that no longer fit the needs of their current owners often
have substantial value to another business. For example, the technology leaders
in many industries regularly replace productive assets prior to the expiration
of their useful lives. Used capital assets may also become available for sale
when factories are closed, businesses fail, or leased capital assets are
returned to their lessors. Buyers in the used capital asset market include
small businesses, corporations and dealers. In addition, as manufacturers
across the world seek to move production to the most efficient locales, assets
that cease to be utilized in one geographic region can be resold for use in
another.
Used capital assets have traditionally reached the market either in
"aggregated" form, large groups of capital assets from a single corporate
seller which are usually prompted by an event such as bankruptcy or plant
closure, or in "unaggregated" form, in the ordinary course of business
involving single lots of equipment. Aggregated capital assets are frequently
sold through traditional on-site auctions, where buyers bid in person. These
live auctions are enhanced through the selling efforts and ability of an
auctioneer, the forces of competitive bidding and the time certainty of the
auction event. However, because live auctions are practical only for large
sales that justify the expense associated with preparing for, marketing and
staging an event that will attract a sufficiently large and broad group of
buyers, sales at live auctions represent a small percentage of the total used
capital asset market.
Unaggregated capital assets are rarely of sufficient value to justify the
cost of a live auction and, consequently, are usually sold through direct
selling efforts such as contacting equipment dealers or advertising in trade
journals. The inefficiency of the market for these assets frequently results in
depreciation and slow asset turnover. Unaggregated capital assets represent the
majority of the inside-the-building, used capital assets not currently sold
through live auctions.
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The Role of Dealers in the Used Capital Asset Market
Dealers buy and sell capital assets for their own accounts and play a very
significant role in facilitating the market for used capital asset sales. Most
dealers focus on a particular vertical market and often have repair,
refurbishment, warranty, and storage capabilities. As a result of their
specialized focus, dealers are knowledgeable about their product lines,
maintain relationships with buyers and sellers of these products and act as
market makers.
Market Inefficiency
The current market for used capital assets lacks an efficient means through
which to obtain information about buyers and sellers of, and the supply and
demand for, used capital assets. In addition, the current market lacks an
efficient manner through which to consummate transactions between the
geographically dispersed buyers and sellers of used capital assets. Dealers
contribute to the inefficient flow of information in the used capital asset
market because they are generally small, specialized businesses with limited
geographic reach. As a result of these inefficiencies, there are significant
barriers to the purchase and sale of used capital assets. For example, in any
given private sale or on-site auction, it is likely that there are numerous
potential buyers who are either unaware of the sale or unwilling to spend the
time and money to travel to the sale. Most corporate sellers face similar
barriers because they often do not have either the time, experience or
knowledge necessary to manage the sale of their capital assets.
Market Opportunity
We believe that there is a significant opportunity to utilize the Internet
to bring together the disjointed efforts of the numerous participants currently
facilitating the sale of used capital assets. The Internet's ability to connect
people in disparate locations and to allow continuous widespread access to
information makes it well suited to address the inefficiencies of the existing
used capital asset market. However, a stand-alone Internet-based market where
buyers and sellers can interact online is an incomplete distribution channel.
Based on our extensive experience in used capital asset auctions, we believe
that buyers and sellers look to auctioneers to:
. provide a full range of auction services to buyers and sellers of both
aggregated and unaggregated assets on a global basis;
. deliver the extensive vertical market expertise that will attract
participants into the market;
. leverage relationships with dealers to draw them and their extensive
supply and demand of assets into the marketplace;
. offer the logistical services necessary to complete the transaction, such
as valuation, inspection, rigging, shipping and settlement; and
. have credibility as an effective and fair business auctioneer to attract
the large global buyers and sellers that can help to provide a
substantial flow of assets through the marketplace.
We believe that only by providing these "end-to-end" services and by
possessing substantial expertise in specific asset categories can an auctioneer
of used capital assets capitalize on the opportunity created by the Internet.
The DoveBid Approach
Building on over 63 years of capital asset auction experience, we combine
the experience of a leading auctioneer in the market for inside-the-building,
used capital assets with the efficiency, liquidity and global reach of
Internet-based commerce. We believe that our combination of experience,
reputation, and technology positions us to overcome the historical limitations
of the used capital asset market and become the leading online auctioneer for
these assets. We feature:
. Integrated Auction Services--We provide sellers with a complete range of
auction services for capital asset disposition, from sales of individual
pieces of equipment to sales of aggregated assets in an entire
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facility. Similarly, buyers can participate in a Webcast auction event as
well as our 24x7 online auctions.
. Global Participation--Our live Webcast auctions enable buyers from around
the world to compete against on-site buyers, eliminating the costs
associated with traveling to the auction site for buyers and increasing
liquidity and prices for sellers.
. Asset Valuation Services--We offer valuation services for a wide range of
inside-the-building, used capital assets.
. Value-Added Services--We provide or can assist our customers in securing
the value-added services needed to complete the auction transaction.
. Industry Credibility--We enhance the value of our auctions as a result of
our reputation and experience built over our 63 years in the used capital
asset market.
We believe our integrated auction services offer the following benefits to
our buyers and sellers:
Buyers--Buyers benefit from access to a broad, deep, and continuously
replenishing market for business assets provided by the global reach of
the Internet. We believe that buyers also benefit from the asset
pricing information derived from the open bidding in an active auction
process. Buyers also benefit from lower transaction costs by
participating in auctions without traveling to the auction site.
Sellers--Sellers realize better pricing due to the expanded number of
web-enabled buyers participating in our auctions. Additionally, sellers
benefit from the time certainty that our auctions provide by virtue of
the seller being able to establish the date of a Webcast auction event
or the period of time for which a 24x7 online auction will be
conducted. Further, our ability to provide, directly or through our
referral network, the value-added services needed to complete the
auction transaction enables sellers to liquidate their assets
efficiently.
The DoveBid Strategy
Our objective is to become the leading global auctioneer of inside-the-
building, used capital assets. Our strategy includes the following elements:
Create Liquidity in Target Vertical Markets
We will focus on vertical markets that can benefit from an Internet-based
market and where we can establish a competitive advantage by virtue of our
industry experience and market knowledge. We intend to utilize our experience
and our extensive databases of over 200,000 buyers and sellers to attract
customers and assets to our Webcast auctions and 24x7 online auctions. We have
developed expertise in the metalworking and machine tool, semiconductor
fabrication, computer, peripherals and data processing, disk drive and media
manufacturing, biotechnology, medical and pharmaceutical, textile and apparel
manufacturing and electronic test and measurement vertical markets. We intend
to continue acquiring and establishing relationships with auctioneers and
dealers in additional vertical markets. By leveraging our knowledge, experience
and relationships with auctioneers and dealers, we will increase the supply of
assets for sale, thereby attracting more buyers and, consequently, more
sellers.
Expand Globally
We believe that the Internet is the best vehicle to address efficiently and
economically the worldwide market for used capital assets. We plan to continue
building our global presence by devoting additional resources to penetrate
global markets by acquiring or partnering with overseas auctioneers and
appraisers, providing our auction services in multilingual formats and actively
marketing and promoting our services worldwide. We are focusing on Europe and
Asia because of the increased demand for used capital assets in these regions.
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Enter into Marketing and Supply Agreements to Increase Asset Supply and
Customer Traffic
We intend to continue to enter into agreements with leading Internet
companies, such as our marketing agreement with Yahoo!, to promote our services
and attract customers to our marketplace. We plan to continue to enter into
marketing agreements with online portals that specialize in our target vertical
markets. We also will continue to seek agreements, such as our asset supply
agreement with Comdisco, to establish a supply of assets for sale in our
auctions.
Expand Value-Added Services
Based on our years of experience in the auction industry, we believe that
value-added services are an integral element of our auctions. For example,
sellers require assistance in valuing the assets to be sold in an auction,
marketing those assets for sale and managing the administrative burdens that
arise in connection with the sale. Buyers, for their part, require logistical
assistance such as inspection, rigging and shipping services. We intend to
expand our range of value-added support services for both buyers and sellers
through internal development as well as through acquisitions of dealers and
service providers. We also plan to enter into referral and marketing agreements
with third parties that can enhance the services available to our customers.
Broaden Product Offerings
We plan to expand our range of product offerings for buyers and sellers who
participate in our auctions. Recently, we have begun to sell surplus business
inventories and we plan to expand this business in the future. In addition, we
have developed extensive databases of buyers, sellers and asset values. By
leveraging these databases, we plan to offer buyers and sellers pricing and
valuation information on a fee basis through our website. We also plan to offer
asset life cycle management services to our corporate customers.
Leverage and Invest in Technology
Maintaining our leadership in the deployment of Internet technology in
auction services is a key element of our strategy. We plan to continue
investing in technology to support our future growth. Future investments will
include enhancements to our Webcast technology and to our website, as well as
additional alliances with key technology providers to deliver a superior online
experience for buyers and sellers.
Products and Services
We address the needs of worldwide buyers and sellers of used capital assets
by providing an easy-to-use, comprehensive and integrated portfolio of auction
and value-added services.
Webcast Auctions
Our Webcast auctions are live auctions broadcast via the Internet, enabling
remote buyers to effectively compete with on-site buyers without having to
physically attend the auction. Our Webcast technology allows auction
participants to preview asset descriptions and photographs online and enter
bids in real time using the telephone to bid against on-site buyers. Our
technology eliminates the "latency" effect of live auctions broadcast over the
Internet. We conducted our first Webcast auction in January 2000, and through
October 31, 2000, we have completed over 60 Webcast auctions.
Webcast auctions are critical to establishing and maintaining relationships
with corporate sellers because they provide the unique benefits of a live
auction that many of our large corporate sellers demand: immediacy,
convenience, and competition among interested buyers. In addition, Webcast
auctions create an event that draws buyers to our marketplace and allows us to
direct them to our 24x7 online auctions and other services.
To participate in a Webcast auction, buyers can register over the Internet
and receive a registration confirmation via email. Registration information is
automatically passed on to our Customer Care systems
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where all customer information is consolidated into one database. This database
is then available for our marketing and management purposes.
In addition to providing the Webcast auction, we provide related services to
help ensure the success of the auction such as:
. valuation of assets;
. marketing and promotion of the auction;
. project management to reduce or eliminate the administrative or
logistical burdens on a seller;
. settlement and logistical support to ensure rapid transmittal of proceeds
and removal of assets; and
. complete financial reporting.
We charge the seller for the auction-related services listed above.
We offer our Webcast auctions through our website and through the DoveBid
Broadcast Network. Through the DoveBid Broadcast Network, Internet portals with
which we have entered into marketing agreements can syndicate our auctions and
broadcast them directly to their customers. DoveBid's alliance participants'
audiences benefit by gaining access to an active and liquid marketplace for
used capital assets. Since April 2000 we have entered into more than 20 such
marketing agreements as part of the DoveBid Broadcast Network including
agreements with emachinetool.com and semiconbay.com.
We share a portion of our auction commissions with the alliance portal
through which the buyer originated. The DoveBid Broadcast Network allows us to
extend our reach to a larger number of bidders, and provides our buyers and
sellers with increased purchasing and selling opportunities.
Although most of our live auctions are now Webcasts, we still occasionally
offer live on-site auctions that are not Webcasts, usually because the expected
gross proceeds are too small to justify the effort. The commission structure is
generally the same in either case.
24x7 Online Auctions
We offer our 24x7 online auctions in different formats to best address the
needs of an asset seller, including featured online auction events and
continuous online auctions.
Featured Online Auctions. Featured online auction events combine the asset
aggregation and focused marketing of our Webcasts with the efficiency of our
continuous online auctions. Featured online auctions are ideal for a seller for
whom an on-site auction may be impracticable because of an insufficient pool of
assets, or assets in multiple locations. For these sellers, we manage an end-
to-end process: taking digital photos, writing and posting asset descriptions,
marketing the auction to prospective bidders worldwide and providing settlement
and financial reporting services. The process culminates in an online auction
held during a predetermined time period using our standard continuous auction
infrastructure.
One popular form of featured online auction is a "vertical exchange," which
is a regularly scheduled auction in which we aggregate assets within a
particular vertical category from multiple sellers. Vertical exchanges have
become an effective tool for bringing buyers to our site on a regular basis. We
currently have four vertical exchanges--personal computers, semiconductor
equipment, electronic test and measurement equipment, and printed circuit board
equipment--and we expect that we will create new exchanges as our markets
develop.
Liquidations. A liquidation is an online auction event for a single
corporate client that generally involves a greater number of assets than the
typical featured online auction and lasts for a longer period of time. A
liquidation may be the preferred online auction format for a corporate seller
disposing of an entire line of equipment or a complete facility.
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Continuous Online Auctions. Our continuous online auctions enable customers
to buy and sell used capital assets 24 hours a day, 7 days a week, using the
Internet. These auctions are used by sellers seeking to dispose of an
individual asset or a small group of assets. Assets are listed for sale for a
period of time determined by the seller. In continuous online auctions the
buyer and seller consummate the transaction independently of DoveBid. We do not
take possession of either the item being sold or the buyer's payment for the
item. The buyer and seller must arrange for the shipment and payment for the
item.
Additionally, we regularly acquire assets that we will sell as a principal
through our 24x7 online auctions, subject to both the benefits and risks of
doing so. At September 30, 2000, the book value of assets we held in inventory
was approximately $14.2 million.
In order to buy assets through our 24x7 online auctions, a buyer must first
register on our website by completing a short online form. Once registered,
buyers can search within a vertical market, and then for a specific item.
Having identified an item, the buyer can "click through" to view a digital
photograph of the asset, obtain detailed product information, and bid online
for the item. Our 24x7 online auction technology offers features such as:
AutoBid, where the auction engine will automatically update a buyer's bid until
its threshold is reached; email notification when a buyer's bid has been
surpassed; My DoveBid, which provides the capability to create a custom web
page; and AssetAlert, which proactively notifies buyers when an asset they have
interest in becomes available. At the closing of an auction, if a bid meets or
exceeds a predetermined reserve price set by the seller, DoveBid automatically
notifies the seller and buyer via email.
Under the terms of our user agreement, if a seller receives one or more bids
at or in excess of the asset reserve price, the seller is obligated to
consummate a transaction. However, DoveBid cannot compel the seller or winning
bidder to consummate the transaction, although we may suspend them from
participating in our marketplace. In rare cases where the buyer and seller are
unable to consummate the transaction, DoveBid may waive the commission.
Invoices for transaction fees are sent regularly via email to sellers.
Valuation Services
We have over 60 appraisers with experience across multiple capital asset
categories. We intend to capitalize on the knowledge of our experienced
personnel, proprietary databases, extensive resource library and expert
contacts to provide valuation services to our auction clients and,
independently, to third parties.
We provide valuation services primarily to sellers, but also to buyers in
auctions. In addition, we provide valuation services independent of auctions,
including performing valuations of collateral. A valuation typically begins
with a thorough review of published source materials that may be available to
help to identify the parameters of a realistic value range. We maintain an
extensive library of buyer's guides, auction guides, new equipment price lists,
trade publications, technical journals, directories and specification manuals
that helps to keep us informed about new and used equipment. In addition, we
have maintained and continually update a database that tracks comparable sale
information of capital assets and inventory. Software programs have been
designed and implemented to allow for the instantaneous comparison of the
assets being evaluated to similar assets that have recently been sold thereby
enabling us to offer efficient valuation services.
When we provide valuation services independent of an auction, we are usually
paid a flat fee. In connection with auction business development and assisting
our corporate auction customers, we frequently provide valuation guidance
without charging a separate fee, for example assisting a seller in setting
reserve prices. On occasion we will charge a valuation fee in connection with
an auction, depending on the complexity of the valuation and the reporting
requirements of the engagement.
Other Value-Added Services
Most participants in the market for used capital assets require additional
services to complete the auction transaction. We have in-house capabilities to
provide a number of these services directly. In addition, we have
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an extensive referral network that provides our customers with access to
additional services. We believe the ability to offer, or refer our customers
to experienced providers of, value-added services is a key differentiating
factor.
Currently we provide the following services:
. repair and refurbishment
. calibration
. warehousing
. digital photography (in house and by referral to Document Services
International)
We have entered into strategic business relationships and have an extensive
referral network through which our customers have access to the following
services:
. logistics and freight
. rigging
. financing (through Lendx)
. escrow (through i-Escrow)
. asset management systems (through Datastream Systems)
. insurance
. inspection
In the future we may provide these services directly or through a third
party under the DoveBid brand.
Markets
Capital assets fall within specific vertical markets, some of which are
better suited for an online marketplace than others. We intend to participate
in vertical markets that have the following characteristics:
Technological Innovation--Vertical markets characterized by assets with
rapid technological innovation are attractive because these markets have a
continuous flow of assets from technologically advanced users to mainstream
users.
Long Useful Life--Assets with a long useful life are attractive because
they have a longer potential selling period in the market for used capital
assets. The functional longevity of such assets is likely to attract buyers
who otherwise would be limited to new asset purchases.
Ease of Asset Identification--Vertical markets comprised of assets that can
be clearly specified using a defined set of characteristics (e.g., model
number, serial number) are attractive because such assets are easier for
buyers to identify and verify.
Vertical Market Expertise--A vertical market that requires expertise to
facilitate a sale is attractive because we believe we can leverage our
experience to add value. Vertical market expertise requires a deep
understanding of customer needs, products, market dynamics, and unique
processes for conducting commerce within an industry. Our vertical market
expertise has been developed through direct experience serving customers over
long periods of time.
We have initially targeted the following used capital asset vertical
markets:
. Biotech / Medical / Pharmaceutical
. Computers / Peripherals and Data Processing
. Disk Drive / Media Manufacturing
. Electronic Commodities
. Electronic Test and Measurement
. Food and Chemical Processing
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. Metalworking and Machine Tools
. Office Furnishings and Equipment
. Packaging and Converting
. Plant Support / Material Handling / Facility Equipment
. Plastics and Rubber
. Post Production / Audio / Video / Broadcast
. Power Production
. Printed Circuit Board Fabrication / Insertion and Assembly
. Printing
. Semiconductor Fabrication
. Telecommunications
. Textile and Apparel Manufacturing
. Woodworking / Mills
Customers
We have conducted numerous on-site auctions for major corporations
throughout the course of our 63 year operating history. Our customers have
included:
<TABLE>
<S> <C>
. Boeing . NEC (formerly Packard Bell)
. DaimlerChrysler . Northrop Grumman
. IBM . Quantum
. KAO Day . Raytheon
. Lockheed Martin . Rockwell
. MEMC Electronic Materials . Thiokol
</TABLE>
Additionally, we have conducted Webcast auctions and/or featured online
auctions for Columbia Sportswear, DaimlerChrysler, Lockheed Martin, NEC,
Northrop Grumman, Oread, Philips Semiconductor, Raytheon and Teledyne, among
others.
Case Study-Raytheon
The following case study illustrates how we have helped our customer,
Raytheon, improve the effectiveness of its asset management program. Raytheon
is a large defense contractor whose business has been affected by the
significant reorganizations, acquisitions and changes in the defense industry.
Our relationship with Raytheon began in the 1980s when it became the first
major corporation to enter into a national contract with us. Since that time we
have conducted more than 40 public auctions on behalf of Raytheon. In 2000 we
have completed three Webcast auctions for Raytheon of assets with aggregate
sales of over $4.0 million.
Raytheon also conducted a featured online auction of assets during the first
nine months of 2000. Our ability to provide both full service Webcast auctions
for large quantities of assets encompassing multiple vertical markets as well
as lower cost featured online auctions for unaggregated assets has provided
Raytheon with an efficient and easy to manage approach to its capital asset
dispositions.
Strategic Investors
We have entered into agreements with firms who are also investors in our
company. These agreements are aimed at making assets available through our
Webcast and 24x7 online auctions, increasing the traffic to our website and
expanding the range of value-added services we can offer sellers, buyers and
dealers. Our strategic investors include the following:
Comdisco. We have an asset sale and co-marketing agreement with Comdisco, a
technology services, leasing and finance company, through which our customers
have access to a full range of Comdisco's asset
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management and leasing services for their capital assets. In addition, we have
specific rights to auction assets being sold by Comdisco that fall within two
of our vertical markets for an initial period of one year subject to our
satisfactory performance under the contract. We purchased $13 million of used
capital assets for sale at auction from Comdisco for a combination of shares of
our Series C preferred stock with an aggregate value of $10 million at $8.01
per share and $3 million in cash.
Yahoo!. We have entered into a marketing agreement with Yahoo! under which
Yahoo! will advertise and promote our services as a business-to-business
auctioneer. We will pay to Yahoo! $10 million in marketing and promotional fees
over a period of approximately twelve months and we will also purchase
additional advertising with Yahoo! based on the amount of our auction
commissions derived from customers originated through Yahoo!.
Sun Microsystems and Datastream Systems are also investors with whom we have
entered into agreements to help attract assets to our auctions. In addition,
our agreement with Datastream Systems is intended to attract customers to our
auctions.
Sales, Marketing and Customer Service
Sales
We sell our integrated auction services through a direct sales force and
vertical market managers. Our direct sales force markets our services to large
corporations to sell their used capital assets through our auctions. Our direct
sales force also targets large dealers, both as buyers for auctioned assets as
well as sellers of assets on our marketplace. As of October 31, 2000, we had 46
direct sales personnel.
Our vertical market managers focus on small and medium sized resellers and
corporations within targeted vertical markets. These managers market our
integrated auction services in their respective vertical markets and source
unaggregated assets. Our vertical market managers also focus on attracting
customers to our auctions. As of October 31, 2000, we had seven vertical market
managers and we intend to continue to add managers in our targeted vertical
markets.
Marketing Programs
Our marketing programs include traditional and Internet-based marketing
initiatives. General awareness programs feature activities in our market,
public relations initiatives, participation in a variety of industry
conferences, and trade shows. We also promote our services through advertising
on the Internet, business periodicals, local and national newspapers, and
vertical industry trade publications. Our direct marketing initiatives include
email, fax and mail which leverage our extensive customer databases.
Customer Service
We devote significant resources to providing personalized, timely customer
service and support. Customer support inquiries are handled via phone or email,
with customer email inquiries typically answered within 24 hours. The Help area
of our web site contains extensive information about buying and selling on
DoveBid, as well as information on and links to value-added services, including
logistics, escrow, inspection, appraisal, digital photography and financing.
Help buttons on every page of the site take customers to the specific customer
service topic they need. In addition, our Customer Care group provides
personalized assistance to help customers through the entire auction process,
including registration, listing of assets, bidding, navigation and usage of our
website, settlement and logistics. Part of our customer support includes an
asset loading service through which sellers can upload descriptions of assets
for auction from any location.
We use a customer relationship application for the management of all
customer service information and customer data. Our customer relationship
management and transaction processing systems include industry-standard
security features to protect the privacy and integrity of customer data.
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Technology and Operations
To establish a secure and reliable marketplace for buyers and sellers of
used capital assets, our underlying infrastructure was built on industry
standard software and hardware. This infrastructure enables us to continuously
enhance the features and functionality of our services to meet the evolving
needs of our users.
Functionality
Our systems are designed to replace the manual processes traditionally used
by buyers and sellers in the used capital asset market with automated processes
that integrate dynamic pricing with electronic commerce. We rely on technology
developed by third parties to implement our solution and to create the
functionality described below.
Webcast Auctions. Our Webcast capability is based upon Mshow.com's patent
pending technology that allows users with varying levels of bandwidth and
firewall configurations to share a rich media experience through real-time
delivery of interactive web presentations. It also integrates telephone audio
bridges, online polling and voting and displays media that can be viewed via a
web browser. Such media include PowerPoint slides, images, animations, pre-
recorded audio/video, streaming audio/video and 3D graphics.
The interactive Webcast application enables two primary types of auction
participants. An active (bidding) participant launches the application from his
computer and dials into a traditional telephone conference call bridge. The
user listens to the auction over the telephone while the application triggers
the automatic advancement of the auction lot images and descriptions on the
screen. The interactive auction server is operated in concert with the
telephone's touch-tone system and communicates the bid by the phone touch-tone
pad. In the passive (non-bidding) mode, the user can listen to the auction over
the Internet.
24x7 Online Auctions. Our online auction functionality is designed to meet
the needs of both buyers and sellers. At the core of our online auction system
is a database that maintains all buyer, seller, and transaction information.
Both buyers and sellers register through the same basic process, and provide us
with demographic information as well as industry interests.
Our Website enables sellers to list and monitor assets. Sellers have
password-based access to administrative screens which allow them to list
assets, individually or in bulk uploads, as well as track all open auctions and
revenue from those auctions. This seller-based accounting information is also
downloadable in a standard format and can be imported into a variety of
programs. Sellers are also provided with notification emails regarding the
status of their assets on the site. Sellers can choose from a range of auction
lengths, specify minimum bids, bid increments, reserve prices and choose the
auction ending type. Sellers are also able to enter asset descriptors such as
location, weight and manufacturer and provide a description. Sellers may also
upload an image of the asset to be sold, and specify payment methods.
Buyers have access to a number of features to locate assets, track auctions,
and receive notification when certain assets are posted to the DoveBid website.
Three forms of searching are offered: category based browsing of assets in our
19 vertical markets, basic text search, and advanced text search. The advanced
search capability allows the buyer to search only selected areas of the
website. Our My DoveBid feature allows users to create a customized page of
auctions so that they can easily track a number of auctions with assets of
interest. Any asset can be added to a user's AuctionWatch with a single click
while browsing the asset. The AssetAlert feature allows buyers to determine
when certain assets are added to the DoveBid website. By specifying keywords,
the user sets the AssetAlert feature to send a notification email when certain
assets are added. This notification email provides brief descriptions and
direct links back to such assets.
Buyers bid using the password established during registration on the DoveBid
website. A buyer may place a single bid, or use the DoveBid AutoBid feature.
This feature allows the buyer to specify the maximum price it is willing to
pay, and allows the DoveBid website to automatically manage the bidding
process. Bidders are automatically sent emails notifying them of successful
bids, or when another buyer has outbid them.
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DoveBid supports three auction closing formats: fixed time closing, auto-
extension and buyout. The fixed time closing auction format stops bidding at a
specific time which is tracked by the server. The auto-extension format
provides for automatic extension of the closing time of the auction if there is
bidding activity in the final minutes prior to close. The buyout format allows
the seller to set a desired price that when met will automatically close the
auction and award the sale to the winning bidder.
Infrastructure
We have designed our website and supporting infrastructure to be highly
robust and to support new products and increased traffic. Our servers are
hosted in a physically and network-secure environment at Intira Corporation.
The Intira data center features redundant power sources and redundant high-
speed network connections. This network connectivity offers us high performance
and immediate scalability as our website traffic increases. In addition, our
servers are monitored twenty-four hours a day by software "agents" which
immediately notify DoveBid operations staff of any anomalies. Since January 1,
2000, we have experienced few interruptions in service, which were primarily
caused by equipment failures, and none of which were viewed as a significant
problem.
Our applications support multiple layers of security, including password
protected log-ins, encryption technology to safeguard information transmitted
in web sessions and firewalls to help prevent unauthorized access to our
network and servers. We devote significant efforts to ensure that our system is
protected from intrusion, but individuals, using rapidly evolving techniques
and technologies may be successful in gaining unauthorized entry to our system
or disrupting service. If we experience an attack from an individual or group,
our services could be disrupted indefinitely, during which time we may not be
able to conduct auctions or other business.
Our software is based on applications developed by third parties and
modified to fit our needs. We have implemented software that will support
future generations of web-based technology, such as applications that utilize
extensible mark-up language, or XML, a language that facilitates the creation
of large, secure cross-platform applications and documents.
Competition
We believe that the principal competitive factors affecting our market
include the following:
. an integrated auction capability;
. vertical market expertise;
. a critical mass of buyers and sellers;
. relationships with capital asset dealers;
. an ability to implement an array of value-added services;
. customer service; and
. a user-friendly technology interface.
Although we believe that we compete favorably with respect to each of these
factors, the market for online auctions is relatively new and is evolving
rapidly. We may not be able to maintain our competitive position against
current or potential competitors, especially those with significantly greater
financial, marketing, service, support, technical and other resources.
A number of companies provide services or products to the capital asset
auction market, and existing and potential customers can, or will be able to,
choose from a variety of current and potential competitors' services.
Competition in this market is rapidly evolving and intense, and we expect
competition to intensify in the future.
We currently compete with a number of established companies engaged in
traditional on-site business-to-business auctions. We also compete with a
number of new online auction firms that are focusing on the same capital market
as we are. There are also providers of business-to-business online marketplaces
and online
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auction services that currently focus on other industries or specific vertical
markets that could expand the scope of their business to include used capital
assets. Other potential competitors include established business-to-business
marketplaces such as FreeMarkets or VerticalNet, established business-to-
consumer auction sites such as Egghead or uBid, and consumer-to-consumer
auction sites such as Amazon.com or eBay. Many of these providers have
significantly greater installed customer bases, greater financial resources and
have the opportunity to offer additional products to those customers as
additional components of their respective application suites.
Many of our current and potential competitors have larger customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we do and may enter into strategic or commercial
relationships with larger, more established companies. Some of our competitors
may be able to secure alliances with customers and affiliates on more favorable
terms, devote greater resources to marketing and promotional campaigns and
devote substantially more resources to systems development than we do. In
addition, new technologies and the expansion of existing technologies may
increase the competitive pressures on us. We cannot assure you that we will be
able to compete successfully against current or future competitors, and
competitive pressures faced by us could harm our business, operating results
and financial condition.
Intellectual Property
Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual proprietary rights, including our
database of buyers, sellers and transaction information and our internally
developed software. We rely primarily on a combination of contractual
provisions, confidentiality procedures, trade secrets, and copyright, patent
and trademark laws to accomplish these goals.
In addition, we seek to avoid disclosure of our trade secrets by requiring
employees, customers and others with access to our proprietary information to
execute confidentiality agreements. We also seek to protect our software,
documentation and other written materials under trade secret and copyright
laws.
Despite our efforts to protect our proprietary rights, existing laws afford
only limited protection. Attempts may be made to copy or use information that
we regard as proprietary. Accordingly, there can be no assurance that we will
be able to protect our proprietary rights against unauthorized third party
copying or use. Use by others of our proprietary rights could materially harm
our business.
It is also possible that third parties will claim that we have infringed
their current or future products. Any claims, regardless of merit, could be
time-consuming, result in costly litigation, cause delays or require us to
enter into royalty or licensing agreements, any of which could harm our
business. Patent litigation in particular has complex technical issues and
inherent uncertainties. In the event an infringement claim against us was
successful and we could not obtain a license on acceptable terms or license a
substitute technology or redesign to avoid infringement, our business would be
harmed.
Regulation
As with many Internet-based businesses, we operate in an environment of
uncertainty as to potential government regulation. We believe that we are not
currently subject to direct regulation applicable to online commerce, other
than regulations applicable to businesses generally. However, the Internet has
rapidly emerged as a commercial medium, and governmental agencies have not yet
been able to adapt existing regulations to its use. Future laws, regulations
and court decisions may affect the Internet or other online services, covering
issues such as user pricing, user privacy, freedom of expression, access
charges, taxation, content and quality of products and services, advertising,
intellectual property rights and information security. In addition, because our
services are offered worldwide, and we facilitate sales of goods to clients
worldwide, foreign jurisdictions may claim that we are required to comply with
their laws. Any future regulation may have a negative impact on our business.
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Because we are an Internet company, it is unclear in which jurisdictions we
are actually conducting business. Our failure to qualify to do business in a
jurisdiction that requires us to do so could subject us to fines and penalties
and could result in our inability to enforce agreements in that jurisdiction.
Numerous states have laws and regulations regarding the conduct of auctions
and the liability of auctioneers. We and the auctioneers we employ are bonded
and regulated under the laws of the State of California and maintain licenses
or bonds as required in other jurisdictions where we conduct a substantial
number of auctions.
Employees
As of October 31, 2000, we had 488 employees. We believe that we have good
relationships with our employees. We have never had a significant work
stoppage, and none of our employees is represented under a collective
bargaining agreement.
Facilities
Our headquarters, including our principal administrative and marketing
facilities, are located in approximately 20,000 square feet of space we have
leased in Foster City, California under a lease expiring May 31, 2004. This
facility is leased from Dove Holdings, Inc., an entity controlled by Ross and
Kirk Dove. See "Certain Transactions." In addition, we also lease approximately
165,000 square feet of office and warehouse facilities in other locations
throughout North America, Europe and Asia. We believe that our existing
facilities are adequate to meet our requirements for the foreseeable future.
Legal Proceedings
We are not currently subject to any legal proceedings that we expect will
have a material impact on us. We are subject to legal proceedings now, and
likely will be in the future, that arise in the course of our business, and we
cannot assure you that any such proceeding will not have a material adverse
effect on us.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth the name, age and position of each of our
executive officers and directors. Ages are as of July 31, 2000.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Ross Dove*.......................... 47 Chairman of the Board, Chief
Executive Officer
Jeffrey M. Crowe.................... 43 President, Chief Operating Officer
and Director
Kirk Dove*.......................... 45 President of Auction Services, Chief
Auctioneer and Director
Robert C. Levy...................... 42 President of International Auction
Services and Director
Cory M. Ravid....................... 35 Chief Financial Officer and Secretary
Francis M. Juliano.................. 33 Chief Technical Officer and Vice
President of E-Commerce
James Hume.......................... 46 Vice President of Operations
Timothy J. Reed..................... 30 Vice President of Business
Development
Lynn B. Corsiglia................... 42 Vice President of Human Resources
Daphne Li........................... 33 Vice President of Corporate Marketing
and Strategy
David S. Gronik..................... 43 President of DoveBid Valuation
Services
William Burnham..................... 29 Director(1)
A. Grant Heidrich, III.............. 47 Director(1)
David S. Pottruck................... 52 Director(2)
William Price....................... 44 Director(1)
Todd Rulon-Miller................... 49 Director(2)
W. Blake Winchell................... 46 Director(2)
</TABLE>
---------------------
* Ross Dove and Kirk Dove are brothers.
(1) Member of Audit Committee
(2) Member of Compensation Committee
Ross Dove has served as our chairman of the board and chief executive
officer since June 1999. Ross Dove served as the chairman of the board and
chief executive officer of our predecessors Ross-Dove Company and Dove
Brothers, LLC, from 1980 to 1999.
Jeffrey M. Crowe has served as our president and chief operating officer
since November 1999 and a director since December 1999. Prior to joining
DoveBid, Mr. Crowe was co-founder, president, chief executive officer and a
board member of Edify Corporation, an Internet and voice e-commerce company,
from May 1990 to November 1999.
Kirk Dove has served as our president of auction services and as chief
auctioneer and a director since June 1999. Kirk Dove served as president of our
predecessors Ross-Dove Company and Dove Brothers, LLC from 1984 to 1999.
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Robert C. Levy has served as our president of international auction services
since March 2000 and as a director since April 2000. Prior to joining DoveBid,
Mr. Levy was with Norman Levy Associates, Inc., an auctioneer and valuation
company, from 1980 to March 2000, serving most recently as president.
Cory M. Ravid has served as our chief financial officer and secretary since
October 1999. From January 1997 to October 1999, Mr. Ravid served as chief
financial officer and partner at The Parkside Group, a private equity buyout
firm. In addition, Mr. Ravid was chief financial officer of MacGregor Golf from
August 1998 to August 1999. Mr. Ravid was first the corporate controller and
then the chief financial officer and general counsel at DuPont Flooring Systems
from February 1994 to December 1996.
Francis M. Juliano has served as our chief technical officer and vice
president of e-commerce since December 1999. Prior to joining DoveBid, Mr.
Juliano was the director of technology and product development for Office Depot
Online, an office supply company, from March 1998 to December 1999. Previously,
Mr. Juliano was vice-president of technology and development of Cybernet
International, an international trading company, from March 1997 to March 1998.
In addition, Mr. Juliano was the director of technology for Scholastic New
Media, an educational publisher, from July 1995 to March 1997.
James Hume has served as our vice president of operations since January
2000. Prior to joining DoveBid, Mr. Hume was vice president of corporate
materials and supplier management with Sanmina Corporation, an electronic
contract manufacturing company, from May 1997 to January 2000. Prior to that,
Mr. Hume was senior manager of enterprise services at Sun Microsystems, an
enterprise networking company, from July 1995 to May 1997.
Timothy J. Reed has served as our vice president of business development
since March 2000. Prior to joining DoveBid, Mr. Reed was vice president of
marketing and business development at Engage Technologies, an online marketing
solutions company, from November 1998 to March 2000. Prior to that he was the
director of marketing and business development of Internet Profiles
Corporation, a wholly owned subsidiary of Engage Technologies, from June 1996
to November 1998.
Lynn B. Corsiglia has served as our vice president of human resources since
March 2000. Prior to joining DoveBid, Ms. Corsiglia was vice president of human
resources for Calico Commerce, Inc., a software manufacturer, from March 1998
to March 2000. She was the director of human resources for Netscape
Communications, Inc., a software technology company, from November 1995 to
March 1998. Prior to that she was a senior manager of human resources for
Sybase, Inc. from November 1992 to October 1995.
Daphne Li has served as our vice president of corporate marketing and
strategy since April 2000. Prior to joining DoveBid, Ms. Li was first a
consultant and then a manager at Bain & Company, a management consulting firm,
from September 1994 to March 2000.
David S. Gronik has served as our president of DoveBid Valuation Services
since March 2000. Prior to joining DoveBid, Mr. Gronik was the founder and
president of both AccuVal Associates, a valuation company, and LiquiTec
Industries, an auctioneer, from June 1988 to March 2000.
William Burnham has served as a director of DoveBid since February 2000. Mr.
Burnham has been the managing director of the general partner of Softbank
Venture Capital L.P., a venture capital investment company, since April 2000.
Prior to Softbank Venture Capital, Mr. Burnham was a general partner of
Softbank Capital Partners, a venture capital firm, from August 1999 to April
2000. Prior to Softbank Capital Partners, Mr. Burnham was a vice president and
senior research analyst for Credit Suisse First Boston's Technology Group, an
investment banking firm, from July 1998 to August 1999. Prior to that, Mr.
Burnham was a senior research analyst at the investment banking firms of
Deutsche Morgan Grenfell from May 1998 to July 1998 and Piper Jaffray Inc. from
April 1997 to May 1998. Prior to Piper Jaffray, Mr. Burnham was a senior
associate at the management consulting firm of Booz, Allen & Hamilton. Mr.
Burnham is also a director of Buy.com Inc.
A. Grant Heidrich, III has served as a director of DoveBid since October
1999. Mr. Heidrich has been a general partner at the Mayfield Fund, a venture
capital firm, since 1982. Mr. Heidrich is a director of Millenium
Pharmaceuticals, Inc. and Tularik Inc.
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David S. Pottruck has served as a director of DoveBid since December 1999.
Since June 1992 Mr. Pottruck has been the president, and since June 1997 the
co-chief executive officer, of The Charles Schwab Corporation, of which he is
also a director. Mr. Pottruck is also a director of McKesson HBOC, Inc., and
Intel Corporation.
William Price has served as a director of DoveBid since February 2000. Mr.
Price has been the managing director of Tarrant Partners, the parent of Texas
Pacific Group, since September 1992 and is a founding director of Texas Pacific
Group, a private equity investment fund. Mr. Price is also a director of Aerfi
Group plc, Beldin & Blake Corporation, Beringer Wine Estates Holdings, Inc.,
Continental Airlines, Inc., Del Monte Foods Company, Denbury Resources, Inc.,
and First World Communications.
Todd Rulon-Miller has served as a director of DoveBid since December 1999.
Mr. Rulon-Miller has been a partner of Apogee Venture Group, a venture capital
firm, since June 1998. Prior to that Mr. Rulon-Miller was a vice president of
sales at Netscape Communications, a software technology company, from October
1994 to October 1997. Mr. Rulon-Miller is also a director of Active Software,
Inc.
W. Blake Winchell has served as a director of DoveBid since June 1999. Mr.
Winchell has been a general partner of Fremont Ventures, a venture capital
firm, since December 1998. Prior to that Mr. Winchell was a managing director
with Generation Ventures, a venture capital firm, from 1996 to 1999, and a
managing director with the Channel Investment Group from 1991 to 1996. Mr.
Winchell is also a director of Bay View Capital Corporation.
We currently have ten directors. Ross and Kirk Dove and Messrs. Crowe, Levy,
Pottruck and Rulon-Miller were elected pursuant to a vote of the holders of our
common and preferred stock. Mr. Winchell is affiliated with one of our
principal stockholders, Fremont Ventures, and was appointed to our board under
the provisions of our certificate of incorporation and a stockholders agreement
between us and the investors in our Series A preferred stock. Mr. Heidrich is
affiliated with one of our principal stockholders, the Mayfield Fund, and was
appointed to our board under the provisions of our certificate of incorporation
and a stockholders agreement between us and the investors in our Series B
preferred stock. Messrs. Burnham and Price are affiliated with two of our
principal stockholders, SOFTBANK Corp. and TPG Advisors III, respectively, and
were appointed to our board under the provisions of our certificate of
incorporation and a stockholders agreement among us, Ross and Kirk Dove and
investors in our Series C preferred stock. Upon the closing of this offering,
these board representation rights will terminate and no stockholders will have
any contractual rights with respect to board representation.
Our amended certificate of incorporation and amended bylaws that will take
effect upon the closing of this offering provide that our board will consist of
at least three directors and will be divided into three classes, Class I, Class
II and Class III, that will serve staggered three-year terms. As a result, only
one class of directors will be elected at each annual meeting of our
stockholders, with the other classes continuing for the remainder of their
respective terms. This classification of our board could make it more difficult
for a third party to acquire, or could discourage a third party from acquiring
control of, our company.
Board Committees
Our board has three committees, the audit committee, the compensation
committee and the executive committee. The audit committee consists of Messrs.
Burnham, Heidrich and Price. The compensation committee consists of Messrs.
Pottruck, Rulon-Miller and Winchell. The executive committee consists of
Messrs. Ross and Kirk Dove, Burnham, Crowe, Heidrich, Rulon-Miller and
Winchell. The audit committee reviews our financial statements and accounting
practices, makes recommendations to the board regarding the selection of
independent auditors and reviews the results and scope of the audit and other
services provided by our independent auditors. The compensation committee makes
recommendations to the board concerning salaries and incentive compensation for
our officers and employees and administers our employee benefit plans. The
executive committee is empowered to take all action of the board except actions
required by law to be taken by the full board.
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Compensation Committee Interlocks and Insider Participation
Before December 17, 1999, our board of directors did not have a compensation
committee and all material compensation decisions were made by the full board
of directors. In December 1999 we formed a compensation committee consisting of
Messrs. Pottruck and Winchell. Mr. Rulon-Miller was appointed to the committee
in March 2000. No interlocking relationship exists between our board of
directors or compensation committee and the board of directors or compensation
committee of any other company, nor has an interlocking relationship existed in
the past.
Director Compensation
Our directors do not receive cash compensation for their services as
directors but are reimbursed for reasonable expenses in attending board and
board committee meetings. In December 1999, we granted to each of David S.
Pottruck and Todd Rulon-Miller options to purchase 66,666 shares of our common
stock at an exercise price of $2.31 per share. These options were granted under
our 1999 Stock Option Plan at an exercise price equal to the then fair market
value of our stock aggregating $154,000.
Members of the board who are not employees of DoveBid, or any parent,
subsidiary or affiliate of DoveBid, will be eligible to participate in the 2000
Equity Incentive Plan. The option grants under the plan are automatic and
nondiscretionary, and the exercise price of the options is the fair market
value of the common stock on the date of grant. Each non-employee director who
becomes a member of the board on or after the effective date of the
registration statement of which this prospectus forms a part, will be granted
an option to purchase 33,333 shares. Immediately following each annual meeting
of our stockholders, each eligible director will automatically be granted an
additional option to purchase 8,333 shares if the director has served
continuously as a member of the board since the date of the non-employee
director's last stock option grant. All options granted to non-employee
directors will vest over a four year period at a rate of 25% of the total
shares granted on the first one year anniversary of the date of grant, and
thereafter as to 6.25% of the total shares granted after each subsequent three
month period. All options granted to non-employee directors will be immediately
exercisable subject to a repurchase right by us for any unvested shares. In the
event of our dissolution or liquidation or a "change in control" transaction as
described in "Employment Contracts and Change of Control Arrangements," options
granted under the plan will become 100% vested and exercisable in full.
Executive Compensation
The following table sets forth all compensation paid or accrued during 1999
to our Chief Executive Officer and each of our other executive officers whose
salary and bonus for 1999 were more than $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
------------------ ---------------------
Restricted Securities
Name and Principal Stock Underlying
Positions Salary(1) Bonus Awards Options
------------------ --------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Ross Dove
Chairman of the Board
and Chief
Executive Officer..... $149,000 $400,000 -- --
Kirk Dove
President of Auction
Services, Chief
Auctioneer and
Director.............. $170,500 $400,000 -- --
</TABLE>
--------
(1) Both Ross and Kirk Dove commenced employment with us in June 1999. On an
annualized basis their salaries for the entire calendar year of 1999 would
have been $298,000 and $341,000, respectively.
See "Employment Contracts and Change of Control Arrangements" for
compensation information regarding other of our executive officers.
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<PAGE>
Option Grants and Restricted Stock Purchases in 1999
None of the persons listed in the Summary Compensation Table received grants
of stock options from us during 1999. See "Employment Contracts and Change of
Control Arrangements," for additional information regarding options granted to,
and shares of restricted stock sold to, others of our executive officers.
Employee Benefit Plans
1999 Stock Option Plan. As of September 30, 2000, options to purchase
2,229,460 shares of our common stock were outstanding under our 1999 Stock
Option Plan and 615,475 shares of our common stock remained available for
issuance upon the exercise of options that may be granted in the future. The
options outstanding as of September 30, 2000 had a weighted average exercise
price of $7.54 per share. Our 2000 Equity Incentive Plan will be effective upon
the effectiveness of this offering. As a result, no options will be granted
under our 1999 Stock Option Plan after this offering. However, any outstanding
options under our 1999 Stock Option Plan will remain outstanding and subject to
our 1999 Stock Option Plan until exercise or until they terminate or expire by
their terms. Options granted under our 1999 Stock Option Plan are subject to
terms substantially similar to those described below with respect to options to
be granted under our 2000 Equity Incentive Plan.
2000 Equity Incentive Plan. Our 2000 Equity Incentive Plan will become
effective on the date of this prospectus and will serve as the successor to our
1999 Stock Option Plan. We have reserved 3,333,333 shares of our common stock
to be issued under our 2000 Equity Incentive Plan. In addition, shares under
the 1999 Stock Option Plan not issued or subject to outstanding grants on the
date of this prospectus and any shares issued under this plan that are
forfeited or repurchased by us or that are issuable upon exercise of options
that expire or become unexercisable for any reason without having been
exercised in full will be available for grant and issuance under our 2000
Equity Incentive Plan.
On each January 1, the aggregate number of shares reserved for issuance
under our 2000 Equity Incentive Plan will increase automatically by a number of
shares equal to 5% of our outstanding shares on December 31 of the preceding
year. Our 2000 Equity Incentive Plan will terminate after 10 years from the
date our board of directors approved the plan, unless it is terminated earlier
by our board of directors. The plan will authorize the award of options,
restricted stock awards and stock bonuses.
Our 2000 Equity Incentive Plan will provide for the grant of both incentive
stock options that qualify under Section 422 of the Internal Revenue Code and
nonqualified stock options. Incentive stock options may be granted only to our
employees. All awards other than incentive stock options may be granted to our
employees, officers, directors, consultants, independent contractors and
advisors. The exercise price of incentive stock options must be at least equal
to the fair market value of our common stock on the date of grant. The exercise
price of incentive stock options granted to 10% stockholders must be at least
equal to 110% of that value. The exercise price of nonqualified stock options
must be at least equal to 85% of the fair market value of our common stock on
the date of grant.
Options may be exercisable only as they vest or may be immediately
exercisable with the shares issued subject to our right of repurchase. In
general, options will vest over a four-year period. The maximum term of options
granted under our 2000 Equity Incentive Plan is 10 years.
The purchase price for any restricted stock awarded under the 2000 Equity
Incentive Plan will be determined by our compensation committee. Stock bonuses
may be issued for past services or may be awarded upon the completion of
certain services or performance goals.
If we are dissolved or liquidated or have a "change in control" transaction,
the vesting of all outstanding awards may be assumed or substituted by the
successor company. However, if an optionee is terminated within one year from
the date of such "change in control" transaction, the vesting of such
optionee's outstanding awards will accelerate as to an additional 25% of the
shares that are unvested on the date of the "change in
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<PAGE>
control" transaction. In the discretion of the compensation committee the
vesting of these awards may be further accelerated upon one of these
transactions.
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan
will become effective on the date of this prospectus. We have initially
reserved 333,333 shares of our common stock under this plan. On each January 1,
the aggregate number of shares reserved for issuance under our 2000 Employee
Stock Purchase Plan will increase automatically by a number of shares equal to
1% of our outstanding shares on December 31 of the preceding year. Our board of
directors or compensation committee may reduce the amount of the increase in
any particular year. The aggregate number of shares reserved for issuance under
our 2000 Employee Stock Purchase Plan may not exceed 3,333,333 shares.
Our 2000 Employee Stock Purchase Plan will be administered by our
compensation committee. Our compensation committee will have the authority to
construe and interpret the plan, and its decisions will be final and binding.
Employees generally will be eligible to participate in our 2000 Employee Stock
Purchase Plan if they are employed before the beginning of the applicable
offering period and they are customarily employed by us for more than 20 hours
per week and more than five months in a calendar year and are not, and would
not become as a result of being granted an option under the plan, 5%
stockholders of us.
Under our 2000 Employee Stock Purchase Plan, eligible employees will be
permitted to acquire shares of our common stock through payroll deductions.
Eligible employees may select a rate of payroll deduction between 1% and 10% of
their compensation and are subject to maximum purchase limitations.
Except for the first offering period, each offering period under our 2000
Employee Stock Purchase Plan will be for two years and consist of four six-
month purchase periods. The first offering period is expected to begin on the
date of this prospectus. Offering periods and purchase periods will begin on
April 1 and October 1 of each year. However, because the first day on which
price quotations for our common stock will be available on the Nasdaq National
Market may not be April 1 or October 1, the length of the first offering period
may be more or less than two years, and the length of the first purchase period
may be more or less than six months.
The purchase price for our common stock purchased under the plan will be 85%
of the lesser of the fair market value of our common stock on the first day of
the applicable offering period or the last day of the applicable purchase
period. The compensation committee will have the power to change the offering
dates, purchase dates and duration of offering periods without stockholder
approval, if the change is announced prior to the beginning of the affected
date or offering period. Our 2000 Employee Stock Purchase Plan will provide
that, in the event of our proposed dissolution or liquidation, each offering
period that commenced prior to the closing of the proposed event will continue
for the duration of the offering period, provided that the compensation
committee may fix a different date for termination of the plan.
Our 2000 Employee Stock Purchase Plan is intended to qualify as an "employee
stock purchase plan" under Section 423 of the Internal Revenue Code. The plan
will terminate 10 years from the date the plan was adopted unless it is
terminated earlier under the terms of the plan. The board will have the
authority to amend, terminate or extend the term of the plan, except that no
action may adversely affect any outstanding commitment to purchase shares
previously made under the plan.
Except for the automatic annual increase of shares described above,
stockholder approval will be required to increase the number of shares that may
be issued or to change the terms of eligibility under our 2000 Employee Stock
Purchase Plan. The board will be able to make amendments to the plan as it
determines to be advisable if the financial accounting treatment for the plan
is different from the financial accounting treatment in effect on the date the
plan was adopted by the board.
401(k) Plan
We sponsor a defined contribution plan intended to qualify under Section 401
of the Internal Revenue Code, or a 401(k) plan. Employees who are at least 21
years old and who have been employed with us for at
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least 90 days are generally eligible to participate and may enter the plan on
the first day of the month following the date the employee meets the
eligibility requirements. Participants may make pre-tax contributions to the
plan of up to 15% of their eligible compensation, subject to a statutorily
prescribed annual limit. Each participant is fully vested in his or her
contributions and the investment earnings. We may make matching contributions
to the 401(k) plan in an amount not to exceed 100% of each participant's first
15% of compensation contributed as pre-tax contributions to the plan for the
plan year. Contributions by the participants to the plan, and the income earned
on these contributions, are generally not taxable to the participants until
withdrawn. Participant contributions are held in trust as required by law.
Individual participants may direct the trustee to invest their accounts in
authorized investment alternatives.
Employment Contracts and Change of Control Arrangements
From time to time we have entered employment agreements with our executive
officers, including the executive officers listed in the "Summary Compensation
Table."
Ross Dove. Ross Dove receives an annual salary of $350,000 and a minimum
annual bonus of $200,000. His employment with us is at will. In February 2000,
Ross Dove entered into a stock repurchase agreement with us and The Dove
Holdings Corporation. Under this agreement, in the event of any termination of
Mr. Dove's employment by us for "cause" or by Mr. Dove for other than "good
reason," DoveBid shall have the right to repurchase up to 1,410,001 shares of
our common stock held by Mr. Dove through The Dove Holdings Corporation at a
purchase price of $0.99 per share. The number of shares subject to repurchase
decreases by 3.57% per full calendar month over a period of 28 months which
commenced on February 25, 2000 and terminates on July 1, 2002. Termination for
"good reason" would involve changes in Mr. Dove's role with us without his
consent. The stock repurchase agreement terminates upon a "change of control"
or if Mr. Dove's employment is terminated without cause or for good reason. A
"change of control" includes:
. an acquisition of 50% or more of our outstanding stock by a person other
than a person related to DoveBid;
. a merger or consolidation of DoveBid after which our then-current
stockholders own less than a majority of the voting power of the
surviving corporation; or
. a sale of all or substantially all of our assets.
Kirk Dove. Kirk Dove receives an annual salary of $350,000 and a minimum
annual bonus of $200,000. His employment with us is at will. In February 2000,
Kirk Dove entered into a stock repurchase agreement with us and The Dove
Holdings Corporation. Under the terms of this agreement, in the event of any
termination of Mr. Dove's employment by us for cause or by Mr. Dove for other
than good reason, DoveBid has a right to repurchase up to 1,410,001 shares of
our common stock held by Mr. Dove through The Dove Holdings Corporation on the
same terms and conditions as in Ross Dove's stock repurchase agreement with us.
Jeffrey M. Crowe. In November 1999, Jeffrey Crowe accepted our offer of
employment. His employment letter provides that Mr. Crowe is entitled to
receive an annual salary of $300,000 with annual target bonuses of up to
$100,000. His employment with us is on an at-will basis. In connection with his
employment, Mr. Crowe purchased 1,600,000 shares of our common stock at a
purchase price of $0.99 per share with a promissory note with an annual
interest rate equal to 5.92% compounded monthly payable to DoveBid in November
2004. These shares are subject to a right of repurchase that lapses as to one-
fourth of these shares in November 29, 2000, with the repurchase right lapsing
ratably monthly over 36 months after that. In addition, pursuant to the terms
of his employment letter, in January 2000 Mr. Crowe purchased 166,666 shares of
our common stock from The Dove Holdings Corporation at a purchase price of
$4.50 per share.
We have the right to terminate Mr. Crowe's employment upon his disability or
for cause. Mr. Crowe has the right to terminate the arrangement for "good
reason," essentially consisting of changes in his role with us without his
consent. In the event of any termination of Mr. Crowe's employment by us
without cause or by Mr. Crowe for good reason, within one year of the date of
commencement of his employment with us, all of Mr. Crowe's shares purchased in
connection with his employment that would have otherwise vested through
54
<PAGE>
the first anniversary of such commencement date and for such additional period
as any cash severance is paid to Mr. Crowe after such first anniversary, vest
immediately. If such termination occurs on or after the first anniversary of
the commencement date of Mr. Crowe's employment with us, Mr. Crowe will be
entitled to receive six months of accelerated vesting of any unvested options.
If termination of Mr. Crowe's employment by us without "cause" or by Mr.
Crowe for "good reason" occurs within 60 days prior to or one year following a
"change of control" that occurs within one year of the date of commencement of
employment with us, Mr. Crowe will be entitled to receive a cash severance
payment equal to one year's base salary plus his annual bonus, and two years of
accelerated vesting of the shares purchased in connection with his employment.
If such termination occurs within 60 days prior to or one year following a
change of control that occurs after the first anniversary of such commencement
date, Mr. Crowe will be entitled to receive a cash severance payment equal to
one year's base salary plus his annual bonus and immediate vesting of all
shares purchased in connection with his employment with us. A "change of
control" includes:
. an acquisition of 50% or more of our outstanding stock by a person other
than a person related to DoveBid;
. a merger or consolidation of DoveBid after which our then-current
stockholders own less than a majority of the voting power of the
surviving corporation;
. a sale of all or substantially all of our assets; or
. the replacement of more than a majority of our incumbent directors.
Cory M. Ravid. In September 1999, Cory Ravid accepted our offer of
employment. His employment letter provides that Mr. Ravid is entitled to
receive an initial annual salary of $225,000 with annual bonuses of up to 40%
of his annual base salary. His employment with us is on an at-will basis. In
connection with his employment letter, Mr. Ravid purchased 233,333 shares of
our common stock at a purchase price of $0.99 per share with a promissory note
with an annual interest rate equal to 5.92% compounded monthly payable to
DoveBid in November 2004. These shares are subject to a right of repurchase
that lapses as to one-fourth of these shares on October 15, 2000, with the
repurchase right lapsing ratably monthly over a 36 month period after that. We
have similar right to terminate Mr. Ravid's employment and he has the right to
terminate his employment with us for "good reason" on terms similar to those of
Mr. Crowe's arrangement with us. Similar provisions have also been provided for
termination in connection with a change of control.
Francis M. Juliano. In November 1999, Francis Juliano accepted our offer of
employment. His employment letter provides that Mr. Juliano is entitled to
receive an annual salary of $200,000 with annual bonuses of up to 30% of his
annual base salary. In connection with his employment, Mr. Juliano purchased
200,000 shares of our common stock at a purchase price of $2.31 per share,
which he purchased with a promissory note with an annual interest rate equal to
6.04% compounded monthly payable to DoveBid in January 2004. These shares are
subject to a right of repurchase that lapses as to one-fourth of these shares
on January 14, 2001, with the repurchase right lapsing quarterly over a three
year period after that. In the event of any termination of Mr. Juliano's
employment by us without "cause," Mr. Juliano will receive a cash payment of
$100,000. In March 2000, Mr. Juliano was granted options to purchase an
additional 33,333 shares of our common stock at an exercise price of $7.50 per
share. These options vest 100% on November 19, 2004, Mr. Juliano's fifth
anniversary of employment with us.
Robert C. Levy. In March 2000, Robert Levy accepted our offer of employment.
His employment letter provides that Mr. Levy is entitled to receive an annual
salary of $225,000 with an annual bonus of $100,000. In connection with his
employment, Mr. Levy was issued options for 66,666 shares of our common stock
with an exercise price of $12.00 per share. One-fourth of these options vest on
March 24, 2001, and the remainder vest quarterly over the following three
years. In the event of any termination of Robert Levy's employment by us
without "cause," Mr. Levy will receive a cash payment of $112,000 and a pro
rata portion of his annual bonus.
55
<PAGE>
Indemnification of Directors and Executive Officers and Limitation of Liability
Our certificate of incorporation includes a provision that eliminates the
personal liability of a director for monetary damages resulting from breach of
his fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to DoveBid or its
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that:
. we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law, subject to very
limited exceptions;
. we may indemnify our other employees and agents to the extent that we
indemnify our officers and directors, unless otherwise required by law,
our certificate of incorporation, our bylaws or agreements;
. we are required to advance expenses, as incurred, to our directors and
executive officers in connection with a legal proceeding to the fullest
extent permitted by the Delaware General Corporation Law, subject to very
limited exceptions; and
. the rights conferred in the bylaws are not exclusive.
In addition to the indemnification required in our certificate of
incorporation and bylaws, before the completion of this offering, we intend to
enter into indemnity agreements with our current directors and officers. These
agreements provide for the indemnification of our officers and directors for
all expenses and liabilities incurred in connection with any action or
proceeding brought against them by reason of the fact that they are or were
agents of DoveBid. We have also obtained directors' and officers' insurance to
cover our directors, officers and some of our employees for certain
liabilities. We believe that these indemnification provisions and agreements
and this insurance are necessary to attract and retain qualified directors and
officers.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. They
may also reduce the likelihood of derivative litigation against directors and
officers, even though an action, if successful, might benefit us and other
stockholders. Furthermore, a stockholder's investment may be adversely affected
to the extent we pay the costs of settlement and damage awards against
directors and officers as required by these indemnification provisions. At
present, there is no pending litigation or proceeding involving any of our
directors, officers or employees regarding which indemnification by us is
sought, nor are we aware of any threatened litigation that may result in claims
for indemnification.
56
<PAGE>
CERTAIN TRANSACTIONS
Sales of Our Common Stock and Preferred Stock
Common Stock
In October 1997, The Dove Holdings Corporation, Ross Dove and Kirk Dove
(collectively the "Dove Group") entered into an agreement with Koll Management
Services, Inc. ("Koll") for the Dove Group's purchase of Koll's membership
interests in Dove Brothers, LLC, which was then known as Koll-Dove Global
Disposition Services (the "Koll Buyout Agreement"). Under the terms of the Koll
Buyout Agreement, the consideration consisted of $2,400,000 due in 36 monthly
installments of $25,000 each, followed by one payment of $1,100,000 due October
31, 2000, and one payment of $400,000 due in October 31, 2001. In addition to
the purchase price due from the Dove Group, Koll also received 25% of the pre-
tax income of Dove Brothers, LLC and its subsidiaries for the calendar years
1998, 1999 and 2000, and 25% of the net proceeds of certain capital events of
Dove Brothers, LLC occurring on or before September 30, 2000. These certain
capital events were a sale or issuance of any ownership, membership units or
other securities, or rights whether through a public offering or a private
transaction, a loan or refinancing used for any purpose other than working
capital in the ordinary course of business and a sale of assets out of the
ordinary course of business. The Dove Holdings Corporation and Ross Dove and
Kirk Dove secured their obligations to Koll through a security interest in
their membership interests in Dove Brothers, LLC. No proceeds became due under
the 25% pre-tax income or capital events provision.
In June 1999, Dove Brothers, LLC distributed its 66-2/3% interest in
National Loan Exchange, Inc. ("NLEX"), a subsidiary of Dove Brothers, LLC, to
the members of Dove Brothers, LLC, which at that time were The Dove Holdings
Corporation, Ross Dove and Kirk Dove. Thereafter, The Dove Holdings
Corporation, Ross Dove and Kirk Dove transferred to Koll a portion of their
membership interests in Dove Brothers, LLC and a portion of their shares of the
common stock of NLEX, in partial satisfaction of the remaining purchase price
obligation outstanding under the Koll Buyout Agreement described above. In
addition, Dove Brothers, LLC agreed to assume and pay to Koll the remaining
balance of the purchase price under the Koll Buyout Agreement, which was $1.0
million, after the forgiveness of $400,000, in one payment due in March 2000,
and The Dove Holdings Corporation, Ross Dove and Kirk Dove jointly and
severally guaranteed such payment by Dove Brothers, LLC. In exchange, Koll
released The Dove Holdings Corporation, Ross Dove and Kirk Dove from all
further obligations under the Koll Buyout Agreement.
On June 4, 1999, in connection with the formation of DoveBid, Inc., we
issued, in exchange for the contribution of all of the membership interests in
Dove Brothers, LLC, a total of 9,404,038 shares of our common stock to the
following persons:
<TABLE>
<CAPTION>
Shares of
Buyer Common Stock
----- ------------
<S> <C>
The Dove Holdings Corporation................................... 8,562,711
Ross Dove....................................................... 84,805
Kirk Dove....................................................... 84,805
Koll Management Services, Inc................................... 671,717
</TABLE>
The Dove Holdings Corporation holds 15.45 % of our stock and is beneficially
owned by Ross and Kirk Dove. Ross Dove is the chairman of our board of
directors and is our chief executive officer. Kirk Dove is one of our directors
and is our president of auction services and chief auctioneer.
In June 1999 we entered into a Stockholders' Agreement, which was amended on
October 1999 and in February 2000, with our largest stockholders. Among other
things the Stockholders' Agreement imposed limits on the ability of The Dove
Holdings Corporation, Ross Dove or Kirk Dove to transfer or encumber shares of
our common stock. This agreement expires upon completion of this offering. In
January 2000, The Dove Holdings Corporation sold 166,666 shares to Jeffrey
Crowe, 111,111 shares to Fremont Ventures, 222,222 shares to David Pottruck,
61,110 shares to Cory Ravid and 133,333 shares to Todd Rulon-Miller, each
57
<PAGE>
at a per share price of $4.50. In September 2000, we sold 133,333 and 33,333
shares of our common stock to David Pottruck and Todd Rulon-Miller,
respectively, each at a per share price of $7.50, which vest monthly over a
twelve month period.
Preferred Stock
Series A preferred stock financing. On June 14, 1999, we sold 4,030,303
shares of our Series A preferred stock for $0.99 per share. Each share of
Series A preferred stock currently is convertible into one share of common
stock. The following directors, executive officers and/or 5% stockholders
purchased our Series A preferred stock:
<TABLE>
<CAPTION>
Aggregate Value of
Shares Purchased Based
Shares Aggregate on Midpoint of Offering
Investor Purchased Purchase Price Range
-------- --------- -------------- -----------------------
<S> <C> <C> <C>
Fremont Ventures I,
L.P. ................... 4,030,303 $3,989,999 $36,272,727
</TABLE>
Fremont Ventures holds 16.59% of our stock. W. Blake Winchell, one of our
directors, is a partner of Fremont Ventures I, L.P.
In connection with its purchase of our Series A preferred stock on June 14,
1999, Fremont Ventures I, L.P. entered into a Put/Call Agreement with The Dove
Holdings Corporation whereby Fremont Ventures granted The Dove Holdings
Corporation the right, exercisable from February 15, 2000 to March 1, 2001, to
require Fremont Ventures to purchase up to 666,666 shares of our common stock
owned by The Dove Holdings Corporation at a purchase price of $2.31 per share.
In the same agreement The Dove Holdings Corporation granted Fremont Ventures
the right, exercisable at any time from February 15, 2000 to March 1, 2001, to
require The Dove Holdings Corporation the right to sell to Fremont Ventures up
to 666,666 shares of our common stock owned by The Dove Holdings Corporation at
a purchase price of $7.44 per share. The put/call rights granted under the
Put/Call Agreement will terminate upon the completion of this offering. In
February 2000 Fremont Ventures exercised its right to purchase the shares under
the Put/Call Agreement.
Series B preferred stock financing. On October 18, 1999, we sold 5,290,043
shares of our Series B preferred stock at a price of $2.31 per share. Each
share of Series B preferred stock currently is convertible into one share of
common stock. The following directors, executive officers and/or 5%
stockholders purchased our Series B preferred stock:
<TABLE>
<CAPTION>
Aggregate Value of
Shares Purchased Based
Shares Aggregate on Midpoint of Offering
Investor Purchased Purchase Price Range
-------- --------- -------------- -----------------------
<S> <C> <C> <C>
Fremont Ventures I,
L.P. .................... 1,731,601 $3,999,999 $17,384,409
Entities affiliated with
the Mayfield Fund........ 3,463,203 $7,999,999 $31,168,827
</TABLE>
Fremont Ventures holds 16.59% of our stock and the entities affiliated with
the Mayfield Fund hold 12.68% of our stock. A. Grant Heidrich, III, one of our
directors, is a partner of the Mayfield Fund.
Series C preferred stock financing. Between February 25, 2000 and March 8,
2000 and in August 2000, we sold shares of our Series C preferred stock at a
price of $8.01 per share. Each share of Series C preferred stock is convertible
into one share of common stock. The following directors, executive officers
and/or 5% stockholders purchased our Series C preferred stock:
<TABLE>
<CAPTION>
Aggregate Value of
Shares Purchased Based
Shares Aggregate on Midpoint of Offering
Investor Purchased Purchase Price Range
-------- --------- -------------- -----------------------
<S> <C> <C> <C>
Fremont Ventures I,
L.P. .................... 374,532 $ 3,000,000 $ 3,370,788
Entities affiliated with
the Mayfield Fund........ 1,498,128 $12,000,000 $13,483,152
Entities affiliated with
SOFTBANK ................ 4,993,758 $40,000,000 $44,943,822
Entities affiliated with
TPG Advisors III, Inc. .. 2,103,686 $16,850,524 $18,933,174
Entities affiliated with
T/3/ Advisors, Inc. ..... 933,888 $ 7,480,448 $ 8,404,992
</TABLE>
58
<PAGE>
Fremont Ventures holds 16.59% of our stock; the entities affiliated with
SOFTBANK Corp. hold 14.65% of our stock; the entities affiliated with the
Mayfield Fund hold 12.87% of our stock; the entities affiliated with TPG
Advisors III, Inc. hold 7.12% of our stock; and the entities affiliated with
T/3/ Advisors, Inc. hold 3.13% of our stock.
The aggregate price paid by investors who purchased our Series C preferred
stock between February 25, 2000 and March 8, 2000 and in August 2000 equals
$79,330,972 compared to $89,135,928, which is the aggregate value, based on an
assumed initial public offering price of $9.00 per share of the common stock
into which such shares of preferred stock will automatically convert upon the
completion of this offering.
Upon the closing of this offering, each outstanding share of preferred stock
will automatically be converted into shares of common stock.
Stockholder and Other Agreements. In connection with our preferred stock
sales we and our largest stockholders entered into Stockholder Agreements by
which Messrs. Winchell, Heidrich, Burnham and Price were appointed to our
board. We also granted registration rights to the preferred stock investors.
These rights are further described under "Description of Capital Stock--
Registration Rights."
The percentages of our shares held by the persons and entities listed above
is as of September 30, 2000 and is calculated on the same basis as under
"Principal Stockholders" below.
Loans to Executive Officers
Jeffrey M. Crowe. In November 1999, Jeffrey Crowe purchased 1,600,000 shares
of our common stock, with a $1,579,200 secured full recourse promissory note
with an annual interest rate equal to 5.92% compounded monthly. The note also
provides that we may accelerate payment of the amounts outstanding under the
loan in the event Mr. Crowe ceases to be an employee or consultant of ours.
Cory M. Ravid. In November 1999, Cory Ravid purchased 233,333 shares of our
common stock, with a $230,300 secured full recourse promissory note with an
annual interest rate equal to 5.92% compounded monthly. The note also provides
that we may accelerate payment of the amounts outstanding under the loan in the
event Mr. Ravid ceases to be an employee or consultant of ours.
Francis M. Juliano. In January 2000, Francis Juliano purchased 200,000
shares of our common stock, with a $461,400 secured full recourse promissory
note with an annual interest rate equal to 6.04% compounded monthly. The note
also provides that we may accelerate payment of the amounts outstanding under
the loan in the event Mr. Juliano ceases to be an employee or consultant of
ours.
James Hume. In January 2000, James Hume purchased 233,333 shares of our
common stock, with a $538,300 secured full recourse promissory note with an
annual interest rate equal to 6.04% compounded monthly. The note also provides
that we may also accelerate payment of the amounts outstanding under the loan
in the event Mr. Hume ceases to be an employee or consultant of ours.
Timothy J. Reed. In March 2000, Timothy Reed purchased 73,333 shares of our
common stock, with a $549,780 secured full recourse promissory note with an
annual interest rate equal to 6.60% compounded monthly. The note also provides
that we may accelerate payment of the amounts outstanding under the loan in the
event Mr. Reed ceases to be an employee or consultant of ours.
Lynn B. Corsiglia. In March 2000, Lynn Corsiglia purchased 73,333 shares of
our common stock, with a $549,780 secured full recourse promissory note with an
annual interest rate equal to 6.60% compounded monthly. The note also provides
that we may accelerate payment of the amounts outstanding under the loan in the
event Ms. Corsiglia ceases to be an employee or consultant of ours.
59
<PAGE>
Daphne Li. In July 2000, Daphne Li purchased 73,333 shares of our common
stock, with a $549,780 secured full recourse promissory note with an annual
interest rate equal to 6.42% compounded monthly. The note also provides that we
may accelerate payment of the amounts outstanding under the loan in the event
Ms. Li ceases to be an employee or consultant of ours.
Real Property Lease
We lease our headquarters office space at 1241 E. Hillsdale Boulevard in
Foster City, California from a corporation in which some of our directors and
officers have an interest. The lessor under the lease is Dove Holdings, Inc.,
the shareholders of which are Ross Dove and Kirk Dove. The lease commenced on
December 1, 1997 and expires on May 31, 2004. The annual rent under the lease
is $1.6 million and is adjusted based on increases in the Consumer Price Index
for the San Francisco-Oakland-San Jose metropolitan area. We believe that this
lease was negotiated on terms no less favorable than could be obtained from
unaffiliated third parties.
Other Transactions
For a description of our employment agreements with Ross and Kirk Dove, Mr.
Crowe, Mr. Ravid, Mr. Juliano and Mr. Levy, please see "Management-Employment
Contracts and Change of Control Arrangements."
Stock Option Grants to Certain Directors
In December 1999, we granted to each of David S. Pottruck and Todd Rulon-
Miller options to purchase 66,666 shares of our common stock at an exercise
price of $2.31 per share. These options were granted under our 1999 Stock
Option Plan.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of September 30, 2000 and as
adjusted to reflect the sale of the common stock in this offering by:
. each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
. each of our directors;
. each executive officer listed in the Summary Compensation Table; and
. all executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Unless otherwise indicated below, to our
knowledge, the persons and entities named in the table have sole voting and
sole investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. Shares of common stock subject to
options that are currently exercisable or exercisable within 60 days of
September 30, 2000 are deemed to be outstanding and to be beneficially owned by
the person holding the options for the purpose of computing the percentage
ownership of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
The number of shares of common stock outstanding after this offering
includes 5,200,000 shares of common stock being offered and does not include
the shares which are subject to the underwriters' over-allotment option. The
percentage of common stock outstanding before and after the offering is based
on 42,619,417 shares of common stock outstanding on September 30, 2000, giving
effect to the automatic conversion into common stock on completion of this
offering of all outstanding preferred stock and of convertible subordinated
promissory notes in an aggregate principal amount of $29.9 million issued in
connection with recent acquisitions (based on an average conversion rate of
$9.00 per share, except in one case at $31.50 per share). Unless otherwise
indicated, the address of each of the individuals and entities named below is
c/o DoveBid, Inc. 1241 E. Hillsdale Boulevard, Foster City, California 94404.
61
<PAGE>
<TABLE>
<CAPTION>
Percentage of Outstanding
Shares Beneficially Owned
Number of Shares ------------------------------
Name of Beneficial Owner Beneficially Owned Before Offering After Offering
------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
The Dove Holdings
Corporation(1)............. 6,584,934 15.45 13.77
Kirk Dove(2)................ 6,669,739 * *
Ross Dove(2)................ 6,669,739 * *
Fremont Ventures I,
L.P.(3).................... 7,072,532 16.59 14.79
50 Fremont Street
San Francisco, California
94105
Entities affiliated with the
Mayfield Fund(4)........... 5,485,800 12.87 11.47
2800 Sand Hill Road, Suite
250
Menlo Park, California
94025
Entities affiliated with
SOFTBANK Corp.(5).......... 6,242,197 14.65 13.05
24-1, Nihonbashi-
Hakozakicho
Chuo-ku, Tokyo 103-8501,
JAPAN
TPG Advisors III, Inc....... 3,034,092 7.12 6.34
201 Main Street, Suite 2420
Fort Worth, TX 76102(6)
Entities affiliated with
T/3/ Advisors, Inc......... 1,335,443 3.13 2.79
201 Main Street, Suite 2420
Fort Worth, TX 76102(7)
Jeffrey M. Crowe............ 1,727,000 4.05 3.61
William Burnham(5).......... 6,242,197 14.65 13.05
A. Grant Heidrich, III(4)... 5,485,800 12.87 11.47
Robert C. Levy.............. 137,453 * *
David S. Pottruck........... 422,222 * *
William Price(8)............ 4,369,535 10.25 9.14
Todd Rulon-Miller........... 100,000 * *
W. Blake Winchell(3)........ 7,072,532 16.59 14.79
All 17 directors and
executive officers as a
group(9)................... 33,251,379 78.02 68.54
</TABLE>
--------
* Less than 1%
(1) Ross Dove and Kirk Dove are the sole natural persons who exercise voting
and/or dispositive powers for the shares held by The Dove Holdings
Corporation.
(2) Includes 6,584,934 shares of common stock owned by The Dove Holdings
Corporation, which is owned equally by Ross Dove and Kirk Dove.
(3) Represents 7,072,532 shares held by Fremont Ventures I, L.P., which
includes 666,666 shares that Fremont Ventures I, L.P. purchased from The
Dove Holdings Corporation pursuant to the terms of the Second Amended and
Restated Put/Call Agreement, dated as of February 25, 2000 between Fremont
Ventures I, L.P. and The Dove Holdings Corporation. FV, L.P. is the general
partner of Fremont Ventures I, L.P. Fremont Resources, Inc. ("FRI") is the
general partner and Fremont Sequoia Holdings, L.P., an affiliate of FRI, W.
Blake Winchell, M. Hannah Sullivan and Paul A. White are the limited
partners of FV, L.P. The directors of Fremont Resources, Inc. are Alan M.
Dachs, Jon S. Higgins, Richard S. Kopf, S. D. Bechtel, Jr., H. J. Haynes,
C. W. Hull and Robert Jaunich II. All of the individuals listed above may
be deemed to have shared voting and dispositive power over the shares with
are, or may be deemed to be beneficially owned by Fremont Ventures, L.P.,
but disclaim such beneficial ownership.
(4) Represents 4,779,868 shares held by Mayfield X, L.P., 543,025 shares held
by Mayfield Principals' Fund, L.L.C., and 162,907 shares held by Mayfield
Associates Fund V, L.P. Mayfield X Management L.L.C. is the general partner
of Mayfield X, L.P. and Mayfield Associates Fund V, L.P. and the managing
member of Mayfield Principals' Fund L.L.C. The managing directors of
Mayfield X Management L.L.C. are
62
<PAGE>
A. Grant Heidrich, III, Michael Levinthal, William D. Unger, William G. Van
Auken, III, Kevin A. Fong, Yogen Dalal, Russell C. Hirsh, Warde S. Hutton,
George A. Palor, Todd A. Brooks, Robert T. Vasan and David J. Ladd. All of
the individuals listed above may be deemed to have shared voting and
dispositive power over the shares which are, or may be deemed to be
beneficially owned by Mayfield X, L.P., Mayfield Associates Fund V, L.P.
and Mayfield Principals' Fund, L.L.C., but disclaim such beneficial
ownership.
(5) Includes 6,152,934 shares held by SOFTBANK Capital Partners LP and 89,263
shares held by SOFTBANK Capital Advisors Fund LP. SOFTBANK Capital
Partners LLC is the sole general partner of both SOFTBANK Capital Partners
LP and SOFTBANK Capital Advisors Fund LP. As a result, securities
beneficially owned by SOFTBANK Capital Partners LP and SOFTBANK Capital
Advisors Fund LP may be deemed beneficially owned by SOFTBANK Capital
Partners LLC. All investment decisions on behalf of SOFTBANK Capital
Partners LLC must be approved by SOFTBANK Capital Partners Investment Inc.
and by any of Mr. Ronald D. Fisher, Mr. Charles R. Lax or Mr. William L.
Burnham, all of whom are members of SOFTBANK Capital Partners LLC. As a
result, securities beneficially owned by SOFTBANK Capital Partners LLC may
be deemed beneficially owned by SOFTBANK Capital Partners Investment Inc.,
Mr. Fisher, Mr. Lax and Mr. Burnham. SOFTBANK Capital Partners Investment
Inc. is a wholly-owned subsidiary of SOFTBANK Holdings Inc. Accordingly,
securities owned by SOFTBANK Capital Partners Investment Inc. may be
deemed beneficially owned by SOFTBANK Holdings Inc. SOFTBANK Holdings Inc.
is a wholly-owned subsidiary of SOFTBANK Corp. Mr. Masayoshi Son,
President and Chief Executive Officer of SOFTBANK Corp., owns an
approximately 38.27% interest in SOFTBANK Corp. Accordingly, securities
owned by SOFTBANK Holdings Inc. may be deemed beneficially owned by
SOFTBANK Corp. and Mr. Son. SOFTBANK Capital Partners LP, SOFTBANK Capital
Advisors Fund LP, SOFTBANK Capital Partners LLC, SOFTBANK Capital Partners
Investment Inc., Mr. Fisher, Mr. Lax, Mr. Burnham, SOFTBANK Holdings Inc.,
SOFTBANK Corp. and Mr. Son disclaim beneficial ownership of shares owned
directly by SOFTBANK Capital Partners LP and SOFTBANK Capital Advisors
Fund LP, respectively, except to the extent of their respective pecuniary
interests, if any, therein.
(6) TPG Advisors III, Inc. indirectly through TPG Genpar III, L.P. controls
each of TPG Partners III, L.P., TPG Parallel III, L.P., TPG Investors III,
L.P., FOF Partners III, L.P., FOF Partners III-B, L.P., and TPG Dutch
Parallel III, C.V. (collectively, the "TPG III Entities"), which directly
own the aggregate number of shares listed above. The directors and sole
shareholders of TPG Advisors III, Inc. are David Bonderman, James G.
Coulter and William S. Price, III, each of whom may be deemed to have
shared voting and dispositive power over such shares but disclaim such
beneficial ownership.
(7) T/3/ Advisors, Inc. indirectly through T/3/ Genpar, L.P. controls each of
T/3/ Partners, L.P., T/3/ Parallel, L.P., T/3/ Investors, L.P., and T/3/
Dutch Parallel, C.V. (collectively, the "T/3/ Entities"), which directly
own the aggregate number of shares listed above. The directors and sole
shareholders of T/3/ Advisors, Inc. are David Bonderman, James G. Coulter
and William S. Price, III. All of the individuals listed above may be
deemed to have shared voting and dispositive power over the shares which
may be deemed to be beneficially owned by T/3/ Advisors, Inc. or the T/3/
Entities, but disclaim beneficial ownership.
(8) Includes shares listed above as beneficially owned by TPG Advisors III,
Inc. and T/3/ Advisors, Inc., each of which may be deemed an affiliate of
Mr. Price. Mr. Price may be deemed to have shared voting and dispositive
power over these shares but disclaims beneficial ownership.
(9) Includes 4,790,834 outstanding shares that are subject to repurchase
rights that lapse over time.
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DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 150,000,000 shares of common stock, $0.001 par value per
share, and 89,000,000 shares of preferred stock, $0.001 par value per share. As
of September 30, 2000, giving effect to the automatic conversion of all
outstanding preferred stock into common stock upon the closing of this
offering, there were outstanding 40,025,396 shares of common stock held of
record by 132 stockholders. An additional 2,594,021 shares of common stock will
be issued on the closing of this offering to the holders of convertible
subordinated promissory notes that convert into common stock upon closing of
this offering.
Following the closing of this offering, we intend to amend and restate our
certificate of incorporation. Our amended and restated certificate of
incorporation, as we propose to file it, and bylaws, described below, are
included as exhibits to the registration statement of which this prospectus
forms a part.
Common Stock
Dividend Rights. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the times and in the amounts as the board of directors may from time to time
determine.
Voting Rights. Each holder of common stock is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election.
No preemptive or similar rights. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
Right to receive liquidation distributions. Upon a liquidation, dissolution
or winding-up of DoveBid, the assets legally available for distribution to
stockholders are distributable ratably among the holders of the common stock
and any preferred stock outstanding at that time after payment of liquidation
preferences, if any, on any outstanding preferred stock.
Preferred Stock
Upon the closing of this offering, each outstanding share of preferred stock
will be converted into shares of common stock.
Following the offering, we will be authorized, subject to limitations
prescribed by Delaware law, to issue preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series,
to fix the rights, preferences and privileges of the shares of each wholly
unissued series and any of its qualifications, limitations or restrictions,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences, and the number
of shares constituting any series or the designation of the series. The Board
of Directors can also increase or decrease the number of shares of any series,
but not below the number of shares of such series then outstanding, without any
further vote or action by the stockholders. The Board of Directors may
authorize the issuance of preferred stock with voting or conversion rights that
could adversely affect the voting power or other rights of the holders of the
common stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could,
among other things, have the effect of delaying, deferring or preventing a
change in control of DoveBid and may adversely affect the market price of the
common stock and the voting and other rights of the holders of common stock. We
have no current plan to issue any shares of preferred stock.
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Warrants
In connection with its purchase of shares of our Series C preferred stock,
we issued to Yahoo! a warrant exercisable to purchase a total of 468,333 shares
of our Series C preferred stock at an exercise price, subject to certain
adjustments, of $8.01 per share. Following the closing of this offering, the
warrants will automatically become exercisable for the same number of shares of
common stock at the same exercise price per share. Yahoo! may exercise such
warrant by means of either a cash payment in an amount equal to the exercise
price or a net issue exercise whereby Yahoo! would receive shares equal to the
value of the warrant, as calculated pursuant to the terms set forth therein.
The warrant expires upon the earlier to occur of March 8, 2004 or the
termination of our advertising and promotion agreement with Yahoo! upon the
occurrence of certain events.
Registration Rights
As a result of investors' rights agreements entered into in connection with
the sales of our preferred stock, the holders of approximately 26,403,597
shares of common stock will be entitled to rights with respect to the
registration of these shares under the Securities Act of 1933 (the "Securities
Act"), as described below.
Demand Registration Rights. At any time beginning six months after the
completion of this offering, the holders of at least 20% of the shares of
common stock issued upon conversion of our preferred stock can request that we
register all or a portion of our shares. We will only be required to file two
registration statements in response to these demand registration rights. We may
postpone the filing of a registration statement for up to 120 days once in a 12
month period if we determine that the filing would be seriously detrimental to
us or our stockholders.
Piggyback Registration Rights. If we register any securities for public
sale, the holders of the shares of common stock issued upon conversion of our
preferred stock will have the right to include their shares in the registration
statement. However, this right does not apply to a registration relating to any
of our employee benefit plans or a corporate reorganization. The managing
underwriter of any underwritten offering will have the right to limit the
number of shares registered by these holders to 30% of the total shares covered
by the registration statement due to marketing reasons.
Form S-3 Registration Rights. The holders of the shares of common stock
issued upon conversion of our preferred stock can request that we register
their shares if we are eligible to file a registration statement on Form S-3
and if the aggregate price of the shares offered to the public is at least $1.0
million. The holders may only require us to file two registration statements on
Form S-3 per calendar year.
We will pay all expenses incurred in connection with the registrations
described above, except for underwriters' and brokers' discounts and
commissions, which will be paid by the selling stockholders.
The registration rights described above will expire with respect to a
particular stockholder if at such date he, she or it can sell all of its shares
in a three-month period under Rule 144 of the Securities Act. In any event, the
registration rights described above will expire five years after this offering
is completed.
All holders of these registration rights have signed agreements with the
underwriters prohibiting the exercise of these registration rights for 180 days
following the date of this prospectus.
Anti-Takeover Provisions
The provisions of Delaware law, our certificate of incorporation and bylaws
may have the effect of delaying, deferring or discouraging another person from
acquiring control of our company.
Delaware Law
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents some
Delaware corporations from engaging, under some
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circumstances, in a "business combination," which includes a merger or sale of
more than 10% of the corporation's assets with any "interested stockholder,"
meaning a stockholder who owns 15% or more of the corporation's outstanding
voting stock, as well as affiliates and associates of the stockholder, for
three years following the date that the stockholder became an "interested
stockholder" unless:
. the transaction is approved by the Board of Directors prior to the date
the "interested stockholder" attained that status;
. upon consummation of the transaction that resulted in the stockholder's
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced; or
. on or subsequent to such date the "business combination" is approved by
the board and authorized at an annual or special meeting of stockholders
by at least two-thirds of the outstanding voting stock that is not owned
by the "interested stockholder."
A Delaware corporation may "opt out" of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares. We
have not "opted out" of this provision. The statute could prohibit or delay
mergers or other takeover or change-in-control attempts and, accordingly, may
discourage attempts to acquire us.
Charter and Bylaw Provisions
Our certificate of incorporation and bylaws provide that:
. following the completion of this offering, no action shall be taken by
stockholders except at an annual or special meeting of the stockholders
called in accordance with our bylaws and that stockholders may not act by
written consent;
. following the completion of this offering, the approval of two-thirds of
the stockholders shall be required to adopt, amend or repeal our bylaws;
. stockholders may not call special meetings of the stockholders or fill
vacancies on the Board of Directors;
. upon the completion of this offering, our Board of Directors will be
divided into three classes, each serving staggered three-year terms,
which means that only one class of directors will be elected at each
annual meeting of stockholders, with the other classes continuing for the
remainder of their respective terms; and
. we will indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from their
services to us, which may include services in connection with takeover
defense measures.
These provisions of our certificate of incorporation and bylaws may have the
effect of delaying, deferring or discouraging another person from acquiring
control of our company.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services LLC.
Listing
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the trading symbol "DOVE."
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock, including shares issued upon
exercise of outstanding warrants or options, in the public market after this
offering could adversely affect market prices prevailing from time to time and
could impair our ability to raise capital through sale of equity securities.
Furthermore, as described below, no shares currently outstanding will be
available for sale immediately after this offering due to certain contractual
restrictions on resale. Sales of substantial amounts of our common stock in the
public market after these restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
All of the shares of common stock being sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act,
except for shares held by our "affiliates," as defined in Rule 144 under the
Securities Act, which may generally only be sold in compliance with the
limitations of Rule 144, described below. The remaining 42,619,417 shares were
issued and sold by us in private transactions and are deemed restricted
securities under Rule 144. These shares may be sold in the public market only
if registered under the Securities Act or if exempt from registration under
Rules 144, 144(k) or 701 under the Securities Act, which rules are summarized
below. All of these remaining shares will be available for sale under Rules 144
and 701 upon the expiration of agreements between our stockholders and the
underwriters at varying dates beginning 180 days after the date of this
prospectus. As a result of the lock-up agreements described below and the
provisions of Rules 144, 144(k) and 701 and assuming the exercise of all
outstanding options and warrants, the following shares will be eligible for
sale in the public market at the following times:
<TABLE>
<CAPTION>
Number of
Shares Date
--------- ----
<C> <S>
5,200,000 After the date of this prospectus, freely tradeable shares sold in
this offering and shares saleable under Rule 144(k) that are not
subject to the 180-day lock-up.
30,176,971 After 180 days from the date of this prospectus, the 180-day lock-
up terminates and these shares are saleable under Rule 144 (subject
in some cases to volume limitations) or Rule 144(k) or Rule 701.
7,521,556 After one year from the date of this prospectus these shares are
saleable under Rule 144 and Rule 701.
3,789,102 After two years from the date of this prospectus these shares are
saleable under Rule 144 and Rule 701.
</TABLE>
The table above includes the 2,594,021 shares of common stock that will be
issued upon the automatic conversion of $29.9 million of convertible
subordinated notes issued in connection with acquisitions completed between
December 1999 and July 31, 2000, and additional shares issued in another
acquisition, will become eligible for resale between December 2000 and July 31,
2001 pursuant to Rule 144.
Lock-Up Agreements. All of our officers and directors and substantially all
of our stockholders have signed lock-up agreements under which they agreed not
to sell, transfer or dispose of, directly or indirectly, any shares of common
stock or any securities convertible into or exercisable or exchangeable for
shares of common stock without the prior consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus a person or persons whose shares are
aggregated, who has beneficially owned restricted shares of our common stock
for at least one year, including the holding period of any prior owner except
an affiliate of ours, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 478,194 shares immediately after this offering; or
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. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner-of-sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k). Under Rule 144(k), a person who has not been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate of ours, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchased his or her shares from us under a written compensatory stock
purchase plan or option plan or other written agreement may be eligible to sell
their shares beginning 90 days after the date of this prospectus, subject to
the manner of sale provisions of Rule 144. Affiliates who purchase or receive
shares from us in connection with a compensatory stock purchase plan or option
plan or other written agreement will be eligible to sell their shares beginning
90 days after the date of this prospectus under Rule 701 without compliance
with the Rule 144 holding period requirements. However, all shares issued under
Rule 701 are subject to lock-up agreements and will only become eligible for
sale when the 180-day lock-up agreements expire.
Registration Rights. On the date 180 days after the date of this prospectus,
the holders of 26,403,597 shares of common stock, or their transferees, will be
entitled to certain rights with respect to the registration of those shares
under the Securities Act. See "Description of Capital Stock--Registration
Rights." After these shares are registered, they will be freely tradable
without restriction under the Securities Act.
Stock Options. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering shares of common stock
reserved for issuance under our stock option and employee stock purchase plans.
As of September 30, 2000, options to purchase 2,289,301 shares of common stock
were issued and outstanding. Upon the expiration of the lock-up agreements
described above, at least 304,140 shares of common stock will be issuable
subject to vested options, based on the number of options outstanding as of
September 30, 2000. This registration statement is expected to be filed and
become effective as soon as practicable after the effective date of this
offering. Accordingly, shares registered under this registration statement
will, subject to vesting provisions and Rule 144 volume limitations applicable
to our affiliates, be available for sale in the open market immediately after
the 180-day lock up agreements expire.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Thomas Weisel Partners
LLC and U.S. Bancorp Piper Jaffray Inc. are acting as representatives, the
following respective number of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Thomas Weisel Partners LLC.........................................
U.S. Bancorp Piper Jaffray Inc. ...................................
----
Total............................................................
====
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or this
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share on
sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses that
we will pay. The compensation we will pay to the underwriters will consist
solely of the underwriting discount, which is equal to the public offering
price per share of common stock less the amount the underwriters pay to us per
share of common stock. The underwriting fee will be determined based on our
negotiations with the underwriters at the time the initial public offering
price of our common stock is determined. We do not expect the underwriting
discount per share of common stock to exceed 7% of the initial public offering
price per share of common stock.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by
us..................... $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount are
estimated at 1.5 million and include accounting, legal, printing and other fees
payable by us.
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
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We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
issuances pursuant to the exercise of employee stock options outstanding on the
date of this prospectus.
Our officers, directors, and substantially all stockholders have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction which would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any
of the economic consequences of ownership of our common stock, whether any such
aforementioned transaction is to be settled by delivery of our common stock or
such other securities, in cash or otherwise, or publicly disclose the intention
to make any such offer, sale, pledge or disposition, or to enter into any such
transaction, swap, hedge or other arrangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to 375,000 shares, of the common stock for employees, directors,
officers, customers, suppliers and consultants who have expressed an interest
in purchasing common stock in this offering. The number of shares available for
sale to the general public in this offering will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "DOVE."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors that will be considered
in determining the public offering price include:
. the information set forth in this prospectus and otherwise available to
the underwriters;
. the history and the prospects for the industry in which we will compete;
. the ability of our management;
. the prospects for our future earnings;
. the present state of our development and our current financial condition;
. the general condition of the securities markets at the time of this
offering; and
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
In connection with the offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934 (the "Exchange Act").
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
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. Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the over-
allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any short position by either
exercising their over-allotment option and/or purchasing shares in the
open market.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the over-
allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option--a naked short position--that
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the shares
in the open market after pricing that could adversely affect investors
who purchase in the offering.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of the
common stock or preventing or retarding a decline in the market price of the
common stock. As a result the price of the common stock may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has acted as a lead or co-manager on
numerous of public offerings of equity securities. Thomas Weisel Partners does
not have any material relationship with us or any of our officers, directors or
other controlling persons, except with respect to its contractual relationship
with us pursuant to the underwriting agreement entered into in connection with
this offering.
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NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action from
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under
the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
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LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus for
DoveBid. Davis Polk & Wardwell, Menlo Park, California, is representing the
underwriters. As of the date of this prospectus, F&W Investments 1999, an
investment partnership affiliated with Fenwick & West LLP, holds 62,422 shares
of our common stock.
EXPERTS
The consolidated financial statements of DoveBid, Inc., and subsidiaries at
December 31, 1998 and 1999, and for each of the three years in the period ended
December 31, 1999, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The combined financial statements of AccuVal Associates, Incorporated and
LiquiTec Industries, Incorporated at December 31, 1998 and 1999, and for the
years then ended, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The financial statements of Greenwich Industrial Services, LLC at December
31, 1998 and 1999, and for the years then ended, appearing in this prospectus
and registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm
as experts in accounting and auditing.
The financial statements of Haltek Electronics dba Test Lab at June 30 1999
and December 31, 1999, and for the year ended June 30, 1999 and for the six
months ended December 31, 1999, appearing in this prospectus and registration
statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The financial statements of Philip Pollack & Co., Inc. at February 28, 1998,
February 28, 1999 and December 31, 1999, and for each of the two years in the
period ended February 28, 1999 and for the ten months ended December 31, 1999,
appearing in this prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Norman Levy Associates, Inc. and
subsidiaries at March 24, 2000 and for the eleven months ended March 24, 2000,
appearing in this prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, which are based in part on the report of KPMG LLP
independent auditors incorporated by reference. The financial statements
referred to above, are included in reliance upon such report given on the
authority of such firms as experts in accounting and auditing.
The consolidated financial statements of Norman Levy Associates, Inc. and
subsidiaries at April 30, 1998 and 1999 and for the years then ended appearing
in this prospectus and registration statement have been audited by Grant
Thornton LLP, independent certified public accountants, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
73
<PAGE>
The financial statements of Champion Computer Products, Inc., as of December
31, 1999 and for the year then ended, appearing in this prospectus and
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
The financial statements of Fairfield Industries B.V. as of September 30,
1997, 1998 and 1999 and for each of the three years in the period ended
September 1999, appearing in this prospectus and registration statement have
been audited by KPMG Accountants N.V., independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
The combined financial statements of Victor Morris Team as of March 31, 2000
and March 31, 1999 and for each of the two years in the period ended March 31,
2000, appearing in this prospectus and registration statement have been audited
by Ernst & Young, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
The financial statements of One Web Place, Inc. as of September 30, 1999 and
for the year then ended, appearing in this prospectus and registration
statement have been audited by Grant Thornton LLP, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the
shares of common stock offered under this prospectus. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement, some items of which are
contained in exhibits to the registration statement as permitted by the rules
and regulations of the Commission. For further information with respect to
DoveBid, Inc. and the common stock we are offering, reference is made to the
registration statement, including the exhibits and the financial statements and
notes filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
referred to may be only summaries of these documents are not necessarily
complete. If a contract or document has been filed as an exhibit to the
registration statement, please see the copy of the contract or document that
has been filed. Each statement is this prospectus relating to a contract or
document filed as an exhibit is qualified in all respects by the filed exhibit.
The exhibits to the registration statement should be referenced for the
complete contents of these contracts and documents. A copy of the registration
statement, including the exhibits and the financial statements and notes filed
as a part of it, may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part of the registration
statement may be obtained from the Commission upon the payment of fees
prescribed by it. You may call the Commission at 1-800-SEC-0330 for more
information on the operation of the public reference facilities. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding companies that file
electronically with it.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act and, in accordance with
this law, will file periodic reports, proxy statements and other information
with the Commission. These periodic reports, proxy statements and other
information will be available for inspection and copying at the Commission's
public room and the web site of the SEC referred to above.
74
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
DoveBid, Inc. Unaudited Pro Forma Consolidated Financial Information
Overview................................................................ F-3
Unaudited Pro Forma Condensed Consolidated Statement of Operations Nine
Months Ended September 30, 2000........................................ F-6
Unaudited Pro Forma Condensed Consolidated Statement of Operations Year
Ended December 31, 1999................................................ F-7
Notes to Unaudited Pro Forma Consolidated Financial Information......... F-8
DoveBid, Inc. Unaudited Interim Financial Statements
Unaudited Consolidated Balance Sheets................................... F-10
Unaudited Consolidated Statements of Operations......................... F-11
Unaudited Consolidated Statements of Changes in Convertible Preferred
Stock and Changes in Stockholders' Equity (Deficit).................... F-12
Unaudited Consolidated Statements of Cash Flows......................... F-13
Notes to Unaudited Consolidated Financial Statements.................... F-14
DoveBid, Inc. Consolidated Financial Statements
Report of Independent Auditors.......................................... F-25
Consolidated Balance Sheets............................................. F-26
Consolidated Statements of Operations................................... F-27
Consolidated Statements of Changes in Convertible Preferred Stock and
Changes in Stockholders' Equity (Deficit).............................. F-28
Consolidated Statements of Cash Flows................................... F-29
Notes to Consolidated Financial Statements.............................. F-30
AccuVal Associates, Incorporated and LiquiTec Industries, Incorporated
Combined Financial Statements
Report of Independent Auditors.......................................... F-46
Combined Balance Sheets................................................. F-47
Combined Statements of Income and Retained Earnings..................... F-48
Combined Statements of Cash Flows....................................... F-49
Notes to Combined Financial Statements.................................. F-50
Greenwich Industrial Services, LLC Financial Statements
Report of Independent Auditors.......................................... F-53
Balance Sheets.......................................................... F-54
Statements of Operations and Members' Equity............................ F-55
Statements of Cash Flows................................................ F-56
Notes to Financial Statements........................................... F-57
Haltek Electronics dba Test Lab Financial Statements
Report of Independent Auditors.......................................... F-61
Balance Sheets.......................................................... F-62
Statements of Operations................................................ F-63
Statements of Shareholders' Equity...................................... F-64
Statements of Cash Flows................................................ F-65
Notes to Financial Statements........................................... F-66
Philip Pollack & Co. Inc. Financial Statements
Report of Independent Auditors.......................................... F-69
Balance Sheets.......................................................... F-70
Statements of Income and Retained Earnings.............................. F-71
Statements of Cash Flows................................................ F-72
Notes to Financial Statements........................................... F-73
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<S> <C>
Norman Levy Associates, Inc. Consolidated Financial Statements
Report of Independent Certified Public Accountants.................... F-76
Report of Independent Auditors........................................ F-77
Consolidated Balance Sheets........................................... F-78
Consolidated Statements of Operations and Retained Earnings........... F-79
Consolidated Statements of Cash Flows................................. F-80
Notes to Consolidated Financial Statements............................ F-81
Report of Independent Certified Public Accountants.................... F-86
Champion Computer Products, Inc. Financial Statements
Report of Independent Public Accountants.............................. F-87
Balance Sheet......................................................... F-88
Statement of Operations............................................... F-89
Statement of Shareholders' Equity..................................... F-90
Statement of Cash Flows............................................... F-91
Notes to Financial Statements......................................... F-92
Fairfield Industries B.V. Financial Statements
Report of KPMG Accountants N.V. Independent Auditors.................. F-97
Balance Sheet......................................................... F-98
Statement of Income and Retained Earnings............................. F-99
Statement of Cash Flows............................................... F-100
Notes to Financial Statements......................................... F-101
Victor Morris Team Combined Financial Statements
Independent Auditors' Report.......................................... F-104
Combined Balance Sheet................................................ F-105
Combined Statement of Operations...................................... F-106
Combined Statements of Cash Flows..................................... F-107
Notes to the Financial Statements..................................... F-108
One Web Place, Inc. Financial Statements
Report of Independent Certified Public Accountants.................... F-113
Balance Sheet......................................................... F-114
Statement of Operations............................................... F-115
Statements of Stockholders' Equity.................................... F-116
Statement of Cash Flows............................................... F-117
Notes to Financial Statements......................................... F-118
</TABLE>
F-2
<PAGE>
DOVEBID, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Overview
The following unaudited pro forma financial information has been prepared to
give effect to the business acquisitions described below. These transactions
were accounted for using the purchase method of accounting.
The unaudited pro forma consolidated statement of operations data for the
year ended December 31, 1999 and for the nine months ended September 30, 2000
give effect to the acquisitions of AccuVal, Greenwich, Test Lab, Pollack, Levy,
Fairfield, Champion, Morris and OWP as if these acquisitions had occurred on
January 1, 1999. The Company's statements of operations for the year ended
December 31, 1999 and the nine months ended September 30, 2000 are combined
with the results of operations of the acquired companies for the same reporting
periods (up to the date of acquisition, as the results subsequent to the
acquisition date are already included in the Company's operating results) for
all acquisitions except Pollack which reflects the ten month period ended
December 31, 1999. The acquisitions of B&B, Unidyne, Carl, Van Beusekom and
Masongreene have been excluded as they are insignificant for the purposes of
these presentations.
On December 30, 1999, the Company acquired the businesses of two San Jose,
California based printed circuit board equipment dealers, B&B Custom Circuit
Supplies, Inc. ("B&B") and Unidyne International, Inc. ("Unidyne"), for $3.25
million each. The consideration paid in each transaction consisted of $1.75
million in cash, $500,000 retained by us for a limited period as a holdback for
breaches of seller's representations and warranties and $1.0 million in
convertible subordinated promissory notes. In connection with each of these
acquisitions, the Company recorded $2.0 million of goodwill and other
intangible assets. These entities are excluded from the pro forma financial
information as they are insignificant for purposes of this presentation.
On February 29, 2000, the Company acquired all of the outstanding stock of a
Branford, Connecticut based auctioneer and appraiser of used capital assets,
Greenwich Industrial Services, LLC ("Greenwich"), for $6.25 million. The
consideration paid consisted of $3.25 million in cash, $2.0 million of
convertible subordinated promissory notes, and a $1.0 million cash earn-out.
The earn-out amount is treated as contingent consideration and will be recorded
as compensation expense when the contingency is resolved and the consideration
is paid or becomes payable. The earn-out has been excluded from the purchase
price for the purpose of the pro-forma adjustments. In connection with this
acquisition, the Company recorded $4.4 million of goodwill and other intangible
assets.
On March 3, 2000, the Company acquired all of the outstanding stock of two
affiliated Mequon, Wisconsin based companies, an appraiser, AccuVal Associates,
Inc. ("AccuVal"), and an auctioneer, Liquitec Industries, Incorporated
("LiquiTec"), for a total of $5.5 million. The consideration paid consisted of
$1.65 million in cash, $2.85 million in convertible subordinated promissory
notes and $1.0 million in subordinated promissory notes. In connection with the
acquisition, the Company recorded $5.4 million of goodwill and other intangible
assets.
On March 3, 2000, the Company acquired all of the outstanding stock of a
Chicago, Illinois based auctioneer and appraiser of used capital assets, Philip
Pollack & Company, Inc. ("Pollack"), for $4.5 million. The consideration paid
consisted of $1.3 million in cash, $442,000 retained by us for a limited period
as a holdback for breaches of seller's representations and warranties and $2.75
million in convertible subordinated promissory notes. In connection with the
acquisition, the Company recorded $4.5 million of goodwill and other intangible
assets.
On March 3, 2000, the Company acquired all of the outstanding stock of a
Mountain View, California based electronic test and measurement equipment
dealer, Haltek Electronics dba Test Lab Company ("Test Lab"), for $6.75 million
in cash and $250,000 retained by us for a limited period as a holdback for
breaches of seller's representations and warranties. In connection with the
acquisition, the Company recorded $4.8 million of goodwill and other intangible
assets.
F-3
<PAGE>
On March 24, 2000, the Company acquired all of the outstanding stock of a
Detroit, Michigan based auctioneer and appraiser of assets, Norman Levy
Associates, Inc. ("Levy"), for $27.8 million. The consideration paid consisted
of $17.55 million in cash, $250,000 retained by us for a limited period as a
holdback for breaches of seller's representations and warranties and $10.0
million in convertible subordinated promissory notes. In connection with the
acquisition, the Company recorded $29.6 million of goodwill and other
intangible assets.
On March 27, 2000, the Company acquired all of the outstanding stock of a
Mountain View, California based software development company, One Web Place,
Inc. ("OWP") for an aggregate of 277,777 shares of common stock that has been
issued in the transaction or subject to options the Company assumes in the
transaction. The aggregate purchase price was $3.0 million, based on a per
share value of $12.00 for the Company's common stock, and the Company recorded
$3.0 million of goodwill and other intangible assets.
On May 18, 2000, the Company acquired all of the outstanding stock of a U.K.
based dealer of used capital assets, Robert Carl Corporation ("Carl"), for
total consideration of $2.2 million in cash. In connection with the
acquisition, the Company recorded $700,000 of goodwill and other intangible
assets. This entity is excluded from the pro forma financial information as it
is insignificant for purposes of this presentation.
On June 15, 2000, the Company acquired all of the outstanding stock of a
Netherlands based auction company and equipment dealer, Fairfield Industries
B.V. ("Fairfield"), for $11.0 million. The consideration paid consisted of $6.0
million in cash, and a $5.0 million convertible subordinated promissory note.
In connection with the acquisition, the Company recorded $11.7 million of
goodwill and other intangible assets.
On July 3, 2000, the Company acquired all of the outstanding stock of an
Alpharetta, Georgia based dealer of used, surplus and refurbished computers and
computer-related equipment, Champion Computer Products, Inc. ("Champion"), for
$11.3 million. The consideration paid consisted of approximately $5.8 million
in cash, $500,000 retained by us for a limited period as a holdback for
breaches of seller's representations and warranties, $2.5 million in
convertible subordinated promissory notes, $2.0 million in subordinated
promissory notes and a $500,000 cash earn-out. The earn-out is treated as
contingent consideration and will be recorded as compensation expense when the
contingency is resolved and the consideration is paid or becomes payable. The
earn-out has been excluded from the purchase price for pro forma adjustment
purposes. In connection with the acquisition the Company recorded $10.6 million
of goodwill and other intangible assets.
On July 6, 2000, the Company acquired all of the outstanding stock of a
Singapore based auction company, Victor Morris Team Pte Ltd. ("Morris") along
with certain related entities based in Thailand, Malaysia and Hong Kong, for
$8.6 million. The consideration paid consisted of $4.3 million in cash,
$2.4 million retained by us for a limited period as a holdback for breaches of
seller's representations and warranties, $1.1 million in convertible
subordinated promissory notes and an $800,000 cash earn-out. The earn-out is
treated as contingent consideration and will be recorded as additional purchase
price when the contingency is resolved and the consideration is paid or becomes
payable. The earn-out has been excluded from the purchase price for pro forma
adjustment purposes. In connection with the acquisition, the Company recorded
$7.4 million of goodwill and other intangible assets.
On July 18, 2000, the Company acquired all of the outstanding stock of a
Netherlands based auction company, C.L. Van Beusekom B.V. ("Van Beusekom"), for
$3.9 million. The consideration paid consisted of $2.5 million in cash, $1.0
million in convertible subordinated promissory notes and approximately $400,000
in subordinated promissory notes. In connection with the acquisition, the
Company recorded $3.8 million of goodwill and other intangible assets. This
entity is excluded from the pro forma financial information as it is
insignificant for purposes of this presentation.
On July 28, 2000, the Company acquired substantially all of the assets and
assumed certain of the liabilities of an Australian auction company,
Masongreene Australasia Pty Ltd. ("Masongreene"), for $2.1 million. The
consideration paid consisted of $1.0 million in cash, $350,000 retained by us
for a limited
F-4
<PAGE>
period as a holdback for breaches of seller's representations and warranties
and a $750,000 convertible subordinated promissory note. In connection with the
acquisition, the Company recorded $2.6 million of goodwill and other intangible
assets. This entity is excluded from the pro forma financial information as it
is insignificant for purposes of this presentation.
Each of the transactions described above has been accounted for as a
purchase. The convertible subordinated promissory notes issued in these
transactions convert into Company common stock automatically upon consummation
of an initial public offering at a per share conversion rate equal to the mid-
point of the offering range set forth on the final registration statement,
except for the convertible subordinated promissory notes issued in connection
with the Levy transaction, which convert at $31.50 per share on the first day
of the calendar month following the date of an initial public offering.
The unaudited pro forma consolidated statement of operations is not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of the beginning of the period presented
and should not be construed as being representative of future operating
results.
The historical financial statements of the Company, AccuVal, Greenwich, Test
Lab, Pollack, Levy, Fairfield, Champion, Morris and OWP are included elsewhere
in this Prospectus and the unaudited pro forma financial information presented
herein should be read in conjunction with those financial statements and
related notes.
F-5
<PAGE>
DOVEBID, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2000
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Accu Test Pro Forma
DoveBid Val Greenwich Lab Pollack Levy Fairfield Champion Morris OWP Adjustments
--------- ---- --------- ------ ------- ------ --------- -------- ------ ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital asset
sales.............. $ 29,074 $ -- $214 $1,565 $ -- $ -- $5,177 $18,455 $ -- $ -- $ (867)(1)
Auction, appraisal
and other
revenues........... 25,933 409 159 -- 372 2,737 168 -- 1,365 4 (618)(1)
--------- ---- ---- ------ ----- ------ ------ ------- ------ ----- -------
Total revenues.... 55,007 409 373 1,565 372 2,737 5,345 18,455 1,365 4 (1,485)
<CAPTION>
Pro Forma
-------------
<S> <C>
Capital asset
sales.............. $ 53,618
Auction, appraisal
and other
revenues........... 30,529
-------------
Total revenues.... 84,147
Cost of capital
asset sales........ 22,602 -- 248 910 -- -- 3,786 14,498 -- -- (727)(1)
Cost of auction,
appraisal and other
revenues........... 12,123 49 52 -- 123 902 123 -- 583 -- --
--------- ---- ---- ------ ----- ------ ------ ------- ------ ----- -------
Total cost of
revenues.......... 34,725 49 300 910 123 902 3,909 14,498 583 -- (727)
--------- ---- ---- ------ ----- ------ ------ ------- ------ ----- -------
Gross Profit....... 20,282 360 73 655 249 1,835 1,436 3,957 782 4 (758)
Operating expenses:
Provision for
unusual inventory
markdown.......... 8,200 -- -- -- -- -- -- -- -- -- --
Sales and
marketing......... 24,417 -- -- 25 -- 777 514 4,140 167 -- --
General and
administrative.... 17,759 337 114 750 549 812 696 -- 440 -- --
Technology and
development....... 5,722 -- -- -- -- -- -- -- -- 312 --
Amortization of
goodwill.......... 4,629 -- -- -- -- -- -- -- -- -- 2,846 (2)
Depreciation and
other
amortization...... 4,213 1 3 2 30 57 168 62 11 -- --
Amortization of
deferred
compensation
related to
general and
administrative
expenses.......... 1,561 -- -- -- -- -- -- -- -- -- --
--------- ---- ---- ------ ----- ------ ------ ------- ------ ----- -------
Total operating
expenses........ 66,501 338 117 777 579 1,646 1,378 4,202 618 312 2,846
--------- ---- ---- ------ ----- ------ ------ ------- ------ ----- -------
Income (loss) from
operations......... (46,219) 22 (44) (122) (330) 189 58 (245) 164 (308) (3,604)
Offering costs..... (3,073) -- -- -- -- -- -- -- -- -- --
Interest and other
income, net........ 2,387 5 5 20 -- 59 1 -- 38 -- (40)(6)
Interest expense... (1,168) -- -- (20) (2) -- (76) (348) -- -- (659)(3)
--------- ---- ---- ------ ----- ------ ------ ------- ------ ----- -------
Income (loss)
before income
taxes.............. (48,073) 27 (39) (122) (332) 248 (17) (593) 202 (308) (4,303)
Income tax
provision
(credit)........... (22) -- -- -- -- 84 (182) -- 51 -- (84)(4)
--------- ---- ---- ------ ----- ------ ------ ------- ------ ----- -------
Net income (loss).. (48,051) 27 (39) (122) (332) 164 165 (593) 151 (308) (4,219)
Deemed dividend on
preferred stock.... (6,379) -- -- -- -- -- -- -- -- -- --
Accretion of
redemption price
differential on
redeemable
convertible
preferred stock.... (19,834) -- -- -- -- -- -- -- -- -- --
--------- ---- ---- ------ ----- ------ ------ ------- ------ ----- -------
Net income (loss)
attributable to
common
stockholders....... $ (74,264) $ 27 $(39) $ (122) $(332) $ 164 $ 165 $ (593) $ 151 $(308) $(4,219)
========= ==== ==== ====== ===== ====== ====== ======= ====== ===== =======
Basic and diluted
net loss per share
applicable to
common
stockholders....... $ (9.44)
=========
Weighted average
common shares used
in the calculation
of basic and
diluted net loss
per share
applicable to
common
stockholders....... 7,866,280
=========
Cost of capital
asset sales........ 41,317
Cost of auction,
appraisal and other
revenues........... 13,955
-------------
Total cost of
revenues.......... 55,272
-------------
Gross Profit....... 28,875
Operating expenses:
Provision for
unusual inventory
markdown.......... 8,200
Sales and
marketing......... 30,040
General and
administrative.... 21,457
Technology and
development....... 6,034
Amortization of
goodwill.......... 7,475
Depreciation and
other
amortization...... 4,547
Amortization of
deferred
compensation
related to
general and
administrative
expenses.......... 1,561
-------------
Total operating
expenses........ 79,314
-------------
Income (loss) from
operations......... (50,439)
Offering costs..... (3,073)
Interest and other
income, net........ 2,475
Interest expense... (2,273)
-------------
Income (loss)
before income
taxes.............. (53,310)
Income tax
provision
(credit)........... (153)
-------------
Net income (loss).. (53,157)
Deemed dividend on
preferred stock.... (6,379)
Accretion of
redemption price
differential on
redeemable
convertible
preferred stock.... (19,834)
-------------
Net income (loss)
attributable to
common
stockholders....... $ (79,370)
=============
Basic and diluted
net loss per share
applicable to
common
stockholders....... $ (10.09)(5)
=============
Weighted average
common shares used
in the calculation
of basic and
diluted net loss
per share
applicable to
common
stockholders....... 7,866,280 (5)
=============
</TABLE>
See notes to unaudited pro forma consolidated financial information.
F-6
<PAGE>
DOVEBID, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Accu Test Pro Forma
DoveBid Val Greenwich Lab Pollack Levy Fairfield Champion Morris OWP Adjustments
--------- ------ --------- ------ ------- ------ --------- -------- ------ ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital asset
sales.............. $ -- $ -- $6,863 $7,400 $ -- $ -- $5,314 $42,851 $ -- $ -- $ --
Auction, appraisal
and other
revenues........... 12,504 3,668 970 -- 1,729 10,705 373 -- 950 59 --
--------- ------ ------ ------ ------ ------ ------ ------- ----- ----- --------
Total revenues.... 12,504 3,668 7,833 7,400 1,729 10,705 5,687 42,851 950 59 --
--------- ------ ------ ------ ------ ------ ------ ------- ----- ----- --------
<CAPTION>
Pro Forma
----------
<S> <C>
Capital asset
sales.............. $ 62,428
Auction, appraisal
and other
revenues........... 30,958
----------
Total revenues.... 93,386
----------
Cost of capital
asset sales........ -- -- 5,596 4,827 -- -- 3,841 34,903 -- -- --
Cost of auction,
appraisal and other
revenues........... 5,788 590 280 -- 563 3,352 111 -- 528 4 --
--------- ------ ------ ------ ------ ------ ------ ------- ----- ----- --------
Total costs of
revenues.......... 5,788 590 5,876 4,827 563 3,352 3,952 34,903 528 4 --
--------- ------ ------ ------ ------ ------ ------ ------- ----- ----- --------
Gross profit....... 6,716 3,078 1,957 2,573 1,166 7,353 1,735 7,948 422 55 --
Operating expenses:
Sales and
marketing......... 2,271 -- -- 101 -- 2,737 814 6,686 198 -- --
General and
administrative.... 7,818 2,169 1,187 1,572 1,286 3,369 1,445 -- 283 -- --
Technology and
development....... 378 -- -- -- -- -- -- -- -- 443 --
Amortization of
goodwill.......... -- -- -- -- -- -- -- -- -- -- 9,149 (5)
Depreciation and
other
amortization...... 138 203 25 20 13 236 188 100 19 -- --
Amortization of
deferred
compensation
related to
general and
administrative
expenses.......... 51 -- -- -- -- -- -- -- -- -- --
--------- ------ ------ ------ ------ ------ ------ ------- ----- ----- --------
Total operating
expenses........ 10,656 2,372 1,212 1,693 1,299 6,342 2,447 6,786 500 443 9,149
--------- ------ ------ ------ ------ ------ ------ ------- ----- ----- --------
Income (loss) from
operations......... (3,940) 706 745 880 (133) 1,011 (712) 1,162 (78) (388) (9,149)
Interest and other
income, net........ 229 17 89 6 18 548 9 -- 24 1 (27)(9)
Interest expense... (61) -- (44) (89) (21) (239) (179) (943) -- -- (1,942)(6)
--------- ------ ------ ------ ------ ------ ------ ------- ----- ----- --------
Income (loss)
before income
taxes.............. (3,772) 723 790 797 (136) 1,320 (882) 219 (54) (387) (11,118)
Income tax
provison........... -- -- -- (318) 41 -- 187 -- (55) -- 277 (7)
--------- ------ ------ ------ ------ ------ ------ ------- ----- ----- --------
Net income (loss).. (3,772) 723 790 479 (95) 1,320 (695) 219 (109) (387) (10,841)
Deemed dividend on
preferred stock.... (369) -- -- -- -- -- -- -- -- -- --
Accretion of
redemption price
differential on
redeemable
convertible
preferred stock.... (886) -- -- -- -- -- -- -- -- -- --
--------- ------ ------ ------ ------ ------ ------ ------- ----- ----- --------
Net income (loss)
attributable to
common
stockholders....... $ (5,027) $ 723 $ 790 $ 479 $ (95) $1,320 $ (695) $ 219 $(109) $(387) $(10,841)
========= ====== ====== ====== ====== ====== ====== ======= ===== ===== ========
Basic and diluted
net loss per share
applicable to
common
shareholders....... $ (0.53)
=========
Weighted average
common shares used
in the calculation
of basic and
diluted net loss
per share
applicable to
common
shareholders....... 9,467,546
=========
Cost of capital
asset sales........ 49,167
Cost of auction,
appraisal and other
revenues........... 11,216
----------
Total costs of
revenues.......... 60,383
----------
Gross profit....... 33,003
Operating expenses:
Sales and
marketing......... 12,807
General and
administrative.... 19,129
Technology and
development....... 821
Amortization of
goodwill.......... 9,149
Depreciation and
other
amortization...... 942
Amortization of
deferred
compensation
related to
general and
administrative
expenses.......... 51
----------
Total operating
expenses........ 42,899
----------
Income (loss) from
operations......... (9,896)
Interest and other
income, net........ 914
Interest expense... (3,518)
----------
Income (loss)
before income
taxes.............. (12,500)
Income tax
provison........... 132
----------
Net income (loss).. (12,368)
Deemed dividend on
preferred stock.... (369)
Accretion of
redemption price
differential on
redeemable
convertible
preferred stock.... (886)
----------
Net income (loss)
attributable to
common
stockholders....... $ (13,623)
==========
Basic and diluted
net loss per share
applicable to
common
shareholders....... $ (1.43)
==========
Weighted average
common shares used
in the calculation
of basic and
diluted net loss
per share
applicable to
common
shareholders....... 9,467,546
==========
</TABLE>
See notes to unaudited pro forma consolidated financial information.
F-7
<PAGE>
DOVEBID, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
Pro forma adjustments giving effect to the acquisitions of AccuVal,
Greenwich, Test Lab, Pollack, Levy, Fairfield, Champion, Morris and OWP in the
unaudited pro forma statements of operations for the year ended December 31,
1999 and for the nine months ended September 30, 2000, reflect the following:
(1) Elimination of transactions between the Company and Champion during the
nine months ended September 30, 2000.
(2) Amortization of goodwill and other intangible assets:
<TABLE>
<CAPTION>
Year ended Nine Months ended
December 31, 1999 September 30, 2000
----------------- ------------------
<S> <C> <C>
AccuVal................................. $ 532,000 $ 133,000
Greenwich............................... 432,000 108,000
Test Lab................................ 472,000 118,000
Pollack................................. 448,000 112,000
Levy.................................... 2,060,000 515,000
Fairfield............................... 872,000 436,000
Champion................................ 788,000 394,000
Morris.................................. 578,000 289,000
OWP..................................... 2,967,000 741,000
---------- ----------
Total................................... $9,149,000 $2,846,000
========== ==========
</TABLE>
Goodwill is being amortized over twelve to fifteen years, except for OWP
goodwill which is being amortized over one year. Intangible assets other than
goodwill are being amortized over four years.
(3) Increase in interest expense related to interest payable on convertible
subordinated notes and promissory notes issued in connection with the
acquisitions, at annual rates from 5.74% to 9.5%, of the following principal
amounts:
<TABLE>
<CAPTION>
Year ended Nine Months ended
December 31, 1999 September 30, 2000
----------------- ------------------
<S> <C> <C>
AccuVal................................. $ 3,850,000 $ 3,850,000
Greenwich............................... 2,000,000 2,000,000
Pollack................................. 2,750,000 2,750,000
Levy.................................... 10,000,000 10,000,000
Fairfield............................... 5,000,000 5,000,000
Champion................................ 4,500,000 4,500,000
Morris.................................. 1,100,000 1,100,000
----------- -----------
Total................................... $29,200,000 $29,200,000
=========== ===========
</TABLE>
(4) Reduction in tax expense is a result of the net operating loss
carryforwards of the Company for the year ended December 31, 1999 and the nine
months ended September 30, 2000.
(5) The cash portion of the purchase price consideration relating to the
acquisitions of AccuVal, Greenwich, Test Lab, Pollack, Levy, Fairfield,
Champion and Morris is assumed to be derived from the sale of Series A, B and C
convertible preferred stock as of the beginning of the periods presented. As
the impact of the conversion of the preferred shares relating to these
offerings is antidilutive for the periods presented, such shares are not
included in the calculation of pro forma basic and diluted net loss per share
applicable to common stockholders.
F-8
<PAGE>
DOVEBID, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION--(Continued)
(6) The 50% interest in Levy/Latham L.L.C. was not acquired as part of the
Levy transaction. The income from this investee for the year ended December 31,
1999 and the nine months ended September 30, 2000 of $27,000 and $40,000
respectively, are eliminated.
(7) Assets and liabilities of foreign based acquisitions are translated into
U.S. dollars at the exchange rate in effect at year-end, except for equity
which has been translated at historic rates. The local currency is considered
to be the functional currency. Accordingly, translation gains and losses are
reported as cumulative translation adjustments to equity.
F-9
<PAGE>
DOVEBID, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
Pro forma
Liabilities and
Stockholders'
December 31, September 30, equity (deficit) at
1999 2000 September 30, 2000
------------ ------------- -------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents...... $ 6,969 $ 35,022
Cash in trust.................. 2,563 27,084
Accounts receivable, less
allowance of $43 in 1999 and
$1,100 in 2000................ 1,210 12,150
Inventory...................... 2,584 14,163
Prepaid expenses and other
assets........................ 294 7,602
------- --------
Total current assets........... 13,620 96,021
Property and equipment, net.... 829 6,018
Intangible assets including
goodwill, net................. 4,039 89,271
Other assets................... 544 1,147
------- --------
Total assets................... $19,032 $192,457
======= ========
Liabilities and stockholders'
equity (deficit)
Current liabilities:
Accounts payable and accrued
expenses...................... $ 2,529 $ 15,479 $ 14,917
Trust account liability........ 2,509 27,165 27,165
Current portion of notes
payable....................... 111 3,068 3,068
Current portion of retention
obligations................... -- 3,847 3,847
Note payable to shareholder.... 1,000 -- --
------- -------- --------
Total current liabilities...... 6,149 49,559 48,997
Long-term liabilities:
Retention obligations, net of
current portion............... 1,000 750 750
Notes payable, net of current
portion....................... 109 2,513 2,513
Convertible subordinated
notes......................... 2,000 29,927 --
------- -------- --------
Total long-term liabilities.... 3,109 33,190 3,263
------- -------- --------
Total liabilities.............. 9,258 82,749 52,260
Convertible preferred stock
subject to redemption:
Series A, $0.001 par value
(12,500,000 and 13,000,000
shares authorized, 4,030,303
and 4,160,156 issued and
outstanding, aggregate
liquidation preference of
$3,990,000 and $4,118,554 as
of December 31, 1999 and
September 30, 2000,
respectively)................. 4,921 15,339 --
Series B, $0.001 par value
(17,500,000 and 18,000,000
shares authorized, 5,515,151
and 5,605,811 issued and
outstanding, aggregate
liquidation preference of
$12,734,000 and $12,949,424 as
of December 31, 1999 and
September 30, 2000,
respectively)................. 12,797 23,571 --
Series C, $0.001 par value
(43,000,000 shares authorized,
16,637,630 issued and
outstanding, aggregate
liquidation preference of
$133,267,416 as of
September 30, 2000)........... -- 138,366 --
------- -------- --------
Total convertible preferred
stock subject to redemption... 17,718 177,276 --
Stockholders' equity (deficit):
Common stock, par value $0.001
(70,000,000 and 150,000,000
shares authorized, 11,292,568
and 13,621,799 issued and
outstanding as of December 31,
1999 and September 30, 2000,
respectively, 42,619,417 pro
forma shares outstanding at
September 30, 2000)........... 11 13 42
Additional paid-in capital..... 3,297 20,648 228,384
Deferred stock compensation.... (2,686) (1,569) (1,569)
Notes receivable from
stockholders.................. (1,856) (5,349) (5,349)
Translation adjustment......... -- (3) (3)
Accumulated deficit............ (6,710) (81,308) (81,308)
------- -------- --------
Total stockholders' equity
(deficit)..................... (7,944) (67,568) 140,197
------- -------- --------
Total liabilities and
stockholders' equity
(deficit)..................... $19,032 $192,457 $192,457
======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
DOVEBID, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------
1999 2000
---------- ----------
<S> <C> <C>
Capital asset sales................................... $ -- $ 29,074
Auction, appraisal and other revenues.. 9,627 25,933
---------- ----------
Total revenues...................................... 9,627 55,007
---------- ----------
Cost of capital asset sales........................... -- 22,602
Cost of auction, appraisal and other revenues......... 3,939 12,123
---------- ----------
Total cost of revenues.............................. 3,939 34,725
---------- ----------
Gross margin.......................................... 5,688 20,282
Operating expenses:
Provision for unusual inventory markdown............ -- 8,200
Sales and marketing................................. 651 24,417
General and administrative.......................... 3,180 17,759
Technology and development.......................... 36 5,722
Amortization of goodwill............................ -- 4,629
Depreciation and other amortization................. 88 4,213
Amortization of deferred stock compensation related
to general and administrative expense.............. -- 1,561
---------- ----------
Total operating expenses.......................... 3,955 66,501
---------- ----------
Income (loss) from operations......................... 1,733 (46,219)
Offering costs........................................ -- (3,073)
Interest and other income............................. 179 2,387
Interest expense...................................... -- (1,168)
---------- ----------
Income (loss) before income taxes..................... 1,912 (48,073)
Income tax provision (credit)......................... -- (22)
---------- ----------
Net income (loss)..................................... 1,912 (48,051)
Deemed dividend on preferred stock.................... (94) (6,379)
Accretion of redemption price differential on
redeemable convertible preferred stock............... -- (19,834)
---------- ----------
Net income (loss) attributable to common
stockholders......................................... $ 1,818 $ (74,264)
========== ==========
Basic net income (loss) per common share (Note 3)..... $ 0.19 $ (9.44)
Diluted net income (loss) per share (Note 3).......... $ 0.18 $ (9.44)
---------- ----------
Weighted average common shares (pro forma for 1999)
used in basic net income (loss) per common share
calculation (Note 3)................................. 9,473,689 7,866,280
========== ==========
Weighted average common shares (pro forma for 1999)
used in diluted net income (loss) per common share
calculation (Note 3)................................. 10,011,063 7,866,280
========== ==========
Pro forma basic and diluted net loss per share (Note
3)................................................... $ (2.81)
==========
Weighted average common shares used in computing pro
forma basic and diluted net loss per share (Note 3).. 26,415,777
==========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
DOVEBID, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE
PREFERRED STOCK AND CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(amounts in thousands)
<TABLE>
<CAPTION>
Convertible Stockholders' Equity (deficit)
Preferred Stock ----------------------------------------------------------------------------------------------
Subject to Notes Total
Redemption Common Stock Additional Receivable Cumulative Stockholders'
--------------- -------------- Paid-in Deferred Stock from Translation Accumulated equity
Shares Amount Shares Amount Capital Compensation Stockholders Adjustment Deficit (Deficit)
------ -------- ------ ------ ---------- -------------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1999........... 9,545 $ 17,718 11,293 $ 11 $ 3,297 $(2,686) $ (1,856) $ -- $ (6,710) $ (7,944)
Issuances of
convertible
preferred stock
Series C, net
of issuance
costs.......... 16,638 133,011 -- -- -- -- -- -- -- --
Issuances of
common stock
upon exercise
of stock
options........ -- -- 1,509 2 6,056 -- (2,710) -- -- 3,348
Issuances of
common stock... -- -- 792 -- 3,702 -- (1,000) -- -- 2,702
Issuance of
common stock as
part
of acquisition.. -- -- 218 -- 2,994 -- -- -- -- 2,994
Stock dividend
on Series A and
Series B
preferred
stock.......... 221 334 -- -- -- -- -- -- (334) (334)
Deemed dividend
on preferred
stock.......... -- 6,379 -- -- -- -- -- -- (6,379) (6,379)
Accretion of
redemption
price
differential on
redeemable
convertible
preferred
stock.......... -- 19,834 -- -- -- -- -- -- (19,834) (19,834)
Issuance of
warrants....... -- -- -- -- 4,341 -- -- -- -- 4,341
Deferred stock
compensation... -- -- -- -- 444 (444) -- -- -- --
Repayment of
notes
receivable..... -- -- -- -- -- -- 105 -- -- 105
Repurchase of
unvested
shares......... -- -- (190) -- (186) -- 112 -- -- (74)
Translation
adjustment..... -- -- -- -- -- -- -- (3) -- (3)
Amortization of
deferred stock
compensation... -- -- -- -- -- 1,561 -- -- -- 1,561
Net loss for the
nine months
ended September
30, 2000....... -- -- -- -- -- -- -- -- (48,051) (48,051)
------ -------- ------ ----- ------- ------- -------- ------ -------- --------
Balances at
September 30,
2000........... 26,404 $177,276 13,622 $ 13 $20,648 $(1,569) $ (5,349) $ (3) $(81,308) $(67,568)
====== ======== ====== ===== ======= ======= ======== ====== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
DOVEBID, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Nine months
ended September 30,
---------------------
1999 2000
--------- ----------
<S> <C> <C>
Operating activities
Net income (loss)........................................ $ 1,912 $ (48,051)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization expense.................. 88 4,213
Amortization of deferred stock compensation............ -- 1,561
Amortization of goodwill............................... -- 4,629
Provision for bad debts................................ -- 304
Changes in operating assets and liabilities:
Cash in trust........................................ 1,789 (21,212)
Accounts receivable.................................. (573) (3,889)
Inventory............................................ -- 6,627
Prepaid expenses and other assets.................... 121 (5,332)
Trust account liability.............................. (1,816) 20,944
Accounts payable and accrued expenses................ (989) 784
--------- ----------
Net cash provided by (used in) operating
activities........................................ 532 (39,422)
--------- ----------
Investing activities
Purchases of property and equipment...................... (28) (4,246)
Issuance of note receivable.............................. -- (5,875)
Proceeds of note receivable.............................. -- 5,800
Acquisition of businesses, net of obligations payable and
cash acquired........................................... -- (46,977)
--------- ----------
Net cash used in investing activities.................... (28) (51,298)
--------- ----------
Financing activities
Cash distribution to members............................. (550) --
Payments on notes payable and retention obligation....... (103) (10,390)
Net proceeds from issuance of preferred stock............ 3,931 123,011
Proceeds from note receivable from shareholders.......... -- 105
Issuance of common stock................................. -- 6,050
--------- ----------
Net cash provided by financing activities................ 3,278 118,776
--------- ----------
Effect of foreign currency exchange rate on cash......... -- (3)
--------- ----------
Net increase in cash..................................... 3,782 28,053
Cash and cash equivalents at beginning of period......... 229 6,969
--------- ----------
Cash and cash equivalents at end of period............... $ 4,011 $ 35,022
========= ==========
Supplemental disclosure of cash flow information
Cash paid for interest................................... $ 33 $ 8
Supplemental disclosure of non-cash transactions
Issuance of retention payable, convertible subordinated
notes and promissory notes for acquisition of
businesses.............................................. $ -- $ 34,557
Issuance of common stock for acquisition of a business... -- 2,994
Issuance of Series C preferred stock as consideration for
inventory............................................... -- 10,000
Net issuances of common stock for notes receivable....... -- 3,710
Issuance of preferred stock warrants..................... -- 4,341
Deemed dividend on preferred stock....................... -- (6,379)
Accretion on preferred stock............................. -- (19,834)
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
DOVEBID, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
1. Basis of Presentation
The Company's financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions for Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and note disclosures required by generally
accepted accounting principles for complete financial statements. These
statements are unaudited and, in the opinion of management, all adjustments
(which include only normal recurring adjustments, except for the mark down of
inventory of $8.2 million), considered necessary for a fair presentation, have
been included. The balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date. These financial statements should be
read in conjunction with the audited financial statements for 1999 and the
notes thereto appearing elsewhere in this prospectus under the Index to
Financial Statements. The results of operations for these interim periods are
not necessarily indicative of the operating results for a full year.
2. Significant Accounting Policies
Restatements for Reverse Stock Split
In October and December 2000, the Company's Board of Directors authorized a
three for one reverse stock split of the Company's common and preferred stock
respectively. The related common stock and per share data in the accompanying
financial statements has been retroactively restated to reflect the reverse
stock split.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries are translated
into United States dollars at the exchange rate in effect at year-end, except
for equity which has been translated at historic rates. The local currency is
considered to be the functional currency. Accordingly, translation gains and
losses are reported as cumulative translation adjustments to equity.
Initial Public Offering ("IPO") Costs
In the nine months ended September 30, 2000, the Company has been in the
process of filing a registration statement with the Securities and Exchange
Commission with respect to an offering of its common stock. The Company does
not expect to consummate an IPO until 2001. The costs associated with preparing
for the IPO which consist primarily of audit, consulting and legal fees, have
been expensed as of September 30, 2000.
3. Net Income (Loss) Per Common Share
Basic and diluted net income (loss) per common share information for each
period is presented in accordance with the requirements of SFAS No. 128,
"Earnings Per Share" ("FAS 128"). Basic income (loss) per common share has been
computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. The 1999
computation reflects a pro forma calculation to determine weighted average
shares outstanding. Net loss applicable to common stockholders reflects an
increase to net loss for deemed dividends on preferred stock related to
cumulative dividend amounts and preferred stock accretion.
For the nine months ended September 30, 2000, shares associated with options
and convertible securities have been excluded from the computation of diluted
loss per share as their inclusion would be anti-dilutive. For the nine months
ended September 30, 1999, the computation of diluted income per share includes
dilutive shares associated with convertible securities.
F-14
<PAGE>
DOVEBID INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro forma basic and diluted net loss per common share assuming conversion
has been computed as described above and also gives effect, under Securities
and Exchange Commission guidance, to the conversion of debt and preferred
shares not included above that would automatically convert to common shares if
the Company were to complete an initial public offering, using the if-converted
method, from the original date of issuance.
The calculations of historical basic and diluted net income (loss) per
common share and pro forma basic and diluted net loss per common share assuming
conversions (see Note 10, Initial Public Offering) are as follows (in
thousands, except share and per share amounts):
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1999 2000
---------- ----------
<S> <C> <C>
Net income (loss) attributable to common stockholders... $ 1,818 $ (74,264)
========== ==========
Basic:
Weighted-average shares (pro forma for 1999) of common
stock outstanding.................................... 9,473,689 12,996,812
Less: Weighted-average shares subject to repurchase... -- (5,130,532)
---------- ----------
Weighted-average shares used in computing basic net
income (loss) per common share....................... 9,473,689 7,866,280
========== ==========
Basic net income (loss) per share....................... $ 0.19 $ (9.44)
========== ==========
Diluted:
Weighted average shares used in computing basic net
income (loss) per share.............................. 9,473,689 7,866,280
Weighted average dilutive convertible preferred shares
outstanding.......................................... 537,374 --
---------- ----------
Weighted average shares used in computing diluted net
income (loss) per share.............................. 10,011,063 7,866,280
========== ==========
Diluted net income (loss) per share..................... $ 0.18 $ (9.44)
========== ==========
Pro forma
Net loss.............................................. $ (74,264)
==========
Shares used above..................................... 7,866,280
Pro forma adjustment to reflect weighted effect of
assumed conversion of convertible preferred stock.... 16,998,380
Pro forma adjustment to reflect weighted effect of
assumed conversion of convertible subordinated
notes................................................ 1,551,117
----------
Shares used in computing pro forma basic and diluted
net loss per common share............................ 26,415,777
==========
Pro forma basic and diluted net loss per common
share................................................ $ (2.81)
==========
</TABLE>
The pro forma adjustment for the assumed conversion of convertible debt
reflects a $9.00 per share conversion rate with respect to $20,489,000 of debt
(including $562,000 of accrued interest) and $31.50 per share with respect to
$10,000,000 of debt.
The Company has excluded all convertible debt, convertible preferred stock,
outstanding stock options and shares subject to repurchase from the
calculations of historical diluted net loss per common share because their
inclusion would be anti-dilutive. The total number of shares excluded from the
calculations of diluted net loss
F-15
<PAGE>
DOVEBID, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
per common share is 36,417,451 for the nine months ended September 30, 2000.
Such securities, had they been dilutive, would have been included in the
computations of diluted net loss per share using the treasury stock method.
4. Comprehensive Income
Accumulated comprehensive income, net of related tax, for the nine months
ended September 30, 2000 is as follows (in thousands):
<TABLE>
<CAPTION>
Foreign
Currency
Translation
-----------
<S> <C>
Balance at December 31, 1999..................................... $ --
Other comprehensive income....................................... (3)
Tax (benefit)/expense............................................ --
----
Balance at September 30, 2000.................................... $ (3)
====
</TABLE>
5. Business Acquisitions
On February 29, 2000, the Company acquired all the outstanding stock of a
Branford, Connecticut based auctioneer and appraiser of used capital assets,
Greenwich Industrial Services, LLC ("Greenwich"), for $5.25 million. Additional
contingent consideration of $1.0 million is payable based on an earnout, and is
not included in the total purchase consideration presented in the table below.
The contingent consideration will be recorded as compensation expense when the
contingency is resolved and consideration is paid or becomes payable.
On March 3, 2000, the Company acquired all of the outstanding stock of two
affiliated Mequon, Wisconsin based companies, an appraiser, AccuVal Associates,
Inc. ("AccuVal"), and an auctioneer, Liquitec Industries, Incorporated
("LiquiTec"), for a total of $5.5 million.
On March 3, 2000, the Company acquired all of the outstanding stock of a
Chicago, Illinois based auctioneer and appraiser of used capital assets, Philip
Pollack & Company, Inc. ("Pollack"), for $4.5 million.
On March 3, 2000, the Company acquired all of the outstanding stock of a
Mountain View, California based electronic test and equipment measurement
dealer, Haltek Electronics dba Test Lab Company ("Test Lab"), for $7.0 million.
On March 24, 2000, the Company acquired all of the outstanding stock of a
Detroit, Michigan based auctioneer and appraiser of assets, Norman Levy
Associates, Inc. ("Levy"), for $27.8 million.
On March 27, 2000, the Company acquired all of the outstanding stock of a
Mountain View, California based software development company, One Web Place
("OWP"), for $3.0 million.
On May 18, 2000, the Company acquired all of the outstanding stock of a U.K.
based dealer of used capital assets, Robert Carl Corporation ("Carl"), for
total consideration of $2.2 million in cash.
On June 15, 2000, the Company acquired all of the outstanding stock of a
Netherlands based auction company and equipment dealer, Fairfield Industries
B.V., ("Fairfield") for $11.0 million.
On July 3, 2000, the Company acquired all of the outstanding stock of an
Alpharetta, Georgia based dealer of used, surplus and refurbished computers and
computer-related equipment, Champion Computer Products,
F-16
<PAGE>
DOVEBID, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inc. ("Champion"), for $10.8 million. Additional contingent consideration of
$500,000 is payable based on an earnout, and is not included in the total
purchase consideration presented in the table below. The contingent
consideration will be recorded as compensation expense when the contingency is
resolved and consideration is paid or becomes payable.
On July 6, 2000, the Company acquired all of the outstanding stock of a
Singapore based auction company, Victor Morris Team Pte. Ltd. ("Morris"), along
with certain related entities based in Thailand, Malaysia and Hong Kong, for
$7.8 million. Additional contingent consideration of $800,000 is payable based
on an earnout, and is not included in the total purchase consideration
presented in the table below. The contingent consideration will be recorded as
additional purchase price when the contingency is resolved and consideration is
paid or becomes payable.
On July 18, 2000, the Company acquired all of the outstanding stock of a
Netherlands based auction company, C.L. Van Beusekom B.V. ("Van Beusekom"), for
$3.9 million.
On July 28, 2000, the Company acquired substantially all of the assets and
assumed certain of the liabilities of an Australian auction company,
Masongreene Australasia Pty Ltd. ("Masongreene"), for $2.1 million.
All of the acquisitions were accounted for using the purchase method of
accounting and their operations are included in the Company's results of
operations from the dates of acquisition.
The consideration and the purchase price allocations are as follows (in
thousands):
<TABLE>
<CAPTION>
Van
AccuVal Greenwich Test Lab Pollack Levy OWP Fairfield Carl Champion Morris Beusekom Masongreene TOTAL
------- --------- -------- ------- ------- ------ --------- ------ -------- ------ -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consideration:
Cash............ $1,650 $3,250 $6,750 $1,308 $17,550 $ -- $ 6,000 $2,199 $ 5,780 $4,315 $2,469 $1,023 $ 52,294
Retention
obligations.... -- -- 250 442 250 -- -- -- 500 2,355 -- 350 4,147
Convertible
notes.......... 2,850 2,000 -- 2,750 10,000 -- 5,000 -- 2,500 1,100 977 750 27,927
Promissory
notes.......... 1,000 -- -- -- -- -- -- -- 2,000 -- 425 -- 3,425
Stock........... -- -- -- -- -- 2,994 -- -- -- -- -- -- 2,994
------ ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ --------
$5,500 $5,250 $7,000 $4,500 $27,800 $2,994 $11,000 $2,199 $10,780 $7,770 $3,871 $2,123 $ 90,787
====== ====== ====== ====== ======= ====== ======= ====== ======= ====== ====== ====== ========
Purchase price
allocations:
Cash............ $ -- $ 603 $ 423 $ 154 $ 5,636 $ 50 $ 316 $ 927 $ 19 $ 927 $ 158 $ 12 $ 9,225
Inventory....... -- 62 2,336 -- -- -- 920 903 5,078 -- -- -- 9,299
Accounts
receivable..... 93 264 1,210 302 875 -- 818 39 3,156 179 441 -- 7,377
Other current
assets......... 1 85 28 249 155 2 -- 6 51 26 -- -- 603
Property, plant
and equipment.. 319 103 194 29 695 21 72 18 620 59 4 59 2,193
Intangibles..... 500 400 430 430 500 -- 500 -- 450 450 350 225 4,235
Goodwill........ 4,885 3,992 4,356 4,062 29,050 2,965 11,197 722 10,114 6,980 3,462 2,418 84,203
Other long term
assets......... -- -- -- 282 121 -- 400 -- -- 46 -- -- 849
------ ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ --------
Total assets
acquired....... 5,798 5,509 8,977 5,508 37,032 3,038 14,223 2,615 19,488 8,667 4,415 2,714 117,984
------ ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ --------
Loans payable... -- -- 797 274 1,285 -- 2,124 -- 6,788 -- -- -- 11,268
Accounts
payable........ 88 115 566 412 4,111 27 1,039 413 1,676 474 544 -- 9,465
Accrued
liabilities.... 210 144 614 322 3,836 17 60 3 244 423 -- 591 6,464
------ ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ --------
Total
liabilities
assumed........ 298 259 1,977 1,008 9,232 44 3,223 416 8,708 897 544 591 27,197
------ ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ --------
Net assets
acquired $5,500 $5,250 $7,000 $4,500 $27,800 $2,994 $11,000 $2,199 $10,780 $7,770 $3,871 $2,123 $ 90,787
====== ====== ====== ====== ======= ====== ======= ====== ======= ====== ====== ====== ========
</TABLE>
The purchase prices have been allocated based on estimates of the fair
market values of assets acquired and liabilities assumed. The amortization
period for intangible assets other than goodwill, consisting primarily of
covenants not to compete, and customer lists is four years. Goodwill is
amortized over twelve to fifteen years for all acquisitions except OWP. Due to
the nature of software development, goodwill associated with OWP is amortized
over one year.
F-17
<PAGE>
DOVEBID, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following summarized unaudited pro forma information assumes that the
acquisitions of Greenwich, AccuVal, Pollack, Test Lab, Levy, OWP, Fairfield,
Champion and Morris occurred as of January 1, 2000 (in thousands, except share
and per share amounts):
<TABLE>
<CAPTION>
Nine months ended
September 30,
2000
-----------------
<S> <C>
Revenues................................................ $ 84,147
Net loss applicable to common stockholders.............. (79,370)
Net loss per share applicable to common stockholders:
Basic and diluted..................................... $ (10.09)
Weighted average shares............................... 7,866,280
</TABLE>
6. Other Business Transactions
Yahoo! Marketing Agreement
In March 2000, the Company entered into an agreement with Yahoo! whereby
Yahoo! will advertise and promote the Company's services as a business-to-
business auctioneer. The Company will pay Yahoo! marketing and promotional fees
totaling $10,000,000 over a period of twelve months and will also purchase
additional advertising with Yahoo! based on the amount of the Company's auction
commissions derived from customers originated through Yahoo!.
In addition, the Company issued a warrant to Yahoo! in March 2000 to
purchase 468,333 shares of Series C Preferred Stock at $8.01 per share. The
warrant expires four years from the date of the agreement. At the time of the
grant, the Company retained the right to terminate the warrant, if unexercised,
unless Yahoo! launched its B2B site with the tenant module by a certain date.
The B2B site was launched prior to that date. Accordingly, the Company did not
fix the value of the warrant until the launch date. The warrant has been valued
at its fair market value of $9.27 per share using the Black-Scholes formula
(assuming a 100% volatility factor, 5.4% interest rate, and expected life of
four years) and has been capitalized as an up front payment to be amortized
over the twelve month contract term.
Asset Supply Arrangement and provision for unusual inventory markdown
In March 2000, the Company signed an agreement with Comdisco, a leasing and
finance company, whereby the Company's customers have access to a full-range of
Comdisco's asset management and leasing services for their capital assets. In
addition, the Company has specific rights to auction assets being sold by
Comdisco that fall within two of the Company's vertical markets for an initial
period of one year subject to the Company's satisfactory performance under the
contract. Under the agreement, the Company purchased $13.0 million of used disk
drive, semiconductor and biotechnology capital assets from Comdisco for a
combination of 1,248,439 shares of Series C Convertible preferred stock at the
fair value of $8.01, and $3,000,000 cash. Each share of the Series C Preferred
Stock is convertible into one share of common stock. The cash amount was paid
in March 2000.
The Company subsequently recorded a provision for unusual inventory markdown
of $8.2 million for the decline in value of the inventory assets acquired from
Comdisco. The primary set of assets acquired declined in value due to a delay
imposed by the bankruptcy court in proceedings involving the debtor holding the
assets. The remaining assets lost value because they were removed from an
operating location before the sale. As of September 30, 2000 the Company had
sold substantially all of this inventory. No gain or loss was recorded upon the
sale.
F-18
<PAGE>
DOVEBID, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Retention Obligations, Notes Payable, and Convertible Subordinated Notes
Retention Obligations
Retention obligations of $4,597,000 are without interest and represent
consideration retained as collateral to support the indemnification provided by
the sellers to the Company for any future claims for damages for breach of any
obligation, representation or warranty arising and asserted on or before
January 2001 and July 2002. The amounts are fully repayable to the sellers if
no claims arise within this period.
Notes Payable:
Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 2000
------------------
<S> <C>
Notes payable, bearing interest at 8% per annum, principal
and interest due the earlier of the date of the Company's
initial public offering or June 15, 2002................... $1,917
Notes payable, bearing interest at 8% per annum, principal
and interest due the earlier of the date of the Company's
initial public offering or December 31, 2000............... 2,000
Notes payable, bearing interest at 6.6% per annum, principal
and interest due July 18, 2001............................. 425
Notes payable, bearing interest at 8.5% per annum, principal
and interest of $34 due quarterly through October 2001..... 144
Note payable, bearing interest at 6.8% per annum, principal
of $500 due March 2001 and balance of $500 plus accrued
interest due March 2002.................................... 1,000
Other....................................................... 95
------
5,581
Less: Current portion....................................... 3,068
------
Long-term Notes Payable..................................... $2,513
======
</TABLE>
The aggregate annual principal maturities of the long-term notes as of
September 30, 2000 are as follows (in thousands): Three months ending December
31, 2000--$2,031; 2001--$1,085; 2002--$2,433; 2003--$16 and 2004--$16.
Convertible Subordinated Notes
Convertible subordinated notes bear interest at rates from 5.74% to 9.5% per
annum, principal and interest due on various dates ranging from February 2002
to July 2003. As of September 30, 2000 convertible subordinated notes amounted
to $29.9 million.
F-19
<PAGE>
DOVEBID, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Commitments and Contingencies
Operating Leases
The Company has entered into noncancelable operating leases for facilities
and equipment with various expiration dates through the year 2007. Future
minimum payments under all noncancelable operating leases as of September 30,
2000, are as follows:
<TABLE>
<S> <C>
Three months ended December 31, 2000.......................... $ 945,000
2001.......................................................... 3,799,000
2002.......................................................... 3,295,000
2003.......................................................... 2,653,000
2004.......................................................... 1,287,000
2005.......................................................... 584,000
Thereafter.................................................... 154,000
-----------
$12,717,000
===========
</TABLE>
Rent expense under all the operating leases for the nine months ended
September 30, 2000 was $1.9 million.
Advertising Agreement
The Company entered into an agreement in March, 2000 whereby it committed to
purchase advertising and promotion services from a company for twelve months
ending March 2001. As of September 30, 2000, the Company had paid $7.6 million
under this agreement, with $5.8 million expensed and $1.8 million recorded as a
prepaid expense. The remaining balance due under this agreement is $2.4
million.
Litigation
The Company is involved in various legal claims and litigation in the normal
course of its business. In the opinion of management, based upon consultation
with legal counsel, the eventual outcome of such claims and litigation is not
expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.
Off Balance Sheet Market Risk
From time to time, the Company guarantees the auction proceeds to its
clients for client owned assets. At September 30, 2000, the Company had
provided such guarantees totaling approximately $3.0 million. The Company
assesses these guarantees for potential losses for the difference between the
estimated auction value and the guarantee amount, and reserves for any such
probable losses. As of September 30, 2000 the Company assessed that no reserve
was necessary for potential losses for guaranteed auction proceeds.
The Company has acquired several businesses operating in countries outside
of the United States. As a result, the Company is exposed to any fluctuations
in foreign currencies. As of September 30, 2000, the Company had acquired one
business in each of the United Kingdom and Australia, two businesses in the
Netherlands, and a business with operations in Singapore, Thailand, Malaysia
and Hong Kong.
Agreement to Perform Consulting Services
In January 2000, the Company signed an agreement with Bain & Company, a
shareholder owning less than 5% of the Company, to perform consulting services
for six months through July 31, 2000. The total commitment
F-20
<PAGE>
DOVEBID, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of approximately $2.1 million was payable monthly as the service was rendered,
one third in common stock valued at $8.01 per share, and two thirds in cash.
The expense associated with cash and stock consideration was $1.4 million and
$700,000, respectively, for the nine months ended September 30, 2000. 87,390
shares were issued for the nine months ended September 30, 2000. In the opinion
of management, the fair value of the shares issued plus the cash consideration
approximated the fair value of the services rendered.
9. Stockholders' Equity and Stock Option Plan Activity
Common Stock Issuances
For the nine months ended September 30, 2000, employees purchased 433,333
shares of common stock at $2.31 per share with notes payable to the Company as
consideration pursuant to restricted stock purchase agreements. The restricted
stock vests 25% at the first anniversary of the grant date and ratably monthly
thereafter. The agreements grant the Company the option to repurchase any of
the unvested shares at its discretion at a price equal to the grant price. The
option to repurchase expires as the shares vest. The notes bear interest at
5.92% per annum and are due on or before the fifth anniversary of the exercise
date, ranging from November 30, 2004 to February 7, 2005. The notes, which are
classified as a component of stockholders' equity, are full recourse and are
collateralized by shares of common stock owned by the employees. In addition,
two directors purchased a total of 166,666 shares at $7.50 per share in cash
pursuant to restricted stock purchase agreements. The directors' restricted
stock vests ratably over a twelve month period and the agreements grant the
Company similar repurchase rights. Shares subject to repurchase under
restricted stock purchase agreements were 2,433,333 as of September 30, 2000.
For the nine months ended September 30, 2000, employees purchased 1,133,333
shares of common stock at prices ranging from $0.99 to $7.50 per share with
cash and notes payable to the Company as consideration pursuant to the exercise
of options granted under the 1999 Stock Option Plan. The option exercise
agreements grant the Company the option to repurchase unvested shares at a
price equal to the grant price if employment is terminated. The option to
repurchase expires as the shares vest. The notes bear interest at rates ranging
from 6.37% to 6.60% per annum and are due on or before the fifth anniversary of
the exercise date. The notes, which are classified as a component of
stockholders' equity, are full recourse and are collateralized by shares of
common stock owned by the employees. Shares subject to repurchase under option
exercise agreements were 1,266,667 as September 30, 2000.
The Company is required to reserve and keep available out of its authorized
but unissued shares of common stock such number of shares sufficient to effect
the conversion of all outstanding shares of convertible preferred stock plus
shares granted and available for grant under the Company's Stock Option Plan.
At September 30, 2000, common stock was reserved for issuances as follows:
<TABLE>
<S> <C>
Warrants outstanding............................................ 468,333
Conversion of convertible preferred stock....................... 26,403,597
Conversion of convertible subordinated debt..................... 2,594,021
Stock options outstanding....................................... 2,289,301
Stock options reserved for future grants........................ 557,860
----------
32,313,112
==========
</TABLE>
Series C Convertible Preferred Stock Subject to Redemption
In February, March and August 2000, the Company sold 16,637,630 shares of
Series C preferred stock at a price of $8.01 per share. The aggregate
consideration received of $133.3 million was made up of
F-21
<PAGE>
DOVEBID, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$123.3 million in cash and $10.0 million in used capital assets included in
inventory. The used capital assets which were acquired from Comdisco were
measured at the fair market value of the Series C shares. Each share of Series
C preferred stock is automatically convertible into one share of common stock
immediately upon the consummation of a firmly underwritten public offering of
common stock (other than a registration on Form S-8 or comparable form). All
holders of Series C shares have dividends, liquidation preferences and
redemption rights substantially the same as holders of Series A and Series B
convertible preferred stock.
Stock Repurchase Agreements with Messrs. Ross and Kirk Dove
The Company signed an agreement with Mr. Ross Dove in February 2000, whereby
the Company has the right to repurchase up to 1,410,001 shares of the common
stock held by Mr. Dove through The Dove Holdings Corporation at a purchase
price of $0.99 per share. The number of shares subject to the repurchase right
decreases ratably (i.e., 1/28th each month) over a period of 28 months
commencing on February 25, 2000. Termination for "good reason" would involve
changes in the role of Ross Dove's employment with the Company without his
consent. The stock repurchase agreement terminates upon a "change of control"
or if Ross Dove's employment is terminated without cause or "good reason". A
"change of control" includes, where 50% of the Company's outstanding stock is
acquired by a person other than a person related to the Company, where there is
a merger or consolidation of the Company and the then-current stockholders own
less than a majority of the voting power of the surviving corporation, or where
there is a sale of all or substantially all of the Company's assets.
The Company also signed a stock repurchase agreement with Mr. Kirk Dove in
February 2000. Under the terms of this agreement, in the event of any
termination of Kirk Dove's employment by the Company for cause or by Mr. Dove
for other than good reason, the Company has the right to repurchase up to
1,410,001 shares of the common stock held by Kirk Dove through The Dove
Holdings Corporation on the same terms and conditions as in Ross Dove's stock
repurchase agreement with the Company.
These agreements did not contain any elements or features of compensation.
Shares subject to repurchase under these agreements were 2,115,000 at September
30, 2000.
Stock Option Plan
The following summarizes the stock option activity and related information
during the nine months ended September 30, 2000:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price Exercise Price
---------- -------------- ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1999 1,235,500 $0.99-$ 2.31 $1.26
Granted....................... 2,741,392 $3.09-$12.00 $8.46
Exercised..................... (1,319,505) $0.99-$ 7.50 $4.45
Forfeited..................... (368,086) $0.99-$12.00 $5.13
----------
Outstanding at September 30,
2000........................... 2,289,301 $0.99-$12.00 $7.42
==========
Options exercisable at September
30, 2000....................... 44,412 $ 3.09 $3.09
==========
</TABLE>
F-22
<PAGE>
DOVEBID, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Exercise prices for stock options outstanding as of September 30, 2000 and
the weighted average remaining contractual life are as follows:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price at Remaining Number
September 30, 2000 Shares Outstanding Contractual Life Exercisable
------------------ ------------------ ---------------- -----------
<S> <C> <C> <C>
$0.99-$ 3.09 494,589 9.01 44,412
$4.50-$ 7.50 839,479 9.72 --
$8.01-$12.00 955,233 9.47 --
--------- ------
2,289,301 9.48 44,412
========= ======
</TABLE>
Pro forma information regarding net loss is required by FAS 123 and has been
determined as if the Company has accounted for its employee stock options
granted under the fair value method of FAS 123. The fair value of options
granted was estimated at the date of grant using the minimum-value method and
the following weighted-average assumptions: a risk-free interest rate for the
nine-month period ended September 30, 2000 ranging from 5.71% to 6.29%, a
dividend yield of zero, and an expected life of five years. The weighted-
average estimated fair value of options granted during the nine months ended
September 30, 2000 was $1.90 per share and was equal to the exercise price for
all options granted. The Company has accounted for the differential between the
exercise price and deemed fair value as deferred compensation.
The option valuation model was developed for use in estimating the fair
value of nonpublicly traded options that have no vesting restrictions and are
fully transferable. In addition, option validation models require input of
highly subjective assumptions, including the expected life and risk-free
interest rate. Because the Company's options have characteristics significantly
different from those of traded options, and because the changes in the
subjective input assumptions can materially affect the fair value estimate, the
existing model does not necessarily provide a reliable single measure of the
fair value of its options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
Nine months ended
September 30, 2000
------------------
<S> <C>
Net Loss attributable to common stockholders:
As reported......................................... $(74,264)
Pro Forma........................................... (75,594)
Basic and diluted net loss per common share:
As reported......................................... $ (9.44)
Pro Forma........................................... (9.61)
</TABLE>
Deferred Stock Compensation
Deferred compensation represents the aggregate difference, at the date of
grant, between the respective exercise price of stock options and the estimated
fair value of the underlying stock. Deferred stock-based compensation is
amortized over the vesting period of the underlying options based on an
accelerated vesting method, generally four years. For the nine months ended
September 30, 2000, the Company had recorded unearned stock-based compensation
of $444,000. The Company recorded amortization on all stock-based compensation
of $1,561,000 for the nine months ended September 30, 2000.
F-23
<PAGE>
DOVEBID INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Preferred Stock Dividend
In February 2000, the Board of Directors effected a 1.03221917 to one stock
dividend on the outstanding shares of Series A Convertible Preferred Stock and
a 1.01643835 to one stock dividend on the outstanding shares of Series B
Convertible Preferred Stock.
10. Subsequent Events
Initial Public Offering
The Company filed an S-1 registration document in August, 2000 with the
Securities and Exchange Commission relating to an initial public offering of
shares of its unissued common stock. If the IPO is consummated under the terms
presently anticipated, all of the preferred stock and convertible debt
outstanding will automatically convert into common stock. At September 30,
2000, on an unaudited pro forma basis, 28,997,618 shares of common stock would
be issued upon automatic conversion of preferred stock and convertible debt.
The pro forma effect on liabilities and stockholders' equity and the pro forma
effect on basic and diluted net loss per common share, as adjusted for the
assumed conversion of the preferred stock and convertible debt, is set forth in
the accompanying balance sheet and statement of operations, and in Note 3.
F-24
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
DoveBid, Inc.
We have audited the accompanying consolidated balance sheets of DoveBid,
Inc. and subsidiary as of December 31, 1998 and 1999, and the related
consolidated statements of operations, changes in convertible preferred stock
and changes in stockholders' equity (deficit), and cash flows for each of the
three years in the period ended December 31, 1999. 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 in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DoveBid,
Inc. and subsidiary at December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
As discussed under the heading "restatement for reverse stock split and
adjustment for accretion on preferred stock" in Note 2 to the Consolidated
Financial Statements, 1999 amounts related to preferred stock, accumulated
deficit, and accretion of redemption price differential on redeemable,
convertible preferred stock have been restated to reflect $886,667 of
accretion.
/s/ ERNST & YOUNG LLP
January 28, 2000, except as to matters discussed under "restatement for reverse
stock split and adjustment for accretion on preferred stock" in Note 2 as to
which the date is October 13, 2000
San Francisco, California
F-25
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
------- ----------
(Restated)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................ $ 229 $ 6,969
Cash in trust............................................ 3,514 2,563
Accounts receivable, less allowance of $26 in 1998 and
$43 in 1999............................................. 285 1,210
Inventory................................................ -- 2,584
Prepaid expenses......................................... 116 294
------- -------
Total current assets................................... 4,144 13,620
------- -------
Property and equipment, net................................ 169 829
Intangible assets including goodwill, net.................. -- 4,039
Other assets............................................... 38 544
------- -------
Total assets........................................... $ 4,351 $19,032
======= =======
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable and accrued expenses.................... $ 1,666 $ 2,529
Trust account liability.................................. 3,506 2,509
Advances from affiliate.................................. 268 --
Current portion of note payable.......................... 111 111
Note payable to shareholder.............................. -- 1,000
------- -------
Total current liabilities.............................. 5,551 6,149
Long-term liabilities:
Retention obligation..................................... -- 1,000
Note payable, net of current portion..................... 235 109
Convertible subordinated notes........................... -- 2,000
------- -------
Total long-term liabilities............................ 235 3,109
------- -------
Total liabilities...................................... 5,786 9,258
Convertible preferred stock subject to redemption:
Series A, $0.001 par value 12,500,000 shares authorized,
4,030,303 issued and outstanding, aggregate liquidation
preference of $3,990,000 as of December 31, 1999........ -- 4,921
Series B, $0.001 par value 17,500,000 shares authorized,
5,515,151 issued and outstanding, aggregate liquidation
preference of $12,734,000 as of December 31, 1999....... -- 12,797
------- -------
Total convertible preferred stock subject to
redemption............................................ -- 17,718
Stockholders' equity (deficit):
Members' equity (deficit)................................ (1,435) --
Common stock, par value $0.001, 70,000,000 shares
authorized, 11,292,568 issued and outstanding at
December 31, 1999....................................... -- 11
Additional paid-in capital............................... -- 3,297
Deferred stock compensation.............................. -- (2,686)
Notes receivable from stockholders....................... -- (1,856)
Accumulated deficit...................................... -- (6,710)
------- -------
Total stockholders' equity (deficit)................... (1,435) (7,944)
------- -------
Total liabilities and stockholders' equity (deficit)... $ 4,351 $19,032
======= =======
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1997 1998 1999
--------- --------- ----------
(Restated)
<S> <C> <C> <C>
Capital asset sales.......................... $ -- $ -- $ --
Auction, appraisal and other revenues........ 13,679 10,801 12,504
--------- --------- ----------
Total revenues............................... 13,679 10,801 12,504
Cost of capital asset sales.................. -- -- --
Cost of auction, appraisal and other
revenues.................................... 7,004 5,679 5,788
--------- --------- ----------
Total cost of revenues....................... 7,004 5,679 5,788
--------- --------- ----------
Gross profit................................. 6,675 5,122 6,716
Operating expenses:
Sales and marketing.......................... 1,195 1,079 2,271
General and administrative................... 5,321 4,787 7,818
Technology and development................... -- -- 378
Depreciation and amortization................ 204 188 138
Amortization of deferred stock compensation
related to general and administrative
expense..................................... -- -- 51
Impairment of goodwill....................... 9,751 -- --
--------- --------- ----------
Total operating expenses..................... 16,471 6,054 10,656
--------- --------- ----------
Loss from operations......................... (9,796) (932) (3,940)
Interest and other income, net............... 86 121 229
Interest expense............................. (48) (56) (61)
--------- --------- ----------
Net loss..................................... (9,758) (867) (3,772)
Deemed dividend on preferred stock........... -- -- (369)
Accretion of redemption price differential on
redeemable convertible preferred stock...... -- -- (886)
--------- --------- ----------
Net loss attributable to common
stockholders................................ $ (9,758) $ (867) $ (5,027)
========= ========= ==========
Basic and diluted net loss per common share
(Note 2) ................................... $ (1.01) $ (0.09) $ (0.53)
========= ========= ==========
Weighted average pro forma common shares used
in net loss per common share calculation
(Note 2) ................................... 9,662,532 9,539,192 9,467,546
========= ========= ==========
Pro forma basic and diluted net loss per
share
(unaudited, Note 2)......................... $ (0.39)
==========
Weighted average common shares used in
computing pro forma basic and diluted net
loss per share (unaudited, Note 2).......... 12,794,681
==========
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND
CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(amounts in thousands)
<TABLE>
<CAPTION>
Convertible Stockholders' Equity (deficit)
Preferred Stock --------------------------------------------------------------------------------------
Subject to Notes Total
Redemption Members' Common Stock Additional Deferred Receivable Stockholders'
----------------- Equity ------------- Paid-in Stock from Accumulated Equity
Shares Amount (Deficit) Shares Amount Capital Compensation Shareholders Deficit (Deficit)
------ ---------- --------- ------ ------ ---------- ------------ ------------ ----------- -------------
(Restated)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1996............ -- $ -- $10,950 -- $-- $ -- $ -- $ -- $ -- $10,950
Assumption of
partner debt
accounted for as
noncash
distribution.... -- -- (1,200) -- -- -- -- -- -- (1,200)
Cash
distributions... -- -- (260) -- -- -- -- -- -- (260)
Net loss........ -- -- (9,758) -- -- -- -- -- -- (9,758)
----- ------- ------- ------ --- ------ ------- ------- ------- -------
Balances at
December 31,
1997............ -- -- (268) -- -- -- -- -- -- (268)
Cash
distributions... -- -- (300) -- -- -- -- -- -- (300)
Net Loss........ -- -- (867) -- -- -- -- -- -- (867)
----- ------- ------- ------ --- ------ ------- ------- ------- -------
Balances at
December 31,
1998............ -- -- (1,435) -- -- -- -- -- -- (1,435)
Cash
distributions... -- -- (550) -- -- -- -- -- -- (550)
Net Income
through June 14,
1999............ -- -- 1,683 -- -- -- -- -- -- 1,683
Assumption of
partner debt
accounted for as
noncash
distribution.... -- -- (1,015) -- -- -- -- -- -- (1,015)
----- ------- ------- ------ --- ------ ------- ------- ------- -------
Balances at June
14, 1999........ -- -- (1,317) -- -- -- -- -- -- (1,317)
Exchange of
common stock for
members'
equity.......... -- -- 1,317 9,404 9 (1,326) -- -- -- --
Issuances of
convertible
preferred stock
Series A, net of
issuance costs.. 4,030 3,870 -- -- -- -- -- -- -- --
Issuances of
convertible
preferred stock
Series B, net of
issuance costs.. 5,515 12,593 -- -- -- -- -- -- -- --
Issuances of
common stock
upon exercise of
stock options... -- -- -- 42 -- 41 -- (41) -- --
Issuances of
common stock.... -- -- -- 1,847 2 1,845 -- (1,815) -- 32
Deemed dividend
on preferred
stock........... -- 369 -- -- -- -- -- -- (369) (369)
Accretion of
redemption price
differential on
redeemable
convertible
preferred stock
................ -- 886 -- -- -- -- -- -- (886) (886)
Deferred stock
compensation.... -- -- -- -- -- 2,737 (2,737) -- -- --
Amortization of
deferred stock
compensation.... -- -- -- -- -- -- 51 -- -- 51
Net loss from
June 15, 1999... -- -- -- -- -- -- -- -- (5,455) (5,455)
----- ------- ------- ------ --- ------ ------- ------- ------- -------
Balances at
December 31,
1999............ 9,545 $17,718 $ -- 11,293 $11 $3,297 $(2,686) $(1,856) $(6,710) $(7,944)
===== ======= ======= ====== === ====== ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1997 1998 1999
------- ------ ----------
(Restated)
<S> <C> <C> <C>
Operating activities
Net loss......................................... $(9,758) $ (867) $(3,772)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization expense........... 256 188 138
Provision for bad debts......................... (48) (17) 17
Impairment of goodwill.......................... 9,751 -- --
Amortization of deferred stock compensation..... -- -- 51
Provision for inventory losses.................. -- -- 371
Changes in operating assets and liabilities:
Cash in trust................................. (1,320) 2,438 951
Accounts receivable........................... (722) 1,228 (942)
Prepaid expenses and other assets............. 142 (103) (684)
Inventory, excluding acquisitions............. 110 -- (558)
Accounts payable and accrued expenses......... 249 (214) 863
Trust account liability....................... 1,296 (2,404) (997)
------- ------ -------
Net cash (used in) provided by operating
activities...................................... (44) 249 (4,562)
------- ------ -------
Investing activities
Purchases of property and equipment, net of
acquisitions.................................... (183) (127) (819)
Proceeds from sales of property and equipment.... 27 58 70
Acquisition of businesses, net of obligations
payable......................................... -- -- (3,500)
------- ------ -------
Net cash used in investing activities............ (156) (69) (4,249)
------- ------ -------
Financing activities
Payments on short-term debt...................... (4,000) -- --
Proceeds (payments) on advances from affiliates.. -- 268 (268)
Payments on line of credit....................... (350) -- --
Issuance of note payable......................... 532 -- --
Payments on note payable......................... -- (186) (126)
Net proceeds from issuance of preferred stock.... -- -- 16,463
Cash distributions to members.................... (260) (300) (550)
Issuance of common stock......................... -- -- 32
------- ------ -------
Net cash (used in) provided by financing
activities...................................... (4,078) (218) 15,551
------- ------ -------
Net (decrease) increase in cash.................. (4,278) (38) 6,740
Cash and cash equivalents at beginning of year... 4,545 267 229
------- ------ -------
Cash and cash equivalents at end of year......... $ 267 $ 229 $ 6,969
======= ====== =======
Supplemental disclosure of cash flow information
Cash paid for interest........................... $ 48 $ 56 $ 61
Supplemental disclosure of non-cash transactions
Issuance of retention obligations and convertible
subordinated notes for acquisition of
businesses...................................... $ -- $ -- $ 3,000
Assumption of partner debt accounted for as
noncash distribution............................ 1,200 -- 1,015
Issuances of common stock for notes receivable... -- -- (1,856)
Deemed dividend on preferred stock............... -- -- (369)
Accretion on preferred stock..................... -- -- (886)
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Business and Organization
Business
DoveBid, Inc. (the "Company" or "DoveBid") is a business-to-business online
auctioneer focusing on the used capital assets market. The Company's auction
activities have been provided through DoveBid, Inc. The Company also provided
appraisal and other related services through its wholly owned subsidiary,
DoveTech, Inc.
At December 31, 1999, the Company had cash and cash equivalents of $7.0
million. The Company expects to experience significant growth in its operating
costs for the foreseeable future in order to continue its efforts to execute
its business plan, particularly in the areas of technology, sales and marketing
and general and administrative. As a result, the Company estimates that these
operating costs will constitute a significant use of its cash resources. In
addition, the Company may use cash resources to fund acquisitions of
complementary businesses and technologies. Although the Company is regularly
involved in discussions regarding business combinations, it does not have any
present commitments or understandings to proceed with any transactions of this
type regarding any acquisitions. The Company believes that the existing cash
and cash equivalents will be sufficient to meet the working capital needs for
at least the next 12 months. Thereafter, the Company may find it necessary to
obtain additional equity or debt financing. In the event that additional
financing is required, the Company may not be able to raise it on terms
acceptable to it, if at all. If the Company is unable to raise additional
capital when required, its business, operations and results will likely suffer.
Organization
DoveBid succeeded to a business formed in March 1995 named Koll-Dove Global
Disposition Services, LLC ("Koll-Dove"). Koll-Dove was owned 50.1% by Koll
Management Services ("KMS") and 49.9% directly and indirectly by members of the
Dove Family including Messrs. Ross and Kirk Dove (collectively referred to
herein as the "Dove Group"). In October 1997, the Dove Group acquired KMS's
interest. This acquisition was accounted for at the partner level, and part of
the consideration included a note payable. Koll-Dove was then renamed Dove
Brothers, LLC ("Dove Brothers").
In June 1999, KMS reacquired a minority interest in Dove Brothers from the
Dove Group, and the acquisition was accounted for at the partner level.
However, as part of this transaction, Dove Brothers assumed a $1.0 million note
payable owed by the Dove Group to KMS, which has been treated in these
financial statements as a liability of Dove Brothers and a corresponding
decrease in Dove Group's equity.
In a series of reorganizations which occurred in June 1999, DoveBid, Inc.
was formed and the members of Dove Brothers exchanged their interests in Dove
Brothers for shares of stock in DoveBid, Inc. Dove Brothers then became a
subsidiary of DoveBid, Inc. Accordingly, because of the common control, the
accounts of Dove Brothers carried over to those of DoveBid, Inc. and subsidiary
at Dove Brothers' net book value. In December 1999, Dove Brothers was merged
into DoveBid, Inc.
For convenience herein, the consolidated financial statements for all
periods are referred to as those of DoveBid or the Company.
In June 1999, DoveBid began issuing its preferred stock to new investors.
F-30
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The consolidated financial statements include DoveBid, Inc. and its wholly
owned subsidiary, DoveTech, Inc. All significant intercompany transactions and
balances have been eliminated.
The preparation of the Company's financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and the accompanying notes. These estimates are based
on information available as of the date of the financial statements; therefore,
actual results could differ from those estimates, although management does not
believe that any differences would materially affect the Company's financial
position or results of operations.
Restatements for Reverse Stock Split and Adjustment for Accretion on Preferred
Stock
In October and December 2000, the Company's Board of Directors authorized a
three for one reverse stock split of the Company's common and preferred stock
respectively. The related common stock and per share data in the accompanying
financial statements for all periods presented have been retroactively restated
to reflect the reverse stock split.
Convertible preferred stock (subject to redemption) and accumulated deficit
in the accompanying 1999 consolidated balance sheet, and accretion of
redemption price differential on redeemable convertible preferred stock in the
accompanying 1999 statements of operations and cash flows have been restated to
reflect the accretion related to 1999 that was previously unrecorded. The
accretion was recorded as a dividend and increased net loss attributable to
common stockholders by $886,667 and net loss per common share by $0.09.
Cash, Cash Equivalents and Cash in Trust
The Company generally collects the gross proceeds from an onsite auction on
behalf of the selling parties and holds such proceeds in a trust account until
the final settlement date of the auction. These amounts are classified as cash
in trust in the accompanying balance sheets. Cash in trust is excluded from
cash for purposes of presentation in the statements of cash flows.
The portion of the proceeds that must be remitted to the owner of the asset
that was sold during an auction is reflected as a trust account liability in
the accompanying balance sheets, net of the Company's commissions and expense
reimbursements that have not been disbursed from the trust account.
Concentration of Credit Risk, Credit Evaluations and Significant Customers
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, cash in trust
and accounts receivable. Cash, cash equivalents and cash in trust are deposited
with creditworthy financial institutions. The Company's unsecured accounts
receivable are derived from revenue earned from customers located in the U.S.
and throughout the world and are denominated in U.S. dollars. The Company
maintains an allowance for doubtful accounts receivable based upon the expected
collectibility. As of December 31, 1998 and 1999, the Company had no
significant concentrations of credit risk.
In 1998 and 1999, no single customer accounted for more than 10% of
revenues. One customer in 1997 accounted for revenues, exclusive of
reimbursements, of approximately $1,378,000, representing 10% of revenues. No
other single customer accounted for more than 10% of revenues in 1997.
F-31
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventory
Inventory, consisting of used capital assets, is stated at the lower of cost
or market as determined by the first-in first-out (FIFO) method. The Company
periodically evaluates its inventory to ensure inventory is recorded at net
realizable value. During 1999, the Company provided a $542,000 allowance for
obsolete or slow moving inventory.
Property and Equipment, and Software for Internal Use
Office equipment and leasehold improvements are carried at cost.
Depreciation and amortization are computed on a straight-line basis over the
estimated useful lives of the respective assets or lease term. These useful
lives range from three to five years for office equipment and the shorter of
six years, or the remaining lease term for leasehold improvements.
The Company follows the provisions of Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which requires the capitalization of costs incurred in
connection with developing or obtaining software for internal use. These costs
are amortized over a period of three years on a straight line basis. The
Company also follows the provisions of Emerging Issues Task Force (the "EITF")
Issue No. EITF 00-2, "Accounting for Web Site Development Costs". EITF 00-2
provides specific guidance on the accounting for the planning stage, web site
application and infrastructure development stage, graphics and content
development stage, and operating stage of Web Site Development Costs. The
Company has applied the provision of EITF 00-2 in these financial statements.
The portion of Internet related and website development costs which are
capitalized are amortized on a straight line basis over two to five years.
Intangible Assets
Intangible assets consist principally of the cost in excess of assets
acquired resulting from acquisitions and are being amortized on a straight-line
basis over four years for intangibles relating to covenants not to compete and
customer lists, and over one to fifteen years for goodwill.
The Company assesses the carrying value and future useful life of these
assets whenever events or changes in circumstances indicate that impairment may
have occurred or that the future life has diminished. The Company considers the
future undiscounted cash flows of the acquired companies in assessing the
recoverability of these assets. If an impairment is indicated through this
review, the carrying amount of the intangible assets will be reduced to their
respective estimated fair values as determined based upon the best information
available in the circumstances. Such information likely would include a review
of comparable market prices of similar assets or businesses, if available, or
an estimate of fair value based upon the present value of estimated expected
future cash flows. Any impairment is charged to expense in the period in which
the impairment is incurred.
Revenue recognition
Auction and sales revenues
Revenues from commission income from third-party Webcast and 24x7 auctions,
less estimates for allowances for refunds, are recognized upon closing of the
related auction at which time both the buyer and seller have legally agreed to
the terms of the transaction and the Company has performed all services
necessary for it to earn its commission. This income consists of a fee based on
the auction transaction price, and other revenue associated with ancillary
auction services such as referral and participation fees and revenue for
F-32
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
recovery of costs incurred directly by the Company. All direct auction costs,
consisting primarily of outside labor, direct facilities, marketing, materials
and supplies, are deferred until the related auction revenue is recognized. Any
commissions paid to alliance portals who originate buyers through the Company's
website are recorded as a contra to auction revenues.
Capital asset sales
Revenues from auctions or sale of the Company's own inventory are recognized
upon title transfer and shipment of the equipment where shipment is the
responsibility of the buyer.
Appraisal fee revenues
The Company recognizes revenue from appraisal fees when the services are
completed and the appraisal report is delivered, utilizing the completed
contract method of accounting for these relatively short-term contracts. This
method is used because the financial position and results of operations do not
vary significantly from those which would result from use of the percentage-of-
completion method. Deposits received on appraisal projects are deferred until
completion of the appraisal report. Costs and expenses are recognized during
the same period in which the associated revenue is earned. Accordingly, costs
and expenses that are directly associated with projects in process are deferred
as unbilled costs and expenses until the matching revenue is earned.
Any deferred costs and expenses projected to exceed revenues are immediately
expensed.
Advertising Costs
The Company recognizes advertising expenses in accordance with SOP 93-7,
"Reporting on Advertising Costs." As such, the Company expenses the costs of
producing advertisements at the time production occurs, and expenses the cost
of communicating advertising in the period in which the advertising space or
airtime is used. The Company incurred $1,911,000, $1,498,000, and $1,869,000 in
advertising costs in 1997, 1998 and 1999, respectively.
Stock-based Compensation and Consideration
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees" (APB No. 25), and complies with
the disclosure provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Under
APB No. 25, compensation expense is based on the difference, if any, on the
date of the grant, between the estimated fair value of the Company's stock and
the exercise price.
The Company accounts for stock issued to non-employees in accordance with
the provisions of SFAS No. 123 and the Emerging Issues Task Force Consensus in
Issue No. 96-18.
Income Tax Matters
Prior to June 15, 1999, the Company operated as a limited liability company
which was treated as a partnership for federal and state income tax purposes.
As a limited liability company, the Company was subject to minimal taxes and
fees in certain states; however, income taxes on income or losses realized by
the Company were generally the obligation of the members.
F-33
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
From June 15, 1999, the Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"), which requires the
use of the liability method of accounting for income taxes. Under SFAS 109,
deferred tax assets and liabilities are measured based on differences between
the financial reporting and tax bases of assets and liabilities using enacted
tax rate and laws that are expected to be in effect when the differences are
expected to reverse.
Comprehensive Income (Loss)
The Company follows the requirements of SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). Under SFAS 130, the Company is required to
display comprehensive income (loss) and its components as part of the financial
statements. Comprehensive income (loss) includes certain changes in equity that
are excluded from net income (loss). Specifically, SFAS 130 requires unrealized
holding gains and losses on available-for-sale securities to be included in
accumulated comprehensive income (loss). The Company has no material components
of comprehensive income and, accordingly, the comprehensive loss is the same as
net loss for all periods presented.
Segment Information
The Financial Accounting Standards Board (the "FASB") issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for financial statements for periods beginning after
December 15, 1997. SFAS 131 establishes standards for the way that public
business enterprises report financial and descriptive information about
reportable operating segments in annual financial statements and interim
reporting to shareholders. In adopting the provisions of SFAS 131, the Company
has determined that it has only one operating and reportable segment;
therefore, separate segment disclosure has not been made.
Net Loss Per Common Share
Basic and diluted net loss per common share information for all periods is
presented in accordance with the requirements of SFAS No. 128, "Earnings per
Share" ("FAS 128"). Basic loss per common share has been computed using the
weighted-average number of shares of common stock outstanding during the
period, less shares subject to repurchase. Net loss applicable to common
stockholders reflects a deduction from net loss for preferred stock accretion
relating to cumulative dividend amounts.
Shares associated with options and convertible securities have been excluded
from the computation of diluted earnings per share as their inclusion would be
anti-dilutive.
Prior to June 15, 1999, the Company operated as a limited liability company.
The calculation of the weighted-average number of shares of common stock
outstanding for 1997, 1998 and 1999 includes a pro forma adjustment to reflect
the number of shares that would have been outstanding as if the shares that
were issued on June 14, 1999 had been issued on January 1, 1997, as adjusted
for cash distributions for those periods.
Pro forma basic and diluted net loss per common share assuming conversion
has been computed as described above and also gives effect, under Securities
and Exchange Commission guidance, to the conversion of debt and preferred
shares not included above that would automatically convert to common shares if
the Company were to complete an initial public offering, using the if-converted
method, from the original date of issuance.
F-34
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The calculations of historical basic and diluted net loss per common share
(using the pro forma weighted average shares outstanding), and pro forma basic
and diluted net loss per common share assuming conversion are as follows (in
thousands, except share and per share amounts):
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Net loss attributable to common
stockholders.............................. $ (9,758) $ (867) $ (5,027)
========= ========= ==========
Basic and diluted:
Weighted-average pro forma shares of
common stock outstanding................ 9,662,532 9,539,192 9,623,254
Less: Weighted-average common shares
subject to repurchase................... -- -- (155,708)
--------- --------- ----------
Weighted-average pro forma shares used in
computing basic and diluted net loss per
common share............................ 9,662,532 9,539,192 9,467,546
========= ========= ==========
Basic and diluted net loss per common
share..................................... $ (1.01) $ (0.09) $ (0.53)
========= ========= ==========
Pro forma:
Net loss..................................................... $ (5,027)
==========
Shares used above............................................ 9,467,546
Pro forma adjustment to reflect weighted effect of assumed
conversion of convertible preferred stock and convertible
subordinated debt (using $9.00 per share conversion rate)
(unaudited)................................................. 3,327,135
----------
Weighted average shares used in computing pro forma basic and
diluted net loss per common share (unaudited)............... 12,794,681
==========
Pro forma basic and diluted net loss per common share
(unaudited)................................................. $ (0.39)
==========
</TABLE>
The Company has excluded all convertible debt, convertible preferred stock,
outstanding stock options and shares subject to repurchase from the
calculations of diluted net loss per common share because their inclusion would
be anti-dilutive. The total number of shares excluded from the calculations of
diluted net loss per common share are 12,656,639 as of December 31, 1999. Such
securities, had they been dilutive, would have been included in the
computations of diluted net loss per share using the treasury stock method. In
February 2000, a preferred stock dividend was effected, as fully explained in
Note 12.
Recent Accounting Pronouncements
The staff of the Securities and Exchange Commission and the members of the
Emerging Issues Task Force of the Financial Accounting Standards Board, among
other accounting standard setters, are addressing accounting issues related to
companies doing business commonly referred to as "electronic commerce." Areas
of discussion include advertising barter transactions, website development,
exchange of equity investment for services, revenue recognition in complex
multiple element arrangements, arrangements with up front payments and revenue
recognition for auction sites. The ultimate resolutions to these issues and
other similar issues could have a material effect on the Company's accounting
policies used in the future.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 provides specific
guidance, among other things, as to the recognition of revenue related to up-
front, non-refundable fees and services charges received in connection with a
contractual arrangement. The Company has applied the provisions of SAB 101 in
these financial statements.
F-35
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In June 1999, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 137, "Deferral of Effective
Date of FASB Statement 133", which amends the effective date for the
implementation of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). As amended, SFAS No. 133 is effective for financial statements for
fiscal years beginning after June 15, 2000. SFAS No. 133 will require the
Company to record all derivatives on its balance sheet at fair value. Changes
in derivative fair values will either be recognized in income as offsets to the
changes in fair value of related hedged assets, liabilities, and firm
commitments or, for forecasted transactions, deferred and recorded as a
component of comprehensive income in shareholders' equity until the hedged
transactions occur and are recognized in income. The ineffective portion of a
hedging derivative's change in fair value will be immediately recognized in
income. The Company expects to enter into foreign currency derivatives and
hedges and therefore expects the pronouncement to have an impact on it in the
future.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation," an interpretation of APB Opinion No. 25. The Company is required
to adopt the Interpretation on July 1, 2000. Among other issues, this
Interpretation clarifies (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. The Interpretation has no effect on any previous concluded
transactions.
3. Acquisitions and Retention Obligations
On December 30, 1999, Dovebid, Inc. acquired two printed circuit board
businesses, B&B Custom Circuit Supplies, Inc. and Unidyne International, Inc.
for $3,250,000 each. Both of the acquisitions were accounted for using the
purchase method of accounting and are included in the results of operations of
the Company from the dates of acquisition. The purchase prices have been
allocated to tangible and intangible assets acquired based on estimates of
their respective fair values. The amortization periods for covenants not to
compete, customer lists and goodwill are four, four and twelve years,
respectively.
The purchase price allocations are as follows (in thousands):
<TABLE>
<S> <C>
Intangibles Assets:
Covenants not to compete........................................... $ 500
Customer lists..................................................... 500
Goodwill........................................................... 3,039
------
4,039
Inventory............................................................ 2,397
Office equipment..................................................... 64
------
$6,500
======
</TABLE>
Consideration for the purchases was comprised of (in thousands):
<TABLE>
<S> <C>
Cash................................................................. $3,500
Convertible subordinated notes....................................... 2,000
Retention obligation................................................. 1,000
------
$6,500
======
</TABLE>
F-36
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The convertible subordinated notes convert automatically into common stock
upon the occurrence of an initial public offering. The common stock conversion
rate is determined by dividing the mid-point of the common stock offering price
range set forth in the Company's final registration statement, into the
aggregate outstanding principal and accrued interest arising from the
convertible subordinated notes upon the conversion date. The convertible
subordinated notes bear interest at 5.74% and mature on December 30, 2002.
The retention obligations (a reserve for seller warrantees) are without
interest and represents consideration retained as collateral to support the
indemnification provided by the seller to the Company for any future claims for
damages for breach of any obligation, representations or warranties arising and
asserted before January 3, 2001. The amount is fully payable to the sellers,
adjusted for any claims that might arise.
The following summarized unaudited pro forma information assumes the
acquisitions of B&B Custom Circuit Supplies, Inc. and Unidyne International,
Inc. occurred as of January 1, 1998 (in thousands, except share and per share
amounts):
<TABLE>
<CAPTION>
Years ended
December 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Revenues.............................................. $ 15,337 $ 15,699
Net loss applicable to common stockholders............ (2,040) (5,542)
Net loss per share applicable to common stockholders:
Basic and diluted................................... $ (0.21) $ (0.58)
Weighted average shares............................. 9,539,192 9,467,546
</TABLE>
4. Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
-----------
1998 1999
---- ------
<S> <C> <C>
Office equipment................................................ $522 $1,005
Leasehold improvements.......................................... 103 102
Software........................................................ -- 273
---- ------
625 1,380
Less accumulated depreciation and amortization.................. 456 551
---- ------
$169 $ 829
==== ======
</TABLE>
5. Impairment of Goodwill
In connection with the formation and capitalization of Koll-Dove in 1995 as
discussed in Note 1, goodwill of $10,000,000 was recorded. This goodwill
related solely to the Company's line of business focused on the auction of real
estate assets.
During 1997, it was determined that the opportunities in this line of
business were not consistent with the future direction of the Company and, as
part of this decision, KMS withdrew as a member. Given the withdrawal of KMS as
a member of the Company, management determined that future cash flows from the
real estate line of business, if any, would not be sufficient to recover the
carrying value of goodwill and the entire remaining balance was written off in
1997 by a charge to earnings of $9,751,000.
F-37
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Notes Payable
Unsecured notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
-----------
1998 1999
---- ------
<S> <C> <C>
Note payable to shareholder, bearing interest at 8% per annum,
due April 2000................................................ $ -- $1,000
==== ======
Other notes payable:
Note payable, bearing interest at 8.5% per annum, principal
and interest of $34 due quarterly through October 2001...... $346 $ 220
Convertible subordinated notes, bearing interest at 5.74% per
annum, principal and interest due December 2002 (see Note
3).......................................................... -- 2,000
---- ------
$346 $2,220
==== ======
</TABLE>
The aggregate annual principal maturities of the long-term notes as of
December 31, 1999 are as follows: 2000--$111,000; 2001--$109,000; and 2002--
$2,000,000.
7. Commitments and Contingencies
Operating Leases
The Company leases its headquarters office space for approximately $25,000
per month from The Dove Holdings Company, Inc., a related party, through
November, 2000. The Company also has entered into noncancelable operating
leases for facilities and equipment with various expiration dates through the
year 2005. Future minimum payments under the noncancelable operating leases as
of December 31, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000.............................................................. $ 774
2001.............................................................. 484
2002.............................................................. 480
2003.............................................................. 480
2004.............................................................. 480
Thereafter........................................................ 480
------
$3,178
======
</TABLE>
Rent expense under all operating leases totaled approximately $439,000,
$369,000, and $368,000 during 1997, 1998 and 1999, respectively.
Litigation
The Company is involved in various legal claims and litigation in the normal
course of its business. In the opinion of management, based upon consultation
with legal counsel, the eventual outcome of such claims and litigation is not
expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.
Off Balance Sheet Market Risk
From time to time, the Company guarantees the auction proceeds to its
clients for client owned assets. At December 31, 1999, the Company had provided
one such guarantee totaling approximately $2,000,000. The
F-38
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company assesses these guarantees for any potential losses for the difference
between the estimated auction value and the guarantee amount, and reserves for
any such probable losses. At December 31, 1999, the Company had accrued for
approximately $400,000 of such probable losses.
8. Stockholders' Equity and Stock Option Plan
The Company has two classes of authorized stock: common stock and
convertible preferred stock. In October 1999, the Company's stockholders
approved a decrease in the originally authorized number of shares of common
stock from 75,000,000 to 70,000,000, and an increase in authorized preferred
stock from 25,000,000 to 30,000,000.
Common Stock
The Company has issued 11,292,568 shares of common stock as of December 31,
1999. In June 1999, 9,404,038 shares were issued to the Dove Group in exchange
for their interest in Dove Partners, Inc. The holder of each share of common
stock is entitled to the right of one vote.
In October 1999, two employees of the Company were granted fully vested
options to purchase 41,666 shares of stock at $0.99 per share. These options
were exercised in October 1999 with notes payable as consideration. The notes
were paid off subsequent to year end.
In November 1999, the Company's Chief Operating Officer and Chief Financial
Officer purchased a total of 1,833,333 shares of stock at $0.99 per share with
notes payable to the Company as consideration pursuant to restricted stock
purchase agreements. The agreements grant the Company the right to repurchase
any of the unvested shares at its discretion at a price equal to the grant
price. The shares vest, and the right to repurchase expires, 25% at the first
anniversary of the grant date, and 2.08% per month for the next thirty six
months. The notes bear interest at 5.92% per annum and are due on or before the
fifth anniversary of the grant date of the options, November 30, 2004. The
notes, which are classified as a component of stockholders' equity, are full
recourse and are collateralized by shares of common stock owned by the
officers. Shares subject to repurchase were 1,833,333 as of December 31, 1999.
The weighted-average grant-date fair value of non-option equity grants during
1999 was $0.99.
The Company is required to reserve and keep available out of its authorized
but unissued shares of common stock such number of shares sufficient to effect
the conversion of all outstanding shares of convertible preferred stock plus
shares granted and available for grant under the Company's 1999 Stock Option
Plan (the Plan). At December 31, 1999, common stock was reserved for issuances
as follows:
<TABLE>
<S> <C>
Conversion of convertible preferred stock......................... 9,545,454
Conversion of convertible subordinated debt....................... 222,222
1999 Stock Option Plan............................................ 872,833
----------
10,640,509
==========
</TABLE>
Holders of common stock are entitled to receive $0.99 as a liquidation
preference for each share outstanding.
Convertible Preferred Stock Subject to Redemption
The Company is authorized to issue 30,000,000 shares of convertible
preferred stock in one or more series.
F-39
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Convertible preferred stock issued and outstanding is as follows:
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------------
Shares Cumulative Accumulated
Outstanding(1) Amount(2) Dividends Accretion Total
-------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Series A...... 4,030,303 $ 3,869,915 $165,400 $886,667 $ 4,921,982
Series B...... 5,515,151 12,592,912 203,600 -- 12,796,512
--------- ----------- -------- -------- -----------
9,545,454 $16,462,827 $369,000 $886,667 $17,718,494
========= =========== ======== ======== ===========
</TABLE>
--------
(1) The per share issuance price for Series A and Series B was $0.99, and
$2.31, respectively.
(2) Amount is net of issuance costs.
Holders of Series A and Series B convertible preferred stock are entitled to
receive annual cumulative dividends of $0.0792 and $0.1848 per share,
respectively. Cumulative amounts associated with the dividend provisions have
been recorded and are presented as "cumulative dividends." Holders of Series A
and Series B Convertible Preferred Stock are also entitled to receive a
liquidation preference, for each outstanding share, equal to the original issue
price of $0.99 and $2.31, respectively.
After payment of the liquidation preference to Series A and Series B
Convertible Preferred Stock and common stock, holders of Series A and Series B
Convertible Preferred Stock are entitled to receive, prior and in preference to
any common stockholders, an amount equal to accumulated or declared but unpaid
dividends, if any, attributable to the Series A and B Convertible Preferred
Stock. Following the payment of such liquidation preference, the remaining
distributable assets, if any, will be available for distribution to holders of
Series A and Series B Convertible Preferred Stock, on an as converted basis,
along with holders of common stock. If the distributable assets are
insufficient to permit payment of the preferential amounts, then the entire
amount of distributable assets, shall be distributed pro rata among the Series
A and B Preferred Stockholders and common stock stockholders in proportion to
their respected aggregate liquidation preference amounts.
Each share of Series A and Series B Convertible Preferred Stock carries
voting rights ("Voting Preferred"). Each holder of Voting Preferred is entitled
to the number of votes equal to the number of shares of common stock into which
such shares of Series A and Series B held could then be converted.
Each share of Voting Preferred is convertible, at the option of the holder,
into shares of common stock, determined by dividing the sum of the applicable
original issue price, as defined in the certificates of incorporation, of
Series A and B Convertible Preferred Stock, plus an amount equal to declared or
accumulated but unpaid dividends on such share, divided by the then effective
conversion price. The conversion price per share for shares of Series A and B
Convertible Preferred Stock equals the original issue price subject to
adjustments for stock splits, stock dividends, combinations, and
recapitalizations. At December 31, 1999, the Conversion Rate for each series of
Preferred Stock was one share of common stock for each share of preferred
stock.
In addition, each share of Convertible Preferred Stock is automatically
converted into shares of common stock at the then effective conversion price
for such share immediately upon the consummation of a firmly underwritten
public offering of common stock (other than a registration on Form S-8 or
comparable form).
At any time after June 7, 2002, holders upon written consent of at least 51%
of Series A and Series B Preferred Stock are entitled to cause the Company to
redeem all or part of the then outstanding Series A and Series B preferred
stock at a price equal to the then fair market value of the Series A and Series
B Convertible Preferred Stock, as converted, and common stock, as more fully
described in the applicable stock agreements.
F-40
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The difference between the original purchase price of the Series A and Series B
shares and their current fair market value, as determined by the Company's
Board of Directors, is being accreted through periodic charges to accumulated
deficit. Accretion in the amount of $886,000 was charged to accumulated deficit
for the year ended December 31, 1999.
Stock Option Plan
Under the 1999 Stock Option Plan (the "Plan"), the Company offers options to
purchase shares of its common stock to employees, including officers and
directors of, and consultants to, the Company who are not also employees of the
Company. The Company reserved 12,500,000 shares of common stock for issuance
through the Plan. The Plan is administered by the Company's Board of Directors.
The Board of Directors may award a number of forms of stock-based compensation
to eligible participants including incentive and nonqualified stock options
which generally vest over a four year period, not to exceed ten years.
The following summarizes stock option activity and related information
during the year ended December 31, 1999:
<TABLE>
<CAPTION>
Exercise Weighted Average
Shares Price Exercise Price
--------- ------------- ----------------
<S> <C> <C> <C>
Outstanding at October, 8, 1999
(Plan inception)
Granted....................... 1,277,166 $0.99 - $2.31 $1.26
Exercised..................... (41,666) 0.99 0.99
Forfeited..................... -- -- --
---------
Outstanding at December 31,
1999........................... 1,235,500 $0.99 - $2.31 $1.26
=========
Options exercisable at December
31, 1999....................... -- -- --
=========
</TABLE>
Exercise prices for stock options outstanding as of December 31, 1999 and
the weighted average remaining contractual life are as follows:
<TABLE>
<CAPTION>
Weighted-average
Exercise Price at Shares Remaining Number
December 31, 1999 Outstanding Contractual Life Exercisable
----------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.99 980,000 9.85 --
$2.31 255,500 9.92 --
--------- ---
1,235,500 --
========= ===
</TABLE>
As discussed in Note 2, the Company follows APB No. 25 and related
interpretations in accounting for its employee and director stock-based awards
because, as discussed below, the alternative fair value accounting provided for
under SFAS 123 requires use of option valuation models that were not developed
for use in valuing employee stock-based awards. Under APB Opinion No. 25, the
Company does not recognize compensation expense with respect to such awards if
the exercise price equals or exceeds the fair value of the underlying security
on the date of grant and other terms are fixed.
The fair value for these awards for the purpose of the alternative fair
value disclosures required by SFAS 123 was estimated as of the date of grant
using the minimum value options pricing model. This model was developed for use
in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the expected life
of the options. Because the Company's stock-based awards have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can
F-41
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its stock-based awards. For the purposes of the Company's pro
forma disclosures, the fair value of options granted during the period ended
December 31, 1999 was determined using the minimum value method with a risk-
free interest rate of approximately 5.5%, an expected life of 5 years, and a
dividend yield of zero. The weighted-average estimated fair value of options
granted during 1999 was $1.50 per share.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
Year ended
December 31,
1999
------------
<S> <C>
Net Loss attributable to common stockholders:
As reported............................................... $(5,027)
Pro Forma................................................. (5,062)
Basic and diluted net loss per common share:
As reported............................................... $ (0.53)
Pro Forma................................................. (0.53)
</TABLE>
The compensation cost associated with the Company's stock-based compensation
plans determined using the minimum value method prescribed above did not result
in a material difference from the reported net income for the period from
October 8, 1999 (inception) to December 31, 1999. Future pro forma net income
results may be materially different from actual amounts reported.
Deferred Stock Compensation
Deferred compensation represents the aggregate difference, at the date of
grant, between the respective exercise price of stock options and the estimated
fair value of the underlying stock. Deferred stock-based compensation is
amortized over the vesting period of the underlying options based on an
accelerated vesting method, generally four years. Through December 31, 1999,
the Company had recorded unearned stock-based compensation of $2.7 million. For
1999, the Company recorded amortization of stock-based compensation of $50,600.
9. Income Taxes
At December 31, 1999, the Company had net operating loss carryforwards of
$4,521,087 for federal income tax purposes that expire in years 2013 to 2015.
For financial reporting purposes, a valuation allowance has been recognized in
1999 to offset the deferred tax assets, which primarily related to those
carryforwards.
Due to the "change in ownership" provisions of the Internal Revenue Code,
utilization of the net operating loss carryforwards may be subject to an annual
limitation regarding their utilization against taxable income in future
periods.
F-42
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflected the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 1999
are as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities........................................ $ --
Deferred tax assets:
Depreciation.................................................. 9
Contribution carryover........................................ 12
Net operating loss carryover.................................. 1,854
Provision for bad debts....................................... 13
Reserves...................................................... 452
-------
Total deferred tax assets....................................... 2,340
Valuation allowance for deferred tax assets..................... (2,340)
-------
Net deferred tax liabilities/assets............................. $ --
=======
</TABLE>
The federal statutory rate reconciles to the Company's effective tax rate as
follows for the year ended December 31, 1999:
<TABLE>
<S> <C>
Federal Statutory income tax rate................................ 35.00%
State tax provision, net of federal tax benefit.................. 6.51
Net operating loss carryforward.................................. (33.67)
Other............................................................ (7.84)
------
Effective tax rate............................................... 0.00%
======
</TABLE>
10. Fair Value of Financial Instruments
As of December 31, 1998 and 1999, the respective carrying values of the
Company's financial instruments, which include cash and cash equivalents, cash
in trust, accounts receivable, accounts payable and accrued expenses, and debt
approximated their fair values. Carrying values were estimated to approximate
fair values for these financial instruments as they are short-term in nature
and are receivable or payable on demand.
11. Provisions
<TABLE>
<CAPTION>
Additions
Balance at ------------ Balance
Beginning Charged to at End of
of Period Costs & Exp. Deductions Period
---------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999
Deducted from asset accounts:
Allowance for doubtful
accounts.................... 26,000 17,000 -- 43,000
Allowance for inventory
write-downs................. -- 542,000 -- 542,000
Year Ended December 31, 1998
Deducted from asset accounts:
Allowance for doubtful
accounts.................... 43,000 -- 17,000(1) 26,000
Allowance for inventory
write-downs................. -- -- -- --
Year Ended December 31, 1997
Deducted from asset accounts:
Allowance for doubtful
accounts.................... 91,000 -- 48,000(1) 43,000
Allowance for inventory
write-downs................. -- -- -- --
</TABLE>
--------
(1) Uncollectible accounts written off
F-43
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Other Events Subsequent to Date of Auditor's Report (Unaudited)
Initial Public Offering (IPO)
The Company is in the process of filing an S-1 registration document in
August 2000 with the Securities and Exchange Commission relating to an initial
public offering of shares of its unissued common stock. If the IPO is
consummated under the terms presently anticipated, all of the preferred stock
and convertible debt outstanding will automatically convert into common stock.
The pro forma effect on basic and diluted net loss per common share, as
adjusted for the assumed conversion of the preferred stock and convertible
debt, is set forth in the accompanying statement of operations, and in Note 3
under Net income (loss) per Common Share.
Series C Convertible Preferred Stock Financing
Subsequent to year end, the Company issued 16,637,630 shares of Series C
preferred stock at a price of $8.01 per share. Each share of Series C preferred
stock is convertible into one share of common stock. All holders of Series C
shares have dividend, liquidation preferences and redemption rights
substantially the same as holders of Series A and Series B convertible
preferred stock.
Business Acquisitions
Subsequent to year end, the Company completed the acquisitions of Greenwich
Industrial Services, LLC; AccuVal Associates, Inc; Philip Pollack & Company,
Inc.; Haltek Electronics dba Test Lab Company; Norman Levy Associates, Inc.;
One Web Place, Inc.; Robert Carl Corporation; Fairfield Industries B.V.;
Champion Computer Products, Inc.; Victor Morris Team Pte Ltd; C.L. Van Beusekom
B.V., and Masongreene Australasia Pty Ltd.
Preferred Stock Dividend
In February 2000, the Board of Directors effected a 1.03221917 to one stock
dividend on the outstanding shares of Series A Convertible Preferred Stock and
a 1.01643835 to one stock dividend on the outstanding shares of Series B
Convertible Preferred Stock. Subsequent to the issuance of the Preferred Stock
dividend, the conversion ratio of Series A and B Convertible Preferred Stock to
common stock was one to one.
Line of Credit to Dealer
In March 2000, the Company entered into a line of credit agreement with a
computer dealer for an extension of up to $3.0 million of advances for the
dealer's acquisition of computers and computer-related assets, some of which
may be sold through the Company's vertical market or 24 x 7 online auctions.
This secured line of credit bore interest at 10.5%, was paid in full in July
2000, and expired in August 2000.
Asset Supply Arrangement
In March 2000 the Company signed an agreement with Comdisco, a leasing and
finance company, whereby the Company's customers have access to a full-range of
Comdisco's asset management and leasing services for their capital assets. In
addition, the Company has specific rights to auction assets being sold by
Comdisco that fall within two of the Company's vertical markets for an initial
period of one year subject to the Company's satisfactory performance under the
contract. The Company has purchased $13.0 million (before the mark down of $8.2
million) of assets from Comdisco for a combination of Series C Convertible
preferred stock and cash. The cash portion is due prior to March 31, 2000.
F-44
<PAGE>
DOVEBID INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Commitments
In connection with the acquisitions described above the Company assumed
certain long-term facilities leases.
13. Impact of the Year 2000 (Unaudited)
In late 1999, the Company completed its remediation and testing of systems.
As a result of those planning and implementation efforts, the Company
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company is not aware
of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout the year 2000
to ensure that any latent Year 2000 matters that may arise are addressed
promptly.
F-45
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
AccuVal Associates, Incorporated and LiquiTec Industries, Incorporated
We have audited the accompanying combined balance sheets of AccuVal
Associates, Incorporated and LiquiTec Industries, Incorporated (collectively,
the "Company") as of December 31, 1998 and 1999, and the related combined
statements of income and retained earnings and cash flows for the years then
ended. 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 in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Company at December 31, 1998 and 1999, and the combined results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
March 3, 2000
Milwaukee, Wisconsin
F-46
<PAGE>
ACCUVAL ASSOCIATES, INCORPORATED AND LIQUITEC INDUSTRIES, INCORPORATED
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------- -------
(in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................... $ 353 $ 667
Accounts receivable.......................................... 195 373
Unbilled costs and expenses.................................. 55 6
Other current assets......................................... 35 19
------- -------
Total current assets....................................... 638 1,065
Software development costs, net................................ 193 303
Property and equipment, net.................................... 244 263
------- -------
Total assets............................................... $ 1,075 $ 1,631
======= =======
Liabilities and shareholders' equity
Current liabilities:
Accounts payable............................................. $ 56 $ 65
Accrued wages and payroll taxes.............................. 108 121
Accrued profit sharing....................................... 44 73
Accrued vacation............................................. 76 79
Deposits..................................................... 6 4
Due to related parties....................................... -- 4
------- -------
Total current liabilities.................................. 290 346
Commitments
Shareholders' equity:
Common stock................................................. 20 20
Retained earnings............................................ 765 1,265
------- -------
Total shareholders' equity................................. 785 1,285
------- -------
Total liabilities and shareholders' equity................. $ 1,075 $ 1,631
======= =======
</TABLE>
See accompanying notes.
F-47
<PAGE>
ACCUVAL ASSOCIATES, INCORPORATED AND LIQUITEC INDUSTRIES, INCORPORATED
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year ended
December 31,
----------------
1998 1999
------- -------
(in thousands)
<S> <C> <C>
Revenues:
Appraisal services.......................................... $ 2,792 $ 3,382
Auction commissions......................................... 279 286
------- -------
3,071 3,668
Costs of revenues............................................. 488 590
------- -------
Gross profit.................................................. 2,583 3,078
General and administrative expense............................ 1,819 2,169
Depreciation and amortization................................. 137 203
------- -------
Income from operations........................................ 627 706
Other (expense) income:
Interest income............................................. 14 18
Other....................................................... 5 (1)
------- -------
19 17
------- -------
Net income.................................................... 646 723
Retained earnings--beginning of year.......................... 466 765
Distributions to shareholders................................. (347) (223)
------- -------
Retained earnings--end of year................................ $ 765 $ 1,265
======= =======
</TABLE>
See accompanying notes.
F-48
<PAGE>
ACCUVAL ASSOCIATES, INCORPORATED AND LIQUITEC INDUSTRIES, INCORPORATED
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1998 1999
------ ------
(in
thousands)
<S> <C> <C>
Operating activities
Net income.................................................... $ 646 $ 723
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................ 63 68
Amortization of software development costs.................. 74 135
Gain on sale of equipment................................... (7) --
Changes in operating assets and liabilities:
Accounts receivable........................................ 102 (178)
Unbilled costs and expenses................................ (33) 49
Other current assets....................................... (13) 16
Accounts payable........................................... 6 9
Accrued liabilities and deposits........................... (11) 43
Due to related parties..................................... -- 4
------ ------
Total adjustments......................................... 181 146
------ ------
Net cash provided by operating activities..................... 827 869
Investing activities
Purchases of property and equipment........................... (123) (87)
Proceeds from sale of equipment............................... 12 --
Payment of software development costs......................... (163) (245)
------ ------
Net cash used in investing activities......................... (274) (332)
Financing activities
Distributions to shareholders................................. (347) (223)
------ ------
Net cash used in financing activities......................... (347) (223)
------ ------
Increase in cash and cash equivalents......................... 206 314
Cash and cash equivalents at beginning of year................ 147 353
------ ------
Cash and cash equivalents at end of year...................... $ 353 $ 667
====== ======
</TABLE>
See accompanying notes.
F-49
<PAGE>
ACCUVAL ASSOCIATES, INCORPORATED AND LIQUITEC INDUSTRIES, INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
1. Nature of Business and Significant Accounting Policies
Basis of Presentation and Nature of Operations
The accompanying financial statements represent the combined financial
statements of AccuVal Associates, Incorporated ("AccuVal") and LiquiTec
Industries, Incorporated ("LiquiTec") (collectively, the "Company"). AccuVal
and LiquiTec are both equally owned by two individual shareholders and are in
related lines of business. As such, management believes there is adequate
support for presenting combined financial statements. All significant
intercompany transactions have been eliminated in combination.
AccuVal performs appraisal and consulting services in a variety of
industries throughout North America and on a limited international basis. These
services are provided to companies, lenders and buyers seeking advice on the
value of businesses, inventory, tangible and intangible assets.
LiquiTec provides liquidation services to a variety of parties including
lenders, attorneys, bankruptcy courts and others seeking to dispose of tangible
personal and real property. These services include coordination, marketing,
preparation, conduction and accounting for the sale of assets. These services
are provided throughout North America and are typically provided on a
commission basis as a percentage of the liquidation sales proceeds.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from those estimates.
Revenue recognition
AccuVal recognizes revenue from appraisal fees as the revenue is earned
(measured by delivery of the appraisal report) utilizing the completed contract
method of accounting for these relatively short-term contracts. Deposits
received on appraisal projects are deferred until completion of the appraisal
report. Costs and expenses are recognized during the same period in which the
associated revenue is earned. Accordingly, costs and expenses that are directly
associated with projects in process are deferred as unbilled costs and expenses
in the accompanying combined balance sheets until the matching revenue is
earned. Costs and expenses projected to exceed revenues are immediately
expensed.
Auction commission revenue of LiquiTec is generally recognized upon closing
of the related auction less estimates for certain allowances and after
resolution of any significant uncertainties as to ultimate collection of
auction proceeds. Commission income consists of a fee based on the transaction
price plus revenues associated with other costs and services.
Advertising and Marketing Costs
The Company expenses all advertising and marketing costs as incurred which
totaled approximately $43,000 and $29,000 for the years ended December 31, 1998
and 1999, respectively.
Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less at the date of purchase to be cash
equivalents. For such investments, cost approximates fair value.
F-50
<PAGE>
ACCUVAL ASSOCIATES, INCORPORATED AND LIQUITEC INDUSTRIES, INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Concentrations of Credit Risk
The Company's cash and cash equivalents include deposits and overnight
investments primarily in one financial institution and had a net balance that
exceeded FDIC insurance levels at December 31, 1998 and 1999, by approximately
$253,000 and $567,000, respectively.
The Company typically does not require collateral or other security of its
customers.
In 1998, sales to two customers amounted to approximately 23% of total
revenues. There were no sales to individual customers in excess of 10% of total
revenues in 1999.
Software Development Costs
The Company follows the provisions of Statement of Position (SOP) 98-1,
"Accounting For The Costs Of Computer Software Developed Or Obtained For
Internal Use," which requires the capitalization of costs incurred in
connection with developing or obtaining software for internal use. These costs
are amortized over a period of three years, the estimated useful life of the
software. Accumulated amortization of software development costs totaled
approximately $143,000 and $278,000 at December 31, 1998 and 1999,
respectively.
Property and Equipment
Properly and equipment are stated at cost. Depreciation for financial
statement purposes is provided on the straight-line method over the estimated
useful lives. The composition of property and equipment and related useful
lives are as follows:
<TABLE>
<CAPTION>
December
31,
Useful Lives in ------------
Years 1998 1999
--------------- ----- -----
(in
thousands)
<S> <C> <C> <C>
Computer equipment........................... 5 $ 138 $ 190
Computer software............................ 3 25 35
Business machines............................ 5 70 75
Office equipment............................. 5 65 67
Furniture and fixtures....................... 7 119 128
Vehicles..................................... 7 107 107
Leasehold improvements....................... 7-15 19 28
----- -----
543 630
Less accumulated depreciation................ (299) (367)
----- -----
$ 244 $ 263
===== =====
</TABLE>
2. Income Taxes
AccuVal and LiquiTec are subject to the provisions of Subchapter S of the
Internal Revenue Code and the tax code of Wisconsin. Accordingly, these
financial statements reflect no provision or liability for federal or Wisconsin
income taxes because federal and Wisconsin taxes on the income of AccuVal and
LiquiTec are attributed directly to the individual shareholders.
3. Related-Party Transactions
AccuVal and LiquiTec have certain transactions in the ordinary course of
business with its shareholders and related companies. The Company leases its
corporate headquarters from the shareholders and paid rent of
F-51
<PAGE>
ACCUVAL ASSOCIATES, INCORPORATED AND LIQUITEC INDUSTRIES, INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
approximately $117,000 each for the years ended December 31, 1998 and 1999. The
Company also rented storage space from an affiliated company which is under
common ownership with AccuVal and LiquiTec. Total payments for this storage
space amounted to $6,500 and $5,500 for the years ended December 31, 1998 and
1999, respectively.
4. Financing
The Company maintained a $1,000,000 line of credit with a bank which was
canceled February 24, 2000. Interest was payable monthly at LIBOR plus 2.25%.
There were no borrowings outstanding under this line of credit as of December
31, 1998 and 1999. The note was secured by all of the Company's assets and the
personal guarantees of the shareholders.
5. Benefit Plan
AccuVal and LiquiTec sponsor a profit-sharing plan for substantially all
employees. The Company recorded profit sharing expense of approximately $79,000
and $105,000 for the years ended December 31, 1998 and 1999, respectively.
6. Commitments
As described in Note 3, the Company leases its corporate headquarters from
the shareholders. The lease term is for one year and is renewed annually on
December 31 of each year. Minimum rental payments for 2000 under this agreement
are $117,000 and the Company is required to pay the real estate taxes.
The Company also has a lease commitment to rent storage space from an
affiliated company which is under common ownership. This agreement is also
renewed annually on December 31 of each year. Minimum rental payments for 2000
under this agreement are $6,000.
7. Shareholders' Equity
AccuVal has the authority to issue 2,800 shares of no par value common
stock. As of December 31, 1998 and 1999, 200 shares are issued and outstanding.
Consideration for these shares totaled $10,000.
LiquiTec has the authority to issue 2,800 shares of no par value common
stock. As of December 31, 1998 and 1999, 200 shares are issued and outstanding.
Consideration for these shares totaled $10,000.
8. Sale of Company
On March 3, 2000, the Company sold all of the issued and outstanding shares
of stock of AccuVal and LiquiTec to DoveBid, Inc. for approximately $5.5
million. The total consideration consisted of $1.65 million in cash, $2.85
million in a convertible note and a $1 million holdback note payable in cash at
a later date.
F-52
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Members
Greenwich Industrial Services, LLC
We have audited the accompanying balance sheets of Greenwich Industrial
Services, LLC as of December 31, 1998 and 1999, and the related statements of
operations and members' equity, and cash flows for the years then ended. 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 in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Greenwich Industrial
Services, LLC at December 31, 1998 and 1999, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
March 8, 2000
Stamford, Connecticut
F-53
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash................................................. $ 509,956 $ 767,982
Cash held in escrow.................................. 332,930 45,973
Accounts receivable.................................. 348,443 306,556
Accounts receivable, affiliate....................... -- 22,300
Due from members (Note 6)............................ 46,354 --
Equipment held for resale............................ 282,657 139,470
Prepaid expenses and deposits........................ -- 21,716
---------- ----------
Total current assets............................... 1,520,340 1,303,997
Property and equipment, net of accumulated depreciation
(Notes 3)............................................. 6,805 400,976
Organization costs, net of accumulated amortization
(1998-$9,240)......................................... 13,225 --
---------- ----------
Total assets....................................... $1,540,370 $1,704,973
========== ==========
Liabilities and Members' Equity
Current liabilities:
Current portion of long-term debt (Note 5)........... $ -- $ 10,625
Accounts payable and accrued expenses................ 133,473 143,286
Due to customers..................................... 494,149 --
Due to affiliate..................................... 96,159 --
Sales tax payable.................................... 96,524 14,117
---------- ----------
Total current liabilities.......................... 820,305 168,028
Long-term debt, net of current portion (Note 5)........ -- 194,792
Commitments (Note 7)
Members' equity........................................ 721,065 1,342,153
Less subscription receivable........................... (1,000) --
---------- ----------
Total members' equity.............................. 720,065 1,342,153
---------- ----------
Total liabilities and members' equity.............. $1,540,370 $1,704,973
========== ==========
</TABLE>
See accompanying notes.
F-54
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY
<TABLE>
<CAPTION>
Year ended December
31,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Revenues:
Auction............................................... $9,055,411 $7,529,412
Appraisal............................................. 319,855 304,308
---------- ----------
Total revenues...................................... $9,375,266 7,833,720
Operating Expenses:
Direct auction costs.................................. 7,907,833 5,876,045
Selling, general and administrative................... 864,638 1,187,030
Depreciation and amortization......................... 11,120 25,078
---------- ----------
Total operating expenses............................ 8,783,591 7,088,153
---------- ----------
Income from operations.................................. 591,675 745,567
Other income (expense):
Interest expense...................................... (16,099) (44,366)
Interest income....................................... 37,531 53,539
Other................................................. 1,461 35,143
---------- ----------
22,893 44,316
Net income.............................................. 614,568 789,883
Members' equity, beginning of year...................... 280,497 720,065
Less distributions...................................... (175,000) (167,795)
---------- ----------
Members' equity, end of year............................ $ 720,065 $1,342,153
========== ==========
</TABLE>
See accompanying notes.
F-55
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
December 31,
----------------------
1998 1999
----------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income............................................ $ 614,568 $ 789,883
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 11,120 25,078
Accounts receivable................................. (298,351) 41,887
Accounts receivable, affiliate...................... -- (22,300)
Equipment held for resale........................... (282,657) 143,187
Prepaid expenses and deposits....................... 290,456 (21,716)
Accounts payable and accrued expenses............... 3,754 9,813
Due to affiliate.................................... 96,159 (96,159)
Due to customers.................................... (978,213) (494,149)
Sales tax payable................................... (216,894) (82,407)
----------- ---------
Net cash provided by (used in) operating activities... (760,058) 293,117
Cash flows from investing activities
Advances (to) from members............................ (44,954) 46,354
Acquisition of furniture and equipment................ -- (406,024)
Organization costs.................................... (17,615) --
----------- ---------
Net cash used in investing activities................. (62,569) (359,670)
Cash flows from financing activities
Proceeds from borrowing............................... -- 212,500
Principal payments in note payable.................... -- (7,083)
Distributions to members.............................. (175,000) (167,795)
Repayments to member.................................. (32,726) --
----------- ---------
Net cash provided by (used in) financing activities... (207,726) 37,622
----------- ---------
Net decrease in cash.................................. (1,030,353) (28,931)
Cash, beginning of year............................... 1,873,239 842,886
----------- ---------
Cash, end of year..................................... $ 842,886 $ 813,955
=========== =========
Supplemental disclosures of cash flow information
Interest paid......................................... $ 16,099 $ 44,366
=========== =========
</TABLE>
See accompanying notes.
F-56
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Organization and Business
Greenwich Industrial Services, LLC (the "Company") was formed as a
Connecticut Limited Liability Company in April 1997 to perform appraisals,
auctions, asset recovery and liquidation of equipment owned by others
throughout the world.
The Company was 96% owned by Greenwich Financial Group, Inc., whose owner is
also the 100% owner of Avatar Alliance, L.P. (an affiliate) with the remaining
4% owned by its current members. During 1999, the current members purchased the
entire interest of Greenwich Financial Group, Inc.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the Company's financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and the accompanying notes. Actual amounts could
differ from those estimates.
Income Taxes
The Company is not subject to federal income taxes and no provision for
federal income taxes is made in the financial statements. The Company's
operating results are included in the respective member's federal income tax
returns.
Cash Held in Escrow / Due To Customers
The Company generally collects the gross proceeds from an auction on behalf
of the selling parties and holds such proceeds in an escrow account until the
final settlement date of the auction. These amounts are classified as cash held
in escrow in the accompanying balance sheets. Cash held in escrow is excluded
from cash for purposes of the statements of cash flows.
The portion of the proceeds that must be remitted to the owner of the goods
that were sold during an auction is reflected as due to customers in the
accompanying balance sheets, net of the Company's commissions and expense
reimbursements that have not been disbursed from the escrow account.
Accounts Receivable, Affiliate / Due to Affiliate
Accounts receivable, affiliate at December 31, 1999 represents the Company's
share of proceeds related to the sale of airframe equipment due from Avatar
Alliance, L.P. Due to affiliate at December 31, 1998 represents funds due to
Avatar Alliance, L.P. for the Company's portion of the charges related to the
sharing of office space.
Equipment Held for Resale
Equipment held for resale represents equipment not sold at an initial
auction. The equipment is stated at the lower of cost or market based on a
specific identification method.
F-57
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on a
straight line basis over the estimated useful lives of the related assets. The
useful lives range from three years for computer equipment and furniture and
fixtures to thirty-nine years for the building.
Revenue Recognition
Commission income from auctions is recognized upon closing of the related
auction less estimates for certain allowances and after resolution of any
significant uncertainties as to ultimate collection of auction proceeds.
Commission income consists of a fee based on the transaction price plus
revenues associated with other costs and services.
Revenue and cost of sales from auctions of the Company's own inventory are
recognized upon sale and shipment of the equipment and after resolution of any
significant uncertainties as to ultimate collection of auction proceeds.
Revenues from appraisal and other services are recognized when the services
are performed. Costs related to appraisal services are included within general
and administrative expenses in the accompanying statements of operations and
member's equity.
Organization Costs
Organization costs were fully amortized in 1999. Prior to 1999 such costs
were being amortized on a straight-line basis over five years. Amortization
expense for the years ended December 31, 1998 and 1999 was $8,512 and $13,225,
respectively.
Employee Retirement Plan
The Company participates in a 401(k) Plan sponsored and administered by an
affiliate. The Plan covers substantially all employees who are allowed to
contribute a percentage of salary, based on certain parameters as defined in
the Plan. The Company does not match any contributions. No fees are charged to
the Company for Plan administration.
Advertising Costs
Advertising costs are expensed as incurred. Total advertising expenses were
$179,475 and $298,330 for the years ended December 31, 1998 and 1999,
respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash in escrow and accounts
receivable. Cash and cash in escrow are deposited with high credit, quality
financial institutions. As of December 31, 1998 and 1999, the Company has no
significant concentrations of credit risk. The Company's accounts receivable
are derived from revenue earned from customers located in the U.S. and are
denominated in U.S. dollars.
Fair Value of Financial Instruments
As of December 31, 1998 and 1999, the respective carrying values of the
Company's financial instruments approximated their fair values. These financial
instruments include cash, due from members, accounts payable,
F-58
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(Continued)
accrued expenses, due to customers and debt. Carrying values were estimated to
approximate fair values for these financial instruments as they are short-term
in nature and are receivable or payable on demand.
3. Property and Equipment
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Building..................................................... $ -- $344,268
Office equipment............................................. 11,368 73,124
------- --------
11,368 417,392
Less accumulated depreciation................................ (4,563) (16,416)
------- --------
$ 6,805 $400,976
======= ========
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1999 was
$2,608 and $11,853, respectively.
4. Note Payable--Bank
In September 1998, the Company secured a line of credit with a bank for up
to $5 million. The agreement allows for borrowings against qualified asset
purchase and auction service transactions and allows the Company to issue
letters of credit against specified transactions. Interest is payable monthly
based on either the bank's prime rate plus .25% or LIBOR plus 2.5%. The
agreement expires in June 2001. Borrowings are secured by the underlying assets
acquired and are also personally guaranteed by the Company's members.
As of December 31, 1998 and 1999, there were no outstanding borrowings. In
1999, the Company had issued a letter of credit in the amount of $250,000 which
expired on January 7, 2000.
5. Long-Term Debt
<TABLE>
<S> <C>
The note payable is payable through monthly payments of $885 plus
interest calculated at either the bank's prime rate plus .25% or
LIBOR plus 2.5%. The interest rate at December 31, 1999 was
8.48%. Loan matures in April 2009 with a balloon payment for
remaining balance secured by the building and guarantee of the
Company's members............................................... $205,417
Less current portion............................................. (10,625)
--------
$194,792
========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000........................................................... $ 10,625
2001........................................................... 10,625
2002........................................................... 10,625
2003........................................................... 10,625
2004........................................................... 10,625
Thereafter..................................................... 152,292
--------
$205,417
========
</TABLE>
F-59
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Related Party Transactions
Due from Member
The Company advanced and borrowed funds on an as needed basis from its
affiliate during 1998. The advances has an interest rate at 9% and were payable
on demand. All advances have been repaid in 1999.
Expense Allocation
The Company shares office space with other companies affiliated through
common ownership. Allocated expenses to the Company totaled $90,223 and $23,316
in 1998 and 1999, respectively.
7. Commitments
Leases
During 1999, the Company leased certain equipment under noncancellable
operating leases expiring at various times through September 2000. Future
minimum lease payments totaled $9,158 and extend through September 30, 2000.
Rent expense was $14,760 in 1999, and related to a charge for office
equipment. In 1998 rent expense was changed through the allocation from its
affiliate.
8. Limited Liability Company Agreement
Under the terms of the LLC Agreement (the "Agreement"), the proportionate
interest of the members in the Company's net profits, net losses, and other
items of net income, gain or loss is equal to their percentage interest in the
LLC. The Agreement expires March 31, 2027. The Agreement provides that no
member shall be liable for the liabilities of the Company. Any member may
assign all or any portion of his membership interest to any other member upon
prior written notice to the manager. Upon dissolution of the Company, the
property of the Company will be distributed as follows: (a) to creditors in
satisfaction of Company liabilities and (b) to the members in proportion to
their percentage interests.
9. Subsequent Event
Effective February 29, 2000, the Company was acquired by DoveBid, Inc.
F-60
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Haltek Electronics dba Test Lab
We have audited the accompanying balance sheets of Haltek Electronics dba
Test Lab ("the Company") as of June 30, 1999 and December 31, 1999, and the
related statements of operations, shareholders' equity, and cash flows for the
year ended June 30, 1999 and the six months ended December 31, 1999. 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 in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Haltek Electronics at June
30, 1999 and December 31, 1999, and the results of its operations and its cash
flows for the year ended June 30, 1999 and the six months ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
March 2, 2000
San Francisco, California
F-61
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
---------------------- December 31,
1998 1999 1999
----------- ---------- ------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................ $ 281,312 $ 476,540 $ 448,612
Accounts receivable, net of allowance for
doubtful accounts of $5,000 at June 30,
1998 and $6,000 at June 30, 1999 and
December 31, 1999....................... 627,902 673,167 1,427,094
Inventory................................ 2,777,095 2,461,212 2,762,260
Other assets............................. 83,384 9,211 7,732
---------- ---------- ----------
Total current assets................... 3,769,693 3,620,130 4,645,698
Fixed assets, net.......................... 208,334 197,572 195,988
Other assets............................... 46,280 52,443 52,443
Deferred tax asset......................... -- 1,488 34,831
---------- ---------- ----------
Total assets........................... $4,024,307 $3,871,633 $4,928,960
========== ========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable......................... $ 418,767 $ 504,392 $ 701,064
Accrued expenses......................... 195,474 208,170 161,381
Bank line of credit...................... 461,500 -- --
Income taxes payable..................... -- -- 425,108
Current portion of notes payable--
shareholder............................. 115,075 427,359 347,128
---------- ---------- ----------
Total current liabilities.............. 1,190,816 1,139,921 1,634,681
Notes payable--shareholder, less current
portion................................... 707,768 584,763 516,799
Other liabilities.......................... 10,000 10,000 --
Shareholders' equity:
Common stock, no par value: Authorized
shares--1,000,000 Issued and outstanding
shares--267,499 in 1998 and 1999........ 40,365 40,365 40,365
Retained earnings........................ 2,075,358 2,096,584 2,737,115
---------- ---------- ----------
Total shareholders' equity............. 2,115,723 2,136,949 2,777,480
---------- ---------- ----------
Total liabilities and shareholders'
equity................................ $4,024,307 $3,871,633 $4,928,960
========== ========== ==========
</TABLE>
See accompanying notes.
F-62
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months Twelve months Twelve months
Year ended June 30, ended ended ended
----------------------- December 31, December 31, December 31,
1998 1999 1999 1999 1998
----------- ---------- ------------ ------------- -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $6,866,438 $5,942,365 $4,263,943 $7,399,729 $5,913,696
Cost of revenues........ 4,581,552 4,143,208 2,329,726 4,827,604 3,973,718
---------- ---------- ---------- ---------- ----------
Gross profit............ 2,284,886 1,799,157 1,934,217 2,572,125 1,939,978
---------- ---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing... 106,104 86,265 65,300 100,709 95,461
General and
administrative....... 2,122,434 1,596,886 771,797 1,591,611 1,783,409
---------- ---------- ---------- ---------- ----------
Total operating
expenses........... 2,228,538 1,683,151 837,097 1,692,320 1,878,870
---------- ---------- ---------- ---------- ----------
Income from operations.. 56,348 116,006 1,097,120 879,805 61,108
Interest income......... 16,285 13,075 -- 6,833 22,527
Interest expense........ (92,082) (100,787) (31,481) (89,153) (103,008)
---------- ---------- ---------- ---------- ----------
Net (loss) income before
taxes on income........ (19,449) 28,294 1,065,639 797,485 (19,373)
Taxes on income......... 4,744 (7,068) (425,108) (318,291) (11,616)
---------- ---------- ---------- ---------- ----------
Net (loss) income ...... $ (14,705) $ 21,226 $ 640,531 $ 479,194 $ (30,989)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-63
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------- Paid In Retained Shareholders'
Shares Amount Capital Earnings Equity
------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1997
(unaudited).............. 267,499 $ -- $40,365 $2,090,063 $2,130,428
Net loss (unaudited).... -- -- -- (14,705) (14,705)
------- ---- ------- ---------- ----------
Balances at June 30, 1998
(unaudited).............. 267,499 -- 40,365 2,075,358 2,115,723
Net income.............. -- -- -- 21,226 21,226
------- ---- ------- ---------- ----------
Balances at June 30,
1999..................... 267,499 -- 40,365 2,096,584 2,136,949
Net income.............. -- -- -- 640,531 640,531
------- ---- ------- ---------- ----------
Balances at December 31,
1999..................... 267,499 $ -- $40,365 $2,737,115 $2,777,480
======= ==== ======= ========== ==========
</TABLE>
See accompanying notes.
F-64
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months Twelve months
Year ended June 30, ended ended
--------------------- December 31, December 31,
1998 1999 1999 1998
----------- --------- ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net income (loss)........... $ (14,705) $ 21,226 $ 640,531 $ (30,989)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation.............. 15,763 20,466 5,040 14,562
Deferred tax asset........ -- (1,488) (33,343) --
Change in operating assets
and liabilities:
Accounts receivable....... 477,295 (45,265) (753,927) 177,471
Inventory................. (187,052) 315,883 (301,048) 216,835
Other assets.............. (83,384) 74,173 1,479 80,000
Accounts payable.......... (208,016) 85,625 196,672 (469,564)
Cash overdraft............ (205,507) -- -- (138,529)
Accrued expenses.......... (3,909) 12,696 (46,789) (4,263)
Income taxes payable...... -- -- 425,108 --
Other liabilities......... -- -- (10,000) --
--------- --------- --------- ---------
Net cash (used in) provided
by operating activities.... (209,515) 483,316 123,723 (154,477)
Investing activities
Purchases of property and
equipment.................. (3,159) (9,704) (3,456) (7,863)
Increase in cash surrender
value of officers' life
insurance.................. (3,600) (6,163) -- (3,600)
--------- --------- --------- ---------
Net cash used in investing
activities................. (6,759) (15,867) (3,456) (11,463)
Financing activities
Proceeds from notes payable
to shareholders............ -- 392,284 -- 834,353
Principal payments to
shareholders............... (216,611) (203,005) (148,195) (128,230)
Line of credit.............. 714,197 (461,500) -- (402,090)
--------- --------- --------- ---------
Net cash provided by (used
in) financing activities... 497,586 (272,221) (148,195) 304,033
--------- --------- --------- ---------
Net increase (decrease) in
cash....................... 281,312 195,228 (27,928) 138,093
Cash and cash equivalents at
beginning of year.......... -- 281,312 476,540 --
--------- --------- --------- ---------
Cash and cash equivalents at
end of year................ $ 281,312 $ 476,540 $ 448,612 138,093
========= ========= ========= =========
Supplemental disclosure of
cash flows information
Interest paid............... $ 92,082 $ 100,787 $ 31,481 103,008
========= ========= ========= =========
Supplemental disclosure--
noncash transactions
Write off fully depreciated
fixed assets............... $ -- $ 3,159 $ 9,704 $ --
========= ========= ========= =========
</TABLE>
See accompanying notes.
F-65
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
NOTES TO FINANCIAL STATEMENTS
1. The Company:
Haltek Electronics (the "Company") was incorporated in 1973. The Company
purchases used electronic test and measurement equipment and refurbishes it for
resale.
On February 29, 2000, Dovebid, Inc., acquired all of the Company's
outstanding shares of common stock, at which time the Company became a wholly
owned subsidiary of Dovebid, Inc.
2. Summary of Significant Accounting Policies:
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the reported amounts of revenues and expenses.
Actual results may differ from those estimates.
Concentrations of Credit Risk and Credit Evaluations--Financial instrument,
which subject the Company to concentrations of credit risk consists primarily
of trade accounts receivable. For years ended June 30, 1998 (unaudited) and
1999 and the six months ended December 31, 1999, no single customer accounted
for greater than 10% of net revenue.
Fixed Assets--Fixed assets are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using accelerated methods (which
approximates the straight line method) over the estimated useful lives of the
related assets, which range from five to seven years.
Income Taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), which requires the use of the liability method in
accounting for income taxes. Under SFAS 109, deferred tax assets and
liabilities are measured based on differences between the financial reporting
and tax bases of assets and liabilities using enacted tax rate and laws that
are expected to be in effect when the differences are expected to reverse.
Revenue Recognition--The Company's revenues are derived primarily from the
resale of used laboratory equipment. The Company recognizes revenues as
equipment is shipped.
The Company has incurred a nominal amount of warranty expense in past years
and management does not expect that warranty costs will be material in the
future.
Inventory--Inventory consists of used laboratory equipment that is
refurbished for resale. Inventory is stated at the lower of cost or market
value.
Recent Accounting Pronouncements -- In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivatives Financial Instruments and for Hedging Activities"
("SFAS 133"), which provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. This
Statement is effective for fiscal years beginning after June 15, 1999. The
Company adopted SFAS 133 in 1999. The adoption of SFAS 133 did not have a
material impact on the Company's financial statements.
3. Bank Line of Credit:
As of June 30, 1999 and December 31, 1999, the Company had available an
unused line of credit with a bank. The line of credit provides that the Company
may borrow up to $700,000 until January 1, 2000, at the bank's prime rate plus
.50% (9.25% at December 31, 1999). As of June 30, 1998 (unaudited) the line of
credit was $500,000 and the Company had drawn $461,500.
F-66
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
NOTES TO FINANCIAL STATEMENTS--(Continued)
The line of credit is secured by the Company's assets and is guaranteed by
one of the major shareholders.
4. Notes Payable--Shareholder:
Notes payable--shareholder consisted of the following:
<TABLE>
<CAPTION>
June 30,
---------------------- December 31,
1998 1999 1999
----------- ---------- ------------
(unaudited)
<S> <C> <C> <C>
Note payable, shareholder, secured by the
assets of the Company, monthly
installments of $14,916, interest rate of
8% per annum, maturing April 1, 2004..... $822,843 $ 707,768 $643,927
Note payable, shareholder, secured by the
assets of the Company, monthly
installments paid from available cash,
accruing interest rate of 8% per annum,
principal and accrued interest are due on
demand................................... -- 304,354 220,000
-------- ---------- --------
822,843 1,012,122 863,927
Less current portion...................... 115,075 427,359 347,128
-------- ---------- --------
$707,768 $ 584,763 $516,799
======== ========== ========
</TABLE>
Maturities of notes payable--shareholder were as follows, for the year
ending December 31:
<TABLE>
<S> <C>
2000............................................................ $347,128
2001............................................................ 148,450
2002............................................................ 155,171
2003............................................................ 124,774
2004............................................................ 88,404
--------
$863,927
========
</TABLE>
5. Related Party Transactions:
The Company leases certain office space on a month to month operating lease
from a shareholder.
For the years ended June 30, 1998 (unaudited) and 1999 and the six months
ended December 31, 1999, the Company paid rent expense to the shareholder of
$72,250, $165,000 and $161,000, respectively and is included in general and
administrative expenses in the statement of operations.
6. Income Taxes:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of the years ended
June 30, 1998 (unaudited) and June 30, 1999 and the six months ended December
31, 1999 are as follows:
<TABLE>
<CAPTION>
June 30,
------------------ December 31,
1998 1999 1999
----------- ------ ------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Bad Debt Allowance......................... $ -- $1,192 $ 2,570
State Taxes................................ -- 296 32,261
----- ------ -------
Total Deferred tax assets................ -- 1,488 34,831
----- ------ -------
Net Deferred tax asset (liability)........... $ -- $1,488 $34,831
===== ====== =======
</TABLE>
F-67
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
NOTES TO FINANCIAL STATEMENTS--(Continued)
For financial reporting purposes, the provision for income taxes consists of
the following for the years ended June 30, 1998 (unaudited) and June 30, 1999
and for the six months ended December 31, 1999.
<TABLE>
<CAPTION>
June 30,
------------------- December 31,
1998 1999 1999
----------- ------- ------------
(unaudited)
<S> <C> <C> <C>
Current
Federal.................................. $(10,522) $ 5,339 $363,370
State.................................... (546) 3,217 94,428
-------- ------- --------
Total Current.......................... (11,068) 8,556 457,798
-------- ------- --------
Deferred
Federal.................................. 6,324 (1,046) (32,601)
State.................................... -- (442) (89)
-------- ------- --------
Total Deferred......................... 6,324 (1,488) (32,690)
-------- ------- --------
Total Tax Provision...................... $ (4,744) $ 7,068 $425,108
======== ======= ========
</TABLE>
The federal statutory rate reconciles to the Company's effective tax rate as
follows for the year ended June 30, 1998 (unaudited) and June 30, 1999 and for
the six months ended December 31, 1999.
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
-------- ------------
<S> <C> <C>
Federal Statutory income tax rate...................... 15.00% 34.00%
State tax provision, net of federal tax benefit........ 8.34 5.83
Other.................................................. 1.64 0.06
----- -----
Effective tax rate..................................... 24.98% 39.89%
===== =====
</TABLE>
7. Retirement Plan:
The Company has a retirement SEP/IRA plan for the employees of the Company.
Contributions by the Company to the plan are discretionary and no amounts are
contributed by the employees. There were no contributions to the plan for the
year ended December 31, 1999. Contribution expense and amounts accrued for the
years ended June 30, 1998 (unaudited) and 1999 and for the six months ended
December 31, 1999 were $120,000, $110,000 and $60,000, respectively.
The Company was purchased subsequent to February 29, 2000 and it is intended
that the plan will be dissolved with the funds being rolled over into new
plans.
8. Unaudited Information:
The statements of operations for the twelve months ended December 31, 1999
is unaudited but includes all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for fair presentation of the
financial operations for that period.
F-68
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Philip Pollack & Co., Inc.
We have audited the accompanying balance sheets of Philip Pollack & Co.,
Inc. as of December 31, 1999, February 28, 1999, and February 28, 1998, and the
related statements of income and retained earnings and cash flows for the ten
month period ended December 31, 1999 and years ended February 28, 1999 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Philip Pollack & Co., Inc.
at December 31, 1999, February 28, 1999, and February 29, 1998, and the results
of its operations and its cash flows for the ten month period ended December
31, 1999 and the years ended February 28, 1999 and 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
March 7, 2000
Chicago, Illinois
F-69
<PAGE>
PHILIP POLLACK & CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
February 28,
December 31, -------------------
1999 1999 1998
------------ ---------- --------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $ 18,558 $ 887,205 $185,257
Billed accounts receivable, net of allowance
for doubtful accounts of $34,070, $34,070,
and $20,313, respectively.................. 159,318 150,198 171,947
Unbilled accounts receivable................ 9,760 70,172 6,371
Deferred auction and appraisal costs........ 118,845 60,327 3,539
Prepaid expenses and other current assets... 44,653 167,993 23,905
-------- ---------- --------
Total current assets...................... 351,134 1,335,895 391,019
Other assets:
Deferred tax asset.......................... 26,816 34,974 79,707
Intangible asset, net....................... 18,000 27,000 36,000
Equipment held for sale..................... 77,931 21,593 --
Due from shareholders....................... 440,485 315,670 257,079
-------- ---------- --------
Total other assets............................ 563,232 399,237 372,786
Equipment and leasehold improvements, net..... 52,407 26,449 30,962
-------- ---------- --------
Total assets.............................. $966,773 $1,761,581 $794,767
======== ========== ========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable............................... $224,179 $ 224,702 $102,525
Accounts payable............................ 174,922 176,219 150,850
Accrued litigation expense.................. 217,192 -- --
Auction proceeds payable.................... 33,987 849,644 276,107
-------- ---------- --------
Total current liabilities................. 650,280 1,250,565 529,482
Deferred income tax........................... 51,231 100,211 36,931
Due to shareholders........................... 98,611 148,899 218,480
Shareholders' equity
Preferred stock, no par value 1,000 shares
authorized, none outstanding............... -- -- --
Common stock, no par value 10,000 shares
authorized, 1,000 issued and outstanding-at
stated value............................... 1,000 1,000 1,000
Retained earnings........................... 165,651 260,906 8,874
-------- ---------- --------
Total shareholders' equity................ 166,651 261,906 9,874
-------- ---------- --------
Total liabilities and shareholders' equity.. $966,773 $1,761,581 $794,767
======== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE>
PHILIP POLLACK & CO., INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Ten Month Year ended
Period Ended February 28,
December 31, ----------------------
1999 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
Revenues:
Auction income.......................... $ 808,120 $ 576,356 $ 534,696
Appraisal income........................ 920,592 1,473,230 979,550
---------- ---------- ----------
Total revenues........................... 1,728,712 2,049,586 1,514,246
Operating expenses:
Direct auction costs.................... 442,620 369,611 336,904
Direct appraisal costs.................. 120,311 93,891 25,370
Selling, general and administrative
expenses............................... 1,081,794 1,248,455 1,062,905
Provision for litigation expense........ 217,192 -- --
---------- ---------- ----------
Total operating expenses................. 1,861,917 1,711,957 1,425,179
---------- ---------- ----------
Income (loss) from operations............ (133,205) 337,629 89,067
Other income............................. 18,167 50,777 11,311
Interest expense......................... (21,040) (28,360) (15,249)
---------- ---------- ----------
Income (loss) before income taxes........ (136,078) 360,046 85,129
Income taxes (credit).................... (40,823) 108,014 25,539
---------- ---------- ----------
Net income (loss)........................ (95,255) 252,032 59,590
Retained earnings (deficit) at beginning
of period............................... 260,906 8,874 (50,716)
---------- ---------- ----------
Retained earnings at end of period....... $ 165,651 $ 260,906 $ 8,874
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE>
PHILIP POLLACK & CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Ten Month
Period Ended Year ended February 28,
December 31, ------------------------
1999 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income (loss)..................... $ (95,255) $ 252,032 $ 59,590
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization....... 13,137 20,940 22,280
Deferred income taxes............... (40,823) 108,014 25,539
Changes in operating assets and
liabilities:
Billed accounts receivable........ (9,120) 21,749 (58,597)
Unbilled accounts receivable...... 60,412 (63,801) (6,371)
Auction inventory................. (56,338) (21,593) 44,500
Deferred auction and appraisal
costs............................ (58,518) (56,788) 20,291
Prepaid expenses and other current
assets........................... 123,340 (144,088) 47,615
Accounts payable.................. (1,297) 25,369 1,858
Accrued litigation expense........ 217,192 -- --
Auction proceeds payable.......... (815,657) 573,537 (34,318)
--------- ----------- -----------
Net cash provided by (used in)
operating activities................. (662,927) 715,371 122,387
Investing activity:
Purchases of equipment and leasehold
improvements........................... (30,094) (7,428) (57,767)
--------- ----------- -----------
Net cash used in investing activity... (30,094) (7,428) (57,767)
Financing activities:
(Repayments ) borrowings under notes
payable, net......................... (523) 122,177 (104,000)
Due from shareholder, net............. (124,815) (58,591) (14,967)
Due to shareholder, net............... (50,288) (69,581) (29,655)
--------- ----------- -----------
Net cash provided by (used in)
financing activities................. (175,626) (5,995) (148,622)
--------- ----------- -----------
Net increase in cash and cash
equivalents............................ (868,647) 701,948 (84,002)
Cash and cash equivalents at beginning
of period.............................. 887,205 185,257 269,259
--------- ----------- -----------
Cash and cash equivalents at end of
period................................. $ 18,558 $ 887,205 $ 185,257
========= =========== ===========
Supplemental disclosure of cash flow
information:
Interest paid........................... $ 21,040 $ 28,360 $ 15,249
========= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-72
<PAGE>
PHILIP POLLACK & CO., INC.
NOTES TO FINANCIAL STATEMENTS
Ten month period ended December 31, 1999 and
Years ended February 28, 1999 and 1998
1. Basis of Presentation and Description of Business
Philip Pollack & Co., Inc. ("the Company") is a business to business
auctioneer focusing on the used capital equipment market. The Company also
provides appraisal and other related services. The accompanying financial
statements have been prepared using historical cost basis. On February 7, 2000
the shareholders agreed to sell all of the common stock of the Company to
Dovebid, Inc., and the carrying values of assets and liabilities in the
accompanying financial statements have not been adjusted for any purchase
accounting adjustments. This transaction closed on March 2, 2000.
2. Summary of Significant Accounting Policies
Equipment and Leasehold Improvements
Equipment and leashold improvements are stated at cost. Depreciation and
amortization are computed using accelerated methods over the estimated useful
lives of the respective assets, ranging from five to seven years.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires the use of the liability method of accounting for income
taxes. Under SFAS 109, deferred tax assets and liabilities are measured based
on differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rate and laws that are expected to be in effect
when the differences are expected to reverse.
The Company files income tax returns on a cash basis. Deferred income taxes
are provided on differences between accrual and cash basis.
Accounting Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires Company management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. The Company will, when determined
necessary, accrue for estimated liabilities when the financial effect is
probable and can be estimated by management. Actual results could differ from
those estimates.
Revenue Recognition
Buyer's premiums and direct auction expenses charged to customers are
recognized as auction income upon closing of the related auction less estimates
for certain allowances and after resolution of any significant uncertainties as
to the ultimate collection of auction proceeds. Buyer's premiums consists of a
fee based on the transaction price. Direct costs of auctions are deferred and
charged to expense upon closing of the related auction.
Income from appraisals are recognized as the services are performed.
Unbilled Accounts Receivable
Unbilled accounts receivable represent direct costs of appraisals incurred
and income recognized on appraisals in process. The amounts are typically
billed within the following month.
F-73
<PAGE>
PHILIP POLLACK & CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Advertising Costs
The Company expenses advertising costs as incurred.
3. Equipment and leasehold improvements
Equipment and leasehold improvements consists of the following:
<TABLE>
<CAPTION>
February 28,
-------------------- December 31,
1998 1999 1999
--------- --------- ------------
<S> <C> <C> <C>
Furniture and fixtures....................... $ 124,394 $ 124,394 $ 124,394
Computers and software....................... 112,647 119,910 147,494
Office equipment............................. 8,398 8,563 11,074
--------- --------- ---------
245,439 252,867 282,962
Less Accumulated depreciation................ (214,477) (226,418) (230,555)
--------- --------- ---------
$ 30,962 $ 26,449 $ 52,407
========= ========= =========
</TABLE>
4. Accrued Litigation Expense
On August 4, 1999, a judgment in the amount of $217,192 was entered against
the Company in the State of Idaho as a result of litigation arising from
appraisal services and a provision for this judgment was recorded in the ten
month period ended December 31, 1999. Management intends to pursue, through
legal counsel, the non-enforceability of this judgement in the State of
Illinois.
5. Notes Payable
Notes payable are borrowings generally under six month notes to a bank which
bear interest (9.5% at December 31, 1999) at 1% over the bank's prime rate. The
notes are collateralized by inventory, chattel paper, accounts and general
intangibles of the Company and are personally guaranteed by a shareholder.
6. Related Party Transactions
During the ten months ended December 31, 1999, the Company and Dove Brothers
LLC, a subsidiary of Dove Bid Inc., jointly conducted an auction. The Company's
portion of buyer's premium and direct auction costs are reflected in the
statement of operations.
In addition, the Company engaged an advertising firm owned by the
shareholders to provide advertising services in the amount of $134,313,
$109,451 and $149,714 for the years ended February 28, 1998 and 1999 and in the
ten-month period ended December 31, 1999, respectively.
7. Commitments and Contingencies
Future minimum rental payments under non cancelable operating lease
agreements with terms in excess of one year are as follows:
<TABLE>
<S> <C>
2000............................................................. $21,233
2001............................................................. 21,933
2002............................................................. 22,633
2003............................................................. 23,333
2004............................................................. 23,700
Thereafter....................................................... 15,667
</TABLE>
F-74
<PAGE>
PHILIP POLLACK & CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Rent expense under all operating leases totaled $64,203, $73,734, $66,707
for the years ended February 28, 1998 and 1999 and the ten-month period ended
December 31, 1999, respectively.
8. Income Taxes
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
February 28,
---------------- December 31,
1998 1999 1999
------- -------- ------------
<S> <C> <C> <C>
Current:
Federal......................................... $ -- $ -- $ --
State........................................... -- -- --
Deferred (credit)................................. 25,539 108,014 (40,823)
------- -------- --------
$25,539 $108,014 $(40,823)
======= ======== ========
</TABLE>
At December 31, 1999, the Company had net operating losses carry forwards
(on a cash basis) for income tax purposes of approximately $89,000.
9. Impact of the Year 2000 (Unaudited)
The Company was not required to replace significant portions of its
software, and the Year 2000 issue did not cause operational problems for its
computer systems. Ultimately, any potential future impact of the Year 2000
issue will depend not only on corrective measures the Company undertook, but
also on the way in which the Year 2000 issue was addressed by businesses and
other entities whose financial condition or operational capability is important
to the company as vendors.
F-75
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Norman Levy Associates, Inc.
We have audited the accompanying consolidated balance sheets of Norman Levy
Associates, Inc. (a Michigan corporation) and subsidiaries as of April 30, 1999
and 1998, and the related consolidated statements of operations and retained
earnings, and cash flows for the years then ended. 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 in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Norman Levy
Associates, Inc. and subsidiaries as of April 30, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
March 26, 2000
F-76
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Norman Levy Associates, Inc.
We have audited the accompanying consolidated financial statements of Norman
Levy Associates, Inc. and subsidiaries as of March 24, 2000, and the related
statements of income and retained earnings and cash flows for the eleven-month
period ended March 24, 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial statements of
Levy/Latham, LLC, (an entity in which the company has a 50% interest), have
been audited by other auditors whose report has been furnished to us for the
year ended September 30, 1999. Insofar as our opinion on the consolidated
financial statements relates to data for the year ended September 30, 1999,
included for Levy/Latham, LLC, it is based solely on their report.
We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit and the report of
other auditors, provide a reasonable basis for our opinion.
In our opinion based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Norman Levy Associates, Inc. and
subsidiaries at March 24, 2000 and the results of its operations and its cash
flows for the eleven-month period ended March 24, 2000, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
August 4, 2000
Detroit, Michigan
F-77
<PAGE>
NORMAN LEVY ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30,
March 24, ---------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $2,621,472 $1,458,118 $1,381,942
Cash held for customers..................... 2,979,397 1,046,974 525,443
Accounts receivable, less allowance for
doubtful receivables of $209,263 at March
24, 2000 and $204,000 and $136,000 at April
30, 1999 and 1998, respectively............ 874,980 975,541 856,845
Receivable from stockholders................ 453,506 283,794 354,264
Advances to affiliates...................... 1,580,509 2,912,723 2,486,769
Unbilled costs and expenses................. 30,783 30,783 24,430
Prepaid expenses and other.................. 124,141 173,967 116,948
---------- ---------- ----------
Total current assets.................... 8,664,788 6,881,900 5,746,641
Property and equipment--at cost:
Furniture, fixtures and office equipment.... 1,024,032 759,408 833,654
Leasehold improvements...................... 139,978 126,200 62,429
Vehicles.................................... 188,453 168,949 129,572
---------- ---------- ----------
1,352,463 1,054,557 1,025,655
Less accumulated depreciation and
amortization............................... 596,584 400,950 620,390
---------- ---------- ----------
755,879 653,607 405,265
Other assets.................................. 121,267 125,270 168,770
---------- ---------- ----------
Total assets............................ $9,541,934 $7,660,777 $6,320,676
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of notes payable......... $ 111,651 $ 111,648 $1,148,865
Line of credit.............................. 733,322 2,141,794 1,395,515
Auction proceeds payable.................... 2,979,397 1,046,974 525,443
Accounts payable............................ 1,080,002 363,985 345,525
Accrued expenses:
Salaries and wages........................ 1,464,375 873,135 579,837
Employees' profit sharing plan............ 220,176 187,368 179,380
Other current liabilities................... 383,002 29,490 27,732
---------- ---------- ----------
Total current liabilities............... 6,971,925 4,754,394 4,202,297
Deficit with investee......................... 472,038 657,849 --
Notes payable, less current maturities........ 341,154 437,305 --
Other long-term obligations................... 98,995 111,954 128,958
Stockholders' equity:
Common stock, $10 par value; 5,000 shares
authorized; 100 shares issued and
outstanding................................ 1,000 1,000 1,000
Retained earnings........................... 1,656,822 1,698,275 1,988,421
---------- ---------- ----------
Total stockholders' equity.............. 1,657,822 1,699,275 1,989,421
---------- ---------- ----------
Total liabilities and stockholders'
equity ................................ $9,541,934 $7,660,777 $6,320,676
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-78
<PAGE>
NORMAN LEVY ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Eleven months
ended Years ended April 30,
March 24, ----------------------
2000 1999 1998
------------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Auction commissions..................... $ 3,123,059 $3,146,248 $3,020,054
Appraisal services...................... 6,580,833 6,473,436 3,972,065
----------- ---------- ----------
9,703,892 9,619,684 6,992,119
Costs and expenses:
Direct auction and appraisal costs...... 4,723,448 3,728,339 2,921,273
Sales and marketing..................... 1,314,767 3,005,119 2,037,290
General and administrative.............. 3,882,988 2,419,167 2,227,680
Depreciation and amortization........... 207,366 190,971 140,129
----------- ---------- ----------
10,128,569 9,343,596 7,326,372
----------- ---------- ----------
Income (loss) from operations............. (424,677) 276,088 (334,253)
Other income (expense):
Income (loss) from investee............. 146,561 (707,849) --
Interest expense........................ (47,161) (310,662) (369,291)
Interest income--related party.......... 286,636 239,034 267,865
Interest income......................... (2,812) 213,243 279,163
----------- ---------- ----------
383,224 (566,234) 177,737
----------- ---------- ----------
Net loss.................................. (41,453) (290,146) (156,516)
Beginning retained earnings............... 1,698,275 1,988,421 2,144,937
----------- ---------- ----------
Ending retained earnings.................. $ 1,656,822 $1,698,275 $1,988,421
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-79
<PAGE>
NORMAN LEVY ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Eleven months
ended Years ended April 30,
March 24, -------------------------
2000 1999 1998
------------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss)........................... $ (41,453) $ (290,146) $ (156,516)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities
(Gain) Loss from investee.......... (146,561) 657,849 --
Depreciation and amortization...... 207,366 190,971 140,129
Provision for bad debts............ 5,263 68,000 92,995
Loss on disposal of property and
equipment......................... 4,434 31,625 14,612
Changes in operating assets and
liabilities:
Accounts receivable.............. 100,561 (186,696) (533,194)
Unbilled costs and expenses...... -- (6,353) 821
Prepaid expenses and other....... 49,826 (57,019) 499,495
Other assets..................... 4,003 37,160 (124,251)
Auction proceeds payable......... 1,932,423 521,531 (2,548,018)
Accounts payable................. 716,017 18,460 91,179
Accrued expenses................. 624,048 301,286 (413,771)
Other current liabilities........ 353,512 1,758 (348,230)
Dividends payable................ -- -- (416,136)
----------- ----------- ------------
Net cash provided by (used in)
operating activities.......... 3,809,439 1,288,426 (3,700,885)
Cash flows from investing activities:
Purchases of property and equipment.. (329,504) (468,668) (223,286)
Proceeds from sales of property and
equipment........................... 10,169 4,070 13,200
Repayments from (advances to)
affiliates.......................... 1,332,214 (425,954) (640,675)
Investment in investee............... (39,250) -- (50,000)
----------- ----------- ------------
Net cash provided by (used in)
investing activities.......... 973,629 (890,552) (900,761)
Cash flows from financing activities:
Proceeds from line of credit ........ 2,200,000 7,499,578 9,407,603
Repayment of line of credit.......... (3,608,472) (6,753,299) (10,990,614)
Proceeds from notes payable.......... -- -- 1,424,730
Repayments of notes payable.......... (96,148) (599,912) (275,865)
Proceeds from (repayment of) other
long-term obligations............... (12,959) (17,004) 92,716
Payments from stockholders........... (169,712) 70,470 103,528
----------- ----------- ------------
Net cash provided by (used in)
financing activities.......... (1,687,291) 199,833 (237,902)
----------- ----------- ------------
Net increase (decrease) in cash
and cash equivalents.......... 3,095,777 597,707 (4,839,548)
Cash and cash equivalents at beginning
of year............................... 2,505,092 1,907,385 6,746,933
----------- ----------- ------------
Cash and cash equivalents at end of
year.................................. $ 5,600,869 $ 2,505,092 $ 1,907,385
=========== =========== ============
Supplemental disclosure of cash flow
information:
Interest paid........................ $ 47,161 $ 308,202 $ 370,791
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-80
<PAGE>
NORMAN LEVY ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 24, 2000, April 30, 1999 and 1998
NOTE A--SUMMARY OF ACCOUNTING POLICIES
Norman Levy Associates, Inc. ("The Company") conducts auctions of industrial
equipment for clients in various industries. The Company also performs
appraisal services throughout the United States for companies, lenders and
buyers seeking advice on the value of businesses, inventory and tangible and
intangible assets. The Company is headquartered in Southfield, Michigan and has
branch offices in Atlanta, Boston, Chicago, Flagstaff, Houston and San
Francisco.
On March 24, 2000, the shareholders of the Company signed a Stock Purchase
Agreement with DoveBid, Inc. whereby the Company sold all its issued and
outstanding capital stock for approximately $27.8 million. The total
consideration consisted of $17.55 million in cash, $250,000 in deferred cash
and $10.0 million in convertible subordinated promissory notes.
The sellers have retained ownership of certain assets including the
investment in the Levy-Latham joint venture (Note F) and certain art objects,
the ownership of stock investments in TradeOut.com, Inc. and certain related
party receivables.
A summary of the significant accounting policies applied in the presentation
of the accompanying consolidated financial statements follows.
1. Principles of Consolidation
The consolidated financial statements include Norman Levy Associates, Inc.,
and its wholly-owned subsidiary, Norman Levy Associates Canada. All significant
intercompany accounts and transactions have been eliminated in consolidation.
2. Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the 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.
3. Cash and Cash Equivalents and Cash Held for Customers
Cash and cash equivalents include cash on hand, demand deposits and short-
term investments with original maturities of three months or less.
The Company generally collects the gross proceeds from an onsite auction on
behalf of the selling parties and holds such proceeds until the final
settlement date of the auction. These amounts are classified as cash held for
customers in the accompanying balance sheets.
The portion of the proceeds that must be remitted to the owner of the assets
sold during an auction is reflected as a liability in the accompanying balance
sheets, net of the Company's commissions and expense reimbursements that have
not been disbursed.
4. Fair Value of Financial Instruments
Due to their short-term nature, the carrying value of the Company's current
financial assets and liabilities approximate their fair values. The fair value
of the company's borrowings, if determined based on current interest rates,
would not significantly differ from the recorded amounts.
F-81
<PAGE>
NORMAN LEVY ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Depreciation and Amortization
Office equipment, leasehold improvements and other property are recorded at
cost. Depreciation and amortization has been computed using both straight-line
and accelerated methods over the estimated useful lives of the respective
assets or lease term. These useful lives range from five to seven years for all
property and equipment except for leasehold improvements where the shorter of
the useful life or lease term is used.
6. Revenue Recognition
The Company recognizes revenue from appraisal fees when the services are
completed and the appraisal report is delivered, utilizing the completed
contract method of accounting for these relatively short-term contracts. This
method is used because the financial position and results of operations do not
vary significantly from those which would result from use of the percentage-of-
completion method. Deposits received on appraisal projects are deferred until
completion of the appraisal report. Costs and expenses are recognized during
the same period in which the associated revenue is earned. Accordingly, costs
and expenses that are directly associated with projects in process are deferred
as unbilled costs and expenses until the matching revenue is earned.
Any deferred costs and expenses projected to exceed revenues are immediately
expensed.
Revenues from commission income from third-party auctions, less estimates
for allowances for refunds, are recognized upon closing of the related auction
at which time both the buyer and seller have legally agreed to the terms of the
transaction and the company has performed all services necessary for it to earn
its commission. This income consists of a fee based on the auction transaction
price and other revenue associated with ancillary auction services such as
referral and participation fees and revenue for recovery of costs incurred
directly by the Company. All direct auction costs, consisting primarily of
outside labor direct facilities, marketing materials and supplies, are deferred
until the related auction revenue is recognized.
NOTE B--CONCENTRATION OF CREDIT RISK
The Company's cash and cash equivalents include deposits and overnight
investments primarily in one financial institution and had a net balance that
exceeded FDIC insurance levels at March 24, 2000 and April 30, 1999 and 1998,
by approximately $5,786,000, $1,905,092 and $1,207,385.
The Company typically does not require collateral or other security of its
customers.
NOTE C--ADVERTISING COSTS
The Company expenses advertising costs as incurred. For the periods ended
March 24, 2000, April 30, 1999 and 1998, approximately $187,000, $191,000 and
$64,000 were expensed related to advertising.
NOTE D--INCOME TAXES
No provision for income taxes is reflected in the financial statements as
the Company has elected under the Internal Revenue Service Code ("Code") to be
taxed as an S Corporation. There have been no distributions to stockholders for
the periods ended March 24, 2000 and April 30, 1999 and 1998 for the payment of
taxes.
NOTE E--RELATED PARTY TRANSACTIONS
Receivable for stockholders
Receivable for stockholders represents funds advanced by the Company for
stockholders' expenses not related to the Company's operations.
F-82
<PAGE>
NORMAN LEVY ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advances to affiliates
The advances to affiliates represent an open-ended revolving loan to an
entity related to the company through common control. The advance bears
interest at 7.5% per annum which is recognized by the Company as earned.
Advances are funded by the company's line of credit. The Company has not
recorded an allowance for doubtful accounts as the advances to affiliates are
considered fully collectible.
NOTE F--INVESTMENT IN (DEFICIT WITH) INVESTEE
The Company owns a 50% interest in Levy/Latham, LLC ("Levy/Latham") whose
wholly owned subsidiary, headquartered in Arizona, conducts auctions of
equipment on behalf of the U.S. Government. Operations commenced in July, 1998.
The Company accounts for the investment in Levy/Latham on the equity method.
The investment in Levy/Latham consists of the following:
<TABLE>
<CAPTION>
March 24, April 30,
--------- ------------------
2000 1999 1998
--------- --------- -------
<S> <C> <C> <C>
Beginning investment in (deficit with)
investee................................... $(657,849) $ 50,000 $ --
Initial capital contribution................ -- -- 50,000
Additional capital contribution............. 39,250 -- --
Income (Loss) from Levy/Latham.............. 146,561 (707,849) --
--------- --------- -------
Investment in (deficit with) investee..... $(472,038) $(657,849) $50,000
========= ========= =======
</TABLE>
In July, 1998 Levy/Latham entered into a $7,000,000 bank line-of-credit
agreement. The Company along with the other member of Levy/Latham, are
guarantors of the outstanding balance of $3,950,000 and $2,750,000 as of March
24, 2000 and April 30, 1999.
Summarized financial information for Levy/Latham which is accounted for
using the equity method as of February 29, 2000 and March 31, 1999 and for the
eleven months ended February 29, 2000 and the period from July 14, 1998
(commencement of operations) through March 31, 1999 is as follows:
<TABLE>
<CAPTION>
February March 31,
29, 2000 1999
---------- -----------
<S> <C> <C>
Revenue............................................. $9,134,137 $ 2,763,000
Net loss............................................ (227,813) (1,416,000)
Assets.............................................. 5,466,821 1,659,000
Liabilities......................................... 6,025,073 2,975,000
</TABLE>
The above table represents financial information on a one month lag. A loss
from Levy/Latham for the one month period, March 2000 was $505,000 of which 50%
has been included in the financial statement of Norman Levy, Inc.
NOTE G--LINE OF CREDIT
The Company has available an $8,000,000 unsecured line of credit with a bank
due September 30, 2000. The Company owed $132,384, $1,452,385 and $392,003 on a
domestic line with interest at 9.0% at March 24, 2000, 7.75% at April 30, 1999
and 8.5% at April 30, 1998, respectively. The Company owed $600,938, $689,409
and $1,003,512 at March 24, 2000, April 30, 1999 and 1998, respectively, on a
foreign line at interest rates of LIBOR plus 150 basis points (effective rates
of 7.650%, 6.875% and 9.125% at March 24, 2000, April 30, 1999 and 1998,
respectively).
F-83
<PAGE>
NORMAN LEVY ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of March 24, 2000 and April 30, 1999 and 1998, the Company is in
violation of a loan agreement covenant requiring the company to maintain a
minimum tangible net worth of $2,783,000. The Company received a waiver related
to this covenant violation and paid off all outstanding amounts in May, 2000 as
part of the purchase agreement by DoveBid, Inc.
NOTE H--NOTE PAYABLE
The Company has a note payable with a bank, collateralized by equipment with
monthly principal payments of $9,304 plus interest at 9.0%. The note payable
was paid off in May 2000 as part of the purchase agreement with DoveBid, Inc.
NOTE I--COMMITMENTS AND CONTINGENCIES
Auction guarantee agreements
The Company periodically enters into agreements with auction clients under
which the company guarantees the clients a minimum payment. If the proceeds of
the auction sales are not adequate to fund the minimum payment, the Company
funds the minimum payment and takes title to any remaining equipment. At March
24, 2000, there was one outstanding guarantee for $208,000. There were no
outstanding guarantees at April 30, 1999.
Bonus plan
The Company has entered into an agreement with an employee that expires
April 30, 2000 to pay additional compensation based on a fixed amount of
$75,000 and a percentage of the company's profitability. The percentage bonus
is calculated based on 20% of the Company's net profits adjusted for
stockholders' compensation. The amounts due under this agreement were $430,000,
$267,000 and $102,000 for the periods ended March 24, 2000, and April 30, 1999
and 1998, respectively, and were paid off as part of the purchase by DoveBid,
Inc.
Operating leases
The Company is obligated under several operating lease agreements for office
space, equipment and vehicles expiring at various dates through 2003. The
future minimum lease payments under these operating leases as of March 24, 2000
are as follows:
<TABLE>
<S> <C>
Year ending March 24,
2001........................................................... $211,198
2002........................................................... 90,957
2003........................................................... 42,460
--------
Total future minimum lease payments.......................... $344,615
========
</TABLE>
Rental expense under the above operating leases totaled $256,813, $241,484
and $172,294 for the years ended March 24, 2000 and April 30, 1999 and 1998,
respectively.
Other long-term obligations
In September, 1997, the Company purchased a trademark and other intangible
assets from an individual requiring the Company to make monthly payments of
$1,300 for a term of 120 months. The trademark and other intangibles and
related liability were recorded based upon the present value of the monthly
stream of payments. The trademark and other intangibles are included in other
assets and are being amortized over 10 years, which is their estimated useful
lives, on a straight-line basis.
F-84
<PAGE>
NORMAN LEVY ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Profit sharing plan
The Company maintains a defined contribution profit sharing plan for its
full-time employees. Employer contributions to the plan are at the discretion
of the Board of Directors. Contributions to the plan for the years ended March
24, 2000, April 30, 1999 and 1998 were $220,176, $187,368 and $179,380
respectively.
Litigation
The Company is involved in various legal claims and litigation in the normal
course of its business. In the opinion of management, based upon consultation
with legal counsel, the eventual outcome of such claims and litigation is not
expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.
F-85
<PAGE>
Independent Auditors' Report
The Managing Member
Levy/Latham, LLC:
We have audited the consolidated balance sheet of Levy/Latham, LLC and
subsidiary (the Company) as of September 30, 1999 and the related consolidated
statements of operations, members' deficit and cash flows for the year ended
September 30, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Levy/Latham, LLC and subsidiary as of September 30, 1999, and the results of
their operations and their cash flows for the year ended September 30, 1999 in
conformity with accounting principles generally accepted in the United States
of America.
/s/ KPMG LLP
Phoenix, Arizona
January 20, 2000
F-86
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Champion Computer Products, Inc.:
We have audited the accompanying balance sheet of CHAMPION COMPUTER
PRODUCTS, INC. (a Georgia S corporation) as of December 31, 1999 and the
related statement of operations, shareholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Champion Computer Products,
Inc. as of December 31, 1999 and the results of its operations and its cash
flows for the year then ended in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen
Atlanta, Georgia
April 3, 2000 (except with respect to the matters discussed in Note 7 to which
the date is July 3, 2000)
F-87
<PAGE>
CHAMPION COMPUTER PRODUCTS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash................................................ $ -- $ 18,632
Accounts receivable, net of allowance for doubtful
accounts of $40,000 in 1999 and $180,000 in 2000... 1,894,419 1,642,534
Inventory........................................... 4,648,451 5,228,136
Other receivables................................... 481,846 611,838
Receivables from shareholders....................... 249,569 1,086,827
Other current assets................................ 10,000 --
---------- ----------
Total current assets.............................. 7,284,285 8,587,967
---------- ----------
Property and equipment:
Machinery and equipment............................. 100,180 229,170
Furniture and fixtures.............................. 411,089 593,691
Computer hardware and software...................... 156,356 167,738
Leasehold improvements.............................. 25,158 62,923
---------- ----------
692,783 1,053,522
Less accumulated depreciation and amortization...... (223,689) (333,309)
---------- ----------
Property and equipment, net....................... 469,094 720,213
---------- ----------
Other assets.......................................... 87,432 50,714
---------- ----------
Total assets...................................... $7,840,811 $9,358,894
========== ==========
</TABLE>
<TABLE>
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable..................................... $ 115,857 $1,606,420
Line of credit....................................... 4,320,885 4,787,819
Note payable......................................... -- 2,000,000
Notes payable to related parties..................... 2,110,000 --
Accrued expenses and other current liabilities....... 416,523 298,974
---------- ----------
Total current liabilities.......................... 6,963,265 8,693,213
---------- ----------
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock, $1.00 par value; 50,000 authorized; 600
issued and outstanding.............................. 600 600
Additional paid-in capital........................... 1,200,000 1,200,000
Accumulated deficit.................................. (323,054) (534,919)
---------- ----------
Total shareholders' equity......................... 877,546 665,681
---------- ----------
Total liabilities and shareholders' equity......... $7,840,811 $9,358,894
========== ==========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-88
<PAGE>
CHAMPION COMPUTER PRODUCTS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December June 30,
31, 1999 2000
----------- -----------
(unaudited)
<S> <C> <C>
Product sales, net................................... $42,849,333 $18,455,684
Cost of product sales................................ 34,903,270 14,498,100
----------- -----------
Gross profit....................................... 7,946,063 3,957,584
Selling, general, and administrative expenses........ 7,714,145 4,725,194
----------- -----------
Operating income (loss)............................ 231,918 (767,610)
Other income (expense), net.......................... (13,215) 174,698
----------- -----------
Net income (loss).................................... $ 218,703 $ (592,912)
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-89
<PAGE>
CHAMPION COMPUTER PRODUCTS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
------------- Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Equity
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998.. 600 $600 $1,200,000 $(161,011) $1,039,589
Distributions to
shareholders............. -- -- -- (380,746) (380,746)
Net income................ -- -- -- 218,703 218,703
--- ---- ---------- --------- ----------
BALANCE, December 31, 1999.. 600 $600 $1,200,000 $(323,054) $ 877,546
Contributions from
shareholders, net........ -- -- -- 381,047 381,047
Net loss.................. -- -- -- (592,912) (592,912)
--- ---- ---------- --------- ----------
BALANCE, June 30, 2000
(unaudited)................ 600 $600 $1,200,000 $(534,919) $ 665,681
=== ==== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-90
<PAGE>
CHAMPION COMPUTER PRODUCTS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December June 30,
31, 1999 2000
----------- -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 218,703 $ (592,912)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 99,595 109,620
Net loss (gain) on sale or impairment of property
and equipment...................................... 91,345 --
Changes in operating assets and liabilities:
Accounts receivable................................ (1,490,824) 216,885
Inventories........................................ 2,255,758 (579,685)
Other assets....................................... 6,423 (920,532)
Provision for doubtful accounts.................... 40,000 (140,000)
Provision for returns.............................. 210,042 175,000
Prepaid expenses................................... 2,943 --
Accounts payable................................... (192,716) 1,490,563
Accrued expenses................................... 105,907 (117,549)
----------- -----------
Net cash provided by (used in) operating
activities....................................... 1,347,176 (358,610)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment.................. (67,046) (360,739)
----------- -----------
Cash flows from financing activities:
Contributions from (distributions to) shareholders... (380,746) 381,047
Repayment of line of credit.......................... (517,856) --
Drawdown on line of credit........................... -- 466,934
Repayment of note payable............................ (1,000,000) (2,110,000)
Proceeds from note payable........................... 610,000 2,000,000
----------- -----------
Net cash provided by (used in) financing
activities....................................... (1,288,602) 737,981
----------- -----------
Net change in cash and cash equivalents............... (8,472) 18,632
Cash and cash equivalents, beginning of year.......... 8,472 --
----------- -----------
Cash and cash equivalents, end of year................ $ -- $ 18,632
=========== ===========
Cash paid for interest................................ $ 941,323 $ 339,883
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-91
<PAGE>
CHAMPION COMPUTER PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
Champion Computer Products, Inc. (the "Company" or "Champion"), a Georgia S
corporation, is a computer electronics buyer and liquidator, buying and selling
to the wholesaler and general public. Champion purchases computers and computer
accessories such as hardware, software, printers, monitors, and accessory items
on liquidation from computer and technology retailers. Champion sells their
products primarily through Web-based auction houses, and also sells goods
directly to the public through their retail outlets.
Summary of Significant Accounting Policies
Interim Unaudited Financial Information
The financial statements as of June 30, 2000 and for the six months ended
June 30, 2000 are unaudited. However, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the unaudited financial statements for these interim
periods have been included. The results of the interim period are not
necessarily indicative of the results to be obtained for a full year.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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. Actual results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost or market, with cost being
determined using the first-in first-out method and market being determined
based on realized sales values. For the year ended December 31, 1999, standard
costs did not differ significantly from actual costs. Included in inventory is
$1,822,905 of inventory that had been paid for by the Company and was in
transit as of December 31, 1999. The risk of loss had transferred to the
Company when the inventory was placed in transit to the Company.
Other Receivables
Other receivables consist of amounts owed Champion from various vendors
related to short shipments of inventory Champion purchased. The amount will be
collected from these vendors by Champion through credits against future orders,
replacement inventory items, or cash.
Property and Equipment
Property and equipment consist of furniture and fixtures, machinery and
equipment, computer hardware and software, and leasehold improvements.
Depreciation is provided using the straight-line method over the estimated
useful lives of the various classes of property.
F-92
<PAGE>
CHAMPION COMPUTER PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The estimated useful life of assets is as follows:
<TABLE>
<S> <C>
Furniture and fixtures............................... Seven years
Machinery and equipment.............................. Five to seven years
Computer hardware and software....................... Three to five years
Leasehold improvements............................... Five years
</TABLE>
Total depreciation expense for the year ended December 31, 1999 and the six
months ended June 30, 2000 was $99,595 and $109,620, respectively.
Revenue Recognition
Revenue is recognized when the product is shipped to the end customer.
Credit and Concentrations of Risk
During the year ended December 31, 1999, approximately 26% of the Company's
revenue was generated from one customer. During the six months ended June 30,
2000, two customers accounted for approximately 32% and 14%, respectively, of
the Company's revenue.
Sales Returns
The Company provides a warranty of 90 days on systems and notebooks, 30 days
on monitors over 15 inches, and 7 days on all other merchandise except
software. All software sales are final. Returns are for repair, replacement, or
store credit. No refunds are given and any repairs are typically done at
Champion. Total accrual for returns was approximately $210,000 and $35,000 at
December 31, 1999 and June 30, 2000, respectively. Sales returns of $484,971
were recorded against revenues in the accompanying statement of operations for
the year ended December 31, 1999.
Accrued Expenses
The following details the accrued expenses and other current liabilities:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -----------
(unaudited)
<S> <C> <C>
Accrued salaries....................................... $129,010 $181,517
Accrued vacation....................................... 24,109 24,109
Accrued returns........................................ 210,041 35,041
Accrued interest....................................... 26,486 --
Sales tax payable...................................... 21,180 14,392
Other.................................................. 5,697 43,915
-------- --------
$416,523 $298,974
======== ========
</TABLE>
New Accounting Pronouncements
In July 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 137, providing for a one-year delay
of the effective date of SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all
F-93
<PAGE>
CHAMPION COMPUTER PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
derivatives as either assets or liabilities on the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value
of a derivative depends on the intended use of the derivative and the resulting
designation. The Company will be required to adopt SFAS No. 133 in 2001.
Management does not expect SFAS No. 133 to have a material effect on its
financial position or results of operations.
2. Line of Credit
The Company has available a $5,000,000 revolving line of credit of which
$4,320,885 and $4,787,819 was outstanding as of December 31, 1999 and June 30,
2000, respectively. The line bears interest at prime. Borrowings outstanding at
December 31, 1999 and June 30, 2000 were accruing interest at 8.50% and 9.50%,
respectively. The terms of the revolving credit facility contain, among other
provisions, requirements for maintaining certain net worth and other financial
ratios and specific limits or restrictions on additional indebtedness, liens
and merger activity. In addition, Scott M. Guenther, President and Champion's
majority shareholder, must maintain key-man life insurance of not less than
$5,000,000 with the bank named loss payee for the life of the loan and any
other indebtedness to the bank. Also, Champion's minority shareholder must
maintain liquid assets with the bank equal to $5,000,000 for the life of the
credit facility.
The Company had the following outstanding debt to related parties:
Promissory notes:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Note payable to the minority shareholder, bearing interest
annually at 24%................................................. $1,500,000
Note payable to a related party, bearing interest at 24%......... 610,000
----------
$2,110,000
==========
</TABLE>
At June 30, 2000, the Company had a $2.0 million note payable to a computer
dealer for the purchase of inventory. The note bears interest at 10.5% and is
due in August 2000.
3. Income Taxes
Champion is organized as an S corporation under the Internal Revenue Code.
As a result, the Company's income is not subject to corporate-level taxes;
rather, the income or losses of the Company flow through to its two
shareholders.
4. Related Party Transactions
During the year ended December 31, 1999 and six months ended June 30, 2000,
Champion leased furniture and various office and warehouse equipment from the
AMAS Group, LLC (which is managed by the principal stockholder of the Company)
with lease payments totaling $25,000 and $9,000. Subsequent to year-end,
Champion purchased the assets leased from the AMAS Group LLC for $62,000 (Note
7).
Also at December 31, 1999, Champion had a receivable of $249,569 for
advances on salary for the majority shareholder. At June 30, 2000, the Company
had receivables for advances to the two shareholders totaling $945,678 and
$141,149, respectively.
The Company has transactions in the normal course of business with DANCES
Corp., owned by Don Guenther, family member of the majority shareholder.
Champion purchased approximately $59,000 and $7,000 of products from DANCES
Corp. during the year ended December 31, 1999 and six months ended June 30,
F-94
<PAGE>
CHAMPION COMPUTER PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2000, respectively, and had sales to DANCES of approximately $15,000 and $4,000
during the year ended December 31, 1999 and six months ended June 30, 2000,
respectively.
The Company also has transactions in the normal course of business with
Arlington Computer Products ("Arlington"), owned by Arlington Guenther, family
member of the majority shareholder. During the year ended December 31, 1999 and
six months ended June 30, 2000, Champion purchased approximately $1,600 and
$4,400, respectively, of products from Arlington Computer Products, and had
sales to Arlington of $57,000 and $126,000, respectively.
The Company also has transactions in the normal course of business with MP
Computers, Inc. Computer Products ("MP"), owned by Diane Sanders, family member
of the majority shareholder. During the six months ended June 30, 2000,
Champion had sales to MP of $204,000.
The Company also has transactions in the normal course of business with
Lexington Computers, Inc. ("Lexington"), partially owned by Cheryl Drawdy,
family member of the majority shareholder. During the six months ended June 30,
2000, Champion had sales to Lexington of $376,000.
The Company's minority shareholder is required to maintain $5,000,000 in
assets with a bank to secure the line of credit discussed in Note 2.
During the year ended December 31, 1999, the Company had sales of
approximately $4,000 in the normal course of business with QI Corporation, of
which Mike Nixon, minority shareholder, is a related party.
During the year ended December 31, 1999, the Company paid interest totaling
approximately $576,000 to related parties.
In the opinion of management, the rates, terms, and considerations of the
transactions with related parties approximate those with nonrelated entities.
5. Shareholders' Equity
As of December 31, 1999 and June 30, 2000, the Company had 600 shares
outstanding. During 1999, the two shareholders received distributions of
$304,597 and $76,149, respectively, relative to their ownership percentages.
6. Commitments and Contingencies
Operating Leases
The Company currently lease office space and various equipment under
operating lease agreements. These agreements expire at various dates through
2003. The future minimum lease commitments related to these agreements, are as
follows:
<TABLE>
<S> <C>
Six months ended December 31, 2000........................... $ 226,339
2001......................................................... 448,069
2002......................................................... 469,116
2003......................................................... 368,991
----------
$1,512,515
==========
</TABLE>
F-95
<PAGE>
CHAMPION COMPUTER PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Legal Contingencies
The Company is involved in certain claims and lawsuits which have arisen in
the ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these claims and lawsuits will not
materially affect the financial position or results of operations of the
Company.
7. Subsequent Events
Subsequent to December 31, 1999, Champion purchased furniture, office
equipment, and warehouse equipment from the AMAS Group LLC for $62,000.
Subsequent to December 31, 1999, Champion received a loan of $3,000,000
pursuant to an agreement with Santa Fe Computer Works, a related company to
Dovebid, Inc. These monies were used for working capital and infrastructure
purposes.
On July 3, 2000, the Company entered into a stock purchase agreement with
Dovebid, Inc. for the purchase of the Company. The purchase price included
$5,800,000 in cash $500,000 in retention obligation (as a reserve for seller
warranties) $2,500,000 in convertible subordinated promissory notes, $2,000,000
in subordinated promissory notes and a $500,000 earn-out.
F-96
<PAGE>
REPORT OF KPMG ACCOUNTANTS N.V. INDEPENDENT AUDITORS
Board of Directors
Fairfield Industries B.V., Naarden, The Netherlands
We have audited the accompanying balance sheets of Fairfield Industries
B.V., Naarden, The Netherlands as of September 30, 1997, 1998 and 1999, and the
related combined statements of income and retained earnings and cash flows for
the years then ended. 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 in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at September
30, 1997, 1998 and 1999, and the combined results of their operations and their
cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States.
KPMG Accountants NV
May 17, 2000
Amstelveen, The Netherlands
F-97
<PAGE>
FAIRFIELD INDUSTRIES B.V., NAARDEN, THE NETHERLANDS
BALANCE SHEET
<TABLE>
<CAPTION>
Year ended September
30,
--------------------- March 31,
1997 1998 1999 2000
------ ------ ------ -----------
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................. $ 385 $ 314 $ -- $ --
Accounts receivable....................... 1,661 2,291 1,927 2,696
Inventory................................. 4,678 2,367 2,956 1,677
------ ------ ------ ------
Total current assets.................... 6,724 4,972 4,883 4,373
Property and equipment, net................. 520 404 385 313
Investments................................. 131 126 17 15
------ ------ ------ ------
Total assets............................ $7,375 $5,502 $5,285 $4,701
====== ====== ====== ======
Liabilities and shareholders' equity
(deficit)
Current liabilities:
Bank overdrafts........................... $4,549 $2,635 $1,510 $1,029
Accounts payable.......................... 1,166 648 1,090 1,240
Accrued wages and payroll taxes........... 21 25 6 9
Accrued other............................. 482 208 925 327
Due to related parties.................... 279 1,722 116 --
------ ------ ------ ------
Total current liabilities............... 6,497 5,239 3,647 2,605
Long-term liabilities:
Group Company loan........................ -- -- 2,232 2,054
Leasing motor vehicles.................... 133 104 87 96
Provision for past-service pension
commitments.............................. 41 -- -- --
Provision on negative asset value of
investments.............................. -- -- 67 61
------ ------ ------ ------
Total current liabilities............... 174 104 2,386 2,211
Commitments
Shareholders' equity (deficit):
Common stock.............................. 50 50 50 50
Retained earnings (deficit)............... 680 65 (894) (340)
Cumulative translation gain (loss)........ (26) 44 96 175
------ ------ ------ ------
Total shareholders' equity.............. 704 159 (748) (115)
------ ------ ------ ------
Total liabilities and shareholders'
equity (deficit)....................... $7,375 $5,502 $5,285 $4,701
====== ====== ====== ======
</TABLE>
See accompanying notes.
F-98
<PAGE>
FAIRFIELD INDUSTRIES B.V., NAARDEN, THE NETHERLANDS
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year ended September Six months
30, ended
----------------------- March 31,
1997 1998 1999 2000
------ ------ ------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Revenues:
Machines sold.......................... $2,919 $5,698 $ 3,774 $5,979
Auction commissions.................... 309 512 157 198
Sales commissions...................... 1,065 461 170 34
Management fee......................... 21 -- -- --
------ ------ ------- ------
4,314 6,671 4,101 6,211
Costs of revenues........................ 2,095 4,570 2,774 4,277
------ ------ ------- ------
Gross profit............................. 2,219 2,101 1,327 1,934
General and administrative expense....... 1,807 1,805 2,301 952
Depreciation and amortization............ 133 151 182 96
------ ------ ------- ------
Income (loss) from operations............ 279 145 (1,156) 886
Other (expense) income:
Interest............................... (60) (144) (173) (81)
Other.................................. 5 61 (12) 47
------ ------ ------- ------
Net income (loss) before taxation........ 224 62 (1,341) 852
Corporate income tax..................... 98 22 (472) (298)
------ ------ ------- ------
Net income (loss) after taxation......... 126 40 (869) 554
Share in result of investments........... 52 328 (90) --
------ ------ ------- ------
Net income (loss) after taxation and
after share in result of investments.... 178 368 (959) 554
Retained earnings-beginning of period.... 502 680 65 (894)
Distributions to shareholders............ -- (983) -- --
------ ------ ------- ------
Retained earnings-end of period.......... $ 680 $ 65 $ (894) $ (340)
====== ====== ======= ======
</TABLE>
See accompanying notes.
F-99
<PAGE>
FAIRFIELD INDUSTRIES B.V., NAARDEN, THE NETHERLANDS
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September
30, Six months
------------------------- ended March 31,
1997 1998 1999 2000
------- ------- ------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net income (loss).................. $ 178 $ 368 $ (959) $ 554
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation..................... 133 151 182 96
Changes in operating assets and
liabilities:
Accounts receivable.............. (1,162) (630) 364 (769)
Inventory........................ (4,194) 2,311 (589) 1,279
Accounts payable................. 1,044 (518) 442 150
Accrued liabilities.............. 445 (270) 697 (595)
Due to related parties........... (5) 1,443 (1,606) (116)
------- ------- ------- -------
Total adjustments.............. (3,739) 2,487 (510) 45
------- ------- ------- -------
Net cash provided by (used in)
operating activities.............. (3,561) 2,855 (1,469) 599
------- ------- ------- -------
Investing activities
Purchases of property and
equipment......................... (355) (35) (157) (23)
Investing in financial
investments....................... 1 (5) 109 2
------- ------- ------- -------
Net cash used in investing
activities........................ (354) (40) (48) (21)
------- ------- ------- -------
Financing activities:
Group Company loan................. -- -- 2,232 (178)
Leasing motor vehicles............. 141 (29) (18) 9
Provisions......................... (3) (69) 67 (6)
Distributions to shareholders...... -- (983) -- --
------- ------- ------- -------
Net cash provided by (used in)
financing activities.............. 138 (1,081) 2,281 (175)
------- ------- ------- -------
Effect of foreign currency exchange
rate.............................. 313 109 47 78
------- ------- ------- -------
Increase in cash and cash
equivalents....................... (3,464) 1,843 811 481
Cash and cash equivalents at
beginning of period (including
bank overdrafts).................. (700) (4,164) (2,321) (1,510)
------- ------- ------- -------
Cash and cash equivalents at end of
period (including bank
overdrafts)....................... $(4,164) $(2,321) $(1,510) $(1,029)
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-100
<PAGE>
FAIRFIELD INDUSTRIES B.V., NAARDEN, THE NETHERLANDS
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
1. Nature of Business and Significant Accounting Policies
Basis of Presentation and Nature of Operations
Fairfield Industries B.V., Naarden, The Netherlands (the "Company") was
incorporated October 19, 1979 to perform auctions, asset recovery and
liquidation of equipment owned by the Company and by others throughout the
world. The Company is 100% owned by Robinc Holding B.V., Naarden.
The principles applied in respect of the valuation of assets and liabilities
and determination of the result are based on historical costs. Insofar not
stated otherwise, monetary assets and liabilities are shown on nominal value.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from those estimates.
Revenue recognition
Auction and sales revenues
Revenues from commission income from auctions, less estimates for allowances
for refunds, are recognized upon closing of the related auction at which time
both the buyer and seller have legally agreed to the terms of the transaction
and the Company has performed all services necessary for it to earn its
commission. This income consists of a fee based on the auction transaction
price, and other revenue associated with ancillary auction services such as
referral and participation fees and revenue for recovery of costs incurred
directly by the Company. All direct auction costs, consisting primarily of
outside labor, direct facilities, materials and supplies, are deferred until
the related auction revenue is recognized.
Machine revenues
Revenues from auctions or sale of the Company's own inventory are recognized
upon title transfer and shipment of the equipment where shipment is the
responsibility of the buyer.
Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less at the date of purchase to be cash
equivalents. For such investments, cost approximates fair value.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash in escrow and accounts
receivable. Cash and cash in escrow are deposited with high credit, quality
financial institutions. As of September 30, 1997, 1998 and 1999 and March 31,
2000 (unaudited), the Company has no significant concentrations of credit risk.
Accounts Receivable
The Company's accounts receivable are derived from revenue earned from
customers located worldwide and are denominated in Dutch Guilders and U.S.
dollars. Accounts receivable represents the Company's share of proceeds related
to the sale of equipment and due auction commissions and are stated at nominal
value less a provision for bad debt.
F-101
<PAGE>
FAIRFIELD INDUSTRIES B.V., NAARDEN, THE NETHERLANDS
NOTES TO FINANCIAL STATEMENTS--(Continued)
Inventory
The inventory is stated at the lower of cost or market based on a specific
identification method.
Property and Equipment
Properly and equipment are stated at cost. Depreciation for financial
statement purposes is provided on the straight-line method over the estimated
useful lives. The composition of property and equipment and related useful
lives are as follows:
<TABLE>
<CAPTION>
September 30,
Useful Lives ------------------- March 31,
in Years 1997 1998 1999 2000
------------ ----- ----- ----- -----------
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C>
Office equipment............. 3-5 $ 293 $ 311 $ 440 $ 464
Vehicles..................... 4 309 326 360 360
Leasehold improvements....... 4-10 92 92 92 92
----- ----- ----- -----
694 729 892 916
Less accumulated
depreciation................ (174) (325) (507) (603)
----- ----- ----- -----
$ 520 $ 404 $ 385 $ 313
===== ===== ===== =====
</TABLE>
Investments
Investment comprise of non-consolidated participating interests.
Participating interests are valued according to the equity method. The net
asset value is calculated based on the accounting principles of Fairfield
Industries B.V.
Advertising and Marketing Costs
The Company expenses all advertising and marketing costs as incurred which
totaled approximately $84,000, $134,000, $165,000 and $126,000 (unaudited) for
the years ended September 30, 1997, 1998, 1999 and March 31, 2000,
respectively.
2. Income Taxes
Fairfield Industries B.V. is subject to the tax code of The Netherlands.
Accordingly, these financial statements reflect provisions and liabilities for
Dutch Corporate Income Tax. The applicable corporate income tax rate is 35% of
the net income before taxation.
The taxation on result comprises both corporate income tax payable in short
term and deferred tax liabilities. Taxes are calculated over results, taking
all credit facilities into account.
3. Related-Party Transactions
Fairfield Industries B.V. has certain transactions in the ordinary course of
business with its shareholders and related companies. However, these
transactions are insignificant.
4. Financing
The shareholder granted loans to the Company in the amount of $2,232,000 and
$2,054,000 (unaudited) as at September 30, 1999 and March 31, 2000
respectively. These loans have no repayment obligation and bear 3.5% interest
per annum.
F-102
<PAGE>
FAIRFIELD INDUSTRIES B.V., NAARDEN, THE NETHERLANDS
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Commitments
The Company has a lease commitment to rent office premises with a minimum
rental payment of $89,000 per annum. This agreement extends through February
20, 2002. In addition the Company has leased vehicles for certain employees
with an average annual commitment of $23,000. These car leases will extend
through December 2002.
6. Shareholders' Equity
Fairfield Industries B.V. has an authorized share capital of $250,000. As of
September 30, 1997, 1998, 1999 and March 31, 2000 (unaudited), 100 shares are
allotted, called up and fully paid. Consideration for these shares totaled
$50,000.
7. Subsequent Event
Effective June 15, 2000, DoveBid, Inc acquired the Company.
F-103
<PAGE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
VICTOR MORRIS TEAM COMBINED
The Board of Directors and Stockholders of
Victor Morris Team Combined
We have audited the accompanying combined balance sheets of Victor Morris
Team (as described in Note 1(a) to the combined financial statements) as of
March 31, 2000 and March 31, 1999 and the related combined statements of
operations and cash flows for the years then ended. These combined financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the combined
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the combined financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the management, as
well as evaluating the overall combined financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Victor Morris Team
as of March 31, 2000 and March 31, 1999, and the results of its operations and
its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ ERNST & YOUNG
3 August 2000
Singapore
F-104
<PAGE>
VICTOR MORRIS TEAM COMBINED
COMBINED BALANCE SHEET
MARCH 31, 2000 AND 1999 AND JUNE 30, 2000
(Amounts in United States dollars)
<TABLE>
<CAPTION>
March 31,
June 30, -----------
2000 2000 1999
$'000 $'000 $'000
Note ----------- ----- -----
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents....................... 710 598 205
Restricted cash................................. 64 146 145
Cash held for customers......................... -- 3,106 282
Accounts receivable, less allowance of $22,000
in 2000 ($12,000 in 1999)...................... 4 84 56 84
Other receivables............................... 5 65 13 15
Amount owing by a director...................... 8 37 -- 222
----- ----- ---
Total current assets.......................... 960 3,919 953
Office equipment, computer hardware and software,
net.............................................. 6 50 49 15
Other............................................. -- 9 --
----- ----- ---
1,010 3,977 968
===== ===== ===
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses........... 7 451 398 243
Money held on behalf of customers............... -- 3,106 282
Amount owing to a director...................... 8 -- 16 --
Non-interest bearing debt....................... 9 -- 55 20
Provision for taxation.......................... 66 56 96
----- ----- ---
517 3,631 641
Long-term liabilities:
Non-interest bearing debt....................... 9 -- -- 34
Deferred taxation............................... 5 5 4
----- ----- ---
Total long-term liabilities................... 5 5 38
----- ----- ---
Total liabilities............................. 522 3,636 679
Shareholders' equity:
Common stock, par value $0.58; 200,000 shares
authorised; 100,000 shares issued and
outstanding.................................... 58 58 58
Cumulative translation gain..................... 10 3 3 --
Accumulated reserves............................ 427 280 231
----- ----- ---
488 341 289
----- ----- ---
1,010 3,977 968
===== ===== ===
</TABLE>
The accompanying notes form an integral part of the financial statements.
F-105
<PAGE>
VICTOR MORRIS TEAM COMBINED
COMBINED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 AND THE THREE MONTHS ENDED JUNE 30,
2000
(Amounts in United States dollars)
<TABLE>
<CAPTION>
March 31,
Three months ended ------------
June 30, 2000 2000 1999
$'000 $'000 $'000
Note ------------------ ----- -----
(unaudited)
<S> <C> <C> <C> <C>
Revenues.................................. 940 1,590 1,007
--- ----- -----
Operating expenses:
Direct auction costs...................... 118 467 443
Other direct costs........................ 434 40 52
Sales and marketing....................... 131 236 157
General and administrative................ 80 764 340
Depreciation.............................. 5 24 16
--- ----- -----
Total operating expenses................ 768 1,531 1,008
--- ----- -----
Profit/(loss) from operations............. 172 59 (1)
Interest and other income................. 16 29 26
--- ----- -----
Net profit before income taxes............ 188 88 25
Income taxes.............................. 3 (41) (39) (27)
--- ----- -----
Net profit/(loss) for the year............ 147 49 (2)
=== ===== =====
</TABLE>
The accompanying notes form an integral part of the financial statements.
F-106
<PAGE>
VICTOR MORRIS TEAM COMBINED
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 AND THE THREE MONTHS ENDED JUNE 30,
2000
(Amounts in United States dollars)
<TABLE>
<CAPTION>
March 31,
Three months ended -------------
June 30, 2000 2000 1999
$'000 $'000 $'000
------------------ ------ -----
(unaudited)
<S> <C> <C> <C>
Operating activities
Net profit/(loss) for the year............... 147 49 (2)
Adjustments to reconcile net profit to net
cash provided by/(used in) operating
activities:
Depreciation expense....................... 5 24 16
Gain on sale of office and computer
equipment................................. -- (2) --
Interest and other income.................. (16) (29) (26)
Income taxes for the year.................. (41) 39 27
Changes in operating assets and
liabilities:
Cash held for customers................... 3,106 (2,824) (184)
Restricted cash........................... 82 -- --
Accounts receivable....................... (28) 28 (43)
Other receivables......................... (52) 2 (10)
Accounts payable and accrued expenses..... 53 155 (17)
Money held on behalf of customers......... (3,106) 2,824 184
------- ------ ----
Cash generated from/(used in) operations..... 150 266 (55)
Income tax paid.............................. 51 (79) (17)
Interest and other income.................... 16 29 26
------- ------ ----
Net cash provided by/(used in) operating
activities.................................. 217 216 (46)
------- ------ ----
Investing activities
Proceeds from sales of office and computer
equipment................................... (6) 3 --
Purchases of office equipment, computer
hardware and software....................... -- (56) (17)
Other........................................ 9 (9) --
------- ------ ----
Net cash used in investing activities........ 3 (62) (17)
------- ------ ----
Financing activities
Increase/(decrease) in amount owing to a
director.................................... (16) 16 (5)
Decrease/(increase) in amount owing by a
director.................................... (37) 222 (32)
Increase in non-interest bearing debt........ (55) 1 54
------- ------ ----
Net cash provided by financing activities.... (108) 239 17
Effect of foreign currency exchange rate on
cash........................................ -- -- 1
------- ------ ----
Net increase/(decrease) in cash and cash
equivalents................................. 112 393 (45)
Cash and cash equivalents at beginning of
year........................................ 598 205 250
------- ------ ----
Cash and cash equivalents at end of year..... 710 598 205
======= ====== ====
</TABLE>
The accompanying notes form an integral part of the financial statements.
F-107
<PAGE>
VICTOR MORRIS TEAM COMBINED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--MARCH 31, 2000
AND 1999
1. Significant accounting policies
(a) Basis of presentation
These combined financial statements represent the aggregated financial
statements of the following entities which are commonly controlled by a single
shareholder:
<TABLE>
<CAPTION>
Name of corporate entity Country of incorporation
<S> <C>
Victor Morris Team Pte Ltd.......................... Singapore
Victor Morris & Yau Company Limited................. Hong Kong
Victor Morris Co. Ltd............................... Thailand
VM Team Sdn Bhd..................................... Malaysia
</TABLE>
For convenience, these combined financial statements are referred to here-in
as those of the "Victor Morris Team." For the purposes of the combination,
intercompany accounts and transactions have been eliminated.
On July 6, 2000, each of the corporate entities referred to above was
acquired by DoveBid, Inc., a company incorporated in the United States of
America, in a transaction accounted for under the purchase method of
accounting.
For the purposes of the combined financial statements of Victor Morris Team
for the year ended March 31, 2000, the audited financial statements for the
year ended March 31, 2000 of Victor Morris Team Pte Ltd, the largest of the
four entities, were aggregated with the audited financial statements for the
year ended December 31, 1999 of the other entities in Victor Morris Team.
For the purposes of the combined financial statements of Victor Morris Team
for the year ended March 31, 1999, the audited financial statements for the
year ended March 31, 1999 of Victor Morris Team Pte Ltd were aggregated with
the audited financial statements for the year ended December 31, 1998 of the
other entities in Victor Morris Team.
(b) Basis of accounting
The accompanying combined financial statements are presented using generally
accepted accounting principles ("GAAP"). Financial statements prepared on a
GAAP-basis require management to make estimates and assumptions that affect the
amounts and disclosures reported in the combined financial statements and
accompanying notes. Such estimates and assumptions could change in the future
as more information becomes known, which could impact the amounts reported and
disclosed herein.
(c) Revenue recognition
Auction revenues
Revenues from commission income from third-party auctions, less estimates
for allowances for refunds, are recognized upon closing of the related auction
at which time both the buyer and seller have legally agreed to the terms of the
transaction and Victor Morris Team Pte Ltd has performed all services necessary
for it to earn its commission. This income consists of a fee based on the
auction transaction price, and other revenue associated with ancillary auction
services such as referral and participation fees and revenue for recovery of
costs incurred directly by Victor Morris Team Pte Ltd. All direct auction
costs, consisting primarily of outside labor, direct facilities, materials and
supplies, are deferred until the related auction revenue is recognized.
F-108
<PAGE>
VICTOR MORRIS TEAM COMBINED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--MARCH 31, 2000
AND 1999 (Continued)
Valuation and property agent fee revenue
Victor Morris Team Pte Ltd recognizes revenue from valuation and property
agent fees when the services are completed and the valuation report is
delivered, or the property agent brokerage service is complete utilizing the
completed contract method of accounting for these relatively short-term
contracts. This method is used because the financial position and results of
operations do not vary significantly from those which would result from use of
the percentage-of-completion method. Deposits received on appraisal projects
are deferred until completion of the appraisal report. Costs and expenses are
recognized during the same period in which the associated revenue is earned.
Accordingly, costs and expenses that are directly associated with projects in
process are deferred as unbilled costs and expenses until the matching revenue
is earned.
Any deferred costs and expenses projected to exceed revenues are immediately
expensed.
(d)Office equipment and furniture, computer hardware and software and
depreciation
Office equipment and furniture, computer hardware and software are stated at
cost less accumulated depreciation. Depreciation on assets purchased are
calculated on the straight-line basis at the following rates to write off the
cost of the assets over their estimated useful lives:
<TABLE>
<S> <C> <C>
Office equipment and furniture.................................... 20% to 25%
Computers......................................................... 20% to 50%
</TABLE>
No depreciation is provided for assets under development.
(e)Deferred taxation
Deferred taxation is accounted for under the liability method whereby the
tax charge for the year is based on the disclosed book profit after adjusting
for all permanent differences. The amount of taxation deferred on account of
all temporary differences is reflected in the deferred taxation account.
Deferred tax benefits are not recognized unless there is reasonable expectation
of their realization.
(f)Cash and cash equivalents and cash held for customers
Cash and cash equivalents comprise cash on hand and bank balances, including
fixed deposits. It excludes restricted cash. Restricted cash relates to fixed
deposits pledged to a bank for banking facilities granted to Victor Morris
Team.
Victor Morris Team generally collects the gross proceeds from an onsite
auction on behalf of the selling parties and holds such proceeds until the
final settlement date of the auction. These amounts are classified as "Cash
held for customers" in the accompanying combined balance sheets. Cash held for
customers is excluded from cash for the purposes of presentation of the
combined statements of cash flows. The portion of the proceeds that must be
remitted to the owner of the asset that was sold during an auction is reflected
as "Money held on behalf of customers" in the accompanying combined balance
sheets, net of the expense reimbursements that have not been disbursed from the
"Cash held for customers" account.
F-109
<PAGE>
VICTOR MORRIS TEAM COMBINED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--MARCH 31, 2000
AND 1999 (Continued)
(g)Foreign currencies
The accounting records of each entity in Victor Morris Team are maintained
as follows in the currency (described below) which is the functional currency
of that entity:
<TABLE>
<S> <C>
Victor Morris Team Pte Ltd................................. Singapore dollars
Victor Morris & Yau Company Limited........................ Hong Kong dollars
Victor Morris Co. Ltd...................................... Thai Baht
VM Team Sdn Bhd............................................ Malaysian Ringgit
</TABLE>
Transactions arising in currencies other than the functional currency for
each entity during the year are translated to the relevant functional currency
for that entity at rates closely approximating those ruling on the transaction
dates. At the balance sheet date, monetary assets and liabilities denominated
in currencies other than the functional currency for each entity are translated
to the relevant functional currency for that entity at exchange rates ruling at
the balance sheet date. All exchange differences arising from translation are
included in the combined statements of operations.
For inclusion in the combined financial statements, all assets and
liabilities of the entities in Victor Morris Team are translated into United
States dollars at the exchange rates ruling at the balance sheet date and the
results of the entities in Victor Morris Team are translated into United States
dollars at average exchange rates. Exchange differences due to such currency
translation are included in cumulative translation gain.
(h)Interim Unaudited Financial Information
The financial statements as of June 30, 2000 and for the three months ended
June 30, 2000 are unaudited. However, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the unaudited financial statements for the interim period
have been included. The results of the interim period are not necessarily
indicative of the results to be obtained for a full year.
2. Principal activities
The principal activities of Victor Morris Team are to act as property agent
and carry on the business of auction and valuation.
3. Income taxes
<TABLE>
<CAPTION>
2000 1999
----- -----
<S> <C> <C>
$'000 $'000
Provision for taxation in respect of Victor Morris Team's
profit for the year:
Current Provision:
Singapore...................................................... 39 27
===== =====
A reconciliation of the income tax expense computed at the statutory rate of
25.5% (1999:26%) to the provision of taxes is as follows:
Income tax at statutory rate................................... 20 12
Non-deductible expenses:
Motor vehicle.................................................. 3 2
Sales tax non-tax deductible direct costs...................... 7 13
Others......................................................... 9 --
----- -----
Provision for taxes............................................ 39 27
===== =====
</TABLE>
F-110
<PAGE>
VICTOR MORRIS TEAM COMBINED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--MARCH 31, 2000
AND 1999 (Continued)
4. Accounts receivable
Accounts receivable are stated after deducting provision for doubtful debts,
as follows:
<TABLE>
<S> <C> <C>
Balance at 1 April.................................................. 12 12
Provision for the year.............................................. 10 --
--- ---
Balance at 31 March................................................. 22 12
=== ===
5. Other receivables
Deposits............................................................ 4 5
Prepayments......................................................... 2 --
Staff loan.......................................................... 7 10
--- ---
13 15
=== ===
</TABLE>
6. Office equipment, computer hardware and software
<TABLE>
<CAPTION>
Software
Office under
equipment Computers development Total
--------- --------- ----------- -----
<S> <C> <C> <C> <C>
$'000 $'000 $'000 $'000
31 March 2000
Cost.................................. 32 40 26 98
Accumulated depreciation.............. (20) (29) -- (49)
----- ----- ----- -----
Net book value........................ 12 11 26 49
===== ===== ===== =====
31 March 1999
Cost.................................. 32 31 -- 63
Accumulated depreciation.............. (21) (27) -- (48)
----- ----- ----- -----
Net book value........................ 11 4 -- 15
===== ===== ===== =====
</TABLE>
7. Accounts payable and accrued expenses
<TABLE>
<CAPTION>
2000 1999
----- -----
<S> <C> <C>
$'000 $'000
Accrued operating expenses...................................... 377 235
Sundry creditors................................................ 21 8
----- -----
398 243
===== =====
</TABLE>
8. Amount owing by/(to) a director
The amount owing by/(to) a Director is unsecured, interest-free and has no
fixed terms of repayment.
9. Non-interest bearing debt
Non-interest bearing debt amounting to $20,000 (1999:$20,000) is unsecured,
interest free and has no fixed terms of repayment.
F-111
<PAGE>
VICTOR MORRIS TEAM COMBINED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--MARCH 31, 2000
AND 1999 (Continued)
Non-interest bearing debt amounting to $35,000 (1999:$34,000) is unsecured
and was forgiven in June 2000.
10. Cumulative translation gain
<TABLE>
<S> <C> <C>
Balance at 1 April................................................... -- --
Unrealised translation gain for the year............................. 3 --
--- ---
Balance at 31 March.................................................. 3 --
=== ===
This represents the foreign currency translation adjustment arising from
translating the financial statements of each entity in Victor Morris Team,
which are stated in their own individual functional currencies, to United
States dollars.
11. Related parties and related party transactions
Related parties in this set of combined financial statements represent
corporations in which a Director of Victor Morris Team has interest in.
Consultancy fees paid to Dominion Auctioneers,
Appraisers & Agents (S) Pte Ltd.................................... 18 16
Rental paid to Victor Morris Pte Ltd................................. 29 25
=== ===
</TABLE>
12. Operating lease commitments
Victor Morris Team has an annual operating lease commitment for land and
buildings situated in 19/F Morrison Commercial Building, 31 Morrison Hill Road,
Hong Kong. Rent expense under this operating lease was approximately $12,000
and $2,000 for the years ended December 31, 1999 and 1998.
Future minimum lease payments under the operating lease as of March 31,
2000, are approximately $9,000 payable in 2000.
F-112
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
One Web Place, Inc.
We have audited the accompanying balance sheet of One Web Place, Inc., as of
September 30, 1999, and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of One Web Place, Inc., as of
September 30, 1999, and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Grant Thornton LLP
San Jose, California
August 1, 2000
F-113
<PAGE>
ONE WEB PLACE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1999
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash.............................................. $ 124,489 $ 175,944
Accounts receivable............................... 2,000 2,000
--------- ---------
Total current assets............................ 126,489 177,944
Property and Equipment, net......................... 74,834 81,360
--------- ---------
$ 201,323 $ 259,304
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities.......... $ 87,366 $ 41,611
Commitments and Contingencies
Stockholders' Equity
Preferred stock, no par value, 4,000,000 shares
authorized; 641,927 shares issued and outstanding
at September 30, 1999 and 1,083,935 at December
31, 1999......................................... 362,916 612,916
Common stock, no par value, 12,000,000 shares
authorized; 5,250,000 shares issued and
outstanding...................................... 29,529 29,529
Accumulated deficit............................... (278,488) (424,752)
--------- ---------
Total stockholders' equity...................... 113,957 217,693
--------- ---------
$ 201,323 $ 259,304
========= =========
</TABLE>
See accompanying notes to the financial statements.
F-114
<PAGE>
ONE WEB PLACE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
For the year three months
ended ended
September 30, December 31,
1999 1999
------------- ------------
(unaudited)
<S> <C> <C>
Net revenues......................................... $ 78,401 $ 5,071
Expenses:
Cost of revenues................................... 7,234 --
Selling, general and administrative................ 348,903 151,442
--------- ---------
Total expenses................................... 356,137 151,442
--------- ---------
Loss from operations............................. (277,736) (146,371)
Other income (expense)
Interest expense, net.............................. (1,188) --
Other income....................................... 436 107
--------- ---------
(752) 107
--------- ---------
Net loss............................................. $(278,488) $(146,264)
========= =========
</TABLE>
See accompanying notes to the financial statements.
F-115
<PAGE>
ONE WEB PLACE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the year ended September 30, 1999 and the
three months ended December 31, 1999
<TABLE>
<CAPTION>
Preferred Stock
Series A Common Stock Total
------------------ ----------------- Accumulated Stockholders'
Shares Amount Shares Amount Deficit Equity
--------- -------- --------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at beginning of
year................... -- $ -- -- $ -- $ -- $ --
Issuance of common stock
to founder............. -- -- 5,250,000 29,529 -- 29,529
Issuance of preferred
stock for cash......... 641,927 362,916 -- -- -- 362,916
Net loss................ -- -- -- -- (278,488) (278,488)
--------- -------- --------- ------- --------- ---------
Balances, September 30,
1999................... 641,927 362,916 5,250,000 29,529 (278,488) 113,957
--------- -------- --------- ------- --------- ---------
Issuance of preferred
stock for cash
(unaudited)............ 442,008 250,000 -- -- -- 250,000
Net loss for period
(unaudited)............ -- -- -- -- (146,264) (146,264)
--------- -------- --------- ------- --------- ---------
Balances December 31,
1999 (unaudited)....... 1,083,935 $612,916 5,250,000 $29,529 $(424,752) $ 217,693
========= ======== ========= ======= ========= =========
</TABLE>
See accompanying notes to the financial statements.
F-116
<PAGE>
ONE WEB PLACE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year For the three
ended months ended
September 30, December 31,
1999 1999
------------- -------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss......................................... $(278,488) $(146,264)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 26,106 7,567
Changes in assets and liabilities:
Accounts receivable............................ (2,000) --
Accounts payable and accrued liabilities....... 32,047 (45,755)
--------- ---------
Net cash used in operating activities........ (222,335) (184,452)
Cash flows from investing activities
Purchases of property and equipment.............. (16,092) (14,093)
Cash flows from financing activities
Proceeds from issuance of preferred stock........ 362,916 250,000
--------- ---------
Net increase in cash............................... 124,489 51,455
Cash at beginning of period........................ -- 124,489
--------- ---------
Cash at end of period.............................. $ 124,489 $ 175,944
========= =========
Supplemental disclosure of cash flow information
Cash paid for interest........................... $ 1,472 $ --
</TABLE>
See accompanying notes to the financial statements.
F-117
<PAGE>
ONE WEB PLACE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--BACKGROUND
One Web Place, Inc., (the "Company") was incorporated in the state of
California on September 22, 1998. On March 27, 2000, the Company was acquired
by DoveBid, Inc., whereby all of the outstanding shares of common stock and
outstanding options were exchanged for 833,333 shares of DoveBid, Inc., common
stock (the "Acquisition"). Prior to the Acquisition, the Company provided
software development and Internet auction services. Commissions from auction
sales are recognized upon the sale of the offered product. The Company does not
own any of the products offered for sale.
The fair value of cash, accounts receivable and accounts payable approximate
carrying value due to the short term nature of such instruments.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over five years. Property and equipment are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1999
------------- ------------
(unaudited)
<S> <C> <C>
Machinery, equipment and purchased software.......... $100,940 $115,033
Less accumulated depreciation........................ (26,106) (33,673)
-------- --------
$ 74,834 $ 81,360
======== ========
</TABLE>
NOTE 3--INCOME TAXES
The Company accounts for income taxes using the asset and liability method
in accordance with Statement of Financial Accounting Standards ("SFAS") No.
109. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
No provision for federal and state income taxes has been recorded as the
Company has incurred operating losses since inception. The following table sets
forth the primary components of deferred tax assets at September 30, 1999:
<TABLE>
<S> <C>
Net operating loss carryforwards.................................. $ 100,000
Valuation allowance............................................... (100,000)
---------
$ --
=========
</TABLE>
At September 30, 1999, the Company fully provided against its deferred tax
assets. The valuation allowance was increased by $100,000 during the year ended
September 30, 1999. The Company believes sufficient uncertainty exists
regarding the realizability of the deferred tax assets that a full valuation
allowance is required. At September 30, 1999, the Company had approximately
$275,000 of federal net operating loss carryforwards for tax reporting purposes
available to offset future taxable income; such carryforwards will expire
beginning in 2019. Additionally, the Company has approximately $140,000 of
California net operating loss carryforwards for tax reporting purposes that
will expire beginning in 2004.
F-118
<PAGE>
ONE WEB PLACE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 4--STOCKHOLDERS' EQUITY
In exchange for the initial issuance of 5,250,000 shares of common stock,
the Company's founder contributed fixed assets with a cost basis of $83,427 and
the Company assumed $53,898 of liabilities. Prior to the closing of the
Acquisition, the Company issued 156,885 shares of common stock to advisors.
During the year ended September 30, 1999, the Company sold 641,927 shares of
preferred stock at $0.5656 per share, raising total proceeds of $362,916.
Subsequent to September 30, 1999, the Company sold 649,722 shares of preferred
stock at $0.5656 raising total proceeds of $367,483. The preferred shares were
entitled to preferential non-cumulative dividends at $0.10 per share per year,
if and when declared by the Board of Directors. In the event of a distribution
of the Company's assets on dissolution, sale of its property, or liquidation,
the preferred shares were to receive $0.5656 per share plus any unpaid
accumulated dividends. The preferred shares were convertible into common shares
at the rate of one common share for each preferred share and were eligible to
vote as one common share. Concurrent with the Acquisition, the preferred shares
were converted to common stock and all of the common shares were exchanged for
shares of DoveBid common stock.
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees." Compensation expense related to
employee stock options is recorded if, on the date of grant, the fair value of
the underlying stock exceeds the exercise price. During the year ended
September 30, 1999, the Company granted 1,844,537 options to purchase shares of
common stock at $0.10 per share to employees and consultants. After September
30, 1999, 2,500 additional options were granted at $0.10. No options have been
exercised or forfeited and no options have expired. The options have various
vesting schedules and at September 30, 1999, 1,278,120 options were
exercisable. After applying the exchange ratio in the Acquisition, the
outstanding options are exercisable for shares of DoveBid common stock.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income (loss) had the Company adopted the fair
value method prescribed in SFAS No. 123. Under SFAS No. 123, the fair value of
stock-based awards to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. If the computed
fair values of the Company's stock-based awards to employees had been amortized
to expense over the vesting period of the awards as specified under SFAS No.
123, the net loss for the period would have increased by $38,343. The fair
values at the date of grant were estimated using the following assumptions: no
dividend yield, risk free interest rate of 6% and expected lives of 5 years.
The fair value of awards to two non-employees was not material.
F-119
<PAGE>
Inside Back Cover of Prospectus:
Overleaf Page
Centered at the top of the page is a blue rectangle
Directly below the blue rectangle is the DoveBid logo.
Caption at upper left of page: " Example assets sold in our Webcast and Online
Auctions include:"
The middle left of the page has a picture of an oscilloscope, with a caption
under it saying "Electronic Test and Measurement"
The lower left of the page has a picture of a laptop computer, with a caption
under it saying "Computers/Peripherals and Data Processing"
The upper center of the page has a picture of part of the inside of a
semiconductor fabrication machine, with a caption under it saying
"Semiconductor Fabrication"
The middle center of the page has a picture of office cubicle workstations,
with a caption under it saying "Office Furnishings and Equipment"
The lower center of the page has a picture of telecommunications equipment,
with a caption under it saying "Telecommunications"
The upper right of the page has a picture of a printed circuit board
fabrication machine, with a caption under it saying "Printed Circuit Board
Fabrication"
The middle right of the page has a picture of a lathe machine, with a caption
under it saying "Metalworking and Machine Tools"
The lower right of the page has a picture of a plastic injection molding
machine inside a plastic manufacturing plant, with a caption under it saying
"Plastics"
At the bottom of the page is a blue rectangle spanning the width of the page
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses to be paid by DoveBid
in connection with the sale of the shares of common stock being registered
hereby. All amounts are estimates except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 15,840
NASD filing fee.................................................. 6,500
Nasdaq National Market initial filing fee........................ 1,000
Printing and engraving........................................... 450,000
Legal fees and expenses of the Registrant........................ 800,000
Accounting fees and expenses..................................... 2,200,000
Directors and officers liability insurance....................... 500,000
Blue sky fees and expenses....................................... 5,000
Miscellaneous.................................................... 96,660
----------
Total............................................................ $4,075,000
==========
</TABLE>
--------
* To be filed by amendment
ITEM 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers under certain circumstances and subject to certain limitations.
The terms of Section 145 of the Delaware General Corporation Law are
sufficiently broad to permit indemnification under certain circumstances for
liabilities, including reimbursement of expenses incurred, arising under the
Securities Act of 1933.
As permitted by the Delaware General Corporation Law, the Registrant's
certificate of incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability:
. for any breach of the director's duty of loyalty to the Registrant or its
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
As permitted by the Delaware General Corporation Law, the Registrant's
bylaws provide that:
. the Registrant is required to indemnify its directors and officers to the
fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions;
. the Registrant may indemnify its other employees and agents to the extent
that it indemnifies its officers and directors, unless otherwise required
by law, its certificate of incorporation, its bylaws or agreements;
. the Registrant is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding to the
fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions; and
. the rights conferred in the Bylaws are not exclusive.
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<PAGE>
In addition, the Registrant intends to enter into indemnity agreements with
each of its current directors and officers. These agreements provide for the
indemnification of officers and directors for all expenses and liabilities
incurred in connection with any action or proceeding brought against them by
reason of the fact that they are or were agents of the Registrant.
The Registrant currently carries liability insurance for its directors and
officers.
The Underwriting Agreement filed as Exhibit 1.01 to this Registration
Statement provides for indemnification by the underwriters of the Registrant
and its directors and officers for certain liabilities under the Securities Act
of 1933, or otherwise.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit Document Number
---------------- ------
<S> <C>
Form of Underwriting Agreement....................................... 1.01
Registrant's Certificate of Incorporation............................ 3.01
Form of Registrant's Amended and Restated Certificate of
Incorporation (to be filed following the closing of this offering).. 3.03
Registrant's Bylaws.................................................. 3.04
Form of Indemnity Agreement.......................................... 10.18
</TABLE>
ITEM 15. Recent Sales of Unregistered Securities.
Since March 1997, the Registrant and its predecessor, Dove Brothers LLC,
issued and sold the following securities:
1. In June 1999, we issued, in exchange for the contribution of the
membership interests of Dove Brothers, LLC an aggregate of 9,404,038
shares of our common stock to Ross Dove (84,805 shares), Kirk Dove
(84,805 shares), The Dove Holdings Corporation (8,562,711 shares) and
Koll Management Services, Inc. (671,717). The foregoing purchase and
sale was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof on the basis that the transaction did not involve
a public offering.
2. In June 1999, we issued and sold an aggregate of 4,030,303 shares of
Series A Preferred Stock to Fremont Ventures, LP, our sole investor for
$0.99 per share for an aggregate purchase price of $3,990,000. This
sale to an accredited investor was made in reliance on Section 4(2).
3. In October 1999, we issued and sold an aggregate of 5,290,043 shares of
Series B Preferred Stock for $2.31 per share for an aggregate purchase
price of $12,219,999 to the following investors: Entities affiliated
with the Mayfield Fund (3,463,203 shares); Fremont Ventures I, L.P.
(1,731,601 shares) and Bain & Company, Inc. (95,238 shares). This
private offering was exempt from registration under Section 4(2) of the
Securities Act, and Regulation D promulgated thereunder.
4. In December 1999, we issued and sold an aggregate of 225,108 shares of
Series B Preferred Stock to Bain & Company, Inc. for $2.31 per share
for an aggregate purchase price of $520,000. This private offering was
exempt from registration under Section 4(2) of the Securities Act, and
Regulation D promulgated thereunder.
5. In February 2000, we issued and sold an aggregate of 10,674,158 shares
of Series C Preferred Stock for $8.01 per share for an aggregate
purchase price of $80,500,011 to the following investors: Fremont
Ventures I, L.P. (374,532 shares); F&W Investments 2000 (62,422
shares); entities affiliated with the Mayfield Fund (1,498,128 shares);
entities affiliated with SOFTBANK Corp. (4,993,758 shares); entities
affiliated with TPG Advisors III, Inc. (2,167,210 shares); entities
affiliated with T/3/ Advisors, Inc. (953,888 shares); and T.H.
eVenturen Pte Ltd (624,220 shares). This private offering
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<PAGE>
was exempt from registration under Section 4(2) of the Securities Act,
and Regulation D promulgated thereunder. In connection with the issuance
and sale of the Series C Preferred Stock, we amended and restated our
Restated Certificate of Incorporation such that the holders of Series A
Preferred Stock and the holders of Series B Preferred Stock are entitled
to receive cumulative cash dividends from December 31, 1999 instead of
from the date of issuance of such Series A Preferred Stock or Series B
Preferred Stock. In lieu of paying cash dividends accumulated through
December 31, 1999, we issued, by way of a 1.03221917-for-1 stock split,
an aggregate of 129,853 shares of Series A Preferred Stock to Fremont
Ventures I, L.P., and we issued, by way of a 1.016438352-for-1 stock
split, an aggregate of 90,660 shares of Series B Preferred Stock to the
following holders of Series B Preferred Stock: entities associated with
the Mayfield Fund (56,929 shares), Fremont Ventures I, L.P. (28,465
shares), and Bain & Company, Inc. (5,266 shares).
6. In March 2000, we issued and sold an aggregate of 2,996,255 shares of
Series C Preferred Stock for $8.01 per share for an aggregate purchase
price of $24,000,005 to the following investors: Sun Microsystems, Inc.
(1,248,439 shares); Comdisco, Inc. (1,248,439 shares); Datastream
Systems (249,688) and Yahoo! Inc. (249,688). This private offering was
exempt from registration under Section 4(2) of the Securities Act, and
Regulation D promulgated thereunder.
7. In August 2000, we issued and sold an aggregate of 2,967,221 shares of
Series C Preferred Stock for $8.01 per share for an aggregate purchase
price of $23,767,405.50 to the following investors: entities affiliated
with the Mayfield Fund (411,985 shares); entities affiliated with
SOFTBANK Corp. (1,248,439 shares); entities affiliated with TPG
Advisors, III, Inc. (866,884 shares); entities affiliated with T/3/
Advisors, Inc. (381,555 shares); and T.H. eVenturen Pte Ltd. (58,358
shares). This private offering was exempt from registration under
Section 4(2) of the Securities Act, and Regulation D promulgated
thereunder.
8. In December 1999, we issued Convertible Notes to two individuals who
were the owners of Unidyne International, Inc. and B&B Custom Circuit
Supplies in the aggregate principal amount of $2,000,000, which, upon
or immediately prior to the consummation of this offering, will convert
into shares of common stock at a conversion rate equal to the mid-point
of the common stock offering price range set forth in this registration
statement. The foregoing purchase and sale was exempt from registration
under the Securities Act pursuant to Section 4(2) thereof on the basis
that the transaction did not involve a public offering.
9. In February 2000, we issued Convertible Notes to four individuals who
were the owners of Greenwich Industrial Services, LLC in the aggregate
principal amount of $2,000,000, which, upon or immediately prior to the
consummation of this offering, will convert into shares of common stock
at a conversion rate equal to the mid-point of the common stock
offering price range set forth in this registration statement upon. The
foregoing purchase and sale was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
10. In March 2000, we issued two Convertible Notes to two individuals who
were the owners of Philip Pollack & Co, Inc. in the aggregate principal
amount of $2,750,000, which, upon or immediately prior to the
consummation of this offering, will convert into shares of common stock
at a conversion rate equal to the mid-point of the common stock
offering price range set forth in this registration statement. The
foregoing purchase and sale was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
11. In March 2000, we issued four Convertible Notes to three individuals
and one entity who were the owners of Norman Levy Associates, Inc. in
the aggregate principal amount of $10,000,000, which will convert, on
the first day of the month following the effective date of an initial
public offering, into 317,460 shares of our common stock. The foregoing
purchase and sale was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof on the basis that the transaction did
not involve a public offering.
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<PAGE>
12. In March 2000, we issued an aggregate of 217,737 shares of our common
stock to 24 accredited shareholders and assumed options to purchase
60,040 shares of our common stock to eight optionees of One Web Place,
Inc. The foregoing purchase and sale was exempt from registration under
the Securities Act pursuant to Section 4(2) thereof on the basis that
the transaction did not involve a public offering.
13. In June 2000, we issued Convertible Notes to two individuals who were
the owners of Fairfield Industries, B.V. in the aggregate principal
amount of $5,000,000, which, upon or immediately prior to the
consummation of this offering, will convert into shares of common stock
at a conversion rate equal to the mid-point of the common stock
offering price set forth in this registration statement. The foregoing
purchase and sale was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof on the basis that the transaction did
not involve a public offering.
14. In July 2000, we issued Convertible Notes to two individuals who were
the owners of Champion Computer Products, Inc. in the aggregate
principal amount of $2,500,000, which, upon or immediately prior to the
consummation of this offering, will convert into shares of common stock
at a conversion rate equal to the mid-point of the common stock
offering price set forth in this registration statement. The foregoing
purchase and sale was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof on the basis that the transaction did
not involve a public offering.
15. In July 2000, we issued Convertible Notes to one individual and two
entities who were the owners of Victor Morris Team Pte Ltd, Victor
Morris & Yau Ltd, and Victor Morris Co. Ltd, in the aggregate principal
amount of $1,100,000 which, upon or immediately prior to the
consummation of this offering, will convert into shares of common stock
at a conversion rate equal to the mid-point of the common stock
offering price set forth in this registration statement. The foregoing
purchase and sale was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof on the basis that the transaction did
not involve a public offering.
16. In July 2000, we issued Convertible Notes to three entities that were
the owners of C.L. Van Beusekom B.V. in the aggregate principal amount
of $976,894, which, upon or immediately prior to the consummation of
this offering, will convert into shares of common stock at a conversion
rate equal to the mid-point of the common stock offering price set
forth in this registration statement. The foregoing purchase and sale
was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof on the basis that the transaction did not involve
a public offering.
17. In July 2000, we issued Convertible Notes to one entity that was the
owner of Masongreene Australasia Pty Ltd. in the aggregate principal
amount of $750,000 which, upon or immediately prior to the consummation
of this offering, will convert into shares of common stock at a
conversion rate equal to the mid-point of the common stock offering
price set forth in this registration statement. The foregoing purchase
and sale was exempt from registration under the Securities Act pursuant
to Section 4(2) thereof on the basis that the transaction did not
involve a public offering.
18. Since October 1999, we have granted stock options under our 1999 Stock
Option Plan, covering an aggregate of 2,229,460 shares of common stock
(net of option exercises, expirations and cancellations) to employees,
consultants, directors and other service providers at exercise prices
of $0.99 to $12.00. We believe these grants are exempt from
registration under the Securities Act pursuant to Section 4(2) thereof
and Rule 701.
19. For the periods January 1, 2000 to June 30 , 2000, and July 1, 2000 to
September 30, 2000, options to purchase 1,474,989 and 73,333 shares,
respectively, of common stock under our 1999 Stock Option Plan were
exercised with a weighted average exercise price of $3.94 per share, of
which 189,583 shares exercised in the period from January 1, 2000 to
June 30, 2000 were repurchased by us at a price of $0.99 per share
pursuant to our right of repurchase under a stock option agreement
between us and one employee who left the company. In September 2000 and
for the period from October 1, 2000 to the date of this document, we
issued 2,421 shares and 195 shares, respectively, of
II-4
<PAGE>
our common stock at an exercise price of $3.09 per share pursuant to the
exercise of options assumed in the acquisition of One Web Placc, Inc. We
believe these sales were exempt from registration under the Securities
Act pursuant to Section 4(2) thereof and Rule 701.
20. For the periods of November 1, 1999 to December 31, 1999, January 1,
2000 to June 30, 2000, and July 1, 2000 to September 30, 2000, we
issued and sold an aggregate of 1,855,880 shares, 462,243 shares and
233,332 shares, respectively, of our common stock to employees,
consultants, directors and other service providers at prices ranging
from $0.99 to $8.01 per share. These sales were made in reliance on
Rule 701 and Section 4(2).
21. On March 8, 2000, we issued a warrant to Yahoo! Inc. to purchase
468,333 shares of our Series C Preferred Stock at an exercise price of
$8.01 per share. The foregoing purchase and sale was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof
on the basis that the transaction did not involve a public offering.
22. For the periods January 1, 2000 to June 30, 2000, and July 1, 2000 to
September 30, 2000, we issued and sold an aggregate of 72,825 shares
and 14,565 shares, respectively, of our common stock to Bain & Company,
Inc., pursuant to the terms of a consulting agreement in which the
value of the shares received was equal to the fair market value of the
services provided. These private offerings were exempt from
registration under Section 4(2) of the Securities Act, and Regulation D
promulgated thereunder.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance upon Section 4(2) of the
Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) under the Securities Act as transactions by an issuer not
involving any public offering or pursuant to benefit plans and contracts
relating to compensation as provided under Rule 701. The recipients of such
securities in each of these transactions represented their intentions to
acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof, and appropriate legends were
placed upon the share certificates issued in such transactions. All recipients
had adequate access, through their relationships with us, to information about
DoveBid.
ITEM 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
1.01 Form of Underwriting Agreement.(3)
2.01 Asset Purchase Agreement by and among the Registrant and Unidyne
International, Inc.(2)
2.02 Asset Purchase Agreement by and among the Registrant and B&B Custom
Circuit Supplies.(2)
2.03 Membership Interest Purchase Agreement by and between the Registrant,
Greenwich Industrial Services, LLC, William J. Gardner Jr., James F.
Gardner, Scott Lonkart and Michael DiProspero.(2)
2.04 Stock Purchase Agreement by and among the Registrant, Philip Pollack &
Co., Inc., Ross Pollack and Philip Pollack.(2)
2.05 Stock Purchase Agreement by and among the Registrant, Haltek
Electronics d/b/a Test Lab Company, the Manford and Audrey Trees Living
Trust, Manford J. Trees, Audrey Trees, the Michael P. Megown and Darcy
E. Megown Trust, Michael Megown and Darcy Megown.(2)
2.06 Stock Purchase Agreement by and among the Registrant, DoveBid Valuation
Services, AccuVal Associates Incorporated, Liquitec Industries
Incorporated, David S. Gronik, Jr. and Richard E. Schmitt.(2)
2.07 Stock Purchase Agreement by and among the Registrant, Norman Levy
Associates, Inc., Robert Levy, David Levy and the Norman Levy Qualified
Terminable Interest Marital Trust.(2)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
2.08 Stock Purchase Agreement by and among the Registrant, Norman Levy
Associates Inc., Robert Levy, David Levy and the Norman Levy Qualified
Terminable Interest Marital Trust with respect to the stock of Robert
Carl Corporation.(2)
2.09 Agreement and Plan of Merger by and among the Registrant, One Web
Place, Inc., OWP Acquisition Corp. and Rick Boarman.(2)
2.10 Stock Purchase Agreement by and among the Registrant, Fairfield
Industries B.V., Robinc Holding B.V. and Robert Bouland.(2)
2.11 Stock Purchase Agreement by and among the Registrant, Champion Computer
Products, Inc., Scott Guenther and Michael Nixon.(2)
2.12 Share Purchase Agreement by and among the Registrant and Vincent Wee
Heng Lian, Victor Wee Soon Keng, Supanit Chaiyawat, Francis S.D. Yau,
Strongland Investments Ltd., Manyways International Ltd, Victor Morris
Team Pte Ltd., Victor Morris Co. Ltd and Victor Morris & Yau Co.
Ltd.(2)
2.13 Stock Purchase Agreement by and among the Registrant, C.L. Van Beusekom
B.V., Chalud Holding B.V., Binmark B.V., Rotsip Holding B.V., Fredisk
Abbink, Paul Blees and Peter Pistor.(2)
2.14 Asset Purchase Agreement by and among the Registrant, DoveBid
Australasia Pty Ltd. ACN 093 796 368, Masongreene Australasia Pty Ltd.
ACN 065 348 736, C.N. Mason & Associates Pty Ltd. ACN 007 145 191 and
Christopher N. Mason.(2)
3.01 Amended and Restated Certificate of Incorporation of the Registrant.(2)
3.02 Certificate of Amendment of Restated Certificate of Incorporation of
the Registrant.(2)
3.03 Form of Amended and Restated Certificate of Incorporation of the
Registrant to be filed on the closing of the offering made hereby.(3)
3.04 Bylaws of the Registrant.(2)
3.05 Form of Bylaws of the Registrant to be filed on the closing of the
offering made hereby.(3)
4.01 Form of Registrant's Common Stock certificate.(2)
5.01 Opinion of Fenwick & West LLP regarding the legality of the securities
being registered.(3)
10.01 1999 Stock Option Plan.(2)
10.02 2000 Equity Incentive Plan.(2)
10.03 2000 Employee Stock Purchase Plan.(2)
10.04 Warrant to purchase up to 1,405,000 shares of Series C Preferred Stock
of the Registrant issued to Yahoo! Inc.(2)
10.05 Commercial Lease between the Registrant and Dove Holdings, Inc.(2)
10.06 Stock Repurchase Agreement between the Registrant, Ross Dove and The
Dove Holdings Corporation.(2)
10.07 Stock Repurchase Agreement between the Registrant, Kirk Dove and The
Dove Holdings Corporation.(2)
10.08 Offer Letter to Jeffrey M. Crowe from the Registrant.(2)
10.09 Offer Letter to Cory M. Ravid from the Registrant.(2)
10.10 Offer Letter to Francis M. Juliano from the Registrant.(2)
10.11 Offer Letter to James Hume from the Registrant.(2)
10.12 Offer Letter to Robert Levy from the Registrant.(2)
10.13 Offer Letter to Timothy J. Reed from the Registrant.(2)
10.14 Offer Letter to Lynn B. Corsiglia from the Registrant.(2)
10.15 Second Amended and Restated Investors' Rights Agreement by and between
the Registrant and certain investors of the Registrant dated February
25, 2000.(2)
10.16 Series C Preferred Stock Purchase Agreement by and between the
Registrant and certain investors of the Registrant dated February 25,
2000.(2)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
10.17 Second Amended and Restated Stockholders' Agreement by and between the
Registrant and certain investors of the Registrant dated February 25,
2000.(2)
10.18 Form of Indemnity Agreement between the Registrant and each of its
directors and executive officers.(2)
10.19 Convertible Promissory Note dated December 30, 1999 issued by the
Registrant to Unidyne International, Inc.(2)
10.20 Convertible Promissory Note dated December 30, 1999 issued by the
Registrant to B&B Custom Circuit Supplies.(2)
10.21 Convertible Subordinated Promissory Note dated February 29, 2000 issued
by the Registrant to William J. Gardner Jr.(2)
10.22 Convertible Subordinated Promissory Note dated February 29, 2000 issued
by the Registrant to James Gardner.(2)
10.23 Convertible Subordinated Promissory Note dated February 29, 2000 issued
by the Registrant to Scott Lankert.(2)
10.24 Convertible Subordinated Promissory Note dated February 29, 2000 issued
by the Registrant to Michael DiProspero.(2)
10.25 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to Phillip Pollack.(2)
10.26 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to Ross J. Pollack.(2)
10.27 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to David S. Gronik, Jr.(2)
10.28 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to Richard E. Schmitt.(2)
10.29 Convertible Subordinated Promissory Note dated March 24, 2000 issued by
the Registrant to Robert Levy.(2)
10.30 Convertible Subordinated Promissory Note dated March 24, 2000 issued by
the Registrant to David Levy.(2)
10.31 Convertible Subordinated Promissory Note dated March 24, 2000 issued by
the Registrant to The Norman Levy Qualified Terminable Interest Marital
Trust.(2)
10.32 Convertible Subordinated Promissory Note dated March 24, 2000 issued by
the Registrant to Richard Nucian.(2)
10.33 Convertible Subordinated Promissory Note dated June 15, 2000 issued by
the Registrant to Robinc Holding B.V.(2)
10.34 Convertible Subordinated Promissory Note dated July 3, 2000 issued by
the Registrant to Michael Nixon.(2)
10.35 Convertible Subordinated Promissory Note dated July 3, 2000 issued by
the Registrant to Scott Guenther.(2)
10.36 Convertible Subordinated Promissory Note dated July 6, 2000 issued by
the Registrant to Vincent Wee Heng Lian.(2)
10.37 Convertible Subordinated Promissory Note dated July 6, 2000 issued by
the Registrant to Manyways International Ltd.(2)
10.38 Convertible Subordinated Promissory Note dated July 6, 2000 issued by
the Registrant to Strongland Investments Ltd.(2)
10.39 Convertible Subordinated Promissory Note dated July 18, 2000 issued by
the Registrant to Chalud Holding B.V.(2)
10.40 Convertible Subordinated Promissory Note dated July 18, 2000 issued by
the Registrant to Binmak B.V.(2)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
10.41 Convertible Subordinated Promissory Note dated July 18, 2000 issued by
the Registrant to Rotsip Holding B.V.(2)
10.42 Convertible Subordinated Promissory Note dated July 28, 2000 issued by
the Registrant to Masongreene Australasia Pty Ltd. ACN 065 348 736.(2)
10.43 Secured Promissory Note held by the Registrant for Jeffrey M. Crowe
dated November 30, 1999.(2)
10.44 Secured Promissory Note held by the Registrant for Cory M. Ravid dated
November 30, 1999.(2)
10.45 Secured Promissory Note held by the Registrant for Francis M. Juliano
dated January 14, 2000.(2)
10.46 Secured Promissory Note held by the Registrant for James Hume dated
January 14, 2000.(2)
10.47 Secured Promissory Note held by the Registrant for Timothy J. Reed
dated March 7, 2000.(2)
10.48 Secured Promissory Note held by the Registrant for Lynn B. Corsiglia
dated March 7, 2000.(2)
10.49 Secured Promissory Note held by the Registrant for Daphne Li dated July
17, 2000.(2)
10.50 Advertising and Promotion Agreement between the Registrant and
Yahoo!(2)(4)
10.51 Asset Purchase and Co-Marketing Agreement between the Registrant and
Comdisco, Inc.(2)(4)
10.52 Amendment to Series C Preferred Stock Purchase Agreement by and between
the Registrant and certain investors of the Registrant dated August 7,
2000.(2)
10.53 Netsourcing Agreement between the Registrant and Intira Corporation
dated September 29, 2000.(1)
21.01 List of Registrant's Subsidiaries.(1)
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).(3)
23.02 Consent of Ernst & Young LLP, independent auditors.(1)
23.03 Consent of Ernst & Young, independent auditors.(1)
23.04 Consent of Grant Thornton LLP, independent auditors.(1)
23.05 Consent of Arthur Andersen LLP, independent public accountants.(1)
23.06 Consent of KPMG Accountants N.V., independent auditors.(1)
23.07 Consent of KPMG LLP, independent auditors.(1)
24.01 Power of Attorney.(2)
27.01 Financial Data Schedule.(2)
</TABLE>
---------------------
(1) Filed herewith.
(2) Previously filed.
(3) To be supplied by amendment.
(4) Confidential treatment has been requested with regard to certain portions
of this document. Such portions were filed separately with the Securities
and Exchange Commission.
ITEM 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each buyer.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with
II-8
<PAGE>
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 2 to the Registration Statement originally filed
August 10, 2000 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Foster City, State of California, on this 11th day
of December 2000.
DOVEBID, INC.
/s/ Ross Dove
By: _________________________________
Ross Dove
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement originally filed on August 10, 2000 has
been signed by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
Principal Executive Officer:
/s/ Ross Dove Chief Executive Officer and December 11, 2000
______________________________________ Director
Ross Dove
Principal Financial Officer and
Principal Accounting Officer:
/s/ Cory M. Ravid Chief Financial Officer December 11, 2000
______________________________________
Cory M. Ravid
Additional Directors:
* Director December 11, 2000
______________________________________
William Burnham
* Director December 11, 2000
______________________________________
Jeffrey M. Crowe
* Director December 11, 2000
______________________________________
Kirk Dove
* Director December 11, 2000
______________________________________
A. Grant Heidrich, III
* Director December 11, 2000
______________________________________
Robert C. Levy
* Director December 11, 2000
______________________________________
David S. Pottruck
* Director December 11, 2000
______________________________________
William Price
* Director December 11, 2000
______________________________________
Todd Rulon-Miller
* Director December 11, 2000
______________________________________
W. Blake Winchell
</TABLE>
/s/ Cory M. Ravid
*By: __________________________
Cory M. Ravid
Attorney-in-Fact
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
1.01 Form of Underwriting Agreement.(3)
2.01 Asset Purchase Agreement by and among the Registrant and Unidyne
International, Inc.(2)
2.02 Asset Purchase Agreement by and among the Registrant and B&B Custom
Circuit Supplies.(2)
2.03 Membership Interest Purchase Agreement by and among the Registrant,
Greenwich Industrial Services, LLC, William J. Gardner Jr., James F.
Gardner, Scott Lonkart and Michael DiProspero.(2)
2.04 Stock Purchase Agreement by and among the Registrant, Philip Pollack &
Co., Inc., Ross Pollack and Philip Pollack.(2)
2.05 Stock Purchase Agreement by and among the Registrant, Haltek
Electronics d/b/a Test Lab Company, the Manford and Audrey Trees Living
Trust, Manford J. Trees, Audrey Trees, the Michael P. Megown and Darcy
E. Megown Trust, Michael Megown and Darcy Megown.(2)
2.06 Stock Purchase Agreement by and among the Registrant, DoveBid Valuation
Services, AccuVal Associates Incorporated, Liquitec Industries
Incorporated, David S. Gronik, Jr. and Richard E. Schmitt.(2)
2.07 Stock Purchase Agreement by and among the Registrant, Norman Levy
Associates, Inc., Robert Levy, David Levy and the Norman Levy Qualified
Terminable Interest Marital Trust.(2)
2.08 Stock Purchase Agreement by and among the Registrant, Norman Levy
Associates Inc., Robert Levy, David Levy and the Norman Levy Qualified
Terminable Interest Marital Trust with respect to the stock of Robert
Carl Corporation.(2)
2.09 Agreement and Plan of Merger by and among the Registrant, One Web
Place, Inc., OWP Acquisition Corp. and Rick Boarman.(2)
2.10 Stock Purchase Agreement by and among the Registrant, Fairfield
Industries B.V., Robinc Holding B.V. and Robert Bouland.(2)
2.11 Stock Purchase Agreement by and among the Registrant, Champion Computer
Products, Inc., Scott Guenther and Michael Nixon.(2)
2.12 Share Purchase Agreement by and among the Registrant and Vincent Wee
Heng Lian, Victor Wee Soon Keng, Supanit Chaiyawat, Francis S.D. Yau,
Strongland Investments Ltd., Manyways International Ltd., Victor Morris
Team Pte Ltd., Victor Morris Co. Ltd and Victor Morris & Yau Co.
Ltd.(2)
2.13 Stock Purchase Agreement by and between the Registrant, C.L. Van
Beusekom B.V., Chalud Holding B.V., Binmark B.V., Rotsip Holding B.V.,
Frederik Abbink, Paul Blees and Peter Pistor.(2)
2.14 Asset Purchase Agreement by and between the Registrant, DoveBid
Australasia Pty Ltd, ACN 093 796 368, Masongreene Australasia Pty Ltd.
ACN 065 348 736, C.N. Mason & Associates Pty Ltd ACN 007 145 191 and
Christopher N. Mason.(2)
3.01 Amended and Restated Certificate of Incorporation of the Registrant.(2)
3.02 Certificate of Amendment of Restated Certificate of Incorporation of
the Registrant.(2)
3.03 Form of Amended and Restated Certificate of Incorporation of the
Registrant to be filed on the closing of the offering made hereby.(3)
3.04 Bylaws of the Registrant.(2)
3.05 Form of Bylaws of the Registrant to be filed on the closing of the
offering made hereby.(3)
4.01 Form of Registrant's Common Stock certificate.(2)
5.01 Opinion of Fenwick & West LLP regarding the legality of the securities
being registered.(3)
10.01 1999 Stock Option Plan.(2)
10.02 2000 Equity Incentive Plan.(2)
10.03 2000 Employee Stock Purchase Plan.(2)
10.04 Warrant to purchase up to 1,405,000 shares of Series C Preferred Stock
of the Registrant issued to Yahoo! Inc.(2)
10.05 Commercial Lease between the Registrant and Dove Holdings, Inc.(2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
10.06 Stock Repurchase Agreement between the Registrant, Ross Dove and The
Dove Holdings Corporation.(2)
10.07 Stock Repurchase Agreement between the Registrant, Kirk Dove and The
Dove Holdings Corporation.(2)
10.08 Offer Letter to Jeffrey M. Crowe from the Registrant.(2)
10.09 Offer Letter to Cory M. Ravid from the Registrant.(2)
10.10 Offer Letter to Francis M. Juliano from the Registrant.(2)
10.11 Offer Letter to James Hume from the Registrant.(2)
10.12 Offer Letter to Robert Levy from the Registrant.(2)
10.13 Offer Letter to Timothy J. Reed from the Registrant.(2)
10.14 Offer Letter to Lynn B. Corsiglia from the Registrant.(2)
10.15 Second Amended and Restated Investors' Rights Agreement by and between
the Registrant and certain investors of the Registrant dated February
25, 2000.(2)
10.16 Series C Preferred Stock Purchase Agreement by and between the
Registrant and certain investors of the Registrant dated February 25,
2000.(2)
10.17 Second Amended and Restated Stockholders' Agreement by and between the
Registrant and certain investors of the Registrant dated February 25,
2000.(2)
10.18 Form of Indemnity Agreement between the Registrant and each of its
directors and executive officers.(2)
10.19 Convertible Promissory Note dated December 30, 1999 issued by the
Registrant to Unidyne International, Inc.(2)
10.20 Convertible Promissory Note dated December 30, 1999 issued by the
Registrant to B&B Custom Circuit Supplies.(2)
10.21 Convertible Subordinated Promissory Note dated February 29, 2000 issued
by the Registrant to William J. Gardner Jr.(2)
10.22 Convertible Subordinated Promissory Note dated February 29, 2000 issued
by the Registrant to James Gardner.(2)
10.23 Convertible Subordinated Promissory Note dated February 29, 2000 issued
by the Registrant to Scott Lonkart.(2)
10.24 Convertible Subordinated Promissory Note dated February 29, 2000 issued
by the Registrant to Michael DiProspero.(2)
10.25 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to Phillip Pollack.(2)
10.26 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to Ross J. Pollack.(2)
10.27 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to David S. Gronik, Jr.(2)
10.28 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to Richard E. Schmitt.(2)
10.29 Convertible Subordinated Promissory Note dated March 24, 2000 issued by
the Registrant to Robert Levy.(2)
10.30 Convertible Subordinated Promissory Note dated March 24, 2000 issued by
the Registrant to David Levy.(2)
10.31 Convertible Subordinated Promissory Note dated March 24, 2000 issued by
the Registrant to The Norman Levy Qualified Terminable Interest Marital
Trust.(2)
10.32 Convertible Subordinated Promissory Note dated March 24, 2000 issued by
the Registrant to Richard Nucian.(2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
10.33 Convertible Subordinated Promissory Note dated June 15, 2000 issued by
the Registrant to Robinc Holding B.V.(2)
10.34 Convertible Subordinated Promissory Note dated July 3, 2000 issued by
the Registrant to Michael Nixon.(2)
10.35 Convertible Subordinated Promissory Note dated July 3, 2000 issued by
the Registrant to Scott Guenther.(2)
10.36 Convertible Subordinated Promissory Note dated July 6, 2000 issued by
the Registrant to Vincent Wee Heng Lian.(2)
10.37 Convertible Subordinated Promissory Note dated July 6, 2000 issued by
the Registrant to Manyways International Ltd.(2)
10.38 Convertible Subordinated Promissory Note dated July 6, 2000 issued by
the Registrant to Strongland Investments Ltd.(2)
10.39 Convertible Subordinated Promissory Note dated July 18, 2000 issued by
the Registrant to Chalud Holding B.V.(2)
10.40 Convertible Subordinated Promissory Note dated July 18, 2000 issued by
the Registrant to Binmak B.V.(2)
10.41 Convertible Subordinated Promissory Note dated July 18, 2000 issued by
the Registrant to Rotsip Holding B.V.(2)
10.42 Convertible Subordinated Promissory Note dated July 28, 2000 issued by
the Registrant to Masongreene Australasia Pty Ltd ACN 065 348 736.(2)
10.43 Secured Promissory Note held by the Registrant for Jeffrey M. Crowe
dated November 30, 1999.(2)
10.44 Secured Promissory Note held by the Registrant for Cory M. Ravid dated
November 30, 1999.(2)
10.45 Secured Promissory Note held by the Registrant for Francis M. Juliano
dated January 14, 2000.(2)
10.46 Secured Promissory Note held by the Registrant for James Hume dated
January 14, 2000.(2)
10.47 Secured Promissory Note held by the Registrant for Timothy J. Reed
dated March 7, 2000.(2)
10.48 Secured Promissory Note held by the Registrant for Lynn B. Corsiglia
dated March 7, 2000.(2)
10.49 Secured Promissory Note held by the Registrant for Daphne Li dated July
17, 2000.(2)
10.50 Advertising and Promotion Agreement between the Registrant and
Yahoo!(2)(4)
10.51 Asset Purchase and Co-Marketing Agreement between the Registrant and
Comdisco, Inc.(2)(4)
10.52 Amendment to Series C Preferred Stock Purchase Agreement by and between
the Registrant and certain investors of the Registrant dated August 7,
2000.(2)
10.53 Netsourcing Agreement between the Registrant and Intira Corporation
dated September 29, 2000.(1)
21.01 List of Registrant's Subsidiaries.(1)
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).(3)
23.02 Consent of Ernst & Young LLP, independent auditors.(1)
23.03 Consent of Ernst & Young, independent auditors.(1)
23.04 Consent of Grant Thornton LLP, independent auditors.(1)
23.05 Consent of Arthur Andersen LLP, independent public accountants.(1)
23.06 Consent of KPMG Accountants N.V., independent public accountants.(1)
23.07 Consent of KPMG, LLP, Independent auditors.(1)
24.01 Power of Attorney.(2)
27.01 Financial Data Schedule.(2)
</TABLE>
--------------------
(1) Filed herewith.
(2) Previously filed.
(3) To be supplied by amendment.
(4) Confidential treatment has been requested with regard to certain portions
of this document. Such portions were filed separately with the Securities
and Exchange Commission.
