<PAGE>
Filed Pursuant to Rule 424(B)(4)
Registration No. 333-38888
5,500,000 Shares
[LOGO OF AVANTGO APPEARS HERE]
Common Stock
------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is $12 per share.
Our common stock has been approved for quotation on The Nasdaq Stock Market's
National Market under the symbol "AVGO."
The underwriters have an option to purchase a maximum of 825,000 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on Page 8.
<TABLE>
<CAPTION>
Underwriting
Price Discounts and Proceeds to
to Public Commissions AvantGo
------------- ------------- -------------
<S> <C> <C> <C>
Per Share.................................. $12.00 $0.84 $11.16
Total...................................... $66,000,000 $4,620,000 $61,380,000
</TABLE>
Delivery of the shares of common stock will be made on or about October 2,
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
Merrill Lynch & Co.
CIBC World Markets
The date of this prospectus is September 27, 2000.
<PAGE>
[There is one large graphic of a wireless handheld device connected by cable
wires running through a multi-story enterprise building. On the device is the
AvantGo logo and a list of channels from our AMI service. The text surrounding
the graphic reads: "The intersection between mobile, wireless and the
Internet."
Below the large graphic are pictures of the following four devices that are
capable of using our AvantGo software:
1. Internet-enabled phone with the AvantGo name & logo on a Web browser with
the words "Wireless Edition" written under the name and logo.
2. Pocket PC device with Pocket Internet Explorer start page.
3. Palm OS device with a wireless modem running an enterprise application,
which includes a listing of corporate intranet channels.
4. Vertical market device running an enterprise application, which includes
menus and submit buttons.
The text under these devices reads: ["AvantGo provides mobile infrastructure
products and services that enable mobile devices to access Internet-based
content and business applications."]
The AvantGo Logo is located in the bottom right hand corner of the page.]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
Forward-Looking Statements........... 19
Use of Proceeds...................... 20
Dividend Policy...................... 20
Capitalization....................... 21
Dilution............................. 22
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business............................. 33
</TABLE>
<TABLE>
<S> <C>
Management......................... 48
Certain Relationships and Related
Transactions...................... 61
Principal Stockholders............. 64
Description of Capital Stock....... 66
Shares Eligible for Future Sale.... 69
Underwriting....................... 71
Notice to Canadian Residents....... 74
Legal Matters...................... 75
Experts............................ 75
Where You Can Find Additional
Information....................... 75
Index To Financial Statements...... F-1
</TABLE>
------------
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 only be used 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 October 23, 2000 (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 regarding our company and the securities being sold in this
offering, together with the consolidated financial statements, pro forma
information and related notes appearing elsewhere in this prospectus.
AvantGo, Inc.
We provide mobile infrastructure software and services that enable and
enhance the use of Internet-based content and corporate applications on
handheld devices and Internet-enabled phones. Our AvantGo Enterprise software
products provide access to business information and applications from mobile
devices to speed information exchange between companies and their mobile
employees, customers, suppliers and business affiliates. Our AvantGo Mobile
Internet service enables content providers and e-businesses to customize and
deliver their Internet-based content and applications to people using mobile
and wireless devices such as personal digital assistants and Internet-connected
phones. By putting information directly into users' hands, we believe that
content providers and e-businesses can enjoy expanded use of their service
offerings and increased consumer loyalty. Our AvantGo Mobile Internet service
provides consumers with access to over 600 sources of interactive and
personalized Internet content and Web-based applications from mobile devices.
To promote the use of our products and services, our software is bundled with
offerings from leading mobile hardware and software providers-- including
Pocket PCs manufactured by Hewlett Packard, Compaq, Casio and Symbol
Technologies--that operate with Microsoft Corporation's Windows CE operating
system and the Palm III and Palm V family of products of Palm, Inc. Our
software is not bundled with Palm, Inc.'s Palm VII family of products, but is
compatible with these products.
We license our AvantGo Enterprise software products to large global
companies such as American Express Travel-Related Services, Inc., Ford Motor
Company and McKessonHBOC. American Express Travel-Related Services, Inc., Ford
Motor Company and McKessonHBOC accounted for approximately 0%, 2% and 25% of
our total revenues during the year ended December 31, 1999 and approximately
8%, 8% and 37% of our total revenues for the six months ended June 30, 2000.
Our total revenues for the year ended December 31, 1999 and the six months
ended June 30, 2000 were approximately $2.9 million and $5.1 million. Our net
losses for the year ended December 31, 1999 and the six months ended June 30,
2000 were approximately $9.2 million and $18.4 million. We expect to incur
additional losses and continued negative cash flow from operations for the
foreseeable future.
With our AvantGo Enterprise software products and services, our enterprise
customers can increase employee productivity and streamline business processes
such as billing, procurement, inventory control, manufacturing and customer
relationship management. For example, by providing delivery personnel with
handheld devices running our AvantGo Enterprise software, enterprises can
maintain tighter control over the invoicing process by enabling drivers to
electronically input delivery information such as customer signatures. In
addition, managers of manufacturing companies can make faster and more informed
decisions when provided with up-to-date operations data accessible at any time
using personal digital assistants or Internet-enabled phones.
Through our AvantGo Mobile Internet service, we generate placement and
advertising revenue and have revenue-sharing arrangements that provide the
opportunity for us to earn commissions on e-commerce transactions. Our content
provider and e-business customers use our AvantGo Mobile Internet service and
software to rapidly create a mobile infrastructure and instantly access our
AvantGo Mobile Internet user base. This user base consists of over 1 million
registered users, of which over 650,000 have used our AvantGo Mobile Internet
service at least once in the 90-day period ending August 31, 2000. Our AvantGo
Mobile Internet service, which initially offered and continues to offer content
from CNET Networks, Inc., Excite,
3
<PAGE>
InfoWorld, Mercury Center, The New York Times and Wired Digital, currently
offers over 600 sources of content and applications optimized for mobile
devices.
Worldwide use of mobile communications is growing rapidly as mobile devices
become more widely accessible and affordable. Many individuals, accustomed to
accessing information, applications and services from the Internet and
corporate intranets via a desktop personal computer, are now able to gain
access to this information while away from the office. Dataquest estimates that
there were approximately 217 million digital wireless subscribers worldwide at
the end of 1998 and that this number will grow to approximately 828 million by
the end of 2003, of which an estimated 102 million are projected to be wireless
data users. Businesses that choose to build and operate mobile platforms now
face the challenge of integrating their existing systems with the hundreds of
thousands of available mobile devices, applications and connections to the
Internet.
Our AvantGo Enterprise products and AvantGo Mobile Internet service provide
several key common benefits to enterprises, content providers and e-businesses,
including the ability to:
. Deliver sophisticated applications. Our software incorporates advanced
technology designed to overcome mobile device limitations, including
limited memory and slow processor performance, as well as external
limitations, including limited network communications availability. Using
our software, mobile devices can store and display complex, table-
formatted content and graphics, and collect data through innovative
methods such as bar code scanners built directly into mobile devices and
capturing handwritten information, including customer signatures, using
touch-sensitive displays.
. Increase access to information. Our software is designed to keep
information up-to-date and readily accessible, even when a network or
wireless connection is unavailable.
. Develop and deploy mobile applications that conform to existing
technology standards. Our software is designed to enable mobile devices
to support applications that rely on existing Internet technology
standards. As a result, software developers can build and deploy
applications on mobile devices using the same development tools and
publishing systems that they use for ordinary Web browsers and personal
computers.
Our objective is to be the leading provider of mobile infrastructure
software and services that extend the reach of the Internet and corporate
applications to mobile devices. Key elements of our strategy include the
following:
. Increase compatibility through the use of open standards, making it
possible for Web-based applications to run on a variety of mobile devices
over all connections to the Internet;
. Focus on the needs of enterprise customers by supporting additional
mobile devices and introducing new applications, content and services.
For example, we recently acquired Globalware Computing, Inc., or
Globalware, to enable our products to be used in conjunction with Lotus
Notes. We also entered into a license agreement with Chapura, Inc. that
enables us to provide users of mobile devices with the ability to
synchronize their mobile devices with Microsoft Exchange;
. Increase the available applications, content and features of our products
to expand our user base;
. Expand distribution of our products through strategic relationships with
device hardware manufacturers, software developers, mobile device
operating system vendors and wireless carriers; and
. Establish cooperative relationships with content providers, e-businesses,
wireless carriers and software manufacturers to increase our revenue
opportunities.
4
<PAGE>
Recent Developments
On May 26, 2000, we completed our acquisition of Globalware. Globalware is a
supplier of wireless synchronization software that enables much of the
functionality of Lotus Notes to be used on handheld devices. We believe our
acquisition of Globalware will enable us to provide a broader set of mobile
applications to our enterprise customers. In this transaction, we acquired all
of the outstanding securities of Globalware in exchange for 1,933,300 shares of
our series E preferred stock. All shares of our series E preferred stock will
convert automatically into shares of our common stock on a one-for-one basis
upon the closing of this offering. We also assumed all outstanding options to
purchase Globalware common stock. We have reserved 180,438 shares of our common
stock for issuance upon the exercise of these options. This transaction has
been accounted for under the purchase method of accounting.
We were incorporated in Delaware in June 1997 under the name Bombardier
Software, Inc., and changed our name to AvantGo, Inc. in January 1998. Our
principal offices are located at 1700 S. Amphlett Blvd., Suite 300, San Mateo,
California 94402, and our telephone number is (650) 638-3399. Our website is
located at avantgo.com. The information on our website does not constitute a
part of this prospectus.
"AvantGo" and the AvantGo logo are our trademarks and service marks. This
prospectus also contains trademarks and service marks of other companies, which
are the property of their respective owners.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered............ 5,500,000 shares
Common stock to be outstanding
after this offering............ 33,347,590 shares
Use of proceeds................. We intend to use the net proceeds of this
offering for general corporate purposes,
including investments in sales and marketing,
general and administrative activities and
product development.
Nasdaq National Market symbol... AVGO
</TABLE>
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of August 31, 2000,
and excludes:
. 6,146,666 shares of our common stock issuable upon exercise of
outstanding stock options under our 1997 stock option plan as of
August 31, 2000, at a weighted average exercise price of $4.36 per
share;
. 180,438 shares of our common stock issuable upon exercise of
outstanding stock options assumed by us in connection with our
acquisition of Globalware, at a weighted average exercise price of
$0.638 per share;
. 3,498,855 shares of our common stock reserved and available for
issuance under our stock option plans;
. 350,000 shares of our common stock initially reserved for issuance
under our 2000 employee stock purchase plan; and
. 476,409 shares of our common stock issuable upon exercise of
outstanding warrants, with a weighted average exercise price of $8.36
per share.
------------
Except as otherwise indicated, all information contained in this prospectus:
. assumes the conversion of all outstanding shares of our preferred
stock into shares of our common stock on a one-for-one basis upon the
closing of this offering;
. assumes the filing of our seventh amended and restated certificate of
incorporation; and
. assumes no exercise of the underwriters' over-allotment option.
6
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
The following financial data, other than the pro forma data and the data for
the six months ended June 30, 2000, include the financial data of AvantGo and
exclude the financial data of Globalware. The financial data for the six months
ended June 30, 2000 give effect to our acquisition of Globalware on May 26,
2000. Our pro forma consolidated statements of operations data give effect to
our acquisition of Globalware as if it occurred at the beginning of the pro
forma periods presented and exclude the one-time purchased in-process research
and development charge of $600,000.
<TABLE>
<CAPTION>
Period From
June 30, 1997
(date of Year Ended December 31, Six Months Ended June 30,
incorporation) to ----------------------------- -----------------------------------
December 31, 1997 1998 1999 1999 1999 2000 2000
----------------- ------- ------- ----------- ----------- ----------- -----------
(pro forma) (unaudited) (unaudited) (pro forma)
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues................ $ -- $ 387 $ 2,889 $ 4,324 $ 789 $ 5,117 $ 6,080
Costs and expenses...... 290 3,038 12,417 18,853 3,475 24,261 26,736
------ ------- ------- -------- ------- -------- --------
Loss from operations.... (290) (2,651) (9,528) (14,529) (2,686) (19,144) (20,656)
Net loss................ $ (290) $(2,603) $(9,215) $(14,190) $(2,673) $(18,432) $(19,953)
====== ======= ======= ======== ======= ======== ========
Net loss per share:
Basic and diluted....... $(0.20) $ (0.95) $ (2.11) $ (2.25) $ (0.69) $ (3.02) $ (2.48)
====== ======= ======= ======== ======= ======== ========
Weighted average
shares................. 1,464 2,735 4,377 6,310 3,887 6,097 8,030
====== ======= ======= ======== ======= ======== ========
Pro forma net loss per
share:
Basic and diluted
(unaudited)............ $ (0.65) $ (0.92)
======= ========
Weighted average shares
(unaudited)............ 14,272 20,030
======= ========
</TABLE>
<TABLE>
<CAPTION>
June 30, 2000
-------------------
Pro Forma
Actual As Adjusted
------- -----------
(unaudited)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................... $27,432 $87,062
Working capital............................................. 28,286 87,916
Total assets................................................ 56,931 116,561
Long-term obligations, net of current portion............... 589 589
Total stockholders' equity.................................. 49,021 108,651
</TABLE>
See Note 1 of Notes to Consolidated Financial Statements for information
concerning the computation of pro forma net loss per share and the calculation
of the number of shares used in that computation.
The Consolidated Balance Sheet pro forma, as adjusted data give effect to
the conversion of our outstanding preferred stock into shares of our common
stock upon the closing of this offering and the sale of 5,500,000 shares of
common stock in this offering at an initial public offering price of $12.00 per
share, less underwriting discounts and commissions and estimated offering
expenses.
7
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information contained
in this prospectus before deciding whether to purchase our common stock.
Risks Related to Our Business
We have a history of losses and anticipate increased losses in the future.
Since our inception, we have never been profitable. We incurred net losses
of approximately $2.6 million and $9.2 million for the years ended December 31,
1998 and 1999, and a net loss of $18.4 million for the six months ended June
30, 2000. From inception through June 30, 2000, we had an accumulated deficit
of $30.5 million. On a pro forma basis, giving effect to our acquisition of
Globalware as if it had occurred as of the beginning of each of the respective
periods, we incurred a net loss of approximately $14.2 million for the year
ended December 31, 1999 and approximately $20.0 million for the six months
ended June 30, 2000. Our costs and operating expenses were approximately $3.0
million and $12.4 million for the years ended December 31, 1998 and 1999, and
were $24.3 million for the six months ended June 30, 2000. On a pro forma
basis, our costs and expenses were approximately $18.9 million for the year
ended December 31, 1999 and approximately $26.7 million for the six months
ended June 30, 2000. Our success will depend in large part upon our ability to
generate sufficient revenue to achieve profitability and to effectively
maintain existing relationships and develop new relationships with enterprise
customers, content providers and e-businesses. In particular, we intend to
expend significant financial resources on product development and sales and
marketing. As a result, we expect to incur additional losses and continued
negative cash flow from operations for the foreseeable future, and we may not
achieve or maintain profitability.
Because our quarterly operating results are volatile and difficult to predict,
period-to-period comparisons of our operating results are not necessarily
meaningful and you should not rely on them as indications of future
performance.
Our revenues consist primarily of royalties and related technical support
fees received from licensees of our enterprise software, which accounted for
over half of our revenues in the year ended December 31, 1999 and the six
months ended June 30, 2000. We also obtain significant revenues from
professional services rendered to our enterprise customers. In 1999 and during
the six months ended June 30, 2000, advertising and placement fees from our
AvantGo Mobile Internet service also generated a portion of our revenue.
Because our licensing, professional services and AvantGo Mobile Internet
service revenues can vary substantially from month to month and we expect to
continue to rely on these revenues, our future quarterly revenues and operating
results may fluctuate substantially. As a result of these factors, we believe
that quarter-to-quarter or other periodic comparisons of our revenue and
operating results are not necessarily meaningful, and that these comparisons
may not be accurate indicators of future performance. Examples of the factors
that could cause our quarterly results to vary include:
. failure to close key enterprise agreements as contemplated;
. termination of important contracts, including those with American Express
Travel-Related Services, Inc., Ford Motor Company and McKessonHBOC; and
. long sales cycles for our products.
Because our staffing and operating expenses are based on anticipated revenue
levels, and because a high percentage of our costs are fixed, small variations
in the timing of the recognition of specific revenue could cause significant
variations in operating results from quarter to quarter. If we are unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, any significant revenue shortfall would likely have an immediate
negative effect on our business. It is likely that in some future quarter or
quarters our operating results will be below public expectations. If this
occurs, we would expect to experience an immediate and significant decline in
the market price of our common stock.
8
<PAGE>
Our limited operating history makes an evaluation of our business and its
future prospects difficult.
We were incorporated in June 1997. We released our first software product in
May 1998. Because we are in an early stage of development, our business model
is not proven, particularly with respect to our AvantGo Mobile Internet
service. Accordingly, our prospects are difficult to predict and may change
rapidly. Before investing, you should evaluate our prospects in light of the
heightened risks, expenses, delays, and difficulties we expect to encounter as
we enter new and rapidly evolving markets like the Internet and the wireless
communications industry.
We depend on our enterprise software as a primary source of our revenues, and
we do not know if businesses will adopt our enterprise products and related
services.
Our enterprise software, which consists of our AvantGo Enterprise
Interactive, AvantGo Enterprise Publisher, and AvantGo Enterprise Online
products, together with related technical support fees, has accounted for over
half of our revenues in the year ended December 31, 1999 and in the six months
ended June 30, 2000. We expect that a significant portion of our revenues,
particularly over the next two years, will depend upon the continued and
growing market acceptance of our enterprise software products. The life cycle
of our products is particularly difficult to estimate because of growing
competition and the changing marketplace. Our enterprise software may not
achieve acceptance among businesses and other organizations. A decline in the
demand for our enterprise software or our failure to successfully develop,
introduce or market new or enhanced products in a timely manner would have a
negative impact on sales of our enterprise products, jeopardizing our most
important source of revenues.
The market for mobile devices is new, and the failure of this market to develop
as expected would harm our revenues.
The emergence of markets for our software is critically dependent upon the
rapid expansion of the market for mobile devices including personal digital
assistants, handheld computers, smart phones, pagers and other mobile devices.
This market has only recently emerged and is rapidly growing. This growth,
however, may not continue. Any slowdown in the growth of adoption of mobile
devices would likely reduce the demand for our software and services, causing
our enterprise license and service revenues to fall and undermining our
revenue-sharing opportunities on e-commerce transactions occurring through our
AvantGo Mobile Internet service.
Increasing competition could harm our ability to maintain or increase sales of
our products or reduce the prices we can charge for our products.
We face growing competition and we expect this competition to intensify in
the future. Our competitors include both start-up companies designing software
and services similar to ours and established companies seeking to capitalize on
the mobile Internet market.
Our enterprise software and services compete primarily with offerings from
the following types of companies:
. server synchronization software providers, including Palm, Inc.,
PUMATECH, Inc. and Oracle Corporation;
. handheld application development environment providers, including
PUMATECH, Inc., Aether Systems, Inc. and Microsoft Corporation; and
. application service providers, including Aether Systems, Inc.
Our AvantGo Mobile Internet service competes with the service offerings from
the following types of companies:
. value-added wireless service providers, such as Palm, Inc.'s Palm.Net and
OmniSky Corporation; and
. wireless Internet portals, such as InfoSpace, Inc. and Oracle
Corporation's Portal to Go.
9
<PAGE>
As the mobile device and wireless markets mature, we expect competition to
intensify. This competition presents us with several risks. Many of our
existing and potential competitors have substantially greater financial,
technical, marketing and distribution resources than we do. Several of these
competitors have greater name recognition and more established relationships
with our target customers. Our competitors may be able to use these advantages
to adopt more aggressive pricing policies and products that compete with our
enterprise software and offer more attractive terms to customers. As a result,
we may lose customers or may be required to limit the amount we can charge
customers for these products. In addition, current and potential competitors
may establish cooperative relationships among themselves or with third parties
to compete more effectively with us. Further, existing and potential
competitors may develop enhancements to or future generations of competitive
products that will have better performance features than our products. Any of
these factors, if they occur, would likely cause our sales and revenues to
fall. Finally, competition in the consumer mobile Internet sector could harm
our ability to generate revenues from our AvantGo Mobile Internet service,
undermining our potential for future growth.
A significant portion of our enterprise revenues comes from a small number of
customers, and any decrease in revenues from these customers could harm our
operating results.
We currently derive a significant portion of our enterprise software
revenues from a small number of major customers. For example, American Express
Travel-Related Services, Ford Motor Company and McKessonHBOC, our three largest
customers, represented 8%, 8% and 37% of our total revenues for the six months
ended June 30, 2000. Additionally, the Liggett Group accounted for
approximately 15% of our total revenues for the year ended December 31, 1999.
We expect that American Express Travel-Related Services, Ford Motor Company and
McKessonHBOC will each continue to represent a significant portion of our
revenues over the next year. Any disruption or termination of our commercial
relationships with American Express Travel-Related Services, the Ford Motor
Company or McKessonHBOC would harm our revenues.
Our future success will depend on our ability to anticipate and keep pace with
technological change, and if we experience delays in developing and introducing
software compatible with new products and technologies, our business would
suffer.
The market for mobile Internet software is becoming highly competitive and
is characterized by evolving industry standards, rapid technological change and
frequent product introductions. To remain competitive, we must continuously
develop new products and services and adapt our software to function on new
devices and operating systems designed and marketed by other companies. The
development of software and services like ours can be difficult, time-consuming
and costly, and we could lose market share if we encounter delays in the
development and introduction of our future software products. Additionally, our
business could be seriously harmed if:
. competitors develop new technologies and products which provide
comparable functionality at reduced prices to our customers and potential
customers;
. we fail to anticipate technological trends or evolving industry standards
or to adapt our software and services to these new trends and standards;
. other companies develop products that render our software obsolete or
less desirable to consumers; or
. technical, legal, financial or other obstacles prevent us from improving
our software and services to adapt to changing market conditions.
The emergence of a dominant platform for mobile devices could reduce our
customer base and revenues.
The marketplace for mobile devices is currently characterized by a number of
competing operating systems and standards for handheld devices and cellular
telephones. Currently, our customers and potential customers often use a
variety of mobile devices with multiple connectivity options. One of the
primary benefits
10
<PAGE>
of our products is their ability to operate across a wide variety of platforms.
If a dominant platform for mobile devices emerges, the demand for interoperable
software may decline and the need for our software may diminish.
We depend on our ability to successfully market the functionality of our
software.
Even if the market for mobile devices continues to expand, our success will
depend, among other things, on whether businesses and consumers adopt our
products and services for obtaining Web-based information and applications on
the Internet and intranets. We have expended considerable resources on sales
and marketing of our products and services. During the year ended December 31,
1999 and the six months ended June 30, 2000, our sales and marketing expenses
were approximately $4.3 million and $9.6 million. On a pro forma basis, sales
and marketing expenses were approximately $4.7 million for the year ended
December 31, 1999 and approximately $10.0 million for the six months ended
June 30, 2000. We expect that these expenses will continue to increase as we
grow. If our sales and marketing efforts are inadequate and we are unable to
build our visibility and brand name, our enterprise revenues will fall and
consumer use of our AvantGo Mobile Internet service will fail to develop,
jeopardizing our ability to generate transaction-based commissions from that
service.
If we fail to maintain our existing relationships or enter into new key
relationships with leading hardware and software manufacturers, our brand
awareness and the use of our products and services would suffer.
The success of our product and service offerings depends, in large part, on
our ability to develop and maintain relationships with leading hardware and
software manufacturers, such as Palm, Inc. and Microsoft Corporation, that
bundle our software with their product offerings. We depend on these
relationships to:
. distribute our products to purchasers of mobile devices;
. increase usage of our AvantGo Mobile Internet service;
. build brand awareness through product marketing; and
. cooperatively market our products and services.
All of our agreements with these companies are non-exclusive and have broad
rights of termination. In addition, these agreements do not require these
companies to bundle our software with all of their product offerings. For
example, our software is not bundled with the Palm, Inc. devices in the
Palm VII(TM) family, and Palm, Inc. may choose not to bundle our software with
future product offerings.
Some of these manufacturers, including Palm, Inc. and Microsoft Corporation,
have services that compete with our AvantGo Mobile Internet service. Any of
these manufacturers may choose either to promote its competing service or
promote the services of one or more of our other competitors, which could limit
the growth of our AvantGo Mobile Internet service. If we fail to maintain these
relationships or fail to enter into relationships with other leading hardware
or software manufacturers, the distribution of our software to consumers and
our AvantGo Mobile Internet service would suffer.
Our success depends on strong performance by equipment manufacturers and
software companies with whom we have key relationships.
Because we depend on equipment manufacturers like Palm, Inc. and software
companies like Microsoft Corporation to help distribute our software and
promote our AvantGo Mobile Internet service, the growth of our AvantGo Mobile
Internet service is dependent in part upon their success. If the products that
these companies sell, or the operating systems upon which these products are
based, were to lose popularity, or if any of these equipment manufacturers or
software companies cease to distribute our software in significant volumes, our
business would suffer.
11
<PAGE>
We may not be able to maintain and expand our agreements with content providers
and e-businesses which may limit or reduce the use of our AvantGo Mobile
Internet service.
A significant portion of the traffic to our AvantGo Mobile Internet service
comes from the existing users of our content providers and e-businesses that
deliver content to our Web site. To expand our AvantGo Mobile Internet service,
we must maintain quality relationships with these content providers and e-
businesses and enter into new relationships that provide our users access to
compelling content and services. Our objective is to promote Web-based
transactions effected through the use of mobile devices and to obtain a share
of the revenues generated by those transactions. If we fail to add additional
valuable content and services, Internet users may be less likely to actively
use our service and to engage in commercial transactions using our service,
which, in turn, would harm our business.
All of our agreements with content providers and e-businesses survive for a
short period of time and are non-exclusive. These companies may choose not to
renew their agreements with us or may terminate their agreements at any time.
If any of these agreements terminate, we will experience a decline in the
number of Web sites that are optimized for use with mobile devices, and our
competitive position could suffer. Further, while we intend to pursue
additional relationships with content providers and e-businesses, we may not
experience sustained increases in user traffic from these affiliations.
Our acquisition of Globalware, or other acquisitions we consummate in the
future, may disrupt our business and cause our existing stockholders to suffer
dilution.
We recently completed the acquisition of Globalware which will require
integrating our business with theirs, including integrating product lines,
technologies and distinct corporate cultures. We may not be able to
successfully assimilate the personnel, operations and customers of Globalware
into our business. Additionally, we may fail to maintain the customers we have
and those of Globalware after the acquisition. We also may fail to achieve the
anticipated synergies from the acquisition of Globalware, including product
development and other operational synergies. We may not be able to retain
various individuals who provide services to Globalware that we intend to hire
in connection with this acquisition. Our failure to successfully manage the
Globalware acquisition could harm our operating results.
As part of our business strategy, we may acquire or make additional
investments in businesses, products and technologies that complement ours. We
may experience difficulties integrating Globalware's operations, or those of
other companies we might acquire, into ours. As a result, we may divert
management attention to the integration that would otherwise be available for
the ongoing development of our core business. Acquisitions have inherent risks,
including:
. risks related to the strategic utility of technology acquired;
. difficulties assimilating acquired operations, technologies or products;
. unanticipated costs; and
. adverse effects on relationships with customers, suppliers and employees.
We may not be successful in integrating Globalware or any other businesses,
products, technologies or personnel we acquire, and our failure to do so would
harm our business. Similarly, we cannot guarantee that we may not have to write
off any of our investments or that our investments will yield a significant
return, if any. In addition, to finance acquisitions, we may issue equity
securities, which may dilute your investment, or incur significant
indebtedness, which could harm our business.
Our future results could be harmed by risks associated with our expansion into
Europe and other international markets.
We have recently begun to sell our products in the United States and abroad.
We manage our European sales and marketing operations through our U.K.
subsidiary, AvantGo Europe, Ltd. Although revenues from
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<PAGE>
international sales represented less than 10% of our revenues in the six months
ended June 30, 2000, we anticipate that revenue from international operations
will represent an increasing portion of our total revenue. Our business will
therefore be increasingly subject to the risks associated with doing business
internationally. We expect that the costs of developing overseas revenues will
exceed those revenues. Accordingly, our future results could be harmed by a
variety of factors, including:
. changes in foreign currency exchange rates;
. the adoption of incompatible platforms or standards;
. trade protection measures and import or export licensing requirements;
and
. potentially negative consequences from changes in tax laws.
If we fail to manage our planned future expansion effectively, we may not be
able to meet the needs of our customers or attract new customers.
We expect to continue to expand our operations for the foreseeable future.
For example, we have grown from 47 employees on May 31, 1999 to 250 employees
as of August 31, 2000. We expect to hire additional new employees to support
our professional services, product development, marketing and administrative
groups. Because of the technical nature of our products, we anticipate that it
will take several months to train new personnel. We have limited experience in
training large numbers of new staff.
We must also develop our operating, administrative, financial and accounting
systems and controls, locate additional office space and maintain close
coordination among our product development, accounting, finance, marketing, and
customer support operations. Failure to accomplish any of these objectives
would impede our ability to deliver products in a timely fashion, fulfill
existing customer commitments and attract and retain new customers, which would
harm our business.
Competition for personnel could harm our ability to develop or market new
products or provide professional services necessary to sustain our growth.
We may be unable to retain our key employees or to attract, assimilate or
retain other highly qualified employees in the future. We are based in Northern
California, where competition for employees with technical expertise is
intense, and we have from time to time experienced, and we expect to continue
to experience, difficulty in hiring and retaining employees with appropriate
qualifications. In particular, the mobile computer industry is a complex
industry that requires a unique knowledge base, and the loss of technical
knowledge and industry expertise among our key personnel, or our failure to
obtain necessary additional expertise, could result in delays in software
development, loss of sales and a diversion of management resources which could
harm our business.
Our success depends on retaining key personnel, particularly Felix Lin, Richard
Owen and Linus Upson.
Our future success depends to a significant extent on the continued services
of our senior management and other key personnel, particularly Felix Lin, our
chairman; Richard Owen, our chief executive officer; and Linus Upson, our
president and chief technology officer. The loss of the services of any person
on our management team or any other key employees would harm our business. We
have no employment agreements that prevent any of our key personnel from
terminating their employment at any time. We do not maintain key person life
insurance on any of our officers.
Our software may contain defects or errors which would delay shipments of our
products, harm our reputation and increase our costs.
Our software is complex as it must operate across a broad variety of
operating systems, devices and connectivity options and meet the stringent
requirements of our customers. We must develop our products and
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<PAGE>
services quickly to keep pace with the rapidly changing software and
telecommunications markets. Despite testing by our customers and us, software
as complex as ours is likely to contain undetected errors or defects,
especially when first introduced or when new versions are released. Our
software may not be free from errors or defects after delivery to customers has
begun, which could result in the rejection of our software or services, damage
to our reputation, lost revenue, diverted development resources and increased
service and support costs, any of which could harm our business.
We do not maintain redundant facilities for our servers, and system failures or
accidental or intentional security breaches could disrupt our operations, cause
us to incur significant expenses, expose us to liability and harm our
reputation.
Our operations depend upon our ability to maintain and protect our computer
systems, which are located at our corporate headquarters in San Mateo,
California and at facilities owned and operated by Level 3 Communications in
Sunnyvale, California. We also use InterNAP and Level 3 Communications as our
Internet service providers. We currently do not have redundant facilities for
our servers. Our systems therefore are vulnerable to damage from break-ins,
unauthorized access, vandalism, fire, floods, earthquakes, power loss,
telecommunications failures and similar events. Although we maintain insurance
against break-in, unauthorized access, vandalism, fires, floods, earthquakes
and general business interruptions, the amount of coverage may not be adequate
in any particular case, and will not likely compensate us for all the damages
caused by these or similar events.
We may be unable to prevent computer programmers or hackers from penetrating
our network security from time to time. A breach of our security could
seriously damage our reputation, which would harm our business. In addition,
because a hacker who penetrates our network security could misappropriate
proprietary information or cause interruptions in our services, we might be
required to expend significant resources to protect against, or to alleviate,
problems caused by hackers. We might also face liability to persons harmed by
misappropriation of secure information if it is determined that we did not
exercise sufficient care to protect our systems.
Increasing government regulation could cause demand for our products and
services to grow more slowly or to decline.
We are subject not only to regulations applicable to businesses generally,
but also to laws and regulations directly applicable to the Internet. Demand
for our software, and our ability to meet this demand, is subject to export
controls on hardware and on the encryption software incorporated into our
products. In addition, state, federal and foreign governments may adopt laws
and regulations governing any of the following issues:
. user privacy;
. taxation of electronic commerce;
. the online distribution of specific material or content; and
. the characteristics and quality of online products and services.
One or more states or the federal government could enact regulations aimed
at companies like us, which provide software that facilitates e-commerce and
the distribution of content over the Internet. The likelihood of the enactment
of regulation in these areas will increase as the Internet becomes more
pervasive and extends to more people's daily lives. Any legislation, regulation
or taxation of or concerning electronic commerce could dampen the growth of the
Internet and decrease its acceptance as a communications and commercial medium.
If a reduction in growth occurs as a result of these events, demand for our
client software and AvantGo Mobile Internet service could decline
significantly.
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<PAGE>
We may be subject to liability for transmitting information, and our insurance
coverage may be inadequate to protect us from this liability.
We could be exposed to liability with respect to third-party information
that our users access with our software. Claimants might assert, among other
things, that, by directly or indirectly providing links to Web sites operated
by third parties, we should be liable for copyright or trademark infringement
or other wrongful actions by third parties through these Web sites. They could
also assert that our third-party information contains errors or omissions, and
consumers could seek damages for losses incurred if they rely upon that
information. Even if these claims do not result in liability to us, they would
likely divert management's attention and resources and we could incur
significant costs in investigating and defending against these claims. Although
we carry general liability insurance, our insurance may not cover potential
claims of this type or may not be adequate to cover all costs incurred in
defense of potential claims or to indemnify us for all liability that may be
imposed.
We rely on intellectual property rights, and we may not be able to obtain
patent or other protection for our technology, products or services.
We rely on a combination of patent, copyright, trademark and trade secret
laws, confidentiality procedures and contractual provisions to protect our
proprietary technology, products and services. We also believe that factors
such as the technological and creative skills of our personnel, new product
developments, frequent product enhancements and name recognition are essential
to establishing and maintaining a technology leadership position.
We seek to protect our proprietary software and written materials under
trade secret and copyright laws, which afford only limited protection. We
currently have no patents, but we have filed six non-provisional applications
and three provisional applications for United States patents and one Patent
Cooperation Treaty international application to protect the following aspects
of our technology: interactive applications for handheld computers; customizing
channels, content and data for mobile devices; enabling on-device servers,
offline forms and dynamic ad tracking on mobile devices; syncing to mobile
devices; administering channels, content and data for mobile devices; Web
content aggregation and development; and Web content delivery to clients. A
non-provisional application is an application to be examined by the U.S. Patent
and Trademark Office for the issuance of a patent. A provisional application is
an application that is not to be examined by the U.S. Patent and Trademark
Office for the issuance of a patent, but rather is submitted to the U.S. Patent
and Trademark Office as a notice to show the intent to file a non-provisional
patent on the same subject matter. Our patent applications may not be approved
or issued or, if issued, may not provide the scope of claims we seek.
Furthermore, others may develop technologies that are similar or superior to
our technology or design around any patents which may issue.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our software or to obtain and use information
that we regard as proprietary. In addition, the laws of some foreign countries
do not ensure that our means of protecting our proprietary rights in the United
States or abroad will be adequate. We have entered into source code escrow
agreements with a limited number of our customers and business affiliates
requiring release of our source code in circumstances such as our bankruptcy.
These agreements generally provide that each party to the agreement will have a
limited, non-exclusive right to use our code in the event that there is a
bankruptcy proceeding by or against us, if we cease to do business or if we
fail to meet our contractual obligations. This may increase the likelihood of
misappropriation by third parties.
We may be sued by third parties for infringement of their proprietary rights,
and litigation or threatened litigation could require us to incur significant
litigation or licensing expenses, prevent us from selling our software or
require us to make expensive modifications to our software to avoid
infringement.
The wireless communications, handheld computers and software industries are
characterized by the existence of a large number of patents and frequent
litigation based on allegations of patent infringement or
15
<PAGE>
other violations of intellectual property rights. As the number of participants
in our market increases, the likelihood of an intellectual property claim
against us could increase. We expect that we may increasingly be subject to
infringement claims as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Any claim made against us, regardless of merit, could be time-
consuming to defend, result in costly litigation, divert management's attention
and resources or cause product release delays. In addition, this kind of claim,
if successful, could require us to discontinue the use of infringing software
code or processes, to cease the use and sale of infringing products, to incur
significant litigation costs and expenses and to develop non-infringing
technology or to obtain licenses to the alleged infringing technology under
which we might be required to pay expensive royalties. We may be unable to
develop alternative technologies or to obtain a license to use software
formerly used by us or, if a license were obtainable, the terms might not be
commercially acceptable to us. In the event of a successful claim of product
infringement against us and our failure or inability to obtain a license or
develop or acquire non-infringing technology, our business would suffer.
We incorporate software licensed from third parties into our products, and if
we lose these licenses, our sales could be disrupted.
We currently license software from third parties to provide security and to
enable AvantGo users to access electronic mail, contacts and other personal
information. If we were found to be in breach of any of our license agreements,
or, in any event, upon termination, we would have to discontinue the use of the
licensed software, cease the use and sale of products containing this software,
and incur expenses to develop or obtain licenses to other technology. We may be
unable to develop alternative technologies or to obtain a license to use the
software formerly licensed to us on commercially reasonable terms.
Risks Related to This Offering
Our stock price could be volatile and could decline following this offering.
An active trading market for our common stock may never develop or be
sustained. The stock markets, particularly the Nasdaq National Market on which
we have applied to have our common stock listed, have experienced significant
price and volume fluctuations, and the market prices of companies focused on
the Internet and wireless communications have been highly volatile.
Furthermore, the market price of our common stock could decline, and investors
may not be able to resell their shares at or above the initial public offering
price. Even if an active trading market develops, the market price of our
common stock is likely to be highly volatile and could be subject to wide
fluctuations in response to factors including:
. actual or anticipated variations in our quarterly operating results;
. announcements of new product or service offerings by us or our
competitors;
. changes in the handheld and wireless device industries;
. technological innovations;
. competitive developments;
. changes in financial estimates by securities analysts; and
. changes in interest rates and other general economic conditions.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. If brought against us, securities litigation could result in
substantial costs and a diversion of our management's attention and resources.
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<PAGE>
Approximately 11 existing stockholders own a large percentage of our voting
stock.
Upon completion of this offering, we anticipate that our executive officers,
directors and greater than 5% stockholders, and their affiliates, will, in the
aggregate, own approximately 52.47% of our outstanding common stock. As a
result, these stockholders, acting together, will have the ability to
substantially influence all matters submitted to the stockholders for approval,
including the election and removal of directors and any merger, consolidation
or sale of all or substantially all of our assets, and to control our
management and affairs. Accordingly, such concentration of ownership may have
the effect of delaying, deferring or preventing a change in control, impeding a
merger, consolidation, takeover or other business combination involving us or
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our business, even if the transaction would be
beneficial to other stockholders.
Future sales of our common stock may cause our stock price to decline.
Sales of significant amounts of our common stock in the public market after
this offering or the perception that sales of significant amounts of common
stock will occur could adversely affect the market price of our common stock or
our future ability to raise capital through an offering of our equity
securities. After the closing of this offering, we will have approximately
33,347,590 shares of common stock outstanding. Of the outstanding shares, the
shares sold in this offering will be freely tradable, except for any shares
purchased by our "affiliates" as defined in Rule 144 of the Securities Act of
1933. Our remaining shares outstanding will be restricted securities and will
become eligible for sale subject to the limitations of Rule 144. Sales of a
large number of restricted shares, or shares held by affiliates, could have an
adverse effect on the market price for our common stock. Substantially all of
the holders of these restricted securities, including our officers and
directors, have entered into lock-up agreements providing that, subject to
limited exceptions, they will not sell, directly or indirectly, any common
stock without the prior consent of Credit Suisse First Boston Corporation for a
period of 180 days from the date of this prospectus. Credit Suisse First Boston
Corporation may release these shares at any time without notice. Subject to the
provisions of Rules 144, 144(k) and 701, 25,052,391 shares of common stock will
be available for sale in the public market, subject to compliance with volume
restrictions in the case of shares held by affiliates, upon expiration of this
180-day period.
In addition, as of August 31, 2000, there were outstanding options to
purchase 6,327,104 shares of common stock which will be eligible for sale in
the public market from time to time, subject to vesting and the expiration of
lock-up agreements. In addition, stockholders representing approximately
19,666,928 shares of common stock, including shares issuable upon the exercise
of warrants to purchase our stock, will be entitled to demand and piggyback
registration rights, subject to limited terms and conditions.
We are uncertain of our ability to obtain additional financing for our future
capital needs.
We may need to raise additional funds in order to fund more rapid expansion,
to expand our marketing activities, to develop new or enhance existing services
or products, to respond to competitive pressures or to acquire complementary
services, businesses or technologies. Additional financing may not be available
on terms favorable to us, or at all. Our inability to obtain financing on
appropriate terms would harm our ability to achieve these objectives and would
substantially reduce our revenues.
Management has broad discretion to use the proceeds from this offering.
The net proceeds from the sale of the securities in this offering have not
been allocated for a particular purpose, and our management will have broad
discretion over the use of proceeds that we raise in this offering. We intend
to use the net proceeds for working capital, and we may also use the net
proceeds to make investments in and acquisitions of complementary businesses,
products or technologies. You must rely on the judgment of management in the
application of the proceeds, and you will not have the opportunity, as part of
your investment decision, to assess whether the proceeds are being used
appropriately.
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<PAGE>
Provisions in our charter documents and Delaware law could prevent or delay a
change in control, which could reduce the market price of our common stock.
Provisions of our certificate of incorporation and bylaws, and of Delaware
law, could limit the price that investors might be willing to pay in the future
for shares of our common stock and may have the effect of delaying or
preventing a change of control or changes in our management. These provisions:
. allow the board of directors to issue preferred stock without any vote or
further action by the stockholders;
. eliminate the right of stockholders to act by written consent without a
meeting;
. eliminate cumulative voting in the election of directors; and
. divide our board of directors into three classes, with each class serving
a staggered three-year term.
Provisions of Delaware law may discourage, delay or prevent someone from
acquiring or merging with us. These provisions prevent us from engaging, under
limited circumstances, in a merger or sale of more than 10% of our assets, with
a stockholder who owns 15% or more of our outstanding voting stock, as well as
affiliates and associates of the stockholder, for three years following the
date that the stockholder became an owner of 15% or more of our outstanding
voting stock unless:
. the transaction is approved by the board before the date the interested
stockholder attained that status;
. upon the closing of the transaction that resulted in the stockholder
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 after the 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.
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<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our industry's actual results,
level of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed
or implied by such forward-looking statements. Such factors include, among
other things, those listed under "Risk Factors" and elsewhere in this
prospectus.
In some cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue," the negative of these
terms or other comparable terminology. These statements represent the good
faith best estimates of management at the time they were made. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined under "Risk
Factors." These factors may cause our actual results to differ materially from
any forward-looking statements.
We cannot guarantee future results, levels of activity, performance or
achievements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus.
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<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 5,500,000 shares of common stock will
be approximately $59.6 million, after deducting underwriting discounts and
commissions and estimated offering expenses. Our net proceeds will be
approximately $68.8 million if the underwriters exercise their over-allotment
option in full.
We currently anticipate using the net proceeds of the offering for general
corporate purposes, including:
. approximately 50% for sales and marketing activities;
. approximately 15% for general and administrative activities; and
. approximately 35% for product development.
In addition, we may use a portion of the net proceeds of this offering to
acquire complementary technologies or businesses and enter into key
relationships. We have no current plans, agreements or commitments with
respect to any particular acquisitions or additional key relationships. The
amounts actually expended for such working capital purposes may vary
significantly and will depend on a number of factors, including the amount of
our future revenues and the other factors described under "Risk Factors."
Pending these uses, we intend to invest these proceeds in short-term,
investment-grade, interest-bearing instruments, repurchase agreements or high-
grade corporate notes. Our management has broad discretion over the use of
these proceeds and it is possible that we may allocate these proceeds
differently than investors in this offering would have preferred.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock, and
we do not anticipate paying cash dividends in the foreseeable future. We
currently intend to retain future earnings, if any, to finance our operations
and the growth of our business.
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<PAGE>
CAPITALIZATION
The following table sets forth the following information:
. our actual capitalization as of June 30, 2000; and
. our pro forma, as-adjusted capitalization after giving effect to (a) the
conversion of all outstanding shares of convertible preferred stock into
shares of common stock upon the closing of this offering; and (b) the
sale of shares of common stock in this offering at an initial public
offering price of $12 per share, less underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
June 30, 2000
---------------------
Pro Forma
Actual As Adjusted
-------- -----------
(in thousands,
except share data)
<S> <C> <C>
Long-term obligations, net of current portion............ $ 589 $ 589
Stockholders' equity:
Convertible preferred stock, $0.0001 par value,
18,472,082 shares authorized and issuable in series,
17,136,261 shares issued and outstanding actual; and
10,000,000 shares authorized and no shares outstanding,
pro forma as adjusted................................... 67,710 --
Common stock, $0.0001 par value, 45,000,000 shares
authorized, 10,594,928 shares issued and outstanding,
actual; 150,000,000 shares authorized, pro forma as
adjusted; 33,231,189 shares issued and outstanding, pro
forma as adjusted....................................... 29,870 157,210
Notes receivable from stockholders....................... (456) (456)
Deferred stock compensation.............................. (16,147) (16,147)
Revenue offset relating to warrant agreements............ (1,352) (1,352)
Accumulated deficit...................................... (30,541) (30,541)
Accumulated other comprehensive loss..................... (63) (63)
-------- --------
Total stockholders' equity.............................. 49,021 108,651
-------- --------
Total capitalization.................................... $ 49,610 $109,240
======== ========
</TABLE>
The table sets forth the total number of outstanding shares of our common
and preferred stock as of June 30, 2000. The table excludes:
. 6,146,666 shares of our common stock issuable upon exercise of
outstanding stock options under our 1997 stock option plan as of August
31, 2000, at a weighted average exercise price of $4.36 per share;
. 180,438 shares of our common stock issuable upon exercise of outstanding
stock options assumed by us in connection with our acquisition of
Globalware, at a weighted average exercise price of $0.638 per share;
. 3,498,855 shares of our common stock reserved and available for issuance
under our stock option plans;
. 350,000 shares of our common stock initially reserved for issuance under
our 2000 employee stock purchase plan; and
. 476,409 shares of our common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $8.36 per share.
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<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 2000 was approximately
$33.6 million, or $1.21 per share. Pro forma net tangible book value per share
gives effect to the conversion of all outstanding shares of our preferred stock
into shares of common stock upon the closing of this offering. Pro forma net
tangible book value represents the amount of our total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding
as of June 30, 2000. After giving effect to the sale of the shares of common
stock in this offering at an initial public offering price of $12.00 per share,
less underwriting discounts and commissions and estimated offering expenses,
our pro forma net tangible book value as of June 30, 2000 would have been
$93.2 million, or approximately $2.81 per share.
This represents an immediate increase in pro forma net tangible book value
per share of $1.60 to existing stockholders and an immediate dilution per share
of $9.19 to new investors purchasing shares in this offering. The following
table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $12.00
Net tangible book value per share as of June 30, 2000........ $1.21
Increase per share attributable to new investors............. $1.60
-----
Pro forma net tangible book value per share after the
offering...................................................... $ 2.81
------
Dilution per share to new investors............................ $ 9.19
======
</TABLE>
The following table summarizes as of June 30, 2000, on the pro forma basis
described above, the number of shares of common stock purchased from us, the
total cash consideration paid and the average price per share paid by existing
stockholders, and by new investors purchasing shares of common stock in this
offering, less underwriting discounts and commissions and estimated offering
expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price Paid
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 27,731,189 83.4% $ 69,491,000 51.3% $ 2.51
New investors............. 5,500,000 16.6% 66,000,000 48.7% $12.00
---------- ---- ------------ ---- ------
Total................... 33,231,189 100% $135,491,000 100%
========== ==== ============ ====
</TABLE>
The foregoing discussion and computations assume no exercise of any stock
options or warrants outstanding. As of August 31, 2000, there were:
. 6,146,666 shares of our common stock issuable upon exercise of
outstanding stock options under our 1997 stock option plan, at a weighted
average exercise price of $4.36 per share;
. 180,438 shares of our common stock issuable upon exercise of outstanding
stock options assumed by us in connection with our acquisition of
Globalware, at a weighted average exercise price of $0.638 per share;
. 476,409 shares of our common stock issuable upon exercise of warrants
outstanding with a weighted average exercise price of $8.36 per share.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following financial data, other than the pro forma data of AvantGo
exclude the financial data of Globalware. The consolidated statement of
operations data for the period from June 30, 1997 (inception) through December
31, 1997, and the years ended December 31, 1998 and 1999 and the related
balance sheet data as of December 31, 1998 and 1999 are derived from the
consolidated financial statements of AvantGo, which have been audited by Ernst
& Young LLP, independent auditors, and are included elsewhere in this
prospectus. The selected balance sheet data as of December 31, 1997 are derived
from audited financial statements not included in this prospectus. The
unaudited pro forma statement of operations data for the year ended
December 31, 1999 is derived from the selected unaudited pro forma condensed
combined financial information included elsewhere in this prospectus. The
financial data for the six months ended June 30, 1999 and 2000 is derived from
unaudited financial statements included elsewhere in this prospectus. The
financial data for the six months ended June 30, 2000 give effect to our
acquisition of Globalware on May 26, 2000. The unaudited pro forma statement of
operations data for the six months ended June 30, 2000 give effect to our
acquisition of Globalware as if it occurred at the beginning of the pro forma
period, January 1, 2000. Additionally, the pro forma statement of operations
data excludes the one-time purchase of in-process research and development
charge of $600,000. We have prepared this selected information on the same
basis as the audited financial statements and have included all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
such presentation of the financial condition and operating results for such
date and periods. When you read this selected financial data, it is important
that you read the AvantGo historical financial statements and related notes
included in this prospectus, (as well as the section of this prospectus related
to Management's Discussion and Analysis of Financial Condition and Results of
Operations). Historical results are not necessarily indicative of future
results.
Our consolidated pro forma statement of operations data should be read in
conjunction with the Selected Unaudited Pro Forma Condensed Combined Financial
Information and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
June 30, 1997
(inception)
to Year Ended December 31, Six Months Ended June 30,
December 31, ----------------------------- -----------------------------------
1997 1998 1999 1999 1999 2000 2000
------------- ------- ------- ----------- ----------- ----------- -----------
(pro forma) (unaudited) (unaudited) (pro forma)
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
License fees........... $ -- $ 189 $ 1,443 $ 2,878 $ 469 $ 2,814 $ 3,771
Services............... -- 198 1,446 1,446 320 2,303 2,309
------ ------- ------- -------- ------- --------- ---------
Total revenues....... -- 387 2,889 4,324 789 5,117 6,080
Costs and expenses:
Cost of license fees... -- 10 60 60 16 78 78
Cost of services (1)... -- 210 1,312 1,312 340 1,412 1,414
Product development
(2)................... 140 1,108 2,745 3,138 1,051 3,110 3,319
Sales and marketing
(3)................... 61 1,229 4,291 4,744 1,114 9,638 10,047
General and
administrative (4).... 89 410 1,404 1,720 359 2,682 2,930
Purchased in-process
research and
development........... -- -- -- -- -- 600 --
Amortization of
goodwill and other
intangible assets..... -- -- -- 5,253 -- 440 2,627
Amortization of
deferred stock
compensation and
other................. -- 71 2,605 2,626 595 6,301 6,321
------ ------- ------- -------- ------- --------- ---------
Total costs and
expenses............ 290 3,038 12,417 18,853 3,475 24,261 26,736
------ ------- ------- -------- ------- --------- ---------
Loss from operations.... (290) (2,651) (9,528) (14,529) (2,686) (19,144) (20,656)
Interest income
(expense), net......... (1) 48 313 339 13 712 703
------ ------- ------- -------- ------- --------- ---------
Net loss................ $ (291) $(2,603) $(9,215) $(14,190) $(2,673) $ (18,432) $ (19,953)
====== ======= ======= ======== ======= ========= =========
Net loss per share:
Basic and diluted...... $(0.20) $ (0.95) $ (2.11) $ (2.25) $ (0.69) $ (3.02) $ (2.48)
====== ======= ======= ======== ======= ========= =========
Weighted average
shares................ 1,464 2,735 4,377 6,310 3,887 6,097 8,030
====== ======= ======= ======== ======= ========= =========
Pro forma net loss per
share (5):
Basic and diluted
(unaudited)........... $ (0.65) $ (0.92)
======= =========
Weighted average
shares (unaudited).... 14,272 20,030
======= =========
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------------- June 30,
1997 1998 1999 2000
------ ------ ------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................... $1,024 $2,124 $ 5,835 $27,432
Working capital............................. 960 1,951 9,809 28,286
Total assets................................ 1,136 2,434 12,499 56,931
Long-term obligations, net of current
portion.................................... -- 116 41 589
Total stockholders' equity.................. 1,069 2,068 10,724 49,021
</TABLE>
---------------------
(1) This information excludes $9, $181, $181, $40, $209 and $209 in
amortization of deferred stock compensation for the years ended December
31, 1998 and 1999, and the pro forma year ended December 31, 1999, and the
six months ended June 30, 1999 and 2000, and the pro forma six months ended
June 30, 2000.
(2) This information excludes $38, $750, $765, $199, $816 and $831 in
amortization of deferred stock compensation for the years ended December
31, 1998 and 1999, and the pro forma year ended December 31, 1999, and the
six months ended June 30, 1999 and 2000, and the pro forma six months ended
June 30, 2000.
(3) This information excludes $15, $1,211, $1,211, $307, $1,458 and $1,458 in
amortization of deferred stock compensation for the years ended December
31, 1998 and 1999, and the pro forma year ended December 31, 1999, and the
six months ended June 30, 1999 and 2000, and the pro forma six months ended
June 30, 2000.
(4) This information excludes $9, $463, $469, $49, $3,818 and $3,823 in
amortization of deferred stock compensation for the years ended December
31, 1998 and 1999, and the pro forma year ended December 31, 1999, and the
six months ended June 30, 1999 and 2000, and the pro forma six months ended
June 30, 2000.
(5) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the computation of pro forma net loss per share and the
calculation of the number of shares used in that computation. Weighted
average shares subject to repurchase of 5,210,720, 7,419,275, 8,924,914,
8,420,577, and 10,322,339 for the period from June 30, 1997 (inception)
through December 31, 1997, the years ended December 31, 1998 and 1999, and
the six months ended June 30, 1999 and 2000 have been excluded from the
computation of earnings per share. Shares subject to repurchase will be
included in the computation of earnings (loss) per share when our
commitment to repurchase these shares lapse. In the event that we have
earnings in future periods, the lapsing of these shares could have a
material impact on the earnings per share calculation.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements, pro forma information and the related notes appearing
elsewhere in the prospectus. The following discussion contains forward- looking
statements that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to these differences include, but are
not limited to, those discussed below and those listed under "Risk Factors."
Overview
We provide mobile infrastructure software and services that enable and
enhance the use of Internet-based content and corporate applications beyond the
desktop to handheld devices and Internet-enabled phones. Our AvantGo Enterprise
products, which we license to enterprises, are designed to accelerate
information flow between companies and their mobile employees, customers,
suppliers and business partners. Our AvantGo Mobile Internet service enables
content providers and e-businesses to extend their user reach, foster repeat
use and increase consumer loyalty.
We were incorporated in June 1997 as a Delaware corporation under the name
Bombardier Software, Inc. and changed our name to AvantGo, Inc. in January
1998. During the period from inception through May 1998, we were in a
development phase, and our operating activities related primarily to conducting
research, developing our product, building our corporate infrastructure and
raising capital. Our results from operations during the period from our
inception in June 1997 through December 31, 1997 were insignificant and we have
therefore not provided comparative discussion of this period. In September
1998, we launched our AvantGo Enterprise products and services, which, to date,
accounted for the majority of our revenues, before giving effect to our
acquisition of Globalware. In May 1999, we introduced our AvantGo Mobile
Internet service. Although our revenues have increased each quarter since
inception, we have never been profitable. As of June 30, 2000, we had an
accumulated deficit of $30.5 million.
On May 26, 2000, we completed our acquisition of Globalware, a privately-
held Illinois company that develops software and provides consulting services
that extend business applications to handheld devices. This transaction has
been accounted for under the purchase method of accounting. In connection with
this transaction, for an aggregate purchase consideration of $17.1 million, we
issued 1,933,300 shares of our series E preferred stock to Globalware's
stockholders and assumed outstanding options that can be converted into 180,438
shares of our common stock. As a result of the acquisition, we expect to incur
merger-related costs of up to approximately $200,000 and to record
approximately $15.8 million of intangible assets and goodwill on our balance
sheet, including goodwill ($12.2 million), purchase of developed technology
($3.1 million) and assembled workforce ($530,000), which will result in
amortization expenses of approximately $3.1 million in 2000, $5.3 million in
2001, $5.3 million in 2002, and $2.1 million in 2003. We estimated that
approximately $600,000 of the $17.1 million purchase consideration represented
purchased in-process research and development that has not yet reached
technological feasibility and has no future use. Accordingly, this amount was
charged to operations in the three months ended June 30, 2000. In addition, we
expect to incur increased product development expenses in the near term as we
integrate Globalware's technology into our products.
Our Business
Our primary sources of revenues are generated under our license agreements
and our services agreements. License revenues for our AvantGo Enterprise
products, which are typically based on fixed-fee agreements, are recognized
when we have executed an agreement with a customer, delivery and acceptance
have occurred, and the collection of the related receivable is deemed probable.
During the six months ended June 30, 2000, we entered into agreements with
American Express Travel-Related Services, Inc., Ford Motor Company,
McKessonHBOC and CreScenda Software, Inc. The revenues from these agreements
will be recorded over
25
<PAGE>
their respective terms because we have not yet determined vendor-specific
objective evidence of the value of the support services purchased by these
customers. An aggregate of approximately $1.5 million of the payments due to be
received under our contract with McKessonHBOC during the years ended December
31, 2000, 2001 and 2002 will be offset against a deferred charge due to our
issuance to McKessonHBOC of a warrant to purchase series D preferred stock.
Historically, our services revenue has consisted primarily of professional
services and technical support fees. Revenue from professional services is
recognized on a monthly basis as the services are performed. Maintenance fees
are recognized ratably on a monthly basis over the course of the maintenance
period, typically twelve months. In the future, our services revenue will also
include amounts derived from the operation of our AvantGo Mobile Internet
service, which include placement and advertising revenues, revenue sharing
arrangements and commissions on e-commerce transactions. Placement and
advertising revenues will be recognized ratably over the period of time in
which placement or advertising is provided.
The cost of license fees consists primarily of royalties paid to other
software vendors whose products are included in our enterprise software
products as well as costs incurred to manufacture, package and distribute our
enterprise software products and related documentation. Cost of services
includes cost of professional services, customer service and support and costs
related to running our AvantGo Mobile Internet service. Cost of implementation
and customer services consist primarily of the cost of personnel. Cost of
professional services consists primarily of the cost of personnel and travel
related expenditures. Costs related to our AvantGo Mobile Internet service
consist of the cost of personnel, co-location facilities and bandwidth.
Results of Operations
The following discussion relates to our historical operating results. The
following table sets forth the percentage of total revenues for certain items
in our consolidated statement of operations for the years ended December 31,
1998 and 1999, respectively, and the six months ended June 30, 1999 and 2000,
respectively.
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
--------------- -----------------------
1998 1999 1999 2000
------ ------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
License fees....................... 49% 50% 59% 55%
Services........................... 51 50 41 45
------ ------ ---- ----
Total revenues................... 100 100 100 100
Costs and expenses:
Cost of license fees............... 3 2 2 2
Cost of services................... 54 45 43 28
Product development................ 286 95 133 61
Sales and marketing................ 318 149 141 188
General and administrative......... 106 49 46 52
Purchased in-process research and
development....................... -- -- -- 12
Amortization of goodwill and other
intangible assets................. -- -- -- 8
Amortization of deferred stock
compensation and other............ 18 90 75 123
------ ------ ---- ----
Total costs and expenses......... 785 430 440 474
------ ------ ---- ----
Loss from operations................. (685) (330) (340) (374)
Interest income (expense), net....... 12 11 1 14
------ ------ ---- ----
Net loss............................. (673)% (319)% (339)% (360)%
====== ====== ==== ====
</TABLE>
26
<PAGE>
Comparison of Six Months Ended June 30, 1999 and 2000
Revenues
License Fees. Actual license fee revenues increased approximately 500% from
approximately $469,000 for the six months ended June 30, 1999 to approximately
$2.8 million for the six months ended June 30, 2000. This increase was
primarily due to an increase in the size of our enterprise sales team.
Services. Actual services revenue increased approximately 620% from
approximately $320,000 for the six months ended June 30, 1999 to approximately
$2.3 million for the six months ended June 30, 2000. This increase was
primarily due to the May 1999 launch of our AvantGo Mobile Internet service.
Costs and Expenses
Cost of License Fees. Actual cost of license fees increased approximately
388% from approximately $16,000 for the six months ended June 30, 1999 to
approximately $78,000 for the six months ended June 30, 2000. This increase was
primarily attributable to the increase in license fees during such period.
Cost of Services. Actual cost of services increased approximately 315% from
approximately $340,000 for the six months ended June 30, 1999 to approximately
$1.4 million for the six months ended June 30, 2000. This increase was
primarily due to increased personnel expenditures resulting from the launch and
expansion of our AvantGo Mobile Internet service.
Product Development. Actual product development expenses consist primarily
of compensation and related costs for product development personnel. Our actual
product development expenses increased approximately 196% from approximately
$1.1 million for the six months ended June 30, 1999 to approximately
$3.1 million for the quarter ended June 30, 2000. This increase was primarily a
result of increased hiring of engineers and product development personnel. We
expect product development expenses to increase in future periods.
Sales and Marketing. Actual sales and marketing expenses include those
related to compensation, public relations and advertising, trade shows and
marketing materials. Our actual sales and marketing expenses increased
approximately 765% from approximately $1.1 million for the six months ended
June 30, 1999 to approximately $9.6 million for the six months ended June 30,
2000. This increase was primarily a result of increased personnel-related
expenses. We expect sales and marketing expenses to increase in future periods.
General and Administrative. Actual general and administrative expenses
consist primarily of salaries, recruiting and related costs for general
corporate functions including executive, accounting and administrative
personnel, lease expenses, facilities costs and other miscellaneous general
corporate expenses. Our actual general and administrative expenses increased
approximately 647% from approximately $359,000 for the six months ended June
30, 1999 to approximately $2.7 million for the six months ended June 30, 2000.
This increase was due primarily to increased personnel related expenses. We
expect general and administrative costs to increase in future periods.
Amortization of goodwill and other intangible assets. We are amortizing the
amount of goodwill, core technology and acquired workforce that we purchased in
connection with our acquisition of Globalware. These intangible assets, which
total approximately $15.8 million, will be amortized over three years following
the acquisition date.
Purchased in-process research and development. In connection with our May
26, 2000 acquisition of Globalware we have incurred an expense of $600,000 for
purchased in-process research and development consisting of technology
developed by Globalware. This is a non-recurring charge.
Amortization of Deferred Stock Compensation and Other. We are amortizing the
amount that equals the difference between the fair value of stock options
granted to our employees and consultants and what were
27
<PAGE>
considered to be the deemed fair values of our common stock, in the case of
option grants to employees, and on values based on the Black-Scholes formula
for valuing options, in the case of grants to non-employees, in each case on
the date of the grants over vesting periods using a graded vesting method. We
recognized approximately $595,000 of related compensation expense during the
six months ended June 30, 1999 and approximately $6.3 million during the six
months ended June 30, 2000. We will recognize compensation expense amounts of
approximately $5.9 million in the six months ended December 31, 2000 and
approximately $6.1 million in the fiscal year ended December 31, 2001.
Interest Income (Expense), Net. Actual net interest income increased
approximately 5377% from approximately $13,000 for the six months ended June
30, 1999 to approximately $712,000 for the six months ended June 30, 2000. This
increase was primarily due to increased cash balances as a result of our
private placement financing completed in March and April 2000.
Net Loss. Net loss increased approximately 589% from approximately $2.7
million for the six months ended June 30, 1999 to approximately $18.4 million
for the six months ended June 30, 2000. This increase was primarily due to
increased sales and marketing expenditures.
Comparison of Fiscal Years Ended December 31, 1998 and 1999
Revenues
License Fees. Our actual license fees revenue increased approximately 663%
from approximately $189,000 in 1998 to approximately $1.4 million in 1999. This
increase was primarily due to the release of our enterprise product.
Services. Our services revenues increased approximately 630% from
approximately $198,000 in 1998 to approximately $1.4 million in 1999. This
increase in services revenue was primarily due to a full year of operations.
Costs and Expenses
Cost of License Fees. Our cost of license fees increased approximately 500%
from $10,000 in 1998 to approximately $60,000 in 1999. This increase in cost of
license fees was primarily due to royalty payments to other software suppliers
whose software is part of our enterprise product.
Cost of Services. Our cost of services increased approximately 525% from
approximately $210,000 in 1998 to approximately $1.3 million in 1999. This
increase was primarily due to increased personnel in the consulting and web
operations groups.
Product Development. Our product development expenses increased
approximately 148% from approximately $1.1 million in 1998 to approximately
$2.7 million in 1999. This increase was primarily a result of increased hiring
of engineers and product development personnel.
Sales and Marketing. Our sales and marketing expenses increased
approximately 249% from approximately $1.2 million in 1998 to approximately
$4.3 million in 1999. This increase was primarily due to an increase in the
number of personnel and related costs.
General and Administrative. Our general and administrative expenses
increased approximately 242% from approximately $410,000 in 1998 to
approximately $1.4 million in 1999. This increase was primarily due to
increases in personnel costs resulting from increased hiring of administrative
personnel.
Amortization of Deferred-Stock Compensation and Other. We recognized
approximately $71,000 of related compensation expense during the year ended
December 31, 1998 and approximately $2.6 million during the year ended December
31, 1999.
28
<PAGE>
Interest Income (Expense), Net. Net interest income increased approximately
552% from approximately $48,000 in 1998 to approximately $313,000 in 1999. This
increase was primarily due to interest earned on increased cash balances as a
result of our private placement financings completed in June 1999.
Net Loss. Net loss increased approximately 254% from approximately $2.6
million in 1998 to approximately $9.2 million in 1999. This increase was
primarily due to sales and marketing expenditures.
Quarterly Results of Operations Data
The following tables reflect our unaudited quarterly results of operations
data for each of the six quarters ended June 30, 2000 in dollars and as a
percentage of total revenues. This data has been prepared substantially on the
same basis as the audited financial statements appearing elsewhere in this
prospectus, including all necessary adjustments, consisting of normal recurring
adjustments necessary for a fair presentation of this data. The unaudited
quarterly data should be read in conjunction with the financial statements of
AvantGo and Globalware and the notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months Ended,
-----------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30,
1999 1999 1999 1999 2000 2000
--------- -------- ------------- ------------ --------- --------
(in thousands, except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
License fees........... $ 107 $ 362 $ 445 $ 529 $ 753 $ 2,061
Services............... 121 199 607 519 908 1,395
------- ------- ------- ------- ------- --------
Total revenues......... 228 561 1,052 1,048 1,661 3,456
Costs and expenses:
Cost of license fees... 4 12 18 26 27 51
Cost of services(1).... 127 213 495 477 547 865
Product
development(2)........ 447 604 780 914 1,145 1,965
Sales and
marketing(3).......... 442 672 1,134 2,043 3,246 6,392
General and
administrative(4)..... 177 182 398 647 1,120 1,562
Purchased in-process
research and
development........... -- -- -- -- -- 600
Amortization of
goodwill and other
intangible assets..... -- -- -- -- -- 440
Amortization of
deferred stock
compensation and other
costs and expenses.... 146 449 766 1,244 3,224 3,077
------- ------- ------- ------- ------- --------
Total costs and
expenses.............. 1,343 2,132 3,591 5,351 9,309 14,952
------- ------- ------- ------- ------- --------
Loss from operations.... (1,115) (1,571) (2,539) (4,303) (7,648) (11,496)
Interest income
(expense), net......... 7 6 170 130 217 495
------- ------- ------- ------- ------- --------
Net loss................ $(1,108) $(1,565) $(2,369) $(4,173) $(7,431) $(11,001)
======= ======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended,
----------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30,
1999 1999 1999 1999 2000 2000
--------- -------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
License fees........... 47 % 65 % 42 % 50 % 45 % 60 %
Services............... 53 35 58 50 55 40
---- ---- ---- ---- ---- ----
Total revenues......... 100 100 100 100 100 100
Costs and expenses:
Cost of license fees... 2 2 2 2 2 2
Cost of services....... 56 38 47 46 33 25
Product development.... 196 108 74 87 69 57
Sales and marketing.... 194 120 108 195 195 185
General and
administrative........ 77 32 38 62 67 45
Purchased in-process
research and
development........... -- -- -- -- -- 17
Amortization of
goodwill and other
intangible assets..... -- -- -- -- -- 13
Amortization of
deferred stock
compensation.......... 64 80 72 119 194 89
---- ---- ---- ---- ---- ----
Total costs and
expenses.............. 589 380 341 511 560 433
---- ---- ---- ---- ---- ----
Loss from operations.... (489) (280) (241) (411) (460) (333)
Interest income
(expense), net......... 3 1 16 12 13 14
---- ---- ---- ---- ---- ----
Net loss................ (486)% (279)% (225)% (398)% (447)% (318)%
==== ==== ==== ==== ==== ====
</TABLE>
---------------------
(1) This information excludes $14, $26, $60, $81, $91, and $117 in amortization
of deferred stock compensation for the quarters ended March 31, June 30,
September 30 and December 30, 1999 and March 31 and June 30, 2000.
29
<PAGE>
(2) This information excludes $58, $140, $231, $319, $355, and $461 in
amortization of deferred stock compensation for the quarters ended March
31, June 30, September 30 and December 31, 1999 and March 31 and June 30,
2000.
(3) This information excludes $55, $253, $361, $543, $683, and $776 in
amortization of deferred stock compensation for the quarters ended March
31, June 30, September 30 and December 31, 1999 and March 31 and June 30,
2000.
(4) This information excludes $19, $30, $114, $301, $2,095 and $1,723 in
amortization of deferred stock compensation for the quarters ended March
31, June 30, September 30 and December 31, 1999 and March 31 and June 30,
2000.
Our revenues have increased each quarter since our inception except for the
quarter ended December 31, 1999. This decrease was less than 1% over the prior
quarter and was due primarily to a decrease in services revenues. Our revenues
for the quarter ended June 30, 2000 increased approximately 108% over the
previous quarter. This increase was primarily attributable to new contracts
entered into by us during the first six months of 2000. Our operating expenses
increased significantly from inception through the quarter ended June 30, 2000
as we have transitioned from a development stage company to the
commercialization of our services. Our cost of license fees has remained
consistently at 1 to 2% of our total revenue and consists primarily of
royalties paid by us to software vendors. Our sales and marketing expenses have
increased as a percentage of our total revenues as we have invested in our
advertising expenditures to promote our products and services.
On a pro forma basis, after giving effect to our acquisition of Globalware
as if it had occurred as of the first day of each period, our total revenues
were approximately $489,000, $853,000, $1.4 million, $1.6 million, $2.3 million
and $3.8 million for each of the six quarters ended June 30, 2000. Our pro
forma cost of license fees and services for the corresponding periods were
approximately $131,000, $225,000, $513,000, $503,000, $574,000 and $918,000.
We expect to incur additional losses and continued negative cash flow from
operations for the foreseeable future because we intend to expend significant
financial resources on product development and sales and marketing.
Additionally, because our staffing and operating expenses are based on
anticipated revenue levels, and because a high percentage of our costs are
fixed, small variations in the timing of the recognition of specific revenue
could cause significant variations in operating results from quarter to
quarter. If we are unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall, any significant revenue shortfall would
likely have an immediate negative effect on our business. It is likely that in
some future quarter or quarters our operating results will be below public
expectations. If this occurs, we would expect to experience an immediate and
significant decline in the market price of our common stock.
Liquidity and Capital Resources
Since our inception, we have funded our operations primarily through private
sales of our equity securities. As of June 30, 2000, we had $27.4 million in
cash and cash equivalents. In March and April 2000, we sold an aggregate of
3,726,094 shares of our series D preferred stock for gross proceeds of
approximately $31.2 million.
Net cash used in operating activities totaled $2.4 million and $6.6 million
for the years ended December 31, 1998 and 1999, respectively, and $7.4 million
for the six months ended June 30, 2000. The principal use of cash in each of
these periods was to fund our losses from operations.
Net cash provided by financing activities totaled $33.2 million during the
six months ended June 30, 2000, $15.2 million for the year ended December 31,
1999 and $3.7 million for the year ended December 31, 1998. Net cash provided
by financing activities primarily consisted of the proceeds of issuances of
preferred stock and promissory notes in each of these periods and included
proceeds from a $300,000 equipment line of credit in 1999.
Since our inception, our investing activities have consisted primarily of
purchases of fixed assets, principally computer hardware and software. Capital
expenditures totaled $1.6 million in the six months ended June 30, 2000,
$871,000 for the year ended December 31, 1999 and $168,000 for the year ended
December 31, 1998. We expect that capital expenditures will increase with our
anticipated growth in operations, infrastructure
30
<PAGE>
and personnel both domestically and internationally. Cash used in investing
activities for the year ended December 31, 1999 was primarily for the purchase
of short-term investments. Cash from investment activities for the six months
ended June 30, 2000 was used primarily for the purchase of restricted cash.
We currently anticipate that the net proceeds from this offering, together
with our current cash, cash equivalents, short-term investments and credit
facility, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. However, we
may need to raise additional funds in order to support more rapid expansion,
develop new or enhanced services and products, respond to competitive
pressures, acquire complementary businesses or technologies or take advantage
of unanticipated opportunities. Our future liquidity and capital requirements
will depend upon numerous factors, including costs and timing of expansion of
research and development efforts and the success of such efforts, the success
of our existing and new service offerings and competing technological and
market developments. The factors described earlier in this paragraph will
impact our future capital requirements and the adequacy of our available funds.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of our stockholders will be reduced, stockholders may
experience additional dilution in net book value per share or such equity
securities may have rights, preferences or privileges senior to those of our
stockholders. There can be no assurance that additional financing will be
available when needed on terms favorable to us, if at all.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements of all public registrants. Any change in our
revenue recognition policy resulting from the interpretation of SAB 101 would
be reported as a change in accounting principle in the quarter ending December
31, 2000. While we have not fully assessed the impact of the adoption of SAB
101, we believe that implementation of SAB 101 will not have a material adverse
impact on our existing revenue recognition policies or our reported results of
operations for fiscal 2000.
In March 2000, the Emerging Issues Task Force of the FASB reached consensus
on Issue 00-2 "Accounting for Website Development Costs." ("EITF 00-2"). EITF
00-2 establishes how an entity should account for costs incurred to develop a
Web site. It requires that an entity capitalize costs during the Web
application and infrastructure and graphics development stages of development.
The consensus is effective for all costs incurred beginning after June 30,
2000, although earlier adoption is encouraged. We are currently evaluating the
adoption of EITF 00-2 and its potential impact on its financial condition or
results of operations.
Market Risk
The following discussion analyzes our exposure to market risk related to
changes in interest rates and foreign currency exchange rates.
Foreign Exchange Rate Risk
To date, substantially all of our recognized revenue has been denominated in
U.S. dollars and generated primarily from customers in the United States, and
our exposure to foreign currency exchange rates has been immaterial. We expect,
however, that future product and service revenue may also be derived from
international markets and may be denominated in the currency of the applicable
market. As a result, our operating results may become subject to significant
fluctuations based upon changes in exchange rates of certain currencies in
relation to the U.S. dollar. Furthermore, to the extent that we engage in
international sales denominated in U.S. dollars, an increase in the value of
the U.S. dollar relative to foreign currencies could make our products and
services less competitive in international markets. Although we will continue
to monitor our exposure to currency fluctuations, and, when appropriate, may
use financial hedging techniques in the future to minimize the effect of these
fluctuations, we cannot assure you that exchange rate fluctuations will not
adversely affect our financial results in the future.
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Interest Rate Risk
At June 30, 2000, we had cash and cash equivalents of $27.4 million and
short-term investments of $3.8 million consisting of cash and highly liquid,
short-term investments. Our short-term investments will decline by an
immaterial amount if market interest rates increase, and therefore, our
exposure to interest rate changes is minimal. Declines of interest rates over
time will, however, reduce our interest income from our short-term investments.
Our outstanding notes payable and capital lease obligations are all at fixed
interest rates and therefore have minimal exposure to interest rate
fluctuations.
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BUSINESS
Overview
We provide software and services that enable and enhance the use of
Internet-based content and corporate intranets to mobile devices, including
personal digital assistants and Internet-enabled phones. We license our AvantGo
Enterprise products and services to help companies provide their employees,
customers, suppliers and business affiliates with easy access to business
information. Our AvantGo Mobile Internet service allows individuals to access
Internet-based content and applications and gives content providers and e-
businesses instant access to our AvantGo Mobile Internet user base. As of
August 31, 2000, our AvantGo Mobile Internet service consisted of over 600
sources of content and applications that are optimized for viewing on personal
digital assistants and Internet-enabled phones.
Industry Background
The Internet and internal data networks, or intranets, have emerged as
global communications channels that enable millions of people to conduct
business and share information electronically. International Data Corporation,
or IDC, estimates that there were approximately 240 million Internet users
worldwide at the end of 1999 and that the number of users will grow to 602
million by the end of 2003. IDC further estimates that by 2003 there will be
106 million intranet users in the United States alone.
The dramatic growth in the number of business and consumer Internet users
has led to a proliferation of Web-based applications. We believe that
businesses increasingly depend upon data networks, not only for internal
communication, but also to conduct transactions and exchange information among
other companies' Web sites, remote locations, telecommuting employees, business
affiliates, suppliers and customers. To reduce costs, increase productivity and
widen accessibility, many businesses increasingly use the Internet and internal
data networks as a platform for traditional enterprise applications such as
customer relationship management, inventory control, human resources
management, enterprise resource planning and manufacturing. Similarly,
consumers increasingly use the Internet as a personal resource for
communicating, publishing information and purchasing products and services.
Until recently, most businesses and consumers were confined to accessing these
applications from personal computers.
At the same time, worldwide use of mobile communications is growing rapidly
as mobile devices become more broadly available and adopted, and as cellular
and other mobile communications services become more widely accessible and
affordable. Dataquest estimates that there were approximately 217 million
digital wireless subscribers worldwide at the end of 1998 and that this number
will grow to approximately 828 million by the end of 2003, of which 102 million
are estimated to be wireless data users. In addition to the growth of mobile
communications services, innovations in mobile device design and the creation
of wireless standards have brought forth the development of personal digital
assistants, Internet-enabled phones and two-way pagers. IDC estimates that the
worldwide shipments of smart handheld devices--which IDC defines as handheld
companions or personal digital assistants, cellular phones that are capable of
processing data or smart phones, and other devices such as those used in the
delivery and tracking of packages or vertical application devices--will grow
from approximately 8.9 million units in 1999 to approximately 35.5 million
units in 2003.
Many individuals, accustomed to accessing information from the Internet and
corporate intranets via a desktop personal computer, are now able to access
this information while away from the office. IDC forecasts that the remote and
mobile workforce in the United States will grow to 47.1 million, or
approximately 37% of the total U.S. workforce population, by the end of 2003.
Many businesses are extending applications, content and services to their
mobile constituents through handheld devices to disseminate information to
employees and to create closer relationships with their customers, suppliers
and business affiliates. Similarly, many content providers and e-businesses are
seeking to enhance their customer relationships and increase traffic to their
Web sites by extending Web-based content and commerce to mobile devices.
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Many businesses have invested heavily in their information technology
infrastructure. In order to build and operate a system capable of supporting
mobile devices, these businesses now face the challenge of integrating their
existing systems with the hundreds of thousands of available mobile devices,
applications and connections to the Internet:
. Proliferation of mobile devices. The demand for mobile devices has
spawned the growth in the number of available mobile device designs and
features. Manufacturers of mobile devices have based their designs on a
number of different mobile operating systems, including the Palm
operating system, or Palm OS, which is licensed by Palm, Inc., the
Windows CE operating system which is licensed by Microsoft Corporation,
the EPOC operating system which is licensed by Symbian, Inc., the RIM
operating system which is licensed by Research In Motion, Inc., and
mobile phone operating systems. These devices differ significantly in
their available processing power, memory, screen size and battery life.
Typically, product developers must write and maintain separate versions
of applications for each device design.
. Multitude of applications. Companies and individuals access a variety of
Web-based and enterprise applications and content. Accessing these
applications and content from mobile devices presents complex challenges.
For example, these applications, most of which were originally designed
for desktop use, must conform to the smaller screen sizes and differing
data input capabilities of the mobile devices.
. Variety of connections to the Internet. Mobile devices can access the
Internet and internal data networks through many connectivity
alternatives, including wireless and dial-up modems similar to those used
with telephones, infrared transmissions, which at close range allow for
data transmission, desktop synchronization cradles, or devices that allow
for the rapid synchronization of information between personal digital
assistants such as the Palm VTM and a desktop computer and shared access
terminals, or kiosks that wirelessly transmit data signals to devices
within a radius of approximately 15 feet. The many different types of
communications networks create additional complex challenges when
extending applications and content to mobile devices. These challenges
are amplified by incompatible networks across wide geographic regions and
inconsistent network service or wireless signals across coverage areas.
Businesses extending applications to a mobile environment require a mobile
solution that supports all of the potential combinations of mobile devices,
applications and connectivity options.
The AvantGo Solution
We provide mobile infrastructure software and services that enable and
enhance the use of Internet-based content and corporate applications on
handheld devices and Internet-enabled phones. Our AvantGo Enterprise software
products are designed to accelerate the exchange of information between
companies and their mobile employees, customers, business affiliates and
suppliers. Our AvantGo Mobile Internet service is designed to permit content
providers and e-businesses to extend their reach to users of wireless devices
and Internet-enabled phones, which may foster repeat use by users who now have
greater flexibility in accessing content and thereby increase consumer loyalty.
Our AvantGo Mobile Internet service allows consumers to access and interact
with over 600 sources of Internet-based content and corporate applications
optimized for delivery to handheld devices and Internet-enabled phones.
Our AvantGo Enterprise products and AvantGo Mobile Internet service provide
several key common benefits to enterprises, content providers and e-businesses,
including the ability to:
. Deliver sophisticated applications. Our software incorporates advanced
configuration, processing, storage and transmission technology designed
to overcome mobile device limitations including limited memory and slow
processor performance, as well as external limitations, including limited
network communications availability. Using our software, mobile devices
can store and display complex, table-
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formatted content and graphics, collect data using innovative methods such
as bar-code scanners built directly into mobile devices and capturing
hand-written information, including customer signatures, using touch-
sensitive displays.
. Increase access to information. Our software is designed to keep
information up-to-date and readily accessible, even when a network or
wireless connection is unavailable. Our software allows users to easily
update, add and remove applications and services. Additionally, systems
administrators can use our software to allow for the remote delivery of
business information to individuals within an enterprise or to the
public.
. Develop and deploy mobile applications that conform to existing
technology standards. Our software is designed to enable mobile devices
to support applications that rely on existing Internet technology
standards, such as hypertext mark-up language, or HTML, extensible mark-
up language, or XML, secure sockets layer, or SSL, and JavaScript. As a
result, software developers can build and deploy applications on mobile
devices using the same development tools and publishing systems that they
use for ordinary Web browsers and personal computers.
Our software and services also deliver distinct benefits to both our AvantGo
Enterprise customers that license our software to reach employees, customers,
suppliers and business affiliates and to content providers and e-businesses
that use our AvantGo Mobile Internet service to reach their customer base.
Benefits to enterprise customers
. Increased productivity. Our AvantGo Enterprise software is designed to
increase the rate of exchange of information within organizations and
among employees, customers, suppliers and business affiliates. Our
software and services also streamline business processes such as billing,
procurement, inventory control and customer relationship management by
replacing traditional paper-based processes with those using mobile
devices. For example, by providing delivery personnel with handheld
devices running our AvantGo Enterprise software, enterprises can keep
tighter control over the invoicing process by enabling drivers to
electronically input delivery information such as customer signatures. In
addition, managers of manufacturing companies can make faster and more
informed decisions when provided with up-to-date operations data
accessible at any time using personal digital assistants or Internet-
enabled phones. Our software allows access to information from a mobile
device in situations where network connections or wireless signals are
slow or unavailable.
. Open platform. Our software and services, which run on operating systems
and hardware platforms that are compatible with HTML, XML, SSL and
JavaScript, give companies flexibility in selecting from among a wide
range of options. Our software and services integrate efficiently with
existing systems, which enables our customers to quickly deploy a mobile
infrastructure using applications and other technology they already own.
. Centralized administration. Our enterprise software and services enable
businesses to centrally manage their mobile workforces using a Web
browser. For example, our software enables businesses to update
applications and distribute them from a single location to dispersed
mobile devices. Our software also simplifies information management and
maintenance by allowing organizations to create user accounts, define
user groups and control access.
Benefits to content providers and e-businesses
. Potential for cost savings and faster time to market. Instead of devoting
significant resources to build a mobile network that may not operate over
a variety of connectivity combinations, Internet content providers and e-
businesses can use our software and services to quickly deploy a mobile
infrastructure. By using our products and services, we believe that
content providers and e-businesses can quickly meet the mobile computing
needs of their users while remaining focused on their core businesses.
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. Network effect. We have built a network of over 600 sources of content
and applications and through August 31, 2000 have over 650,000 active
AvantGo Mobile Internet users. By expanding our user base, we encourage
additional content providers and e-businesses to deliver their offerings
through our AvantGo Mobile Internet service in order to reach this
growing audience. In turn, a wider selection of content providers and e-
businesses attract more users to our service. As a result, existing
content providers and e-businesses have the opportunity to instantly
extend their brand and service offerings to a wide consumer audience.
. Revenue opportunities. We believe our AvantGo Mobile Internet user base
increases the range of potential revenue opportunities for content
providers and e-businesses through means such as advertising,
subscriptions and product and service sales.
Strategy
Our objective is to be the leading provider of mobile infrastructure
software and services that enable and enhance the use of Internet-based content
and corporate applications on handheld devices and Internet-enabled phones. Key
elements of our strategy include the following:
Increase compatibility through the use of open standards. We intend to make
it possible for Web-based applications to run on a wide variety of mobile
devices, whether wireless or requiring desktop synchronization. We believe that
our focus on open standards including HTML, XML, SSL and JavaScript, will
encourage application developers to create products and services that rely on
our software for a wide range of mobile devices. Additionally, through our open
architecture, we seek to attract content providers and e-businesses to deliver
personalized information, services and applications to any mobile device.
Focus on the needs of enterprise customers. We license our enterprise
software to businesses in industries that both invest heavily in technology and
have large numbers of mobile customers or employees. Drawing on our experience
developing enterprise software, we intend to expand our enterprise customer
base by supporting additional mobile devices and introducing new applications,
content and services to better meet the needs of these companies. We also will
continue to invest in our professional services organization to serve
enterprise customers with consulting, outsourcing and support needs.
Expand applications, content and features to increase user base. We intend
to expand our user base and enhance our users' experience by continuing to
improve the functionality of our enterprise software and services for our
enterprise customers and the range of optimized content for our AvantGo Mobile
Internet users. Toward this end, we will continue to build relationships with
third-party software developers to use our infrastructure to deliver new
applications with mobile capabilities. An increase in available applications,
content and features will enable us to extend the benefits of our products and
services across a greater number of organizations in a wide range of
industries, thereby attracting new users and increasing associated revenue
opportunities.
Expand distribution of our products through strategic relationships. We
intend to continue to actively pursue additional distribution and bundling
agreements with device hardware manufacturers and software developers, mobile
device operating system vendors and wireless carriers. We believe that
maintaining and developing these relationships will encourage widespread market
penetration of our software and increase our brand awareness and user base.
Establish cooperative relationships to increase revenue opportunities. We
seek to create revenue opportunities for content providers and e-businesses
through advertising and e-commerce, wireless carriers through increased airtime
and hardware and software manufacturers through increased product sales.
Through these industry relationships, we seek to increase our user base and the
market adoption of our products and services. Additionally, our relationships
with content providers and e-businesses have the potential to increase our own
revenue opportunities through revenue-sharing arrangements and advertising and
placement fees. We
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intend to continue to work with content providers and e-businesses to increase
usage of our AvantGo Mobile Internet service and to promote commerce
opportunities.
Products and Services
Our infrastructure software and services, which are based on common
technology, provide the foundation for our AvantGo Enterprise software products
and AvantGo Mobile Internet service. We also offer professional services to
help customers deploy and maintain our software and services. Revenues from our
AvantGo Enterprise products, our professional services and our AvantGo Mobile
Internet service accounted for approximately 50%, 40% and 10% of our total
revenues for the year ended December 31, 1999, and approximately 55%, 27% and
18% for the six months ended June 30, 2000. We anticipate that in future
periods, revenues from our AvantGo Mobile Internet service will account for an
increasing percentage of our total revenues, while our professional services
will account for a smaller percentage of our total revenues. American Express
Travel-Related Services, Ford Motor Company and McKessonHBOC accounted for
approximately 0%, 2% and 25% of our total revenues during the year ended
December 31, 1999 and approximately 8%, 8% and 37% for the six months ended
June 30, 2000. The Liggett Group accounted for approximately 15% of our total
revenues during the year ended December 31, 1999.
AvantGo Enterprise Software Products
Our AvantGo Enterprise Interactive and AvantGo Enterprise Publisher, each of
which our customers install directly within their corporate networks, enable
organizations to extend interactive enterprise applications and data to mobile
workers, through either a wireless connection or through desktop
synchronization. AvantGo Enterprise Interactive allows enterprise customers to
facilitate two-way communication on mobile devices, including sales force
automation, document publishing and travel, expense management applications,
field service maintenance, inventory management and logistics. Our AvantGo
Enterprise Publisher, our read-only version of AvantGo Enterprise Interactive,
allows enterprise customers to run applications on mobile devices, including
data management, document publishing and data reporting.
Our AvantGo Enterprise Online service, a hosted service that we launched in
May 2000, allows organizations to run the same types of applications as our
AvantGo Enterprise software without operating our server software on their
network. This service, which we price comparably to our AvantGo Enterprise
Interactive and AvantGo Enterprise Publisher products, is well-suited to
enterprise customers that for timing, technical or cost-driven reasons do not
want to install, operate and maintain our AvantGo Enterprise software on their
network. Currently our AvantGo Enterprise Online service accounts for less than
10% of our enterprise revenues.
Our AvantGo Enterprise Interactive and AvantGo Enterprise Publisher
products, which we license to our enterprise customers, account for the
majority of our enterprise revenues. We also make our AvantGo Enterprise Online
service available to enterprises on a subscription basis.
AvantGo Mobile Internet Service
Our AvantGo Mobile Internet service allows Internet users with a handheld
device or Internet-enabled phone to access Web-based services and content in
real-time, using a device with a wireless connection or through synchronization
with a desktop computer. Our AvantGo Mobile Internet service allows Internet
users to interact with Web-based applications and services and enter
information into mobile devices for posting onto the Web. Through our AvantGo
Mobile Internet service, we generate placement and advertising revenue and have
revenue-sharing arrangements that provide the opportunity for us to earn
commissions on e-commerce transactions.
Companies delivering content and applications through our AvantGo Mobile
Internet service have the opportunity to increase their visibility by
purchasing AvantGo Mobile Internet advertising and premium placement on our Web
site. Additionally, we receive a share of revenue generated by providers of
content and services on our AvantGo Mobile Internet service. These agreements,
which typically are non-exclusive and have one-year renewable terms, stipulate
that the content provider may offer unlimited content on our AvantGo
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Mobile Internet service. Currently over 600 sources of content and applications
are optimized for mobile devices and are available through our AvantGo Mobile
Internet service. Through August 31, 2000, we had over 1 million registered
users and over 650,000 active users of our AvantGo Mobile Internet service.
Through a simple point-and-click process, individuals can select from among a
wide spectrum of content, which we have grouped into the following categories
for the convenience of our end users:
BUSINESS Night Life General Technology News
Currency/Exchange Rates Restaurants Palm Pilot
Finance Television
Science
General Business Windows CE
LIFESTYLE
High Tech Business Education SPORTS
Industry-Specific News Food Baseball
International Business Health College Sports
Market and Quotes Lifestyle General Sports
Productivity
Productivity International Sports
CITY/REGIONAL Religion NBA
International Shopping
NFL
U.S. Cities
NEWS NHL--Hockey
Other Sports
ENTERTAINMENT General News
Entertainment News Law News TRAVEL
Food and Drink Politics/Commentary Destination Information
Games Special Interest
WEATHER
Humor PORTALS
WIRELESS
Literature SCIENCE/TECH
Mature Computer Software
Movies
Music
AvantGo Professional Services
We employ a professional services team that helps our customers to integrate
our software into their computer networks and provides consulting services for
our enterprise and AvantGo Mobile Internet customers on a fee-for-service
basis. AvantGo Professional Services offerings include implementation,
consulting, training and technical support, and within each offering, our
customers have the opportunity to choose the level of service that best meets
their needs. Our service and support professionals may assist customers in
every phase and stage of mobile solution development and delivery, including
design, implementation and deployment of mobile architectures and applications.
Application Software
On May 26, 2000, we completed our acquisition of Globalware. Globalware's
Pylon Conduit and Pylon Pro software products enable much of the functionality
of Lotus Notes to be used on mobile devices. Globalware's Pylon Server product
enables users of handheld devices to synchronize between a personal computer
and a centrally configured server. We sell our Pylon Conduit and Pylon Pro pre-
packaged software products and license our Pylon Server product. Additionally,
we entered into a license agreement in June 2000 with Chapura, Inc. that
enables us to provide users of mobile devices with the ability to synchronize
their mobile devices with Microsoft Exchange. We believe our acquisition of
Globalware and our license agreements with Chapura will enable us to provide
valuable applications to our enterprise customers and AvantGo Mobile Internet
users.
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Sales and Marketing
We maintain two marketing organizations: one to address our enterprise
business and one to address our AvantGo Mobile Internet service business. Both
of these organizations work with our hardware, software and service providers
to develop and participate in marketing activities, including seminars,
advertising and trade show events. We currently have 83 employees in our sales
and marketing organizations.
Enterprise
We sell software products, hosted services and professional services to
enterprise customers through our direct sales force in North America and third-
party resellers. Organized into three geographic areas, our North American
direct sales organization consists of field sales representatives, technical
sales consultants/engineers and corporate sales representatives. Our European
sales and marketing personnel are located in France, Germany, Sweden and the
United Kingdom. AvantGo Europe, Ltd., our U.K. subsidiary, focuses on marketing
our enterprise products throughout Europe. As of August 31, 2000, we have 11
enterprise sales personnel who are stationed outside of the United States. We
do not plan to significantly expand our international operations beyond
continuing to increase our enterprise sales efforts. We augment our sales
efforts with customer service and ongoing technical support. We also have a
business development organization that pursues and establishes distribution and
marketing relationships with enterprise software vendors. We intend to increase
the number of field sales representatives in North America and Europe. In order
to increase indirect distribution channels for our enterprise software, we are
also expanding our relationships with companies that sell or bundle our
products for enterprise use and that offer additional consulting services to
these enterprises.
AvantGo Mobile Internet
We have a team of professionals that markets our AvantGo Mobile Internet
service on an ongoing basis to branded content providers and e-businesses to
encourage them to participate in co-marketing and promotional activities. We
have focused our recent marketing efforts on increasing the amount of content
and services available through our AvantGo Mobile Internet service by
advertising and entering into co-marketing relationships with manufacturers of
wireless data communications equipment and wireless carriers. Our professional
sales team also pursues distribution relationships with hardware manufacturers
and companies operating popular Web site and e-commerce businesses.
Key Relationships
We have entered into agreements with major hardware and software producers
to bundle or integrate our software with their mobile devices and software
products. We have also entered into joint software development projects to
integrate our software and AvantGo Mobile Internet content and services with
the products of software and device vendors. We believe that these
relationships are integral to our success because they expose our service
offerings to a wide array of users and tie our products into integral elements
of the mobile device architecture. In addition, we have entered into various
agreements with McKessonHBOC that provide for license revenues to us through
McKessonHBOC's use of our enterprise products and for the broad development of
health-oriented content to be managed by McKessonHBOC and distributed through
our AvantGo Mobile Internet service.
Microsoft Corporation. Our software is integrated into Microsoft's Pocket
Internet Explorer browser that ships on Windows-Powered Pocket PC devices from
leading manufacturers, including Hewlett-Packard Company, Compaq Computer
Corporation, Casio, Inc. and Symbol Technologies, Inc. Our software is also
available on other hardware platforms running the Microsoft Windows CE
operating system, including Handheld PCs, the Handheld PC Pro and the Palm-
sized PC. We continue to explore co-marketing opportunities with Microsoft
designed to more broadly distribute our software to original equipment
manufacturers that pre-install Microsoft's products, as well as to increase
internal deployment of our software
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within Microsoft's product lines. Our agreement with Microsoft, which has a
two-year renewable term, provides Microsoft with a license to incorporate our
software with its Windows CE operating system on a non-exclusive basis. As of
August 31, 2000, Microsoft owns approximately 4.55% of our outstanding voting
stock.
Palm, Inc. Palm, Inc. is a provider of handheld computers, including the
Palm III(TM), Palm V(TM), Palm VII(TM) series of handheld computers. Our
software is compatible with every handheld device that runs on the Palm
operating system or Palm OS, and is bundled with most of the Palm, Inc. devices
in the Palm III(TM) and Palm V(TM) families. In 1997, we also licensed our Java
Development Kit to Palm, Inc., which is now marketed by Palm, Inc. as the
Windows Java Conduit Development Kit. Under our agreement with Palm, Inc.,
Palm, Inc. bundles our software with its Palm(TM) devices on a non-exclusive
basis. As of August 31, 2000, 3Com, a majority owner of Palm, Inc., owns
approximately 2.27% of our outstanding voting stock.
McKessonHBOC. McKessonHBOC is a global pharmaceutical supply management and
healthcare information technology company. Since October 1998, McKessonHBOC has
been using our AvantGo Enterprise software and our professional services to
develop and deliver an inventory tracking and management system. In addition to
streamlining the product delivery process, McKessonHBOC expects that our
AvantGo Enterprise software will help improve its operational efficiency,
reduce operating costs and increase customer satisfaction. In addition,
McKessonHBOC will manage the content development relationships and licensing
and revenue agreements with content providers who deliver healthcare content,
services and applications for our AvantGo Mobile Internet service. Our license
agreement with McKessonHBOC, which has a three-year term, provides that
McKessonHBOC will license our AvantGo Enterprise Server and AvantGo Client
software on equipment owned by McKessonHBOC for use by McKessonHBOC employees
and contractors. As of August 31, 2000, McKessonHBOC owns approximately 2.14%
of our outstanding voting stock.
Content Providers and E-businesses. We provide the tools necessary for
content providers and e-businesses to easily make their content available to
users of mobile devices and we optimize this content for delivery to mobile
devices. Our AvantGo Mobile Internet service, which has initially offered and
still offers content from CNET Networks, Inc., Excite, InfoWorld, Mercury
Center, The New York Times and Wired Digital, currently offers the following
sources of content and applications that we categorize and optimize for access
by our AvantGo Mobile Internet users:
PORTALS CNET NEWS.COM Himoney
Excite CNNfn Homestead
GO Network MyPage Company Sleuth Hoover's IPO Update
Infospace (12 sources) Economist Mobile Edition ICONOCAST
MSN Mobile eFinancialNews.com impact
Yahoo! EMAZING.com Business Industry Standard
EMFocus IndustryWeek
BUSINESS EO NEWS Intel(R) e-Business
AcciTrade Movil eVentures.com Center
Advisory Stock Digest by Extel Survey of Internet Wire
INVESTools.com Investment Analysts Investhink Mobile
American Express(R) Feature Story News latintrade.com
Bankrate FedEx MercuryCenter
BankruptcyData.Com Fidelity Weekend Mobile Invest
Mobile News FinanciaLine.com MoneyZone.com
Bloomberg (2 sources) Finanstidningen Motley Fool--News
Business Week Online Forbes.com mySAP.com
Handheld Edition Fox Market Wire Privata Affarer
BusinessThinkers Trends FT.com Red Herring
Digest GloriaMundi.org Schlumberger Realtime
Butler Group Daily HandyTEL.com--Telecom Smallcapcenter.com
Research Notes World News and Stock Tracker
ChannelSeven.com hemscott.NET Stock Smart Stock
Tracker
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<TABLE>
<S> <C> <C>
StockCharts.com-- Comunia iBellevue.com Handheld
Handheld Edition Contra Costa Movie Iktisat Direkt
Stockpickz Listings Industry Standard
TheStreet (2 sources) Dade County Movie Australia
Technistock Listings Ingenioren/net
the451 Dagbladet Norge IntelliCom Innovation
Upside Today Decidir.com AB
USi Making Software Delaware County movie Internet Standard
Simple listings wydanie dla Palm
VCAPITAL.com Der PocketStandard InYourPalm
Wall Street Journal (2 Detroit--The Pointes ITN News
sources) Movie Listings Japan Update
Wall Street Transcript Detroit Down River-- Jazz en France (2
Westergaard.com Movie Listings sources)
Wired News Detroit Free Press JobForce Network (3
w-Trade Detroit/Dearborn Movie sources)
Listings KassKooye
CITY/REGIONAL Digital Generation Kendal/S.Miami Movie
4kr dn.no Listings
Aftenposten Interaktiv Downtown Philadelphia Klack--das TV-Magazin
Allocine movie listings im Internet
ANANOVA e-licious (2 sources) La Lettre de
argonauts East Metro Movie l'Internet
ARN, Australian Reseller Listings lastminute.com
News Ecademy DailEnews LatinTrade.com Travel
Asia-Links Edicom Le Monde interactif (2
Atlantic City Movie EL DIARIO sources)
Listings emansearch.com Le Petit-bouquet
Atmedica en.red.ando LegManila.com
Barsky Show--Mobile Erie Times-News Local Sports.com (3
Edition (GoErie.com) sources)
BBC News EurasiaNet.org Los Tiempos de
Bidlet (28 sources) Event-o-Rama Cochabamba-Bolivia
Birmingham--Movie Fairmount Phila--movie Main Line Phila--movie
Listings listings listings
birmingham alive! Fibbers Group Manila Bulletin
Bitconomy Film Unlimited Maporama.com on the
Broward County Movie Financial Times Road
Listings Deutschland Martin Butler's Contra
Bucks County movie finanzaspersonales.com, Journal
listings el poder de transar Miami Beach Movie
Burlington County Movie Florida Keys Movie Listings
listings Listings Miami Herald
Camden County Flugfiskesidan PDA Miami Movie Listings
Canalchat Fort Wayne, Indiana-- Michigan Train
Channel NewsAsia News@Sentinel Watchers
Charlotte Observer fredericksburg.com Minneapolis Movie
Chester County movie Ft. Lauderdale Movie Listings
listings Listings MobileStart
Chinatown Philadelphia-- Gloucester County Mobilito
movie listings Grippo Palm Monroe County--Movie
Chopstix recipe of the Grove Gables Movie Listings
day Listings Montgomery County
CITY AZ Magazine Guardian Unlimited movie listings
CITY NY Magazine Goteborgs-Posten Movie Listings--Grove
City of Dinant, Belgium Ha'aretz Daily (2 Gables
City Snapshots sources) Movie Listings--
CitySearch.com (32 HandHeldCrime Kendall/Miami
sources) HelpInHand (5 sources) Movie Listings--Miami
Clarin Homes.com Beach
ClickMovie 2 Go! Homewize Movie Listings--Miami
Computer Press Homewize Professional Downtown
ComputerWorld Australia Hoosier On-Line News Movie Listings--South
Computerworld wydanie iacchos, le monde du vin Broward
dla Palm Movie Listings--South
Dade
My startribune.com--
Minneapolis/St. Paul
Myrtle Beach Access
News
N. Broward Movie
Listings
Negocioselectronicos.com
North Dade Movie
Listings
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
North Metro movie Snapshot (13 sources) After Dawn
listings Snapshot--London all-Legends.com
North Minn. movie Snapshot--Toronto Bbspot
listings South Alameda Movie BLUE BUNNY(R) News
N. Oakland Mich.--Movie Listings ByTravelers.com Travel
Listings South Broward Movie Journals
Northeast Phila--movie Listings ClassicSciFi.com--TV
listings South Metro Movie Today
NY1 News Listings Cookingindex.com
Oakland, CA Movie South Minn. Movie Recipes
Listings Listings CoolQuiz.com
Onsale.com S. Oakland Mich. Movie Daily Dish
Ozbuy.com Listings Daily Humor by
Pakistan News Service South Phila--Movie InHis.com
Palm Beach Movie listings Dawson's Creek
Listings Southeastern Michigan DrinkBoy
Palm Brasil SP!TS PalmTop edition DVDMON
PALMBOX SpainNet.co.uk Electric Playground
Palmbr Mobile Edition-- Spin.com--Mexico Elephant Talk
Brazil Sports.com EMAZING.com
PalmBR.com--PalmTV St. Paul Movie Listings Entertainment
PDAfrance SwissZone NEWS Fodors.com
Peninsula, CA Movie Sydney Morning Herald Game Rankings
Listings Terra Networks Argentina GIST TV
Philadelphia Movie The Island Packet Global Soul
Listings Online--Hilton Head goodauthority
Philadelphia Online Island, SC Hollywood.com
Pioneer Planet The Wichita Network IncogID
PLANetizen: Your digital Theatre.com Inside
source for planning thegallerychannel.com iTickets.com Christian
PMN Publications To Be fresh.com Events
Pocket DC TODOCOMUNICACIONES Jamiroquai News
Pocket-Nachrichten TRIBnet.com ToGo! Jason Pettus
PockyGuide.Com--Shanghai Tu Vecindad Jeopardy! 2001
City Guide TV4 (4 sources) Joke A Day (2 sources)
Post4U Arts Twin Cities Movie Juxtaposeur Movie
Post4U Business Listings Review Revue
Post4U IT UNCUT--Graz Kim Holzer Leeds'--
Post4U Leisure University City Life and Stuff
Press-Enterprise-- usj.com.my LiveDaily.com
Riverside, CA Victoire.net My Music
Prim Online IT news Wayne Washtenaw--Movie NY Post.com
Purple Ski Mobile Listings Palm Stories
RDSL Weekly Planet Restaurant Row
Richmond.com West Central Broward-- Listings
RJPUG Handheld Movie Listings Restaurant Row Offline
Sacramento--sacbee.com West Metro Movie ROLLINGSTONE.COM
SaintNet Listings SCI FI Channel
San Francisco Movie Western Wisconsin Showbiz Scoop (2
Listings Winepros.com sources)
San Francisco North Bay WRAL Online Soap City
Movie Listings Xianzai.com: China SonicNet Music News
San Francisco Tri Valley Information Now Sony Pictures Movie
Movie Listings Yeyeye.com Musica y much Channel
San Jose/South Bay Movie mas Sony USA
Listings yourmovies.com.au Sproule Handheld
Santa Cruz Movie zATAz.com mobile Cartoons
Listings
SuBBrilliant News
SCMP.com ENTERTAINMENT Suck.com
Seattle P-I Sports 10Best.com TeeVee
Schedules A Daily Dose of The Daily Roxette
Seattle Post- UselessKnowledge.com The Tuck Shop
Intelligencer
Showidea News
Sky.com
</TABLE>
Smell the Coffee
42
<PAGE>
<TABLE>
<S> <C> <C>
TV Guide Online UBC Department of CreativePro
TVEyes.com Psychology Davenetics
V.I.P Picture Of The Day VirtualPsych DominoPower Magazine
Variety.Com Women.com EMAZING.com Technology
Waiting for Bob Worldwide Church of God Globalware Computing
White Trash Cafe Handango
WineToday.com NEWS Linuxplaza.com
Abraham 2000 Mobile
Edition
Nashville PUG
LIFESTYLE NYCDAUG
A Hi-Ce Educator Auto.com Palm Infocenter.com
AFP Abstracts from Call Center News Service PalmPilotArchives
Handheldmed Cato Daily (2 sources) PalmPower Magazine
air Heart Consumer CBC News PC WORLD.COM
air Heart Guidelines CNSNews PDA Antics
air Heart Professional ComputerUser.com PDABuzz.com
Asimba Englishtown PDAlive.com
AstrologyIS ePolitics.org Pen Computing
AudioWeb FedBuzz PhilaPUG
Autobytel.com On the File Flash Portablelife.com
Road Financial Times Energy Scripting
Bible Study Fox News Smaller.com
Daily Almanac Gallup Poll Space.com
Daily Motiv8r(C) GBSU News SpatialNews--Geo
Daily Wisdom To Go Greenwave Radio Spatial/GIS Industry
drcooper.palm Handheld Computing (tm) News
EMAZING.com Lifestyles Magazine The Netrepreneur's
eMDnetwork (2 sources) iCurrency.net Exchange Journal
FitForAll Rates VisorCentral
Gay Wired InformationWeekDaily VOUG Palm Edition
God's Word Mobile Edition WebExcellence
handheldmed.com InfoWorld to Go Windows CE Power
HelpInHand--Helpful Knoxville News Sentinel Magazine
Hints for Men Law News--Palm Law Wireless Developer
Hint Fashion Magazine LME Updates by Network
hwy50zen.com TigaMetal.com XML News
Learnlots New York Times (5 ZDNet (7 sources)
sources)
Love Online--XseeksY.com
Maxim Online OnPolitics from SPORTS
Medschool.com washingtonpost.com College Basketball
Mobile Gabriel Pioneer Planet Tech News College Football
MusicResults.com Roundup EMAZING.com Sports
My Docs Online! Salon FinalFour.net
mySimon To Go Slate Fox Sports
NetDocuments Smallbiztechnology.com GALE FORCE F1
Palm Horoscopes State Bar of Michigan e- GOVikings
PhotoPoint (2 sources) Journal On the Go GoVols.com
PickupTruck.com Stock Smart Currencies InternetSoccer.com
SyncIT.com The HR Professional's InTheCrease.com Palm
The Banner, a Pinecrest Gateway to the Internet Edition
Publication The Idler, A Web Maxbaseball.com &
The Bible Minute Periodical Larry Dierker
The Mark David The LawMarketing Portal MichiganSports.com
Corporation USATODAY.com MONTIGNY BASEBALL--
France
The Mormon Channel
TotalDeals Mobile SCIENCE-TECHNOLOGY OzLeague.com
Edition Beyond2000.com OzRules.com
big g media planet capoeira
CEArchives.com
</TABLE>
43
<PAGE>
<TABLE>
<S> <C> <C>
Sportcut.com MapQuest--directions WIRELESS
Sporting News (5 NIAGARA FALLS, SHERATON CompleteCar.com
sources) FALLSVIEW HOTEL / Frommers City Info
SportsYa! FALLSCAM MapBlast! Wireless
STATSwizard.com Online Vacation Mall NextBus Transit
ThatsRacin.com TRIP.com Information--Wireless
TheRaceNet.com
Stock Quote--Stock
Smart
WEATHER
TRAVEL Dr. Knight's Ski Report The Weather Channel--
BnBFinder.com The Weather Channel wireless
EMAZING.com Travel The Weather Guys
Expedia To Go
MapBlast!
</TABLE>
Technology
Our technology builds upon open standards to deliver Internet-based content
and applications to handheld devices and Internet-enabled phones. The software
and services built using our technology take into account the specific
limitations and capabilities of mobile devices, wireless data networks and
Internet-based applications. Our software products allow mobile devices with
limited memory, low processing power and unreliable or limited network access
to effectively interact with systems and applications designed to serve
personal computers with high-speed, reliable Internet access.
[GRAPHIC APPEARS HERE]
Components of AvantGo Server
Our AvantGo Server is designed to allow our customers to use AvantGo
software in their own computing environment. Our AvantGo Server technology is
designed to enable customers to add more systems and support as they add users
without increasing the risk of system failure. Our architecture allows our
AvantGo Server to be deployed in configurations ranging from simple single-
server configurations to large-scale configurations involving multiple servers
aligned in clusters. Our AvantGo Server runs on Microsoft's Windows NT and
Windows 2000, Sun Microsystems' Solaris operating system, Linux, and FreeBSD
and is designed to meet the reliability and performance requirements of large
enterprises as well as our AvantGo Mobile Internet service.
Server Core. Our AvantGo Server core provides an expandable framework that
performs many functions on behalf of mobile devices. Because wireless networks
have limited capacity, processing power and memory,
44
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our technology shifts the processing load from mobile devices to the server.
Our architecture is designed to make the most efficient use of slow, expensive
wireless networks by relying on servers to compress data before transmitting it
to the mobile device. Our AvantGo Server provides reliable and secure
communications so that software that resides on the mobile device is not
encumbered with the many device-specific communications issues. Our AvantGo
Server can integrate with existing directory services, such as Lightweight
Directory Access Protocol and Windows NT Domain Services for identifying and
administering information to users and groups of users.
Server-side Web Module. Our AvantGo server-side Web module extends our
server core to provide real-time wireless access to the Internet, and allows
mobile devices without wireless capabilities to synchronize with Internet-based
applications and services. By shifting the processing of information and secure
sockets layer from the mobile device to a server, our server-side Web module
allows mobile devices to access all existing Internet-based applications,
content and services. Depending upon the capabilities of the mobile device and
on user preferences, our server-side Internet module can simultaneously send
large quantities of information and data, search the Internet in real-time and
compress data and files.
Server-side Administration Module. Administrators can use the server-side
administration module to assign and deliver applications, content or services
to particular users or groups of users, as well as control user preferences and
settings. Our server-side administration module enables installation and
upgrading of software on mobile devices in addition to reporting on user
activity. At the discretion of the server administrator, our end users can also
self-administer their settings and preferences with the server-side
administration module. Both server administrators and end users can access our
server-side administration module with any Web browser.
Components of AvantGo Client
Client Core. Our AvantGo Client software allows the user to interact with
various applications, content and services on the mobile device. Our AvantGo
Client core software is not required to interact with our AvantGo Server.
Devices such as Internet-enabled phones can access some portions of our AvantGo
Server even though they lack our AvantGo Client software. As part of providing
a framework for client-side modules, our AvantGo Client core transforms
directives from our AvantGo Server into the appropriate commands recognizable
by the specific device.
Client-side Web Module. We provide a client-side Web module to display and
navigate Web content including text, graphics and hyper-text links. Our client-
side Web module also supports the execution of standard JavaScript along with
code that is specific to the particular operating system or hardware device to
provide our users with an interactive experience even if a device lacks real-
time capabilities. Additionally, HTML forms can be automatically organized by
our client-side Web module for later transmission from mobile devices with or
without wireless connectivity.
Competition
The market for our products and services is becoming increasingly
competitive, and the wireless market has attracted many start-ups, as well as
established companies that want to extend the capabilities of their products
and services to support handheld devices and Internet-enabled phones. We expect
that we will compete primarily on the basis of functionality, breadth of
software and service offerings, quality, reliability, and performance of our
offerings, time-to-market advantages and price. As the market matures, we will
continue to both cooperate and compete with emerging companies and established
companies entering the wireless market.
Our enterprise software and services compete primarily with offerings from
the following types of companies:
. server synchronization software providers, including Palm, Inc.,
PUMATECH, Inc. and Oracle Corporation;
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<PAGE>
. handheld application development environment providers, including
PUMATECH, Inc., Aether Systems Inc. and Microsoft Corporation; and
. application service providers, such as Aether Systems, Inc.
Our AvantGo Mobile Internet service competes primarily with the service
offerings from the following types of companies:
. value-added wireless service providers, such as Palm, Inc.'s Palm.Net and
OmniSky Corporation; and
. wireless Internet portals, such as InfoSpace, Inc. and Oracle
Corporation's Portal to Go.
In addition, companies with whom we currently have relationships may
terminate their relationship with us and compete with us. Also, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to compete more
effectively. Finally, existing and potential competitors may develop
enhancements to or future generations of competitive products with better
performance features than our products.
Many of our existing and potential competitors have substantially greater
financial, technical, marketing and distribution resources then we do.
Additionally many of these companies have greater name recognition and more
established relationships with our target enterprise customers. Furthermore,
these companies may be able to adopt more aggressive pricing policies and offer
customers more attractive terms than we can.
Intellectual Property Rights
We regard our intellectual property protection for our proprietary
technology, products and services as critical to our success. To protect our
proprietary technology, products and services, we rely on a combination of
patent, trademark, copyright and trade secret protection and confidentiality
and license agreements with our employees, customers, business affiliates and
others. Despite these precautions, others may be able to gain access to and use
our trade secrets without our authorization, may infringe our intellectual
property rights or may violate contractual provisions protecting our
intellectual property. If we are unable to adequately protect our intellectual
property, it could materially affect our financial performance. In addition,
potential competitors may be able to develop non-infringing technologies or
services similar or superior to ours.
We have filed six non-provisional patent applications and three provisional
patent applications in the United States, and one Patent Cooperative Treaty
(International) application, directed to aspects of our core technologies. A
non-provisional application is an application to be examined by the U.S. Patent
and Trademark Office for the issuance of a patent. A provisional application is
an application that is not to be examined by the U.S. Patent and Trademark
Office for the issuance of a patent, but rather is submitted to the U.S. Patent
and Trademark Office as a notice and to show intent to file a non-provisional
patent on the same subject matter. We do not know if these or other
applications will ever be issued or, if issued, whether they will contain
claims with the scope that we seek, or whether they will survive legal
challenges that may be brought. Any such legal challenges, whether or not
successful, may be expensive to defend.
We have applied for registration in the United States and internationally of
several of our trademarks and service marks including the AvantGo circle logo
and the name "AvantGo." We have notified two companies that they have conducted
business using trademarks that we consider to be deceptively similar to our
trademarks and service marks.
We have applied for and obtained copyright registration in the United States
for our AvantGo Enterprise software products.
We also license some of our intellectual property to others, including our
AvantGo Client technology and various trademarks and copyrighted material.
While we attempt to ensure that the quality of our brand is maintained, others
might take actions that materially harm the value of either these proprietary
rights or our reputation.
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<PAGE>
We license technology from others, including some portions of our
compression-decompression technology, security and encryption technology and
personal information management technology. If these technologies become
unavailable to us, we would need to license other technology and redesign or
redevelop portions of our system. Although we are generally indemnified against
claims that technology licensed to us infringes the intellectual property
rights of others, such indemnification is not always available for all types of
intellectual property and in some cases the scope of such indemnification is
limited.
Even if we receive broad indemnification, third party indemnitors may not
have the financial resources to fully indemnify us in the event of
infringement, resulting in substantial exposure to us. We cannot be assured
that infringement claims arising from the incorporation of this technology will
not be asserted or prosecuted against us. These claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources in addition to potential redevelopment costs and delays,
all of which could materially adversely affect our business, operating results
and financial condition.
We attempt to avoid infringing the proprietary rights of others, although we
have not done an exhaustive patent search. Our competitors may claim that we
are infringing their intellectual property and, if they are successful, we may
be unable to obtain a license or similar agreement to use the technology we
need to conduct our business.
Employees
As of August 31, 2000, we had 250 full-time employees, 76 in research and
development, 83 in sales and marketing, 59 in professional services and 32 in
general and administrative. None of our employees is subject to a collective
bargaining agreement, and we have never experienced a work stoppage. We believe
that our relations with our employees are good.
Facilities
Our principal headquarters are in San Mateo, California, where we lease
approximately 25,000 square feet. We also lease a facility in Hayward,
California of approximately 83,000 square feet.
Legal Proceedings
We are not a party to any pending material legal proceedings. However, we
may from time to time become a party to various legal proceedings arising in
the ordinary course of our business.
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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 as of August 31, 2000:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Felix Lin............... 36 Co-Founder and Chairman of the Board of Directors
Richard Owen............ 35 Chief Executive Officer and Director
Linus Upson............. 29 Co-Founder, President, Chief Technology Officer and Director
David B. Cooper, Jr. ... 44 Chief Financial Officer
Thomas F. Hunter........ 54 Vice President, Finance
Christopher B.
Hollenbeck(1).......... 32 Director
Dennis Jones(2)......... 48 Director
Robert J. Lesko(1)(2)... 57 Director
Gregory L. Waldorf(2)... 32 Director
Jeffrey T. Webber....... 47 Director
Peter H. Ziebelman...... 44 Director
</TABLE>
---------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Felix Lin is one of our co-founders and has served as one of our executive
officers and directors since July 1997. Mr. Lin has served as our chairman of
the board since February 2000. From July 1997 to February 2000, Mr. Lin was our
chief executive officer. Mr. Lin has also served as chairman of the board,
president and chief executive officer, and as the sole director of our
Globalware subsidiary since May 26, 2000. Prior to founding AvantGo, from
October 1994 to June 1997, Mr. Lin was the director of internet strategy for
Versant Object Technology. Mr. Lin served as database product marketing manager
at NeXT Computer, Inc. from February 1992 until October 1994. From October 1990
to January 1992, Mr. Lin was product manager at Cadre Technology (now Sterling
Software). From June 1988 to June 1990, Mr. Lin was a principal consultant and
consulting manager for Oracle Consulting Group at Oracle Corporation. Mr. Lin
holds a B.S. degree in Electrical Engineering, and a Master of Science in
Computer Science from the Massachusetts Institute of Technology, and a Master
of Science in Management from the Massachusetts Institute of Technology Sloan
School of Management.
Richard Owen has served as our chief executive officer and as one of our
directors since February 2000 and has been employed by us since January 2000.
From September 1998 to December 1999, Mr. Owen served as vice president of Dell
Online Worldwide for Dell Computer Corporation. From July 1992 to September
1998, Mr. Owen served in a variety of roles, including international business
development, director of supply chain integration and general manager of Japan
Home and Small Office Sales at Dell Computer Corporation. From 1987 to 1990,
Mr. Owen was an information technology consultant with KPMG Management
Consultants in London, England. Mr. Owen is also a director of FTD.com, Inc.
Mr. Owen holds a Bachelors Degree in Mathematics and Economics from Nottingham
University in England and a Master of Science in Management from the
Massachusetts Institute of Technology Sloan School of Management.
Linus Upson is one of our co-founders and has served as our president and as
one of our directors since July 1997. Mr. Upson has also served as our chief
technology officer since February 1998. From March 1997 to July 1997, Mr. Upson
was not employed. From May 1996 to March 1997, Mr. Upson was a software
engineer at Netscape Communications. From January 1996 to April 1996, Mr. Upson
was a software engineer at Netcode Corporation. From January 1995 to January
1996, Mr. Upson was a consultant for his own company, Virtual Pages, Inc. From
April 1993 to January 1995, Mr. Upson was a software engineer at NeXT
Computer, Inc.
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<PAGE>
David B. Cooper, Jr. has served as our chief financial officer since August
2000. From August 1998 to May 2000, Mr. Cooper served as vice president and
chief financial officer of Powerbar Inc. From October 1994 to January 1998, Mr.
Cooper served as executive vice president and chief financial officer of Edison
Brothers Stores, Inc., where he also served on the board of directors. From
November 1993 to April 1994, Mr. Cooper served as executive vice president and
chief financial officer of Del Monte Fresh Produce Company. From April 1986 to
October 1993, Mr. Cooper served as the treasurer and as vice president at Dole
Food Company. Mr. Cooper also served as senior vice president of Castle & Cook
Holmes, an affiliate of Dole Food Company from January 1993 to October 1993,
and as director of finance and as treasurer of Flexi-Van, Inc., an affiliate of
Dole Food Company from October 1984 through October 1993. From February 1982 to
September 1984, Mr. Cooper was an assistant manager at Chemical Bank. From 1978
to 1981, Mr. Cooper was a financial analyst at Continental Grain Company, a
diversified agribusiness and commodities firm. Mr. Cooper holds a B.A. degree
in Economics from Yale University and an M.B.A. degree from New York
University.
Thomas F. Hunter served as our chief financial officer from August 1999 to
August 2000 and as our Vice President, Finance, since August 2000. From June
1991 to August 1999, Mr. Hunter operated his own company, Images of Nature
Galleries in Palo Alto, California and Los Gatos, California. From April 1986
to June 1991, Mr. Hunter was self-employed as a management consultant. From
April 1985 until March 1986, Mr. Hunter served as President of American
Supercomputers, Inc. From April 1977 to April 1985, Mr. Hunter was employed by
First Data Resources, most recently as executive vice president and chief
financial officer. From April 1969 through April 1977, Mr. Hunter held various
positions with International Business Machines Corporation, including sales
manager, staff instructor and sales representative. Mr. Hunter holds both a
Bachelor of Science in Commerce and an M.B.A. from Santa Clara University.
Christopher B. Hollenbeck has been one of our directors since May 1998.
Since July 1998, Mr. Hollenbeck has been a principal of Granite Ventures, LLC,
formerly H&Q Venture Associates, LLC, a venture capital firm, and has been one
of two investment managers for Adobe Ventures. From June 1996 to June 1998, Mr.
Hollenbeck served as a vice president in Hambrecht & Quist's Venture Capital
department. Prior to joining Hambrecht & Quist's Venture Capital department,
from 1990 to 1996, Mr. Hollenbeck worked in Hambrecht & Quist's Mergers &
Acquisitions department and Corporate Finance department. Mr. Hollenbeck also
serves as a director of ESPS, Inc. and several private companies. Mr.
Hollenbeck holds a B.A. degree in American Studies from Stanford University.
Dennis Jones has been one of our directors since April 2000. Since January
1998, Mr. Jones has been the executive vice president of information
technology, and chief information officer of FedEx Corporation, a global
transportation company and the corporate parent of the Federal Express
Corporation. From December 1991 to January 1998, Mr. Jones served as the senior
vice president of information and telecommunications and as the chief
information officer for the Federal Express Corporation. Mr. Jones currently
serves as a director of webMethods, Inc. and one private company. Mr. Jones
received a B.B.A. degree and a Master of Science in Accounting and Finance from
the University of Memphis.
Robert J. Lesko has been one of our directors since July 1998. Since January
1999, Mr. Lesko has been the chief executive officer of Lesko Associates, Inc.,
a private investment and consulting firm. From September 1997 to December 1998,
Mr. Lesko was a corporate officer of AT&T and led the global consulting and
integration business within AT&T Solutions, a wholly owned subsidiary of AT&T,
where he also served on the board of directors. From March 1996 to August 1997,
Mr. Lesko led the financial services industry global consulting practice at
AT&T Solutions. From September 1984 to March 1996, Mr. Lesko was a management
consulting partner at Deloitte and Touche, where he led the U.S. Banking
Practice. From 1974 to 1983, Mr. Lesko was the founder and chief executive
officer of Software Architecture & Engineering, Inc. Mr. Lesko received his
B.S. degree in Mechanical Engineering from the University of Notre Dame and an
M.B.A. degree from the Wharton School at the University of Pennsylvania.
Gregory L. Waldorf has been one of our directors since June 1999. Since
March 2000, Mr. Waldorf has been a general partner at Charles River Ventures, a
venture capital firm. From January 1998 to February 2000, Mr. Waldorf was a
research analyst at Pacific Edge Investment Management, Inc. From September
1997 to
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<PAGE>
December 1997, Mr. Waldorf was a consultant for Pacific Edge Investment
Management, Inc. From October 1996 to September 1997, Mr. Waldorf served as
vice president of business development at PowerAgent, Inc. From June 1995 to
September 1996, Mr. Waldorf was a principal of Arctic Orchard, LLC. From 1983
to 1990, Mr. Waldorf co-founded and held various positions, most recently as
president, at 32 Bit Solutions, Inc. and its predecessor entities. Mr. Waldorf
serves as a director of several private companies. Mr. Waldorf holds a B.A.
degree in Political Science from the University of California, Los Angeles and
an M.B.A. degree from Stanford University.
Jeffrey T. Webber has served on our board of directors since October 1999.
Since October 1999, Mr. Webber has served as a managing director of the general
partner of The Entrepreneurs' Growth Fund, L.P. Since September 1999, Mr.
Webber has served as a managing director of the general partner of The
Entrepreneurs' Fund II, L.P. Since February 1997, Mr. Webber has served as a
managing director of The Entrepreneurs' Fund, L.P. The Entrepreneurs' Funds are
early stage venture capital funds. Mr. Webber founded, and since January 1991
has served as president of, R. B. Webber & Company, which provides strategic
planning consulting services to high technology companies. Mr. Webber also
serves on the board of directors of Commerce One, Inc., Persistence Software,
Inc., Sagent Technology, Inc., and several private companies. Mr. Webber holds
a B.A. degree in American Studies from Yale University.
Peter Ziebelman has been one of our directors since October 1997. Mr.
Ziebelman is a co-founder of 21st Century Internet Venture Partners, a venture
capital firm and since November 1996 has been one of its general partners. From
1988 to October 1996, Mr. Ziebelman was a partner of Thompson Clive Venture
Capital, an international venture capital firm. Mr. Ziebelman serves on the
board of directors of Vicinity Corporation and several private companies. Mr.
Ziebelman holds a B.S. in Computer Science and Psychology from Yale University,
and a Master of Science in Management from Stanford Graduate School of
Business.
Board Composition
Our seventh amended and restated certificate of incorporation and our
bylaws, both to be effective upon the closing of this offering, provide that
our board of directors will be divided into three classes of directors, each
with differing terms of office. Following the completion of this offering, our
board of directors will assign each member of our board of directors to one of
the three classes. Class I members' terms will expire at the first annual
meeting of our stockholders held after this initial classification. Class II
members' terms will expire at the next annual meeting of our stockholders
thereafter. Class III members' terms will expire at the next subsequent meeting
of our stockholders thereafter. At each annual meeting of stockholders after
the initial classification, the successors to directors whose term will then
expire will be elected to serve from the time of election and qualification
until the third annual meeting following election. In addition, our bylaws
provide that the authorized number of directors may be changed only by
resolution of the board of directors or by the vote of a majority of the
stockholders at the stockholders' annual meeting. The classification of our
board of directors may have the effect of delaying or preventing changes in our
control or management.
Holders of 100% of our preferred stock and holders of approximately 53.95%
of our common stock have agreed to vote their shares pursuant to the terms of
an amended and restated voting agreement dated as of March 8, 2000. Pursuant to
such agreement, such holders have agreed to vote their shares to maintain the
authorized number of directors at nine and to elect the following designees to
our board of directors:
. two members designated by Messrs. Lin and Upson and Rafael Weinstein
(currently Messrs. Lin and Upson);
. our chief executive officer (currently Mr. Owen);
. one 21st Century Internet Fund, L.P. designee (currently Mr. Ziebelman);
. one Adobe Ventures II, L.P. designee (currently Mr. Hollenbeck);
50
<PAGE>
. one Sleepy Hollow Investment Partnership, L.P. designee (or, if Sleepy
Hollow's ownership falls below 200,000 shares of our stock, a designee of
the holders of a majority of our series C preferred stock then
outstanding) (currently Mr. Waldorf); and
. three independent directors designated by a majority of the directors
(currently Messrs. Jones, Lesko and Webber).
The voting agreement will terminate upon consummation of this offering.
Our executive officers are chosen by, and serve at the discretion of, our
board of directors. There are no family relationships among any of our
directors and executive officers.
Board Committees
Our board of directors has an audit committee and a compensation committee.
Audit Committee. The audit committee members are currently Dennis Jones,
Robert J. Lesko and Gregory L. Waldorf. The audit committee has the authority
and responsibility to:
. recommend which firm to engage as an external auditor and whether to
terminate that relationship;
. review the external auditor's compensation, proposed terms of engagement
and independence;
. review the appointment and replacement of the senior internal auditing
executive, if any;
. serve as a liaison between the external auditor and our board of
directors and between the senior internal auditing executive, if any, and
our board of directors;
. review the results of each external audit, management's responses to the
external auditor's recommendations relating to each audit, the internal
auditing department's reports that are material to us as a whole, and our
management's responses to those reports;
. review our annual financial statements and any significant disputes
between our management and the external auditor arising from the
preparation of such financial statements;
. consider, in consultation with the external auditor and the senior
internal auditing executive, if any, the adequacy of our internal
financial controls;
. consider major changes and important questions regarding which auditing
and accounting principles and practices we should follow when preparing
our financial statements;
. review our procedures for preparing published financial statements and
related management commentaries; and
. meet periodically with our management to review our major financial risk
exposures.
Compensation Committee. The Compensation Committee members are Christopher
B. Hollenbeck and Robert J. Lesko. The Compensation Committee has the authority
and responsibility to:
. review and recommend to our board of directors, or determine, our senior
management's annual salaries, bonuses, stock options and other direct and
indirect benefits;
. review new executive compensation programs;
. periodically review the operation of executive compensation programs to
determine whether they are properly coordinated;
. establish and periodically review policies for the administration of
executive compensation programs;
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. modify any executive compensation programs that yield payments and
benefits that are not reasonably related to executive performance; and
. establish and periodically review policies related to management
perquisites.
Compensation Committee Interlocks and Insider Participation
The current members of the compensation committee of our board of directors
are Christopher B. Hollenbeck and Robert J. Lesko. Mr. Hollenbeck was appointed
to the compensation committee in July 1998. Mr. Lesko was appointed to the
compensation committee in May 2000. From July 1998 to May 2000, Felix Lin and
Peter Ziebelman also served on our compensation committee.
Mr. Lin has been one of our executive officers since July 1997. Mr. Lin has
also been an executive officer of Globalware, one of our subsidiaries, since
May 2000. None of the other individuals that has served on our compensation
committee has at any time been an officer or employee of us or any of our
subsidiaries.
Mr. Hollenbeck is a principal of Granite Ventures, LLC, formerly H&Q Venture
Associates, LLC. We have issued and sold 258,588 shares of our series C
preferred stock and 172,244 shares of our series D preferred stock to Adobe
Ventures II, L.P. Granite Ventures, LLC is the general partner of Adobe
Ventures II, L.P. In addition, we have issued and sold 61,414 shares of our
series C preferred stock and 40,909 shares of our series D preferred stock to
H&Q AvantGo Investors, L.P., of which Granite Ventures, LLC is also the general
partner.
Mr. Ziebelman is a founding partner at 21st Century Internet Fund, L.P. We
have issued and sold 4,105,750 shares of our series A preferred stock, 943,396
shares of our series B preferred stock, 691,994 shares of our series C
preferred stock and 322,966 shares of our series D preferred stock to 21st
Century Internet Fund, L.P.
No other interlocking relationships or inside participation exist between
our board of directors or compensation committee and the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
Director Compensation
We do not currently compensate our directors for their service as members of
our board of directors. However, we reimburse non-employee directors for
certain expenses in connection with attendance at board and committee meetings.
We do not provide additional compensation for committee participation or
special assignments of the board of directors. In the past, we have granted
options to purchase shares of our common stock pursuant to our 1997 stock
option plan to the following non-employee directors: Dennis Jones, Robert
Lesko, Gregory Waldorf and Jeffrey Webber.
In May 2000, our board of directors adopted our stock option grant program
for non-employee directors. The program will be administered under our 2000
stock incentive plan. Under this program, each non-employee director will
receive a nonqualified stock option to purchase 50,000 shares of our common
stock upon initial election or appointment to the board of directors after this
offering. The options will vest and become exercisable in 48 equal monthly
installments beginning one month after the grant date. Thereafter, beginning
with the next annual meeting of our stockholders, each non-employee director
will automatically receive an additional option to purchase 7,500 shares of our
common stock immediately following each year's annual meeting of stockholders.
These latter option grants will be immediately vested and exercisable. The
exercise price for all options granted under the program will be the fair
market value of the common stock on the date of grant. If we sell all or
substantially all of our assets or we merge or consolidate with or into another
corporation, all options granted under this program will automatically
accelerate and become 100% vested and exercisable. Options will have a ten-year
term, except that options will expire three months after a non-
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employee director ceases services as a director, or in the case of such
director's disability, retirement or death, one year after the date of such
director's disability, retirement or death.
Executive Compensation
The following table sets forth the total compensation received for services
rendered to us during the fiscal years ended December 31, 1999, 1998 and 1997
by our chief executive officer and our other executive officers who received
salary and bonus for such fiscal year in excess of $100,000 on an annualized
basis. The executive officers listed in the table below are referred to as the
"Named Executive Officers."
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------------- ---------------------
Name and Principal Securities Underlying All Other
Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
------------------ ---- ---------- --------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
Felix Lin(1)............ 1999 112,500 15,000 -- --
Chairman of the Board
Richard Owen(2)......... 1999 -- -- -- --
Chief Executive Officer
Linus Upson(3).......... 1999 102,750 10,000 -- --
President
David B. Cooper, 1999 -- -- -- --
Jr.(4).................
Chief Financial Officer
Thomas Hunter(5)........ 1999 47,250 -- 293,500 --
Vice President--Finance
</TABLE>
---------------------
(1) Mr. Lin served as our chief executive officer from our inception through
February 2000. Effective as of April 1, 2000, (a) we increased Mr. Lin's
salary to $175,000 on an annualized basis; and (b) Mr. Lin is eligible to
receive an annual bonus of $50,000.
(2) Mr. Owen was appointed as our chief executive officer in February 2000. On
an annualized basis, Mr. Owen's salary is $250,000. Pursuant to an offer
letter signed by us, Mr. Owen is eligible to receive an annual bonus of up
to $100,000. Mr. Owen was also reimbursed for relocation expenses in the
amount of approximately $90,000.
(3) Effective as of April 1, 2000, we increased Mr. Upson's salary to $150,000
on an annualized basis.
(4) Mr. Cooper was appointed as our chief financial officer in August 2000. On
an annualized basis, Mr. Cooper's salary is $200,000. Pursuant to an offer
letter signed by us, Mr. Cooper is eligible to receive an annual bonus of
up to $50,000.
(5) Mr. Hunter was hired as our Chief Financial Officer in August 1999 and
currently serves as our Vice President, Finance. On an annualized basis,
Mr. Hunter's salary for our fiscal year ended December 31, 1999 would have
been $140,000.
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Option Grants in Last Fiscal Year
The following table sets forth certain summary information concerning grants
of stock options to each of the Named Executive Officers for our fiscal year
ended December 31, 1999. We have never granted any stock appreciation rights.
<TABLE>
<CAPTION>
Individual Grant
---------------------------------
Potential
Realizable Value at
Assumed Annual
Number of % of Total Rates of Stock
Securities Options Exercise Price Appreciation
Underlying Granted to or Base for Option Term(2)
Options Employees in Price Expiration -------------------
Name Granted(#) 1999(1) ($/Sh) Date 5%($) 10%($)
---- ---------- ------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Felix Lin............... -- -- -- -- -- --
Richard Owen(3)......... -- -- -- -- -- --
Linus Upson............. -- -- -- -- -- --
David B. Cooper,
Jr.(4)................. -- -- -- -- -- --
Thomas Hunter(5)........ 293,500 7.54% $1.75 9/21/09 2,214,950 5,613,153
</TABLE>
---------------------
(1) Based on an aggregate of 3,891,000 shares underlying options granted by us
during our fiscal year ended December 31, 1999. Of the options granted,
3,556,000 were granted to employees, 80,000 were granted to members of our
board of directors and 255,000 were granted to our consultants.
(2) Potential gains are net of the exercise price, but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of the future
common stock price. The 5% and 10% potential realizable values are based
on the price of our common stock in this offering, or $12.00, minus the
per share exercise price of the options multiplied by the number of shares
issuable upon exercise of the option. Actual gains, if any, on stock
option exercises depend on our future performance, overall market
conditions and the option holder's continued employment through the
vesting period.
(3) On January 25, 2000, we granted Mr. Owen an option to purchase 1,800,000
shares of common stock at an exercise price of $2.25 per share. See "--
Employment Contracts, Termination of Employment and Change-In-Control
Arrangements."
(4) On August 30, 2000, we granted Mr. Cooper an option to purchase 450,000
shares of common stock at an exercise price of $8.90 per share. See "--
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements." See also "Certain Relationships and Related Transactions--
Loans to Executive Officers."
(5) See "--Employment Contracts, Termination of Employment and Change-In
Control Agreements." See also "Certain Relationships and Related
Transactions--Loans to Executive Officers."
Fiscal Year-End Option Values
The following table provides certain summary information concerning stock
options held as of December 31, 1999 by each of the Named Executive Officers.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Securities Underlying in-the-Money
Shares Unexercised Options Options
Acquired on at Fiscal Year-End(#) At Fiscal Year-End ($)(3)
Exercise Value ---------------------------- -------------------------
Name (#) Realized ($)(1) Exercisable(2) Unexercisable Exercisable Unexercisable
---- ----------- --------------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Felix Lin............... -- -- -- -- -- --
Richard Owen (4)........ -- -- -- -- -- --
Linus Upson............. -- -- -- -- -- --
David B. Cooper,
Jr.(5)................. -- -- -- -- -- --
Thomas Hunter........... 57,142 $28,571 236,358 -- $2,422,670 --
</TABLE>
54
<PAGE>
---------------------
(1) Based on $2.25 per share, the fair market value of our common stock as of
the date of exercise as determined by our board of directors, minus $1.75
per share, the per share exercise price of the options multiplied by the
number of shares issuable upon exercise of the option.
(2) The options are immediately exercisable for all of the option shares, but
any unvested shares purchased under those options are subject to repurchase
by us at the original exercise price paid per share if the employee ceases
service with us prior to vesting in the shares.
(3) Based on the price of our common stock applicable in this offering ($12.00)
minus the per share exercise price of the options multiplied by the number
of shares issuable upon exercise of the option.
(4) On January 25, 2000, we granted Mr. Owen an option to purchase 1,800,000
shares of our common stock at an exercise price of $2.25 per share. This
option is exercisable at any time, but vests with respect to 25% of the
shares on the one-year anniversary of the date of grant and 2.0833% of the
shares monthly thereafter. Vesting will accelerate under some circumstances
pursuant to a change of control agreement between Mr. Owen and us. See "--
Employment Contracts, Termination of Employment and Change-In-Control
Arrangements." Mr. Owen exercised 444,444 of his option shares on January
25, 2000.
(5) On August 30, 2000, we granted Mr. Cooper an option to purchase 450,000
shares of common stock at an exercise price of $8.90 per share. This option
is exercisable at any time, but vests with respect to 25% of the shares on
the one-year anniversary of the date of grant and 2.0833% of the shares
monthly thereafter. Vesting will accelerate under some circumstances
pursuant to a change of control agreement between Mr. Cooper and us. See
"--Employment Contracts, Termination of Employment and Change-in-Control
Arrangements." Mr. Cooper exercised 28,000 of his option shares on August
30, 2000.
Stock Plans
1997 Stock Option Plan. Our 1997 stock option plan was adopted by the board
of directors and approved by our stockholders in October 1997. As amended in
July 2000, our 1997 stock option plan authorizes the issuance of up to a total
of 13,213,600 shares of common stock. As of August 31, 2000, options to
purchase 6,146,666 shares of common stock at a weighted average exercise price
of $4.36 per share were outstanding, 4,136,829 shares had been exercised and
were outstanding, 1,998,855 shares remained available for future option grants
and we exercised our repurchase right on 931,250 shares of common stock
purchased pursuant to options issued under our 1997 stock option plan.
Repurchased shares are no longer available for issuance under our 1997 stock
option plan.
The purpose of our 1997 stock option plan is to attract and retain the best
available personnel, to provide additional incentives to our employees and
consultants and to promote the success of our business. Our 1997 stock option
plan allows the plan administrator to grant incentive and non-qualified stock
options. Unless terminated earlier, our 1997 stock option plan will terminate
in October 2007.
Our 1997 stock option plan may be administered by our board of directors or
a committee of our board of directors, and is currently administered by our
board of directors. As the plan administrator, our board of directors has
exclusive authority to determine the terms of the options granted under our
1997 stock option plan, including the number of shares subject to an option, as
well as the exercise price per share, term, exercisability and vesting of the
option.
The exercise price of all incentive stock options granted under our 1997
stock option plan must be at least equal to the fair market value of our common
stock on the date of grant. The exercise price of any incentive stock option
granted to an optionee who owns stock representing more than 10% of the total
combined voting power of all classes of our outstanding capital stock or any of
our parent or subsidiary corporations must equal at least 110% of the fair
market value of the common stock on the date of grant. In addition, non-
statutory stock options granted under our 1997 stock option plan must be
granted with an exercise price equal to at least 85% of the fair market value
of our common stock on the date of grant, unless granted to a 10% stockholder,
in which case the exercise price must be at least 110% of the fair market value
of our common stock on the date
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<PAGE>
of grant. Payment of the option exercise price may be made in cash or such
other consideration as determined by the administrator. Each of the options
granted under our 1997 stock option plan is nontransferable.
Options granted under our 1997 stock option plan generally may be exercised
immediately after the grant date, but we retain a right to repurchase any
shares that remain unvested at the time of the optionee's termination of
employment by paying an amount equal to the exercise price times the number of
unvested shares. Options granted under our 1997 stock option plan generally
vest at the rate of 1/4th of the total number of shares subject to the options
twelve months after the date of grant, and 1/48th of the total number of shares
subject to the options each month thereafter.
If we sell all or substantially all of our assets, or we merge or
consolidate with or into another corporation, all options outstanding under our
1997 stock option plan will be assumed or equivalent options substituted by the
successor corporation, unless the successor corporation does not agree to this
assumption or substitution, in which case the options terminate upon
consummation of the transaction.
Simultaneous with the effectiveness of this offering, our board of directors
will suspend our 1997 stock option plan and will not make further grants under
that plan. After the effectiveness of this offering, any shares reserved but
not granted under our 1997 stock option plan or returned to our 1997 stock
option plan upon termination of options, up to a maximum of 1,500,000 shares,
will become available for future grant under our 2000 stock incentive plan.
Globalware Computing, Inc. Stock Option Plan. On May 26, 2000, we acquired
Globalware by merger and assumed all stock options outstanding under
Globalware's stock option plan. The assumed options are now exercisable for
shares of our common stock. The per share exercise price and the number of
shares subject to each assumed option were adjusted to reflect the terms of the
merger. The other terms and conditions of the assumed options remain unchanged
by the merger. As of August 31, 2000, options to purchase 180,438 shares of our
common stock were outstanding under the Globalware stock option plan with a
weighted average exercise price of $0.638 per share and no shares had been
exercised. No additional options will be issued under the Globalware stock
option plan.
The purpose of the Globalware stock option plan was to attract, retain and
reward selected individuals by offering them an ownership interest in
Globalware. The board of directors of Globalware selected the option recipients
and determined the terms and conditions of option grants, including the number
of shares subject to an option, vesting schedule and exercise price per share.
Both incentive stock options and nonqualified stock options were issued under
the Globalware stock option plan. Appropriate adjustments will be made in the
number of shares subject to outstanding options and the per share option price
in the event of certain reorganizations, stock splits or similar capital
adjustments. Our board of directors is now the plan administrator of the
Globalware plan for purposes of the outstanding stock options.
2000 Stock Incentive Plan. Our 2000 stock incentive plan was adopted by our
board of directors on May 19, 2000 and was approved by our stockholders in July
2000, to be effective upon completion of this offering. The purpose of our 2000
stock incentive plan is to enhance long-term stockholder value by offering
opportunities to our officers, directors, employees, consultants, agents and
independent contractors to participate in our growth and success, and to
encourage them to remain in our service and to own our stock. Our 2000 stock
incentive plan provides for awards of stock options and stock. Our board of
directors has reserved a total of 1,500,000 shares of common stock, plus:
. any shares reserved but not granted under our 1997 stock option plan or
returned to our 1997 stock option plan upon termination of options, up to
a maximum of 1,500,000 shares; and
. an automatic annual increase (to be added on the first day of our fiscal
year beginning in 2001), equal to the lesser of (1) 5% of the common
shares outstanding as of the end of the preceding fiscal year on a fully
diluted basis; (2) 2,500,000; and (3) a lesser amount determined by the
board of directors. Any shares from increases in previous years that are
not actually issued shall be added to the aggregate number of shares
available for issuance under the 2000 stock incentive plan.
As of August 31, 2000, no options or restricted stock were outstanding under
our 2000 stock incentive plan.
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<PAGE>
Stock Options. Our 2000 stock incentive plan provides for the granting to
employees, including officers and directors, of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code and for the granting to
our employees and consultants, agents and independent contractors, including
non-employee directors, of nonqualified stock options. To the extent an
optionee would have the right in any calendar year to exercise for the first
time one or more incentive stock options for shares having an aggregate fair
market value (determined for each share as of the date the option to purchase
the shares was granted) in excess of $100,000, any such excess options shall be
treated as nonqualified stock options. Unless terminated earlier, our 2000
stock incentive plan will terminate in May 2010.
Our 2000 stock incentive plan will be administered by our board of directors
or a committee or committees of the board of directors. The compensation
committee of our board of directors will administer our 2000 stock incentive
plan. The plan administrator has exclusive authority to determine the terms of
the options granted under our 2000 stock incentive plan, including the number
of shares subject to an option, as well as the exercise price per share, term,
exercisability and vesting of the option. For incentive stock options, the
exercise price must equal or exceed the fair market value of the common stock
on the date of grant and the exercise price must be 110% of fair market value
for an individual owning more than 10% of the total voting power of all classes
of our stock.
The term of options granted under our 2000 stock incentive plan cannot
exceed ten years, or five years in the case of an incentive stock option
granted to a 10% stockholder. Optionees may not transfer options other than by
will or the laws of descent or distribution, with the provision that the plan
administrator may grant limited transferability rights in certain circumstances
to the extent permitted by Section 422 of the Internal Revenue Code. We expect
that options granted under our 2000 stock incentive plan generally will vest at
the rate of 1/4th of the total number of shares subject to the options twelve
months after the date of grant, and 1/48th of the total number of shares
subject to the options each month thereafter.
Stock Awards. The plan administrator is authorized under our 2000 stock
incentive plan to issue shares of our common stock to eligible participants
with terms, conditions and restrictions established by the plan administrator
in its sole discretion. Restrictions may be based on continuous service with us
or the achievement of performance goals. Holders of restricted stock are our
stockholders and have, subject to certain restrictions, all the rights of
stockholders with respect to such shares.
Adjustments. The plan administrator will make proportional adjustments to
the aggregate number of shares subject to and issuable under our 2000 stock
incentive plan, the exercise prices thereof, and to outstanding awards in the
event of stock splits or other capital adjustments.
Corporate Transactions. If we sell all or substantially all of our
outstanding securities or assets, or we merge or consolidate with or into
another corporation, all options outstanding under our 2000 stock incentive
plan will be assumed, continued or equivalent options substituted by the
successor corporation, unless the successor corporation does not agree to the
assumption or substitution, in which case each outstanding option and
restricted stock award will terminate. In the event of a proposed dissolution
or liquidation, the plan administrator will notify each participant as soon as
practicable before such transaction. The plan administrator in its discretion
may allow a participant to exercise an option until ten days prior to the
proposed dissolution or liquidation with respect to any unvested shares as the
plan administrator shall determine. Unexercised options will terminate
immediately prior to the dissolution or liquidation. The plan administrator may
also provide that any forfeiture provisions applicable to stock awards may
lapse contingent on the occurrence of the proposed transaction at the time and
in the manner contemplated.
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<PAGE>
2000 Employee Stock Purchase Plan. Our 2000 employee stock purchase plan was
adopted by the board of directors on May 19, 2000 and was approved by our
stockholders in July 2000, to be effective upon the completion of this
offering. A total of 350,000 shares of common stock have been reserved for
issuance under our 2000 employee stock purchase plan, plus an automatic annual
increase to be added as of the first day of our fiscal year beginning in 2001
equal to the lesser of:
. 700,000 shares;
. 1% of the outstanding common shares at the end of the immediately
preceding fiscal year on a fully diluted basis; and
. A lesser amount determined by the board of directors.
The 2000 employee stock purchase plan, which is intended to qualify under
Section 423 of the Code, will be implemented by an offering period commencing
on the date of the closing of this offering and ending on January 31, 2002.
Each subsequent offering period will have a duration of twenty-four months.
Each offering period after the first offering period will commence on February
1 and August 1 of each year. Each offering period will consist of four
consecutive purchase periods of six months duration, with the last day of each
period being designated a purchase date. The plan administrator may establish
different terms for different offerings, and different commencement and ending
dates for future offerings, subject to certain limitations. The first purchase
period within the first offering period will start on the date this offering
closes, and will end on July 31, 2001, with subsequent purchase periods ending
on the date every six months thereafter. The compensation committee of our
board of directors will administer the 2000 employee stock purchase plan. Our
employees (including officers and employee directors), or employees of any
United States subsidiary or any subsidiary designated by our board of directors
or its compensation committee, are eligible to participate in the 2000 employee
stock purchase plan if they are employed by us or any such subsidiary for at
least 20 hours per week and more than five months per year and do not own stock
possessing 5% or more of the voting power of our voting stock. The 2000
employee stock purchase plan permits eligible employees to purchase common
stock through payroll deductions, which may not exceed 15% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
our common stock at the beginning of the offering period or the purchase date.
If the fair market value of the common stock on a purchase date is less than
the fair market value at the beginning of the offering period, a new twenty-
four month offering period will automatically begin on the first business day
following the purchase date with a new fair market value. Employees may end
their participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with us. If not
terminated earlier, the 2000 employee stock purchase plan will have a term of
10 years.
The 2000 employee stock purchase plan provides that if we merge with or into
another corporation or we sell all or substantially all of our assets, each
right to purchase stock under the 2000 employee stock purchase plan will be
assumed or an equivalent right substituted by the successor corporation, unless
the successor corporation refuses to assume or substitute in which event the
offering period then in progress will be shortened. The board of directors has
the power to amend or terminate the 2000 employee stock purchase plan as long
as this does not adversely affect any outstanding rights to purchase stock
under the plan.
Employee Benefit Plans
401(k) Plan. We maintain our 401(k) Plan, a defined contribution 401(k)
salary reduction plan intended to qualify under Section 401 of the Internal
Revenue Code. Our employees are eligible to participate in the 401(k) Plan on
the first day of each month coinciding with or immediately following the date
of their employment. A participating employee, by electing to defer a portion
of his or her compensation, may make pre-tax contributions to the 401(k) Plan,
subject to limitations under the Internal Revenue Code, of a percentage (not to
exceed 15%) of his or her total compensation. Employee contributions and the
investment earnings thereon will be fully vested at all times. We are not
required to contribute to the 401(k) Plan and have made no contributions since
the inception of the 401(k) Plan other than employees' salary deferrals.
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Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
On August 11, 1997, we entered into a common stock purchase agreement with
Mr. Lin, pursuant to which Mr. Lin purchased 1,920,000 shares of our common
stock. Originally, 75% of the purchased stock was restricted stock, subject to
our right of repurchase at the original purchase price upon the termination of
Mr. Lin's employment. Our right of repurchase lapses as to 1/48th of the
restricted stock monthly after June 17, 1997, so that our right of repurchase
completely expires on June 17, 2001, provided that Mr. Lin continues to be
employed by us. As of August 31, 2000, 320,000 shares originally issued to Mr.
Lin remain subject to this right of repurchase.
On August 11, 1997, we entered into a common stock purchase agreement with
Mr. Upson, pursuant to which Mr. Upson purchased 1,920,000 shares of our common
stock. Originally, 75% of the purchased stock was restricted stock, subject to
our right of repurchase at the original purchase price upon the termination of
Mr. Upson's employment. Our right of repurchase lapses as to 1/48th of the
restricted stock monthly after May 10, 1997, so that our right of repurchase
completely expires on May 10, 2001, provided that we continue to employ Mr.
Upson. As of August 31, 2000, 280,000 shares originally issued to Mr. Upson
remain subject to this right of repurchase.
On October 13, 1997, we entered into an amended and restated change of
control agreement with each of Messrs. Lin and Upson. Under the terms of these
agreements, our right of repurchase with respect to Mr. Lin's and Mr. Upson's
respective shares of common stock will completely expire if, within one year
after a change of control (as defined in such agreements), Mr. Lin or Mr.
Upson, as the case may be, experience an involuntary termination (as defined in
such agreements).
In September 1999, we issued Mr. Hunter an option to purchase 293,500 shares
of our common stock under our 1997 stock option plan, at an exercise price of
$1.75 per share. The shares under the option are immediately exercisable.
However, the shares that Mr. Hunter purchases before vesting are subject to our
right of repurchase at the exercise price. 1/4th of the shares under Mr.
Hunter's option vest and cease to be subject to our right of repurchase on
August 16, 2000 and 1/48th of the shares vest and cease to be subject to our
right of repurchase on the 16th of each month thereafter, provided that we
continue to employ Mr. Hunter.
In December 1999, we entered into an employment offer letter with Mr. Owen
whereby Mr. Owen will serve as our chief executive officer. Mr. Owen's
employment is "at-will" and may be terminated by him or us at any time with or
without cause. Pursuant to the agreement, Mr. Owen is paid an annual base
salary of $250,000 and was reimbursed for relocation expenses. Mr. Owen is also
eligible for an annual bonus of up to $100,000.
Pursuant to Mr. Owen's offer letter, in January 2000 we granted Mr. Owen an
option to purchase 1,800,000 shares of our common stock under our 1997 stock
option plan, at an exercise price of $2.25 per share. The shares under the
option are immediately exercisable. However, the shares that Mr. Owen purchases
before vesting are subject to our right of repurchase at the exercise price.
1/4th of the shares subject to the option vest and cease to be subject to our
right of repurchase on April 24, 2001 and 1/48th of the shares vest and cease
to be subject to our right of repurchase monthly thereafter, provided that we
continue to employ Mr. Owen.
In January 2000, we entered into a change of control agreement with Mr.
Owen. Under the terms of this agreement, if Mr. Owen experiences an involuntary
termination (as defined in his agreement) within one year after a change of
control (as defined in his agreement), our repurchase rights with respect to
Mr. Owen's restricted stock will lapse completely. If Mr. Owen is terminated
without cause at any time prior to a change of control or after the one year
period immediately following a change of control, our repurchase rights with
respect to 25% of the restricted stock originally sold to Mr. Owen will lapse.
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In August 2000, we issued Mr. Cooper an option to purchase 450,000 shares of
our common stock under our 1997 stock option plan, at an exercise price of
$8.90 per share. The shares under the option are immediately exercisable.
However, the shares that Mr. Cooper purchases before vesting are subject to our
right of repurchase at the exercise price. 1/4th of the shares under Mr.
Cooper's option vest and cease to be subject to our right of repurchase on
August 29, 2001 and 1/48th of the shares vest and cease to be subject to our
right of repurchase on the 29th of each month thereafter, provided that we
continue to employ Mr. Cooper.
In August 2000, we entered into a change of control agreement with Mr.
Cooper. Under the terms of this agreement, if Mr. Cooper experiences an
involuntary termination (as defined in the agreement) within one year after a
change of control (as defined in the agreement), our repurchase rights with
respect to Mr. Cooper's restricted stock will lapse with respect to 50% of the
restricted stock originally sold to Mr. Cooper. If Mr. Cooper is terminated
without cause at any time prior to a change of control or after the one year
period immediately following a change of control, our repurchase rights with
respect to 25% of the restricted stock originally sold to Mr. Cooper will
lapse.
Limitation of Liability and Indemnification Matters
Our seventh amended and restated certificate of incorporation limits the
liability of our directors to the maximum extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors
except liability for breach of their duty of loyalty to the corporation or its
stockholders, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, unlawful payments of dividends or
unlawful stock repurchases or redemptions, or any transaction from which the
director derived an improper personal benefit. Such limitation of liability
does not apply to liabilities arising under the federal or state securities
laws and does not affect the availability of equitable remedies such as
injunctive relief or rescission.
Our amended and restated bylaws provide that we will indemnify our
directors, officers, employees and other agents to the fullest extent permitted
by law. We believe that indemnification under our amended and restated bylaws
covers at least negligence and gross negligence on the part of indemnified
parties. Our amended and restated bylaws also permit us to secure insurance on
behalf of any officer, director, employee or other agent for any liability
arising out of his or her actions in such capacity, regardless of whether the
amended and restated bylaws permit such indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our certificate of
incorporation and amended and restated bylaws. These agreements, among other
things, indemnify our directors and executive officers for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred
by any such person in any action or proceeding arising out of an individual's
status or service as a director, officer, employee, agent or fiduciary of us,
any of our subsidiaries or any other company or enterprise to which the person
provides services at our request. In addition, we plan to obtain and maintain
director and officer insurance in amounts deemed appropriate by our board of
directors. We believe that these provisions of our certificate of
incorporation, bylaws, indemnification agreements and director and officer
insurance policies are necessary to attract and retain qualified persons as
directors and executive officers.
At present, there is no pending litigation or proceeding involving any of
our directors or officers in which indemnification is required or permitted,
and we are not aware of any threatened litigation or proceeding that may result
in a claim for such indemnification.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the beginning of our last fiscal year, there has not been, nor is
there currently proposed, any transaction or series of similar transactions to
which we were or are to be a party in which the amount involved exceeds $60,000
and in which any director, executive officer or holder of more than 5% of any
class of our voting securities or members of such person's immediate family had
or will have a direct or indirect material interest other than (i) compensation
agreements and other arrangements, which are described in "Management," and
(ii) the transactions described below.
Series C Preferred Stock
In June 1999, we issued and sold 3,736,040 shares of our series C preferred
stock, in the aggregate, in a private placement at a per share purchase price
of $3.94, including sales to the following entities:
. We issued and sold 258,588 shares of our series C preferred stock to
Adobe Ventures II, L.P. We also issued and sold 61,414 shares of our
series C preferred stock to H&Q AvantGo Investors, L.P. Christopher
Hollenbeck, one of our directors, is a principal of Granite Ventures,
LLC, formerly H&Q Venture Associates, LLC, the general partner of both
Adobe Ventures II, L.P. and H&Q AvantGo Investors, L.P.
. We issued and sold 691,994 shares of our series C preferred stock to 21st
Century Internet Fund, L.P., one of our 5% stockholders. Peter Ziebelman,
one of our directors, is one of 21st Century Internet Fund, L.P.'s
founding partners.
. We issued and sold 507,614 shares of our series C preferred stock to
Sleepy Hollow Investment Partnership, L.P. Gregory Waldorf, one of our
directors, is a limited partner of Fayez Sarofim Investment Partnership
#5, L.P., Sleepy Hollow Investment Partnership, L.P.'s general partner.
. We issued and sold 101,524 and 25,380 shares of our series C preferred
stock, to The Entrepreneurs' Fund, L.P. and RBW Investments, LLC. Jeffrey
Webber, one of our directors, is a managing director of the general
partner of The Entrepreneurs' Fund, L.P., and is the managing director of
RBW Investments, LLC.
All of the shares of series C preferred stock will automatically convert
into an aggregate of 3,736,040 shares of our common stock upon the completion
of this offering. The holders of our series C preferred stock are entitled to
registration rights regarding the shares of common stock issued or issuable
upon conversion.
Series D Preferred Stock
In March and April 2000, we issued and sold 3,726,094 shares of our series D
preferred stock, in the aggregate, in a private placement at a per share
purchase price of $8.36, including sales to the following entities and
individual:
. We issued and sold 172,244 shares of our series D preferred stock to
Adobe Ventures II, L.P. We also issued and sold 40,909 shares of our
series D preferred stock to H&Q AvantGo Investors, L.P. Christopher
Hollenbeck, one of our directors, is a principal of Granite Ventures,
LLC, formerly H&Q Venture Associates, LLC, the general partner of both
Adobe Ventures II, L.P. and H&Q AvantGo Investors, L.P.
. We issued and sold 322,966 shares of our series D preferred stock to 21st
Century Internet Fund, L.P., one of our 5% stockholders. Peter Ziebelman,
one of our directors, is one of 21st Century Internet Fund, L.P.'s
founding partners.
. We issued and sold 215,311 shares of our series D preferred stock to
Sleepy Hollow Investment Partnership, L.P. Gregory Waldorf, one of our
directors, is a limited partner of Fayez Sarofim Investment Partnership
#5, L.P., Sleepy Hollow Investment Partnership, L.P.'s general partner.
. We issued and sold 8,927 shares of our series D preferred stock to
Jeffrey Webber, one of our directors. We also issued and sold 215,311,
41,865, 41,865 and 9,046 shares of our series D preferred stock
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to The Entrepreneurs' Growth Fund, L.P., The Entrepreneurs' Fund, L.P.,
The Entrepreneurs' Fund II, L.P., and RBW Investments, LLC. Mr. Webber is
a managing director of the general partner of each of The Entrepreneurs'
Growth Fund, L.P., The Entrepreneurs' Fund, L.P. and The Entrepreneurs'
Fund II, L.P., and is a managing director of RBW Investments, LLC.
All of the shares of series D preferred stock will automatically convert
into an aggregate of 3,726,094 shares of our common stock upon the completion
of this offering. The holders of our series D preferred stock are entitled to
registration rights regarding the shares of common stock issued or issuable
upon conversion.
Loans to Executive Officers
In December 1999 and in March 2000, we loaned $99,998 and $103,311 to Thomas
Hunter, our Vice President, Finance, in conjunction with the exercise of
options. Each of the notes evidencing this indebtedness is a full recourse
promissory note and is secured by a pledge agreement. Each of the notes accrues
interest at the rate of 6% per year. The principal balance and accrued interest
on each of the notes is due on December 7, 2004 and March 26, 2005, subject to
limited exceptions.
In August 2000, we loaned $249,200 to David B. Cooper, Jr., our chief
financial officer, in conjunction with the exercise of options. The note
evidencing this indebtedness is a full recourse promissory note and is secured
by a pledge agreement. The note accrues interest at the rate of 6% per year.
The principal balance and accrued interest on the note is due on August 28,
2005 subject to limited exceptions.
Options to Purchase Common Stock
Stock option grants to our directors and executive officers that have an
aggregate exercise price of $60,000 or more that were made subsequent to the
beginning of our last fiscal year are as follows:
. In April 1999, we granted Jeffrey Webber, one of our directors, an option
to purchase 24,000 shares of our common stock under our 1997 stock option
plan, at an exercise price of $0.125 per share. In October 1999, we
granted Mr. Webber an additional option to purchase 40,000 shares of our
common stock at an exercise price of $2.25 per share. In April and June
2000, Mr. Webber exercised his options by purchasing an aggregate of
64,000 shares of our common stock. 45,000 of Mr. Webber's purchased
shares have not yet vested and remain subject to our right or repurchase
upon the termination of Mr. Webber's services to us.
. In September 1999, we granted Thomas Hunter, our Vice President, Finance,
an option to purchase 293,500 shares of our common stock under our 1997
stock option plan, at an exercise price of $1.75 per share. In December
1999 and in March 2000, Mr. Hunter exercised portions of his option by
purchasing 57,142 shares and 59,035 shares of our common stock. Mr.
Hunter paid for his shares with promissory notes. See "--Loans to
Executive Officers." Mr. Hunter's purchased shares have not yet vested
and remain subject to our right of repurchase upon the termination of Mr.
Hunter's services to us. See "Management--Executive Compensation."
. In January 2000, we granted Richard Owen, our chief executive officer and
a director, an option to purchase 1,800,000 shares of our common stock
under our 1997 stock option plan, at an exercise price of $2.25. Also in
January 2000, Mr. Owen exercised part of his option by purchasing 444,444
shares of our common stock. Mr. Owen's purchased shares of our common
stock have not yet vested and remain subject to our right of repurchase
upon the termination of Mr. Owen's services to us. See "Management--
Executive Compensation."
. In April 2000, we granted Dennis Jones, one of our directors, an option
to purchase 50,000 shares of our common stock under our 1997 stock option
plan, at an exercise price of $2.90 per share.
. In August 2000, we granted David B. Cooper, Jr., our chief financial
officer, an option to purchase 450,000 shares of common stock under our
1997 stock option plan, at an exercise price of $8.90 per share. Also in
August 2000, Mr. Cooper exercised a part of his option by purchasing
28,000 shares of our common stock. Mr. Cooper paid for his shares with a
promissory note. See "--Loans to Executive
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Officers." Mr. Cooper's purchased shares of our common stock have not yet
vested and remain subject to our right of repurchase upon the termination
of Mr. Cooper's services to us. See "Management-- Executive Compensation."
All of these option grants were issued at the fair market value of a share
of our common stock as of the date of grant as determined by our board of
directors.
Other Transactions
Effective September 19, 2000, Felix Lin transferred 115,000 shares of
common stock to each of The Felix Lin 2000 Annuity Trust and Betty Mae Lin,
Mr. Lin's wife. Ms. Lin subsequently transferred 115,000 shares to the Betty
Mae Lin 2000 Annuity Trust.
Effective June 30, 2000, 21st Century Internet Fund, L.P. transferred
322,966 shares of series D preferred stock to 21VC Fund II, L.P.
Effective June 29, 2000, Jeffrey Webber transferred an aggregate of 12,666
shares of common stock and 8,927 shares of series D preferred stock to the
Jeffrey T. Webber 1999 Alaska Trust for the benefit of Mr. Webber's immediate
family and certain of his nieces & nephews.
Effective June 15, 2000, Adobe Ventures II, L.P. transferred an aggregate
of 1,886,792 shares of its series B preferred stock of which 1,603,774 shares
are now held by Adobe Incentive Partners, L.P., and the remaining 283,018 are
held by H&Q Adobe Ventures Management II, L.L.C.
Effective June 15, 2000, Adobe Ventures II, L.P. transferred an aggregate
of 258,588 shares of its series C preferred stock, of which 219,800 shares are
now held by Adobe Incentive Partners, L.P., and 38,788 shares are held by H&Q
Adobe Ventures Management II, L.L.C.
Effective June 15, 2000, Adobe Ventures II, L.P. transferred an aggregate
of 172,244 shares of its series D preferred stock of which 146,407 shares are
now held by Adobe Systems, Inc., 1,479 shares are held by HQVA Adobe Ventures
Management III, L.L.C. and 24,358 shares are held by Adobe Ventures III, L.P.
We have entered into two consulting agreements with R. B. Webber & Company,
Inc., pursuant to which R. B. Webber & Company, Inc. has provided consulting
services to us with respect to the development of our business plan and the
performance of a market study. We paid R. B. Webber & Company, Inc. $127,542
in 1999 for such services. Through April 2000, we paid R. B. Webber & Company,
Inc. an additional $102,883 for such services. Jeffrey Webber, one of our
directors, is the President of R. B. Webber & Company, Inc.
In May 1999, we entered into a Content Agreement with Federal Express
Corporation whereby Federal Express Corporation agreed to pay us $95,000 for
the performance of our obligations under this agreement. Dennis Jones, one of
our directors, is the executive vice president of information technology and
chief information officer of FedEx Corporation, the corporate parent of the
Federal Express Corporation. This agreement expired in May 2000.
We have entered into indemnification agreements with our officers and
directors containing provisions that require us, among other things, to
indemnify our officers and directors against certain liabilities that may
arise from their status or service as officers or directors, other than
liabilities arising from willful misconduct of a culpable nature, and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified.
We believe that the terms of the transactions described above were no less
favorable to us than we would have obtained from an unaffiliated third party.
Any future transactions between us and any of our officers, directors or
principal stockholders will be on terms no less favorable to us than could be
obtained from unaffiliated third parties and will be approved by a majority of
the independent and disinterested members of the board of directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of August 31, 2000 (i) by each person or
entity known by us to own beneficially more than 5% of our common stock; (ii)
by each of our directors; (iii) by each of our Named Executive Officers; and
(iv) by all of our executive officers and directors as a group.
<TABLE>
<CAPTION>
Percentage of Shares
Outstanding(1)(2)
Shares Beneficially ------------------------
Name and Address of Beneficial Owned Prior to Before After
Owners The Offering Offering Offering
------------------------------ ------------------- ---------- ----------
<S> <C> <C> <C>
21st Century Internet Fund, 6,064,106 21.78% 18.18%
L.P.(3).......................
2 South Park, 2nd Floor
San Francisco, CA 94107
Entities affiliated with 2,891,645 10.38% 8.67%
Granite Ventures, LLC(4)(5)...
c/o Granite Ventures, LLC
One Bush Street, 18th Floor
San Francisco, CA 94104
Christopher B. Hollenbeck(5)... 2,891,645 10.38% 8.67%
c/o Granite Ventures, LLC
One Bush Street, 18th Fl.
San Francisco, CA 94104
David B. Cooper, Jr.(6)........ 450,000 1.59% 1.33%
Thomas Hunter(7)............... 293,500 1.05% *
Dennis Jones(8)................ 50,000 * *
c/o Federal Express
Corporation
942 S. Shady Grove Rd.
Memphis, TN 38120
Robert Lesko(9)................ 40,000 * *
Felix Lin(10).................. 1,993,522 7.16% 5.98%
Richard Owen(11)............... 1,800,000 6.16% 5.19%
Linus Upson(12)................ 1,998,522 7.18% 6.00%
Gregory Waldorf(13)............ 759,925 2.73% 2.28%
1000 Winter St., Suite 3300
Waltham, MA 02451
Jeff Webber(14)................ 486,325 1.75% 1.46%
c/o RBW Investments, LLC
1717 Embacadero Rd., Suite
2000
Palo Alto, CA 94303
Rafael Weinstein(15)........... 1,724,000 6.19% 5.17%
Peter Ziebelman(3)............. 6,064,106 21.78% 18.18%
c/o 21st Century Internet
Fund, LP
2 South Park, 2nd Floor
San Francisco, CA 94107
All directors and executive 16,827,545 56.37% 47.60%
officers as a group (11
persons)......................
</TABLE>
---------------------
* Less than 1% of the outstanding shares of common stock.
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(1) Based on 27,847,590 shares of our common stock outstanding on August 31,
2000 prior to the offering, and based on 33,347,590 shares of our common
stock outstanding after this offering. Shares of common stock subject to
options that are exercisable within 60 days of August 31, 2000 are deemed
beneficially owned by the person holding such options for the purpose of
computing the percentage of ownership of such person but are not treated
as outstanding for the purpose of computing the percentage for any other
person. Except pursuant to applicable community property laws or as
indicated in the footnotes to this table, each stockholder identified in
the table possesses sole voting and investment power with respect to all
shares of common stock as shown as beneficially owned by such stockholder.
Unless otherwise indicated, the address of each of the individuals listed
in the table is c/o AvantGo, Inc., 1700 South Amphlett Boulevard,
Suite 300, San Mateo, California 94402.
(2) Assumes the Underwriters' over-allotment option is not exercised.
(3) Includes 5,741,140 shares held by 21st Century Internet Fund, L.P. and
322,966, shares held by 21VC Fund II, L.P. Peter Ziebelman, one of our
directors, is a general partner of 21st Century Internet Fund, L.P. and
21VC Fund II, L.P. Mr. Ziebelman disclaims beneficial ownership of the
shares held by 21st Century Internet Fund, L.P. and 21VC Fund II, L.P.
except to the extent of his pecuniary interest therein.
(4) Includes 1,823,574 shares held by Adobe Incentive Partners, L.P., 321,806
shares held by H&Q Adobe Ventures Management II, L.L.C., 24,358 shares
held by Adobe Ventures III, L.P., 146,407 shares held by Adobe Systems,
Inc., 1,479 shares held by HQVA Adobe Ventures Management III, L.L.C., and
574,021 shares held by H&Q AvantGo Investors, L.P.
(5) Chris Hollenbeck, one of our directors, is a principal of Granite
Ventures, LLC, formerly H&Q Venture Associates, LLC. Mr. Hollenbeck
disclaims beneficial ownership of the shares held by affiliates of Granite
Ventures, LLC, formerly H&Q Venture Associates, LLC, except to the extent
of his pecuniary interest therein.
(6) Includes 422,000 shares of common stock issuable upon exercise of
immediately exercisable options. All 450,000 shares are subject to our
right of repurchase.
(7) Includes 177,323 shares of common stock issuable upon exercise of
immediately exercisable options. All 293,500 shares are subject to our
right of repurchase.
(8) Represents 50,000 shares of common stock issuable upon exercise of
immediately exercisable options, all of which have not yet vested.
(9) Includes 18,334 shares of common stock that are subject to our right of
repurchase.
(10) Includes 320,000 shares of common stock that are subject to our right of
repurchase and 3,000 shares of common stock which Mr. Lin holds as
custodian for his minor son. Also includes 115,000 shares held by each of
The Felix Lin 2000 Annuity Trust and The Betty Mae Lin 2000 Annuity Trust.
(11) Includes 1,355,556 shares of common stock issuable upon exercise of
immediately exercisable options. All 1,800,000 shares are subject to our
right of repurchase.
(12) Includes 280,000 shares of common stock that are subject to our right of
repurchase.
(13) Includes 722,925 shares held by Sleepy Hollow Investment Partnership, L.P.
Mr. Waldorf is one of our directors and is also a limited partner of Fayez
Sarofim Investment Partnership #5, L.P., Sleepy Hollow Investment
Partnership, L.P.'s general partner. Mr. Waldorf disclaims beneficial
ownership of the shares held by Sleepy Hollow Investment Partnership,
L.P., except to the extent of his pecuniary interest therein. Also
includes 26,668 shares of common stock that are subject to our right of
the purchase.
(14) Includes 434,991 shares held by The Entrepreneurs' Fund, L.P., The
Entrepreneurs' Fund II, L.P., The Entrepreneurs' Growth Fund, L.P. and RBW
Investments LLC. Mr. Webber, one of our directors, is a managing director
of the general partners of the Enterpreneurs' Funds and is the managing
director of RBW Investments LLC, and disclaims beneficial ownership of the
shares held by such funds, except to the extent of his pecuniary interest
therein. Mr. Webber owns 51,334 shares of common stock of which 45,000 are
subject to our right of repurchase.
(15) Includes 366,666 shares of common stock that are subject to our right of
repurchase.
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DESCRIPTION OF CAPITAL STOCK
General
Upon the consummation of this offering and giving effect to the filing of
our seventh amended and restated certificate of incorporation, our authorized
capital stock will consist of 150,000,000 shares of common stock, $0.0001 par
value per share, and 10,000,000 shares of undesignated preferred stock, $0.0001
par value per share. The rights and preferences of our preferred stock may be
established from time to time by our board of directors. The following is a
summary description of our capital stock. Our amended and restated bylaws and
our seventh amended and restated certificate of incorporation provide further
information about our capital stock.
Common Stock
As of August 31, 2000, there were 27,847,590 shares of common and preferred
stock outstanding, after giving effect to the conversion of all outstanding
shares of our preferred stock into shares of common stock upon the closing of
this offering. There will be 33,347,590 shares of common stock outstanding
after giving effect to this offering, assuming no exercise of the underwriters'
over-allotment option and no exercise or conversion of outstanding convertible
securities other than our preferred stock after August 31, 2000.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The common stock does not have
cumulative voting rights. Subject to preferences of the holders of preferred
stock issued after the sale of the common stock offered hereby, the holders of
common stock are entitled to receive ratably dividends, if any, as may be
declared from time to time by our board of directors out of legally available
funds. In the event of our liquidation, dissolution or winding up, the holders
of our common stock would be entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior distribution rights of preferred
stock, if any, then outstanding. The common stock has no preemptive or
conversion rights or other subscription rights. No redemption or sinking fund
provisions apply to our common stock.
Preferred Stock
Our board of directors has the authority to issue our preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof, 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 such series,
without further vote or action by our stockholders. The issuance of preferred
stock may have the effect of delaying, deferring or preventing a change in
control without further action by the stockholders and may harm the voting
power and other rights of our common stockholders. We do not have current plans
to issue any of our preferred stock.
Registration Rights
Pursuant to the terms of an investors' rights agreement among us and the
holders of registrable securities, after the closing of this offering, the
holders of 19,666,928 shares of the outstanding common stock or their permitted
transferees, including shares issuable upon the exercise of certain warrants,
are entitled to certain rights with respect to the registration of such shares
under the Securities Act of 1933, as amended. These registration rights include
the following:
. The holders of a majority of the registrable securities may require us,
subject to certain limitations, to file up to 2 registration statements
covering at least 33% of the outstanding registrable securities.
. The holders of registrable securities are entitled to piggyback
registration rights. This means that if we propose to register any of our
securities under the Securities Act, either for our own account or for
the account of other security holders exercising registration rights, the
holders of piggyback registration
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rights will be entitled to receive notice of a registration and will be
entitled to include their shares in the registration. These rights are
subject to certain limitations, including the right of the underwriters to
exclude registrable securities from this offering.
. At any time after we become eligible to file a registration statement on
Form S-3, the holders of at least 30% of our registrable securities may
require us to file up to two registration statements on Form S-3 under
the Securities Act in any 12 month period for a public offering of the
registrable securities where the reasonably anticipated aggregate
offering price would exceed $250,000, net of any underwriter's discounts
or commissions.
Each of the foregoing registration rights is subject to certain conditions
and limitations, including the right of the underwriters in any underwritten
offering to limit the number of shares to be included in the registration. All
registration rights terminate five years from the effective date of this
offering or when the shares held by such holder may be sold under Rule 144
during any three-month period. We are generally required to bear all of the
expenses of all such registrations, except underwriting discounts and
commissions. Registration of any of the shares entitled to registration rights
would result in such shares becoming freely tradable without restriction under
the Securities Act immediately upon effectiveness of the registration. The
investors' rights agreement also contains a commitment of us to indemnify the
holders of registration rights, subject to limitations.
Anti-Takeover Effects of Provisions of the Certificate of Incorporation,
Bylaws and Delaware Law
Certificate of Incorporation and Bylaws
Our seventh amended and restated certificate of incorporation provides that
all stockholder actions must be effected at a duly called meeting and not by
written consent. Our bylaws and seventh amended and restated certificate of
incorporation, both to be effective as of the completion of this offering,
also provide that, upon the closing of this offering, the board of directors
will be divided into three classes of directors with each class serving a
staggered three-year term. These provisions of our certificate of
incorporation could discourage potential acquisition proposals and could delay
or prevent a change in control. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of our board of
directors and in the policies formulated by the board of directors. They are
also intended to discourage certain types of transactions that may involve an
actual or threatened change of control of the company. These provisions are
designed to reduce our vulnerability to an unsolicited acquisition proposal.
They are also intended to discourage certain tactics that may be used in proxy
fights. However, such provisions could have the effect of discouraging others
from making tender offers for our shares and, as a consequence, they may
inhibit fluctuations in our shares' market price that otherwise could result
from actual or rumored takeover attempts. Such provisions also may have the
effect of preventing changes in our management. Amendment to these provisions
requires the approval by holders of at least a majority of the outstanding
common stock.
Delaware Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the time that such stockholder became an
interested stockholder, unless:
. prior to such time the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
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, excluding for purposes of determining the
number of shares outstanding those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
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. at or subsequent to such time the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Subject to certain exceptions, a business combination generally includes a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder. In general, an interested stockholder is (i) a person
who owns, or within three years prior did own, 15% or more of the corporation's
outstanding voting stock and (ii) affiliates and associates of such person.
Transfer Agent and Registrar
Upon the closing of this offering, the transfer agent and registrar for our
common stock will be ChaseMellon Shareholder Services, LLC.
Listing on Nasdaq National Market
We have applied for the listing of our common stock on The Nasdaq Stock
Market's National Market under the trading symbol "AVGO."
68
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. We
cannot predict the effect that sales of shares or the availability of shares
for sale will have on the market price of our common stock. Sales of
substantial amounts of our common stock in the public market, or the perception
that sales might occur, could adversely affect the market price of our common
stock. Sales of substantial amounts of common stock in the public market after
the restrictions on resale described below lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon the closing of this offering, we expect to have outstanding 33,347,590
shares of our common stock, assuming no exercise of the underwriters' option
and no exercise of other outstanding options or warrants after August 31, 2000.
All of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, except shares
purchased by our "affiliates," as that term is defined in Rule 144 under the
Securities Act. Affiliates are generally individuals or entities that control,
are controlled by, or under common control with us and may include our
directors, officers and significant stockholders. Shares of common stock
purchased by our affiliates will be "restricted securities" under Rule 144.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701
promulgated under the Securities Act.
Lock-Up Agreements
Prior to the closing of this offering, all of our officers and directors,
and more than 95% of our security holders, will have signed agreements under
which they may not, for a period of 180 days after the date of this prospectus,
directly or indirectly transfer or dispose of, any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock. The shares could be available for resale immediately upon the
expiration of the 180-day period if they are available for resale under Rule
144.
Rule 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person who has beneficially owned shares of our common stock for
at least one year 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 our common stock then outstanding, which
will equal approximately 333,476 shares after this offering closes; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
the notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner-of-sale provisions, notice
requirements and to the availability of current public information about us.
Rule 144(k)
Under paragraph (k) of Rule 144, persons who are not our affiliates at any
time during the 90 days preceding a sale and who have beneficially owned the
shares proposed to be sold for at least two years are entitled to sell such
shares without complying with the manner-of-sale, public information, volume
limitation or notice provisions of Rule 144. The two-year holding period
includes the holding period of any of the shares' prior owners not our
affiliate. Therefore, unless otherwise restricted, shares covered by Rule
144(k) may be sold immediately upon the closing of this offering unless subject
to other restrictions such as lock-up agreements.
69
<PAGE>
Rule 701
Under Rule 701, employees, consultants or advisors who are not our
affiliates and who purchased shares from us in connection with a compensatory
stock or option plan or other written agreement are eligible to resell such
shares 90 days after the date of this prospectus in reliance on Rule 144, but
without compliance with other restrictions, including the holding period,
contained in Rule 144. Employees, consultants or advisors who are affiliates
remain subject to all Rule 144 restrictions except the holding period.
In addition, we intend to file a registration statement under the Securities
Act as promptly as possible after the effective date of this offering to
register all shares of common stock reserved for issuance under our 1997 stock
option plan, 180,438 shares of common stock reserved for issuance under
Globalware's 1998 stock option plan, all shares reserved for issuance under our
2000 employee stock purchase plan, and all shares reserved for issuance under
our 2000 stock incentive plan. As a result, immediately after the 180-day
restrictive agreements described above expire, any options exercised under our
1997 stock option plan or any other benefit plan after the effectiveness of
such registration statement will also be freely tradable in the public market,
except that shares held by affiliates will still be subject to the volume
limitation, manner of sale, notice and public information requirements of Rule
144 unless otherwise resalable under Rule 701. As of August 31, 2000, there
were outstanding options to purchase 6,146,666 shares of our common stock under
our 1997 stock option plan, 1,998,855 shares were available for future grant
and 180,438 options were outstanding under the Globalware stock option plan.
70
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated September 26, 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Merrill, Lynch,
Pierce, Fenner & Smith Incorporated and CIBC World Markets Corp. are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation............................. 2,475,500
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................. 1,732,850
CIBC World Markets Corp............................................ 742,650
Deutsche Bank Securities Inc....................................... 91,500
E*Offering Corp.................................................... 91,500
FleetBoston Robertson Stephens Inc................................. 91,500
Invemed Associates LLC............................................. 91,500
Prudential Securities Incorporated................................. 91,500
Wedbush Morgan Securities Inc...................................... 91,500
---------
Total............................................................ 5,500,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the 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 the
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 825,000 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 $0.50 per share. The
underwriters and selling group members may allow a discount of $0.10 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 we
will pay.
<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..................... $0.84 $0.84 $4,620,000 $5,313,000
Expenses payable by us.. $0.32 $0.28 $1,750,000 $1,750,000
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that for a period of 180 days after the date of this
prospectus, 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 of 1933 relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or
71
<PAGE>
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without, in each case, the prior written consent of
Credit Suisse First Boston Corporation, except issuances pursuant to the
exercise of employee stock options outstanding on the date hereof.
Our officers and directors and substantially all of our other security
holders have agreed that for a period of 180 days after the date of this
prospectus 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.
The underwriters have reserved for sale, at the initial public offering
price, up to 275,000 shares of the common stock for employees, directors and
other persons associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the 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 of 1933, or to contribute to payments which the underwriters may
be required to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include the following:
. the information included in this prospectus and otherwise available to
the representatives;
. market conditions for initial public offerings;
. the history and the prospects for the industry in which we 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, overallotment transactions, syndicate covering transactions, and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as follows:
. Stabalizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. 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 which they may purchase in the over-
allotment option. In a naked short position, the number of shares
involved is
72
<PAGE>
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 common stock in the
open market after the distribution has been completed in order to cover a
syndicate short position. 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 the 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 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.
A prospectus in electronic format may be made available on Web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters
for sale to their online brokerage account holders. Any Internet distributions
will be allocated by the representatives of the underwriters on the same basis
as other allocations.
73
<PAGE>
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. Any resale of the common stock in Canada
must be made under applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require re-sales to be made under
available statutory exemptions or under 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
By purchasing common stock in Canada and accepting a purchase confirmation,
a purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:
. the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under these securities laws,
. where required by law, that the purchaser is purchasing as principal and
not as agent, and
. the 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 for
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 these 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 these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the 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 the 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 the purchaser in this offering. The 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 report must be filed
for 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 about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.
74
<PAGE>
LEGAL MATTERS
Perkins Coie LLP, Menlo Park, California will pass upon the validity of the
shares of common stock offered hereby for us. As of the consummation of this
offering, Perkins Coie LLP will own an aggregate of 12,690 shares of series C
preferred stock and 5,981 shares of series D preferred stock through an
investment entity. Ralph L. Arnheim III, our secretary, is a partner of Perkins
Coie LLP and a limited partner of that firm's investment partnership. Sterne,
Kessler, Goldstein & Fox P.L.L.C., special patent counsel to us, will pass on
certain intellectual property matters. A number of directors of Sterne,
Kessler, Goldstein & Fox P.L.L.C. jointly own 5,981 shares of our series D
preferred stock through an investment entity. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of December 31, 1998 and 1999 and for the period from
June 30, 1997 (inception) through December 31, 1997 and for the years ended
December 31, 1998 and 1999, and the financial statements of Globalware as of
December 31, 1998 and 1999 and for each of the three years in the period ended
December 31, 1999, as set forth in their reports. We have included our
financial statements and the financial statements of Globalware in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's reports, given on their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
For more information with respect to us and the common stock offered by this
prospectus, see the registration statement and the exhibits and schedule filed
by us with the Securities and Exchange Commission on Form S-1 under the
Securities Act. This prospectus, which constitutes part of the registration
statement, does not contain all of the information set forth in the
registration statement and the related exhibits and schedules. Some items are
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission. In addition, this prospectus summarizes certain contracts
and other documents. If you wish to review such contracts or documents in full,
we refer you to copies of them filed as exhibits to the registration statement.
You may read and copy the registration statement and its exhibits and schedules
at the public facilities maintained by the Securities and Exchange Commission
in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Securities and Exchange Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. You may obtain copies of all or any part of the registration statement
from these offices upon the payment of the fees prescribed by the Securities
and Exchange Commission. The Securities and Exchange Commission maintains a Web
site that contains reports regarding registrants that file electronically with
the Securities and Exchange Commission, including our registration statement on
Form S-1. The address of the site is http://www.sec.gov.
In addition, as a result of this offering, we will become subject to the
full information reporting requirements of the Securities Exchange Act of 1934,
as amended. Pursuant to these requirements, we will file periodic reports,
proxy statements and other information with the Securities and Exchange
Commission. In the future, you may also obtain copies of these documents at the
Securities and Exchange Commission, as described above.
75
<PAGE>
AVANTGO, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AvantGo, Inc.:
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-7
Notes to Consolidated Financial Statements............................... F-8
Globalware Computing, Inc.:
Report of Ernst & Young LLP, Independent Auditors........................ F-23
Balance Sheets........................................................... F-24
Statements of Operations................................................. F-25
Statement of Stockholders' Equity........................................ F-26
Statements of Cash Flows................................................. F-27
Notes to Financial Statements............................................ F-28
Selected Unaudited Pro Forma Condensed Combined Financial Information:
Introduction............................................................. F-33
Selected Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1999.................................... F-34
Selected Unaudited Pro Forma Condensed Combined Statement of Operations
for the six months ended June 30, 2000.................................. F-35
Notes to Selected Unaudited Pro Forma Condensed Combined Financial
Information............................................................. F-36
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AvantGo, Inc.
We have audited the accompanying consolidated balance sheets of AvantGo,
Inc. as of December 31, 1998 and 1999, and the related consolidated statements
of operations, stockholders' equity and cash flows for the period from June 30,
1997 (inception) through December 31, 1997 and for the years ended December 31,
1998 and 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 consolidated financial position of AvantGo, Inc.
at December 31, 1998 and 1999, and the consolidated results of its operations
and its cash flows for the period from June 30, 1997 (inception) through
December 31, 1997 and for the years ended December 31, 1998 and 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Walnut Creek, California
March 31, 2000
F-2
<PAGE>
AVANTGO, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
December 31, Stockholders'
----------------- June 30, Equity
1998 1999 2000 June 30, 2000
------- -------- ----------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........ $ 2,124 $ 5,835 $ 27,432
Short-term investments........... -- 3,975 3,824
Accounts receivable, net of
allowance of $50,000 in 1999 and
$223,000 in 2000................ 52 1,478 1,626
Prepaid expenses and other
current assets.................. 25 255 2,725
------- -------- --------
Total current assets............ 2,201 11,543 35,607
Restricted Cash................... -- -- 3,250
Property and equipment, net....... 185 893 2,276
Goodwill and other assets......... 48 63 15,798
------- -------- --------
Total assets.................... $ 2,434 $ 12,499 $ 56,931
======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities..................... $ 114 $ 1,173 $ 2,354
Accrued compensation and related
benefits........................ 39 239 510
Current portion of capital lease
obligations..................... 10 4 1
Current portion of borrowings
under bank line of credit
agreement....................... 71 71 71
Deferred revenue................. 16 247 4,385
------- -------- --------
Total current liabilities....... 250 1,734 7,321
Deferred revenue.................. -- -- 583
Capital lease obligations, less
current portion.................. 4 -- --
Borrowings under bank line of
credit agreement, net of current
portion.......................... 112 41 6
Commitments
Stockholders' Equity:
Convertible preferred stock,
$0.0001 par value, issuable in
Series: 18,472,082 shares
authorized; 7,736,042,
11,472,082 and 17,136,261 shares
issued and outstanding at
December 31, 1998, 1999, and
June 30, 2000, respectively
(10,000,000 authorized; no
shares outstanding pro forma)... 4,807 19,480 67,710 $ --
Common stock, $0.0001 par value;
45,000,000 shares authorized;
7,864,120, 9,630,062 and
10,594,928 shares issued and
outstanding at December 31,
1998, 1999 and June 30, 2000,
respectively (150,000,000
authorized; 27,731,189 shares
outstanding pro forma).......... 540 10,928 29,870 97,580
Notes receivable from
stockholders.................... -- (100) (456) (456)
Deferred stock compensation...... (385) (7,475) (16,147) (16,147)
Revenue offset relating to
warrant agreements.............. -- -- (1,352) (1,352)
Accumulated deficit.............. (2,894) (12,109) (30,541) (30,541)
Accumulated other comprehensive
loss ........................... -- -- (63) (63)
------- -------- -------- --------
Total stockholders' equity...... 2,068 10,724 49,021 $ 49,021
------- -------- -------- ========
Total liabilities and
stockholders' equity........... $ 2,434 $ 12,499 $ 56,931
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
AVANTGO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Period from
June 30, 1997
(Inception) Year Ended Six Months Ended
through December 31, June 30,
December 31, ---------------- -----------------
1997 1998 1999 1999 2000
------------- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.............. $ -- $ 189 $ 1,443 $ 469 $ 2,814
Services.................. -- 198 1,446 320 2,303
------ ------- ------- ------- --------
Total revenues.......... -- 387 2,889 789 5,117
Costs and expenses:
Cost of license fees...... -- 10 60 16 78
Cost of services (1)...... -- 210 1,312 340 1,412
Product development (2)... 140 1,108 2,745 1,051 3,110
Sales and marketing (3)... 61 1,229 4,291 1,114 9,638
General and administrative
(4)...................... 89 410 1,404 359 2,682
Purchased in-process
research and
development.............. -- -- -- -- 600
Amortization of goodwill
and other intangible
assets................... -- -- -- -- 440
Amortization of deferred
stock compensation and
other.................... -- 71 2,605 595 6,301
------ ------- ------- ------- --------
Total costs and
expenses............... 290 3,038 12,417 3,475 24,261
------ ------- ------- ------- --------
Loss from operations........ (290) (2,651) (9,528) (2,686) (19,144)
Other income (expense):
Interest income (expense),
net...................... (1) 48 313 13 712
------ ------- ------- ------- --------
Net loss................ $ (291) $(2,603) $(9,215) $(2,673) $(18,432)
====== ======= ======= ======= ========
Net loss per share:
Basic and diluted......... $(0.20) $ (0.95) $ (2.11) $ (0.69) $ (3.02)
====== ======= ======= ======= ========
Pro forma basic and
diluted (unaudited)...... $ (0.65) $ (0.92)
======= ========
Shares used in calculation
of net loss per share:
Basic and diluted......... 1,464 2,735 4,377 3,887 6,097
====== ======= ======= ======= ========
Pro forma basic and
diluted (unaudited)...... 14,272 20,030
======= ========
</TABLE>
---------------------
(1) Excluding $9, $181, $40, and $209 in amortization of deferred stock
compensation for the year ended December 31, 1998 and 1999, and the six
months ended June 30, 1999 and 2000, respectively.
(2) Excluding $38, $750, $199, and $816 in amortization of deferred stock
compensation for the year ended December 31, 1998 and 1999, and the six
months ended June 30, 1999 and 2000, respectively.
(3) Excluding $15, $1,211, $307, and $1,458 in amortization of deferred stock
compensation for the year ended December 31, 1998 and 1999, and the six
months ended June 30, 1999 and 2000, respectively.
(4) Excluding $9, $463, $49, and $3,818 in amortization of deferred stock
compensation for the year ended December 31, 1998 and 1999, and the six
months ended June 30, 1999 and 2000, respectively.
See accompanying notes.
F-4
<PAGE>
AVANTGO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Convertible Notes Deferred Revenue Accumulated
Preferred Stock Common Stock Receivable Stock Offset Accumu- Other
Comprehensive ---------------- ----------------- from Compen- Relating to lated Comprehensive
Income (Loss) Shares Amount Shares Amount Stockholders sation Warrants Deficit Income (Loss)
------------- --------- ------ --------- ------ ------------ -------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock to
founders........ -- $ -- 6,578,000 $ 33 $ -- $ -- -- $ -- $ --
Issuance of
Series A
preferred stock,
net of issuance
costs........... 4,105,750 1,227 -- -- -- -- -- -- --
Issuance of
Series A
preferred stock
in exchange for
cancellation of
notes payable... 328,406 100 -- -- -- -- -- -- --
Net loss and
comprehensive
loss............ -- -- -- -- -- -- -- (291) --
--------- ------ --------- ----- ------- ------- --- ------ -------
BALANCES AT
DECEMBER 31,
1997............ 4,434,156 1,327 6,578,000 33 -- -- -- (291) --
Issuance of
Series B
preferred stock,
net of issuance
costs........... 3,301,886 3,480 -- -- -- -- -- -- --
Exercise of
stock options... -- -- 1,698,120 63 -- -- -- -- --
Repurchase of
common stock.... -- -- (412,000) (12) -- -- -- -- --
Deferred stock
compensation.... -- -- -- 456 -- (456) --
Amortization of
deferred stock
compensation.... -- -- -- -- -- 71 -- -- --
Net loss and
comprehensive
loss............ -- -- -- -- -- -- -- (2,603) --
--------- ------ --------- ----- ------- ------- --- ------ -------
BALANCES AT
DECEMBER 31,
1998............ 7,736,042 4,807 7,864,120 540 -- (385) -- (2,894) --
Issuance of
Series C
preferred stock,
net of issuance
costs........... 3,659,898 14,373 -- -- -- -- -- -- --
Issuance of
Series C
preferred stock
in exchange for
cancellation of
notes payable... 76,142 300 -- -- -- -- -- -- --
Exercise of
stock options... -- -- 1,805,942 694 (100) -- -- --
Repurchase of
common stock.... -- -- (40,000) (1) -- -- -- -- --
Deferred stock
compensation.... -- -- -- 9,695 -- (9,695) -- -- --
Amortization of
deferred stock
compensation.... -- -- -- -- -- 2,605 -- -- --
Net loss and
comprehensive
loss............ -- -- -- -- -- -- -- (9,215) --
--------- ------ --------- ----- ------- ------- --- ------ -------
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C> <C>
Issuance of
common stock to
founders........ $ 33
Issuance of
Series A
preferred stock,
net of issuance
costs........... 1,227
Issuance of
Series A
preferred stock
in exchange for
cancellation of
notes payable... 100
Net loss and
comprehensive
loss............ (291)
------------- ---
BALANCES AT
DECEMBER 31,
1997............ 1,069
Issuance of
Series B
preferred stock,
net of issuance
costs........... 3,480
Exercise of
stock options... 63
Repurchase of
common stock.... (12)
Deferred stock
compensation....
Amortization of
deferred stock
compensation.... 71
Net loss and
comprehensive
loss............ (2,603)
------------- ---
BALANCES AT
DECEMBER 31,
1998............ 2,068
Issuance of
Series C
preferred stock,
net of issuance
costs........... 14,373
Issuance of
Series C
preferred stock
in exchange for
cancellation of
notes payable... 300
Exercise of
stock options... 594
Repurchase of
common stock.... (1)
Deferred stock
compensation.... --
Amortization of
deferred stock
compensation.... 2,605
Net loss and
comprehensive
loss............ (9,215)
------------- ---
</TABLE>
F-5
<PAGE>
AVANTGO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(Continued)
(In thousands, except share data)
<TABLE>
<CAPTION>
Convertible Notes Deferred Revenue
Preferred Stock Common Stock Receivable Stock Offset Accumu-
Comprehensive ------------------ ------------------- from Compen- Relating to lated
Income (Loss) Shares Amount Shares Amount Stockholders sation Warrants Deficit
------------- ---------- ------- ---------- ------- ------------ --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
DECEMBER 31,
1999............. 11,472,082 19,480 9,630,062 10,928 (100) (7,475) -- (12,109)
Issuance of
common stock in
exchange for
services
(unaudited)...... -- -- 12,500 96 -- -- -- --
Issuance of
Series D
preferred stock
in connection
with license
(unaudited)..... 4,785 40 -- -- -- -- -- --
Issuance of
Series D
preferred stock,
net of issuance
costs
(unaudited)...... 3,726,094 31,044 -- -- -- -- -- --
Exercise of
stock options
(unaudited)...... -- -- 1,447,616 2,729 (356) -- -- --
Repurchase of
common stock
(unaudited)...... -- -- (495,250) (141) -- -- -- --
Deferred stock
compensation
(unaudited)...... -- -- -- 14,814 -- (14,814) -- --
Amortization of
deferred stock
compensation
(unaudited)...... -- -- -- -- -- 6,142 -- --
Issuances of
Series D warrant
(unaudited)..... -- 159 -- -- -- -- -- --
Issuance of
Series E
preferred stock
in connection
with aquisition
(unaudited)..... 1,933,300 15,466 -- -- -- -- -- --
Deferred revenue
relating to
warrants
(unaudited)..... -- 1,521 -- -- -- -- (1,521) --
Amortization of
warrant
(unaudited)..... -- -- -- -- -- -- 169 --
Issuance of
common stock
options in
connection with
aquisition
(unaudited)..... -- -- -- 1,444 -- -- -- --
Net loss
(unaudited)...... $(18,432) -- -- -- -- -- -- -- (18,432)
Translation
adjustment
(unaudited)..... 13 -- -- -- -- -- -- -- --
Unrealized gain
on investment
(unaudited)...... (76) -- -- -- -- -- -- -- --
--------
Comprehensive
loss
(unaudited)...... $(18,495) -- -- -- -- -- -- -- --
======== ---------- ------- ---------- ------- ------ --------- ------- --------
BALANCES AT June
30, 2000
(unaudited)...... 17,136,261 $67,710 10,594,928 $29,870 $(456) $ (16,147) $(1,352) $(30,541)
========== ======= ========== ======= ====== ========= ======= ========
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders'
Income (Loss) Equity
------------- -------------
<S> <C> <C> <C>
BALANCES AT
DECEMBER 31,
1999............. -- 10,724
Issuance of
common stock in
exchange for
services
(unaudited)...... -- 96
Issuance of
Series D
preferred stock
in connection
with license
(unaudited)..... -- 40
Issuance of
Series D
preferred stock,
net of issuance
costs
(unaudited)...... -- 31,044
Exercise of
stock options
(unaudited)...... -- 2,373
Repurchase of
common stock
(unaudited)...... -- (141)
Deferred stock
compensation
(unaudited)...... -- --
Amortization of
deferred stock
compensation
(unaudited)...... -- 6,142
Issuances of
Series D warrant
(unaudited)..... -- 159
Issuance of
Series E
preferred stock
in connection
with aquisition
(unaudited)..... -- 15,466
Deferred revenue
relating to
warrants
(unaudited)..... -- --
Amortization of
warrant
(unaudited)..... -- 169
Issuance of
common stock
options in
connection with
aquisition
(unaudited)..... -- 1,444
Net loss
(unaudited)...... -- (18,432)
Translation
adjustment
(unaudited)..... 13 13
Unrealized gain
on investment
(unaudited)...... (76) (76)
Comprehensive
loss
(unaudited)...... -- --
------------- -------------
BALANCES AT June
30, 2000
(unaudited)...... $(63) $49,021
============= ============= ===
</TABLE>
See accompanying notes.
F-6
<PAGE>
AVANTGO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Period from
June 30, 1997
(Inception) Year Ended Six Months Ended
through December 31, June 30,
December 31, ----------------- ------------------
1997 1998 1999 1999 2000
------------- ------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............... $ (291) $(2,603) $ (9,215) $ (2,673) $(18,432)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Purchased in process
research and
development........... -- -- -- -- 600
Amortization of
Goodwill and other
intangibles........... -- -- -- -- 440
Depreciation........... 5 50 163 53 301
Amortization of
deferred stock
compensation and
other................. -- 71 2,605 595 6,301
Revenue offset relating
to warrant
agreements............ -- -- -- -- 169
Issuance of common
stock in exchange for
services.............. -- -- -- -- 96
Changes in operating
assets and
liabilities:
Accounts receivable... -- (52) (1,426) (605) (76)
Prepaid expenses and
other current
assets............... (2) (22) (230) (54) (2,468)
Goodwill and other
assets............... (42) (6) (15) 1 (275)
Accounts payable and
accrued liabilities.. 28 84 1,059 86 926
Accrued compensation
and related
benefits............. 8 32 200 77 271
Deferred revenue...... -- 16 231 119 4,721
------ ------- -------- -------- --------
Net cash used in
operating
activities.......... (294) (2,430) (6,628) (2,401) (7,426)
INVESTING ACTIVITIES:
Purchase of property
and equipment......... (38) (168) (871) (213) (1,617)
Business acquisition,
net of cash acquired.. -- -- -- -- 456
Restricted cash........ -- -- -- -- (3,250)
Cash paid for
investments........... -- -- (10,000) -- --
Proceeds from
investments........... -- -- 6,025 -- 183
------ ------- -------- -------- --------
Net cash used in
investing
activities.......... (38) (168) (4,846) (213) (4,228)
FINANCING ACTIVITIES:
Borrowings under bank
line of credit
agreement............. -- 189 -- 111 --
Repayment of
obligations under bank
line of credit
agreement............. -- (6) (71) (35) (35)
Principal payments on
capital lease
obligations........... (4) (16) (10) (7) (3)
Proceeds from issuance
of convertible
preferred stock, net.. 1,227 3,480 14,373 14,373 30,702
Proceeds from note
receivable from
stockholder........... -- -- -- -- 342
Proceeds from issuance
of convertible notes
payable............... 100 -- 300 300 --
Proceeds from issuance
of common stock, net.. 33 51 593 233 2,232
------ ------- -------- -------- --------
Net cash provided by
financing
activities.......... 1,356 3,698 15,185 14,975 33,238
------ ------- -------- -------- --------
Effect of exchange rate
changes on cash and
cash equivalents....... -- -- -- -- 13
------ ------- -------- -------- --------
Increase in cash and
cash equivalents....... 1,024 1,100 3,711 12,361 21,597
Cash and cash
equivalents at
beginning of period.... -- 1,024 2,124 2,124 5,835
------ ------- -------- -------- --------
Cash and cash
equivalents at end of
period................. $1,024 $ 2,124 $ 5,835 $ 14,485 $ 27,432
====== ======= ======== ======== ========
SUPPLEMENTAL DISCLOSURE
OF NONCASH INVESTING
AND FINANCING
ACTIVITIES:
Property and equipment
purchased under
capital lease
obligations........... $ 34 $ -- $ -- $ -- $ --
====== ======= ======== ======== ========
Issuance of preferred
stock in exchange for
convertible notes
payable............... $ 100 $ -- $ 300 $ 300 $ --
====== ======= ======== ======== ========
Issuance of preferred
stock in exchange for
license............... $ -- $ -- $ -- $ -- $ 40
====== ======= ======== ======== ========
Issuance of preferred
stock for notes
receivable from
stockholder........... $ -- $ -- $ -- $ -- $ 342
====== ======= ======== ======== ========
Issuance of preferred
stock in connection
with acquisition...... $ -- $ -- $ -- $ -- $ 15,466
====== ======= ======== ======== ========
Deferred stock
compensation related
to grants of options
for common stock...... $ -- $ 456 $ 9,695 $ 3,012 $ 14,814
====== ======= ======== ======== ========
Issuance of common
stock for notes
receivable from
stockholder........... $ -- $ -- $ 100 $ -- $ 356
====== ======= ======== ======== ========
Revenue offset related
to warrant
agreements............ $ -- $ -- $ -- $ -- $ 1,521
====== ======= ======== ======== ========
SUPPLEMENTAL
DISCLOSURES:
Cash paid during the
period for interest... $ 1 $ 12 $ 18 $ 11 $ 6
====== ======= ======== ======== ========
Warrant issued in
connection with a
content service
agreement............. $ -- $ -- $ -- $ -- $ 159
====== ======= ======== ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
AvantGo, Inc. (the "Company") was incorporated on June 30, 1997 in Delaware.
The Company provides mobile infrastructure software and services that extend
the internet and corporate applications beyond the desktop to handheld devices
and internet enabled phones. In May 1999, the Company launched AvantGo.com, a
free service for accessing personalized Web content from leading partners.
Basis of Presentation
The Company has incurred operating losses to date and has an accumulated
deficit of $30,541,000 as of June 30, 2000. The Company's activities have been
primarily financed through private placements of equity securities. The Company
may need to raise additional capital through the issuance of debt or equity
securities. Such financing may not be available on terms acceptable to the
Company, if at all.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
The functional currency of the Company's foreign subsidiary is the local
currency. The Company translates all assets and liabilities to U.S. dollars at
the current exchange rates as of the applicable balance sheet date. Revenue and
expenses are translated at the average exchange rate prevailing during the
period. Gains and losses resulting from the translation for the foreign
subsidiary's financial statements have not been material to date. Net gains and
losses resulting from foreign exchange transactions were not significant during
any of the periods presented.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported results of operations during the
reporting period. Actual results could differ from those estimates.
Interim Financial Information
The interim financial information as of June 30, 2000 and for the six months
ended June 30, 1999 and 2000 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of its consolidated financial position at
that date and its consolidated results of operations and cash flows for those
periods. Operating results for the six months ended June 30, 2000 are not
necessarily indicative of results that may be expected for any future periods.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with
insignificant interest rate risk and original maturities of three months or
less at the date of purchase and are stated at cost, which approximate fair
value. Cash equivalents consist principally of investments in short-term money
market instruments.
F-8
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
Short-Term Investments
Short-term investments consist principally of commercial paper and
corporate notes with original maturities greater than 90 days and are stated
at amounts that approximate fair market value. The Company accounts for its
short-term investments in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. The Company classifies its short-term investments as
available-for-sale. Available-for-sale investments are recorded at fair value
with unrealized gains and losses reported in the statement of stockholders'
equity. Fair values of investments are based on quoted market prices, where
available. Realized gains and losses, which have been immaterial to date, are
included in interest and other income and are derived using the specific
identification method for determining the cost of investments sold. Dividend
and interest income is recognized when earned.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of three years. Equipment under capital leases are
amortized over the shorter of the estimated useful life or the life of the
lease. Useful lives are evaluated regularly by management in order to
determine recoverability in light of current technological conditions. The
Company records impairment losses on long-lived assets used in operations,
when events or circumstances indicate that the carrying value of the asset
exceeds its fair value. If there is impairment in the future, the impairment
loss would be recorded as the difference between the carrying amount and the
discounted expected future cash flows from the impaired assets. Through June
2000, the Company has not recorded any impairment losses.
Software Development Costs
The Company accounts for software development costs in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed"
("FASB 86"), under which certain software development costs incurred
subsequent to the establishment of technological feasibility are capitalized
and amortized over the estimated lives of the related products. Technological
feasibility is established upon completion of a working model. Through March
31, 2000, costs incurred subsequent to the establishment of technological
feasibility have not been significant and all software development costs have
been charged to product development expense in the accompanying consolidated
statements of operations.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, short-term
investments and accounts receivable. Cash and cash equivalents and short term
investments are deposited with two high-credit quality financial institutions.
Accounts receivable consists of balances due from a limited number of
customers. The Company markets, sells and grants credit to its customers
without requiring collateral or third-party guarantees. To date, all of the
Company's customers are companies who do business on the Internet. The Company
monitors its exposure for credit losses and maintains appropriate allowances.
To date, the Company has not experienced any material losses with respect to
its accounts receivable. For the year ended December 31, 1999 two customers
accounted for 25% and 15% of total revenues. For the six months ended June 30,
2000 one of these customers accounted for 37% of total revenues.
F- 9
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
Revenue Recognition
The Company licenses software under non-cancelable license agreements and
provides services including training, consulting and maintenance, consisting of
product support services and unspecified product updates. The Company also
sells placement service contracts which provide customers with priority
visibility on the Company's web-site.
License revenues are recognized when a non-cancelable license agreement has
been signed, the software product has been shipped, there are no uncertainties
surrounding product acceptance, the fees are fixed or determinable,
collectibility is probable, and vendor-specific objective evidence exists to
allocate the total fee to elements of the arrangement. In instances where no
vendor-specific objective evidence exists and the only undelivered element is
maintenance, revenue is recognized ratably over the term of the agreement. The
Company's agreements with its customers and resellers do not contain product
return rights. Revenues from maintenance, which consist of fees of ongoing
support and product updates, are recognized ratably over the term of the
contract, typically one year. Revenues from placement agreements are recognized
ratably over the service period, which in most instances is between six months
and one year. Consulting revenues are primarily related to implementation
services performed on a time-and materials basis under separate service
arrangements. Training revenues are generated from classes offered both on-site
and at customer locations. Revenues from consulting and training services are
recognized as the services are performed.
Stock-Based Compensation
The Company accounts for employee stock options using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and has adopted the
disclosure-only alternative of FASB Statement No. 123, "Accounting for Stock-
Based Compensation" ("FASB 123").
Advertising Expense
The cost of advertising is expensed as incurred. Advertising costs, which
are included in sales and marketing expense, were approximately $52,000,
$51,000 and $91,000 for the period from June 30, 1997 (inception) through
December 31, 1997 and for the years ended December 31, 1998 and 1999,
respectively, including $83,000 resulting from non-monetary transactions for
the year ended December 31, 1999.
Net Loss Per Share
Basic and diluted net loss per share information for all periods is
presented under the requirement of FASB Statement No. 128, "Earnings per Share"
("FASB 128"). Basic earnings per share has been computed using the weighted-
average number of shares of common stock outstanding during the period, less
shares that may be repurchased, and excludes any dilutive effects of options,
warrants, and convertible securities. Shares subject to repurchase will be
included in the computation of earnings per share when the Company's commitment
to repurchase these shares lapses.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included above that will automatically
convert to common shares upon completion of the Company's initial public
offering, using the if-converted method (Note 6).
F- 10
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
Diluted net loss per share reflects the potential dilution of securities by
adding other common stock equivalents, including stock options, shares subject
to repurchase, warrants and convertible preferred stock, to the weighted
average number of common shares outstanding for a period, if dilutive. All
potentially dilutive securities have been excluded from the computation, as
their effect is anti-dilutive.
The calculation of historical and pro forma basic and diluted net loss per
share is as follows (in thousands, except share and per share amounts):
<TABLE>
<CAPTION>
Period from
June 30, 1997
(Inception) Six Months Ended June
through Year Ended December 31, 30,
December 31, ----------------------- -----------------------
1997 1998 1999 1999 2000
------------- ----------- ----------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Historical:
Net loss............... $ (291) $ (2,603) $ (9,215) $ (2,673) $ (18,432)
========== =========== =========== ========== ===========
Weighted average shares
of common stock
outstanding........... 5,210,720 7,419,275 8,924,914 8,420,577 10,322,339
Less weighted average
shares that may be
repurchased........... (3,746,429) (4,684,523) (4,548,317) (4,533,305) (4,225,071)
---------- ----------- ----------- ---------- -----------
Weighted average shares
of common stock
outstanding used in
computing basic and
diluted net per loss
share................. 1,464,291 2,734,752 4,376,597 3,887,272 6,097,268
========== =========== =========== ========== ===========
Basic and diluted net
loss per share........ $ (0.20) $ (0.95) $ (2.11) $ (0.69) $ (3.02)
========== =========== =========== ========== ===========
Pro forma:
Net loss............... $ (9,215) $ (18,432)
=========== ===========
Weighted-average shares
used in computing
basic and diluted net
loss per share (from
above)................ 4,376,597 6,097,268
Adjustment to reflect
the effect of the
assumed conversion of
preferred stock from
the date of issuance.. 9,895,780 13,933,020
----------- -----------
Weighted-average shares
used in computing pro
forma basic and
diluted net per loss
share................. 14,272,377 20,030,288
=========== ===========
Pro forma basic and
diluted net loss per
share................. $ (0.65) $ (0.92)
=========== ===========
</TABLE>
If the Company had reported net income, the calculation of historical and
pro forma diluted earnings per share would have included approximately an
additional 2,984,826, 5,135,357, 5,226,544, 5,029,048, and 6,761,457 common
equivalent shares related to the outstanding stock options, shares subject to
repurchase and warrants not included above (determined using the treasury stock
method) for the period from June 30, 1997 (inception) through December 31,
1997, and the years ended December 31, 1998 and 1999 and for the six months
ended June 30, 1999 and 2000, respectively.
F- 11
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
Comprehensive Income (Loss)
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. The only item of other
comprehensive income (loss) which the Company currently reports is unrealized
gain (loss) on investments, which is included in accumulated other
comprehensive income (loss) in the consolidated statements of stockholders'
equity.
Income Taxes
The Company accounts for income taxes in accordance with FASB Statement No.
109, "Accounting for Income Taxes" ("FASB 109"), which requires the use of the
liability method in accounting for income taxes. Under FASB 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 rates and
laws that are expected to be in effect when the differences are expected to
reverse.
Segment Information
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (FASB 131). FASB 131 changes the way
companies report selected segment information in annual financial statements
and requires companies to report selected segment information in interim
financial reports to stockholders. FASB 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company adopted FASB 131 in the year ended December 31, 1998.
The Company has only one operating segment for which management reviews the
consolidated data, and therefore there is no impact on the Company's financial
statements of adopting FASB 131.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements of all public registrants. Any change in the
Company's revenue recognition policy resulting from the interpretation of SAB
101 would be reported as a change in accounting principle in the quarter ending
December 31, 2000. While the Company has not fully assessed the impact of the
adoption of SAB 101, management believes that implementation of SAB 101 will
not have a material adverse impact on their existing revenue recognition
policies or their reported results of operations for fiscal 2000.
In March 2000, the Emerging Issues Task Force of the FASB reached consensus
on Issue 00-2 "Accounting for Website Development Costs." ("EITF 00-2"). EITF
00-2 establishes how an entity should account for costs incurred to develop a
website. It requires that an entity capitalize costs during the web application
and infrastructure and graphics development stages of development. The
consensus is effective for all costs incurred beginning after June 30, 2000,
although earlier adoption is encouraged. The Company is currently evaluating
the adoption of EITF 00-2 and its potential impact on its financial condition
or results of operations.
F- 12
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
------------
1998 1999
---- ------
<S> <C> <C>
Computers and equipment.................................... $220 $ 915
Furniture, fixtures and improvements....................... 20 196
---- ------
240 1,111
Less accumulated depreciation.............................. (55) (218)
---- ------
$185 $ 893
==== ======
</TABLE>
3. INCOME TAXES
There has been no provision for U.S. federal, state or foreign income taxes
for any period as the Company has incurred operating losses in all periods and
for all jurisdictions.
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 assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 1,117 $ 3,542
Other................................................. 21 360
------- -------
Total deferred tax assets.............................. 1,138 3,902
Valuation allowance.................................... (1,138) (3,902)
------- -------
Net deferred tax assets................................ $ -- $ --
======= =======
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net
deferred tax assets have been fully offset by a valuation allowance. The
valuation allowance increased by $1,138,000 and $2,764,000 during the years
ended December 31, 1998 and 1999, respectively.
As of December 31, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $8.9 million, which expire in
fiscal years 2012 through 2019. The Company also had net operating loss
carryforwards for state income tax purposes of approximately $8.9 million,
expiring in fiscal year 2005. There can be no assurance that the Company will
realize the benefit of the net operating loss carryforwards.
Utilization of the Company's net operating loss carryforwards may be subject
to a substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code and similar state provisions. Such an
annual limitation could result in the expiration of the net operating loss
carryforwards before utilization.
F- 13
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
4. BANK LINE OF CREDIT AGREEMENT
In January 1998, the Company entered into a line of credit agreement with a
bank which provides for borrowings of up to $300,000. Borrowings of $112,000
were outstanding under the line of credit at December 31, 1999. Borrowings
under the line of credit bear interest at the bank's prime plus 0.5% (9.25% at
December 31, 1999). The line of credit matures in July 2001 and borrowings are
payable in 32 equal monthly installments commencing in December 1998.
Outstanding borrowings under the agreement are collateralized by substantially
all the Company's assets.
5. CONVERTIBLE NOTES PAYABLE
In April 1999, the Company issued a convertible note payable to a vendor in
exchange for $300,000 in cash. The note payable bore interest at 8% per year
and was convertible into shares of Series C preferred stock at $3.94 per share
at the option of the payee and upon the sale of such shares by the Company.
However, no interest was payable by the Company in case of conversion. The note
payable was converted into 76,142 shares of the Company's Series C convertible
preferred stock in connection with the Company's sale of the preferred stock in
June 1999.
6. STOCKHOLDERS' EQUITY
Stock Split
In July 1999, the Board of Directors approved a two-for-one split of its
common and preferred stock. All references in the financial statements to
number of shares, per share amounts, stock option data and fair value of the
Company's common and preferred stock have been restated for the effect of the
stock split.
Common Stock Issued to Founders
In August and September 1997, the Company issued 5,600,000 shares and
872,000 shares of common stock respectively, to the founders at $0.005 per
share, which the Company determined to be the fair value of the common stock
upon the formation of the Company. These common shares are subject to
repurchase rights which allow the Company to repurchase the shares at $0.005
per share in the event of termination of employment, death or disability, and
which generally expire 25% after the first year and ratably over three years
thereafter. At December 31, 1999, 1,871,500 shares were subject to repurchase
rights.
Preferred Stock
Preferred stock consists of the following by series (in thousands):
<TABLE>
<CAPTION>
Shares Issued
----------------------------------
Aggregate
Liquidation
Preference
December 31, June 30, at
Authorized ------------------ ----------- December 31,
Series Shares 1998 1999 2000 1999
------ ---------- ----- ------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
A 4,434 4,434 4,434 4,434 $ 1,350
B 3,302 3,302 3,302 3,302 3,500
C 3,736 -- 3,736 3,736 14,720
D 5,000 -- -- 3,731 --
E 2000 -- -- 1,933 --
------ ----- ------ ------ -------
18,472 7,736 11,472 17,136 $19,570
====== ===== ====== ====== =======
</TABLE>
F- 14
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
Each share of preferred stock is convertible, at the option of the holder,
into one share of the Company's common stock, subject to certain anti-dilution
provisions. Additionally, conversion is automatic upon the closing of a
qualified public offering of common stock with net proceeds of at least
$20,000,000 or a public offering price of not less than $8.36 per share.
The holders of shares of Series A, B, C and D convertible preferred stock,
in preference to the holders of any other stock of the Company, are entitled to
receive dividends at the rates of $0.0245, $0.08450, $0.3152 and $0.668 per
annum, respectively (as adjusted for any stock dividends, combinations or
splits with respect to such shares). Such dividends are payable only when, as
and if declared by the Board of Directors, but only out of funds that are
legally available, and are noncumulative. No dividends have been declared as of
December 31, 1999.
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of Series A, B, C and D
convertible preferred stock are entitled to receive, prior and in preference to
any distribution of the assets of the Company to the holders common stock, by
reason of their ownership, an amount equal to the sum of $0.30, $1.06, $3.94
and $8.36 for each share, respectively, plus any declared but unpaid dividends
with respect to such shares. The remaining assets, if any, are to be
distributed ratably to the holders of common stock. If, upon the occurrence of
a liquidation event, the assets and funds distributed among the holders of
convertible preferred stock are insufficient to permit the payment to holders
of the full preferential amount, then all assets and funds of the Company
legally available for distribution are to be distributed ratably among the
holders of convertible preferred stock, in proportion to the preferential
amount each such holder is otherwise entitled to receive.
The holders of preferred stock are entitled to the number of votes equal to
the number of shares of common stock into which each share of preferred stock
could be converted.
Stock Option Plan
The Company has reserved 7,413,600 shares of common stock under the 1997
Stock Option Plan (the "Plan"). The Plan provides for incentive stock options,
as defined by the Internal Revenue Code, to be granted to employees, at an
exercise price not less than 100% of the fair value at the grant date as
determined by the Board of Directors, unless the optionee is a 10% shareholder,
in which case the option price will not be less than 110% of such fair market
value. The Plan also provides for nonqualified stock options to be issued to
employees and consultants at an exercise price of not less than 85% of the fair
value at the grant date. Options granted generally have a maximum term of 10
years from grant date, are immediately exercisable and generally vest over a
four year period. The plan provides that shares issued under the plan prior to
vesting are subject to repurchase by the Company upon termination of employment
at the original price paid for the shares. The repurchase rights lapse at the
rate of 25% after one year and ratably on a monthly basis for three years
thereafter. As of December 31, 1999, 2,668,378 shares were subject to
repurchase.
F- 15
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
A summary of the Company's stock option activity under the Plan is as
follows:
<TABLE>
<CAPTION>
Weighted-
Number of Average
Shares Exercise Price
---------- --------------
<S> <C> <C>
Granted......................................... 4,000 $0.03
----------
Outstanding at December 31, 1997.................. 4,000 0.03
Granted......................................... 2,295,320 0.06
Exercised....................................... (1,698,120) 0.04
Canceled........................................ (60,000) 0.13
----------
Outstanding at December 31, 1998.................. 541,200 0.12
Granted......................................... 3,891,000 1.09
Exercised....................................... (1,805,942) 0.38
Canceled........................................ (30,000) 0.13
----------
Outstanding at December 31, 1999.................. 2,596,258 1.40
Granted (unaudited)............................. 3,154,375 2.91
Exercised (unaudited)........................... (1,447,616) 1.88
Canceled (unaudited)............................ (109,750) 1.93
----------
Balance at June 30, 2000 (unaudited).............. 4,193,267 $2.33
==========
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
--------------------------------------------------------
Weighted-Average Weighted-
Remaining Average
Range of Number of Contractual Life Exercise
Exercise Prices Shares (in Years) Price
--------------- --------- ---------------- ---------
<S> <C> <C> <C>
$0.03--0.75 612,000 9.01 $0.17
1.25--2.25 1,984,258 9.72 1.78
---------
2,596,258
=========
</TABLE>
Shares Reserved for Future Issuance
As of December 31, 1999, shares of common stock reserved for future issuance
were as follows:
<TABLE>
<S> <C>
Stock options available for grant.................................... 1,313,280
Stock options outstanding............................................ 2,596,258
Conversion of preferred stock........................................ 11,472,082
----------
Total shares reserved for future issuance............................ 15,381,620
==========
</TABLE>
F- 16
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
Pro Forma Disclosure of the Effect of Stock-Based Compensation
Pro forma information regarding results of operations and net loss per share
is required by FASB 123, which also requires that the information be determined
as if the Company had accounted for its employee stock options under the fair
value method of FASB 123. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions: a risk-free interest rate of 6.0%, no dividend
yield, a weighted average expected life of the option of 4.5 years and
volatility factors of 0, 0 and 0.7 for the period from June 30, 1997
(inception) through December 31, 1997 and the years ended December 31, 1998 and
1999, respectively.
The option valuation models are 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 employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can 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 employee stock options.
Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value at the grant dates for awards under those plans
calculated using the minimum value method of FASB 123, the Company's net loss
and pro forma basic and diluted net loss per share would have been increased to
the pro forma amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Period from Year Ended
June 30, 1997 December 31,
(Inception) through -----------------
December 31, 1997 1998 1999
------------------- -------- --------
<S> <C> <C> <C>
Pro forma net loss................... $ (291) $(2,532) $(6,411)
Pro forma basic and diluted net loss
per share........................... $(0.20) $ (0.95) $ (1.46)
</TABLE>
The weighted average fair value of options granted, which is the value
assigned to the options under FASB 123, was $0.14, $0.29 and $3.18 for options
granted during the period from June 30, 1997 (inception) through December 31,
1997 and the years ended December 31, 1998 and 1999, respectively.
The pro forma impact of options on the net loss for the period from June 30,
1997 (inception) through December 31, 1997 and the years ended December 31,
1998 and 1999 is not representative of the effects on net income (loss) for
future years, as future years will include the effects of additional years of
stock option grants.
F-17
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
Deferred Stock Compensation
The Company recorded deferred stock compensation of $456,000 and $8,186,000
and $14,150,000 during the years ended December 31, 1998, 1999 and the six
months ended June 30, 2000, respectively, representing the difference between
the exercise price and the deemed fair value for financial accounting purposes
of the Company's common stock on the date the stock options were granted. In
the absence of a public market for the Company's common stock, the deemed fair
value was based on the price per share of recent preferred stock financings.
These amounts are being amortized by charges to operations over the vesting
periods of the individual stock options using a graded vested method. Such
amortization amounted to approximately $71,000 and $2,432,000 for the years
ended December 31, 1998 and 1999, respectively and $5,500,000 for the
six months ended June 30, 2000. The expected annual amortization for stock
options granted through June 30, 2000, (assuming no cancellations) for the next
five years will be as follows:
<TABLE>
<S> <C>
2000......................................................... $11,128,000
2001......................................................... $ 5,675,000
2002......................................................... $ 2,643,000
2003......................................................... $ 828,000
2004......................................................... $ 15,000
</TABLE>
The Company also recorded deferred stock compensation of approximately
$1,509,000 in the year ended December 31, 1999 relating to the issuance of
266,000 consultant options for administrative and sales and marketing services.
This amount was computed using the Black-Scholes option valuation model.
Unvested shares will be remeasured at each measurement date, as they are
variable awards, and the related amortization will be charged to operations
over the term of the related consulting agreements. Such amortization amounted
to approximately $173,000 for the year ended December 31, 1999 and $642,000 for
the six months ended June 30, 2000. The assumptions used to compute the value
of the options at the grant date under Black-Scholes are as follows: expected
volatility, 0.7; expected life, 5 years; expected dividend yield, 0%; and risk-
free interest rate, 6.0%.
Notes Receivable From Stockholders
In December 1999, an officer of the Company purchased a total of 57,142
shares of the Company's common stock in exchange for a full recourse promissory
note. The note bears interest at 6% per annum, with interest and principal
payable in December 2004. The note is secured by the common shares purchased by
the officer.
In January 2000, an officer of the Company purchased a total of 112,500
shares of the Company's common stock in exchange for a full recourse promissory
note. The note bears interest at 6% per annum, with interest and principal
payable in January 2005. The note is secured by the common shares purchased by
the officer.
In March 2000, the Company issued 40,909 shares of Series D convertible
preferred stock to a certain investor in exchange for a promissory note. The
note is repayable on demand, anytime after March 31, 2000. The note was repaid
in April 2000.
In March 2000, an officer of the Company purchased a total of 59,035 shares
of the Company's common stock in exchange for a full recourse promissory note.
The note bears interest at 6% per annum, with interest and principle payable in
March 2005. The note is secured by the common shares purchased by the officer.
F- 18
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
7. COMMITMENTS
Leases
The Company leases its facility under a noncancelable operating lease
through 2002. Rent expense under operating lease arrangements amounted to
$14,000, $109,000 and $374,000 for the period from June 30, 1997 (inception)
through December 31, 1997 and the years ended December 31, 1998 and 1999,
respectively. Capital lease obligations represent the present value of future
rental payments under capital lease agreements for equipment. The original cost
and accumulated amortization on the equipment under capital leases is $16,000
and $11,000 at December 31, 1999. Future minimum payments under operating and
capital leases are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
<S> <C> <C>
Year ending December 31,
2000...................................................... $ 638 $ 5
2001...................................................... 662 --
2002...................................................... 171 --
------ -----
$1,471 5
====== -----
Less amount representing interest............................. 1
-----
Present value of net minimum capital lease payments........... $ 4
=====
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan that allows eligible employees to contribute
up to 15% of their pretax salary, subject to annual limits. Contributions by
the Company are at the discretion of the Board of Directors. No discretionary
contributions have been made by the Company to date.
9. SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
Facility Lease
On March 31, 2000, the Company entered into a new lease agreement for new
corporate headquarters in Hayward, California. The facility is under
construction and is expected to be completed in October 2000. The lease expires
seven years after occupancy. As part of this lease, the Company has provided
letters of credit totaling $3.25 million as a security deposit. Future minimum
payments under this operating lease total approximately $11.9 million.
Warrants
On February 1, 2000, the Company issued a warrant to purchase 117,558 shares
of series D preferred stock at an exercise price of $8.36 per share. The
warrant was issued in connection with a Content and Service agreement pursuant
to which the Company and Yahoo! have agreed to co-brand their content and make
it available to users of their services. The service component of the agreement
provides that the Company agrees to make the AvantGo Mobile Internet service,
including but not limited to Yahoo!'s content, available to Yahoo! users. A
total of 58,779 shares vested at the closing of the Company's Series D
Preferred Stock financing in March 2000. The remaining shares vest on the
earlier of one year from the issue date or the
F- 19
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
effective date of the Company's Registration Statement with respect to an
initial public offering. The warrant is non forfeitable and exercisable up to
the earlier of three years after the final vesting date or the closing date of
the Company's initial public offering of its shares of common stock which
yields minimum aggregate proceeds of $10.0 million. The fair value of $437,000
was estimated using the Black-Scholes valuation model with the following
assumptions: risk-free interest rate of 6.50%, expected life of 3 years,
expected dividend yield of 0%, and volatility of 70%. The fair value of this
warrant is being charged to operations over the term of the business
arrangement.
The company issued a second warrant on February 1, 2000 to purchase 117,558
shares of Capital Stock at the average fair value of the company's common stock
over the most recent twenty business days before the vesting date. The warrant
vests one year after the issue date in the event the company fails to enter
into a definitive agreement with this third party to which the Company agrees
to purchase a minimum of $1,000,000 of advertising within one year. If the
Company enters into this Advertising Agreement prior to the vesting date, this
warrant expires on the effective date of the Advertising Agreement. The Company
has determined that the possibility of this warrant ever vesting is remote and
has recorded no value for this warrant.
In March 2000, the company entered into a software license agreement and
three year Channel Management Agreement (Agreements). In connection with these
agreements, the company issued a warrant to purchase 358,851 shares of Series D
preferred stock at an exercise price of $8.36 per share. The warrant is
immediately exercisable and non forfeitable and expires three years from the
issue date. The fair value of the warrant of $1,521,000 was calculated using
the Black-Scholes valuation model with the following assumptions: risk-free
interest rate of 6.5%; expected life of 3 years; expected dividend yield of 0%;
and volatility rate of 70%. The estimated fair value was originally recorded in
equity and is being amortized as a reduction to revenue over the three year
term of the Agreements.
Acquisition
Effective May 26, 2000, the Company acquired Globalware Computing, Inc.
("Globalware"), a company which develops and sells software designed to
increase connectivity between business and personal databases using handheld
devices, in a transaction accounted for as a purchase. The purchase
consideration was approximately $17.1 million consisting of 1,933,300 shares of
preferred stock with a fair market value of $15.5 million, stock options to
acquire 180,438 shares of common stock with a value of $1.4 million, and
$200,000 of acquisition costs.
The fair values of equity securities issued by the Company in the
acquisition were determined as follows: common stock--$8.00 per share based on
a discount from recent per share prices of preferred stock sales to reflect the
superior rights of the preferred stock; and common stock options--$8.00 per
share based on a fair value computation as of the acquisition date using the
Black-Scholes valuation mode.
F- 20
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on deemed fair values as follows (in thousands):
<TABLE>
<S> <C>
Net tangible assets................................................ $ 666
Intangible assets:
Purchased technology............................................. 3,100
Assembled workforce.............................................. 530
Goodwill......................................................... 12,214
-------
Total intangible assets........................................ 16,510
Purchased in-process research and development to be charged to
operations in the three months ended June 30, 2000................ 600
-------
Total purchase consideration................................... $17,110
=======
</TABLE>
Goodwill arising from the acquisition will be amortized on a straight-line
basis over three years. Identified intangible assets will be amortized over
their estimated useful lives over three years.
Purchased in-process research and development consists of a single project
to develop connectivity software that enables end users to conduct wireless and
modem synchronization from Palm devices to the Globalware server. This tool has
been added to the Company's suite of products. The Company's management is
primarily responsible for estimating the fair value of the purchased in-process
research and development. The Company estimated the revenues, costs and
resulting net cash flows from the project, and discounted the net cash flows
back to their net present value. These estimates were based on several
assumptions, including those summarized below. The resultant value was then
adjusted to reflect only the value creation effort of Globalware prior to the
acquisition and further reduction by the estimated value of core technology,
which was included in capitalized purchased technology.
Revenues and operating profit attributable to the in-process research and
development were estimated over a three-year projection period. The resulting
projected net cash flows were discounted to their present value using a
discount rate of 23%, which was calculated based on the weighted-average cost
of capital, adjusted for the technology risk associated with the purchased in-
process research and development. The technology risk was considered to be
significant due to the rapid pace of technological change in the software
industry.
The following unaudited pro forma adjusted summary represents the
consolidated results of operations for the year ended December 31, 1999 and for
the period from January 1, 2000 through the date of acquisition, (May 26, 2000)
as if the acquisition of Globalware had occurred at the beginning of the pro
forma periods presented and is not intended to be indicative of future results
(in thousands, except per share amounts).
<TABLE>
<CAPTION>
Period from
Year ended January 1,
December 31, 2000 to May
1999 26, 2000
------------ -----------
<S> <C> <C>
Pro forma adjusted total revenues.................... 4,324 5,426
Pro forma adjusted net loss.......................... (14,190) (13,771)
Pro forma adjusted net loss per share--basic and
diluted............................................. $ (2.25) $ (2.31)
</TABLE>
The pro forma results of operations include historical operations of the
Company and Globalware adjusted to reflect certain pro forma adjustments,
including amortization of goodwill and other intangible assets arising
F-21
<PAGE>
AVANTGO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited
from the acquisition and do not include the charge for purchased in-process
research and development of $600,000 since it is a nonrecurring charge. These
results do not purport to be indicative of what would have occurred had the
acquisition been made as of those dates or the results of operations which may
occur in future periods.
Proposed Public Offering of Common Stock
In May 2000, the Board of Directors authorized the Company to proceed with
an initial public offering of its common stock. If the offering is consummated
as presently anticipated, all of the outstanding preferred stock will
automatically convert to common stock. The unaudited pro forma stockholders'
equity at June 30, 2000 gives effect to the conversion of all outstanding
shares of convertible preferred stock at that date into 17,136,261 shares of
common stock upon the completion of the offering. In addition, the Board of
Directors authorized an increase in the number of authorized shares of common
stock to 150,000,000 and a decrease in the number of authorized shares of
undesignated preferred stock to 10,000,000 shares, to be effective at the
closing of the offering.
2000 Stock Incentive Plan
In May 2000, the Company's Board of Directors adopted, subject to
stockholder approval, the 2000 Stock Incentive Plan. There are 1,500,000 shares
of common stock authorized for issuance under the plan and any shares reserved
but not granted under the 1997 Stock Option Plan or returned to the Plan upon
termination of options will also be available for issuance.
2000 Employee Stock Purchase Plan
In May 2000, the Company's Board of Directors adopted, subject to
stockholder approval, the 2000 Employee Stock Purchase Plan. The Company has
initially reserved a total of 350,000 shares of common stock for issuance under
the plan. Beginning with the date of the Company's initial public offering of
its common stock, eligible employees may purchase common stock at 85% of the
lesser of the fair market value of the Company's common stock on the first day
of the applicable six-month offering period or fair market value of the
Company's common stock at the date of purchase.
F-22
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Globalware Computing, Inc.
We have audited the accompanying balance sheets of Globalware Computing,
Inc. as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity, 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 financial statements referred to above present fairly,
in all material respects, the financial position of Globalware Computing, Inc.
at December 31, 1998 and 1999, and the consolidated results of its operations
and its 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.
/s/ Ernst & Young LLP
Chicago, Illinois
May 19, 2000
F-23
<PAGE>
GLOBALWARE COMPUTING, INC.
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
-------------- March 31,
1998 1999 2000
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 121 $ 442 $ 758
Short-term investments........................... 4 -- --
Accounts receivable, less allowance for doubtful
accounts of $31,000 in 1998 and $61,000 in 1999,
and 2000........................................ 52 101 212
------ ------ ------
Total current assets........................... 177 543 970
Property and Equipment, net........................ 39 65 66
Deposits........................................... -- 1 8
------ ------ ------
Total assets....................................... $ 216 $ 609 $1,044
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities......... $ 95 $ 34 $ 18
Due to related party............................. -- 140 162
------ ------ ------
Total current liabilities...................... 95 174 180
Stockholders' Equity:
Common stock, no par value:
Authorized shares--10,000; issued and
outstanding shares--1,000 at December 31, 1998
and 1999, and March 31, 2000.................... 6 395 395
Deferred stock compensation...................... -- (368) (356)
Retained earnings................................ 130 408 825
Accumulated other comprehensive income (loss).... (15) -- --
------ ------ ------
Total stockholders' equity......................... 121 435 864
------ ------ ------
Total liabilities and stockholders' equity......... $ 216 $ 609 $1,044
====== ====== ======
</TABLE>
See accompanying notes.
F-24
<PAGE>
GLOBALWARE COMPUTING, INC.
STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
--------------------- -------------
1997 1998 1999 1999 2000
------ ------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees........................... $ 185 $ 647 $1,435 $ 261 $ 716
Services............................... 165 -- -- -- --
------ ------ ------ ------ ------
Total revenues....................... 350 647 1,435 261 716
Operating expenses:
Product development (1)................ 56 265 393 59 66
Sales and marketing.................... 11 166 453 77 127
General and administrative (2)......... 49 167 316 50 77
Amortization of deferred stock
compenstion........................... 21 -- 12
------ ------ ------ ------ ------
Total operating expenses............. 116 598 1,183 186 282
------ ------ ------ ------ ------
Income from operations................... 234 49 252 75 434
Interest income (expense), net........... -- 5 15 2 7
Gain (loss) on sale of investments....... -- (11) 11 -- (24)
------ ------ ------ ------ ------
Net income............................... $ 234 $ 43 $ 278 $ 77 $ 417
====== ====== ====== ====== ======
Net income per share:
Basic earnings per share............... $ 234 $ 43 $ 278 $ 77 $ 417
====== ====== ====== ====== ======
Diluted earnings per share............. $ 234 $ 43 $ 265 $ 77 $ 391
====== ====== ====== ====== ======
Shares used in calculation of net income
per share:
Basic.................................. 1,000 1,000 1,000 1,000 1,000
====== ====== ====== ====== ======
Diluted................................ 1,000 1,000 1,048 1,033 1,067
====== ====== ====== ====== ======
</TABLE>
---------------------
(1) Excluding $15 and $9 in amortization of deferred stock compensation for the
year ended December 31, 1999 and the three months ended March 31, 2000,
respectively.
(2) Excluding $6 and $3 in amortization of deferred stock compensation for the
year ended December 31, 1999 and the three months ended March 31, 2000,
respectively.
See accompanying notes.
F-25
<PAGE>
GLOBALWARE COMPUTING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Accumulated
Common Stock Deferred Other
------------- Stock Retained Comprehensive
Shares Amount Compensation Earnings Income (Loss) Total
------ ------ ------------ -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 1,000 $ 1 $ -- $ 39 $ (17) $ 23
Net income............ -- -- -- 234 -- 234
Subchapter S
Distributions........ -- -- -- (101) -- (101)
Unrealized loss on
available for sale
securities........... -- -- -- -- (7) (7)
----- ----- ----- ----- ----- -----
Balance at December 31,
1997................... 1,000 1 -- 172 (24) 149
Net income............ -- -- -- 43 -- 43
Subchapter S
distributions........ -- -- -- (85) -- (85)
Options issued to
nonemployees for
services............. -- 5 -- -- -- 5
Unrealized loss on
available for sale
securities net of
reclassification
adjustment for loss
included in net
income............... -- -- -- -- 9 9
----- ----- ----- ----- ----- -----
Balance at December 31,
1998................... 1,000 6 -- 130 (15) 121
Net income............ -- -- -- 278 -- 278
Deferred stock
compensation......... 389 (389)
Amortization of
deferred stock
compensation......... -- -- 21 -- -- 21
Reclassification
adjustment for loss
included in net
income............... -- -- -- -- 15 15
----- ----- ----- ----- ----- -----
Balance at December 31,
1999................... 1,000 (395) (368) 408 -- 435
Net income
(unaudited).......... -- -- -- 417 -- 417
Amortization of
deferred stock
compensation
(unaudited).......... -- -- 12 -- -- 12
----- ----- ----- ----- ----- -----
Balance at March 31,
2000 (unaudited)....... 1,000 $ 395 $(356) $ 825 $ -- $ 864
===== ===== ===== ===== ===== =====
</TABLE>
See accompanying notes.
F-26
<PAGE>
GLOBALWARE COMPUTING, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31 March 31,
-------------------------- -------------
1997 1998 1999 1999 2000
-------- ------- ------- ----- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income......................... $ 234 $ 43 $ 278 $ 77 $ 417
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation..................... 6 11 16 3 5
Provision for doubtful accounts.. 10 21 30 -- --
Options issued for services...... -- 5 -- -- --
Stock compensation expense....... -- -- 21 -- 12
Loss (gain) on sale of
investments..................... -- 11 (11) -- 24
Changes in operating assets and
liabilities:
Accounts receivable............ (33) (50) (79) (3) (111)
Prepaid expenses and other
current assets................ (7) -- -- -- --
Deposits....................... -- -- (1) -- --
Accounts payable and accrued
liabilities................... 55 30 (61) 34 (16)
Due to related party........... -- -- 140 -- 22
-------- ------- ------- ----- ------
Net cash provided by
operating activities........ 272 71 333 111 346
Investing Activities:
Purchases of property and
equipment......................... (18) (23) (42) (11) (6)
Purchases of short-term
investments....................... -- -- (10) -- (24)
Proceeds from redemption of short-
term investments.................. -- -- 40 -- --
-------- ------- ------- ----- ------
Net cash used in investing
activities.................. (18) (23) (12) (11) (30)
Financing Activities:
Distribution to stockholder........ (101) (85) -- -- --
-------- ------- ------- ----- ------
Net cash used in financing
activities.................. (101) (85) -- -- --
-------- ------- ------- ----- ------
Net change in cash and cash
equivalents........................ 153 (37) 321 100 316
Cash and cash equivalents at
beginning of period................ 5 158 121 121 442
-------- ------- ------- ----- ------
Cash and cash equivalents at end of
period............................. $ 158 $ 121 $442 $ 221 $ 758
======== ======= ======= ===== ======
</TABLE>
See accompanying notes.
F-27
<PAGE>
GLOBALWARE COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
Globalware Computing, Inc. (the "Company") was incorporated in Illinois on
August 2, 1994 and develops software and provides consulting services that
extend business applications to handheld devices. The Company's products enable
professionals to create and manage real-time personal and corporate information
by use of the rapidly growing mobile enterprise market.
The Company began as a consulting company and in 1997 added software license
sales to its operations. Most of the revenue from 1998 to date has come from
license sales and upgrades.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Interim Financial Information
The interim financial information as of March 31, 2000 and for the three
months ended March 31, 1999 and 2000 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of its financial position at that date and
its results of operations and cash flows for those periods. Operating results
for the three months ended March 31, 2000 are not necessarily indicative of
results that may be expected for any future periods.
Cash and Cash Equivalents
The Company's cash and cash equivalents consist of money market accounts.
The Company considers all highly liquid investments with an original maturity
from date of purchase of three months or less to be cash and cash equivalents.
Investments
All of the investments held by the Company at December 31, 1998 and 1999,
are classified as available-for-sale. Under Statement No. 115, available-for-
sale securities are carried at fair value, with the unrealized gains and losses
reported as a separate component of stockholders' equity. Realized gains and
losses and declines in value judged to be other-than-temporary on available-
for-sale securities are included in interest income. The cost of securities
sold is based on the specific identification method. Interest and dividends are
included in interest income.
Property and Equipment
Property and equipment are stated at cost, net of accumulated amortization
and depreciation. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets, generally three to five
years.
F-28
<PAGE>
GLOBALWARE COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
Software Development Costs
Development costs incurred in the research and development of new software
products are expensed as incurred until technological feasibility in the form
of a working model has been established. To date, the Company's software
development projects have been completed concurrent with the establishment of
technological feasibility, and, accordingly, all software development costs
have been charged to product development expense in the accompanying statements
of operations.
Concentrations of Credit Risk and Credit Evaluations
The Company is subject to concentrations of credit risk from its holdings of
cash and cash equivalents, which are held with two domestic financial
institutions. Also, the Company sells its products in the United States and
foreign markets on a credit basis. The Company performs ongoing credit
evaluations, does not require collateral and maintains reserves for potential
credit losses on customer accounts when deemed necessary.
Revenue Recognition
The Company generates revenue through the sale of software licenses and
professional services. The Company's license revenues are generated from
licensing the Company's products directly to end-users and through re-sellers.
The Company recognizes revenue from software licenses, net of credit card fees,
when the passcode is electronically mailed to the customer, which is when the
customer has full access to the license, the fees are fixed or determinable,
collectibility is probable and vendor-specific objective evidence exists to
allocate the total fee to elements of the arrangement.
Revenues from professional services, which are pursuant to time and material
contracts, are recognized as services are performed. Revenues exclude
reimbursable expenses chargeable to the client.
Stock-Based Compensation
The Company accounts for employee stock option grants using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25 and
has adopted the disclosure-only alternative of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123").
Advertising Expense
The cost of advertising is expensed as incurred. Advertising costs, which
are included in sales and marketing expense, were approximately $20,000 and
$52,000 for the years ended December 31, 1998 and 1999, respectively. No
advertising costs were incurred in 1997.
Income Taxes
The stockholders of the Company have elected, under Subchapter S of the
Internal Revenue Code, to include the Company's income or loss in their federal
and state income tax returns. Accordingly, the Company is generally not subject
to federal or state income taxes.
F-29
<PAGE>
GLOBALWARE COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
Recent Accounting Pronouncement
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative and Hedging Activities" ("SFAS 133") was issued.
SFAS 133 is required to be adopted in years beginning after June 15, 2000. SFAS
133 establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Company will adopt SFAS 133 in its year ending December
31, 2001 and does not expect such adoption to have a material impact on the
Company's results of operations, financial position or cash flows.
2. INVESTMENTS
The Company had no available-for-sale securities outstanding at December 31,
1999. At December 31, 1998 the Company had available for sale securities,
consisting of common stock, with a cost basis of $19,000 and gross unrealized
losses of $15,000. The estimated fair value of these securities at December 31,
1998 was $4,000.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ ------
<S> <C> <C>
Equipment.................................................. $ 65 $ 98
Furniture and fixtures..................................... 1 10
------ ------
66 108
Less accumulated depreciation............................ (27) (43)
------ ------
$ 39 $ 65
====== ======
</TABLE>
4. DUE TO RELATED PARTY
The Company entered into an agreement with a consultant during 1998 to
provide research and development services related to a new product. The
agreement also provides for the payment of royalties to the consultant based on
sales of the new product. The Company was obligated to pay the employee
$138,000 and $2,000 for research and development and royalties, respectively,
at December 31, 1999. The consultant was hired as an employee of the Company
during 1999. Costs associated with the research and development services were
expensed as incurred.
F-30
<PAGE>
GLOBALWARE COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except share and per share data).
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Numerator
Net income........................................... $ 234 $ 43 $ 278
====== ====== ======
Denominator
Denominator for basic earning per share--
weighted-average shares............................. 1,000 1,000 1,000
------ ------ ------
Effect of dilutive securities:
Employee stock options.............................. -- -- 48
------ ------ ------
Denominator for diluted earnings per share--
Adjusted weighted-average shares.................... 1,000 1,000 1,048
====== ====== ======
Basic earnings per common share...................... $ 234 $ 43 $ 278
====== ====== ======
Diluted earnings per common share.................... $ 234 $ 43 $ 265
====== ====== ======
</TABLE>
6. STOCKHOLDERS' EQUITY
Stock Option Plan
The Company's 1998 stock option plan (the Plan) provides for the issuance of
incentive stock options and nonqualified stock options for up to 100 shares of
common stock to eligible employees and officers of the Company. The options can
be granted for periods of up to ten years and generally vest ratably over a
four-year period.
Had stock options been accounted for under the fair value method recommended
by SFAS 123, the Company's net income on a pro forma basis would be as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net income, as reported.................................... $234 $43 $278
Net income, pro forma...................................... 234 43 261
Pro forma diluted earnings per share....................... $234 $43 $249
</TABLE>
The fair value of stock options used to compute pro forma net income is the
estimated present value at the grant date using the minimum value option-
pricing model with the following assumptions: dividend yield of 0%; risk-free
interest rates of 5.00% for 1999 and 4.65% for 1998 and a weighted-average
expected option life of four years.
F-31
<PAGE>
GLOBALWARE COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
Information related to the Plan is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number Exercise
of Shares Price
--------- ---------
<S> <C> <C>
Granted............................................ 10 $ 250
---
Outstanding at December 31, 1998..................... 10 250
Granted............................................ 36 1,000
---
Outstanding at December 31, 1999..................... 46 $ 837
===
Exercisable at December 31, 1999..................... 9 $ 630
===
Available for grant at December 31, 1999............. 16
===
</TABLE>
The weighted average fair value of options granted during 1999 was $6,000.
At December 31, 1999, the options outstanding have a weighted average remaining
contractual life of 9.23 years. There was no activity under this plan from
January 1, 2000 through March 31, 2000.
The Company issued 24 options to purchase common stock to non- employees
during 1998 for consulting services. The options vest over two years and have
an exercise price of $250. The services provided in exchange for the options
were performed as of the date of grant. The fair value of the options, as
calculated using the Black-Scholes method, was estimated at $5,000 at the date
of the grant. During 1998, the Company recorded $5,000 of compensation expense
for options issued for services.
In applying the Black-Scholes method, the Company has used an expected
dividend yield of zero, a risk-free interest rate of 4.65%, a volatility factor
of 135% and a fair value of the underlying common shares of $250. The expected
life equaled the term of the options.
7. LEASE COMMITMENTS
The Company leases its facilities under a noncancelable operating lease
through September 2000. The lease requires the Company to pay operating costs,
including property taxes, normal maintenance and insurance. The Company is
obligated to pay $12,000 during the year ending December 31, 2000.
Rent expense under operating lease arrangements was $0, $7,000 and $15,000
for the years ended December 31, 1997, 1998 and 1999, respectively.
8. SUBSEQUENT EVENTS (UNAUDITED)
On May 26, 2000, the Company signed a definitive agreement to be acquired by
AvantGo, Inc. in exchange for 1,933,300 shares of Series E preferred stock of
the acquiring company. The financial statements do not include any adjustments
to the recorded amounts of assets and liabilities which may result from this
transaction.
F-32
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The selected unaudited pro forma condensed combined financial information
for the Company set forth below gives effect to the acquisition of Globalware
Computing, Inc. ("Globalware"). The historical financial information set forth
below has been derived from, and is qualified by reference to, the consolidated
financial information of the Company and Globalware and should be read in
conjunction with those financial statements and the notes thereto included
elsewhere herein. The selected unaudited pro forma condensed combined
statements of operations data for the year ended December 31, 1999 and the six
months ended June 30, 2000 set forth below give effect to the acquisition as if
it occurred on the first day of each of those periods under the purchase method
of accounting. The selected unaudited pro forma condensed combined financial
information reflects certain adjustments, including adjustments to reflect the
amortization of goodwill and other intangible assets resulting from the
acquisition. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Financial Statements--the Company and Globalware." The
selected unaudited pro forma condensed combined financial information does not
purport to represent what the consolidated results of operations or financial
condition of the Company would actually have been if the Globalware acquisition
had in fact occurred on such dates or the future consolidated results of
operations or financial condition of the Company.
F-33
<PAGE>
AVANTGO, INC.
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 1999
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------- --------------------
Business
Globalware Combination
AvantGo Computing Combined Adjustments Combined
------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.......... $ 1,443 $1,435 $ 2,878 $ -- $ 2,878
Services.............. 1,446 -- 1,446 -- 1,446
------- ------ ------- ------- --------
Total revenues...... 2,889 1,435 4,324 4,324
Costs and expenses:
Cost of license fees.. 60 -- 60 -- 60
Costs of services
(A).................. 1,312 -- 1,312 -- 1,312
Product development
(B).................. 2,745 393 3,138 -- 3,138
Sales and marketing
(C).................. 4,291 453 4,744 -- 4,744
General and
administrative (D)... 1,404 316 1,720 -- 1,720
Amortization of
deferred stock
compensation......... 2,605 21 2,626 2,626
Amortization of
goodwill and other
intangible assets.... -- -- -- (2) 5,253 5,253
------- ------ ------- ------- --------
Total costs and
expenses........... 12,417 1,183 13,600 5,253 18,853
------- ------ ------- ------- --------
Income (loss) from
operations............. (9,528) 252 (9,276) (5,253) (14,529)
Interest income
(expense), net......... 313 26 339 339
------- ------ ------- ------- --------
Net income (loss)....... $(9,215) $ 278 $(8,937) $(5,253) $(14,190)
======= ====== ======= ======= ========
Basic and diluted net
loss per share (4)..... $ (2.11) $ (2.25)
======= ========
Number of shares used in
calculation of net loss
per share (4).......... 4,377 6,310
======= ========
</TABLE>
---------------------
(A) Excluding $181 in amortization of deferred stock compensation for the year
ended December 31, 1999.
(B) Excluding $765 in amortization of deferred stock compensation for the year
ended December 31, 1999.
(C) Excluding $1,211 in amortization of deferred stock compensation for the
year ended December 31, 1999.
(D) Excluding $469 in amortization of deferred stock compensation for the year
ended December 31, 1999.
See accompanying notes to selected unaudited pro forma condensed combined
financial information.
F-34
<PAGE>
AVANTGO, INC.
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Six months ended June 30, 2000
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------- --------------------
Business
Globalware Combination
AvantGo Computing(1) Combined Adjustments Combined
-------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.......... $ 2,814 $957 $ 3,771 $ -- $ 3,771
Services.............. 2,303 6 2,309 -- 2,309
-------- ---- -------- ------- --------
Total revenues...... 5,117 963 6,080 6,080
Costs and expenses:
Cost of license fees.. 78 -- 78 -- 78
Costs of services
(A).................. 1,412 2 1,414 -- 1,414
Product development
(B).................. 3,110 209 3,319 -- 3,319
Sales and marketing
(C).................. 9,638 409 10,047 -- 10,047
General and
administrative (D)... 2,682 248 2,930 -- 2,930
Purchased in process
research and
development.......... 600 -- 600 (2) (600) --
Amortization of
deferred stock
compensation......... 6,301 20 6,321 -- 6,321
Amortization of
goodwill and other
intangible assets.... 440 -- 440 (2) 2,187 2,627
-------- ---- -------- ------- --------
Total costs and
expenses........... 24,261 888 25,149 1,587 26,736
-------- ---- -------- ------- --------
Income (loss) from
operations............. (19,144) 75 (19,069) (1,587) (20,656)
Interest income
(expense), net......... 712 (9) 703 703
-------- ---- -------- ------- --------
Net income (loss)....... $(18,432) $ 66 $(18,366) $(1,587) $(19,953)
======== ==== ======== ======= ========
Basic and diluted net
loss per share(3)...... $ (3.02) $ (2.48)
======== ========
Number of shares used in
calculation of net loss
per share(3)........... 6,097 8,030
======== ========
</TABLE>
--------------------
(A) Excluding $209 in amortization of deferred stock compensation for the three
months ended June 30, 2000.
(B) Excluding $831 in amortization of deferred stock compensation for the three
months ended June 30, 2000.
(C) Excluding $1,458 in amortization of deferred stock compensation for the
three months ended June 30, 2000.
(D) Excluding $3,823 in amortization of deferred stock compensation for the
three months ended June 30, 2000.
See accompanying notes to selected unaudited pro forma condensed combined
financial information.
F-35
<PAGE>
NOTES TO SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
AvantGo acquired Globalware Computing Systems, Inc. on May 26, 2000 in a
transaction accounted for as a purchase. The total purchase cost was
approximately $17.1 million consisting of 1,933,300 shares of AvantGo Series E
preferred stock, (with a fair value of approximately $15.5 million,) the
assumption of outstanding stock options with a fair value of approximately $1.4
million, and transaction costs of approximately $200,000.
Pro forma adjustments for the unaudited pro forma condensed combined
statements of operations for the year ended December 31, 1999 and the six
months ended June 30, 2000 are as follows:
1. Globalware Computing Systems historical amounts include all activity from
January 1, 2000 through May 26, 2000 (the day the transaction occurred).
2. To reflect amortization of goodwill and other intangible assets resulting
from the acquisition.
The pro forma condensed combined statements of operations for the year
ended December 31, 1999 and the six months ended June 30, 2000 does not
include the purchased research and development related charge of
approximately $600,000 since it is considered a non-recurring charge.
3. Basic and diluted net loss per share has been adjusted to reflect the
issuance of 1,933,300 shares of AvantGo Series E preferred stock, as if
these shares had been outstanding for the entire period. Dilutive options
and warrants are excluded from the computation as their effect is
antidilutive.
F-36
<PAGE>
[LOGO OF AVANTGO]
