<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 18, 2000
CYBERSOURCE CORPORATION
------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
----------------------------------------------------
(State or Other Jurisdiction of Incorporation)
000-26477 77-0472961
------------------------ --------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
1295 Charleston Road, Mountain View, California 94043
------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(650) 965-6000
--------------------------------------------------------
(Registrant's telephone number, including area code)
550 South Winchester Blvd., Suite 301, San Jose, California 95128
-----------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
1
<PAGE>
INFORMATION TO BE INCLUDED IN REPORT
Item 2. Acquisition or Disposition of Assets.
On September 18, 2000, pursuant to the Agreement and Plan of Merger, dated
as of July 9, 2000, by and among CyberSource Corporation, a Delaware corporation
(the "Registrant"), Sapphire Merger, Inc., a Delaware corporation ("Merger
Sub"), and PaylinX Corporation, a privately held Delaware corporation
("PaylinX") (the "Agreement"), the Registrant completed the merger of Merger
Sub, a wholly-owned subsidiary of the Registrant, with and into PaylinX, with
PaylinX being the surviving corporation of the merger and becoming a wholly-
owned subsidiary of the Registrant. The transaction was closed on September 18,
2000 and is being accounted for as a purchase.
As consideration for the transaction, the Registrant issued an aggregate of
8,807,831 shares of the Registrant's common stock, $0.001 par value, in exchange
for all of the outstanding shares of capital stock of PaylinX, subject to the
withholding of 10% of such shares in escrow in accordance with the terms of the
Agreement. At the effective time of the merger, all outstanding options and
warrants to purchase shares of PaylinX common stock were automatically converted
into options and warrants to purchase 2,571,090 shares of the Registrant's
common stock based upon the conversion factor set forth in the Agreement with
corresponding adjustments to their respective exercise prices.
The Registrant currently intends that PaylinX's business will continue to
be operated in its current manner. Certain of the assets of PaylinX were used
in the development and support of PaylinX's Internet-based payment transaction
processing platform, and the Registrant currently intends to use such assets in
substantially the same manner.
The total value of consideration paid for the purchase transaction was
determined based on arm's length negotiations between the Registrant and
PaylinX, which took into account PaylinX's financial position, operating
history, products, intellectual property and other factors relating to PaylinX's
business and certain income tax aspects of the transaction. There are no
material relationships between PaylinX and either the Registrant or Merger Sub
or any of their respective affiliates or any director or officer of the
Registrant or Merger Sub or any associate of such director or officer.
2
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Acquired Business.
------------------------------------------
(1) PaylinX Corporation audited financial statements for the years ended
December 31, 1999, 1998 and 1997.
(2) PaylinX Corporation unaudited financial statements for the three and
six months ended June 30, 2000 and 1999.
3
<PAGE>
REPORT OF ARTHUR ANDERSEN LLP INDEPENDENT AUDITORS
To PaylinX Corporation:
We have audited the accompanying balance sheets of PaylinX Corporation (a
Missouri corporation) as of December 31, 1999 and 1998, and the related
statements of operations, stockholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PaylinX Corporation as of
December 31, 1999 and 1998, and the 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/ Arthur Andersen LLP
St. Louis, Missouri,
February 4, 2000
4
<PAGE>
PAYLINX CORPORATION
BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents......................... $ 745,769 $ 3,198,437
Accounts receivable............................... 851,027 235,366
Other current assets.............................. 118,000 43,547
------------ -----------
Total current assets............................ 1,714,796 3,477,350
PROPERTY AND EQUIPMENT.............................. 4,327,430 153,038
OTHER ASSETS........................................ 376,634 32,000
------------ -----------
Total assets.................................... $ 6,418,860 $ 3,662,388
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
(DEFICIT)
---------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.......... $ 5,660,126 $ 40,900
Accrued compensation and related expenses......... 158,299 17,714
Deferred revenue.................................. 787,846 122,885
Notes payable..................................... 4,000,000 --
Other current liabilities......................... 79,535 --
------------ -----------
Total current liabilities....................... 10,685,806 181,499
OTHER LONG-TERM OBLIGATIONS......................... 813,961 --
LONG-TERM DEBT...................................... 5,787,000 --
Series A convertible redeemable preferred stock
($.01 par value, 400,800 shares issued and
outstanding, liquidation value of $4,008,000).... 4,437,000 4,008,000
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock ($.01 par value, 2,000,000 shares
authorized, 1,868,908 and 1,866,200 shares issued
and outstanding)................................. 18,689 18,662
Additional paid-in capital........................ 4,532,270 2,095,961
Deferred compensation............................. (2,360,577) (1,620,600)
Retained deficit.................................. (17,495,289) (1,021,134)
------------ -----------
Total stockholders' equity (deficit)............ (15,304,907) (527,111)
------------ -----------
Total liabilities and stockholders' equity
(deficit)...................................... $ 6,418,860 $ 3,662,388
============ ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
5
<PAGE>
PAYLINX CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
REVENUE:
License fees.......................... $ 2,693,753 $ 590,754 $ 374,737
Maintenance........................... 466,095 154,247 62,010
------------ ---------- ----------
Total revenue....................... 3,159,848 745,001 436,747
------------ ---------- ----------
OPERATING EXPENSES:
Cost of revenue....................... 605,697 80,017 30,088
Research and development.............. 4,067,124 262,445 120,354
Selling and marketing................. 6,985,615 340,035 124,730
General and administrative............ 6,894,161 664,301 290,220
Loss on disposal of assets............ 444,503 -- --
------------ ---------- ----------
Total operating expenses............ 18,997,100 1,346,798 565,392
------------ ---------- ----------
Operating loss.......................... (15,837,252) (601,797) (128,645)
------------ ---------- ----------
OTHER (INCOME) EXPENSES:
Interest expense...................... 280,149 21,480 19,053
Other (income) expense................ (72,246) 58,080 --
------------ ---------- ----------
Total other expenses................ 207,903 79,560 19,053
------------ ---------- ----------
Net loss................................ $(16,045,155) $ (681,357) $ (147,698)
============ ========== ==========
Basic and diluted loss per share........ $ (8.82) $ (0.37) $ (0.08)
============ ========== ==========
Weighted average shares used in basic
and diluted per share computation...... 1,867,103 1,855,366 1,799,250
============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
PAYLINX CORPORATION
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Series A
Convertible
Redeemable
Preferred Stock Common Stock Additional
------------------ ------------------ Paid-In Deferred Retained
Shares Amount Shares Amount Capital Compensation Deficit Total
------- ---------- ---------- ------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1996.................... -- $ -- 850,000 $ 8,500 $ -- $ -- $ (192,079) $ (183,579)
Issuance of common
stock................. -- -- 51,800 518 292,707 -- -- 293,225
Net loss.............. -- -- -- -- -- -- (147,698) (147,698)
------- ---------- ---------- ------- ---------- ----------- ------------ ------------
BALANCE, DECEMBER 31,
1997.................... -- -- 901,800 9,018 292,707 -- (339,777) (38,052)
Issuance of common
stock................. -- -- 31,300 313 114,885 -- -- 115,198
Compensation expense
recorded on stock
options............... -- -- -- -- 1,697,600 (1,620,600) -- 77,000
Issuance of preferred
stock and warrants.... 400,800 4,008,100 -- -- -- -- -- --
Net loss.............. -- -- -- -- -- -- (681,357) (681,357)
------- ---------- ---------- ------- ---------- ----------- ------------ ------------
BALANCE, DECEMBER 31,
1998.................... 400,800 4,008,000 933,100 9,331 2,105,192 (1,620,600) (1,021,134) 3,480,889
Stock split........... -- -- 933,100 9,331 (9,331) -- -- --
------- ---------- ---------- ------- ---------- ----------- ------------ ------------
BALANCE, DECEMBER 31,
1998 (Restated for
stock split)............ 400,800 4,008,000 1,866,200 18,662 2,095,961 (1,620,600) (1,021,134) 3,480,889
Issuance of common
stock................. -- -- 2,708 27 2,681 -- -- 2,708
Compensation expense
recorded on stock
options............... -- -- -- -- 2,433,628 (739,977) -- 1,693,651
Accretion related to
Series A convertible
redeemable preferred
stock................. 429,000 -- -- -- -- (429,000) --
Net loss.............. -- -- -- -- -- -- (16,045,155) (16,045,155)
------- ---------- ---------- ------- ---------- ----------- ------------ ------------
BALANCE, DECEMBER 31,
1999.................... 400,800 $4,437,000 1,868,908 $18,689 $4,532,270 $(2,360,577) $(17,495,289) $(10,867,907)
======= ========== ========== ======= ========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
PAYLINX CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ---------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................ $(16,045,155) $ (681,357) $(147,698)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization......... 387,746 65,000 13,100
Loss on disposal of assets............ 444,503 -- --
Other long-term obligations........... 813,961 -- --
Compensation expense recorded on stock
options.............................. 1,693,651 77,000 --
Other noncash charges................. -- 198 225
Changes in assets and liabilities--
Accounts receivable................... (615,661) (175,901) (59,465)
Accounts payable and accrued
expenses............................. 5,619,226 (76,578) 23,038
Accrued compensation and related
expenses............................. 140,585 (100,355) 73,328
Deferred revenue...................... 664,961 66,896 37,208
Other................................. (339,552) (51,130) (23,565)
------------ ---------- ---------
Total adjustments................... 8,809,420 (194,870) 63,869
------------ ---------- ---------
Net cash used in operating
activities......................... (7,235,735) (876,227) (83,829)
------------ ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..... (5,101,641) (172,774) (44,824)
Sale of property........................ 95,000 -- --
------------ ---------- ---------
Net cash used in investing
activities......................... (5,006,641) (172,774) (44,824)
------------ ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.. 2,708 115,000 293,000
Proceeds from issuance of preferred
stock and warrants..................... -- 4,008,100 --
Proceeds from borrowings................ 9,787,000 -- --
Payments on borrowings.................. -- -- (50,000)
------------ ---------- ---------
Net cash provided by financing
activities............................... 9,789,708 4,123,100 243,000
------------ ---------- ---------
Net (decrease) increase in cash and cash
equivalents.............................. (2,452,668) 3,074,099 114,347
CASH AND CASH EQUIVALENTS, beginning of
year..................................... 3,198,437 124,338 9,991
------------ ---------- ---------
CASH AND CASH EQUIVALENTS, end of year.... $ 745,769 $3,198,437 $ 124,338
============ ========== =========
CASH PAID FOR INTEREST.................... $ 18,210 $ 21,480 $ 19,053
============ ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
PAYLINX CORPORATION
UNAUDITED FINANCIAL STATEMENTS
Quarterly Report for the Period Ended June 30, 2000
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents......................... $ 11,535,388 $ 745,769
Accounts receivable, net of allowance of
$437,315 and $225,000, respectively.............. 2,814,576 851,027
Other current assets.............................. 224,525 118,000
------------ ------------
Total current assets............................ 14,574,489 1,714,796
PROPERTY AND EQUIPMENT............................. 3,953,070 4,327,430
OTHER ASSETS....................................... 403,578 376,634
------------ ------------
Total assets.................................... $ 18,931,137 $ 6,418,860
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.......... $ 882,455 $ 5,660,126
Accrued compensation and related expenses......... 722,819 158,299
Deferred revenue.................................. 1,360,560 787,846
Notes payable..................................... -- 4,000,000
Other current liabilities......................... -- 79,535
------------ ------------
Total current liabilities....................... 2,965,834 10,685,806
OTHER LONG-TERM OBLIGATIONS........................ 835,606 813,961
LONG-TERM DEBT..................................... -- 5,787,000
Series A convertible redeemable preferred stock
($.01 par value, 801,600 shares issued and
outstanding, liquidation value of $4,008,000)... 4,614,736 4,437,000
Series B convertible redeemable preferred stock
($.01 par value, 4,066,519 and 0 shares issued
and outstanding)................................. 31,301,840 --
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock ($.01 par value, 20,000,000 shares
authorized, 2,184,202 and 1,868,908 shares
issued and outstanding).......................... 21,842 18,689
Additional paid-in capital........................ 5,161,179 4,532,170
Deferred compensation............................. (1,795,772) (2,360,577)
Retained deficit.................................. (24,174,128) (17,495,289)
------------ ------------
Total stockholders' equity (deficit)............ (20,786,879) (15,304,907)
------------ ------------
Total liabilities and stockholders' equity
(deficit)...................................... $ 18,931,137 $ 6,418,860
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
PAYLINX CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
License fees.......... $ 2,509,580 $ 446,660 $ 5,146,319 $ 747,668
Maintenance........... 416,960 77,802 705,491 145,067
----------- ----------- ----------- -----------
Total revenue....... 2,926,540 524,462 5,851,810 892,735
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Cost of revenue....... 297,668 121,475 652,413 178,383
Research and
development.......... 1,292,755 847,899 2,642,836 1,084,525
Selling and
marketing............ 2,414,502 750,456 4,922,656 1,037,855
General and
administrative....... 2,345,772 725,907 3,878,111 1,250,241
----------- ----------- ----------- -----------
Total operating
expenses........... 6,350,697 2,445,737 12,096,016 3,551,004
----------- ----------- ----------- -----------
Operating loss.......... (3,424,157) (1,921,275) (6,244,206) (2,658,269)
----------- ----------- ----------- -----------
OTHER (INCOME) EXPENSES:
Interest expense...... (213,984) (10,153) 255,410 10,153
Other (income)
expense.............. -- (13,241) 1,487 (44,519)
----------- ----------- ----------- -----------
Total other
expenses........... (213,984) (3,088) 256,897 (34,366)
----------- ----------- ----------- -----------
Net loss................ $(3,210,173) $(1,918,187) $(6,501,103) $(2,623,903)
=========== =========== =========== ===========
Basic and diluted loss
per share.............. $ (1.68) $ (1.03) $ (3.27) $ (1.41)
=========== =========== =========== ===========
Weighted average shares
used in basic and
diluted per share
computation............ 1,958,981 1,866,200 2,041,555 1,866,200
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
PAYLINX CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June
30,
-------------------------
2000 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $ (6,501,103) $(2,623,903)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization................... 524,169 66,391
Other long-term obligations..................... 21,645 --
Compensation expense recorded on stock options.. 492,982 271,333
Changes in assets and liabilities--
Accounts receivable............................. (1,963,549) (441,844)
Accounts payable and accrued expenses........... (4,777,671) 70,132
Accrued compensation and related expenses....... 564,520 7,802
Deferred revenue................................ 572,714 129,358
Other........................................... (213,004) 18,537
------------ -----------
Net cash used in operating activities......... (11,279,297) (2,502,194)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net.......... (149,809) (1,293,749)
------------ -----------
Net cash used in investing activities......... (149,809) (1,293,749)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............ 703,885 --
Proceeds from issuance of preferred stock, net.... 21,514,840 --
Proceeds from borrowings, net..................... -- 4,033,000
------------ -----------
Net cash provided by financing activities..... 22,218,725 4,033,000
------------ -----------
Net increase in cash and cash equivalents..... 10,789,619 237,057
CASH AND CASH EQUIVALENTS, beginning of year........ 745,769 3,198,437
------------ -----------
CASH AND CASH EQUIVALENTS, end of year.............. $ 11,535,388 $ 3,435,494
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
PAYLINX CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The Company:
PaylinX Corporation (the Company) designs, develops, markets, licenses and
supports point-of-sale software systems for the processing of electronic
payments, including those arising from internet e-commerce. The Company's
payment servers perform real-time authorization, settlement and management
functions for conventional and corporate purchasing card transactions in
consumer and business-to-business application environments.
2. Summary of Significant Accounting Policies:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit with banks and money
market instruments with original maturities of 90 days or less.
Asset Impairment
The Company periodically assesses the carrying value of its long-lived
assets and recognizes impairment losses if it is determined the carrying values
are not recoverable.
Revenue Recognition
Revenue is recognized when earned. The Company licenses software under
perpetual license agreements direct to customers and to resellers and provides
maintenance and support services. The Company's revenue recognition policies
are in compliance with American Institute of Certified Public Accountants
Statements of Position 97-2, 98-4 and 98-9, "Software Revenue Recognition."
License fee revenues are generally recognized when a license agreement has been
signed, the software product has been shipped, there are no uncertainties
surrounding product acceptance, the fees are fixed and determinable, and
collection is considered probable. For customer license agreements, which meet
these recognition criteria, the portion of the fees related to software
licenses will generally be recognized in the current period. The Company
allocates a portion of contractual license fees to postcontract support
activities covered under the contract including first year maintenance.
Maintenance revenues are recognized ratably over the maintenance period, which
generally is one year.
Research and Development
Research and development costs are expensed as incurred. Costs required to
be capitalized in accordance with Statement of Financial Accounting Standards
(SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," are not material.
Income Taxes
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes," which utilizes the liability method to calculate deferred
income taxes. Under this method, deferred taxes are
12
<PAGE>
PAYLINX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
determined based on the estimated future tax effects of differences between
financial statements and tax bases of assets and liabilities given the
provisions of enacted tax laws.
The significant deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Deferred tax assets:
Start-up and organizational costs.................. $ 8,649 $ 14,263
Stock options...................................... 672,847 29,260
Reserves and accruals.............................. 843,637 6,166
Deferred tax liabilities:
Depreciation and amortization...................... (132,160) --
Net operating loss carryforward...................... 5,092,215 333,582
Valuation allowance.................................. (6,485,188) (383,271)
----------- ---------
Net deferred tax asset............................... $ -- $ --
=========== =========
</TABLE>
The Company has net operating loss carryforwards of approximately
$13,401,000 at December 31, 1999, which expire through 2019 if not utilized by
the Company in its tax return. As of December 31, 1999 and 1998, a valuation
allowance has been established to fully offset the net deferred tax asset.
Earnings Per Share
Basic earnings (loss) per share is computed by dividing net loss applicable
to common stockholders by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings (loss) per share is computed by
dividing the net loss applicable to common stockholders by the weighted average
number of common and common equivalent shares outstanding, unless the
calculation is antidilutive. For 1999, the net loss applicable to common
stockholders has been adjusted to reflect $429,000 of accretion related to the
Series A convertible redeemable preferred stock.
For all periods presented, the effect of dilutive securities is
antidilutive. As such, the denominator used in determining earnings per share
is the same for both basic and dilutive earnings per share.
3. Property and Equipment:
Property and equipment are depreciated using the straight-line method over
the estimated useful lives of the assets ranging between three and seven years.
Leasehold improvements are amortized using the straight-line method over their
useful lives or lease terms, as appropriate.
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Computer equipment..................................... $1,844,909 $173,722
Purchased software..................................... 1,214,584 15,144
Furniture and fixtures................................. 1,116,065 5,932
Leasehold improvements................................. 607,895 37,700
---------- --------
4,783,453 232,498
Less--Accumulated depreciation and amortization........ (456,023) (79,460)
---------- --------
Property and equipment, net.......................... $4,327,430 $153,038
========== ========
</TABLE>
For the years ended December 31, 1999, 1998 and 1997, depreciation and
amortization expense was $387,746, $65,000 and $13,100, respectively.
13
<PAGE>
PAYLINX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Debt:
Convertible Debt
From June to September 1999, the Company issued $5,787,000 of Convertible
Promissory Notes (Convertible Notes). The Convertible Notes are convertible to
Series B Convertible Preferred Stock (Series B Preferred) at 110% of the
original note value only upon completion of a subsequent funding round of at
least $10,000,000. The Convertible Notes have an interest rate of 8% payable
either in cash or additional Series B Preferred shares. The Convertible Notes
expire either one year from the date of execution of the Convertible Notes,
upon issuance of the Series B Preferred shares or upon any merger involving the
Company. If the Convertible Notes become exercisable and are not exercised, the
terms of the Convertible Notes are extended for one year. In January 2000, the
Company issued Series B Preferred shares and all Convertible Notes and the
associated interest were converted into Series B Preferred shares. See Note 8
for more information.
Accounts Receivable Purchase Agreement
In October 1999, the Company executed an Accounts Receivable Purchase
Agreement (the Agreement) which allowed the Company to sell up to $2,000,000 in
qualified accounts receivable for a finance charge of 1.25% per month
multiplied by the average outstanding accounts receivable plus 1% of all
accounts receivable sold that month. The Company agreed to repurchase all
accounts receivable over 90 days old, as well as any disputed accounts
receivable. The Agreement gave the issuer a lien on the cash, receivables,
property and other assets of the Company. The agreement expires in October
2000, but automatically renews without cancellation by either the Company or
the issuer. At December 31, 1999, there were no accounts receivable sold under
the Agreement.
In association with the Agreement, the Company issued warrants to purchase
14,285 Series A Preferred Stock (Series A) at an initial exercise price of
$10.50. These warrants expire October 13, 2004.
Short-Term Bridge Notes
In November and December 1999, the Company issued $4,000,000 in Short-Term
Bridge Notes (Short-Term Notes). The Short-Term Notes pay interest of 9% and
are due within 90 days of issuance. In January 2000, the Company issued Series
B Preferred Shares and all Short-Term Notes and the associated interest were
converted into Series B Preferred Shares. See Note 8 for more information.
Letter of Credit
In association with the Company's lease of office space, the Company was
required to establish a letter of credit. The maximum amount available under
the letter of credit was $325,000 and is payable to the lessor. The letter of
credit is secured by certificates of deposit totaling $325,000 which are
included in other assets in the accompanying balance sheet. The required letter
of credit decreases over the term of the lease.
5. Retirement Plan:
In February 1999, the Company established an employee benefit plan qualified
under Section 401(k) of the Internal Revenue Code through which eligible
employees may defer a portion of their salaries. The Company's contributions to
the plan are discretionary. The Company elected not to contribute to the Plan
in 1999.
6. Convertible Redeemable Preferred Stock and Stockholders' Equity (Deficit):
Common Stock
On July 1, 1999, the shareholders approved a two for one stock split. All
per share information has been retroactively adjusted to reflect this split for
all years presented.
14
<PAGE>
PAYLINX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Series A Convertible Redeemable Preferred Stock
During October and December 1998, the Company issued 400,800 shares of
Series A Convertible Redeemable Preferred Stock (Series A Preferred) along with
warrants to purchase up to 30,000 shares of common stock. Total proceeds from
the issuance were $4,008,100 with $10 per share allocated to the Series A
Preferred and $100 allocated to the warrants. Any excess of mandatory
redemption value over original recorded value is accreted to the earliest
possible redemption date. The periodic accretion is charged directly to
retained earnings (deficit). The Series A Preferred Shares were exchanged for
new shares of Series A preferred stock in conjunction with the subsequent event
described in Note 8.
The Series A Preferred stockholders have preemptive rights to purchase new
issuances of securities.
Each warrant issued allows the warrant holder to purchase one share of
common stock for $5 per share, subject to adjustment as defined in the
certificate of incorporation. The warrants expire in October 2003. The warrants
vest and become exercisable through December 31, 1999, contingent on the
occurrence of certain events as defined in the Preferred Stock Agreement.
Stock Options
In connection with the sale and issuance of preferred stock in October 1998,
the Company issued stock options primarily to the founders and certain
employees. Options continued to be granted to all new employees through
December 31, 1999. The options vest over a four-year period. There is no
vesting for the first six months, options are 6/48 vested at the end of the
sixth month, then vesting is straight-line through the 48th month. In
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," compensation expense is recorded evenly over the
period services are received (the vesting period) and measured based on the
intrinsic value of the options at the date of grant. In 1999 and 1998,
$1,693,651 and $77,000 was recorded as compensation expense related to stock
options, respectively.
A summary of the status of the Company's stock options for 1999 and 1998
(restated for the 1999 stock split) is presented in the table below:
<TABLE>
<CAPTION>
1999 1998
-------------------- -----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding--beginning of year...... 424,400 $1.00 -- $ --
Granted............................. 896,350 2.06 424,400 1.00
Exercised........................... (2,708) 1.00 -- --
Canceled/forfeited.................. (210,256) 1.47 -- --
---------- --------
Outstanding--end of year.......... 1,107,786 $1.81 424,400 $1.00
========== ========
Exercisable--end of year............ 356,008 $1.28 -- $ --
Weighted average fair value for
grants during year................. $ 3.53 $ 4.17
</TABLE>
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions
used for grants in 1999 and 1998, respectively: risk-free interest rates
ranging from 4.61% to 6.14% and 4.48% to 4.75%; expected dividend yield of
0.0%; and expected lives of four years. The range of exercise prices for the
options outstanding at December 31, 1999, was $1.00 to $7.50. The exercise
price for all options outstanding at December 31, 1998, was $1.00. The
weighted-average
15
<PAGE>
PAYLINX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
remaining contractual life was 3.3 and 3.8 years for options outstanding at
December 31, 1999 and 1998, respectively.
The Company's net loss and basic and diluted loss per share would not
significantly differ for 1999 and 1998 had compensation expense for the
Company's 1999 and 1998 grants of stock options been determined consistent with
SFAS No. 123, "Accounting for Stock-Based Compensation." The effects of the
application of SFAS 123 in this disclosure are not indicative of the pro forma
effect on net income (loss) in future years.
7. Commitments and Contingencies:
The Company leases its St. Louis facility under an operating lease agreement
expiring in 2004 with renewal options.
In December 1999, the Company leased facilities in Reston, Virginia, and
will move the headquarters there. The Company will vacate certain leased space
in St. Louis, Missouri, and sublease the vacated space through March 31, 2001.
A reserve for the amount of the lease payments in excess of the sublease has
been established and constitutes the balance of other long-term obligations in
the accompanying balance sheets. The sublease renews automatically for a period
through October 31, 2004, unless canceled by either party. Additionally, the
Company has recognized a loss on disposal of assets of $444,503 due to writing
down leasehold improvements and furniture and fixtures to the net realizable
value as of December 31, 1999.
As of December 31, 1999, minimum future lease payments under leases are as
follows:
<TABLE>
<CAPTION>
Less
Lease Sublease Net Lease
Commitments Revenue Commitments
----------- -------- -----------
<S> <C> <C> <C>
For the Year Ending December 31
2000........................................ $931,808 $207,911 $723,897
2001........................................ 883,303 63,105 820,198
2002........................................ 907,697 -- 907,697
2003........................................ 916,735 -- 916,735
2004........................................ 652,338 -- 652,338
</TABLE>
Rent expense for the years ended December 31, 1999, 1998 and 1997 was
$485,411, $47,802 and $10,234, respectively.
The Company at times is a party to various claims and legal proceedings
arising in the ordinary course of business. Management does not believe that
the ultimate disposition of any or all such proceedings will have a material
adverse effect upon the financial condition or results of operations of the
Company.
8. Subsequent Events:
In January 2000, the shareholders of the Company voted to merge PaylinX
Corporation, a Missouri corporation, with PaylinX Corporation, a Delaware
corporation. The new company adopted a certificate of incorporation which
authorized 20,000,000 shares of common stock with a $0.01 per share par value.
The certificate of incorporation also authorized 5,000,000 shares of preferred
stock. In conjunction therewith, PaylinX Corporation, Delaware exchanges
801,600 shares of Series A Convertible Redeemable Preferred Stock (New Series A
Preferred) for the 400,800 shares of Series A Preferred from PaylinX
Corporation, Missouri.
Additionally, the Company issued 3,836,472.15 shares of Series B Convertible
Redeemable Preferred Stock (Series B Preferred) with a par value of $0.01 for
$7.824538 per share. The Convertible Notes (at 110%
16
<PAGE>
PAYLINX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
of the original note value) and Short-Term Bridge Notes plus the associated
accrued interest were converted or exchanged for shares of the Series B
Preferred.
Under the certificate of incorporation, each share of New Series A Preferred
and Series B Preferred may be voluntarily converted into one share of common
stock, subject to certain conversion adjustments as defined in the certificate
of incorporation at anytime. The New Series A Preferred and the Series B
Preferred will automatically be converted into common stock upon an initial
public offering valued at not less than $20 million.
The New Series A Preferred and Series B Preferred are mandatorily redeemable
by the Company as follows: half of the then outstanding shares of New Series A
Preferred and Series B Preferred on the fifth anniversary of the original
issuance date, half of the then outstanding shares of New Series A Preferred
and Series B Preferred on the sixth anniversary of the original issuance date
and the remaining outstanding shares of New Series A Preferred and Series B
Preferred on the seventh anniversary of the original issuance date. The
redemption price at each of the redemption dates will be the greater of $5 and
$7.824538 per share or fair market value, plus any declared and unpaid
dividends for the New Series A Preferred and Series B Preferred, respectively.
The fair market value of the New Series A Preferred and Series B Preferred is
to be determined by independent appraisers appointed by the Company and the New
Series A Preferred and Series B Preferred stockholders.
The New Series A Preferred and Series B Preferred stockholders have
preemptive rights to purchase new issuances of securities. If this transaction
had been completed at December 31, 1999, the effect of this transaction on the
December 31, 1999, balance sheet would have been as follows:
<TABLE>
<CAPTION>
Actual Pro Forma
1999 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................... $ 745,769 $ 19,619,974
Other current assets......................... 969,027 969,027
------------ ------------
Total current assets....................... 1,714,796 20,589,001
LONG-TERM ASSETS............................... 4,704,064 4,704,064
------------ ------------
Total assets............................... $ 6,418,860 $ 25,293,065
============ ============
CURRENT LIABILITIES:
Notes payable................................ $ 4,000,000 $ --
Other current liabilities.................... 6,685,806 6,423,867
------------ ------------
Total current liabilities.................. 10,685,806 6,423,867
------------ ------------
OTHER LONG-TERM OBLIGATIONS.................... 813,961 813,961
------------ ------------
LONG-TERM DEBT................................. 5,787,000 --
------------ ------------
Series A redeemable, convertible preferred
stock....................................... 4,437,000 4,437,000
Series B redeemable, convertible preferred
stock....................................... -- 29,501,844
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock................................. 18,689 18,689
Additional paid-in capital................... 4,532,270 4,532,270
Deferred compensation........................ (2,360,577) (2,360,577)
Retained deficit............................. (17,495,289) (18,073,989)
------------ ------------
Total stockholders' equity (deficit)....... (15,304,907) (15,883,607)
------------ ------------
Total liabilities and stockholders' equity
(deficit)................................. $ 6,418,860 $ 25,293,065
============ ============
</TABLE>
17
<PAGE>
PAYLINX CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. The Company
PaylinX Corporation (the Company) designs, develops, markets, licenses and
supports point-of-sale software systems for the processing of electronic
payments, including those arising from internet e-commerce. The Company's
payment servers perform real-time authorization, settlement and management
functions for conventional and corporate purchasing card transactions in
consumer and business-to-business application environments.
2. Basis of Presentation
The accompanying unaudited, interim financial statements of PaylinX
Corporation omit or condense certain footnotes and other information normally
included in financial statements prepared in accordance with generally accepted
accounting principles. This report should be read in conjunction with the
audited financial statements and notes to the financial statements as of and
for the year ended December 31, 1999. In the opinion of Management, all
adjustments, consisting primarily of normal recurring adjustments, necessary
for a fair presentation of interim period results have been made. The interim
results reflected in the financial statements are not necessarily indicative of
results expected for the full year, or future periods.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Revenue Recognition
Revenue is recognized when earned. The Company licenses software under
perpetual license agreements direct to customers and to resellers and provides
maintenance and support services. The Company's revenue recognition policies
are in compliance with American Institute of Certified Public Accountants
Statements of Position 97-2, 98-4 and 98-9, "Software Revenue Recognition."
License fee revenues are generally recognized when a license agreement has been
signed, the software product has been shipped, there are no uncertainties
surrounding product acceptance, the fees are fixed and determinable, and
collection is considered probable. For customer license agreements, which meet
these recognition criteria, the portion of the fees related to software
licenses will generally be recognized in the current period. The Company
allocates a portion of contractual license fees to postcontract support
activities covered under the contract including first year maintenance.
Maintenance revenues are recognized ratably over the maintenance period, which
generally is one year.
Earnings Per Share
Basic earnings (loss) per share is computed by dividing net loss applicable
to common stockholders by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings (loss) per share is computed by
dividing the net loss applicable to common stockholders by the weighted average
number of common and common equivalent shares outstanding, unless the
calculation is antidilutive. For the six months and three months ended June 30,
1999, the net loss applicable to common stockholders has been adjusted to
reflect $177,736 and $88,868, respectively, of accretion related to the Series
A convertible redeemable preferred stock. For all periods presented, the effect
of dilutive securities is antidilutive. As such, the denominator used in
determining earnings per share is the same for both basic and dilutive earnings
per share.
18
<PAGE>
PAYLINX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Debt
Convertible Debt
From June to September 1999, the Company issued $5,787,000 of Convertible
Promissory Notes (Convertible Notes). The Convertible Notes are convertible to
Series B Convertible Preferred Stock (Series B Preferred) at 110% of the
original note value only upon completion of a subsequent funding round of at
least $10,000,000. The Convertible Notes have an interest rate of 8% payable
either in cash or additional Series B Preferred shares. In January 2000, the
Company issued Series B Preferred shares and all Convertible Notes and the
associated interest were converted into Series B Preferred shares. See Note 4
for more information.
Short-Term Bridge Notes
In November and December 1999, the Company issued $4,000,000 in Short-Term
Bridge Notes (Short-Term Notes). In January 2000, the Company issued Series B
Preferred Shares and all Short-Term Notes and the associated interest were
converted into Series B Preferred Shares. See Note 4 for more information.
4. Convertible Redeemable Preferred Stock and Stockholders' Equity (Deficit)
Common Stock
On July 1, 1999, the shareholders approved a two for one stock split. All
per share information has been retroactively adjusted to reflect this split for
all years presented.
Series A Convertible Redeemable Preferred Stock
During October and December 1998, the Company issued 400,800 shares of
Series A Convertible Redeemable Preferred Stock (Series A Preferred) along with
warrants to purchase up to 30,000 shares of common stock. Total proceeds from
the issuance were $4,008,100 with $10 per share allocated to the Series A
Preferred and $100 allocated to the warrants. Any excess of mandatory
redemption value over original recorded value is accreted to the earliest
possible redemption date. The periodic accretion is charged directly to
retained earnings (deficit). The Series A Preferred Shares were exchanged for
new shares of Series A preferred stock in conjunction with the transaction
described below.
Each warrant issued allows the warrant holder to purchase one share of
common stock for $5 per share, subject to adjustment as defined in the
certificate of incorporation. The warrants expire in October 2003. The warrants
vest and become exercisable through December 31, 1999, contingent on the
occurrence of certain events as defined in the Preferred Stock Agreement.
In January 2000, the shareholders of the Company voted to merge PaylinX
Corporation, a Missouri corporation, with PaylinX Corporation, a Delaware
corporation. The new company issued a certificate of incorporation which
authorized 20,000,000 shares of common stock with a $0.01 per share par value.
The certificate of incorporation also authorized 5,000,000 shares of preferred
stock. In conjunction therewith, PaylinX Corporation, Delaware exchanged
801,600 shares of Series A Convertible Redeemable Preferred Stock (New Series A
Preferred) for the 400,800 shares of Series A Preferred from PaylinX
Corporation, Missouri.
Additionally, in February 2000, the Company issued 3,836,472.15 shares of
Series B Convertible Redeemable Preferred Stock (Series B Preferred) with a par
value of $0.01 for $7.824538 per share. The Convertible Notes (at 110% of the
original note value) and Short-Term Bridge Notes plus the associated accrued
interest were converted or exchanged for shares of the Series B Preferred.
19
<PAGE>
PAYLINX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Under the certificate of incorporation, each share of New Series A
Preferred and Series B Preferred may be voluntarily converted into one share
of common stock, subject to certain conversion adjustments as defined in the
certificate of incorporation at anytime. The New Series A Preferred and the
Series B Preferred will automatically be converted into common stock upon an
initial public offering or sale valued at not less than $20 million.
The New Series A Preferred and Series B Preferred are mandatorily
redeemable by the Company as follows: half of the then outstanding shares of
New Series A Preferred and Series B Preferred on the fifth anniversary of the
original issuance date, half of the then outstanding shares of New Series A
Preferred and Series B Preferred on the sixth anniversary of the original
issuance date and the remaining outstanding shares of New Series A Preferred
and Series B Preferred on the seventh anniversary of the original issuance
date. The redemption price at each of the redemption dates will be the greater
of $5 and $7.824538 per share or fair market value, plus any declared and
unpaid dividends for the New Series A Preferred and Series B Preferred,
respectively.
The New Series A Preferred and Series B Preferred stockholders have
preemptive rights to purchase new issuances of securities.
5. Commitments and Contingencies
The Company at times is a party to various claims and legal proceedings
arising in the ordinary course of business. Management does not believe that
the ultimate disposition of any or all such proceedings will have a material
adverse effect upon the financial condition or results of operations of the
Company.
6. Subsequent Event
On July 9, 2000, the Company signed an agreement and plan of merger with
Cybersource Corporation.
20
<PAGE>
(b) Unaudited Pro Forma Condensed Combined Financial Information and Notes
----------------------------------------------------------------------
thereto.
-------
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information for
CyberSource set forth below gives effect to the acquisition of PaylinX. The
historical financial information set forth below has been derived from, and is
qualified by reference to, the supplemental consolidated financial statements
of CyberSource and the consolidated financial statements of CyberSource and
PaylinX, and should be read in conjunction with those financial statements and
the notes thereto incorporated by reference or included elsewhere herein.
On September 18, 2000, a wholly-owned subsidiary of CyberSource was merged
with and into PaylinX, and PaylinX became a wholly-owned subsidiary of
CyberSource. In connection with the merger, we issued approximately 8.8 million
shares of our common stock to PaylinX stockholders in exchange for PaylinX
outstanding common and preferred stock, and assumed options in connection with
the PaylinX merger to purchase approximately 2,571,000 shares of our common
stock. The unaudited pro forma condensed combined statement 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 January 1, 1999.
The unaudited pro forma condensed combined balance sheet as of June 30, 2000 set
forth below gives effect to the acquisition of PaylinX as if it occurred on June
30, 2000.
The PaylinX acquisition is being accounted for using the purchase method of
accounting. The Pro Forma Financial Statements have been prepared on the basis
of assumptions described herein.
CyberSource expects to incur integration costs, the amount of which is
uncertain at this time, subsequent to the consummation of the acquisition. The
Pro Forma Condensed Combined Statements of Operations does not include the
costs of integration, as these costs will affect future operations and do not
qualify as liabilities in connection with a purchase business combination under
EITF 95-3, "Recognition of Liabilities in Connection with a Purchase Business
Combination."
The unaudited pro forma condensed combined balance sheet set forth herein
combines the balance sheets of CyberSource and PaylinX as of June 30, 2000. The
unaudited pro forma condensed financial information set forth herein combines
the supplemental statement of operations of CyberSource for the year ended
December 31, 1999 and the PaylinX statement of operations for the year ended
December 31, 1999. The unaudited pro forma condensed financial information set
forth herein also combines the statement of operations of CyberSource for the
six months ended June 30, 2000 and the PaylinX statement of operations for the
six months ended June 30, 2000. This pro forma condensed financial information
reflects certain adjustments, including among others, adjustments to reflect
the amortization of intangible assets and goodwill acquired and deferred
compensation related to assumed options. The information set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes to
the financial statements of CyberSource and PaylinX which are incorporated by
reference or included in the Company's Proxy Statement filed on August 17, 2000,
in relation to this purchase transaction. The unaudited pro forma condensed
combined financial information set forth below does not purport to represent
what the consolidated results of operations or financial condition of
CyberSource would actually have been if the PaylinX acquisition and related
transaction had in fact occurred on such date or to project the future
consolidated results of operations or financial condition of CyberSource.
21
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2000
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Total Pro Forma
CyberSource PaylinX Combined Adjustments Total
----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net revenues.......................................... $ 13,838 $ 5,852 $ 19,690 $ -- $ 19,690
Cost of revenues...................................... 10,747 652 11,399 -- 11,399
-------- -------- -------- ---------- --------
Gross profit.......................................... 3,091 5,200 8,291 -- 8,291
Operating expenses
Product development.............................. 6,543 2,643 9,186 -- 9,186
Sales and marketing.............................. 12,616 4,923 17,539 -- 17,539
General and administrative....................... 6,087 3,878 9,965 -- 9,965
Acquisition related costs........................ 834 -- 834 -- 834
Goodwill and deferred compensation
amortization................................... 411 -- 411 18,857 (7) 26,601
584 (7)
1,250 (7)
1,300 (7)
1,767 (8)
2,432 (9)
-------- -------- -------- ---------- --------
Total operating expenses.............................. 26,491 11,444 37,395 26,190 64,125
Loss from operations.................................. (23,400) (6,244) (29,644) (26,190) (55,884)
Loss on investment in joint venture................... (31) -- (31) -- (31)
Interest income....................................... 3,879 -- 3,879 -- 3,879
Interest and other expense............................ (55) (257) (312) -- (312)
-------- -------- -------- ---------- --------
Net loss.............................................. $(19,607) $ (6,501) $(26,108) $ (26,190) $(52,298)
======== ======== ======== ========== ========
Basic and diluted net loss per share.................. $ (0.76) $ (3.27) $ (1.53)
-------- -------- --------
Weighted average shares of common stock............... 25,801 2,042 34,252
======== ======== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma
Condensed Combined Financial Information
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1999
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Total Pro Forma
CyberSource PaylinX Combined Adjustments Total
----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 12,931 $ 3,160 $ 16,091 $ -- $ 16,091
Cost of revenues........ 10,948 606 11,554 -- 11,554
-------- -------- -------- -------- --------
Gross profit............ 1,983 2,554 4,537 -- 4,537
Operating expenses
Product development... 7,807 4,067 11,874 -- 11,874
Sales and marketing... 15,110 6,986 22,096 -- 22,096
General and
administrative....... 6,023 6,894 12,917 -- 12,917
Goodwill, purchased
intangibles and
deferred
compensation
amortization......... 4,716 -- 4,716 37,967 (7) 57,332
1,167 (7)
2,500 (7)
2,600 (7)
3,533 (8)
4,839 (9)
-------- -------- -------- -------- --------
Total operating
expenses............... 33,656 17,947 51,603 52,606 104,209
Loss from operations.... (31,673) (15,393) (47,066) (52,606) (99,672)
Interest income......... 2,123 -- 2,123 -- 2,123
Interest and other
expense................ (295) (652) (947) -- (947)
-------- -------- -------- -------- --------
Net loss................ $(29,845) $(16,045) $(45,890) $(52,606) $(98,496)
======== ======== ======== ======== ========
Basic and diluted net
loss per share......... $ (1.95) $ (8.82) $ (4.09)
-------- -------- --------
Weighted average shares
of common stock........ 15,267 1,867 24,075
======== ======== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma
Condensed Combined Financial Information
23
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2000
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Total Pro Forma
CyberSource PaylinX Combined Adjustments Total
----------- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net revenues............. $ 13,838 $ 5,852 $ 19,690 $ -- $ 19,690
Cost of revenues......... 10,747 652 11,399 -- 11,399
-------- ------- -------- -------- --------
Gross profit............. 3,091 5,200 8,291 -- 8,291
Operating expenses
Product development.... 6,543 2,643 9,186 -- 9,186
Sales and marketing.... 12,616 4,923 17,539 -- 17,539
General and
administrative........ 6,087 3,878 9,965 -- 9,965
Acquistion related
costs................. 834 -- 834 -- 834
Goodwill, purchased
intangibles and
deferred compensation
amortization.......... 411 -- 411 18,984 (7) 25,480
584 (7)
1,250 (7)
1,300 (7)
1,767 (8)
1,184 (9)
-------- ------- -------- -------- --------
Total operating
expenses................ 26,491 11,444 37,935 25,069 63,004
Loss from operations..... (23,400) (6,244) (29,644) (25,069) (54,713)
Loss on investment in
joint venture........... (31) -- (31) -- (31)
Interest income.......... 3,879 -- 3,879 -- 3,879
Interest and other
expense................. (55) (257) (312) -- (312)
-------- ------- -------- -------- --------
Net loss................. $(19,607) $(6,501) $(26,108) $(25,069) $(51,177)
======== ======= ======== ======== ========
Basic and diluted net
loss per share.......... $ (0.76) $ (3.27) $ (1.50)
-------- ------- --------
Weighted average shares
of common stock......... 25,801 2,042 34,069
======== ======= ========
</TABLE>
See accompanying notes to Unaudited Pro Forma
Condensed Combined Financial Information
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of June 30, 2000
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
CyberSource PaylinX Total Adjustments Total
----------- ------- -------- ----------- --------
ASSETS
------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.......... $ 41,076 $11,535 $ 52,611 $ -- $ 52,611
Short-term investments............. 75,020 -- 75,020 -- 75,020
Accounts receivable, net........... 4,583 2,815 7,398 -- 7,398
Prepaid expenses and other current
assets............................. 1,333 224 1,557 -- 1,557
-------- ------- -------- -------- --------
Total current assets................ 122,012 14,574 136,586 -- 136,586
Property and equipment, net........ 15,420 3,953 19,373 -- 19,373
Investment in joint venture........ 730 -- 730 -- 730
Other noncurrent assets............ 495 404 899 -- 899
Goodwill and other intangible
assets............................ -- -- -- 146,000 (1) 146,000
-------- ------- -------- -------- --------
Total assets..................... $138,657 $18,931 $157,588 $146,000 $303,588
======== ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable................... 2,053 276 2,329 -- 2,329
Other accrued liabilities.......... 5,344 1,329 6,673 4,000 (1) 12,173
1,500 (3)
Deferred revenue................... 793 1,360 2,153 (680)(2) 1,473
Current obligations under capital
leases............................ 578 -- 578 -- 578
-------- ------- -------- -------- --------
Total current liabilities........... 8,768 2,965 11,733 4,820 16,553
Non-current obligation under capital
leases............................. 204 -- 204 -- 204
Other long-term obligations......... -- 836 836 -- 836
Redeemable convertible preferred
stock.............................. -- 35,917 35,917 (35,917)(5) --
Stockholders' equity (net capital
deficiency)
Common stock and paid-in capital.... 190,341 5,183 195,524 142,951 (5) 369,800
27,859 (5)
(5,183)(5)
8,649 (1)
Deferred compensation.............. (903) (1,796) (2,699) (8,649)(1) (9,552)
1,796 (4)
Accumulated other comprehensive
loss.............................. (54) -- (54) -- (54)
Accumulated deficit................ (59,699) (24,174) (83,873) 24,174 (6) (74,199)
(14,500)(6)
-------- ------- -------- -------- --------
Total stockholders' equity....... 129,685 (28,787) 108,848 177,097 285,995
-------- ------- -------- -------- --------
Total liabilities and
stockholders' equity (net
capital deficiency)............. $138,657 $18,931 $157,588 $146,000 $303,588
======== ======= ======== ======== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma
Condensed Combined Financial Information
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
For purposes of the pro forma operating data, CyberSource's consolidated
financial statements as of June 30, 2000 and for the six months ended June 30,
2000 have been combined with the PaylinX financial statements as of June 30,
2000 and for the six months ended June 30, 2000. CyberSource's supplemental
consolidated statement of operations for the year ended December 31, 1999 has
been combined with the PaylinX statement of operations for the year ended
December 31, 1999.
The companies have had no significant inter-company activity which would
require elimination in preparing the combined condensed financial statements.
In addition, the companies have no significantly different accounting policies
and procedures which would have required conforming adjustments.
The accompanying pro forma information should be read in conjunction with
the historical financial statements and supplemental financial statements and
related notes for both CyberSource and PaylinX, which are either included or
incorporated by reference in this Form 8-K or CyberSource's Proxy Statement
filed on August 17, 2000 in relation to this purchase transaction.
The pro forma financial statements give effect to CyberSource's acquisition
of PaylinX through a merger and exchange of shares. The Unaudited Pro Forma
Combined Condensed Statements of Operations for the year ended December 31,
1999 and the six months ended June 30, 2000 reflect this transaction as if it
had taken place at the beginning of the period presented. The Unaudited Pro
Forma Combined Condensed Balance Sheet gives effect to this transaction as if
it had taken place on June 30, 2000.
The merger is being accounted for using the purchase method of accounting.
The pro forma financial statements have been prepared on the basis of
assumptions described in the following notes and include assumptions relating
to the allocation of the consideration paid for the assets and liabilities of
PaylinX based on estimated fair value. CyberSource does not expect that the
final allocation of the purchase price will differ materially from the
preliminary allocations. In the opinion of CyberSource's management, all
adjustments necessary to present fairly such pro forma financial statements
have been made on the proposed terms and structure of the PaylinX merger.
In connection with the merger, CyberSource currently expects to incur write-
offs related to in-process research and development, of approximately $14.5
million. The Unaudited Pro Forma Combined Condensed Statements of Operations do
not reflect these charges. The charge related to in-process research and
development will be reflected in CyberSource's consolidated financial
statements upon the effective time of the merger. The pro forma financial
statements do not include the costs of integration, the amount of which is
uncertain at this time as they will affect future operations.
The pro forma financial statements are not necessarily indicative of what
the actual financial results would have been had the transaction taken place on
January 1, 1999 or June 30, 2000 and do not purport to indicate the results of
future operations.
The pro forma financial statements give effect to the following pro forma
adjustments:
(1) In accordance with the merger agreement, PaylinX will become a
wholly owned subsidiary of CyberSource, and all outstanding shares of its
common and preferred stock will be converted into shares of CyberSource
common stock.
The PaylinX merger is being accounted for using the purchase method of
accounting. The purchase price of $16.23 per share was based on the closing
price of CyberSource's stock on July 10, 2000 (the date of the announcement of
the merger) and the three days prior and subsequent to the announcement date.
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS--(Continued)
The purchase price was determined as follows:
<TABLE>
<CAPTION>
PaylinX CyberSource
Shares Shares Fair Value
--------- ----------- --------------
(in thousands)
<S> <C> <C> <C>
Shares................................. 7,339,859 8,807,831 $142,951
Stock options assumed.................. 2,142,575 2,571,090 36,508
Totals................................. 9,482,434 11,378,921 $179,459
</TABLE>
The PaylinX shares were first converted to CyberSource equivalent shares by
taking the number of PaylinX shares multiplied by the exchange ratio of
approximately 1.2 per share.
With respect to stock options assumed as part of the merger, all PaylinX
options will be exchanged for CyberSource options and are included as part of
the purchase price based on their fair value. Any unvested PaylinX options
issued in exchange for unvested CyberSource options are also included as part
of the purchase price based on their fair value, however, pursuant to Financial
Accounting Standards Board Interpretation Number 44, the portion of the
intrinsic value of unvested options that will be deemed to be earned over the
remaining vesting period of those options has been deducted from the fair value
of the unvested options and will be amortized as deferred compensation over
that remaining vesting period. The fair value of the options assumed is based
on the Black-Scholes model using the following assumptions:
. Fair market value of the underlying shares is based on the average
closing price of CyberSource's common stock on July 10, 2000 and the
three days prior and subsequent to such date.
. Expected life of 4.0 years
. Expected volatility of 1.13
. Risk free interest rate of 5.55%
. Expected dividend rate of 0%
Below is a table of the estimated acquisition cost, allocation of excess
purchase cost over the fair value of net assets acquired to goodwill and other
intangible assets acquired and annual amortization of the goodwill and
intangible assets acquired (in thousands, except for asset life);
<TABLE>
<CAPTION>
Estimated Annual
Acquisition Asset Life Amortization of
Cost (in years) Intangibles
----------- ---------- ---------------
<S> <C> <C> <C>
Value of common stock and stock
options issued...................... $179,459
Transaction costs.................... 4,000
--------
Total estimated acquisition cost... $183,459
========
Historical value of net assets
acquired of PaylinX at June 30,
2000................................ $ 15,130 N/A
Adjustment to state net assets at
fair market value................... (820) N/A
Assembled workforce.................. 3,500 3 $ 1,167
Customer base........................ 13,000 5 $ 2,600
Developed technology................. 10,600 3 $ 3,533
In-process technology................ 14,500 N/A N/A
Covenants-not-to-compete............. 5,000 2 $ 2,500
Goodwill............................. 113,900 3 $37,967
Deferred compensation................ 8,649 3.5 $ 4,839
--------
Total.............................. $183,459
========
</TABLE>
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS--(Continued)
Tangible assets of PaylinX acquired in the merger principally include cash
and cash equivalents, accounts receivables, and fixed assets. Liabilities of
PaylinX assumed in the merger principally include accounts payable, deferred
revenue and other liabilities.
To determine the value of the developed technology the expected future cash
flow attributable to all existing technology was discounted, taking into
account risks related to the characteristics and applications of the
technology, existing and future markets, and assessments of the life cycle
stage of the technology. The analysis resulted in a valuation of approximately
$10.6 million for developed technology which has reached technological
feasibility and therefore was capitalizable. The developed technology is being
amortized on a straight line basis over a 3 year period.
The value of the assembled workforce was derived by estimating the costs to
replace the existing employees, including recruiting and hiring costs and
training costs for each category of employee. The analysis determined a
valuation of approximately $3.5 million for the assembled workforce, and is
being amortized on a straight line basis over a 3 year period.
The value of the customer base of approximately $13.0 million was derived by
considering, among other factors, the historical costs to develop customer
relationships, the expected income, and the associated risks. Associated risks
included the inherent difficulties and uncertainties in transitioning business
relationships. The value of the customer base is being amortized over a 5 year
period.
The value of deferred compensation of approximately $8.6 million was derived
using the guidance of Financial Accounting Standards Board Interpretation
Number 44, the unvested options' intrinsic value, and a vesting ratio of 38%
for the remaining vesting period of unvested options. The deferred compensation
is being amortized on a graded basis over a 3.5 year period.
The projects identified as in-process technology at PaylinX are those that
will be underway at the time of the PaylinX merger and would, after
consummation of the PaylinX merger, require additional effort to establish
technological feasibility. These projects have identifiable technological risk
factors which indicate that even though successful completion is expected, it
is not assured. If an identified project is not successfully completed, there
is no alternative future use for the project and the expected future income
will not be realized. The estimated amount of the in-process research and
development charge represents a preliminary estimate which could materially
differ from the actual results that will be experienced by CyberSource as final
values will not be established until after the closing of the PaylinX merger.
The in-process technology acquired from PaylinX in the transaction consists
primarily of technology related to replacement and enhancement of PaylinX's
core technology, principally multi-channel enterprise payment software.
(2) The pro forma adjustment to deferred revenue reflects the writedown
of deferred revenue to the estimated amount of the cost to provide service
under maintenance contracts as of June 30, 2000 plus a profit margin
related to such services.
(3) The pro forma adjustment to accrued liabilities reflects the
payments under severance agreements to executives of PaylinX who will be
terminated upon the closing of the merger.
(4) The pro forma adjustment to "deferred compensation" reflects the
elimination of PaylinX deferred compensation ($1.8 million).
(5) The pro forma adjustment to "common stock and additional paid in
capital" and "convertible preferred stock" reflects elimination of
PaylinX's common and preferred stock ($41.1 million) and the impact of the
issuance of CyberSource common stock ($179.5 million) in connection with
the merger.
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS--(Continued)
(6) The pro forma adjustment to "Accumulated Deficit" reflects the
elimination of PaylinX's accumulated deficit ($24.0 million) and the inclusion
of in-process technology charge ($14.5 million).
(7) The pro forma adjustment is for the amortization of goodwill,
assembled workforce, covenants-not-to-compete and customer base.
(8) The pro forma adjustment is for the amortization of developed
technology.
(9) The pro forma adjustment is for the amortization of deferred
compensation.
29
<PAGE>
(c) Exhibits.
--------
The Exhibit Index immediately following the signature page is incorporated
herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CYBERSOURCE CORPORATION
(the Registrant)
By: /s/ Charles E. Noreen, Jr.
-----------------------------
Charles E. Noreen, Jr.
Vice President of Finance and
Administration, Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
Dated: October 3, 2000
4
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
2 Agreement and Plan of Merger, dated as of July 9, 2000, by
and among CyberSource Corporation, Sapphire Merger, Inc.,
and PaylinX Corporation and Exhibit A thereto.
Pursuant to Item 601(b)(2) of Regulation S-K, the following exhibits and
schedules to the Agreement have been omitted. Such exhibits and schedules will
be submitted to the Securities and Exchange Commission upon request.
Exhibit/Schedule Name
---------------- ----
Exhibit B Escrow Agreement
Exhibit C Company Financial Statements
Exhibit D Proprietary Information and Inventions Agreement
Exhibit E Form of Voting Agreement
Exhibit F Form of Lock-Up Agreement
Exhibit G Opinion from Company Counsel
Exhibit H Form of Noncompetition Agreement
Exhibit I Opinion from Acquiror's Counsel
Schedule 6.7 Signatories to Voting Agreement
Schedule 6.10 Signatories to Lock-Up Agreement
Schedule 6.17 Parties to Executive Benefit Summaries
