-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GND2O89fgnkA305o814iNTOYJeQCpg+mc7n29VdW+uSovW18yLxjqPQG9C7M9kkN ehwQEPPsgkJJyzxcn0ae3A== 0001032210-01-000049.txt : 20010123 0001032210-01-000049.hdr.sgml : 20010123 ACCESSION NUMBER: 0001032210-01-000049 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001031 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERWOVEN INC CENTRAL INDEX KEY: 0001042431 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943221352 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-27389 FILM NUMBER: 1509704 BUSINESS ADDRESS: STREET 1: 1195 W FREMONT AVE STREET 2: STE 2000 CITY: SUNNYVALE STATE: CA ZIP: 94087 BUSINESS PHONE: 4087742000 MAIL ADDRESS: STREET 1: 1195 W FREMONT AVE STREET 2: STE 2000 CITY: SUNNYVALE STATE: CA ZIP: 94087 8-K/A 1 0001.txt FORM 8-K/A AMENDMENT NO. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Amendment No. 1 Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported) October 31, 2000 ------------------------------- INTERWOVEN, INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 000-27389 77-0523543 - ------------------------------ --------------- -------------------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) 1195 West Fremont Avenue Sunnyvale, California 94087 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (408) 774-2000 ----------------------------- 1 ITEM 2: Acquisition or Disposition of Assets On November 13, 2000, Interwoven, Inc. ("Interwoven" or the "Company") filed a Form 8-K to report its acquisitions of Ajuba Solutions, Inc. (formerly known as Scriptics Corporation) ("Ajuba") and Metacode Technologies, Inc. ("Metacode"). Pursuant to Item 7 of Form 8-K, Interwoven indicated that it would file certain financial information no later than the date required by Item 7 of Form 8-K. This Amendment No. 1 to Form 8-K is filed to provide the required financial information. ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Business Acquired. ----------------------------------------- The financial statements of Ajuba and Metacode required by paragraph (a)(4) of Item 7 of Form 8-K are included herein as exhibits 99.2, 99.3 and 99.4. (b) Pro Forma Financial Information. ------------------------------- The pro forma financial statements required by paragraphs (b)(2) and (a)(4) of Item 7 of Form 8-K are included herein. Unaudited pro forma combined balance sheet as of September 30, 2000 Unaudited pro forma combined statement of operations for the nine months ended September 30, 2000 and twelve months ended December 31, 1999 Notes to unaudited pro forma combined financial statements The following unaudited pro forma combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations for future periods or the financial position or results of operations that actually would have been realized had Interwoven, Ajuba and Metacode been a combined company during the specified periods. The unaudited pro forma combined condensed financial statements, including the related notes, are qualified in their entirety by reference to, and should be read in conjunction with, the historical consolidated financial statements and related notes thereto of Interwoven, included in its Form 10-K and Form 10-Q, filed with the Securities and Exchange Commission on March 30, 2000 and November 15, 2000, respectively, and Ajuba and Metacode, included elsewhere in this Form 8-K/A. The following unaudited pro forma combined financial statements give effect to the merger between Interwoven, Ajuba and Metacode using the purchase method of accounting. The pro forma combined financial statements are based on the respective historical unaudited consolidated financial statements and related notes of Interwoven, Ajuba and Metacode. The pro forma adjustments are preliminary and based on management's estimates of the value of the tangible and intangible assets acquired. In addition, management is continuing to assess its integration plans, which may result in additional costs. The pro forma combined balance sheet and statement of operations assume the merger took place as of September 30, 2000 and January 1, 1999, respectively. The pro forma financial statements combine Interwoven's unaudited consolidated balance sheet as of September 30, 2000 with Ajuba's and Metacode's unaudited balance sheet as of September 30, 2000 and Interwoven's audited statement of operations for the twelve months ended December 31, 1999 and unaudited statement of operations for the nine months ended September 30, 2000 with Ajuba's and Metacode's audited statements of operations for the twelve months ended December 31, 1999 and unaudited statements of operations for the nine months ended September 30, 2000. 2 INTERWOVEN, INC. UNAUDITED PRO FORMA COMBINED BALANCE SHEET (In thousands)
September 30, 2000 (unaudited) ========================================================================= Historical Pro forma ========================================================================= Interwoven Ajuba Metacode Adjustments Combined =========== ========= ========= ============== ======== Assets Current assets: Cash and cash equivalents.......................... $ 53,966 $ 1,620 $ 15 $ (6,166) (a) (d) $ 49,435 Short-term investments............................. 106,510 106,510 Accounts receivable, net .......................... 37,474 361 529 - 38,364 Prepaid expenses................................... 5,272 - 106 - 5,378 Other current assets............................... 1,763 75 - - 1,838 ---------- ---------- --------- --------- --------- Total current assets............................ 204,985 2,056 650 (6,166) 201,525 Investments........................................ 57,021 57,021 Property and equipment, net........................ 9,554 903 308 - 10,765 Intangible assets, net............................. 80,726 - - 183,916 (a) 264,642 Restricted cash.................................... 605 - - - 605 Other assets....................................... 689 199 - - 888 ---------- ---------- --------- --------- --------- Total Assets.................................... $ 353,580 $ 3,158 $ 958 $ 177,750 $ 535,446 ========== ========== ========= ========= ========= Liabilities and Stockholders' Equity Current liabilities: Accounts payable................................... $ 2,828 $ 373 $ 473 $ - $ 3,674 Accrued liabilities................................ 25,629 518 1,046 3,706 (a) 30,899 Deferred revenue, current.......................... 26,828 374 321 - 27,523 Debt, current...................................... - 1,702 4,395 - 6,097 ---------- ---------- --------- --------- --------- Total current liabilities....................... 55,285 2,967 6,235 3,706 68,193 ---------- ---------- --------- --------- --------- Long term liabilities Debt, long-term.................................... - 1,149 - - 1,149 Deferred revenue, long-term........................ - 258 258 ---------- ---------- --------- --------- --------- Total long term liabilities..................... - 1,149 258 - 1,407 ---------- ---------- --------- --------- --------- Mandatorily redeemable convertible preferred stock.. - - 12,857 (12,857) - Stockholders' Equity: Preferred stock..................................... - 10,346 - (10,346) - Common Stock........................................ 24 499 27,445 (27,943) (a) 25 Additional paid-in capital.......................... 343,701 - - 191,350 (a) 535,051 Notes receivable from stockholders.................. (105) (329) (110) - (544) Deferred stock-based compensation................... (7,208) - (12,881) (10,480) (a) (30,569) Accumulated deficit................................. ( 38,117) (11,475) (32,846) 44,321 (a) (38,117) ---------- ---------- --------- --------- --------- Total stockholders' equity...................... 298,295 (959) (18,392) 186,902 465,846 ---------- ---------- --------- --------- --------- Total Liabilities and Stockholders' Equity...... $ 353,580 $ 3,158 $ 958 $ 177,750 $ 535,446 ========== ========== ========= ========= =========
See notes to unaudited pro forma combined financial statements. 3 INTERWOVEN. INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (In thousands, except per share amounts)
Nine Months Ended September 30, 2000 (unaudited) ----------------------------------------------------------------- Historical Pro forma ----------------------------------- -------------------------- Interwoven Ajuba Metacode Adjustments Combined ----------- ------------ --------- ------------ --------- Revenues: License...................................................... $ 51,347 $ 612 $ 338 $ - $ 52,297 Services..................................................... 26,190 831 255 - 27,276 ----------- ----------- --------- ------------ --------- Total revenues............................................ 77,537 1,443 593 - 79,573 Cost of revenues: License...................................................... 584 132 - - 716 Services..................................................... 24,172 769 415 - 25,356 ----------- ----------- --------- ------------ --------- Total cost of revenues.................................... 24,756 901 415 - 26,072 Gross profit.................................................. 52,781 542 178 - 53,501 Operating expenses: Research and development..................................... 10,487 2,798 1,668 - 14,953 Sales and marketing.......................................... 45,130 1,881 1,109 - 48,120 General and administrative................................... 8,476 2,843 1,147 - 12,466 Amortization of deferred stock-based compensation............ 2,954 - 8,432 4,744 (b) 16,130 Amortization of acquired intangible assets................... 5,109 - - 43,769 (c) 48,878 Writeoff of in-process research & development................ 1,724 - - - 1,724 ----------- ----------- --------- ------------ --------- Total operating expenses.................................. 73,880 7,523 12,356 48,513 142,271 Loss from operations.......................................... (21,099) (6,980) (12,178) (48,513) (88,770) Interest income and other income (expense), net............... 8,945 (213) (1,518) (266) (d) 6,948 ----------- ----------- --------- ------------ --------- Net loss...................................................... $ (12,154) $ (7,193) $(13,696) $ (48,779) $(81,822) ----------- ----------- --------- ------------ --------- Basic and diluted net loss per share.......................... $ (0.13) $ (.88) =========== ========= Shares used in computing basic and diluted net loss per share............................................... 90,256 2,220 (e) 92,476 =========== ============ =========
See notes to unaudited pro forma combined financial statements. 4 INTERWOVEN, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (In thousands, except per share amounts)
Twelve Months Ended December 31, 1999 ---------------------------------------------------------------------- Historical Pro forma -------------------------------------- ----------------------------- Interwoven Ajuba Metacode Adjustments Combined ------------ ----------- ----------- ------------- ---------- (unaudited) Revenues: License............................................... $ 10,706 $ 915 $ 29 $ - $ 11,650 Services.............................................. 6,100 1,671 50 - 7,821 ------------ ----------- ----------- ------------ ---------- Total revenues................................... 16,806 2,586 79 - 19,471 Cost of revenues: License............................................... 181 693 - - 874 Services.............................................. 6,576 158 55 - 6,789 ------------ ----------- ----------- ------------ ---------- Total cost of revenues........................... 6,757 851 55 - 7,663 Gross profit........................................... 10,049 1,735 24 - 11,808 Operating expenses: Research and development.............................. 4,199 2,038 985 - 7,222 Sales and marketing................................... 15,582 2,377 559 - 18,518 General and administrative............................ 3,220 1,062 2,358 - 6,640 Amortization of deferred stock-based compensation..... 3,687 - 4,562 12,167 (b) 20,416 Amortization of acquired intangible assets............ 377 - - 53,495 (c) 53,872 Writeoff of in-process research & development......... - - - - - ------------ ----------- ----------- ------------ ---------- Total operating expenses......................... 27,065 5,477 8,464 65,662 106,668 Loss from operations................................... (17,016) (3,742) (8,440) (65,662) (94,860) Interest income and other income (expense), net........ 1,361 89 (46) (354) (d) 1,050 ------------ ----------- ----------- ------------ ---------- Net loss............................................... $ (15,655) $ (3,653) $ (8,486) $ (66,016) $ (93,810) ============ =========== =========== ============ ========== Accretion of mandatorily redeemable convertible preferred stock....................................... (13,227) (13,227) ------------ ---------- Net loss attributable to common stockholders........... $ (28,882) $ (107,037) ============ ========== Basic and diluted net loss per share................... $ (0.24) $ (1.58) ------------ ---------- Shares used in computing basic and diluted net loss per share............................................. 65,336 2,220 (e) 67,556 ------------ ------------ ----------
See notes to unaudited pro forma combined financial statements. 5 INTERWOVEN, INC. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS On October 31, 2000, Interwoven acquired all of the outstanding capital stock of Ajuba Solutions, Inc. in exchange for approximately 180,000 shares of Interwoven common stock. In addition, Interwoven issued options to purchase a total of approximately 109,000 shares of Interwoven common stock in exchange for all issued and outstanding Ajuba options and agreed to pay Interwoven common stock upon the exercise of such assumed options. Interwoven also loaned approximately $2.0 million to Ajuba in connection with the acquisition. Under purchase accounting, the total purchase price was allocated to Ajuba's assets and liabilities based on their relative fair values with any excess purchase price being allocated to intangibles and goodwill. The fair value of Ajuba's assets and liabilities were estimated by examining expected future cash flows. The amounts and components of the purchase price along with the allocation of the purchase price to assets acquired were as follows (in thousands): Net cash..................................................... $ 650 Common stock................................................. 21,061 Fair value of Ajuba stock options assumed.................... 2,094 Transaction costs............................................ 1,105 -------- Total purchase price....................................... $ 24,910 ======== Book value of tangible assets of Ajuba ...................... $ 2,073 Assumed liabilities ......................................... (4,376) Acquired workforce........................................... 1,480 Goodwill..................................................... 25,733 -------- Net assets acquired........................................ $ 24,910 ======== On November 1, 2000, Interwoven acquired all of the outstanding capital stock of Metacode Technologies, Inc. in exchange for approximately 930,000 shares of Interwoven common stock. In addition, Interwoven issued options to purchase a total of 457,000 shares of Interwoven common stock in exchange for all issued and outstanding Metacode options and agreed to pay Interwoven common stock upon the exercise of such assumed options. Interwoven also loaned approximately $9.0 million to Metacode in connection with the acquisition. Under purchase accounting, the total purchase price was allocated to Metacode's assets and liabilities based on their relative fair values with any excess purchase price being allocated to intangibles and goodwill. The fair value of intangibles and goodwill related to the acquisition were estimated by examining replacement cost and present value of discounted cash flows. The amounts and components of the purchase price along with the allocation of the purchase price to assets acquired were as follows (in thousands): Net cash........................................................ $ 5,250 Common stock.................................................... 114,049 Fair value of Metacode stock options assumed.................... 30,613 Transaction costs............................................... 2,601 -------- Total purchase price........................................ $152,513 ======== Book value of net tangible assets of Metacode................... $ 5,206 Assumed liabilities............................................. (566) Acquired workforce.............................................. 1,700 Completed Technology ........................................... 2,600 Writeoff of In-process Research and Development ................ 100 Goodwill........................................................ 143,473 -------- Net assets acquired............................................. $152,513 ======== 6 INTERWOVEN, INC. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS As the Company recorded approximately $175.0 million in intangible assets related to the acquisitions, amortization charges of these intangibles is expected to be $9.7 million in the fourth quarter of 2000 and $14.6 million in the first quarter of 2001, respectively. As the Company recorded a deferred compensation liability of $23.3 million related to the assumption of the acquired companies options and the exchange of Interwoven shares for Ajuba shares, amortization expenses related to these items is expected to be $3.0 million in the fourth quarter of 2000 and the first quarter of 2001, respectively. The unaudited pro forma combined balance sheet and unaudited statements of operations give effect to the merger as if it had occurred at the beginning of the period presented. All share and per share amounts have been adjusted to reflect the two for one stock split effected December 29, 2000. The following adjustments have been reflected in the unaudited pro forma combined balance sheet and statements of operations: (a) To record cash paid, common stock and options issued to common and preferred stockholders of the acquired companies, and record applicable purchase accounting entries. (b) To reflect the year to date adjustment related to amortization of deferred stock based compensation. (c) Adjustment to record the amortization of goodwill and intangible assets resulting from the allocation of the Ajuba and Metacode purchase price. The pro forma adjustment assumes goodwill and other intangible assets will be amortized on a straight-line basis over the following estimated lives: Ajuba Metacode ------- ---------- Acquired workforce................................. 2 years 3 years Completed Technology............................... n/a 4 years Goodwill........................................... 3 years 4 years (d) To eliminate interest income earned by Interwoven on cash paid at the date of the merger assuming a 6% interest rate which approximates the Company's actual weighted average rate of return during the periods presented. (e) To reflect the shares issued as consideration for the merger based on the calculated exchange price of $51.125 per share, and $52.34 per share for the Ajuba and Metacode acquisitions, respectively. 7 (c) Exhibits. The following exhibits are filed with this current report on Form 8-K/A Exhibit No. Exhibit Description - ----------- ------------------- 2.1* Agreement and Plan of Merger dated October 19, 2000 among Interwoven, Inc., AJ Acquisition Corp. and Ajuba Solutions, Inc. 2.2* Agreement and Plan of Merger dated October 20, 2000 among Interwoven, Inc., Melon Acquisition Corporation and Metacode Technologies, Inc. 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants. 23.2 Consent of PriceWaterhouseCoopers LLP, Independent Accountants. 99.1* Press release dated October 20, 2000. 99.2 Financial statements of Scriptics Corporation for the twelve months ended December 31, 1999 99.3 Unaudited financial statements of Ajuba Solutions, Inc. for the nine months ended September 30, 2000 99.4 Financial statements of Metacode, Inc. __________ *Previously filed 8 SIGNATURE 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. Dated: January 16, 2001 INTERWOVEN, INC. By: /s/ David M. Allen ------------------------------ David M. Allen Senior Vice President, Chief Financial Officer and Secretary 9 EX-23.1 2 0002.txt CONSENT OF ARTHUR ANDERSEN, LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated March 21, 2000 for Ajuba Solutions, Inc. (formerly known as Scriptics Corporation) included in this Form 8-K/A, into Interwoven Inc.'s previously filed Registration Statements (File Nos. 333-49184 and 333-50566) on Form S-3 and (File Nos. 333-88725, 333-39914, 333-42690, 333-46662 and 333- 49926) on Form S-8. /s/ ARTHUR ANDERSEN LLP - ----------------------- San Jose, California January 15, 2001 EX-23.2 3 0003.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (333-49184 and 333-50566) and Form S-8 (333-39914, 333- 42690, 333-46662, 333-49926 and 333-88725), of Interwoven, Inc. of our report dated December 21, 2000 with respect to the financial statements of Metacode Technologies, Inc. which appear in Exhibit 99.4 in this Form 8-K/A. /s/ PricewaterhouseCoopers LLP January 12, 2001 San Jose, California EX-99.2 4 0004.txt FINANCIAL STATEMENTS SCRIPTICS CORP. 12 MONTHS Exhibit 99.2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Scriptics Corporation: We have audited the accompanying balance sheet of Scriptics Corporation (a California corporation) as of December 31, 1999, and the related statements of operations, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Scriptics Corporation as of December 31, 1999, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit of approximately $4,300,000 which raises substantial doubt about its ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ ARTHUR ANDERSEN LLP San Jose, California March 21, 2000 Scriptics Corporation Balance Sheet
----------------- December 31, Assets 1999 ------ ----------------- Current Assets: Cash and cash equivalents $ 3,286,661 Accounts receivable, net of allowance for doubtful accounts of $36,321 337,168 Prepaid expenses and other current assets 146,562 ----------------- Total current assets 3,770,391 ----------------- Property and Equipment, at cost: Furniture and equipment 526,688 Software and computers 103,447 ----------------- 630,135 Less: Accumulated depreciation and amortization (157,931) ----------------- 472,204 Other Assets 108,798 ----------------- Total assets $ 4,351,393 ================= Liabilities and Shareholders' Equity ------------------------------------ Current Liabilities: Long-term debt, current portion $ 967,556 Accounts payable 146,422 Accrued liabilities 497,115 Deferred revenue 262,394 ----------------- Total current liabilities 1,873,487 Long-term debt, net of current portion 2,108,108 ----------------- Total liabilities 3,981,595 ----------------- Commitments (Note 5) Shareholders' Equity: Series A convertible preferred stock, no par value; aggregate liquidation preference of $1,060,000: Authorized--2,120,000 shares; Outstanding--2,120,000 shares 1,048,571 Series B convertible preferred stock, no par value; aggregate liquidation preference of $3,510,620: Authorized--3,000,000 share; Outstanding--2,854,163 shares 3,464,902 Common stock, no par value: Authorized--15,120,000 share; Outstanding--5,607,934 shares 194,484 Notes receivable from shareholders (56,000) Accumulated deficit (4,282,159) ----------------- Total shareholders' equity 369,798 ----------------- Total liabilities and shareholders' equity $ 4,351,393 =================
The accompanying notes are an integral part of these financial statements. Scriptics Corporation Statement of Operations ------------ Year Ended December 31, 1999 ----------------- Revenue $ 2,586,133 Cost of Revenue 851,193 ------------ Gross profit 1,734,940 Operating Expenses: General and administrative 1,061,963 Sales and marketing 2,376,758 Research and development 2,038,197 ------------ Loss from operations (3,741,978) ------------ Other Income (Expense): Interest expense (9,865) Interest income 102,764 Other expense (3,906) ------------ Total other income, net 88,993 ------------ Net Loss $ (3,652,985) ============ The accompanying notes are an integral part of these financial statements. SCRIPTICS CORPORATION Statement of Shareholders' Equity Year Ended December 31, 1999
Notes Series A Series B Receiv- Convertible Convertible able Total Preferred Stock Preferred Stock Common Stock From Accumu- Share- ------------------- ------------------- ------------------- Share- lated holders' Shares Amount Shares Amount Shares Amount holders Deficit Equity --------- ---------- --------- ---------- --------- --------- -------- ----------- ----------- Balance at December 31, 1998 2,120,000 $1,048,571 2,854,163 $3,472,566 4,868,726 $ 72,993 $(61,000) $ (629,174) $ 3,903,956 Issuance costs related to Series B convertible preferred stock issued in 1998 .................. -- -- -- (7,664) -- -- -- -- (7,664) Issuance of common stock for cash and notes receivable upon exercise of stock options ......... -- -- -- -- 1,455,208 203,891 (15,000) -- 188,891 Issuance of common stock for services or product at $0.15 per share ....... -- -- -- -- 37,500 5,625 -- -- 5,625 Issuance of common stock for cash in connection with loan agreement ...... -- -- -- -- 163,000 24,450 -- -- 24,450 Repurchase of common stock -- -- -- -- (916,500) (112,475) 12,500 -- (99,975) Payment of note receivable from shareholder ......... -- -- -- -- -- -- 7,500 -- 7,500 Net loss .................. -- -- -- -- -- -- -- (3,652,985) (3,652,985) --------- ---------- --------- ---------- --------- --------- -------- ----------- ----------- Balance at December 31, 1999 2,120,000 $1,048,571 2,854,163 $3,464,902 5,607,934 $ 194,484 $(56,000) $(4,282,159) $ 369,798 ========= ========== ========= ========== ========= ========= ======== =========== ===========
The accompanying notes are an integral part of these financial statements. Scriptics Corporation Statement of Cash Flows
----------------- Year Ended December 31, 1999 Cash Flows from Operating Activities: ----------------- Net loss $ (3,652,985) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 121,464 Provision for doubtful accounts 31,321 Noncash stock compensation for services rendered 5,625 Changes in assets and liabilities: Accounts receivable (183,448) Prepaid expenses and other current assets (119,555) Other assets (86,518) Accounts payable 113,277 Accrued liabilities 420,822 Deferred revenue (2,270) --------------- Net cash used in operating activities (3,352,267) --------------- Cash Flows from Investing Activities: Purchase of property and equipment (430,541) --------------- Cash Flows from Financing Activities: Proceeds from long-term debt 3,075,664 Repayment of long-term debt (189,492) Issuance costs related to Series B convertible preferred stock issued in 1998 (7,664) Proceeds from issuance of common stock 213,341 Repurchase of common stock (99,975) Payment of shareholder receivable 7,500 --------------- Net cash provided by financing activities 2,999,374 --------------- Net Decrease in Cash and Cash Equivalents (783,434) Cash and Cash Equivalents at Beginning of Year 4,070,095 --------------- Cash and Cash Equivalents at End of Year $ 3,286,661 =============== Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 9,865 =============== Issuance of notes receivable in exchange for common stock $ 15,000 ===============
The accompanying notes are in integral part of these financial statements. - -------------------------------------------------------------------------------- Ajuba Solutions, Inc. Notes to Financial Statements December 31, 1999 1. Organization ------------ Scriptics Corporation (the "Company") was incorporated in the state of California on January 8, 1998 and is a leading supplier of solutions for automating, managing and customizing high-value business-to-business relationships over the Internet. Their flagship product, Scriptics Connect, leverages the Internet and XML to connect an organization's applications directly to trading communities and to the business systems of partners. The Company also offers a full range of professional services to create complete business-to-business integration solutions. The Company is subject to the risks and challenges associated with companies in a comparable stage of development, including: dependence on key individuals, competition from substitute products and from larger companies, successful marketing of its products and acceptance of its technology, successful development of product enhancements on a continuing basis and the need for adequate financing to support future growth. As of December 31, 1999, the Company has suffered recurring losses from operations, has an accumulated deficit of approximately $4,300,000, net shareholders' equity of approximately $370,000, and working capital of approximately $1,900,000. However, management's current projections indicate that there will not be sufficient cash flow from operations to satisfy cash requirements throughout 2000. This factor raises substantial doubt about the Company's ability to continue as a going concern. Management is in the process of attempting to raise additional funding. However, there can be no assurance that they will be successful with such efforts or that any financing will be sufficient to meet the Company's working capital requirements. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. 2. Significant Accounting Policies ------------------------------- Use of Estimates in the Preparation of Financial Statements - ----------------------------------------------------------- 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 could differ from those estimates. Cash and Cash Equivalents - ------------------------- For financial reporting purposes, the Company considers investments with original maturities of three months or less to be cash equivalents. Cash equivalents consist principally of money market accounts. Concentration of Credit Risk - ---------------------------- Financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Seven customers comprised approximately 62% of the accounts receivable balance at December 31, 1999. Property and Equipment - ---------------------- Property and equipment are stated at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets of three to five years or the life of the lease, whichever is shorter. Stock-Based Compensation - ------------------------ In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," the Company has elected to measure compensation cost for its plans using the intrinsic value method of accounting for stock issued to employees, in accordance with Accounting Principles Board Opinion 25. However, as required by SFAS No. 123, pro forma disclosure of net loss is reflected in the Notes to the Financial Statements (see Note 7) as if the fair value based method of accounting was adopted. Comprehensive Income - -------------------- In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 was adopted by the Company upon inception, January 8, 1998. This standard defines comprehensive income as the changes in equity of an enterprise except those resulting from shareholder transactions. Comprehensive loss for the year ended December 31, 1999, approximated net loss. Revenue Recognition - ------------------- The Company generates the following types of revenue: License revenue. License revenue is earned under software license - --------------- agreements to end-users. Revenues from licenses to end users are recognized upon shipment of the software, provided collectability of the resulting receivable is probable, the fee is fixed or determinable and contract execution, if applicable, has occurred. If an acceptance period is required, revenues are recognized upon the earlier of customer acceptance or the expiration of the acceptance period. Service revenue. Services consist of support arrangements and consulting - --------------- and training services. Support agreements generally call for the Company to provide technical support services and provide the customer with rights to updates to software. Revenue on support agreements is recognized ratably over the term of the support agreement. The Company provides consulting and training services to its customers; revenue from such services is recognized as the services are performed. Software Development Costs - -------------------------- Capitalization of software development costs begins upon the establishment of technological feasibility of the product, which the Company defines as the development of a working model and further defines as the development of a beta version of the software. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenue, estimated economic life and changes in technology. Such costs are reported at the lower of unamortized cost or net realizable value. To date, internal software development costs that were eligible for capitalization have not been significant and the Company has charged all software development costs to research and development as incurred. - -------------------------------------------------------------------------------- Page 2 3. Long-term Debt -------------- In November 1999, the Company entered into a $3,000,000 loan and security agreement (the "Agreement") with a lender. Borrowings under the Agreement are collateralized by the Company's assets. The Company had $3,000,000 outstanding under the Agreement as of December 31, 1999. Borrowings bear a per annum rate of interest of 12.01%. Principal and interest payments are due monthly commencing on February 1, 2000 for 36 months. In connection with the Agreement, the lender purchased 156,000 shares of common stock at their current fair market value of $0.15 per share. In November 1999, the Company entered into a $500,000 equipment revolving line of credit (the "Equipment Agreement") with the same lender as above. Borrowings under the Equipment Agreement are collateralized by the purchased equipment. The Company had $75,664 outstanding under the Equipment Agreement as of December 31, 1999. Borrowings bear interest at 5.00%. Principal and interest payments are due monthly commencing on January 1, 2000 for 36 months. The Company paid an initial loan fee of $15,000 that has been recorded as other assets on the accompanying balance sheet as the full amount may be refunded back to the Company contingent upon the level of borrowings against the line. In connection with the Equipment Agreement, the lender purchased 7,000 shares of common stock at their current fair market value of $0.15 per share. 4. Income Taxes ------------ The net deferred income tax asset consists of the following as of December 31, 1999: Deferred income tax assets: Net operating loss carryforwards $ 1,692,617 Tax credit carryforwards 208,000 Temporary differences 21,263 ------------- 1,921,880 Deferred income tax liability: Temporary difference (9,489) ------------- 1,912,391 Valuation allowance (1,912,391) ------------- Net deferred income tax asset $ -- ============= Temporary differences consist of items currently deductible for financial reporting purposes, but not for tax purposes. These items are primarily reserves and accruals. As of December 31, 1999, the Company had net operating loss carryforwards for Federal and state income tax purposes of approximately $4,245,000 and $4,155,000, respectively, and tax credit carryforwards of approximately $114,000 and $94,000, respectively. The net operating loss and tax credit carryforwards expire on various dates through 2019. The Internal Revenue Service Code contains provisions which may limit the net operating loss and tax credit carryforwards to be used in any given year upon the occurrence of certain events, including a significant changes in ownership interest. A valuation allowance has been recorded for the entire deferred income tax asset as a result of uncertainties regarding the realization of the asset including the Company's short operating history and lack of taxable income. - -------------------------------------------------------------------------------- 5. Commitments ----------- The Company leases its facility under noncancellable operating lease agreements that expire in 2002 and 2004. Rent expense for the year ended December 31, 1999, under all operating leases was approximately $455,000, which is net of sublease income of approximately $89,000. Total minimum future lease payments under operating leases are as follows: 2000 $ 1,115,297 2001 1,123,016 2002 1,050,105 2003 493,411 2004 41,171 ------------- $ 3,823,000 ============= 6. Convertible Preferred Stock --------------------------- The Company is authorized to issue 2,120,000 shares of Series A convertible preferred stock ("Series A"), and 3,000,000 shares of Series B convertible preferred stock ("Series B"). Significant rights, restrictions and preferences of the Series A and Series B are as follows: . The holders of each outstanding share of Series A and Series B are entitled to receive annual, non-cumulative dividends of $0.05 and $0.12 per share, respectively, when and as declared by the Board of Directors. The holders of Series A and Series B will also be entitled to participate in dividends on common stock, when and if declared by the Board of Directors, based on the number of shares of common stock held on an as-if converted basis. No dividends on Series A, Series B, or common stock have been declared by the Board as of December 31, 1999. . In the event of a liquidation, dissolution or winding-up of the affairs of the Company, including a change in control, the holders of each share of Series A and Series B shall be entitled to receive $0.50, and $1.23 per share, respectively, adjusted for any combinations, consolidations, or stock distributions or dividends with respect to such shares and, in addition, an amount equal to all declared but unpaid dividends in preference to any distribution to the holders of the common stock. All remaining proceeds will be shared equally by the holders of the preferred and common stock on an as converted basis. . Each holder of Series A and Series B shares shall have voting rights equivalent to the number of common stock shares into which they are convertible. . Each share of Series A and Series B is convertible, at the option of the shareholder, into such number of shares of common stock as determined by dividing $0.50 and $1.23, respectively, by the conversion price at the time in effect for each share of preferred stock. The initial conversion price shall be $0.50 and $1.23 per share for Series A and Series B preferred stock, respectively. Each share shall automatically convert upon the closing date of a public offering of the Company's common stock for which the price per share is not less than $5.00 per share and the aggregate offering price is not less than $10,000,000. 7. Common Stock ------------ As of December 31, 1999, the Company has issued an aggregate of 5,607,934 shares of common stock to employees, lenders, investors and consultants of the Company of which 1,629,209 are subject to repurchase rights at the option of the Company at $0.01 - $0.15 per share. The shares are repurchasable in the event of termination of employment, for any or no reason. Such repurchase rights lapse 25% on the first year anniversary of the vesting commencement date and 1/48th per month thereafter. These rights of repurchase will terminate on the effective date of an initial public offering or the closing date of a sale of assets or merger of the Company in which the shareholders receive securities of a buyer whose shares are publicly traded. Common Stock Reserved for Future Issuance ----------------------------------------- As of December 31, 1999, the Company has reserved the following shares of common stock for issuance in connection with: Conversion of Series A preferred stock 2,120,000 Conversion of Series B preferred stock 2,854,163 1998 Stock Option Plan 2,258,267 --------- Total 7,232,430 ========= 1998 Stock Option Plan ---------------------- In 1998, the Company established the 1998 Stock Option Plan (the "Plan") and authorized a total of 4,676,975 shares of common stock for issuance thereunder. Under the Plan, the Board of Directors may grant incentive and nonqualified stock options to purchase shares of the Company's common stock to employees and consultants of the Company. The exercise price per share for an option granted to employees and consultants owning stock representing more than 10% of the Company at the time of the grant cannot be less than 110% of the fair market value per share as determined by the Board of Directors on the date of the grant. Incentive and nonqualified stock options granted to all other persons shall be granted at a price no less than 100% and 85%, respectively, of the fair market value per share as determined by the Board of Directors on the date of grant. Options generally expire ten years after the date of grant and vest over a four year period. However, options may be exercisable immediately upon the holder entering into a restricted stock purchase agreement, which gives the Company the right to repurchase unvested shares at the original issuance price. Option activity under the Plan was as follows:
Outstanding Options ----------------------------- Weighted Shares Average Available Number of Exercise For Grant Shares Price ----------- ----------- -------- Outstanding at December 31, 1998 2,527,975 269,000 $0.05 Granted (1,877,900) 1,877,900 $0.15 Exercised -- (1,455,208) $0.14 Cancelled 142,292 (142,292) $0.01 Repurchase of unvested shares 916,500 -- $0.12 ----------- ----------- -------- Outstanding at December 31, 1999 1,708,867 549,400 $0.15 =========== =========== ========
Options Outstanding Options Exercisable ------------------------------------------------------------------------------------- ------------------------------------- Weighted- Number Average Weighted- Number Weighted- Range of Outstanding at Remaining Average Exercisable Average Exercise December 31, Contractual Exercise December 31, Exercise Prices 1999 Life Price 1999 Price -------- -------------- ------------------ ----------------- ------------------ --------------
$0.15 517,000 9.49 $0.15 -- $0.15 $0.20 32,400 9.89 $0.20 -- $0.20 ------- --- 549,400 -- ======= === The weighted average fair value of options granted during 1999 was $0.03. The Company applies Accounting Principles Board Opinion No. 25 in accounting for its stock option plans. Had the Company's stock option plans been accounted for under SFAS No. 123, net loss would have been adjusted to the following pro forma amount for the year ended December 31, 1999: Net loss: As reported $ (3,652,985) =============== Pro forma $ (3,666,725) =============== For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options' vesting period. The effects of applying SFAS No. 123 on pro forma disclosures of net loss are not likely to be representative of the pro forma effects on net loss in future years. 8. Notes Receivable from Shareholders ---------------------------------- During 1999, the Company issued 100,000 shares of common stock to an employee upon the exercise of options at a price of $0.15 per share for promissory notes receivable. These promissory notes are full recourse, subject to the option exercise agreements and are due and payable in 2004. Interest income is recognized as received. 9. 401(K) Plan ----------- The Company maintains a 401(k) retirement plan for full-time employees and may make discretionary contributions. No employer contributions were made during the current period. EX-99.3 5 0005.txt UNAUDITED FINANCIAL STATEMENTS AJUBA 9 MONTHS Exhibit 99.3 Ajuba Solutions, Inc. Unaudited Balance Sheet -- As of September 30, 2000
September 30, 2000 ------------------ (unaudited) Assets ------ Current Assets: Cash and cash equivalents $ 1,619,614 Accounts receivable, net of allowance for doubtful accounts of $53,998 361,409 Prepaid expenses and other current assets 75,282 ----------------- Total current assets 2,056,305 ----------------- Property and Equipment, at cost: Furniture and equipment 271,391 Software and computers 812,432 Capital improvements 214,300 ----------------- 1,298,123 Less: Accumulated depreciation and amortization (395,676) ----------------- 902,447 Other Assets 199,055 ----------------- Total assets $ 3,157,807 ================= Liabilities and Shareholders' Deficit ------------------------------------- Current Liabilities: Accounts payable $ 372,639 Accrued liabilities 497,587 Deferred revenue 394,993 Long-term debt, current portion 1,701,821 ----------------- Total current liabilities 2,967,040 Long-term debt, net of current portion 1,149,284 ----------------- Total liabilities 4,116,324 ----------------- Commitments (Note 5) Shareholders' Deficit: Series A convertible preferred stock, no par value; aggregate liquidation preference of $1,060,000: Authorized--2,120,000 shares; Outstanding--2,120,000 shares 1,048,570 Series B convertible preferred stock, no par value; aggregate liquidation preference of $3,510,620: Authorized--3,000,000 shares; Outstanding--2,854,163 shares 3,464,902 Series C convertible preferred stock, no par value; aggregate liquidation 5,832,856 preference of $8,162,906 Authorized--3,000,000 shares; Outstanding--2,039,458 shares Common stock, no par value: Authorized--15,120,000 share; Outstanding--5,607,934 shares 499,066 Notes receivable from shareholders (328,977) Accumulated deficit (11,474,934) ----------------- Total shareholders' equity, (deficit) (958,518) ----------------- Total liabilities and shareholders' equity $ 3,157,807 =================
The accompanying notes are an integral part of these unaudited financial statements. Ajuba Solutions, Inc. Unaudited Statement of Operations
Nine Months Ended September 30, ----------------------------------------- 1999 2000 ------------ ------------ (unaudited) Revenue $ 1,816,128 $ 1,443,444 Cost of Revenue 565,598 901,036 ------------ ------------ Gross profit 1,250,530 542,408 Operating Expenses: General and administrative 672,657 2,843,206 Sales and marketing 1,629,859 1,880,587 Research and development 1,357,893 2,798,556 ------------ ------------ Loss from operations (2,409,879) (6,979,941) ------------ ------------ Other Income (Expense): Interest expense (7,322) (260,766) Interest income 80,667 59,062 Other expense (state and other taxes) (1,901) (11,127) ------------ ------------ Total other income, net 71,444 (212,831) ------------ ------------ Net Loss $ (2,338,435) $ (7,192,772) ============ ============
The accompanying notes are an integral part of these financial statements. Ajuba Solutions, Inc. Unaudited Statement of Cash Flows Nine Months Ended September 30, 2000
Nine Months Ended September 30 ---------------------------------------- 1999 2000 ----------------- ----------------- (Unaudited) Cash Flows from Operating Activities: Net loss $ (2,338,435) $ (7,192,772) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 81,087 237,745 Provision for doubtful accounts (5,000) (36,321) Changes in assets and liabilities: Accounts receivable (253,869) (12,079) Prepaid expenses and other current assets (132,070) (18,977) Accounts payable 35,929 226,216 Accrued liabilities 268,229 (170) Deferred revenue (55,393) 112,012 ----------------- ----------------- Net cash used in operating activities (2,399,522) (6,660,188) ----------------- ----------------- Cash Flows from Investing Activities: Purchase of property and equipment (300,307) (667,987) ----------------- ----------------- Cash Flows from Financing Activities: Repayment of long-term debt (96,303) (203,330) Proceeds from issuance of common stock 13,941 5,864,460 ----------------- ----------------- Net cash provided by financing activities (82,362) 5,661,130 ----------------- ----------------- Net Decrease in Cash and Cash Equivalents (2,782,191) (1,667,046) Cash and Cash Equivalents at Beginning of Year 4,070,095 3,286,661 ----------------- ----------------- Cash and Cash Equivalents at End of Year $ 1,287,904 $ 1,619,614 ================= =================
The accompanying notes are an integral part of these unaudited financial - ------------------------------------------------------------------------ statements. - ----------- Ajuba Solutions, Inc. Notes to Unaudited Financial Statements September 30, 2000 1. Organization ------------ Ajuba Solutions Inc. as Scriptics Corporation (the "Company") was incorporated in the state of California on January 8, 1998 and is a leading supplier of solutions for automating, managing and customizing high-value business-to- business relationships over the Internet. Their flagship product, Scriptics Connect, leverages the Internet and XML to connect an organization's applications directly to trading communities and to the business systems of partners. The Company also offers a full range of professional services to create complete business-to-business integration solutions. Scriptics Corporation changed its name to Ajuba Solutions on June 13, 2000. The Company is subject to the risks and challenges associated with companies in a comparable stage of development, including: dependence on key individuals, competition from substitute products and from larger companies, successful marketing of its products and acceptance of its technology, successful development of product enhancements on a continuing basis and the need for adequate financing to support future growth. As of September 30, 2000 the Company has suffered recurring losses from operations, has an accumulated deficit of approximately $11.5 million, net shareholders' deficit of approximately $959,000, and negative working capital of approximately $911,000. Management's current projections indicate that there will not be sufficient cash flow from operations to satisfy cash requirements throughout 2000. This factor raises substantial doubt about the Company's ability to continue as a going concern. Management is in the process of attempting to raise additional funding. However, there can be no assurance that they will be successful with such efforts or that any financing will be sufficient to meet the Company's working capital requirements. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. 2. Significant Accounting Policies ------------------------------- Use of Estimates in the Preparation of Financial Statements ----------------------------------------------------------- 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 could differ from those estimates. Cash and Cash Equivalents ------------------------- For financial reporting purposes, the Company considers investments with original maturities of three months or less to be cash equivalents. Cash equivalents consist principally of money market accounts. Concentration of Credit Risk ---------------------------- Financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Seven customers comprised approximately 62% of the accounts receivable balance at December 31, 1999. - -------------------------------------------------------------------------------- Page 2 Property and Equipment - ---------------------- Property and equipment are stated at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets of three to five years or the life of the lease, whichever is shorter. Stock-Based Compensation - ------------------------ In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," the Company has elected to measure compensation cost for its plans using the intrinsic value method of accounting for stock issued to employees, in accordance with Accounting Principles Board Opinion 25. Pro forma disclosure of net loss is not reflected in the Notes to the Financial Statements as net income under the fair value based method of accounting for stock options was not materially different than stated net loss. Comprehensive Income - -------------------- In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 was adopted by the Company upon inception, January 8, 1998. This standard defines comprehensive income as the changes in equity of an enterprise except those resulting from shareholder transactions. Comprehensive loss for the nine months ended September 30, 2000, approximated net loss. Revenue Recognition - ------------------- The Company generates the following types of revenue: License revenue. License revenue is earned under software license agreements - --------------- to end-users. Revenues from licenses to end users are recognized upon shipment of the software, provided collectability of the resulting receivable is probable, the fee is fixed or determinable and contract execution, if applicable, has occurred. In an acceptance period is required, revenues are recognized upon the earlier of customer acceptance or the expiration of the acceptance period. Service revenue. Services consist of support arrangements and consulting and - --------------- training services. Support agreements generally call for the Company to provide technical support services and provide the customer with rights to updates to software. Revenue on support agreements is recognized ratably over the term of the support agreement. The Company provides consulting and training services to its customers; revenue from such services is recognized as the services are performed. Software Development Costs - -------------------------- Capitalization of software development costs begins upon the establishment of technological feasibility of the product, which the Company defines as the development of a working model and further defines as the development of a beta version of the software. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenue, estimated economic life and changes in technology. Such costs are reported at the lower of unamortized cost or net realizable value. To date, internal software development costs that were eligible for capitalization have not been significant and the Company has charged all software development costs to research and development as incurred. 3 RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments - Deferral of the Effective Date of SFAS Statement No. 133" and in June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments - an amendment of SFAS 133, Accounting for Derivative Instruments and Hedging Activities," As a result of SFAS No. 137, SFAS No. 133 and SFAS No. 138 will be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The company does not expect that the adoption of this standard will have a material impact on its financial position and results of operations. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of Opinion 25 for (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. The Company adopted FIN 44 effective July 1, 2000. The adoption of the provisions of FIN 44 did not have a material effect on the financial position or results of operations of the Company. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation and disclosure of revenue in financial filings with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. The Company is required to adopt SAB 101 in the fourth quarter of fiscal 2001. We are in the process of evaluating the Securities and Exchange Commission's interpretation of SAB 101 but believe that the implementation of SAB 101 will not have a material effect on the financial position or results of operations of the Company. 4 ACQUISITION BY INTERWOVEN, INC. In October 2000, Interwoven acquired all of Ajuba's outstanding shares of Common Stock and Preferred Stock, at which time Ajuba became a wholly-owned subsidiary of Interwoven. EX-99.4 6 0006.txt FINANCIAL STATEMENTS OF METACODE, INC. EXHIBIT 99.4 Metacode Technologies, Inc. Financial Statements For the Two Years Ended December 31, 1998 and 1999 and For the Period Ended September 30, 2000 (unaudited) METACODE TECHNOLOGIES, INC. INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Accountants....................................... 2 Balance Sheet .......................................................... 3 Statement of Operations ................................................ 4 Statement of Shareholders' Deficit...................................... 5 Statement of Cash Flows ................................................ 6 Notes to Financial Statements .......................................... 7 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Metacode Technologies, Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of shareholders' deficit and of cash flows present fairly, in all material respects, the financial position of Metacode Technologies, Inc. at December 31, 1998 and 1999, and the results of its operations and its cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP. December 21, 2000 San Jose, California 2 METACODE TECHNOLOGIES, INC. BALANCE SHEET (in thousands)
December 31, September 30, ----------------------- 1998 1999 2000 ---------- ---------- ------------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 951 $ 428 $ 15 Accounts receivable, net 11 262 529 Note receivable - 50 - Prepaid expenses and other 151 125 106 ---------- ---------- ------------- Total current assets 1,113 865 650 Property and equipment, net 433 350 308 ---------- ---------- ------------- Total assets $ 1,546 $ 1,215 $ 958 ========== ========== ============= LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable $ 27 $ 20 $ 473 Accrued liabilities 289 358 1,046 Deferred revenue, current - 397 321 Debt, current 1,000 2,050 4,395 ---------- ---------- ------------- Total current liabilities 1,316 2,825 6,235 Deferred revenue, long-term - 56 258 ---------- ---------- ------------- 1,316 2,881 6,493 ---------- ---------- ------------- Mandatorily redeemable convertible preferred stock: 9,395 shares authorized; 5,039, 5,705 and 5,705 (unaudited) shares issued and outstanding, respectively 10,397 12,397 12,857 Commitments (Note 4) Shareholders' deficit: Common Stock, no par value, 25,000 shares authorized; 8,215, 9,590 and 9,761 (unaudited) shares issued and outstanding, respectively 922 13,088 27,445 Notes receivable from shareholders (60) (110) (110) Unearned stock-based compensation (365) (7,891) (12,881) Accumulated deficit (10,664) (19,150) (32,846) ---------- ---------- ------------- Total shareholders' deficit (10,167) (14,063) (18,392) ---------- ---------- ------------- Total liabilities and shareholders' deficit $ 1,546 $ 1,215 $ 958 ========== ========== =============
The accompanying notes are an integral part of these financial statements. 3 METACODE TECHNOLOGIES, INC. STATEMENT OF OPERATIONS (in thousands)
Nine Months Ended Year Ended December 31, September 30, -------------------------- -------------------------- 1998 1999 1999 2000 ----------- ----------- ----------- ----------- (unaudited) Revenue: Licenses $ - $ 29 $ 13 $ 338 Services 10 50 21 255 ----------- ----------- ----------- ----------- Total revenue 10 79 34 593 ----------- ----------- ----------- ----------- Cost of revenues: Licenses -- -- -- -- Services 27 55 24 415 ----------- ----------- ----------- ----------- Total cost of revenues 27 55 24 415 ----------- ----------- ----------- ----------- Gross profit (17) 24 10 178 ----------- ----------- ----------- ----------- Operating expenses: General and administrative 1,722 985 704 1,668 Sales and marketing 783 559 385 1,109 Research and development 2,999 2,358 1,800 1,147 Amortization of unearned stock-based compensation 311 4,562 2,941 8,432 ----------- ----------- ----------- ----------- Total operating expenses 5,815 8,464 5,830 12,356 ----------- ----------- ----------- ----------- Loss from operations (5,832) (8,440) (5,820) (12,178) Interest and other income (expense), net 129 (46) (22) (1,518) ----------- ----------- ----------- ----------- Net loss $ (5,703) $ (8,486) $ (5,842) $ (13,696) =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements 4 METACODE TECHNOLOGIES, INC. STATEMENT OF SHAREHOLDERS' DEFICIT (in thousands)
Notes Common Stock Receivable Unearned --------------------- from Stock-Based Accumulated Shares Amount Shareholders Compensation Deficit Total --------- --------- ------------ ------------- ----------- --------- Balance at December 31, 1997 7,219 $ 135 $ - $ 31 $ (4,961) $ (4,795) Issuance of Common Stock on exercise of stock options 208 17 - - - 17 Issuance of Common Stock for notes receivable and other 788 63 (60) - - 3 Unearned stock-based compensation - 707 - (707) - - Amortization of stock-based compensation - - - 311 - 311 Net loss - - - - (5,703) (5,703) -------- --------- ----------- ----------- ---------- --------- Balance at December 31, 1998 8,215 922 (60) (365) (10,664) (10,167) Issuance of Common Stock for notes receivable 1,000 50 (50) - - - Issuance of Common Stock on exercise of stock options 375 28 - - - 28 Unearned stock-based compensation - 12,088 - (12,088) - - Amortization of stock-based compensation - - - 4,562 - 4,562 Net loss - - - - (8,486) (8,486) -------- --------- ----------- ----------- ---------- --------- Balance at December 31, 1999 9,590 13,088 (110) (7,891) (19,150) (14,063) Issuance of Common Stock on exercise of stock options (unaudited) 171 27 - - - 27 Unearned stock-based compensation (unaudited) - 13,422 - (13,422) - - Amortization of stock-based compensation (unaudited) - - - 8,432 - 8,432 Warrants issued for services (unaudited) - 589 - - - 589 Warrants issued in connection with bridge loans (unaudited) - 319 - - - 319 Net loss (unaudited) - - - - (13,696) (13,696) -------- --------- ----------- ----------- ---------- --------- Balance at September 30, 2000 (unaudited) 9,761 $ 27,445 $ (110) $ (12,881) $ (32,846) $ (18,392) ======== ========= =========== =========== ========== =========
The accompanying notes are an integral part of these financial statements. 5 METACODE TECHNOLOGIES, INC. STATEMENT OF CASH FLOWS (in thousands)
Nine Months Ended Year Ended December 31, September 30, ---------------------------- ----------------------------- 1998 1999 1999 2000 ---------- ---------- ---------- ---------- (unaudited) Cash flows from operating activities: Net loss $ (5,703) $ (8,486) $ (5,842) $ (13,696) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 120 152 113 125 Amortization of stock-based compensation 311 4,565 2,941 8,432 Warrant related non-cash interest expense - - - 1,367 Issuance of Common Stock for other 3 - - - Accretion of discount on investments (126) - - - Provisions for doubtful accounts - 3 - 17 Changes in assets and liabilities: Accounts receivable (11) (254) (141) (284) Notes receivable - (50) (50) 50 Prepaid expenses and other assets - 26 40 20 Accounts payable (169) (7) 3 453 Accrued liabilities (256) 69 47 688 Deferred revenue - 454 264 124 ---------- ---------- ---------- ---------- Net cash used in operating activities (5,831) (3,528) (2,625) (2,704) ---------- ---------- ---------- ---------- Cash flows from investing activities: Proceeds from maturity of investments 5,493 - - - Purchase of investments (1,472) - - - Purchase of property and equipment (286) (73) (17) (81) ---------- ---------- ---------- ---------- Net cash (used in) provided by investing activities 3,735 (73) (17) (81) ---------- ---------- ---------- ---------- Cash flows from financing activities: Proceeds from mandatorily redeemable convertible preferred stock, net 931 - - - Proceeds from exercise of common stock options 17 28 4 27 Proceeds from issuance of debt 2,000 3,050 2,050 2,345 ---------- ---------- ---------- ---------- Net cash provided by financing activities 2,948 3,078 2,054 2,372 ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 852 (523) (588) (413) Cash and cash equivalents at beginning of period 99 951 951 428 ---------- ---------- ---------- ---------- Cash and cash equivalents at end of period $ 951 $ 428 $ 363 $ 15 ========== ========== ========== ========== Supplemental non-cash activity: Issuance of mandatorily redeemable convertible preferred stock upon conversion of debt $ 1,000 $ 2,000 $ 2,000 $ - ========== ========== ========== ========== Common Stock issued for notes receivable $ 60 $ 50 $ - $ - ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 6 METACODE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED NOTE 1 - THE COMPANY AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES: The Company Metacode Technologies, Inc. (the "Company") was incorporated in California on June 17, 1994, and offers software products based on its proprietary MetaCode(TM), leveraging the latest developments in database design, object-oriented programming, on-line application processing, network navigation and data visualization. The integrated data retrieval and knowledge synthesis capabilities of the Company's technologies significantly reduce the time it takes a user to organize, manage and derive added value from disparate data and information. During 1999, the Company commenced planned principal operations and emerged from the development stage. Unaudited interim results The accompanying interim financial statements as of September 30, 2000 and for the nine months ended September 30, 1999 and 2000 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the nine months ended September 30, 1999 and 2000. The financial data and other information disclosed in these notes to financial statements related to these periods are unaudited. The results for the nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for the year ending December 31, 2000. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue recognition In October 1997 and March 1998, the American Institute of Certified Public Accountants ("AICPA") issued statement of Position No. 97-2, "Software Revenue Recognition" ("SOP No. 97-2") and statement of Position No. 98-4, "Deferral of the Effective Date of a Provision of SOP No. 97-2" ("SOP No. 98-4"). SOP No. 98-4 defers for one year the application of certain provisions of SOP No. 97-2. In December 1998, the AICPA issued Statement of Position No. 98-9, "Modification of SOP No. 97-2 with Respect to Certain Transactions" ("SOP No. 98-9"), which is effective for transactions entered into beginning April 1, 1999. SOP No. 98-9 extends the effective date of SOP No. 98-4 and provides additional interpretive guidance. The adoption of SOP No. 97-2, SOP No. 98-4 and SOP No. 98-9 have not had and are not expected to have a material impact on the Company's results of operations, financial position or cash flows. The Company's revenues are derived from licenses for its software and related services, which include technical support, training and consulting. Revenue is recognized for the various contract elements based upon vendor-specific objective evidence of fair value of each element. Revenue from license fees is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, no significant Company obligations with regard to implementation or integration exists, the fee is fixed or determinable and collectibility is probable. Provisions for sales returns are provided at the time of revenue recognition based upon estimated returns. 7 METACODE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED (Continued) Services revenue is primarily comprised of revenue from consulting fees, maintenance contracts and training. Services revenue from consulting and training is recognized as the service is completed. Maintenance contracts include the right to unspecified upgrades and ongoing support. Maintenance revenue is deferred and recognized on a straight-line basis as service revenue over the life of the related contract. Cash and cash equivalents The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. Cash equivalents consist primarily of cash on deposit with banks and money market accounts that are stated at cost, which approximates fair value. Concentrations of credit risk Financial instruments, which potentially subject the Company to a concentration of credit risk, consist primarily of cash and cash equivalents and accounts receivable. The Company limits its exposure to credit loss by placing its cash and cash equivalents with a major financial institution. The Company's accounts receivable are derived from revenue earned from customers located in the U.S. and are denominated in U.S. dollars. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon expected collectibility of accounts receivable. The following table summarizes the revenue from customers in excess of 10% of the total revenue. Nine Months Ended Year Ended December 31, September 30, ----------------------- ------------------- 1998 1999 1999 2000 ------ ------ ------ ------ (unaudited) Company A 100% -% -% -% Company B -% 38% 44% -% Company C -% 27% -% -% Company D -% 22% 24% -% Company E -% -% 12% -% Company F -% -% -% 39% Company G -% -% -% 17% Company H -% -% -% 12% At December 31, 1999, Company B, C and D accounted for zero, 5% and 25% of total accounts receivable. Fair value of financial instruments The Company's financial instruments including cash and cash equivalents, accounts receivable and accounts payable are carried at cost, which approximates their fair value because of the short-term maturity of these instruments. Debt is carried at cost, which approximates fair value due to the proximity of the implicit rates of these financial instruments and the prevailing market rates for similar instruments. 8 METACODE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED (Continued) Research and development Expenditures incurred in the research and development of new products and enhancements to existing products are charged to expense as incurred. Software development costs are capitalized after technological feasibility has been established. The period between achievement of technological feasibility, which the Company defines as the establishment of a working model, until the general availability of such software to customers, has been short and software development costs qualifying for capitalization have been insignificant. Accordingly, the Company has not capitalized any software development costs as of December 31, 1999 and September 30, 2000 (unaudited). Capitalization of internal-use software costs In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective for financial statements for years beginning after December 15, 1998 and provides guidance for the accounting of computer software developed or obtained for internal use including the requirements to capitalize specified costs and amortization of such costs. The Company adopted the provisions of SOP 98-1 in its fiscal years beginning January 1, 1999. To date the Company has not capitalized any internal use software costs. Property and equipment Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the useful lives of the assets, generally seven years or less or the shorter of the lease term or the useful lives of the assets, if applicable. Impairment of long-lived assets The Company evaluates the recoverability of its long-lived assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of." SFAS 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. Stock-based compensation The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation". Under APB No. 25, compensation expense is based on the difference, if any, on the date of grant between the fair value of the Company's stock and the amount an employee must pay to acquire the stock. The Company accounts for stock issued to non-employees in accordance with the provisions of SFAS No. 123 and the Emerging Issues Task Force Consensus on Issue No. 96-18. Income taxes Income taxes are accounted for using an asset and liability approach which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The measurement of current and deferred tax liabilities and assets are based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. 9 METACODE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED (Continued) Comprehensive income Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from non-owner sources. To date, the Company has not had any transactions that are required to be reported in comprehensive income. Recent accounting pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments - Deferral of the Effective Date of SFAS Statement No. 133" and in June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments - an amendment of SFAS 133, Accounting for Derivative Instruments and Hedging Activities." As a result of SFAS No. 137, SFAS No. 133 and SFAS No. 138 will be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company does not expect that the adoption of this standard will have a material impact on its financial position and results of operations. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of Opinion 25 for (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. The Company adopted FIN 44 effective July 1, 2000. The adoption of the provisions of FIN 44 did not have a material effect on the financial position or results of operations of the Company. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation and disclosure of revenue in financial filings with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. The Company is required to adopt SAB 101 in the fourth quarter of fiscal 2001. We evaluated the Securities and Exchange Commission's interpretation of SAB 101 and have determined it will not have a material effect on the financial position or results of operations of the Company. 10 METACODE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED (Continued) NOTE 2 - BALANCE SHEET COMPONENTS (IN THOUSANDS):
December 31, ------------------------ September 30, 1998 1999 2000 -------- --------- -------------------- (in thousands) (unaudited) Accounts receivable, net: Accounts receivable $ 11 $ 265 $ 549 Less: Allowance for doubtful accounts - (3) (20) -------- --------- ----------- $ 11 $ 262 $ 529 ======== ========= ===========
There were no write-offs against the allowance for doubtful accounts for the years ended December 31, 1998 and 1999 and for the period ended September 30, 1999 and 2000 (unaudited).
December 31, ------------------------ September 30, 1998 1999 2000 -------- --------- -------------------- (in thousands) (unaudited) Property and equipment, net: Computer equipment $ 390 $ 438 $ 477 Furniture and fixtures 134 134 134 Computer software 75 96 139 --------- --------- --------- 599 668 750 Less: Accumulated depreciation and amortization (166) (318) (442) --------- --------- --------- $ 433 $ 350 $ 308 ========= ========= =========
Depreciation expense was $120,000, $152,000, $113,000 (unaudited) and $125,000 (unaudited) at December 31, 1998 and 1999 and for the period ended September 30, 1999 and 2000, respectively.
December 31, ----------------------- September 30, 1998 1999 2000 ---------- --------- --------------------- (in thousands) (unaudited) Accrued liabilities: Payroll and related expenses $ - $ - $ 264 Other 289 358 782 -------- --------- ---------- $ 289 $ 358 $ 1,046 ======== ========= ==========
11 METACODE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED (Continued) NOTE 3 - DEBT: In August 2000, the Company entered into a financing agreement (the "Financing Agreement") whereby a bank would extend credit up to $750,000 as a bridge loan advance. Bridge loan advances accrue interest at a rate of prime plus three percentage points and are payable monthly with principal due the earlier of (i) September 30, 2000 or (ii) the closing of the Company's next Preferred round of financing, provided, however, at Company's option and provided that Company has received at least $275,000 in new equity and/or Subordinated Debt from a third party, then the maturity date shall be October 30, 2000. In connection with the Financing Agreement, the Company issued to the bank a warrant to purchase 99,351 shares of Series D Preferred Stock at $0.90588 per share. The warrant expires on August 1, 2005. The Company recorded a $460,000 discount to the Financing Agreement for the value of the warrants, which was recognized in 2000 as additional interest expense. The Financing Agreement requires the Company to comply with certain financial covenants. The Company was in compliance with all covenants at September 30, 2000. The amount borrowed was paid in full during October 2000 (unaudited). In June and July 2000, the Company issued $645,000 of convertible promissory notes payable ("2000 Notes") to related parties. The 2000 Notes bear interest at 8% and were to mature in June or July 2001 or, at the option of the holder, shall convert into Series D Preferred Stock or such other class of Preferred Stock issuable by the Company in the next round of qualified financing. In connection with the issuance of the 2000 Notes, the Company issued warrants to purchase 96,750 shares of Series D Convertible Preferred Stock ("Series D") at $1.00 per share to the holders of the warrants. The warrants expire at the earlier of June 2004 or upon an initial public offering of the Company's Common Stock. The Company has recorded a $404,415 discount to the Notes for the value of the warrants, which was to be recognized over the term of the 2000 Notes. The Company amortized $318,546 of the 2000 Notes' discount as additional interest expense during 2000. In 1998, the Company issued a convertible subordinated promissory note payable ("1998 Note") to an employee of the Company totaling $2,000,000. The note bore interest at 8.5% and was to mature one year from the date of issuance, or at the option of the holder, converted into Preferred Stock at the same purchase price and upon the same terms as shares of such Preferred Stock sold to purchasers in the financing. In October 1998, $1,000,000 of the 1998 Notes was converted into 333,333 shares of Series C Preferred Stock at three dollars ($3.00) per share. In March 1999, the remaining $1,000,000 of the 1998 Notes was converted into 333,333 shares of Series C Preferred Stock at three dollars ($3.00) per share. In 1999, the Company issued convertible subordinated promissory notes payable to an employee of the Company totaling $3,050,000 ("1999 Notes"). The notes bore interest at 8.5% and were to mature one year from issuance, or at the option of the holder, converted into Preferred Stock at the same purchase price and upon the same terms as shares of such Preferred Stock sold to purchasers in the financing. In March 1999, $1,000,000 of the 1999 Notes was converted into 333,333 shares of Series C Preferred Stock at three dollars ($3.00) per share. In 2000, the Company issued convertible subordinated promissory notes payable to an employee of the Company totaling $850,000 ("2000 Notes"). The notes bore interest at 8.5% and were to mature one year from issuance, or at the option of the holder, converted into Preferred Stock at the same purchase price and upon the same terms as shares of such Preferred Stock sold to purchasers in the financing. In 2000, an amendment to the outstanding 1999 Notes and 2000 Notes was agreed upon between the Company holders of said Notes. The amendment stated the following: (i) extension of maturity dates to June 15, 2001; and (ii) upon a merger or consolidation with or into any other entity, or if any other entity shall acquire all or substantially all of the capital stock or assets of the Company, during the term of the 1999 Notes and 2000 Notes, the founder shall have the option to convert the then outstanding principal amount and accrued interest on the 1999 Notes and 2000 Notes for shares of Common Stock. 12 METACODE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED (Continued) NOTE 4 - COMMITMENTS: The Company leases office space and equipment under noncancelable operating leases with various expiration dates through December 2010. Rent expense for the year ended December 31, 1998 and 1999 and for the period ended September 30, 2000 totaled $271,000, $278,000 and $210,000 (unaudited), respectively. Future minimum lease payments under noncancelable operating and capital leases, including lease commitments entered into subsequent to December 31, 1999, are as follows (in thousands): Year Ending Operating Sublease December 31, Leases Income ------------- ------------- -------------- 2000 $ 391 $ 91 2001 1,167 - 2002 1,163 - 2003 1,162 - 2004 and thereafter 8,615 - ------------- -------------- Total minimum lease payments and sublease income $ 12,498 $ 91 ------------- -------------- NOTE 5 - INCOME TAXES: At December 31, 1998 and 1999, the Company had approximately $3.0 million and $3.9 million, respectivley of net operating loss carryforwards available to reduce future taxable income which expire in 2015 and 2010 for federal and state tax purposes, respectively. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. Deferred tax assets consist of the following (in thousands): December 31, September 30, ------------------------ 1998 1999 2000 ---------- ---------- ------------ (unaudited) Deferred tax assets: Net operating loss carryforwards $ 3,043 $ 3,942 $ 4,350 Accruals and reserves 19 42 97 Research credits 381 624 807 Depreciation & other 574 881 504 ---------- ---------- ------------ 4,017 5,489 5,758 Valuation allowance (4,017) (5,489) (5,758) ---------- ---------- ------------ Net deferred tax assets $ - $ - $ - ---------- ---------- ------------ For financial reporting purposes, the Company has incurred a loss in each year since its inception. Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company has provided for a full valuation allowance against its net deferred tax assets at December 31, 1998, 1999 and September 30, 2000 (unaudited), respectively. 13 METACODE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED (Continued) NOTE 6 - MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK: At December 31, 1999 and September 30, 2000 (unaudited), Mandatorily Redeemable Convertible Preferred Stock consists of the following (in thousands): Shares ----------------------------- Liquidation Redemption Series Authorized Outstanding Amount Amount - ------ ------------- -------------- ------------ ---------------- A 1,395 1,395 $ 1,117 $ 1,117 B 3,000 3,000 7,350 7,350 C 5,000 1,310 3,930 3,930 ------------- -------------- ------------ ---------------- 9,395 5,705 $ 12,397 $ 12,397 ------------- -------------- ------------ ---------------- The holders of Series A, B and C have certain rights and privileges as follows: Voting Each share of Series A, B and C has voting rights equal to one share of Common Stock on an "as if" converted basis. Dividends Holders of Series A, B and C are entitled to receive non-cumulative annual dividends of $0.05, $0.15 and $0.19 per share, respectively, when and if declared by the Company's Board of Directors. Dividends on the Preferred Stock shall be payable in preference and prior to any payment of any dividend on the Common Stock. The holders of the Series A, B and C will also be entitled to participate in dividends on the Common Stock, when and if declared by the Board of Directors, based on the number of shares of Common Stock held on an as- converted basis. No dividends have been declared from inception through December 31, 1999 and September 30, 2000 (unaudited). Liquidation In the event of any liquidation, dissolution, winding up or merger where less than 50% of the voting power is maintained of the Company, the holders of the Series A, B and C shall be entitled to receive, prior and in preference to any distribution to the holders of the Common Stock, an amount equal to the $0.80, $2.45 and $3.00 per share, respectively, plus any declared but unpaid dividends. Any amounts remaining after such distribution shall be distributed among the holders of Common Stock. Any acquisition of the Company, or sale of all or substantially all of the assets, shall be treated as a liquidation and shall entitle the holders of Preferred and Common Stock to receive at closing cash, securities or other property as elected by the holders of Preferred and Common Stock. Conversion Each share of Series A, B and C is convertible at the option of the holders into one share of Common Stock at any time, subject to adjustment for antidilution. Each share of Series A, B and C will be automatically converted upon an initial public offering of the Company's Common Stock with an aggregate proceeds in excess of $7,500,000 and price per share of not less than $5.00 per share. The Company has reserved sufficient shares of Common Stock for issuance upon conversion of the Series A, B and C. 14 METACODE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED (Continued) NOTE 7 - COMMON STOCK: In June 1994, the Company sold 5,000,000 shares of Common Stock to its founder in exchange for $500 of cash. Additionally, in March 1996, the Company sold 1,850,000 shares of Common Stock to several employees for $1,850 of cash. Under the terms of the stock purchase agreements, the Company has the right to repurchase up to 80% of the shares of such stock at the original issue price upon termination. The repurchase rights expire ratably over a 60 month period thereafter with 53,333 and zero (unaudited) shares of Common Stock subject to repurchase at December 31, 1999 and September 30, 2000, respectively. The Company had reserved shares of Common Stock for issuance as follows (in thousands):
December 31, September 30, 1999 2000 -------------- --------------- (unaudited) Mandatorily Redeemable Convertible Preferred Stock: Series A 1,395 1,395 Series B 3,000 3,000 Series C 5,000 5,000 Exercise of options under stock option plans 9,000 13,000 ------- ------- 18,395 22,395 ======= =======
Note receivable from shareholder In April 1998, the Company issued 750,000 shares of Common Stock to an officer and founder of the Company in exchange for a $60,000 note receivable. The note bore interest at 5.7% per year. The note is collateralized by the underlying stock and is classified as a notes receivable from shareholders in the accompanying balance sheet at December 31, 1999 and September 30, 2000 (unaudited). There were no shares of Common Stock subject to repurchase at December 31, 1999. In November 1999, the Company issued 1,000,000 shares of Common Stock to an officer of the Company in exchange for a $50,000 note receivable. The note bears interest at the rate of 5.7% per year. The principal sum of the note and accrued interest will become due and payable in November 2004. The notes are secured by the underlying stock and are classified as notes receivable from shareholders in the accompanying balance sheet at December 31, 1999 and September 30, 2000 (unaudited). There were no shares of Common Stock subject to repurchase at December 31, 1999. NOTE 8 - EMPLOYEE STOCK OPTION PLAN: In February 1995, the Company adopted the 1995 Stock Option Plan (the "1995 Plan"). The Plan provides for the granting of stock options to employees and consultants of the Company. Options granted under the Plan may be either incentive stock options or nonqualified stock options. Incentive stock options (ISO) may be granted only to employees (including officers and directors who are also employees) of the Company. Nonqualified stock options may be granted to employees and consultants of the Company. 15 METACODE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED (Continued) Options under the Plan may be granted for periods of up to ten years and at prices no less than 85% of the estimated fair value of the shares on the date of grant as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO shall not be less than 100% of the estimated fair value of the shares on the date of grant and (ii) the exercise price of an ISO granted to a 10% shareholder shall not be less than 110% of the estimated fair value of the shares on the date of grant and are for periods not to exceed five years. Options become exercisable at such times and under such conditions as determined by the Board of Directors. Options generally vest over five years. The following table summarizes the activity for the years ended December 31, 1998, 1999 and for the period ended September 30, 2000 (unaudited; shares in thousands):
Year Ended December 31, -------------------------------------------------- Nine Months Ended 1998 1999 September 30, 2000 -------------------------------------------------- ----------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price --------- -------- ---------- --------- -------- -------- (unaudited) Outstanding at beginning of year 2,456 $ 0.12 2,884 $ 0.27 5,069 $ 0.17 Granted 1,725 0.36 4,390 0.07 3,114 0.30 Canceled (1,089) 0.11 (1,830) 0.30 (967) 0.30 Exercised (208) 0.08 (375) 0.06 (171) 0.15 --------- ---------- -------- Outstanding at end of year 2,884 0.27 5,069 0.15 7,045 0.19 ========= ========== ======== Options exercisable at end of year 1,044 $ 0.18 1,718 $ 0.17 2,520 $ 0.14 ========= ========== ========= Weighted average fair value of options granted during the year $ 0.36 $ 0.07 $ 0.30
The followings table summarizes information about stock options outstanding and exercisable (shares in thousands):
Options Exercisable at Options Outstanding at December 31, 1999 December 31, 1999 ------------------------------------------- --------------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life (Years) Price Exercisable Price ----------- ------------ ------------ -------- ----------- -------- $ 0.05-0.08 3,675 7.6 $ 0.07 1,093 $ 0.07 $ 0.25-0.25 260 7.6 $ 0.25 147 $ 0.25 $ 0.30-0.38 1,134 8.5 $ 0.37 478 $ 0.37 ------------ ----------- $ 0.38 5,069 7.9 $ 0.15 1,718 $ 0.17 ============ ===========
16 METACODE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED (Continued)
Options Exercisable at Options Outstanding at September 30, 2000 September 30, 2000 ------------------------------------------ -------------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life (Years) Price Exercisable Price ------------ ------------- -------------- ----------- ------------- ----------- $0.05-0.08 1,172 6.9 $ 0.07 916 $ 0.07 $0.25-0.25 58 6.9 $ 0.25 24 $ 0.25 $0.30-0.38 5,815 7.9 $ 0.33 1,580 $ 0.34 ------------- ------------- 7,045 7.3 $ 0.19 2,520 $ 0.14 ============= =============
Fair value disclosures In determining the fair value of options granted during the periods, the Company used the minimum value option pricing model and assumed the following: risk free interest rates from 4.25% to 6.36%, an average expected option life of four years, an expected volatility of 0% and zero dividend yield. The difference between as reported and pro forma net loss was $15,000, $32,000 and $129,000 for the years ended December 31, 1998 and 1999 and the nine months ended September 30, 2000 (unaudited). NOTE 9 - 401(K) PLAN: The Company sponsors an employee savings and retirement plan intended to qualify under section 401(k) of the Internal Revenue Code. All eligible employees may contribute up to 20% of compensation, subject to annual limitations, which are fully vested at all times. The company retains the options of matching employees' contributions with a discretionary employer contribution. To date, no employer contributions have been made. NOTE 10 - RELATED PARTY TRANSACTIONS: License agreement On February 3, 1995, the Company entered into a License Agreement with the Company's president and major shareholder, to obtain exclusive rights to intellectual property technologies to be included in the development of its products. The License Agreement entitled this individual to receive the following fees and royalties: . Fees of $50,000, contingent upon capital funding received in the aggregate amount of $1,000,000 or greater. . Fees of $250,000, contingent upon capital funding received in the aggregate amount of $5,000,000 or greater. . Fees of $100,000 for each patent filed on or before the second anniversary of the receipt of the $5,000,000 of capital funding. . Royalties of one percent of net revenues from the sale of the Company's product and license loss, royalties and any other payments under a license of the technologies. 17 METACODE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED (Continued) The license fees are limited to $1,000,000 in aggregate. Capital funding of $1,000,000 was received in 1996, and capital funding of $5,000,000 was received in 1997. Through December 31, 1999, Mr. Schatz had received $200,000 of the $300,000 fees due. The remaining $100,000 fees payable are included in accrued liabilities. Consulting services The Company engaged the services of consulting companies affiliated with related parties. The Company paid fees of $290,000, $75,000 and zero for the years ended December 31, 1998, 1999 and for the period ended September 30, 2000 (unaudited). For 1998, $207,000 and $83,000 were included in general and administrative expenses and sales and marketing expenses, respectively. For 1999, all fees were included in sales and marketing expenses. The fees for the services performed approximated fair value. NOTE 11 - ACQUISITION BY INTERWOVEN, INC.: In October 2000, Interwoven acquired all of Metacode's outstanding shares of Common Stock and Preferred Stock, at which time Metacode became a wholly-owned subsidiary of Interwoven. 18 -----END PRIVACY-ENHANCED MESSAGE-----