-----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, NsxNYWqcawURxff5koadSNGCGj+NrU3/PArcnIXONzbJ/eNUFnzqSrrLjU+BS+3k 2+GoxKGC/SDpELTSYCxQzg== 0001021408-99-002014.txt : 19991115 0001021408-99-002014.hdr.sgml : 19991115 ACCESSION NUMBER: 0001021408-99-002014 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990831 ITEM INFORMATION: FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRITICAL PATH INC CENTRAL INDEX KEY: 0001060801 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 911788300 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-25331 FILM NUMBER: 99750907 BUSINESS ADDRESS: STREET 1: 320 FIRST STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4158088800 MAIL ADDRESS: STREET 1: 320 FIRST STREET CITY: SAN FRNACISCO STATE: CA ZIP: 94105 8-K/A 1 FORM 8-K/A ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A Amendment No. 1 to CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 August 31, 1999 Date of Report (Date of earliest event reported): CRITICAL PATH, INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) California 000-25331 91-1788300 - --------------------------------------------------------------------------------------------------- (State or other jurisdiction of (Commission File Number) (I.R.S. Employer Identification No.) incorporation or organization)
320 First Street San Francisco, California 94105 (Address of principal executive offices) Registrant's telephone number, including area code: (415) 808-8800 N/A - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) ================================================================================ This Current Report on Form 8-K/A amends Item 7 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 31, 1999. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. --------------------------------- (a) Amplitude Software Corporation, Inc. Financial Statements Report of Independent Auditors Balance Sheets as of December 31, 1997, December 31, 1998 and June 30, 1999 Statements of Operations for the Years Ended December 31, 1997 and December 31, 1998 and the Six Month Periods Ended June 30, 1998 and June 30, 1999 Statements of Shareholders' Deficit for the Years Ended December 31, 1997 and December 31, 1998 and for the Six Month Period Ended June 30, 1999 Statements of Cash Flows for the Years Ended December 31, 1997 and December 31, 1998 and the Six Month Periods Ended June 30, 1998 and June 30, 1999 Notes to Financial Statements (b) Pro Forma Condensed Consolidated Financial Information Overview Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1999 Pro Forma Condensed Consolidated Statements of Operations for the Year Ended December 31, 1998 and for the Six Month Period ended June 30, 1999 Notes to Pro Forma Condensed Consolidated Financial Information (c) Exhibits 23.1 Consent of Independent Auditors -2- Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: November 12, 1999 CRITICAL PATH, INC. /s/ David Thatcher ________________________________________ David Thatcher Executive Vice President and Chief Financial Officer [LOGO KPMG] AMPLITUDE SOFTWARE CORP. Financial Statements December 31, 1998, 1997 and June 30, 1999 and 1998 (With Independent Auditors' Report Thereon) [LOGO OF KPMG] Independent Auditors' Report The Board of Directors and Shareholders Amplitude Software Corporation, Inc.: We have audited the accompanying balance sheets of Amplitude Software Corporation, Inc. (the Company) as of December 31, 1998 and 1997, and the related statements of operations, shareholders' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Amplitude Software Corporation, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ KPMG LLP March 5, 1999, except for Note 9 which is as of August 31, 1999 AMPLITUDE SOFTWARE CORPORATION, INC. Balance Sheets
December 31, June 30, ---------------------------------- ----------- Assets 1997 1998 1999 ------------ -------------- ----------- (Unaudited) Current assets: Cash and cash equivalents $ 4,248,991 584,123 5,581,905 Accounts receivable, net of allowance for doubtful accounts receivable of $54,324 and $13,580 in 1998 and 1997, respectively 567,892 1,045,456 3,162,370 Prepaid expenses and other current assets 28,417 26,674 130,772 ----------- ----------- ----------- Total current assets 4,845,300 1,656,253 8,875,047 Property and equipment, net 394,694 744,348 1,300,512 Other assets 49,042 63,463 93,576 ----------- ----------- ----------- Total assets $ 5,289,036 2,464,064 10,269,135 =========== =========== =========== Liabilities and Shareholders' Deficit Current liabilities: Revolving and equipment facilities, short term $ 141,112 991,665 553,853 Accounts payable 264,279 457,241 497,696 Accrued and other current liabilities 129,713 647,225 1,275,512 Deferred revenue 127,143 456,453 692,070 ----------- ----------- ----------- Total current liabilities 662,247 2,552,584 3,019,131 Equipment facility, long term 197,568 - 387,296 Deferred revenue 8,905 156,324 208,973 ----------- ----------- ----------- Total liabilities 868,720 2,708,908 3,615,400 ----------- ----------- ----------- Series B, B-1 and C Redeemable convertible preferred stock, no par value; 12,050,722 shares authorized; 11,919,988 and 11,956,830 issued and outstanding in 1997 and 1998 respectively; liquidation preference of $8,457,608 and $8,492,608 in 1997 and 1998 respectively; aggregate redemption amount of $8,293,968 and $8,328,968 in 1997 and 1998, respectively. 8,293,968 8,328,968 18,622,220 ----------- ----------- ----------- Shareholders' deficit: Convertible preferred stock, no par value; 2,500,000 shares authorized, issued and outstanding; liquidation preference of $150,000 in 1997 and in 1998 25,824 25,824 25,824 Common stock, no par value; 50,000,000 shares authorized; 4,336,250 and 4,409,351 shares issued and outstanding in 1997 and 1998, respectively 33,168 41,174 146,878 Cumulative translation adjustment 5,572 Note receivable for common stock (24,000) (24,000) (24,000) Accumulated deficit (3,908,644) (8,616,810) (12,122,759) ----------- ----------- ----------- Total shareholders' deficit (3,873,652) (8,573,812) (11,968,485) ----------- ----------- ----------- Total liabilities and shareholders' deficit $ 5,289,036 2,464,064 10,269,135 =========== =========== ===========
See accompanying notes to financial statements. 2 AMPLITUDE SOFTWARE CORPORATION, INC. Statements of Operations
Year Ended Six Months Ended ----------------------------- ------------------------- December 31 December 31, June 30, June 30, 1997 1998 1998 1999 ----------- ------------- ----------- ----------- (Unaudited) (Unaudited) Revenues: Software $ 962,162 2,499,388 1,038,715 3,055,086 Support and maintenance 86,473 361,090 118,712 364,006 Contract services and other 423,458 612,405 288,261 404,662 ----------- --------- --------- --------- Total revenue 1,472,093 3,472,883 1,445,688 3,823,754 Cost of revenues 478,877 1,425,883 547,196 1,178,895 ----------- --------- --------- --------- Gross profit 993,216 2,047,000 898,492 2,644,859 ----------- --------- --------- --------- Operating expenses: Research and development 1,012,579 1,634,935 657,902 1,134,316 Sales and marketing 2,109,189 3,410,031 1,557,214 3,048,488 General and administrative 1,042,082 1,777,484 707,945 1,996,455 ----------- ------------ ---------- ---------- 4,163,850 6,822,450 2,923,061 6,179,259 ----------- ------------ ---------- ---------- Operating loss (3,170,634) (4,775,450) (2,024,569) (3,534,400) Other income, net 40,770 67,284 58,908 28,451 ----------- ------------ ---------- ---------- Net loss (3,129,864) $ (4,708,166) (1,965,661) 3,505,949 =========== ============ ========== ==========
See accompanying notes to financial statements. 3 AMPLITUDE SOFTWARE CORPORATION, INC. Statements of Shareholders' Deficit
Convertible preferred stock Series A Common Stock Cumulative Note --------------------------- ------------------------ Translation receivable for Shares Amount Shares Amount Adjustment common stock ---------- ----------- ---------- ----------- ----------- -------------- Balances as of December 31, 1996 2,500,000 25,824 4,055,000 24,330 (24,000) Exercise of stock options -- -- 281,250 8,838 -- Net loss -- -- -- -- -- ---------- ----------- ---------- ----------- ----------- -------------- Balances as of December 31, 1997 2,500,000 25,824 4,336,250 33,168 (24,000) Exercise of stock options -- -- 73,101 8,006 -- Net loss -- -- -- -- -- ---------- ----------- ---------- ----------- ----------- -------------- Balances as of December 31, 1998 2,500,000 $ 25,824 4,409,351 $ 41,174 (24,000) Currency translation adjustment -- -- -- -- 5,572 -- Exercise of stock options -- -- 393,043 105,704 -- -- Net Loss -- -- -- -- -- -- ---------- ----------- ---------- ----------- ----------- -------------- Balances as of June 30, 1999 2,500,000 $ 25,824 4,802,394 $ 146,878 5,572 (24,000) ========== =========== ========== =========== =========== ============== Total Accumulated shareholders' deficit deficit ----------- ------------- Balances as of December 31, 1996 (778,780) (752,626) Exercise of stock options -- 8,838 Net loss (3,129,864) (3,129,864) ----------- ------------- Balances as of December 31, 1997 (3,908,644) (3,873,652) Exercise of stock options -- 8,006 Net loss (4,708,166) (4,708,166) ----------- ------------- Balances as of December 31, 1998 (8,616,810) (8,573,812) Currency translation adjustment -- 5,572 Exercise of stock options -- 105,704 Net Loss (3,505,949) (3,505,949) ----------- ------------- Balances as of June 30, 1999 (12,122,759) (11,968,485) =========== =============
See accompanying notes to financial statements. AMPLITUDE SOFTWARE CORPORATION, INC. Statements of Cash Flows
Currency translation gain Year Ended Six Months Ended ----------------------------- ------------------------- December 31, December 31, June 30 June 30 1997 1998 1998 1999 ------------ -------------- ----------- ----------- (Unaudited) (Unaudited) Cash flows from operating activities: Net loss $(3,129,864) (4,708,166) (1,965,661) (3,505,949) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 88,811 204,617 75,202 193,719 Currency translation gain 5,606 Changes in operating assets and liabilities: Accounts receivable (550,613) (477,564) (114,049) (2,117,086) Prepaid expenses and other current assets (27,325) (7,767) (9,151) (104,470) Accounts payable 140,773 192,962 (12,958) 40,864 Accrued and other current liabilities 108,302 517,512 65,728 628,603 Deferred revenue 64,847 476,729 780,308 288,267 ----------- -------------- ---------- ----------- Net cash used in operating activities (3,305,069) (3,801,677) (1,180,581) (4,570,446) ----------- -------------- ---------- ----------- Cash flows from investing activities: Purchases of property and equipment (409,689) (547,637) (199,934) (750,098) Other assets (13,427) (11,545) (2,586) (30,113) ----------- -------------- ---------- ----------- Net cash used in investing activities (423,116) (559,182) (202,520) (780,211) ----------- -------------- ---------- ----------- Cash flows from financing activities: Proceeds from debt borrowings 338,680 652,985 4,040 -- Repayment of debt borrowings (50,516) Proceeds from issuance of common stock 8,838 8,006 105,704 Net proceeds from issuance of convertible preferred stock 5,813,973 -- -- Net proceeds from issuance of redeemable preferred stock -- 35,000 10,293,251 ----------- -------------- ---------- ----------- Net cash provided by financing activities 6,161,491 695,991 4,040 10,348,439 ----------- -------------- ---------- ----------- Net (decrease) increase in cash and cash equivalents 2,433,306 (3,664,868) (1,379,061) 4,997,782 Cash and cash equivalents, beginning of period 1,815,685 4,248,991 4,248,991 584,123 ----------- -------------- ---------- ------------ Cash and cash equivalents, end of period $ 4,248,991 584,123 2,869,930 5,581,905 =========== ============== ========== ============ Supplemental disclosures of cash flow information: Cash paid during the period for income taxes $ 2,056 2,600 2,177 2,901 =========== ============== ========== ============ Cash paid during the period for interest $ 7,215 40,161 17,707 52,628 =========== ============== ========== ============ Noncash investing activities: Acquisition of Clear Blue Network Systems, Inc. for $150,000 and 300,000 shares of Series B Prefered Stock $ 150,000 -- -- -- =========== ============== ========== ============
See accompanying notes to financial statements. 5 AMPLITUDE SOFTWARE CORPORATION, INC. Notes to Financial Statements December 31, 1998 and 1997 (1) The Company and Summary of Significant Accounting Policies (a) The Company Amplitude Software Corporation, Inc. (the Company) was incorporated in California in May 1996 to develop web-based application software that is designed to enhance organizational efficiency. (b) Interim financial information (Unaudited) The interim financial statements as of June 30, 1998, and for the six month periods ended June 30, 1998 and 1999, are unaudited. The Unaudited interim financial statements have been prepared on the same basis as the annual financial statement and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the results of the company's operations and its cash flows for the six months ended June 30, 1998 and 1999. The financial date and other information disclosed in these notes to financial statements related to these periods are unaudited. The results of the six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. (c) Financial Instruments and Concentration of Credit Risk Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash equivalents and short-term investments, which mainly include U.S. Treasury Bills and deposits with a U.S. commercial bank. At December 31, 1998 and 1997, the fair values of these instruments approximated their financial statement carrying amount. The Company markets its software products directly to end users, and generally does not require collateral. The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts when it is considered prudent to do so. During 1998, 17% of its revenue were derived from a single customer. (d) Cash Equivalents The Company considers all highly liquid instruments with maturity dates of 90 days or less to be cash equivalents. Cash equivalents as of December 31, 1998 consisted primarily of money market funds. (e) Revenue Recognition Revenues for software licenses for which collection of the resulting receivable is deemed probable are recognized upon delivery of the product provided there is persuasive evidence of an arrangement the fee is fixed and determinable and the agreement does not require significant customization of the software. Revenues for contract services are recognized on a percentage-of-completion basis. Revenues from software maintenance are recognized ratably over the maintenance term. In October 1997, the Accounting Standards Executive Committee (AcSec) of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 97-2, Software Revenue Recognition. The Company adopted SOP 97-2 for software transactions entered into beginning January 1, 1998. SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements (i.e., software products, upgrades/enhancements, postcontract customer support, etc.) to be allocated to each element based on relative fair values of the elements and revenue of each element to be recognized individually using the most appropriate method. Adoption of SOP 97-2 did not have a material impact on the Company's results of operations. In December 1998, AcSEC issued SOP 98-9, Software Revenue Recognition, with Respect to Certain Arrangements, which requires recognition of revenue using the "residual method" in a multiple element arrangement when fair value does not exist for one or more of the delivered elements in the arrangement. Under the "residual method," the total fair value of the undelivered elements is deferred and subsequently recognized in accordance with SOP 97-2. The Company does not expect a material change to its accounting for revenues as a result of the provisions of SOP 98-9. 6 AMPLITUDE SOFTWARE CORPORATION, INC. Notes to Financial Statements December 31, 1998 and 1997 (f) Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from three to five years. Leasehold improvements are amortized over the lesser of the related lease term or the life of the improvement. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying values or fair values, less costs of disposal. (g) Other Assets Other assets are comprised primarily of deposits and organizational costs. Organizational costs are stated at cost less accumulated amortization. Amortization is calculated under the straight-line method over the estimated useful life of five years. (h) Income Taxes The Company accounts for income taxes using an asset and liability approach, under which tax assets and liabilities are determined based on differences between financial reporting amounts and the tax bases of assets and liabilities, and are measured applying enacted statutory tax rates applicable to periods in which such assets and liabilities are expected to be realized. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. (i) Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. (j) Stock Option Plans The Company uses the intrinsic value method to account for its employee stock-based compensation plans. (k) Development Costs Development costs associated with new products and enhancements to existing software products are expensed as incurred until technological feasibility is established upon completion of a working model. To date, the Company's software development has been completed concurrent with the establishment of technological feasibility, and, accordingly, no amounts have been capitalized. 7 AMPLITUDE SOFTWARE CORPORATION, INC. Notes to Financial Statements December 31, 1998 and 1997 (l) Advertising Costs Advertising costs are expensed as incurred and are included in sales and marketing expense. The Company had advertising expense of approximately $15,144 and $0 for the years ended December 31, 1998 and 1997, respectively. (m) Comprehensive Income On January 1, 1998, the Company adopted the provisions of the SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards of comprehensive income (loss) and its components in a full set of financial statements. The Company's comprehensive loss consists of net loss. SFAS No. 130 requires only additional disclosures in the financial statements; it does not affect the Company's financial position or results of operations. (n) Segment Information On January 1, 1998, the Company adopted the provisions of SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. SFAS No. 131 establishes annual and interim reporting standards for operating segments of a company. SFAS No. 131 requires disclosures of selected segment-related financial information and descriptive information about products, major customers and geographic areas. The Company has one operating segment because it is not organized by multiple segments for purposes of making operating decisions or assessing performance. The chief operating decision maker is the Chief Executive Officer (CEO). The CEO evaluates performance, makes operating decisions and allocates resources based on financial data consistent with the presentation in the accompanying financial statements. All of the Company's revenues have been earned from customers in the United States and all of the Company's long-lived assets are located in the United States. (o) Recently Issued Accounting Pronouncements In March 1998, the AcSec issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software. SOP 98-1 is effective for financial statements issued for fiscal years beginning after December 15, 1998. The Company does not expect the adoption of SOP 98-1 will have a material impact on its results of operations. In April, 1998, the AcSec issued SOP 98-5, Reporting on the Cost of Start-Up Activities. SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. Initial application of SOP 98-5 should be reported as the cumulative effect of a change in accounting principle. SOP 98-5 is effective for financial statements issued for fiscal years beginning after December 15, 1998. Upon the adoption of SOP 98-5, the Company will record a $15,611 charge to the statement of operations for the unamortized balance of the capitalized organization costs as of December 31, 1998. 8 AMPLITUDE SOFTWARE CORPORATION, INC. Notes to Financial Statements December 31, 1998 and 1997 In June, 1998, the FASB issued SFAS No. 133, Accounting for Derivative and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments (including derivative instruments embedded in other contracts) and for hedging activities. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. To date, the Company has not entered into any derivative financial instruments or hedging activities. (2) Property and Equipment Property and equipment as of December 31, 1998 and 1997, consisted of the following:
1998 1997 ---------- ---------- Computer equipment $ 598,905 295,232 Software 170,743 22,469 Furniture and fixtures 244,426 148,736 Leasehold improvements 41,196 41,196 ---------- ---------- 1,055,270 507,633 Less accumulated depreciation and amortization (310,922) (112,939) ---------- ---------- $ 744,348 394,694 ========== ==========
(3) Shareholders' Equity (a) Common Stock In 1996 the Company issued 4,000,000 shares of common stock to the founders for $24,000 for which the founders signed full recourse promissory notes for the full value of the shares. The notes are payable on May 15, 2000. The shares are subject to a four-year vesting period under which 25% of the shares vested immediately and an additional 1/48 of the shares vest each month thereafter. The Company's right to repurchase unvested shares is exercisable only within 90 days following termination of the founders employment. As of December 31, 1998 and 1997, 416,667 and 1,416,667 shares, respectively, are subject to repurchase by the Company at the original issue price of the shares. (b) Convertible Preferred Stock The Company has authorized 14,550,722 shares of preferred stock and has designated 2,500,000, 5,327,693, 1,573,029 and 5,150,000 shares as Series A, B, B-1 and C convertible preferred stock, respectively, of which 2,500,000, 5,327,693, 1,573,029 and 5,056,108 shares, respectively, were issued and outstanding as of December 31, 1998. 9 AMPLITUDE SOFTWARE CORPORATION, INC. Notes to Financial Statements December 31, 1998 and 1997 The rights, preferences, privileges, and restrictions of the preferred stock are as follows: . The Series A convertible preferred stock is not redeemable. The Series B, B-1 and C redeemable convertible preferred stock may be redeemed in three equal annual installments at any time after the fifth anniversary of the original issue date by any holder, at a price equal to the original issuance price, subject to certain adjustments for antidilution. . The holders of the preferred stock are entitled to receive noncumulative annual dividends of the greater of $0.0048, $0.045, $0.059 and $0.0855 per share per annum for Series A, B, B-1 and C, respectively, or the dividend amount granted to common stock shareholders, when and if declared by the Company's Board of Directors, subject to certain adjustments for antidilution. Dividends are paid in preference and priority to any payments of dividends to common stock shareholders. . The liquidation preference for the Series A, B, B-1 and C preferred stock is $0.06, $0.50, $0.6519 and $0.95 per share, respectively, plus all declared and unpaid dividends, subject to certain adjustments for antidilution. If the assets are insufficient to make payment in full to all preferred stock shareholders, assets will be distributed ratably among the preferred stock shareholders in proportion to the full amounts to which they would otherwise be respectively entitled. . Each share of preferred stock is convertible into common stock at the option of the holder, at any time, on a one-for-one basis, subject to certain adjustments for antidilution. Each share of preferred stock will automatically convert into one share of common stock, subject to certain adjustments for antidilution, upon the earlier of (1) the vote of the majority of the preferred stock shareholders; or (2) the closing of an underwritten public offering with a per share price in excess of $5.00, subject to certain adjustments for antidilution, and with gross proceeds in excess of $10,000,000. . The holders of preferred stock have voting rights on an "as if converted" basis. 10 AMPLITUDE SOFTWARE CORPORATION, INC. Notes to Financial Statements December 31, 1998 and 1997 Redeemable convertible preferred stock activity for the two years ended December 31, 1998 is presented below:
Redeemable preferred stock --------------------------------------------------------------------- Series B Series B-1 Series C --------------------- --------------------- --------------------- Total Total Shares Amount Shares Amount Shares Amount Shares Amount --------- ---------- --------- ---------- --------- ---------- ---------- ---------- Balances as of December 31, 1996 5,027,693 $2,479,995 -- $ -- -- $ -- 5,027,693 $2,479,995 Issuance of Series B redeemable preferred stock 300,000 20,005 -- -- -- -- 300,000 20,005 Issuance of Series B-1 redeemable preferred stock -- -- 1,573,029 1,025,666 -- -- 1,573,029 1,025,666 Issuance of Series C redeemable preferred stock -- -- -- -- 5,019,266 4,768,302 5,019,266 4,768,302 --------- ---------- --------- ---------- --------- ---------- ---------- ---------- Balances as of December 31, 1997 5,327,693 2,500,000 1,573,029 1,025,666 5,019,266 4,768,302 11,919,988 8,293,968 Issuance of Series C redeemable preferred stock -- -- -- -- 36,842 35,000 36,842 35,000 --------- ---------- --------- ---------- --------- ---------- ---------- ---------- Balances as of December 31, 1998 5,327,693 $2,500,000 1,573,029 $1,025,666 5,056,108 $4,803,302 11,956,830 $8,328,968 ========= ========== ========= ========== ========= ========== ========== ==========
11 AMPLITUDE SOFTWARE CORPORATION, INC. Notes to Financial Statements December 31, 1998 and 1997 (c) Stock Option Plan The Company has reserved 3,500,000 shares of common stock under its 1996 stock option plan (the Plan), which provides for the granting of stock options and stock purchase rights to employees, directors, or consultants. Under the Plan, the exercise price is not less than 100% and 85% of the fair market value (as determined by the Board of Directors) for incentive stock options and nonstatutory stock options, respectively. All options have a term of no greater than 10 years from the date of grant. Under the Plan, options shall vest over no longer than 5 years. Generally, initial option grants vest 25% at the end of the first year and at a rate of 1/48 per month thereafter. Subsequent option grants generally vest at a rate of 1/48 per month. The Plan also provides for early exercise of options prior to the full vesting of the option. Any unvested shares purchased are subject to repurchase rights by the Company upon occurrence of certain events or conditions, such as employment termination, at the original purchase price. Stock option activity for the two years ended December 31, 1998 is presented below:
Weighted- Shares available Outstanding average for grant options exercise price ---------------- ----------- -------------- Balances as of December 31, 1996 2,062,000 1,395,000 $ 0.040 Options granted (1,380,000) 1,380,000 0.064 Options exercised -- (281,250) 0.031 Options canceled 553,750 (553,750) 0.046 ---------------- ----------- Balances as of December 31, 1997 1,235,750 1,940,000 0.057 Options granted (1,319,670) 1,319,670 0.316 Options exercised -- (73,101) 0.110 Options canceled 517,099 (517,099) 0.087 ---------------- ----------- Balances as of December 31, 1998 433,179 2,669,470 $ 0.179 ================ =========== ============= Options exercisable at end of year 1998 745,878 $ 0.095 =========== ============= 1997 236,041 $ 0.037 =========== ============= Weighted-average fair value of options granted during the year 1998 $ 0.070 1997 0.012
12 AMPLITUDE SOFTWARE CORPORATION, INC. Notes to Financial Statements December 31, 1998 and 1997 The following table summarizes information about stock options outstanding as of December 31, 1998:
Weighted- average Number remaining Number Exercise prices outstanding contractual life vested - ---------------------- ----------- ---------------- -------- $ 0.006 130,000 7.56 105,625 0.050 686,000 8.05 369,414 0.070 562,500 8.78 168,995 0.100 681,500 9.27 32,290 0.250 126,000 9.55 7,606 0.500 249,970 9.74 55,698 0.750 233,500 9.92 6,250 ----------- ---------------- -------- 2,669,470 8.89 745,878 =========== ================ ========
The Company applies the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, in accounting for its stock-based compensation plans. Had compensation cost for the Company's stock-based compensation plan been determined consistent with the fair value approach set forth in Statement of Financial Accounting Standards No. 123, the Company's net loss for the years ended December 31, 1998 and 1997 would have been $11,767 and $6,410 higher, respectively. The fair value of options granted during the years ended December 31, 1998 and 1997, is estimated on the date of grant using the minimum value method with the following weighted-average assumptions: no dividend yield, risk-free interest rates of 5.20% and 5.58%, respectively, and an expected life of 5 years. The Company accrued $43,688 in stock based compensation expense for services rendered by non-employees during the year ended December 31, 1998. (d) Employee Benefit Plan On November 1, 1998, the Company adopted a 401(k) Profit Sharing Plan (the 401(k) Plan) that is intended to qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended. The 401(k) Plan covers substantially all of the Company employees. Participants may elect to contribute a percentage of their compensation to this plan, up to the statutory maximum amount. The Company may make discretionary contributions to the 401(k) Plan. No discretionary contributions were made during 1998. 13 AMPLITUDE SOFTWARE CORPORATION, INC. Notes to Financial Statements December 31, 1998 and 1997 (4) Commitments The Company leases its facilities under several noncancelable operating leases. Future minimum lease payments under the Company's operating leases as of December 31, 1998, are as follows:
Years ending December 31: 1999 $ 520,556 2000 356,716 2001 374,262 2002 157,421 ------------- Future minimum lease payments $ 1,408,955 =============
Rent expense was $345,260 and $156,721 for the years ended December 31, 1998 and 1997, respectively. (5) Income Taxes Income tax benefit for the years ended December 31, 1998 and 1997 was $0. A reconciliation between the expected benefit computed by applying the U.S. Federal statutory tax rate of 34% to pretax loss and the actual provision for income taxes is as follows:
1998 1997 ----------- ----------- Expected benefit $(1,601,000) (1,063,000) Current year operating losses, research and development credits and temporary differences for which no tax benefit is recognized. 1,601,000 1,063,000 ----------- ----------- $ -- -- =========== ===========
14 AMPLITUDE SOFTWARE CORPORATION, INC. Notes to Financial Statements December 31, 1998 and 1997 The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:
1998 1997 ---------- ----------- Deferred tax assets: Intangibles $ 29,826 30,857 Fixed assets -- 3,569 Other accruals and reserves -- 19,522 Net operating loss carryforwards 3,381,721 1,487,076 Tax credit carryforwards 33,295 139,338 ----------- ----------- Total gross deferred tax assets 3,444,842 1,680,362 Deferred tax liabilities: State taxes 225,995 83,953 Fixed assets 5,709 -- Other accruals and reserves 25,607 -- ----------- ----------- Total gross deferred tax liabilities 257,311 83,953 ----------- ----------- Net deferred tax assets 3,187,531 1,596,409 Less valuation allowance (3,187,531) (1,596,409) ----------- ----------- Net deferred tax assets after valuation allowance $ -- -- =========== ===========
The net changes in the valuation allowance for the years ended December 31, 1998 and 1997 were increases of $1,591,122 and $1,291,381, respectively. Management believes sufficient uncertainty exists regarding their ability to realize the deferred tax assets and, accordingly, a valuation allowance has been established against the net deferred tax assets. As of December 31, 1998, the Company had approximately $7,559,000 and $6,315,000 of net operating loss carryforwards for federal and state income tax purposes, respectively. In addition, the Company had approximately $355,000 and $195,000 of research and development tax credit carryforwards for federal and state income tax purposes, respectively. The federal net operating loss carryforwards expire between the years 2011 and 2018, and the state net operating loss carryforwards expire in 2004. The federal research and development credit carryforwards expire between the years 2011 and 2018, and the state research and development credit can be carried forward indefinitely. The difference between the federal and state net operating loss carryforwards is due primarily to a state apportionment factor with less than 100%. Federal and California tax laws impose substantial restrictions on the utilization of net operating loss carryforwards in the event of an "ownership change" for tax purposes, as defined in Section 382 of the Internal Revenue Code. The Company has not yet determined if an ownership change has occurred. If such an ownership change has occurred, utilization of the net operating loss carryforwards will be subject to an annual limitation in future years. (6) Clear Blue Merger In January 1997, the Company agreed to merge with Clear-Blue Network Systems, Inc. (Clear Blue). Clear Blue developed and licensed application software for the calendaring and scheduling markets. The total purchase price was $150,000, consisting of 300,000 shares of Series B preferred stock, in exchange for all of the outstanding shares of Clear Blue. The transaction has been accounted for using the purchase method of accounting and, accordingly, the net assets and results of operations of Clear Blue have been included in the Company's financial statements since the acquisition date. The purchase price has been allocated to the tangible and intangible assets acquired on the basis of their respective fair values on the date of acquisition. Of the total purchase price, approximately $22,000 was allocated to intangible assets. The intangible asset is being amortized over its estimated useful life of five years. The results of operations of Clear Blue for the year ended December 31, 1997 are included in the results of operations of the Company. (7) Indebtedness On June 1, 1998, the Company obtained a $385,464 revolving facility and a $750,000 equipment facility, both collateralized by all of the Company's assets. The equipment facility bears interest at the bank's prime rate plus .25%. The interest rate as of December 31, 1998 was 8%. The unpaid balance of this equipment facility is to be paid in 36 equal monthly installments commencing in January 1, 1999. Under the terms of the revolving facility, the bank will make advances to the Company in an aggregate amount not to exceed 75% of eligible trade accounts receivable. The revolving facility bears interest at the bank's prime rate plus .25% and is payable on a monthly basis. The interest rate as of December 31, 1998 was 8%. As of December 31, 1998, the Company's remaining liability associated with the facilities was $991,665. The Company is not in compliance with certain financial covenants at December 31, 1998, however, the Company has obtained a waiver from the bank for such compliance defaults as of December 31, 1998. The waiver covered the noncompliance for the periods ending November 30, 1998, December 31, 1998 and January 31, 1999. It cannot be ascertained that the Company will be in compliance with its financial covenants for a period of 12 months subsequent to December 31, 1998, thus the debt is classified as current as of December 31, 1998. Future minimum payments under the revolving and equipment facility as of December 31, 1998 are as follows:
Years ending December 31: 1999 $ 604,370 2000 202,067 2001 185,228 ----------- $ 991,665 ===========
(8) Accrued Liabilities Accrued liability categories representing amounts greater than five percent of total current liabilities as of December 31, 1998 and 1997 are as follows:
1998 1997 ------------ -------------- Compensation and related costs $ 407,075 65,093 Recruiting 78,000 -- Consulting 58,688 -- Marketing 55,528 50,000 Other 47,934 14,620 ------------ -------------- $ 647,225 129,713 ============ ==============
(9) Subsequent Events On January 26, 1999, the Company obtained $1,000,000 in exchange for promissory notes which bear simple interest at 7.75% per annum. The notes, and interest accrued thereon, shall be automatically converted to convertible preferred stock upon the Company's next preferred stock equity financing. The notes may be prepaid at any time, and mature June 20, 1999. On February 22, 1999, the Company designated 7,000,000 shares of Series D convertible preferred stock, of which 6,535,948 shares were subsequently sold to investors for $10,000,000 in exchange for cash and the release of the convertible promissory notes dated January 26, 1999. In connection with the transaction, the redemption dates of the Series B, B-1 and C redeemable convertible preferred stock was changed to 2004. As a result of the transaction, the Company's authorized capital stock will consist of 43,000,000 shares of common stock and 21,550,772 shares of preferred stock. In conjunction with the transaction, the Company increased its reserve for stock options to 4,500,000 under its 1996 stock option plan. On August 31, 1999, Critical Path, Inc. acquired all outstanding preferred and common shares of the Company in exchange for $45,000,000 in cash and common stock valued at $141,300,000. 15 CRITICAL PATH, INC. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION Overview On August 31, 1999, Critical Path, ("Company") completed the acquisition of Amplitude Software Corp. ("Amplitude") a leading provider of business-to- business Internet calendaring and resource scheduling solutions. The acquisition was accounted for using the purchase method of accounting and accordingly, the purchase price was allocated to the tangible and intangible net assets acquired on the basis of their respective fair values on the acquisition date. The fair value of intangible assets was determined based upon a valuation using a combination of methods, including a cost approach for the acquired existing technology, an income approach for the customer base and a replacement cost approach for the assembled workforce. The total purchase price of approximately $214.4 million consisted of $45.0 million of cash, approximately $141.3 million of the Company's Common Stock (4,107,250 shares), assumed stock options with a fair value of $22.0 million, and other acquisition related expenses of approximately $6.1 million, consisting primarily of payments for finders fees and other professional fees. Of the total purchase price, approximately $4.4 million was allocated to net tangible assets, and the remainder was allocated to intangible assets, including existing technology ($4.1 million), customer base ($600,000), assembled workforce ($3.8 million) and goodwill ($201.5 million). The acquired intangible assets will be amortized over their estimated useful lives of 2 to 4 years. The accompanying unaudited pro forma condensed consolidated balance sheet gives effect to this consummated acquisition as if it had occurred on June 30, 1999, by consolidating the balance sheets of Amplitude and the Company at June 30, 1999, respectively. The accompanying unaudited pro forma condensed consolidated statements of operations give effect to this consummated acquisition as if it had occurred on January 1, 1998, by consolidating the results of operations of: . Amplitude for the year ended December 31, 1998 and the six months ended June 30, 1999 with the results of operations of the Company for the year ended December 31, 1998 and the six months ended June 30, 1999, respectively. The unaudited pro forma condensed consolidated statements of operations are not necessarily indicative of the operating results that would have been achieved had the transaction been in effect as of the beginning of the periods presented and should not be construed as being representative of future operating results. CRITICAL PATH, INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands)
June 30, 1999 ----------------------------------------------------------------------------- Critical Path Amplitude Adjustments Historical Historical (a) (b) (c) Pro Forma ----------------------------------------------------------------------------- Assets: Cash and cash equivalents $ 244,340 $ 5,582 $ - $ (2,245) $ (51,100) $ 196,577 Restricted cash 325 - - - 325 Accounts receivable, net 1,815 3,162 - (328) - 4,649 Other current assets 6,986 131 - 63 7,180 ----------------------------------------------------------------------------- Total current assets 253,466 8,875 - (2,510) (51,100) 208,731 Notes receivable from officers 700 - - - 700 Property and equipment, net 15,629 1,300 - 156 - 17,085 Investments 17,489 - - - - 17,489 Intangibles 19,050 - - - 210,000 229,050 Other assets 238 94 - - - 332 ----------------------------------------------------------------------------- Total Assets $ 306,572 $ 10,269 $ - $ (2,354) $ 158,900 $ 473,387 ============================================================================= Liabilities and Shareholders' Equity: Liabilities: Accounts payable and accrued expenses $ 2,971 $ 1,773 $ - $ 234 $ - $ 4,978 Accrued compensation and benefits 888 - - - 888 Deferred revenue - 692 116 - 808 Capital lease obligations, current 3,274 554 (352) - 3,476 ----------------------------------------------------------------------------- Total Current Liabilities 7,133 3,019 - (2) - 10,150 Deferred revenue - 209 (4) - 205 Capital lease obligations, long term 4,717 387 (50) - 5,054 ----------------------------------------------------------------------------- Total Liabilities 11,850 3,615 - (56) - 15,409 ----------------------------------------------------------------------------- Shareholders' Equity: Preferred stock - 18,648 (18,648) - - Common stock 38 147 (147) - 38 Additional paid-in capital 435,435 - - 163,280 598,715 Notes receivable from shareholders (1,125) (24) - - (1,149) Unearned compensation (107,665) - - - (107,665) Unrealized gain on investments 14,489 - - - 14,489 Cumulative translation adjustment - 6 (6) - - Accumulated deficit (46,450) (12,123) 12,123 - (46,450) ----------------------------------------------------------------------------- Total Shareholders' Equity 294,722 6,654 (6,678) - 163,280 457,978 ----------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 306,572 $ 10,269 $ (6,678) $ (56) $ 163,280 $ 473,387 =============================================================================
CRITICAL PATH, INC PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (in thousands, except per share amounts)
Year ended December 31, 1998 Six months ended June 30, 1999 ---------------------------------------------- -------------------------------------------- Critical Pro Critical Pro Path Amplitude Adjustments Forma Path Amplitude Adjustments Forma ---------------------------------------------- -------------------------------------------- Net revenues $ 897 $ 3,473 $ - $ 4,370 $ 3,055 $ 3,824 $ - $ 6,879 Cost of net revenues (2,346) (1,426) - (3,772) (6,337) (1,179) - (7,516) ---------------------------------------------- -------------------------------------------- Gross profit (loss) (1,449) 2,047 - 598 (3,282) 2,645 - (637) ---------------------------------------------- -------------------------------------------- Operating Expenses: Research and development 2,098 1,635 - 3,733 2,809 1,134 - 3,943 Sales and marketing 1,687 3,410 - 5,097 5,203 3,049 - 8,252 General and administrative 3,814 1,777 - 5,591 4,241 1,996 - 6,237 Amortization of intangible assets - - 53,450 (d) 53,450 550 - 26,725 (d) 27,275 Stock-based expenses 2,400 - - 2,400 19,819 - - 19,819 ---------------------------------------------- -------------------------------------------- Total Operating Expenses 9,999 6,822 53,450 70,271 32,622 6,179 26,725 65,526 Loss from operations (11,448) (4,775) (53,450) (69,673) (35,904) (3,534) (26,725) (66,163) ---------------------------------------------- -------------------------------------------- Interest and other income, net (13) 67 - 54 1,989 28 - 2,017 ---------------------------------------------- -------------------------------------------- Net loss $ (11,461) $ (4,708) $ (53,450) $ (69,619) $ (33,915) $ (3,506) $ (26,725) $ (64,146) ============================================== ============================================ Pro forma net loss per share (unaudited) (e): Net loss per share - basic and diluted $ (3.89) $ (2.66) ========== ========== Weighted average shares - basic and diluted 14,194 3,697 (e) 17,891 19,994 4,107 (e) 24,101 ========== ========== ========== ==========
CRITICAL PATH, INC. NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (Unaudited) The following adjustments were applied to Critical Path's, Inc. ("Company") historical financial statements and those of Amplitude Software Corporation to arrive at the pro forma condensed consolidated financial information. The pro forma adjustments are based upon management's estimates and valuations of the intangible assets acquired. (a) Reflects adjustments to eliminate certain equity balances that were not acquired by the Company. (b) Reflects adjustments to certain assets, liabilities and equity to revalue the June 30, 1999 balances to their fair value as of August 31, 1999, the closing date of the acquisition, (i.e. the fair value of the net tangible assets at August 31, 1999 was estimated to be approximately $4.4 million). (c) The allocation of the estimated purchase price, assuming the acquisition occurred on June 30, 1999, for pro forma purposes, is as follows: Cash paid $ 45,000,000 Value of Common Stock issued 141,300,000 Value of options assumed 22,000,000 Estimated acquisition costs 6,100,000 ------------- Total purchase price $ 214,400,000 ============= Net tangible assets $ 4,400,000 ------------- Intangible assets: Assembled workforce 3,800,000 Customer base 600,000 Existing technology 4,100,000 Goodwill 201,500,000 ------------- Total purchase price allocation $ 214,400,000 ============= (d) To record the amortization of: acquired assembled workforce totaling $3.8 million over the estimated period of benefit of two years, and the customer base totaling $600,000, existing technology totaling $4.1million, and goodwill totaling $201.5 million over the estimated period of benefit of four years, respectively. (e) Pro forma basic net loss per share for the year ended December 31, 1998 and the six months ended June 30, 1999 is computed using the weighted average number of common shares outstanding, including the pro forma effects of the conversion of the Company's Series A and Series B Convertible Preferred Stock into shares of the Company's Common Stock effective upon the closing of the initial public offering as if such conversion occurred on January 1, 1998, or at date of original issuance, if later. Pro forma diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and potential common shares outstanding during the period if their effect is dilutive. Potential common shares comprise restricted Common Stock and incremental common and preferred shares issuable upon the exercise of the stock options and warrants and upon conversion of Series A and B Convertible Preferred Stock. The adjustment to historical weighted average shares outstanding results from inclusion of actual shares issued in conjunction with the consummated acquisition as if such shares were outstanding from January 1, 1998. In accordance with the definitive purchase agreement, 10% of the stock consideration (approximately 410,725 shares) are held in a time-lapsing escrow and have been excluded from the pro forma basic and diluted net loss per share for the year ended December 31, 1998. However, for the six months ended June 30, 1999 these shares are no longer held in escrow due to the passage of time and, therefore, have been included in the pro forma basic and diluted net loss per share. EX-23.1 2 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 Consent of Independent Auditors The Board of Directors Critical Path, Inc. We consent to the inclusion of our report dated March 5, 1999, except for Note 9 which is as of August 31, 1999, with respect to the balance sheets of Amplitude Software Corporation, Inc. as of December 31, 1998 and 1997, and the related statements of operations, shareholders' deficit, and cash flows for the years then ended, which report appears in the Form 8-K/A of Critical Path, Inc. dated August 31, 1999. /s/ KPMG LLP San Francisco, California November 11, 1999 -----END PRIVACY-ENHANCED MESSAGE-----