0001012870-01-502288.txt : 20011019
0001012870-01-502288.hdr.sgml : 20011019
ACCESSION NUMBER: 0001012870-01-502288
CONFORMED SUBMISSION TYPE: 8-K/A
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20010820
ITEM INFORMATION: Acquisition or disposition of assets
ITEM INFORMATION: Financial statements and exhibits
FILED AS OF DATE: 20011015
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AUTODESK INC
CENTRAL INDEX KEY: 0000769397
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372]
IRS NUMBER: 942819853
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0131
FILING VALUES:
FORM TYPE: 8-K/A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-14338
FILM NUMBER: 1758582
BUSINESS ADDRESS:
STREET 1: 111 MCINNIS PKWY
CITY: SAN RAFAEL
STATE: CA
ZIP: 94903
BUSINESS PHONE: 4155075000
MAIL ADDRESS:
STREET 1: 111 MCINNIS PKWY
CITY: SAN RAFAEL
STATE: CA
ZIP: 94903
8-K/A
1
d8ka.txt
FORM 8-K/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 20, 2001
AUTODESK, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-14338 94-2819853
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
111 McInnis Parkway, San Rafael, California 94903
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 507-5000
N/A
(Former name or former address, if changed since last report)
1
The undersigned Registrant hereby amends the following items of its Current
Report on Form 8-K dated August 20, 2001 and filed with the Securities and
Exchange Commission on August 31, 2001.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 20, 2001, Autodesk, Inc. (the "Registrant") acquired the remaining
outstanding stock of Buzzsaw.com, Inc., a Delaware corporation, for $15.0
million in cash plus the assumption of liabilities. As of the date of the
acquisition, the Registrant held a 40 percent interest in Buzzsaw.com, Inc.
The total amount of liabilities assumed was $13.3 million.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
The following financial statements, pro forma financial information and exhibits
are filed as part of this report:
(a) Pursuant to Item 7(a)(4), the Registrant is filing the following
financial statements of Buzzsaw.com, Inc., the business acquired:
Audited Financial Statements (see Exhibit 99.1):
Report of Independent Auditors
Balance Sheets - As of December 31, 2000 and 1999
Statements of Operations - Year ended December 31, 2000 and
Periods from inception (August 19, 1999) to December 31, 1999 and
2000
Statement of Redeemable Convertible Preferred Stock and
Stockholders' Deficit - Year ended December 31, 2000 and Period
from inception (August 19, 1999) to December 31, 1999.
Statements of Cash Flows - Year ended December 31, 2000 and
Periods from inception (August 19, 1999) to December 31, 1999 and
2000
Notes to Financial Statements
Unaudited Interim Financial Statements
Statements of Operations - Six Months ended June 30, 2001 and
2000
Balance Sheets - As of June 30, 2001 and 2000
Condensed Statements of Cash Flows - Six Months ended June 30,
2001 and 2000
Notes to Financial Statements
(b) The Registrant is filing the following unaudited pro forma financial
statements of Buzzsaw.com, Inc., the business acquired:
Unaudited Pro Forma Condensed Combined Statements of Operations
for the year ended January 31, 2001 with respect to the
Registrant and for the year ended December 31, 2000 with respect
to Buzzsaw.com, Inc.
Unaudited Pro Forma Condensed Combined Statements of Operations
for the six months ended July 31, 2001 with respect to the
Registrant and for the six months ended June 30, 2001 with
respect to Buzzsaw.com, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet as of July
31, 2001 with respect to the Registrant and June 30, 2001 with
respect to Buzzsaw.com, Inc.
2
Notes to Pro Forma Condensed Combined Financial Statements.
The unaudited pro forma financial information is presented for
illustrative purposes only. It is not necessarily indicative of
the operating results or financial position that would have
occurred if the acquisition had been consummated earlier, nor is
it necessarily indicative of future operating results or
financial position.
(c) Exhibits
99.1 Audited Financial Statements of Buzzsaw.com, Inc. (a development
stage company) as of December 31, 2000 and 1999, and for the year
ended December 31, 2000 and the periods from inception (August
19, 1999) to December 31, 1999 and 2000
3
ITEM 7 (A) - UNAUDITED INTERIM FINANCIAL STATEMENTS
BUZZSAW.COM, INC.
(a development stage company)
Statements of OPERATIONS
(In thousands)
(Unaudited)
Six months ended June 30,
2001 2000
------------------------------------------------
Net revenues $ 4,404 $ 1,754
--------------------- ---------------------
Costs and expenses:
Cost of revenues 6,888 2,417
Marketing and sales 7,089 10,471
Research and development 5,319 6,368
General and administrative 2,332 5,375
Amortization of goodwill and purchased intangibles 315 156
Nonrecurring charges 8,935 1,100
--------------------- ---------------------
30,878 25,887
--------------------- ---------------------
Loss from operations (26,474) (24,133)
Interest and other income, net 126 1,030
--------------------- ---------------------
Net loss (26,348) (23,103)
Accretion attributable to preferred stock (3,562) (2,055)
--------------------- ---------------------
Net loss available to common shareholders $ (29,910) $ (25,158)
===================== =====================
See accompanying notes.
4
BUZZSAW.COM, INC.
(a development stage company)
BALANCE SHEETS
(In thousands)
(Unaudited)
As of June 30,
2001 2000
-------------------------------------------------
Current assets
Cash and cash equivalents $ 3,971 $ 52,866
Accounts receivable, net 1,894 2,453
Prepaid expenses and other current assets 799 70
---------------------- ----------------------
Total current assets 6,664 55,389
Computer equipment, furniture, and leasehold improvements, at cost:
Computer equipment and furniture 15,492 7,065
Leasehold improvements 1,958 1,114
Less accumulated amortization (7,731) (1,293)
---------------------- ----------------------
Net computer equipment, furniture, and leasehold improvements 9,719 6,886
Purchased technologies and capitalized software, net 4,939 3,126
Goodwill, net 797 975
Other assets 730 698
---------------------- ----------------------
$ 22,849 $ 67,074
====================== ======================
Current liabilities:
Accounts payable $ 1,855 $ 2,370
Accrued compensation 721 351
Deferred revenues 2,989 --
Other accrued liabilities 1,312 1,621
Capital lease obligations 2,205 --
---------------------- ----------------------
Total current liabilities 9,082 4,342
Capital lease obligations 1,088 --
Commitments and contingencies
Redeemable convertible preferred stock 102,127 92,929
Stockholders' deficit:
Common stock and additional paid-in capital 1,414 264
Deficit accumulated during the development stage (90,862) (30,461)
---------------------- ----------------------
Total stockholders' deficit (89,448) (30,197)
---------------------- ----------------------
$ 22,849 $ 67,074
====================== ======================
See accompanying notes.
5
BUZZSAW.COM, INC.
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the six months ended June 30,
2001 2000
----------------------------------------
Operating activities
Net loss $ (26,348) $ (23,103)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 4,745 1,424
Purchased in-process research and development -- 1,100
Changes in operating assets and liabilities (394) (1,238)
Other 231 (689)
-------------------- ----------------
Net cash used by operations (21,766) (22,506)
-------------------- ----------------
Investing activities
Net maturities of marketable securities 5,943 --
Software development costs (1,178) (1,574)
Purchase of property and equipment (410) (7,785)
Business combination, net of cash acquired -- (3,917)
-------------------- ----------------
Net cash provided (used) by investing activities 4,355 (13,276)
-------------------- ----------------
Financing activities
Proceeds from the issuance of common stock 71 21
Proceeds from the issuance of redeemable convertible preferred stock, net -- 75,142
Repayment of capital leases (1,089) --
-------------------- ----------------
Net cash (used) provided by financing activities (1,018) 75,163
-------------------- ----------------
Net (decrease) increase in cash and cash equivalents (18,429) 39,381
Cash and cash equivalents at the beginning of period 22,400 13,485
-------------------- ----------------
Cash and cash equivalents at the end of period $ 3,971 $ 52,866
==================== ================
Supplemental schedule of noncash investing and financing activities
Issuance of common stock in connection with PageMasters, Inc. acquisition $ -- $ 484
==================== ================
Notes receivable received from stockholders in exchange for issuance of $ -- $ 162
common stock
==================== ================
Issuance of warrant to purchase common stock in exchange for software $ -- $ 143
==================== ================
Supplemental disclosures of cash flow information
Cash paid during the period for interest $ 320 $ --
==================== ================
See accompanying notes.
6
BUZZSAW.COM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements reflect all the adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results for the interim periods. These statements should be read in conjunction
with the consolidated financial statements and notes in Buzzsaw.com, Inc.'s
financial statements for the year ended December 31, 2000 and the periods from
inception (August 19, 1999) to December 31, 1999 and 2000. The results for the
six months ended June 30, 2001 are not necessarily indicative of the results for
the entire fiscal year ended December 31, 2001, in part due to the subsequent
event discussed below.
2. Nonrecurring charges
During the six months ended June 30, 2001, Buzzsaw.com recorded nonrecurring
charges totaling $8.9 million, which resulted from additional purchase
consideration paid to the shareholders of PageMasters, Inc. ($7.4 million) and a
corporate restructuring which resulted from Buzzsaw.com's efforts to reduce
operating expenditures ($1.5 million).
Of the $1.5 million of corporate restructuring costs, $0.4 million related to
termination and other employee costs associated with the elimination of 83
positions and $1.1 million related to office closure costs. Employee termination
costs included wage continuation and medical and other benefits. Office closure
costs included losses on operating lease payments and the write-off of leasehold
improvements and equipment. Through June 30, 2001, Buzzsaw.com paid $0.8 million
of the corporate restructuring charges. As a result, at June 30, 2001, the
remaining liability related to the corporate restructuring charges was
$0.7 million.
On March 27, 2000 Buzzsaw.com acquired the assets of PageMasters, Inc., a
privately held company. Of the purchase price totaling $4.9 million, $1.1
million was allocated to in-process research and development. For further
discussion of the PageMasters, Inc. acquisition, see the Audited Financial
Statements of Buzzsaw.com, Inc. (a development stage company) as of December 31,
2000 and 1999, and for the year ended December 31, 2000 and the periods from the
inception (August 19, 1999) to December 31, 1999 and 2000, included as Exhibit
99.1 to this Form 8K/A.
3. Subsequent Event
On August 20, 2001, Autodesk, Inc. (the "Registrant") acquired the remaining
outstanding stock of Buzzsaw.com, Inc., a Delaware corporation, for $15.0
million in cash plus the assumption of $13.3 million of liabilities. As of the
date of the acquisition, the Registrant held a 40 percent interest in
Buzzsaw.com, Inc.
7
ITEM 7 (B) - PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements of
Autodesk, Inc. ("Autodesk") have been prepared to give effect to the acquisition
of Buzzsaw.com, Inc. ("Buzzsaw") using the purchase method of accounting. The
historical financial information has been derived from the historical financial
statements of Autodesk and Buzzsaw and should be read in conjunction with the
financial statements and the related notes for Buzzsaw which are included in
Exhibit 99.1 of this Form 8-K filing.
The unaudited pro forma condensed combined balance sheet assumes the merger took
place as of July 31, 2001 and allocates the total purchase cost of the fair
values of the assets and liabilities of Buzzsaw based on a preliminary
valuation.
The unaudited pro forma condensed combined statements of operations assume that
the acquisition took place as of the beginning of each of the periods presented
and combine Autodesk's unaudited condensed statement of income for the six
months ended July 31, 2001 and the historical consolidated statement of income
for the year ended January 31, 2001 and Buzzsaw's unaudited condensed statement
of operations for the six months ended June 30, 2001 and the historical
condensed statement of operations for the year ended December 31, 2000,
respectively.
The total estimated purchase cost of Buzzsaw has been allocated on a preliminary
basis to assets and liabilities based on management's estimates of their fair
value. This allocation resulted in negative goodwill which was applied
proportionately to reduce the carrying values of Buzzsaw's long-lived assets to
zero.
The unaudited pro forma financial information is presented for illustrative
purposes only. It is not necessarily indicative of the operating results or
financial position that would have occurred if the acquisition had been
consummated as of the dates indicated, nor is it necessarily indicative of
future operating results or financial position.
8
AUTODESK, INC.
PROFORMA CONDENSED COMBINED STATEMENTS
OF OPERATIONS REFLECTING THE
ACQUISITION OF BUZZSAW.COM, INC.
(In thousands, except per share data)
(Unaudited)
Autodesk Buzzsaw.com Pro Forma Total Pro
Year ended Year ended Adjustments Forma
January 31, December 31,
2001 2000
----------------------------------------------------------------------------------
Net revenues $ 936,324 $ 5,354 $ -- $ 941,678
------------------ ---------------- ---------------- ----------------
Costs and expenses:
Cost of revenues 150,198 14,289 (5,109) A 159,378
Marketing and sales 317,806 20,963 -- 338,769
Research and development 170,487 12,641 -- 183,128
General and administrative 132,524 6,790 -- 139,314
Amortization of goodwill and 26,529 469 (469) A 26,529
purchased intangibles
Nonrecurring (credits) charges (1,234) 1,100 -- (134)
------------------ ---------------- ---------------- ----------------
796,310 56,252 (5,578) 846,984
------------------ ---------------- ---------------- ----------------
Income (loss) from operations 140,014 (50,898) 5,578 94,694
Interest and other income, net 21,048 2,158 -- 23,206
------------------ ---------------- ---------------- ----------------
Income (loss) before income taxes 161,062 (48,740) 5,578 117,900
Provision for income taxes (51,540) -- 19,496 B (32,044)
Equity in net loss of affiliate (16,289) -- 16,289 C --
------------------ ---------------- ---------------- ----------------
Net income (loss) $ 93,233 $ (48,740) $ 41,363 $ 85,856
================== ================ ================ ================
Basic net income per share $ 1.63 $ 1.50
================== ================
Diluted net income per share $ 1.59 $ 1.47
================== ================
Shares used in computing basic net
income per share 57,188 57,188
================== ================
Shares used in computing diluted net
income per share 58,514 58,514
================== ================
See accompanying notes.
9
AUTODESK, INC.
PROFORMA CONDENSED COMBINED STATEMENTS
OF OPERATIONS REFLECTING THE
ACQUISITION OF BUZZSAW.COM, INC.
(In thousands, except per share data)
(Unaudited)
Autodesk Buzzsaw.com Pro Forma Total Pro
Six months ended Six months Adjustments Forma
July 31, ended
2001 June 30, 2001
---------------------------------------------------------------------------------
Net revenues $ 477,100 $ 4,404 $ -- $ 481,504
------------------ ---------------- ---------------- ----------------
Costs and expenses:
Cost of revenues 71,918 6,888 (4,430) A 74,376
Marketing and sales 173,557 7,089 -- 180,646
Research and development 89,742 5,319 -- 95,061
General and administrative 65,639 2,332 -- 67,971
Amortization of goodwill and 10,481 315 (315) A 10,481
purchased intangibles
Nonrecurring charges 9,774 8,935 -- 18,709
------------------ ---------------- ---------------- ----------------
421,111 30,878 (4,745) 447,244
------------------ ---------------- ---------------- ----------------
Income (loss) from operations 55,989 (26,474) 4,745 34,260
Interest and other income, net 12,988 126 -- 13,114
------------------ ---------------- ---------------- ----------------
Income (loss) before income taxes 68,977 (26,348) 4,745 47,374
Provision for income taxes (20,693) -- 10,539 B (10,154)
Equity in net loss of affiliate (1,211) -- 1,211 C --
------------------ ---------------- ---------------- ----------------
Net income (loss) $ 47,073 $ (26,348) $ 16,495 $ 37,220
================== ================ ================ ================
Basic net income per share $ 0.87 $ 0.69
================== ================
Diluted net income per share $ 0.85 $ 0.67
================== ================
Shares used in computing basic net
income per share 53,885 53,885
================== ================
Shares used in computing diluted net
income per share 55,558 55,558
================== ================
See accompanying notes.
10
AUTODESK, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
REFLECTING THE ACQUISITION OF BUZZSAW.COM, INC.
(In thousands)
(Unaudited)
Autodesk Buzzsaw.com Pro Forma Total Pro
July 31, 2001 June 30, 2001 Adjustments Forma
-----------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $ 119,028 $ 3,971 $ (15,000) D $ 107,999
Marketable securities 155,771 -- -- 155,771
Accounts receivable, net 159,367 1,894 -- 161,261
Inventories 20,567 -- -- 20,567
Deferred income taxes 29,134 -- -- 29,134
Prepaid expenses and other current 35,835 799 -- 36,634
assets
------------------- ----------------- ----------------- ------------------
Total current assets 519,702 6,664 (15,000) 511,366
Marketable securities 157,904 -- -- 157,904
Computer equipment, furniture, and 66,458 9,719 (9,719) E 66,458
leasehold improvements, net
Purchased technologies and capitalized 14,410 4,939 (4,939) E 14,410
software, net
Goodwill, net 44,743 797 (797) I 44,743
Deferred income taxes 19,334 -- 19,446 F 38,780
Other assets 7,865 730 (4,000) G 4,595
------------------- ----------------- ----------------- ------------------
$ 830,416 $ 22,849 $ (15,009) $ 838,256
=================== ================= ================= ==================
Current liabilities:
Accounts payable $ 54,241 $ 1,855 $ 200 H $ 56,296
Accrued compensation 48,983 721 -- 49,704
Accrued income taxes 103,626 -- -- 103,626
Deferred revenues 59,000 2,989 (233) I 61,756
Other accrued liabilities 92,964 3,517 2,500 I 98,981
------------------- ----------------- ----------------- ------------------
Total current liabilities 358,814 9,082 2,467 370,363
Other liabilities 667 1,088 -- 1,755
Commitments and contingencies
Minority interest 11,549 -- -- 11,549
Redeemable convertible preferred stock -- 102,127 (102,127) J --
Total stockholders' equity (deficit) 459,386 (89,448) 84,651 K 454,589
------------------- ----------------- ----------------- ------------------
$ 830,416 $ 22,849 $ (15,009) $ 838,256
=================== ================= ================= ==================
See accompanying notes.
11
AUTODESK, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Principles of Presentation
On August 20, 2001, Autodesk, Inc. acquired the remaining outstanding stock of
Buzzsaw.com, Inc., a Delaware corporation, for $15.0 million in cash plus the
assumption of $13.3 million of liabilities. As of the date of the acquisition,
Autodesk held a 40 percent interest in Buzzsaw.com, Inc.
The preliminary allocation of the purchase price resulted in negative goodwill
of approximately $11.0 million as of August 20, 2001. In accordance with
Statement of Financial Accounting Standards No. 141, "Business Combinations,"
the carrying values of Buzzsaw.com's long-lived assets were reduced
proportionately to the extent of the negative goodwill balance. These
adjustments were reflected in the Pro Forma Adjustments column of the
accompanying pro forma statements. However, the pro forma adjustments were based
on a higher negative goodwill balance as a result of using Buzzsaw.com's June
30, 2001 balance sheet.
The pro forma balance sheet assumes the merger took place as of July 31, 2001
and allocates the total purchase cost of the fair values of the assets and
liabilities of Buzzsaw.com based on a preliminary valuation.
The pro forma statements of operations assume that the acquisition took place as
of the beginning of each of the periods presented and combine Autodesk's
unaudited condensed statement of income for the six months ended July 31, 2001
and the historical consolidated statement of income for the year ended January
31, 2001 and Buzzsaw.com's unaudited condensed statement of operations for the
six months ended June 30, 2001 and the historical condensed statement of
operations for the year ended December 31, 2000, respectively.
Due to the different fiscal year ends, Buzzsaw.com's July 2001 results of
operations were excluded from the accompanying pro forma statements.
Buzzsaw.com's actual results for the month of July 2001, were as follows:
Month ended July 31, 2001
-------------------------
Net revenues $ 604
Net loss 4,374
This financial information is presented for illustrative purposes only. It is
not necessarily indicative of the operating results or financial position that
would have occurred if the acquisition had been consummated as of the dates
described above, nor is it necessarily indicative of Autodesk's consolidated
future operating results or financial position. No attempt has been made to
quantify in the pro forma statements the incremental net revenue and reduced
costs and expenses that may result from the business combination.
2. Adjustments to the Pro Forma Statements of Operations
The following adjustments are incorporated in the pro forma statements of
operations:
A Adjust depreciation and amortization to reflect revised carrying values of
fixed assets and purchased intangibles, resulting from the allocation of
negative goodwill.
B Adjust the income tax provision to consider the deductibility of
Buzzsaw.com's losses when combined with Autodesk's pre-tax income.
C Reverse equity in net loss of affiliate, which represents Autodesk's
proportionate share of Buzzsaw.com's losses.
12
AUTODESK, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS - (CONTINUED)
3. Adjustments to the Pro Forma Balance Sheets
The following adjustments are incorporated in the pro forma balance sheets:
D To reflect the cash consideration paid for the acquisition.
E To reflect the allocation of the purchase price consideration and the
allocation of negative goodwill resulting from the fair value of
Buzzsaw.com's net assets exceeding the total purchase consideration.
F To reflect the deferred tax asset generated from the expected future
utilization of Buzzsaw.com's net operating losses that Autodesk expects to
realize and to reflect the tax effect of the temporary differences
resulting from the allocation of purchase price.
G To reflect the reversal of Buzzsaw.com losses that Autodesk recognized in
excess of its initial investment in Buzzsaw.com since the formation of
Buzzsaw.com in August 1999.
H To reflect direct transaction costs which have been included as part of the
purchase consideration.
I To reflect the fair value adjustments resulting from the allocation of the
purchase price consideration.
J To reflect the elimination of redeemable convertible preferred stock.
K To reflect the elimination of Buzzsaw.com's stockholders' deficit and the
reversal of Buzzsaw.com losses that Autodesk recognized in excess of its
initial investment in Buzzsaw.com since the formation of Buzzsaw.com in
August 1999 and the goodwill existing on Buzzsaw.com's balance sheet at the
acquisition date.
4. Recent Events
In an effort to reduce operating costs and expenses, Buzzsaw.com eliminated 141
positions (55% of its workforce) between January 1, 2001 and August 20, 2001. Of
the total number of positions eliminated, 58 were eliminated in August 2001.
Additionally, Autodesk recently decided to close Buzzsaw.com's headquarters
office in San Francisco, California, and move the Buzzsaw.com employees to a new
Autodesk office location, which is also in San Francisco.
As a result of these recent events, Autodesk believes that Buzzsaw.com's future
on-going operating losses will be significantly less than what Buzzsaw.com
historically incurred. As such, management does not believe that the
accompanying pro forma financial information is indicative of Autodesk's future
combined operating results or financial position.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AUTODESK, INC.
(Registrant)
Dated: October 15, 2001 /S/ STEVE CAKEBREAD
-------------------
Steve Cakebread
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
14
EX-99.1
3
dex991.txt
FINANCIAL STATEMENTS FOR BUZZSAW.COM
Exhibit 99.1
Financial Statements
Buzzsaw.com, Inc. (a development stage company)
Year ended December 31, 2000 and
the periods from inception (August 19, 1999)
to December 31, 1999 and 2000
Buzzsaw.com, Inc.
(a development stage company)
Financial Statements
Year ended December 31, 2000 and
the periods from inception (August 19, 1999)
to December 31, 1999 and 2000
Contents
Report of Independent Auditors ..................................... 1
Audited Financial Statements
Balance Sheets ..................................................... 2
Statements of Operations ........................................... 3
Statement of Redeemable Convertible Preferred Stock
and Stockholders' Deficit ....................................... 4
Statements of Cash Flows ........................................... 5
Notes to Financial Statements ...................................... 6
Report of Independent Auditors
The Board of Directors
Buzzsaw.com, Inc.
We have audited the accompanying balance sheets of Buzzsaw.com, Inc. (a
development stage company) as of December 31, 2000 and 1999, and the related
statements of operations, redeemable convertible preferred stock and
stockholders' deficit, and cash flows for the year ended December 31, 2000 and
for the periods from inception (August 19, 1999) to December 31, 1999 and 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Buzzsaw.com, Inc. (a
development stage company) at December 31, 2000 and 1999, and the results of its
operations and its cash flows for the year ended December 31, 2000 and for the
periods from inception (August 19, 1999) to December 31, 1999 and 2000, in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As more fully disclosed in Note 1, the Company
has incurred recurring operating losses and has a stockholders' deficit. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
February 9, 2001
1
Buzzsaw.com, Inc.
(a development stage company)
Balance Sheets
December 31,
2000 1999
--------------------------------
Assets
Current assets:
Cash and cash equivalents $ 22,399,915 $13,485,005
Short-term investments 5,942,900 -
Accounts receivable, net of allowance for doubtful accounts of $40,000 at
December 31, 2000 2,033,269 -
Prepaid expenses and other current assets 415,206 78,477
--------------------------------
Total current assets 30,791,290 13,563,482
Property and equipment, net 12,472,928 254,062
Software development costs, net 3,262,597 -
Goodwill and other intangible assets, net 2,657,083 -
Other assets 730,169 98,748
--------------------------------
$ 49,914,067 $13,916,292
================================
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable $ 2,614,175 $ 1,617,830
Accrued compensation 702,247 56,750
Other accrued expenses 2,245,186 880,580
Capital lease obligation - short-term 2,113,980 -
Deferred revenue 1,465,691 -
--------------------------------
Total current liabilities 9,141,279 2,555,160
Capital lease obligation - long term 2,267,729 -
Commitments
Redeemable convertible preferred stock, $0.01 par value, issuable in series;
19,604,286 shares authorized, 19,094,287 shares issued and outstanding at
December 31, 2000 (10,500,000 shares at December 31, 1999); aggregate
liquidation preference of $96,700,012 98,560,179 17,702,642
Stockholders' deficit:
Common stock, no par value; 100,000,000 shares authorized; 10,652,759 shares issued
and outstanding in 2000 (9,385,000 shares in 1999) 108,152 93,850
Additional paid-in capital 947,374 58,301
Stockholder notes receivable (161,500) -
Deficit accumulated during the development stage (60,949,146) (6,493,661)
--------------------------------
Total stockholders' deficit (60,055,120) (6,341,510)
--------------------------------
Total liabilities and stockholders' deficit $ 49,914,067 $13,916,292
================================
See accompanying notes.
2
Buzzsaw.com, Inc.
(a development stage company)
Statements of Operations
Periods from inception
(August 19, 1999) to
Year ended December 31,
December 31, ----------------------------------
2000 1999 2000
-------------------------------------------------------
Revenues $ 5,353,714 $ - $ 5,353,714
Operating expenses:
Cost of revenues 14,460,935 706,081 15,167,016
Sales and marketing 21,089,066 2,939,987 24,029,053
Product and service development 12,773,696 1,966,434 14,740,130
General and administrative 6,828,090 509,814 7,337,904
Purchased in-process research and development 1,100,000 482,361 1,582,361
-------------------------------------------------------
Total operating expenses 56,251,787 6,604,677 62,856,464
Loss from operations (50,898,073) (6,604,677) (57,502,750)
Interest income 2,296,690 115,640 2,412,330
Interest expense (138,603) (4,624) (143,227)
-------------------------------------------------------
Net loss (48,739,986) (6,493,661) (55,233,647)
Accretion on redeemable convertible preferred stock (5,715,499) - (5,715,499)
-------------------------------------------------------
Net loss attributable to common stockholders $ (54,455,485) $ (6,493,661) $ (60,949,146)
=======================================================
See accompanying notes.
3
Buzzsaw.com, Inc.
(a development stage company)
Statement of Redeemable Convertible Preferred Stock and Stockholders' Deficit
Redeemable Convertible
Preferred Stock Common Stock
------------------------------------------------------
Shares Amount Shares Amount
------------------------------------------------------
Balance at inception (August 19, 1999) - $ - - $ -
Issuance of common stock to Autodesk for
cash at $0.01 per share - - 5,000,000 50,000
Issuance of common stock in 1999 to
founders for cash at $0.01 per share - - 3,740,000 37,400
Issuance of common stock to advisors in
1999 for cash at $0.10 per share - - 645,000 6,450
Issuance of Series A redeemable convertible
preferred stock to Autodesk for cash,
property and equipment, and technology 5,000,000 1,228,550 - -
Issuance of Series B redeemable convertible
preferred stock at $3.00 per share for
cash, net of issuance costs of $25,908 4,833,334 14,474,092 - -
Issuance of Series B redeemable convertible
preferred stock in connection with
Convex acquisition at $3.00 per share 666,666 2,000,000 - -
Issuance of stock options to nonemployees
in exchange for services performed - - - -
Net loss - - - -
------------------------------------------------------
Balance at December 31, 1999 10,500,000 17,702,642 9,385,000 93,850
Issuance of Series C and C-1 redeemable
convertible preferred stock at $8.75 per
share, net of issuance costs of $57,973 8,594,287 75,142,038 - -
Issuance of common stock in connection with
PageMasters, Inc. acquisition at $0.88
per share - - 550,000 5,500
Repurchase of founders stock at $0.01 per
share - - (61,979) (620)
Issuance of common stock for software - - - 1,625
Issuance of stock awards to nonemployees in
exchange for services performed - - 40,000 400
Issuance of common stock upon exercise of
options - - 739,738 7,397
Accretion of redeemable convertible
preferred stock - 5,715,499 - -
Net loss - - - -
------------------------------------------------------
Balance at December 31, 2000 19,094,287 $98,560,179 10,652,759 $108,152
======================================================
Stockholders' Equity
------------------------------------------------------
Deficit
Accumulated
Additional Stockholder During the Total
Paid-In Notes Development Stockholders'
Capital Receivable Stage Deficit
---------------------------------------------------------
Balance at inception (August 19, 1999) $ - $ - $ - $ -
Issuance of common stock to Autodesk for
cash at $0.01 per share - - - 50,000
Issuance of common stock in 1999 to
founders for cash at $0.01 per share - - - 37,400
Issuance of common stock to advisors in
1999 for cash at $0.10 per share 58,050 - - 64,500
Issuance of Series A redeemable convertible
preferred stock to Autodesk for cash,
property and equipment, and technology - - - -
Issuance of Series B redeemable convertible
preferred stock at $3.00 per share for
cash, net of issuance costs of $25,908 - - - -
Issuance of Series B redeemable convertible
preferred stock in connection with
Convex acquisition at $3.00 per share - - - -
Issuance of stock options to nonemployees
in exchange for services performed 251 - - 251
Net loss - - (6,493,661) (6,493,661)
-------------------------------------------------------
Balance at December 31, 1999 58,301 - (6,493,661) (6,341,510)
Issuance of Series C and C-1 redeemable
convertible preferred stock at $8.75 per
share, net of issuance costs of $57,973 - - - -
Issuance of common stock in connection with
PageMasters, Inc. acquisition at $0.88
per share 478,500 - - 484,000
Repurchase of founders stock at $0.01 per
share - - - (620)
Issuance of common stock for software 141,375 - - 143,000
Issuance of stock awards to nonemployees in
exchange for services performed 54,674 - - 55,074
Issuance of common stock upon exercise of
options 214,524 (161,500) - 60,421
Accretion of redeemable convertible
preferred stock - - (5,715,499) (5,715,499)
Net loss - - (48,739,986) (48,739,986)
-------------------------------------------------------
Balance at December 31, 2000 $947,374 $(161,500) $(60,949,146) $(60,055,120)
=======================================================
See accompanying notes.
4
Buzzsaw.com, Inc.
(a development stage company)
Statements of Cash Flows
Periods from inception
(August 19, 1999) to
Year ended December 31,
December 31, ----------------------------
2000 1999 2000
-------------------------------------------
Operating activities
Net loss $(48,739,986) $(6,493,661) $(55,233,647)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 5,577,930 15,611 5,593,541
Noncash expenses from stock and warrant issuance 55,074 251 55,325
Purchased in-process research and development 1,100,000 482,361 1,582,361
Changes in operating assets and liabilities:
Accounts receivable, net (2,033,269) - (2,033,269)
Prepaid expenses and other current assets (336,729) (78,477) (415,206)
Accounts payable and accrued liabilities 3,006,448 2,555,160 5,561,608
Deferred revenue 1,465,691 - 1,465,691
-------------------------------------------
Net cash used in operating activities (39,904,841) (3,518,755) (43,423,596)
-------------------------------------------
Investing activities
Purchases of short-term investments (7,910,039) - (7,910,039)
Maturities and sales of short-term investments 1,967,139 - 1,967,139
Purchase of property and equipment (16,427,452) (41,123) (16,468,575)
Software development costs (3,863,869) - (3,863,869)
Other assets (612,149) (98,748) (710,897)
Business combinations, net of cash acquired (3,917,427) 1,517,639 (2,399,788)
-------------------------------------------
Net cash provided by (used in) investing activities (30,763,797) 1,377,768 (29,386,029)
-------------------------------------------
Financing activities
Proceeds from capital lease financing 4,689,399 - 4,689,399
Principal payments on capital lease obligations (307,690) - (307,690)
Proceeds from issuance of common stock 60,421 151,900 212,321
Proceeds from issuance of redeemable convertible preferred stock, net 75,142,038 15,474,092 90,616,130
Repurchase of common stock (620) - (620)
-------------------------------------------
Net cash provided by financing activities 79,583,548 15,625,992 95,209,540
-------------------------------------------
Net increase in cash and cash equivalents 8,914,910 13,485,005 22,399,915
Cash and cash equivalents at beginning of period 13,485,005 - -
-------------------------------------------
Cash and cash equivalents at end of period $ 22,399,915 $13,485,005 $ 22,399,915
===========================================
Supplemental schedule of noncash investing and financing activities
Issuance of common stock in connection with PageMasters, Inc.
acquisition $ 484,000 $ - $ 484,000
===========================================
Notes receivable received from stockholders in exchange for issuance of
common stock $ 161,500 $ - $ 161,500
===========================================
Issuance of warrant to purchase common stock in exchange for software $ 143,000 $ - $ 143,000
===========================================
Issuance of preferred stock in exchange for property and equipment $ - $ 228,550 $ 228,550
===========================================
Supplemental disclosures of cash flow information
Cash paid during the year for interest $ 4,623 $ 34,357 $ 38,980
===========================================
See accompanying notes.
5
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
1. Summary of Significant Accounting Policies
Description of Business
Buzzsaw.com, Inc. (the Company) was incorporated in Delaware on August 19, 1999
as a wholly owned subsidiary of Autodesk, Inc. (Autodesk). The Company did not
commence operations until October 1, 1999. On August 19, 1999, the Company
authorized 100,000,000 shares of $0.01 par value common stock and issued
5,000,000 shares of its common stock to Autodesk for cash. On September 30,
1999, Autodesk provided cash, fixed assets, and transferred to Buzzsaw the
license and technology used in the development of the Company's online workspace
in exchange for 5,000,000 shares of the Company's Series A redeemable
convertible preferred stock. The Company remained a majority owned subsidiary of
Autodesk until December 27, 1999, at which time Autodesk's ownership interest
fell below 50%.
The Company provides online collaboration, printing, and procurement services
that connect project teams throughout the design, construction, and property
management process.
Activity to date, with the exception of sales of ReproDesk software, has
consisted principally of recruiting personnel, raising capital, performing
research and development, and initial marketing and sales activity. Accordingly,
the Company is classified as a development stage company.
Basis of Presentation
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As of December 31, 2000, the Company had an
accumulated deficit of $60,949,146. Company management's planned operating
expenses and capital expenditures for the year ended December 31, 2001 exceed
current cash, cash equivalents, and short-term investments as of December 31,
2000. The Company will need to obtain additional financing to fund its
operations and capital expenditures. This condition raises substantial doubt
regarding the Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty. As discussed in Note 10, on July 9, 2001, the Company signed a
definitive agreement with Autodesk, subject to stockholder approval, whereby
Autodesk will acquire the 60% equity interest in the Company it previously did
not own. There can be no assurance that the Company's stockholders will approve
the acquisition.
6
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
1. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ materially from those estimates.
Revenue Recognition
The Company recognizes revenue from the sale of its ReproDesk software and
related hardware, software training and support, and sales from its online
workspace service.
The Company recognizes revenue from the sale of software and the related
hardware, training, and support in accordance with the provisions of the
American Institute of Certified Public Accountant's Statement of Position 97-2,
"Software Revenue Recognition," as amended by Statement of Position 98-9. These
standards generally require revenues from software arrangements involving
multiple elements to be allocated to each element based on the relative fair
values of the elements. The fair value of an element must be based on
vendor-specific objective evidence of fair value. Revenue from software licenses
and related hardware is recognized at the time evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable, collection is
probable, and no significant vendor obligations exist. Sales made through the
Company's reseller do not include rights of return. Revenue from postcontract
customer support is recognized ratably as the obligations are fulfilled.
Site revenue consists of online workspace services, which are recognized as the
services are performed. The Company's online workspace services provide
customers with the rights to access applications that enable them to manage,
store, and collaborate on projects in a centralized secure location. The
Company's customers do not have the right to take possession of the software at
any time during the hosting agreement. Contracts for online workspace services
include monthly or yearly subscription-based fees for a designated amount of
storage space provided on the workspace. The fees are recognized as revenue
ratably over the service period.
7
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
1. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under this method,
deferred tax assets and liabilities are determined based on the differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates that will be in effect when the differences
are expected to reverse.
Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments purchased with maturities at
the time of purchase of three months or less to be cash equivalents. Cash
equivalents consist of commercial paper and money market deposits and their fair
value approximates their cost at December 31, 2000 and 1999.
The Company accounts for its marketable investments under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Management determines the appropriate classification of the
securities at the time of purchase and re-evaluates such designation as of each
balance sheet date. The Company has classified all investments as
available-for-sale securities and they are carried at fair value, which
approximates cost as of December 31, 2000 and 1999. Realized gains and losses
and declines in value judged to be other-than-temporary on available-for-sale
securities, if any, are included in interest income. The Company recognized
realized gains of $414,140 from sales of marketable securities during the year
ended December 31, 2000. The Company did not record any gains or losses on its
investments at December 31, 1999. The cost of securities sold is based on the
specific identification method.
The Company generally invests excess cash in commercial paper. These securities
typically bear minimal risk.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over two
to five years, the estimated useful life of the assets. Leasehold improvements
are amortized over the lesser of the term of the lease or the estimated useful
life of the asset.
8
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
1. Summary of Significant Accounting Policies (continued)
Software Development Costs
Costs of software developed internally for internal use are accounted for under
the American Institute of Certified Public Accountants' Statement of Position
No. 98-1, "Internal Use Software" (SOP 98-1), which the Company adopted on
inception. In May 2000, the Emerging Issues Task Force (EITF) reached a
consensus on Issue 00-2, "Accounting for Web Site Development Costs," and the
Company adopted this consensus on July 1, 2000. This consensus requires that
entities treat most Web site development as internal use software under SOP
98-1. Under these accounting pronouncements, the Company expenses costs of
research, including predevelopment efforts related to determining technological
or product alternatives, and costs incurred for training and maintenance.
Software and Web site development costs, which include direct costs such as
labor and contractors, are capitalized when it is probable that the project will
be completed and the software or Web sites will be used as intended. Costs
incurred for upgrades and enhancements to the Company's software or Web sites
are capitalized when such efforts result in additional functionality.
Capitalized software and Web site costs are amortized to expense over the
two-year estimated useful life of the software or Web sites. During the year
ended December 31, 2000, the Company capitalized a total of $4,006,869.
Amortization of capitalized costs was $744,272 and $0 during the year ended
December 31, 2000 and the period ended December 31, 1999, respectively.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets resulted primarily from the acquisition of
PageMasters, Inc. accounted for under the purchase method. Amortization of
goodwill and other intangible assets is provided on the straight-line basis over
the respective estimated useful lives of the assets of five years. Amortization
expense related to goodwill and other intangible assets was $468,897 for the
year ended December 31, 2000. The Company records impairment losses on
intangible assets when events and circumstances indicate that such assets might
be impaired and the estimated fair value of the asset is less than its recorded
amount. Conditions that would trigger an impairment assessment include material
adverse changes in operations or a decision to abandon products, services, or
technologies. If such circumstances arise, the Company would use an estimate of
the undiscounted value of expected future operating cash flows to determine
whether the goodwill or intangibles are impaired. To date, no impairment losses
have been recorded.
9
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
1. Summary of Significant Accounting Policies (continued)
Research and Development
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for
general release have been insignificant. Accordingly, the Company has charged
all such costs to product and service development expense in the accompanying
statements of operations.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and has adopted the disclosure only
alternative of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (FAS 123).
Concentration of Credit Risk
The Company's concentration of credit risk consists principally of cash, cash
equivalents, and short-term investments. The Company's investment policy
restricts investments to high-credit quality investments. The Company is exposed
to credit risk in the event of default by the financial institutions to the
extent of the amount recorded on the balance sheet.
Approximately 93% of revenue recognized during the year ended December 31, 2000
represents sales of the Company's ReproDesk software to its sole reseller.
Comprehensive Loss
Comprehensive loss is comprised of net loss and other comprehensive income.
Other comprehensive income includes certain changes in equity that are excluded
from net income. To date, the Company has not had any significant transactions
that are required to be reported in comprehensive loss other than the Company's
net loss.
10
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
1. Summary of Significant Accounting Policies (continued)
Advertising Expense
All advertising costs are expensed as incurred. Advertising costs which are
included in sales and marketing expense were $3,072,638 and $1,289,642 for the
year ended December 31, 2000 and for the period ended December 31, 1999,
respectively.
Recent Pronouncements
In March 2000, the Financial Accounting Standards Board (FASB) issued
interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of Accounting Principles Board (APB) Opinion
No. 25" (FIN 44). FIN 44 clarifies the application of APB 25 and is effective
July 1, 2000. The Company believes that the adoption of FIN 44 did not have a
material effect on the Company's financial position or results of operations.
2. Business Combinations
PageMasters, Inc.
On March 27, 2000, the Company acquired the assets of PageMasters, Inc., a
privately held company that provides software for engineering, printing,
scanning, document processing, and document management for the reprography,
architecture, engineering, and construction industries. The acquisition was
accounted for as a purchase and, accordingly, the results of operations of
PageMasters, Inc. subsequent to March 27, 2000 are included in the Company's
statement of operations. The purchase price was $4,901,427, consisting of
$4,235,397 in cash, 550,000 shares of common stock valued at $484,000, and
$182,030 in direct acquisition costs. The purchase agreement further calls for
contingent consideration of $9,250,000 in cash and 550,000 shares of common
stock to be paid upon the achievement of certain technology milestones. The
contingent consideration will be accounted for as compensation expense for
services rendered. No technology milestones have been met at December 31, 2000.
11
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
2. Business Combinations (continued)
PageMasters, Inc. (continued)
The purchase price was allocated as follows:
Cash $ 500,000
Fixed assets 156,175
Other assets 19,272
Purchased technology 2,100,000
Goodwill 1,025,980
In-process research and development 1,100,000
----------
Total $4,901,427
==========
The amounts allocated to goodwill and purchased technology are being amortized
on a straight-line basis over five years from the date of acquisition.
Purchased in-process research and development consists of a single project,
BlueSpot, to provide an online hosting service. BlueSpot was approximately 70%
complete at the date of acquisition. Company management estimated the fair value
of the purchased in-process research and development with the assistance of an
independent appraiser. The Company estimated the revenues, costs, and resulting
net cash flows from the project, and discounted the net cash flows back to their
present value. The resultant value was then adjusted to reflect only the value
creation effort of PageMasters, Inc. prior to the acquisition and further
reduced by the estimated value of core technology, which was included in
capitalized purchased technology.
In valuing the in-process technologies at the acquisition date, the Company used
a discounted cash flow analysis based on projected net revenues, cost of
revenues, operating expenses, and income taxes resulting from these technologies
over an 8-year period. The projected financial results were based on
expectations for PageMasters, Inc. on a stand-alone basis and excluded any
special synergistic benefits that the Company expected to achieve after the
acquisition.
12
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
2. Business Combinations (continued)
PageMasters, Inc. (continued)
The revenue projections for the developed technologies, which considered the
release dates of new products, assumed a gradual decline. The revenue
projections for the in-process research and development were based on expected
trends in technology and expected timing of new product introductions. The
Company expensed the calculated amounts allocated to in-process research and
development at the consummation date because technological feasibility of the
in-process technology had not been achieved and no alternative future uses had
been established.
Convex Technologies
In November 1999, the Company acquired the assets of Convex Technologies
(Convex), a privately held company engaged in the development of a Web-enabled
bidding products for the construction industry. The purchase price was
$2,000,000, consisting of 666,666 shares of the Company's Series B redeemable
convertible preferred stock. The acquisition was accounted for as a purchase
and, accordingly, the results of operations of Convex subsequent to November
1999 are included in the Company's statement of operations. The Company
allocated the purchase price to $1,517,639 in cash acquired from Convex, and
recorded $482,361 of in-process research and development.
Convex had only one employee, was generating no revenues, and had no customer
base. As of the acquisition date, the only identified intangible asset was one
significant research and development project, which was 50% complete. In valuing
the in-process technologies with the assistance of an independent appraiser at
the acquisition date, the Company used a discounted cash flow analysis based on
projected net revenues, cost of revenues, operating expenses, and income taxes
resulting from these technologies over a 3-year period. The projected financial
results were based on expectations for Convex on a stand-alone basis and
excluded any special synergistic benefits that the Company expected to achieve
after the acquisition. The Company expensed the calculated amount of in-process
research and development at the consummation date because technological
feasibility of the in-process technology had not been achieved and no
alternative future uses had been established.
13
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
3. Investments
The following is a summary of available-for-sale securities:
Cost and Fair Market Value
at December 31,
2000 1999
----------------------------------------
Commercial paper $ 18,883,650 $ -
Money market funds 6,490,217 11,464,877
----------------------------------------
$ 25,373,867 $ 11,464,877
========================================
Reported as:
Cash equivalents $ 19,430,967 $ 11,464,877
Short-term investments 5,942,900 -
----------------------------------------
$ 25,373,867 $ 11,464,877
========================================
As of December 31, 2000 and 1999, all securities have a maturity of less than
one year.
4. Property and Equipment
Property and equipment consists of the following:
December 31,
2000 1999
----------------------------------------
Computer equipment and software $ 13,792,438 $ 259,673
Furniture, fixtures, and equipment 1,242,417 10,000
Leasehold improvements 1,818,445 -
----------------------------------------
16,853,300 269,673
Less accumulated depreciation (4,380,372) (15,611)
----------------------------------------
$ 12,472,928 $ 254,062
========================================
Included in property and equipment were assets acquired under capital lease
obligations. Assets acquired under capital leases had a cost of $4,689,399 with
related accumulated depreciation of $388,185 at December 31, 2000.
14
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
5. Commitments
Leases
The Company leases its facilities under operating leases. Future rental payments
under noncancelable operating leases and capital leases with initial terms in
excess of one year are as follows:
Capital Operating
Leases Leases
----------------------------------------
2001 $ 2,671,662 $ 2,678,325
2002 2,292,739 2,725,124
2003 - 2,707,371
2004 - 1,954,244
2005 - 586,464
Thereafter - 299,141
----------------------------------------
Total minimum lease payments 4,964,401 $ 10,950,669
==================
Less interest (582,692)
---------------------
Total principal amount 4,381,709
Less current portion (2,113,980)
---------------------
Long-term portion $ 2,267,729
=====================
Rent expense amounted to $2,705,046 and $97,848 for the year ended December 31,
2000 and for the period ended December 31, 1999, respectively.
6. Redeemable Convertible Preferred Stock
The Company is authorized to issue up to 19,604,286 shares of redeemable
convertible preferred stock, issuable in series, with the rights and preferences
of each designated series to be determined by the Company's board of directors.
15
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
6. Redeemable Convertible Preferred Stock (continued)
In September 1999, the Company issued 5,000,000 shares of Series A redeemable
convertible preferred stock with a stated issue price of $1.00 per share and a
par value of $0.01 per share to Autodesk in exchange for $1,000,000 in cash, the
transfer of technology, and fixed assets with a net book value of $228,550. As
there was no readily determinable fair value of the transferred technology, and
Autodesk's historical cost basis in the technology was zero, no value was
assigned to the technology.
In November 1999, the Company issued 4,333,334 shares of Series B redeemable
convertible preferred stock for $3.00 per share, resulting in gross cash
proceeds of $13,000,000 to the Company. In December 1999, the Company issued
500,000 shares of Series B redeemable convertible preferred stock at $3.00 per
share to a certain investor, resulting in gross proceeds of $1,500,000 to the
Company.
In March 2000, the Company issued 7,840,001 and 754,286 shares of Series C and
C-1 redeemable convertible preferred stock, respectively, at $8.75 per share,
resulting in gross cash proceeds of $75,200,011 to the Company. In connection
with the issuance of Series C and C-1 redeemable convertible preferred stock,
the Series A and B convertible preferred stock were modified to be redeemable.
The redemption value for the Series A and B redeemable convertible preferred
stock was retroactive to the respective issuance dates. At December 31, 1999 and
2000, the Series A, B, C, and C-1 preferred stock are classified as redeemable
convertible preferred stock. The Series A, B, C, and C-1 redeemable convertible
preferred stockholders are entitled to receive noncumulative dividends at the
rate of $0.08, $0.24, $0.70, and $0.70 per share per annum if and when declared
by the board of directors. No dividends have been declared to date as of
December 31, 2000.
For as long as the shares of Series A, B, C, and C-1 redeemable convertible
preferred stock remain outstanding, each holder could, at the option of the
holder, after December 31, 2005 in three installments, require the Company to
redeem a number of shares equal to one-third of the number of shares of Series
A, B, C, and C-1 redeemable convertible preferred stock held by such holder as
of the first installment. The shares are redeemable at the original issue price
plus an additional 7% per annum, compounded annually through 2005, commencing on
the date of issuance and any declared unpaid dividends on such shares. The
carrying amounts of the Series A, B, C, and C-1 redeemable convertible preferred
stock have been increased by periodic accretions so as to equal redemption
amounts at the redemption dates.
16
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
6. Redeemable Convertible Preferred Stock (continued)
Redeemable convertible preferred stock at December 31, 2000 was as follows:
Issued and Outstanding
Shares at Aggregate
Designated December 31, Liquidation
----------------------------------------
Series Shares 2000 1999 Preference
-----------------------------------------------------------------------------------------------
A 5,000,000 5,000,000 5,000,000 $ 5,000,000
B 5,500,000 5,500,000 5,500,000 16,500,000
C 8,350,000 7,840,001 - 68,600,009
C-1 754,286 754,286 - 6,600,003
==============================================================================
19,604,286 19,094,287 10,500,000 $ 96,700,012
==============================================================================
The holders of each share of Series A, B, and C redeemable convertible preferred
stock are entitled to one vote for each share of common stock into which such
share is convertible.
Each share of Series A, B, and C redeemable convertible preferred stock is, at
the option of the holder, convertible into one share of the Company's common
stock, subject to adjustment under antidilution provisions as defined in the
Company's Articles of Incorporation. Conversion is automatic upon the earlier
of: (i) an underwritten public offering of the Company's common stock in which
the aggregate proceeds are in excess of $40,000,000 and a per share price not
less than $13.13, or (ii) upon the written consent of the holders of a majority
of the outstanding shares of redeemable convertible preferred stock. The
conversion rate of the Series A, B, and C redeemable convertible preferred stock
is subject to adjustment in the event of, among other things, certain dilutive
issuances of stock, business combinations, stock splits, and stock dividends.
Each share of Series C-1 redeemable convertible preferred stock is convertible
only upon an underwritten public offering of the Company's common stock in which
the aggregate proceeds are in excess of $40,000,000 and a per share price not
less than $13.13.
17
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
6. Redeemable Convertible Preferred Stock (continued)
Each holder of Series C and C-1 redeemable convertible preferred stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Company to the holders of the Series A redeemable
convertible preferred stock, Series B redeemable convertible preferred stock,
and the common stock, the amount of the liquidation preference of each share
plus an amount equal to all declared but unpaid dividends on such shares. If
upon the occurrence of a liquidation event, the assets and funds available to be
distributed among the holders of the redeemable convertible preferred stock are
insufficient to permit the payment to such holders of the full preferential
amount, then the entire assets and funds of the Company legally available for
distribution to such holders shall be distributed first, among the holders of
Series C and C-1 redeemable convertible preferred stockholders ratably based on
the total preferential amount due to each redeemable convertible preferred
stockholder. After payment has been made to the holders of Series C and C-1
redeemable convertible preferred stockholders, the holder of Series B redeemable
convertible preferred stock will be entitled to receive, prior and in preference
to any distribution to Series A redeemable convertible preferred and common
stockholders, the remaining assets and funds ratably based on the total
preferential amount due to each redeemable convertible preferred stockholder.
After payment has been made to the holders of Series C and C-1 redeemable
convertible preferred and Series B redeemable convertible preferred
stockholders, the holder of Series A redeemable convertible preferred stock will
be entitled to receive, prior and in preference to any distribution to common
stockholders, the remaining assets and funds ratably based on the total
preferential amount due to each redeemable convertible preferred stockholder.
After payment has been made to the redeemable convertible preferred
stockholders, the remaining assets of the Company available for distribution to
stockholders shall be distributed ratably among the common stockholders, Series
A redeemable convertible preferred stock, Series B redeemable convertible
preferred stock, Series C redeemable convertible preferred stock, and the Series
C-1 redeemable convertible preferred stockholders on an as-if-converted to
common stock basis.
7. Stockholders' Deficit
Common Stock
At December 31, 2000, the Company is authorized to issue 100,000,000 shares of
common stock. Holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders of the Company.
18
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
7. Stockholders' Deficit (continued)
Common Stock (continued)
In August 1999, upon inception of the Company, 5,000,000 shares of the Company's
common stock were issued to Autodesk for $50,000.
In August 1999, 3,740,000 shares of common stock were issued to the Company's
founders in exchange for $37,400 under a restricted stock purchase agreement.
The outstanding shares are subject to repurchase by the Company at the issuance
price should the stockholders terminate employment with the Company. The
repurchase option lapses over a 4-year period. At December 31, 2000 and 1999,
2,436,667 and 3,573,333 shares, respectively, were subject to repurchase.
In September 1999, 645,000 shares of common stock were issued to advisors of the
Company in exchange for cash of $64,500. The price per share was considered to
be the fair value of the common stock at the issuance date.
In connection with a facility lease signed in February 2000, the Company issued
a warrant to purchase 20,000 shares of common stock at an exercise price of
$0.30 per share. The warrants were valued at $9,250 using the Black-Scholes
valuation model and are being recognized as rent expense over the term of the
lease, or five years. The warrant had not been exercised as of December 31,
2000.
In March 2000, the Company issued warrants to consultants to purchase 1,224,600
shares of common stock at an exercise price of $0.30 per share in exchange for
certain technology deliverables. All of the warrants will be earned upon the
completion of certain performance criteria. The warrants have not been earned as
of December 31, 2000 as the performance criteria have not been met.
In April 2000, the Company issued a fully vested warrant to purchase 162,500
shares of common stock in consideration for consulting and the development of
software. The warrants were valued at $143,000 using the Black-Scholes valuation
model. The amount was capitalized as the deliverables represented software
acquired for internal use and is included in capitalized software. No shares
were issued as of December 31, 2000.
19
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
7. Stockholders' Deficit (continued)
Stock Option Plan
In September 1999, the Company adopted the 1999 Stock Plan which provided for
the issuance of options for up to 4,000,000 shares of the Company's common stock
to qualified directors, employees, and consultants. During the year ended
December 31, 2000, the board of directors authorized an additional 1,500,000
shares of common stock to be reserved for issuance under the plan. Under the
plan, options to purchase common stock and restricted stock awards may be
granted at no less than 85% of the fair value on the date of the grant (100% of
fair value for incentive stock options and 110% of fair value in certain
instances), as determined by the board of directors. Vesting and exercise
provisions are determined by the board of directors at the time of grant.
Options generally vest with respect to 25% of the shares one year after the
options' vesting commencement date and the remainder ratably over the following
three years. Options granted under the plan have a maximum term of 10 years. In
September 2000, the 1999 Stock Plan was amended to provide for options to be
exercised at any time and stock issued under the plan may be, as determined by
the board of directors, subject to repurchase by the Company. This right of
repurchase is at the sole option of the Company and generally lapses over the
vesting term from the original date of issuance or grant.
In September 2000, the Company adopted the 2000 Stock Plan, which provides for
the issuance of options for up to 1,000,000 shares of the Company's common stock
to employees, nonemployee directors, and consultants. As this plan serves to
succeed the 1999 Stock Plan, it contains the same provisions as the 1999 Stock
Plan.
20
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
7. Stockholders' Equity (continued)
Stock Option Plan (continued)
Stock option activity under both the 1999 and 2000 Stock Plans is as follows:
Weighted-
Average
Available Options Exercise
for Grant Outstanding Price
----------------- -----------------------------
Beginning authorized 4,000,000 - -
Options granted (1,619,500) 1,619,500 $0.30
----------------- --------------
Balance at December 31, 1999 2,380,500 1,619,500 $0.30
Options authorized 2,500,000 - -
Options granted (5,007,500) 5,007,500 $0.68
Options exercised - (739,738) $0.30
Options canceled 1,256,095 (1,256,095) $0.52
----------------- --------------
Balance at December 31, 2000 1,129,095 4,631,167 $0.65
================= ==============
The weighted-average fair value of all options granted during 2000 and 1999 was
$0.20 and $0.08 per share, respectively.
The following table summarizes the information about stock options outstanding
and exercisable as of December 31, 2000:
Options Outstanding
----------------------------------------------------
Weighted-
Average
Remaining Weighted-
Exercise Number Contractual Average
Prices Outstanding Life Exercise Price
---------------------------------------------------------------------
(In years)
$0.30 1,852,167 9.00 0.30
$0.88 2,779,000 9.48 0.88
--------------
4,631,167 9.28 0.65
==============
21
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
7. Stockholders' Equity (continued)
Stock Option Plan (continued)
All shares granted under the Plans are exercisable as of December 31, 2000,
however; shares exercised but not vested are subject to repurchase by the
Company at the issuance price. As of December 31, 2000, the Company had 580,917
shares of common stock outstanding subject to repurchase under the Plans. As of
December 31, 1999, no shares were exercisable or were subject to repurchase
under the Plans.
During the year ended December 31, 2000, the Company issued $161,500 of full
recourse notes receivable to employees which bear interest at rates of 6.8% per
annum in consideration for the exercise of stock options. The notes are
collateralized by the underlying shares of common stock and mature on various
dates through fiscal 2005.
Common stock reserved for future issuance was as follows:
December 31,
2000 1999
----------------------------------------
Stock options outstanding 4,631,167 1,619,500
Stock options reserved for future grants 1,129,095 2,380,500
Warrants to purchase common stock 1,407,100 -
Conversion of redeemable convertible preferred stock 19,094,287 10,500,000
Common stock for contingent consideration from
PageMasters, Inc. acquisition 550,000 -
----------------------------------------
Total common stock reserved for future issuance 26,811,649 14,500,000
========================================
Under the terms of the Company's Plans, from time to time, the Company issues
options to purchase shares of common stock to nonemployees in exchange for
services. The services will be provided over a period of time from the date of
grant and the value of the services are based upon the fair value of the common
stock as the services are provided. During the year ended December 31, 2000 and
the period ended December 31, 1999, the Company issued options to purchase
244,383 and 40,000 shares of common stock, respectively, for services rendered.
The fair value of the stock options granted was immaterial.
22
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
7. Stockholders' Equity (continued)
Fair Value Disclosure
The Company calculated the minimum fair value of each option grant on the date
of grant using the minimum value pricing model as prescribed by FAS 123 with the
following underlying assumptions:
Year ended Period ended
December 31, December 31,
2000 1999
----------------------------------------
Stock option plans:
Dividend yield - -
Expected volatility 0.75 0.75
Average risk-free interest rate 7% 6.5%
Expected life (in years) 5 5
Had the Company recorded compensation based on the estimated grant date fair
value, as defined by FAS 123, for awards granted under its Plans, the Company's
net loss would have been increased to the pro forma amounts as follows:
Year ended Period ended
December 31, December 31,
2000 1999
----------------------------------------
Net loss attributable to common stockholders as
reported $(54,455,485) $(6,493,661)
Pro forma net loss attributable to common
stockholders $(54,618,260) $(6,508,659)
Because additional option grants are expected to be made each year, the above
pro forma disclosures are not representative of pro forma effects of option
grants on reported net income for future years.
23
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
8. Related Party Transactions
Service Arrangement
On October 1, 1999, Autodesk and the Company entered into certain service
agreements whereby Autodesk provides the Company payroll related and other
bookkeeping services for a fee. For such services, Autodesk billed the Company
100% of salary costs, approximately 30% for benefits and 100% of all other costs
incurred. Furthermore, Autodesk charged an additional 10% of total amounts
billed to compensate for administrative and other indirect costs incurred in
supporting the personnel. The total amounts paid to Autodesk under the service
agreement were $2,053,194 and $112,211 for the year ended December 31, 2000 and
the period ended December 31, 1999, respectively.
9. Income Taxes
As of December 31, 2000 and 1999, the Company had deferred tax assets of
approximately $24,508,000 and $3,002,000, respectively, consisting primarily of
federal and state net operating losses, research, and other tax credits, and
differences in book and tax depreciation and amortization. Realization of the
deferred tax assets is dependent upon future taxable income, if any, the amount
and timing of which are uncertain. Accordingly, the net deferred tax assets have
been fully offset by a valuation allowance. The net valuation allowance
increased by approximately $21,506,000 and $3,002,000 during the year ended
December 31, 2000 and the period ended December 31, 1999, respectively.
As of December 31, 2000, the Company had federal net operating loss
carryforwards of approximately $49,000,000 which expire beginning in the year
2019 and state net operating loss carryforwards of $49,000,000 which begin to
expire in 2007. The Company has approximately $957,000 in federal research tax
credits that begin to expire in the year 2019 and approximately $747,000 of
state research tax credits which may be carried forward indefinitely.
Utilization of the net operating loss carryforwards and credits may be subject
to a substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and credits before utilization.
24
Buzzsaw.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 2000
10. Subsequent Events (Unaudited)
During the six months ended June 30, 2001, the Company made payments totaling
$6,875,000 and issued 550,000 shares of the Company's common stock, pursuant to
the earn-out provisions of the PageMasters, Inc. Purchase agreement.
On July 9, 2001, the Company signed a definitive agreement with Autodesk,
subject to stockholder approval, whereby Autodesk would acquire the 60% equity
interest in the Company that it did not previously own. The agreement calls for
a cash payment of $15,000,000 to be paid to the Company's stockholders. Holders
of Series B redeemable convertible preferred stock will receive cash in the
amount of $0.4044 per share and holders of Series C and C-1 redeemable
convertible preferred stock not held by Autodesk will receive cash in the amount
of $1.9374 per share. Each outstanding share of the Company's common stock, all
outstanding options to purchase the Company's common stock, and all other rights
or warrants to acquire the Company's common stock shall be canceled and
terminated and not be assumed by Autodesk. Each share of Series A redeemable
convertible preferred stock, wholly owned by Autodesk, will also be canceled and
extinguished and shall not receive any consideration.
25