PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. You should read the following summary together with the entire prospectus and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in the section entitled “Risk Factors.”

Our Company

Overview

We are a software-as-a-service company that provides mobile operators with an integrated end-to-end solution to deliver mobile data and Internet services to their subscribers. As advanced Internet and messaging services are increasingly becoming available on mobile devices, our solution enables operators to offer their subscribers a differentiated and compelling mobile data and Internet experience and consequently, helps our operator customers increase their average revenue per user. Our solution is deployed in the United States and certain international markets through the T-Mobile Sidekick family of mobile devices and in other international markets, including Australia and Europe, through mobile devices utilizing our “hiptop” brand.

The Danger solution integrates our hosted service delivery engine, or SDE, and our client software with Danger-enabled mobile devices manufactured by Sharp Corporation and Motorola, Inc., our original equipment manufacturer, or OEM, partners. Our technology platform enables fast subscriber access to data services, provides data compression and optimization, and provides users with the ability to run multiple applications simultaneously. Our solution offers real-time email, instant messaging and social networking services, and HTML web browsing, as well as premium applications, content and services developed internally and through our third-party developer program.

We leverage the expertise and scale of our mobile operator customers and our OEM partners to help manufacture, market and distribute Danger-enabled mobile devices to a broad consumer audience. By delivering the Danger solution as a service, we allow our mobile operator customers to leverage our infrastructure, third-party developer program and expertise in deploying an end-to-end mobile data service offering with minimal capital investment.

We receive recurring monthly service fees from our mobile operator customers for each subscriber that has access to our mobile data services, and we also generate revenues from the premium applications, content and services that we provide. From the introduction of our solution in October 2002 through September 30, 2007, the number of subscribers to our mobile data services has grown to approximately 923,000. Our total revenues have grown from $49.3 million in the year ended September 30, 2006 to $56.4 million in the year ended September 30, 2007, and our service revenues have grown from $38.9 million in the year ended September 30, 2006 to $50.6 million in the year ended September 30, 2007.

Industry Background

The mobile data services market is in a period of transition and growth fueled by consumer adoption, mobile operator competition, advances in mobile device technologies and the convergence of the traditional Internet and mobile communications industries. As a result of these trends, mobile devices are no longer predominantly used for a single function, such as voice, but are increasingly becoming an important platform for multiple forms of communication, access to information, consumption of media and content creation.

Our Solution

The Danger solution powers advanced data applications and services on Danger-enabled mobile devices, and features premium applications, content and services developed internally and through our third-party

 

developer program. The Danger solution is designed to be easy for our mobile operator customers to deploy and manage, and to integrate seamlessly with their back-end systems. Key features of the Danger solution include the following:

Superior mobile data and Internet experience for consumers.    The Danger solution adds real-time email, popular instant messaging and social networking services, HTML web browsing, and easy access to premium applications, content and services to standard voice and personal information management features, and provides an intuitive user-interface to mimic a personal computer experience on a mobile device.

End-to-end integrated mobile data and Internet solution for mobile operators.    We offer mobile operators a single, tightly-integrated solution that enables them to capitalize on advances in mobile devices, network technologies and Internet services to offer consumers a more compelling mobile data and Internet experience.

Powerful technology platform enabling optimized delivery of enhanced mobile data services.    The Danger technology platform, which consists of our hosted SDE and client software for mobile devices, optimizes the delivery of enhanced mobile data services by compressing content, managing network and device communications, facilitating the real-time delivery of software upgrades and additional features, and synchronizing and storing data in a manner easily accessible by the consumer.

Close collaboration with mobile device manufacturers.    We collaborate closely with our OEM partners throughout the design and development process of Danger-enabled mobile devices, allowing us to better integrate our software into their devices and to optimize performance, minimize design flaws and accelerate device development.

Large and growing third-party developer program.    Our third-party developer program is designed to foster a steady and competitive pipeline of premium applications, content and services for distribution on our platform that we believe enhance the overall consumer experience.

Leveraged, software-as-a-service business model aligned with customer interests.    We deploy our solution through a software-as-a-service business model that enables us to leverage the reach and expertise of our mobile operator customers, OEM partners and third-party developers so we can scale rapidly while minimizing our investment.

Our Strategy

Our objective is to expand our position as a leading provider of mobile consumer data services and to increase the value of our solution for mobile operators worldwide. The principal elements of our strategy are to:

 

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extend our leadership position by strengthening and broadening our solution;

 

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pursue new mobile operator relationships and expand our distribution globally;

 

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extend and deepen our OEM partnerships;

 

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increase the number of subscribers using our mobile data services; and

 

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expand the development of third-party applications, content and services for our platform.

Risks Related to Our Business

Our business and our ability to execute on our business strategy are subject to a number of risks that you should be aware of before making an investment decision. These risks are discussed more fully in the section entitled “Risk Factors” immediately following this prospectus summary. For example:

 

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We have a history of net losses, may incur substantial net losses in the future and may not achieve profitability in the future. As of September 30, 2007, we had an accumulated deficit of $188.1 million.

 

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We are substantially dependent on T-Mobile USA, Inc., or T-Mobile USA, for our revenues and if we fail to maintain our relationship with T-Mobile USA or if T-Mobile USA reduces its expenditures for marketing our mobile data services, alters the data plan pricing under which it offers our mobile data services, or offers or promotes competing mobile data services in lieu of, or to a greater degree than, our mobile data services, our revenues would be materially and substantially reduced.

 

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The mobile data services we provide run exclusively on Danger-enabled mobile devices that are manufactured and sold by our OEM partners. If our OEM partners delay the development of, elect not to develop or fail to ship mobile devices that run our mobile data services, our business, operating results and financial condition would be materially harmed.

 

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We have a limited operating history in an emerging industry, which may make it difficult to evaluate our business. In particular, we have a limited history of generating revenues solely as a provider of mobile data services, and the future revenue potential of our business in the emerging mobile data services industry is still uncertain.

 

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We operate in a highly competitive industry and we may not be able to compete effectively. In addition, recent developments in the mobile device and mobile services markets, such as the formation of the Google-led Open Handset Alliance, as well as the introduction of new wireless technologies and new entrants seeking to gain market share, could harm our competitive position.

 

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Our success is strongly tied to the popularity of our mobile data services platform and Danger-enabled mobile devices with subscribers and is subject to risks associated with unpredictable and continuously changing customer tastes.

 

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There is a limited number of mobile operator customers for our mobile data services solution, and we are substantially dependent on our mobile operator customers to market and distribute Danger-enabled mobile devices. If mobile operator customers do not introduce, market and promote Danger-enabled mobile devices, our mobile data services solution will not achieve widespread acceptance and we may not be able to grow as fast as anticipated, or at all.

 

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We operate in an industry with extensive intellectual property litigation. Claims of infringement against us, our OEM partners or our mobile operator customers could cause our business, financial condition and results of operations to suffer.

Corporate Information

We were incorporated in December 1999, originally operated under the name “Danger Research,” and are headquartered in Palo Alto, California. Our principal executive offices are located at 3101 Park Blvd., Palo Alto, California 94306. Our telephone number is (650) 289-5000. Our website address is www.danger.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus.

We own the trademarks “Danger^®” and “hiptop^®,” and our other trademarks or service marks appearing in this prospectus. This prospectus contains additional trade names, trademarks and service marks of other companies. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

Market Data

This prospectus contains market data and industry forecasts that were obtained from industry publications. We have not independently verified any of this information.

 

The Offering

 

Common stock offered by Danger

shares

 

Common stock to be outstanding after this offering

shares

 

Over-allotment option

shares

 

Use of proceeds

We intend to use approximately $7.2 million of the net proceeds of this offering to repay in full the principal and accrued interest under, and other fees related to, certain of our outstanding credit facilities, based on amounts outstanding as of November 30, 2007. We expect to use the remaining net proceeds of this offering for working capital and other general corporate purposes, including to finance the expansion and operation of our data centers, to fund capital expenditures and to support our research and development and sales and marketing activities, or for acquisitions of or investments in companies, technologies, products or other assets. See “Use of Proceeds.”

 

Proposed NASDAQ Global Market symbol

DNGR

The number of shares of common stock outstanding immediately after this offering is based on              shares of common stock outstanding as of September 30, 2007. This number excludes, as of September 30, 2007:

 

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42,861,396 shares of common stock issuable upon the exercise of options outstanding under our 2000 Stock Option/Stock Issuance Plan, or 2000 plan, having a weighted average exercise price of $0.35 per share;

 

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6,525,841 shares of common stock issuable upon the exercise of outstanding warrants, having a weighted average exercise price of $0.83 per share, of which warrants to purchase 6,415,222 shares of common stock will terminate if not exercised prior to the closing of this offering;

 

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2,056,194 shares of common stock reserved for future issuance under our 2000 plan; provided, however, that immediately upon the signing of the underwriting agreement for this offering, no further awards will be granted under our 2000 plan; and

 

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an aggregate of up to              shares of common stock reserved for future issuance under our 2008 Equity Incentive Plan and 2008 Employee Stock Purchase Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under these benefit plans, both of which will become effective immediately upon the signing of the underwriting agreement for this offering.

Except as otherwise indicated, all information in this prospectus assumes:

 

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a  -for-  reverse stock split of our common stock and preferred stock to be effective prior to the closing of this offering;

 

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the conversion of all of our outstanding shares of preferred stock into 168,133,864 shares of common stock upon the closing of this offering;

 

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the filing of our amended and restated certificate of incorporation upon the closing of this offering;

 

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no exercise of the underwriters’ over-allotment option; and

 

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the exercise of warrants that, by their terms, provide for automatic exercise on a cashless basis immediately prior to the closing of this offering, resulting in the net issuance of              shares of common stock, assuming a deemed market price equal to the assumed initial public offering price of $             per share, the mid-point of the price range reflected on the cover page of this prospectus. The actual number of shares of our common stock to be issued upon the automatic cashless exercise of these warrants depends on the deemed market price of our common stock immediately prior to the date of exercise. See “Capitalization” and “Description of Capital Stock—Warrants.”

 

Summary Consolidated Financial Data

We present below our summary consolidated financial data. The summary of our consolidated statements of operations data for each of the years ended September 30, 2005, 2006 and 2007, and the summary of our consolidated balance sheet data as of September 30, 2007, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. You should read this information together with our consolidated financial statements and related notes included elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Selected Consolidated Financial Data.” Our historical results are not necessarily indicative of the results to be expected in any future period.

 

		Years Ended September 30,
		2005				2006				2007
		(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues:
Service		$	21,669			$	38,895			$	50,581
Product			15,121				10,416				5,832
Total revenues			36,790				49,311				56,413
Cost of revenues:
Cost of service revenues			10,701				17,755				26,846
Cost of product revenues			16,220				9,130				5,276
Total cost of revenues			26,921				26,885				32,122
Gross profit			9,869				22,426				24,291
Operating expenses:
Research and development			11,317				17,746				22,497
Sales and marketing			5,211				5,723				7,020
General and administrative			3,610				6,999				6,541
Total operating expenses			20,138				30,468				36,058
Loss from operations			(10,269	)			(8,042	)			(11,767	)
Other income (expense), net			359				107				(520	)
Loss before provision for income taxes and cumulative effect of change in accounting principle			(9,910	)			(7,935	)			(12,287	)
Provision for income taxes			—				(54	)			(74	)
Loss before cumulative effect of change in accounting principle			(9,910	)			(7,989	)			(12,361	)
Cumulative effect of change in accounting principle			—				1,421				—
Net loss			(9,910	)			(6,568	)			(12,361	)
Accretion of redemption value on redeemable convertible preferred stock			(12,309	)			(14,477	)			(15,710	)
Net loss attributable to common stockholders		$	(22,219	)		$	(21,045	)		$	(28,071	)
Net loss per share attributable to common stockholders—basic and diluted:
Loss before cumulative effect of change in accounting principle		$	(0.69	)		$	(0.53	)		$	(0.76	)
Cumulative effect of change in accounting principle			—				0.09				—
Accretion of redemption value on redeemable convertible preferred stock			(0.85	)			(0.95	)			(0.96	)
Net loss per share attributable to common stockholders—basic and diluted		$	(1.54	)		$	(1.39	)		$	(1.72	)
Weighted average common shares outstanding—basic and diluted			14,396				15,142				16,353
Pro forma net loss per share—basic and diluted (unaudited)(1)										$	(0.06	)
Pro forma weighted average common shares outstanding—basic and diluted (unaudited)(1)											184,463

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(1)	Please see Note 3 to our consolidated financial statements for an explanation of the method used to compute pro forma basic and diluted net loss per common share and the number of shares used in computing per share amounts.

 

The following table presents our summary consolidated balance sheet data:

 

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on an actual basis;

 

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on a pro forma basis to give effect to:

 

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the conversion of all of our outstanding shares of our preferred stock into 168,133,864 shares of common stock upon the closing of this offering;

 

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the exercise of warrants that, by their terms, provide for automatic exercise on a cashless basis immediately prior to the closing of this offering, resulting in the net issuance of              shares of common stock, assuming a deemed market price equal to the assumed initial public offering price of $             per share, the mid-point of the price range reflected on the cover page of this prospectus; and

 

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the reclassification of preferred stock warrant liability to common stock and additional paid-in capital upon the closing of this offering; and

 

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on a pro forma as adjusted basis to give further effect to the sale by us of              shares of common stock in this offering at an assumed initial public offering price of $             per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the repayment of amounts outstanding under an equipment lease line, which had an outstanding balance of approximately $3.8 million as of September 30, 2007.

 

		As of September 30, 2007
		Actual				Pro Forma		Pro Forma As Adjusted(1)
		(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents		$	12,979
Working capital			8,961
Property and equipment, net			17,358
Total assets			49,024
Deferred revenues, including current portion			10,630
Installment payable, including current portion			885
Capital lease obligations, including current maturities			4,501
Preferred stock warrant liability			12,180
Redeemable convertible preferred stock