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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 14, 1998
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(Date of earliest event reported): May 15, 1998
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VISUAL NETWORKS, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 000-23699 52-1837515
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(State of Incorporation) (Commission File Number) (I.R.S. Employer Identification No.)
</TABLE>
2092 Gaither Road
Rockville, Maryland 20850
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(Address of principal executive offices) (Zip Code)
(301) 296-2300
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(Registrant's telephone number)
This Form 8-K/A amends Registrant's previously filed Current Report on
Form 8-K dated May 19, 1998.
This Form 8-K/A includes the financial statements and pro forma
financial information which had been omitted from the previously filed
document as permitted by Item 7(a)(4) of Form 8-K.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Consolidated Financial Information. The following unaudited
consolidated financial statements for the combined entity are attached hereto
as Exhibit 99.2:
- Consolidated Balance Sheets as of March 31, 1998 and December 31,
1997 (unaudited)
- Consolidated Statements of Operations for the three months ended
March 31, 1998 and 1997 (unaudited)
- Consolidated Statements of Stockholders Equity (Deficit) for the
three months ended March 31, 1998 (unaudited)
- Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 (unaudited)
- Notes to Consolidated Financial Statements
(b) Exhibits.
*2.1 Agreement and Plan of Merger dated April 15, 1998 by and
among Visual Networks, Inc., Visual Acquisitions, Inc. and
Net2Net Corporation.
*99.1 Press release of Visual Networks, Inc. dated May 15, 1998.
99.2 Consolidated Financial Information.
* Previously filed with the Registrant's Current Report on Form
8-K which was filed with the Securities and Exchange Commission
on May 19, 1998.
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 thereunto duly authorized.
Date: July 14, 1998 Visual Networks, Inc.
/s/ SCOTT E. STOUFFER
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By: Scott E. Stouffer
Title: Chief Executive Officer
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EXHIBIT INDEX
*2.1 Agreement and Plan of Merger dated April 15, 1998 by and
among Visual Networks, Inc., Visual Acquisitions, Inc. and
Net2Net Corporation.
*99.1 Press release of Visual Networks, Inc. dated May 15, 1998.
99.2 Consolidated Financial Information.
* Previously filed with the Registrant's Current Report on Form
8-K which was filed with the Securities and Exchange Commission
on May 19, 1998.
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3
Exhibit 99.2
As part of its Registration Statement filed on Form S-1 dated July 2, 1998 (the
"Registration Statement"), Visual Networks, Inc. included audited consolidated
financial statements as of December 31, 1996 and 1997 and for each of the three
years in the period ended December 31, 1997 and unaudited consolidated
financial statements as of June 30, 1998 and for the six months ended June 30,
1997 and 1998, all of which have been restated to reflect the acquisition of
Net2Net Corporation by Visual Networks, Inc. This merger transaction has been
accounted for as a pooling of interests. The following financial statements
provide the additional required financial statements which was not included as
part of the Registration Statement. It is suggested that these financial
statements be read in conjunction with the financial statements, and the notes
thereto, included in the Registration Statement.
Visual Networks, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31,
Assets 1998 December 31,
Current assets: (unaudited) 1997
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<S> <C> <C>
Cash and cash equivalents ...................................................... $53,027 $8,902
Accounts receivable, net of allowance of $489 and $412, respectively ........... 3,606 3,559
Inventory ...................................................................... 4,286 3,724
Other current assets ........................................................... 513 602
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Total current assets ....................................................... 61,432 16,787
Property and equipment, net ...................................................... 1,972 1,824
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Total assets .............................................................. $63,404 $18,611
=========== ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses .......................................... $6,912 $5,794
Customer deposits .............................................................. 2,914 3,068
Accrued compensation ........................................................... 853 1,606
Deferred revenue ............................................................... 5,261 5,211
Bank line of credit ............................................................ 805 126
Loan payable to stockholder .................................................... 500 500
Current portion of capital lease obligation .................................... 358 379
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Total current liabilities ................................................... 17,603 16,684
Capital lease obligation, net of current portion ................................. 289 374
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Total liabilities ........................................................... 17,892 17,058
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Redeemable convertible preferred stock:
Series B, Series C, Series D and Series E redeemable convertible cumulative
preferred stock, $.01 par value, 7,229,438 shares authorized in aggregate,
7,228,473 issued and outstanding as of December 31, 1997 and no shares
outstanding as of March 31, 1998 (aggregate liquidation preference of
$14,484 as of December 31, 1997) ............................................ - 14,855
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares issued
and outstanding ............................................................. - -
Series A convertible preferred stock, $.01 par value, 347,070 shares authorized,
347,070 shares issued and outstanding as of December 31, 1997 and no shares
outstanding as of March 31, 1998 (aggregate liquidation preference of $149
as of December 31, 1997) .................................................... - 3
Common stock, $.01 par value, 50,000,000 shares authorized, 19,818,461 and
5,005,140 shares issued and outstanding as of March 31, 1998 and
December 31, 1997, respectively ............................................. 198 50
Deferred compensation .......................................................... (235) (247)
Additional paid-in capital ..................................................... 73,246 12,783
Accumulated deficit ............................................................ (27,697) (25,891)
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Total stockholders' equity .................................................. 45,512 (13,302)
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Total liabilities and stockholders' equity ................................. $63,404 $18,611
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
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Visual Networks, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
For the three months ended March 31,
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1998 1997
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<S> <C> <C>
Revenues ............................................ $10,327 $3,988
Cost of goods sold .................................. 4,541 1,705
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Gross profit ..................................... 5,786 2,283
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Operating expenses:
Research and development .......................... 2,427 1,584
Sales and marketing ............................... 3,698 2,839
General and administrative ........................ 1,190 690
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Total operating expenses ......................... 7,315 5,113
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Income (loss) from operations ....................... (1,529) (2,830)
Interest income, net ................................ 389 37
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Income (loss) before income taxes ................... (1,140) (2,793)
Income taxes ........................................ (495) -
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Net income (loss) ................................... (1,635) (2,793)
Preferred dividends and accretion ................... (144) (364)
============ ============
Net income (loss) applicable to common shareholders . $(1,779) $(3,157)
============ ============
Basic and diluted earnings (loss) per common share .. $(0.14) $(0.65)
============ ============
Weighted average shares outstanding ................. 12,777,327 4,874,755
============ ============
Pro forma basic and diluted net
loss per common share ............................. $(0.09) $(0.18)
============ ============
Pro forma weighted average
common shares outstanding ......................... 17,788,828 15,480,490
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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VISUAL NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
REDEEMABLE -----------------------------------------------------------------
CONVERTIBLE SERIES A CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------- --------------------------- --------------------- DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION
---------- -------- ------------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997................... 7,228,473 $ 14,855 347,070 $ 3 5,005,140 $ 50 $(247)
Accretion on preferred stock (unaudited). -- 16 -- -- -- -- --
Accrued dividends on preferred stock
(unaudited)............................ -- 125 -- 30 -- -- --
Conversion of preferred stock and payment
of dividend (unaudited)................ (7,228,473) (14,996) (347,070) (33) 10,605,735 106 --
Issuance of common stock (unaudited)..... -- -- -- -- 4,025,000 40 --
Exercise of stock options (unaudited).... -- -- -- -- 182,586 2 --
Amortization of deferred compensation
(unaudited)............................ -- -- -- -- -- -- 12
Net loss (unaudited)..................... -- -- -- -- -- -- --
---------- -------- -------- --- ---------- ---- -----
BALANCE, MARCH 31, 1998 (UNAUDITED).......... -- $ -- -- $-- 19,818,461 $198 $(235)
========== ======== ======== === ========== ==== =====
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
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ADDITIONAL
PAID-IN- ACCUMULATED
CAPITAL DEFICIT TOTAL
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<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1997................... $12,783 $(25,891) $(13,302)
Accretion on preferred stock (unaudited). -- (16) (16)
Accrued dividends on preferred stock
(unaudited)............................ -- (155) (125)
Conversion of preferred stock and payment
of dividend (unaudited)................ 14,923 -- 14,996
Issuance of common stock (unaudited)..... 45,378 -- 45,418
Exercise of stock options (unaudited).... 162 -- 164
Amortization of deferred compensation
(unaudited)............................ -- -- 12
Net loss (unaudited)..................... -- (1,635) (1,635)
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BALANCE, MARCH 31, 1998 (UNAUDITED).......... $73,246 $(27,697) $45,512
======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
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\ Visual Networks, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the three months ended
March 31,
-------------------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) ..................................................... $ (1,635) $(2,793)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization .................................... 478 197
Changes in assets and liabilities--
Accounts receivable .............................................. (47) 198
Inventory ........................................................ (562) 247
Other current assets ............................................. 89 (94)
Accounts payable and accrued expenses ............................ 1,118 1,054
Customer deposits ................................................ (154) -
Accrued compensation ............................................. (753) (274)
Deferred revenue ................................................. 50 764
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Net cash used in operating activities ....................... (1,416) (701)
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Cash flows from investing activities:
Expenditures for property and equipment .......................... (613) (244)
-------- --------
Net cash used in investing activities ....................... (613) (244)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock - option exercises ........ 164 6
Net borrowings (repayments) under credit agreements .............. 679 -
Proceeds from issuance of common stock in initial public offering,
net of offering costs ....................................... 45,447 -
Payment of Series A dividends .................................... (30) -
Principal payments on capital lease obligations .................. (106) (47)
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Net cash provided by (used in) financing activities ......... 46,154 (41)
-------- --------
Net increase (decrease) in cash and cash equivalents .................. 44,125 (986)
Cash and cash equivalents, beginning of period ........................ 8,902 7,551
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Cash and cash equivalents, end of period .............................. $ 53,027 $ 6,565
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Supplemental cash flow information:
Cash paid for interest ................................................ $ 83 $ 28
Cash paid for income taxes ............................................. $ 193 $ -
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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VISUAL NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Visual Networks, Inc. ("Visual" or the "Company") is engaged in developing,
manufacturing and marketing wide-area-network service level management systems.
The Company's operations are subject to certain risks and uncertainties
including, among others, successful implementation of the Company's sales and
distribution model, dependence on a very limited number of significant
customers, rapidly changing technologies, current and potential competitors
with greater financial, technological, production, and marketing resources,
dependence on key management personnel, limited protection of intellectual
property and proprietary rights, integration of its recent acquisition of
Net2Net corporation, uncertainty of future profitability and possible
fluctuations in financial results.
NET2NET ACQUISITION
On May 15, 1998, Visual acquired Net2Net Corporation ("Net2Net") in a
merger transaction accounted for as a pooling of interests. Net2Net is engaged
in developing, manufacturing and marketing Asynchronous Transfer Mode ("ATM")
wide-area-network management and analysis systems. Visual issued 2,056,204
shares of its common stock in exchange for all of the outstanding preferred and
common stock of Net2Net. In addition, outstanding Net2Net stock options were
converted into options to purchase 189,733 shares of Visual common stock. The
accompanying consolidated financial statements have been retroactively restated
to reflect the combined financial position and combined results of operations
and cash flows for all periods presented, giving effect to the acquisition as if
it had occurred at the beginning of the earliest period presented (hereafter,
Visual and Net2Net are collectively referred to as the "Company").
FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
These financial statements are unaudited and have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements, and it is suggested that these
financial statements be read in conjunction with the financial statements, and
the notes thereto, included in the Company's Registration Statement filed on
Form S-1 dated July 2, 1998. In the opinion of management, the comparative
financial statements for the fiscal periods presented herein include all
adjustments that are normal and recurring which are necessary for a fair
statement of the results for the interim periods. The results of operations for
the three months ended March 31, 1998 are not necessarily indicative of the
results for the entire year ending December 31, 1998.
REVENUE RECOGNITION
The Company generally recognizes revenue from sales of its products upon
delivery and passage of title to the customer. Where agreements provide for
evaluation or customer acceptance, the Company recognizes revenue upon
completion of the evaluation process and acceptance of the product by the
customer. Maintenance contracts call for the Company to provide technical
support and software
<PAGE> 6
updates to customers. The Company recognizes product support and maintenance
revenue, including maintenance revenue that is bundled with product sales,
ratably over the term of the contract period, which ranges from one to three
years.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original maturity of
three months or less at the time of purchase to be cash equivalents. As of
March 31, 1998 cash equivalents are currently invested in short-term U.S.
Treasury obligations and repurchase agreements collateralized by U.S. Treasury
securities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of current assets and current liabilities approximate fair
value because of the relatively short maturities of these instruments.
INVENTORY
Inventory is stated at the lower of average cost or market. Inventory consists
of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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<S> <C> <C>
Raw materials................................. $ 479 $ 439
Work-in progress.............................. 1,031 635
Finished goods................................ 2,776 2,650
------------------------------
$4,286 $3,724
</TABLE>
INCOME TAXES
The Company accounts for income taxes in accordance with Statements of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". Under SFAS
No. 109, deferred tax assets and liabilities are computed based on the
difference between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. SFAS No. 109 requires that the
net deferred tax asset be reduced by a valuation allowance if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the net deferred tax asset will not be realized.
NET LOSS PER COMMON SHARE
In March 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires dual presentation of
basic and diluted earnings per share. Basic loss per share includes no dilution
and is computed by dividing net loss available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted loss per share includes the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. Options to purchase 1,463,772 and 2,040,107 shares of common
stock that were outstanding at at March 31, 1997 and 1998 were not included in
the computation of diluted loss per share as their effect would be
anti-dilutive. The effect of preferred stock convertible into 10,605,735 shares
of common stock as of March 31, 1997 was not included in the computation of
diluted loss per share for the three months ended March 31, 1997, as such effect
would have been anti-dilutive. The effect of preferred stock convertible into
10,605,735 shares of common stock outstanding from January 1, 1998 to February
11, 1998 was not included in the computation of diluted loss per share for the
three months ended March 31, 1998 as such effect would have been anti-dilutive.
The effect of the conversion of the preferred stock into 10,605,735 shares of
common stock is included in the computation of both basic and diluted loss per
share from the date of conversion on February 11, 1998. As a result, the basic
and diluted loss per share amounts are identical for all periods presented. Pro
forma basic and diluted weighted average common shares outstanding assumes the
conversion of all of the Company's outstanding convertible preferred stock into
common stock for each period presented.
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(2) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and No. 131, "Disclosures about Segments of an
Enterprise and Related Information." These statements become effective for the
Company's 1998 financial statements. The adoption of these new pronouncements
will not have a material impact on the Company's results of operations,
financial position or cash flows.
(3) INITIAL PUBLIC OFFERING
In February 1998, Visual completed an initial public offering ("IPO") of
4,025,000 shares of the Company's common stock, par value $.01, resulting in net
proceeds of approximately $45.4 million. All of the shares sold were issued and
sold by the Company. Concurrent with the offering, the Series A convertible
preferred stock and its Series B, C, D, and E redeemable convertible preferred
stock were converted into 485,890 and 10,119,845 shares of common stock,
respectively.
