<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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: AUGUST 23, 1996
------------------------
SYNC RESEARCH, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-26952 33-0676350
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification
incorporation or No.)
organization)
</TABLE>
40 PARKER
IRVINE, CALIFORNIA 92618
(714) 588-2070
(Registrant's telephone number, including area code)
7 STUDEBAKER
IRVINE, CALIFORNIA 92718
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The undersigned Registrant hereby amends the following item of its Current
Report on Form 8-K, filed on September 6, 1996. The Registrant is amending Item
7 to include certain required financial statements and pro forma financial
information.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Audited financial statements of the business acquired (TyLink Corporation),
which contain balance sheets as of March 29, 1996 and March 31, 1995 and
statements of operations and cash flows for the periods ending March 29, 1996,
March 31, 1995 and April 1, 1994, are attached hereto and filed herewith.
(b) PRO FORMA FINANCIAL INFORMATION.
The unaudited pro forma combined, condensed financial statements for Sync
Research Inc. and TyLink Corporation (including statements of operations for the
three years ended December 31, 1993, 1994 and 1995 and the six months ended June
30, 1996 and balance sheets as of December 31, 1995 and June 30, 1996) are
attached hereto and filed herewith.
The pro forma combined, condensed financial information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results that would have occurred had the acquisition been consummated at the
beginning of the periods presented, nor is it necessarily indicative of future
operating results.
The pro forma combined, condensed financial information should be read in
conjunction with the audited historical consolidated financial statements and
the related notes thereto of Sync Research, Inc. previously filed and the
audited historical financial statements and related notes thereto of TyLink
Corporation included herein.
(c) EXHIBITS.
11.1 Statement Re: Computation of Net Income (Loss) Per Common Share
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SYNC RESEARCH, INC.
(Registrant)
Dated: November 8, 1996 By: /s/ RONALD J. SCIOSCIA
-----------------------------------------
Ronald J. Scioscia
VICE PRESIDENT OF FINANCE AND
ADMINISTRATION AND CHIEF FINANCIAL OFFICER
(DULY AUTHORIZED AND PRINCIPAL FINANCIAL
AND PRINCIPAL ACCOUNTING OFFICER)
II-1
<PAGE>
TYLINK CORPORATION
FINANCIAL STATEMENTS
MARCH 29, 1996
1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
June 13, 1996, except as to Note 11,
which is as of August 23, 1996
To the Board of Directors and Stockholders of
TyLink Corporation
In our opinion, the accompanying balance sheets and the related statements
of operations, of mandatorily redeemable preferred stock and common
stockholders' deficit and of cash flows present fairly, in all material
respects, the financial position of TyLink Corporation at March 29, 1996 and
March 31, 1995, and the results of its operations and its cash flows for each of
the three years in the period ended March 29, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE, WATERHOUSE LLP
BOSTON, MASSACHUSETTS
2
<PAGE>
TYLINK CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 29, MARCH 31,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 1,708,461 $ 4,290,742
Accounts receivable, less allowance for doubtful accounts of $105,827 and
$145,154, respectively......................................................... 2,415,996 1,707,040
Inventories...................................................................... 1,566,597 2,316,199
Prepaid expenses and other current assets........................................ 85,375 115,184
------------- -------------
Total current assets......................................................... 5,776,429 8,429,165
Property and equipment, net........................................................ 1,015,652 718,554
Deposits and other assets.......................................................... 26,857 19,051
------------- -------------
$ 6,818,938 $ 9,166,770
------------- -------------
------------- -------------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS'
DEFICIT
Current liabilities:
Current portion of long-term debt................................................ $ 139,011 $ 41,238
Accounts payable................................................................. 739,477 719,795
Accrued expenses................................................................. 155,174 121,605
Deferred revenue................................................................. 55,311 102,598
------------- -------------
Total current liabilities.................................................... 1,088,973 985,236
Long-term debt..................................................................... 253,200 37,675
Mandatorily Redeemable Series B Preferred Stock.................................... 5,591,195 4,428,552
Mandatorily Redeemable Series A Preferred Stock.................................... 5,633,378 5,252,671
------------- -------------
12,566,746 10,704,134
------------- -------------
Common stockholders' deficit:
Common stock..................................................................... 92,106 87,831
Additional paid-in capital....................................................... 1,103,747 935,418
Accumulated deficit.............................................................. (6,943,661) (2,560,613)
------------- -------------
Total common stockholders' deficit........................................... (5,747,808) (1,537,364)
------------- -------------
$ 6,818,938 $ 9,166,770
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
TYLINK CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
MARCH 29, MARCH 31, APRIL 1,
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
Net sales:
Products........................................................... $ 11,235,846 $ 10,639,524 $ 7,934,545
Service revenue.................................................... 618,830 820,824 1,228,988
------------- ------------- ------------
11,854,676 11,460,348 9,163,533
Cost of sales........................................................ 6,874,380 5,006,853 3,794,711
------------- ------------- ------------
Gross profit..................................................... 4,980,296 6,453,495 5,368,822
------------- ------------- ------------
Operating expenses:
Product development and engineering expenses....................... 2,252,147 2,125,487 1,398,869
Selling and marketing expenses..................................... 4,380,645 3,000,397 2,081,911
General and administrative expenses................................ 1,302,168 1,089,682 1,154,517
------------- ------------- ------------
Total operating expenses......................................... 7,934,960 6,215,566 4,635,297
------------- ------------- ------------
(Loss) income from operations.................................... (2,954,664) 237,929 733,525
Interest income...................................................... 132,572 44,796 7,902
Interest expense..................................................... (17,606) (15,743) (29,677)
------------- ------------- ------------
(Loss) income before income taxes................................ (2,839,698) 266,982 711,750
(Provision) benefit for income taxes (Note 9)........................ -- (214,000) 46,000
------------- ------------- ------------
(Loss) income before cumulative effect of change in accounting for
income taxes....................................................... (2,839,698) 52,982 757,750
Cumulative effect of change in accounting for income taxes........... -- -- 168,000
------------- ------------- ------------
Net (loss) income.................................................... $ (2,839,698) $ 52,982 $ 925,750
------------- ------------- ------------
------------- ------------- ------------
Earnings/(loss) per Common Share..................................... $ (.49) $ (.15) $ .09
------------- ------------- ------------
------------- ------------- ------------
Average of number of Common Shares................................... 8,879,520 6,603,700 6,695,189
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
TYLINK CORPORATION
STATEMENTS OF MANDATORILY REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS'
DEFICIT
<TABLE>
<CAPTION>
MANDATORILY REDEEMABLE MANDATORILY REDEEMABLE
SERIES A PREFERRED STOCK SERIES B PREFERRED STOCK
------------------------ ------------------------
NUMBER OF NUMBER OF
SHARES PAR VALUE SHARES PAR VALUE
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at April 2, 1993 as restated.... 3,647,220 $ 4,005,454
Stock options exercised................. -- --
Accretion of cumulative dividend and
redemption value of Mandatorily
Redeemable Series A Preferred Stock.... -- 336,486
Net income.............................. -- --
---------- ----------- ---------- -----------
Balance at April 1, 1994................ 3,647,220 4,341,940
Conversion of subordinated debt to
Mandatorily Redeemable Series A
Preferred Stock........................ 537,531 537,531
Stock warrants exercised................ -- --
Stock options exercised................. -- --
Issuance of Mandatorily Redeemable
Series B Preferred Stock............... -- -- 2,540,820 $ 3,789,252
Issuance of Common Stock................ -- -- -- --
Accretion of cumulative dividend and
redemption value of Mandatorily
Redeemable Series A Preferred Stock.... -- 373,200 -- --
Accretion of cumulative dividend and
redemption value of Mandatorily
Redeemable Series B Preferred Stock.... -- -- -- 639,300
Net income.............................. -- -- -- --
---------- ----------- ---------- -----------
Balance at March 31, 1995............... 4,184,751 5,252,671 2,540,820 4,428,552
Stock options exercised................. -- -- -- --
Adjustment of estimated expenses to
actual for fiscal 1995 issuance of
common stock........................... -- -- -- --
Issuance of common stock................ -- -- -- --
Accretion of cumulative dividend and
redemption value of Mandatorily
Redeemable Series A Preferred Stock.... -- 380,707 -- --
Accretion of cumulative dividend and
redemption value of Mandatorily
Redeemable Series B Preferred Stock.... -- -- -- 1,162,643
Net loss................................ -- -- -- --
---------- ----------- ---------- -----------
Balance at March 29, 1996............... 4,184,751 $ 5,633,378 2,540,820 $ 5,591,195
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
<CAPTION>
STOCKHOLDERS' DEFICIT
------------------------------------------------------------------
COMMON STOCK
--------------------- ADDITIONAL TOTAL COMMON
NUMBER OF PAR PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT DEFICIT
---------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at April 2, 1993 as restated.... 5,548,364 $ 55,484 $(2,190,359) $(2,134,875)
Stock options exercised................. 306,770 3,068 -- 3,068
Accretion of cumulative dividend and
redemption value of Mandatorily
Redeemable Series A Preferred Stock.... -- -- (336,486) (336,486)
Net income.............................. -- -- 925,750 925,750
---------- -------- ----------- ------------ -------------
Balance at April 1, 1994................ 5,855,134 58,552 (1,601,095) (1,542,543)
Conversion of subordinated debt to
Mandatorily Redeemable Series A
Preferred Stock........................ -- -- -- --
Stock warrants exercised................ 240,575 2,406 -- 2,406
Stock options exercised................. 146,531 1,465 -- 1,465
Issuance of Mandatorily Redeemable
Series B Preferred Stock............... -- -- -- --
Issuance of Common Stock................ 2,540,820 25,408 $ 935,418 -- 960,826
Accretion of cumulative dividend and
redemption value of Mandatorily
Redeemable Series A Preferred Stock.... -- -- -- (373,200) (373,200)
Accretion of cumulative dividend and
redemption value of Mandatorily
Redeemable Series B Preferred Stock.... -- -- -- (639,300) (639,300)
Net income.............................. -- -- -- 52,982 52,982
---------- -------- ----------- ------------ -------------
Balance at March 31, 1995............... 8,783,060 87,831 935,418 (2,560,613) (1,537,364)
Stock options exercised................. 47,602 775 -- -- 775
Adjustment of estimated expenses to
actual for fiscal 1995 issuance of
common stock........................... -- -- (3,171) -- (3,171)
Issuance of common stock................ 350,000 3,500 171,500 -- 175,000
Accretion of cumulative dividend and
redemption value of Mandatorily
Redeemable Series A Preferred Stock.... -- -- -- (380,707) (380,707)
Accretion of cumulative dividend and
redemption value of Mandatorily
Redeemable Series B Preferred Stock.... -- -- -- (1,162,643) (1,162,643)
Net loss................................ -- -- -- (2,839,698) (2,839,698)
---------- -------- ----------- ------------ -------------
Balance at March 29, 1996............... 9,180,662 $ 92,106 $1,103,747 $(6,943,661) $(5,747,808)
---------- -------- ----------- ------------ -------------
---------- -------- ----------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
TYLINK CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
MARCH 29, MARCH 31, APRIL 1,
1996 1995 1994
------------- ------------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income...................................................... $ (2,839,698) $ 52,982 $ 925,750
Adjustments to reconcile net (loss) income to cash used by operating
activities:
Depreciation......................................................... 208,200 154,806 140,741
Loss on disposal of equipment........................................ -- 31,138 59,300
Provision for doubtful accounts...................................... 39,327 121,000 66,000
Issuance of common stock for consulting services rendered............ 175,000 -- --
Deferred income taxes................................................ -- 214,000 (46,000)
Cumulative effect of change in accounting for income taxes........... -- -- (168,000)
Changes in assets and liabilities:
Accounts receivable.................................................. (748,283) (392,847) (980,321)
Inventories.......................................................... 749,602 (1,349,760) (232,277)
Prepaid expenses and other current assets............................ 29,809 (50,057) (18,963)
Deposits and other assets............................................ (7,806) 4,886 (4,789)
Accounts payable..................................................... 19,682 204,232 273,985
Accrued expenses..................................................... 33,569 (53,730) 120,135
Deferred revenue..................................................... (47,287) 15,638 (147,299)
------------- ------------- -----------
Net cash used by operating activities:................................. (2,387,885) (1,047,712) (11,738)
------------- ------------- -----------
Cash flows from investing activities:
Property and equipment additions..................................... (505,298) (152,667) (99,405)
Proceeds from sale of equipment...................................... -- 3,500 7,890
------------- ------------- -----------
Net cash used by investing activities................................ (505,298) (149,167) (91,515)
------------- ------------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock............................ -- 3,789,252 --
Proceeds from issuance of common stock, net of issuance cost......... (3,171) 960,826 3,068
Net activity under line of credit.................................... 355,497 -- (43,129)
Payments on capital lease obligations................................ (42,199) (39,868) (17,576)
Proceeds from exercise of stock options and warrants................. 775 3,871 --
Proceeds from issuance of subordinated debt.......................... -- -- 506,398
------------- ------------- -----------
Net cash provided by financing activities.............................. 310,902 4,714,081 448,761
------------- ------------- -----------
Net (decrease) increase in cash........................................ (2,582,281) 3,517,202 345,508
Cash and cash equivalents at beginning of year......................... 4,290,742 773,540 428,032
------------- ------------- -----------
Cash and cash equivalents at end of year............................... $ 1,708,461 $ 4,290,742 $ 773,540
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITY:
In fiscal 1995 and 1994, the Company acquired equipment under capital leases
totalling $87,131 and $43,686, respectively. Also in fiscal 1995, the Company
converted subordinated convertible demand notes totaling $506,398 plus accrued
interest totaling $31,133 into Mandatorily Redeemable Series A Preferred Stock
at a price of $1 per share.
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
TYLINK CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
TyLink Corporation (the Company) was incorporated on April 10, 1991 under
the laws of the State of Delaware. The Company is engaged in the development,
manufacture and sale of high-speed communications equipment and is subject to a
number of risks similar to those of other technology-oriented companies.
Principal among these risks are competition from substitute products, larger
competitors and dependence on key individuals.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company recognizes revenue from the sale of products upon shipment to
customers.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk include trade accounts receivable. To minimize the risk, ongoing
evaluations of customers' financial condition are performed. In addition, the
Company maintains reserves for potential uncollectible accounts, and such
losses, in the aggregate, have not exceeded management's expectations.
FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, which include
cash and cash equivalents, accounts receivable and accounts payable, approximate
their fair value at March 29, 1996 and March 31, 1995, respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories, which include materials, labor and manufacturing overhead, are
stated at the lower of cost or market, with cost determined using the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed under
the straight-line method over the estimated useful lives of the assets.
ACCOUNTING FOR INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes which requires the recognition of deferred tax assets and liabilities for
the future tax consequences attributable to differences between the financial
reporting and the tax bases of assets and liabilities. Deferred tax assets are
recognized, net of any valuation allowance, for the estimated future tax effects
of deductible temporary differences and tax credit carryforwards. Deferred tax
expense represents the net change in the deferred tax asset and liability
balances.
7
<PAGE>
TYLINK CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED MAINTENANCE CONTRACT INCOME
Income from prepaid annual maintenance contracts is deferred and recognized
over the lives of the underlying contracts.
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 reported amounts of 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.
STATEMENTS ISSUED BY THE FINANCIAL ACCOUNTING STANDARDS BOARD
In 1995, the Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock-Based Compensation". The Company is required to adopt this
Statement during the fiscal year ending March 28, 1997 and is currently in the
process of determining the impact of the adoption of this Statement on its
financial statements.
EARNINGS/(LOSS) PER COMMON SHARE
Earnings/loss per common share are determined by dividing earnings by the
weighted-average number of common shares outstanding during each year, including
common stock equivalents except when they would have an anti-dilutive effect.
Earnings/loss used in the calculation are reduced by the cumulative dividends
and the accretion to redemption value of the Mandatorily Redeemable Series A and
B Preferred Stock.
3. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
MARCH 29, MARCH 31,
1996 1995
-------------- --------------
<S> <C> <C>
Component parts................................... $ 543,758 $ 521,932
Work-in-process................................... -- 11,756
Finished goods.................................... 1,022,839 1,782,511
-------------- --------------
$ 1,566,597 $ 2,316,199
-------------- --------------
-------------- --------------
</TABLE>
8
<PAGE>
TYLINK CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
MARCH 29, MARCH 31,
1996 1995
-------------- --------------
<S> <C> <C>
Manufacturing equipment........................... $ 787,961 $ 582,083
Office furniture and equipment.................... 694,021 410,661
Leasehold improvements............................ 139,691 123,631
-------------- --------------
1,621,673 1,116,375
-------------- --------------
Less: accumulated amortization and depreciation... 606,021 397,821
-------------- --------------
$ 1,015,652 $ 718,554
-------------- --------------
-------------- --------------
</TABLE>
5. LINE-OF-CREDIT
The Company has a working capital line of credit with a bank in the amount
of the lesser of $750,000 or 75% of eligible accounts receivable, as defined,
which expires on August 15, 1996. Borrowings under the line, which are secured
by a first security interest in substantially all of the assets of the Company,
bear interest at the prime rate plus 1%, payable monthly in arrears. The line of
credit agreement stipulates financial covenant requirements including
profitability, minimum quick ratios and minimum tangible net worth. There was no
outstanding balance at March 29, 1996 or March 31, 1995.
6. LONG-TERM DEBT
The Company has an equipment line of credit with the bank in the amount of
$2,250,000 with respective equipment line notes in an amount not to exceed 80%
of the invoice price of the equipment to be purchased. Borrowings under this
line which are secured by a first security interest in substantially all of the
assets of the Company, bear interest at the prime rate (8.25% at March 29, 1996)
plus 1 1/2%, payable monthly in arrears. All equipment line of credit loans are
repayable in installments in accordance with the terms of the equipment line
note, provided that all such loans mature on August 1, 1999. The line of credit
agreement stipulates financial covenant requirements including profitability,
minimum quick ratios and minimum tangible net worth. At March 29, 1996, the
Company was in violation of the profitability covenant which was waived by the
bank as of that date. The outstanding balance under this agreement totaled
$355,497 at March 29, 1996.
9
<PAGE>
TYLINK CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 29, MARCH 31,
1996 1995
-------------- --------------
<S> <C> <C>
Equipment line of note, payable in 36 equal
monthly principal and interest installments
through January 15, 1999........................ $ 325,165 $ --
Equipment line note, interest only payments with
equal monthly installments of principal and
interest beginning August 15, 1996 through July
15, 1999........................................ 30,332 --
Obligations under capital leases, payable in
monthly installments ranging from approximately
$790 to $2,265 including principal and interest
through September 1997, secured by equipment.... 36,714 78,913
-------------- -------
392,211 78,913
Less: current portion............................. 139,011 41,238
-------------- -------
$ 253,200 $ 37,675
-------------- -------
-------------- -------
</TABLE>
Annual maturities on long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- -------------------------------------------------- --------------
<S> <C>
1997.............................................. $ 139,011
1998.............................................. 144,087
1999.............................................. 105,753
2000.............................................. 3,360
--------------
$ 392,211
--------------
--------------
</TABLE>
7. MANDATORILY REDEEMABLE PREFERRED STOCK
On January 23, 1995, the Company amended its Certificate of Incorporation to
decrease the authorized shares of Preferred Stock, $.01 par value, from
10,000,000 to 6,800,000 shares, to reserve 4,200,000 shares as Mandatorily
Redeemable Series A Preferred Stock, and to designate 2,600,000 shares as
Mandatorily Redeemable Series B Preferred Stock.
At March 29, 1996 and March 31, 1995, there were 4,184,751 Mandatorily
Redeemable Series A Preferred shares, issued and outstanding, which have the
rights, preferences and characteristics described below.
On January 23, 1995, the Company issued 2,540,820 shares of Mandatorily
Redeemable Series B Preferred Stock for proceeds of $1.49135 per share. In
connection with the Series B financing, the Company also issued 2,540,820 shares
of common stock for proceeds of $.50 per share. At March 29, 1996 and March 31,
1995, there were 2,540,820 shares of Mandatorily Redeemable Series B Preferred
Stock outstanding which have the rights, preferences, and characteristics
described below.
10
<PAGE>
TYLINK CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
LIQUIDATION PREFERENCE
MANDATORILY REDEEMABLE SERIES A PREFERRED STOCK
The holders of Mandatorily Redeemable Series A Preferred Stock have a
liquidation preference over common stockholders equal to $1.00 per share, plus
any dividends accrued but not paid.
MANDATORILY REDEEMABLE SERIES B PREFERRED STOCK
The holders of Mandatorily Redeemable Series B Preferred Stock have a
liquidation preference over Mandatorily Redeemable Series A Preferred
Stockholders and common stockholders equal to $1.99135 per share, plus any
dividends accrued but not paid.
CONVERSION
At the option of the holder, each share of Mandatorily Redeemable Series A
Preferred Stock and Mandatorily Redeemable Series B Preferred Stock is
convertible at any time into common stock at a price of $1.00 per share and
$1.49135, respectively, subject to certain anti-dilution provisions.
Mandatorily Redeemable Series A Preferred Stock will be automatically
converted into common stock, at the then applicable conversion price, in the
event of an underwritten public offering of shares of common stock at a price
not less than $4.00 per share, in an offering not less than $15,000,000.
REDEMPTION
If requested at any time by the holders of two-thirds of the shares of
Mandatorily Redeemable Series B Preferred Stock, the Company is required to
redeem all outstanding shares of Preferred Stock for cash, at the liquidation
amount, in three equal annual installments beginning 45 days after the Company's
receipt of the stockholders' request for redemption.
DIVIDENDS
MANDATORILY REDEEMABLE SERIES A PREFERRED STOCK
A cumulative dividend of $0.08 per share per annum will accrue on the
Mandatorily Redeemable Series A Preferred Stock. Such dividends will be payable
only when declared by the Board of Directors or upon liquidation, dissolution or
the redemption of the Preferred Stock and will be paid after the payment of
dividends to the holders of Mandatorily Redeemable Series B Preferred Stock.
Undeclared and unpaid cumulative dividends amounted to approximately $1,490,000
at March 29, 1996 and $1,155,000 at March 31, 1995.
MANDATORILY REDEEMABLE SERIES B PREFERRED STOCK
A cumulative dividend at an annual rate of 16% per annum (based upon the
issue price of $1.49135) will accrue on the Mandatorily Redeemable Series B
Preferred Stock. Such dividends will be payable only when declared by the Board
of Directors or upon liquidation, dissolution or the redemption of the Preferred
Stock and will be paid prior to the payment of any dividends to the holders of
Mandatorily Redeemable Series A Preferred Stock. Undeclared and unpaid
cumulative dividends amounted to approximately $719,000 at March 29, 1996 and
$113,000 at March 31, 1995.
11
<PAGE>
TYLINK CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
VOTING
The holders of Mandatorily Redeemable Series A and Series B Preferred Stock
shall vote together with all other classes of stock as one class with each share
of Preferred Stock entitled to one vote for each share of Common Stock issuable
upon conversion, except that the holders of Mandatorily Redeemable Series A and
Series B Preferred Stock, voting as separate series, shall have the right to
change the number of directors constituting the full Board of Directors.
8. COMMON STOCK
The amended Certificate of Incorporation authorized 20,000,000 shares of
common stock at $.01 par value. At March 29, 1996 and March 31, 1995, there were
9,180,662 and 8,783,060 shares, respectively, issued and outstanding.
At March 29, 1996, there were 265,823 warrants outstanding to purchase one
share of common stock at an exercise price of $.01 per share.
The Company has reserved 3,968,224 shares of common stock for issuance
related to options granted to employees, consultants and directors. The Company
has established the 1994 Equity Incentive Plan (the "Plan"), which amends and
restates the 1991 Equity Incentive Plan. The Plan was established to allow the
issuance of incentive stock options to employees and non-qualified stock options
to consultants and Directors of the Company. Under the Plan, incentive stock
options and non-qualified stock options will be issued at prices not less than
100% and 85%, respectively, of the fair market value of the underlying stock at
the date of the award. Options awarded under this Plan may be exercised over a
term established by the Board of Directors at the time of award and are not
transferable.
Options granted prior to April 1993 may be exercised at a rate of up to 40%
of the number of shares, on and after the first anniversary date of the award,
and at a rate of 7.5% of the shares in each subsequent fiscal quarter. Options
granted on or after April 1993 may be exercised at a rate of up to 25% of the
number of shares, on and after the first anniversary date of the award, and at a
rate of 6.25% of the shares in each subsequent fiscal quarter. At March 29, 1996
options to purchase 2,256,194 shares were outstanding under the plan, of which
1,331,302 were exercisable. There were 580,617 shares available for future grant
under the plan at March 29, 1996.
12
<PAGE>
TYLINK CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. COMMON STOCK (CONTINUED)
The following summarizes all stock option activity under the Plans:
<TABLE>
<CAPTION>
EXERCISE
PRICE
SHARES PER SHARE
---------- ---------
<S> <C> <C>
Options outstanding at April 2, 1993.................................. 1,609,025 .01
Granted............................................................. 384,700 .01
Exercised........................................................... (306,770) .01
Cancelled........................................................... (155,272) --
----------
Options outstanding at April 1, 1994.................................. 1,531,683 .01
Granted............................................................. 657,250 .15-.50
Exercised........................................................... (146,531) .01
Cancelled........................................................... (177,771) --
----------
Options outstanding at March 31, 1995................................. 1,864,631
Granted............................................................. 618,000 .50
Exercised........................................................... (47,602) .01
Cancelled........................................................... (178,835) --
----------
Options outstanding at March 29, 1996................................. 2,256,194
----------
----------
</TABLE>
9. INCOME TAXES
Due to the taxable loss incurred and the availability of net operating
losses, there was no tax provision or benefit recorded in fiscal 1996.
Accordingly, the effective tax rate is zero percent as compared to the federal
statutory rate of 34%. The deferred provision for income taxes consists of
$181,000 for federal and $33,000 for state taxes for the year ended March 31,
1995. The deferred benefit for income taxes consists of $39,000 for federal and
$7,000 for state taxes for the year ended April 1, 1994.
13
<PAGE>
TYLINK CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
MARCH 29, MARCH 31, APRIL 1,
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 1,266,000 $ 278,000 $ 426,000
Accounts receivable................................ 40,000 58,000 26,000
Deferred maintenance contracts..................... 21,000 41,000 35,000
Inventory reserve.................................. 190,000 9,000 23,000
Other.............................................. 53,000 40,000 20,000
------------- ----------- -----------
Total deferred tax assets........................ 1,570,000 426,000 530,000
Valuation allowance.............................. (1,406,000) (317,000) (215,000)
------------- ----------- -----------
Total deferred tax assets less valuation
allowance...................................... 164,000 109,000 315,000
Deferred tax liabilities:
Depreciation....................................... (114,000) (97,000) (89,000)
Operating leases................................... (43,000) (12,000) (12,000)
Other.............................................. (7,000) -- --
------------- ----------- -----------
Total deferred tax liabilities................... (164,000) (109,000) (101,000)
------------- ----------- -----------
Net deferred tax assets.............................. $ -- $ -- $ 214,000
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
A reconciliation between the amount of reported tax expense (benefit) and
the amount computed using the U.S. Federal statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
MARCH 29, MARCH 31, APRIL 1,
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Tax at statutory rate................................ $ (965,497) $ 90,774 $ 241,995
State tax, net of federal benefit.................... (136,509) 9,066 53,175
Other................................................ 13,006 12,160 12,830
------------- ----------- -----------
(1,089,000) 112,000 308,000
Increase (decrease) in valuation allowance........... 1,089,000 102,000 (354,000)
------------- ----------- -----------
Provision (benefit) for income taxes................. $ -- $ 214,000 $ (46,000)
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
An additional valuation allowance of $1,089,000 has been recorded since
realization of the net deferred tax asset is not sufficiently assured at March
29, 1996.
At March 29, 1996, the Company has available unused net operating loss
carryforwards for federal and state income tax purposes, which may reduce future
taxable income, of $3,238,890 and $2,738,608 expiring in fiscal 2007 and 2008,
respectively. Future ownership changes as defined under Section 382 of the
Internal Revenue Code may result in the significant limitation of the future use
of net operating loss carryforwards created prior to the ownership change.
14
<PAGE>
TYLINK CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. PENSION PLAN
The Company has a defined contribution pension plan covering all eligible
employees. The Company matches one-half of up to 3% of pre-tax salary of
eligible employees. The Company match was approximately $36,000, $35,600 and
$28,900 for fiscal 1996, 1995, and 1994, respectively.
11. SUBSEQUENT EVENT
On June 27, 1996, the Company entered into an Agreement and Plan of
Reorganization with Sync Research, Inc. ("Sync") and its wholly-owned subsidiary
SR Acquisition Corp. whereby on August 23, 1996 the Company became a
wholly-owned subsidiary of Sync. At the effective date (August 23, 1996), each
share of the Company's common stock and Mandatorily Redeemable Series A
Preferred Stock issued and outstanding at that date was converted into and
exchanged for .1575735711 shares of Sync common stock. Each share of the
Company's Mandatorily Redeemable Series B Preferred Stock issued and outstanding
at the closing date was converted into and exchanged for .0821296465 shares of
Sync common stock and $1.574294913. In addition, each of the Company's
outstanding and unexercised options were exchanged for an option to purchase
Sync common stock, on the basis of .1575735711 shares of Sync common stock for
each one share of the Company's common stock issuable pursuant to any such
Company option.
15
<PAGE>
SYNC-RESEARCH, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------
SYNC RESEARCH TYLINK
AS OF CORPORATION
DECEMBER 31, AS OF MARCH PRO FORMA PRO FORMA
1995 29, 1996 ADJUSTMENTS COMBINED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents............................ $ 48,925 $ 1,708 $ (4,000)(E) $ 46,633
Accounts receivable (less allowance for doubtful
accounts).......................................... 5,462 2,416 (75)(C) 7,803
Inventories............................................ 3,689 1,567 -- 5,256
Prepaid expenses and other current assets.............. 304 85 -- 389
------------- ------------- ------------- -------------
Total current assets............................. 58,380 5,776 (4,075) 60,081
Furniture, fixtures and equipment, at cost............. 2,599 1,622 -- 4,221
Less accumulated depreciation and amortization......... (1,376) (606) -- (1,982)
------------- ------------- ------------- -------------
Furniture, fixtures and equipment, net........... 1,223 1,016 -- 2,239
Note receivable from officer........................... 315 -- -- 315
Other assets........................................... 10 27 -- 37
------------- ------------- ------------- -------------
$ 59,928 $ 6,819 $ (4,075) $ 62,672
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 3,746 $ 740 $ -- $ 4,486
Accrued compensation and benefits.................... 639 130 -- 769
Other accrued liabilities............................ 218 25 1,300(D) 1,543
Deferred revenue..................................... 90 55 -- 145
Current maturities of capitalized lease obligations
and long-term debt................................. 37 139 -- 176
------------- ------------- ------------- -------------
Total current liabilities........................ 4,730 1,089 1,300 7,119
Capitalized lease obligations and long-term debt, less
current maturities................................... 145 253 398
Series A redeemable preferred stock.................... -- 5,634 (5,634)(E) --
Series B redeemable preferred stock.................... -- 5,591 (5,591)(E) --
Common stockholders' equity:
Common stock......................................... 14 92 (90)(E) 16
Additional paid-in capital........................... 63,050 1,104 5,866(E) 70,020
Deferred compensation................................ (421) -- (421)
Accumulated deficit.................................. (7,590) (6,944) 74(C,D) (14,460)
------------- ------------- ------------- -------------
Total common stockholders' equity................ 55,053 5,477 5,850 55,155
------------- ------------- ------------- -------------
$ 59,928 $ 6,819 $ (4,075) $ 62,672
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
16
<PAGE>
SYNC-RESEARCH, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------
TYLINK PRO FORMA PRO FORMA
SYNC RESEARCH CORPORATION ADJUSTMENTS COMBINED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents.............................. $ 30,041 $ 1,731 $ (4,000)(E) $ 27,772
Short-term investments................................. 11,757 -- -- 11,757
Accounts receivable (less allowance for doubtful
accounts)............................................ 6,286 3,057 -- 9,343
Inventories.............................................. 4,565 1,495 -- 6,060
Prepaid expenses and other current assets................ 657 113 (75)(C) 695
------------- ------------- ------------- -------------
Total current assets............................... 53,306 6,396 (4,075) 55,627
Furniture, fixtures and equipment, at cost............... 3,547 1,773 -- 5,320
Less accumulated depreciation and amortization........... (1,739) (670) -- (2,409)
------------- ------------- ------------- -------------
Furniture, fixtures and equipment, net................. 1,808 1,103 -- 2,911
Note receivable from officer............................. 317 -- -- 317
Other assets............................................. 44 -- -- 44
------------- ------------- ------------- -------------
$ 55,475 $ 7,499 $ (4,075) $ 58,899
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 2,066 $ 1,366 $ -- $ 3,432
Accrued compensation and benefits...................... 633 100 -- 733
Other accrued liabilities.............................. 318 -- 1,300(D) 1,618
Deferred revenue....................................... 77 46 -- 123
Current maturities of capitalized lease obligations and
long-term debt....................................... 40 601 -- 641
------------- ------------- ------------- -------------
Total current liabilities................................ 3,134 2,113 1,300 6,547
Capitalized lease obligations and long-term debt, less
current maturities...................................... 155 253 -- 408
Series A redeemable preferred stock...................... -- 5,724 (5,724)(E) --
Series B redeemable preferred stock...................... -- 6,124 (6,124)(E) --
Common stockholders' equity:
Common stock........................................... 14 92 (90)(E) 16
Additional paid-in capital............................. 63,110 1,104 6,399(E) 70,613
Deferred compensation.................................. (246) -- -- (246)
Accumulated deficit.................................... (10,692) (7,911) 164(C,E) (18,439)
------------- ------------- ------------- -------------
Total common stockholders' equity........................ 52,186 (6,715) 6,473 51,944
------------- ------------- ------------- -------------
$ 55,475 $ 7,499 $ (4,075) $ 58,899
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
17
<PAGE>
SYNC-RESEARCH, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------
TYLINK
SYNC RESEARCH CORPORATION
YEAR ENDED YEAR ENDED PRO FORMA
DECEMBER 31, MARCH 29, ----------------------------------
1995 1996 ADJUSTMENTS COMBINED
------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
Net sales............................... $ 23,153 $ 11,855 -- $ 35,008
Operating costs and expenses............ 22,529 14,810 -- 37,339
------------- ------------- --- -------------
Operating income (loss)................. 624 (2,955) -- (2,331)
Other income............................ 346 115 (240)(F) 221
------------- ------------- --- -------------
Income (loss) before income taxes....... 970 (2,840) (240) (2,110)
Provision for income taxes.............. 45 -- -- 45
------------- ------------- --- -------------
Net income (loss)....................... $ 925 $ (2,840) (240) $ (2,155)
------------- ------------- --- -------------
------------- ------------- --- -------------
Net income (loss) per share............. $ 0.07 $ (0.49) $ (0.15)
------------- ------------- -------------
------------- ------------- -------------
Shares used in per share calculation.... 13,391 8,880 14,658
------------- ------------- -------------
------------- ------------- -------------
Supplemental net loss per share......... $ (0.21)
-------------
-------------
Number of shares used on supplemental
net loss per share calculation........ 14,449
-------------
-------------
<CAPTION>
HISTORICAL
-------------------------------
TYLINK
SYNC RESEARCH CORPORATION
YEAR ENDED YEAR ENDED PRO FORMA
DECEMBER 31, MARCH 31, ----------------------------------
1994 1995 ADJUSTMENTS COMBINED
------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
Net sales............................... $ 11,855 $ 11,460 -- $ 23,315
Operating costs and expenses............ 13,283 11,222 -- 24,505
------------- ------------- --- -------------
Operating income (loss)................. (1,428) 238 -- (1,190)
Other income............................ 45 29 (43)(F) 31
------------- ------------- --- -------------
Income (loss) before income taxes....... (1,383) 267 (43) (1,159)
Provision for income taxes.............. 1 214 -- 215
------------- ------------- --- -------------
Net income (loss)....................... $ (1,384) $ 53 (43) $ (1,374)
------------- ------------- --- -------------
------------- ------------- --- -------------
Net loss per share...................... $ (0.12) $ (0.15) $ (0.10)
------------- ------------- -------------
------------- ------------- -------------
Shares used in per share calculation.... 11,572 6,604 13,306
------------- ------------- -------------
------------- ------------- -------------
Supplemental net loss per share......... $ (0.15)
-------------
-------------
Number of shares used on supplemental
net loss per share calculation........ 13,267
-------------
-------------
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
18
<PAGE>
SYNC-RESEARCH, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------
SYNC RESEARCH TYLINK
YEAR ENDED CORPORATION PRO FORMA
DECEMBER 31, YEAR ENDED -------------------------------
1993 APRIL 1, 1994 ADJUSTMENTS COMBINED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales............................... $ 9,661 $ 9,164 -- $ 18,825
Operating costs and expenses............ 14,920 8,335 -- 23,255
------------- ------------- ----- -------------
Operating income (loss)................. (5,259) 829 -- (4,430)
Other income (expense).................. 17 (117) -- (100)
------------- ------------- ----- -------------
Income (loss) before income taxes....... (5,242) 712 -- (4,530)
Provision for (benefit from) income
taxes................................. 2 (214) -- 212
------------- ------------- ----- -------------
Net income (loss)....................... $ (5,244) $ 926 -- $ (4,318)
------------- ------------- ----- -------------
------------- ------------- ----- -------------
Net loss per share...................... $ (1.24) $ (0.09) $ (0.72)
------------- ------------- -------------
------------- ------------- -------------
Shares used in per share calculation.... 4,214 6,695 6,013
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
HISTORICAL
-------------------------------
SIX MONTHS
ENDED JUNE 30, 1996
------------------------------- PRO FORMA
TYLINK -------------------------------
SYNC RESEARCH CORPORATION ADJUSTMENTS COMBINED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales............................... $ 10,079 $ 6,660 $ (75)(C) $ 16,664
Operating costs and expenses............ 14,401 7,582 -- 21,983
------------- ------------- ----- -------------
Operating income (loss)................. (4,222) (922) (75) (5,319)
Other income............................ 1,221 14 (120)(F) 1,115
------------- ------------- ----- -------------
Net loss................................ $ (3,101) $ (908) $ (195) $ (4,204)
------------- ------------- ----- -------------
------------- ------------- ----- -------------
Net income (loss) per share............. $ (0.22) $ (0.15) $ (0.26)
------------- ------------- -------------
------------- ------------- -------------
Shares used in per share calculation.... 13,904 9,300 16,218
------------- ------------- -------------
------------- ------------- -------------
Supplemental net loss per share......... $ (0.29)
-------------
-------------
Number of shares used in supplemental
net loss per share calculation........ 16,010
-------------
-------------
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
19
<PAGE>
SYNC-RESEARCH, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
On June 27, 1996, Sync Research, Inc. (Sync), SR Acquisition Corp, a wholly
owned subsidiary of Sync, and TyLink Corporation entered into an Agreement and
Plan of Reorganization (the Agreement). Pursuant to the Agreement (which became
effective on August 23, 1996) all outstanding shares of TyLink's Series A
redeemable preferred and common stock were exchanged for newly issued shares of
Sync common stock. In addition, Sync purchased all of the outstanding TyLink
Series B preferred stock for $4 million cash plus a sufficient number of shares
of Sync common stock which together have aggregate value equal to the
liquidation value of the TyLink Series B preferred stock. The number of shares
of Sync common stock to be issued or reserved for in exchange of all TyLink
stock and options is 2,780,000. The unaudited pro forma condensed combined
financial statements have been prepared by combining the historical balances of
Sync Research, Inc. (Sync) and TyLink Corporation (TyLink) on a pooling of
interests basis. The following notes describe the adjustments and other items
relevant to the pro forma combined condensed financial statements.
A. ACCOUNTING PERIODS
The results of operations for TyLink included in the unaudited pro forma
combined condensed statements of operations for the three years ended December
31, 1993, 1994 and 1995 were derived from TyLink's financial statements for the
three fiscal years ended March 31, 1994, 1995 and 1996. Accordingly, TyLink's
results of operations for the three months ended March 31, 1996 have been
included in the accompanying pro forma combined results of operations for the
year ended December 31, 1995 and the six months ended June 30, 1996. During the
three months ended March 31, 1996, TyLink's revenues and net loss were
$3,075,000 and $713,000, respectively. The duplicative effect of such loss will
result in an adjustment to retained earnings in the historical consolidated
financial statements during the year ending December 31, 1996.
If TyLink's operating results for the twelve months ended December 31, 1995
had been used in preparing the unaudited pro forma combined condensed statements
of operations for the year ended December 31, 1995, pro forma revenues and net
loss would have been $34,354,000 and $1,502,000, respectively.
B. RESTRUCTURING AND INTEGRATION COSTS
Sync anticipates that TyLink will continue to operate as an autonomous unit
with integration activities focused on the restructuring and consolidation of
TyLink's administrative and support functions with those of Sync. Sync expects
to incur certain expenses in connection with the restructuring and
consolidation, primarily the cost of reducing personnel. In addition, Sync
anticipates ultimate integration activities will result in increased
efficiencies and lower operating costs. These expenses and related efficiency
cost savings are not currently estimable with a reasonable degree of accuracy.
Accordingly, they are not reflected in the unaudited pro forma combined
condensed financial statements.
C. INTERCOMPANY TRANSACTIONS
The only significant transaction between Sync and TyLink was a software
licensing arrangement entered into in March 1996 which was capitalized in other
current assets by Sync. The unaudited pro forma combined condensed financial
statements reflect the adjustment necessary to eliminate this transaction.
20
<PAGE>
SYNC-RESEARCH, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
D. PRO FORMA COMBINED BALANCE SHEET
Sync and TyLink estimate they will incur direct transaction costs of
approximately $1,300,000 associated with the merger consisting of transaction
fees for investment bankers, attorneys, accountants, financial printing and
other related charges. These nonrecurring transaction costs will be charged to
operations as incurred. The Pro Forma Condensed Balance Sheet gives effect to
the estimated direct transaction costs as if they had been incurred as of
December 31, 1995 and June 30, 1996, respectively. These direct costs are not
reflected in the accompanying Pro Forma Statements of Operations.
E. STOCKHOLDERS EQUITY
The exchange ratios have been computed in accordance with the Agreement. The
Agreement specifies that all of TyLink's outstanding Series A redeemable
preferred and common stock plus outstanding stock options will be exchanged for
shares of or options for Sync common stock. In addition, Sync agreed to purchase
all of the outstanding TyLink Series B preferred stock for $4 million cash plus
shares of Sync common stock, which together have an aggregate value equal to the
liquidation preference of the Series B preferred stock. The remaining Sync
shares will be allocated between the TyLink Series A preferred, common and
option holders. The number of shares of Sync common stock to be issued or
reserved for in exchange of all TyLink stock and options is 2,780,000. The
unaudited pro forma condensed combined balance sheet at December 31, 1995 and
June 30, 1996 reflects the following adjustments to stockholders' equity:
Common stock has been adjusted to reflect the issuance of 1,488,762 shares
of Sync common stock with a par value of $.001 in exchange for 9,448,045 issued
and outstanding shares of TyLink common stock.
Series A preferred stock has been adjusted to reflect the conversion of
4,184,751 of such issued and outstanding shares into 659,406 shares of Sync
common stock and the elimination of the related dividend accretion since the
issuance of such stock.
Series B preferred stock has been adjusted to reflect the purchase of
2,540,820 of such issued and outstanding shares for $4,000,000 and 208,677
shares of Sync common stock by Sync.
In addition, 423,155 shares of Sync common stock have been reserved for
issuance to holders of TyLink stock options which have been assumed by Sync at a
conversion price of .1575735711 per TyLink share of common stock.
F. EARNINGS PER SHARE
The pro forma combined weighted average common share amounts reflected in
the unaudited pro forma combined condensed statements of operations represent
the aggregate of the historical weighted average common shares of Sync, the
historical weighted average common shares of TyLink, and the historical weighted
average Series A preferred stock of TyLink adjusted to reflect the exchange
ratios described in Note E. The TyLink Series B stock has been assumed to be
converted into cash and Sync common stock as described in Note E. The combined
net loss for the periods presented have been adjusted to reflect the loss of
interest income or incurrence of interest expense (estimated at 6% per year)
associated with the purchase of the series B preferred stock assuming such
transaction occurred at the beginning of each respective period as such shares
were outstanding.
21
<PAGE>
SYNC-RESEARCH, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
F. EARNINGS PER SHARE (CONTINUED)
The supplemental net loss per share for the periods presented do not assume
the Series B exchange occurred and instead, includes the accretion of Series B
preferred stock redemption value and cumulative dividends. The weighted average
common share amounts used in the supplemental net loss per share computations
assume only the exchange of TyLink common stock, Series A preferred stock and
stock options for Sync common stock and stock options at the beginning of the
periods presented.
22
<PAGE>
EXHIBIT 11.1
TYLINK CORPORATION
STATEMENT RE: COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
MARCH 29, MARCH 31, APRIL 1,
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Net income (loss)...................................................... $ (2,839,698) $ 52,982 $ 925,750
Accretion of Mandatorily Redeemable Series A Preferred Stock and
cumulative dividend................................................ (390,707) (373,200) (336,486)
Accretion of Mandatorily Redeemable Series B Preferred Stock and
cumulative dividend................................................ (1,162,643) (639,300)
------------- ------------ ------------
Net income (loss) attributable to common stockholders.................. (4,383,048) (959,518) (589,264)
------------- ------------ ------------
------------- ------------ ------------
Weighted average common shares outstanding:
a. Shares attributable to common stock outstanding.................. 8,879,520 6,603,700 5,769,405
b. Shares attributable to common stock options and warrants pursuant
to APB 15........................................................ 925,781
------------- ------------ ------------
Weighted average common shares outstanding............................. 8,879,520 6,603,700 5,695,189
------------- ------------ ------------
------------- ------------ ------------
Net income (loss) per share............................................ $ (0.49) $ (0.15) $ 0.09
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
