<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 17, 1997
COMMISSION FILE NUMBER 0-27130
NETWORK APPLIANCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
CALIFORNIA 77-0307520
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
2770 SAN TOMAS EXPRESSWAY, SANTA CLARA, CALIFORNIA 95051
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (408) 367-3000
319 BERNARDO AVE., MOUNTAIN VIEW, CA 94043
Former name or former address, if changed since last report
<PAGE> 2
This report amends the Registrant's report on Form 8-K, initially
filed on March 28, 1997, to provide financial statements of Internet Middleware
Corporation ("IMC") and to provide pro forma condensed combined financial
information not previously available.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Pursuant to paragraph (a)(4) of Item 7 of Form 8-K, the
following financial statements were omitted from disclosure contained
in the Registrant's Current Report on Form 8-K filed on March 28, 1997
but are filed herewith:
Audited balance sheet of IMC as of December 31, 1996, the
related audited statements of operations, shareholders' deficiency and
cash flows for the period from inception (May 6, 1996) to December 31,
1996 and a signed report of Deloitte & Touche LLP with respect to
such financial statements, which are attached as Exhibit 99.2 hereto.
(b) Pro Forma Financial Information
Pursuant to paragraph (b)(2) of Item 7, the unaudited pro forma
condensed combined balance sheet of the Registrant and IMC as of
January 24, 1997 and the unaudited pro forma condensed combined
statements of operations for the fiscal year ended April 30, 1996 and
for the nine months ended January 24, 1997 are attached as Exhibit 99.3
hereto. The unaudited pro forma condensed combined financial
statements give effect to the merger of the Registrant and IMC on a
purchase accounting basis. The pro forma condensed combined balance
sheet assumes the merger took place on January 24, 1997 and combines
the January 24, 1997 balance sheet of the Registrant with the January
31, 1997 balance sheet of IMC. The pro forma condensed combined
statement of operations for the fiscal year ended April 30, 1996
assumes the merger took place as of the beginning of the fiscal year
and combines the Registrant's historical results for the fiscal year
ended April 30, 1996 (for which period IMC was not in operation) with
pro forma adjustments. The pro forma condensed combined statement of
operations for the nine months ended January 24, 1997 assumes the
merger took place as of the beginning of the most recently completed
fiscal year and combines the Registrant's historical results for the
nine months ended January 24, 1997 with the historical results of IMC
for the period from inception (May 6, 1996) to January 31, 1997.
The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred had the
acquisition of IMC by the Registrant been consummated at the beginning
of the periods presented, nor is it necessarily indicative of future
operating results or financial position. These pro forma financial
statements are based on and should be read in conjunction with the
historical consolidated financial statements and the related notes
thereto of the Registrant and IMC.
2
<PAGE> 3
(a) Exhibits
2.1+ Agreement and Plan of Reorganization, dated as of March 17,
1997, between the Registrant and IMC, a California corporation.
2.2+ Agreement of Merger between the Registrant and IMC as filed
with the California Secretary of State on March 17, 1997.
2.3+ Stock Option Agreement between the Registrant and certain
former employees of IMC.
23.1 Consent of Deloitte & Touche LLP.
99.1+ Press release of the Registrant, dated March 17, 1997,
announcing the completion of the Registrant's acquisition of
IMC.
99.2 Audited balance sheet of IMC as of December 31, 1996, the
related audited statements of operations, shareholders'
deficiency and cash flows for the period from inception
(May 6, 1996) to December 31, 1996 and a signed report of
Deloitte & Touche LLP with respect to such financial
statements.
99.3 Unaudited pro forma condensed combined balance sheet of the
Registrant and IMC as of January 24, 1997 and the unaudited pro
forma condensed combined statements of operations of the
Registrant and IMC for the fiscal year ended April 30, 1996 and
for the nine months ended January 24, 1997.
+ Previously filed
3
<PAGE> 4
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 hereunto duly authorized.
NETWORK APPLIANCE, INC.
Dated: April 15, 1997 By: /s/ JEFFRY R. ALLEN
___________________________
Jeffry R. Allen, Vice
President Finance and
Operations,
Chief Financial Officer
(Principal Financial Officer)
4
<PAGE> 5
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
2.1+ Agreement and Plan of Reorganization, dated as of March 17,
1997, between the Registrant and IMC, a California corporation.
2.2+ Agreement of Merger between the Registrant and IMC as filed
with the California Secretary of State on March 17, 1997.
2.3+ Stock Option Agreement between the Registrant and certain
former employees of IMC.
23.1 Consent of Deloitte & Touche LLP.
99.1+ Press release of the Registrant, dated March 17, 1997,
announcing the completion of the Registrant's acquisition of
IMC.
99.2 Audited balance sheet of IMC as of December 31, 1996, the
related audited statements of operations, shareholders'
deficiency and cash flows for the period from inception
(May 6, 1996) to December 31, 1996 and a signed report of
Deloitte & Touche LLP with respect to such financial
statements.
99.3 Unaudited pro forma condensed combined balance sheet of the
Registrant and IMC as of January 24, 1997 and the unaudited pro
forma condensed combined statements of operations of the
Registrant and IMC for the fiscal year ended April 30, 1996 and
for the nine months ended January 24, 1997.
+ Previously filed
5
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration No.
33-99638 of Network Appliance, Inc. on Form S-8 of our report dated April 7,
1997 on the financial statements of Internet Middleware Corporation for the
period ended December 31, 1996 appearing in this Report on Form 8-K/A of
Network Appliance, Inc.
/s/ Deloitte & Touche LLP
San Jose, California
April 14, 1997
<PAGE> 1
EXHIBIT 99.2
INTERNET MIDDLEWARE CORPORATION
FINANCIAL STATEMENTS FOR THE PERIOD FROM
MAY 6, 1996 (INCEPTION) TO DECEMBER 31, 1996
AND INDEPENDENT AUDITORS' REPORT
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Internet Middleware Corporation:
We have audited the accompanying balance sheet of Internet Middleware
Corporation as of December 31, 1996 and the related statements of operations,
shareholders' deficiency and cash flows for the period from May 6, 1996
(inception) to December 31, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Internet Middleware Corporation at December
31, 1996, and the results of its operations and its cash flows for the
above-stated period then ended, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
San Jose, California
April 7, 1997
<PAGE> 3
INTERNET MIDDLEWARE CORPORATION
<TABLE>
<CAPTION>
BALANCE SHEET
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable $ 35,390
Other current assets 2,473
---------
Total current assets 37,863
PROPERTY AND EQUIPMENT, Net 50,282
---------
TOTAL $ 88,145
=========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Cash overdraft $ 4,606
Accounts payable 114,572
Accrued payroll and related expenses 107,974
Other accrued expenses 83,786
Notes payable to shareholders 155,000
---------
Total current liabilities 465,938
---------
SHAREHOLDERS' DEFICIENCY:
Common stock, no par value; 25,000,000 shares authorized;
4,992,500 outstanding 1,000
Accumulated deficit (378,793)
---------
Total shareholders' deficiency (377,793)
---------
TOTAL $ 88,145
=========
</TABLE>
See notes to financial statements.
-2-
<PAGE> 4
INTERNET MIDDLEWARE CORPORATION
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
PERIOD FROM MAY 6, 1996 (INCEPTION) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
NET LICENSE REVENUES $ 211,481
---------
COSTS AND EXPENSES:
Cost of license revenues 10,924
Research and development 314,721
General and administrative 230,212
Sales and marketing 31,579
---------
Total costs and expenses 587,436
---------
OPERATING LOSS (375,955)
INTEREST INCOME 362
---------
LOSS BEFORE INCOME TAXES (375,593)
PROVISION FOR INCOME TAXES 3,200
---------
NET LOSS $(378,793)
=========
</TABLE>
See notes to financial statements.
-3-
<PAGE> 5
INTERNET MIDDLEWARE CORPORATION
STATEMENT OF SHAREHOLDERS' DEFICIENCY
PERIOD FROM MAY 6, 1996 (INCEPTION) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Total
-------------------------- Accumulated Shareholders'
Shares Amount Deficit Deficiency
<S> <C> <C> <C> <C>
BALANCES, May 6, 1996 -- $ -- $ -- $ --
Issuance of common stock 4,992,500 1,000 -- 1,000
Net loss -- -- (378,793) (378,793)
--------- --------- --------- ---------
BALANCES, December 31, 1996 4,992,500 $ 1,000 $(378,793) $(377,793)
========= ========= ========= =========
</TABLE>
See notes to financial statements.
-4-
<PAGE> 6
INTERNET MIDDLEWARE CORPORATION
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
PERIOD FROM MAY 6, 1996 (INCEPTION) TO DECEMBER 31, 1996
- ------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(378,793)
Reconciliation of net loss to net cash used in operating activities:
Depreciation 8,001
Changes in operating assets and liabilities:
Accounts receivable (35,390)
Other current assets (2,473)
Accounts payable 114,572
Accrued payroll and related expenses 107,974
Other accrued expenses 67,928
---------
Net cash used in operating activities (118,181)
---------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (42,425)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,000
Issuance of notes payable to shareholders 155,000
---------
Net cash provided by financing activities 156,000
---------
NET CHANGE IN CASH (4,606)
CASH, Beginning of period --
---------
CASH (OVERDRAFT), End of period $ (4,606)
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid for income taxes $ 2,400
=========
SUPPLEMENTAL NONCASH INVESTING ACTIVITIES -
Exchange of services for fixed assets $ 15,858
=========
</TABLE>
See notes to financial statements.
-5-
<PAGE> 7
INTERNET MIDDLEWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM MAY 6, 1996 (INCEPTION) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business - Internet Middleware Corporation
(the Company) was incorporated as a California corporation on May 6, 1996
under the name Netspeed. During 1996, the Company changed its name to
Internet Middleware Corporation. The Company designs, markets and
distributes software for Internet applications which increases the
effectiveness of connection bandwidths. The Company's product is primarily
sold to the Internet service providers and companies which have
connections to the Internet or internal intranets, and its business is
dependent on the growth of the Internet.
FINANCIAL STATEMENT 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 and 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. Such
estimates include the estimated useful life of fixed assets and certain
accrued liabilities. Actual results could differ from those estimates.
The Company participates in a dynamic high technology industry and
believes that changes in any of the following areas, among others, could
have a material adverse affect on the Company's future financial position
or results of operations: market demand for products under development by
the Company, increased competition, the development of new technologies
and the ability to attract and retain employees necessary to support its
growth.
CONCENTRATION OF CREDIT RISK - The Company primarily sells its product to
Internet service providers and other companies in the United States,
Europe and Asia. The Company generally does not require collateral for
sales on credit.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is computed on a straight-line basis over the estimated
useful lives of three years.
SOFTWARE DEVELOPMENT COSTS - The Company capitalizes eligible software
development costs, which include software enhancement costs, upon
establishment of technological feasibility, which occurs upon the
completion of a working model. Costs which were eligible for
capitalization during the period were insignificant, and thus the Company
has charged all software development costs to research and development
expense in the accompanying statement of operations.
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."
REVENUE RECOGNITION - Revenues from software sales through license
arrangements are recognized upon shipment of the product and fulfillment
of acceptance terms, if any, and when no significant contractual
obligations remain outstanding. Maintenance revenue is deferred and
recognized ratably over the term of the maintenance agreement, which is
typically one year, and was not significant during the period.
INCOME TAXES - The Company accounts for income taxes under an asset and
liability approach for financial accounting and reporting of income taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and net
operating loss and tax credit carryforwards.
-6-
<PAGE> 8
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Computers and equipment $ 55,892
Furniture and fixtures 2,391
--------
58,283
Accumulated depreciation (8,001)
--------
$ 50,282
========
</TABLE>
3. SHAREHOLDERS' DEFICIENCY
COMMON STOCK
The Company issued common stock to employees pursuant to a restricted
stock purchase agreement. Under the agreement, one-fourth of the shares
shall be released from the Company's repurchase option after one year and
one forty-eighth each month thereafter. In the event that the employee is
terminated by the Company at any time during the vesting period for any
reason, the Company has the option to repurchase, at the original purchase
price, any unvested shares as of the date of termination. In the event of
a change in control of the Company, 2,681,000 of the unvested shares will
be immediately released from the repurchase option; and in the event of a
change in control of the Company and constructive termination, an
additional 2,305,000 of unvested shares will be immediately released from
the repurchase option. As of December 31, 1996, approximately 4,986,000
shares of common stock are subject to this repurchase right.
STOCK SPLIT
On June 4, 1996, the Company's common stock was split 500 for 1. All
references to shares of common stock in these financial statements have
been retroactively adjusted to reflect the stock split.
STOCK-BASED COMPENSATION
Under the Company's 1996 Long-Term Incentive Plan (the Plan), the Company
may grant up to 10,000,000 shares of common stock and equity incentives to
employees and consultants in the form of stock options, stock appreciation
rights, restricted stock awards, stock purchase rights and performance
share awards.
Stock options can be granted at prices not less than fair market value at
date of grant for incentive stock options and not less than 10% of fair
market value for nonstatutory stock options. The incentive stock options
and nonstatutory stock options expire 10 years and 11 years from the date
of grant, respectively. The vesting period of options granted are
determined by the Board and set forth in the individual stock option
agreements. The vesting period is generally over a four-year period with
25% vesting one year from the date of grant and monthly vesting
thereafter.
-7-
<PAGE> 9
Stock option activity under the plan is summarized as follows:
<TABLE>
<CAPTION>
Outstanding Options
----------------------
Weighted
Average
Shares Number of Exercise
Available Shares Price
--------- --------- ---------
<S> <C> <C> <C>
Balances, May 6, 1996 -- -- $ --
Shares subject to the Plan 10,000,000
Granted (weighted average fair value of $.03) (424,290) 424,290 $ 0.10
--------- ---------
Balances, December 31, 1996 9,575,710 424,290 $ 0.10
========= =========
</TABLE>
The 424,290 options outstanding as of December 31, 1996 are exercisable at
$0.10 per share and have a weighted average remaining contractual life of
9.7 years. None of the outstanding options were exercisable at December
31, 1996.
Additional Stock Plan Information
As discussed in Note 1, the Company continues to account for its
stock-based awards using the intrinsic value method in accordance with
Accounting Principles Board No. 25, "Accounting for Stock Issued to
Employees," and its related interpretations. Accordingly, no compensation
expense has been recognized in the financial statements for employee stock
arrangements.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), requires the disclosure of pro forma
net income had the Company adopted the fair value method as of the
beginning of the period ended December 31, 1996. Under SFAS 123, the fair
value of stock-based awards to employees is calculated through the use of
option pricing models, even though such models were developed to estimate
the fair value of freely tradable, fully transferable options without
vesting restrictions, which significantly differ from the Company's stock
option awards. These models also require subjective assumptions, including
future stock price volatility and expected time to exercise, which greatly
affect the calculated values. The Company's calculations were made using
the Black-Scholes option pricing method with the following weighted
average assumptions: expected life, five years from the date of grant;
volatility, 0%; risk-free interest rates, 6%; and no dividends during the
expected term. The Company's calculations are based on a single option
valuation approach, and forfeitures are recognized as they occur. If the
computed fair values of the 1996 awards had been amortized to expense over
the vesting period of the awards, pro forma net loss would have been
approximately $380,000.
4. INCOME TAXES
The Company's 1996 income tax provision consists of the minimum tax
payment for California state tax purposes and foreign withholding tax of
$2,400.
Significant components of the Company's deferred tax asset at December 31,
1996 include reserves and accruals not currently deductible, net operating
loss carryforwards and tax credit carryforwards. The Company has evaluated
the likelihood of realization of such deferred tax assets and has
determined that it is more likely than not that future benefits from the
deferred tax assets will not be realized. As a result, the Company has
provided a full valuation allowance against the deferred tax assets at
December 31, 1996 of approximately $174,000.
-8-
<PAGE> 10
The Company has approximately $10,000 as of available tax credits and
approximately $180,000 of net operating loss carryforwards for California
income tax purposes which are available through 2001. The Company also has
approximately $24,000 of available tax credits and approximately $360,000
of net operating loss carryforwards for federal income tax purposes which
are available through 2011.
The Tax Reform Act of 1986 and California Conformity Act of 1987 impose
substantial restrictions on the utilization of net operating loss and tax
credit carryforwards in the event of an "ownership change," as defined by
the Internal Revenue Code. Any such ownership change could significantly
limit the Company's ability to utilize its tax carryforwards.
5. RELATED PARTY TRANSACTIONS
At December 31, 1996, the Company has notes payable to shareholders of
$155,000. Such notes are payable upon demand and bear no interest.
6. MAJOR CUSTOMERS
In 1996, license revenue from three customers accounted for 33%, 15% and
11% of total net license revenues. At December 31, 1996, two customers
accounted for 47% and 19% of the accounts receivable balance.
7. SUBSEQUENT EVENT
On March 17, 1997, the Company entered into a definitive Agreement and
Plan for Merger (the Merger) with Network Appliance, Inc., providing for
the transactions which will result in the Company's business and related
technologies becoming a subsidiary of Network Appliance, Inc. As a result
of the Merger, Network Appliance, Inc. became the owner of 100% of the
issued and outstanding common stock and outstanding options to purchase
common stock of the Company. Each outstanding share of the Company's
common stock was converted into 0.0345267 of a share of Network
Appliance's common stock. Each outstanding option to purchase shares of
the Company's common stock was assumed by Network Appliance, Inc. and
converted into an option to purchase 0.0345267 of a share of Network
Appliance's common stock at an exercise price per share equal to the
exercise price per share of the option immediately prior to the Merger
divided by 0.0345267.
* * * * *
-9-
<PAGE> 1
EXHIBIT 99.3
The following unaudited pro forma condensed combined financial
statements reflect the acquisition by the Registrant of IMC in exchange for
shares of the Registrant's Common Stock and options to purchase shares of the
Registrant's Common Stock. The acquisition was accounted for using the
purchase method of accounting. The pro forma condensed combined balance sheet
assumes the merger took place on January 24, 1997 and combines the January 24,
1997 balance sheet of the Registrant with the January 31, 1997 balance sheet of
IMC. The pro forma condensed combined statement of operations for the fiscal
year ended April 30, 1996 assumes the acquisition took place as of the
beginning of the fiscal year and combines the Registrant's historical results
for the fiscal year ended April 30, 1996 (for which period IMC was not in
operation) with pro forma adjustments. The pro forma condensed combined
statement of operations for the nine months ended January 24, 1997 assumes the
acquisition took place as of the beginning of the most recently completed
fiscal year and combines the Registrant's historical results for the nine
months ended January 24, 1997 with the historical results of IMC for the period
from inception (May 6, 1996) to January 31, 1997. The pro forma condensed
combined statements of operations exclude the effect of any nonrecurring
charges directly attributable to the acquisition.
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial
position that would have occurred had the acquisition of IMC by the Registrant
been consummated at the beginning of the periods presented, nor is it
necessarily indicative of future operating results or financial position. These
pro forma financial statements are based on and should be read in conjunction
with the historical consolidated financial statements and the related notes
thereto of the Registrant and IMC.
1
<PAGE> 2
NETWORK APPLIANCE, INC. AND INTERNET MIDDLEWARE CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JANUARY 24, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Network Pro Forma Adjustments Pro Forma
Appliance IMC Debit Credit Balances
--------- --- ----- ------ ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,938 $ - $ - $ - $ 20,938
Short-term investments 6,850 - - - 6,850
Accounts receivable, net 12,336 26 - - 12,362
Inventories 9,585 - - - 9,585
Prepaid expenses and other 3,298 2 - - 3,300
-------- -------- -------- -------- --------
Total current assets 53,007 28 - - 53,035
PROPERTY AND EQUIPMENT, net 6,148 48 - - 6,196
OTHER ASSETS 202 - 2,203 (1),(2),(3),(4) 240 (4) 2,165
-------- -------- -------- -------- --------
$ 59,357 $ 76 $ 2,203 $ 240 $ 61,396
======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Current portion of long-term
obligations $ 21 $ 155 $ - $ - $ 176
Accounts payable 4,991 193 - 250 (5) 5,434
Income taxes payable 708 - - - 708
Accrued compensation and related
benefits 3,131 134 - - 3,265
Other accrued liabilities 2,178 - - - 2,178
Deferred revenue 1,804 22 - - 1,826
-------- -------- -------- -------- --------
Total current liabilities 12,833 504 - 250 13,587
-------- -------- -------- -------- --------
LONG-TERM OBLIGATIONS 233 - - - 233
-------- -------- -------- -------- --------
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock 41,495 1 1 (6) 10,500 (7),(8) 51,995
Retained earnings
(Accumulated deficit) 4,796 (429) 10,519 (8),(9) 1,733 (1),(6) (4,419)
-------- -------- -------- -------- --------
46,291 (428) 10,520 12,233 47,576
-------- -------- -------- -------- --------
$ 59,357 $ 76 $ 10,520 $ 12,483 $ 61,396
======== ======== ======== ======== ========
</TABLE>
(1) Entry to record a deferred tax asset on the compensation charge recognized
on the issuance of discounted stock options
(2) Entry to record goodwill
(3) Entry to capitalize developed technology of IMC
(4) Entry to record a deferred tax liability related to the capitalized
technology
(5) Entry to record acquisition-related expenses
(6) Entry to eliminate common stock and the accumulated deficit of IMC
(7) Entry to record the acquisition of IMC by the issuance of 187,023 shares
of common stock and options to purchase shares of the Registrant's
Common Stock
(8) Entry to record compensation expense related to the issuance of discounted
options to purchase shares of the Registrant's Common Stock
(9) Entry to expense in-process technology of IMC
See accompanying notes to pro forma condensed combined financial statements.
2
<PAGE> 3
NETWORK APPLIANCE, INC. AND INTERNET MIDDLEWARE CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Network Pro Forma Adjustments Pro Forma
Appliance IMC(3) Debit Credit Results
--------- ----- ----- ------ ---------
<S> <C> <C> <C> <C> <C>
NET SALES $ 46,632 $ - $ - $ - $ 46,632
COST OF SALES 20,557 - 199 (1) - 20,756
-------- -------- -------- -------- --------
GROSS MARGIN 26,075 - (199) - 25,876
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Sales and marketing 12,735 - - - 12,735
Research and development 4,762 - - - 4,762
General and administrative 2,578 - - - 2,578
-------- -------- -------- -------- --------
Total operating expenses 20,075 - - - 20,075
-------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 6,000 - (199) - 5,801
OTHER INCOME, net 600 - - - 600
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 6,600 - (199) - 6,401
PROVISION FOR INCOME TAXES - - - - -
-------- -------- -------- -------- --------
NET INCOME (NET LOSS) $ 6,600 $ - $ (199) $ - $ 6,401
======== ======== ======== ======== ========
NET INCOME PER SHARE $ 0.42 $ 0.40
======== ========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 15,820 16,075 (2)
======== ========
</TABLE>
(1) Entry to record amortization of purchased intangibles based on an
estimated life of five years
(2) Weighted average common and common equivalent shares reflect the
shares issued and the impact of dilutive stock options assumed and
granted in connection with the acquisition
(3) IMC didn't commence operations until May 6, 1996
See accompanying notes to pro forma condensed combined financial statements.
3
<PAGE> 4
NETWORK APPLIANCE, INC. AND INTERNET MIDDLEWARE CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JANUARY 24, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Network Pro Forma Adjustments Pro Forma
Appliance IMC Debit Credit Results
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET SALES $ 64,353 $ 219 $ - $ - $ 64,572
COST OF SALES 26,292 12 149 (1) - 26,453
-------- -------- -------- -------- --------
GROSS MARGIN 38,061 207 (149) - 38,119
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Sales and marketing 16,644 39 - - 16,683
Research and development 5,986 366 - - 6,352
General and administrative 3,201 231 - - 3,432
Litigation settlement 4,300 - - - 4,300
-------- -------- -------- -------- --------
Total operating expenses 30,131 636 - - 30,767
-------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 7,930 (429) (149) - 7,352
OTHER INCOME, net 793 - - - 793
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 8,723 (429) (149) - 8,145
PROVISION FOR (BENEFIT OF) INCOME TAXES 3,053 - - 207(3) 2,846
-------- -------- -------- -------- --------
NET INCOME (NET LOSS) $ 5,670 $ (429) $ (149) $ 207 $ 5,299
======== ======== ======== ======== ========
NET INCOME PER SHARE $ 0.32 $ 0.30
======== ========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 17,636 17,903 (2)
======== ========
</TABLE>
(1) Entry to record amortization of purchased intangibles based on an
estimated life of five years
(2) Weighted average common and common equivalent shares reflect the
shares issued and the impact of dilutive stock options assumed and
granted in connection with the acquisition
(3) Entry to record tax effect of pro forma adjustment (1) at the statutory
rate and to record the tax benefits of losses incurred
See accompanying notes to pro forma condensed combined financial statements.
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<PAGE> 5
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. On March 17, 1997 the Registrant acquired IMC in exchange for
approximately 187,023 shares of the Registrant's Common Stock and options to
purchase shares of the Registrant's Common Stock. In connection with the
acquisition certain former employees of IMC who entered into employment
agreements with the Registrant were granted options to purchase shares of the
Registrant's Common Stock at a discount to the market price of the Registrant's
Common Stock immediately preceding the acquisition. IMC was founded in 1996 to
develop and commercialize Internet/Intranet proxy caching software. The
acquisition was accounted for as a purchase.
In connection with the acquisition, intangible assets of $8.4 million
were acquired by the Registrant of which $7.4 million was allocated to
in-process research and development and will be charged to operations in the
fiscal quarter ending April 30, 1997 as the technology had not achieved
technological feasibility and had no alternative future use. The remaining $1.0
million of intangible assets will be amortized over an estimated useful life of
five years. Also in connection with the acquisition, a compensation expense of
$3.2 million, relating to the granting of discounted stock options, will be
charged to operations in the fiscal quarter ending April 30, 1997.
The pro forma condensed combined statements of operations for the fiscal
year ended April 30, 1996 and for the nine months ended January 24, 1997 exclude
the impact of the nonrecurring charge associated with expensing in-process
research and development and the one-time compensation charge, net of deferred
taxes, related to the granting of options to certain former IMC employees to
purchase shares of the Registrant's Common Stock at a discount to the market
price of the Registrant's Common Stock immediately preceding the acquisition.
The unaudited pro forma condensed combined financial statements give
effect to the merger of the Registrant and IMC on a purchase accounting basis.
The pro forma condensed combined balance sheet assumes the merger took place on
January 24, 1997 and combines the January 24, 1997 balance sheet of the
Registrant with the January 31, 1997 balance sheet of IMC. The pro forma
condensed combined statement of operations for the fiscal year ended April 30,
1996 assumes the merger took place as of the beginning of the fiscal year and
combines the Registrant's historical results for the fiscal year ended April
30, 1996 (for which period IMC was not in operation) with pro forma
adjustments. The pro forma condensed combined statement of operations for the
nine months ended January 24, 1997 assumes the merger took place as of the
beginning of the most recently completed fiscal year and combines the
Registrant's historical results for the nine months ended January 24, 1997 with
the historical results of IMC for the period from inception (May 6, 1996) to
January 31, 1997.
2. The pro forma condensed combined financial statements included herein
have been prepared by the Registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, the Registrant believes that the disclosures are
adequate to make the information not misleading. These pro forma condensed
combined financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Registrant's annual report on
Form 10-K for the fiscal year ended April 30, 1996 and the financial statements
of IMC included in this filing.
3. Net income per share for each period is calculated by dividing net
income by the weighted average number of common and common equivalent shares
outstanding during the period plus approximately 172,375 shares of the
Registrant's Common Stock which was exchanged for all issued and outstanding
shares of IMC Common Stock. Common equivalent shares consist of stock options
(using the treasury stock method).
5
