EXHIBIT 99.3
CYLINK CORPORATION
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
On August 30, 2000, Cylink Corporation (the "Company") completed the
acquisition of all of the outstanding stock of Celotek Corporation. ("Celotek"),
a company based in Raleigh, North Carolina that develops high-performance
Asynchronous Transfer Mode network security appliances in exchange for the
issuance of 1,664,000 shares of Cylink common stock valued at $23,431,000, the
issuance of options to purchase 307,500 shares of Cylink common shares which
vest over 4 years valued at $2,329,000, and net cash of approximately
$1,316,000. The aggregate purchase price, including approximately $1,558,000 of
transaction costs will be approximately $27,076,000.
The accompanying unaudited pro forma combined condensed financial
statements are presented for illustrative purposes only and are not necessarily
indicative of the combined financial position or results of operations which may
be reported in future periods or the financial position that actually would have
been realized had the Company and Celotek been a combined company during the
specified periods, or had the acquisition been consummated on the dates
indicated. The unaudited pro forma combined condensed financial statements,
including the related notes, are qualified in their entirety by reference to,
and should be read in conjunction with, the historical financial statements and
related notes of Celotek, included elsewhere in this filing, and the historical
financial statements and related notes of the Company contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
The accompanying unaudited pro forma combined condensed financial
statements give effect to the acquisition between the Company and Celotek using
the purchase method of accounting. The unaudited pro forma combined condensed
financial statements are based on the respective historical consolidated
financial statements and related notes of the Company and Celotek. The pro forma
adjustments are preliminary and are based on management's estimates of the value
of the tangible and intangible assets acquired. In addition, management is in
the process of assessing and formulating its integration plans, which may
include restructuring actions, the full cost of which has not yet been
determined.
The actual adjustments may differ materially from those presented in
these pro forma financial statements. A change in the pro forma adjustments
would result in a different allocation of the purchase price which would affect
the value assigned to the tangible and intangible assets, or could result in a
change to the statement of operations. The effect of these changes on the
statement of operations will depend on the nature and amounts of the assets and
liabilities adjusted. See the notes to the unaudited pro forma combined
condensed financial statements.
The unaudited pro forma combined condensed balance sheet assumes that
the acquisition took place on July 2, 2000, and combines the Company's and
Celotek's respective July 2, 2000 balance sheets. The unaudited pro forma
combined condensed statements of operations assume the acquisition took place at
the beginning of the periods presented and combines the Company's and Celotek's
respective statements of operations. Certain reclassifications have been made to
Celotek's financial statements to conform to the Company's presentation.
<PAGE>
<TABLE>
CYLINK CORPORATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JULY 2, 2000
(in thousands, unaudited)
<CAPTION>
Historical Pro Forma
---------------------- Pro Forma Adjustments Combined
Cylink Celotek Reference Amount Cylink
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 18,907 $ 1,182 (a) $ (1,176) $ 18,913
Accounts receivable, net 19,510 1,026 20,536
Inventories 12,998 1,254 (b) 232 14,484
Deferred income taxes 4,371 -- 4,371
Other current assets 1,911 214 2,125
--------- --------- --------- ---------
Total current assets 57,697 3,676 60,429
Restricted Cash 1,400 -- 1,400
Property and equipment, net 10,558 1,733 (a)(b) (506) 11,785
Acquired technology, goodwill and other intangibles 1,746 -- (b) 20,791 22,537
Notes receivable from employees or former employees 3,284 -- 3,284
Other assets 1,312 186 -- 1,498
--------- --------- --------- ---------
$ 75,997 $ 5,595 $ 19,341 $ 100,933
========= ========= ========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of lease obligations and long-term debt $ 39 $ 139 $ 178
Accounts payable 6,050 660 6,710
Accrued liabilities 9,858 366 (b) 801 11,025
Income taxes payable 1,030 -- 1,030
Deferred revenue 3,653 167 3,820
--------- --------- ---------
Total current liabilities 20,630 1,332 22,763
Capital lease obligations and long-term debt 106 209 315
Preferred stock -- 13 (b) (13) --
Shareholders' equity:
Common stock 308 7 (b) 10 325
Additional paid-in capital 132,117 12,110 (b) 10,467 154,694
Deferred compensation related to stock options (1,421) (281) (b) 281 (1,421)
Accumulated other comprehensive loss (51) (6) (b) 6 (51)
Accumulated deficit (75,692) (7,789) (b) 7,789 (75,692)
--------- --------- --------- ---------
Total shareholders' equity 55,261 4,041 18,540 77,855
--------- --------- --------- ---------
$ 75,997 $ 5,595 $ 19,341 $ 100,933
========= ========= ========= =========
<FN>
See notes to unaudited pro forma combined condensed financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
CYLINK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(in thousands, except per share data, unaudited)
<CAPTION>
Historical
---------------------- Pro Forma Adjustments Pro Forma
Cylink Celotek Reference Amount Combined
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 59,655 $ 3,970 (c) $ (2,978) $ 60,647
Cost of revenue 19,159 1,177 (c) (2,978) 17,358
--------- --------- --------- ---------
Gross profit 40,496 2,793 - 43,289
--------- --------- --------- ---------
Operating expenses:
Research and development, net 16,176 1,825 - 18,001
Selling and marketing 26,316 1,751 - 28,067
General and administrative 13,998 4,033 - 18,031
Amortization of purchased intangibles 2,799 - (d) 3,105 5,904
--------- --------- --------- ---------
Total operating expenses 59,289 7,609 3,105 70,003
--------- --------- --------- ---------
Loss from operations (18,793) (4,816) (3,105) (26,714)
Other income (expense):
Interest income, net 1,858 199 (f) (79) 1,978
Royalty and other income (expense), net 232 2 - 234
--------- --------- --------- ---------
2,090 201 (79) 2,212
--------- --------- --------- ---------
Loss from continuing operations before income taxes (16,703) (4,615) (3,184) (24,502)
Provision for income taxes 174 - - 174
--------- --------- --------- ---------
Loss from continuing operations (16,877) (4,615) (3,184) (24,676)
Gain on disposal of discontinued operations, net
of income tax expense of $0 2,304 - 2,304
--------- --------- --------- ---------
Net loss $ (14,573) $ (4,615) $ (3,184) $ (22,372)
========= ========= ========= =========
Proforma Earnings (loss) per share - basic & diluted:
Continuing operations $ (0.58) (e) $ (0.81)
Discontinued operations 0.08 (e) 0.08
--------- ---------
Net income (loss) $ (0.50) (e) $ (0.73)
========= =========
Shares used in computing proforma basic and
diluted loss per share 29,217 (e) 30,612
========= =========
<FN>
See notes to unaudited proforma combined condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CYLINK CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 2, 2000
(in thousands, except per share data, unaudited)
<CAPTION>
Historical
---------------------- Pro Forma Adjustments Pro Forma
Cylink Celotek Reference Amount Combined
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 35,383 $ 4,081 (c) $ (2,811) $ 36,653
Cost of revenue 12,679 1,181 (c) (2,811) 11,049
--------- --------- --------- ---------
Gross profit 22,704 2,900 - 25,604
--------- --------- --------- ---------
Operating expenses:
Research and development, net 9,912 1,296 - 11,208
Selling and marketing 17,225 995 - 18,220
General and administrative 7,228 1,693 - 8,921
Amortization of purchased intangibles 1,440 - (d) 1,553 2,993
--------- --------- --------- ---------
Total operating expenses 35,805 3,984 1,553 41,342
--------- --------- --------- ---------
Loss from operations (13,101) (1,084) (1,553) (15,738)
Other income (expense):
Interest income, net 827 16 (f) (40) 803
Royalty and other income (expense), net (66) 14 (52)
--------- --------- --------- ---------
761 30 (40) 751
--------- --------- --------- ---------
Net loss $ (12,340) $ (1,054) $ (1,553) $ (14,987)
========= ========= ========= =========
9999999
Proforma loss per share - basic & diluted:
Net loss $ (0.41) (e) $ (0.48)
========= =========
Shares used in computing proforma basic and
diluted loss per share 30,258 (e) 31,390
========= =========
<FN>
See notes to unaudited proforma combined condensed financial statements.
</FN>
</TABLE>
<PAGE>
CYLINK CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. Pro Forma Adjustments
Certain pro forma adjustments have been made to the accompanying
unaudited pro forma combined condensed financial statements, based on the
acquisition of all of the outstanding capital stock of Celotek for 1,664,000
Cylink shares valued at $23,431,000 and the issuance of options to purchase
307,500 shares of Cylink common shares valued at $2,329,000, and net cash of
approximately $1,316,000. The aggregate purchase price of approximately
$27,076,000 includes transaction costs of approximately $1,558,000, some of
which were satisfied through the issuance of Cylink shares.
The unaudited pro forma combined condensed statement of operations for the year
ended December 31, 1999 gives effect to the acquisition as if it had occurred at
the beginning of the period presented.
The unaudited pro forma consolidated statement of operations do not
include the one time $3,681,000 charge for purchased in process technology from
the acquisition, as it is a material non-recurring charge. The charge will be
included in the actual consolidated statement of operations of Cylink in the
post acquisition statement of operations.
The following adjustments have been reflected in the unaudited pro
forma combined condensed financial statements:
(a) Reflects the spinoff of certain net assets belonging to Celotek to
a newly formed company which were not acquired by Cylink.
(b) Reflects the elimination of Celotek's shareholders equity, the
issuance of Cylink stock to the shareholders of Celotek, adjustments to bring
inventory to net realizable value, and the accrual of certain transaction costs.
Accordingly, the total purchase price has been allocated to the tangible and
intangible assets purchased and liabilities assumed of Celotek based on their
relative fair values. The amounts and components of the purchase price, along
with the allocation of the purchase price to the net assets acquired are
presented below, and are subject to change as acquisition accruals are
finalized.
PURCHASE PRICE (in thousands)
Current assets (including cash and cash equivalents of $253) $ 2,732
Property and equipment 1,277
Current technology 12,077
In-process technology 3,681
Goodwill 7,311
Other intangibles 1,403
Current liabilities (1,220)
Long-term debt assumed (185)
---------
$ 27,076
=========
<PAGE>
(c) Reflects the elimination of intercompany transactions, between the
Company and Celotek, that took place during the period presented in the
unaudited pro forma combined condensed financial statements.
(d) Reflects the adjustment to record the amortization of goodwill and
other intangibles resulting from the allocation of the purchase price. The pro
forma adjustment assumes goodwill and other intangibles will be amortized on a
straight-line basis over an estimated useful life of four years for workforce in
place, five years for customer base, and seven years for current technologies
and goodwill.
(e) Reflects the issuance of approximately 1,664,000 shares of Cylink
to the shareholders of Celotek upon the acquisition, less approximately 270,000
shares held in escrow.
(f) Reflects the investment income that would have been foregone in
making the cash payments facilitating the acquisition.
