<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1 to Current Report on Form 8-K dated June 8, 2000
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 23, 2000
-------------------------------
COBALT NETWORKS, INC.
--------------------------------------------------------------------------------
(Exact Name of the Registrant as Specified in Its Charter)
Delaware
--------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
000-24360 77-0440751
------------------------------------- ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
555 Ellis Street, Mountain View, California 94043
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(650) 623-2500
--------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
--------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ACQUISITION OR DISPOSITION OF ASSETS
Cobalt Networks, Inc., a Delaware corporation, hereby amends the following
items, financial statements, exhibits or other portions of its Current Report on
Form 8-K, originally filed with the Securities and Exchange Commission on June
8, 2000 (the "Form 8-K"), as set forth in the pages attached hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
On May 23, 2000, Cobalt Networks, Inc., a Delaware corporation ("Cobalt")
completed its acquisition (the "Acquisition") of Chili!Soft, Inc., a California
corporation ("Chili!Soft"). In the Acquisition, a wholly owned subsidiary of
Cobalt merged with and into Chili!Soft, Chili!Soft became a wholly owned
subsidiary of Cobalt. An aggregate of approximately 1,150,000 shares of Cobalt
Common Stock were issuable pursuant to the Acquisition, including options to
purchase approximately 226,000 shares of Cobalt Common Stock issuable in
connection with the exercise of options to purchase Chili!Soft Common Stock that
Cobalt assumed in connection with the Acquisition.
The foregoing summary of certain principal terms of the Acquisition and the
Agreement and Plan of Reorganization dated March 22, 2000 (the "Agreement") by
and between Cobalt, Blue Tortilla Acquisition Corp., a California corporation
and wholly owned subsidiary of Cobalt, and Chili!Soft does not purport to be
complete and is qualified in its entirety by reference to the Agreement. A copy
of the Agreement and the exhibits thereto are attached as exhibits to this
Current Report on Form 8-K and are hereby incorporated by reference herein.
The purpose of this amended Form 8-K is to file required financial
statements relating to the Acquisition, including required pro-forma financial
information. The following financial statements relating to the Acquisition are
attached hereto:
<TABLE>
<CAPTION>
Financial Statement Index Page
------------------------------------------------------------------------------------------------ --------
<S> <C>
Chili!Soft, Inc.
Report of Independent Accountants............................................................... F-2
Balance Sheet as of December 31, 1999 and 1998.................................................. F-3
Statement of Operations for the years ended December 31, 1999 and 1998.......................... F-4
Statement of Stockholders' Deficit for the years ended December 31, 1999 and 1998............... F-5
Statement of Cash Flows for the years ended December 31, 1999 and 1998.......................... F-6
Notes to Financial Statements................................................................... F-7
</TABLE>
-2-
<PAGE>
(b) Pro Forma Financial Information.
The following unaudited pro forma condensed combined financial information
gives effect to the acquisition of Chili!Soft by Cobalt, using the purchase
method of accounting in accordance with generally accepted accounting
principles. Cobalt is considered the accounting acquirer. The unaudited pro
forma condensed combined financial information is based upon the historical
financial statements of the respective companies.
The following unaudited pro forma combined financial information is
attached hereto:
<TABLE>
<CAPTION>
Pro Forma Financial Information Page
---------------------------------------------------------------------------------------------- ------
<S> <C>
Unaudited Pro Forma Condensed Combined Financial Information Overview......................... F-17
Unaudited Pro Forma Condensed Combined Balance Sheet as
of March 31, 2000.......................................................................... F-18
Unaudited Pro Forma Condensed Combined Statement of Operations for the year
ended December 31, 1999.................................................................... F-19
Unaudited Pro Forma Condensed Combined Statement of Operations for the three months
ended March 31, 2000....................................................................... F-20
Notes to Unaudited Pro Forma Condensed Combined Financial Information......................... F-21
</TABLE>
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
------------ -------------------------------------------------------------
<C> <S>
2.1* Agreement and Plan of Reorganization, dated March 22, 2000,
by and among Cobalt Networks, Inc., Blue Tortilla Acquisition
Corp. and Chili!Soft, Inc. (Schedules have been omitted
pursuant to Item 601(b)(2) of Regulation S-K. Cobalt hereby
undertakes to furnish supplementally copies of any of the
omitted schedules upon request by the Securities and Exchange
Commission.)
2.1.1* Form of Voting Agreement.
2.1.2* Form of Non-Competition Agreement.
2.1.3* Form of Merger Agreement.
2.1.4* Form of Surviving Company Articles of Incorporation.
2.1.5* Form of Cobalt Lock-up Agreement.
2.1.6* Form of Declaration of Registration Rights.
2.1.7* Form of Affiliate Agreement.
2.1.8* Form of Press Release. (See Exhibit 99.1)
2.1.9* From of Bonus Plan.
2.1.10* From of Wilson Sonsini Goodrich & Rosati opinion.
2.1.11* Form of Escrow Agreement.
2.1.12* Form of Crosby, Heafey, Roach & May opinion.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
99.1* Press release of Cobalt Networks, Inc. dated March 23, 2000
regarding acquisition of Chili!Soft, Inc.
99.2* Press release of Cobalt Networks, Inc. dated May 24, 2000
regarding acquisition of Chili!Soft, Inc.
</TABLE>
________________________
* Filed as an exhibit to Cobalt's Current Report on Form 8-K filed on
June 8, 2000, and incorporated herein by reference.
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 7, 2000
COBALT NETWORKS, INC.
By: /s/ Kenton D. Chow
-------------------
Kenton D. Chow
Vice President, Finance and
Chief Financial Officer
<PAGE>
<TABLE>
<CAPTION>
Financial Statement and Information Index Page
------------------------------------------------------------------------------------ -------
<S> <C>
Chili!Soft, Inc.
Report of Independent Accountants................................................... F-2
Balance Sheet of Chili!Soft, Inc. as of December 31, 1999 and 1998.................. F-3
Statement of Operations of Chili!Soft, Inc. for the years ended
December 31, 1999 and 1998....................................................... F-4
Statement of Stockholders' Deficit of Chili!Soft, Inc. for the years
ended December 31, 1999 and 1998................................................. F-5
Statement of Cash Flows of Chili!Soft, Inc. for the years ended
December 31, 1999 and 1998...................................................... F-6
Notes to Financial Statements....................................................... F-7
Unaudited Pro Forma Condensed Combined Financial Information
Unaudited Pro Forma Condensed Combined Financial Information Overview............... F-17
Unaudited Pro Forma Condensed Combined Balance Sheet as
of March 31, 2000................................................................ F-18
Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1999................................................................ F-19
Unaudited Pro Forma Condensed Combined Statement of Operations for the three
months ended March 31, 2000...................................................... F-20
Notes to Unaudited Pro Forma Condensed Combined Financial Information............... F-21
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
Chili!Soft, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Chili!Soft, Inc. at December 31,
1999 and 1998 and the results of its operations and its cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States. 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 auditing standards generally accepted in the
United States, 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.
San Jose, California
March 31, 2000, except for
Note 13, which is as of
May 23, 2000
F-2
<PAGE>
Chili!Soft, Inc.
Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 115 $ 2,142
Account receivable 112 22
Deferred revenue costs 269 203
Prepaid expenses and other current assets 108 85
---------- ---------
Total current assets 604 2,452
Property and equipment, net 368 305
Other assets 259 266
---------- ---------
$ 1,231 $ 3,023
========== =========
Liabilities, Mandatorily Redeemable Convertible Preferred
Stock and Shareholders' Deficit
Current liabilities
Note payable, current $ 80 $ 79
Convertible notes payable 791 -
Accounts payable 230 154
Accrued liabilities 187 215
Deferred revenue 771 481
---------- ---------
Total current liabilities 2,059 929
Note payable 7 88
---------- ---------
Total liabilities 2,066 1,017
Mandatorily Redeemable Convertible Preferred Stock 5,327 5,321
---------- ---------
Shareholders' deficit
Common Stock, no par value; 20,000,000 shares, authorized; 2,414 30
5,143,105 and 3,957,415 shares issued and outstanding
at December 31, 1999 and 1998
Additional paid-in capital 1,445 128
Unearned stock-based compensation (663) (111)
Accumulated deficit (9,358) (3,363)
---------- ---------
Total shareholders' deficit (6,162) (3,316)
---------- ---------
$ 1,231 $ 3,022
========== =========
</TABLE>
The accompanying notes are integral part of these financial statements.
F-3
<PAGE>
Chili!Soft, Inc.
Statement of Operations
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
<S> <C> <C>
Net revenues $ 1,079 $ 377
Cost of revenues 171 122
----------- ----------
Gross profit 908 255
----------- ----------
Operating expenses:
Sales and marketing 1,945 928
Research and development 1,186 597
General and administrative 2,950 1,317
Stock-based compensation 213 17
----------- ----------
Total operating expenses 6,294 2,859
----------- ----------
Loss from operations (5,386) (2,604)
Interest and other income, net 26 69
Interest expense (635) (17)
----------- -----------
Net loss $ (5,995) $ (2,552)
=========== ===========
</TABLE>
The accompanying notes are integral part of these financial statements.
F-4
<PAGE>
Chili!Soft, Inc.
Statement of Shareholders' Deficit
Year Ended December 31, 1999 and 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Unearned
------------------- Paid-in Stock-based Accumulated
Shares Amount Capital Compensation Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 3,657,971 $ - $ - $ - $ (811) $ (811)
Issuance of Common Stock 299,444 30 30
Unearned stock-based compensation 128 (128) -
Amortization of stock-based compensation 17 17
Net loss (2,552) (2,552)
---------- --------- --------- -------- -------- --------
Balance, December 31, 1998 3,957,415 30 128 (111) (3,363) (3,316)
Issuance of Common Stock 236,064 77 77
Conversion of convertible notes payable
into Common Stock 913,219 2,219 2,219
Conversion of accrued interest on
convertible notes payable into
Common Stock 36,407 88 88
Unearned stock-based compensation 765 (748) 17
Amortization of stock-based compensation 196 196
Discount on convertible notes payable
associated with warrants 552 552
Net loss (5,995) (5,995)
----------- --------- --------- -------- -------- --------
Balance at December 31, 1999 5,143,105 $ 2,414 $ 1,445 $ (663) $(9,358) $(6,162)
=========== ========= ========= ======== ======== ========
</TABLE>
The accompanying notes are integral part of these financial statements.
F-5
<PAGE>
Chili!Soft, Inc.
Statement of Cash Flows
December 31, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities
Net loss $ (5,995) $ (2,552)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation 219 115
Non-cash interest expense 610 -
Stock-based compensation 213 17
Changes in operating assets and liabilities:
Accounts receivable (90) (6)
Deferred revenue costs (66) (203)
Prepaid expenses and other current assets (23) (337)
Other assets 7 7
Accounts payable 76 67
Accrued liabilities (28) 197
Deferred revenue 290 481
-------------------------------
Net cash used in operating activities (4,787) (2,214)
--------------- -------------
Cash flows from investing activities
Purchase of property and equipment (282) (280)
--------------- -------------
Net cash used in investing activities (282) (280)
--------------- -------------
Cash flows from financing activities
Proceeds from issuance of convertible notes 3,039 375
Payments on notes payable (80) (38)
Issuance of Common Stock 77 30
Issuance of Mandatorily Redeemable Convertible Preferred Stock 6 3,525
--------------- -------------
Net cash provided by financing activities 3,042 3,892
--------------- -------------
Net increase (decrease) in cash and cash equivalents (2,027) 1,398
Cash and cash equivalents at beginning of period 2,142 744
--------------- -------------
Cash and cash equivalents at end of period $ 115 $ 2,142
=============== =============
Supplemental disclosure of cash flow information
Cash paid for interest $ 13 $ 17
--------------- -------------
Supplemental disclosure of non-cash financing transactions
Warrants to purchase common stock issued in
conjunction with convertible notes payable $ 552 $ -
--------------- -------------
Conversion of convertible notes into Common Stock $ 2,219 $ -
--------------- -------------
Conversion of accrued interest on convertible notes
into Common Stock $ 88 $ -
--------------- -------------
</TABLE>
The accompanying notes are integral part of these financial statements.
F-6
<PAGE>
Chili!Soft, Inc.
Notes to Financial Statements
December 31, 1999 and 1998
--------------------------------------------------------------------------------
1. The Company and Summary of Significant Accounting Policies
Chili!Soft, Inc. (the "Company") was incorporated in California on May 12,
1997, and is currently located in Bellevue, Washington.
The Company develops and sells software used for development of internet
service applications on a variety of server and operation platforms.
Use of estimates
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that effect 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. Actual results could differ from those
estimates.
Cash equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. Cash equivalents consist of
deposits in money market funds and certificates of deposit.
Concentration of risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash and cash equivalents and accounts receivable.
Cash and cash equivalents are deposited with financial institutions. At
times, such balances with any one financial institution may be in excess of
FDIC insurance limits. The Company's accounts receivable are derived
primarily from revenue earned from customers located in the United States.
The Company extends credit based upon an evaluation of the customer's
financial condition and generally collateral is not required. The Company
maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable. At December 31, 1999, there were no
receivables deemed uncollectible.
During the year ended December 31, 1999, one customer comprised 13.9% of
revenues. During the year ended December 31, 1998, no one customer comprised
greater than 10% of revenues.
At December 31, 1999, two customers comprised 42.5% and 14.1%, respectively,
of total accounts receivable. At December 31, 1998, one customer comprised
40% of total accounts receivable.
Fair value of financial instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable, debt and lease obligations are carried
at historical cost, which approximates their fair value because of the short-
term maturity of these instruments. The carrying value of the Company's
borrowings approximate their fair values given their market rates of interest
and maturity schedules.
Property and equipment
Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of
the assets, generally two to five years, or the shorter of the lease term or
the estimated useful lives of the assets, if applicable.
F-7
<PAGE>
Chili!Soft, Inc.
Notes to Financial Statements (Continued)
December 31, 1999 and 1998
--------------------------------------------------------------------------------
Revenue recognition
The Company's recognizes revenue in accordance with Statement of Position
("SOP") 97-2, "Software Revenue Recognition" and its related elements. SOP
97-2 provides guidance on applying generally accepted accounting principles
in recognizing revenue on software transactions and supercedes the previous
guidance provided by SOP 91-1.
License revenue is recognized when a signed contract or other persuasive
evidence of an arrangement exists, the software has been shipped or
electronically delivered to the end user, the license fee is fixed or
determinable, and collection of the resulting receivable is probable.
Maintenance revenue consists of fees for providing technical support for
software products (post-contract support or `PCS'). Maintenance revenue is
recognized ratably over the terms of the agreement. During 1999, maintenance
revenue of $43,000 was recognized. During 1998, maintenance revenues were
insignificant.
SOP 97-2 requires that arrangements to deliver software or a software
system, either alone or together with other products or services which
require significant production, modification, or customization of software,
be accounted for in conformity with Accounting Research Bulletin ("ARB") No.
45, "Long-term Construction-type Contracts," using the relevant guidance in
SOP 81-1, "Accounting for Performance of Construction-type and Certain
Production-type Contracts." Due to the difficulty of estimating the total
costs to be incurred under the Company's software development arrangements,
revenue from these software development arrangements is not recognized until
the contract is completed. Any losses expected to be incurred are charged to
operations in the period such losses are determined.
Research and development
Research and development costs are charged to operations as incurred.
Software development costs incurred prior to the establishment of
technological feasibility are included in research and development and are
expensed as incurred. After technological feasibility is established,
material software development costs are capitalized. The capitalized cost is
then amortized on a straight-line basis over the estimated product life, or
on the ratio of current revenues to total projected product revenues,
whichever is greater. To date, the period between achieving technological
feasibility, which the Company has defined as the establishment of a working
model which typically occurs when the beta testing commences, and the general
availability of such software has been short and software development costs
qualifying for capitalization have been insignificant. Accordingly, the
Company has not capitalized any software development costs.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees" and related
interpretations, and complies with the disclosure provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." The Company accounts for equity instruments issued to non-
employees in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force Issue 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services."
F-8
<PAGE>
Chili!Soft, Inc.
Notes to Financial Statements (Continued)
December 31, 1999 and 1998
--------------------------------------------------------------------------------
Income taxes
The Company accounts for income taxes under the asset and liability method,
which requires, among other things, that deferred income taxes be provided
for temporary differences between the tax bases of the Company's assets and
liabilities and their financial statement reported amounts. In addition,
deferred tax assets are recorded for the future benefit of utilizing net
operating losses and research and development credit carryforwards. A
valuation allowance is provided against net deferred tax assets unless it is
more likely than not that they will be realized.
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting comprehensive income and its components in financial
statements. Comprehensive income, as defined, includes all changes in equity
(net assets) during a period from non-owner sources. To date, the Company
has not had any transactions that are required to be reported in
comprehensive income (loss) as compared to its reported net loss.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. In July 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." SFAS
No. 137 deferred the effective date of SFAS No. 133 until fiscal years
beginning after June 15, 2000. The Company does not have derivative
instruments, and therefore does not expect that the adoption of this
statement will have any effect on the Company's results of operations,
financial position or cash flows.
F-9
<PAGE>
Chili!Soft, Inc.
Notes to Financial Statements (Continued)
December 31, 1999 and 1998
--------------------------------------------------------------------------------
2. Balance Sheet Components (in thousands)
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Property and equipment:
Computer and office equipment $ 290 $ 154
Furniture and fixtures 201 141
Leasehold improvements 34 -
Server equipment and peripherals 36 34
Office equipment and software 126 86
----- -----
687 415
Accumulated depreciation (319) (110)
----- -----
$ 368 $ 305
===== =====
Accrued liabilities:
Accrued interest on convertible notes $ 10 $ -
Accrued vacation 70 28
Minimum royalty obligation 50 47
Accrued wages 24 24
Accrued severance - 60
Accrued loss on contracts - 36
Other 33 20
----- -----
$ 187 $ 215
===== =====
</TABLE>
3. Convertible Notes Payable
In 1999, the Company borrowed a total of $3,039,000 under convertible notes
bearing interest at 8% per annum compounded quarterly. The notes were
convertible into shares of the Company's Common Stock at a conversion rate of
$2.43.
As of December 31, 1999, $2,219,000 of the notes and $88,000 of accrued
interest on the notes had been converted.
In conjunction with the issuance of convertible notes in 1999, the Company
agreed to issue warrants to purchase shares of Common Stock on the date of
issuance and each month following the sale until conversion or maturity of
the debt. The warrants are exercisable at a price of $2.43. The term of the
warrants is 7 years.
Warrants to purchase a total of 579,169 shares of Common Stock were issued in
conjunction with the issuance of convertible notes in 1999. The estimated
fair value of the warrants at date of grant issued in 1999 was $552,000,
which will be recorded as interest expense over the life of the debt.
F-10
<PAGE>
Chili!Soft, Inc.
Notes to Financial Statements (Continued)
December 31, 1999 and 1998
--------------------------------------------------------------------------------
4. Notes Payable
Notes payable consist of equipment advances made by a financial institution
bearing interest at a rate equal to prime plus 1% (9.5% at December 31,
1999). The equipment advances are collateralized by a security interest in
substantially all the Company's tangible property. Principal and interest
are due in monthly installments until maturity on January 15, 2001. Total
future maturities of notes payable, are $80,000 in 2000, and $7,000 in 2001.
5. Employee Benefit Plans
The Company sponsors a 401(k) defined contribution plan (the "Plan") covering
all eligible employees. Contributions made by the Company are determined
annually be the Board of Directors. No contributions have been made to the
Plan by the Company.
6. Income Taxes
No provision or benefit for income taxes has been recognized for any of the
years presented as the Company has incurred losses since inception.
As of December 31, 1999, the Company had net operating loss carryforwards of
approximately $7.6 million, which begin to expire in 2018 through 2019.
Utilization of net operating loss carryforwards is subject to the "change in
ownership" provisions under Section 382 of the Internal Revenue Code.
The Company has recorded a valuation allowance against its net deferred tax
assets due to the uncertainty surrounding the ultimate realization of such
assets.
Deferred taxes comprise the following (in thousands):
1999 1998
Deferred Tax Assets
Net operating loss carryforwards $ 2,743 $ 800
Depreciation/Amortization 31 3
Stock-based Compensation - 6
R & D credit carryforward 17 18
Other 176 118
------- ------
Total 2,967 945
Less: Valuation allowance (2,967) (945)
------- ------
Net deferred tax assets $ - $ -
======= ======
F-11
<PAGE>
Chili!Soft, Inc.
Notes to Financial Statements (Continued)
December 31, 1999 and 1998
--------------------------------------------------------------------------------
7. Mandatorily Redeemable Convertible Preferred Stock
The following table summarizes the Company's Mandatorily Redeemable
Convertible Preferred Stock (`Preferred Stock') at December 31, 1999:
<TABLE>
<CAPTION>
Shares Liquidation
Authorized Outstanding Amount
<S> <C> <C> <C>
Series A 1,955,620 1,907,608 $ 1,621,467
Series B 1,535,000 1,531,364 3,705,900
Undesignated 6,509,380 - -
----------- ----------- -----------
10,000,000 3,438,972 $ 5,327,367
=========== =========== ===========
</TABLE>
Conversion
Each share of Preferred Stock is convertible at the option of the holder into
Common Stock. The conversion of Series A Preferred Stock is determined by
dividing $0.85 by the Series A conversion price, as defined, and the
conversion of Series B Preferred Stock is determined by dividing $2.42 by the
Series B conversion price, as defined.
Under the terms of the agreement, Preferred Stock shall be automatically
converted into shares of Common Stock upon, either 1) the affirmative vote of
greater than 50% of then outstanding preferred shareholders, or 2) upon the
closing of an underwritten public offering resulting in $10,000,000 or more
in gross proceeds at a price per share that would result in a market
valuation of the Company of at least $50,000,000. Further, each share of
Series B Preferred Stock shall also be automatically converted into shares of
Common Stock upon the conversion of two-thirds of all outstanding Preferred
Stock.
Liquidation preference
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of Series A Preferred Stock and Series
B Preferred Stock will be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Company to the
holders of the Common Stock, the amount of $0.85 per share and $2.42 per
share, respectively, plus an amount equal to all declared but unpaid
dividends on the Preferred Stock. This liquidation preference for Series A
Preferred Stock terminates as of October 15, 2000.
Dividends
The holders of the Series A Preferred Stock and the Series B Preferred Stock
are entitled to receive a noncumulative cash dividend at a rate of $0.0688
per share and $0.1936 per share, respectively, if and when declared by the
Board of Directors at its discretion. The right to such dividends on shares
of Preferred Stock is not cumulative and no right shall accrue to the holders
of the Preferred Stock. As of December 31, 1999, no dividends have been
declared by the Board of Directors.
Voting
Each share of Preferred Stock has voting rights and powers equivalent to each
full share of Common Stock into which their respective shares of preferred
stock would be convertible on the record date for the vote.
F-12
<PAGE>
Chili!Soft, Inc.
Notes to Financial Statements (Continued)
December 31, 1999 and 1998
--------------------------------------------------------------------------------
8. Common Stock
During 1997, the Company issued 3,657,971 shares of Common Stock to the
Company's founders and employees for their initial contributed services. No
compensation expense was recognized for the contributed services as the
Company was in the early stages of development.
In 1999, the Company issued convertible notes to existing shareholders, which
were converted into 913,219 shares of Common Stock in December, 1999. In
addition, accrued interest on the convertible notes was converted into 36,407
shares of Common Stock in December, 1999.
Stock restriction agreements
During 1997, the Company entered into stock restriction agreements with two
officers of the Company. Under these agreements, Common Stock held by the
officers can be repurchased by the Company at a price of $0.01 per share upon
the voluntary or involuntary termination of the officers under certain
conditions. The number of shares that can be repurchased is reduced on a
monthly basis. The stock restriction agreements expire in 2000. As of
December 31, 1999, 55,278 shares can be repurchased by the Company.
The stock restriction agreement with one of the officers of the Company was
cancelled following that officer's departure from the Company. The nature of
that officer's departure did not constitute grounds for the Company to
exercise the option to repurchase.
The stock option agreements automatically lapse following the acquisition of
the Company.
10. Stock Options
In 1997, the Company adopted a combined stock option plan (the "1997 Plan")
which provides for the issuance of incentive and nonqualified Common Stock
options to employees, directors, consultants, and officers of the Company.
The Board of Directors has reserved 921,500 shares of Common Stock to be
issued in conjunction with the 1997 Plan.
In 1998, the Company adopted another combined stock option plan (the "1998
Plan") which provides for the issuance of incentive and nonqualified Common
Stock options to employees, directors, consultants, and officers of the
Company. The Board of Directors has reserved 1,631,176 shares of Common
Stock to be issued on conjunction with the 1998 Plan.
In 1999, the Company adopted another combined stock option plan (the "1999
Plan") which provides for the issuance of incentive and nonqualified Common
Stock options to employees, directors, consultants, and officers of the
Company. The Board of Directors has reserved 700,000 shares of Common Stock
to be issued on conjunction with the 1999 Plan.
F-13
<PAGE>
Chili!Soft, Inc.
Notes to Financial Statements (Continued)
December 31, 1999 and 1998
--------------------------------------------------------------------------------
Options under the Plans may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO and NSO shall not be less than 100% and 85% of
the estimated fair value of the shares on the date of grant, respectively,
and (ii) the exercise price of an ISO and NSO granted to a 10% shareholder
shall not be less than 110% of the estimated fair value of the shares on the
date of grant, respectively. Options have generally had terms of 5 years
from date of grant and vest over 4 years, 25% after the first year and
ratably each month over the remaining 36 months.
The following table summarizes information about stock options outstanding at
December 31, 1999
<TABLE>
<S>
Options outstanding Options exercisable
----------------------------------- --------------------
<C> <C> <C> <C> <C> <C>
Weighted-
average Weighted- Weighted-
Range of Remaining average average
Exercise Contractual Exercise Exercise
Prices Shares Life Price Shares Price
$0.10 666,298 4.59 $0.10 481,562 $0.10
$0.30 1,528,957 4.35 $0.30 219,203 $0.30
----------- -----------
2,195,255 $0.24 700,765 $0.16
----------- -----------
----------- -----------
</TABLE>
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
disclosures of the pro forma net loss had the Company adopted the fair value
method as of the beginning of 1997. The Company has calculated the pro forma
net loss under SFAS No. 123 using an option valuation approach and
assumptions deemed reasonable by management. These assumptions included,
among other things, a risk free interest rate of 5.875%, no stock price
volatility and no dividends over the expected life. Using these assumptions
under SFAS No. 123, the weighted-average fair value of options granted during
1999 and 1998 was $1, and $0.16, respectively, and the Company's net loss for
1999 and 1998 would have increased by $27,000 and $7,000, respectively.
F-14
<PAGE>
Chili!Soft, Inc.
Notes to Financial Statements (Continued)
December 31, 1999 and 1998
--------------------------------------------------------------------------------
A summary of the status of the Company's stock option plans as of December
31, 1999 and 1998, and changes during the year then ended is presented
below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1999 1998
----------------------------- ----------------------------
Weighted- Weighted-
average average
Exercise Exercise
Shares Price Shares Price
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of period 1,464,572 $0.17 923,173 $0.10
Granted 1,252,862 $0.30 1,091,400 $0.19
Exercised (236,064) $0.12 (299,444) $0.10
Forfeited (286,115) $0.20 (250,557) $0.11
--------- ---------
Outstanding at
period end 2,195,255 $0.24 1,464,572 $0.17
========= =========
</TABLE>
At December 31, 1999, 521,913 shares of common stock are reserved for future
stock option grants.
Unearned employee stock-based compensation
During the years ended December 31, 1999 and 1998, the Company recorded
unearned employee stock-based compensation expense of $748,000 and $128,000
respectively related to the issuance of stock options to employees at prices
subsequently determined to be below fair market value. These charges are
being amortized over a period of four years from the date of option issuance
using the method specified in FASB Interpretation No. 28.
Amortization expense associated with unearned employee stock-based
compensation totaled $196,000 and $17,000 in 1999 and 1998, respectively.
Third-party stock options
In 1999 stock options were issued to consultants as payment for services
rendered. The estimated fair value of options issued at date of grant was
$17,000 which was recorded as stock-based compensation.
10. Software Licensing and Distribution Agreements
During 1999, the Company entered into a product development, marketing,
software licensing and distribution agreement. The Company has agreed to
use, reproduce, market, distribute and sublicense as part of its own
products, certain software which was originally developed by another party.
In exchange for the exclusive rights to the software, the Company has agreed
to pay royalties in the amount of 3% of revenue. Minimum annual royalty
payments related to these contracts are $50,000 for 2000. The agreements
expire in October 2000. Royalties expense of $43,000 was recorded for the
year ended December 31, 1999.
F-15
<PAGE>
Chili!Soft, Inc.
Notes to Financial Statements (Continued)
December 31, 1999 and 1998
--------------------------------------------------------------------------------
11. Software Development Agreements
During 1998, the Company entered into two software development arrangements
with another company. Under these arrangements, the Company agreed to
develop software to integrate with the other company's operating system
environment. In exchange for the funding received, the Company has agreed to
grant several licenses of the new product to the other company. Revenue of
$150,000 was recognized on the completion and delivery of the software, for
one contract. Costs relating to this contract were $125,000. For the second
contract $175,000 is recorded as deferred revenue and the development costs
associated with this contract are $269,000 as of December 31, 1999, and are
included in deferred costs on contracts in progress. Upon completion of
certain milestones specified in the arrangements, the Company will receive
an additional $175,000 in funding. The expected total costs to complete the
contract are $310,000 resulting in an anticipated profit of $40,000.
12. Commitments
The Company has operating leases for corporate facilities and equipment. The
leases expire through 2000. Rent expense is amortized on a straight-line
basis over the terms of the related leases. Rent expense under the operating
leases was $317,000 and $88,000 for the years ended December 31, 1999 and
1998, respectively. In February 1999, the Company entered into an operating
lease for new corporate facilities which expires in January 2004. The
operating lease for the old corporate facilities was assigned to a third
party; however, the Company was not relieved of its primary obligation under
the original lease. In addition, the Company subleased a portion of its new
corporate facilities. The sublease expires in 2000.
The future minimum rental payments required under these noncancellable
operating leases are as follows for the years ending December 31:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
2000 $ 409
2001 343
2002 368
2003 370
2004 31
Thereafter -
---------
$ 1,521
=========
</TABLE>
Total future minimum rental income to be received for the year ended
December 31, 2000 is $112,000,
13. Subsequent Events
On March 22, 2000 the Company entered into an agreement to be acquired by
Cobalt Networks, Inc., ("Cobalt") whereby the Company will exchange all of
its outstanding shares of capital stock and options to purchase its common
stock for 1.15 million shares of Cobalt common stock. On May 23, 2000 this
acquisition was completed.
F-16
<PAGE>
COBALT NETWORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
OVERVIEW
The following unaudited pro forma condensed combined financial information,
including the notes thereto, is qualified in its entirety by reference to, and
should be read in conjunction with the historical consolidated financial
statements and notes thereto of Cobalt Networks, Inc. (the "Company") included
in the Company's Annual Report on Form 10-K filed March 29, 2000 and the
Company's March 31, 2000 unaudited quarterly condensed consolidated financial
statements on Form 10-Q filed May 15, 2000, with the Securities and Exchange
Commission and the historical financial statements and notes thereto of
Chili!Soft, included as exhibits herein.
The unaudited pro forma condensed combined financial information assume a
business combination between the Company and Chili!Soft accounted for as a
purchase business combination and are based on each entity's respective
historical financial statements and notes thereto, which are included herein or
are otherwise publicly available. The unaudited pro forma condensed combined
balance sheet combines the Company's condensed balance sheet as of March 31,
2000 with the Chili!Soft condensed combined balance sheet as of the same date
giving effect to the Acquisition as if it had occurred on March 31, 2000. The
unaudited pro forma condensed combined statements of operations combine the
Company's historical results of operation for the three months ended March 31,
2000 and the year ended December 31, 1999 with the Chili!Soft historical results
for the same periods giving effect to the Acquisition as if it had occurred at
January 1, 1999.
The unaudited 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 if the Acquisition had been consummated at the
beginning of the earliest period presented, nor is it necessarily indicative of
future operating results or financial position.
F-17
<PAGE>
COBALT NETWORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF MARCH 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Cobalt Chili!Soft Adjustments Combined
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 85,059 $ 205 $ (2,350) a $ 82,914
Short-term investments 50,194 - - 50,194
Accounts receivable, net of allowance 7,229 130 - 7,359
Inventories 682 - - 682
Deferred revenue costs - 269 - 269
Other current assets 2,787 44 (1,000) c 1,831
--------------- --------------- ---------------- ---------------
Total current assets 145,951 648 (3,350) 143,249
Property and equipment, net 1,825 417 - 2,242
Other assets - 259 - 259
Goodwill and other intangibles - - 78,427 a 78,427
--------------- --------------- ---------------- ---------------
Total assets $ 147,776 $ 1,324 $ 75,077 $ 224,177
=============== =============== ================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Subordinated debt $ - $ 1,000 $ (1,000) c $ -
Notes payable, current 45 67 112
Accounts payable 9,836 162 - 9,998
Accrued liabilities and other current liabilities 6,913 213 1,062 a 8,188
Deferred revenue - 1,083 - 1,083
Deferred margin on distributor inventory 1,513 - - 1,513
--------------- --------------- ---------------- ---------------
Total current liabilities 18,307 2,525 62 20,894
Notes payable 29 - - 29
--------------- --------------- ---------------- ---------------
18,336 2,525 62 20,923
--------------- --------------- ---------------- ---------------
Mandatorily Redeemable Convertible Preferred Stock - 5,327 (5,327) a -
Stockholders' equity:
Preferred Stock - - - -
Common Stock 28 3,366 (3,366) a 29
1 a
Additional paid-in capital 174,500 1,445 74,758 a 249,258
(1,445) a
Unearned stock-based compensation (5,209) (663) 663 a (5,209)
Notes receivable from stockholders (456) - - (456)
Accumulated deficit (39,423) (10,676) (830) a (40,368)
10,561 a
--------------- --------------- ---------------- ---------------
Total stockholders' equity 129,440 (6,528) 80,342 203,254
--------------- --------------- ---------------- ---------------
Total liabilities, mandatorily redeemable
convertible preferred stock and
stockholders' equity $ 147,776 $ 1,324 $ 75,077 $ 224,177
=============== =============== ================ ===============
</TABLE>
F-18
<PAGE>
COBALT NETWORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Cobalt Chili!Soft Adjustments Combined
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 22,814 $ 1,079 $ - $ 23,893
Cost of revenues 14,461 171 - 14,632
--------------- --------------- ---------------- ----------------
Gross profit: 8,353 908 - 9,261
--------------- --------------- ---------------- ----------------
Operating expenses:
Research and development 6,013 1,186 - 7,199
Sales and marketing 14,772 1,945 - 16,717
General and administrative 4,070 2,950 - 7,020
Amortization of goodwill and
other intangibles - - 26,436 b 26,436
Amortization of deferred stock-based
compensation 2,970 213 - 3,183
Litigation settlement 4,200 - - 4,200
--------------- --------------- ---------------- ----------------
Total operating expenses 32,025 6,294 26,436 64,755
--------------- --------------- ---------------- ----------------
Loss from operations (23,672) (5,386) (26,436) (55,494)
Interest and other income, net 1,587 26 - 1,613
Interest expense (221) (635) - (856)
--------------- --------------- ---------------- ----------------
Net loss (22,306) (5,995) (26,436) (54,737)
--------------- --------------- ---------------- ----------------
Accretion of mandatorily redeemable
preferred stock (1,377) - - (1,377)
--------------- --------------- ---------------- ----------------
Net loss attributable to common
stockholders $ (23,683) $ (5,995) $ (26,436) $ (56,114)
=============== =============== ================ ================
Net loss per share - basic and diluted $ (3.43) $ (7.17)e
=============== ================
Shares used in per share computation -
basic and diluted 6,901 7,825 d
=============== ================
</TABLE>
F-19
<PAGE>
COBALT NETWORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Cobalt Chili!Soft Adjustments Combined
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 12,033 $ 543 $ - $ 12,576
Cost of revenues 6,716 5 - 6,721
--------------- --------------- ---------------- ----------------
Gross profit: 5,317 538 - 5,855
--------------- --------------- ---------------- ----------------
Operating expenses:
Research and development 1,630 572 - 2,202
Sales and marketing 5,222 720 - 5,942
General and administrative 1,578 535 - 2,113
Amortization of goodwill and
other intangibles - - 6,610 b 6,610
Amortization of deferred stock-based
compensation 1,235 - - 1,235
--------------- --------------- ---------------- ----------------
Total operating expenses 9,665 1,827 6,610 18,102
--------------- --------------- ---------------- ----------------
Loss from operations (4,348) (1,289) (6,610) (12,247)
Interest and other income, net 1,765 2 - 1,767
Interest expense - (33) - (33)
--------------- --------------- ---------------- ----------------
Net loss $ (2,583) $ (1,320) $ (6,610) $ (10,513)
=============== =============== ================ ================
Net loss per share - basic and diluted $ (0.09) $ (0.37)e
=============== ================
Shares used in per share computation -
basic and diluted 27,464 28,388 d
=============== ================
</TABLE>
F-20
<PAGE>
COBALT NETWORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Effective May 23, 2000, the Company acquired Chili!Soft, Inc. a software
developer for Internet Service applications. The total purchase price has been
calculated as follows (in thousands):
<TABLE>
<S> <C>
Market value of 924,000 shares of common stock issued $ 60,112
Fair value of options assumed 14,647
Cash advances to acquisition prior to May 23, 2000 2,350
Direct acquisition costs 1,062
----------
Total purchase price $ 78,171
==========
</TABLE>
The total purchase price has been allocated to tangible and intangible
assets acquired and liabilities assumed on the basis of their respective fair
values on the acquisition date. The fair value of intangible assets was
determined using a combination of methods, including estimates based on risk-
based or risk-adjusted income approach for acquired in-process research and
development, completed technology and non-compete agreement, and on a cost
replacement approach for acquired work force. This valuation was determined by
an independent appraiser.
The allocation of the stock purchase price is summarized below (in
thousands):
<TABLE>
<S> <C>
Developed technology $ 1,790
In-process research and development 830
Non-compete agreement 2,250
Workforce 2,210
Goodwill 72,177
Net liabilities assumed (1,086)
----------
Total purchase price $ 78,171
==========
</TABLE>
The amount allocated to in-process research and development represents the
purchased in-process technology for projects that, as of the date of the
acquisition, had not yet reached technological feasibility and had no
alternative future use. Based on preliminary assessments, the value of these
projects was determined by estimating the resulting net cash flows from the sale
of the products resulting from the completion of the projects, reduced by the
portion of the revenue attributable to core technology and the percentage
completion of the project. The resulting cash flows were then discounted back
to their present value at appropriate discount rates. Cash flows related to the
in-process research and development were discounted at 30%.
Developed technology is technology that is being used in existing products
of the business and is distinguished from in-process technology because it has
achieved technological feasibility. Core technology represents fundamental
technology and advances that are the basis for the Company's developed and in-
process products. New and in-process products may leverage core technology to
different degrees depending on the extent of incorporation of new, previously
undeveloped technologies.
The nature of the efforts to develop the purchased in-process research and
development into commercially viable products principally relates to the
completion of all planning, designing, prototyping and testing activities that
are necessary to establish that the product can be produced to meet is design
specification, features and technical performance requirements. The resulting
net cash flows from such products are based on estimates of revenue, cost of
revenue, research and development costs, sales and marketing costs, and income
taxes from such projects.
F-21
<PAGE>
COBALT NETWORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
It is reasonably possible that the development of this technology could
fail because of either prohibitive cost, inability to perform the required
efforts to complete the technology or other factors outside of the Company's
control such as a change in the market for the resulting developed products. In
addition, at such time that the project is completed it is reasonably possible
that the completed product does not receive market acceptance or that we are
unable to produce and market the product cost effectively.
The amount allocated to in-process research and development will be charged
to the statement of operations in the period of the acquisition.
The pro forma adjustments to the unaudited condensed combined financial
statements are detailed below:
(a) To reflect the purchase price and deferred stock compensation, the
resulting in-process research and development charge and consolidation of
the Companies, as if the acquisition had occurred on March 31, 2000
(b) To reflect the amortization of stock compensation, developed technology and
goodwill, as if the acquisition had occurred on January 1, 1999 or 2000 as
applicable. In-process research and development has not been charged in
the pro forma adjustments to the statements of operations due to its non-
recurring nature.
(c) To reflect elimination of inter-company transactions.
(d) The number of shares used in the per share computation was calculated by
adjusting the weighted average shares of the Company for the pro forma
effects of the issuance of 924,000 shares of the Company's common stock to
the holders of Chili!Soft common stock as if such issuance had occurred at
the beginning of the earliest period presented and excludes 226,000 options
to purchase the Company's stock issued on assuming outstanding Chili!Soft
options.
(e) The pro forma net loss per share was calculated by dividing net loss by the
number of shares in (d) above.
F-22
<PAGE>
COBALT NETWORKS, INC.
FORM 8-K
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
--------------- -------------------------------------------------------------
<C> <S>
2.1* Agreement and Plan of Reorganization, dated March 22, 2000, by
and among Cobalt Networks, Inc., Blue Tortilla Acquisition
Corp. and Chili!Soft, Inc.
2.1.1* Form of Voting Agreement.
2.1.2* Form of Non-Competition Agreement.
2.1.3* Form of Merger Agreement.
2.1.4* Form of Surviving Company Articles of Incorporation.
2.1.5* Form of Cobalt Lock-up Agreement.
2.1.6* Form of Declaration of Registration Rights.
2.1.7* Form of Affiliate Agreement.
2.1.8* Form of Press Release. (See Exhibit 99.1)
2.1.9* From of Bonus Plan.
2.1.10* From of Wilson Sonsini Goodrich & Rosati opinion.
2.1.11* Form of Escrow Agreement.
2.1.12* Form of Crosby, Heafey, Roach & May opinion.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
99.1* Press Release dated March 23, 2000 regarding acquisition of
Chili!Soft, Inc.
99.2* Press release of Cobalt Networks, Inc. dated May 24, 2000
regarding acquisition of Chili!Soft, Inc.
</TABLE>
________________________
* Filed as an exhibit to Cobalt's Current Report on Form 8-K filed on June 8,
2000, and incorporated herein by reference.
