<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 19, 2000
BROADCOM CORPORATION
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<CAPTION>
California 000-23993 33-0480482
---------------------------- -------------------------- ------------------
<S> <C> <C>
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Incorporation) Identification No.)
</TABLE>
16215 Alton Parkway, Irvine, California 92618
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (949) 450-8700
Not Applicable
------------------------------------------------------
(Former Name or Former Address, if Changed since Last Report)
<PAGE> 2
This amendment to the Current Report on Form 8-K originally filed on
August 2, 2000, is being filed in order to include the historical financial
statements of Innovent Systems, Inc. ("Innovent") and the unaudited pro forma
financial information listed below.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
The following financial statements of Innovent are included in this
report:
Audited balance sheet as of December 31, 1999 and the related statements
of operations, stockholders' equity (deficit) and cash flows for the
year then ended and for the period from October 22, 1998 (inception) to
December 31, 1999.
Unaudited balance sheet as of June 30, 2000 and the unaudited statements
of operations, stockholders' equity (deficit) and cash flows for the six
months ended June 30, 2000 and 1999, and for the period from October 22,
1998 (inception) to June 30, 2000.
(b) Pro forma financial information.
The following unaudited pro forma condensed financial information is
being filed herewith:
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30,
2000.
Unaudited Pro Forma Condensed Combined Statements of Operations for the
six months ended June 30, 2000 and the year ended December 31, 1999.
(c) Exhibits.
23.1 Consent of KPMG LLP
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Innovent Systems, Inc.:
We have audited the accompanying balance sheet of Innovent Systems, Inc. (a
development stage enterprise, formerly known as MicroLink Corporation) as of
December 31, 1999 and the related statements of operations, stockholders' equity
(deficit) and cash flows for the year then ended and for the period from October
22, 1998 (inception) to December 31, 1999. 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 auditing standards generally accepted
in the United States of America. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Innovent Systems, Inc. (a
development stage enterprise, formerly known as MicroLink Corporation) as of
December 31, 1999 and the results of its operations and its cash flows for the
year ended December 31, 1999 and the period from October 22, 1998 (inception) to
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America.
KPMG LLP
Orange County, California
May 15, 2000
<PAGE> 4
INNOVENT SYSTEMS, INC.
(A Development Stage Enterprise,
formerly known as MicroLink Corporation)
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 2000
Assets 1999 (UNAUDITED)
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,665,631 3,129,987
Short-term investment 76,100 77,794
Prepaid expenses and other current assets 62,753 66,595
----------- -----------
Total current assets 1,804,484 3,274,376
Property and equipment, net 167,709 392,602
Other assets 11,825 23,634
----------- -----------
$ 1,984,018 3,690,612
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ -- 6,000,000
Convertible notes payable 750,000 1,200,000
Accounts payable and accrued expenses 499,274 1,383,732
----------- -----------
Total current liabilities 1,249,274 8,583,732
----------- -----------
Commitments and contingencies (note 7)
Subsequent event (note 8)
Stockholders' equity (deficit):
Undesignated preferred stock, no par value
1,250,000 shares authorized; no shares issued or outstanding -- --
Series A preferred stock, no par value
2,700,000 shares authorized; 2,599,740 shares issued and
outstanding at December 31, 1999 and June 30, 2000 (unaudited) 3,379,662 3,379,662
Common stock, no par value
20,000,000 shares authorized; 7,246,597 and 10,245,057 (unaudited)
shares issued and outstanding at December 31, 1999 and
June 30, 2000, respectively 180,202 12,112,160
Stockholder notes and common stock receivables (55,658) (11,987,616)
Additional paid-in capital 36,129 3,285,765
Deficit accumulated during the development stage (2,805,591) (11,683,091)
----------- -----------
Total stockholders' equity (deficit) 734,744 (4,893,120)
----------- -----------
$ 1,984,018 3,690,612
=========== ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
INNOVENT SYSTEMS, INC.
(A Development Stage Enterprise,
formerly known as MicroLink Corporation)
Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
OCTOBER 22, OCTOBER 22,
1998 1998
YEAR ENDED (INCEPTION) TO SIX MONTHS ENDED JUNE 30 (INCEPTION) TO
DECEMBER 31, DECEMBER 31, ---------------------------- JUNE 30,
1999 1999 2000 1999 2000
----------- -------------- ---------- --------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating expenses:
Payroll, consulting
and related $ 1,743,800 1,787,506 2,603,596 491,026 4,391,102
Stock-based compensation 16,229 16,229 3,249,636 2,217 3,265,865
Product and software
development 563,713 563,713 1,573,985 144,768 2,137,698
Rent, utilities and insurance 179,863 194,863 279,793 47,751 474,656
Professional fees 157,432 162,432 560,762 153,495 723,194
Advertising and promotion 67,057 67,057 303,067 44,390 370,124
Depreciation 27,843 27,843 41,881 8,244 69,724
Other operating expenses 31,080 41,080 91,818 4,409 132,898
----------- ---------- ---------- --------- -----------
Total operating
expenses 2,787,017 2,860,723 8,704,538 896,300 11,565,261
----------- ---------- ---------- --------- -----------
Interest (income) expense:
Interest expense 11,268 11,268 175,237 9,856 186,505
Interest income (68,000) (68,000) (4,675) (23,110) (72,675)
----------- ---------- ---------- --------- -----------
Interest (income)
expense, net (56,732) (56,732) 170,562 (13,254) 113,830
----------- ---------- ---------- --------- ----------
Loss before
provision for
income taxes 2,730,285 2,803,991 8,875,100 883,046 11,679,091
Provision for income taxes 800 1,600 2,400 800 4,000
----------- ---------- ---------- --------- -----------
Net loss $ 2,731,085 2,805,591 8,877,500 883,846 11,683,091
=========== ========== ========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 6
INNOVENT SYSTEMS, INC.
(A Development Stage Enterprise,
formerly known as MicroLink Corporation)
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
DEFICIT
SERIES A STOCKHOLDER ADD- ACCUMULATED
PREFERRED STOCK COMMON STOCK NOTE AND ITIONAL DURING THE TOTAL
--------------------- ---------------------- COMMON STOCK PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT RECEIVABLE CAPITAL STAGE EQUITY
--------- ---------- ---------- ----------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 22, 1998
(inception) -- $ -- -- $ -- -- -- -- --
Issuance of common stock -- -- 5,000,000 100 -- 19,900 -- 20,000
Net loss -- -- -- -- -- -- (74,506) (74,506)
--------- ---------- ---------- ----------- ----------- --------- ----------- ----------
Balance at December 31, 1998 -- -- 5,000,000 100 -- 19,900 (74,506) (54,506)
Issuance of common stock -- -- 1,555,556 124,444 -- -- -- 124,444
Exercise of stock options -- -- 24,375 2,325 (2,325) -- -- --
Exercise of stock options
for note receivable -- -- 666,666 53,333 (53,333) -- -- --
Issuance of Series A
preferred stock 1,899,851 2,469,806 -- -- -- -- -- 2,469,806
Conversion of notes payable
and accrued interest into
Series A preferred stock 699,889 909,856 -- -- -- -- -- 909,856
Equity instruments issued to
non-employees -- -- -- -- -- 16,229 -- 16,229
Net loss -- -- -- -- -- -- (2,731,085) (2,731,085)
--------- ---------- ---------- ----------- ----------- --------- ----------- ----------
Balance at December 31, 1999 2,599,740 3,379,662 7,246,597 180,202 (55,658) 36,129 (2,805,591) 734,744
Exercise of stock options for
notes and common stock
receivables (unaudited) -- -- 2,998,460 11,931,958 (11,931,958) -- -- --
Equity instruments issued to
non-employees (unaudited) -- -- -- -- -- 2,134,816 -- 2,134,816
Stock options issued to
employees (unaudited) -- -- -- -- -- 1,114,820 -- 1,114,820
Net loss (unaudited) -- -- -- -- -- -- (8,877,500) (8,877,500)
--------- ---------- ---------- ----------- ----------- --------- ----------- ----------
Balance at June 30, 2000
(unaudited) 2,599,740 $3,379,662 10,245,057 $12,112,160 (11,987,616) 3,285,765 (11,683,091) (4,893,120)
========= ========== ========== =========== =========== ========= =========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 7
INNOVENT SYSTEMS, INC.
(A Development Stage Enterprise,
formerly known as MicroLink Corporation)
Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
OCTOBER 22, OCTOBER 22,
1998 1998
YEAR ENDED (INCEPTION) TO SIX MONTHS ENDED JUNE 30 (INCEPTION) TO
DECEMBER 31, DECEMBER 31, ------------------------- JUNE 30,
1999 1999 2000 1999 2000
----------- ------------- ----------- ---------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,731,085) (2,805,591) (8,877,500) (883,846) (11,683,091)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 27,843 27,843 41,881 8,244 69,724
Issuance of equity instruments to non-employees 16,229 16,229 2,134,816 2,217 2,151,045
Issuance of stock options to employees -- -- 1,114,820 -- 1,114,820
Interest expense accrued on convertible notes 11,222 11,222 175,237 9,856 186,459
Interest income accrued on stockholder
note receivable (1,748) (1,748) (1,435) -- (3,183)
Changes in assets and liabilities:
Prepaid expenses and other current assets (61,005) (61,005) (2,407) -- (63,412)
Other assets (8,664) (11,825) (11,809) (2,444) (23,634)
Accrued expenses 497,908 497,908 709,221 253,115 1,207,129
----------- ----------- ----------- ---------- -----------
Net cash used in operating activities (2,249,300) (2,326,967) (4,717,176) (612,858) (7,044,143)
----------- ----------- ----------- ---------- -----------
Cash flows from investing activities:
Purchase of short-term investment (76,100) (76,100) (1,694) -- (77,794)
Purchase of furniture and equipment (168,843) (195,552) (266,774) (52,230) (462,326)
----------- ----------- ----------- ---------- -----------
Net cash used in investing activities (244,943) (271,652) (268,468) (52,230) (540,120)
----------- ----------- ----------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 1,000,000 1,650,000 6,450,000 250,000 8,100,000
Proceeds from issuance of common stock 124,444 144,444 -- 124,444 144,444
Proceeds from issuance of Series A preferred stock 2,469,806 2,469,806 -- 2,469,806 2,469,806
----------- ----------- ----------- ---------- -----------
Net cash provided by financing activities 3,594,250 4,264,250 6,450,000 2,844,250 10,714,250
----------- ----------- ----------- ---------- -----------
Net increase in cash and cash equivalents 1,100,007 1,665,631 1,464,356 2,179,162 3,129,987
Cash and cash equivalents at beginning of period 565,624 -- 1,665,631 565,624 --
----------- ----------- ----------- ---------- -----------
Cash and cash equivalents at end of period $ 1,665,631 1,665,631 3,129,987 2,744,786 3,129,987
=========== =========== =========== ========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 800 800 2,400 800 3,200
=========== =========== =========== ========== ===========
Supplemental disclosure of non-cash
financing activities:
Conversion of notes payable to
Series A preferred stock $ 909,856 909,856 -- 909,856 909,856
Exercise of stock options with
notes and common stock receivables 55,658 55,658 11,931,958 55,658 11,987,616
=========== =========== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 8
INNOVENT SYSTEMS, INC.
(A Development Stage Enterprise,
formerly known as MicroLink Corporation)
Notes to Financial Statements
(Information as of June 30, 2000 and for the
six-month periods ended June 30, 2000 and 1999 is unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Innovent Systems, Inc. (the Company) was incorporated in the
state of California as Metalink Corporation in October 1997. In
March 1998, the Company changed its name from Metalink
Corporation to MicroLink Corporation. The Company commenced
operations in October 1998, and changed its name to Innovent
Systems, Inc. in February 2000. The Company is engaged in the
development and integration of radio frequency integrated
circuits for short-range wireless data communication. The
Company's primary activities include systems architecture and
design techniques for radio frequency integrated circuits, error
free signal coding, modulation techniques and wireless
networking protocols. The Company's headquarters and main design
center is located in El Segundo, California. The Company also
has a design center in San Diego, California.
The Company is a development stage enterprise and is devoting
substantially all of its efforts towards conducting research and
development, raising capital and building infrastructure. In the
course of such activities, the Company has sustained operating
losses and expects such losses to continue for the foreseeable
future. The Company has not generated any revenues or product
sales and has not achieved profitable operations or positive
cash flows from operations. No assurance can be given that
additional capital, if needed, will be available when required
or upon terms acceptable to the Company.
(b) UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information. In the opinion of management, the accompanying
unaudited interim financial statements have been prepared on the
same basis as the audited financial statements and include all
adjustments, consisting of normal recurring adjustments,
necessary for the fair presentation of the Company's financial
position as of June 30, 2000 and the results of its operations
and its cash flows for the six months ended June 30, 2000 and
1999. Results for the six months ended June 30, 2000 are not
necessarily indicative of future results of operations.
(c) CASH EQUIVALENTS
The Company's cash equivalents represent highly liquid
investments, primarily money market funds, with original
maturities of three months or less.
(d) SHORT-TERM INVESTMENT
The Company's short term investment consists of a certificate of
deposit with a bank with an original maturity greater than three
months.
6
<PAGE> 9
(e) CONCENTRATION OF CREDIT RISK
The Company invests its excess cash in money market mutual funds
and certificates of deposit with an objective that seeks to
ensure both liquidity and safety of principal. These money
market mutual funds and certificates of deposit are not insured.
(f) PROPERTY AND EQUIPMENT
Furniture and equipment are recorded at cost. Depreciation is
provided using the straight-line method over the estimated
useful lives of three to seven years.
(g) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in operations in the period that includes the
enactment date. The Company records a valuation allowance for
certain temporary differences for which it is more likely than
not that it will not receive future tax benefits.
(h) LONG-LIVED ASSETS
The Company applies the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. Under the provisions of SFAS No. 121, the
recoverability of long-lived assets is assessed by determining
whether the carrying value of the asset can be recovered through
projected undiscounted future operating cash flows over its
remaining life. The amount of impairment, if any, is measured
based upon the excess of the asset's carrying value over its
fair value. Assets to be disposed of are reported at the lower
of the carrying amount or the fair value less costs to sell.
(i) STOCK BASED COMPENSATION
The Company has elected to follow the accounting provisions of
Accounting Principles Board Opinion No. (APB) 25, Accounting for
Stock Issued to Employees, for stock-based compensation and to
furnish the pro forma disclosures required by SFAS No. 123,
Accounting for Stock-Based Compensation. Under APB 25, if the
exercise price of the Company's employee stock options equals
management's estimate of the fair market value of the underlying
stock on the date of grant, no compensation expense is recorded.
During the six months ended June 30, 2000, the Company granted
certain stock options at exercise prices below deemed fair
market value, and therefore recorded compensation expense
associated with these stock options (see note 3).
7
<PAGE> 10
Equity instruments issued to non-employees are measured using
the fair value of the equity instruments using the stock price
and other measurement assumptions as of the earlier of the date
at which a performance commitment to earn the equity instruments
is reached or the date at which the performance is complete.
(j) USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions.
This affects 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 expenses
during the reporting period. Actual results could differ from
those estimates.
(k) OTHER COMPREHENSIVE INCOME
The Company applies SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes the rules for the reporting of
comprehensive income (loss) and its components. During the
periods presented, the Company did not have any components of
other comprehensive income or loss, and thus net loss equals
comprehensive loss in the accompanying financial statements.
(l) SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131
supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, replacing the "industry segment" approach
with the "management" approach. The management approach is based
on the way that management organizes its operating segments
within the enterprise. Operating segments, as defined by SFAS
No. 131, are components of an enterprise for which separate
financial information is available and is evaluated regularly by
the Company in deciding how to allocate resources and in
assessing performance. SFAS No. 131 also requires disclosures
about products and services, geographic areas, and major
customers. The Company operates in one operating segment for
purposes of SFAS No. 131.
(m) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 was
effective for all fiscal quarters for fiscal years beginning
after June 15, 1999. In August 1999, the FASB issued SFAS No.
137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement
No. 133, An Amendment of FASB Statement No. 133, which defers
the effective date of SFAS No. 133 to all fiscal quarters for
fiscal years beginning after June 15, 2000. In June 2000, the
FASB issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an Amendment of FASB
Statement No. 133. SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments
embedded in other contracts and for hedging
8
<PAGE> 11
activities. The application of these statements is not expected
to have a material impact on the Company's financial position,
results of operations or liquidity.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin 101 (SAB 101) Revenue Recognition in
Financial Statements, as amended by SAB 101A and SAB 101B. This
Staff Accounting Bulletin, as amended, summarizes certain of the
staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements, and
is effective for the Company's fourth fiscal quarter of 2000.
The Company does not expect the adoption of SAB 101 to have a
material impact on the Company's results of operations.
In March 2000, the FASB issued Interpretation No. 44 Accounting
for Certain Transactions Involving Stock Compensation - an
interpretation of APB Opinion No. 25 (FIN 44). This
Interpretation clarifies the definition of an employee for
purposes of applying APB 25, the criteria for determining
whether a plan qualifies as a noncompensatory plan, the
accounting consequence of various modifications to the terms of
a previously fixed stock option or award, and the accounting for
an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but
certain conclusions in this Interpretation cover specific events
that occur after either December 15, 1998 or January 12, 2000.
The adoption of FIN 44 is not expected to have a material impact
on the Company's financial position, results of operations or
liquidity.
(2) PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ --------
<S> <C> <C>
Office furniture and equipment $ 46,165 103,710
Computer equipment 149,387 358,616
-------- --------
195,552 462,326
Less accumulated depreciation 27,843 69,724
-------- --------
$167,709 392,602
======== ========
</TABLE>
9
<PAGE> 12
(3) STOCKHOLDERS' EQUITY (DEFICIT)
(a) STOCK SPLIT
In January 1999, the Company completed a five-for-one stock
split, effected by canceling all existing shares of common stock
and reissuing new shares of common stock adjusted for the stock
split. All share, per share and related data presented in the
financial statements and footnotes have been retroactively
adjusted to reflect this stock split.
(b) SERIES A PREFERRED STOCK
During 1999, the Board of Directors of the Company authorized
the issuance of up to 2,700,000 shares of Series A preferred
stock. In April and May 1999, the Company issued 2,599,740 total
shares of Series A preferred stock for $2,469,806 in cash and
the conversion of $900,000 of notes payable, plus $9,856 of
accrued interest thereon recorded during the six months ended
June 30, 1999, the year ended December 31, 1999 and for the
period from October 22, 1998 (inception) to December 31, 1999.
CONVERSION FEATURE
Each share of Series A preferred stock outstanding is
convertible at the option of the holder into one share of common
stock, subject to certain adjustments, and automatically
converts upon the completion of an underwritten public offering
of common stock with gross proceeds of at least $15,000,000 and
a price per share which equals or exceeds $1.30 per share.
DIVIDEND AND VOTING RIGHTS
Each share of Series A preferred stock entitles its holder to
one vote for each common share into which such shares would
convert. Dividends shall be paid, when and if declared by the
Board of Directors, at the rate of 8% per share of the
outstanding Series A preferred stock and shall be payable out of
funds legally available. No dividends have been declared to
date.
LIQUIDATION RIGHTS
The holders of the Series A preferred stock are entitled to
receive their original issuance price of $1.30 per share in
liquidation, plus an amount equal to all declared but unpaid
dividends. Series A preferred stock has liquidation rights,
prior to and in preference to any distribution to the holders of
common stock. At December 31, 1999, the aggregate liquidation
preference of the Series A preferred stock was approximately
$3,379,662. Upon a change in control, the fair value of the
assets received shall be distributed first to the preferred
stockholders to satisfy the liquidation preference.
(c) UNDESIGNATED PREFERRED STOCK
In addition to the outstanding Series A preferred stock shares,
there are 1,250,000 authorized shares of preferred stock not
designated to a specific class of preferred stock as of June 30,
2000 and
10
<PAGE> 13
December 31, 1999. There is no undesignated preferred stock
outstanding at June 30, 2000 and December 31, 1999.
(d) 1999 AND 2000 STOCK OPTION/STOCK ISSUANCE PLANS
The Company has adopted the 1999 and 2000 Stock Option/Stock
Issuance Plans (the "Plans") to provide eligible individuals
with an opportunity to acquire or increase an equity interest in
the Company. Stock options are granted at the fair market value
of the stock on the date of grant as determined by the Board of
Directors of the Company. Stock options are exercisable for a
period not to exceed ten years from the date of grant. Options
are immediately exercisable, and the Company has the right to
repurchase exercised shares at the option or direct issue price.
This repurchase right expires over a period of four years. There
are 6,833,332 shares reserved for issuance under the Plans.
The following summarizes the stock option transactions under the
Plan during the year ended December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Options outstanding at December 31, 1998 -- $ --
Granted 1,860,986 0.11
Exercised (691,041) 0.08
----------
Options outstanding and exercisable
at December 31, 1999 1,169,945 0.12
Granted 3,945,000 7.15
Exercised (2,998,460) 3.98
----------
Options outstanding and exercisable
at June 30, 2000 2,116,485 $ 0.92
========== ==========
</TABLE>
For the options outstanding at December 31, 1999, the weighted
average contractual life was approximately 9.5 years. As of
December 31, 1999 and June 30, 2000, there were 472,346 and
1,027,346 shares available for future grant under the Plans.
11
<PAGE> 14
The Company applies APB 25 and related Interpretations in
accounting for stock options granted to employees, and
accordingly, no compensation cost has been recognized in the
accompanying financial statements for all periods presented for
options granted when the option price equals the deemed fair
market value. The Company recorded approximately $1.1 million of
compensation expense during the six months ended June 30, 2000
as a result of the grant of stock options to employees at prices
below deemed fair market value. The compensation charge was
calculated using the Black-Scholes option pricing model assuming
the weighted average assumptions below, and was recorded in
stock-based compensation in the accompanying statements of
operations for the six months ended June 30, 2000. Had the
Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123 for
stock options granted to employees at deemed fair market value,
the Company's net loss would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 22,
1998
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1999 1999
------------ --------------
<S> <C> <C>
Net loss:
As reported $(2,731,085) (2,805,591)
Pro forma (2,740,857) (2,815,363)
=========== ===========
</TABLE>
The fair value of options granted during 1999 was approximately
$0.02 per option granted, and was estimated using the
Black-Scholes option pricing model assuming the following
weighted-average assumptions:
<TABLE>
<S> <C>
Expected dividend yield 0.0%
Risk free interest rate 6.0%
Expected volatility 0.1%
Expected life 4 years
</TABLE>
The Black-Scholes option pricing model, as well as other
currently accepted option valuation models, was developed to
estimate the fair value of freely-tradable, fully-transferable
options without vesting restrictions, which significantly differ
from the Company's stock option plan. These models also require
highly subjective assumptions, including future stock price
volatility and expected time until exercise, which greatly
affect the calculated fair value on the grant date.
12
<PAGE> 15
(e) ISSUANCE OF STOCK OPTIONS TO NON-EMPLOYEES
During 1999, the Company issued 170,487 stock options to certain
non-employee consultants and technical advisory board members.
During the six-month period ended June 30, 2000, the Company
granted an additional 375,000 options to certain non-employee
consultants and technical advisory board members. The options
are immediately exercisable, and the Company has the right to
repurchase exercised shares. This repurchase right expires over
a period of four years. If the consultant or technical advisory
board member discontinues their work for the Company, the
unvested shares are subject to repurchase at the original
exercise price or cancellation. The Company valued the options
using the Black-Scholes option pricing model and the input
assumptions described in (d) above. The fair value of the
options was approximately $4,100, which was charged to
operations for the year ended December 31, 1999 and for the
period from October 22, 1998 (inception) to December 31, 1999.
For the six-month periods ended June 30, 2000 and 1999, the fair
value of options granted to non-employees was approximately $1.7
million and $800, respectively. The fair value of the unvested
options will be remeasured at each reporting period, using the
fair value of the underlying stock at the time, upon completion
of the related services. The related expense will be charged to
operations throughout the vesting period.
(f) ISSUANCE OF COMMON STOCK FOR CASH AND SERVICES
During May 1999, the Company issued 1,555,556 shares of common
stock in exchange for cash and a consulting agreement. 1,037,037
shares were vested immediately, and 518,519 shares vest over the
period of the consulting agreement. Approximately $1,400,
$12,100 and $395,000 were charged to operations for the six
months ended June 30, 1999, the year ended December 31, 1999,
and the six months ended June 30, 2000, respectively, associated
with this agreement.
(g) EXERCISE OF STOCK OPTIONS FOR NOTES RECEIVABLE
During April 1999, the Chief Executive Officer of the Company
exercised stock options for 666,666 shares by issuing a full
recourse note to the Company in the amount of $53,333. The note
is secured by the common stock issued as a result of the
exercise and the employee's personal property. The note bears
interest at 5.21% per annum, and principal and accrued interest
are due in April 2004. During the six-month periods ended June
30, 2000 and 1999, the Company accrued approximately $1,400 and
$350, respectively, in interest income related to this note,
which is included in other current assets in the accompanying
balance sheets. During the year ended December 31, 1999 and
13
<PAGE> 16
during the period from October 22, 1998 (inception) to December
31, 1999, the Company accrued approximately $1,700 related to
this note. The shares underlying the stock option exercise are
subject to repurchase by the Company as described in (d) above.
During June 2000, approximately 3.0 million shares of common
stock were issued as the result of employees exercising stock
options with full recourse notes. The notes bear market interest
rates with due dates five years from the date of issuance, and
are secured by the underlying common stock and the employee's
personal property. During the six months ended June 30, 2000,
the associated interest income was not material to the financial
statements. The shares underlying the stock option exercises are
subject to repurchase by the Company as described in (d) above.
(4) CONVERTIBLE NOTES PAYABLE
At various times throughout 1998 and 1999, the Company issued
convertible notes to various creditors and stockholders. These notes,
totaling $900,000, and accrued interest thereon, were converted to
Series A preferred stock in connection with the closing of the Series A
preferred stock offering in April and May 1999.
In December 1999, the Company issued a convertible note to an individual
stockholder for $750,000. The note has a stated interest rate of 9.5%
per annum. The note is unsecured and converts to Series B preferred
stock automatically at the earlier of the closing of a Series B
preferred stock offering of at least $5,000,000, or on July 1, 2000. The
note can be converted at the election of the note holder any time prior
to the closing of a Series B preferred stock offering or July 1, 2000.
Upon conversion as a result of the Series B preferred stock offering,
the note is convertible at the per share price of the offering. If the
note is not converted by July 1, 2000 or the note is converted at the
election of the stockholder, the note is convertible based upon the per
share value of the dilutive shares outstanding assuming a $35,000,000
valuation. The Company recorded interest expense related to this note of
approximately $1,400 during the year ended December 31, 1999 and during
the period from October 22, 1998 (inception) to December 31, 1999, and
approximately $36,000 during the six months ended June 30, 2000, which
is recorded in accrued expenses in the accompanying balance sheet at
December 31, 1999. The entire principal amount was classified as a
current liability at June 30, 2000 and December 31, 1999.
In January 2000, the Company issued an additional convertible note
payable to a corporate stockholder for $450,000. The note has a stated
interest rate of 9.5% per annum. The note is unsecured and converts to
Series B preferred stock automatically at the earlier of the closing of
a Series B preferred stock offering of at least $5,000,000, or on July
1, 2000. The note can be converted at the election of the note holder
any time prior to the closing of a Series B preferred stock offering or
July 1, 2000. Upon conversion as a result of the Series B preferred
stock offering, the note is convertible at the per share price of the
offering. If the note is not converted by July 1, 2000, or if the note
is converted at the election of the stockholder, the note is convertible
based upon the per share value of the dilutive shares outstanding
assuming a $35,000,000 valuation. The Company recorded approximately
$19,000 of interest expense during the six months ended June 30, 2000
associated with this note payable. The entire principal amount was
classified as a current liability at June 30, 2000.
14
<PAGE> 17
(5) NOTES PAYABLE
In January 2000 and May 2000, the Company issued notes payable to a
corporate stockholder for $2.0 million and $4.0 million, respectively.
The notes are unsecured and bear interest at 9.5% per annum, and the
principal and any unpaid accrued interest is due in August 2000, as a
result of the sale of the Company (see note 8). The Company recorded
approximately $175,000 of interest expense for the six months ended June
30, 2000 associated with these notes payable.
(6) INCOME TAXES
Income tax expense for all periods presented consists of minimum state
income taxes.
The following table summarizes the tax effects of temporary differences
which give rise to significant portions of the deferred tax assets and
liability at December 31, 1999:
<TABLE>
<S> <C>
Deferred tax assets:
Accrued vacation $ 31,833
Capitalized start up costs 206,841
Net operating loss carryforward 962,534
Research and development
credit carryforward 227,895
-----------
Total deferred tax assets 1,429,103
Valuation allowance (1,427,339)
-----------
Net deferred tax assets 1,764
Deferred tax liabilities:
Depreciation (1,764)
-----------
Net deferred tax assets $ --
===========
</TABLE>
At December 31, 1999, the Company had tax net operating loss
carryforwards for federal and state income tax purposes of approximately
$2,247,000 and $2,245,000, respectively, which are available to offset
future taxable income, if any, through 2019 and 2004, respectively.
In addition, the Company has research and development credit
carryforwards for federal and state income tax purposes at December 31,
1999 of approximately $120,000 and $101,000, respectively, which will
expire through 2014.
15
<PAGE> 18
In assessing the realizability of the net deferred tax assets,
management considers whether it is more likely than not that some or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during periods in which those temporary
differences become deductible. The Company has provided a valuation
allowance to reduce the net deferred tax assets due to the uncertainty
surrounding the realizability of this net asset.
In accordance with Internal Revenue Code Section 382, the annual
utilization of net operating loss carryforwards and credits existing
prior to a change in control in the Company may be limited.
(7) COMMITMENTS AND CONTINGENCIES
(a) LEASES
The Company leases certain equipment and office space under
non-cancelable operating lease agreements which provide for
total future minimum annual lease payments as follows:
<TABLE>
Year ending December 31:
------------------------
<S> <C>
2000 $203,810
2001 211,168
2002 84,058
2003 62,220
2004 and thereafter --
--------
Total minimum payments $561,256
========
</TABLE>
Rent expense was approximately $169,000 and $19,000 for the
six-month periods ended June 30, 2000 and 1999, respectively,
$71,000 for the year ended December 31, 1999 and approximately
$85,000 for the period from October 22, 1998 (inception) to
December 31, 1999.
(b) SOFTWARE LICENSE AGREEMENT
In October 1999, the Company entered into an agreement to obtain
a software license from Cadence Design Systems. This license
requires quarterly payments beginning in January 2000. For the
year ended December 31, 1999 and for the period from October 22,
1998 (inception) to December 31, 1999, the Company recorded
approximately $87,000 of expense associated with this agreement
utilizing the straight-line method. For the six months ended
June 30, 2000, the Company recorded approximately $175,000 of
expense associated with this agreement utilizing the
straight-line method. The Company's remaining obligations under
this license agreement are approximately $382,000 and $402,000
for the years ending December 31, 2000 and 2001, respectively.
16
<PAGE> 19
(c) LEGAL MATTERS
The Company is subject to legal proceedings and claims which
have arisen in the ordinary course of business. In the opinion
of management, the amount of potential liability with respect to
these actions will not materially affect the financial position,
liquidity or results of operations of the Company.
(8) SUBSEQUENT EVENT (UNAUDITED)
In July 2000, the Company completed a transaction whereby the Company
was acquired by Broadcom Corporation, an existing stockholder of the
Company. In connection with the acquisition, Broadcom Corporation issued
an aggregate of approximately 2.9 million shares of its Class A Common
Stock in exchange for all outstanding shares of the Company's preferred
and common stock and upon exercise of outstanding employee stock
options.
* * * * *
17
<PAGE> 20
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2000
(In thousands)
<TABLE>
<CAPTION>
Historical
----------------------------- Pro Forma Pro Forma
Broadcom Innovent Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 280,880 $ 3,130 $ -- $ 284,010
Short-term investments 98,982 78 -- 99,060
Accounts receivable, net 117,075 -- -- 117,075
Inventory 38,617 -- -- 38,617
Deferred taxes 8,380 -- -- 8,380
Prepaid expenses and other current assets 26,317 66 -- 26,383
----------- ----------- ----------- -----------
Total current assets 570,251 3,274 -- 573,525
Property and equipment, net 62,786 393 -- 63,179
Long-term investments -- -- -- --
Deferred taxes 293,160 -- (70,407)(a) 222,753
Goodwill and purchased intangibles, net -- -- 267,958 (a) 267,958
Other assets 15,309 24 (6,000)(c) 8,808
(525)(b)
----------- ----------- ----------- -----------
Total assets $ 941,506 $ 3,691 $ 191,026 $ 1,136,223
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 62,400 $ -- $ -- $ 62,400
Wages and related benefits 11,025 -- -- 11,025
Accrued liabilities 22,139 1,384 250 (d) 23,598
(175)(c)
Current portion of long-term debt 1,167 7,200 (7,200)(c)(e) 1,167
----------- ----------- ----------- -----------
Total current liabilities 96,731 8,584 (7,125) 98,190
Long-term debt, less current portion 966 -- -- 966
Shareholders' equity:
Common stock 681,092 18,778 (18,778)(f) 1,228,058
(395)(c)
1,200 (e)
546,161 (g)
Notes receivable from employees (1,426) (11,988) -- (13,414)
Deferred stock-based compensation (10,414) -- (300,600)(a) (311,014)
Retained earnings 174,557 (11,683) (41,690)(h) 133,437
570 (c)
11,683 (f)
----------- ----------- ----------- -----------
Total shareholders' equity 843,809 (4,893) 198,151 1,037,067
----------- ----------- ----------- -----------
Total liabilities and shareholders' equity $ 941,506 $ 3,691 $ 191,026 $ 1,136,223
=========== =========== =========== ===========
</TABLE>
18
<PAGE> 21
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 2000
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical
---------------------- Pro Forma Pro Forma
Broadcom Innovent Adjustments Combined
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue $436,768 $ -- $ -- $436,768
Cost of revenue 181,597 -- -- 181,597
-------- -------- -------- --------
Gross profit 255,171 -- -- 255,171
Operating expense:
Research and development 97,558 3,955 -- 101,513
Selling, general and administrative 42,761 1,500 -- 44,261
Amortization of goodwill and
purchased intangibles -- -- 26,906 (i) 26,906
Stock-based compensation expense -- 3,250 39,877 (j) 42,732
(395)(c)
Merger-related costs 4,745 -- -- 4,745
-------- -------- -------- --------
Income (loss) from operations 110,107 (8,705) (66,388) 35,014
Interest and other income (expense), net 8,050 (171) 175 (c) 8,054
-------- -------- -------- --------
Income (loss) before income taxes 118,157 (8,876) (66,213) 43,068
Provision (benefit) for income taxes 23,631 2 (9,260)(k) 14,373
-------- -------- -------- --------
Net income (loss) $ 94,526 $ (8,878) $(56,953) $ 28,695
======== ======== ======== ========
Basic earnings per share $ 0.44 $ 0.13
======== ========
Diluted earnings per share $ 0.37 $ 0.11
======== ========
Weighted average shares (basic) 212,911 214,379
======== ========
Weighted average shares (diluted) 253,261 255,937
======== ========
</TABLE>
19
<PAGE> 22
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical
------------------------ Pro Forma Pro Forma
Broadcom Innovent Adjustments Combined
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue $ 521,225 $ -- $ -- $ 521,225
Cost of revenue 211,991 -- -- 211,991
--------- --------- --------- ---------
Gross profit 309,234 -- -- 309,234
Operating expense:
Research and development 121,733 2,132 -- 123,865
Selling, general and administrative 62,602 639 -- 63,241
Amortization of goodwill and
purchased intangibles -- -- 53,812 (i) 53,812
Stock-based compensation expense -- 16 79,754 (j) 79,758
(12)(c)
Merger-related costs 15,210 -- -- 15,210
Litigation settlement costs 17,036 -- -- 17,036
--------- --------- --------- ---------
Income (loss) from operations 92,653 (2,787) (133,554) (43,688)
Interest and other income, net 8,648 57 -- 8,705
--------- --------- --------- ---------
Income (loss) before income taxes 101,301 (2,730) (133,554) (34,983)
Provision (benefit) for income taxes 28,830 1 (12,555)(k) 16,276
--------- --------- --------- ---------
Net income (loss) $ 72,471 $ (2,731) $(120,999) $ (51,259)
========= ========= ========= =========
Basic earnings (loss) per share $ 0.36 $ (0.25)
========= =========
Diluted earnings (loss) per share $ 0.31 $ (0.25)
========= =========
Weighted average shares (basic) 201,667 203,135
========= =========
Weighted average shares (diluted) 235,651 203,135
========= =========
</TABLE>
20
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
In July 2000 Broadcom Corporation (the "Company") acquired the 87% of
Innovent Systems, Inc. ("Innovent") that it had not previously owned resulting
in Innovent becoming 100% owned by the Company. The accompanying Unaudited Pro
Forma Condensed Combined Statements of Operations (the "Pro Forma Statements of
Operations") for the year ended December 31, 1999 and the six months ended June
30, 2000 give effect to the Innovent acquisition, accounted for as a purchase
business combination, as if it had occurred on January 1, 1999. The Pro Forma
Statements of Operations are based on historical results of operations of the
Company and Innovent for the year ended December 31, 1999 and the six months
ended June 30, 2000. The Unaudited Pro Forma Condensed Combined Balance Sheet
(the "Pro Forma Balance Sheet") gives effect to the acquisition of Innovent as
if the acquisition had occurred on June 30, 2000. The Pro Forma Statements of
Operations and Pro Forma Balance Sheet and accompanying notes (the "Pro Forma
Financial Information") should be read in conjunction with, and are qualified by
reference to, the historical financial statements of the Company and Innovent
and the related notes thereto.
The Pro Forma Financial Information is intended for informational
purposes only and is not necessarily indicative of the future financial position
or future results of operations of the Company after the acquisition of
Innovent, or of the financial position or results of operations of the Company
that would have actually occurred had the acquisition of Innovent been effected
on January 1, 1999.
2. PRO FORMA ASSUMPTIONS
The following represents the preliminary allocation of the purchase
price over the historical net book values of the acquired assets and assumed
liabilities of Innovent at June 30, 2000, and is included for illustrative pro
forma purposes only. The Company is in the process of obtaining an independent
appraisal of the fair value of acquired in-process research and development and
identifiable intangible assets as of the acquisition date. Accordingly, this
allocation is preliminary and is subject to change upon the completion of the
independent third party valuation. Assuming the transaction had occurred on June
30, 2000, the preliminary allocation would have been as follows (in thousands):
<TABLE>
<S> <C>
Assumed value of shares of the Company's
common stock issued and value of Company's
restricted common stock and employee
stock options exchanged $546,161
Company's existing investment 525
Estimated transaction costs 250
--------
Estimated total acquisition costs 546,936
Less: net assets assumed (7,095)
--------
Unallocated excess of acquisition costs over
net assets assumed $539,841
========
</TABLE>
21
<PAGE> 24
<TABLE>
<S> <C>
Preliminary allocation to:
In-process research and development $ 41,690
Goodwill and purchased intangibles 267,958
Deferred taxes (70,407)
Deferred stock-based compensation 300,600
--------
$539,841
========
</TABLE>
The purchase price consists of 2,945,175 shares of common stock which
includes a) 1,468,329 shares of common stock valued at $245.6 million based
upon the Company's stock price during a period of two days before and after the
companies reached agreement and the proposed transaction was announced and b)
1,476,846 shares of restricted common stock and employee stock options valued at
$300.6 million in accordance with FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB No.
25."
For purposes of the pro forma financial information, the estimated
amount of the in-process research and development is $41.7 million, which is
based upon a preliminary independent third party valuation. Because such
in-process research and development is not expected to reach the stage of
technological feasibility by the anticipated acquisition date and is expected to
have no alternative future use, this amount shall be immediately written-off by
the Company and has been reflected in the pro forma balance sheet as a charge
against retained earnings.
3. PRO FORMA ADJUSTMENTS
The pro forma financial information reflects the following adjustments:
a) To record the preliminary allocation of the purchase price to goodwill
and purchased intangibles, deferred tax liabilities and deferred
stock-based compensation.
b) To eliminate the Company's existing 13% investment in Innovent.
c) To eliminate the existing loan, applicable accrued interest and
stock-based compensation between Innovent and the Company.
d) To accrue estimated transaction costs.
e) To convert the existing Innovent convertible notes into common stock.
f) To eliminate the Innovent common stock and retained earnings accounts.
g) To record the acquisition of Innovent's equity securities by the
issuance of the Company's common stock, restricted common stock and
assumption of employee stock options.
h) To record the allocation of purchase price to in-process research and
development.
i) To record amortization expense for goodwill and purchased intangibles
over an expected estimated period of benefit ranging from two to five
years.
j) To record stock-based compensation expense generally over a three to
four-year period.
k) Reflects the estimated tax effects of the pro forma adjustments. The
pro forma adjustments for the amortization of goodwill and purchased
intangibles, in-process research and development, and certain deferred
stock-based compensation are excluded from such computations, as
the Company does not expect to realize any benefit from these items.
22
<PAGE> 25
4. EARNINGS PER SHARE
Basic and diluted earnings (loss) per share for each period is
calculated by dividing pro forma net income (loss) by the shares used to
calculate earnings (loss) per share in the historical period plus the effect of
the shares and options which were exchanged or assumed in connection with the
acquisition of Innovent. Potential common shares are excluded from the
calculation of diluted earnings (loss) per share in a loss period as the effect
would be antidilutive.
23
<PAGE> 26
SIGNATURE
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.
BROADCOM CORPORATION,
a California corporation
October 2, 2000 By: /s/ WILLIAM J. RUEHLE
-------------------------------------
William J. Ruehle
Vice President and
Chief Financial Officer
/s/ SCOTT J. POTERACKI
-------------------------------------
Scott J. Poteracki
Senior Director of Finance and
Corporate Controller (Principal
Accounting Officer)
24
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
23.1 Consent of KPMG LLP
</TABLE>
