UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): October 13, 2000
PATH 1 NETWORK TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Delaware 000-30928 13-3989885
(State of Incorporation) (Commission File Number) (I.R.S. Identification No.)
3636 Nobel Drive, Suite 275, San Diego, California 92122
(Address of principal executive offices)
Registrant's telephone number, including area code: (858) 450-4220
<PAGE>
Path 1 Network Technologies Inc. hereby amends Item 7 of its Current Report
on Form 8-K filed October 30, 2000, for an event of October 13, 2000, as
follows. Path 1 acquired the assets of Metar Technologies, a division of
Metar ADC.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
The unaudited financial statements of Metar Technologies for the nine
months ended September 30, 2000, and the audited financial statements
of Metar Technologies for the year ended December 31, 1999, and for the
period from March 1, 1998 (inception) to December 31, 1998 filed herein
as Exhibit 99.1.
(b) Pro Forma Financial Information.
The following unaudited pro forma combined condensed consolidated
financial information is being filed herein:
Unaudited Pro Forma Combined Condensed Balance Sheet at September 30,
2000.
Unaudited Pro Forma Combined Condensed Statement of Operations for the
nine months ended September 30, 2000.
Unaudited Pro Forma Combined Condensed Statement of Operations for the
year ended December 31, 1999.
Notes to the Unaudited Pro Forma Combined Condensed Financial
Statements.
<PAGE>
PATH 1 NETWORK TECHNOLOGIES INC. AND METAR TECHNOLOGIES UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial information
gives effect to the acquisition by Path 1 Network Technologies Inc. ("Path 1")
of Metar Technologies ("Metar"), which was accounted for as a purchase. The
unaudited pro forma combined condensed balance sheet is based on the individual
historical balance sheets of Path 1 and Metar and has been prepared to reflect
the acquisition by Path 1 of Metar as if the acquisition had occurred as of
September 30, 2000. The unaudited pro forma combined condensed statement of
operations is based on the individual historical statements of operations of
Path 1 and Metar and combines the results of operations of Path 1 for the nine
months ended September 30, 2000, and for the year ended December 31, 1999, with
the results of operations of Metar for the nine months ended September 30, 2000,
and for the year ended December 31, 1999, as if the acquisition had occurred on
January 1, 1999.
The pro forma combined condensed financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or operating results that would have been achieved if the acquisition
had been completed as of the beginning of the periods presented, nor is it
necessarily indicative of the future financial position or operating results of
Path 1. The pro forma combined condensed financial information does not give
effect to any cost savings or restructuring and integration costs that may
result from the integration of Path 1 and Metar operations. The costs related to
restructuring and integration have not yet been determined. Path 1 expects to
charge these costs to operations during the period incurred.
The unaudited pro forma combined condensed financial information should be read
in conjunction with the financial statements and notes thereto for the year
ended December 31, 1999 included in the Path 1's Form 10/A filed June 19, 2000,
and the financial statements and accompanying notes of Metar filed herein.
<PAGE>
<TABLE>
PATH 1 NETWORK TECHNOLOGIES INC. AND METAR TECHNOLOGIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
AT SEPTEMBER 30, 2000
(IN THOUSANDS)
<CAPTION>
PRO FORMA PRO FORMA
PATH 1 METAR ADJUSTMENTS NOTES COMBINED
----------- ----------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,557 $ - $ (1,000) (A) $ 9,557
Marketable securities, available for sale 3,513 - - 3,513
Deposits and prepaid expenses 95 - - 95
----------- ----------- ------------ -----------
Total current assets 14,165 - (1,000) 13,165
Property and equipment, net 270 7 - 277
Intangible assets - - 1,791 (B) 1,791
Investment in Jyra Research, Inc. 64 - - 64
----------- ----------- ------------ -----------
Total Assets $ 14,499 $ 7 $ 791 $ 15,297
=========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 594 $ - $ 100 (C) $ 694
Current portion of obligation to Metar ADC - - 38 (D) 38
----------- ----------- ------------ -----------
Total current liabilities 594 - 138 732
Long-term obligation to Metar ADC, less
current portion - - 660 (D) 660
Stockholders' equity:
Common stock, $0.001 par value 8 - - 8
Additional paid-in capital 34,819 - - 34,819
Net contribution from Metar ADC and
related parties - 293 (293) (E) 0
Deferred compensation (5,368) - - (5,368)
Accumulated other comprehensive gain 416 - - 416
Deficit accumulated during the development
stage (15,970) (286) 286 (F) (15,970)
----------- ----------- ------------ -----------
Total stockholders' equity 13,905 7 (7) 13,905
----------- ----------- ------------ -----------
Total liabilities and stockholders' equity $ 14,499 $ 7 $ 791 $ 15,297
=========== =========== ============ ===========
</TABLE>
The above pro forma combined condensed balance sheet does not include the effect
of amortization of purchased intangible assets to be recorded by Path 1 in
conjunction with the acquisition.
See accompanying notes to the unaudited pro forma combined condensed financial
statements.
<PAGE>
<TABLE>
PATH 1 NETWORK TECHNOLOGIES INC. AND METAR TECHNOLOGIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
PRO FORMA PRO FORMA
PATH 1 METAR ADJUSTMENTS NOTES COMBINED
------------ ------------ ------------- -------- ------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development $ 2,419 $ 69 - 2,488
Sales and marketing 750 22 - 772
General and administrative 1,636 - - 1,636
Amortization of intangible assets - - 448 (A) 448
Stock-based compensation 4,708 - - 4,708
------------ ------------ ------------- ------------
Total operating expenses (9,513) (91) (448) (10,052)
Interest income 270 - (33) (B) 237
Interest expense - - (117) (C), (D) (117)
Currency translation gain - 12 - 12
Loss on investment in Jyra Research, Inc. (49) - - (49)
------------ ------------ ------------- ------------
Net loss $ (9,292) $ (79) $ (598) $ (9,969)
============ ============ ============= ============
Loss per common share - basic and diluted $ (1.30) $ (1.40)
============ ============
Weighted average common shares outstanding 7,140 7,140
============ ============
</TABLE>
(A) Adjustment to reflect the nine-month amortization of intangible assets
based on the allocation of the acquired purchase price in the September
30, 2000 pro forma balance sheet.
(B) Adjustment to eliminate interest income that would not have been earned
on the cash expended for the transaction.
(C) Adjustment of US$80,000 to reflect nine months of imputed interest
expense on the payments due to Metar ADC at an interest rate of fifteen
percent.
(D) Adjustment of US$37,000 to reflect three months of interest expense,
calculated at fifteen percent, on assumed borrowings of US$1 million to
fund the initial payment to Metar ADC as Path 1's cash balances would
have been insufficient for the first three months of 2000.
<PAGE>
<TABLE>
PATH 1 NETWORK TECHNOLOGIES INC. AND METAR TECHNOLOGIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
PRO FORMA PRO FORMA
PATH 1 METAR ADJUSTMENTS NOTES COMBINED
------------ ------------ ------------- ------- ------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development $ 1,348 $ 106 $ - $ 1,454
Sales and marketing 359 29 - 388
General and administrative 2,293 - - 2,293
Amortization of intangible assets - - 598 (A) 598
Stock-based compensation - - - -
------------ ------------ ------------- ------------
Total operating expenses (4,000) (135) (598) (4,733)
Interest income 19 - - 19
Interest expense - - (262) (B), (C) (262)
Currency translation gain - 20 - 20
Loss on investment in Jyra Research, Inc. (34) - - (34)
------------ ------------ ------------- ------------
Net loss $ (4,015) $ (115) $ (860) $ (4,990)
============ ============ ============= ============
Loss per common share - basic and diluted $ (0.71) $ (0.88)
============ ============
Weighted average common shares outstanding 5,679 5,679
============ ============
</TABLE>
(A) Adjustment to reflect the twelve-month amortization of intangible assets
based on the allocation of the acquired purchase price in the September
30, 2000 pro forma balance sheet.
(B) Adjustment of US$112,000 to reflect twelve months of imputed interest
expense on the payments due to Metar ADC at an interest rate of fifteen
percent.
(C) Adjustment of US$150,000 to reflect twelve months of interest expense,
calculated at fifteen percent, on assumed borrowings of US$1 million to
fund the initial payment to Metar ADC as Path 1's cash balances would
have been insufficient in 1999.
<PAGE>
PATH 1 AND METAR
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
1. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS
The acquisition will be accounted for as a purchase in accordance with the
provisions of APB No. 16. Under the terms of the purchase agreement, Path 1 will
pay US$2 million in cash for the assets of Metar Technologies. The first US$1
million is payable upon receipt and acceptance of designated technology
transfers from Metar ADC. The second US$1 million is payable over a three-year
period as follows: US$150,000 in year one, US$250,000 in year two and US$600,000
in year three. The present value of the future payments due to Metar ADC using a
discount rate of fifteen percent is US$698,000. In addition to the US$1.7
million purchase price, Path 1 expects to incur approximately US$100,000 in
acquisition-related costs.
Based on the consideration issued in the transaction, and the related costs, the
total purchase price of Metar is approximately US$1.8 million determined as
follows (in thousands):
Cash US$ 1,000
Present value of the future
payments due to Metar ADC 698
Acquisition costs 100
Total consideration US$ 1,798
Although Path 1 has not conducted an independent valuation of the tangible
and intangible assets acquired in order to allocate the purchase price in
accordance with APB No. 16, the purchase price was allocated as follows
based on management's best estimate of the acquired tangible and intangible
assets (in thousands):
Property and Equipment US$ 7
Intangible Assets 1,791
Total Consideration US$ 1,798
The acquired intangible assets will be amortized over an estimated useful life
of three years.
<PAGE>
2. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(A) To reflect US$1.0 million initial cash paid to Metar ADC at the completion
of the acquisition.
(B) The residual amount of the Metar purchase price over the net book value of
assets purchased has been allocated to intangible assets that consists
primarily of acquired technology.
(C) To increase the accrued expenses by US$100,000 for acquisition-related
expenses such as legal, accounting and other miscellaneous fees.
(D) To reflect the net present value of current and non-current future payments
due to Metar ADC that total US$150,000 in year one, US$250,000 in year two
and US$600,000 in year three.
(E) To eliminate the net contribution of Metar ADC and related parties of
US$293,000.
(F) To eliminate the Metar deficit accumulated during the development stage of
US$286,000.
(c) EXHIBITS
2.1* Sale Purchase Agreement among Path 1 Network Technologies
Inc., Metar ADC and Michael Florea, dated October 13, 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
99.1 Unaudited financial statements of Metar Technologies for the
nine months ended September 30, 2000, and the audited
financial statements of Meter Technologies for the year ended
December 31, 1999, and for the period from March 1, 1998
(inception) to December 31, 1998.
--------------------------------------------------------------------------
* - Previously filed as an exhibit to the Form 8-K filed on October 30,
2000.
<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 thereunto duly authorized.
PATH 1 NETWORK TECHNOLOGIES INC.
/s/ Richard B. Slansky
Richard B. Slansky
Chief Financial Officer
(Principal Financial and Accounting Officer)
12/22/00
Date
<PAGE>
EXHIBIT INDEX
Exhibits Description
23.1 Consent of Ernst & Young LLP, Independent Auditors.
99.1 Unaudited financial statements of Metar Technologies for the
nine months ended September 30, 2000, and the audited
financial statements of Meter Technologies for the year ended
December 31, 1999, and for the period from March 1, 1998
(inception) to December 31, 1998.
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference into the Forms S-8 (No. 333-
46664 & No. 333-46320) of our report dated November 27, 2000 with respect
to the financial statement of Metar Technologies - a division of Metar ADC,
included in the Path 1 Network Technologies' Form 8-K, to be filed on or about
December 20, 2000 with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
San Diego, California
December 20, 2000
<PAGE>
EXHIBIT 99.1
Metar Technologies (a development stage entity) -
a division of Metar ADC
Financial Statements
For the period from March 1, 1998 (inception) to December 31, 1998, the year
ended December 31, 1999, and the nine months ended September 30, 2000
(unaudited)
Contents
Report of Ernst & Young LLP, Independent Auditors..............................1
Audited Financial Statements
Balance Sheets.................................................................2
Statements of Operations.......................................................3
Statements of Divisional Equity................................................4
Statements of Cash Flows.......................................................5
Notes to Financial Statements..................................................6
<PAGE>
Report of Ernst & Young, LLP, Independent Auditors
The Board of Directors
Metar ADC
We have audited the accompanying balance sheets of Metar Technologies (a
development stage entity) - a division of Metar ADC as of December 31, 1998
and 1999 and the related statements of operations, divisional equity and cash
flows for the period from March 1, 1998 (inception) to December 31, 1998, the
year ended December 31, 1999, and for the period from March 1, 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits provide 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 Metar Technologies (a
development stage entity) - a division of Metar ADC at December 31, 1998 and
1999 and the results of its operations and its cash flows for the period from
March 1, 1998 (inception) to December 31, 1998, the year ended December 31,
1999, and for the period from March 1, 1998 (inception) to December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Diego, California
November 27, 2000
<PAGE>
<TABLE>
Metar Technologies (a development stage entity) -
a division of Metar ADC
Balance Sheets
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999 2000
----------------------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Property and equipment, net $ 27,110 $ 16,573 $ 7,474
----------------------------- -------------
Total assets $ 27,110 $ 16,573 $ 7,474
============================= =============
LIABILITIES AND DIVISIONAL EQUITY
Liabilities $ - $ - $ -
Divisional equity:
Net contribution from Metar ADC
and related parties 118,716 223,161 293,047
Deficit accumulated during the
development stage (91,606) (206,588) (285,573)
----------------------------- -------------
Total divisional equity 27,110 16,573 7,474
----------------------------- -------------
Total liabilities and divisional equity $ 27,110 $ 16,573 $ 7,474
============================= =============
SEE ACCOMPANYING NOTES.
</TABLE>
<PAGE>
<TABLE>
Metar Technologies (a development stage entity) -
A division of Metar ADC
Statement of Operations
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
FROM MARCH 1, FROM MARCH 1, FOR THE NINE FROM MARCH 1,
1998 1998 MONTHS 1998
(INCEPTION) TO YEAR ENDED (INCEPTION) TO ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999 1999 2000
-------------- -------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development $ 96,327 $ 105,736 $ 202,063 $ 69,401 $ 271,464
Selling, general and
administrative 24,000 28,800 52,800 21,600 74,400
-------------- -------------- -------------- -------------- --------------
Total operating expenses 120,327 134,536 254,863 91,001 345,864
-------------- -------------- -------------- -------------- --------------
Loss from operations 120,327 134,536 254,863 91,001 345,864
Net currency translation
gains 28,721 19,554 48,275 12,016 60,291
-------------- -------------- -------------- -------------- --------------
Net Loss $ 91,606 $ 114,982 $ 206,588 $ 78,985 $ 285,573
============== ============== ============== ============== ==============
SEE ACCOMPANYING NOTES.
</TABLE>
<PAGE>
<TABLE>
Metar Technologies (a development stage entity) -
a division of Metar ADC
Statements of Divisional Equity
<CAPTION>
NET DEFICIT
CONTRIBUTION ACCUMULATED
FROM METAR ADC DURING THE TOTAL
AND RELATED DEVELOPMENT DIVISIONAL
PARTIES STAGE EQUITY
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at March 1, 1998 $ - $ - $ -
Net contribution from Metar ADC
and related parties 118,716 - 118,716
Net loss - (91,606) (91,606)
-------------- -------------- --------------
Balance at December 31, 1998 118,716 (91,606) 27,110
Net contribution from Metar ADC
and related parties 104,445 - 104,445
Net loss - (114,982) (114,982)
-------------- -------------- --------------
Balance at December 31, 1999 223,161 (206,588) 16,573
Net contribution from Metar ADC
and related parties (unaudited) 69,886 - 69,886
Net loss (unaudited) - (78,985) (78,985)
-------------- -------------- --------------
Balance at September 30, 2000 (unaudited) $ 293,047 $ (285,573) $ 7,474
============== ============== ==============
SEE ACCOMPANYING NOTES.
</TABLE>
<PAGE>
<TABLE>
Metar Technologies (a development stage entity) -
a division of Metar ADC
Statements of Cash Flows
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
FROM MARCH 1, FROM MARCH 1, FOR THE NINE FROM MARCH 1,
1998 1998 MONTHS 1998
(INCEPTION) TO YEAR ENDED (INCEPTION) TO ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999 2000 2000
-------------- -------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (91,606) $ (114,982) $ (206,588) $ (78,985) $ (285,573)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 8,487 12,072 20,559 9,099 29,659
-------------- -------------- -------------- -------------- --------------
Net cash used in operating activities (83,119) (102,910) (186,029) (69,886) (255,914)
FINANCING ACTIVITIES
Net operations contributed by Metar
ADC and related parties 111,840 122,464 234,304 81,902 316,205
-------------- -------------- -------------- -------------- --------------
Net cash provided by financing 111,840 122,464 234,304 81,902 316,205
activities
Effect of exchange rate changes on
cash (28,721) (19,554) (48,275) (12,016) (60,291)
-------------- -------------- -------------- -------------- --------------
Net increase in cash and cash
equivalents - - - - -
Cash and cash equivalents at
beginning of period - - - - -
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at end of
period $ - $ - $ - $ - $ -
============== ============== ============== ============== ==============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Property and equipment contributed to
Metar Technologies
(NOTE 1 AND 4) $ 35,597 $ 1,535 $ 37,132 $ - $ 37,132
============== ============== ============== ============== ==============
SEE ACCOMPANYING NOTES.
</TABLE>
<PAGE>
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Metar Technologies - Internet Software Research and Development (a development
stage entity) (the "Entity") is located Bucharest, Romania and has operated as
a division of Metar ADC since March 1998. The Entity has been involved in the
development of software for data transfer over the Internet. From its inception
to September 30, 2000 the Entity has not separately invoiced for any products
or services. Its activities to date have been in the research and development
of software and related projects for the sole shareholder of Metar ADC.
The divisional statements of the Entity's operations for the periods ended
December 31, 1999 and 1998 and September 30, 2000 (unaudited) include all
expenses directly attributable to the Entity, including a corporate allocation
of the costs of facilities, salaries, and employee benefits. Additionally,
incremental corporate administration, finance, and management costs have been
allocated to the Entity as applicable (see Note 4). All of the allocations
reflected in the September 30, 2000 (unaudited) and the December 31, 1999 and
1998 financial statements are based on assumptions that management believes are
reasonable under the circumstances. However, these allocations and estimates
are not necessarily indicative of the costs that would have resulted if the
Entity had been operated on a stand-alone basis.
BASIS OF PRESENTATION
The accompanying financial statements include the operations of the Entity as
part of Metar ADC (on a carved-out basis) from its status as a division of
Metar ADC for the periods ended September 30, 2000, December 31, 1999 and 1998
(covering the period from March 1, 1998 (inception) to December 31, 1998) (the
"divisional statements"). The balance sheets at September 30, 2000, December
31, 1999 and 1998 represent the assets, liabilities and divisional equity of
the Entity as part of Metar ADC. The divisional financial statements have been
derived from the historical books and records of Metar ADC. The balance sheets
at September 30, 2000, December 31, 1999 and 1998 include all assets and
liabilities specifically identifiable and directly attributable to the Entity,
which are derived from historical cost information of Metar ADC and related
parties and which are presented at the carryover basis of the Entity.
<PAGE>
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Metar ADC maintains its accounting records and prepares its financial
statements in Romanian Lei ("ROL") in accordance with the requirements of the
Romanian accounting and tax legislation. The accompanying divisional financial
statements differ from the financial statements prepared for Romanian statutory
purposes in that they reflect certain adjustments, not reflected in the
Company's accounting records, which are appropriate to present the financial
position, results of operations and cash flows in accordance with generally
accepted accounting principles in the United States.
INTERIM FINANCIAL DATA
The financial statements as of September 30, 2000 and for the nine months then
ended are unaudited. The unaudited financial statements have been prepared on
the same basis as the audited financial statements and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary to state fairly the financial information included, in
accordance with generally accepted accounting principles. The results of
operations for the interim period ended September 30, 2000 are not necessarily
indicative of the results which may be reported for any other interim period or
for the year ending December 31, 2000.
FOREIGN CURRENCY TRANSLATION
In accordance with criteria in FASB 52, Foreign Currency Translation, Romania
is considered to be a hyperinflationary economy.
The financial statements of the Entity have been presented in Unites States
("US") dollars. Transactions and balances not already measured in US dollars
(primarily ROL) have been re-measured into US dollars. Costs, capital and non-
monetary assets and liabilities are translated at historical exchange rates
prevailing at the date of transactions. Monetary assets and liabilities are
translated at the exchange rate prevailing on the balance sheet date. Exchange
gains and losses arising on the re-measurement of monetary assets and
liabilities that are not denominated in US dollars are credited or charged to
the Statement of Operations.
<PAGE>
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Exchange rate for one US dollar:
FOR THE PERIOD
FROM MARCH 1, FOR THE NINE
1998 MONTHS
(INCEPTION) TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1999 2000
ROL ROL ROL
-------------- -------------- --------------
At the period end 10,951 18,255 24,117
Average for the period 8,872 15,309 20,518
The ROL is not a convertible currency outside Romania. Within Romania, the
official exchange rates are determined by the National Bank of Romania
("Central Bank") and are considered to be a reasonable approximation of
market rates. The translation of ROL denominated assets and liabilities into
US dollars for the purpose of these financial statements does not indicate
that the Entity could realize or settle in US dollars the reported values of
the assets and liabilities. Likewise, it does not indicate that the Entity
could return or distribute the reported US dollar values of equity to its
shareholders.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities 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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over the estimated
useful lives of the assets (3 years for office equipment and 6 years for
furniture) using the straight-line method. Property and equipment indicated as
belonging to the Entity is owned by Metar ADC and does not belong directly to
the Entity.
<PAGE>
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
LONG-LIVED ASSETS
The Entity assesses potential impairments to its long-lived assets when there
is evidence that events or changes in circumstances have made recovery of the
asset's carrying value unlikely. An impairment loss would be recognized when
the sum of the expected future undiscounted net cash flows is less than the
carrying amount of the asset. The Entity has identified no such impairment
losses.
REVENUE RECOGNITION
As the Entity has been in a development stage from inception to September 30,
2000, no revenue for products or services have arisen. The Company
anticipates recognizing resources in the period services are performed or the
product is delivered.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and include direct
costs and research related overhead.
COMPREHENSIVE INCOME
SFAS No. 130, Reporting Comprehensive Income, requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income
is defined as the change in equity during a period from transactions and
other events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments, and
unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. Because the Entity is
considered to be in an hyperinflationary economy, all foreign currency
translation gains have been included in the statements of operations. As a
result, comprehensive loss and net loss has not been materially different to
date.
<PAGE>
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
SEGMENT REPORTING
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, establishes annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its products,
services, geographic areas, and major customers. The Entity has determined that
it operates in only one segment. Accordingly, the adoption of this statement had
no impact on the Company's financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Financial Instruments and for Hedging Activities,
which provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. SFAS 133 is effective
for fiscal years beginning after June 15, 2000. Management does not
anticipate the SFAS 133 will have an impact on the Entity's results of
operations or financial condition when adopted, as the Entity holds no
derivative financial instruments and does not currently engage in hedging
activities.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. SAB 101 requires that license and other up-front fees be
recognized over the term of the agreement unless the fee is in exchange for
products delivered or services performed that represent the culmination of a
separate earnings process. The effect of SAB 101 will not have a material
effect on the Entity's prior period results.
<PAGE>
Metar Technologies (a development stage entity) -
a division of Metar ADC
Notes to Financial Statements (continued)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31, SEPTEMBER 30,
1998 1999 2000
------------ ------------- -------------
(UNAUDITED)
Computer equipment 34,575 36,110 36,110
Furniture and fixtures 1,022 1,022 1,022
------------ ------------- -------------
35,597 37,132 37,132
Less accumulated depreciation (8,487) (20,559) (29,658)
------------ ------------- -------------
27,110 16,573 7,474
============ ============= =============
3. COMMITMENTS
LEASES
The Company leased facilities under an operating lease that expired on January
1, 1999. Rent expense was $16,000, $19,200, $35,200, $14,400, and $49,600 for
the period from March 1, 1998 (inception) to December 31, 1998, the year ended
December 31, 1999, the period from March 1, 1998 (inception) to December 31,
1999, the nine months ended September 30, 2000 (unaudited), and for the period
from March 1, 1998 (inception) to September 30, 2000 (unaudited), respectively.
The Entity leases its facilities on a month-to-month basis.
4. RELATED PARTY TRANSACTIONS
FUNDING
The Entity utilizes the centralized cash management services and processes
related to, payables, payroll, and other activities of Metar ADC. The Entity's
net cash requirements are funded by Metar ADC. Net cash financing provided by
Metar ADC and related entities to the Entity was approximately $112,000 for the
period from March 1, 1998 (inception) to December 31, 1998, $122,000 for the
year ended December 31, 1999, and $82,000 for the nine months ended September
30, 2000 (unaudited). These amounts are included in the Entity's equity, less
the impact of non- cash related transactions, such as depreciation expense
and net translation gains. Capital advances financed by Metar ADC did not
bear interest.
<PAGE>
4. RELATED PARTY TRANSACTIONS (continued)
CORPORATE SERVICES
In accordance with the SAB 55, Allocation of expenses and related disclosure in
financial statements of subsidiaries, divisions or lesser business components of
another entity, expense allocations have been reflected in these financial
statements. These expenses include corporate communications, management
compensation and benefits administration, payroll, accounts payable, income tax
compliance, and other administrative and finance overhead. Allocations and
charges were based on either a direct cost pass- though for incremental
corporate administration, finance and management costs and a percentage
allocation of costs for other services provided based on factors such as
headcount and relative expenditure levels. Such allocations and charges totaled
$24,000, $28,000, $52,000, $21,600 and $73,600 for the period from March 1, 1998
(inception) to December 31, 1998, the year ended December 31, 1999, the period
from March 1, 1998 (inception) to December 31, 1999, the nine months ended
September 30, 2000 (unaudited), and for the period from March 1, 1998
(inception) to September 30, 2000 (unaudited), respectively. Management believes
that the basis used for allocating corporate services is reasonable. However,
the terms of these transactions may differ from those that would have resulted
from transactions among unrelated parties.
<PAGE>
Metar Technologies (a development stage entity) -
a division of Metar ADC
Notes to Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
Contribution from Metar ADC was used to fund the following:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
FROM MARCH 1, FROM MARCH 1, FOR THE NINE FROM MARCH 1,
1998 1998 MONTHS 1998
(INCEPTION) TO YEAR ENDED (INCEPTION) TO ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999 2000 2000
-------------- -------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating expenses
contributed by
Metar ADC and
related parties $ 83,119 $ 102,910 $ 186,029 $ 69,886 $ 255,915
-------------- -------------- -------------- -------------- --------------
Equipment
contributed
by Metar ADC and
related parties 35,597 1,535 37,132 - 37,132
-------------- -------------- -------------- -------------- --------------
Total $ 118,716 $ 104,445 $ 223,161 $ 69,886 $ 293,047
============== ============== ============== ============== ==============
</TABLE>
5. SUBSEQUENT EVENTS (UNAUDITED)
On October 13, 2000 Metar ADC entered into a definitive agreement with Path 1
Network Technology, Inc. ("Path 1") to sell Path 1 certain technology and
related intellectual property assets for $2 million in cash. In addition to the
assets, the Entity will transfer a team of engineers to Path 1. The purchase is
payable over a three-year period contingent upon satisfactory technology
transfers.
