<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 1, 1999
DSL.NET, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 000-27525 06-1510312
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
545 LONG WHARF DRIVE
NEW HAVEN, CONNECTICUT 06511
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (203) 772-1000
1
<PAGE>
This Current Report on Form 8-K/A is filed by DSL.net, Inc., a Delaware
corporation, as an amendment to that certain Current Report on Form 8-K dated
December 1, 1999 to include the information required by Item 7.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
The following audited financial statements of Tycho Networks, Inc.
("Tycho") are included as Exhibit 99.1 to the Current Report on Form 8-K and are
incorporated herein by this reference:
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1998
Consolidated Statement of Operations for the period from December 22,
1997 (inception) to December 31, 1998
Consolidated Statement of Stockholders' Equity for the period from
December 22, 1997 (inception) to December 31, 1998
Consolidated Statement of Cash Flows for the period from December 22,
1997 (inception) to December 31, 1998
Notes to Consolidated Financial Statements for the period from
December 22, 1997 (inception) to December 31, 1998
The following unaudited interim financials statements of Tycho are included
as Exhibit 99.2 to this Current Report on Form 8-K and are incorporated herein
by this reference:
Condensed Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998 (unaudited)
Condensed Consolidated Statements of Operations for the nine months
ended September 30, 1999 (unaudited) and for the period from December
22, 1997 (inception) to September 30, 1998 (unaudited)
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 (unaudited) and for the period from December
22, 1997 (inception) to September 30, 1998 (unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
(b) Pro Forma Financial Information
The following unaudited pro forma financial information of the Company is
included as Exhibit 99.3 to this Current Report on Form 8-K and is incorporated
herein by this reference:
Basis of Presentation
Unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 1999
Unaudited Pro Forma Condensed Combined Statements of Operations for
the nine months ended September 30, 1999
Unaudited Pro Forma Condensed Combined Statement of Operations for the
period from inception (March 3, 1998) to December 31, 1998
Notes to Unaudited Pro Forma Condensed Combined Financial Information
2
<PAGE>
(c) Exhibits
The Exhibits that are filed with this Current Report on 8-K are set
forth in the Exhibit Index to this Current Report on Form 8-K.
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.
DSL.net, Inc.
Dated: February 7, 2000 By: /s/ Robert Q. Berlin
Robert Q. Berlin
Chief Financial Officer &
Vice President, Strategic Planning
4
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<C> <S>
23.1 Independent Auditors' Consent
99.1 The following audited financial statements of Tycho:
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1998
Consolidated Statement of Operations for the period from
December 22, 1997 (inception) to December 31, 1998
Consolidated Statement of Stockholders' Equity for the period from
December 22, 1997 (inception) to December 31, 1998
Consolidated Statement of Cash Flows for the period from December
22, 1997 (inception) to December 31, 1998
Notes to Consolidated Financial Statements for the period from
December 22, 1997 (inception) to December 31, 1998
99.2 The following unaudited interim financials statements of Tycho:
Condensed Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998 (unaudited)
Condensed Consolidated Statements of Operations for the nine months
ended September 30, 1999 (unaudited) and for the period from
December 22, 1997 (inception) to September 30, 1998 (unaudited)
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 (unaudited) and for the period from
December 22, 1997 (inception) to September 30, 1998 (unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
99.3 The following unaudited pro forma financial information of the Company:
Basis of Presentation
Unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 1999
Unaudited Pro Forma Condensed Combined Statements of Operations for
the nine months ended September 30, 1999
Unaudited Pro Forma Condensed Combined Statement of Operations for
the period from inception (March 3, 1998) to December 31, 1998
Notes to Unaudited Pro Forma Condensed Combined Financial
Information
</TABLE>
<PAGE>
EXHIBIT 23.1
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 333-
88513 of DSL.net, Inc. on Form S-8 of our report with respect to Tycho Networks,
Inc. dated May 21, 1999 (October 13, 1999 as to the last three paragraphs of
Note 9), appearing in this Current Report on Form 8-K/A of DSL.net, Inc.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 3, 2000
<PAGE>
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Tycho Networks, Inc.:
We have audited the accompanying consolidated balance sheet of Tycho
Networks, Inc. and subsidiary (the "Company") as of December 31, 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the period from December 22, 1997 (inception) to December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1998, and the results of its operations and its cash flows for the period from
December 22, 1997 (inception) to December 31, 1998 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's losses from operations raise substantial
doubt about its ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
May 21, 1999
(October 13, 1999 as to the last
three paragraphs of Note 9)
1
<PAGE>
TYCHO NETWORKS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 216,105
Accounts receivable (net of allowance of $5,800)............... 48,752
Prepaids and other current assets.............................. 2,645
---------
Total current assets......................................... 267,502
PROPERTY AND EQUIPMENT, Net...................................... 126,044
OTHER ASSETS..................................................... 118,527
INTANGIBLE ASSETS................................................ 377,160
---------
TOTAL............................................................ $ 889,233
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................... $ 193,637
Accrued liabilities............................................ 36,100
---------
Total current liabilities.................................... 229,737
---------
SUBORDINATED CONVERTIBLE NOTES PAYABLE........................... 290,543
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, $0.001 par value;
authorized--4,050,000 shares; issued and outstanding--
3,744,128 shares; liquidation preference: $1,170,040.......... 1,153,510
Common stock, $0.001 par value; authorized--10,000,000 shares;
outstanding--2,450,000 shares................................. 2,450
Accumulated deficit............................................ (787,007)
---------
Total stockholders' equity................................... 368,953
---------
TOTAL............................................................ $ 889,233
=========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
TYCHO NETWORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
Period from December 22, 1997 (Inception) to December 31, 1998
<TABLE>
<S> <C>
NET REVENUES.................................................... $ 348,527
----------
COSTS AND EXPENSES:
Cost of revenues.............................................. 436,815
Selling, general and administrative........................... 613,148
Research and development...................................... 89,615
----------
Total costs and expenses.................................... 1,139,578
----------
LOSS FROM OPERATIONS............................................ (791,051)
OTHER INCOME (EXPENSE):
Interest income............................................... 4,181
Interest expense.............................................. (12,762)
Other......................................................... 12,625
----------
Total other income.......................................... 4,044
----------
NET LOSS........................................................ $ (787,007)
==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
TYCHO NETWORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Period from December 22, 1997 (Inception) to December 31, 1998
<TABLE>
<CAPTION>
Series A
Convertible Preferred
Stock Common Stock
--------------------- ----------------- Deficit
Shares Amount Shares Amount Accumulated Total
--------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
to founders............ -- $ -- 2,450,000 $ 2,450 $ -- $ 2,450
Issuance of Series A
preferred stock (net of
issuance costs of
$16,350)............... 3,744,128 1,153,510 -- -- -- 1,153,510
Net loss................ -- -- -- -- (787,007) (787,007)
--------- ----------- --------- ------- ---------- ---------
BALANCES, December 31,
1998................... 3,744,128 $ 1,153,510 2,450,000 $ 2,450 $ (787,007) $ 368,953
========= =========== ========= ======= ========== =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
TYCHO NETWORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Period from December 22, 1997 (Inception) to December 31, 1998
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net loss.......................................................... $ (787,007)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................... 48,819
Gain on disposal of property.................................... (12,625)
Changes in operating assets and liabilities, net of effects of
acquisition:
Accounts receivable........................................... 73,676
Prepaids and other current assets............................. 67,205
Accounts payable.............................................. 268,938
Accrued liabilities........................................... (29,619)
----------
Net cash used in operating activities....................... (370,613)
----------
INVESTING ACTIVITIES:
Purchases of property and equipment............................. (267,442)
Proceeds from sale of property.................................. 112,599
Other assets.................................................... (118,527)
Acquisition of business......................................... (582,874)
----------
Net cash used in investing activities....................... (856,244)
----------
FINANCING ACTIVITIES:
Issuance of common stock........................................ 2,450
Sale of convertible preferred stock............................. 793,469
Proceeds from convertible notes payable......................... 656,500
Repayment of convertible notes payable.......................... (9,457)
----------
Net cash provided by financing activities................... 1,442,962
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................... 216,105
CASH AND CASH EQUIVALENTS:
Beginning of period............................................. --
----------
End of period................................................... $ 216,105
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--Cash paid during
the period for interest.......................................... $ 12,762
==========
NONCASH FINANCING ACTIVITY--Conversion of convertible notes
payable and accrued interest into preferred stock................ $ 360,041
==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
TYCHO NETWORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from December 22, 1997 (Inception) to December 31, 1998
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization--Tycho Networks, Inc. (the "Company") develops and implements a
new family of innovative data services, including high-speed internet access,
virtual private networks, and remote network access for small- and medium-sized
businesses throughout California. The Company was incorporated in Delaware on
December 22, 1997 ("inception"). With the exception of the issuance of common
stock to founders for $2,450 and convertible notes payable of $1,500 on
December 24, 1997, the Company had no activities prior to January 1, 1998
("commencement of operations").
Basis of Presentation--The consolidated financial statements have been
prepared on a going concern basis which contemplates the realization of assets
and satisfaction of liabilities in the ordinary course of business. As shown in
the consolidated financial statements, the Company incurred a net loss of
approximately $787,000 for the period from December 22, 1997 to December 31,
1998 and management expects substantial future losses. This factor, among
others, raises substantial doubt about the Company's ability to continue as a
going concern. The Company's continuation as a going concern is dependent upon
its ability to generate sufficient cash flows to meet it obligations on a
timely basis, to obtain additional financing as may be required and,
ultimately, to attain successful operations. Management intends to increase
marketing and sales efforts to sell the Company's services. However, due to
current development activities, management believes that additional equity or
debt financing will be necessary for the Company to implement its plans and
sustain operations through fiscal 1999. While management believes that the
Company will be able to obtain such financing, failure to do so would
significantly impact the Company's ability to sustain its operations. The
consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary. The subsidiary had
no operations for the period from December 22, 1997 to December 31, 1998.
Certain Significant Risks and Uncertainties--The Company operates in a
dynamic industry, and accordingly, can be affected by a variety of factors. For
example, management of the Company believes that changes in any of the
following areas could have a significant negative effect on the Company in
terms of its future financial position, results of operations and/or cash
flows: ability to obtain additional financing; regulatory changes; fundamental
changes in the technology underlying the Company's products or services; market
acceptance of the Company's products or services under development; litigation
or other claims against the Company; the hiring, training and retention of key
employees; successful and timely completion of product development efforts; and
new product introductions by competitors.
Cash Equivalents--The Company considers all highly liquid instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Property and Equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over estimated useful lives of three to
four years. Leasehold improvements are amortized over the shorter of the lease
term or their useful life.
6
<PAGE>
TYCHO NETWORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangible Assets--Intangible assets of $377,160 (net of accumulated
amortization of $20,196) at December 31, 1998, consist of acquired trademarks,
copyrights and customer relationships (see Note 3). These intangible assets are
being amortized on a straight-line basis over a period of three to five years.
Long-Lived Assets--The Company evaluates its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets or intangibles may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash flows expected to
be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Revenue Recognition--The Company recognizes on-line service revenue during
the period services are provided.
Concentration of Credit Risk--Financial instruments that potentially expose
the Company to concentrations of credit risk consists primarily of accounts
receivable. The Company does not require collateral or other security to
support accounts receivable. To reduce credit risk, management performs ongoing
credit evaluations of its customers' financial condition. The Company maintains
allowances for potential credit losses. Two customers accounted for 14% and
11%, respectively, of the Company's total accounts receivable at December 31,
1998.
Significant 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,
liabilities, revenues and expenses. Actual results could differ from these
estimates.
Stock Compensation--The Company accounts for stock-based awards to employees
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees."
Comprehensive Loss--The Company has adopted Statement of Financial
Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income," which
requires an enterprise to report, by major components and as a single total the
change in its net assets during the period from nonowner sources. For the year
ended December 31, 1998, net loss equaled comprehensive loss.
Recently Issued Accounting Standard--In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement requires companies to record derivatives on
the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. SFAS No. 133 will be effective for the Company's fiscal
year ending December 31, 2001. Management believes that adoption of this
statement will not have a significant impact on the Company's financial
position, results of operations or cash flows.
7
<PAGE>
TYCHO NETWORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 consists of:
<TABLE>
<S> <C>
Equipment and purchased software................................... $121,598
Furniture and fixtures............................................. 11,406
Leasehold improvements............................................. 9,038
--------
142,042
Accumulated depreciation and amortization.......................... (15,998)
--------
$126,044
========
</TABLE>
In November 1998, the Company sold and leased back certain equipment under
an operating lease with an initial term of eighteen months, resulting in a gain
of $12,625.
3. ACQUISITION
On September 15, 1998, the Company acquired certain assets from and assumed
certain liabilities of Scruz-Net, Inc. for a cash purchase price of $557,428
and incurred $25,446 in transaction costs. Scruz-Net was a full-service
Internet service provider, providing connectivity to the Internet from network
hubs in California's central coast region. The acquisition was accounted for as
a purchase and, accordingly, the results of operations of Scruz-Net have been
included in the Company's financial statements from the date of acquisition. In
connection with the acquisition, intangible assets of $397,356 were acquired,
consisting of trademarks, copyrights and customer relationships, which are
being amortized over their useful lives of three to five years.
In connection with the acquisition, net assets acquired were as follows (in
thousands):
<TABLE>
<S> <C>
Current assets..................................................... $192,278
Property and equipment, net........................................ 62,500
Intangible assets.................................................. 397,356
Current liabilities assumed........................................ (69,260)
--------
Net assets acquired................................................ $582,874
========
</TABLE>
4. NOTES PAYABLE
In December 1997 through August 1998, the Company issued convertible notes
payable to various investors for a total of $656,500 for working capital
purposes. In June 1998, notes payable of $206,500 and accrued interest of
$3,541 were converted into 672,131 shares of Series A preferred stock at a
conversion price of $0.3125 per share.
In October 1998, notes payable of $150,000 were converted into 480,000
shares of Series A preferred stock at a conversion price of $0.3125 per share.
The remaining principal of $300,000 was amended into a subordinated convertible
note agreement. The note accrues interest at an annual rate of 6% with the
principal and accrued interest due and payable in October 2003 if and to the
extent that the notes are not previously converted. The notes and related
accrued interest are convertible at the option of the noteholder into shares of
preferred Series A stock to the
8
<PAGE>
TYCHO NETWORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
extent that the additional shares of Series A preferred stock have been
authorized by the Company's stockholders. The notes are convertible at a
$0.3125 per share (subject to adjustment for events of dilution).
5. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
The significant terms of the Series A convertible preferred stock are as
follows:
. Each share of Series A preferred stock is convertible into one share of
common stock (subject to adjustment for events of dilution). Each share
will automatically convert upon an underwritten public offering of common
stock, in which the pre-public market capitalization of the Company is at
least $50,000,000 and the aggregate cash proceeds to the Company are at
least $7,500,000 (net of underwriting discounts and commissions).
. When and if declared by the Board of Directors, the holders of Series A
convertible preferred stock are entitled to receive noncumulative
dividends of $0.03125 per share per annum, respectively, prior to the
payment of any dividends on common stock.
. Holders of Series A convertible preferred stock have a liquidation
preference of $0.3125 per share, plus any declared but unpaid dividends.
A sale of substantially all of the Company's assets or a change in
control is treated as a deemed liquidation.
Common Stock
The Company issued 2,450,000 shares of common stock subject to repurchase
agreements whereby the Company has the option to repurchase the unvested shares
upon termination of employment at the original issue price. The number of
shares subject to repurchase is reduced at the rate of 10% upon issuance and
1/48 per month thereafter. At December 31, 1998, 1,653,750 shares were subject
to repurchase by the Company.
At December 31, 1998, the Company has reserved shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
Conversion of notes payable and related preferred stock............ 929,737
Conversion of preferred stock...................................... 3,744,128
Issuances under the 1997 Stock Plan................................ 1,600,000
---------
6,273,865
=========
</TABLE>
Stock Option Plan
Under the 1997 Stock Plan (the "Plan"), the Company may grant options to
purchase up to 1,600,000 shares of common stock to employees, officers,
directors, and consultants at prices not less than the fair market value at the
date of grant for incentive and nonstatutory stock options. These options
generally expire ten years from the date of grant and vest at rate of 25% on
the first anniversary of the grant date and 1/48 per month thereafter. At
December 31, 1998, 1,425,000 were available for future grant under the Plan.
9
<PAGE>
TYCHO NETWORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additional information with respect to options under the Plan is as follows:
<TABLE>
<CAPTION>
Outstanding Stock
Options
----------------------
Weighted
Average
Number of Option Price
Options Per Share
--------- ------------
<S> <C> <C>
Granted beginning in November 1998 (weighted
average fair value of $0.01)...................... 175,000 $0.05
-------
Outstanding, December 31, 1998..................... 175,000 $0.05
=======
</TABLE>
As of December 31, 1998, no options were exercisable and outstanding options
had a weighted-average remaining contractual life of 9.8 years.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net loss as if the Company had adopted the fair value
method. Under SFAS 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradeable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including expected time to exercise, which greatly affect the
calculated values. The Company's calculations were made using the minimum value
method model with the following weighted average assumptions: expected life, 24
months following vesting; risk free interest rate, 5.9% in 1998; and no
dividends during the expected term. The Company's calculations are based on a
multiple option valuation approach and forfeitures are recognized as they
occur. If the computed minimum values of the awards had been amortized to
expense over the vesting period of the awards, pro forma net loss would not
have been materially different from net loss.
6. Income Taxes
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1998,
the Company's deferred income tax assets totaled approximately $342,000 and
consisted primarily of net operating loss (NOL) carryforwards and temporary
differences related to accruals and reserves not currently deductible. The
deferred tax assets have been fully reserved due to the uncertainty surrounding
the realization of such benefits.
At December 31, 1998, the Company has NOL carryforwards of approximately
$726,000 for federal and state income tax purposes, respectively. The federal
NOL carryforwards expire in 2018, while the state NOL carryforwards expire in
2006.
The extent to which the NOL carryforwards can be used to offset future
taxable income and tax liabilities, respectively, may be limited, depending on
the extent of ownership changes within any three-year period.
7. Lease Commitments
The Company leases its facilities and certain equipment under noncancelable
operating leases expiring through December 2004. Rent expense was approximately
$153,000 in 1998. Future
10
<PAGE>
TYCHO NETWORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
minimum rent payments are approximately $454,000, $398,000, $192,000, $160,000,
$160,000 and $160,000 in 1999, 2000, 2001, 2002, 2003 and thereafter,
respectively.
8. Employee Benefit Plan
In January 1998, the Company established a 401(k) tax-deferred savings plan,
whereby eligible employees may contribute up to 15% of their eligible
compensation. Company contributions are discretionary. No employer
contributions were made in 1998.
9. Subsequent Events
On March 1, 1999, the Board of Directors increased the authorized shares of
Series A convertible preferred stock to 6,450,000 shares and authorized shares
of common stock to 13,550,000 shares. In March 1999 through April 1999, the
Company issued 2,281,600 shares of Series A convertible preferred stock for
total gross proceeds of approximately $713,000.
In July and August 1999, the Company issued notes payable totaling $500,000
for working capital purposes. Borrowings bear interest at 12% per annum and are
payable in thirty-six monthly installments.
In addition, in July 1999, the Company entered into lease agreements for
equipment purchases. Under the agreements, the Company may borrow up to
$500,000 immediately and an additional $2,250,000 upon the closing of a
qualified Series B preferred stock financing with proceeds of at least
$10,000,000. In addition, the Company agreed to issue warrants to purchase
Series B preferred stock upon such closing. The number and per share price
thereof are to be determined by the per share closing price of the Series B
preferred stock financing.
In October 1999, the Company issued a note payable for $75,000 for working
capital purposes. Borrowings bear interest at 6% per annum. The entire
principal balance will automatically convert to shares of Series B preferred
stock upon completion of a Series B preferred stock financing with proceeds of
at least $5,000,000 consummated on or before January 31, 2000; otherwise, the
balance will become due on demand. The Company has the option to convert
accrued interest into shares of Series B preferred stock or pay the outstanding
balance.
11
<PAGE>
EXHIBIT 99.2
TYCHO NETWORKS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 20,585 $ 216,105
Accounts receivable, net.......................... 33,855 48,752
Prepaids and other current assets................. 20,095 2,645
----------- ----------
Total current assets............................ 74,535 267,502
PROPERTY AND EQUIPMENT, Net......................... 430,179 126,044
OTHER ASSETS........................................ 150,528 118,527
INTANGIBLE ASSETS................................... 274,553 377,160
----------- ----------
TOTAL............................................... $ 929,795 $ 889,233
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 779,721 $ 193,637
Accrued liabilities............................... 97,445 36,100
Unearned revenue.................................. 12,508 --
Current portion of capital lease payable.......... 66,279 --
Current portion of notes payable.................. 148,409 --
----------- ----------
Total current liabilities....................... 1,104,362 229,737
----------- ----------
Long-term portion of capital lease payable.......... 200,572 --
Notes Payable....................................... 339,964 --
Subordinated Convertible Notes Payable.............. 303,618 290,543
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, $0.001 par
value; authorized--
6,450,000 and 4,050,000 shares, respectively; issued
and outstanding--
6,025,728 and 3,744,128 shares, respectively........ 1,851,337 1,153,510
Common stock, $0.001 par value; authorized--
13,550,000 and 10,000,000 shares, respectively;
outstanding--2,450,000 shares...................... 2,450 2,450
Accumulated deficit................................. (2,872,508) (787,007)
----------- ----------
Total stockholders' equity...................... (1,018,721) 368,953
----------- ----------
TOTAL............................................... $ 929,795 $ 889,233
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
TYCHO NETWORKS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the period
from
Nine months December 22, 1997
ended (inception)
September 30, to September 30,
1999 1998
------------- -----------------
<S> <C> <C>
NET REVENUES.................................... $ 1,269,462 $ 60,000
----------- ---------
COSTS AND EXPENSES:
Cost of revenues.............................. 1,235,420 104,028
Selling, general and administrative........... 2,012,650 415,300
Research and development...................... 92,822 54,593
----------- ---------
Total costs and expenses.................... 3,340,892 573,921
----------- ---------
LOSS FROM OPERATIONS............................ (2,071,430) (513,921)
Interest expense, net......................... (14,071) (6,014)
----------- ---------
NET LOSS........................................ $(2,085,501) $(519,935)
=========== =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
TYCHO NETWORKS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the period
Nine months from December 22, 1997
ended (inception)
September 30, to September 30,
1999 1998
------------- ----------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................. $(2,085,501) $ (519,935)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........... 141,996 (1,885)
Changes in operating assets and
liabilities, net of effects of
acquisition:
Accounts receivable................... 14,897 78,228
Prepaids and other current assets..... (17,450) (4,700)
Accounts payable...................... 586,084 213,664
Accrued liabilities & other current
liabilities.......................... 74,420 14,774
Unearned revenue...................... 12,508 --
----------- ----------
Net cash used in operating
activities......................... (1,273,046) (219,854)
----------- ----------
INVESTING ACTIVITIES:
Purchases of property and equipment..... (76,673) (264,945)
Other assets............................ (32,001) (8,521)
Acquisition of business................. -- (582,874)
----------- ----------
Net cash used in investing
activities......................... (108,674) (856,340)
----------- ----------
FINANCING ACTIVITIES:
Issuance of common stock................ -- 2,450
Sale of convertible preferred stock..... 697,827 487,135
Proceeds from convertible notes
payable................................ 500,000 656,500
Repayment of notes payable.............. (11,627) (8,675)
----------- ----------
Net cash provided by financing
activities......................... 1,186,200 1,137,410
----------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.............................. (195,520) 61,216
CASH AND CASH EQUIVALENTS:
Beginning of period..................... 216,105 --
----------- ----------
End of period........................... 20,585 61,216
=========== ==========
NONCASH FINANCING ACTIVITY--Equipment
acquired under capital lease............. $ 266,851 --
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
TYCHO NETWORKS, INC. & SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial statements at September 30, 1999, for the nine months ended
September 30, 1999 and for the period from December 22, 1997 (inception) to
September 30, 1998 are unaudited, but include all adjustments (consisting only
of normal recurring adjustments) that the Company considers necessary for a
fair presentation of financial position and operating results. Operating
results for the nine month period ended September 30, 1999 and for the period
from December 22, 1997 (inception) to September 30, 1998 are not necessarily
indicative of results that may be expected for any future periods.
The accompanying unaudited interim financial statements have been prepared
with the assumption that users of the interim financial information have read
Tycho Networks, Inc. & Subsidiary's ("Tycho") audited financial statements for
the period from December 22, 1997 (inception) to December 31, 1998.
Accordingly, footnote disclosures which would substantially duplicate the
disclosures contained in these audited financial statements have been omitted
from these unaudited interim financial statements. While management believes
the disclosures presented are adequate to make these financial statements not
misleading, these financial statements should be read in conjunction with
Tycho's audited financial statements and related notes.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results may differ from those estimates.
2. Stockholders' Equity
On March 1, 1999, the Board of Directors increased the authorized shares of
Series A convertible preferred stock to 6,450,000 shares and authorized shares
of common stock to 13,550,000 shares. In March 1999 through April 1999, the
Company issued 2,281,600 shares of Series A convertible preferred stock for
total gross proceeds of approximately $713,000.
3. Notes Payable and Capital Leases
In July and August 1999, the Company issued notes payable totaling $500,000
for working capital purposes. Borrowings bear interest at 12% per annum and are
payable in thirty-six monthly installments.
In addition, in July 1999, the Company entered into lease agreements for
equipment purchases. Under the agreements, the Company may borrow up to
$500,000 immediately and an additional $2,250,000 upon the closing of a
qualified Series B preferred stock financing with proceeds of at least
$10,000,000. In addition, the Company agreed to issue warrants to purchase
Series B preferred stock upon such closing. The number and per share price
thereof are to be determined by the per share closing price of the Series B
preferred stock financing. At September 30, 1999, the Company had $266,851
outstanding under the lease agreements.
In October 1999, the Company issued a note payable for $75,000 for working
capital purposes. Borrowings bear interest at 6% per annum. The entire
principal balance will automatically convert to shares of Series B preferred
stock upon completion of a Series B preferred stock financing with proceeds of
at least $5,000,000 consummated on or before January 31, 2000; otherwise, the
balance will become due on demand. The Company has the option to convert
accrued interest into shares of Series B preferred stock or pay the outstanding
balance.
4
<PAGE>
4. Sale to DSL.net
On December 1, 1999, Tycho Networks, Inc. entered into an Agreement and Plan
of Merger with DSL.net, Inc. and a wholly owned subsidiary of DSL.net, Inc. The
transaction included cash consideration of approximately $1.6 million
(including amounts used to pay off existing notes of approximately $0.8
million), amounts due to selling stockholders and others after the closing of
approximately $0.8 million, net liabilities assumed of approximately $0.3
million and other costs of approximately $0.4 million. Immediately prior to the
acquisition, Tycho sold fixed assets with a net book value of approximately
$0.1 million to a related party and received notes that were convertible into
preferred stock of the buyer.
5
<PAGE>
EXHIBIT 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Basis of Presentation
The following unaudited pro forma condensed combined financial information
for DSL.net, Inc. ("DSL" or the "Company") gives effect (i) to the acquisition
of Tycho Networks, Inc. and subsidiary ("Tycho") under the purchase method of
accounting and (ii) to the Company's completion of its initial public offering.
The following unaudited pro forma combined financial information presents the
Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 1999,
giving effect to the acquisition of Tycho as if it had been consummated on that
date. Also presented is the Unaudited Pro Forma Condensed Combined Statements
of Operations for the nine months ended September 30, 1999 and the period from
inception (March 3, 1998) through December 31, 1998, giving effect to the
acquisition of Tycho as if such acquisition had been consummated as of the
beginning of the earliest period presented. The Unaudited Pro Forma Condensed
Combined Balance Sheet combines the respective balance sheets of the Company
and Tycho as of September 30, 1999. The Unaudited Pro Forma Condensed Combined
Statement of Operations for the nine months ended September 30, 1999 combines
the results of the Company and Tycho for such period. The Unaudited Pro Forma
Condensed Combined Statement of Operations for the period from inception (March
3, 1998) through December 31, 1998 combines the results of the Company for such
period with the results of Tycho for the period from December 22, 1997
(inception ) to December 31, 1998. The historical financial information set
forth below has been derived from, and is qualified by reference to, the
financial statements of the Company and Tycho and should be read in conjunction
with those financial statements and the notes thereto included in the Company's
Registration Statement on Form S-1 filed on February 8, 2000 or elsewhere
herein.
The pro forma data is based on the combined historical results of the
Company and Tycho after giving effect to the Tycho acquisition under the
purchase method of accounting, and to the assumptions and adjustments (which
the Company believes to be reasonable) described in the accompanying Notes to
Unaudited Pro Forma Condensed Combined Financial Information. Under the
purchase method of accounting, assets acquired and liabilities assumed will be
recorded at their estimated fair value at the date of acquisition. The pro
forma adjustments set forth in the following unaudited pro forma combined
financial information are estimated and may differ from the actual adjustments
when they become known; however, no material differences are anticipated by the
Company.
The unaudited pro forma condensed combined financial information set forth
below does not purport to represent what the combined results of operations or
financial condition of the Company would actually have been if the Tycho
acquisition and the Company's Initial Public Offering, both of which were
completed after September 30, 1999, had in fact occurred on such dates nor
should it be utilized to project the future combined results of operations or
financial condition of the Company.
1
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Tycho Acquisition Initial Public Offering
--------------------------------- ------------------------------
Pro Forma
Effect of Tycho Pro Forma Pro Forma Pro Forma
DSL.net Tycho Acquisition Combined Effect of IPO As Adjusted
------------ ----------- --------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets
Cash and cash
equivalents........... $ 32,538,471 $ 20,585 $(1,576,009)(1) $30,983,047 $ 56,345,165 (4) $ 87,328,212
Marketable securities.. 10,528,055 -- -- 10,528,055 -- 10,528,055
Accounts receivable,
net................... 97,457 33,855 -- 131,312 -- 131,312
Prepaid expenses and
other current assets.. 1,896,360 20,095 -- 1,916,455 (420,060)(4) 1,496,395
------------ ----------- ----------- ----------- ------------ ------------
Total current assets.. 45,060,343 74,535 (1,576,009) 43,558,869 55,925,105 99,483,974
------------ ----------- ----------- ----------- ------------ ------------
Fixed assets, net....... 16,146,456 430,179 (90,000)(3) 16,486,635 -- 16,486,635
Other assets............ 931,189 150,528 90,000 (3) 1,171,717 -- 1,171,717
Intangible assets, net.. -- 274,553 2,937,346 (1) 3,211,899 -- 3,211,899
------------ ----------- ----------- ----------- ------------ ------------
Total assets.......... $ 62,137,988 $ 929,795 $ 1,361,337 $64,429,120 $ 55,925,105 $120,354,225
============ =========== =========== =========== ============ ============
Current Liabilities:
Accounts payable....... $ 754,257 $ 779,721 $ (151,469)(1) $ 1,382,509 -- $ 1,382,509
Accrued liabilities.... 4,473,852 97,445 483,500 (1),(2) 5,054,797 -- 5,054,797
Deferred revenue....... 61,532 12,508 -- 74,040 -- 74,040
Due to sellers and
others................ -- -- 802,576(1) 802,576 -- 802,576
Current portion of
capital lease
payable............... 527,385 66,279 -- 593,664 -- 593,664
Current portion of
notes payable......... 160,752 148,409 (148,409)(1) 160,752 -- 160,752
------------ ----------- ----------- ----------- ------------ ------------
Total current
liabilities.......... 5,977,778 1,104,362 986,198 8,068,338 -- 8,068,338
------------ ----------- ----------- ----------- ------------ ------------
Long-term portion of
capital lease payable.. 761,790 200,572 -- 962,362 -- 962,362
Notes payable........... 1,286,014 643,582 (643,582)(1) 1,286,014 -- 1,286,014
------------ ----------- ----------- ----------- ------------ ------------
Total liabilities..... 8,025,582 1,948,516 342,616 10,316,714 -- 10,316,714
------------ ----------- ----------- ----------- ------------ ------------
Redeemable convertible
preferred stock:
Convertible preferred
stock
Series A convertible
preferred stock....... 225,000 -- -- 225,000 (225,000)(4) --
Series B convertible
preferred stock....... 15,424,999 -- -- 15,424,999 (15,424,999)(4) --
Series C convertible
preferred stock....... 9,940,391 -- -- 9,940,391 (9,940,391)(4) --
Series D convertible
preferred stock....... 30,967,786 -- -- 30,967,786 (30,967,786)(4) --
Series E convertible
preferred stock....... 18,458,168 -- -- 18,458,168 (18,458,168)(4) --
------------ ----------- ----------- ----------- ------------ ------------
Total redeemable
convertible preferred
stock................ 75,016,344 -- -- 75,016,344 (75,016,344) --
------------ ----------- ----------- ----------- ------------ ------------
Stockholders' equity
(deficit):
Series A convertible
preferred stock....... -- 1,851,337 (1,851,337)(1) -- -- --
Common stock........... 7,112 2,450 (2,450)(1) 7,112 22,068 (4) 29,180
Additional paid-in
capital............... 8,775,192 -- -- 8,775,192 130,919,381 (4) 139,694,573
Deferred compensation.. (12,375,876) -- -- (12,375,876) -- (12,375,876)
Accumulated deficit.... (17,310,366) (2,872,508) 2,872,508 (1) (17,310,366) -- (17,310,366)
------------ ----------- ----------- ----------- ------------ ------------
Total stockholders'
(deficit) equity..... (20,903,938) (1,018,721) 1,018,721 (20,903,938) 130,941,449 110,037,511
------------ ----------- ----------- ----------- ------------ ------------
Total liabilities,
redeemable
convertible preferred
stock and
stockholder's
equity............... $ 62,137,988 $ 929,795 $ 1,361,337 $64,429,120 $ 55,925,105 $120,354,225
============ =========== =========== =========== ============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
DSL.net Tycho Adjustments Combined
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenue................. $ 501,665 $ 1,269,462 $ -- $ 1,771,127
------------ ------------ ---------- ------------
Operating expenses:
Network and
operations........... 3,757,233 1,235,420 -- 4,992,653
Sales and marketing... 3,327,972 -- -- 3,327,972
General and
administrative....... 2,945,077 2,105,472 (102,608)(5) 4,947,941
Stock compensation and
amortization of
excess purchase
price................ 3,412,914 -- 481,785 (5) 3,894,699
------------ ------------ ---------- ------------
Total operating
expenses........... 13,443,196 3,340,892 379,177 17,163,265
------------ ------------ ---------- ------------
Operating loss.......... (12,941,531) (2,071,430) (379,177) (15,392,138)
------------ ------------ ---------- ------------
Interest expense
(income), net.......... (827,956) 14,071 108,402 (6) (705,483)
Other expense (income),
net.................... 5,156 -- -- 5,156
------------ ------------ ---------- ------------
Net loss.............. $(12,118,731) $ (2,085,501) $ (487,579) $(14,691,811)
============ ============ ========== ============
Exchange of preferred
stock.................. 11,998,000 -- -- 11,998,000
------------ ------------ ---------- ------------
Loss applicable to
common stock........... $(24,116,731) $ (2,085,501) $ (487,579) $(26,689,811)
============ ============ ========== ============
Net loss per share-basic
and diluted............ $ (3.87) $ (0.89)
============ ============
Shares used in computing
net loss per share..... 6,230,836 29,913,454(7)
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
DSL.net
For the period from Tycho
inception For the period from
(March 3, 1998) December 22, 1997
to (inception) to Pro Forma Pro Forma
December 31, 1998 December 31, 1998 Adjustments Combined
------------------- ------------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue................. $ 31,533 $ 348,527 $ -- $ 380,060
----------- ---------- ---------- -----------
Operating expenses:
Network and
operations........... 127,054 436,815 -- 563,869
General and
administrative....... 230,272 702,763 (20,196)(5) 912,839
Sales and marketing... 35,961 -- -- 35,961
Stock compensation and
amortization of
excess purchase
price................ 2,423,272 -- 642,380 (5) 3,065,652
----------- ---------- ---------- -----------
Total operating
expenses........... 2,816,559 1,139,578 622,184 4,578,321
----------- ---------- ---------- -----------
Operating loss.......... (2,785,026) (791,051) (622,184) (4,198,261)
----------- ---------- ---------- -----------
Interest expense
(income), net.......... 4,611 8,581 273,011 (6) 286,203
Other expense (income),
net.................... -- (12,625) -- (12,625)
----------- ---------- ---------- -----------
Net loss.............. $(2,789,637) $ (787,007) $ (895,195) $(4,471,839)
=========== ========== ========== ===========
Net loss per share-basic
and diluted............ $ (0.55) $ (0.87)(7)
=========== ===========
Shares used in computing
net loss per share..... 5,118,342 5,118,342
=========== ===========
</TABLE>
See accompanying notes
4
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
Pro Forma adjustments are as follows:
1) Adjustment to record the acquisition of Tycho Networks, Inc. under the
purchase method of accounting as if the acquisition occurred on September
30, 1999. The approximate net purchase price of $3.1 million, excluding
transaction costs associated with the acquisition, consists of the
following: (a) cash payments at closing of $1.6 million (including notes
paid at closing of approximately $0.8 million), amounts due to selling
stockholders and others after the closing of approximately $0.8 million, net
liabilities assumed of approximately $0.3 million and other costs of
approximately $0.4 million.
2) The Company incurred transaction costs associated with the acquisition of
approximately $0.1 million included in accrued liabilities.
3) Immediately prior to the acquisition, Tycho Networks sold fixed assets with
a net book value of approximately $0.1 million to a related party and
received notes that were convertible into the preferred stock of the buyer.
These notes were assigned an estimated fair value of $0.1 million.
4) Adjustment to record net proceeds of the Company's initial public offering
of 7,200,000 shares, which closed on October 12, 1999, of approximately
$49.1 million; exercise of warrants for 56,250 shares of Series A preferred
stock for aggregate net proceeds of approximately $0.06 million on October
6, 1999; conversion of all preferred stock into 35,909,761 shares of common
stock at a ratio of 2.666 for one on October 12, 1999; exercise of the
underwriter's over- allotment option for 1,026,000 shares, which closed on
November 8, 1999 and which resulted in net proceeds to the Company of
approximately $7.2 million.
5) Adjustment to record amortization of the excess of purchase price over the
fair value of the net assets acquired of approximately $3.2 million as
though the acquisition occurred on the first day of the period and assuming
a five year life of such asset.
6) Adjustment to record an increase in interest expense or decrease in interest
income to reflect cash used for the acquisition of Tycho. The increase in
interest expense is recorded assuming a rate of 8.5% per annum. The
reduction in interest income is recorded assuming a rate of 4.5% per annum.
7) Pro Forma net loss per share is computed using the weighted average number
of shares of common stock outstanding plus common equivalent shares from
convertible preferred stock (the "preferred shares"), that were converted
upon the Company's initial public offering (see (4) above), using the if-
converted method. The preferred shares have been included whether dilutive
or anti-dilutive pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 98. Such pro forma net loss per share reflects the
impact of the adjustments above.
5
