UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 9, 1999
C-COR.net Corp.
(Exact name of Registrant as specified in its charter)
Pennsylvania 0-10726 24-0811591
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
60 Decibel Road, State College, Pennsylvania 16801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (814) 238-2461
C-COR Electronics, Inc.
(Former name or former address, if changed since last report.)
<PAGE>
This Form 8K/A amends the Current Report on Form 8-K dated July 9, 1999 and
filed on July 26, 1999, to incorporate Item 7 - Financial Statements, Pro Forma
Information and Exhibits.
Item 2. Acquisition or Disposition of Assets
On July 9, 1999, the Registrant consummated its acquisition of
Convergence.com Corporation, a Georgia corporation ("Convergence"),
pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
dated as of May 15, 1999, by and among the Registrant, Convergence and
C-COR Acquisition Corp., a Georgia corporation and a wholly-owned
subsidiary of the Registrant ("Acquisition Sub"). Pursuant to the
Merger Agreement, Acquisition Sub was merged (the "Merger") with and
into Convergence, with Convergence being the surviving entity as a
wholly owned subsidiary of the Registrant. As consideration for the
Merger, each outstanding share of common stock of Convergence was
converted into one share of the Registrant's common stock for an
aggregate of 1,433,323 shares of the Registrant's common stock. Each
outstanding warrant to acquire Convergence common stock was converted
into a warrant to acquire Registrant's common stock for an aggregate
of warrants to acquire 366,930 shares of the Registrant's common
stock. The nature and amount of consideration paid in connection with
the Merger was determined based on arms length negotiations between
the Registrant and Convergence. Prior to the Merger, the Registrant
owned 148,426 shares of Convergence's Class A Senior Convertible Stock
(which was canceled pursuant to the Merger Agreement), and the
Registrant was the exclusive reseller of Convergence's services and
products. In addition, David R. Ames and Terry L. Wright, each an
officer, director, and shareholder of Convergence prior to the Merger,
became officers of the Registrant upon consummation of the Merger. The
foregoing summary of the Merger is qualified in its entirety by
reference to the Merger Agreement which is Exhibit 2.1 to this report
and incorporated herein by reference. The Merger is being accounted
for under the pooling-of-interests method of accounting and treated as
a tax-free reorganization. Effective on the date of the merger, the
Registrant changed its name from C-COR Electronics, Inc. to C-COR.net
Corp.
Item 7. Financial Statements, Pro Forma Information and Exhibits
The following consolidated financial statements, pro forma financial information
and exhibits are filed as part of this report.
(a) Consolidated Financial Statements of Convergence.com Corporation and
Subsidiary
1. Consolidated Financial Statements of Convergence.com Corporation
and Subsidiary as of and for the years ended December 31, 1998,
and December 31, 1997. (audited)
2. Consolidated Balance Sheet (unaudited) as of March 31, 1999, and
Consolidated Statements of Operations (unaudited) and
Consolidated Statements of Cash Flows (unaudited) for the three
months ended March 31, 1999 and March 31, 1998 of Convergence.com
Corporation and Subsidiary.
(b) Pro Forma Financial Information
On July 9, 1999, the Registrant consummated its acquistion of
Convergence.com Corporation, a Georgia Corportation ("Convergence"),
pursuant to an Agreement and Plan of Merger dated as of May 15, 1999.
Included below are Pro Forma Combined Condensed Financial Statements
(unaudited) based on historical Consolidated Financial Statements of
the Registrant and Convergence, giving effect to the Merger, as though
it had been consummated on the date specified therein. These Pro Forma
Combined Condensed Financial Statements (unaudited) are not
necessarily indicative of the results of operations or financial
position that actually would have occurred had the Merger been
consummated on the date indicated or of future results of operation.
1. Pro forma Combined Condensed Balance Sheet as of March 26, 1999
(unaudited) and Combined Condensed Statement of Operations for
the nine months ended March 26, 1999 (unaudited)
2. Pro forma Combined Condensed Statement of Operations for the
fiscal year ended June 26, 1998 (unaudited)
3. Pro forma Combined Condensed Statement of Operations for the
fiscal year ended June 27, 1997 (unaudited)
4. Pro forma Combined Condensed Statement of Operations for the
fiscal year ended June 28, 1996 (unaudited)
5. Notes to Pro Forma Combined Condensed Financial Statements
(unaudited)
(c) Exhibits.
2.1 Agreement and Plan of Merger dated as of May 15, 1999 among C-COR
Electronics, Inc., C-COR Acquisition Corp. and Convergence.com
Corporation. (Incorporated by reference to the Registrant's 8-K filed
on July 26, 1999.)
23.1 Consent of KPMG LLP.
<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.
C-COR.net Corp.
-----------------------------------
(Registrant)
/s/ David A. Woodle
----------------------------------------------
Date: August 2, 1999 By: David A. Woodle
Title: President and Chief Executive Officer
<PAGE>
CONVERGENCE.COM CORPORATION AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1998 and 1997
With Independent Auditors' Report Thereon
<PAGE>
CONVERGENCE.COM CORPORATION AND SUBSIDIARY
Table of Contents
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Convergence.com Corporation:
We have audited the accompanying consolidated balance sheets of Convergence.com
Corporation and subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Convergence.com
Corporation and subsidiary at December 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
- ------------------
Atlanta, Georgia
May 28, 1999
<PAGE>
<TABLE>
<CAPTION>
CONVERGENCE.COM CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets 1998 1997
---------------- -------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 4,578,556 51,874
Accounts receivable, net of allowance for doubtful
accounts of $300,886 and $270,033 at
December 31, 1998 and 1997, respectively 767,190 335,092
Notes receivable, current 54,473 9,588
Other current assets 18,614 -
---------------- -------------
Total current assets 5,418,833 396,554
---------------- -------------
Property and equipment:
Computer equipment 454,279 299,579
Office equipment 466,793 25,787
Furniture and fixtures 212,108 4,782
Leasehold improvements 103,337 -
---------------- -------------
1,236,517 330,148
Less accumulated depreciation and amortization (364,891) (86,272)
---------------- -------------
Net property and equipment 871,626 243,876
---------------- -------------
Notes receivable 11,246 20,219
Other assets 111,436 154,838
================ =============
Total assets $ 6,413,141 815,487
================ =============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 598,387 19,572
Accrued professional expenses 210,000 32,106
Accrued litigation settlement 120,000 -
Accrued stock-based compensation expense 247,641 -
Current installments of obligations under capital leases 21,903 -
Other current liabilities 14,917 2,216
---------------- -------------
Total current liabilities 1,212,848 53,894
Obligations under capital leases, excluding current installments 87,159 -
---------------- -------------
Total liabilities 1,300,007 53,894
Series A redeemable convertible preferred stock, no par value; 500,000
shares authorized, 300,000 and 102,888 shares issued and outstanding
at December 31, 1998 and 1997, respectively; stated at redemption
value; aggregate liquidation preference of $9,000,000 at December 31,
1998 3,102,382 979,230
Class A redeemable senior convertible stock, no par value; 504,850 shares
authorized; 148,426 shares issued and outstanding; stated at redemption
value; aggregate liquidation preference of $5,000,472 at December 31,
1998 4,957,038 -
Stockholders' deficit:
Common stock, no par value; 20,000,000 shares authorized;
1,179,323 shares issued 300 300
Additional paid-in capital 580,455 393,014
Treasury stock, 46,000 shares at cost (46) (46)
Accumulated deficit (3,526,995) (610,905)
---------------- -------------
Total stockholders' deficit (2,946,286) (217,637)
Commitments and contingencies (notes 2, 5, and 6)
---------------- -------------
Total liabilities and stockholders' deficit $ 6,413,141 815,487
================ =============
</TABLE>
<PAGE>
CONVERGENCE.COM CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
Revenues:
<S> <C> <C>
Product sales $ 1,994,130 693,045
Internet service revenue 438,877 94,594
Consulting fees 239,303 316,491
---------------- ----------------
2,672,310 1,104,130
---------------- ----------------
Costs and expenses:
Cost of revenues 2,211,672 708,456
Selling expenses 258,323 119,236
General and administrative expenses 2,054,147 656,727
Stock-based compensation expense 247,641 -
Litigation settlement 120,000 -
Depreciation and amortization 278,619 61,921
---------------- ----------------
5,170,402 1,546,340
---------------- ----------------
Loss from operations (2,498,092) (442,210)
Interest expense (13,573) (8,890)
Interest income 41,614 9,302
---------------- ----------------
Loss before income taxes (2,470,051) (441,798)
Income taxes - -
---------------- ----------------
Net loss (2,470,051) (441,798)
Accretion of discount on convertible stock (446,039) (48,190)
================ ================
Net loss attributable to common stock $ (2,916,090) (489,988)
================ ================
Net loss per common share - basic and diluted $ (2.57) (0.43)
================ ================
Shares used in the calculation of net loss per common share -
basic and diluted 1,133,323 1,133,323
================ ================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONVERGENCE.COM CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1998 and 1997
Treasury
Common stock Additional stock
----------------------- paid-in ------------------ Accumulated
Shares Amount capital Shares Amount deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,179,323 $ 300 295,174 46,000 (46) (120,917) 174,511
Warrants issued in connection with Series A
convertible preferred stock - - 97,840 - - - 97,840
Accretion of Series A convertible preferred
stock to redemption value - - - - - (48,190) (48,190)
Net loss - - - - - (441,798) (441,798)
-------------- ------- ----------- -------- -------- ----------- -----------
Balance at December 31, 1997 1,179,323 300 393,014 46,000 (46) (610,905) (217,637)
Warrants issued in connection with Series A
convertible preferred stock - - 187,441 - - - 187,441
Accretion of Series A convertible preferred
stock to redemption value - - - - - (439,473) (439,473)
Accretion of Class A senior convertible
stock to redemption value - - - - - (6,566) (6,566)
Net loss - - - - - (2,470,051) (2,470,051)
-------------- ------- ----------- -------- -------- ----------- ------------
Balance at December 31, 1998 1,179,323 $ 300 580,455 46,000 (46) (3,526,995) (2,946,286)
============== ======= =========== ======== ======== =========== ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CONVERGENCE.COM CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (2,470,051) (441,798)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 278,619 61,921
Provision for doubtful accounts 30,853 23,784
Change in operating assets and liabilities:
Accounts receivable (462,951) (297,139)
Other current assets (18,614) -
Accounts payable 578,815 (16,045)
Accrued professional expenses 177,894 20,000
Accrued litigation settlement 120,000 -
Accrued stock-based compensation expense 247,641 -
Other current liabilities 12,701 8,890
--------------- ----------------
Net cash used in operating activities (1,505,093) (640,387)
--------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment (779,453) (255,108)
(Issuance of) payments on notes receivable, net (35,912) 7,354
Change in other assets 43,402 (104,690)
--------------- ----------------
Net cash used in investing activities (771,963) (352,444)
--------------- ----------------
Cash flows from financing activities:
Principal payments of capital lease obligations (17,854) -
Proceeds from issuance of convertible debt - 159,990
Proceeds from issuance of Series A convertible preferred
stock with attached warrants 1,871,120 860,000
Proceeds from issuance of Class A senior convertible stock 4,950,472 -
--------------- ----------------
Net cash provided by financing activities 6,803,738 1,019,990
--------------- ----------------
Net increase in cash and cash equivalents 4,526,682 27,159
Cash and cash equivalents at beginning of year 51,874 24,715
--------------- ----------------
Cash and cash equivalents at end of year $ 4,578,556 51,874
=============== ================
Supplemental disclosure of cash paid during the year for interest $ 13,573 8,890
=============== ================
Supplemental disclosures of noncash financing activities:
Accretion of Series A convertible preferred stock to
redemption value $ 439,473 48,190
=============== ================
Accretion of Class A senior convertible stock to
redemption value $ 6,566 -
=============== ================
Property and equipment acquired under capital lease $ 126,916 -
=============== ================
Conversion of convertible debt into Series A convertible
preferred stock $ - 159,990
=============== ================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CONVERGENCE.COM CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(1) Business and Summary of Significant Accounting Policies
(a) Business
Convergence.com Corporation and subsidiary (the "Company"), a Georgia
corporation, is a provider of high-speed Internet access installation,
service, and support to broadband network operators in the United
States. The Company began operations in 1994.
The Company has an accumulated deficit as of December 31, 1998 as a
result of efforts to establish and market its business model and
product offerings, build its presence in new markets, and develop
subscribers in those markets. It expects to continue to focus on
increasing its subscriber base, which will cause its cost of revenues,
selling, general and administrative expenses, and capital expenditures
to increase. There can be no assurance, however, that growth in the
Company's revenues or subscriber base will continue or that the
Company will be able to achieve profitability or positive cash flows.
(b) Basis of Presentation
The consolidated financial statements include the financial statements
of Convergence.com Corporation and its wholly owned subsidiary. All
significant intercompany balances and transactions have been
eliminated in consolidation.
Stockholders' equity (deficit), shares, and per share amounts for all
periods presented have been adjusted for a 4.4619 for one stock split
effected in the form of a stock dividend on September 8, 1997.
The accompanying financial statements as of and for the year ended
December 31, 1997 have been restated to: (i) use a volatility factor
of 0% (minimum value method) to determine the relative fair values of
the Series A convertible preferred stock and attached warrants issued
in 1997, which decreased the accretion of the Series A convertible
preferred stock by $64,934 for the year ended December 31, 1997; and
(ii) eliminate the provision for income taxes, which decreased the net
loss by $75,000 for the year ended December 31, 1997.
(c) 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 periods. Actual results could differ
from those estimates.
(d) Revenue Recognition
Product sales represent hardware sold to service and nonservice
customers. Revenues from product sales are recognized when products
are shipped. Internet service is billed monthly on a per subscriber
basis. Consulting services include system design, diagnostics, and
other sundry solution engagements. Revenues from Internet and
consulting services are recognized as services are rendered.
(e) Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation expense is
computed using the straight line method over the estimated useful
lives (three years for computer equipment, three to five years for
office equipment, and seven years for furniture and fixtures) of the
related assets. Leasehold improvements are amortized over the shorter
of the lease term or the estimated useful life of the asset.
(g) Income Taxes
The Company filed its Federal income taxes as an S corporation,
whereby the income or loss would flow through to each of the
individual shareholders, from the time of its inception to September
22, 1997, when the Company issued convertible preferred stock changing
its tax status to a C corporation (the "Conversion").
Subsequent to the Conversion, income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(h) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset 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 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. Assets to be
disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
(i) Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No.-130 ("SFAS No. 130"), Reporting Comprehensive
Income. SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set
of financial statements. No statements of comprehensive income (loss)
have been included in the accompanying consolidated financial
statements since comprehensive loss and net loss presented in the
accompanying consolidated statements of operations would be the same.
(j) Net Loss Per Share of Common Stock
On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No.-128, Earnings Per Share, which prescribes the
calculation methodology and financial reporting requirements for basic
and diluted earnings (loss) per share. Basic earnings (loss) per
common share available to common stockholders are based on the
weighted-average number of common shares outstanding. Diluted earnings
(loss) per common share available to common stockholders are based on
the weighted-average number of common shares outstanding and dilutive
potential common shares, such as dilutive stock options. The
computation of potential common shares was antidilutive for the years
ended December 31, 1998 and 1997; therefore, the amounts reported for
basic and diluted are the same. Securities that could have a dilutive
effect on basic earnings per share in the future that were not
included in diluted earnings per share because of their antidilutive
effect in 1998 are 366,930 common stock purchase warrants, 300,000
shares of Series A redeemable convertible preferred stock and 148,426
shares of Class A redeemable senior convertible stock. In 1997,
102,888 common stock purchase warrants and 102,888 shares of Series A
redeemable convertible preferred stock were not included in diluted
earnings per share because they were antidilutive.
(k) Industry Segment
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No.-131, Disclosures About Segments of an
Enterprise and Related Information. The Company operates and manages
its business in one segment, that being a company that provides
high-speed Internet access installation, service, and support to broad
band network operators.
(l) Stock Based Compensation
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations,
in accounting for fixed stock awards. As such, compensation expense
would generally be recorded only if the current market price of the
underlying stock on the date of grant exceeded the exercise price.
(m) Financial Instruments
The carrying value of the Company's cash and cash equivalents,
accounts receivable, notes receivable, accounts payable, and accrued
professional expenses approximate fair value due to the short-term
nature of these assets and liabilities.
(2) Leases
During 1998, the Company entered into various capital leases for office
equipment and furniture and fixtures that expire in 2003. At December 31,
1998, the gross amount of office equipment and furniture and fixtures
recorded under capital leases was $126,916. The related accumulated
amortization was $23,268. Amortization of assets held under capital leases
is included with depreciation expense.
The Company also has one noncancelable operating lease for the use of a
building, which expires in 2004. This lease requires the Company to pay all
executory costs such as taxes, maintenance, and insurance. Rental expense
for the operating lease during 1998 and 1997 was $133,088 and $12,174,
respectively.
Future minimum lease payments under the noncancelable operating lease and
future minimum capital lease payments as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Capital Operating
leases lease
-------------- ----------------
Year ending December 31,
<S> <C> <C> <C>
1999 $ 36,154 137,080
2000 36,154 141,193
2001 36,154 145,428
2002 36,154 149,791
2003 4,327 154,285
Thereafter - 158,913
-------------- ----------------
Total minimum lease payments 148,943 886,690
================
Less amount representing interest (at
the rate of 12.3%) 39,881
--------------
Present value of net minimum
capital lease payments 109,062
Less current installments of
obligations under capital leases 21,903
--------------
Obligations under capital leases,
excluding current installments $ 87,159
==============
</TABLE>
(3) Income Taxes
A reconciliation of the expected income tax benefit at the U.S. Federal
income tax rate of 34% to actual income tax benefit for the years ended
December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
Computed "expected" income tax benefit $ (839,817) (150,211)
Increase (reduction) in income taxes resulting from:
Increase in the valuation allowance for deferred tax assets 971,276 160,875
State income taxes, net of Federal income tax effect (96,886) (15,197)
Loss of NOL attributable to S corporation period - 56,085
Other, net (34,573) (51,552)
-------------- -------------
$ - -
============== =============
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable principally due to allowance for
doubtful accounts $ 119,545 104,713
Net operating loss carryforwards 1,029,602 241,364
Accrued compensation 98,390 -
Property and equipment, principally due to differences
in depreciation and amortization 47,873 32,476
-------------- -------------
Total gross deferred tax assets 1,295,410 378,553
Less valuation allowance (1,132,151) (160,875)
-------------- -------------
Net deferred tax assets 163,259 217,678
Deferred tax liability - change in accounting method for
income tax reporting (163,259) (217,678)
-------------- -------------
Net deferred tax assets $ - -
============== =============
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1998 and 1997
was $160,875 and $-0-, respectively. The increase in the valuation allowance for
the years ended December 31, 1998 and 1997 was $971,276 and $160,875,
respectively. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. The
Company continually reviews the adequacy of the valuation allowance and
recognizes these benefits as reassessment indicates that it is more likely than
not that the benefits will be realized.
At December 31, 1998, the Company had net operating loss carryforwards for
Federal income tax purposes of $2,591,000 which are available to offset future
Federal taxable income, if any, through 2018.
(4) Related Party Transactions
Included in other current assets at December 31, 1998 are advances to
employees for moving expenses of $9,650, net of a reserve of $7,500.
At December 31, 1998, notes receivable of $65,719 include notes from two
officers of the Company and a note from a former officer of the Company. At
December 31, 1997, a note receivable of $29,807 was due from a former
officer of the Company. The two notes from the officers of the Company are
due in 1999 and bear interest of 8%. The former officer's note is payable
in monthly installments of approximately $978 and is scheduled to mature in
November 2001, bearing interest at 10.5%. No interest income has been
recognized on these notes.
In 1997, 25,000 shares of Series A convertible preferred stock with
attached warrants were sold to employees of a major customer for $250,000
and 7,858 shares were sold to relatives of a Company officer for $78,580.
In 1998 and 1997, the Company had sales to a related cable company of
approximately $1,953,000 and $453,000, respectively, representing 73% and
41% of the Company's total revenue. At December 31, 1998 and 1997, the
outstanding receivable balance due from this related cable company was
$452,000 and $207,000, respectively.
(5) Convertible Preferred Stock
Convertible preferred stockholders have numerous rights and privileges,
including but not limited to, those disclosed herein.
On September 8, 1997, the Company authorized 500,000 shares of Series A
convertible preferred stock and 500,000 shares of Series A-1 convertible
preferred stock. The rights and privileges of Series A and Series A-1 are
substantially the same. Series A convertible preferred stockholders are
entitled to dividends when and if declared by the Board of Directors. The
Series A convertible preferred stock is redeemable at a redemption price of
$30 per share upon demand of the individual holders of such preferred stock
on or after July 31, 2005 and on or prior to July 31, 2007 (the
"Redemption") if the Company has not effected a qualified initial public
offering ("IPO"). A qualified IPO means an offering of securities of the
Company that is registered under the Securities Act of 1933, as amended,
and that yields gross proceeds of at least $7.5 million. The Redemption
will be effected through a payment in cash within 12 months of the date of
delivery of a written notice from the requisite holder. The redemption
notice and all redemption rights shall terminate if the Company effects a
qualified IPO during such 12-month period.
During 1997, the Company issued 102,888 shares of Series A convertible
preferred stock with attached warrants for cash of $860,000 and converted
debt of $159,990 plus accrued interest of $8,890. During 1998, the Company
issued 197,112 shares of Series A convertible preferred stock with attached
warrants for cash of $1,871,120, net of issuance costs of $100,000.
The Series A convertible preferred stock was issued pursuant to exemptions
from registration under applicable federal and state securities laws. The
transfer of the shares of Series A convertible preferred stock and common
stock issued upon conversion or exercise of the Series A convertible
preferred stock and warrants will be restricted unless exemptions from such
registration are applicable or unless such shares are registered pursuant
to applicable federal and state securities laws.
Each share of Series A convertible preferred stock is initially convertible
into one share of common stock at a conversion price of $10. The conversion
price is adjustable upon the issuance of common stock or convertible
securities at a price less than the then existing conversion price. The
Series A convertible preferred stock automatically converts into common
stock of the Company at the then applicable conversion rate at the earlier
of (i) the closing of a qualified IPO or (ii) the affirmative vote of the
holders of at least two-thirds of the Series A convertible preferred stock.
Each warrant issued attached to Series A convertible preferred stock can be
required by the Company to be exercised (or, if not exercised, will expire)
upon the closing of a qualified IPO.
Holders of the Series A convertible preferred stock have no voting rights.
However, the holders of the Series A convertible preferred stock, as a
class, are entitled to elect one director. In addition, changes in the
rights of the Series A convertible preferred stock, the sale or merger of
the Company and a sale of substantially all of the assets of the Company
require consent of holders of 50% of the outstanding shares of Series A
convertible preferred stock.
The shares of Series A convertible preferred stock are being accreted to
their $30 redemption price using the effective interest method over the
period to the earliest redemption date.
The Series A convertible preferred stock activity for the years ended December
31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Series A convertible
preferred stock
------------------------------------
Shares Amount
---------------- ----------------
<S> <C> <C>
Balance at December 31, 1996 - $ -
Issuance of Series A convertible preferred stock 102,888 931,040
Accretion of Series A convertible preferred stock - 48,190
---------------- ----------------
Balance at December 31, 1997 102,888 979,230
Issuance of Series A convertible preferred stock net
of issuance costs 197,112 1,683,679
Accretion of Series A convertible preferred stock - 439,473
---------------- ----------------
Balance at December 31, 1998 300,000 $ 3,102,382
================ ================
</TABLE>
(6) Senior Convertible Stock
Senior convertible stockholders have numerous rights and privileges,
including but not limited to, those disclosed herein.
In December 1998, the Company authorized 2,009,700 shares of senior
convertible stock, of which 504,850 shares were designated Class A senior
convertible stock and 504,850 shares were designated Class A-1 senior
convertible stock. The remaining shares were not designated.
The senior convertible stock may be issued from time to time by the Board
of Directors as shares of one or more series. The description of shares of
each series of senior stock, including any preferences, conversions and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption shall be as set
forth in resolutions adopted by the Board of Directors, subject to certain
limitations prescribed by law.
During 1998, the Company issued 148,426 shares of Class A senior
convertible stock for cash of $4,950,472, net of issuance costs of $50,000.
In addition, the Company and purchaser (the "Purchaser") of the Class A
senior convertible stock entered into a reseller agreement, whereas the
Purchaser can earn a maximum of 208,000 additional shares of Class A senior
convertible stock based upon sales performance under the agreement. As of
December 31 1998, no additional shares were earned by the Purchaser.
The rights and privileges of Class A senior convertible stock and Class A-1
senior convertible stock are substantially the same. The Class A senior
convertible stockholders are entitled to dividends when and if declared by
the board of directors. No dividends shall be declared on common stock, the
Series-A and Series A-1 convertible preferred stock, unless equal
dividends, on an as-if-converted basis, are declared on the Class A senior
convertible stock. The Class A senior convertible stock is redeemable at a
redemption price of $33.69 per share, as adjusted for any combinations,
consolidations, stock distributions or stock dividends with respect to such
shares, upon demand of the individual holders of such Class A senior
convertible stock on or after July 31, 2005 and on or prior to July 31,
2007 (the "Senior Redemption") if the Company has not effected a qualified
IPO. The Senior Redemption will be effected through a payment in cash
within 12 months of the date of delivery of a written notice from the
requisite holder. The redemption notice and all redemption rights shall
terminate if the Company effects a qualified IPO during such 12-month
period.
The Class A senior convertible stock was issued pursuant to exemptions from
registration under applicable federal and state securities laws. The
transfer of the shares of Class A senior convertible stock and common stock
issued upon conversion will be restricted unless exemptions from such
registration are applicable or unless such shares are registered pursuant
to applicable federal and state securities laws.
Each share of Class A senior convertible stock is initially convertible
into one share of common stock at a conversion price of $33.69. The
conversion price is adjustable upon the issuance of common stock or
convertible securities at a price less than the then existing conversion
price. The Class A senior convertible stock automatically converts into
common stock of the Company at the then applicable conversion rate upon the
closing of a qualified IPO.
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of Series A convertible
preferred stock and Class A senior convertible stock are entitled to
receive their original purchase prices adjusted for stock splits. If the
net assets are insufficient to permit full payment of these liquidation
preferences, the net assets shall be distributed to Series A convertible
preferred stock and Class A senior convertible stock on a pro-rata basis.
After the liquidation preferences of the Series A convertible preferred
stock and Class A senior convertible stock are satisfied, the holders of
common stock are entitled to receive an amount equal to the per share book
value for each share of common stock then held. After these liquidation
preferences are satisfied, the remaining net assets of the Company, if any,
are to be distributed pro-rata among holders of the common stock, Series A
convertible preferred stock, and Class A senior convertible stock on an
as-if-converted basis.
Holders of the Class A senior convertible stock have no voting rights.
However, the holders of the Class A senior convertible stock, as a class,
are entitled to elect one director. In addition, changes in the rights of
the Class A senior convertible stock, the sale or merger of the Company and
a sale of substantially all of the assets of the Company require consent of
holders of 50% of the outstanding shares of Class A senior convertible
stock.
The shares of Class A senior convertible stock are being accreted to their
$33.69 redemption price using the effective interest method over the period
to the earliest redemption date.
(7) Warrants
Warrants were issued in connection with the sale of the Series A
convertible preferred stock in 1997 and 1998. For each outstanding share of
Series A convertible preferred stock, a warrant was issued to buy one share
of common stock at an exercise price of $10.00. Each warrant will become
exercisable upon the earlier of (i) two years from the date of issuance or
(ii) the closing of a qualified IPO. Each warrant expires seven years from
the date of issuance. The warrants were detached from the Series A
convertible preferred stock at their pro rata share of the proceeds based
on the relative fair value of the stock and warrants determined on the date
of grant.
In 1998, the Company issued 26,772 and 40,158 warrants with exercise prices
of $.75 per common share and $10.00 per common share, respectively, to an
employee in fulfillment of an employment agreement entered into in 1995. As
of December 31, 1998, 53,544 of these warrants are vested and exercisable.
The remaining 13,386 warrants are scheduled to vest on December 31, 1999
but will vest immediately upon a change in ownership or sale of the
Company.
The warrants expire on December 31, 2002. The Company recognized
compensation expense of $247,641 in connection with the issuance of 26,772
of these warrants for the year ended December 31, 1998 as the exercise
price was less than the fair value of the stock on the date of grant.
As of December 31, 1998, none of the above warrants had been exercised.
(8) Concentrations of Credit Risk
(a) Financial Instruments
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
and cash equivalents. The Company maintains all of its cash and cash
equivalents with a single financial institution.
(b) Major Customers
Revenue related to two customers represented 83% of total revenue in
1998. For 1997, revenue related to three customers represented 61% of
total revenue.
(9) Lawsuit Settlement
During 1998, the Company recorded a charge of $120,000 related to the
settlement of a lawsuit filed against the Company in October 1997, claiming
breach of contract. Payment was made subsequent to December 31, 1998.
(10) Subsequent Event
On May 15, 1999, the Company entered into an Agreement and Plan of Merger
with C-COR Electronics, Inc., whereby the Company would be acquired by
C-COR Electronics, Inc. under a transaction to be accounted for by the
pooling-of-interests method. C-COR Electronics, Inc. would be the surviving
company in the merger.
<PAGE>
CONVERGENCE.COM CORPORATION AND SUBSIDIARY
Consolidated Financial Statements (unaudited)
March 31, 1999
<PAGE>
<TABLE>
<CAPTION>
Convergence.com Corporation and Subsidiary
Consolidated Balance Sheet (unaudited)
March 31, 1999
Assets
- -----------------------------------------------------------------------
Current assets:
<S> <C>
Cash and cash equivalents $ 3,863,253
Accounts receivable 1,219,560
Notes receivable, current 54,473
Inventory 274,055
Other current assets 33,424
-----------
Total current assets 5,444,765
Property, plant and equipment, net 1,169,938
Other long-term assets 116,181
-----------
Total assets $ 6,730,884
===========
Liabilities and Stockholders' Deficit
- -----------------------------------------------------------------------
Current liabilities:
Accounts payable $ 1,368,053
Accrued professional expenses 210,000
Accrued litigation settlement 120,000
Accrued stock-based compensation expense 247,641
Current portion of capital lease 21,903
Other current liabilities 35,582
-----------
Total current liabilities 2,003,179
Long-term portion of capital lease 87,159
-----------
Total liabilities 2,090,338
Series A redeemable convertible preferred stock 3,247,841
Class A redeemable senior convertible stock 4,977,006
Stockholders' deficit:
Common stock 300
Additional paid-in capital 580,455
Treasury stock (46)
Accumulated deficit (4,165,010)
-----------
Total stockholders' deficit (3,584,301)
-----------
Total Liabilities and Stockholders' Deficit $ 6,730,884
===========
</TABLE>
<PAGE>
<TABLE>
Convergence.com Corporation and Subsidiary
Consolidated Statements of Operations (unaudited)
Three months ended March 31, 1999 and 1998
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 1,773,485 $ 215,178
Costs and expenses
Cost of sales 1,184,617 304,198
Selling, general and administrative expenses 1,109,872 478,546
Interest income (48,416) (6,634)
---------------- ----------------
2,246,073 776,110
---------------- ----------------
Loss from operations before income taxes (472,588) (560,932)
Income taxes - -
---------------- ----------------
Net loss (472,588) (560,932)
Accretion of discount on convertible stock (165,427) (48,190)
---------------- ----------------
Net loss attributable to common stock $ (638,015) $ (609,122)
================ ================
Net loss per common share:
Basic $ (0.56) $ (0.54)
Diluted $ (0.56) $ (0.54)
Weighted share outstanding:
Basic 1,133,323 1,133,323
Diluted 1,133,323 1,133,323
</TABLE>
<PAGE>
<TABLE>
Convergence.com Corporation and Subsidiary
Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998
1999 1998
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (472,588) $ (609,122)
Depreciation & Amortization 90,359 50,000
Change in operating assets and liabilities:
Accounts receivable (452,370) 160,658
Inventory (274,055) -
Other current assets (14,810) -
Accounts payable 769,666 193,599
Accrued expenses - 8,388
Other current liabilities 20,485 13,722
------------ ------------
Net cash used in operating activities (333,313) (182,755)
Cash flows from investing activities:
Purchase of property, plant and equipment (388,671) (387,740)
Payments (issuance) of notes receivable 6,781 (140,212)
Change in other assets (100) 143,539
------------ ------------
Net cash used in investing activities (381,990) (384,413)
Cash flow from financing activities:
Proceeds from issuance of convertible preferred stock - 2,003,190
------------ ------------
Net cash provided by financing activities - 2,003,190
Net (decrease) increase in cash and cash equivalents (715,303) 1,436,022
------------ ------------
Cash and cash equivalents at beginning of the three-month period 4,578,556 51,874
Cash and cash equivalents at the end of the three-month period $ 3,863,253 & 1,487,896
============ ============
Supplemental disclosures of noncash financing activities:
Accretion of Series A convertible preferred stock to
redemption value $ 145,459 $ 48,190
============ ============
Accretion of Class A senior convertible stock to
redemption value $ 19,698 $ -
============ ============
</TABLE>
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On July 9, 1999, the Registrant consummated its acquisition of Convergence.com
Corporation ("Convergence") pursuant to an Agreement and Plan of Merger dated as
of May 15, 1999 among the Registrant, Convergence and C-COR Acquisition Corp., a
wholly owned subsidiary of the Registrant, under which Convergence became a
wholly owned subsidiary of the Registrant (the "Merger").
The following Pro Forma Combined Condensed Financial Statements (unaudited) (the
"Pro Forma Financial Statements") of the Registrant are based on historical
consolidated financial statements of the Registrant, as adjusted to give effect
to the Merger under the pooling-of-interests method of accounting and based upon
the assumptions and adjustments as described in the notes to the Pro Forma
Financial Statements below. This information is being provided pursuant to an
amendment to the initial Form 8-K filed with respect to the Merger. The Pro
Forma Combined Condensed Statement of Operations (unaudited) gives effect to the
Merger as if it had occurred as of the beginning of each of the fiscal years
presented. The Pro Forma Condensed Combined Balance Sheet (unaudited) gives
effect to the Merger as if it had occurred as of March 26,1999.
The pro forma adjustments are based upon available information and upon certain
assumptions that the Registrant believes are reasonable under the circumstances.
The Pro Forma Financial Statements and accompanying notes should be read in
conjunction with the historical consolidated financial statements of the
Registrant, which have been filed with the Registrant's reports on Forms 10-K
and 10-Q, and of Convergence, which are included herein, each including the
notes thereto and other financial information pertaining to the Registrant. The
Pro Forma Financial Statements do not purport to represent what the Registrant's
actual results of operations or actual financial position would have been if the
Merger had, in fact, occurred on such dates or to project the Registrant's
results of operations or financial position for any future period or date. The
Pro Forma Financial Statements do not give effect to any transactions other than
the Merger as discussed in the notes hereto.
<PAGE>
<TABLE>
<CAPTION>
C-COR.net Corp.
PRO FORMA COMBINED CONDENSED BALANCE SHEETS (UNAUDITED)
March 26, 1999
Consummated
Registrant Convergence Pro Forma Pro Forma
ASSETS Historical Historical Adjustments Combined
- --------------------------------------------------------------------------------------------------------------
(000's omitted)
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 954 $ 3,863 $ - $ 4,817
Accounts receivable 22,950 1,274 - 24,224
Inventories 20,745 274 - 21,019
Deferred taxes 3,818 - 727 (4d) 4,545
Other current assets 3,104 34 - 3,138
--------- -------- -------- ---------
TOTAL CURRENT ASSETS 51,571 5,445 727 57,743
PROPERTY, PLANT, AND EQUIPMENT, NET 25,508 1,170 - 26,678
INVESTMENT 5,000 - (5,000)(4a) -
OTHER LONG-TERM ASSETS 3,562 116 - 3,678
--------- -------- -------- ---------
TOTAL ASSETS $ 85,641 $ 6,731 $(4,273) $ 88,099
========= ======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 22,310 $ 1,982 $ - $ 24,292
Current portion of long-term debt 758 22 - 780
--------- -------- -------- ---------
TOTAL CURRENT LIABILITIES 23,068 2,004 - 25,072
LONG-TERM DEBT, less current portion 3,822 87 - 3,909
OTHER LONG-TERM LIABILITIES 2,832 - - 2,832
--------- -------- -------- ---------
TOTAL LIABILITIES 29,722 2,091 - 31,813
Convertible preferred stock - 3,248 (3,248)(4c,b) -
Redeemable senior convertible stock - 4,977 (4,977)(4a,b) -
SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock 972 - 143 (4c) 1,115
Additional paid-in capital 20,787 580 2,422 (4a,c) 23,789
Retained earnings (deficit) 41,249 (4,165) 1,387 (4b,d) 38,471
Accumulated other comprehensive loss (109) - - (109)
Treasury stock (6,980) - - (6,980)
--------- -------- -------- ---------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 55,919 (3,585) 3,952 56,286
--------- -------- -------- ---------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 85,641 $ 6,731 $(4,273) $ 88,099
========= ======== ======== =========
<FN>
See notes to pro forma combined condensed financial statements.
</FN>
</TABLE>
<PAGE>
C-COR.net Corp.
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
For the thirty-nine weeks ended March 26, 1999
<TABLE>
<CAPTION>
Consummated
Registrant Convergence Pro Forma Pro Forma
Historical Historical Adjustments Combined
----------- ----------- ---------- ----------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
NET SALES $ 114,207 $ 3,889 $ - $ 118,096
----------- ----------- ----------- -----------
Costs and expenses 104,897 5,645 - 110,542
Interest expense 172 8 - 180
Other expense (income) (50) (75) - (125)
----------- ----------- ----------- -----------
105,019 5,578 - 110,597
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES 9,188 (1,689) - 7,499
INCOME TAX EXPENSE 3,120 - - 3,120
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS 6,068 (1,689) - 4,379
DISCONTINUED OPERATIONS:
Gain on disposal of
discontinued business
segment, net of tax 304 - - 304
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 6,372 $ (1,689) $ - $ 4,683
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE - (BASIC):
Continuing operations $ 0.67 $ 0.41
Discontinued operations 0.03 0.03
----------- -----------
NET INCOME (LOSS) PER SHARE $ 0.70 $ 0.44
=========== ===========
NET INCOME (LOSS) PER SHARE - (DILUTED):
Continuing operations $ 0.65 $ 0.40
Discontinued operations 0.03 0.03
----------- -----------
NET INCOME (LOSS) PER SHARE $ 0.68 $ 0.43
=========== ===========
Weighted average common shares and common share equivalents
Basic 9,128 10,561
Diluted 9,383 10,948
<FN>
See notes to pro forma combined condensed financial statements.
</FN>
</TABLE>
<PAGE>
C-COR.net Corp.
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Fiscal Year ended June 26, 1998
<TABLE>
<CAPTION>
Consummated
Registrant Convergence Pro Forma Pro Forma
Historical Historical Adjustments Combined
----------- ----------- ---------- ----------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
NET SALES $ 152,144 $ 1,154 $ - $ 153,298
----------- ----------- ----------- -----------
Costs and expenses 140,036 2,848 - 142,884
Provision for restructuring 625 - - 625
Interest expense 335 14 - 349
Other expense (income) 384 (22) - 362
----------- ----------- ----------- -----------
141,380 2,840 - 144,220
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES 10,764 (1,686) - 9,078
INCOME TAX EXPENSE(BENEFIT) 3,447 - (590)(4d) 2,857
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS 7,317 (1,686) 590 6,221
DISCONTINUED OPERATIONS:
Gain on disposal of
discontinued business
segment, net of tax 928 - - 928
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 8,245 $ (1,686) $ 590 $ 7,149
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE - (BASIC):
Continuing operations $ 0.80 $ 0.60
Discontinued operations 0.10 0.09
----------- -----------
NET INCOME (LOSS) PER SHARE $ 0.90 $ 0.69
=========== ===========
NET INCOME (LOSS) PER SHARE - (DILUTED):
Continuing operations $ 0.78 $ 0.58
Discontinued operations 0.10 0.09
----------- -----------
NET INCOME (LOSS) PER SHARE $ 0.88 $ 0.67
=========== ===========
Weighted average common shares and common share equivalents
Basic 9,148 10,375
Diluted 9,401 10,656
<FN>
See notes to pro forma combined condensed financial statements.
</FN>
</TABLE>
<PAGE>
C-COR.net Corp.
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Fiscal Year ended June 27, 1997
<TABLE>
<CAPTION>
Convergence
Historical Consummated
Registrant December 31, Pro Forma Pro Forma
Historical 1997 Adjustments Combined
----------- ----------- ---------- ----------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
NET SALES $ 131,941 $ 1,104 $ - $ 133,045
----------- ----------- ----------- -----------
Costs and expenses 126,170 1,546 127,716
Interest expense 318 9 - 327
Other expense (income) (250) (9) - (259)
----------- ----------- ----------- -----------
126,238 1,546 - 127,784
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES 5,703 (442) - 5,261
INCOME TAX EXPENSE(BENEFIT) 1,446 - (137)(4d) 1,309
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS 4,257 (442) 137 3,952
DISCONTINUED OPERATIONS:
Loss on operations of
discontinued business
segment, net of tax (6,605) - - (6,605)
Loss on disposal of
discontinued business
segment, net of tax (3,830) - - (3,830)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (6,178) $ (442) $ 137 $ (6,483)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE - (BASIC):
Continuing operations $ 0.45 $ 0.37
Discontinued operations (1.10) (0.98)
----------- -----------
NET INCOME (LOSS) PER SHARE $ (0.65) $ (0.61)
=========== ===========
NET INCOME (LOSS) PER SHARE - (DILUTED):
Continuing operations $ 0.44 $ 0.37
Discontinued operations (1.08) (0.97)
----------- -----------
NET INCOME (LOSS) PER SHARE $ (0.64) $ (0.60)
=========== ===========
Weighted average common shares and common share equivalents
Basic 9,504 10,662
Diluted 9,638 10,803
<FN>
See notes to pro forma combined condensed financial statements.
</FN>
</TABLE>
<PAGE>
C-COR.net Corp.
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Fiscal Year ended June 28, 1996
<TABLE>
<CAPTION>
Convergence
Historical Consummated
Registrant December 31, Pro Forma Pro Forma
Historical 1996 Adjustments Combined
----------- ----------- ---------- ----------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
NET SALES $ 139,539 $ 1,093 $ - $ 140,632
----------- ----------- ----------- -----------
Costs and expenses 125,626 1,043 126,669
Interest expense 960 2 - 962
Other expense (income) (341) (4) - (345)
----------- ----------- ----------- -----------
126,245 1,041 - 127,286
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES 13,294 52 - 13,346
INCOME TAX EXPENSE 4,280 - - 4,280
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS 9,014 52 - 9,066
DISCONTINUED OPERATIONS:
Loss on operations of
discontinued business
segment, net of tax (3,095) - - (3,095)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 5,919 $ 52 $ - $ 5,971
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE - (BASIC):
Continuing operations $ 0.94 $ 0.85
Discontinued operations (0.32) (0.29)
----------- -----------
NET INCOME (LOSS) PER SHARE $ 0.62 $ 0.56
=========== ===========
NET INCOME (LOSS) PER SHARE - (DILUTED):
Continuing operations $ 0.91 $ 0.82
Discontinued operations (0.31) (0.28)
----------- -----------
NET INCOME (LOSS) PER SHARE $ 0.60 $ 0.54
=========== ===========
Weighted average common shares and common share equivalents
Basic 9,554 10,684
Diluted 9,868 10,998
<FN>
See notes to pro forma combined condensed financial statements.
</FN>
</TABLE>
<PAGE>
Notes to Pro Forma Combined Condensed Financial Statements (Unaudited)
Note 1. Description of Transaction and Basis of Presentation
The foregoing Pro Forma Combined Condensed Financial Statements
(unaudited) are based on historical Consolidated Financial Statements
of the Registrant and Convergence.com Corporation, giving effect to
the Merger as though it had been consummated as of the beginning of
each of the fiscal years presented, except for the Pro Forma Condensed
Combined Balance Sheet (unaudited), which gives effect to the Merger
as if it had occurred as of March 26,1999.
The Pro Forma Combined Statements of Operations for the 39-week period
ending March 26, 1999 and the 12-month period ending June 26, 1998,
include results of operations of Convergence which conform to the
Registrant's fiscal year end.
The Pro Forma Combined Condensed Statements of Operations for fiscal
years 1996 and 1997 include results of operations of Convergence for
the 12-month period ended December 31, 1996 and December 31, 1997.
These Pro Forma Combined Condensed Financial Statements (unaudited)
are not necessarily indicative of the results of operations or
financial position that actually would have occurred had the Merger
been consummated on the dates indicated or of future results of
operation.
Note 2. Accounting Policies and Financial Statement Classifications
The Registrant is in the process of reviewing the accounting policies
and financial statement classifications of the Registrant and
Convergence. As a result of this review, it may be necessary to
restate either of the parties financial statements to conform to those
accounting policies and classifications that are determined to be most
appropriate.
Note 3. Intercompany Transactions
Intercompany transactions between the Registrant and Convergence have
been eliminated.
Note 4. Pro Forma Adjustments
(a) Prior to the Merger, the Registrant owned 148,426 shares of
Convergence's Class A Senior Convertible Stock and pursuant to the
merger, these shares were cancelled. The investment and Class A Senior
Convertible Stock accounts have been adjusted to reflect the assumed
cancellation of these shares.
(b) Retained earnings for the respective periods presented have been
adjusted to eliminate the accretion of discount on Convergence
Convertible Preferred Stock and Class A Senior Convertible Stock.
(c) The shareholders' equity accounts have been adjusted to reflect the
assumed conversion of all the Convergence Series A Convertible
Preferred Stock to Convergence Common Stock. In addition, the
adjustment to the shareholders' equity accounts assumes the issuance
of 1,433,323 shares of the Registrants Common Stock, in exchange for
all the issued and outstanding Convergence Common Stock (based on a
one-to-one exchange ratio).
(d) The valuation allowance for deferred taxes relating to net operating
loss carryforwards and other deferred tax assets, net of deferred tax
liabilities have been adjusted to reflect management's assessment that
it is more likely than not that certain deferred tax assets will be
realized.
Note 5. Pro Forma Earnings per Share
The pro forma combined basic and diluted earnings per share for the
respective periods presented is based upon the combined weighted
average number of common shares of the Registrant and Convergence. The
number of weighted average common shares is based on a one-to-one
exchange ratio.
Note 6. Restructuring Charges and Future Cost Savings
The Pro Forma Condensed Combined Statements of Operations do not
reflect any restructuring costs related to the Merger. Management has
not yet determined the amount of such costs; however, a restructuring
charge may be required upon integration of the operations of the
combined companies.
The Pro Forma Condensed Combined Statements of Operations do not
reflect any future cost savings that may result from the reduction of
overhead expenses, changes in corporate infrastructure and the
elimination of redundant expenses. Although the Registrant expects
that cost savings will result from the Merger, there can be no
assurance that cost savings will be achieved.
Note 7. Federal Income Tax Consequences of the Merger
The Pro Forma Combined Condensed Financial Statements (unaudited)
assume that the merger with Convergence qualifies as a tax-free
reorganization for federal income tax purposes.
<PAGE>
Exhibit 23.1
The Board of Directors
Convergence.com Corporation:
We consent to the incorporation by reference in the registration statements
(Nos. 2-95959, 33-27440, 33-35208, 33-66590 and 333-02505) on Form S-8 of
C-COR.net Corp. (formerly C-COR Electronics, Inc. and subsidiaries) of our
report dated May 28, 1999, with respect to the consolidated balance sheets of
Convergence.com Corporation and subsidiary as of December 31, 1998 and 1997, and
the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for each of the years in the two-year period ended
December 31, 1998, which report appears in the Form 8-K/A of C-COR.net Corp.
(formerly C-COR Electronics, Inc. and subsidiaries) dated August 2, 1999.
/s/ KPMG LLP
- -----------------------------
KPMG LLP
Atlanta, Georgia
August 2, 1999
