http://www.mitel.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 28, 2000
MITEL CORPORATION
(Exact name of registrant as specified in its charter)
CANADA 1-8139 NONE
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation or organization) Identification No.)
350 Legget Drive
P.O. Box 13089
Kanata, Ontario, Canada K2K 2W7
(Address of principal (Postal Code)
executive offices)
Registrant's telephone number, including area code: (613) 592-2122
N/A
(Former name or former address, if changed since last report)
1
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
(1) Balance Sheets for Vertex Networks, Incorporated ("Vertex") as
of March 31, 2000 and 1999 and the related statements of
operations and comprehensive loss, stockholders' equity, and
cash flows for the years then ended, and Independent Auditors'
Report.
(2) Balance Sheet (unaudited) for Vertex as of June 30, 2000 and
the related statements (unaudited) of loss and cash flows for
the quarters ended June 30, 2000 and June 30, 1999.
(b) Pro Forma Financial Information.
(1) Mitel Corporation Pro Forma Consolidated Balance Sheet
(unaudited) as at June 30, 2000.
(2) Mitel Corporation Pro Forma Consolidated Statement of Income
(Loss) (unaudited) for the year ended March 31, 2000.
(3) Mitel Corporation Pro Forma Consolidated Statement of Income
(Loss) (unaudited) for the three months ended June 30, 2000.
(4) Notes to Pro Forma Consolidated Financial Statements
(unaudited).
The unaudited Pro Forma Consolidated Balance Sheet as at June 30, 2000 is based
upon the consolidated financial statements of Mitel Corporation as at June 30,
2000, and the financial statements of Vertex as at June 30, 2000, adjusted to
give effect to Mitel Corporation's acquisition of 100 percent of the outstanding
capital stock of Vertex as if it had occurred on June 30, 2000.
The unaudited Pro Forma Consolidated Statements of Income (Loss) for the three
months ended June 30, 2000 and for the year ended March 31, 2000 are based upon
the consolidated financial statements of Mitel Corporation for the three months
ended June 30, 2000 and for the year ended March 31, 2000, respectively, and the
financial statements of Vertex for the three months ended June 30, 2000 and for
the year ended March 31, 2000, adjusted to give effect to Mitel Corporation's
acquisition of 100 percent of the outstanding capital stock of Vertex as if it
had occurred on April 1, 1999.
The unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with the consolidated financial statements contained in the Annual
Report on Form 10-K for the year ended March 31, 2000, including the notes
thereto, of Mitel Corporation and with the financial statements of Vertex for
the year ended March 31, 2000. The financial statements of Vertex are included
in this Current Report on Form 8-K/A.
(c) Exhibits.
(1) Consent of Independent Auditors.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MITEL CORPORATION
(Registrant)
Date: October 11, 2000 ______________________
Jean-Jacques Carrier
Senior Vice President, Finance
and Chief Financial Officer
3
<PAGE>
Vertex Networks, Inc.
Financial Statements for the
Years Ended March 31, 2000 and 1999, and
Independent Auditors' Report
4
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Vertex Networks, Inc.:
We have audited the accompanying balance sheets of Vertex Networks, Inc. (the
Company) as of March 31, 2000 and 1999, and the related statements of operations
and comprehensive loss, stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits of the financial
statements provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Vertex Networks, Inc. as of March 31, 2000
and 1999, and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
Costa Mesa, California
June 5, 2000, except for Note 9
which is as of June 6, 2000
<PAGE>
VERTEX NETWORKS, INCORPORATED
BALANCE SHEETS
AS OF MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------
2000 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $10,424,422 $ 1,827,119
Short-term investments 7,954,362 256,372
Accounts receivable, net of allowance for
doubtful accounts of $62,819 (2000) and
$18,755 (1999) 1,682,617 427,495
Inventories 688,252 102,080
Prepaid expenses and other current assets 356,859 119,125
----------- -----------
Total current assets 21,106,512 2,732,191
PROPERTY AND EQUIPMENT, net 2,526,386 1,702,802
LONG-TERM INVESTMENTS 250,332
OTHER ASSETS 57,896 43,112
----------- -----------
$23,690,794 $ 4,728,437
=========== ===========
See accompanying notes to financial statements.
<PAGE>
VERTEX NETWORKS, INCORPORATED
BALANCE SHEETS
AS OF MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------
2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 568,579 $ 291,952
Accrued expenses 555,272 424,461
Current portion of capital
lease obligations 77,017 66,245
Current portion of long-term debt 5,690,743 490,892
------------ ------------
Total current liabilities 6,891,611 1,273,550
CAPITAL LEASE OBLIGATIONS, net of
current portion 11,943 89,555
LONG-TERM DEBT, net of current portion 622,956 1,011,305
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Series A preferred stock, no par value;
3,800,000 shares authorized, issued,
and outstanding 950,000 950,000
Series B preferred stock, no par value;
4,000,000 shares authorized, issued,
and outstanding 3,000,000 3,000,000
Series C preferred stock, no par value;
1,700,000 shares authorized; 1,624,056
shares issued and outstanding 3,628,367 3,628,367
Series D preferred stock, no par value;
1,200,000 shares authorized; 1,181,932
shares issued and outstanding 4,426,639 4,426,639
Series E preferred stock, no par value;
4,300,000 shares authorized; 3,333,333
shares issued and outstanding 18,767,866
Common stock, no par value; 40,000,000
shares authorized; 2,981,425 and
2,744,625 shares issued and outstanding
at March 31, 2000 and 1999, respectively 218,169 156,156
Additional paid-in capital 1,044,778 763,314
Accumulated deficit (15,841,033) (10,570,449)
Accumulated other comprehensive loss (30,502)
------------ ------------
Total stockholders' equity 16,164,284 2,354,027
------------ ------------
$ 23,690,794 $ 4,728,437
============ ============
See accompanying notes to financial statements.
<PAGE>
VERTEX NETWORKS, INCORPORATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------
2000 1999
REVENUES:
Product sales $ 2,943,936 $ 948,753
Software sales and contract revenue 2,219,093 1,452,778
----------- -----------
Total revenues 5,163,029 2,401,531
COST OF REVENUES 2,035,578 545,247
----------- -----------
GROSS PROFIT 3,127,451 1,856,284
OPERATING EXPENSES:
Selling and marketing 1,489,945 712,457
General and administrative 1,268,755 1,580,018
Research and development 5,185,305 4,742,536
Noncash stock option compensation expense 281,464 88,314
----------- -----------
Total operating expenses 8,225,469 7,123,325
----------- -----------
OPERATING LOSS (5,098,018) (5,267,041)
OTHER INCOME (EXPENSE):
Interest expense (836,678) (146,507)
Interest income 667,546 108,531
Foreign currency transaction loss (2,634)
----------- -----------
Total other expense, net (171,766) (37,976)
LOSS BEFORE INCOME TAX PROVISION (5,269,784) (5,305,017)
INCOME TAX PROVISION 800 800
----------- -----------
NET LOSS (5,270,584) (5,305,817)
OTHER COMPREHENSIVE LOSS:
Unrealized holding losses on
marketable securities 30,502
----------- -----------
COMPREHENSIVE LOSS $(5,301,086) $(5,305,817)
=========== ===========
See accompanying notes to financial statements.
<PAGE>
VERTEX NETWORKS, INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B Series C Series D
preferred stock preferred stock preferred stock preferred stock
---------------------- ---------------------- ---------------------- -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
April 1, 1998 3,800,000 $ 950,000 4,000,000 $3,000,000 1,624,056 $3,628,367 -- $ --
Issuance of preferred
stock, net of direct
costs 1,181,932 4,426,639
Stock options exercised
Fair value of stock
options issued to
acquire technology
Compensation expense
associated with stock
option grants
Net loss
--------- ---------- --------- ---------- --------- ---------- --------- ----------
BALANCE,
March 31, 1999 3,800,000 950,000 4,000,000 3,000,000 1,624,056 3,628,367 1,181,932 4,426,639
Issuance of preferred
stock, net of direct
costs
Stock options exercised
Compensation expense
associated with stock
option grants
Unrealized losses on
marketable securities
Net loss
--------- ---------- --------- ---------- --------- ---------- --------- ----------
BALANCE,
March 31, 2000 3,800,000 $ 950,000 4,000,000 $3,000,000 1,624,056 $3,628,367 1,181,932 $4,426,639
========= ========== ========== ========== ========== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VERTEX NETWORKS, INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series E Accumulated
preferred stock Common stock Additional other
-------------------- -------------------- paid-in Accumulated comprehensive
Shares Amount Shares Amount capital deficit loss Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
April 1, 1998 -- $ -- 2,730,375 $152,594 $ -- $ (5,264,632) $ -- $ 2,466,329
Issuance of preferred
stock, net of direct
costs 4,426,639
Stock options exercised 14,250 3,562 3,562
Fair value of stock
options issued to
acquire technology 675,000 675,000
Compensation expense
associated with stock
option grants 88,314 88,314
Net loss (5,305,817) (5,305,817)
--------- ----------- --------- -------- ---------- ------------ -------- -----------
BALANCE,
March 31, 1999 2,744,625 156,156 763,314 (10,570,449) 2,354,027
Issuance of preferred
stock, net of direct
costs 3,333,333 18,767,866 18,767,866
Stock options exercised 236,800 62,013 62,013
Compensation expense
associated with stock
option grants 281,464 281,464
Unrealized losses on
marketable securities (30,502) (30,502)
Net loss (5,270,584) (5,270,584)
--------- ----------- --------- -------- ---------- ------------ -------- -----------
BALANCE,
March 31, 2000 3,333,333 $18,767,866 2,981,425 $218,169 $1,044,778 $(15,841,033) $(30,502) $16,164,284
========= =========== ========== ======== ========== ============ ======== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VERTEX NETWORKS, INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,270,584) $ (5,305,817)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 763,166 529,920
Increase in provision for
doubtful accounts 44,064 18,755
Stock option compensation expense 281,464 88,314
Stock options issued for in-process
research and development 675,000
Amortization of deferred
financing costs 225,000
Changes in operating assets
and liabilities:
Accounts receivable (1,299,186) (398,820)
Inventories (586,172) (70,290)
Prepaid expenses and other
current assets (162,734) 22,270
Other assets (16,734) (40,347)
Accounts payable 276,627 (135,558)
Accrued expenses 130,811 213,803
------------ ------------
Net cash used in operating
activities (5,614,278) (4,402,770)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,584,800) (721,610)
Proceeds from sale of investments 295,000
Purchases of investments (7,478,160) (506,704)
------------ ------------
Net cash used in investing
activities (9,062,960) (933,314)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases (66,840) (86,382)
Proceeds from long-term debt 5,416,610 1,800,000
Repayment on long-term debt (605,108) (350,317)
Payment of deferred financing costs (300,000)
Proceeds from stock options exercised 62,013 3,562
Net proceeds from issuance of preferred
stock - Series E 18,767,866
Net proceeds from issuance of preferred
stock - Series D 4,426,639
------------ ------------
Net cash provided by financing
activities 23,274,541 5,793,502
------------ ------------
See accompanying notes to financial statements.
<PAGE>
VERTEX NETWORKS, INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
2000 1999
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 8,597,303 $ 457,418
CASH AND CASH EQUIVALENTS, beginning of period 1,827,119 1,369,701
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $10,424,422 $ 1,827,119
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
TRANSACTIONS - Cash paid for:
Interest $ 493,207 $ 144,603
=========== ===========
Income tax $ 800 $ 800
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The unrealized loss on available-for-sale investments was $30,502 at March 31,
2000.
The Company acquired certain equipment under capital leases in the amount of
$149,974 during the year ended March 31, 1999.
See accompanying notes to financial statements.
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Vertex Networks, Inc. (the Company) is engaged in
the development and sale of computer networking hardware and software
technology designed to enhance the efficiency of computer networks. The
Company was incorporated in California on August 24, 1995, and commenced
operations on such date.
Basis of Presentation - The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Investments with an original maturity greater than three
months but less than twelve months are classified as short-term
investments.
Investments - The Company's investments are accounted for in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Investments consisting of equity and money market mutual funds have been
classified as available for sale and are reported at fair value, based on
quoted market prices, in the accompanying balances sheets. Unrealized
gains and losses, net of applicable income taxes, are reported as a
separate component of stockholders' equity. Investments consisting of
certificates of deposit have been classified as "held-to-maturity"
securities and, in accordance with SFAS No. 115, have been recorded at
amortized cost at March 31, 2000 and 1999. The market value of these
investments approximates the carrying value at March 31, 2000 and 1999 of
$5,658,723 and $506,704, respectively. The certificates of deposit mature
at various dates through September 2000.
Inventories - Inventories are stated at the lower of first-in first-out
cost or market.
Deferred Financing Costs - Costs incurred in obtaining financing are
deferred and amortized over the term of the related debt using the
effective interest method and are included in prepaid and other current
assets in the accompanying financial statements.
Property and Equipment - Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is provided using the straight-line
method over estimated useful lives of the assets, generally five years.
Amortization of leasehold improvements is provided over the shorter of the
related lease terms or the estimated useful lives of the improvements.
Maintenance and repairs are expensed as incurred, while renewals and
betterments are capitalized.
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
Income Taxes - The Company accounts for income taxes based on the
standards specified in SFAS No. 109, Accounting for Income Taxes. SFAS No.
109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements. Measurement of the deferred items is based on
enacted tax laws. Valuation allowances are provided to the extent
recoverability is unlikely.
Revenue Recognition - Revenue associated with product sales is recognized
when the product is shipped.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, Software Revenue Recognition,
which later in part was amended by SOP 98-4, Deferral of the Effective
Date of a Provision of SOP 97-2. Pursuant to SOP 97-2, the Company
recognizes software revenue when all of the following conditions are met:
persuasive evidence of an arrangement or delivery of a finished software
product has occurred, the fee is fixed and determinable, collectibility is
probable, and any uncertainties with regard to customer acceptance are
insignificant. Certain of the Company's contracts include a combination of
the following elements: software license fees, installation, and customer
support services. For such contracts, revenue must be allocated to each
component based on vendor-specific objective evidence of the component's
fair value. Revenue allocated to undelivered products is recognized as the
above criteria are met; revenue for services is recognized as services are
performed or, for maintenance agreements, ratably over the life of the
related contract. Cash payments for license sales or services and
maintenance received in advance of meeting revenue recognition criteria
are accounted for as deferred revenue.
The Company uses the percentage-of-completion method of accounting for
contract revenue and costs. Progress toward completion is determined on a
contract-by-contract basis. The percentage-of-completion is measured by
the percentage of total contract costs incurred to date to total estimated
costs at completion. Estimates used for recording revenues and earnings
are adjusted currently, reflecting revisions in contract value and
estimated costs. When it is determined that a loss will be incurred on a
contract, the entire amount of the estimated loss is charged to
operations.
Software Development Costs - Development costs incurred in the research
and development of new software products and enhancements to existing
software products are expensed as incurred until technological feasibility
has been established. The Company considers technological feasibility to
be established when all planning, designing, coding and testing has been
completed according to design specifications. After technological
feasibility is established, any additional costs are capitalized. Through
March 31, 2000, software has been substantially completed concurrently
with the establishment of technological feasibility; and, accordingly, no
costs have been capitalized to date.
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
Concentrations of Credit Risk - Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist primarily of
cash and cash equivalents, investments, and trade accounts receivable and
long-term debt. Investments consist primarily of equity and money market
mutual funds and certificates of deposits. The mutual fund investments are
subject to market valuation risk. Market risk on the long-term debt
relates to changes in the LIBOR rate, on which interest charges on the
Company's borrowings under the long-term debt is based.
The Company's trade receivables are derived from sales to manufacturers
and distributors in the consumer electronics, computer and communications
markets primarily in Asia and North America. The Company makes periodic
evaluations of the creditworthiness of its customers and manages its
exposure to losses from bad debts by limiting the amount of credit
extended whenever deemed necessary and generally does not require
collateral. The Company maintains a provision for potential credit losses
and such losses have historically been within management's expectations.
Customer Concentration - During the year ended March 31, 2000, two
customers accounted for approximately 68% and 20% of revenues. During the
year ended March 31, 1999, sales to three customers accounted for 50%,
15%, and 24% of revenues. Given the amount of revenues derived from these
customers, the loss of these customers or the uncollectibility of related
receivables could have a material adverse effect on the Company's future
financial condition and results of operations.
Long-Lived Assets - In accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, long-lived assets to be held are reviewed for events or changes in
circumstances which indicate that their carrying value may not be
recoverable based on future undiscounted cash flows. As of March 31, 2000
and 1999, management determined that no impairment was indicated.
Use of Estimates - The preparation of financial statements in accordance
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Stock-Based Compensation - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. The Company accounts for stock-based awards to nonemployees
using the fair value method in accordance with SFAS No. 123, Accounting
for Stock-Based Compensation. Under the fair value method, compensation
cost is measured at the grant date based on the fair value of the award
and is recognized over the service period, which is usually the vesting
period.
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
Comprehensive Income - The Company has adopted SFAS No. 130, Reporting
Comprehensive Income. This statement establishes standards for reporting
of comprehensive income and its components. Comprehensive income, as
defined, includes all changes in equity (net assets) during a period from
transactions and other events and circumstances from nonowner sources. In
the case of the Company, comprehensive loss includes unrealized gains and
losses on available-for-sale investments.
Recent Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. The provision of SFAS No. 133, as amended by SFAS
No. 137, is effective for all fiscal years beginning after June 15, 2000.
The Company has not assessed the impact of such pronouncement on its
financial statements.
Reclassifications - Certain reclassifications have been made to the 1999
financial statements to conform to the 2000 presentation.
2. INVESTMENTS AVAILABLE FOR SALE
The following table summarizes the Company's investments available for
sale as of March 31, 2000, which are all included in the short-term
investments in the accompanying financial statements:
Mutual funds:
Cost $2,326,141
Gross unrealized losses (30,502)
----------
$2,295,639
==========
There were no available for sale securities at March 31, 1999.
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31:
2000 1999
Furniture and fixtures $ 205,467 $ 148,162
Office and computer equipment 160,016 77,412
Capital equipment and tooling 3,726,691 2,281,801
Trade show display 28,224 28,224
Leasehold improvements 18,551 18,551
----------- -----------
4,138,949 2,554,150
Less accumulated depreciation and amortization (1,612,563) (851,348)
----------- -----------
$ 2,526,386 $ 1,702,802
=========== ===========
4. INCOME TAXES
At March 31, 2000 and 1999, the Company had net deferred tax assets of
approximately $5,795,000 and $4,225,000, respectively, which related
primarily to net operating loss carryforwards. At March 31, 2000 and 1999,
the net deferred tax assets are fully reserved because of uncertainties
related to future recoverability. These net operating loss carryforwards
will begin to expire in the years 2013 and 2004 for federal and state
purposes, respectively. These net operating loss carryforwards may be
subject to annual limitations pursuant to Internal Revenue Code (the Code)
Section 382.
5. STOCKHOLDERS' EQUITY
Since its inception, the Company has primarily financed its operations
through the issuance of preferred stock. Each share of Series A, Series B,
Series C, Series D, and Series E preferred stock entitles the holder to
the number of votes that each share of Series A, Series B, Series C,
Series D, and Series E preferred stock would equal on an as-converted
basis. Each series of preferred stock is described as follows:
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
Series A Preferred Stock - On September 5, 1995, the Company's Board of
Directors authorized the issuance and sale of up to 3,800,000 shares of
Series A preferred stock at a price of $0.25 per share. Under the terms of
the agreement, the Series A preferred stock is convertible into common
stock of the Company at any time at the option of the holder or
automatically upon the occurrence of certain events, at an equal per share
basis. The holders of the Series A preferred stock shall be entitled to
receive, only when and as declared by the Board, and out of any funds
legally available therefore, noncumulative dividends at the annual rate of
$0.025 per share. The Series A preferred stock has a liquidation
preference of $0.25 per share increased by any declared and unpaid
dividends. The aggregate liquidation preference of the Series A preferred
stock was approximately $950,000 as of March 31, 2000. As of March 31,
2000 and 1999, 3,800,000 shares of Series A preferred stock were issued
and outstanding.
Series B Preferred Stock - On June 28, 1996, the Company's Board of
Directors authorized the issuance and sale of up to 4,000,000 shares of
Series B preferred stock at a price of $0.75 per share. Under the terms of
the agreement, the Series B preferred stock is convertible into common
stock of the Company at any time at the option of the holder or
automatically upon the occurrence of certain events, at an equal per share
basis. The holders of the Series B preferred stock shall be entitled to
receive, only when and as declared by the Board, and out of any funds
legally available therefore, noncumulative dividends at the annual rate of
$0.075 per share. The Series B preferred stock has a liquidation
preference of $0.75 per share increased by any declared and unpaid
dividends. The aggregate liquidation preference of the Series B preferred
stock was approximately $3,000,000 as of March 31, 2000. In connection
with Series B preferred stock financing, the Company issued warrants for
purchase of up to 300,000 shares of the Company's common stock at an
exercise price of $0.25 per share expiring June 30, 2001. As of March 31,
2000 and 1999, 4,000,000 shares of Series B preferred stock were issued
and outstanding.
Series C Preferred Stock - On May 23, 1997, the Company's Board of
Directors authorized the issuance and sale of up to 2,000,000 shares of
Series C preferred stock at a price of $2.25 per share. In June 1999, the
Company amended and restated its articles of incorporation to decrease the
total number of authorized Series C preferred stock from 2,000,000 shares
to 1,700,000 shares. Under the terms of the agreement, the Series C
preferred stock is convertible into common stock of the Company at any
time at the option of the holder or automatically upon the occurrence of
certain events, at an equal per share basis. The holders of Series C
preferred stock shall be entitled to receive, when and as declared by the
Board, and out of any funds legally available therefore, noncumulative
dividends at the annual rate of $0.225 per share. The Series C preferred
stock has a liquidation preference of $2.25 per share increased by any
declared and unpaid dividends. The aggregate liquidation preference of the
Series C preferred stock was $3,654,126 as of March 31, 2000. As of March
31, 2000 and 1999, 1,624,056 shares of Series C preferred stock were
issued and outstanding.
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
Series D Preferred Stock - On June 1, 1998, the Company's Board of
Directors authorized the issuance and sale of up to 2,000,000 shares of
Series D preferred stock at a price of $3.75 per share. In June 1999, the
Company amended and restated its articles of incorporation to decrease the
total number of authorized shares of Series D preferred stock from
2,000,000 to 1,200,000. Under the terms of the agreement, the Series D
preferred stock is convertible into common stock of the Company at any
time at the option of the holder or automatically upon the occurrence of
certain events, at an equal per share basis. The holders of Series D
preferred stock shall be entitled to receive, only when and as declared by
the Board, and out of any funds legally available therefore, noncumulative
dividends at the annual rate of $0.375 per share. The Series D preferred
stock has a liquidation preference of $3.75 per share increased by any
declared and unpaid dividends. The aggregate liquidation preference of the
Series D preferred stock was $4,432,245 as of March 31, 2000. As of March
31, 2000 and 1999, 1,181,932 shares of Series D preferred stock were
issued and outstanding.
Series E Preferred Stock - On June 1, 1999, the Company's Board of
Directors authorized the issuance and sale of up to 4,300,000 shares of
Series E preferred stock at a price of $6.00 per share. Under the terms of
the agreement, the Series E preferred stock is convertible into common
stock of the Company at any time at the option of the holder or
automatically upon the occurrence of certain events, at an equal per share
basis. The holders of Series E preferred stock shall be entitled to
receive, only when and as declared by the Board, and out of any funds
legally available therefore, noncumulative dividends at the annual rate of
$0.60 per share. The Series E preferred stock has a liquidation preference
of $6.00 per share increased by any declared and unpaid dividends. The
aggregate liquidation preference of the Series E preferred stock was
$20,000,000 as of March 31, 2000. As of March 31, 2000, 3,333,333 shares
of Series E preferred stock were issued and outstanding.
Common Stock - In June 1999, the Company amended and restated its articles
of incorporation to authorize the increase of shares of common stock to be
issued from time to time as deemed appropriate and necessary by the Board
of Directors from 35,000,000 to 40,000,000.
Acquired Technology - On November 27, 1998, the Company acquired the
rights to certain proprietary technologies which were under development at
the date of acquisition from three individuals. The aggregate
consideration was the issuance of options to acquire 450,000 shares of
common stock of the Company at $0.40 per share with a fair value of
$675,000 of which 112,500 options are exercisable at March 31, 2000. The
purchase price was allocated to in-process research and development and
was charged to the Company's operations.
Stock Options - In June 1996, the Company formally adopted the Amended and
Restated 1996 Stock Incentive Plan (the Plan). Under the Plan, the Company
had originally reserved an aggregate maximum of 1,000,000 shares of common
stock for issuance under the Plan. On March 8, 2000, the Board of
Directors approved and amended the Plan to increase the number of shares
authorized from 2,000,000, as amended in 1997, to 2,250,000.
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
In 1998, the Board of Directors approved the 1998 Nonqualified Stock
Option Plan (1998 Plan). Under the 1998 Plan, the Company has not yet
reserved any shares of common stock that may be issued under the 1998
Plan. In March 2000, the Company formally adopted the 2000 Stock Incentive
Plan (2000 Plan). Under the 2000 Plan, the Company reserved an aggregate
1,000,000 shares of common stock for issuance under the 2000 Plan.
In accordance with the Plan, the 1998 Plan, and the 2000 Plan, the
exercise price per share shall be fixed in accordance with the following
provisions for the Incentive Stock Option and Nonqualified Stock Option
Plans: (i) the exercise price of an incentive option shall not be less
than 100% of fair market value on the date the incentive option is
granted, (ii) the exercise price of a nonqualified option shall not be
less than 85% of fair market value on the date the nonqualified option is
granted. Under the Plan, the 1998 Plan, and the 2000 Plan, the options
become exercisable over one to four years and expire up to ten years after
the grant date. The Company accounts for stock-based awards to employees
using the intrinsic value method in accordance with APB Opinion No. 25 and
its related interpretations.
During the year ended March 31, 2000, the Company granted aggregate
options under the aforementioned stock option plans to purchase 816,500
shares of the Company's common stock for $0.40 per share and $0.90 per
share. The Company will record compensation expense of $2,544,550
resulting from the difference between the option exercise price per share
and the estimated fair market value ($1.90 to $7.50) of the common stock
at the date of grant. This amount will be recorded ratably over the
vesting period of the respective options.
During the year ended March 31, 1999, the Company granted aggregate
options to purchase 917,000 shares of the Company's common stock for $0.25
per share and $0.40 per share. The Company will record compensation
expense of $486,525 resulting from the difference between the option price
per share and the estimated fair market ($1.15 to $1.90) value of the
common stock at the date of grant. This amount will be recorded ratably
over the vesting period of the respective options.
For the years ended March 31, 2000 and 1999, the Company recorded $281,464
and $88,314, respectively, of compensation expense associated with these
stock option grants. Substantially all of this expense relates to research
and development activities.
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
Total option activity under the Plan, the 1998 Plan, and the 2000 Plan is
as follows:
Weighted
average
Number of exercise
options price
OUTSTANDING, April 1, 1998 1,243,600 $0.25
Granted (weighted average fair value of $1.25) 917,000 $0.37
Exercised (14,250) $0.25
Canceled (112,750) $0.33
---------
OUTSTANDING, March 31, 1999 2,033,600 $0.30
Granted (weighted average fair value of $3.41) 816,500 $0.80
Exercised (236,800) $0.26
Canceled (155,050) $0.34
---------
OUTSTANDING, March 31, 2000 2,458,250 $0.47
========= =====
Additional information regarding options outstanding and exercisable as of
March 31, 2000, is as follows:
Options outstanding Options exercisable
---------------------------------------- ----------------------
Weighted average Weighted Weighted
remaining average average
Exercise Number contractual exercise Number exercise
prices outstanding life (years) price exercisable price
$0.25 1,132,250 7.37 $0.25 522,875 $0.25
$0.40 663,500 8.67 $0.40 152,125 $0.40
$0.90 662,500 9.65 $0.90 $0.90
--------- -------
2,458,250 $0.47 675,000 $0.28
========= ===== ======= =====
At March 31, 2000, 219,825 shares and 1,000,000 shares were available for
future grants under the Plan and the 2000 Plan, respectively.
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
Options exercisable for all plans at March 31, 2000 and 1999, are 675,000
and 380,150, with a weighted average exercise price of $0.28 per share and
$0.30 per share, respectively.
As discussed in Note 1, the Company uses the intrinsic-value method to
account for awards to employees. Had compensation cost of the Company's
stock-based compensation plans been determined based on the provisions of
SFAS No. 123, Accounting for Stock-Based Compensation, the Company's pro
forma net loss would have been:
2000 1999
Net loss:
As reported $(5,270,584) $(5,305,817)
Pro forma loss (5,274,664) (5,274,850)
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 2000 and 1999: expected
volatility of 0%; expected lives of four years; and a risk-free interest
rate ranging from 4.9% to 6.0%. Forfeitures are recognized as they occur.
6. LONG-TERM DEBT
In October 1998, the Company entered into an agreement to borrow
$1,800,000 from a financing company. The borrowings, collateralized by
substantially all of the Company's assets, bear interest at 15% per annum
and are repayable as follows: The first installment of $121,336 was paid
on October 1, 1998. Thereafter, 34 equal monthly principal and interest
installments of $56,956 are due. Such installments commenced December 31,
1998. A final installment of $180,000, along with the remaining unpaid
balance of the note, is payable on October 1, 2001. In June 1999, the
Company entered into an agreement with this financing company to borrow an
additional $416,907, bearing interest at 15%, having monthly principal and
interest payments of $13,182, and maturing in May 2002.
In connection with the issuance of the promissory note, the Company issued
two detachable warrants to purchase an aggregate of 53,333 shares of the
Company's common stock at an exercise price of $3.75 per share expiring in
October 2005. Using the Black-Scholes option-pricing model, there was no
value ascribed to the warrants on the date of grant.
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
On June 30, 1999, the Company entered into a $5,000,000 convertible
promissory note (the Note) with TDK Semiconductor Corporation, a
stockholder, which matures on the earlier of June 30, 2000, or the date of
the acceleration of the maturity date as defined in the note agreement.
The convertible promissory note bears interest at a rate of 3.50% above
the three-month LIBOR rate, due on a quarterly basis. The principal amount
of the Note and accrued but unpaid interest thereunder may be converted in
whole into: (i) shares of common stock at the price of $6.00 per share or
(ii) subject to and conditioned upon the approval of the Board of
Directors and existing shareholders of the Company, shares of a new series
of preferred stock (the Series E preferred stock), at a price of $6.00 per
share, having rights, preferences, and privileges (including antidilution
protection, but excluding the initial conversion price) no less favorable
than those of the existing Series A, Series B, Series C, and Series D
preferred stock of the Company.
In May 2000, the Note, which aggregated $5,032,182 in principal plus
accrued but unpaid interest, was converted into 838,697 shares of Series E
preferred stock at the stated conversion price of $6.00 per share.
Aggregate principal payments on the long-term debt as of March 31, 2000,
excluding amounts converted to preferred stock, are as follows:
Year ending March 31:
2001 $ 690,742
2002 562,366
2003 60,591
----------
$1,313,699
==========
7. RELATED-PARTY TRANSACTIONS
The Company sells finished goods to two companies that are stockholders of
the Company. Sales to the two companies for the years ended March 31, 2000
and 1999, were $3,516,815 and $1,012,647 and $575,749 and $360,017,
respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities in Irvine and San Jose, California and
Taiwan, under noncancelable operating leases that expire at various dates
through December 2002. Rent expense for the years ended March 31, 2000,
and 1999, was $373,808 and $321,845, respectively. The effects of
scheduled rental increases, which are included in minimum lease payments,
are recognized on a straight-line basis over the lease term. Deferred rent
associated with scheduled rent increases at March 31, 2000 and 1999, is
included in accrued expenses. Future minimum payments under the above
operating leases as of March 31, 2000, were:
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
Year ending March 31:
2001 $462,979
2002 304,087
2003 140,745
--------
$907,811
========
The Company leased certain equipment under capital leases expiring at
various dates through September 2001. Included in property and equipment
at March 31, 2000, is property under capital lease of:
Capital equipment and tooling $ 222,531
Less accumulated depreciation (131,415)
---------
$ 91,116
=========
Future minimum commitments under capital leasing arrangements as of March
31, 2000, are as follows:
Year ending March 31:
2001 $ 81,987
2002 17,866
--------
Future minimum commitments 99,853
Less amounts representing interest (10,893)
--------
88,960
Less current portion of capital lease obligations (77,017)
--------
$ 11,943
========
Litigation - The Company is subject to certain claims that arise in the
normal course of business. Management does not believe that the outcome of
any of these matters will have a material adverse effect on the Company's
consolidated financial position or results of operations.
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999 (Continued)
--------------------------------------------------------------------------------
9. SUBSEQUENT EVENTS
Stock Option Grants - Subsequent to March 31, 2000, the Company's Board of
Directors approved the issuance of options to purchase 335,000 shares of
the Company's common stock for $7.50 per share. These options generally
vest over four years.
Acquisition - On June 6, 2000, the Company signed an agreement and plan of
reorganization and merger with Mitel Corporation, a Canadian corporation,
and U.S. Acquisition Corporation, a wholly owned subsidiary of Mitel
Corporation. Under the terms of this agreement, upon closing the Company
will become a wholly owned subsidiary of Mitel Corporation.
* * * * * *
<PAGE>
Vertex Networks, Incorporated
BALANCE SHEET
(in thousands of U.S. dollars)
(Unaudited)
June 30,
2000
--------
ASSETS
Current assets:
Cash and cash equivalents $ 7,919
Short-term investments 8,239
Accounts receivable 2,189
Inventories 2,265
Prepaid expenses and other 309
--------
20,921
Fixed assets 2,329
Intangible and other assets 42
--------
$ 23,292
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,872
Deferred revenue 45
Current portion of long-term debt 579
--------
2,496
Long-term debt 640
--------
3,136
--------
Shareholders' equity:
Capital stock
Preferred shares 35,730
Common shares 233
Contributed surplus 1,232
Deficit (17,009)
Accumulated other comprehensive loss (30)
--------
20,156
--------
$ 23,292
========
<PAGE>
Vertex Networks, Incorporated
STATEMENT OF LOSS
(in thousands of U.S. dollars)
(Unaudited)
Three Months Three Months
Ended Ended
June 30, June 30,
2000 1999
Revenue $ 2,516 $ 1,308
Cost of sales 645 400
------- -------
Gross margin 1,871 908
------- -------
Expenses:
Selling and administrative 1,090 511
Research and development 2,111 1,133
------- -------
3,201 1,644
------- -------
Operating loss (1,330) (736)
Interest income (expense), net 162 (49)
Foreign currency transaction gain 1 --
------- -------
Loss before income taxes (1,167) (785)
Income tax expense (1) (1)
------- -------
Net loss for the period $(1,168) $ (786)
======= =======
<PAGE>
Vertex Networks, Incorporated
STATEMENT OF CASH FLOWS
(in thousands of U.S. dollars)
(Unaudited)
Three Months Three Months
Ended Ended
June 30, June 30,
2000 1999
CASH PROVIDED BY (USED IN)
Operating activities:
Net loss for the period $ (1,168) $ (786)
Amortization of capital and other assets 325 159
Stock option compensation expense 187 40
Increase in working capital (1,240) (139)
-------- --------
Total (1,896) (726)
-------- --------
Investing activities:
Change in short-term investments (285) --
Additions to capital and other assets (112) (406)
-------- --------
Total (397) (406)
-------- --------
Financing activities:
Repayment of long-term debt (131) 5,343
Repayment of capital lease liabilities (21) (77)
Reduction of preferred shares (75) (16)
Proceeds from issuance of common stock 15 --
-------- --------
Total (212) 5,250
-------- --------
(Decrease) increase in cash and cash equivalents (2,505) 4,118
Cash and cash equivalents, beginning of period 10,424 1,827
-------- --------
Cash and cash equivalents, end of period $ 7,919 $ 5,945
======== ========
<PAGE>
VERTEX NETWORKS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
1. In the opinion of Management, the unaudited financial statements reflect
all adjustments, which consist only of normal and recurring adjustments,
necessary to present fairly the financial position at June 30, 2000 and
the results of operations and the changes in financial position for the
three month periods ended June 30, 2000 and 1999, in accordance with
accounting principles generally accepted in the United States.
These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's
financial statements for the year ended March 31, 2000 and 1999.
2. Due to the cyclical nature of the business, the results of operations for
the periods presented are not necessarily indicative of the results to be
expected for the full year.
3. Accounting Principles
No major changes to accounting policies or procedures resulting in any
material changes have been effected in the three-month period to June 30,
2000.
4. Subsequent Event
On July 28, 2000, the Company completed an agreement to be acquired by
Mitel Corporation.
<PAGE>
Mitel Corporation
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 2000
(in millions of Canadian dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Vertex Pro Forma
Mitel Networks, Adjustments - Note Pro Forma
Corporation Incorporated Net 3 Combined
----------- ------------ ------------- --------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 94.0 $ 20.5 $ (1.7) C $ 112.8
Short-term investments 71.9 3.4 -- 75.3
Accounts receivable 294.6 3.4 -- 298.0
Inventories 197.4 3.4 -- 200.8
Prepaid expenses and other 39.7 0.5 -- 40.2
Future income tax assets 9.5 -- 2.2 A,E 11.7
--------- -------- ------- ---------
707.1 31.2 0.5 738.8
--------- -------- ------- ---------
Long-term assets:
Long-term receivables 22.5 -- -- 22.5
Fixed assets 445.0 3.4 (1.4) B 447.0
Acquired intangible assets 1.2 -- 277.5 A,D 278.7
Patents, trademarks, and other 8.9 0.1 -- 9.0
--------- -------- ------- ---------
477.6 3.5 276.1 757.2
--------- -------- ------- ---------
$ 1,184.7 $ 34.7 $ 276.6 $ 1,496.0
========= ======== ======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 190.4 $ 3.0 $ 8.9 A,E $ 202.3
Income and other taxes payable 10.8 -- -- 10.8
Future income tax liabilities 11.7 -- -- 11.7
Deferred revenue 43.6 0.1 -- 43.7
Current portion of long-term debt 30.5 0.8 (0.8) C 30.5
--------- -------- ------- ---------
287.0 3.9 8.1 299.0
Long-term debt 211.1 0.9 (0.9) C 211.1
Pension liability 17.7 -- -- 17.7
Future income tax liabilities 24.7 -- -- 24.7
--------- -------- ------- ---------
540.5 4.8 7.2 552.5
--------- -------- ------- ---------
Shareholders' equity:
Capital stock
Preferred shares 37.0 52.9 (52.9) F 37.0
Common shares 328.2 0.3 300.4 A,F 628.9
Contributed surplus 9.2 1.5 (1.5) F 9.2
Retained earnings 283.3 (24.8) 23.4 F 281.9
Translation account (13.5) -- -- (13.5)
--------- -------- ------- ---------
644.2 29.9 269.4 943.5
--------- -------- ------- ---------
$ 1,184.7 $ 34.7 $ 276.6 $ 1,496.0
========= ======== ======= =========
</TABLE>
These Pro Forma Consolidated Financial Statements are prepared on the
basis set out in the accompanying notes.
<PAGE>
Mitel Corporation
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)
Three Months Ended June 30, 2000
(in millions of Canadian dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Vertex Pro Forma
Mitel Networks, Adjustments - Note Pro Forma
Corporation Incorporated Net 3 Combined
----------- ------------ ------------- --------- -----------
<S> <C> <C> <C> <C>
Revenue $ 328.8 $ 3.7 $ (0.5) B $ 332.0
--------- -------- ------- ---------
Cost of sales:
Cost of sales other than amortization 150.4 1.0 -- 151.4
Amortization of manufacturing assets 17.0 -- -- 17.0
--------- -------- ------- ---------
167.4 1.0 -- 168.4
--------- -------- ------- ---------
Gross margin 161.4 2.7 (0.5) 163.6
--------- -------- ------- ---------
Expenses:
Selling and administrative 87.7 1.6 -- 89.3
Research and development (net) 39.7 2.8 1.5 B,C 44.0
Amortization of acquired intangibles 3.2 -- 34.7 A,D 37.9
--------- -------- ------- ---------
130.6 4.4 36.2 171.2
--------- -------- ------- ---------
Operating income 30.8 (1.7) (36.7) (7.6)
Interest income (expense) (net) (2.3) 0.3 -- (2.0)
Debt issue costs (0.6) -- -- (0.6)
--------- -------- ------- ---------
Income (loss) before income taxes 27.9 (1.4) (36.7) (10.2)
Income tax expense 6.4 -- -- 6.4
--------- -------- ------- ---------
Net income (loss) for the period $ 21.5 $ (1.4) $ (36.7) $ (16.6)
========= ======== ======= =========
Net income (loss) for the period attributable
to common shareholders after preferred
dividends $ 20.7 $ (1.4) $ (36.7) $ (17.4)
========= ======== ======= =========
Net income per common share:
Basic $ 0.18 $ (0.01) $ (0.30) A,E $ (0.14)
========= ======== ======= =========
Fully diluted $ 0.18 $ (0.01) $ (0.30) A $ (0.14)
========= ======== ======= =========
Weighted average number of common shares
outstanding (millions):
Basic 114.2 114.2 124.5 A,E 124.5
========= ======== ======= =========
Fully diluted 122.6 122.6 133.6 A 133.6
========= ======== ======= =========
</TABLE>
These Pro Forma Consolidated Financial Statements are prepared on the
basis set out in the accompanying notes.
<PAGE>
Mitel Corporation
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)
Year Ended March 31, 2000
(in millions of Canadian dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Vertex Pro Forma
Mitel Networks, Adjustments - Note Pro Forma
Corporation Incorporated Net 3 Combined
----------- ------------ ------------- --------- -----------
<S> <C> <C> <C> <C>
Revenue $ 1396.5 $ 7.6 $ (2.8) B $ 1,401.3
--------- -------- ------- ---------
Cost of sales:
Cost of sales other than amortization 645.1 3.0 -- 648.1
Amortization of manufacturing assets 67.3 -- -- 67.3
--------- -------- ------- ---------
712.4 3.0 -- 715.4
--------- -------- ------- ---------
Gross margin 684.1 4.6 (2.8) 685.9
--------- -------- ------- ---------
Expenses:
Selling and administrative 359.4 4.5 -- 363.9
Research and development (net) 152.9 7.6 (4.7) B,C 165.2
Amortization of acquired intangibles 54.8 143.5 A,D 198.3
--------- -------- ------- ---------
567.1 12.1 148.2 727.4
--------- -------- ------- ---------
Operating income from continuing operations
117.0 (7.7) (151.0) (41.5)
Interest income (expense) (net) (12.9) (0.2) -- (13.1)
Debt issue costs (0.5) -- -- (0.5)
--------- -------- ------- ---------
Income (loss) from continuing operations before
income taxes 103.6 (7.7) (151.0) (55.1)
Income tax expense 39.6 -- -- 39.6
--------- -------- ------- ---------
Net income (loss) from continuing operations for
the period 64.0 (7.7) (151.0) (94.7)
Estimated loss on disposal of discontinued
operations (8.0) -- -- (8.0)
--------- -------- ------- ---------
Net income (loss) for the period $ 56.0 $ (7.7) $ (151.0) $ (102.7)
========= ======== ======= =========
Net income (loss) for the period attributable to
common shareholders after preferred dividends
$ 52.8 $ (7.7) $ (151.0) $ (105.9)
========= ======== ======= =========
Net income per common share:
Basic $ 0.46 $ (0.07) $ (1.22) A,E $ (0.85)
========= ======== ======= =========
Fully diluted $ 0.45 $ (0.07) $ (1.22) A $ (0.85)
========= ======== ======= =========
Weighted average number of common shares
outstanding (millions):
Basic 114.7 114.7 124.1 A,E 124.1
========= ======== ======= =========
Fully diluted 120.3 120.3 131.3 A 131.3
========= ======== ======= =========
</TABLE>
These Pro Forma Consolidated Financial Statements are prepared on the
basis set out in the accompanying notes.
<PAGE>
Mitel Corporation
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(in millions of Canadian dollars, unless otherwise noted)
(UNAUDITED)
1. Basis of Presentation
On July 28, 2000, Mitel Corporation ("Mitel" or "the Company") acquired
100 percent of the capital stock of privately held Vertex Networks,
Incorporated ("Vertex") for total consideration of approximately 11
million newly issued common shares. The fair value of the consideration
was approximately $300.7 based on the fair value of the Company's common
shares near the effective date of the acquisition.
The unaudited Pro Forma Consolidated Balance Sheet reflects the
acquisition using the purchase method as at June 30, 2000. The net assets
acquired on July 28, 2000, the date of acquisition, at approximate fair
value, were as follows:
Current assets $ 31.9
--------
Capital assets:
Fixed assets 2.3
Acquired intangible assets 284.7
--------
287.0
--------
Total assets 318.9
Current liabilities (18.2)
--------
Total net assets $ 300.7
========
Fair value of share issue $ 300.7
========
In the opinion of Management, the unaudited Pro Forma Consolidated
Financial Statements reflect all adjustments which consist only of normal
and recurring adjustments and adjustments giving effect to the acquisition
based on the assumptions described in Note 3 necessary to present fairly
the financial position at June 30, 2000 and the results of operations for
the three month period ended June 30, 2000 and the year ended March 31,
2000 in accordance with accounting principles generally accepted in
Canada. (See also Note 4).
The unaudited Pro Forma Consolidated Statement of Income (Loss) for the
three months ended June 30, 2000 has been prepared from the unaudited
consolidated statement of income of the Company for the three months June
30, 2000 and the unaudited statement of loss of Vertex for the three
months ended June 30, 2000, giving effect to the acquisition based on the
assumptions described in Note 3.
<PAGE>
The unaudited Pro Forma Consolidated Statement of Income (Loss) for the
year ended March 31, 2000 has been prepared from the consolidated
statement of income of the Company for the year ended March 31, 2000 and
the statement of operations and comprehensive loss of Vertex for the year
ended March 31, 2000, giving effect to the acquisition based on the
assumptions described in Note 3.
The unaudited Pro Forma Consolidated Financial Statements are not
necessarily indicative of the results of operations which would have been
attained had the acquisition taken place on April 1, 1999 or which may be
attained in the future. The unaudited Pro Forma Consolidated Financial
Statements should be read in conjunction with the consolidated financial
statements of the Company contained in the Company's Annual Report on Form
10-K for the year ended March 31, 2000 and the financial statements of
Vertex for the year ended March 31, 2000.
The financial information presented under the Vertex column of the
unaudited Pro Forma Consolidated Financial Statements was classified in
conformance with the presentation adopted by the Company. The Vertex Pro
Forma financial information was translated using the current rate method
of foreign currency translation.
2. Significant Accounting Policies
The accounting policies followed in preparing the unaudited Pro Forma
Consolidated Financial Statements are those used by the Company and Vertex
as set out in the consolidated financial statements of the Company
contained in the Company's Annual Report on Form 10-K as at and for the
year ended March 31, 2000, the Company's unaudited interim financial
statements as at and for the three months ended June 30, 2000 and the
financial statements of Vertex as at and for the year ended March 31,
2000.
3. Pro Forma Assumptions
Balance Sheet:
A. The acquisition and issuance of the common share consideration
occurred on June 30, 2000.
B. Adjustments to reflect the write-off of certain assets, believed by
management to have little or no future value to the combined
companies.
C. Adjustment to eliminate the long-term debt of Vertex that was
settled prior to the acquisition date in accordance with the terms
of the merger agreement.
D. Adjustments to record the intangible assets acquired in connection
with the acquisition.
E. Adjustments to reflect the estimated acquisition and integration
costs amounting to $8.9. The allocation of the purchase price and
the Company's estimate of the acquisition and integration costs is
not complete. Accordingly, this allocation and the Company's
estimate may be adjusted subsequently.
F. Adjustments to eliminate shareholders equity of Vertex.
Income Statements:
A. The acquisition and issuance of the common share consideration of
11.0 million common shares occurred on April 1, 1999.
B. Adjustment to reclassify certain revenue and expenses to conform to
Company practice.
C. Adjustment to reflect additional compensation expense.
<PAGE>
D. Adjustment to amortize acquired intangible assets arising on the
acquisition over their estimated useful life of two years.
E. Adjustment to the weighted average common shares outstanding to
reflect newly issued common shares placed in escrow and subject to
certain restrictions.
F. The unaudited Pro Forma Consolidated Financial Statements do not
include the operating savings or synergies that management of the
Company anticipates will result from the combined operations.
4. United States Accounting Principles
The unaudited Pro Forma Consolidated Financial Statements have been
prepared in accordance with accounting principles generally accepted
in Canada (Canadian GAAP), which, in the case of the Company,
conform in all material respects with those in the United States
(U.S. GAAP) and with the requirements of the Securities and Exchange
Commission (SEC), except as fully described in the notes to the
Company's consolidated financial statements contained in the
Company's Annual Report on Form 10-K as at and for the year ended
March 31, 2000 and the unaudited interim financial statements as at
and for the three months ended June 30, 2000, and except as follows:
Under Canadian GAAP, the fair value of the share consideration is
based on the quoted market value of the shares shortly before and
after the date of acquisition. Under U.S. GAAP, the fair value of
the share consideration is based on the quoted market value of the
shares shortly before and after the date when the acquisition
agreement is first publicly announced.
The following table reconciles the net income (loss) as reported on
the Pro Forma Consolidated Statements of Income (Loss) to the net
income (loss) that would have been reported had the financial
statements been prepared in accordance with U.S. GAAP and the
requirements of the SEC:
<PAGE>
Three Year
Months Ended
June 30, March 31,
2000 2000
--------- ---------
Net loss for the period in accordance
with Canadian GAAP $ (16.6) $ (102.7)
Acquirer's redundancy provisions 0.5 4.2
Write off of acquired in-process technology -- (5.9)
Amortization of acquired in-process technology 1.2 8.1
Amortization of goodwill (1.4) (5.6)
Effect of deferral accounting related to
foreign exchange contracts 7.6 --
Translation of foreign currency denominated debt (3.5) 8.8
--------- ---------
U.S. GAAP and SEC requirements:
Net income for the period (12.3) (93.1)
Less: dividends on cumulative preferred shares 0.8 3.2
--------- ---------
Net income attributable to common shareholders $ (13.1) $ (96.3)
========= =========
Net income per common share:
Basic $ (0.11) $ (0.78)
========= =========
Diluted $ (0.11) $ (0.78)
========= =========
Weighted average shares for basic
EPS (millions) 124.5 124.1
Weighted average shares on conversion of
stock options (millions) 5.1 0.9
========= =========
Adjusted weighted average shares and share
equivalents (millions) 129.6 125.0
========= =========
Balance sheet items, which vary, in conformity with U.S. GAAP and SEC
requirements:
June 30,
2000
---------
Fixed assets $ 435.9
Acquired intangible assets $ 286.32
Accounts payable and accrued liabilities $ 199.3
Shareholders' equity:
Redeemable preferred shares $ 34.2
Common shares $ 1,066.4
Contributed surplus $ --
Accumulated other comprehensive income (loss) $ (13.5)
Deficit $ (157.5)
