<PAGE> 1
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
AMENDMENT NO. 1
Date of Report January 5, 1995
(Date of earliest event reported)
MICROCOM, INC.
(Exact name of Registrant as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of incorporation)
0-14805 04-2710644
----------- --------------
(Commission File Number) (IRS Employer Identification Number)
500 River Ridge Dr., Norwood, Massachusetts
(Address of principal executive offices)
02062-5028
(Zip code)
(617) 551-1000
(Registrant's telephone number)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) The following Financial Statements of Extension Technology Corp.
are filed as part of this report.
(1) Report of Independent Public Accountants
(2) Balance Sheets as of September 30, 1994 and 1993
(3) Statements of Operations for the three years ended September
30, 1994 and for the period from inception (November 9, 1990)
to September 30, 1994.
(4) Statements of Stockholders' Deficit for the years ended
September 30, 1994 and for the period from inception (November
9, 1990) to September 30, 1994.
(5) Statement of Cash Flows for the years ended September 30, 1994
and for the period from inception (November 9, 1990) to
September 30, 1994.
(6) Notes to Financial Statements.
(b) The following pro forma combined condensed financial information of
Microcom, Inc. and Extension Technology Corp. are filed as part of
this report.
(1) Pro forma Condensed Balance Sheet as of September 30, 1994 and
notes thereto.
(2) Pro forma Condensed Statement of Operations for the six months
ended September 30, 1994 and notes thereto.
(3) Pro forma Condensed Statement of Operations for the year ended
March 31, 1994 and notes thereto.
* (c) Merger Agreement and Plan of Reorganization, dated as of December
21, 1994, by and among Microcom, Inc., Extension Acquisition Corp.,
and Extension Technology Corporation.
* Filed with the Company's Form 8-K dated and filed on January 19, 1995.
Schedules and Exhibits to Merger Agreement and Plan of
Reorganization:
Schedule 3.1 (c) - Outstanding Stock Options
<PAGE> 3
<TABLE>
<S> <C>
Schedule 3.3 (c) - Form of Investors Representation Letter
Schedule 4.2 (b) - Capitalization
Schedule 4.4 (b) - Non-Contravention; Approvals
Schedule 4.6 - Undisclosed Liabilities
Schedule 4.7 - Changes
Schedule 4.8 - Litigation
Schedule 4.9 - Violations of Law
Schedule 4.11(a) - Taxes
Schedule 4.12(a) - Employee Benefit Plans
Schedule 4.13(a) - Certain Agreements
Schedule 4.13(b) - Indebtedness
Schedule 4.16(a) - Contracts
Schedule 4.18 - Top 10 Accounts
Schedule 4.21 - Strategem Agreement
Schedule 4.22 - Insurance
Schedule 6.1 (a) - Modifications to Employment Agreements
Schedule 8.1 (c) - Form of Registration Rights Agreement
Schedule 8.1 (e) - Management Bonuses
Schedule 8.2 (f) - Form of Confidentiality, Non-Compete and Employment
Agreements
</TABLE>
The Company will furnish a copy of these schedules and exhibits supplementally
to the Commission upon request.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROCOM, INC.
-------------
Date: March 20, 1995 By: /s/ Roland D. Pampel
-----------------------------
Roland D. Pampel, President,
Chief Executive Officer and Director
Date: March 20, 1995 By: /s/ Peter J. Minihane
-----------------------------
Peter J. Minihane, Executive
Vice-President and Chief
Financial Officer
<PAGE> 5
[Arthur Andersen LLP letterhead]
EXTENSION TECHNOLOGY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1994 AND 1993
AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 9, 1990)
TO SEPTEMBER 30, 1994
TOGETHER WITH AUDITORS' REPORT
<PAGE> 6
[Arthur Andersen LLP letterhead]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Extension Technology Corporation:
We have audited the accompanying balance sheet of Extension Technology
Corporation (a Delaware corporation in the development stage) as of September
30, 1994, and the related statements of operations, stockholders' deficit and
cash flows for the year then ended and the related statements of operations and
cash flows for the period from inception (November 9, 1990) to September 30,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We did not audit the financial statements of
Extension Technology Corporation for the period from inception to September 30,
1993. Such statements are included as of September 30, 1993, for the years
ended September 30, 1993 and 1992, and in the cumulative inception to September
30, 1994 totals of the statements of operations and cash flows and reflect
total revenues and net loss of 58% and 44%, respectively, of the related
cumulative totals. Those statements were audited by other auditors whose
report, dated October 29, 1993 (except for Note 5 of those statements, as to
which the date was November 2, 1993), on those statements included an
explanatory paragraph that described the going concern uncertainty discussed in
Note 1 to the financial statements, has been furnished to us and our opinion,
insofar as it relates to amounts for the period from inception to September 30,
1993, included in the cumulative totals, is based solely on the report of the
other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Extension Technology Corporation as of
September 30, 1994, and the results of its operations and its cash flows for
the year then ended and for the period from inception to September 30, 1994, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is a development-stage enterprise, has
suffered recurring losses from operations, has a net capital deficiency and has
entered into a tentative agreement to sell all of the Company's assets which
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Boston, Massachusetts /s/Arthur Andersen LLP
December 19, 1994 ----------------------
<PAGE> 7
EXTENSION TECHNOLOGY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS--AS OF SEPTEMBER 30, 1994 AND 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 357,597 $ 470,635
Accounts receivable, net of allowance for doubtful accounts of
approximately $7,700 and $28,900 in 1994 and 1993, respectively 25,577 89,079
Inventories - 135,948
Prepaid expenses 6,040 5,134
-------------- --------------
Total current assets 389,214 700,796
-------------- --------------
PROPERTY AND EQUIPMENT, NET:
Computer equipment 90,685 233,950
Purchased software 23,294 39,512
Furniture and fixtures 23,255 32,796
Office equipment 10,714 17,722
-------------- --------------
147,948 323,980
Less--Accumulated depreciation 66,749 140,401
-------------- --------------
81,199 183,579
-------------- --------------
OTHER ASSETS, NET 45,413 34,017
-------------- --------------
Total assets $ 515,826 $ 918,392
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 44,369 $ 12,812
Accrued expenses 214,692 76,342
-------------- --------------
Total current liabilities 259,061 89,154
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 6)
SERIES B REDEEMABLE PREFERRED STOCK:
$.01 par value-
Authorized--2,608,413 shares
Issued and outstanding--2,514,471 and 1,412,616 shares in 1994 and 1993,
respectively (at liquidation value) 3,143,088 1,752,628
COMMON AND CONVERTIBLE PREFERRED STOCKHOLDERS' DEFICIT:
Series A convertible preferred stock, $.01 par value-
Authorized--600,000 shares
Issued and outstanding--585,000 shares (liquidation value of $585,000) 5,850 5,850
Common stock, $.01 par value-
Authorized--5,521,896 shares
Issued and outstanding--3,355,308 and 2,365,934 shares in 1994 and 1993,
respectively 33,553 23,659
Additional paid-in capital 953,910 766,207
Deficit accumulated during the development stage (3,879,636) (1,719,106)
-------------- --------------
Total common and convertible preferred stockholders' deficit (2,886,323) (923,390)
-------------- --------------
Total liabilities and stockholders' deficit $ 515,826 $ 918,392
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
EXTENSION TECHNOLOGY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 9, 1990)
TO SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(NOVEMBER 9,
1990) TO
FOR THE YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1992 1994
<S> <C> <C> <C> <C>
REVENUE $ 185,409 $ 231,144 $ 20,039 $ 436,592
COST OF GOODS SOLD 350,173 155,008 13,425 518,606
------------ ------------ ----------- ------------
Gross profit (164,764) 76,136 6,614 (82,014)
------------ ------------ ----------- ------------
OPERATING EXPENSES:
Research and development 539,507 397,882 202,387 1,208,006
Marketing and sales 757,810 503,168 111,628 1,386,799
General and administrative 712,208 331,251 112,838 1,232,002
------------ ------------ ----------- ------------
2,009,525 1,232,301 426,853 3,826,807
------------ ------------ ----------- ------------
Loss from operations (2,174,289) (1,156,165) (420,239) (3,908,821)
------------ ------------ ----------- ------------
OTHER INCOME (EXPENSE):
Interest income 13,759 22,657 6,469 50,255
Interest expense - (17,187) (3,883) (21,070)
------------ ------------ ----------- ------------
13,759 5,470 2,586 29,185
------------ ------------ ----------- ------------
Net loss $ (2,160,530) $ (1,150,695) $ (417,653) $ (3,879,636)
============ ============ ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
EXTENSION TECHNOLOGY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993
AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 9, 1990)
TO SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
DEFICIT
SERIES A CONVERTIBLE ACCUMULATED TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE STOCK
NUMBER OF $.01 PAR NUMBER OF $.01 PAR PAID-IN DEVELOPMENT HOLDERS'
SHARES VALUE SHARES VALUE CAPITAL STAGE DEFICIT
<S> <C> <C> <C> <C> <C> <C> <C>
SALE OF COMMON STOCK - $ - 555,000 $ 5,550 $ 1,800 $ - $ 7,350
Conversion of promissory note for Series A
convertible preferred stock 100,000 1,000 - - 99,000 - 100,000
Sale of Series A convertible preferred stock 485,000 4,850 - - 480,150 - 485,000
Net loss - - - - - (150,758) (150,758)
------- -------- --------- -------- --------- ------------ -----------
BALANCE, SEPTEMBER 30, 1991 585,000 5,850 555,000 5,550 580,950 (150,758) 441,592
Issuance of common stock for services - - 29,500 295 2,655 - 2,950
Net loss - - - - - (417,653) (417,653)
------- -------- --------- -------- --------- ----------- -----------
BALANCE, SEPTEMBER 30, 1992 585,000 5,850 584,500 5,845 583,605 (568,411) 26,889
Conversion of debt to common stock - - 660,608 6,606 81,057 - 87,663
Sale of common stock, net of $48,359 offering - - 962,726 9,627 86,423 - 96,050
expenses
Exercise of stock options - - 128,250 1,282 11,543 - 12,825
Sale of common stock - - 17,850 179 2,499 - 2,678
Issuance of common stock for services - - 12,000 120 1,080 - 1,200
Net loss - - - - - (1,150,695) (1,150,695)
------- ------- --------- -------- --------- ----------- -----------
BALANCE, SEPTEMBER 30, 1993 585,000 5,850 2,365,934 23,659 766,207 (1,719,106) (923,390)
Issuance of common stock upon exercise of
warrants - - 975,675 9,757 185,377 - 195,134
Exercise of stock options - - 5,575 56 781 - 837
Issuance of common stock for services - - 8,124 81 1,545 - 1,626
Net loss - - - - - (2,160,530) (2,160,530)
------- ------- --------- -------- --------- ----------- -----------
BALANCE, SEPTEMBER 30, 1994 585,000 $ 5,850 3,355,308 $ 33,553 $ 953,910 $(3,879,636) $(2,886,323)
======= ======= ========= ======== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
<TABLE>
EXTENSION TECHNOLOGY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 9, 1990)
TO SEPTEMBER 30, 1994
<CAPTION>
PERIOD FROM
INCEPTION
(NOVEMBER 9,
FOR THE YEAR ENDED 1990) TO
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1992 1994
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,160,530) $(1,150,695) $(417,653) $(3,879,636)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 143,828 89,144 56,163 314,296
Loss on disposal of fixed assets - - 5,280 5,280
Issuance of stock for services 13,000 13,049 2,950 28,999
Changes in current assets and liabilities-
Accounts receivable 63,502 (74,550) (14,529) (25,577)
Inventories 135,948 (86,162) (49,786) -
Prepaid expenses (906) (3,964) 2,818 (6,040)
Accounts payable 31,557 9,112 - 44,369
Accrued expenses 138,350 21,332 44,464 214,692
----------- ----------- --------- -----------
Net cash used in operating
activities (1,635,251) (1,182,734) (370,293) (3,303,617)
----------- ----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (22,414) (140,047) (82,420) (354,087)
Increase in other assets (30,430) (16,243) (4,691) (92,101)
----------- ----------- --------- -----------
Net cash used in investing
activities (52,844) (156,290) (87,111) (446,188)
----------- ----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series B redeemable
preferred stock 1,379,085 1,160,476 - 2,539,561
Proceeds from issuance of common stock 195,136 138,981 - 341,467
Exercise of stock options 836 12,825 - 13,661
Proceeds from notes payable - 95,000 895,000 990,000
Repayment of notes payable - (362,287) - (362,287)
Proceeds from issuance of convertible - - - 100,000
promissory note
Proceeds from issuance of Series A
convertible preferred stock - - - 485,000
---------- ----------- --------- -----------
Net cash provided by financing
activities 1,575,057 1,044,995 895,000 4,107,402
----------- ----------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH (113,038) (294,029) 437,596 357,597
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 470,635 764,664 327,068 -
----------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 357,597 $ 470,635 $ 764,664 $ 357,597
=========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 11
EXTENSION TECHNOLOGY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(1) THE COMPANY AND GOING CONCERN
Extension Technology Corporation (the Company) was incorporated on
November 9, 1990 to develop and sell products designed to extend local
area networks (LANs) to small remote offices. The Company uses digital
telephone services as a means for extending LANs for corporate offices to
remote offices.
The Company, since inception, has devoted substantially all effort toward
product development, market research and securing financing. No
significant revenues have been earned from the Company's products.
Accordingly, the accompanying financial statements are presented in
accordance with Statement of Financial Accounting Standards (SFAS) No. 7,
Accounting and Reporting by Development-Stage Enterprises. The ultimate
success of the Company is dependent on the development and marketing of
its products and its ability to secure adequate financing until the
Company is operating profitably. The Company has incurred significant
recurring operating losses since inception and has an accumulated deficit
of $3,879,636 at September 30, 1994. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The
accompanying financial statements have been prepared assuming that the
Company will continue as a going concern and, as such, do not include any
adjustments that may result from the outcome of this uncertainty.
Management has undertaken efforts to sell the Company or raise additional
capital. The Company has reached a tentative agreement with another
company, under which the other company would issue a specified number of
shares of its common stock (valued at approximately $1,150,000) for all
assets of the Company, and the assumption of all liabilities. A
definitive agreement has not yet been reached and there can be no
assurance that this agreement will be executed in its current state or at
all.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Cash Equivalents
The Company considers all highly liquid investments with remaining
maturities of three months or less at the time of acquisition to
be cash equivalents.
<PAGE> 12
EXTENSION TECHNOLOGY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(Continued)
(2) SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Inventories
Inventories are valued at the lower of cost (first-in, first-out
method) or market and consist of the following at September 30,
1993:
<TABLE>
<S> <C>
Raw materials $ 63,006
Work-in-process 39,041
Finished goods 33,901
-------------
$ 135,948
=============
</TABLE>
Approximately $200,000 of inventories have been fully reserved at
September 30, 1994 as the future realizability of the inventories
is uncertain.
(c) Depreciation and Amortization
Property and equipment are stated at cost and are being
depreciated using the straight-line method over their estimated
useful lives of three to five years.
(d) Other Assets
Other assets consist primarily of patent license costs that have
been capitalized and are being amortized on a straight-line basis
over their estimated useful life of five years.
(e) Research and Development and Software Development Costs
The Company's policy is to expense all research and development
costs with the exception of certain software development costs,
which may be eligible for capitalization in accordance with SFAS
No. 86, Accounting for the Costs of Computer Software To Be Sold,
Leased or Otherwise Marketed. Under this statement, software
development costs shall be capitalized at the lower of cost or net
realizable value beginning on the establishment of technological
feasibility of the related products as defined in the statement.
At September 30, 1994, no software costs have been capitalized.
<PAGE> 13
EXTENSION TECHNOLOGY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(Continued)
(2) SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Revenue Recognition
Product revenue is recognized upon shipment as the Company has no
further obligations. Estimated warranty costs are accrued at the
time of shipment for anticipated costs for products under
warranty.
(g) Net Loss Per Share
Net loss per share has not been presented as it is not considered
to be relevant data.
(h) Reclassifications
Certain prior year information has been reclassified to conform
with the current year presentation.
(3) STOCKHOLDERS' DEFICIT AND REDEEMABLE PREFERRED STOCK
In fiscal 1993, the Company issued 962,726 shares of both common stock
and Series B redeemable preferred stock at $.15 and $1.25 per share,
respectively. Under the terms of the stock offering, the Company also
converted notes payable and accrued interest into 660,608 shares of
common stock and 432,040 shares of Series B redeemable preferred stock
and repaid other notes payable in the amount of $362,287. The conversion
price was $1.25 per share for the Series B redeemable preferred shares
and $.15 per share for the common shares, except for certain noteholders
who exercised warrants for the purchase of common stock at $.10 per
share.
In fiscal 1993, the Company also issued 17,850 shares of both common
stock and Series B redeemable preferred stock to an officer in exchange
for a $24,991 noninterest-bearing note receivable that has been offset
against the Series B redeemable preferred stock in the accompanying 1993
balance sheet. The note was paid in full as of September 30, 1994. In
fiscal 1994, the Company issued 9,099 shares of Series B redeemable
preferred stock and 8,124 shares of common stock for services valued at
$13,000.
The Company also issued 353,154 warrants in fiscal 1993 to purchase 3.36
shares of Series B redeemable preferred stock and three shares of common
stock for an aggregate price of $4.80. Warrants to purchase 1,092,756
shares of Series B preferred stock and 975,675 shares of common stock
were exercised during fiscal 1994 for aggregate proceeds of $1,561,080.
The value of each warrant was determined by the Company to be $4.20 for
the shares of the Series B preferred stock and $.60 for the shares of
common stock. All remaining warrants expired during fiscal 1994.
<PAGE> 14
EXTENSION TECHNOLOGY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(Continued)
(3) STOCKHOLDERS' DEFICIT AND REDEEMABLE PREFERRED STOCK (Continued)
The preferred shares have the following characteristics:
(a) Series A Convertible Preferred Stock
Series A convertible preferred stockholders are entitled to
receive a dividend or distribution equal to an amount of the
dividend or distribution payable with respect to each share of
common stock multiplied by the number of common shares which each
is convertible into. Such dividends can be declared or paid on
common stock only if such dividends are declared or paid on the
Series A convertible preferred stock.
These stockholders have a liquidation preference over the common
stockholders such that the Series A convertible preferred
stockholders are entitled to $1.00 per share, plus all accrued or
declared but unpaid dividends. The aggregate liquidation value of
these shares at September 30, 1994 is $585,000.
Each share of Series A convertible preferred stock shall
automatically convert into one share of common stock immediately
upon the closing of a public offering under which the proceeds
received by the Company are equal to or exceed $10,000,000 and in
which the public offering price is equal to or in excess of $4.20.
Additionally, all Series A convertible preferred stock may be
converted into common shares upon the vote or written consent of
holders of at least 66.67% of the then outstanding shares of
Series A convertible preferred stock.
The Series A convertible preferred stockholder is entitled to vote
on all matters and shall be entitled to the number of votes equal
to the largest number of full shares into which such shares of
Series A convertible stock can be converted.
(b) Series B Redeemable Preferred Stock
Commencing on the first day after the earlier of (i) the close of
a fiscal year in which the Company has earnings before taxes of at
least $2,000,000 or (ii) September 30, 1996, these stockholders
are entitled to receive four equal quarterly dividends, at an
annual rate of $.10 per share, payable in preference to and
priority to any other dividends. These dividends will accrue
quarterly as of the last day of each December, March, June and
September after the commencement date mentioned above and shall be
cumulative and in preference and priority to all other stock.
<PAGE> 15
EXTENSION TECHNOLOGY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(Continued)
(3) STOCKHOLDERS' DEFICIT AND REDEEMABLE PREFERRED STOCK (Continued)
(b) Series B Redeemable Preferred Stock (Continued)
These stockholders have a liquidation preference over the common
stockholders in that these stockholders are entitled to $1.25 per
share plus all accrued or declared but unpaid dividends. The
liquidation value of the shares issued at September 30, 1994 is
$3,143,088.
Unless redeemed earlier, the Company shall redeem one third of the
outstanding shares on March 5, 1998 and the remaining shares on
March 5, 1999. Notwithstanding the foregoing, each share shall
automatically be redeemed immediately upon the closing of a public
offering under which the proceeds received by the Company are
equal to or exceed $10,000,000 and in which the public offering
price is equal to or in excess of $4.20.
These stockholders do not have any additional voting rights other
than those granted by the law and the election of one director to
the Board of Directors.
The Series B redeemable preferred stock has been classified
separately from common and convertible preferred stockholders'
deficit in the accompanying balance sheets due to its mandatory
redemption.
(4) STOCK OPTION PLAN
The Company's 1991 Stock Option Plan (the Plan), as amended, allows for
the granting of incentive and nonstatutory options to purchase up to
1,131,000 shares of common stock. Options for employees generally vest
over four years.
Information regarding the Company's stock option plan is summarized as
follows:
<TABLE>
<CAPTION>
-------YEAR ENDED SEPTEMBER 30,-------
1994 1993 1992
<S> <C> <C> <C>
Outstanding, beginning of year 713,280 474,000 300,000
Granted 529,171 464,280 174,000
Canceled 138,705 96,750 -
Exercised 5,575 128,250 -
---------- --------- --------
1,098,171 713,280 474,000
========== ========= ========
Price range, end of year $ .10-$.15 $.10-$.15 $ .10
========== ========= ========
Exercisable, end of year 243,750 224,075 97,250
======= ========= ========
</TABLE>
<PAGE> 16
EXTENSION TECHNOLOGY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(Continued)
(5) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS 109, the liability method is
used in accounting for income taxes. Under this method, deferred taxes
are determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using enacted marginal
rates and laws that are expected to be in effect when the differences
reverse.
At September 30, 1994, the Company had available approximately $3,200,000
of federal net operating loss carryforwards. These net operating losses
may be used in future periods to reduce taxable income, if any, and
expire through 2009. The Company has provided a full valuation allowance
for the future tax benefit of the net operating losses, timing
differences related to certain accruals and valuation allowances and tax
credits as the future realizability of this asset is uncertain. The use
of the net operating loss carryforwards will be subject to annual
limitations based on ownership changes of the Company's stock which
occurred to date and may occur in the future, as defined by Section 382
of the Internal Revenue Code.
(6) COMMITMENTS AND CONTINGENCIES
(a) Licensing Agreement
The Company has entered into a software licensing and royalty
agreement with an outside party allowing the Company to use
certain software technology and product designs. The Company must
pay the licensee a royalty based on the actual number of the
Company's units produced in which the software technology is
incorporated. The Company also entered into a hardware licensing
and royalty agreement, with the same company, whereby the Company
obtained a license to manufacture and market certain products in
return for $10,000 plus a royalty based on manufacturing costs of
each licensed product. The hardware license expires in September
1996. Through September 30, 1994, the Company has expensed
approximately $39,000 under these license agreements.
<PAGE> 17
EXTENSION TECHNOLOGY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(Continued)
(6) COMMITMENTS AND CONTINGENCIES (Continued)
(b) Compensation Agreements
The Company has compensation arrangements with certain members of
management which would require the Company to make payments to
these individuals if certain criteria are met. Three individuals
have agreements that would require the Company to make aggregate
payments of $160,000 if certain financial criteria are met on
December 31, 1994, or earlier if the Company enters into a merger
or sale agreement. The Company has accrued $140,000 for these
bonuses as of September 30, 1994. Another individual has an
agreement that would require the Company to make a payment upon
the sale of the Company equal to the greater of $75,000 or 5% of
the purchase price. This contingent payment has not been
reflected in the accompanying financial statements.
(7) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994 1993
<S> <C> <C>
Accrued payroll and payroll-related $160,545 $35,657
Accrued professional fees 40,708 17,333
Accrued royalties 3,781 18,765
Accrued other 9,658 4,587
-------- -------
$214,692 $76,342
======== =======
</TABLE>
<PAGE> 18
MICROCOM, INC.
EXTENSION TECHNOLOGY CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1994
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
AS OF SEPTEMBER 30, 1994 AND MARCH 31, 1994
<PAGE> 19
MICROCOM, INC.
EXTENSION TECHNOLOGY CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1994
(Unaudited)
The following pro forma condensed balance sheet gives effect to the probable
acquisition of certain assets of Extension Technology Corporation (ETC) by
Microcom, Inc. (Microcom). This pro forma condensed balance sheet combines the
unaudited balance sheet of Microcom and the audited balance sheet of ETC as of
September 30, 1994 and assumes that the transaction was accounted for as a
purchase. The pro forma data reflect the probable acquisition of certain
assets of ETC by Microcom for approximately $1,150,000 in Microcom common stock
and the assumption of certain liabilities pursuant to a letter of intent dated
November 23, 1994. The pro forma data do not purport to be indicative of the
balance sheet that would actually have been reported if the acquisition had
been effected at September 30, 1994 or which may be reported in the future.
The pro forma data do not reflect any other adjustments which might be realized
from the combination of the entities. This pro forma condensed balance sheet
should be read in conjunction with the accompanying notes, the pro forma
condensed statements of operations, the respective historical consolidated
financial statements and related notes of Microcom and ETC.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MICROCOM ETC ADJUSTMENTS COMBINED
(Amounts in thousands)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 2,422 $ 358 $ - $ 2,780
Accounts receivable, net 14,758 25 - 14,783
Inventories 20,628 - - 20,628
Other current assets 908 6 - 914
-------- -------- ------- -------
Total current assets 38,716 389 - 39,105
PROPERTY AND EQUIPMENT, NET 5,208 81 - 5,289
OTHER ASSETS, NET 6,743 46 1,288 (c) 8,077
-------- ------- ------- -------
$ 50,667 $ 516 $ 1,288 $52,471
======== ======= ======= =======
CURRENT LIABILITIES:
Accounts payable $ 6,779 $ 44 $ - $ 6,823
Accrued expenses 12,056 215 395(d) 12,666
Other current liabilities 2,359 - - 2,359
-------- ------- ------- ------
Total current liabilities 21,194 259 395 21,848
-------- ------- ------- ------
LONG-TERM LIABILITIES 281 - - 281
REDEEMABLE PREFERRED STOCK - 3,143 (3,143)(b) -
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock 117 34 1 (a)
(34)(b) 118
Convertible preferred stock - 6 (6)(b) -
Capital in excess of par value 58,919 954 1,149 (a)
(954)(b) 60,068
Accumulated deficit (24,789) (3,880) 3,880 (b) (24,789)
Other (5,055) - - (5,055)
-------- ------- ------- -------
Total stockholders' equity (deficit) 29,192 (2,886) 4,036 30,342
-------- ------- ------- -------
$ 50,667 $ 516 $ 1,288 $52,471
======== ======= ======= =======
</TABLE>
<PAGE> 20
MICROCOM, INC.
EXTENSION TECHNOLOGY CORPORATION
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1994
(Unaudited)
The following pro forma adjustments are required to allocate the purchase price
and estimated acquisition costs to the assets acquired from ETC based on their
estimated fair values at September 30, 1994. Such allocation will be revised
to reflect the determination of the fair value of certain assets of ETC upon
the determination of the actual costs of the transaction.
<TABLE>
<CAPTION>
AMOUNTS IN
PRO FORMA ADJUSTMENTS THOUSANDS
<S> <C> <C>
(a) Reflects the issuance of Microcom common stock for all assets of ETC $1,150
(b) Elimination of ETC common and preferred stock accounts and accumulated deficit (257)
(c) Reflects the estimated fair value of acquired technology 1,288
(d) Increase in liabilities to reflect estimated transaction costs and additional ETC
obligations assumed upon consummation of the acquisition 395
</TABLE>
<PAGE> 21
MICROCOM, INC.
EXTENSION TECHNOLOGY CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1994
(Unaudited)
The following pro forma condensed statement of operations gives effect to the
probable acquisition of certain assets of Extension Technology Corporation
(ETC) by Microcom, Inc. (Microcom). This pro forma condensed statement of
operations combines the unaudited statement of operations of Microcom and the
unaudited statement of operations of ETC for the six months ended September 30,
1994 and assumes that the transaction was accounted for as a purchase and
effective on April 1, 1994. The pro forma data reflect the probable
acquisition of certain assets of ETC by Microcom for approximately $1,150,000
in Microcom common stock and the assumption of certain liabilities pursuant to
a letter of intent dated November 23, 1994. The pro forma data do not purport
to be indicative of the statement of operations that would actually have been
reported if the acquisition had been effected at April 1, 1994 or which may be
reported in the future. The pro forma data do not reflect any other
adjustments which might be realized from the combination of the entities. This
pro forma condensed statement of operations should be read in conjunction with
the accompanying notes, the pro forma condensed balance sheet, the respective
historical consolidated financial statements and related notes of Microcom and
ETC.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MICROCOM ETC ADJUSTMENTS COMBINED
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
NET SALES $44,085 $ 54 $ - $44,139
COST OF SALES 24,340 259 - 24,599
------- ------- ---- -------
Gross margin 19,745 (205) - 19,540
------- ------- ---- -------
OPERATING EXPENSES:
Research and development 4,876 214(a) 92 5,182
Sales and marketing 9,371 284 - 9,655
General and administrative 2,294 420 - 2,714
------- ------- ---- -------
Total operating expenses 16,541 918 92 17,551
------- ------- ---- -------
Income (loss) from operations 3,204 (1,123) (92) 1,989
OTHER INCOME (EXPENSE) (192) 9 - (183)
PROVISION FOR INCOME TAXES 451 - - 451
------- ------- ---- -------
NET INCOME (LOSS) $ 2,561 $(1,114) $(92) $ 1,355
======= ======= ==== =======
NET INCOME (LOSS) PER SHARE $ .22 $ .12
======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,392 11,507
======= =======
</TABLE>
<PAGE> 22
MICROCOM, INC.
EXTENSION TECHNOLOGY CORPORATION
NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
AMOUNT IN
PRO FORMA ADJUSTMENTS THOUSANDS
<S> <C> <C>
(a) Reflects the amortization of the estimated fair value of the
acquired technology over its estimated useful life of seven years $92
</TABLE>
<PAGE> 23
MICROCOM, INC.
EXTENSION TECHNOLOGY CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1994
(Unaudited)
The following pro forma condensed statement of operations gives effect to the
probable acquisition of certain assets of Extension Technology Corporation
(ETC) by Microcom, Inc. (Microcom). This pro forma condensed statement of
operations combines the audited statement of operations of Microcom and the
unaudited statement of operations of ETC for the year ended March 31, 1994 and
assumes that the transaction was accounted for as a purchase and effective on
April 1, 1993. The pro forma data reflect the probable acquisition of certain
assets of ETC by Microcom for approximately $1,150,000 in Microcom common stock
and the assumption of certain liabilities pursuant to a letter of intent dated
November 23, 1994. The pro forma data do not purport to be indicative of the
statement of operations that would actually have been reported if the
acquisition had been effected at April 1, 1993 or which may be reported in the
future. The pro forma data do not reflect any other adjustments which might be
realized from the combination of the entities. The pro forma data do not
reflect any This pro forma condensed statement of operations should be read in
conjunction with the accompanying notes, the pro forma condensed balance sheet,
the respective historical consolidated financial statements and related notes
of Microcom and ETC.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MICROCOM ETC ADJUSTMENTS COMBINED
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
NET SALES $56,464 $ 289 $ - $ 56,753
COST OF SALES 29,072 204 - 29,276
-------- ------- ------ --------
Gross margin 27,392 85 - 27,477
-------- ------- ------ ---------
OPERATING EXPENSES:
Research and development 8,959 592 184(a) 9,735
Sales and marketing 15,608 848 - 16,456
General and administrative 5,366 485 - 5,851
Restructuring and other costs 7,875 - - 7,875
-------- ------- ------ ---------
Total operating expenses 37,808 1,925 184 39,917
-------- ------- ------ ---------
Loss from operations (10,416) (1,840) (184) (12,440)
OTHER INCOME (EXPENSE) (336) 2 - (334)
PROVISION FOR INCOME TAXES 161 - - 161
-------- -------- ------ ---------
NET LOSS $(10,913) $(1,838) $(184) $(12,935)
========= ======== ====== =========
NET LOSS PER SHARE $ (1.09) $ (1.27)
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,041 10,156
========= =========
</TABLE>
<PAGE> 24
MICROCOM, INC.
EXTENSION TECHNOLOGY CORPORATION
NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
AMOUNT IN
PRO FORMA ADJUSTMENTS THOUSANDS
<S> <C> <C>
(a) Reflects the amortization of the estimated fair value of the acquired technology over its
estimated useful life of seven years $184
</TABLE>
