<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
Date of Report (Date of earliest event reported): March 1, 2000
QUALCOMM INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-19528 95-3685934
(Commission File No.) (IRS Employer Identification No.)
5775 MOREHOUSE DRIVE
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (858) 587-1121
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 1, 2000, QUALCOMM Incorporated, a Delaware corporation
("QUALCOMM"), completed the acquisition of all of the outstanding capital stock
of SnapTrack, Inc., a California corporation ("SnapTrack"). The acquisition was
effected pursuant to that certain Agreement and Plan of Merger and
Reorganization (the "Merger Agreement"), dated January 25, 2000 by and among
QUALCOMM, Falcon Acquisition Corporation, a Delaware corporation and wholly
owned subsidiary of QUALCOMM ("Merger Sub"), and SnapTrack, whereby Merger Sub
was merged with and into SnapTrack (the "Merger"), with SnapTrack being the
surviving corporation in the Merger and a wholly owned subsidiary of QUALCOMM.
In addition, QUALCOMM assumed all of the outstanding options and warrants to
purchase capital stock of SnapTrack in connection with the Merger and such
options and warrants are now exercisable for shares of QUALCOMM common stock.
The Merger is intended to qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and
will be accounted for as a "purchase." For a detailed description of the terms
and conditions of the Merger Agreement, reference is made to such agreement,
which is filed as Exhibit 2.1 hereto and incorporated herein by reference.
As a result of the Merger, QUALCOMM is obligated to issue up to
7,433,792 shares of its common stock to the securityholders of SnapTrack;
provided however, that 10% of the total shares will be subject to an escrow for
a period of one year (which one-year period could be extended in the event any
claims are made) to satisfy the indemnification obligations of the SnapTrack
securityholders that run in favor of QUALCOMM and its affiliates.
Certain stockholders of SnapTrack who are entitled to receive an
aggregate of 1,949,509 shares of QUALCOMM common stock in the Merger have
executed lock-up agreements that impose certain limitations on such
stockholders' ability to sell or otherwise transfer such shares. For a detailed
description of the terms and conditions of the lock-up agreements, reference is
made to such agreements, which are filed as Exhibits 2.2 through 2.5 hereto and
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
(1) AUDITED CONSOLIDATED FINANCIAL INFORMATION OF SNAPTRACK, INC.
(b) PRO FORMA FINANCIAL INFORMATION.
(1) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
OF QUALCOMM INCORPORATED.
The following unaudited pro forma condensed consolidated
financial information is being filed herewith:
<PAGE> 3
Unaudited Pro Forma Condensed Consolidated Balance Sheet at
December 26, 1999
Unaudited Pro Forma Condensed Consolidated Statement of Income
for the three months ended December 26, 1999
Unaudited Pro Forma Condensed Consolidated Statement of Income
for the year ended September 30, 1999
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information
(c) EXHIBITS.
*2.1 Agreement and Plan of Merger and Reorganization dated as of
January 25, 2000 among QUALCOMM Incorporated, Falcon Acquisition
Corporation and SnapTrack, Inc. (Schedules to this exhibit have
been omitted in reliance on Item 601 of Regulation S-K).
*2.2 Lock-Up Agreement dated as of January 25, 2000 by and between
QUALCOMM Incorporated and Stephen Poizner.
*2.3 Lock-Up Agreement dated as of January 25, 2000 by and between
QUALCOMM Incorporated and Norman Krasner.
*2.4 Lock-Up Agreement dated as of January 25, 2000 by and between
QUALCOMM Incorporated and Bruce Noel.
*2.5 Lock-Up Agreement dated as of January 25, 2000 by and between
QUALCOMM Incorporated and Walter Bell.
2.6 Audited consolidated financial information of SnapTrack, Inc.
dated as of December 31, 1999.
23.1 Consent of Deloitte & Touche LLP.
*99.1 Press Release dated March 2, 2000.
- --------
* Previously filed on March 15, 2000 as an exhibit to this Form 8-K.
3.
<PAGE> 4
ITEM 7.(b)(1) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
OF QUALCOMM INCORPORATED
On March 1, 2000 (the "Closing Date"), QUALCOMM completed the
acquisition of all of the outstanding capital stock of SnapTrack (see "Item 2.
Acquisition or Disposition of Assets.") in a transaction accounted for as a
purchase. The following unaudited pro forma condensed consolidated financial
data present the effect of QUALCOMM`s acquisition of SnapTrack. The unaudited
pro forma condensed consolidated balance sheet presents the consolidated
financial position of QUALCOMM as of December 26, 1999, assuming that the
acquisition had occurred as of that date. Such pro forma information is based
upon the historical balance sheet data of QUALCOMM as of December 26, 1999 and
SnapTrack as of December 31, 1999. The unaudited pro forma condensed
consolidated statements of income for the year ended September 30, 1999 and for
the three months ended December 26, 1999 give effect to earnings as if the
acquisition had occurred on October 1, 1998. The unaudited pro forma condensed
consolidated financial data are prepared using the purchase method of
accounting.
The unaudited pro forma condensed consolidated financial data are based
on the estimates and assumptions set forth in the notes to such statements,
which are preliminary and have been made solely for purposes of developing such
pro forma information. The unaudited pro forma condensed consolidated financial
data are not necessarily an indication of the results that would have been
achieved had the transaction been consummated as of the dates indicated.
The unaudited pro forma condensed consolidated financial data should be
read in conjunction with the historical financial statements and notes thereto
of QUALCOMM, including the Annual Report on Form 10-K for the year ended
September 30, 1999 and the Quarterly Report on Form 10-Q for the quarter ended
December 26, 1999, and the historical financial statements of SnapTrack for the
year ended December 31, 1999, included herein.
4.
<PAGE> 5
QUALCOMM INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 26, 1999
-------------------------------------------------------------------
HISTORICAL
---------------------------
ASSETS QUALCOMM SNAPTRACK ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 303,978 $ 5,931 $ (7)(a) $ 309,902
Investments 1,087,164 - - 1,087,164
Accounts receivable, net 998,200 1,175 - 999,375
Finance receivables 24,167 - - 24,167
Inventories, net 259,968 - - 259,968
Other current assets 201,825 246 487 (b) 202,558
----------- ----------- ----------- -----------
Total current assets 2,875,302 7,352 480 2,883,134
Property, plant and equipment, net 537,482 601 - 538,083
Investments 165,338 - - 165,338
Finance receivables, net 680,090 - - 680,090
Goodwill - - 944,355 (c) 944,355
Other assets 727,223 101 41,387 (d) 768,711
----------- ----------- ----------- -----------
Total assets $ 4,985,435 $ 8,054 $ 986,222 $ 5,979,711
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 715,546 $ 1,521 $ 1,617 (e) $ 718,684
Unearned revenue 64,625 6,935 (5,123)(f) 66,437
Bank lines of credit 124,000 - - 124,000
Current portion of long-term debt 3,109 715 - 3,824
Deferred tax liabilities - - 3,447 (b) 3,447
----------- ----------- ----------- -----------
Total current liabilities 907,280 9,171 (59) 916,392
Long-term debt - 768 - 768
Other liabilities 64,587 - 10,441 (b) 75,028
----------- ----------- ----------- -----------
Total liabilities 971,867 9,939 10,382 992,188
----------- ----------- ----------- -----------
Minority interest in consolidated subsidiaries 54,910 - - 54,910
----------- ----------- ----------- -----------
Company-obligated mandatorily redeemable Trust
Convertible Preferred Securities of a subsidiary trust
holding solely debt securities of the Company 269,895 - - 269,895
----------- ----------- ----------- -----------
Stockholders' Equity:
Preferred stock - 4 (4)(h) -
Common stock 70 2 1 (g)
(2)(h) 71
Deferred stock compensation - (30,522) 30,522 (h) -
Paid-in capital 3,196,953 53,241 (53,241)(h)
1,033,984 (g) 4,230,937
Retained earnings (deficit) 377,998 (24,620) 24,620 (h)
(60,030)(i) 317,968
Accumulated other comprehensive income 113,742 10 (10)(h) 113,742
----------- ----------- ----------- -----------
Total stockholders' equity (deficit) 3,688,763 (1,885) 975,840 4,662,718
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $ 4,985,435 $ 8,054 $ 986,222 $ 5,979,711
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma
condensed consolidated financial information
5.
<PAGE> 6
QUALCOMM INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 26, 1999
-----------------------------------------------------------------------
HISTORICAL
-----------------------------
QUALCOMM SNAPTRACK ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,120,073 $ 319 $ - $ 1,120,392
----------- ----------- ----------- -----------
Operating expenses:
Cost of revenues 648,748 23 - 648,771
Research and development 83,404 2,115(j) - 85,519
Selling, general and administrative 101,848 1,944(k) - 103,792
Amortization of goodwill and intangible assets - - 61,398(l) 61,398
Other 26,152 - - 26,152
----------- ----------- ----------- -----------
Total operating expenses 860,152 4,082 61,398 925,632
----------- ----------- ----------- -----------
Operating income 259,921 (3,763) (61,398) 194,760
-
Interest expense (2,673) (70) - (2,743)
Investment income (expense), net 36,247 106 - 36,353
Distributions on Trust Convertible
Preferred Securities of subsidiary trust (11,045) - - (11,045)
Other - - - -
----------- ----------- ----------- -----------
Income (loss) before income taxes 282,450 (3,727) (61,398) 217,325
Income tax (expense) benefit (105,331) - 2,110(m) (103,221)
----------- ----------- ----------- -----------
Net income (loss) $ 177,119 $ (3,727) $ (59,288) $ 114,104
=========== =========== =========== ===========
Net earnings per common share:
Basic $ 0.27 $ 0.17(n)
=========== ===========
Diluted $ 0.23 $ 0.15(n)
=========== ===========
Shares used in per share calculations:
Basic 664,586 670,378(n)
=========== ===========
Diluted 790,827 798,191(n)
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma
condensed consolidated financial information
6.
<PAGE> 7
QUALCOMM INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------------
HISTORICAL
-----------------------------
QUALCOMM SNAPTRACK ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 3,937,299 $ 65 $ - $ 3,937,364
----------- ----------- ----------- -----------
Operating expenses:
Cost of revenues 2,485,072 70 - 2,485,142
Research and development 381,139 7,003 (j) - 388,142
Selling, general and administrative 425,941 6,564 (k) - 432,505
Amortization of goodwill and intangible assets - - 245,590(l) 245,590
Other 240,007 - - 240,007
----------- ----------- ----------- -----------
Total operating expenses 3,532,159 13,637 245,590 3,791,386
----------- ----------- ----------- -----------
Operating income (loss) 405,140 (13,572) (245,590) 145,978
Interest expense (14,698) (255) - (14,953)
Investment income (expense), net 24,576 404 - 24,980
Distributions on Trust Convertible -
Preferred Securities of subsidiary trust (39,297) - - (39,297)
Other (69,035) - - (69,035)
----------- ----------- ----------- -----------
Income (loss) before income taxes 306,686 (13,423) (245,590) 47,673
Income tax (expense) benefit (105,807) - 7,219(m) (98,588)
----------- ----------- ----------- -----------
Net income (loss) $ 200,879 $ (13,423) $ (238,371) $ (50,915)
=========== =========== =========== ===========
Net earnings (loss) per common share:
Basic $ 0.34 $ (0.08)(n)
=========== ===========
Diluted $ 0.31 $ (0.08)(n)
=========== ===========
Shares used in per share calculations:
Basic 594,714 600,506(n)
=========== ===========
Diluted 649,886 600,506(n)
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma
condensed consolidated financial information
7.
<PAGE> 8
QUALCOMM INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Note 1 - Basis of Presentation
On the Closing Date, QUALCOMM completed the acquisition of all of the
outstanding capital stock of SnapTrack (see "Item 2. Acquisition or Disposition
of Assets.") in a transaction accounted for as a purchase. The fair value of the
QUALCOMM common stock issuable to effect the purchase is estimated to be
approximately $139.56 per share based on the average closing price of QUALCOMM's
common stock for the four-day period ending on the Closing Date. The average
fair value of 1,543,876 replacement options and 86,193 warrants to purchase
QUALCOMM's common stock is estimated to be approximately $138.42 per share,
determined using the Black-Scholes option pricing model assuming a 6.5%
risk-free interest rate, 54% volatility and an expected life of 3.5 years. The
purchase price of the SnapTrack acquisition is estimated to be approximately $1
billion, including the value of the QUALCOMM shares, the value of vested and
unvested options and warrants issued at the Closing Date and estimated
transaction costs of $1.6 million.
The preliminary allocation of the purchase price using balances at March
1, 2000 is summarized below (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Patents $ 15,230
Completed technology 4,890
In-process technology 60,030
Assembled workforce 3,750
Customer base 10,450
Goodwill 948,040
Net liabilities assumed (6,781)
-----------
Total purchase price $ 1,035,609
===========
</TABLE>
The preliminary purchase price allocation is based on the estimated fair
values of the acquired assets and assumed liabilities and an independent
appraisal of intangible assets. The Company expects to finalize the purchase
price allocation within one year and does not anticipate material adjustments to
the preliminary purchase price allocation presented. The amount allocated to
in-process technology represents the purchased in-process technology for
projects that, as of the date of the acquisition, had not yet reached
technological feasibility and had no alternative future use. The value of these
projects was determined by estimating the resulting net cash flows from the sale
of the products from completion of the projects, reduced by the portion of
revenue attributable to developed technology and the percentage completion of
the project. The resulting cash flows were then discounted back to their present
value at appropriate discount rates. The amounts allocated to in-process
technology were charged to the statement of income in the second quarter of
QUALCOMM's fiscal year 2000.
Note 2 - Pro Forma Adjustments
(a) Reflects cash proceeds paid by QUALCOMM to SnapTrack shareholders for
fractional shares.
(b) Reflects deferred tax assets and liabilities resulting from the
acquisition and the preliminary purchase price allocation described in
Note 1.
8.
<PAGE> 9
(c) Reflects goodwill resulting from the acquisition based on the
preliminary purchase price allocation described in Note 1 as if the
acquisition had occurred on December 26, 1999.
(d) Reflects $7 million in deferred tax assets and other intangible assets
resulting from the acquisition based on the preliminary purchase price
allocation described in Note 1 as if the acquisition had occurred on
December 26, 1999.
(e) Reflects accrued liabilities related to transaction costs incurred by
QUALCOMM.
(f) Reflects an adjustment to reduce SnapTrack's unearned revenue to fair
value.
(g) Reflects the estimated value of common stock issuable to effect the
purchase.
(h) Reflects the elimination of SnapTrack's equity.
(i) Reflects amounts allocated to in-process technology based on the
preliminary purchase price allocation described in Note 1.
(j) SnapTrack research and development expense includes $0.2 million and
$1.3 million for the first three months in fiscal 2000 and the year
ended September 30, 1999, respectively, in amortization of deferred
stock compensation related to SnapTrack cheap stock issuance. Such cost
is duplicative, as the fair value of the stock has been included in the
purchase price which results in additional goodwill amortization, and
will not be recorded by QUALCOMM in periods subsequent to the purchase.
(k) SnapTrack selling, general and administrative expense includes $0.2
million and $1.2 million for the first three months in fiscal 2000 and
the year ended September 30, 1999, respectively, in amortization of
deferred stock compensation related to SnapTrack cheap stock issuance.
Such cost is duplicative, as the fair value of the stock has been
included in the purchase price which results in additional goodwill
amortization, and will not be recorded by QUALCOMM in periods subsequent
to the purchase.
(l) Reflects amortization of patents, assembled workforce, completed
technology, customer base and goodwill over their estimated useful lives
of four years as if the acquisition had occurred as of the beginning of
the periods presented. The amount allocated to in-process technology has
not been included in the unaudited pro forma condensed consolidated
statements of operations as it is nonrecurring. This amount was expensed
in the second quarter of QUALCOMM's fiscal 2000.
(m) Reflects the estimated tax benefit related to SnapTrack's net loss and
the change in deferred tax liabilities resulting from the amortization
of certain of the intangible assets recorded as part of the acquisition.
(n) Basic and diluted net earnings per share is computed using the weighted
average number of common shares outstanding during the period. Unaudited
pro forma basic and diluted net earnings per share include 5,792,120
shares of common stock to be issued in connection with the acquisition
of SnapTrack. Unaudited pro forma diluted net earnings per share for the
three months ended December 26, 1999 include 1,641,618 dilutive shares
issuable in connection with replacement stock options and warrants; such
shares have not been considered in calculating net loss per common share
for the year ended September 30, 1999 because their effect would be
anti-dilutive. QUALCOMM effected a four-for-one stock split in December
1999; pro forma net
9.
<PAGE> 10
earnings per common share for the year ended September 30, 1999 are
presented giving retroactive effect to the stock split.
10.
<PAGE> 11
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, thereunto duly authorized.
QUALCOMM INCORPORATED
Dated: April 11, 2000 By: /s/ ANTHONY S. THORNLEY
---------------------------------
Anthony S. Thornley
Executive Vice President and
Chief Financial Officer
11.
<PAGE> 1
EXHIBIT 2.6
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
SnapTrack, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of SnapTrack, Inc.
and subsidiary (a development stage company) as of December 31, 1999 and 1998,
and the related consolidated statements of operations and comprehensive income,
shareholders' deficit and cash flows for the years then ended and cumulative
from August 31, 1995 (inception) through December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of SnapTrack, Inc. and its subsidiary
as of December 31, 1999 and 1998, and the results of their operations and their
cash flows for the periods stated above, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
San Jose, California
February 25, 2000
<PAGE> 2
SNAPTRACK, INC. AND SUBSIDIARY
(A Development Stage Company)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------------------------------
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 5,931,210 $ 4,426,864
Receivables 1,175,108 2,233,339
Prepaids and other current assets 245,814 107,585
------------ ------------
Total current assets 7,352,132 6,767,788
PROPERTY AND EQUIPMENT, Net 601,158 272,990
OTHER ASSETS 101,080 22,719
------------ ------------
TOTAL $ 8,054,370 $ 7,063,497
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 272,474 $ 325,424
Accrued liabilities 1,248,754 717,029
Deferred revenue 6,935,000 4,700,000
Current portion of long-term debt 714,772 858,911
------------ ------------
Total current liabilities 9,171,000 6,601,364
LONG-TERM DEBT 768,331 702,276
------------ ------------
Total liabilities 9,939,331 7,303,640
============ ============
SHAREHOLDERS' DEFICIT:
Convertible preferred stock, $0.0005 par value - 8,000,000 shares authorized
(aggregate liquidation preference of $9,500,019):
Series A; 600,000 shares designated and outstanding 294,078 294,078
Series B; 1,280,000 shares designated and outstanding 797,466 797,466
Series C; 2,636,362 shares designated; 2,454,544
shares outstanding in 1999 and 1998 3,464,418 3,464,418
Series D; 3,200,000 shares designated; 3,133,164 and 1,043,618
shares outstanding in 1999 and 1998, respectively 15,082,314 4,984,314
Common stock - $0.0005 par value; 28,000,000 shares authorized;
4,714,219 and 3,896,132 shares outstanding in 1999 and 1998,
respectively 33,608,791 34,240
Deferred stock compensation (30,521,901) -
Accumulated other comprehensive income 10,124 -
Deficit accumulated during the development stage (24,620,251) (9,814,659)
------------ ------------
Total shareholders' deficit (1,884,961) (240,143)
------------ ------------
TOTAL $ 8,054,370 $ 7,063,497
============ ============
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE> 3
SNAPTRACK, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM
AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
from
August 31,
1995
(Inception)
Year Ended Through
December 31, December 31,
-------------------------------
1999 1998 1999
<S> <C> <C> <C>
SERVICE AND OTHER REVENUES $ 368,462 $ 228,694 $ 640,013
COSTS AND EXPENSES:
Cost of service and other revenues 72,275 134,633 206,908
Research and development 6,420,245 2,979,686 11,346,093
Sales and marketing 4,112,558 1,880,882 6,924,789
General and administrative 1,815,815 1,300,459 4,152,365
Amortization of deferred stock compensation:
Research and development 1,568,515 - 1,568,515
Sales and marketing 683,398 - 683,398
General and administrative 687,612 - 687,612
------------ ------------ ------------
Total costs and expenses 15,360,418 6,295,660 25,569,680
------------ ------------ ------------
LOSS FROM OPERATIONS (14,991,956) (6,066,966) (24,929,667)
OTHER INCOME (EXPENSE), Net 186,364 (20,534) 309,416
------------ ------------ ------------
NET LOSS (14,805,592) (6,087,500) (24,620,251)
OTHER COMPREHENSIVE INCOME -
Foreign currency translation adjustment 10,124 - 10,124
------------ ------------ ------------
COMPREHENSIVE LOSS $(14,795,468) $ (6,087,500) $(24,610,127)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 4
SNAPTRACK, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
PERIOD FROM AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------- --------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
BALANCES, August 31, 1995 (inception) - $ - - $ -
September 1995 - Sale of common stock at $0.0015 per share for cash 3,000,000 5,000
November 1995 - Sale of common stock at $0.0125 per share for cash 532,500 6,656
Series A preferred stock subscription for cash 100,000
January 1996 - Sale of Series A preferred stock at $0.50 per share
for cash, including issuance of subscribed stock (net of issuance costs
of $5,922) 600,000 194,078
January 1996 - Sale of common stock at $0.052 per share for cash 267,000 13,350
February 1996 - Sale of common stock at $0.05 per share for cash 40,000 2,000
March 1996 - Sale of common stock at $0.05 per share for cash 20,000 1,000
May 1996 - Sale of Series B preferred stock at $.625 per share for cash
(net of issuance costs of $2,534) 1,280,000 797,466
December 1996 - Sale of Series C preferred stock at $1.375 per share
for cash (net of issuance costs of $4,155) 2,436,362 3,345,843
Exercise of stock options 26,632 1,384
December 1997 - Issuance of Series C preferred stock warrants 20,917
Net loss (August 31, 1995 - December 31, 1997) - - - -
--------- ----------- --------- -----------
BALANCES, December 31, 1997 4,316,362 $ 4,458,304 3,886,132 $ 29,390
</TABLE>
<TABLE>
<CAPTION>
Deficit
Deferred Accumulated Accumulated
Stock During the Other
Compen- Development Comprehensive
sation Stage Income Total
<S> <C> <C> <C> <C>
BALANCES, August 31, 1995 (inception) $ - $ - $ - $ -
September 1995 - Sale of common stock at $0.0015 per share for cash 5,000
November 1995 - Sale of common stock at $0.0125 per share for cash 6,656
Series A preferred stock subscription for cash 100,000
January 1996 - Sale of Series A preferred stock at $0.50 per share
for cash, including issuance of subscribed stock (net of issuance costs
of $5,922) 194,078
January 1996 - Sale of common stock at $0.052 per share for cash 13,350
February 1996 - Sale of common stock at $0.05 per share for cash 2,000
March 1996 - Sale of common stock at $0.05 per share for cash 1,000
May 1996 - Sale of Series B preferred stock at $.625 per share for cash
(net of issuance costs of $2,534) 797,466
December 1996 - Sale of Series C preferred stock at $1.375 per share
for cash (net of issuance costs of $4,155) 3,345,843
Exercise of stock options 1,384
December 1997 - Issuance of Series C preferred stock warrants 20,917
Net loss (August 31, 1995 - December 31, 1997) - (3,727,159) - (3,727,159)
--------- ------------ ----------- -----------
BALANCES, December 31, 1997 $ - $(3,727,159) $ - $ 760,535
</TABLE>
-4-
<PAGE> 5
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (CONTINUED)
PERIOD FROM AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCES, December 31, 1997 4,316,362 $ 4,458,304 3,886,132 $ 29,390
January - Issuance of Series C preferred stock at $1.375 per
share for fair value of services received 18,182 25,000
February - Issuance of Series C preferred stock warrants 72,658
May - Sale of Series D preferred stock at $4.815 per share
for cash (net of issuance costs of $40,707) 1,038,426 4,959,315
May - Issuance of Series D preferred stock at $4.815 per
share for fair value of services received 5,192 24,999
Exercise of stock options 10,000 4,850
Net loss
------------ ------------ ------------ ------------
BALANCES, December 31, 1998 5,378,162 9,540,276 3,896,132 34,240
March - Sale of Series D preferred stock at $4.815 per share
for cash (net of issuance costs of $33,503) 2,089,546 10,027,660
March - Issuance of Series D preferred stock warrants 70,340
Exercise of stock options 818,087 113,125
Deferred stock compensation 33,461,426
Amortization of deferred stock compensation
Net loss
Other comprehensive income
------------ ------------ ------------ ------------
BALANCES, December 31, 1999 7,467,708 $ 19,638,276 4,714,219 $ 33,608,791
============ ============ ============ ============
<CAPTION>
DEFICIT
DEFERRED ACCUMULATED ACCUMULATED
STOCK DURING THE OTHER
COMPEN- DEVELOPMENT COMPREHENSIVE
SATION STAGE INCOME TOTAL
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
BALANCES, December 31, 1997 $ -- $ (3,727,159) $ -- $ 760,535
January - Issuance of Series C preferred stock at $1.375 per
share for fair value of services received 25,000
February - Issuance of Series C preferred stock warrants 72,658
May - Sale of Series D preferred stock at $4.815 per share
for cash (net of issuance costs of $40,707) 4,959,315
May - Issuance of Series D preferred stock at $4.815 per
share for fair value of services received 24,999
Exercise of stock options 4,850
Net loss (6,087,500) (6,087,500)
------------ ------------ ------------ ------------
BALANCES, December 31, 1998 -- (9,814,659) -- (240,143)
March - Sale of Series D preferred stock at $4.815 per share
for cash (net of issuance costs of $33,503) 10,027,660
March - Issuance of Series D preferred stock warrants 70,340
Exercise of stock options 113,125
Deferred stock compensation (33,461,426) --
Amortization of deferred stock compensation 2,939,525 2,939,525
Net loss (14,805,592) (14,805,592)
Other comprehensive income 10,124 10,124
------------ ------------ ------------ ------------
BALANCES, December 31, 1999 $(30,521,901) $(24,620,251) $ 10,124 $ (1,884,961)
============ ============ ============ ============
(Concluded)
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE> 6
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM
AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE FROM
YEAR ENDED AUGUST 31, 1995
DECEMBER 31, (INCEPTION) THROUGH
------------------------------ DECEMBER 31,
1999 1998 1999
------------ ------------ -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(14,805,592) $ (6,087,500) $(24,620,251)
Reconciliation to net cash used in operating activities:
Depreciation and amortization 279,818 121,078 503,087
Amortization of deferred stock compensation 2,939,525 -- 2,939,525
Issuance of stock for services received -- 49,999 49,999
Accretion of debt 36,620 27,087 63,707
Issuance of warrants for services -- 4,850 4,850
Changes in operating assets and liabilities:
Receivables 1,058,231 (2,145,839) (1,176,402)
Prepaids and other current assets (138,229) 12,099 (230,985)
Other assets (78,361) (13,449) (101,080)
Accounts payable (52,950) 265,998 272,474
Accrued expenses 531,725 438,252 1,248,754
Deferred revenue 2,235,000 4,550,000 6,935,000
------------ ------------ ------------
Net cash used in operating activities (7,994,213) (2,777,425) (14,111,322)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (608,020) (266,300) (1,104,279)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock, net 10,027,660 4,959,315 19,424,362
Proceeds from sale of common stock -- -- 28,006
Proceeds from sale of warrants -- -- 7,382
Proceeds from exercise of stock options 113,125 -- 114,509
Proceeds from borrowing 663,090 2,219,428 2,991,201
Repayment of borrowing (707,454) (711,353) (1,428,807)
------------ ------------ ------------
Net cash provided by financing activities 10,096,421 6,467,390 21,136,653
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND EQUIVALENTS 10,158 -- 10,158
NET INCREASE IN CASH AND EQUIVALENTS 1,504,346 3,423,665 5,931,210
CASH AND EQUIVALENTS, Beginning of period 4,426,864 1,003,199 --
------------ ------------ ------------
CASH AND EQUIVALENTS, End of period $ 5,931,210 $ 4,426,864 $ 5,931,210
============ ============ ============
NONCASH INVESTING AND FINANCING ACTIVITIES -
Issuance of preferred stock warrants in connection
with venture loan agreement $ 70,340 $ 72,658 $ 156,533
============ ============ ============
Deferred stock compensation $ 33,461,426 $ -- $ 33,461,426
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for interest $ 210,806 $ -- $ 445,074
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE> 7
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM
AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - SnapTrack Inc. (the Company) was incorporated on August
31, 1995 in California, and is engaged in the development of an
ultra-high performance tracking system that integrates a Global
Positioning Satellite System receiver, a two-way wireless transceiver,
and a Geographic Information System. The Company has developed a
prototype for this device and is continuing to refine and enhance its
technical capabilities. The Company is subject to the risks associated
with a development stage enterprise, including the need to refine its
product technology, to extend its marketing and distribution channels
and to continue to raise financing.
DEVELOPMENT STAGE - The Company is in the development stage as of
December 31, 1999. Successful completion of the Company's developmental
program and, ultimately, the attainment of profitable operations is
dependent upon future events, including future financing, successfully
completing product development, and achieving a sufficient level of
sales and market demand to become an established operating enterprise.
The activities of the Company have been accounted for as set forth in
Statement of Financial Accounting Standards No. 7, "Accounting and
Reporting by Development Stage Enterprises."
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets, and
liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control, and
could have a material adverse effect on the Company's business,
operating results, and financial condition. These risks include
variability and uncertainty of revenues and operating results; product
concentration, technological change, and new products; competition;
intellectual property/litigation; management of growth; dependence on
key personnel; limited sources of component supply; licenses from third
parties; geographic concentration; acquisitions and investments;
international operations; regulatory requirements; expansion of
distribution channels; and year 2000 compatibility issues.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily
of cash equivalents and receivables. The Company invests only in
high-quality credit instruments.
CASH AND EQUIVALENTS - The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. Cash equivalents at December 31, 1999 consisted of
commercial paper. The carrying amount of the Company's cash equivalents
approximates fair value due to the short-term maturity of those
investments.
-7-
<PAGE> 8
RECEIVABLES - At December 31, 1999, receivables consists entirely of
amounts billed in connection with five software licenses and related
consulting. Revenue recognition on these contracts has been deferred
pending completion of contractual obligations. At December 31, 1998,
receivables consist entirely of amounts billed in connection with two
service contracts.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost
less accumulated depreciation. Depreciation is computed using the
straight-line method over estimated useful lives of one to three years
or the lease term, if shorter.
LONG-LIVED ASSETS - The Company evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
REVENUE RECOGNITION - Service revenues related to installation, training
and customer support are recognized upon completion. For contracts
requiring customer acceptance, revenue recognition is deferred pending
such acceptance.
In 1998, the Company adopted Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," which requires revenue earned on
software arrangements involving multiple elements to be allocated to
each element based on the relative fair values of the elements. Revenue
for software licenses is recognized upon delivery provided that
collection is probable. Software support and maintenance revenue are
deferred and amortized over the maintenance period on a straight-line
basis. Adoption of this statement did not have a material impact on the
Company's financial position, results of operations and cash flows.
RESEARCH AND DEVELOPMENT - Research and development expenses are charged
to operations as incurred.
INCOME TAXES - Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes, as well as net operating loss and tax credit
carryforwards, net of a valuation allowance to reduce deferred tax
assets to amounts that are more likely than not to be realizable.
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards
issued to employees using the intrinsic value method in accordance with
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees."
RECENTLY ISSUED ACCOUNTING STANDARD - In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires
companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for
hedge accounting. SFAS No. 133 will be effective for the Company's year
ending December 31, 2001. The Company has not completed its assessment
of the impact on this statement of the Company's financial position,
results of operations or cash flows.
-8-
<PAGE> 9
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Computers and software $ 644,661 $ 280,200
Office and test equipment 339,055 149,559
Leasehold improvements 120,525 66,499
----------- -----------
1,104,241 496,258
Accumulated depreciation and amortization (503,083) (223,268)
----------- -----------
Property and equipment, net $ 601,158 $ 272,990
=========== ===========
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities at December 31 consist of:
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Accrued professional expenses $ 242,000 $ 131,271
Accrued commissions 104,850 175,347
Accrued payroll and benefits 379,348 180,479
Other 522,556 229,932
----------- -----------
Total accrued liabilities $ 1,248,754 $ 717,029
=========== ============
</TABLE>
4. LONG-TERM DEBT
Long-term obligations at December 31 consist of:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Venture loan, 12.87% interest $ 825,528 $ 1,284,892
Equipment term loan, 6.99% to 9.68% interest 657,575 276,295
----------- -----------
1,483,103 1,561,187
Current portion (714,772) (858,911)
----------- -----------
Long-term portion $ 768,331 $ 702,276
=========== ===========
</TABLE>
Borrowings under the venture loan are collateralized by substantially
all assets and are payable in 42 monthly installments. At December 31,
1999, no additional borrowings were available under this loan.
Maximum borrowings under the equipment term loan agreement are
$1,000,000. Current borrowings are collateralized by equipment with
original cost of $872,296 (net book value of approximately $450,588 at
December 31, 1999) and are payable in 42 monthly installments. At
December 31, 1999, the Company had $144,751 of borrowing capacity
remaining under the equipment loan.
-9-
<PAGE> 10
Outstanding borrowings are due as follows:
<TABLE>
<S> <C>
2000 $ 714,772
2001 554,927
2002 150,479
2003 62,925
----------
$1,483,103
==========
</TABLE>
In connection with both the equipment term loan agreement and the
venture loan agreement, the Company issued certain Series D preferred
stock warrants (Note 5). The value of the warrants are being amortized
on a straight-line basis over the term of the loans.
5. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Significant terms of the Series A, B, C and D preferred stock are as
follows:
- Each share is convertible into one share of common stock
(subject to adjustments for events of dilution) at any time at
the option of the holder. Conversion is automatic in the event
of a firm underwritten public offering of common stock meeting
certain criteria.
- Each share has voting rights equal to the number of shares of
common stock into which it may convert.
- In the event of liquidation, merger, dissolution or winding up
of the Company, preferred shareholders shall first receive $0.50
per share for Series A, $0.625 per share for Series B, $1.375
per share for Series C and $4.815 per share for Series D, plus
any declared and unpaid dividends. After payment of preferential
amounts, the holders of common stock shall be entitled to
receive all remaining assets of the Company.
- To the extent declared, annual per share dividends of $0.025 on
Series A, $0.03125 on Series B, $0.07 on Series C and $0.24 on
Series D must be paid prior to any common stock dividends.
STOCK PURCHASE PLAN
Under the 1995 Stock Purchase Plan, 859,500 shares of common stock were
authorized for issuance to key personnel at fair market value. At
December 31, 1999, all shares had been sold under this plan, and 2,503
shares are subject to repurchase by the Company at the original issue
price if the purchaser's employment with the Company is terminated. The
Company's repurchase rights lapse ratably over a four-year period.
STOCK PURCHASE WARRANTS
In March 1999, in connection with the venture and equipment loan
agreements (Note 4), the Company issued warrants to purchase 22,700
shares of Series D preferred stock at a price of $4.815 per share. The
warrants were valued at $70,340 and expire in March 2007.
In February 1998, in connection with the venture loan agreement (Note
4), the Company issued warrants to purchase 105,454 shares of Series C
preferred stock at a price of $1.375 per share. The warrants were valued
at $72,658 and expire in March 2005.
-10-
<PAGE> 11
In April 1998, in connection with a users consortium agreement, the
Company issued warrants to purchase 30,000 shares of common stock at a
price of $1.375 per share. The warrants had nominal value and expire in
April 2003.
In December 1997, in connection with the equipment term and venture loan
agreement (Note 4), the Company issued warrants to purchase 54,544
shares of Series C preferred stock at $1.375 per share. The warrants
were valued at $20,917 and expire in December 2004.
The value of the above warrants have been estimated using the
Black-Scholes option pricing model with the following assumptions:
expected life, the term of the option, risk free interest rate of 4.66%
in 1999, 5.43% in 1998 and 5.73% in 1997, 75% volatility in 1999 and 50%
volatility in 1998 and 1997 and no dividend during the expected term.
STOCK OPTION PLAN
Under the 1995 Stock Option Plan, 4,318,500 shares of common stock have
been authorized for the grant of incentive or nonqualified stock
options. Options must be granted at not less than fair market value (85%
of fair value for nonqualified options). Such options generally vest
over four years and expire in ten years.
Stock option activity is as follows:
<TABLE>
<CAPTION>
OUTSTANDING
---------------------------------
WEIGHED
AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- --------------
<S> <C> <C>
Granted (weighted average fair value of $0.015) 1,039,212 $ 0.065
Exercised (26,632) 0.050
Canceled (158,166) 0.055
----------
Balances, December 31, 1996 854,414 0.067
Granted (weighted average fair value of $0.0035) 676,000 0.138
----------
Balances, December 31, 1997 1,530,414 0.098
Granted (weighted average fair value of $0.32) 1,344,000 0.440
Exercised (10,000) 0.485
Canceled (156,000) 0.485
----------
Balances, December 31, 1998 2,708,414 0.244
Granted (weighted average fair value of $26.77) 1,423,350 0.740
Exercised (818,087) 0.138
Canceled (152,208) 0.413
----------
Balances, December 31, 1999 3,161,469 $ 0.487
==========
</TABLE>
-11-
<PAGE> 12
Additional information regarding options outstanding as of December 31,
1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------
WEIGHTED
AVERAGE
RANGE OF REMAINING
EXERCISE NUMBER CONTRACTUAL NUMBER
PRICES OUTSTANDING LIFE (YEARS) EXERCISABLE
------ ----------- ------------ -----------
<S> <C> <C> <C>
$ 0.0625 397,748 5.3 242,795
0.1375 513,556 9.8 206,639
0.4850 1,118,815 8.8 232,023
0.7500 892,500 9.6 --
1.0000 238,850 9.9 --
----------- -----------
3,161,469 681,457
=========== ===========
</TABLE>
At December 31, 1999, exercisable options had a weighted average
exercise price of $0.487. At December 31, 1998, options to purchase
795,694 shares were exercisable with a weighted average exercise price
of $0.10. At December 31, 1999, options to purchase 302,312 shares of
common stock were available for future grant.
DEFERRED STOCK COMPENSATION
In connection with grants of certain stock options in 1999, the Company
recorded deferred stock compensation of $33,461,426 for the difference
between the estimated fair value for accounting purposes and the stock
price as determined by the Board of Directors on the date of grant. This
amount is being amortized to expense using the straight-line approach
over the vesting period of the related stock options, generally four
years. Amortization of deferred stock compensation for the year ended
December 31, 1999 was $2,939,525.
ADDITIONAL STOCK PLAN INFORMATION
As discussed in Note 1, the Company accounts for its stock-based awards
using the intrinsic value method in accordance with APB No. 25,
"Accounting for Stock Issued to Employees" and its related
interpretations. Accordingly, no compensation expense has been
recognized in the financial statements for employee stock arrangements
which are granted with exercise prices equal to or less than the fair
market value at grant date.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net loss had the Company adopted the fair value
method. Under SFAS 123, the fair value of stock-based awards to
employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely
tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These
models also require subjective assumptions, including expected time to
exercise, which greatly affect the calculated values. The Company's
calculations were made using the minimum value option pricing model with
the following weighted average assumptions: expected life, five years;
risk free interest rate, ranging from approximately 4.7% to 6.1% in 1999
and approximately 5.4% in 1998, respectively; and no dividend payments
during the expected term. The Company's calculations are based on a
single option valuation approach and forfeitures are recognized as they
occur. If the computed fair values of the options had been amortized to
expense over the vesting period of the awards, the effect on pro forma
net loss would not have been material. However, the 1999 and 1998 pro
forma adjustments may not be indicative of future period pro forma
adjustments.
-12-
<PAGE> 13
COMMON SHARES RESERVED FOR ISSUANCE
At December 31, 1999, the Company has reserved shares of common stock
for issuance as follows:
<TABLE>
<S> <C>
Conversion of Series A preferred stock 600,000
Conversion of Series B preferred stock 1,280,000
Conversion of Series C preferred stock 2,454,544
Conversion of Series D preferred stock 3,133,164
Exercise of common stock options 3,161,469
Exercise and conversion of preferred stock warrants 182,698
Exercise of common stock warrants 30,000
----------
10,841,875
==========
</TABLE>
On December 15, 1998, the Board of Directors approved a two-for-one
stock split effective January 18, 1999. All references to share and per
share amounts in the accompanying financial statements give retroactive
effect to reflect the split.
6. INCOME TAXES
Significant components of the Company's deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets -
Net operating loss carryforwards $ 6,482,000 $ 1,439,000
Accruals not currently deductible for tax purposes 848,000 597,000
Research and development credit carryforwards 633,000 326,000
Deferred tax liabilities -
Depreciation (171,000) (266,000)
----------- -----------
Net deferred tax assets 7,792,000 2,096,000
Valuation allowance (7,792,000) (2,096,000)
----------- -----------
Total $ -- $ --
=========== ===========
</TABLE>
Due to the uncertainties surrounding the utilization of its net deferred
tax assets, the Company has recorded a valuation allowance to fully
provide against its otherwise recognizable net deferred tax assets at
December 31, 1999 and 1998.
Current federal and California tax laws include substantial restrictions
on the utilization of net operating losses and tax credits in the event
of an "ownership change" of a corporation.
7. LEASE COMMITMENTS
The Company occupies facilities under leases which expire at various
dates through July 2004. Rental expense for the years ended December 31,
1999, 1998 and cumulative from inception was approximately $342,265,
$158,000, and $500,265, respectively. Future minimum lease payments are
approximately $493,153, $395,908, $143,201, $53,509 and $31,430 in 2000,
2001, 2002, 2003 and 2004, respectively.
-13-
<PAGE> 14
8. RELATED PARTY TRANSACTIONS
The Company obtains legal services from shareholders. Legal expenses
with these shareholders for the years ended December 31, 1999 and 1998
and cumulative from inception were approximately $590,000, $646,000, and
$1,560,000, respectively.
9. PENDING LITIGATION
The Company is involved in various legal proceedings. Management, after
reviewing these proceedings with legal counsel, believes the aggregate
liability, if any, will not materially affect the consolidated financial
condition or results of operations of the Company. However, the outcome
of litigation is inherently uncertain and no assurance can be given as
to the ultimate resolution.
10. SUBSEQUENT EVENTS
On March 1, 2000 the Company shareholders sold 100% of the stock of the
Company to Qualcomm, Inc. for approximately $1 billion in Qualcomm, Inc.
stock.
* * * * *
-14-
<PAGE> 1
EXHIBIT 23.1
Consent of Deloitte & Touche LLP
We consent to the incorporation by reference in Registration Statement No.
333-32926 on Form S-3 and Nos. 333-32924, 33-45083, 33-78150, 33-78158,
333-2752, 333-2754, 333-2756, 333-32013, 333-69457 and 333-95291 on Form S-8 of
Qualcomm Incorporated of our report with respect to SnapTrack, Inc. dated
February 25, 2000 appearing in this Current Report of Form 8-K/A of Qualcomm
Incorporated.
Deloitte & Touche LLP
San Jose, California
April 10, 2000
