<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2 TO CURRENT REPORT
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 26, 1998
Shiva Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts
----------------------------------------------
(State or other jurisdiction of incorporation)
0-24918 04-2889151
- ------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
28 Crosby Drive, Bedford, Massachusetts 01730
--------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 687-1000
<PAGE> 2
The undersigned Registrant hereby amends and restates Item 7 of its
Current Report on Form 8-K dated March 26, 1998 and as amended on June 8, 1998.
Such amendment and restatement reflects, among other things, certain changes to
the Unaudited Pro Forma Combined Statement of Operations for the Year Ended
January 3, 1998 resulting from the restatement of the Registrant's financial
statements in response to certain comments received by the Registrant from the
staff of the Commission. Such restatement, among other things, decreased the
amount of the purchase price related to the acquisition of Isolation Systems
Limited allocated to in-process research and development from $34,500,000 to
$2,100,000. Item 7 is hereby amended and restated to read in its entirety as
follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Report of KPMG, Toronto, Canada, Chartered Accountants
Isolation Systems Limited
Consolidated Balance Sheets as at August 31, 1997 and 1996
Isolation Systems Limited
Consolidated Statements of Earnings and Deficit for the years
ended August 31, 1997 and 1996
Isolation Systems Limited
Consolidated Statements of Changes in Financial Position for
the years ended August 31, 1997 and 1996
Isolation Systems Limited
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information
Pro Forma Condensed Statement of Operations for the year
ended January 3, 1998
(c) Exhibits
Item No. Description
-------- -----------
*2. Asset Purchase Agreement Between Shiva
Corporation and Isolation Systems Limited
dated as of February 18, 1998
23. Consent of KPMG
*Incorporated by reference from the Registrant's Current Report on Form 8-K
filed with the Securities and Exchange Commission on April 9, 1998.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SHIVA CORPORATION
By: /s/ Robert P. Cirrone
------------------------------------------
Dated: January 25, 1999 Robert P. Cirrone
Senior Vice President, Finance and
Administration and Chief Financial Officer
<PAGE> 4
AUDITORS' REPORT
The Board of Directors of Isolation Systems Limited
We have audited the consolidated balance sheets of Isolation Systems Limited as
at August 31, 1997 and 1996 and the consolidated statements of earnings and
deficit and changes in financial position for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at August 31, 1997
and 1996 and the results of its operations and the changes in its financial
position for the years then ended in accordance with generally accepted
accounting principles in Canada.
/s/ KPMG
KPMG
Chartered Accountants
Toronto, Canada
October 3, 1997 (except as to Note 10 which is
as of March 26, 1998)
<PAGE> 5
ISOLATION SYSTEMS LIMITED
CONSOLIDATED BALANCE SHEETS
(in Canadian dollars)
AUGUST 31, 1997 AND 1996
<TABLE>
<CAPTION>
==================================================================================================
1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,401,429 $ --
Accounts receivable 483,521 64,832
Investment tax credits receivable 546,630 282,258
Inventory 131,932 149,909
Prepaid expenses 49,005 5,525
- --------------------------------------------------------------------------------------------------
2,612,517 502,524
Capital assets (note 2) 282,068 77,479
- --------------------------------------------------------------------------------------------------
$ 2,894,585 $ 580,003
==================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Bank indebtedness (note 3) $ -- $ 312,322
Accounts payable and accrued liabilities 576,449 295,449
Current portion of long-term debt (note 4) -- 32,237
- --------------------------------------------------------------------------------------------------
576,449 640,008
Long-term debt (note 4) -- 265,000
Shareholders' equity (deficiency):
Capital stock (note 5) 12,241,287 6,613,040
Contributed surplus 210,600 210,600
Deficit (10,133,751) (7,148,645)
- --------------------------------------------------------------------------------------------------
2,318,136 (325,005)
Commitments (note 9)
Subsequent events (note 10)
- --------------------------------------------------------------------------------------------------
$ 2,894,585 $ 580,003
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE> 6
ISOLATION SYSTEMS LIMITED
CONSOLIDATED STATEMENTS OF EARNINGS AND DEFICIT
(in Canadian dollars)
YEARS ENDED AUGUST 31, 1997 AND 1996
<TABLE>
<CAPTION>
===============================================================================
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 1,039,883 $ 1,002,621
Cost of revenues 520,901 566,563
- -------------------------------------------------------------------------------
518,982 436,058
Expenses:
Research and development (note 6) 731,284 208,478
General and administration 1,008,885 526,742
Selling and marketing 1,721,775 385,765
Amortization 91,477 22,069
Interest (income) (49,333) 82,676
- -------------------------------------------------------------------------------
3,504,088 1,225,730
- -------------------------------------------------------------------------------
Loss from continuing operations (2,985,106) (789,672)
Discontinued operations (note 7):
Loss from operations -- (22,626)
Gain on disposal -- 114,425
- -------------------------------------------------------------------------------
-- 91,799
- -------------------------------------------------------------------------------
Loss for the year (2,985,106) (697,873)
- -------------------------------------------------------------------------------
Deficit, beginning of year (7,148,645) (6,450,772)
- -------------------------------------------------------------------------------
Deficit, end of year $(10,133,751) $(7,148,645)
===============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 7
ISOLATION SYSTEMS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(in Canadian dollars)
YEARS ENDED AUGUST 31, 1997 AND 1996
<TABLE>
<CAPTION>
===================================================================================================
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operations:
Loss from continuing operations $(2,985,106) $(789,672)
Item not involving cash:
Amortization 91,477 22,069
Change in non-cash operating working capital (427,564) (49,678)
- ---------------------------------------------------------------------------------------------------
Cash used in continuing operations (3,321,193) (817,281)
Income from discontinued operations -- 91,799
Item not involving cash:
Gain on sale of medical business -- (114,425)
- ---------------------------------------------------------------------------------------------------
Cash used in discontinued operations -- (22,626)
- ---------------------------------------------------------------------------------------------------
(839,907)
Financing:
Repayment of long-term debt (297,237) (80,456)
Proceeds from issuance of common shares 163,199 431,695
Proceeds from issuance of special warrants,
net of issue costs of $572,591 5,465,048 --
- ---------------------------------------------------------------------------------------------------
5,331,010 351,239
Investments:
Proceeds on sale of medical business -- 201,750
Additions to capital assets (296,066) (46,765)
- ---------------------------------------------------------------------------------------------------
(296,066) 154,985
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in cash 1,713,751 (333,683)
Cash (bank indebtedness), beginning of year (312,322) 21,361
- ---------------------------------------------------------------------------------------------------
Cash (bank indebtedness), end of year $ 1,401,429 $(312,322)
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 8
ISOLATION SYSTEMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
================================================================================
Isolation Systems Limited (the "Company") is incorporated under the laws of
Ontario, Canada, and its principal business is the design, development and
manufacture of high performance encryption devices and network security systems.
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
These consolidated financial statements are prepared in
accordance with Canadian generally accepted accounting
principles. All amounts contained in such consolidated
financial statements and accompanying notes are expressed in
Canadian dollars unless otherwise noted.
These consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, Isolation
Systems, Inc., 512719 Ontario Ltd., and Grenadier Microvisual
Inc. All material intercompany transactions and balances have
been eliminated.
(b) Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(c) Capital assets:
Capital assets are stated at cost less accumulated
amortization using the straight-line method. During 1997, the
Company changed its amortization rates on office equipment and
furnishings from 10% and on research equipment and computers
from 20% per annum to the following annual rates:
<TABLE>
<CAPTION>
==============================================================
Asset Rate
--------------------------------------------------------------
<S> <C>
Office equipment and furnishings 30%
Research equipment 30%
Computers 30%
Leasehold improvements Over the term of the lease
==============================================================
</TABLE>
(d) Revenue recognition:
Revenue is recognized upon shipment of product to customers.
-5-
<PAGE> 9
ISOLATION SYSTEMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AUGUST 31, 1997 AND 1996
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(e) Research and development costs:
Research expenditures are expensed as incurred. Expenses
related to development projects are deferred and capitalized
only when they meet the criteria set out under Canadian
generally accepted accounting principles. To date, no
development costs have been capitalized.
(f) Investment tax credits and government assistance:
The Company, as a Canadian-controlled private corporation, is
entitled to investment tax credits which are earned at a rate
of 35% of the first $2,000,000 of eligible current and capital
research and development expenditures, and 20% of expenditures
in excess of $2,000,000. Investment tax credits earned at the
35% rate are fully refundable to the Company. Investment tax
credits earned at the 20% rate are refundable at a rate of 40%
of the earned amount, with the balance being available to be
applied against future Canadian federal income taxes.
The benefit of these investment tax credits is only recognized
when the Company has reasonable assurance that the benefit
will be realized.
The Company uses the cost reduction method in accounting for
investment tax credits. Investment tax credits related to the
acquisition of assets are deducted from the cost of the
related assets with amortization calculated on the net amount.
Investment tax credits related to current expenses are
included in the determination of net income.
(g) Foreign currency translation:
The Company translates foreign currency denominated
transactions and the financial statements of operationally
dependent foreign operations using the temporal method.
Monetary assets and liabilities which are denominated in
foreign currencies are translated at year-end exchange rates.
Non-monetary assets and liabilities are translated at rates in
effect on the dates of the transactions. Revenue and expenses
are translated at average rates in effect during the year with
the exception of amortization which is translated at historic
rates. Exchange gains or losses on translation of current
monetary items are reflected in income immediately.
(h) Inventory:
Inventory is recorded at the lower of cost and net realizable
value.
-6-
<PAGE> 10
ISOLATION SYSTEMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AUGUST 31, 1997 AND 1996
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(i) Financial instruments and concentration of credit risk:
Financial instruments consist of cash, accounts receivable,
investment tax credits receivable, and accounts payable and
accrued liabilities. The Company determines the fair value of
its financial instruments based on quoted market values or
discounted cash flow analyses. Unless otherwise indicated, the
fair value of financial assets and liabilities approximates
their recorded amounts.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and
accounts receivable. Cash consists of deposits with a major
commercial bank, the maturities of which are 3 months or less
from the date of purchase. The Company performs periodic
credit evaluations of the financial condition of its customers
and typically does not require collateral from its customers.
Allowances are maintained for potential credit losses
consistent with the credit risk of specific customers,
historical trends and other information, and have been within
management's range of expectations.
2. CAPITAL ASSETS:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------------
Accumulated Net Book
Cost Amortization Value
-----------------------------------------------------------------------
<S> <C> <C> <C>
Office equipment and furnishings $124,558 $ 39,303 $ 85,255
Research equipment 161,785 88,198 73,587
Computers 264,874 170,949 93,925
Leasehold improvements 34,472 5,171 29,301
-----------------------------------------------------------------------
$585,689 $303,621 $282,068
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------------------
Accumulated Net Book
Cost Amortization Value
-----------------------------------------------------------------------
<S> <C> <C> <C>
Office equipment and furnishings $ 20,648 $ 16,712 $ 3,936
Production machinery and equipment 113,947 108,858 5,089
Research equipment 78,973 74,307 4,666
Computers 189,997 126,209 63,788
-----------------------------------------------------------------------
$403,565 $326,086 $77,479
=======================================================================
</TABLE>
-7-
<PAGE> 11
ISOLATION SYSTEMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AUGUST 31, 1997 AND 1996
================================================================================
3. BANK INDEBTEDNESS:
Under the terms of its banking agreement, the Company has a demand
revolving line of credit available for a maximum of $200,000 which can
be drawn in either Canadian or U.S. dollars. The line of credit is
subject to a borrowing formula which limits the credit available based
on the level of accounts receivable and investment tax credits
receivable, and is secured by way of a general security agreement
covering all of the Company's assets. The interest rate on the line of
credit is at bank prime rate plus 1% per annum, based on either
Canadian or U.S. prime rates, as applicable.
4. LONG-TERM DEBT:
<TABLE>
<CAPTION>
=======================================================================
1997 1996
-----------------------------------------------------------------------
<S> <C> <C>
Loan bearing interest at 12 1/2% per annum, $ -- $ 32,237
repaid in December 1996
Loan of $430,000 bearing interest at 12 1/2% per annum.
In October 1996 the loan was settled by issuing 379,518
special warrants, each of which is convertible into
common shares (note 5) -- 265,000
-----------------------------------------------------------------------
-- 297,237
Less current portion -- 32,237
-----------------------------------------------------------------------
$ -- $265,000
=======================================================================
</TABLE>
Interest on long-term debt included in interest expense amounts to
$8,300 (1996 - $43,000).
5. CAPITAL STOCK:
<TABLE>
<CAPTION>
=======================================================================
1997 1996
-----------------------------------------------------------------------
<S> <C> <C>
Common shares $ 6,776,239 $6,613,040
Special warrants 6,037,639 --
Share issue costs (572,591) --
-----------------------------------------------------------------------
$12,241,287 $6,613,040
=======================================================================
</TABLE>
-8-
<PAGE> 12
ISOLATION SYSTEMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AUGUST 31, 1997 AND 1996
================================================================================
5. CAPITAL STOCK (CONTINUED):
(a) Authorized:
On October 29, 1996, the Articles of the Company were changed to
increase the authorized capital stock as follows:
Unlimited number of preference shares, issuable in series,
ranking prior to the common shares and with such other rights,
privileges, restrictions and conditions attaching as may be
fixed by the Board of Directors at the time the series is
created.
Unlimited number of common shares.
(b) Issued:
<TABLE>
<CAPTION>
=======================================================================
1997 1996
---------------------- -----------------------
Number of Number of
Common shares Shares Amount Shares Amount
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Opening balance 12,597,756 $6,613,040 10,996,928 $6,181,345
Issued during year 206,582 163,199 1,600,828 431,695
-----------------------------------------------------------------------
12,804,338 $6,776,239 12,597,756 $6,613,040
=======================================================================
</TABLE>
(c) Special warrants:
On October 29, 1996, the Company closed a private placement of
special warrants. The Company issued a total of 6,329,114 special
warrants for gross proceeds of approximately $5 million. These
special warrants are convertible into 6,831,013 common shares
using a conversion ratio which is based on the current assets and
liabilities of the Company as at August 31, 1996. In addition,
379,519 special warrants, each convertible into one common share,
were issued as payment in full of certain long-term debt having a
principal balance outstanding of $265,000 and interest owing of
approximately $35,000. Costs associated with this issue amounted
to $534,231.
As contemplated in the special warrant offering referred to above,
the Company closed a private placement of additional special
warrants (the "New Warrants") on February 26, 1997. The Company
issued a total of 933,948 New Warrants for gross proceeds of
approximately $738,000. Costs associated with this issue amounted
to $38,360. These New Warrants are convertible into 1,008,010
common shares using a conversion ratio which is based on the
current assets and liabilities of the Company as at August 31,
1996.
All special warrants and New Warrants were converted into common
shares as a condition of the sale of substantially all of the
Company's non-cash net assets to Shiva Corporation as described in
Note 10(b).
-9-
<PAGE> 13
ISOLATION SYSTEMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AUGUST 31, 1997 AND 1996
================================================================================
5. CAPITAL STOCK (CONTINUED):
(c) Special warrants (continued):
The special warrants and New Warrants are convertible into common
shares once a receipt is issued by the Ontario Securities Commission
for the final prospectus to qualify the distribution on the common
shares to be issued on the exercise of the special warrants and New
Warrants.
(d) Stock options:
The Company has established a stock option plan under which the
maximum number of common shares for which options may be granted
shall not exceed 2,345,000 shares.
During the period from September 1, 1995 to August 31, 1997, the
Company had the following stock option transactions:
<TABLE>
<CAPTION>
====================================================================
Expiry Exercise Number of
Date Price Options
--------------------------------------------------------------------
<S> <C> <C> <C>
Balance as at August 31, 1995 --
Options granted:
Employees 2003 0.27 245,000
Director 2000 0.27 50,000
--------------------------------------------------------------------
Balance as at August 31, 1996 295,000
Options granted:
Senior officers 2003 0.79 1,329,300
Employees 2004 0.79 358,000
Options expired on termination:
Senior officers 2003 0.79 (250,000)
Employees 2003 0.27 (5,000)
--------------------------------------------------------------------
Balance as at August 31, 1997 1,727,300
====================================================================
</TABLE>
-10-
<PAGE> 14
ISOLATION SYSTEMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AUGUST 31, 1997 AND 1996
================================================================================
5. CAPITAL STOCK (CONTINUED):
(d) Stock options (continued):
As at August 31, 1997, the Company has the following outstanding
stock options to directors and employees:
<TABLE>
<CAPTION>
=====================================================================
Vesting Exercise Number of
Expiry Date Privileges Price Options
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employees 2003 Over 3 years $0.27 240,000
Director 2000 Immediate 0.27 50,000
Senior officers 2003 Over 3 years 0.79 1,079,300
Employees 2004 Over 4 years 0.79 358,000
---------------------------------------------------------------------
1,727,300
=====================================================================
</TABLE>
(e) Shareholder warrants:
The Company granted to shareholders of record on October 29, 1996,
warrants to purchase an aggregate of 1,000,000 common shares at an
exercise price of $0.79 per share ("Shareholder Warrants"). The
Shareholder Warrants are exercisable immediately, non-transferable
and expire no later than October 29, 1998. As of August 31, 1997, all
Shareholder Warrants remain outstanding.
6. RESEARCH AND DEVELOPMENT:
<TABLE>
<CAPTION>
=========================================================================
1997 1996
-------------------------------------------------------------------------
<S> <C> <C>
Gross research and development expenditures $1,013,679 $ 462,963
Investment tax credits (282,395) (254,485)
-------------------------------------------------------------------------
$ 731,284 $ 208,478
=========================================================================
</TABLE>
-11-
<PAGE> 15
ISOLATION SYSTEMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AUGUST 31, 1997 AND 1996
================================================================================
7. DISCONTINUED OPERATIONS:
On August 31, 1995, the Company adopted a formal plan to dispose of the
assets and business operations of its medical business and completed its
sale on October 27, 1995. To October 27, 1995, the Company recorded loss
of operations of $22,626 in respect of the medical business.
The net proceeds on the sale of the medical business were $201,750 (U.S.
$150,000) resulting in a gain on disposition of $114,425.
8. INCOME TAXES:
The Company has losses of approximately $3,266,000 available to reduce
future Canadian taxable income. These losses expire as follows:
<TABLE>
<CAPTION>
==========================================================================
<S> <C>
2002 $ 321,000
2003 970,000
2004 1,975,000
==========================================================================
</TABLE>
Capital losses of approximately $26,000, which may be carried forward
indefinitely, are available to reduce capital gains in future years.
In addition, the Company has accumulated research and development
expenditures of $3,130,000 (1996 - $2,429,000) available to be applied
against future taxable income.
9. COMMITMENTS:
The Company lease office space and equipment under operating leases.
Future minimum lease payments by fiscal year are as follows:
<TABLE>
<CAPTION>
==========================================================================
Year ending August 31
<S> <C>
1998 $196,900
1999 191,700
2000 190,700
2001 188,000
2002 125,300
--------------------------------------------------------------------------
$892,600
==========================================================================
</TABLE>
-12-
<PAGE> 16
ISOLATION SYSTEMS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AUGUST 31, 1997 AND 1996
================================================================================
10. SUBSEQUENT EVENTS:
(a) On December 18, 1997, the Company completed a private placement of
special warrants whereby 6,000,000 special warrants were issued for
gross proceeds of $7,500,000. Each special warrant was converted into
one common share as a condition of the sale of substantially all of
the Company's non-cash net assets to Shiva Corporation as described in
Note 10(b).
(b) On March 26, 1998, the Company sold substantially all of its non-cash
assets to Shiva Corporation for which approximately US $37 million
of which US $1,476,000 will be held in escrow until March, 1999. As a
result of this sale, the Company has discontinued operations and
will have cash on hand of approximately $63.5 million if holders of
all of the Company's outstanding options and shareholder warrants
exercise such options or warrants, the investment tax credit
receivable by the Company is collected and all funds held in escrow
pursuant to the Shiva sale transaction are released.
-13-
<PAGE> 17
SHIVA CORPORATION
ISOLATION SYSTEMS LIMITED
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
(UNAUDITED)
The following pro forma condensed statement of operations gives effect
to the acquisition of substantially all the assets and liabilities of Isolation
Systems Limited ("Isolation") by Shiva Corporation (the "Company"). This pro
forma condensed statement of operations combines the audited statement of
operations of the Company with the unaudited statement of operations of
Isolation for the year ended January 3, 1998 and assumes the transaction was
accounted for as a purchase and effective on December 28, 1996. The pro forma
data reflect the acquisition of Isolation by the Company for approximately
$39,724,000 in cash. 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 December 28, 1996 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 respective historical consolidated financial statements and related
notes of the Company.
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
TWELVE MONTHS ENDED JANUARY 3, 1998
(AS RESTATED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- ------------------------
Shiva Isolation Notes Adjustments Combined
-------- --------- ----- ----------- --------
<S> <C> <C> <C> <C> <C>
Product and other revenues $126,757 $ 1,574 $ - $128,331
Royalty revenues 17,572 - - 17,572
-------- ------- ------- --------
Total revenues 144,329 1,574 - 145,903
Cost of revenues 71,416 668 (1) 767 72,851
-------- ------- ------- --------
Gross profit 72,913 906 (767) 73,052
Operating expenses:
Research and development 25,545 889 - 26,434
Selling, general and
administrative 72,903 2,884 - 75,787
Goodwill amortization - - (2) 11,527 11,527
-------- ------- ------- --------
Total operating expenses 98,448 3,773 11,527 113,748
-------- ------- ------- --------
Loss from operations (25,535) (2,867) (12,294) (40,696)
-------- ------- ------- --------
Interest income 4,003 54 (3) (1,569) 2,488
Interest and other expense (481) - - (481)
-------- ------- ------- --------
Loss before income taxes (22,013) (2,813) (13,863) (38,689)
Income tax benefit (8,366) (195) (4) (6,141) (14,702)
-------- ------- ------- --------
Net loss $(13,647) $(2,618) $(7,722) $(23,987)
======== ======= ======= ========
Net loss per share - basic $ (0.47) $ (0.82)
and diluted ======== ========
Shares used in computing
net loss per share -
basic and diluted 29,266 29,266
======== ========
</TABLE>
(1) Represents amortization of developed technology and assembled workforce
on a straight-line basis over their estimated useful lives of three years.
(2) Represents amortization of goodwill on a straight-line basis over the
estimated useful lives of three years.
(3) Represents lost interest income on funds used for acquisition of Isolation
Systems.
(4) Reflects increased tax benefit related to foregoing adjustments.
<PAGE> 1
Exhibit 23
The Board of Directors
Isolation Systems Limited
We consent to the inclusion of our report dated October 3, 1997, except for
note 10 which is as of March 24, 1998, with respect to the consolidated balance
sheets of Isolation Systems Limited as of August 31, 1997 and 1996, and the
related consolidated statements of earnings and deficit, and changes in
financial position for each of the years in the two year period ended
August 31, 1997, which report appears in the Form 8-K of Shiva Corporation dated
January 25, 1999.
/s/ KPMG
Toronto, Canada
January 25, 1999
