<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K
DATED JUNE 18, 1998
FILED PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
BOCA RESEARCH, INC.
(Exact Name of registrant as Specified in its Charter)
FLORIDA 0-21138 59-2479377
- ------------------------------- ---------------- ----------------------
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) NUMBER) IDENTIFICATION NUMBER)
1377 CLINT MOORE ROAD
BOCA RATON, FL 33487
- ---------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (561) 997-6227
- --------------------------------------------------------------------------------
<PAGE> 2
This report amends the Registrant's report on Form 8-K, initially filed on July
6, 1998 to provide financial statements of OneWorld Systems, Inc. and
subsidiaries ("OneWorld") and to provide pro forma condensed consolidated
financial information not previously available.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
Pursuant to paragraph (a)(4) of item 7 of Form 8-K,
the following financial statements were omitted from
disclosure contained in the Registrant's Current Report on
Form 8-K filed on July 6, 1998 but are filed herewith:
Audited Consolidated Financial Statements of OneWorld
as of March 31, 1998 and 1997 and for each of the three years
in the period ended March 31, 1998 and Independent Auditors'
Report thereon, which are attached as Exhibit 99.1 hereto.
(b) Pro Forma Financial Information
Pursuant to paragraph (b)(2) of item 7, the unaudited
pro forma condensed consolidated balance sheet of the
Registrant as of March 31, 1998 and the unaudited pro forma
condensed consolidated statements of operations for the year
ended December 31,1997 and for the three months ended March
31, 1998 are attached as Exhibit 99.2 hereto.
(c) Exhibits
99.1 Audited Consolidated Financial Statements of OneWorld as of
March 31, 1998 and 1997 and for each of the three years in the
period ended March 31, 1998 and Independent Auditors' Report
thereon.
99.2 Unaudited pro forma condensed consolidated balance sheet of
the Registrant as of March 31, 1998 and the unaudited pro
forma condensed consolidated statements of operations of the
Registrant for the year ended December 31, 1997 and for the
three months ended March 31, 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.
BOCA RESEARCH, INC.
Date: September 3, 1998 By: /s/ Anthony F. Zalenski
-------------------------------------
Anthony F. Zalenski
President and Chief Executive Officer
(Principal Executive Officer)
<PAGE> 4
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
99.1 Audited Consolidated Financial Statements of OneWorld as of March
31, 1998 and 1997 and for each of the three years in the period
ended March 31, 1998 and Independent Auditors' Report thereon.
99.2 Unaudited pro forma condensed consolidated balance sheet of the
Registrant as of March 31, 1998 and the unaudited pro forma
condensed consolidated statements of operations of the Registrant
for the year ended December 31, 1997 and for the three months
ended March 31, 1998.
<PAGE> 1
Exhibit 99.1
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(1) CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report....................................................................................20
Consolidated Balance Sheets as of March 31, 1998 and 1997.......................................................21
Consolidated Statements Of Operations for the three years ended March 31, 1998..................................22
Consolidated Statements Of Stockholders' Equity for the three years ended March 31, 1998........................23
Consolidated Statements Of Cash Flow for the three years ended March 31, 1998...................................24
Notes To Consolidated Financial Statements......................................................................25
(2) CONSOLIDATED FINANCIAL STATEMENTS SCHEDULES FOR THE THREE YEARS ENDED MARCH 31, 1998
Schedule II - Consolidated Valuation And Qualifying Accounts....................................................37
</TABLE>
Schedules other than those listed above have been omitted since they are either
not applicable, not required or the information is included elsewhere herein.
19
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
OneWorld Systems, Inc.
We have audited the consolidated financial statements of OneWorld Systems, Inc.
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of OneWorld Systems,
Inc. and subsidiaries as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1998, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Mountain View, California
May 18, 1998, except
as to Note 10 which is
as of June 18, 1998
20
<PAGE> 3
ONEWORLD SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
----------------------
(In thousands, except share data) 1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,097 $ 9,687
Accounts receivable, net 8,160 4,324
Inventories, net 2,351 2,071
Income tax receivable -- 7,665
Other current assets 253 343
-------- --------
Total current assets 13,861 24,090
Property and equipment, net 4,049 6,929
Investment in AirMedia, Inc. -- 4,043
Other assets 63 138
-------- --------
Total assets $ 17,973 $ 35,200
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,625 $ 15,971
Line of credit borrowings -- 4,241
Accrued and other liabilities 6,003 7,638
-------- --------
Total current liabilities 13,628 27,850
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $0.001 par value; 30,000,000 shares authorized;
17,162,771 and 16,929,690 shares issued and outstanding 17 17
Additional paid-in capital 43,246 42,873
Accumulated deficit (38,918) (35,540)
-------- --------
Total stockholders' equity 4,345 7,350
-------- --------
Total liabilities and stockholders' equity $ 17,973 $ 35,200
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
21
<PAGE> 4
ONEWORLD SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended March 31,
---------------------------------------
(In thousands, except per share data) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net revenue $ 61,468 $ 90,174 $ 136,941
Cost of revenue 42,204 80,439 77,583
--------- --------- ---------
Gross profit 19,264 9,735 59,358
--------- --------- ---------
Operating expenses:
Research and development 9,727 12,008 14,550
Marketing and sales 13,900 28,900 22,976
General and administrative 4,370 7,367 5,678
Restructuring costs 240 1,298 --
Loss from investment in GlobalCenter, Inc. -- 2,191 --
--------- --------- ---------
Total operating expenses 28,237 51,764 43,204
--------- --------- ---------
Income (loss) from operations (8,973) (42,029) 16,154
--------- --------- ---------
Other income (expense), net:
Gain on sale of investment in GlobalCenter, Inc. 3,691 -- --
Loss on sale of investment in AirMedia, Inc. (2,074) -- --
Interest income 87 411 1,000
Interest expense (154) (248) --
Repayment of loan previously reserved 2,600 -- --
Other income 114 613 154
--------- --------- ---------
Total other income, net 4,264 776 1,154
--------- --------- ---------
Income (loss) before income taxes (4,709) (41,253) 17,308
Provision for income taxes (benefit) -- (5,401) 5,160
--------- --------- ---------
Income (loss) from continuing operations (4,709) (35,852) 12,148
--------- --------- ---------
Discontinued operations:
Loss from discontinued operations -- (1,822) (3,312)
Gain (loss) on disposal of discontinued operations 1,331 (2,207) --
--------- --------- ---------
Income (loss) from discontinued operations 1,331 (4,029) (3,312)
--------- --------- ---------
Net income (loss) $ (3,378) $ (39,881) $ 8,836
--------- --------- ---------
Basic per share data:
Income (loss) per share from continuing operations $ (0.28) $ (2.13) $ 0.73
Income (loss) per share from discontinued operations 0.08 (0.24) (0.20)
--------- --------- ---------
Net income (loss) per share $ (0.20) $ (2.37) $ 0.53
--------- --------- ---------
Diluted per share data:
Income (loss) per share from continuing operations $ (0.28) $ (2.13) $ 0.68
Income (loss) per share from discontinued operations 0.08 (0.24) (0.19)
--------- --------- ---------
Net income (loss) per share $ (0.20) $ (2.37) $ 0.49
--------- --------- ---------
Shares used in basic per share computations 17,006 16,844 16,529
Dilutive effect of stock options -- -- 1,332
--------- --------- ---------
Shares used in diluted per share computations 17,006 16,844 17,861
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
22
<PAGE> 5
ONEWORLD SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------
(In thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
COMMON STOCK AND PAID-IN CAPITAL
Balance, beginning of year $ 42,890 $ 43,243 $ 40,508
Exercise of stock options 2 575 1,548
Shares issued under Employee Stock Purchase Plan 140 367 539
Stock issuance to settle compensation liability 231 -- --
Treasury shares acquired -- (1,295) (984)
Tax benefits related to stock plans -- -- 1,632
-------- -------- --------
Balance, end of year $ 43,263 $ 42,890 $ 43,243
-------- -------- --------
CUMULATIVE TRANSLATION ADJUSTMENT
Balance, beginning of year $ -- $ 247 $ 122
Foreign currency translation adjustment -- (247) 125
-------- -------- --------
Balance, end of year $ -- $ -- $ 247
-------- -------- --------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance, beginning of year $(35,540) $ 4,341 $ (4,495)
Net income (loss) (3,378) (39,881) 8,836
-------- -------- --------
Balance, end of year $(38,918) $(35,540) $ 4,341
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY $ 4,345 $ 7,350 $ 47,831
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
23
<PAGE> 6
ONEWORLD SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------
(In thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (3,378) $(39,881) $ 8,836
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 3,206 3,782 2,879
Loss on disposal of property and equipment 11 220 --
Deferred income taxes -- 3,234 --
(Gain) loss on investments (4,217) 2,191 --
Tax benefits related to stock plans -- -- 1,632
Changes in operating assets and liabilities:
Accounts receivable, net (3,836) 7,913 (1,059)
Inventories (280) 3,627 (1,881)
Income taxes 7,665 (7,665) --
Other current assets 90 1,474 (685)
Accounts payable (8,346) (1,462) 5,968
Accrued and other liabilities (1,578) (174) 742
Income taxes payable -- (335) (1,505)
-------- -------- --------
Net cash provided by (used in) operating activities of:
Continuing operations (10,663) (27,076) 14,927
Discontinued operations (57) 2,977 1,228
-------- -------- --------
Net cash provided by (used in) operating activities (10,720) (24,099) 16,155
-------- -------- --------
INVESTING ACTIVITIES:
Proceeds from sale of (investment in) GlobalCenter, Inc. 3,691 (1,548) --
Repayment of loan from GlobalCenter, Inc. 2,600 -- --
Proceeds from sale of (investment in) AirMedia, Inc. 1,969 (4,043) --
Purchases of property and equipment (450) (1,802) (6,514)
Proceeds from sale of property and equipment 113 71 --
Other assets 75 (386) 93
Purchases of short-term investments -- (23,217) (78,747)
Proceeds from sales and maturities of short-term investments -- 45,036 77,897
-------- -------- --------
Net cash provided by (used in) investing activities 7,998 14,111 (7,271)
-------- -------- --------
FINANCING ACTIVITIES:
Borrowings under line of credit 2,750 8,000 --
Repayments under line of credit (6,991) (3,759) --
Proceeds from issuance of Common Stock, net 373 942 2,086
Repurchases of Common Stock -- (1,161) (984)
-------- -------- --------
Net cash provided by financing activities (3,868) 4,022 1,102
-------- -------- --------
Effect of foreign currency exchange rate changes -- (247) 125
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (6,590) (6,213) 10,111
-------- -------- --------
Cash and cash equivalents at beginning of year 9,687 15,900 5,789
-------- -------- --------
Cash and cash equivalents at end of year $ 3,097 $ 9,687 $ 15,900
-------- -------- --------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest $ 198 $ 211 $ 100
Income taxes $ -- $ -- $ 5,033
Non-cash investing and financing activities:
Non-cash net assets contributed to GlobalCenter, Inc. $ -- $ 643 $ --
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
24
<PAGE> 7
ONEWORLD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS. OneWorld Systems, Inc. ("OneWorld Systems" or the
"Company") (founded in June 1989 as "Global Village Communication, Inc." and
incorporated in Delaware), develops and manufactures products that enhance and
simplify wide area data communications for the small and medium size office
market. The Company's recently introduced OneWorld 5000 communications servers
are designed to be versatile, easy-to-use, cost-effective and expandable
solutions that combine Internet access and routing, remote access on-line
service access, and fax capabilities.
PRINCIPLES OF CONSOLIDATION. The accompanying Consolidated Financial Statements
include the accounts of the Company and its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES. The preparation of consolidated 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 disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. Cash and cash equivalents
consist of cash and highly liquid investments such as money market funds,
commercial paper, and U.S. Treasury Bills with maturities of three months or
less at the time of purchase.
INVENTORIES. Inventories are stated at the lower of cost or market. Costs are
calculated using standard cost, which approximates the lower of actual cost
(first-in, first-out method) or market.
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost less
accumulated depreciation and amortization. Depreciation is calculated using the
straight-line method over the estimated useful lives of the respective assets,
generally three to five years. Leasehold improvements are amortized over the
lesser of the estimated useful lives of the improvements or the lease term,
generally five years.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of cash, cash
equivalents, accounts receivable, accounts payable and accrued liabilities
approximate fair values due to the short maturity of those instruments. The
carrying amounts of short-term debt approximates fair value due to the
instrument's variable rate structure.
PRODUCT WARRANTY. The Company warrants its products for up to five years from
date of shipment. A provision for the estimated future costs of warranty repair
or replacement is provided at the time of sale.
REVENUE RECOGNITION. Revenue is generally recognized at the time of shipment.
Revenue from sales to distributors and dealers are subject to agreements
allowing limited rights of return and exchange, and price protection.
Accordingly, the Company provides reserves for estimated future returns,
exchanges, and price protection credits in the same period as related revenue.
Revenue from products licensed to original equipment manufacturers (OEM's) is
recognized when sales to end users are reported to the Company.
The Company's revenue recognition policies comply with the provisions of the
American Institute of Certified Public Accountants' Statement of Position
("SOP") 97-2, "Software Revenue Recognition."
25
<PAGE> 8
ONEWORLD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SOFTWARE DEVELOPMENT COSTS. Development costs incurred in the research and
development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established. Through March 31, 1998, software development has been substantially
completed concurrent with the establishment of technological feasibility, and,
accordingly, no costs have been capitalized to date.
INCOME TAXES. The Company accounts for income taxes under the asset and
liability method of accounting. Under the asset and liability method, deferred
tax assets and liabilities are recognized based on the expected future tax
consequences of events that have been recognized in the Company's consolidated
financial statements or tax returns.
ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation" effective for the fiscal year ended
March 31, 1997. SFAS No. 123 establishes a fair market value method of
accounting for stock-based employee compensation plans. As allowed under the
provisions of SFAS No. 123, the Company chose to continue the intrinsic value
based method for stock-based employee compensation plans and provide pro forma
disclosures of results and results per share as if the accounting provisions of
SFAS No. 123 has been adopted. As the Company has elected to adopted only
disclosure requirements of SFAS No. 123.
NET INCOME (LOSS) PER SHARE. Net income (loss) per share data has been computed
using net income (loss), the weighted average number of shares of Common Stock,
and common equivalent shares from stock options outstanding (when dilutive using
the treasury stock method). The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" effective December
28, 1997. SFAS requires presentation of basic per share and, for companies with
complex capital structures, diluted per share data. Basic earnings per share
("EPS") excludes dilution and is computed by dividing net income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS includes dilution and net income per
share is computed using the weighted average number of common and dilutive
common equivalent shares outstanding during the period. For the years ended
March 31, 1998 and March 31, 1997, "in-the-money" dilutive options of
approximately 820,000 and 2.3 million respectively, were not included in the
calculation of diluted EPS as they were considered antidilutive. The Company has
restated income (loss) per share for all periods presented in the accompanying
consolidated financial statements to reflect net income (loss) per share on both
a basic and a diluted basis.
FOREIGN CURRENCY TRANSLATION. All assets and liabilities denominated in foreign
currencies are translated at the exchange rate on the balance sheet date.
Revenues, costs, and expenses are translated at average rates of exchange
prevailing during the period. Translation adjustments are accumulated as a
separate component of stockholders' equity. Gains and losses resulting from
foreign currency transactions and realized translation adjustments are included
in the consolidated statements of operations.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF. The
Company reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds its fair value.
Further, long-lived assets and certain identifiable intangibles that are to be
disposed of, which are not covered by Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations -- Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," are required to be reported at the lower of
the asset's carrying amount or its fair value less cost to sell. To date the
Company has made no such adjustments.
RECLASSIFICATIONS. Certain amounts in prior years' consolidated financial
statements have been reclassified to conform with the fiscal 1998 consolidated
financial statement presentation.
26
<PAGE> 9
ONEWORLD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
March 31,
----------------------
(In thousands) 1998 1997
-------- --------
<S> <C> <C>
Accounts receivable:
Trade accounts receivable $ 9,470 $ 10,712
Less allowance for returns and doubtful accounts (1,310) (6,388)
-------- --------
Net accounts receivable $ 8,160 $ 4,324
-------- --------
Inventories:
Purchased parts $ -- $ 199
Work in process -- 369
Finished goods 2,351 1,503
-------- --------
Total inventories $ 2,351 $ 2,071
-------- --------
Property and equipment:
Computer, test, and production equipment $ 10,229 $ 9,847
Furniture and fixtures 2,726 3,193
Leasehold improvements 2,428 2,428
-------- --------
15,383 15,468
Less accumulated depreciation and amortization (11,334) (8,539)
-------- --------
Total property and equipment, net $ 4,049 $ 6,929
-------- --------
Accrued and other liabilities:
Warranty and other product related obligations $ 2,859 $ 2,090
Accrued compensation and benefits 766 740
Other 2,378 4,808
-------- --------
Total accrued and other liabilities $ 6,003 $ 7,638
======== ========
</TABLE>
NOTE 3. ACQUISITIONS AND DIVESTITURES
AIRMEDIA LIVE, INC. In the second quarter of fiscal 1997, the Company completed
an equity investment in AirMedia, Inc. ("AirMedia") of $4.1 million The Company
accounted for its investment in AirMedia using the cost method of accounting. In
July 1997, the Company sold its investment in AirMedia to an existing AirMedia
shareholder for approximately $2.0 million in cash. As a result, the Company
recorded a loss of $2.1 million in the second quarter of fiscal 1998.
GLOBALCENTER, INC. In April 1996, the Company announced that it had incorporated
its Internet Services Division as a standalone business called GlobalCenter,
Inc. ("GlobalCenter"). At the same time, the Company announced that UUNET
Technologies, Inc. had acquired a 19.9% equity interest in GlobalCenter. At that
time, the Company no longer had the ability to exercise significant control over
GlobalCenter. Accordingly, the Company no longer consolidated the results of
GlobalCenter and began to account for its investment using the equity method of
accounting. As a result of the refinancing and operating performance of
GlobalCenter during the first quarter of fiscal 1997, the Company recorded an
investment loss of $2.2 million, and reduced the book value of its investment to
zero. In December 1996, GlobalCenter entered into a definitive merger agreement
whereby GlobalCenter and Phoenix-based Primenet Services for the Internet, Inc.
merged reducing the Company's percentage ownership below 10%. Accordingly, in
the third quarter of fiscal 1997, the Company began accounting for its
investment in GlobalCenter using the cost method of accounting. In September
1997, the Company agreed to sell its remaining equity stake in GlobalCenter to
an existing shareholder of GlobalCenter for approximately $3.7 million in cash.
As a result the Company recorded a gain of $3.7 million in the second quarter of
fiscal 1998. In addition, during the course of the year the Company was repaid
a loan (plus interest due) of $2.6 million from GlobalCenter which had been
previously reserved against.
KNX LIMITED. In January 1996, the Company acquired KNX Limited, a leading
UK-based provider of ISDN remote access products. The transaction was effected
through the exchange of shares of Common Stock of the Company for all
outstanding shares of KNX Limited. In total, the Company issued, or reserved for
issuance on exercise of options, 1,365,951 shares of the Company's Common Stock.
The acquisition of KNX was accounted for using the pooling-of-interests method
of accounting.
27
<PAGE> 10
In the second quarter of fiscal 1997, the Company adopted a formal plan to
discontinue its enterprise network server operation based in the United Kingdom
(formerly, the Company's ISDN division). The disposition of the division has
been accounted for as a discontinued operation in accordance with Accounting
Principles Board (APB) Opinion No. 30 and prior period consolidated financial
statements have been restated to reflect the discontinuation of the enterprise
network server operation. The loss from discontinued operations of $1.8 million
and $3.3 million in fiscal years 1997 and 1996, respectively, represents the
operation's operating losses, with no associated tax benefits. The gain from
discontinued operations of $1.3 million in fiscal 1998 (net income tax effect of
zero) is the result of the release of a portion of a reserve established for
contingent liabilities associated with the disposition of the operation based on
the Company's determination that some of these contingencies had been resolved.
The loss on disposal of discontinued operations of $2.2 million in fiscal 1997
(net income tax effect of zero) represents the estimated cost of disposal of the
operation, net of $3.8 million of cash received from the sale of the operation's
assets and a $2.1 million loss from operations from the measurement date to the
disposal date.
ONEWORLD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. LINE OF CREDIT
As of March 31, 1998, the Company's borrowings under its line of credit were
subject to the terms of a forbearance agreement it negotiated with its bank in
April 1997 which expires in April 1999. Borrowings under the forbearance
agreement bear interest at the bank's prime rate plus 2.5% (11.0% at March 31,
1998 and 13.5% at March 31, 1997.) Total borrowings are limited to the lesser of
$5,000,000 or 60% of eligible accounts receivable, as defined, and are
collateralized by all of the Company's assets. The agreement contains various
covenants and restrictions, including restrictions on the Company's ability to
pay dividends or effect mergers or acquisitions. As of March 31, 1998, there
were no borrowings under this line of credit and the Company was in compliance
with all covenants and restrictions (see Note 10).
NOTE 5. COMMITMENTS AND CONTINGENCIES
Lease Commitments. The Company leases facilities under noncancelable operating
leases expiring in January 2000, April 2000, and December 2002. The lease
expiring in April 2000 has a renewal option for an additional five-year term.
Space associated with this lease has been subleased for various periods through
April 2000.
FUTURE MINIMUM LEASE PAYMENTS AS OF MARCH 31, 1998 ARE:
<TABLE>
<CAPTION>
Sublease Sublease
(In Thousands) Lease Payments Income Payments
-------------- ---------- --------
Fiscal year ending March 31,
<S> <C> <C> <C>
1999 $ 1,643 $ (1,316) $ 327
2000 1,644 (1,039) 605
2001 176 - 176
Thereafter 90 - 90
------- -------- -------
Total future minimum lease commitments $ 3,553 $ (2,355) $ 1,198
======= ======== =======
</TABLE>
Rent expense, net of sublease income, was approximately $0.5 million, $1.2
million, and $1.4 million for the fiscal years ended March 31, 1998, 1997, and
1996, respectively.
LEGAL MATTERS. The Company is a party to certain lawsuits and claims arising out
of the normal conduct of its business. These claims generally relate to
commercial transactions, patent infringements, and employment matters. While the
ultimate resolution of such suits or other proceedings against the Company
cannot be predicted with certainty, management expects that these matters will
not have a material adverse effect on the financial position or results of
operations of the Company.
NOTE 6. STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK. As of March 31, 1998, the number of Common and
Preferred Stock shares authorized was 30,000,000 and 5,000,000, respectively.
The classes, series, rights, and preferences of the Preferred Stock may be
established by the Company's Board of Directors.
On January 5, 1996, the Company issued approximately 1,400,000 shares of Common
Stock as part of the consideration for the acquisition of KNX Limited (see Note
3).
On January 19, 1998, the Company issued approximately 142,000 shares of Common
Stock as settlement of a compensation liability incurred upon the acquisition of
KNX Limited (see Note 3).
COMMON STOCK ISSUED AND OUTSTANDING.
<TABLE>
<CAPTION>
March 31,
-----------------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Shares issued and outstanding beginning of period 16,929,690 16,744,837 16,167,429
Exercise of stock options 15,702 288,967 583,711
Shares issued under employee stock purchase plan 74,987 74,386 63,229
Treasury shares acquired -- (178,500) (69,532)
Shares issued to settle compensation liability 142,392 -- --
---------- ---------- ----------
Shares issued and outstanding end of period 17,162,771 16,929,690 16,744,837
========== ========== ==========
</TABLE>
28
<PAGE> 11
ONEWORLD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK OPTION PLAN. The Company has adopted a stock option plan (the "Plan")
under which incentive stock options may be granted to employees and officers,
and non-qualified (supplemental) stock options may be granted to employees,
officers, directors, and consultants to purchase an aggregate of 5,600,000
shares of Common Stock. Options may be granted at an exercise price of at least
100% of the fair market value of Common Stock at the date of grant, or for
supplemental options, at an exercise price not less than 85% of the fair market
value of such stock at the date of grant. All options expire no later than 10
years after the date of grant and generally vest over 4 or 5 years with 20% to
25% vesting after one year and the balance vesting monthly over the remaining 3
to 4 years. As of March 31, 1998, options to purchase 754,673 shares of Common
Stock were exercisable under the Plan.
DIRECTOR'S PLAN. In January 1994, the Company adopted the 1994 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). The Directors' Plan
provides for automatic grants of options to purchase shares of Common Stock to
non-employee directors of the Company at or above the fair market value of the
Common Stock on the date of grant. The Company has reserved a total of 200,000
shares of the Company's Common Stock for issuance upon the exercise of options
granted pursuant to the Directors' Plan. Options granted under the Directors'
Plan expire 10 years following the grant and vest in five annual installments
commencing on the date of grant and are contingent upon the continuous service
of the director. As of March 31, 1998, options representing 45,831 shares were
exercisable under the Directors' Plan.
A summary of the combined stock option activity under the Plan and Directors'
Plan is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- ------ --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 2,485,435 $ 2.76 2,315,955 $ 9.25 2,350,444 $ 4.66
Granted 894,301 2.32 1,779,330 5.78 1,011,485 15.64
Exercised (15,507) 0.11 (288,967) 1.99 (583,711) 2.70
Canceled (1,073,133) 2.80 (1,320,883) 10.00 (462,263) 8.24
Repriced - granted - - 1,762,384 4.68 - -
Repriced - canceled - - (1,762,384) 10.96 - -
--------- ------ --------- ------ --------- ------
Outstanding - end of year 2,291,096 $ 2.60 2,485,435 $ 2.76 2,315,955 $ 9.25
--------- ------ --------- ------ --------- ------
Weighted average fair value of options,
calculated under SFAS No. 123 (see below) $ 1.80 $ 2.47 $ 9.64
====== ====== ======
</TABLE>
The following table summarizes information as of March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ------------------------------------
Weighted Average
Remaining Weighted Average Weighted Average
Range of Exercise Prices Number Contractual Life Exercise Price Number Exercise Price
- ------------------------ ---------- ------------------ ---------------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
$ 0.0400 - $ 3.0000 945,338 8.19 $ 1.5506 234,402 $ 0.5892
$ 3.0625 1,186,925 8.31 $ 3.0625 526,015 $ 3.0625
$ 3.3750 - $14.8800 158,833 8.45 $ 5.4419 40,087 $ 7.7579
- -------- -------- --------- ---- -------- ------- --------
$ 0.0400 - $14.8800 2,291,096 8.27 $ 2.6036 800,504 $ 2.5734
======== ======== ========= ==== ======== ======= ========
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN. In December 1993, the Company adopted the 1993
Employee Stock Purchase Plan (the "Purchase Plan") reserving 400,000 shares of
Common Stock for issuance under the Purchase Plan. The Purchase Plan provides a
means by which employees may purchase the Company's Common Stock through payroll
deductions, of up to 10% of their compensation, at a price per share equal to
the lower of (i) 85% of the fair market value of a share of Common Stock on the
first day of each annual offering; or (ii) 85% of the fair market value of a
share of Common Stock on the date of purchase. As of March 31, 1998, 269,027
shares had been purchased under the Purchase Plan.
29
<PAGE> 12
ONEWORLD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMON STOCK RESERVED FOR FUTURE ISSUANCE.
<TABLE>
<CAPTION>
Shares
---------
<S> <C>
Exercise of stock options 3,662,590
Employee stock purchase plan 130,973
---------
Total reserved shares 3,793,563
=========
</TABLE>
ACCOUNTING FOR STOCK-BASED COMPENSATION UNDER SFAS NO. 123. At March 31, 1998,
the Company had three stock-based compensation plans, which are described above.
Since the Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock plans, no
compensation cost has been recognized for such plans because the exercise price
of stock options is the fair value at the date of grant.
Had compensation cost for the Company's stock plans been determined based on the
fair value at the grant dates for awards under those plans consistent with the
method prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company's net results and per share results would have changed to the pro
forma amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ------------------------- ------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $(3,378) $(5,584) $(39,881) $ (42,976) $ 8,836 $ 6,820
Basic net income (loss) per share $ (0.20) $ (0.33) $ (2.37) $ (2.55) $ 0.53 $ 0.41
Diluted net income (loss) per share $ (0.20) $ (0.33) $ (2.37) $ (2.55) $ 0.49 $ 0.38
------- ------- -------- --------- ------- -------
</TABLE>
The fair value of each option grant and Purchase Plan share issuable is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions for grants in 1998 and 1997,
respectively: no dividend yield is expected for all years; expected volatility
of 106% and 96%; risk-free interest rates of 5.24% and 6.25%; and expected lives
of 3 years and 4 years.
Pro forma net results reflect only options granted in 1996 through 1998.
Therefore the full impact of calculating compensation cost for the Company's
stock option plans under SFAS No. 123 is not reflected in the pro forma net
results, amounts presented above as compensation cost is reflected over a stock
options vesting period and compensation cost for options granted prior to
April 1, 1995 is not considered.
NOTE 7. RESTRUCTURING COSTS
On March 31, 1998, the Company announced its agreement to sell the assets of its
Modem Business to Boca Research ("The Agreement") and refocus the Company for
product offerings in the small to medium sized office networking market. As a
result the Company recorded a net restructuring charge of $240,000 related
primarily to severance costs of 25 employees. The Company estimated that the
majority of the termination benefits would be paid during the first fiscal
quarter of 1999.
In December 1996, the Company announced a restructuring plan to streamline its
operations, reduce its workforce and enable the Company to improve its operating
results. The Company recorded a restructuring charge of $1.3 million related
primarily to severance costs ($270,000), write-offs of fixed assets and
purchased software ($490,000), a lease abandonment ($340,000) and other one-time
charges associated with the plan ($200,000). At March 31, 1998 the restructuring
accrual balance associated with the December 1996 decision was approximately
$40,000 and related primarily to remaining lease payments and miscellaneous
costs associated with the Company's Atlanta facility.
30
<PAGE> 13
ONEWORLD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. INCOME TAXES
The components of income tax expense (benefit) from continuing operations are
displayed in the following table. No income tax expense or benefit has been
recorded in any of the results of discontinued operations.
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------
(In thousands) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ -- $(8,637) $ 2,749
State -- 2 677
------- ------- -------
Total Current -- (8,635) 3,426
------- ------- -------
Deferred:
Federal -- 2,845 46
State -- 389 56
------- ------- -------
Total Current -- 3,234 102
------- ------- -------
Charge in lieu of income tax associated with exercise of stock options -- -- 1,632
------- ------- -------
$ -- $(5,401) $ 5,160
------- ------- -------
</TABLE>
The Company has gross deferred tax assets of approximately $26.9 million as of
March 31, 1998 and $25.6 million as of March 31, 1997. The deferred tax assets
are primarily comprised of net operating loss carryovers, tax credits, and
reserves and accruals recorded for financial reporting purposes which are not
allowed as tax deductions in the current periods in which they were recorded. As
of March 31, 1998 and 1997, the Company had established a full valuation
allowance against its deferred tax assets based on the belief that there was
sufficient uncertainty regarding the realizability of the deferred tax assets.
The difference between the effective income tax rate and the U.S. federal
statutory income tax rate for continuing operations is as follows:
<TABLE>
<CAPTION>
Year ended March 31,
------------------------
(In thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate (34)% (34)% 35 %
State tax, net of federal benefit -- -- 5 %
Loss without tax benefit 38 % 25 % -- %
Foreign sales corporation benefit -- -- (2)%
Tax exempt interest -- -- (2)%
Research and experimental tax credit (6)% (2)% (4)%
Other 2 % (2)% (2)%
---- ---- ----
-- (13)% 30 %
---- ---- ----
</TABLE>
The Company acquired SofNet, Inc., in August 1994. As of the acquisition date,
SofNet had federal and Georgia net operating loss carryforwards of $9.3 million
which expire through 2009. The federal net operating loss is subject to an
annual limitation approximating $0.8 million as a result of an "ownership
change" as defined in Section 382 of the Internal Revenue Code. Any unused
annual limitation can be carried forward to subsequent years. In addition, the
SofNet operating losses can only be used to offset future earnings of SofNet as
a result of separate return limitation rules.
31
<PAGE> 14
ONEWORLD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additionally, as of March 31, 1998, the Company had net operating loss
carryforwards of approximately $48.4 million for federal income tax purposes, of
which, $33.8 million expire in 2012 and $14.6 million expire in 2013. Net
operating loss carryforwards for California income tax purposes total
approximately $19.9 million, of which $13.9 will expire in 2002 and $6.0 million
expire in 2003.
At March 31, 1998, the Company had unused research and development credits of
approximately $1.0 million for federal income tax purposes, which expire through
2013, and $440,000 for California income tax purposes which will carryforward
indefinitely. There are also alternative minimum tax credits of approximately
$530,000 available to reduce future federal income taxes, which will
carryforward indefinitely.
NOTE 9. CUSTOMERS AND CREDIT CONCENTRATIONS
The Company sells primarily to distributors, dealers, and OEMs in North America,
Europe, and the Pacific Rim. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. The Company maintains
reserves for potential credit losses, and such actual losses have been within
management's expectations.
The following table summarizes the annual percentage contribution to revenues by
customers whose revenues exceed 10% of total revenues:
<TABLE>
<CAPTION>
Percentage of Revenues Percentage of Accounts Receivable
Year Ended March 31, as of March 31,
------------------------------- ----------------------------------
1998 1997 1996 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Customer A 28% 21% 33% 37% 16%
Customer B 18% 11% 1% 19% --
Customer C 7% 11% 4% 4% 13%
</TABLE>
Customers A and C are distributors; Customer B is an OEM.
The Company's international sales for the fiscal years ended March 31, 1998,
1997, and 1996 represented approximately 15%, 15%, and 19% of net revenue,
respectively.
NOTE 10. NET ASSETS HELD FOR SALE
On March 31, 1998, the Company signed an Asset Purchase Agreement ("the
Agreement") with Boca Research, Inc., a Florida corporation, and its wholly
owned subsidiary Boca Global, Inc., a Florida corporation (together "Buyer").
Pursuant to the terms of the Agreement, the Company will sell to Buyer
substantially all of the Company's assets related to the Company's single user
modem product offerings including accounts receivable, inventory, property and
equipment, intellectual property, and other production and research and
development assets (the "Modem Business"). Additionally, the Company issued to
the Buyer a Warrant to purchase up to 425,000 shares of the Company's Common
Stock at $1.0003 per share. In consideration for these assets, the Buyer will
assume certain of the Company's liabilities related to the Modem Business,
including all product warranty, upgrade and support liabilities, as well as
related accounts payable obligations. The Buyer shall pay to the Company $10.0
million in cash, payable in installments. Upon the close of the transaction the
Buyer will deliver an initial payment of $4.0 million and a non-interest bearing
promissory note for $6.0 million payable in two equal installments on September
30, 1998 and December 31, 1998. Shareholder approval was required for the
completion of the transaction. Such approval was obtained at a Special Meeting
of Stockholders of the Company, and the transaction closed on June 18, 1998 (the
"Closing Date"). The transaction will be accounted for as an asset sale in the
first quarter of fiscal 1999.
In conjunction with the closing of the transaction, the Company's line of credit
(see Note 4) was suspended as the sale included most of the assets securing the
line. The Company is currently negotiating a new line of credit.
32
<PAGE> 15
NOTE 11. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA --
SALE OF MODEM BUSINESS
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA. The following unaudited pro
forma condensed consolidated balance sheet at March 31, 1998, and the discussion
of the unaudited pro forma condensed consolidated statements of operations data
for the fiscal year ended March 31, 1998 give pro forma effect to the estimated
financial impact of the sale of the Modem Business. The pro forma condensed
consolidated balance sheet at March 31, 1998 gives pro forma effect to the sale
of the Modem Business as if the transaction it contemplates was consummated on
March 31, 1998. The discussion of the unaudited pro forma condensed consolidated
statements of operations data for the fiscal year ended March 31, 1998 present
the results of operations of the Company as if the transaction contemplated in
the sale of the Modem Business occurred on April 1, 1997.
The pro forma information is based on the historical consolidated financial
statements of the Company giving effect to the assumptions and adjustments set
forth in the following notes and discussions. The overall assumption has been
made that the effect of the sale of the Modem Business would have been to
transfer the substantial majority of the Company's products and operating
activities and associated revenues, assets (excluding cash and any tax related
benefits) and liabilities, and a significant amount of related expenses to the
Buyer. The Company would have retained primarily its OneWorld, FaxWorks Pro and
Pro LAN, FocalPoint and NewsCatcher products, the development efforts associated
with its new family of communications server products and corporate general and
administrative activities, and associated revenues, expenses, assets and
liabilities, henceforth referred to as the "Retained Business".
33
<PAGE> 16
ONE WORLD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed financial data and discussions have been
prepared by Company management and are not necessarily indicative of how the
Company's balance sheet and operating results would have been presented had the
transaction contemplated in the Agreement been consummated on the assumed dates,
nor are they necessarily indicative of the presentation of the Company's balance
sheet and statements of operations for any future period.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 1998
--------------------------------------------------
(in thousands) Company Pro Forma Pro Forma
Historical Adjustments Results
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,097 $ 4,000 (A) $ 7,097
Accounts receivable, net 8,160 (7,845)(B) 315
Inventories, net 2,351 (2,351)(B) --
Notes receivable -- 5,860 (A) 5,860
Other current assets 253 (83)(B) 170
---------- ----------- ---------
Total current assets 13,861 (419) 13,442
Property and equipment, net 4,049 (1,376)(C) 2,673
Other assets 63 63
---------- ----------- ---------
Total assets $ 17,973 $ (1,795) $ 16,178
========== =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,625 $ (6,666)(D) $ 959
Accrued and other liabilities 6,003 (1,888)(E) 4,115
---------- ----------- ---------
Total current liabilities 13,628 (8,554) 5,074
Stockholders' equity:
Common stock 17 17
Additional paid-in capital 43,246 234 (F) 43,480
Retained earnings (accumulated deficit) (38,918) 6,525 (F) (32,393)
---------- ----------- ---------
Total stockholders' equity 4,345 6,759 11,104
---------- ----------- ---------
Total liabilities and stockholders' equity $ 17,973 $ (1,795) $ 16,178
========== =========== =========
</TABLE>
34
<PAGE> 17
ONE WORLD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(A) The Company will receive consideration of $10.0 million on the Closing
Date. The consideration will be in the form of $4.0 million in cash on
the Closing Date, and a Promissory Note for $6.0, of which $3.0 million
is payable on September 30, 1998 and $3.0 million on December 31, 1998.
As the note is non-interested bearing, its value has been discounted
assuming a rate of 6% per annum
These pro forma calculations assume that had the transaction been
consummated on March 31, 1998 the purchase price would not have been
reduced based upon the net current asset position at that time.
(B) As stipulated in the Agreement, the Buyer will purchase all of the
Company's current assets related to its Modem Business with the
exception of cash, tax assets, assets related to the Retained Business
and certain corporate assets. This adjustment represents the net value
of those assets which would have been transferred to the Buyer as well
as the elimination of certain reserves associated with those assets as
they would no longer be required by the Company.
(C) The Agreement stipulates that the Buyer will purchase Property and
Equipment associated with the Company's Modem Business as well as that
associated with the Company's facility in Sunnyvale, California if Buyer
elects to assume the lease (the Buyer has elected not to assume the
lease). This adjustment represents an estimate of the net book value of
the Property and Equipment that is to be transferred to the Buyer.
(D) As stipulated in the Agreement, the Buyer will assume all of the
Company's liabilities related to its Modem Business with the exception
of employee related liabilities, tax liabilities, liabilities related to
the Retained Business and certain corporate liabilities. This adjustment
represents the net value of the Accounts Payable portion of those
liabilities which would have been assumed by the Buyer as well as
certain other liabilities which would not have been assumed by the Buyer
that would have been eliminated by the consummation of the transaction.
(E) As stipulated in the Agreement, the Buyer will assume all of the
Company's liabilities related to its Modem Business with the exception
of employee related liabilities, tax liabilities, liabilities related to
the Retained Business and certain corporate liabilities. This adjustment
represents the net value of the Accrued and other portions of those
liabilities which would have been assumed by the Buyer as well as
certain other liabilities which would not have been assumed by the Buyer
that would have been eliminated by the consummation of the transaction.
In addition, this adjustment includes an accrual of $1.4 million for
estimated expenses related to the transaction.
(F) This adjustment represents the amount of the gain that would have been
realized had the transaction been consummated on March 31, 1998,
including assumed valuation of the warrant issued to the Buyer. No
income tax expense associated with the gain has been assumed, given the
Company's available tax benefits. The actual amount of the gain will not
be determined until after the actual Closing Date and will be accounted
for in the first quarter of fiscal 1999. While the Company expects to
realize a substantial gain upon closing the transaction, that gain may
be materially different than the amount of this pro forma adjustment.
DISCUSSION OF THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS DATA. The assets being purchased by the Buyer include products which
represent the overwhelming majority of the Company's consolidated revenues. For
the year ended March 31, 1998 these products accounted for approximately 95% of
the Company's reported net revenues. Had the transactions contemplated in the
Agreement been consummated on April 1, 1997, the Company's net revenues would
have been reduced by approximately these amounts.
Similarly, these products represent the overwhelming majority of the Company's
gross profit. For the year ended March 31, 1998 these products accounted for
approximately 88% of the Company's reported gross profit. Had the transactions
contemplated in the Agreement been consummated on April 1, 1997, the Company's
gross profits would have been reduced by these amounts.
35
<PAGE> 18
ONE WORLD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The operations of the Modem Business being sold to the Buyer are not separate
from, nor are they accounted for separately from, the other activities of the
Company. There are numerous instances of shared resources including facilities,
management, systems, development, marketing and sales personnel and corporate
general and administrative functions. Therefore, the Company is unable to
accurately estimate the operating expenses associated with the assets being
purchased by the Buyer.
The aforementioned operating results also do not consider the amount of any
gain or loss on the transaction itself that would have been realized had the
transaction been consummated on April 1, 1997. The Company expects to realize a
substantial gain upon closing, however that gain may be materially different
than that estimated in these pro forma statements.
36
<PAGE> 19
SCHEDULE II
ONEWORLD SYSTEMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Year end March 31,
------------------------------------
(In thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Allowance for returns and doubtful accounts
Balance beginning of period $ 6,388 $ 1,854 $ 1,807
Additions charged to costs and expenses 1,387 20,090 8,268
Deductions (6,465) (15,556) (8,221)
-------- -------- --------
Balance end of period $ 1,310 $ 6,388 $ 1,854
-------- -------- --------
Warranty and other product-related obligations
Balance beginning of period $ 2,090 $ 1,503 $ 1,559
Additions charged to costs and expenses 1,855 2,774 4,479
Deductions (1,086) (2,187) (4,535)
-------- -------- --------
Balance end of period $ 2,859 $ 2,090 $ 1,503
-------- -------- --------
</TABLE>
37
<PAGE> 1
Exhibit 99.2
BOCA RESEARCH, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
BOCA
RESEARCH, PURCHASE PRICE PRO FORMA
INC. ACQUISITION(A) ALLOCATION(B) CONSOLIDATED
-------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,191 $ (4,000) $ 2,191
Trade receivables, net 10,050 $ 8,740 18,790
Inventory, net 15,335 2,132 17,467
Prepaid expenses and other assets 923 62 985
Prepaid and deferred income taxes 9,225 9,225
------- -------- ------- -------
Total current assets 41,724 (4,000) 10,934 48,658
Property and equipment, net 4,827 590 5,417
Goodwill and other intangible assets 4,805 4,805
Other assets 339 140 479
Acquisition cost 10,435 (10,435)
------- -------- ------- -------
Total assets $46,890 $ 6,435 $ 6,034 $59,359
======= ======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,592 $ 7,776 $15,368
Notes payable $ 5,855 5,855
Accrued expenses and other current liabilities 2,147 580 2,058 4,785
------- -------- ------- -------
Total current liabilities 9,739 6,435 9,834 26,008
------- -------- ------- -------
Commitments and contingencies
Stockholders' equity:
Common stock $ 87 87
Additional paid-in capital 25,989 25,989
Retained earnings 11,075 (3,800) 7,275
------- -------- ------- -------
Total stockholders' equity 37,151 (3,800) 33,351
------- -------- ------- -------
Total liabilities and stockholders' equity $46,890 $ 6,435 $ 6,034 $59,359
======= ======== ======= =======
</TABLE>
(A) Reflects cash payment and issuance of notes payable in connection with the
transaction together with accrual of direct acquisition costs.
(B) Reflects allocation of the acquisition cost to the net tangible and
intangible assets acquired. This allocation also contemplates:
(i) A $3,800,000 in-process research and development expense which is
directly charged against equity.
(ii) Allocation of $140,000 to record warrants issued by OneWorld
Systems, Inc. in connection with the transaction.
See accompanying notes to pro forma condensed consolidated financial statements
<PAGE> 2
BOCA RESEARCH, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
BOCA
RESEARCH, PRO FORMA
INC. ACQUISITION CONSOLIDATED
-------- ----------- ------------
<S> <C> <C> <C>
Net sales $ 70,207 $58,525 $128,732
Cost of goods sold 71,164 42,300 113,464
-------- ------- --------
Gross profit (loss) (957) 16,225 15,268
-------- ------- --------
Operating expenses:
Research and development 2,808 1,800 4,608
Selling, general and administrative 18,366 8,542 26,908
-------- ------- --------
Total operating expenses 21,174 10,342 31,516
-------- ------- --------
Income (loss) from operations (22,131) 5,883 (16,248)
Non-operating income (loss) 837 (600) 237
-------- ------- --------
Income (loss) before income tax benefit (21,294) 5,283 (16,011)
Income tax benefit (6,371) (6,371)
-------- ------- --------
Net income (loss) $(14,923) $ 5,283 $ (9,640)
======== ======= ========
Net income (loss) per share (Basic and Diluted) $ (1.71) $ (1.11)
======== ========
Weighted average
shares outstanding 8,718 8,718
======== ========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements
<PAGE> 3
BOCA RESEARCH, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
BOCA
RESEARCH, PRO FORMA
INC. ACQUISITION CONSOLIDATED
-------- ----------- ------------
<S> <C> <C> <C>
Net sales $ 15,616 $ 11,805 $ 27,421
Cost of goods sold 15,766 8,561 24,327
-------- -------- --------
Gross profit (loss) (150) 3,244 3,094
-------- -------- --------
Operating expenses:
Research and development 577 450 1,027
Selling, general and administrative 2,980 2,135 5,115
-------- -------- --------
Total operating expenses 3,557 2,585 6,142
-------- -------- --------
Income (loss) from operations (3,707) 659 (3,048)
Non-operating income (loss) 203 (150) 53
-------- -------- --------
Income (loss) before income tax benefit (3,504) 509 (2,995)
Income tax benefit
-------- -------- --------
Net income (loss) $ (3,504) $ 509 $ (2,995)
======== ======== ========
Net income (loss) per share (Basic and Diluted) $ (0.40) $ (0.34)
======== ========
Weighted average shares outstanding 8,742 8,742
======== ========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements
<PAGE> 4
BOCA RESEARCH, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred had the acquisition of the modem business of OneWorld
by the Registrant been consummated at the beginning of the periods presented,
nor is it necessarily indicative of future operating results or financial
position. These pro forma financial statements are based on and should be read
in conjunction with the historical consolidated financial statements and the
related notes thereto of the Registrant and OneWorld.
On June 18, 1998, the Company consummated, through a wholly-owned
subsidiary, the acquisition of the modem business of Global Village
Communication, Inc. ("Global Village"), in exchange for $9,855,206 in cash and
notes (the "Acquisition"). A $4,000,000 cash payment was made at closing and two
additional payments of $3,000,000 each are due Global Village on September 30,
1998 and on December 31, 1998. The notes payable relating to the two $3,000,000
payments are non-interest bearing and interest on these notes has been imputed
at the rate of 6%. The Company purchased intellectual property, including the
Global Village name, logo and trademarks, as well as the modem hardware and
software products, and the inventory, receivables and other assets of the modem
business. The Company also assumed the liabilities of the modem business,
including responsibility for product warranty, technical support, product
returns, ongoing marketing and sales programs, and certain accounts payable and
accrued liabilities. The Company also received a warrant to purchase up to
425,000 shares of Global Village common stock at an exercise price of $1.0003
per share. Subsequent to the closing of the transaction, Global Village changed
its corporate name to OneWorld Systems, Inc. ("OneWorld").
The acquisition was recorded as a purchase and the purchase price of
$9,855,000, together with direct acquisition costs of $580,000 associated with
the transaction, have been allocated to the acquired assets, assumed liabilities
and in-process research and development as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable, net $ 8,740
Inventory 2,132
Other current assets 62
Property, plant and equipment 590
Tradename/marketing intangible asset 2,300
Existing technology intangible asset 1,500
Goodwill 1,005
Warrants 140
Accounts payable (7,776)
Accrued expenses (2,058)
In-process research and development 3,800
-------
$10,435
=======
</TABLE>
Goodwill is being amortized over a five year period. Existing
technology is being amortized over a two year period. The tradename/marketing
intangible asset is being amortized over a seven year period.
The allocation of the purchase price is preliminary and subject to
adjustment pending receipt by the Company of additional information with respect
to certain fair value estimates of the acquired assets and assumed liabilities.
The pro forma condensed consolidated balance sheet assumes the
acquisition took place on March 31, 1998.
<PAGE> 5
The pro forma condensed consolidated statement of operations for the year
ended December 31, 1997 assumes the acquisition took place as of the beginning
of 1997. The pro forma condensed consolidated statement of operations for the
three months ended March 31, 1998 assumes the acquisition took place as of the
beginning of 1998. The amounts in the Acquisition columns were determined as
follows:
Net Sales - Revenues associated with the modem business of OneWorld for
the fiscal year ended March 31, 1998 and the three months ended March
31, 1998, respectively.
Cost of goods sold - Cost of goods sold associated with the modem
business of OneWorld for the fiscal year ended March 31, 1998 and the
three months ended March 31, 1998, respectively. Amounts include
amortization of approximately $750,000 and $188,000 for the year and
three months ended March 31, 1998, respectively, relating to the
existing technology intangible asset.
Research and development - Budgeted expense comprised of salaries and
expenses relating to the research and development function to be
incurred by the employees who were employed by Boca Research, Inc. as a
result of the acquisition.
Selling, general and administrative - Budgeted expense comprised of
salaries and expenses relating to the selling, general and
administrative functions to be incurred by the employees who were
employed by Boca Research, Inc. as a result of the acquisition. Amounts
include amortization of approximately $742,000 and $185,000 for the
year and three months ended March 31, 1998, respectively, relating to
the property and equipment, goodwill and tradename/marketing intangible
asset.
Non-operating income (loss) - Estimated interest expense of $600,000
and $150,000 for the year and three months ended March 31, 1998,
respectively, on borrowings that would have been incurred in order to
fund the acquisition at the beginning of each period.
The pro forma condensed consolidated statements of operations exclude the
effect of the $3.8 million in-process research and development charge directly
attributable to the acquisition.
