<PAGE> 1
Item 7. Pro Forma Financial Information
(a) Financial Statements of Business Acquired
WaveSpan Corporation
(a development stage company)
Financial Statements
Years ended December 31, 1998 and 1997 and for the
period from March 16, 1995 (inception)
through December 31, 1998
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors ................................... 4
Audited Financial Statements
Balance Sheets ................................................... 6
Statements of Operations ......................................... 7
Statements of Shareholders' Equity (Net Capital Deficiency) ...... 8
Statements of Cash Flows ......................................... 10
Notes to Financial Statements .................................... 12
</TABLE>
3
<PAGE> 2
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
WaveSpan Corporation
We have audited the accompanying balance sheets of WaveSpan Corporation (a
development stage company) as of December 31, 1998 and 1997, and the related
statements of operations, shareholders' equity (net capital deficiency), and
cash flows for the years then ended and for the period from March 16, 1995
(inception) through December 31, 1998. 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. The financial
statements for the period from March 16, 1995 (inception) through December 31,
1996 were audited by other auditors whose report, dated April 11, 1997, except
for the information in the first paragraph of Note 8, for which the date is
July 1, 1997, and the first paragraph of Note 6, for which the date is August
7, 1997, and the second paragraph of Note 8, for which the date is October 2,
1997, which has been furnished to us, included an explanatory paragraph
regarding the uncertainty of the Company's ability to continue as a going
concern. The financial statements for the period from March 16, 1995 (inception)
through December 31, 1996 include a net loss of $2,236,439. Our opinion on the
statements of operations, shareholders' equity (net capital deficiency), and
cash flows for the period from March 16, 1995 (inception) through December 31,
1998, insofar as it relates to amounts for prior periods to December 31, 1996,
is based solely on the report of other auditors.
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 and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of WaveSpan Corporation (a development stage
company) at December 31, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended and for the period from March 16, 1995
(inception) through December 31, 1998, in conformity with generally accepted
accounting principles.
4
<PAGE> 3
The accompanying financial statements have been prepared assuming that
WaveSpan Corporation will continue as a going concern. As more fully
discussed in Note 1 to the financial statements, the Company has incurred
losses during the development stage, which raise substantial doubt about the
Company's ability to continue as a going concern unless it is able to raise
additional capital to continue to fund operations. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible inability of
WaveSpan Corporation to continue as a going concern.
/s/ ERNST & YOUNG LLP
San Jose, California
February 9, 1999, except for
the first paragraph of Note 7,
as to which the date is
March 15, 1999, and the second
paragraph of Note 7, as to which
the date is February 16, 2000.
5
<PAGE> 4
WaveSpan Corporation
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
December 31,
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,640,205 $ 623,753
Short-term investments 1,024,877 --
Accounts receivable, net of allowance
for doubtful accounts of $8,392 in 1998
and none in 1997 157,748 --
Inventory, net 957,142 181,967
Prepaid expenses and other current assets 197,453 71,054
------------ -----------
Total current assets 4,977,425 876,774
Property and equipment:
Computer, equipment, and software 2,238,572 999,852
Furniture and fixtures 314,558 200,654
Leasehold improvements 263,032 180,384
------------ -----------
2,816,162 1,380,890
Accumulated depreciation and amortization 1,379,479 628,076
------------ -----------
1,436,683 752,814
Other assets 218,791 138,371
------------ -----------
Total assets $ 6,632,899 $ 1,767,959
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Convertible promissory notes $ -- $ 2,028,652
Accounts payable 639,311 202,270
Notes payable 293,410 --
Accrued expenses 15,833 --
Accrued compensation and benefits 331,954 175,176
Capital lease obligations due within one year 595,989 342,903
------------ -----------
Total current liabilities 1,876,497 2,749,001
Long-term liabilities:
Long-term portion of notes payable 2,706,590 --
Long-term portion of capital lease obligations 825,125 536,896
------------ -----------
Total long-term liabilities 3,531,715 536,896
Commitments
Shareholders' equity (net capital deficiency):
Convertible preferred stock, no par value:
Authorized shares - 11,413,542
Issued and outstanding shares - 10,143,545 in 1998
and 6,311,850 in 1997, liquidation preference of $18,029,065 18,113,320 6,024,248
Common stock, no par value:
Authorized shares - 30,000,000
Issued and outstanding shares - 6,938,325 in
1998 and 6,477,680 in 1997 728,364 538,463
Shareholder notes receivable (542,500) (381,613)
Deficit accumulated during the development stage (17,074,497) (7,699,036)
------------ -----------
Total shareholders' equity (net capital deficiency) 1,224,687 (1,517,938)
------------ -----------
Total liabilities and shareholders' equity (net capital deficiency) $ 6,632,899 $ 1,767,959
============ ===========
</TABLE>
See accompanying notes.
6
<PAGE> 5
WaveSpan Corporation
(a development stage company)
Statement of Operations
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 16, 1995
(INCEPTION)
THROUGH
YEARS ENDED DECEMBER 31, DECEMBER 31,
1998 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Net revenues $ 567,169 $ -- $ 567,169
Cost of revenues and manufacturing
start-up costs (2,396,249) -- (2,396,249)
----------- ----------- ------------
Gross margin (1,829,080) -- (1,829,080)
Operating expenses:
Research and development 4,238,574 3,663,306 9,646,269
Selling, general and administrative 3,419,481 1,736,256 5,734,093
----------- ----------- ------------
Total operating expenses 7,658,055 5,399,562 15,380,362
----------- ----------- ------------
Operating loss (9,487,135) (5,399,562) (17,209,442)
Interest income 336,292 87,868 510,466
Interest expense (224,618) (150,103) (374,721)
----------- ----------- ------------
Loss before provision for taxes $(9,375,461) $(5,461,797) $(17,073,697)
Provision for taxes -- 800 800
----------- ----------- ------------
Net loss $(9,375,461) $(5,462,597) $(17,074,497)
=========== =========== ============
</TABLE>
See accompanying notes.
7
<PAGE> 6
WaveSpan Corporation
(a development stage company)
Statements of Shareholders' Equity (Net Capital Deficiency)
<TABLE>
<CAPTION>
DEFICIT TOTAL
CONVERTIBLE ACCUMULATED SHAREHOLDERS'
PREFERRED STOCK COMMON STOCK SHAREHOLDER DURING THE EQUITY
------------------------------------------- NOTES DEVELOPMENT (NET CAPITAL
SHARES AMOUNT SHARES AMOUNT RECEIVABLE STAGE DEFICIENCY)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock in August 1995
for technology at $0.04 per share -- $ -- 3,750,000 $150,000 $ -- $ -- $ 150,000
Issuance of Series A preferred stock in
August 1995 for cash at $0.40 per
share, net of issuance costs of $9,890 2,750,000 1,090,110 -- -- -- -- 1,090,110
Issuance of common stock in October 1995
for note receivable at $0.04 per share -- -- 20,000 800 (800) -- --
Net loss -- -- -- -- -- (521,922) (521,922)
---------------------------------------------------------------------------------------
Balance at December 31, 1995 2,750,000 1,090,110 3,770,000 150,800 (800) (521,922) 718,188
Issuance of common stock in March and
June 1996 for notes receivable at
$0.04 per share -- -- 630,000 25,200 (25,200) -- --
Issuance of Series B preferred stock
in July 1996 for cash at $1.375
per share, net of issuance costs
of $31,021 3,501,850 4,784,023 -- -- -- -- 4,784,023
Issuance of common stock in September,
October, November, and December 1996
for notes receivable at $0.1375
per share -- -- 313,000 43,038 (43,038) -- --
Issuance of warrant for Series B
preferred stock in December 1996 -- 100 -- -- -- -- 100
Net loss -- -- -- -- -- (1,714,517) (1,714,517)
---------------------------------------------------------------------------------------
Balance at December 31, 1996 6,251,850 5,874,233 4,713,000 219,038 (69,038) (2,236,439) 3,787,794
Issuance of common stock for note
receivable at $0.1375 per share -- -- 2,410,454 331,437 (331,437) -- --
Issuance of common stock for cash
at $0.375 per share -- -- 154,546 21,250 -- -- 21,250
Repurchase of common stock at $0.04
per share for cash -- -- (492,922) (19,717) -- -- (19,717)
Repurchase of common stock at $0.04
per share and cancelation of
shareholder note receivable -- -- (307,398) (13,545) 13,545 -- --
Issuance of warrant for Series C
preferred stock -- 67,515 -- -- -- -- 67,515
Payment of shareholder note receivable -- -- -- -- 5,317 -- 5,317
Issuance of Series B preferred stock
for cash at $1.375 per share 60,000 82,500 -- -- -- -- 82,500
Net loss -- -- -- -- -- (5,462,597) (5,462,597)
---------------------------------------------------------------------------------------
Balance at December 31, 1997 6,311,850 6,024,248 6,477,680 538,463 (381,613) (7,699,036) (1,517,938)
</TABLE>
See accompanying notes.
8
<PAGE> 7
WaveSpan Corporation
(a development stage company)
Statements of Shareholders' Equity (Net Capital Deficiency) (continued)
<TABLE>
<CAPTION>
DEFICIT TOTAL
ACCUMULATED SHAREHOLDERS'
CONVERTIBLE PREFERRED STOCK COMMON STOCK SHAREHOLDER DURING THE EQUITY
--------------------------- ----------------- NOTES DEVELOPMENT (NET CAPITAL
SHARES AMOUNT SHARES AMOUNT RECEIVABLE STAGE DEFICIENCY)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for notes
receivable at $0.35 per share in
April 1998 -- $ -- 530,000 $185,500 $(185,500) $ -- $ --
Issuance of common stock for cash
at $0.35 per share in May 1998 -- -- 15,000 5,350 -- -- 5,250
Issuance of common stock for cash
at $0.40 per share in June and
August 1998 -- -- 30,000 12,000 -- -- 12,000
Issuance of common stock for cash
at $0.50 per share in December
1998 -- -- 5,000 2,500 -- -- 2,500
Issuance of common stock bonus at
$0.35 per share in March 1998 -- -- 5,000 1,750 -- -- 1,750
Issuance of Series C preferred stock
for cash at $2.14 per share in
January 1998, net issuance cost
of $26,801 3,831,695 12,004,721 -- -- -- -- 12,004,721
Repurchase of common stock for
cash at $0.1375 per share in
February, March, and November
1998 -- -- (124,355) (17,099) -- -- (17,099)
Payment of notes receivables in
February, March, and November
1998 -- -- -- -- 24,613 -- 24,613
Issuance of warrants for Series C
preferred stock in March and
November 1998 -- 84,226 -- -- -- -- 84,226
Issuance of warrants for Series C
preferred stock in May 1998 -- 125 -- -- -- -- 125
Net loss -- -- -- -- -- (9,375,461) (9,375,461)
---------------------------------------------------------------------------------------------
Balance at December 31, 1998 10,143,545 $18,113,320 6,938,325 $728,364 $(542,500) $(17,074,497) $1,226,687
=============================================================================================
</TABLE>
See accompanying notes.
9
<PAGE> 8
WaveSpan Corporation
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 16, 1995
(INCEPTION)
THROUGH
YEARS ENDED DECEMBER 31, DECEMBER 31,
1998 1997 1998
----------- ----------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(9,375,461) $(5,462,597) $(17,074,497)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 751,403 524,322 1,392,427
Amortization of warrant to purchase preferred stock 68,666 5,626 61,344
Issuance of common stock for technology -- -- 150,000
Changes in operating assets and liabilities:
Accounts receivable (157,748) -- (157,748)
Inventory (775,175) (181,967) (957,142)
Prepaid expenses and other current assets (126,399) (30,840) (197,453)
Accounts payable 437,041 (259,208) 313,246
Accrued liabilities 172,611 153,180 347,787
----------- ----------- ------------
Net cash used in operating activities (9,005,062) (5,251,484) (16,122,036)
INVESTING ACTIVITIES
Purchases, maturities, and sales of investments (1,024,877) -- (1,024,877)
Purchase of property and equipment (469,287) (122,003) (787,142)
Proceeds from return of fixed asset -- -- 4,901
Increase in other assets (64,735) (18,775) (142,217)
----------- ----------- ------------
Net cash used in investing activities (1,558,899) (140,778) (1,948,335)
FINANCING ACTIVITIES
Proceeds from sale of preferred stock, net of issuance cost 12,004,721 82,500 17,961,354
Proceeds from sale of common stock, net 4,401 1,533 5,934
Proceeds from issuance of warrants -- -- 100
Proceeds from issuance of notes payable 3,000,000 2,028,652 5,028,652
Payments on notes payable (2,028,652) -- (2,038,652)
Payments of capital lease obligations (424,670) (235,573) (744,553)
Proceeds from capital lease financing of prior year capital
expenditures -- 457,811 457,811
Payments on shareholder notes receivable 24,613 5,317 29,930
----------- ----------- ------------
Net cash provided by financing activities 12,580,413 2,340,240 20,710,576
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents 2,016,452 (3,052,022) 2,640,205
Cash and cash equivalents at beginning of period 623,753 3,675,775 --
----------- ------------ ------------
Cash and cash equivalents at end of period $ 2,640,205 $ 623,753 $ 2,640,205
=========== ============ ============
</TABLE>
See accompanying notes.
10
<PAGE> 9
WaveSpan Corporation
(a development stage company)
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 16, 1995
(INCEPTION)
THROUGH
YEARS ENDED DECEMBER 31, DECEMBER 31,
1998 1997 1998
-----------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION $191,926 $121,451 $ 328,374
Cash paid during the period for interest
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCIAL ACTIVITIES
Capital equipment acquired under capital lease financing $965,985 $318,075 $1,707,855
Obligations incurred upon acquisition of property
and equipment $ -- $ -- $ 326,066
Increase of preferred stock due to issuance of warrant
in connection with convertible notes $ -- $ 67,515 $ 67,515
Increase of preferred stock due to issuance of warrant
in connection with lease $ 84,226 $ -- $ 84,226
Issuance of common stock for notes receivable,
net of cancellation of note receivable $185,500 $317,892 $ 572,430
</TABLE>
See accompanying notes.
11
<PAGE> 10
WaveSpan Corporation
(a development stage company)
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
WaveSpan Corporation (the Company or WaveSpan) was incorporated in the state of
California on March 16, 1995. The Company is in the business of developing and
marketing wireless telecommunication equipment. Through December 31, 1998, the
Company was active in technology development, financial planning, recruiting
personnel, raising capital, developing markets, and creating strategic
relationships. As a result, the Company is in the development stage.
GOING CONCERN
The Company is in development stage, devoting substantially all of its efforts
to product development, customer development, and raising capital financing.
During its development stage, the Company has incurred cumulative net losses of
$17,074,497 and expects to incur further losses over at least the next year.
The Company's ability to continue as a going concern is dependent upon its
successfully raising additional equity capital or debt financings and,
ultimately, upon successfully commercializing its technology and achieving
profitable operations. Management currently plans to fund future operations
through additional equity or debt financings.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
REVENUE RECOGNITION
All sales are made to resellers. The resellers have no right of return. There
are no significant remaining obligations, and collectibility is probable.
12
<PAGE> 11
WaveSpan Corporation
(a development stage company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents. The Company also
considers all highly liquid investments with original maturities greater than
three months but less than one year when purchased to be short-term
investments. Cash equivalents at December 31, 1998 consisted of certificates of
deposits and a money market account. Cash equivalents at December 31, 1997
consisted of certificates of deposit, commercial paper, and a money market
account. Short-term investments at December 31, 1998 consisted of a treasury
note. Short-term investments are carried at cost which approximates fair value.
Both gross unrealized gains and losses as of December 31, 1998 and realized
gains and losses on sales of securities for the year ended December 31, 1998
were not significant.
CONCENTRATION OF CREDIT RISK
The Company's concentration of credit risk consists principally of cash, cash
equivalents, and short-term investments. The Company invests its excess cash
principally in debt securities. To date, the Company has not incurred losses
related to these investments.
INVENTORIES
Inventories, which are composed mainly of raw materials, are stated at the
lower of cost or market. Cost is computed on a currently adjusted standard
basis (which approximates actual costs on a first-in, first-out basis).
Due to the recent introduction of the Company's products, the Company has only
received a minimal amount of orders through February 1999. The potential for a
write down of inventory exists in the future if orders are not received.
Management of the Company believes that orders will be received, inventory
costs can be recovered, and that no write down of the inventory is appropriate
at December 31, 1998.
13
<PAGE> 12
WaveSpan Corporation
(a development stage company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets (generally three years). Assets under capital leases and
leasehold improvements are amortized over the lesser of their useful lives or
the term of the lease.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
STOCK-BASED COMPENSATION
The Company has elected to follow the Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25), and
related interpretations in accounting for its employees and director stock
options and disclose the pro forma effect of Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123) (see Note 4). The Company generally grants
stock options for a fixed number of shares to employees with an exercise price
equal to the fair value for the shares at the date of grant. Under APB Opinion
No. 25, for employee stock options with an exercise price equal to the market
price of the underlying stock on the date of grant, no compensation expense is
recorded. The Company would recognize compensation expense for any stock
options granted with an exercise price less than fair value.
2. CAPITAL LEASE OBLIGATIONS AND COMMITMENTS
CAPITAL LEASE OBLIGATIONS
Under an amended equipment and financing agreement, the Company can lease
equipment and furniture in an amount not to exceed $3,150,000. At December 31,
1998, the amount under the revolving lease is $3,150,000 less any outstanding
balances. Lease terms are thirty-six months and will expire from August 1998
through August 2001.
14
<PAGE> 13
WaveSpan Corporation
(a development stage company)
Notes to Financial Statements (continued)
2. CAPITAL LEASE OBLIGATIONS AND COMMITMENTS (CONTINUED)
COMMITMENTS
The Company leases its facility under an operating lease expiring in January
2000. Under the terms of the lease agreement, the Company is responsible for
its share of common area maintenance costs, property taxes, and insurance. The
Company has the right of first refusal on adjacent space in the same building.
The Company leases certain equipment under noncancelable lease agreements that
are accounted for as capital leases. Equipment under capital lease arrangement
aggregated $2,299,863 and $1,181,940 at December 31, 1998 and 1997,
respectively. The related accumulated amortization aggregated $1,206,522 and
$566,335 at December 31, 1998 and 1997, respectively.
Future minimum lease payments under noncancelable operating leases and capital
leases are as follows at December 31, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------------------------
<S> <C> <C>
1999 $ 761,544 $198,552
2000 590,358 16,546
2001 310,201 --
2002 20,451 --
2003 -- --
Thereafter -- --
-------------------------
Total minimum payments 1,682,554 $215,098
============
Less amount representing estimated
executory costs 19,617
----------
Net minimum payments 1,662,937
Less amount representing interest 241,823
----------
1,421,114
Less current portion 595,989
----------
$ 825,125
==========
</TABLE>
15
<PAGE> 14
WaveSpan Corporation
(a development state company)
Notes to Financial Statements (continued)
2. CAPITAL LEASE OBLIGATIONS AND COMMITMENTS (CONTINUED)
COMMITMENTS (CONTINUED)
Total rental expense was $222,352 and $199,000 for fiscal 1998 and 1997,
respectively, and $551,352 for the period from March 16, 1995 (inception)
through December 31, 1998.
3. INCOME TAXES
There was no provision for U.S. federal or state income taxes as the Company
has incurred operating losses since inception.
As of December 31, 1998, the Company had federal and state net operating loss
carryforwards of approximately $7,800,000. In addition, the Company had federal
and state tax credit carryforwards of approximately $300,000. The net operating
loss and tax credit carryforwards described above will expire at various dates
beginning in 2003, if not utilized.
Utilization of the net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
provisions of the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net operating
loss and tax credit carryforwards before utilization.
As of December 31, 1998 and 1997, the Company had net deferred tax assets of
approximately $6,990,000 and $3,317,000, respectively, consisting of the above
following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net operating loss carryforwards $3,100,000 $ 743,000
Capitalized research and development costs 3,385,000 2,078,000
Tax credits 490,000 354,000
Other 15,000 142,000
---------- ----------
Total deferred tax assets 6,990,000 3,317,000
Valuation allowance (6,990,000) (3,317,000)
---------- ----------
Net deferred tax assets $ -- $ --
========== ==========
</TABLE>
16
<PAGE> 15
WaveSpan Corporation
(a development stage company)
Notes to Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
Realization of the deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the deferred
tax assets have been fully offset by a valuation allowance, and no income tax
benefit was recorded since inception. The valuation allowance for deferred tax
assets increased by $3,673,000 and $2,418,000 during the years ended December
31, 1998 and 1997, respectively.
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
CONVERTIBLE PREFERRED STOCK
The convertible preferred stock at December 31, 1998 comprises:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES ISSUED
SHARES AND DIVIDEND PER
AUTHORIZED OUTSTANDING SHARE
---------- ------------- ------------
<S> <C> <C> <C>
Series A 2,800,592 2,750,000 $0.04
Series B 3,612,950 3,561,850 $0.1375
Series C 5,000,000 3,831,695 $0.314
---------- ----------
11,413,542 10,143,545
========== ==========
</TABLE>
The rights, preferences, and privileges of the preferred shareholders are as
follows:
Dividends
The holders of preferred stock are entitled to receive noncumulative dividends,
in preference to common shareholders, at the annual rates stated above, when,
as, and if declared by the Board of Directors. No dividends have been declared
or paid by the Company.
17
<PAGE> 16
WaveSpan Corporation
(a development stage company)
Notes to Financial Statements (continued)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
CONVERTIBLE PREFERRED STOCK (CONTINUED)
Liquidation
The holders of the Series A, B, and C preferred stock are entitled to
distribution in preference to common shareholders of $0.40, $1.375, and $3.14
per share, respectively, plus declared but unpaid dividends. After the above
amounts have been paid on the preferred stock, remaining assets are distributed
pro rata to common and preferred shareholders (on an as-if-converted basis).
However, distributions to preferred shareholders cannot exceed $2.75 per share
for Series A and B and $6.28 per share for Series C. Thereafter, the remaining
assets are distributed to the common shareholders.
Conversion and Registration
The preferred stock is convertible, at the option of the holder, at any time,
into common stock on a one-for-one basis (subject to certain adjustments).
Conversion is automatic upon the sale of the Company's common stock in a public
offering with gross proceeds in excess of $7,500,000 and valuation of the
Company in excess of $75,000,000 prior to such sale. In addition, preferred
shareholders have certain registration rights and the right to participate in
future issuances of the Company's stock. Additionally, the Company and the
preferred shareholders have the right of first refusal should common
shareholders propose to sell shares. If these rights of first refusal are not
exercised, the preferred shareholders have the right to participate in the
sale. The rights to participate in future financing, right of first refusal,
and participation expire upon the earlier of a public offering of the Company's
common stock as described above or liquidation of the Company. The registration
rights expire on the seventh anniversary after a public offering of the
Company's common stock. The Company has reserved 10,143,545 shares of common
stock in the event of conversion.
Voting
Each share of preferred stock is entitled to vote on an "as converted" basis
along with common shareholders. As long as at least 2,000,000 shares of
preferred stock are outstanding, the Company cannot alter the rights,
preferences, or privileges of the preferred stock, increase the authorized
number of preferred stock, merge, consolidate, or liquidate without the
approval of at least a majority of outstanding preferred stock.
18
<PAGE> 17
WaveSpan Corporation
(a development stage company)
Notes to Financial Statements (CONTINUED)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
CONVERTIBLE PREFERRED STOCK (CONTINUED)
Warrants
In connection with the capital lease line discussed in Note 2, the Company
issued warrants to purchase 50,592 shares of Series A preferred stock at $0.40
per share, 51,100 shares of Series B preferred stock at $1.375 per share, and
25,478 shares of Series C preferred stock at $3.14 per share. In 1998 and 1997,
the Company recorded $13,503 and $67,515, respectively, of deferred interest to
reflect the value of these warrants. Amortization of deferred interest totaled
$65,457 and $5,626 for the year ended December 31, 1998 and 1997, respectively.
The warrants are exercisable at any time; exercise of the warrants is automatic
upon the earlier of (i) an initial public offering of the Company's common
stock or (ii) before their expiration on November 22, 2002, December 30, 2003,
and March 31, 2003. The Company has reserved 50,592 shares of Series A
preferred stock, 51,100 shares of Series B preferred stock, and 25,478 shares
of Series C preferred stock in the event of exercise.
In November 1998, in connection with the subordinated loan agreement discussed
in Note 5, the Company issued a warrant that entitles the holder to purchase a
defined number of shares of the Company's Series C preferred stock with an
aggregate purchase price equal to $419,000. In 1998, the Company recorded
deferred interest of $70,723 to reflect the value of these warrants.
Amortization of deferred interest totaled $3,209 for the year ended December
31, 1998. The exercise price shall be equal to the average of $3.14 per share
and the price per share of the next round of financing. The warrants are
exercisable at any time; exercise of the warrants is automatic upon the earlier
of (i) one year from an initial public offering or (ii) before their expiration
on November 12, 2003. The Company has reserved 133,439 shares of Series C
preferred stock in the event of exercise of this warrant.
19
<PAGE> 18
WaveSpan Corporation
(a development stage company)
Notes to Financial Statements (continued)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
CONVERTIBLE PREFERRED STOCK (CONTINUED)
Common Stock
In August 1995, the Company issued 3,750,000 shares of common stock to its
founders at $0.04 per share in exchange for technology. There were 500,000
shares immediately vested; the balance of the shares generally vest at a rate
of 1/48 per month. Unvested shares are subject to repurchase by the Company at
the original issue price in the event of termination of employment. At December
31, 1998, 595,005 shares remained subject to the Company's repurchase right.
STOCK OPTION PLAN
In August 1995, the Company adopted the 1995 Stock Plan (the Plan), whereby the
Board of Directors may grant incentive options to purchase the Company's common
stock to employees at prices not lower than fair market value (110% in certain
cases) at the date of grant as determined by the Board of Directors.
Nonstatutory options may be granted to employees and consultants at prices not
lower than 85% of fair market value (110% in certain cases) at the date of
grant as determined by the Board of Directors. The Board of Directors also has
the authority to set the term of the options (no longer than ten years from
date of grant, five years in certain instances). Unexercised options expire
three months after termination of employment or consulting relationship with
the Company. Stock purchase rights may also be issued under the Plan at prices
not less than 85% of fair market value at the date of the offer, which must be
accepted within 30 days. Shares issued pursuant to stock purchase rights
generally vest at a rate of 25% one year from date of issuance and 1/48 per
month thereafter. Options and stock purchase rights are exercisable immediately
upon grant. However, common shares issued prior to vesting are subject to
repurchase by the Company if the holder is no longer employed by the Company. As
of December 31, 1998, 2,079,330 shares of common stock were subject to this
repurchase provision. The Company has reserved 5,280,000 shares of common stock
for issuance under the Plan. Unless terminated sooner, the Plan will
automatically expire in 2005.
20
<PAGE> 19
WaveSpan Corporation
(a development stage company)
Notes to Financial Statements (continued)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
STOCK OPTION PLAN (CONTINUED)
Option activity is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------------------------------
SHARES WEIGHTED
AVAILABLE NUMBER PRICE AVERAGE
FOR OF PER PRICE PER
GRANT SHARES SHARE AGGREGATE SHARE
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 467,000 -- $ -- $ -- $ --
Options granted (2,000) 2,000 $0.040 80 $ 0.04
Options exercised -- -- $ -- -- $ --
Options canceled -- -- $ -- -- $ --
--------------------- ---------
Balance at
December 31, 1996 465,000 2,000 $0.040 80 $ 0.04
Options granted -- -- $ -- -- $ --
Options exercised -- -- $ -- -- $ --
Options canceled -- -- $ -- -- $ --
--------------------- ---------
Balance at
December 31, 1997 465,000 2,000 $0.040 80 $ 0.04
Additional shares
authorized 750,000 -- $0.000 -- $ --
Options granted (766,000) 766,000 $0.314 - $0.50 309,594 $0.404
Options exercised -- (50,000) $0.35 - $0.50 (19,750) $0.395
Options canceled 12,000 (12,000) $0.314 (3,768) $0.314
--------------------- ---------
Balance at
December 31, 1998 461,000 706,000 $0.04 - $0.50 $286,156 $0.405
===================== =========
</TABLE>
At December 31, 1998 and 1997, options to purchase 706,000 and 2,000 shares,
respectively, were exercisable at prices ranging from $0.04 to $0.50. The
weighted average contractual life of options outstanding at December 31, 1998
was 9.4 years. The weighted average estimated fair value of stock options
granted during 1998 and 1996 was $0.07 and $0.01, respectively. As of December
31, 1998, there were 19,667 stock options vested at a weighted average exercise
price of $0.39 per share.
21
<PAGE> 20
WaveSpan Corporation
(a development stage company)
Notes to Financial Statements (continued)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
STOCK OPTION PLAN (CONTINUED)
Notes received in payment of restricted stock are full recourse notes,
collateralized by the restricted stock, and bear interest at rates ranging from
5.05% and 6.53% per annum, compounded semiannually. Principal and interest are
due on the earlier of termination of employment or five years from the date of
stock issuance.
From March 16, 1995 (inception) through December 31, 1998, the Company has
granted 4,063,000 shares of restricted common stock with exercise prices
ranging from $0.04 to $0.35 per share. At December 31, 1998, 431,683 of these
shares had been repurchased and 3,631,317 of these shares were exercisable. The
weighted average fair value of restricted stock issued during 1998, 1997, and
for the period from March 16, 1995 (inception) through December 31, 1998 was
$0.06, $0.02, and $0.04, respectively. The weighted average contractual life
for restricted stock outstanding at December 31, 1998 was 8.3 years. As of
December 31, 1998, there were 1,551,987 shares of restricted stock vested at a
weighted average exercise price of $0.12 per share.
SHARES RESERVED
Common stock reserved for future issuance at December 31, 1998 is as follows:
<TABLE>
<S> <C>
Stock option plans (incentive and restrictive under the 1995 Plan):
Issued and outstanding 4,387,317
Reserved for future grants 892,683
----------
5,280,000
Conversion of preferred stock 10,143,545
----------
Total common stock reserved for future issuance 15,423,545
==========
</TABLE>
22
<PAGE> 21
WaveSpan Corporation
(a development stage company)
Notes to Financial Statements (continued)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
STOCK-BASED COMPENSATION
The Company has elected to follow APB Opinion No. 25 and related
interpretations in accounting for its employee stock awards because, as
discussed below, the alternative fair value accounting provided for under FAS
123 requires the use of option valuation models that were not developed for use
in valuing employee stock options. Under APB Opinion No. 25, when the exercise
price of the Company's employee stock awards equals the market price of the
underlying stock on the grant date, no compensation expense is recognized.
Pro forma information regarding net loss is required by FAS 123 which also
requires that the information be determined as if the Company has accounted for
its employee stock options granted subsequent to September 30, 1995 under the
fair value method of FAS 123. The fair value for these options was estimated at
the date of grant using the minimum value method with the following weighted
average assumptions:
<TABLE>
<CAPTION>
1998 1997
--------------------
<S> <C> <C>
Expected dividend yield 0.00% 0.00%
Risk-free interest rate 5.50% 6.17%
Expected life 3 years 3 years
</TABLE>
Option valuation models were developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable.
Option valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the Company's employee
options have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The pro forma effect
of applying FAS 123 was not material to the Company's reported net loss in
fiscal 1998. Because FAS 123 is applicable only to options granted subsequent
to September 30, 1995, its pro forma effect will not be fully reflected until
2000 and thereafter.
23
<PAGE> 22
WaveSpan Corporation
(a development stage company)
Notes to Financial Statements (continued)
5. FINANCING ARRANGEMENTS
In November 1998, the Company entered into a subordinated loan in the aggregate
principal amount of $3,500,000. Of this amount, $3,000,000 was immediately
available, and an additional $500,000 will become available upon occurrence of
certain events. The $3,000,000 immediately available was evidenced by a
promissory note bearing interest of 12.5% per annum and payable in monthly
installments through December 2001. In connection with the agreement, the
Company issued a warrant that entitles the holder to purchase up to 133,439
shares of the Company's Series C preferred stock as discussed in Note 4. At
December 31, 1998, approximately $3,000,000 was outstanding.
6. IMPACT OF THE YEAR 2000 (UNAUDITED)
The Company has determined that its current computer systems are year 2000
ready and would function properly with respect to dates in the year 2000 and
beyond. However, the Company has plans to replace its current computer systems
to meet the needs of the business as the Company continues to grow. The
replacement system will be year 2000 ready. The Company has yet to initiate
discussions with all of its third-party relationships to ensure that those
parties have appropriate plans to remediate year 2000 issues where their
systems impact the Company's operations. The Company is assessing the extent to
which its operations are vulnerable should those organizations fail to properly
remediate their computer systems. While the Company believes its planning
efforts are adequate to address its year 2000 concerns, there can be no
guarantee that the systems of other companies on which the Company's operations
rely will be converted on a timely basis and will not have a material effect on
the Company. The cost of the year 2000 initiatives is not expected to be
material to the Company's results of operations or financial position.
7. SUBSEQUENT EVENT
On March 15, 1999, the Company issued a $3,000,000 promissory note which bears
interest of 4.58% per annum. The note and accrued interest is due and payable
on September 15, 1999. In connection with the note, warrants for 238,854 Series
C preferred shares were issued with an exercise price of $3.14 per share. The
note and accrued interest will automatically convert into preferred stock if
the Company completes an equity financing prior to September 15, 1999.
On November 30, 1999, WaveSpan entered into an agreement with Proxim, Inc.
whereby WaveSpan agreed to be acquired by Proxim, Inc.
24
<PAGE> 23
ITEM 7. PRO FORMA FINANCIAL INFORMATION
(b) Financial Statements of Business Acquired
WAVESPAN CORPORATION
Index
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements:
Balance Sheet at September 30, 1999 and December 31, 1998 ... 26
Statement of Operations for the Nine Months
Ended September 30, 1999 and 1998 .......................... 27
Statement of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 ................................ 28
Notes to Financial Statements ............................... 29
</TABLE>
25
<PAGE> 24
WAVESPAN CORPORATION
BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 694 $ 2,640
Marketable securities...................................................... -- 1,025
Accounts receivable, net ................................................... 585 158
Inventories ................................................................ 481 957
Other current assets ....................................................... 137 197
-------- --------
Total current assets ..................................................... 1,897 4,977
Property and equipment, net ................................................... 1,259 1,437
Other assets .................................................................. 377 219
-------- --------
$ 3,533 $ 6,633
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 737 $ 639
Notes payable ............................................................... 6,142 293
Capital lease obligation .................................................... 740 596
Other current liabilities ................................................... 402 348
-------- --------
Total current liabilities ................................................. 8,021 1,876
Notes payable ............................................................... 1,878 2,707
Capital lease obligation .................................................... 699 825
-------- --------
Total liabilities ......................................................... 10,598 5,408
Commitments
Stockholders' equity:
Common stock, no par value: 30,000 shares authorized; 6,938 shares
issued and outstanding .................................................... 305 729
Convertible Preferred stock, no par value, 11,414 shares authorized;
10,143 issued and outstanding ............................................. 18,500 18,113
Shareholder notes receivable ................................................. (130) (543)
Accumulated deficit .......................................................... (25,740) (17,074)
-------- --------
Total stockholders' equity ................................................ (7,065) 1,225
-------- --------
$ 3,533 $ 6,633
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 25
WAVESPAN CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
------- -------
<S> <C> <C>
Revenue .......................................... $ 1,738 $ 175
Cost of revenue .................................. 4,199 1,323
------- -------
Gross profit ..................................... (2,461) (1,148)
------- -------
Operating expenses:
Research and development ...................... 2,640 3,045
Selling, general and administrative ........... 2,817 2,393
------- -------
Total operating expenses .................... 5,457 5,438
------- -------
Loss from operations ............................. (7,918) (6,586)
Interest and other income (expense), net ......... (748) 162
------- -------
Net loss ......................................... $(8,666) $(6,424)
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 26
WAVESPAN CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1999 1998
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss .............................................. $(8,666) $ (6,424)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ......................... 688 538
Changes in assets and liabilities:
Accounts receivable, net ............................ (427) (718)
Inventories ......................................... 476 (645)
Other assets ........................................ (98) (44)
Accounts payable .................................... 98 65
Other current liabilities ........................... 54 106
------- --------
Net used in operating activities .................. (7,875) (7,122)
------- --------
Cash flows from investing activities:
Purchase of equipment ............................... (510) (1,239)
Sales of marketable securities ...................... 1,025 --
------- --------
Net cash provided by (used in) investing activities 515 (1,239)
------- --------
Cash flows from financing activities:
Proceeds (repayments) of notes payable .............. 5,020 (2,029)
Net change in capitalized lease obligations ......... 18 507
Proceeds from sale of stock and warrants ............ 376 11,965
------- --------
Net cash provided by financing activities ......... 5,414 10,443
------- --------
Net increase (decrease) in cash and cash equivalents ..... (1,946) 2,082
Cash and cash equivalents, beginning of period ........... 2,640 624
------- --------
Cash and cash equivalents, end of period ................. $ 694 $ 2,706
======= ========
Supplemental disclosures:
Cash paid for interest .............................. $ 120 $ 110
Supplemental disclosures for non cash activities:
Equipment acquired under capital lease .............. $ 490 $ 1,005
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 27
WAVESPAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and note disclosures normally included in the
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted for interim financial
reporting. These condensed financial statements should be read in conjunction
with our financial statements and notes thereto for the two years ended December
31, 1998 that are included elsewhere herein. We believe that the accompanying
financial statements reflect all adjustments, consisting solely of normal,
recurring adjustments, that are necessary for fair presentation of the results
of the interim periods presented. The results of operations presented for the
nine month period ended September 30, 1999 are not necessarily indicative of the
results to be expected for the full fiscal year. 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 may differ from those
estimates.
INVENTORIES (IN THOUSANDS):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Raw materials ....................... $303 $707
Work-in-process ..................... 150 129
Finished goods ...................... 28 121
---- ----
$481 $957
==== ====
</TABLE>
29
<PAGE> 28
Item 7.(c) Pro-Forma Financial Information
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements give
effect to the merger of Proxim, Inc ("Proxim") and Wavespan Corporation
("Wavespan") using the purchase method of accounting in accordance with
generally accepted accounting principles. Proxim is considered the accounting
acquirer. The unaudited pro forma condensed combined financial statements are
based upon the historical financial statements of the respective companies. The
unaudited pro forma condensed combined balance sheet assumes that the merger
took place on September 30, 1999 and combines Wavespan's September 30, 1999
unaudited condensed balance sheet with Proxim's September 30, 1999 unaudited
condensed balance sheet. The unaudited pro forma condensed combined statements
of operations for the twelve months ended December 31, 1998 and the nine months
ended September 30, 1999 assume the merger took place as of January 1, 1998 and
combine Proxim's condensed statement of operations for the twelve months ended
December 31, 1998 with Wavespan's condensed statements of operations for the
twelve months ended December 31, 1998. The unaudited pro forma condensed
combined statement of operations for the nine months ended September 30, 1999
combines Proxim's condensed statement of operations for the nine months ended
September 30, 1999 (unaudited) with Wavespan's condensed statement of operations
for the nine months September 30, 1999 (unaudited). The unaudited pro forma
condensed combined financial statements are based on the estimates and
assumptions set forth in the notes to such statements. The unaudited pro forma
condensed combined financial statements do not purport to be indicative of the
results of operations for future periods or the combined financial position or
results that would have been realized had the companies been a single entity
during these periods. These unaudited pro forma condensed combined financial
statements should be read in conjunction with the historical financial
statements and related notes thereto of Wavespan, which are included elsewhere
herein and the historical financial statements of Proxim included in Proxim's
December 31, 1998 Annual Report on Form 10-K and September 30, 1999 Quarterly
Report on Form 10-Q previously filed with the Securities and Exchange
Commission.
30
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
(in thousands)
<TABLE>
<CAPTION>
WAVESPAN PRO FORMA
PROXIM, INC. CORPORATION ADJUSTMENTS COMBINED
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents and marketable securities $ 89,441 $ 694 $ (2,200)(f) $ 87,935
Accounts receivable, net .......................... 11,160 585 -- 11,745
Inventories ....................................... 13,194 481 -- 13,675
Deferred tax assets and other assets .............. 1,975 137 -- 2,112
-------- -------- -------- --------
Total current assets ............................ 115,770 1,897 (2,200) 115,467
Property and equipment, net ......................... 6,510 1,259 (780)(d) 6,989
Intangible assets ................................... -- -- 13,935 (a) 13,935
1,200 (b)
(2,473)(g)
--------
Deferred tax assets and other assets ................ 3,273 377 (1,273) 2,377
-------- -------- -------- --------
$125,553 $ 3,533 $ 9,682 $138,768
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. $ 2,675 $ 737 -- $ 3,412
Other current liabilities ......................... 7,974 7,284 900 (e) 16,158
-------- -------- -------- --------
Total current liabilities ....................... 10,649 8,021 900 19,570
Long-term liabilities ........................... -- 2,577 -- 2,577
4,146 (a)
(2,473)(g)
--------
Deferred tax liabilities ........................ -- -- 1,673 1,673
-------- -------- -------- --------
Total liabilities 10,649 10,598 2,573 23,820
9,789 (a)
1,200 (b)
5,883 (c)
(5,883)(c)
(780)(d)
(900)(e)
(2,200)(f)
--------
Stockholders' equity ............................. 114,904 (7,065) 7,109 114,948
-------- -------- -------- --------
$125,553 $ 3,533 $ 9,682 $138,768
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information
-31-
<PAGE> 30
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
WAVESPAN PRO FORMA
PROXIM, INC. CORPORATION ADJUSTMENTS COMBINED
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue ................................ $ 49,711 $ 567 $ -- $ 50,278
Cost of revenue ........................ 25,726 2,396 1,057(b) 29,179
-------- -------- -------- --------
Gross profit ........................... 23,985 (1,829) (1,057) 21,099
-------- -------- -------- --------
Operating expenses:
Amortization of goodwill ............. 1,891(c) 1,891
Research and development ............. 7,630 4,239 (193)(a) 11,676
Selling, general and administrative .. 12,555 3,419 (48)(a) 15,926
-------- -------- -------- --------
Total operating expenses ........... 20,185 7,658 1,650 29,493
-------- -------- -------- --------
Income (loss) from operations .......... 3,800 (9,487) (2,707) (8,394)
Interest and other income, net ......... 3,339 111 (97)(e) 3,353
-------- -------- -------- --------
Income (loss) before income taxes ...... 7,139 (9,376) (2,804) (5,041)
Provision for (benefit from)
income taxes ........................... 2,441 -- (240)(d) 2,201
-------- -------- -------- --------
Net income (loss) ...................... $ 4,698 $ (9,376) $ (2,564) $ (7,242)
======== ======== ======== ========
Basic net income (loss) per share ...... $ .46 $ (.69)
======== ========
Weighted average common shares ......... 10,318 (f) 10,488
======== ========
Diluted net income (loss) per share .... $ .42 $ (.69)
======== ========
Weighted average common shares and
equivalents ............................ 11,218 (f) 10,488
======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information
-32-
<PAGE> 31
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
WAVESPAN PRO FORMA
PROXIM, INC. CORPORATION ADJUSTMENTS COMBINED
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue .................................... $ 48,754 $ 1,738 $ -- $ 50,492
Cost of revenue ............................ 25,525 4,199 680(b) 30,904
-------- -------- -------- --------
Gross profit ............................... 23,229 (2,461) (680) 20,088
-------- -------- -------- --------
Operating expenses:
Amortization of goodwill ................. 1,418 (c) 1,418
Research and development ................. 8,658 2,640 (199)(a) 11,099
Selling, general and administrative ...... 9,855 2,817 (50)(a) 12,622
-------- -------- -------- --------
Total operating expenses ............... 18,513 5,457 1,169 25,139
-------- -------- -------- --------
Income (loss) from operations .............. 4,716 (7,918) (1,849) (5,051)
Interest and other income
(expense), net ............................. 2,981 (748) (73)(e) 2,160
-------- -------- -------- --------
Income (loss) before income taxes .......... 7,697 (8,666) (1,922) (2,891)
Provision for (benefit from)
income taxes ............................... 3,393 -- (240)(d) 3,153
-------- -------- -------- --------
Net income (loss) .......................... $ 4,304 $ (8,666) $ (1,682) $ (6,044)
======== ======== ======== ========
Basic net income (loss) per share .......... $ .39 $ (.53)
======== ========
Weighted average common shares ............. 11,128 (f) 11,298
======== ========
Diluted net income (loss) per share ........ $ .34 $ (.53)
======== ========
Weighted average common shares and
equivalents ................................ 12,576 (f) 11,298
======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information
-33-
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. The Acquisition
The pro forma condensed combined financial information reflects the
acquisition of Wavespan on December 3, 1999 for $9.8 million of Proxim's
common stock and $2.2 million of cash. The purchase price of the
acquisition of $12,900,000, which includes $900,000 of estimated
acquisition related costs, was used to acquire the net assets of Wavespan.
The purchase price for pro forma purposes was allocated to assets acquired
and liabilities assumed based on the fair value. The fair value of assets
acquired and liabilities assumed is based on management's estimates and an
independent appraisal for acquired core technology, in-process research
and development, developed technology and workforce. The excess of the
purchase price over the net tangible and intangible assets acquired and
liabilities assumed has been allocated to goodwill. The allocation of the
purchase price is as follows (in thousands):
<TABLE>
<S> <C>
Developed technology $ 151
Acquired workforce 300
Core technology 4,030
Goodwill 9,454
Property and equipment 343
Current and other assets 787
Long term deferred tax assets 1,200
Liabilities assumed (5,102)
Long term deferred tax liabilities (4,146)
Acquired in-process research and development 5,883
---------
$ 12,900
=========
</TABLE>
2. Unaudited Pro Forma Condensed Combined Balance Sheet
The following adjustments were applied to the unaudited condensed balance
sheets of Proxim and Wavespan at September 30, 1999, to arrive at the
unaudited pro forma condensed combined balance sheet:
(a) To record intangible assets acquired at their fair values, as follows
(in thousands):
<TABLE>
<S> <C>
Developed technology $ 151
Acquired workforce 300
Core technology 4,030
Goodwill 9,454
-------
$13,935
=======
</TABLE>
Deferred tax liabilities on the intangible assets above except for
goodwill, $4,146.
(b) To record deferred tax assets related to Wavespan's net operating loss
carryforward given the consideration of the annual limitation of
$600,000 and a period of 5 years.
(c) To reflect the one time charge for the acquired in-process research
and development charges of $5,883,000.
(d) To record the net decrease in fair value of property and equipment
over their historical book value.
(e) To record the estimate of transaction costs related to the merger.
Estimated costs include all costs directly incurred as a result of the
agreement including, but not limited to, accounting and attorney fees,
consultants and other miscellaneous items.
(f) To reflect the payment of $2.2 million in cash paid for the
acquisition.
(g) To offset long-term deferred tax assets and liabilities
-34-
<PAGE> 33
3. Unaudited Pro forma Condensed Combined Statement of Operations
The following adjustments were applied to the condensed statements of
operations for Proxim and Wavespan for the year ended December 31, 1998
and the nine months ended September 30, 1999 to arrive at the unaudited
pro forma condensed combined statement of operations of the respective
periods as though the acquisition took place on January 1, 1998:
(a) To reflect the net change in depreciation related to the change in
fair value of property and equipment.
(b) To reflect the amortization of the fair values of the developed
technology, core technology and acquired workforce over periods
ranging from 1 to 5 years.
(c) To reflect the amortization of goodwill arising from the merger over 5
years.
(d) To adjust the provision for income taxes to the estimated provision
for income taxes on a pro forma combined basis. The adjustment
reflects Wavespan's net operating loss limitation of $600,000 per
year.
(e) To reflect the decrease in interest income due to the payment of $2.2
million in cash paid for the acquisition using 4.4% annual interest
rate earned on such funds.
(f) Shares used in the per share calculation reflect 170,163 shares under
the merger agreement as if they were outstanding from the beginning of
each period presented. Basic and diluted weighted average shares
outstanding are the same in each period because of the pro forma
combined net loss.
The one time charge to expense for the fair value of the in-process
research and development has been excluded from the unaudited pro forma
condensed combined statement of operations since it is a non-recurring
charge.
35
<PAGE> 34
ITEM 7(d) EXHIBITS
A. Exhibits
<TABLE>
<CAPTION>
Exhibit # Description of Document
- --------- -----------------------
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of November 30,
1999.*
</TABLE>
- -------------
* Previously filed.
36
<PAGE> 35
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sunnyvale, State of
California, on the 16th day of February, 1999.
PROXIM, INC.
By: /s/ Keith E. Glover
-----------------------------------
Keith E. Glover
Vice President of Finance and Administration
and Chief Financial Officer
Dated: February 16, 1999
37
<PAGE> 36
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit # Description of Document
- --------- -----------------------
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of November 30,
1999.*
</TABLE>
- -------------
* Previously filed.
