<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
August 31, 1999
-----------------------
Brooks Automation, Inc.
----------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware
-------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
000-25434 04-3040660
- ---------------------------- ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
15 Elizabeth Drive, Chelmsford, MA 01824
- -------------------------------------------------------------------------------
(978) 262-2400
- -------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
<PAGE>
The undersigned Registrant hereby amends Item 7 of its Current Report on Form
8-K filed on September 15, 1999 to read in its entirety as follows:
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Smart Machines Inc. Balance Sheets as of December 31, 1998 and 1997
Smart Machines Inc. Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 and for the period from October 1,
1994 (date of inception) to December 31, 1998
Smart Machines Inc. Statements of Changes in Nonredeemable
Preferred Stock and Shareholders' Equity (Deficit) for the period
from October 1, 1994 (date of inception) to December 31, 1998
Smart Machines Inc. Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 and for the period from October 1,
1994 (date of inception) to December 31, 1998
Smart Machines Inc. Notes to Financial Statements
Report of Independent Accountants
Smart Machines Inc. Unaudited Condensed Balance Sheet as of March
31, 1999 and Condensed Balance Sheet as of December 31, 1998
Smart Machines Inc. Unaudited Condensed Statements of Operations
for the three months ended March 31, 1999 and 1998, and for the
period from October 1, 1994 (date of inception) to March 31, 1999
Smart Machines Inc. Unaudited Condensed Statements of Cash Flows
for the three months ended March 31, 1999 and 1998, and for the
period from October 1, 1994 (date of inception) to March 31, 1999
Smart Machines Inc. Notes to Unaudited Condensed Financial
Statements
(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1999
Pro Forma Condensed Consolidated Statements of Operations for the
six months ended March 31, 1999 and 1998, and the years ended
September 30, 1998, 1997 and 1996
Notes to Pro Forma Condensed Consolidated Financial Statements
<PAGE>
(c) EXHIBITS
Item No. Description
-------- -----------
2.05 Agreement and plan of merger dated as of July 7, 1999
among the Registrant, Smart Acquisition Corporation and
Smart Machines [incorporated by reference as Exhibit
2.05 to the Registrant's Registration Statement on Form
S-4 (No. 333-84727)].
23.1 Consent of PricewaterhouseCoopers LLP
<PAGE>
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.
By: /s/ Ellen B. Richstone
----------------------
Ellen B. Richstone
Senior Vice President of Finance and
Administration and Chief Financial
Officer
Dated: September 29, 1999
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 1,318,073 $ 2,079,742
Accounts receivable, net.......................... 154,943 23,842
Inventories....................................... 581,377 893,392
Prepaid expenses and other current assets......... 95,585 172,669
Receivable from related party..................... -- 70,368
------------ -----------
Total current assets............................ 2,149,978 3,240,013
Fixed assets, net................................... 342,619 567,806
Other assets........................................ 14,662 16,260
------------ -----------
Total assets.................................... $ 2,507,259 $ 3,824,079
============ ===========
LIABILITIES, AND REDEEMABLE CONVERTIBLE PREFERRED
STOCK, AND NONREDEEMABLE PREFERRED STOCK, COMMON STOCK,
AND OTHER SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable--current portion.................... $ 265,468 $ 61,298
Capital lease obligations--current portion........ 9,299 108,908
Accounts payable.................................. 174,163 278,399
Accrued interest payable.......................... 97,223 341
Accrued compensation and benefits................. 68,257 54,890
Allowance for warranty............................ 19,098 33,214
Accrued expenses and other current liabilities.... 88,588 71,453
------------ -----------
Total current liabilities....................... 722,096 608,503
Notes payable--less current portion................. 713,913 91,947
Convertible notes................................... 2,500,008 --
Capital lease obligations--less current portion..... -- 12,095
------------ -----------
Total liabilities............................... 3,936,017 712,545
------------ -----------
Commitments (Note 8)
Redeemable convertible preferred stock: no par
value; authorized 3,249,511 shares; issued and
outstanding 1,166,581 shares at December 31, 1998
and 1997........................................... 3,561,828 2,662,801
------------ -----------
Nonredeemable convertible preferred stock, common
stock, and other shareholders' equity (deficit):
Convertible preferred stock: no par value;
authorized: 12,750,489 shares; issued and
outstanding; 3,331,478 shares at December 31,
1998 and 1997 (Liquidation value; $6,481,482).... 6,467,306 6,467,306
Common stock; no par value: authorized; 33,000,000
shares; issued and outstanding; 4,554,712 shares
at December 31, 1998, and 4,486,151 shares at
December 31, 1997................................ 746,649 688,639
Preferred stock warrant value..................... 1,838,256 1,838,256
Deficit accumulated during the development stage.. (14,042,797) (8,545,468)
------------ -----------
Total nonredeemable convertible preferred stock,
common stock, and other shareholders' equity
(deficit)...................................... (4,990,586) 448,733
------------ -----------
Total liabilities, and redeemable convertible
preferred stock, and nonredeemable convertible
preferred stock, common stock, and other
shareholders' equity (deficit)................. $ 2,507,259 $ 3,824,079
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
Period from
October 1,
1994 (date
of
Years Ended December 31, inception)
------------------------------------- to December
1998 1997 1996 31, 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales................ $ 382,374 $ 686,564 $ -- $ 1,068,938
Cost of sales............ 1,171,460 1,549,441 -- 2,720,901
----------- ----------- ----------- ------------
Gross profit............ (789,086) (862,877) -- (1,651,963)
----------- ----------- ----------- ------------
Research and
development............. 2,715,223 1,615,835 1,979,343 7,669,475
Selling, general and
administrative.......... 1,029,413 953,721 851,706 3,411,330
----------- ----------- ----------- ------------
Loss from operations.... (4,533,722) (3,432,433) (2,831,049) (12,732,768)
Interest income.......... 65,764 94,677 49,397 257,228
Interest expense......... 130,344 30,157 19,292 181,852
Other expense............ -- -- 2,400 2,400
----------- ----------- ----------- ------------
Net loss................. (4,598,302) (3,367,913) (2,803,344) (12,659,792)
Dividends on preferred
stock................... 899,027 483,978 -- 1,383,005
----------- ----------- ----------- ------------
Net loss attributable to
common shareholders..... $(5,497,329) $(3,851,891) $(2,803,344) $(14,042,797)
=========== =========== =========== ============
Loss per share:
Basic................... $ (1.22) $ (0.94) $ (0.80)
Diluted................. $ (1.22) $ (0.94) $ (0.80)
Shares used in computing
loss per share:
Basic................... 4,524,067 4,103,896 3,502,676
Diluted................. 4,524,067 4,103,896 3,502,676
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
STATEMENTS OF CHANGES IN NONREDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(DEFICIT)
For the Period from October 1, 1994 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
Deficit
Convertible Preferred Notes Accumulated
Preferred Stock Common Stock Stock Receivable During
-------------------- ----------------- Warrant for Common Development
Shares Amount Shares Amount Value Stock Stage Total
--------- ---------- --------- ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of series A
preferred stock for
cash and transfer of
predecessor company net
assets and technology
at $1.00 per share in
May 1995............... 1,965,000 $1,965,000 -- $ -- $-- $ -- $ -- $ 1,965,000
Issuance of Series B
preferred stock for
cash at $3.00 per share
in May 1995............ 333,333 1,000,000 -- -- -- -- -- 1,000,000
Issuance of common stock
for cash at $.0001 per
share in June 1995..... -- -- 2,860,000 286 -- -- -- 286
Issuance of common stock
for cash and notes
receivable at $.001 per
share in June 1995..... -- -- 195,000 195 -- (175) -- 20
Issuance of common stock
for services rendered
at $.10 per share in
September 1995......... -- -- 45,311 4,531 -- -- -- 4,531
Issuance of common stock
for cash and notes
receivable at $.10 per
share in August and
October 1995........... -- -- 405,000 40,500 -- (5,500) -- 35,000
Net loss................ -- -- -- -- -- -- (1,890,233) (1,890,233)
--------- ---------- --------- ------- --- ------- ----------- -----------
Balances, December 31,
1995................... 2,298,333 $2,965,000 3,505,311 $45,512 $-- $(5,675) $(1,890,233) $ 1,114,604
========= ========== ========= ======= === ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
STATEMENTS OF CHANGES IN NONREDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(DEFICIT) (Continued)
For the Period from October 1, 1994 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
Deficit
Convertible Preferred Notes Accumulated
Preferred Stock Common Stock Stock Receivable During
-------------------- ------------------ Warrant for Common Development
Shares Amount Shares Amount Value Stock Stage Total
--------- ---------- --------- ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1995................... 2,298,333 $2,965,000 3,505,311 $45,512 $-- $(5,675) $(1,890,233) $ 1,114,604
--------- ---------- --------- ------- --- ------- ----------- -----------
Issuance of Series B
preferred stock for
cash at $3.00 per share
in February, March,
April and May 1996..... 199,049 597,147 -- -- -- -- -- 597,147
Issuance of series C
preferred stock for
cash at $3.50 per share
in June, July August
and October 1996, net
of issuance costs of
$14,177................ 679,088 2,362,631 -- -- -- -- -- 2,362,631
Issuance of Series C
preferred stock for
services rendered at
$3.50 per share in
November 1996.......... 8,294 29,029 -- -- -- -- -- 29,029
Issuance of common stock
for services rendered
at $0.30 per share in
June 1996.............. -- -- 1,000 300 -- -- -- 300
Issuance of common stock
for services rendered
at $0.35 per share in
November 1996.......... -- -- 8,921 3,122 -- -- -- 3,122
Repurchase of common
stock.................. -- -- (5,000) (500) -- -- -- (500)
Repayment of notes
receivable............. -- -- -- -- -- 5,675 -- 5,675
Net loss................ -- -- -- -- -- -- (2,803,344) (2,803,344)
--------- ---------- --------- ------- --- ------- ----------- -----------
Balances, December 31,
1996................... 3,184,764 $5,953,807 3,510,232 $48,434 $-- $ -- $(4,693,577) $ 1,308,664
========= ========== ========= ======= === ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
STATEMENTS OF CHANGES IN NONREDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(DEFICIT) (Continued)
For the Period from October 1, 1994 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
Deficit
Convertible Preferred Notes Accumulated
Preferred Stock Common Stock Stock Receivable During
-------------------- ------------------ Warrant for Common Development
Shares Amount Shares Amount Value Stock Stage Total
--------- ---------- --------- -------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1996................... 3,184,764 $5,953,807 3,510,232 $ 48,434 $ -- $-- $ (4,693,577) $1,308,664
Issuance of common stock
for cash at $0.70 per
share and 2,333,162
Series E warrants at
$0.79 in June 1997..... -- -- 870,254 599,363 1,838,256 -- -- 2,437,619
Dividends on preferred
stock.................. -- -- -- -- -- -- (483,978) (483,978)
Issuance of Series C
preferred stock for
services rendered at
$3.50 per share in
March 1997............. 1,716 6,006 -- -- -- -- -- 6,006
Issuance of Series C
preferred stock for
cash at $3.50 per share
in January, February
and March 1997......... 144,998 507,493 -- -- -- -- -- 507,493
Exercise of common stock
options................ -- -- 34,999 11,875 -- -- -- 11,875
Issuance of common stock
for services rendered
at $.30 per share in
May 1997............... -- -- 25,000 7,500 -- -- -- 7,500
Issuance of common stock
for services rendered
at $.35 per share in
January and October
1997................... -- -- 30,000 10,500 -- -- -- 10,500
Issuance of common stock
for services rendered
at $.70 per share in
September and December
1997................... -- -- 15,666 10,967 -- -- -- 10,967
Net loss................ -- -- -- -- -- -- (3,367,913) (3,367,913)
--------- ---------- --------- -------- ---------- --- ------------ ----------
Balances, December 31,
1997................... 3,331,478 $6,467,306 4,486,151 $688,639 $1,838,256 $-- $ (8,545,468) $ 448,733
========= ========== ========= ======== ========== === ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
STATEMENTS OF CHANGES IN NONREDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(DEFICIT) (Continued)
For the Period from October 1, 1994 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
Deficit
Convertible Preferred Notes Accumulated
Preferred Stock Common Stock Stock Receivable During
-------------------- ------------------- Warrant for Common Development
Shares Amount Shares Amount Value Stock Stage Total
--------- ---------- --------- -------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1997................... 3,331,478 $6,467,306 4,486,151 $688,639 $1,838,256 $ -- $ (8,545,468) $ 448,733
Dividends on preferred
stock.................. -- -- -- -- -- -- (899,027) (899,027)
Exercise of common stock
options................ -- -- 11,812 4,134 -- -- -- 4,134
Issuance of common stock
for services rendered
at $.70 per share in
May, June and August
1998................... -- -- 79,161 55,413 -- -- -- 55,413
Repurchase of common
stock.................. -- -- (22,412) (1,537) -- -- -- (1,537)
Net loss................ -- -- -- -- -- -- (4,598,302) (4,598,302)
--------- ---------- --------- -------- ---------- --------- ------------ -----------
Balances, December 31,
1998................... 3,331,478 $6,467,306 4,554,712 $746,649 $1,838,256 $ -- $(14,042,797) $(4,990,586)
========= ========== ========= ======== ========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative Period
from
October 1, 1994
Years Ended December 31, (date of inception)
------------------------------------- to December 31,
1998 1997 1996 1998
----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(4,598,302) $(3,367,913) $(2,803,344) $(12,659,792)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization....... 398,839 359,507 179,012 982,377
Increase in
allowance for
excess and obsolete
inventory.......... -- 42,752 30,000 72,752
Technology acquired
for Series A
preferred stock.... -- -- -- 459,354
Issuance of common
and preferred stock
for services
rendered........... 55,413 34,973 32,451 127,368
Change in assets and
liabilities:
Accounts
receivable....... (131,101) (23,842) -- (154,943)
Inventories....... 312,015 (367,314) (598,830) (654,129)
Prepaid expenses
and other current
assets........... 77,084 38,885 (185,073) (84,977)
Receivable from
related party.... 70,368 (57,593) (10,162) --
Accounts payable.. (104,236) 84,652 121,813 108,052
Accrued
liabilities...... 113,268 102,240 31,027 234,449
----------- ----------- ----------- ------------
Net cash used in
operating
activities..... (3,806,652) (3,153,653) (3,203,106) (11,569,489)
----------- ----------- ----------- ------------
Cash flows from
investing activities:
Purchase of fixed
assets............... (173,652) (269,111) (140,875) (667,180)
Decrease (increase) in
other assets......... 1,598 55,879 (25,412) (14,662)
----------- ----------- ----------- ------------
Net cash used in
investing
activities....... (172,054) (213,232) (166,287) (681,842)
----------- ----------- ----------- ------------
Cash flows from
financing activities:
Proceeds from issuance
of notes payable..... 1,000,000 -- -- 1,000,000
Proceeds from issuance
of convertible
notes................ 2,500,008 -- -- 2,500,008
Proceeds from issuance
of preferred stock... -- 4,524,572 2,959,778 9,983,513
Proceeds from issuance
of common stock...... 4,134 611,238 -- 650,678
Repurchase of common
stock................ (1,537) -- (500) (2,037)
Repayment of notes
receivable for common
stock................ -- -- 5,675 5,675
Repayment of notes
payable.............. (173,864) -- -- (173,864)
Repayment of capital
lease obligations.... (111,704) (158,494) (108,970) (394,569)
----------- ----------- ----------- ------------
Net cash
provided by
financing
activities..... 3,217,037 4,977,316 2,855,983 13,569,404
----------- ----------- ----------- ------------
(Decrease) increase in
cash and cash
equivalents............ (761,669) 1,610,431 (513,410) 1,318,073
Cash and cash
equivalents at
beginning of period.... 2,079,742 469,311 982,721 --
----------- ----------- ----------- ------------
Cash and cash
equivalents at end of
period................. $ 1,318,073 $ 2,079,742 $ 469,311 $ 1,318,073
=========== =========== =========== ============
Supplemental
disclosures:
Series A preferred
stock issued upon
acquisition of net
assets and technology
from predecessor
company.............. $ 500,000
Capital lease
obligations incurred
upon acquisition of
fixed assets......... $ 238,276 $ 403,868
Loan obligation
incurred upon
acquisition of fixed
assets............... $ 153,245 $ 153,245
Interest paid......... $ 33,121 $ 30,157 $ 19,292 $ 84,629
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
1. Formation and Business of the Company
Smart Machines, Inc. (the "Company") was started as a partnership on October
1, 1994, and incorporated on May 16, 1995. Concurrent with the initial sale of
preferred stock, the Company issued 500,000 shares of Series A preferred stock
and 2,860,000 shares of common stock to the founders in exchange for their
interest in the partnership. Operations from October 1, 1994 to December 31,
1994 were insignificant. To date, the Company has been primarily involved in
developing its semiconductor manufacturing equipment technology, recruiting
personnel and raising capital.
2. Summary of Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of presentation
The Company's financial statements have been prepared on a basis which
contemplates realization of assets and satisfaction of liabilities in the
normal course of business. The Company has incurred operating losses and
negative cash flows from operations since inception. As a development stage
company, Smart Machines Inc.'s ability to continue as a going concern is highly
dependent, among other factors, on its ability to complete the development and
commercialization of its products, obtain sufficient financing to produce the
products, and obtain adequate customers for its products. The Company is
currently pursuing additional funding to further the development of its
products and markets. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classifications of liabilities that might be necessary should
the Company be unable to continue in existence.
Financial instruments
Amounts reported for cash and cash equivalents, accounts receivable,
receivable from related parties, accounts payable and other accrued liabilities
are considered to approximate fair value primarily due to their short
maturities.
Cash and cash equivalents
The Company's policy is to invest cash in excess of operating requirements
in interest-bearing investments with maturities of one year or less.
Investments with original or remaining maturities of three months or less at
the date of purchase are included in cash and cash equivalents. Cash and cash
equivalents at December 31, 1998 include approximately $1,300,000 held in two
demand accounts with two financial institutions. Cash and cash equivalents at
December 31, 1997 included $1,485,558 in commercial paper of U.S. companies
maturing in January through March 1998, whose fair value approximated the
carrying value, and approximately $593,000 held in four demand accounts with
the two financial institutions. Deposits in these banks may exceed the amount
of insurance provided on such deposits. The Company has not experienced any
losses on its cash and cash equivalents.
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories are stated at the lower of cost (standard cost which
approximates first-in, first-out basis) or market.
Depreciation and amortization
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets (generally three years). Leasehold
improvements are amortized over their estimated useful lives or the remaining
lease term, whichever is less.
Revenue recognition
Revenue from product sales are recorded upon shipment to the customer
provided that no significant obligations remain and collection of the related
receivable is probable. When insignificant obligations remain after shipment of
the product, Smart Machines accrues the estimated costs of such obligations
upon shipment. A provision for product warranty costs is recorded at the time
of sale. In the event significant post-shipment obligations or uncertainties
remain, revenue is deferred and recognized when such obligations are fulfilled
by Smart Machines or the uncertainties are resolved.
Significant Customers
In 1998 the Company had revenues from five customers that represented 12%,
12%, 18%, 21%, and 20% of revenues and in 1997 the Company had revenues from
four customers that represented 11%, 15%, 16%, and 40% of revenues.
Earnings Per Share
Earnings per share has been calculated in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share," Basic earnings
per share is calculated based on the weighted average number of common shares
outstanding during the period. Diluted earnings per share is calculated based
on the weighted average number of common shares and dilutive common equivalent
shares assumed outstanding during the period. Shared used to compute diluted
earnings per share in loss years exclude common share equivalents, as their
inclusion would have an anti-dilutive effect.
Stock-based compensation
The Company accounts for its stock based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," with the pro forma disclosures required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
Research and Development and Software Development Costs
Costs incurred in the research and development of the Company's products are
expensed as incurred, except for certain software development costs. Software
development costs are expensed prior to establishing technological feasibility
and capitalized thereafter until the related product is available for general
release to customers. Capitalized software development costs are amortized to
cost of sales on a product-by-product basis over the estimated lives of the
related products.
Income taxes
The Company reports income taxes in accordance with the liability method
whereby deferred tax asset and liability account balances are calculated at the
balance sheet date using current tax laws and rates in effect.
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Reclassification
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation. These reclassifications did not change
previously reported net assets or net loss.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
-------- --------
<S> <C> <C>
Raw materials........................................... $501,588 $847,953
Work in process......................................... 79,789 45,439
-------- --------
$581,377 $893,392
======== ========
</TABLE>
4. Fixed Assets
Fixed assets, including furniture, equipment and software, under capital
leases (cost $145,707 and $371,708 and accumulated amortization of $127,617 and
$252,441 at December 31, 1998 and 1997, respectively) consist of the following:
<TABLE>
<CAPTION>
Estimated December 31,
Useful ----------------------
Life 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Machinery and equipment.................... 3 years $ 609,245 $ 508,102
Furniture and fixtures..................... 3 years 141,725 136,800
Software................................... 3 years 252,479 214,684
Test and demonstration equipment........... 2 years 256,457 256,457
Leasehold improvements..................... lease term 40,301 35,301
---------- ----------
1,300,207 1,151,344
Less: Accumulated depreciation and
amortization.............................. (957,588) (583,538)
---------- ----------
$ 342,619 $ 567,806
========== ==========
</TABLE>
Amortization expense for fixed assets under capital lease was $56,567,
$130,480, $93,350 and $289,664 for the years ended December 31, 1998, 1997, and
1996, and the cumulative period from October 1, 1994 (date of inception to
December 31, 1998).
5. Notes Payable
In November 1998, the Company entered into an agreement, expiring December
31, 1999, which allows for working capital borrowings of up to $2,000,000, and
equipment loans of $500,000. Working capital advances over $1,500,000 are
permitted only to the extent of 80% of eligible accounts receivable plus 50% of
inventories. All borrowings are collateralized by the Company's assets, have a
stated interest rate of 8.92% per annum for working capital borrowings, and
8.63% for equipment loans, and are payable in monthly installments of principal
and interest. (See also Note 10--Warrants.) At December 31, 1998, working
capital
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
borrowings of $979,381 were outstanding, payable in monthly installments of
$31,400. Annual maturities are as follows:
<TABLE>
<S> <C>
1999................................................................. $ 265,468
2000................................................................. 301,925
2001................................................................. 411,988
---------
979,381
Less current portion................................................. (265,468)
---------
$ 713,913
=========
</TABLE>
In March 1999, the Company increased its working capital borrowings to
$1,500,000.
Notes payable at December 31, 1997, consisting of bank borrowings to
purchase equipment and software, were paid off in 1998.
6. Convertible Notes
On June 15, 1998, the Company issued convertible promissory notes in the
amount of $2,500,008. Each of $4.022 of outstanding principal will
automatically convert into one unit consisting of one share of Series D
preferred stock and 0.746 of a share of common stock, upon the earliest of (i)
consent of the holders of 60% of the principal amount of all the notes, (ii)
the closing of an investment by an institutional investor unanimously accepted
by the Company's Board of Directors with gross proceeds to the Company of at
least $1,500,000, (iii) June 15, 2000, or (iv) the conversion of all of the
Company's Series D preferred stock into common stock. Interest of 7.00% per
annum is payable in cash upon conversion of the notes. Accrued interest of
$97,223 is included in accrued liabilities at December 31, 1998. The note
holders may declare the entire unpaid principal and accrued interest
immediately due and payable in case of default, as defined in the promissory
notes. These notes are subordinated to the notes payable described in Note 5
above. The Company reserved 621,552 shares of Series D preferred stock and
463,778 shares of common stock in the event of conversion.
7. Capital Lease Obligations
The Company leases certain furniture, equipment and software under capital
leases expiring in January and February 1999. Future minimum lease payments are
$9,442, including interest of $143.
8. Commitments
The Company leases its facility under an operating lease expiring on
November 30, 2001. Under the terms of the lease, the Company is responsible for
its share of common area expenses. Future minimum lease payments are as
follows:
<TABLE>
<S> <C>
1999............................................................. $313,092
2000............................................................. 313,092
2001............................................................. 287,001
--------
$913,185
========
</TABLE>
Rent expense for the years ended December 31, 1998, 1997, and 1996, and the
cumulative period from October 1, 1994 (date of inception) to December 31,
1998, was approximately $186,000, $117,000, $98,000 and $446,000, respectively.
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Preferred Stock
Convertible preferred stock
The convertible preferred stock at December 31, 1998 comprises:
<TABLE>
<CAPTION>
Number of
Number of Shares Dividend Liquidation Total
Shares Issued and Per Value Per Liquidation
Authorized Outstanding Share Share Value
---------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Series A................ 1,965,000 1,965,000 $0.05 $1.00 $ 1,965,000
Series B................ 532,382 532,382 $0.15 $3.00 1,597,146
Series C................ 879,096 834,096 $0.175 $3.50 2,919,336
Series D*............... 2,287,250 1,166,581 $0.18 $3.50 4,083,034
Series E*............... 962,261 -- $0.23 $4.25 --
Undesignated............ 9,374,011 -- --
---------- --------- -----------
16,000,000 4,498,059 $10,564,516
========== ========= ===========
</TABLE>
- --------
* Redeemable preferred stock. See redemption features below.
The rights, preferences and privileges of the preferred shareholders are as
follows:
Dividends
The holders of Series D and E preferred stock are entitled to noncumulative
dividends, in preference to the Series C, Series B and Series A preferred stock
and common stock, when and as declared by the Board of Directors, at the annual
rate stated above. After the dividends on Series D stock have been paid, the
holders of Series C preferred stock are entitled to noncumulative dividends, in
preference to the Series B and Series A preferred stock and common stock, when
and as declared by the Board of Directors, at the annual rate stated above.
After the dividends on Series D and Series C preferred stock have been paid,
the holders of Series B preferred stock are entitled to noncumulative
dividends, in preference to the Series A preferred stock and common stock, when
and as declared by the Board of Directors, at the annual rate stated above.
After the dividends on Series D, Series C and Series B preferred stock have
been paid, the holders of the Series A preferred stock are entitled to
noncumulative dividends, in preference to common stock, when and as declared by
the Board of Directors, at the annual rate stated above. After payment of all
dividends of the preferred stock, the holders of such stock are entitled to
participate, on an as converted basis, with the holders of common stock as to
any dividends payable on common stock. No dividends have been declared as of
December 31, 1998.
Liquidation
Holders of Series D and E preferred stock are entitled to a preference in
liquidation to Series C, Series B and Series A preferred shareholders and
common shareholders of $3.50 and $4.25 per share, respectively, plus declared
but unpaid dividends. Holders of Series C preferred stock are entitled to a
preference in liquidation to Series B and Series A preferred shareholders and
common shareholders of $3.50 per share plus declared but unpaid dividends.
Holders of Series B preferred stock are entitled to a preference in liquidation
to Series A preferred shareholders and common shareholders of $3.00 per share
plus declared but unpaid dividends. The holders of the Series A preferred stock
are entitled to a preference in liquidation to common shareholders of $1.00 per
share plus declared but unpaid dividends. After the above amounts have been
paid on the preferred
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
stock, the holders of common stock are entitled to a distribution of
$3,000,000. Any remaining assets are distributed to the holders of common and
preferred stock on an as converted basis.
Conversion and registration
The preferred stock is convertible, at the option of the holders, at any
time, into common stock on a one-for-one basis subject to certain adjustments.
Conversion is automatic upon the closing of a public offering of the Company's
common shares for aggregate proceeds of not less than $10,000,000, with an
offering price of not less than $10.00 per share, or the vote of a majority of
the holders of the outstanding shares of Series A, B and C preferred stock,
voting together as a single class and the vote of 75% of the holders of Series
D and E preferred stock, voting together as a single class. The preferred
shareholders have certain registration rights. The Company has reserved
4,641,565 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. So long as any shares of preferred stock are
outstanding, the Company shall not, without the vote or written consent by a
majority of the preferred shareholders, voting as a single class, and at least
66 2/3% of the Series D and E holders, voting as a single class, (i) amend the
Company's articles of incorporation, (ii) alter or change any of the rights,
preferences or privileges of the preferred stock, (iii) create or issue any new
class or series of preferred stock that has rights equal to or superior to the
rights, preferences and privileges of the preferred stock, (iv) increase the
authorized number of shares of any series of preferred stock, (v) pay or
declare any dividends, (vi) authorize a change in the number of directors on
the Company's Board of Directors, (vii) merge or sell all or substantially all
of the assets, or liquidate, dissolve or wind up the corporation, or (viii)
redeem, purchase or otherwise acquire shares of preferred or common stock. As
long as at least 250,000 shares of originally issued shares of Series D
preferred stock are outstanding, the holders of Series D and E preferred stock,
voting as a single class, are entitled to elect one member of the Company's
Board of Directors.
Redemption
At any time after May 2, 2003, upon written request from the holders of at
least 66 2/3% of the Series D and E preferred stock, the Company is required to
redeem the shares specified in the request at a price of $3.50 and $4.25 per
share, respectively, plus $0.175 and $0.225 per share, compounded annually, per
share of Series D and E preferred stock, respectively. The difference between
the issuance price and the redemption value is accreted annually.
10. Shareholders' Equity
Warrants
In connection with the notes payable agreement discussed in Note 5, the
Company issued warrants to purchase 57,182 shares of Series D preferred stock
at $3.50 per share and 42,658 shares of common stock at $0.70 per share. These
warrants are exercisable at any time and expire on December 31, 2004.
In connection with the sale of equity units in June 1997, the Company issued
warrants to purchase 961,234 shares of Series E preferred stock at $4.25 per
share. These warrants are exercisable at any time. Warrants to purchase 480,617
shares each expire upon the earlier of (i) May 30, 1999 and May 30, 2001,
respectively, (ii) dissolution of the Company or sale of substantially all of
the Company' assets, or (iii) merger
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
or acquisition of the Company in which more than 50% of the voting power is
disposed of, unless the warrants are assumed by the surviving entity. The
Company also issued warrants to purchase 10,000 shares of Series C preferred
stock at $3.50 per share, exercisable at any time and expiring on September 30,
2006.
The Company reserved 961,234 shares of Series E, 57,182 shares of Series D
and 10,000 shares of Series C preferred stock in the event of issuance.
Common stock
Common stock held by the Company's founders and employees is subject to
stock purchase agreements whereby the Company has the option to repurchase
unvested shares upon termination of employment at the initial issuance price.
These shares generally vest as follows: 12.5% at the date of the agreement and
2.0833% per month thereafter in the case of founders, and 25% one year from the
date of the agreement and 2.0833% per month thereafter in the case of other
employees. At December 31, 1998, 321,142 shares of common stock remain subject
to repurchase by the Company. The Company has the right of first refusal should
any shareholder decide to sell shares. The Company, the Series D preferred
shareholders and the holders of promissory notes convertible into Series D
preferred stock also have the right of first refusal and the right to
participate in the sale, should any founder decide to sell shares.
Stock Option Plan
During 1996, the Company adopted the 1996 Stock Option Plan (the "Plan") and
reserved 619,689 shares for issuance under the Plan. In April 1997 and February
1998, the shareholders approved increases in shares reserved for issuance under
the Plan to 1,119,689 and 1,419,689 shares respectively. Management allocated
100,000 of these shares for issuance to employees under a special incentive
plan. 49,988 of the incentive plan shares were issued in 1998; the remaining
50,012 shares are included in shares available under the Plan at December 31,
1998. Under the Plan, incentive options to purchase the Company's common stock
may be granted to employees at prices not lower than fair market value at the
date of grant (110% of fair market value in certain instances), as determined
by the Board of Directors. Nonqualified stock options may be granted to
employees, directors and consultants at prices not less than 85% of fair market
value 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 the date of grant, five years in certain instances).
Options generally vest at a rate of 25% one year from the vesting date, and
2.0833% per month thereafter and expire in five to ten years. Unexercised
options expire 30 days after termination of employment or consultancy with the
Company.
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Activity under the Plan is set forth below:
<TABLE>
<CAPTION>
Weighted
Number Average
Shares of Price Per Exercise
Available Shares Share Total Price
--------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Shares reserved.......... 619,689 -- -- $ -- --
Options granted.......... (114,000) 114,000 $0.30-$0.35 36,400 $0.32
-------- -------- ---------
Balances, December 31,
1996.................... 505,689 114,000 $0.30-$0.35 36,400 $0.32
Shares reserved.......... 500,000 -- -- -- --
Options granted.......... (588,000) 588,000 $0.35-$0.70 279,300 $0.48
Options exercised........ -- (34,999) $0.30-$0.35 (11,875) $0.34
Options forfeited........ 36,001 (36,001) $0.30-$0.35 (11,975) $0.33
-------- -------- ---------
Balances, December 31,
1997.................... 453,690 631,000 $0.30-$0.70 291,850 $0.46
Shares reserved.......... 300,000 -- -- -- --
Shares issued under
incentive plan.......... (49,988) -- -- -- --
Options granted.......... (404,502) 404,502 $0.70 283,151 $0.70
Options exercised........ -- (11,812) $0.35 (4,134) $0.35
Options forfeited........ 363,188 (363,188) $0.35-$0.70 (166,250) $0.46
-------- -------- ---------
Balances, December 31,
1998.................... 662,388 660,502 $0.30-$0.70 $ 404,617 $0.61
-------- -------- ---------
</TABLE>
The following table summarizes information with respect to stock options
outstanding and currently exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Currently
Options Outstanding Exercisable
-------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.30 50,000 7.4 $0.30 31,250 $0.30
$0.35 103,000 8.1 $0.35 48,833 $0.35
$0.70 507,502 9.4 $0.70 156,161 $0.70
------- -------
660,502 236,244
------- -------
</TABLE>
The following table summarizes information with respect to stock options
outstanding and currently exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Options Currently
Options Outstanding Exercisable
-------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.30 50,000 8.4 $0.30 18,749 $0.30
$0.35 371,000 9.2 $0.35 11,000 $0.35
$0.70 210,000 9.8 $0.70 45,000 $0.70
------- ------
631,000 $0.46 74,749 $0.54
------- ------
</TABLE>
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
No options were exercisable at December 31, 1996.
No compensation cost has been recognized for the Plan in the financial
statements. Had compensation cost for the Plan been determined based on the
fair value of the options at the grant date consistent with the provisions of
SFAS 123, it would not result in a significant difference from the reported net
loss for 1998, 1997, and 1996. However, such differences may not be
representative of future compensation cost because options vest over several
years and additional grants are made each year.
11. Earnings per share
The following table is a summary of shares used in calculating basic and
diluted earnings per share:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average number of shares outstanding
used in computing basic earnings per share..... 4,524,067 4,103,896 3,502,676
Dilutive securities*............................ -- -- --
--------- --------- ---------
Shares used in computing diluted earnings per
share.......................................... 4,524,067 4,103,896 3,502,676
========= ========= =========
</TABLE>
- --------
* Dilutive securities excluded in loss years, as inclusion would be anti-
dilutive.
12. Income Taxes
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $7,453,000 and $5,549,000 available to reduce future federal and
state taxable income, respectively. The carryforwards expire by the year 2013
for federal and 2003 for state tax purposes unless utilized.
For federal and state tax purposes, the Company's net operating loss
carryforwards may be subject to an annual utilization limitation in case of a
change in stock ownership, as defined by federal and state tax law.
Temporary differences which gave rise to significant portions of deferred
tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net operating losses.................................... $2,862,000 $1,004,000
Capitalized research and development.................... 1,953,000 1,875,000
Tax credit carryforwards................................ 375,000 229,000
Other................................................... 148,000 330,000
---------- ----------
5,338,000 3,438,000
Valuation Allowance..................................... (5,338,000) (3,438,000)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
A valuation allowance must be established for a deferred tax asset if a tax
benefit may not be realized from the asset. The Company has established a 100%
valuation allowance to the extent of its deferred tax assets as no immediate
benefit is expected to be received due to the Company's recurring losses. The
changes in the valuation allowance during 1998 and 1997 were increases of
$1,900,000 and $1,503,000, respectively.
<PAGE>
SMART MACHINES INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
13. Employee Benefit Plan
Effective January 1, 1995, the Company adopted a plan (the "Plan"), which is
intended to qualify under Section 401(k) of the Internal Revenue Code of 1986.
The Plan covers essentially all employees. Eligible employees may make
voluntary contributions to the Plan up to 20% of their annual eligible
compensation.
14. Related Party Transactions
A shareholder and member of the Company's Board of Directors is also a
shareholder of Xulu Entertainment, Inc. ("Xulu"). The Company subleased part of
its facility to Xulu and provided certain clerical support until May 1998, when
Xulu left the premises. The expense charged to Xulu for the years ended
December 31, 1998, 1997, and 1996, and the cumulative period from October 1,
1994 (date of inception) to December 31, 1998 was $109,149, $201,327 and
$110,744, and $429,587, respectively.
In January 1997, the Company entered into a revolving credit agreement with
its president and chief executive officer, who is also a shareholder, which
allows for borrowings up to $400,000 for working capital. Borrowings are
subordinated to the note payable to bank discussed in Note 5, bear interest at
the Silicon Valley Bank's prime rate plus 2% per annum, payable semi-annually,
mature after one year, and are collateralized by the Company's assets. During
1997, the Company borrowed $100,000 under this agreement. This amount, plus
accrued interest thereon, was repaid during the year.
In connection with this agreement, the Company issued a warrant to purchase
25,000 shares of Series C preferred stock at $3.50 per share, exercisable at
any time and expiring on January 9, 2002. The Company reserved 25,000 shares of
Series C preferred stock in the event of issuance.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Smart Machines Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in nonredeemable preferred stock and shareholders'
equity (deficit) and of cash flows present fairly, in all material respects,
the financial position of Smart Machines Inc. (a company in the development
stage) at December 31, 1998 and 1997 and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, and for the cumulative period from October 1, 1994 (date of inception) to
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is in the development stage and has not yet
generated significant revenues and, as a result, has incurred losses and
negative cash flows from operations since inception that raise substantial
doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ PricewaterhouseCoopers LLP
- ----------------------------------
PricewaterhouseCoopers LLP
San Jose, California
June 1, 1999
<PAGE>
SMART MACHINES INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(unaudited)
(In thousands,
except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 977 $ 1,318
Accounts receivable, net............................ 105 155
Inventories......................................... 521 581
Prepaid expenses and other current assets........... 83 96
-------- --------
Total current assets.............................. 1,686 2,150
Fixed assets, net..................................... 303 343
Other assets.......................................... 15 14
-------- --------
Total assets...................................... $ 2,004 $ 2,507
-------- --------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK, AND NONREDEEMABLE PREFERRED STOCK, COMMON STOCK,
AND OTHER STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long term debt................... $ 407 $ 265
Current portion of capital lease obligations........ -- 10
Accounts payable.................................... 152 174
Accrued interest payable............................ 141 97
Accrued expenses and other current liabilities...... 138 176
-------- --------
Total current liabilities......................... 838 722
Other long-term liabilities........................... 3,499 3,214
-------- --------
Total liabilities................................. 4,337 3,936
-------- --------
Redeemable convertible preferred stock................ 3,787 3,562
-------- --------
Nonredeemable convertible preferred stock, common
stock and other stockholders' equity:
Preferred stock, no par value; 12,750,489 shares
authorized; 3,331,478 issued and outstanding,
respectively ...................................... 6,467 6,467
Common stock, no par value; 33,000,000 shares
authorized; 4,577,422 and 4,554,712 shares issued
and outstanding, respectively...................... 747 747
Preferred stock warrant value....................... 1,838 1,838
Accumulated deficit during development stage........ (15,172) (14,043)
-------- --------
Total nonredeemable convertible preferred stock,
common stock, and other stockholders' deficit.... (6,120) (4,991)
-------- --------
Total liabilities, redeemable convertible
preferred stock, and nonredeemable convertible
preferred stock, common stock, and other
stockholders' deficit............................ $ 2,004 $ 2,507
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
SMART MACHINES INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31,
----------------
1999 1998
------- -------
(In thousands,
except share
data)
<S> <C> <C>
Net sales.................................................... $ 230 $ 32
Cost of sales................................................ (397) (260)
------- -------
Gross profit ............................................ (167) (228)
------- -------
Operating expenses:
Research and development................................... 474 509
Selling, general and administrative........................ 193 179
------- -------
Loss from operations..................................... (834) (916)
Interest income.............................................. 9 20
Interest expense............................................. 80 7
------- -------
Net loss..................................................... (905) (903)
Dividends on preferred stock................................. 225 225
------- -------
Net loss attributable to common shareholders................. $(1,130) $(1,128)
======= =======
Loss per share:
Basic...................................................... $ (0.25) $ (0.25)
Diluted.................................................... $ (0.25) $ (0.25)
Shares used in computing loss per share:
Basic...................................................... 4,566 4,491
Diluted.................................................... 4,566 4,491
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
SMART MACHINES INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities
Net loss............................................. $ (905) $ (903)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization...................... 70 107
Issuance of common stock for services rendered..... -- 55
Changes in operating assets and liabilities:
Accounts receivable............................... 50 (15)
Inventories....................................... 60 (51)
Prepaid expenses and other current assets......... 13 (4)
Accounts payable.................................. (22) (129)
Accrued expenses and other current liabilities.... (5) 58
------ ------
Net cash used in operating activities............ (739) (882)
------ ------
Cash flows from investing activities
Purchases of fixed assets, net....................... (30) (27)
Increase in other assets............................. -- --
------ ------
Net cash used in investing activities............ (30) (27)
------ ------
Cash flows from financing activities
Proceeds from issuance of long term debt............. 500 --
Proceeds from issuance of common stock............... 1 --
Proceeds from issuance of convertible notes.......... -- --
Repayment of long term debt.......................... (73) (132)
Repurchase of common stock........................... -- --
------ ------
Net cash provided by (used in) financing
activities...................................... 428 (132)
------ ------
Net decrease in cash and cash equivalents............ (341) (1,041)
Cash and cash equivalents, beginning of period....... 1,318 2,080
------ ------
Cash and cash equivalents, end of period............. $ 977 $1,039
====== ======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
SMART MACHINES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Smart Machines
Inc. have been prepared in accordance with generally accepted accounting
principles and the instructions to Article 10 of Securities and Exchange
Commission Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation have been included.
The results of operations for the three months ended March 31, 1999, are not
necessarily indicative of the results that may be expected for other quarters
or the entire fiscal year.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Raw materials and purchased parts..................... $443 $501
Work-in-process....................................... 78 80
---- ----
$521 $581
==== ====
</TABLE>
3. EARNINGS (LOSS) PER SHARE
The following is a summary of the shares used in computing basic and diluted
loss per share (in thousands):
<TABLE>
<CAPTION>
Three
months
ended
March 31,
-----------
1999 1998
----- -----
<S> <C> <C>
Weighted average shares outstanding used in computing basic
loss per share............................................... 4,566 4,491
Dilutive securities(a)........................................ -- --
----- -----
Shares used in computing diluted loss per share............... 4,566 4,491
===== =====
</TABLE>
- --------
(a) Shares used to compute diluted earnings per share in loss years exclude
common share equivalents as their inclusion would be anti-dilutive.
<PAGE>
SMART MACHINES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(unaudited)
4. SIGNIFICANT CUSTOMERS
For the three months ended March 31, 1999, Smart Machines had revenues from
four customers representing 19%, 20%, 30% and 31% of revenues and for the three
months ended March 31, 1998, Smart Machines had revenues from one customer
representing 98% of revenues.
5. SUBSEQUENT EVENTS
In July 1999 Smart Machines entered into an Agreement and Plan of Merger
with Brooks Automation, Inc. This merger is expected to be accounted for as a
pooling-of-interests. Brooks Automation is based in Massachusetts and
manufacturers process tool automation, components, systems and factory
automation software for the semiconductor, flat panel and disk drive
industries.
<PAGE>
BROOKS AUTOMATION, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements give effect to the Merger of Brooks Automation, Inc. ("Brooks") and
Smart Machines Inc. ("Smart Machines") which was accounted for as a pooling of
interests. The unaudited pro forma condensed consolidated balance sheet
presents the combined financial position of Brooks and Smart Machines as of
March 31, 1999, assuming that the merger had occurred as of March 31, 1999. Such
pro forma information is based upon the historical balance sheets of Brooks and
Smart Machines as of that date. The unaudited pro forma condensed consolidated
statements of operations give effect to the merger of Brooks and Smart Machines
by combining the results of operations of Brooks for the three years ended
September 30, 1998, and the six months ended March 31, 1999 and 1998, with the
results of operations of Smart Machines for the three years ended December 31,
1998, and the six months ended March 31, 1999 and 1998, respectively, on a
pooling-of-interests basis.
The operations of Smart Machines, Inc. for the three months ended December
31, 1998, resulting in net revenues of $244,000 and a net loss of $1,613,000,
have been included in the pro forma statements of income for the year ended
September 30, 1998, and for the six-month period ended March 31, 1999. The
operations of Smart Machines for the three months ended December 31, 1997,
resulting in net revenues of $127,000 and a net loss of $1,224,000, have been
included in the pro forma statements of income for the year ended September 30,
1997, and for the six-month period ended March 31, 1998.
On July 6, 1999, Brooks filed Form 8-K/A to give the effect of the
acquisition of Hanyon Technologies, Inc., ("Hanyon") by Brooks, which was
accounted for under the purchase method. The pro forma information filed in
that Form 8-K/A, has been used in lieu of the historical information for Brooks
in the unaudited pro forma condensed consolidated balance sheet as of March 31,
1999, and the unaudited pro forma condensed consolidated statements of
operations for the fiscal year ended September 30, 1998, and the six months
ended March 31, 1999.
The unaudited pro forma financial statements should be read in conjunction
with the separate audited financial statements and notes thereto of Brooks
included in its Annual Report on Form 10-K for the year ended September 30,
1998, the unaudited financial information included in Brooks' Quarterly Report
on Form 10-Q for the quarterly periods ended March 31, 1999 and June 30, 1999,
and the historical financial statements and notes thereto of Smart Machines
contained herein and Hanyon contained in Brooks' Form 8-K/A filed on July 6,
1999 with the Securities and Exchange Commission.
Brooks and Smart Machines estimate that they will incur direct transaction
costs of approximately $750,000 associated with the Merger, which will be
charged to operations as incurred. There can be no assurance that the combined
company will not incur additional charges to reflect costs associated with the
Merger or that management will be successful in its efforts to integrate the
operations of the two companies.
The unaudited pro forma condensed combined financial information set forth
below is presented for illustrative purposes only, and is not necessarily
indicative of the financial position or results of operations that would have
actually been reported had the Merger occurred at the beginning of the periods
presented, nor is it necessarily indicative of the future financial position or
results of operations of the combined companies.
<PAGE>
BROOKS AUTOMATION, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro
Historical Pro Forma Forma
Brooks(1) SMART Adjustments Combined
--------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 66,314 $ 977 $ -- $ 67,291
Accounts receivable, net..... 25,095 105 -- 25,200
Inventories.................. 16,839 521 -- 17,360
Prepaids expenses and other
current assets.............. 9,261 83 -- 9,344
-------- -------- ------- --------
Total current assets....... 117,509 1,686 -- 119,195
Fixed assets, net............ 17,860 303 -- 18,163
Goodwill..................... 1,914 -- -- 1,914
Other assets................. 5,099 15 -- 5,114
-------- -------- ------- --------
Total assets............... $142,382 $ 2,004 $ -- $144,386
======== ======== ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............. $ 5,093 $ 152 $ -- $ 5,245
Accrued expenses and other
current liabilities......... 13,688 686 609 (1)(4) 14,983
-------- -------- ------- --------
Total current liabilities.. 18,781 838 609 20,228
Other long-term liabilities.... 1,760 3,499 (2,500)(1) 2,759
-------- -------- ------- --------
Total liabilities.......... 20,541 4,337 (1,891) 22,987
-------- -------- ------- --------
Redeemable convertible
preferred stock............... -- 3,787 (3,787) --
-------- -------- ------- --------
Stockholders' equity:
Preferred stock.............. -- 6,467 (6,467)(1) --
Common stock................. 111 747 (742)(1) 116
Additional paid-in capital... 129,237 1,838 13,637 (1) 144,712
Cumulative translation
adjustment.................. (431) -- -- (431)
Deferred compensation........ (104) -- -- (104)
Accumulated deficit.......... (6,972) (15,172) (750)(4) (22,894)
-------- -------- ------- --------
Total stockholders'
equity.................... 121,841 (6,120) 5,678 121,399
-------- -------- ------- --------
Total liabilities and
stockholders' equity...... $142,382 $ 2,004 $ -- $144,386
======== ======== ======= ========
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements.
<PAGE>
BROOKS AUTOMATION, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended
March 31, Year ended September 30,
----------------- ----------------------------
1999 1998 1998 1997 1996
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues (a)................. $45,082 $ 53,882 $107,697 $109,428 $112,730
Cost of revenues............. 24,358 39,015 73,924 65,311 57,961
------- -------- -------- -------- --------
Gross profit................. 20,724 14,867 33,773 44,117 54,769
------- -------- -------- -------- --------
Operating expenses:
Research and development... 10,122 13,919 25,389 22,207 20,315
Selling, general and
administrative............ 13,997 14,957 30,392 24,906 23,798
Acquisition-related and
restructuring............. -- -- 3,722 -- 230
------- -------- -------- -------- --------
Total operating
expenses................ 24,119 28,876 59,503 47,113 44,343
------- -------- -------- -------- --------
Net income (loss) from
operations.................. (3,395) (14,009) (25,730) (2,996) 10,426
Interest income (expense),
net......................... 1,330 1,544 2,941 (705) (36)
------- -------- -------- -------- --------
Net income (loss) before
income taxes................ (2,065) (12,465) (22,789) (3,701) 10,390
Income tax provision
(benefit)................... 265 (1,287) (2,835) 1,267 4,599
------- -------- -------- -------- --------
Net income (loss)............ (2,330) (11,178) (19,954) (4,968) 5,791
Dividends on preferred
stock....................... 450 711 1,420 1,005 521
------- -------- -------- -------- --------
Net income (loss)
attributable to common
stockholders................ $(2,780) $(11,889) $(21,374) $ (5,973) $ 5,270
======= ======== ======== ======== ========
Earnings (loss) per share:
Basic...................... $ (0.24) $ (1.12) $ (1.99) $ (0.73) $ 0.67
Diluted.................... $ (0.24) $ (1.12) $ (1.99) $ (0.73) $ 0.62
Shares used in computing
earnings (loss) per share:
Basic...................... 11,502 10,609 10,739 8,175 7,846
Diluted.................... 11,502 10,609 10,739 8,175 9,326
</TABLE>
- --------
(a) Includes revenues from a related party of $4.5 million and $10.2 million
for the six months ended March 31, 1999 and 1998, and $16.3 million, $18.9
million, and $19.1 million for the years ended September 30, 1998, 1997,
and 1996.
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. PRO FORMA BASIS OF PRESENTATION
These unaudited pro forma condensed consolidated financial statements give
effect to the Merger as if it had occurred at the beginning of the earliest
period presented. The shares issued were based upon a purchase price of $14.2
million minus the outstanding obligations of Smart Machines under its existing
third party credit facility. There were 478,000 shares of Brooks common stock,
at $27.49 per share, issued in exchange for all of the Smart Machines
outstanding common stock, preferred stock, and convertible notes and related
interest. For the purposes of these pro forma condensed consolidated financial
statements, the price per share of the Books common stock was based upon the
average of the closing price for Brooks common stock on the Nasdaq National
Market for the 20 consecutive trading-day period ending July 29, 1999. In
addition, all outstanding options and warrants to purchase Smart Machines
capital stock will be exchanged for options and warrants to purchase Brooks
common stock, based on the Capital Stock Conversion Ratios of $0.015, $0.0370,
$0.1111, $0.1296, 0.1296 for Common Stock, Preferred Stock Series A, Preferred
Stock Series B, Preferred Stock Series C and Preferred Stock Series D,
respectively. As of March 31, 1999, options to purchase a total of 480,617
shares and warrants to purchase a total of 592,064 shares of Smart Machines
common stock were outstanding.
On July 6, 1999, Brooks filed Form 8-K/A to give the effect of the
acquisition of Hanyon Technologies, Inc., by Brooks, which was accounted for
under the purchase method. The pro forma information filed in that Form 8-K/A,
has been used in lieu of the historical information for Brooks in the unaudited
pro forma condensed consolidated balance sheet as of March 31, 1999, and in the
unaudited pro forma condensed consolidated statements of operations for the
fiscal year ended September 30, 1998, and the six months ended March 31, 1999.
The unaudited pro forma condensed consolidated financial statements give
effect to the Merger on a retroactive basis. The unaudited pro forma condensed
consolidated balance sheet as of March 31, 1999, gives effect to the Merger as
if it had occurred on March 31, 1999, and combines the pro forma balance sheet
of Brooks and the unaudited historical balance sheet of Smart Machines as of
March 31, 1999. The unaudited pro forma condensed consolidated statements of
operations give effect to the Merger as if it had occurred at the beginning of
the earliest period presented. The unaudited pro forma condensed consolidated
statements of operations for the fiscal years ended September 30, 1998, 1997,
and 1996, and the six months ended March 31, 1999 and 1998, combine the
historical results of operations of Brooks for the fiscal years ended September
30, 1998, 1997, and 1996, and the six months ended March 31, 1999 and 1998,
with the historical results of operations of Smart Machines for the three years
ended December 31, 1998, and the six months ended March 31, 1999 and 1998,
respectively, on a pooling-of-interests basis.
The operations of Smart Machines for the three months ended December 31,
1998, resulting in net revenues of $244,000 and a net loss of $1,613,000, have
been included in the pro forma statements of income for the year ended
September 30, 1998, and for the six-month period ended March 31, 1999. The
operations of Smart Machines for the three months ended December 31, 1997,
resulting in net sales of $127,000 and a net loss of $1,224,000, have been
included in the pro forma statements of income for the year ended September 30,
1997, and for the six-month period ended March 31, 1998.
2. PRO FORMA EARNINGS PER SHARE
The unaudited pro forma combined earnings per share information is based
upon the weighted average number of common and dilutive potential common shares
outstanding of Brooks and Smart Machines for each period presented, giving
effect to the Merger as if it occurred at the beginning of the earliest period
presented, using the per share price for Brooks common stock of $27.49 and a
purchase price of $14.2 million minus the outstanding obligations of Smart
Machines under its existing third party credit facility.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3. CONFORMING ADJUSTMENTS AND INTERCOMPANY TRANSACTIONS
There were no material adjustments required to conform the accounting
policies of Brooks and Smart Machines. There are no material intercompany
transactions included in the unaudited pro forma condensed consolidated
financial statements.
4. TRANSACTION COSTS
It is estimated that the combined company will incur charges to operations
of approximately $750,000 representing direct transaction costs of the Merger,
primarily for accounting and legal fees. The estimated charge is reflected in
the unaudited condensed consolidated balance sheet as March 31, 1999, but is
not reflected in the unaudited pro forma condensed consolidated statements of
operations. These nonrecurring transaction costs will be charged to operations
as incurred. These costs reflect a preliminary estimate only, and therefore,
are subject to change.
It is expected that following the Merger, the combined company will incur
additional significant costs associated with integrating the two companies,
which amounts will be charged to operations as incurred. The amount of such
costs is not currently reasonably estimable and, accordingly, the amount has
not been reflected in the unaudited pro forma condensed consolidated balance
sheet as of March 31, 1999. There can be no assurance that the combined company
will not incur additional material charges to reflect costs associated with the
Merger or that management will be successful in its efforts to integrate the
operations of the two companies.
<PAGE>
EXHIBIT INDEX
2.05 Agreement and plan of merger dated as of July 7, 1999 among
the Registrant, Smart Acquisition Corporation and Smart
Machines [incorporated by reference as Exhibit 2.05 to the
Registrant's Registration Statement on Form S-4 (No. 333-
84727)].
23.1 Consent of PricewaterhouseCoopers LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 33-95268, 333-07313, 333-07315, 333-22717, 333-66457, 333-66429
and 333-66455) of Brooks Automation, Inc. of our report dated June 1, 1999, with
respect to the financial statements of Smart Machines Inc. appearing in
Amendment No. 1 to the Current Report on Form 8-K/A of Brooks Automation, Inc.
dated September 29, 1999.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
San Jose, California
September 29, 1999
