SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 29, 1997
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P-COM, Inc.
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(Exact name of registrant as specified in charter)
Delaware 0-25356 77-02893711
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
3175 S. Winchester Boulevard, Campbell, California 95008
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 866-3666
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report.)
AMENDMENT NO. 1
The undersigned Registrant hereby amends the following
items, financial statements, exhibits or other portions of
its Current Report on Form 8-K, originally filed with the
Securities Exchange Commission on June 13, 1997, as set
forth in the pages attached hereto:
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
- -----------------------------------------------
(a) Previously filed.
(b) Previously filed.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
- -----------------------------------------------------------------------------
The following financial statements and pro forma
financial information are filed as a part of this report.
(a) Financial Statements of Business Acquired.
-----------------------------------------------
Control Resources Corporation
(1) Report of Independent Auditors (KPMG Peat Marwick LLP);
(2) Balance Sheets as of December 31, 1996 and 1995;
(3) Statements of Operations and (Accumulated Deficit)
Retained Earnings for the years ended December 31,
1996 and 1995;
(4) Statements of Cash Flows for the years ended December 31,
1996 and 1995;
(5) Notes to Financial Statements for the years ended December
31, 1996 and 1995.
(b) Pro Forma Financial Information.
--------------------------------------
P-COM, Inc. and Subsidiaries
(1) Pro forma Combined Condensed Statement of Operations for
the year ended December 31, 1996 (unaudited);
(2) Pro forma Combined Condensed Statement of Operations for
the three (3) months ended March 31, 1997 (unaudited);
(3) Pro forma Combined Condensed Balance Sheet for the
month ended March 31, 1997 (unaudited);
(4) Unaudited Notes to Pro forma Combined Statement
of Operations.
(c) Exhibits. The following documents are filed as exhibits to
---------
this report:
7(a) Financial Statements of Control Resources Corporation
7(b) Pro Forma Financial Information
23.1 Consent of Independent Accountants
SIGNATURES
----------
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned
hereunto duly authorized.
P-COM, Inc.
(Registrant)
Dated: June 26, 1997 By: /s/ Michael J. Sophie
---------------------------
Name: Michael J. Sophie
---------------------------
Title: Vice President, Finance and
Administration and Chief
Financial Officer
EXHIBIT INDEX
Exhibit Number
- --------------
7(a) Financial Statements of Business Acquired
-----------------------------------------
Control Resources Corporation
(1) Report of Independent Auditors;
(2) Balance Sheets as of December 31, 1996 and 1995;
(3) Statement of Operations and (Accumulated Deficit)
Retained Earnings for the years ended December
31, 1996 and 1995;
(4) Statement of Cash Flows for the fiscal years
ended December 31, 1996 and 1995;
(5) Notes to Financial Statements for the fiscal
years ended December 31, 1996 and 1995.
7(b) Pro forma Financial Information
-------------------------------
P-COM, Inc. and Subsidiaries
(1) Pro forma Combined Condensed Statement of
Operations for the year ended December 31,
1996 (unaudited);
(2) Pro forma Combined Condensed Statement of
Operations for the three (3) months ended March
31, 1997 (unaudited);
(3) Pro forma Combined Condensed Balance Sheet for
the month ended March 31, 1997 (unaudited); and
(4) Unaudited Notes to Pro forma Combined Statement
of Operations.
23.1 Consent of Independent Accountants
EXHIBIT 7(a)
CONTROL RESOURCES CORPORATION
Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
Exhibit 7(a)(1)
Independent Auditors' Report
The Board of Directors and Stockholders
Control Resources Corporation:
We have audited the accompanying balance sheets of Control
Resources Corporation as of December 31, 1996 and 1995, and
the related statements of operations and (accumulated
deficit) retained earnings, and cash flows for the years
then ended. These financial statements are the responsibil
ity of the Company's management. Our responsibility is to
express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Control Resources Corporation as of December 31,
1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As discussed in note 3 to the financial statements, the
Company has suffered losses from operations and has a net
stockholders' deficit at December 31, 1996 that raises
substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to those
matters are described in note 3. The financial statements
do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG Peat Marwick LLP
Short Hills, NJ
February 7, 1997
Exhibit 7(a)(2)
CONTROL RESOURCES CORPORATION
<TABLE>
Balance Sheets
December 31, 1996 and 1995
Assets (Note 7)
1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 168,087 $ 530,826
Accounts receivable (note 4) 3,131,748 1,973,935
Inventories (note 5) 1,898,251 1,076,817
Prepaid expenses 80,929 129,206
Income tax refund receivable 165,139 --
------------- ------------
Total current assets 5,444,154 3,710,784
------------- ------------
Property, plant and equipment:
Machinery, equipment and
test fixtures 1,853,888 2,171,825
Furniture and fixtures 203,793 200,370
Leasehold improvements 36,847 34,647
------------- ------------
2,094,528 2,406,842
Less accumulated depreciation
and amortization 1,109,184 1,421,330
------------- ------------
Net property, plant and equipment 985,344 985,512
------------- ------------
Deferred income taxes (note 10) -- 95,931
Other assets 68,601 71,497
------------- ------------
$ 6,498,099 $ 4,863,724
============= ============
Liabilities and Stockholders' (Deficit) Equity
Current liabilities:
Bank revolving demand line of
credit (note 7) 1,612,000 --
Note payable (note 7) 500,000 --
Current portion of long-term
debt (note 7) 250,099 189,335
Accounts payable and accrued
expenses (note 6) 2,293,458 681,677
Income taxes payable -- 15,902
Deferred revenue 3,519,053 495,716
------------- ------------
Total current liabilities 8,174,610 1,382,630
Long-term debt (note 7) 259,432 221,385
------------- ------------
Total liabilities 8,434,042 1,604,015
------------- ------------
Stockholders' (deficit) equity (note 9):
Common stock $.01 par value.
Authorized 4,000,000 shares;
issued and outstanding
2,824,758 shares 28,248 28,248
Capital in excess of par value 1,412,566 1,412,566
(Accumulated deficit)
retained earnings (3,376,757) 1,818,895
------------- ------------
Total stockholders' (deficit) equity (1,935,943) 3,259,709
Commitments and contingencies (note 8)
------------- ------------
$ 6,498,099 $ 4,863,724
============= ============
</TABLE>
See accompanying notes to financial statements.
Exhibit 7(a)(3)
CONTROL RESOURCES CORPORATION
Statements of Operations and (Accumulated Deficit)
Retained Earnings
Years ended December 31, 1996 and 1995
<TABLE>
1996 1995
<S> <C> <C>
Net sales (note 11) $ 4,339,370 $ 10,040,655
Cost of goods sold, including $812,711
and $1,189,692 in 1996 and 1995,
respectively, of customer funded
research and development
costs (note 2) 4,088,972 5,373,812
------------ ------------
Gross profit 250,398 4,666,843
------------ ------------
Operating expenses:
Selling, general and administrative 2,817,014 2,639,424
Research and development (note 2) 2,685,337 1,638,768
------------ ------------
5,502,351 4,278,192
------------ ------------
Operating (loss) income (5,251,953) 388,651
------------ ------------
Other (income) expense:
Interest expense 89,009 68,679
Interest income (5,517) --
------------ ------------
83,492 68,679
------------ ------------
(Loss) earnings before income tax
(benefit) expense (5,335,445) 319,972
Income tax (benefit) expense (note 10) (139,793) 82,500
------------ ------------
Net (loss) income (5,195,652) 237,472
Retained earnings at beginning of year 1,818,895 1,581,423
------------ ------------
(Accumulated deficit) retained
earnings at end of year $ (3,376,757) 1,818,895
============ ============
</TABLE>
See accompanying notes to financial statements.
Exhibit 7(a)(4)
CONTROL RESOURCES CORPORATION
Statements of Cash Flows
Years ended December 31, 1996 and 1995
<TABLE>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (5,195,652) $ 237,472
Adjustments to reconcile net (loss)
income to net cash provided by (used in)
operating activities:
Depreciation and amortization 359,455 317,972
Change in deferred income taxes 95,931 9,000
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (1,157,813) 990,704
(Increase) decrease in inventories (821,434) 169,802
Decrease (increase) in prepaid expenses 48,277 (50,044)
Increase in income tax refund receivable (165,139) --
Decrease in other assets 2,896 2,772
Increase (decrease)in accounts payable
and accrued expenses and income
taxes payable 1,595,879 (722,059)
Increase in deferred revenue 3,023,337 495,716
------------- -----------
Net cash (used in) provided by
operating activities (2,214,263) 1,451,335
Cash flows from investing activities -
purchases of property, plant and equipment (359,287) (439,841)
------------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under revolving
demand credit facility 1,612,000 (640,000)
Proceeds from issuance of note payable 500,000 --
Borrowings under term loans 728,087 318,000
Repayment of term loans (629,276) (158,668)
------------- -----------
Net cash provided by (used in)
financing activities 2,210,811 (480,668)
------------- -----------
Net (decrease) increase in cash
and cash equivalents (362,739) 530,826
Cash and cash equivalents at
beginning of year 530,826 --
------------- -----------
Cash and cash equivalents at end of year $ 168,087 $ 530,826
============= ===========
Cash payments for:
Interest $ 67,288 $ 70,379
============= ===========
Income taxes $ -- $ 162,458
============= ===========
</TABLE>
See accompanying notes to financial statements.
Exhibit 7(a)(5)
CONTROL RESOURCES CORPORATION
Notes to Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
Control Resources Corporation (the Company) is a Delaware
corporation, organized on February 19, 1975. The Company
designs, develops, manufactures and markets products and
systems targeted to meet the needs of very large communi
cation network operators.
The significant accounting policies generally followed by
the Company are summarized below.
Cash and Cash Equivalents
The Company considers all short-term investments with
original maturities of three months or less to be cash
equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method.
Revenue and Cost Recognition
Revenues related to long-term fixed price contracts, which
provide for the design and manufacture of products, are
recognized using the percentage-of-completion method of
accounting for long-term contracts, measured by the cost-to-
cost basis. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are
determined. Such provisions are included in accrued
expenses. Contract costs include all direct material and
labor costs and those indirect costs related to contract
performance such as indirect labor, supplies, repairs and
depreciation costs. Selling, general and administrative
costs are charged to expense as incurred. Selling, general
and administrative costs for the year ended December 31,
1995 include $104,267 of costs directly related to the
Company's relocation to its new facility.
Revenues recognized under the percentage-of-completion
method were $2,786,299 and $7,702,401 for 1996 and 1995,
respectively. Costs of sales recognized under this method
amounted to $2,095,577 and $4,458,368 in 1996 and 1995,
respectively.
Deferred revenue represents amounts billed or cash received
in advance of services being performed or products being
shipped. Deferred revenue of $3,519,053 at December 31,
1996 includes approximately $570,000 which had been received
in cash and $2,949,000 which was included in accounts
receivable.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The cost
of repairs and maintenance is charged to operating expenses
as incurred; significant renewals and betterments are
capitalized.
Depreciation is provided using the straight-line method over
the estimated useful lives of the assets. The cost of
leasehold improvements is amortized using the straight-line
method over the shorter of the lease term or the estimated
useful life of the asset.
The useful lives for purposes of computing depreciation and
amortization are:
Machinery, equipment and furniture
and fixtures 5-7 years
Leasehold improvements 7-10 years
==========
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, and accounts payable and accrued expenses
approximate fair value because of the short maturity of
these financial instruments. The carrying amount of long-
term debt and the note payable approximates fair value
because of the variable interest rates associated with such
debt.
Income Taxes
The asset and liability method prescribed by Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes," requires recognition of deferred tax assets
and liabilities for the estimated future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and
their respective tax bases. Under this method, deferred tax
assets and liabilities are determined based on the dif
ferences between the financial statement and tax bases of
assets and liabilities using tax rates in effect for the
year in which the differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the
Company to make estimates and assumptions that affect the
reported amounts of 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.
(2) Research and Development Costs
Company-sponsored research and development costs relating to
both present and future products are expensed as incurred.
Research and development costs relating to products
developed under long-term contracts are charged to cost of
sales upon recognition of related revenue. The Company
incurred total expenditures for research and development in
1996 and 1995 of $3,498,048 and $2,828,460, respectively, of
which $2,685,337 and $1,638,768, respectively, were provided
by Company funds. Under a long-term contract, the Company
was reimbursed for costs amounting to $812,711 and
$1,189,692 in 1996 and 1995, respectively, for research and
development activities relating to products developed on
behalf of customers.
(3) Liquidity
During 1996, the Company revised its business strategy and
is transitioning from developing customer-specific products
to standard, off-the-shelf products. As a result, the
Company has sustained significant operating losses in 1996
and has a net stockholders' deficit at December 31, 1996,
which raises doubt about its ability to continue as a going
concern. Continued existence will be dependent on the
Company receiving additional financing and successfully
marketing and selling its products and services. The
Company is currently negotiating a potential merger with P-
COM, Inc., which is expected by management of the Company to
be completed in the first half of 1997. There is no
assurance, however, that these efforts will be concluded
successfully by the Company. The financial statements do
not include any adjustments that might result from the
outcome of this uncertainty.
(4) Accounts Receivable
Included in the Company's total accounts receivable balances
are amounts relating to the Company's long-term contracts as
follows:
<TABLE>
1996 1995
<S> <C> <C>
Amounts billed $ -- $ 942,418
Recoverable costs and accrued profit
on progress completed - unbilled, net 30,465 200,224
---------- ----------
Total accounts receivable from
long-term contracts $ 30,465 $1,142,642
========== ==========
</TABLE>
Recoverable costs and accrued profit on progress of projects
completed B unbilled represent amounts of revenue recognized
on the Company's long-term contracts for which billings had
not been presented to the customer, since such amounts were
not billable pursuant to the contract terms at the
respective balance sheet dates.
(5) Inventories
The components of inventories at December 31, 1996 and 1995
were:
<TABLE>
1996 1995
<S> <C> <C>
Raw materials $ 1,661,607 590,982
Work in process 163,767 142,360
Finished goods 72,877 343,475
----------- -----------
$ 1,898,251 $ 1,076,817
=========== ===========
</TABLE>
(6) Accounts Payable and Accrued Expenses
The components of accounts payable and accrued expenses as
of December 31, 1996 and 1995 were as follows:
<TABLE>
1996 1995
<S> <C> <C>
Accounts payable $ 1,583,958 174,158
Accrued payroll 197,059 184,717
Costs accrued on
uncompleted contracts -- 151,215
Other accrued expenses 512,441 171,587
----------- -----------
$ 2,293,458 $ 681,677
</TABLE>
Included in other accrued expenses is $110,774 and $50,274
which was due to certain officers of the Company as of
December 31, 1996 and 1995, respectively.
(7) Financing Arrangements
The Company has a revolving demand credit facility (the
Facility) with a bank which enables the Company to borrow up
to $2,000,000. The balance outstanding under the Facility
was $1,612,000 and $0 as of December 31, 1996 and 1995,
respectively. The Facility, which is subject to renewal in
April 1997, is secured by substantially all the assets of
the Company and is personally guaranteed by one of the major
stockholders of the Company. Interest is charged at 1%
above the bank's prime rate, as defined (8.25% at December
31, 1996).
The note payable of $500,000 as of December 31, 1996 is a
promissory note due to P-COM, Inc. issued for working
capital in conjunction with the contemplated merger (see
note 13). The maturity date is the earlier of: (a) upon
completion of the Company's acquisition by another party,
(b) the date that is 10 days after the sale of the Company's
common stock with net proceeds to the Company of greater
than $1,500,000, or (c) June 30, 1997. There is no
collateral nor guarantor of the loan. The interest rate is
prime plus 1% and accrued interest on the loan is due and
payable in arrears on the maturity date.
The Company's long-term debt as of December 31, 1996 and
1995 consists of the following:
<TABLE>
1996 1995
<S> <C> <C>
Term loans $ 509,531 $ 410,720
Less current portion 250,099 189,335
---------- ----------
Long-term debt $ 259,432 $ 221,385
========== ==========
</TABLE>
The Company's term loans are with a bank and were secured to
finance the renovation of the Company's present and former
plant and office facilities (Renovation Loans) and to
finance the purchase of certain equipment (Equipment Loans).
The Renovation Loans are repayable over four to five years,
are secured by a lien on substantially all of the Company's
assets, and are personally guaranteed by one of the major
stockholders of the Company. Interest is charged at 1-1/2%
above the bank's prime rate, as defined. The Equipment
Loans are repayable over three years, are secured by the
purchased equipment, and are personally guaranteed by one of
the major stockholders of the Company. Interest is charged
at 1-1/4% above the bank's prime rate, as defined.
Principal loan repayments on the term loans during the
forthcoming years are as follows: 1997 - $250,099; 1998 -
$169,216; 1999 - $90,216.
(8) Lease Commitments
At December 31, 1996, the Company is obligated under
operating leases for office space and equipment which expire
through 2005. The aggregate minimum rental commitments
under noncancellable operating leases are:
<TABLE>
Plant
Office Equipment
------ ---------
<S> <C> <C>
1997 $ 8,903 499,782
1998 4,814 499,782
1999 4,814 499,782
2000 4,814 528,681
2001 3,361 527,937
Thereafter -- 1,619,456
--------- ---------
Total minimum lease payments $ 26,706 4,175,420
========= =========
</TABLE>
Rental expense for operating leases during 1996 and 1995
amounted to approximately $508,000 and $395,000,
respectively.
(9) Common Stock B Stock Options
Pursuant to an incentive stock option purchase plan (the
Plan), certain key employees have the option to purchase
shares of the Company's common stock at $1.00 per share
(fair market value on the date of grant as determined by the
Board of Directors) during the years 1997 through 2006. No
options were exercised or forfeited under the Plan during
either of the years ended December 31, 1996 and 1995, but
there were additional options granted during 1996 to
purchase 130,000 shares. In addition, all incentive stock
option agreements previously in effect were revised to
reflect the option price of $1.00 and were extended until
August 14, 2006. As of December 31, 1996 and 1995 there
were 327,500 and 197,500 shares under option, of which
217,500 and 197,500 options are exercisable, respectively.
(10) Income Taxes
The components of income tax (benefit) expense for the years
ended December 31, 1996 and 1995 were as follows:
<TABLE>
Current Deferred Total
<S> <C> <C> <C>
Year ended December 31, 1996-
U.S. federal $ (235,724) 95,931 (139,793)
=========== ========== =========
Year ended December 31, 1995:
U.S. federal 58,500 9,000 67,500
State and local 15,000 -- 15,000
----------- ---------- ---------
$ 73,500 9,000 82,500
=========== ========== =========
</TABLE>
The significant components of deferred income tax expense
(benefit) for the years ended December 31, 1996 and 1995 were as
follows:
<TABLE>
1996 1995
<S> <C> <C>
Deferred tax benefit primarily attributable
to research and development tax credit carryover,
net operating loss carryforwards, costs accrued
on uncompleted contracts, differences in book
versus tax depreciation expense, and other
non-deductible reserves and accruals $ (2,108,714) (186,550)
Increase in beginning-of-year balance of
the valuation allowance for deferred tax
assets allocated to income tax expense 2,204,645 195,550
------------ ----------
$ 95,931 9,000
============ ==========
</TABLE>
The effective income tax rate differs from the statutory
income tax rate of 34% for the years ended December 31, 1996
and 1995, primarily due to changes in the amount of the
valuation allowance.
Tax credits for increasing research activities are accounted
for as a reduction of income tax expense in the years they
are available for use under the flow-through method. The
Company has approximately $594,000 of research and devel
opment tax credit carryovers for both financial statement
purposes and federal income tax purposes as of December 31,
1996. These credits may be used to reduce future income tax
expense to an amount equivalent to the alternative minimum
tax liability for the year(s) in which the credit is
utilized. These credits expire at various times through the
year 2011.
The valuation allowance for deferred tax assets as of
December 31, 1996 was $2,933,627. The net change in the
total valuation allowance for the year ended December 31,
1996 was an increase of $2,204,645.
In 1996, the Company generated net operating losses for
federal income tax purposes of approximately $4,753,000 of
which $3,957,000 is available to carryforward to offset
taxable income in future years.
(11) Concentrations of Credit Risk
In 1996, two customers accounted for 42% and 32% of net
sales. In 1995, two customers accounted for 62% and 16% of
net sales. Most sales are made to large, well-established
companies. The Company does not believe that this
concentration of sales and credit risk represents a material
risk of loss with respect to its financial position as of
December 31, 1996.
(12) Retirement Savings Plan
The Company maintains a 401(k) retirement savings plan
whereby 35% of each employee's contribution is matched up to
a maximum of the lesser of 4% of the employee's annual base
earnings or $400. The Company's total contributions and
administrative expenses relating to the plan amounted to
$21,763 and $23,705 for the years ended December 31, 1996
and 1995, respectively.
(13) Subsequent Events
The Company is currently negotiating a potential merger with
P-COM, Inc. Management of the Company expects the merger to
be completed in the first half of 1997. In conjunction with
the contemplated merger, the Company has entered into
promissory notes with P-COM, Inc. through January 10, 1997
aggregating $1,500,000, of which $500,000 was advanced to
the Company prior to December 31, 1996. The maturity date
of the notes is the earlier of: (a) upon completion of the
Company's acquisition by another party, (b) the date that is
ten days after the sale of the Company's common stock with
net proceeds to the Company of greater than $1,500,000, or
(c) June 30, 1997.
There is no collateral nor guarantor of the loans. The
interest rate is prime plus 1% and accrued interest on the
loans shall be due and payable in arrears on the maturity
date.
Exhibit 7(b)(1)
ITEM 7(b) FINANCIAL STATEMENTS AND EXHIBITS
- ------------------------------------------------
Effective March 7, 1997, P-COM Field Services, Inc., a
Delaware corporation and a wholly owned subsidiary of P-COM, Inc.
("P-COM"), completed its acquisition of certain assets of
Columbia Spectrum Management, L.P. ("CSM"), a Vienna, Virginia-
based company, for $8.0 million in cash and 398,306 shares of P-
COM's Common Stock valued at $14.5 million. The transaction was
accounted for using the purchase method of accounting;
accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair
market values at the date of acquisition.
Effective May 29, 1997, P-COM , Inc., a Delaware corporation
("P-COM"), completed its acquisition of all outstanding shares of
capital stock of Control Resources Corporation ("CRC"), a
provider of integrated network access devices to network service
providers, in exchange for 673,407 shares of P-COM Common Stock.
The transaction was accounted for based on the pooling of
interests method of accounting.
The unaudited pro forma combined condensed statement of
operations combines the historical consolidated statements of
operations of P-Com, CSM and CRC for the year ended December 31,
1996 and the three months ended March 31, 1997, in each case as
if the transactions had occurred at the beginning of the earliest
period presented.
Such unaudited pro forma combined condensed financial
information is presented for illustrative purposes only and is
not necessarily indicative of the operating results that would
have been achieved if the transaction had occurred on the dates
indicated and should not be construed as representative of future
operations. The historical financial statements of CRC are
included elsewhere in this filing, and the unaudited pro forma
combined condensed financial information presented herein should
be read in conjunction with those financial statements and
related notes.
P-COM, INC.
PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS - Unaudited
For the year ended December 31, 1996
(in thousands, except per share data)
<TABLE>
Pro
P-COM CRC CSM Adjustments Forma
----- --- --- ----------- -----
<S> <C> <C> <C> <C> <C>
Net Sales $ 97,515 $ 4,339 $ 26,849 $ -- $ 128,703
Cost of sales 56,274 4,089 20,085 -- 80,448
--------- --------- --------- --------- ---------
Gross profit 41,241 250 6,764 -- 48,255
--------- --------- --------- --------- ---------
Operating expenses:
Research and
development 17,477 2,685 -- -- 20,162
Sales and marketing 5,529 1,401 273 -- 7,203
General and
administrative 4,344 1,416 2,177 1,111 9,048
--------- --------- --------- --------- ---------
Total operating
expenses 27,350 5,502 2,450 1,111 36,413
--------- --------- --------- --------- ---------
Income (loss) from
operations 13,891 (5,252) 4,314 (1,111) 11,842
Non-operating income (expense)
Interest income
(expense), net 1,310 (83) 81 -- 1,308
Other income
(expense), net (71) -- -- -- (71)
--------- --------- --------- --------- ---------
Income (loss)
before taxes 15,130 (5,335) 4,395 (1,111) 13,079
Provision for
income taxes 1,062 (140) -- -- 922
--------- --------- --------- --------- ---------
Net income (loss) $ 14,068 $ (5,195) $ 4,395 $ (1,111) $ 12,157
========= ========= ========= ========= =========
Net income (loss)
per share $ 0.74 $ (1.84) $ -- $ -- $ 0.60
========= ========= ========= ========= =========
Weighted average
common and common
equivalent shares 19,092 2,825 20,163
</TABLE>
Exhibit 7(b)(2)
P-COM, INC.
PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS - Unaudited
For the three months ended March 31, 1997
(in thousands, except per share data)
<TABLE>
Pro
P-COM CRC CSM Adjustments Forma
----- --- --- ----------- -----
<S> <C> <C> <C> <C> <C>
Net Sales $ 38,144 $ 713 $ 739 $ -- $ 39,596
Cost of sales 22,736 517 365 -- 23,618
--------- --------- --------- --------- ---------
Gross profit 15,408 196 374 -- 15,978
--------- --------- --------- --------- ---------
Operating expenses:
Research and
development 6,014 760 -- -- 6,774
Sales and marketing 2,556 210 38 -- 2,804
General and
administrative 2,261 425 258 278 3,277
--------- --------- --------- --------- ---------
Total operating
expenses 10,831 1,395 296 278 12,855
--------- --------- --------- --------- ---------
Income (loss) from
operations 4,577 (1,199) 78 (278) 3,123
Non-operating income (expense)
Interest income
(expense) 344 (55) 13 -- 357
Other income
(expense), net (354) -- -- -- (354)
========= ========= ========= ========= =========
Income (loss)
before taxes 4,567 (1,254) 91 (278) 3,126
Provision for income
taxes 1,553 -- -- -- 1,553
--------- --------- --------- --------- ---------
Net income (loss) $ 3,014 $ (1,254) $ 91 $ (278) $ 1,573
========= ========= ========= ========= =========
Net income (loss)
per share $ 0.15 $ (0.44) $ -- $ -- $ 0.07
========= ========= ========= ========= =========
Weighted average
common and common
equivalent shares 20,260 2,825 21,331
</TABLE>
Exhibit 7(b)(3)
Unaudited Notes to Pro Forma Combined Condensed Financial Statements
- --------------------------------------------------------------------
1. PERIODS PRESENTED
The unaudited pro forma combined condensed statement of operations
for the year ended December 31, 1996 combines the results of
operations of P-Com with the results of operations of CSM and CRC
for the same period. The results of operation of P-Com reported in
its Quarterly Report on Form 10-Q (AForm 10-Q@) for the three month
period ended March 31, 1997 includes the results of operations of
CSM for the period from the date of the acquisition (March 7, 1997)
through March 31, 1997. The unaudited pro forma combined condensed
statement of operations for the three months ended March 31, 1997
combines the results of operations of P-Com as reported in its Form
10-Q with the results of operations of CSM for the period from
January 1, 1997 through the day prior to the acquisition (March 6,
1997), and the results of operations of CRC for the three month
period ended March 31, 1997.
The unaudited pro forma combined condensed balance sheet as of
March 31, 1997 gives effect to the CRC merger as if it occurred on
March 31, 1997 and combines the balance sheets of P-Com and CRC as
of March 31, 1997.
2. CSM ACQUISITION
The total purchase price of CSM aggregates $22.0 million. The
purchase price was allocated to the assets acquired and liabilities
assumed based on the net book values for all other identifiable
tangible and intangible assets at the acquisition date. The
allocation of the purchase price is as follows (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents $ 330
Other current assets 53
Property and equipment 222
Non-current assets 5
Intangible assets 22,228
Customer advances (210)
----------
$ 22,628
==========
</TABLE>
3. ADJUSTMENTS TO STATEMENTS OF OPERATIONS
To reflect the amortization of intangible assets related to the
acquisition of CSM, over the estimated lives (in thousands):
Value at Estimated
Acquisition Lives Quarter Year
--------------------------------------------------------
Goodwill 22,228 20 278 1,111
4. PRO FORMA NET INCOME PER SHARE
The unaudited pro forma combined net income per share is based upon
the weighted average number of common and common equivalent shares
of P-Com outstanding during each period presented, plus the number
of shares issued to consummate the acquisition of CSM and the
merger with CRC as if the acquisition and merger occurred at the
beginning of each period presented. Historical net income per share
for CSM is not presented and is not applicable as CSM historically
operated under a partnership structure.
5. CONFORMING ADJUSTMENTS AND INTERCOMPANY TRANSACTIONS
The adjustment for intercompany loan of $1.5 million between P-Com
and CRC has been reflected in the unaudited pro forma combined
condensed balance sheet. Interest expense incurred by CRC was not
significant. There were no material adjustments required to
conform the accounting policies of P-Com, CSM and CRC.
Exhibit 7(b)(4)
P-COM, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET - Unaudited
As of March 31, 1997
(in thousands)
P-COM CRC Adjustments Pro Forma
[S] [C] [C] [C] [C]
ASSETS
Current assets:
Cash and cash equivalents $ 21,489 $ 810 $ -- $ 22,299
Accounts receivable 44,275 346 -- 44,621
Notes receivable 2,078 -- (1,500) 578
Inventory 40,645 2,052 -- 42,697
Prepaid expenses 7,449 358 -- 7,807
--------- --------- --------- ---------
Total current assets 115,936 3,566 (1,500) 118,002
Property and equipment, net 21,235 1,030 -- 22,265
Goodwill and other assets 40,388 64 -- 40,452
--------- --------- -------- ---------
$ 177,559 $ 4,660 $ (1,500) $ 180,719
========= ========= ======== =========
LIABILITIES AND STOCKHOLDERS= EQUITY
Current liabilities:
Accounts payable $ 28,872 $ 511 $ -- $ 29,383
Accrued employee benefits 2,098 -- -- 2,098
Other accrued liabilities 3,413 4,379 -- 7,792
Income taxes payable 3,831 -- -- 3,831
Notes payable 6,348 2,775 (1,500) 7,623
--------- --------- -------- --------
Total current liabilities 44,562 7,665 (1,500) 50,727
Long-term debt 1,505 185 -- 1,690
Minority interest 598 -- -- 598
Stockholders= equity:
Preferred stock -- -- -- --
Common stock 2 28 -- 30
Additional paid-in capital 126,902 1,412 -- 128,314
Retained earnin
(accumulated deficit) 4,145 (4,630) -- (485)
Cumulative translation
adjustment (155) -- -- (155)
--------- --------- --------- ---------
Total stockholders
equity 130,894 (3,190) -- 127,704
--------- --------- --------- ---------
$ 177,559 $ 4,660 $ (1,500) $ 180,719
========= ========= ========= =========
[/TABLE]
Consent of KPMG Peat Marwick LLP, Independent Accountants
The Board of Directors
Control Resources Corporation:
We consent to the inclusion of our report dated February 7, 1997,
with respect to the balance sheets of Control Resources
Corporation as of December 31, 1996 and 1995, and the related
statements of operations and (accumulated deficit) retained
earnings, and cash flows for each of the years in the two-year
period ended December 31, 1996, which report appears in the Form
8-K of P-COM, Inc. dated June 13, 1997, as amended. The report
of KPMG Peat Marwick LLP covering the December
31, 1996 and 1995 financial statements contains an explanatory
paragraph that states that CRC's 1996 losses from operations and
net stockholders' deficit raise substantial doubt about CRC's
ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome
of that uncertainty.
We also consent to the incorporation by reference in the
registration statements (No. 33-89908 and No. 333-07773) on Form
S-8 of P-COM, Inc. pertaining to the 1995 Stock Option/Stock
Issuance Plan and Employee Stock Purchase Plan of P-COM, Inc. of
our report dated February 7, 1997, with respect to the balance
sheets of Control Resources Corporation as of December 31, 1996
and 1995, and the related statements of operations and
(accumulated deficit) retained earnings, and cash flows for each
of the years in the two-year period ended December 31, 1996,
which report appears in the Form 8-K of P-COM, Inc. dated June
13, 1997, as amended.
KPMG Peat Marwick LLP
Short Hills, New Jersey
June 25, 1997
