<PAGE> 1
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 31, 1997
--------------
VERITY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-26880 77-0182779
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer)
incorporation or organization) Identification No.)
894 ROSS DRIVE
SUNNYVALE, CALIFORNIA 94089
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 541-1500
<PAGE> 2
The undersigned hereby amends the following items of its Current Report
dated June 13, 1997 on Form 8-K as set forth in the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
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.
VERITY, INC.
Date: June 13, 1997 By: /s/ Timothy J. Moore
-----------------------------------
Timothy J. Moore,
Vice President, General Counsel and
Secretary
(a) Audited financial statements of 64K Incorporated for the year ended
May 31, 1997, are attached hereto and filed herewith as Exhibit 7.1.
(b) Unaudited pro forma consolidated condensed financial statements
required pursuant to Article 11 of Regulation S-X, is attached
hereto and filed herewith as Exhibit 7.2.
(c) The following exhibits are attached hereto and filed herewith:
7.1 Audited financial statements of 64K Incorporated
for the year ended May 31, 1997.
7.2 Unaudited pro forma consolidated condensed
financial statements.
<PAGE> 3
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
7.1 Audited financial statements of 64K Incorporated for the year
ended May 31, 1997.
7.2 Unaudited pro forma consolidated condensed financial statements.
<PAGE> 1
Exhibit 7.1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
64k Incorporated
We have audited the accompanying balance sheet of 64k Incorporated (a company in
the development stage) as of May 31, 1997, and the related statements of
operations, stockholders' deficit and cash flows for the year ended May 31,
1997. 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 audit.
We conducted our audit 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 audit provides 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 64k Incorporated (a company in
the development stage) as of May 31, 1997, and the results of its operations and
its cash flows for the year ended May 31, 1997, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
San Jose, California
June 25, 1997
<PAGE> 2
64K INCORPORATED
(a company in the development stage)
BALANCE SHEET, May 31, 1997
-------
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 72,054
Prepaid expenses and other current assets 4,236
---------
Total current assets 76,290
Property and equipment, net 43,508
---------
Total assets $ 119,798
=========
LIABILITIES
Current liabilities:
Accounts payable $ 1,990
Accrued liabilities 35,144
---------
Total current liabilities 37,134
---------
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Authorized: 5,000,000 shares
Series A preferred stock:
Authorized: 590,000 shares
Issued and outstanding: 344,828 shares 470,561
---------
(Liquidation value: $500,000)
STOCKHOLDERS' DEFICIT
Common stock, no par value:
Authorized: 10,000,000 shares
Issued and outstanding: 2,409,639 shares 255,844
Notes receivable from stockholders (19,277)
Deferred compensation (192,960)
Deficit accumulated during the development stage (431,504)
---------
Total stockholders' deficit (387,897)
---------
Total liabilities, mandatorily redeemable convertible
preferred stock and stockholders' deficit $ 119,798
=========
</TABLE>
<PAGE> 3
64k INCORPORATED
(a company in the development stage)
STATEMENT OF OPERATIONS
for the year ended May 31, 1997
-------
<TABLE>
<S> <C>
Costs and expenses:
Research and development $ 284,670
General and administrative 149,388
-----------
Operating loss (434,058)
Interest income 2,554
-----------
Net loss $ (431,504)
===========
Net loss per share $ (0.19)
===========
Shares used in computing net loss per share 2,264,465
===========
</TABLE>
<PAGE> 4
64K INCORPORATED
(a company in the development stage)
STATEMENT OF STOCKHOLDERS' DEFICIT
for the year ended May 31, 1997
-----
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK NOTES ACCUMULATED
RECEIVABLE DURING THE TOTAL
---------------------- FROM DEFERRED DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT STOCKHOLDERS COMPENSATION STAGE DEFICIT
---------- ----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock at $0.01 per share in
May 1996 for cash 2,000,000 $ 20,000 $ 20,000
Issuance of common stock at $0.01 per share in
October 1996, for notes receivable 409,639 4,096 $ (4,096)
Repurchase of common stock at $0.01 per share in
April 1997 by cancellation of notes receivable (168,675) (1,687) 1,687
Issuance of common stock at $0.10 per share in
April 1997 for notes receivable 168,675 16,868 (16,868)
Deferred compensation related to issuance of
common stock 216,567 $ (216,567)
Amortization of deferred compensation 23,607 23,607
Net loss $ (431,504) (431,504)
--------- --------- --------- ----------- ---------- ----------
Balance, May 31, 1997 2,409,639 $ 255,844 $ (19,277) $ (192,960) $ (431,504) $ (387,897)
========= ========= ========= =========== ========== ==========
</TABLE>
<PAGE> 5
64k INCORPORATED
(a company in the development stage)
STATEMENT OF CASH FLOWS
for the year ended May 31, 1997
-------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(431,504)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation 7,747
Amortization of deferred compensation 23,607
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (4,236)
Accounts payable and accrued liabilities 37,134
---------
Net cash used in operating activities (367,252)
---------
Cash flows used in investing activities:
Purchases of property and equipment (51,255)
---------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of
issuance costs 470,561
Proceeds from issuance of common stock 20,000
---------
Net cash provided by financing activities 490,561
---------
Net increase in cash and cash equivalents 72,054
Cash and cash equivalents, beginning of period -
---------
Cash and cash equivalents, end of period $ 72,054
=========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Issuance of common stock for notes receivable $ 20,964
=========
Repurchase of common stock through cancellation of notes
receivable $ (1,687)
=========
Deferred compensation relating to issuance of common
stock $ 216,567
=========
</TABLE>
<PAGE> 6
1. Formation and Business of the Company:
64k Incorporated (the Company) was incorporated on May 7, 1996 to develop
search engine technology for indexing and searching structured data. The
Company is in the development stage and since its inception has been
primarily engaged in initial product development and raising capital.
For purposes of simplification, these financial statements utilize June 1,
1996 as the date of inception as there was no financial activity between
May 7, 1996 and May 31, 1996.
The lack of financial resources of the Company raises questions about the
ability of the Company to continue as a going concern. However, Verity,
Inc., the acquiring Company (as discussed in Note 7), has committed to
provide additional financing and other means of support, if needed, to
enable the Company to continue operations through at least August 1998.
2. Summary of Significant Accounting Policies:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with
original or remaining maturities of three months or less at the date of
purchase to be cash equivalents.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful life of the related
assets, generally three years. Gains and losses upon asset disposal are
taken into income in the year of disposition.
Continued
6
<PAGE> 7
64k INCORPORATED
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
-------
2. Summary of Significant Accounting Policies, continued:
CONCENTRATION OF CREDIT RISK:
The Company's cash and cash equivalents at May 31, 1997 are maintained
at one financial institution.
INCOME TAXES:
The Company accounts for income taxes under the liability method,
whereby deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
NET LOSS PER SHARE:
The net loss per share is computed using the weighted number of shares
of common stock outstanding. Common equivalent shares from preferred
stock are excluded from the computation as their effect is
anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, accounts payable and accrued
expenses approximate fair value due to their short maturities.
RESEARCH AND DEVELOPMENT EXPENDITURES
Costs related to research, design and development of products are
charged to research and development expense as incurred. Software
development costs are capitalized beginning when a product's
technological feasibility has been established and ending when a product
is available for general release to customers. The Company has not
capitalized any software development costs as technological feasibility
has not been established for any of its planned products.
Continued
7
<PAGE> 8
64K INCORPORATED
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
-------
3. Property and Equipment:
At May 31, 1997, property and equipment consists of the following:
<TABLE>
<S> <C>
Computer software and equipment $ 49,920
Office equipment 1,335
--------
51,255
Less accumulated depreciation (7,747)
--------
$ 43,508
========
</TABLE>
4. Stockholders' Deficit:
COMMON STOCK:
The Company has sold 2,409,639 shares of common stock to employees under
restricted stock purchase agreements subject to the Company's right of
repurchase, which lapses ratably over two years. Certain of these shares
were purchased through promissory notes at purchase prices of $0.01 and
$0.10 per share. Interest is due on the notes at a rate of 6% per annum
and is payable annually. At May 31, 1997, 1,807,229 shares of common
stock are subject to the Company's right of repurchase.
Under the restricted stock purchase agreements, the Company has retained
the right of first refusal in the event that a stockholder proposes to
sell, assign, pledge, encumber, transfer or otherwise dispose of any of
their vested shares. If the Company elects to purchase the offered
shares, it shall pay consideration no less favorable in price and
material terms and conditions than are included in the stockholder's
proposed transfer or disposition.
5. Mandatorily Redeemable Convertible Preferred Stock:
GENERAL:
Under the Company's Articles of Incorporation, the Company's mandatorily
redeemable convertible preferred stock are issuable in series and the
Company's Board of Directors is authorized to determine the rights,
preferences and terms of each series.
Continued
8
<PAGE> 9
64k INCORPORATED
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
-------
5. Mandatorily Redeemable Convertible Preferred Stock, continued:
SERIES A PREFERRED STOCK:
Dividends:
The holders of Series A preferred stock are entitled to receive
dividends, when and as declared by the Board of Directors, out of
any funds legally available, prior to and in preference to any
declaration or payment of any dividend on the common stock of the
Company, at the rate of $0.145 per share per year. No dividends or
other distributions shall be made with respect to the common stock
until all dividends on the preferred stock have been paid or set
apart. Such dividends on the preferred stock shall not be
cumulative and no right to such dividends shall accrue unless
declared by the Board of Directors. No dividends have been declared
to date. The holders of preferred stock have certain registration
rights.
Liquidation:
In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of Series A
preferred stock are entitled to receive, prior and in preference to
any distribution of any of the assets or surplus funds of the
Company to the holders of shares of common stock, an amount per
share equal to the sum of $1.45, for each outstanding share of
Series A preferred stock (as adjusted for any stock dividends,
combinations or splits) plus any declared but unpaid dividends on
such shares. If upon the occurrence of such event, the assets and
funds distributed among the holders of the preferred stock are
insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then, the entire assets and funds
of the Company legally available for distribution are to be
distributed first ratably among the holders of the Series A
preferred stock in proportion to the full preferential amount each
such holder is otherwise entitled to receive.
Continued
9
<PAGE> 10
64k INCORPORATED
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
-------
5. Mandatorily Redeemable Convertible Preferred Stock, continued:
SERIES A PREFERRED STOCK, continued:
Liquidation, continued:
After payment has been made to the holders of Series A preferred
stock of their preference amount, any remaining assets and funds
are to be distributed ratably among the holders of common and
Series A preferred stock based on the number of shares of common
stock held by each stockholder (assuming for such purpose the
conversion of Series A preferred into common) until such time as
the holders of preferred stock have received an additional $2.90
per share of preferred. Thereafter, all remaining assets of the
Company shall be distributed to the holders of the common stock in
proportion to the number of shares of common stock held by each.
The merger or consolidation of the Company with or into another
corporation or sale of substantially all of the assets of the
Company is treated as a liquidation.
Voting:
The holder of each share of Series A preferred stock is entitled to
voting rights equal to the number of shares of common stock into
which each share of Series A preferred stock could be converted
into at the record date for a vote or consent of stockholders.
Conversion:
Each share of preferred stock, at the option of the holder, is
convertible into the number of fully paid and nonassessable shares
of common stock which results from dividing the conversion price
per share in effect for the shares of preferred stock at the time
of conversion into the per share conversion value of such shares.
The initial conversion price per share and initial per share
conversion value of Series A preferred stock is $1.45. The initial
conversion price of Series A preferred stock is subject to
adjustment from time to time, as described in the Company's
Articles of Incorporation. The number of shares of common stock
into which a share of a series of preferred stock is convertible is
referred to as the conversion rate of such series.
Continued
10
<PAGE> 11
64k INCORPORATED
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
-------
5. Mandatorily Redeemable Convertible Preferred Stock, continued:
SERIES A PREFERRED STOCK, continued:
Conversion, continued
Conversion is automatic at the then effective conversion rate
immediately upon (i) the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement
under the Securities Act of 1933 covering the offer and sale of
common stock in which the public offering price equals or exceeds
$5.25 per share (adjusted to reflect subsequent dividends, splits
or recapitalization) and the aggregate offering price is not less
than $10,000,000, and (ii) the written consent of the holders of
not less than a majority of the then outstanding preferred stock,
voting on an "as converted" basis.
Redemption:
The Company shall redeem all outstanding shares of Series A
preferred stock if at any time before October 8, 2001 it receives a
written request from the holders of at least a majority of all then
outstanding shares of Series A preferred stock. The preferred
shares will be redeemed in three phases at a price of $1.45 per
share as follows:
(i) Within 90 days after October 8, 2001, the Company will
redeem 1/3 of the then outstanding shares of Series A
preferred stock.
(ii) Within 90 days after October 8, 2002, the Company will
redeem 1/2 of the then outstanding shares of Series A
preferred stock.
(iii) Within 90 days after October 8, 2003, the Company will
redeem all of the then outstanding shares of Series A
preferred stock.
If at any redemption date the Company does not have sufficient
funds to complete the redemption, the Company will redeem, on a
pro-rata basis, the number of shares redeemable with the available
funds. Any shares not redeemed at the appropriate redemption date
will be carried forward to the next redemption date and will
continue to have the same dividend and preference rights until
redeemed.
Continued
11
<PAGE> 12
64k INCORPORATED
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
-------
5. Mandatorily Redeemable Convertible Preferred Stock, continued:
SERIES A PREFERRED STOCK, continued:
Protective Provisions:
As long as a minimum of 206,896 shares of Series A preferred stock
are outstanding (as adjusted for stock splits, recombinations or
similar events) the Company cannot materially change any of the
terms of the Company's Articles of Incorporation or Bylaws, the
Series A preferred stock purchase agreement, effect any merger or
consolidation of the Company into or with another entity, or sell
all or substantially all of the Company's assets without the
written approval of the holder's of a majority of the outstanding
shares of Series A preferred stock.
Voting Trust Agreement:
For a period of thirty months beginning on October 8, 1996, all
outstanding shares of Series A preferred stock will be held in a
trust account which allows the trustee (an employee) to vote the
shares transferred into the trust for the purposes of (i) any
reorganization of the Company such as a merger or consolidation of
the Company into or with another entity and (ii) any amendment of
the Company's Articles of Incorporation solely for the purpose of
designating one or more series of preferred stock with rights
preferences and privileges that are junior to or on parity with the
Series A preferred stock. With respect to any such matters, the
Trustee will vote these shares in the same proportion as all other
votes cast by the stockholders of the Company. For all other
purposes, the holders of Series A preferred stock retain their
voting, dividend and other rights and privileges.
The Trust will terminate at the end of the thirty month period or
in accordance with other terms of the Voting Trust Agreement such
as on the date of an initial public offering, the merger or
consolidation of the Company into or with another entity, or when
the Trust is no longer the owner of at least 100,000 shares of
Series A preferred stock.
Merger Option Agreement:
As part of its sale of Series A preferred stock to Verity, Inc.
(Verity), the Company has granted to Verity an option to acquire
all of the outstanding shares of common stock of the Company for a
cash purchase price of $3.5 million. The Option is exercisable at
any time during the sixty days following the completion of a
software development agreement between Verity and the Company.
12
<PAGE> 13
64k INCORPORATED
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
-------
6. Income Taxes:
At May 31, 1997, the Company had federal and state net operating loss
carryforwards of approximately $404,000. The operating loss carryforwards
expire in 2012 and 2005 for federal and state tax purposes, respectively,
if not utilized.
For federal and state tax purposes, a portion of the Company's net
operating loss carryforwards may be subject to certain limitations on
annual utilization in case of a change in ownership, as defined by federal
and state tax law.
Temporary differences which give rise to significant portions of deferred
tax assets and liabilities at May 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carry forwards $ 163,000
Valuation allowance (163,000)
---------
$ -
=========
</TABLE>
The Company has established a 100% valuation allowance against its deferred
tax asset due to the uncertainty of the ultimate realization of this asset.
7. Acquisition by Verity, Inc.:
On May 31, 1997, Verity, Inc. exercised its merger option and acquired all
of the outstanding stock of the Company for a cash purchase price of $3.5
million and the assumption of all outstanding liabilities.
13
<PAGE> 1
Exhibit 7.2
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Company completed its acquisition of 64K Incorporated (64K) on May
31, 1997. The accompanying unaudited pro forma consolidated condensed balance
sheet of the Company combines the historical consolidated balance sheet of the
Company as of February 28, 1997 and the balance sheet of 64K as of May 31, 1997
as if such transaction occurred on February 28, 1997.
The accompanying unaudited pro forma consolidated condensed statement
of operations for the nine months ended February 28, 1997 combines the unaudited
historical consolidated statement of operations of the Company for the nine
months ended February 28, 1997 and the statement of operations of 64K for the
nine months ended February 28, 1997, as if the acquisition had occurred on June
1, 1996. The unaudited pro forma consolidated condensed financial statements
give effect to the acquisition of 64K using the purchase method of accounting,
and reflect the allocation of the purchase price of approximately $3.5 million
primarily to purchased in-process research and development which has been
expensed at the date of the acquisition as it had no alternative future use and
relates to products for which technological feasibility had not been
established. Pro forma statements of operations for prior periods are not
presented as 64K had no significant operations prior to June 1, 1996.
The unaudited pro forma consolidated condensed financial statements do
not purport to represent what the Company's results of operations would have
been had the acquisition occurred on the dates indicated or for any future
period or date. The pro forma adjustments give effect to available information
and assumptions that the Company believes are reasonable. The unaudited pro
forma consolidated condensed financial statements should be read in conjunction
with the Company's historical Consolidated Financial Statements and the
financial statements of 64K and the notes thereto included or incorporated
elsewhere herein.
<PAGE> 2
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
February 28, 1997
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Verity, Inc. 64K Adjustments Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments $ 22,920 $ 72 $ (3,500)(1) $ 19,492
Accounts receivable 8,554 8,554
Prepaid expenses 1,769 4 1,773
-------- -------- -------- --------
Total current assets 33,243 76 (3,500) 29,819
Property and equipment, at cost,
net of accumulated depreciation 9,182 44 9,226
Long-term investments 10,188 10,188
Other assets 870 870
-------- -------- -------- --------
Total assets $ 53,483 $ 120 $ (3,500) $ 50,103
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt and capital lease
obligations $ 648 $ 648
Trade accounts payable and other accrued liabilities 6,695 $ 37 6,732
Deferred revenue 3,568 3,568
-------- -------- --------
Total current liabilities 10,911 37 10,948
Long-term debt and capital lease obligations,
net of current portion 291 291
-------- -------- --------
Total liabilities 11,202 37 11,239
Mandatorily redeemable convertible preferred stock 471 $ (471)(1)
Stockholders' equity (deficit) 42,281 (388) (3,029)(1) 38,864
-------- -------- -------- --------
Total liabilities and stockholders' equity $ 53,483 $ 120 $ (3,500) $ 50,103
======== ======== ======== ========
</TABLE>
<PAGE> 3
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the nine months ended February 28, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Verity, Inc. 64K Adjustments Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 31,531 $ 31,531
Cost of revenues 4,975 4,975
-------- --------
Gross profit 26,556 26,556
-------- --------
Operating expenses:
Research and development 10,839 $ 214 $ (300)(2) 10,753
Acquisition of in-process research
and development 10,029 10,029
Marketing and sales 15,454 15,454
General and administrative 3,548 112 3,660
-------- -------- -------- --------
Total operating expenses 39,870 326 (300) 39,896
-------- -------- -------- --------
Loss from operations (13,314) (326) (13,340)
Other income, net 1,428 2 (155)(3) 1,275
-------- -------- -------- --------
Net loss $(11,886) $ (323) $ 145 $(12,064)
======== ======== ======== ========
Net loss per share $ (1.10) $ (1.12)
======== ========
Number of shares used in per share calculation 10,800 10,800
======== ========
</TABLE>
Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements
(1) The amount of the purchase price allocated to purchased research
and development, which had no alternative future use and relates
to products for which technological feasibility had not been
established, was expensed at the acquisition date. Due to the
non-recurring nature of the purchased research and development,
it has been assumed to have been charged to operations before the
beginning of the pro forma periods.
(2) Elimination of the decline in the value of the Company's
preferred stock investment in 64K recorded by the Company as
research and development expense.
(3) Reduction of interest income from cash used in the purchase of
64K for the nine months ended February 28, 1997.
