-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RK6l8p9nftnZcPgJwWT+hDPUctnoF9SHjc2pIRKbcNxgZl+n4HGFlL7zm7JeYIgH GphpdbgfNgZug6h+L4jTEQ== 0001017062-01-000541.txt : 20010315 0001017062-01-000541.hdr.sgml : 20010315 ACCESSION NUMBER: 0001017062-01-000541 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001216 ITEM INFORMATION: FILED AS OF DATE: 20010314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANTRONIX INC CENTRAL INDEX KEY: 0001114925 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 330362767 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-16027 FILM NUMBER: 1568308 BUSINESS ADDRESS: STREET 1: 15353 BARNANCA PARKWAY CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 9494533990 MAIL ADDRESS: STREET 1: 15353 BARNANCA PARKWAY CITY: IRVINE STATE: CA ZIP: 92618 8-K/A 1 0001.txt DATE OF CURRENT REPORT: DECEMBER 16, 2000 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): December 16, 2000 Lantronix, Inc -------------- (Exact name of registrant as specified in its charter) Delaware 333-37508 33-0362767 - ---------------------------- ------------- ------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation File Number) Identification No.) 15353 Barranca Parkway Irvine, CA 92618 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (949) 453-3990 ------------------------------------------------------------- (Former name or former address, if changed since last report) - -------------------------------------------------------------------------------- This amendment to the Current Report on Form 8-K originally dated as of December 16, 2000 is being filed in order to include the historical financial statements of United States Software Corporation ("USSC") and the unaudited pro forma financial information listed below. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements of business acquired. The following financial statements of USSC are included in this report: Audited balance sheets of USSC as of November 30, 2000 and 1999 and the related statements of operations, stockholders' equity (deficit) and cash flows for the years ended November 30, 2000 and 1999. (b) Pro forma financial information. The following unaudited pro forma condensed financial information is being filed herewith: Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2000. Unaudited Pro Forma Condensed Combined Statements of Operations for the three months ended September 30, 2000 and the twelve months ended June 30, 2000. (c) Exhibits. 23.1 Consent of Independent Auditors Report of Independent Auditors United States Software Corporation We have audited the accompanying balance sheets of United States Software Corporation as of November 30, 2000 and 1999, and the related statements of operations, stockholders' equity (deficit) and cash flows for the years then ended. 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 in accordance with auditing standards generally accepted in the United States. 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 United States Software Corporation at November 30, 2000 and 1999, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP February 16, 2001 1 United States Software Corporation Balance Sheets
November 30, 2000 1999 ------------------------ ASSETS Current Assets Cash $ 325,405 $ 316,971 Accounts receivable, net of allowance for doubtful accounts of $19,623 and $0 at November 30, 2000 and 1999, respectively 567,537 467,502 Prepaid expenses and other current assets 146,925 90,251 ------------------------- Total current assets 1,039,867 874,724 Property and equipment, net 141,165 124,274 Cash surrender value of officers' life insurance 86,967 80,291 Goodwill, net of accumulated amortization of $6,554 and $5,221 at November 30, 2000 and 1999, respectively 13,446 14,779 ------------------------- Total assets $1,281,445 $1,094,068 ========================= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Line of credit $ 95,970 $ 111,606 Accounts payable 274,212 250,119 Wages and related benefits 109,373 105,817 Other accrued expenses 169,743 219,025 Deferred revenue 648,985 174,658 Current portion of note payable to stockholder - 16,597 ------------------------- Total current liabilities 1,298,283 877,822 Note payable to stockholder, net of current - 103,604 maturities Commitments Stockholders' Equity (Deficit) Common stock, no par value: Authorized shares - 5,000,000 Issued and outstanding shares - 1,000,000 56 56 Retained earnings (16,894) 112,586 ------------------------- Total stockholders' equity (deficit) (16,838) 112,642 ------------------------- Total liabilities and stockholders' equity (deficit) $1,281,445 $1,094,068 =========================
See accompanying notes. 2 United States Software Corporation Statements of Operations Years Ended November 30, 2000 1999 ------------------------- Revenue $3,014,644 $2,643,321 Cost of revenue 471,071 309,932 ------------------------- Gross profit 2,543,573 2,333,389 Operating expenses Selling and marketing 1,318,620 1,029,443 General and administrative 763,747 794,377 Research and development 449,464 468,731 Commissions to affiliate 208,679 27,240 ------------------------- Total operating expenses 2,740,510 2,319,791 Income (loss) from operations (196,937) 13,598 Interest expense including $3,702 and $8,110 paid to a stockholder of the company in 2000 and 1999, respectively (12,627) (44,835) Other income (expenses), net 80,084 31,660 ------------------------- Net income (loss) $ (129,480) $ 423 =========================
See accompanying notes. 3 United States Software Corporation Statements of Stockholders' Equity (Deficit) Years Ended November 30, 2000 and 1999
Total Common Stock Retained Stockholders' Shares Amount Earnings Equity (Deficit) -------------------------------------------------------- Balance at November 30, 1998 1,000,000 $56 $112,163 $112,219 Net income 423 423 -------------------------------------------------------- Balance at November 30, 1999 1,000,000 56 112,586 112,642 Net loss (129,480) (129,480) -------------------------------------------------------- Balance at November 30, 2000 1,000,000 $56 $(16,894) $(16,838) ========================================================
See accompanying notes. 4 United States Software Corporation Statements of Cash Flows Years Ended November 30, 2000 1999 -------------------------- OPERATING ACTIVITIES Net income (loss) $(129,480) $ 423 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation of property and equipment 49,136 58,276 Amortization of goodwill 1,333 1,333 Provision for doubtful accounts 19,623 - Loss on disposal of fixed assets - 10,362 Changes in operating assets and liabilities: Accounts receivable (119,658) (18,056) Prepaid expenses and other current assets (56,674) (52,131) Accounts payable 24,093 (31,374) Accrued expenses and other current liabilities (45,726) 38,079 Deferred revenue 474,327 36,724 -------------------------- Net cash provided by operating activities 216,974 43,636 INVESTING ACTIVITIES Purchases of property and equipment (66,027) (73,877) Increase in cash surrender value of officers' life insurance (6,676) (4,302) -------------------------- Net cash used in investing activities (72,703) (78,179) FINANCING ACTIVITIES Payments on note payable to stockholder (120,201) (15,889) Payments on line of credit, net (15,636) (10,568) -------------------------- Net cash used in financing activities (135,837) (26,457) -------------------------- Net increase (decrease) in cash 8,434 (61,000) Cash at beginning of year 316,971 377,971 -------------------------- Cash at end of year $ 325,405 $316,971 ========================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 12,627 $ 44,835 ==========================
See accompanying notes. 5 United States Software Corporation Notes to Financial Statements Years Ended November 30, 2000 and 1999 1. Summary of Significant Accounting Policies The Company United States Software Corporation (the "Company") was incorporated in the state of Oregon on October 1, 1975. The Company develops and sells computer software for embedded technology applications to businesses worldwide. 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 in the financial statements and accompanying notes. Actual results may differ from those estimates. Revenue Recognition The Company recognizes revenue in accordance with accounting standards for software companies including Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), as amended by SOP 98-4, SOP 98-9, and related interpretations including Technical Practice Aids. The Company generates revenues primarily through software licenses. Software licenses represent the rights to use the Company's products directly by end- users and indirectly through sublicense agreements from distributors and value added resellers. Revenues from software license agreements are generally recognized upon shipment of software if persuasive evidence of an arrangement exists, collection is probable, the fee is fixed or determinable, and vendor-specific objective evidence exists to allocate the total fee to the undelivered elements of the arrangement. Vendor-specific objective evidence is based on the price charged when an element is sold separately. Elements included in multiple element arrangements could consist of software products, maintenance (which includes customer support services and upgrades), or consulting services. In cases where a license or maintenance agreement is for a fixed term, revenue is recognized ratably over the term of the agreement and such amounts are included in deferred revenue in the accompanying balance sheets until earned. Revenues from customer support services and consulting services are recognized ratably over the service term. Research and Development Research and development costs are expensed in the period incurred. The Company capitalizes the costs of computer software to be sold upon the achievement of technological feasibility, defined as the completion of a working model of the software product being developed. The period of time between the completion of a working model and a product general release has historically been relatively short. As a result, capitalizable software development costs have not been material. 6 United States Software Corporation Notes to Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) Concentration of Credit Risk Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and accounts receivable. The Company places its cash investments with financial institutions of recognized national standing. The Company's accounts receivable are derived from revenues earned from customers located primarily in the United States and Asia. The Company performs ongoing credit evaluations of its customers' financial condition and maintains allowances for potential credit losses. Credit losses have historically been within management's expectations and the Company generally does not require collateral or other security from its customers. One customer accounted for 39% and 41% of revenues for the years ended November 30, 2000 and 1999, respectively. Accounts receivable attributable to this same customer were $293,505 and $298,714 at November 30, 2000 and 1999, respectively. Fair Value of Financial Instruments The Company's financial instruments consist principally of cash, accounts receivable, accounts payable and borrowings. The Company believes all of the financial instruments' recorded values approximate current values. Impairment of Long-Lived Assets Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Income Taxes Income taxes are computed under the liability method. This method requires the recognition of deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and are reflected in the financial statements in the period of enactment. 7 United States Software Corporation Notes to Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) Comprehensive Income (Loss) There was no difference between the Company's net income (loss) and comprehensive income (loss) for the years ended November 30, 2000 and 1999. Advertising Costs The Company expenses advertising costs as incurred. Advertising expense was approximately $159,068 and $268,449 for the years ended November 30, 2000 and 1999, respectively. Property and Equipment Property and equipment are carried at cost. Depreciation is computed using the Modified Accelerated Cost Recovery System method over the assets' estimated useful lives ranging from three to seven years. Goodwill Goodwill was originally recorded in connection with the Company's acquisition of the assets of Concurrent Sciences, Inc. in February 1996 and is being amortized over its estimated useful life of 15 years. Recent Accounting Pronouncements In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 133 established methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. The Company will be required to implement SFAS No. 133 beginning in fiscal year 2001. The Company does not expect SFAS No. 133 to have a significant effect on the financial position, results of operations or cash flows of the Company. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). SAB 101 summarizes certain areas of the Staff's views on applying generally accepted accounting principles to revenue recognition in financial statements. The Company believes that its current revenue recognition policies comply with SAB 101. 8 United States Software Corporation Notes to Financial Statements (continued) 2. Property and Equipment Property and equipment is comprised of the following:
November 30, 2000 1999 ------------------------ Furniture and office equipment $ 187,250 $ 176,983 Computer software and equipment 112,194 56,434 Vehicle 22,100 22,100 ------------------------ 321,544 255,517 Less accumulated depreciation (180,379) (131,243) ------------------------ $ 141,165 $ 124,274 ========================
3. Related-Party Transactions At November 30, 1999, the Company had a note payable to a stockholder totaling $120,201 and bearing interest at a rate of 6.57% per annum. The note and related accrued interest was repaid during the year ended November 30, 2000. Interest expense on this note was $3,702 and $8,110 during the years ended November 30, 2000 and 1999, respectively. The Company has a commission sale agreement with USSW FSC, Ltd., an affiliated company owned by a trust established by the stockholders of the Company and whereby the stockholders are the beneficiaries of the trust. USSW FSC, Ltd. is a qualified Foreign Sales Corporation and provides tax favored export sales services to the Company. The Company expensed $208,679 and $27,240 during the years ended November 30, 2000 and 1999, respectively, for commissions paid to USSW FSC, Ltd. The Company is the beneficiary of insurance policies on the lives of its chief executive officer and chief financial officer, the sole stockholders of the Company, with face values of $255,000 and $100,000, respectively. The Company has outstanding loans against the cash value of these policies aggregating $33,015 and $28,305 at November 30, 2000 and 1999, respectively. Such amounts are included in accrued expenses in the accompanying balance sheets. 4. Line of Credit The Company has a $250,000 revolving bank line of credit that is secured by substantially all the assets of the Company. Interest on the line of credit is payable monthly and is assessed at the bank's prime lending rate plus 2% (11.5% at November 30, 2000). The stockholders of the Company have personally guaranteed this line of credit. 9 United States Software Corporation Notes to Financial Statements (continued) 5. Commitments The Company leases certain equipment and facilities under operating leases. Future minimum lease payments at November 30, 2000 under operating leases having an initial noncancelable term of more than one year are as follows: Year ended November 30, 2001 $124,740 2002 128,415 2003 139,440 2004 137,172 2005 102,879 ---------- $632,646 ==========
Rent expense was $162,772 and $168,672 for the years ended November 30, 2000 and 1999, respectively. 6. Income Taxes Income taxes computed at the statutory federal income tax rate (34%) and income tax expense provided in the financial statements differ as follows:
Years ended November 30, 2000 1999 ------------------------- Income tax at statutory rate $(44,023) $ 144 Increase (decrease) in tax resulting from: Research credits - (16,460) Nondeductible expenses 6,958 5,507 Change in valuation allowance 37,065 10,809 ------------------------- Total $ - $ - =========================
Significant components of the income tax provision from continuing operations are as follows:
Years ended November 30, 2000 1999 ------------------------- Current: Federal $ (8,784) $ 32,616 State 23,603 12,077 ------------------------- Total Current 14,819 44,693 ------------------------- Deferred: Federal 8,784 (32,616) State (23,603) (12,077) ------------------------- Total Deferred (14,819) (44,693) ------------------------- Total Provision $ - $ - =========================
10 United States Software Corporation Notes to Financial Statements (continued) 6. Income Taxes (continued) Significant components of the Company's deferred tax assets and liabilities are as follows:
November 30, 2000 1999 ----------------------------- Deferred tax assets: Research and experimental $ -- $ 130,377 Deferred revenue 263,488 70,911 Deferred rent 2,343 2,343 Accrued vacation 17,027 16,105 ----------------------------- Total deferred tax assets 282,858 219,736 Deferred tax liabilities--depreciation (10,086) (6,044) Net deferred tax assets before valuation allowance 272,772 213,692 ----------------------------- Valuation allowance (213,260) (168,999) ----------------------------- Total deferred taxes $ 59,512 $ 44,693 =============================
Deferred tax assets are included in prepaid expenses and other current assets and income taxes payable are included in other accrued expenses in the accompanying balance sheets. A valuation allowance of $213,260 at November 30, 2000 has been recorded to offset net deferred tax assets to the extent that the Company is unable to determine whether such deferred tax assets will be realized. Due to the "change of ownership" provisions of the Tax Reform Act of 1986, utilization of the Company's net operating loss carryforwards may be subject to an annual limitation against taxable income in future periods. As a result of the annual limitation, a portion of these carryforwards may expire before ultimately becoming available to reduce future income tax liabilities. 11 United States Software Corporation Notes to Financial Statements (continued) 7. 401(k) Plan The Company has a defined contribution benefit plan (the Contribution Plan) which is qualified under Section 401(k) of the Internal Revenue Code. Eligible employees over 21 years of age and with at least 1,000 hours of service may elect to make contributions to the Contribution Plan through salary deferrals up to 12% of their gross base pay. The Company may make discretionary contributions subject to certain limitations. The Company made contributions to the Contribution Plan of $17,486 and $47,070 for the years ended November 30, 2000 and 1999, respectively. 8. Subsequent Events 2000 Stock Plan In December 2000, the Company adopted the 2000 Stock Plan (the Stock Plan), which provides for the issuance of stock options and stock purchase rights to employees, non-employee directors and consultants to the Company. Under the Stock Plan, the Company may issue both incentive and non-qualified stock options, subject to vesting to be determined by the Company's board of directors. The Stock Plan expires in December 2010. Subsequent to November 30, 2000 and through December 28, 2000, the Company granted stock options to employees under the Company's 2000 Stock Plan aggregating 203,369 shares of the Company's common stock, which generally vest over a four year period. Acquisition by Lantronix, Inc. On December 28, 2000, the Company was acquired by Lantronix, Inc. (Lantronix). In connection with the acquisition, Lantronix issued an aggregate of 653,846 shares of its common stock and agreed to pay $2.5 million in cash in exchange for all the outstanding shares of the Company's common stock. Lantronix paid the $2.5 million on January 2, 2001. Additionally, Lantronix reserved 133,333 shares of its common stock for issuance upon exercise of outstanding employee stock options of the Company assumed by Lantronix. If certain future revenue targets for the period from December 1, 2000 to June 30, 2004 are satisfied, Lantronix will issue up to a maximum of 1,625,000 additional shares of its common stock to the stockholders of the Company. 12 UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET September 30, 2000 (In thousands)
Historical ----------------------------- Pro Forma Pro Forma Lantronix USSC Adjustments Combined ----------- -------------- -------------- ------------- ASSETS Current assets: Cash and cash equivalents $52,638 $ 687 $(2,500) (e) $50,825 Accounts receivable, net 6,961 626 - 7,587 Inventories 7,416 - - 7,416 Deferred income taxes 1,425 57 - 1,482 Prepaid expenses and other current assets 2,760 40 - 2,800 ------- ------ ------- ------- Total current assets 71,200 1,410 (2,500) 70,110 Property and equipment, net 2,345 133 - 2,478 Intangible assets, net 383 - 7,359 (a) 7,742 Other assets 607 80 (80) (i) 607 ------- ------ ------- ------- $74,535 $1,623 $ 4,779 $80,937 ======= ====== ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,076 $ 345 $ - $ 3,421 Accrued payroll and related expenses 1,096 95 - 1,191 Other current liabilities 1,793 973 708 (b) 3,446 (28) (i) ------- ------ ------- ------- Total current liabilities 5,965 1,413 680 8,058 Deferred income taxes 1,003 - - 1,003 Capital lease obligations, net of current portion 87 - - 87 ------- ------ ------- ------- 7,055 1,413 680 9,148 ------- ------ ------- ------- Stockholders' equity: Common stock 4 - - 4 Additional paid-in capital 67,517 - 4,899 (d) 72,416 Employee notes receivable (152) - - (152) Deferred compensation (8,279) - (538) (a) (8,817) Retained earnings 8,406 210 (210) (c) 8,354 (52) (i) Accumulated other comprehensive loss (16) - - (16) ------- ------ ------- ------- Total stockholders' equity 67,480 210 4,099 71,789 ------- ------ ------- ------- $74,535 $1,623 $ 4,779 $80,937 ======= ====== ======= =======
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 (In thousands, except per share data)
Historical ----------------------------- Pro Forma Pro Forma Lantronix USSC Adjustments Combined ------------ ------------- ------------ ------------ Net revenues $12,037 $704 $ - $12,741 Cost of revenues 5,349 110 - 5,459 ------------ ------------ ------------ ------------ Gross profit 6,688 594 - 7,282 ------------ ------------ ------------ ------------ Operating expenses: Selling, general and administrative 5,356 400 - 5,756 Research and development 1,052 123 - 1,175 Commissions to affiliate - 52 (52)(h) - Amortization of goodwill - - 263 (f) 263 Amortization of deferred compensation 663 - 34 (g) 697 ------------ ------------ ------------ ------------ Total operating expenses 7,071 575 245 7,891 ------------ ------------ ------------ ------------ Income (loss) from operations (383) 19 (245) (609) Interest and other income, net 423 21 - 444 ------------ ------------ ------------ ------------ Income (loss) before income taxes 40 40 (245) (165) Provision for income taxes 63 - - 63 ------------ ------------ ------------ ------------ Net income (loss) $ (23) $ 40 $(245) $ (228) ============ ============ ============ ============ Basic loss per share $ (0.00) $ (0.01) ============ ============ Diluted loss per share $ (0.00) $ (0.01) ============ ============ Weighted average shares (basic) 32,817 33,471 ============ ============ Weighted average shares (diluted) 32,817 33,471 ============ ============
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 2000 (In thousands, except per share data)
Historical ----------------------------- Pro Forma Pro Forma Lantronix USSC Adjustments Combined ------------- ------------- ------------- -------------- Net revenues $44,975 $3,106 $ - $48,081 Cost of revenues 21,500 485 - 21,985 ------------- ------------- ------------- -------------- Gross profit 23,475 2,621 - 26,096 ------------- ------------- ------------- -------------- Operating expenses: Selling, general and administrative 17,557 2,033 - 19,590 Research and development 3,186 386 - 3,572 Commissions to affiliate - 133 (133)(h) - Amortization of goodwill - - 1,051 (f) 1,051 Amortization of deferred compensation 1,119 - 135 (g) 1,254 ------------- ------------- ------------- -------------- Total operating expenses 21,862 2,552 1,053 25,467 ------------- ------------- ------------- -------------- Income from operations 1,613 69 (1,053) 629 Minority interest expense (49) - - (49) Interest and other income, net 140 109 - 249 ------------- ------------- ------------- -------------- Income before income taxes 1,704 178 (1,053) 829 Provision for income taxes 649 - - 649 ------------- ------------- ------------- -------------- Net income $ 1,055 $ 178 $(1,053) $ 180 ============= ============= ============= ============== Basic earnings per share $ 0.04 $ 0.01 ============= ============== Diluted earnings per share $ 0.03 $ 0.01 ============= ============== Weighted average shares (basic) 29,274 29,928 ============= ============== Weighted average shares (diluted) 34,178 34,952 ============= ==============
NOTES TO UNAUDITED PRO FORMA CONSENSED COMBINED FINANCIAL INFORMATION 1. BASIS OF PRESENTATION On December 29, 2000 Lantronix, Inc. (the "Company") completed the acquisition of United States Software Corporation ("USSC"), a leading software solutions provider of embedded technology applications. The accompanying Unaudited Pro Forma Condensed Combined Statements of Operations (the "Pro Forma Statements of Operations") for the three months ended September 30, 2000 and for the twelve months ended June 30, 2000 give effect to the USSC acquisition, accounted for as a purchase business combination, as if it had occurred on July 1, 1999. The Pro Forma Statements of Operations are based on historical results of operations of the Company and USSC for the twelve months ended June 30, 2000 and the three months ended September 30, 2000. The Unaudited Pro Forma Condensed Combined Balance Sheet (the "Pro Forma Balance Sheet") gives effect to the acquisition of USSC as if the acquisition had occurred on September 30, 2000. The Pro Forma Statements of Operations and the Pro Forma Balance Sheet and accompanying notes (the "Pro Forma Financial Information") should be read in conjunction with, and are qualified by reference to, the historical financial statements of the Company and USSC and the related notes thereto. The Pro Forma Financial Information is intended for informational purposes only and is not necessarily indicative of the future financial position or future results of operations of the Company after the acquisition of USSC, or of the financial position or results of operations of the Company that would have actually occurred had the acquisition of USSC been effected on July 1, 1999. 2. PRO FORMA ASSUMPTIONS The following represents the preliminary allocation of the purchase price over the historical net book values of the acquired assets and assumed liabilities of USSC at September 30, 2000, and is included for illustrative pro forma purposes only. The Company is in the process of obtaining an independent appraisal of the fair value of acquired in-process research and development and identifiable intangible assets as of the acquisition date. Accordingly, this allocation is preliminary and is subject to change upon the completion of the independent third party valuation. Assuming the transaction had occurred on September 30, 2000, the preliminary allocation would have been as follows (in thousands): Assumed value of shares of the Company's common stock issued and employee stock options exchanged $4,899 Cash consideration 2,500 Estimated transaction costs 708 ------ Estimated total acquisition costs 8,107 Less: estimated fair value of net assets assumed 210 ------ Unallocated excess of acquisition costs over estimated fair value of net assets assumed $7,897 ====== Preliminary allocation to: Goodwill $7,359 Deferred stock-based compensation 538 ------ $7,897 ====== The purchase price consists of $2,500,000 in cash, 787,179 shares of common stock which includes a) 653,846 shares of common stock valued at $4,899,000 based upon the Company's stock price during a period of three days before and after the companies reached agreement and the proposed transaction was announced and b) 133,333 shares of employee stock options valued at $538,000 in accordance with FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB No. 25" ("FIN 44"). In connection with the acquisition of USSC , if certain revenue targets for the period from December 1, 2000 to June 30, 2004 are satisfied, the Company will issue up to a maximum of 1,625,000 additional shares of common stock to the shareholders of USSC. This additional consideration will be accounted for in accordance with APB 16, FIN 44 and EITF 95-8: Accounting for Contingent Consideration Paid to Shareholders of an Acquired Enterprise in a Purchase Business Combination. Any additional consideration will be allocated to goodwill and deferred compensation and amortized over the remaining respective lives. 3. PRO FORMA ADJUSTMENTS The pro forma financial information reflects the following adjustments: a) To record the preliminary allocation of the purchase price to goodwill and deferred stock-based compensation. b) To accrue estimated transaction costs. c) To eliminate the USSC common stock and retained earnings accounts. d) To record the acquisition of USSC's equity securities by the issuance of the Company's common stock and assumption of employee stock options. e) To record cash consideration. f) To record amortization expense for goodwill over an expected estimated period of benefit of seven years. g) To record stock-based compensation expense over a four year period. h) To eliminate expenses paid to entity affiliated with former stockholders of USSC. i) To eliminate cash surrender value of officers' life insurance and related loan not acquired. 4. EARNINGS (LOSS) PER SHARE Basic and diluted earnings (loss) per share for each period is calculated by dividing pro forma net income (loss) by the shares used to calculate earnings (loss) per share in the historical period plus the effect of the shares and options which were exchanged or assumed in connection with the acquisition of USSC. Potential common shares are excluded from the calculation of diluted earnings (loss) per share in a loss period, as the effect would be antidilutive. 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 hereunto duly authorized. LANTRONIX, INC. Date: March 14, 2001 By: /s/ Steven V. Cotton --------------------------- Steven V. Cotton Chief Financial Officer -3- EXHIBIT INDEX ------------- EXHIBIT NUMBER DESCRIPTION - ------ ----------- 23.1 Consent of Independent Auditors EX-23.1 2 0002.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8) of Lantronix, Inc. pertaining to the 1993 Incentive Stock Option Plan, 1994 Nonstatutory Stock Option Plan, 2000 Stock Plan, 2000 Employee Stock Purchase Plan, and the United States Software Corporation 2000 Stock Plan of our report dated February 16, 2001, with respect to the financial statements of United States Software Corporation as of November 30, 1999 and 2000 and for each of the two years in the period ended November 30, 2000, included in this Report (Form 8-K/A) of Lantronix, Inc. /s/ Ernst & Young LLP Orange County, California March 14, 2001 -----END PRIVACY-ENHANCED MESSAGE-----