-----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, As8YbGygdL6IiXZMqDwWka67SEdJngCLWruqWc9i5tIFyxLytqF5G5ZSL1wxeuGa nL1Phnpb5OeA9GKXN1qY8Q== /in/edgar/work/20000607/0000950103-00-000703/0000950103-00-000703.txt : 20000919 0000950103-00-000703.hdr.sgml : 20000919 ACCESSION NUMBER: 0000950103-00-000703 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 ITEM INFORMATION: FILED AS OF DATE: 20000607 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VITESSE SEMICONDUCTOR CORP CENTRAL INDEX KEY: 0000880446 STANDARD INDUSTRIAL CLASSIFICATION: [3674 ] IRS NUMBER: 770138960 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-19654 FILM NUMBER: 650387 BUSINESS ADDRESS: STREET 1: 741 CALLE PLANO CITY: CAMARILLO STATE: CA ZIP: 93012 BUSINESS PHONE: 8053883700 MAIL ADDRESS: STREET 1: 741 CALLE PLANO CITY: CAMARILLO STATE: CA ZIP: 93012 8-K/A 1 0001.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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) March 31, 2000 ------------------------------- Vitesse Semiconductor Corporation - -------------------------------------------------------------------------------- (Exact name of Registrant as Specified in Charter) Delaware 0-19654 77-0138960 - -------------------------------------------------------------------------------- (State or Other Jurisdiction (Commission File (IRS Employer of Incorporation) Number) Identification No.) 741 CALLE PLANO, CAMARILLO, CALIFORNIA 93012 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (805) 388-3700 ------------------------------ Item 7. Financial Statements and Exhibits. On April 14, 2000, Vitesse Semiconductor Corporation ("Vitesse") filed a Current Report on Form 8-K to report its acquisition of Orologic, Inc. ("Orologic"). On May 25, 2000, Vitesse filed an amended Current Report on Form 8-K to include historical and pro forma financial statements of Vitesse and Orologic. This Amendment is filed to correct certain financial information of Orologic contained in the Current Report on Form 8-K as amended on May 25, 2000. (a) Financial Statements of Businesses Acquired. Financial statements of Orologic included in this second amendment to the Current Report on Form 8-K dated March 31, 2000 are as follows: Audited Financial Statements of Orologic for the Years ended December 31, 1999 and 1998 with Report of Independent Auditors. (c) Exhibits The following exhibits are filed with this second amendment to the Current Report on Form 8-K dated March 31, 2000: Exhibit Number Exhibit Description - ------- --------------------------------------------------------------------- 23.1 Consent of Ernst & Young LLP, independent auditors. 99.2 Audited Financial Statements of Orologic for the Years ended December 31, 1999 and 1998 with Report of Independent Auditors. 1 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 thereunto duly authorized. Date: June 6, 2000 /s/ Eugene F. Hovanec ------------------------------ Name: Eugene F. Hovanec Title: Chief Financial Officer 2 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------------------------------------------------- 23.1 Consent of Ernst & Young LLP, independent auditors. 99.2 Audited Financial Statements of Orologic, Inc. for the Years ended December 31, 1999 and 1998 with Report of Independent Auditors. 3 EX-23.1 2 0002.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-47016, 333-53463, 333-69631, 333-86441 and 333-33918 and Form S-3 Nos. 333-72659, 333-89525 and 333-34056) of Vitesse Semiconductor Corporation of our report dated January 14, 2000, with respect to the audited financial statements of Orologic, Inc. for the years ended December 31, 1999 and 1998, included in this Current Report on Form 8-K of Vitesse Semiconductor Corporation, dated March 31, 2000, as amended on June 6, 2000. /s/ Ernst & Young LLP Raleigh, North Carolina June 5, 2000 4 EX-99.1 3 0003.txt EXHIBIT 99.2 Audited Financial Statements Orologic, Inc. Years ended December 31, 1999 and 1998 with Report of Independent Auditors 5 Orologic, Inc. Audited Financial Statements Years ended December 31, 1999 and 1998 ----------------------- TABLE OF CONTENTS ----------------------- Page ---- Report of Independent Auditors.............................................. 7 Audited Financial Statements................................................ Balance Sheets.............................................................. 8 Statements of Operations.................................................... 10 Statements of Redeemable Preferred Stock and Shareholders' Deficit ......... 11 Statements of Cash Flows.................................................... 12 Notes to Financial Statements............................................... 13 6 Report of Independent Auditors Board of Directors Orologic, Inc. We have audited the accompanying balance sheets of Orologic, Inc. as of December 31, 1999 and 1998, and the related statements of operations, redeemable preferred stock and shareholders' 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 audits 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 Orologic, Inc., at December 31, 1999 and 1998, 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. The accompanying financial statements have been prepared assuming that Orologic, Inc., will continue as a going concern. As more fully described in Note 2, the Company has incurred operating losses since inception and requires additional capital to continue operations. Without additional financing, these conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans as to these matters are also described in Note 2. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. /s/ Ernst & Young LLP Raleigh, North Carolina January 14, 2000 Orologic, Inc. Balance Sheets Year ended December 31 ---------------------- 1999 1998 ---------- ---------- Assets Current assets: Cash...................................................$1,177,987 $ 88,716 Short-term investments................................. 35,600 -- Other current assets................................... 23,828 13,674 ---------- --------- Total current assets...................................... 1,237,415 102,390 Equipment and furniture, at cost: Computers.............................................. 222,542 42,820 Software............................................... 495,527 67,784 Furniture, fixtures and equipment...................... 66,877 3,612 ---------- --------- 784,946 114,216 Less accumulated depreciation.......................... (140,925) (14,449) ---------- --------- 644,021 99,767 Technology license ....................................... 300,000 -- Other assets, net of amortization......................... 830 1,106 ---------- --------- Total assets $2,182,266 $ 203,263 ========== ========= See accompanying notes. 8 Orologic, Inc. Balance Sheets Year ended December 31 ---------------------- 1999 1998 ---------- ---------- Liabilities, redeemable preferred stock and shareholders' deficit Current liabilities: Accounts payable.......................................$ 77,381 $ 13,436 Accrued interest....................................... -- 33,112 Amount due to software vendor.......................... 136,540 74,487 Accrued license and development fee.................... 240,000 -- Notes payable to shareholder........................... -- 500,000 Current maturities of long-term debt................... 59,655 -- ---------- --------- Total current liabilities................................. 513,576 621,035 Long-term debt, net of current portion.................... 110,084 -- Series A convertible, redeemable preferred stock at $0.001 par value per share, 4,031,602 authorized, 3,031,602 and 0 shares issued and outstanding in 1999 and 1998, respectively (aggregate liquidation preference of $3,789,503 at December 31, 1999)....................... 3,749,487 -- Shareholders' deficit: Common stock at $0.001 par value per share, 12,000,000 shares authorized, 2,326,316 issued and outstanding in 1999, 10,000,000 shares authorized, 2,192,600 issued and outstanding in 1998............................... 2,326 2,193 Additional paid-in capital............................. 246,414 5,235 Deferred compensation expense.......................... (217,989) -- Accumulated deficit....................................(2,221,632) (425,200) ---------- --------- Total shareholders' deficit...............................(2,190,881) (417,772) ---------- --------- Total liabilities, redeemable preferred stock and shareholders' deficit...................................$2,182,266 $ 203,263 ========== ========= See accompanying notes. 9 Orologic, Inc. Statements of Operations Year ended December 31 ------------------------- 1999 1998 ----------- ---------- Engineering revenues...................................$ 350,000 $ 37,633 Operating expenses: Research and development............................ 1,272,740 294,335 Selling, general and administrative................. 777,511 118,589 Depreciation and amortization....................... 126,752 14,726 ----------- ---------- Total operating expenses............................... 2,177,003 427,650 ----------- ---------- Operating loss......................................... (1,827,003) (390,017) Other income (expense): Interest income..................................... 40,381 8,704 Interest expense.................................... (9,810) (29,478) ----------- ---------- 30,571 (20,774) ----------- ---------- Net loss...............................................$(1,796,432) $ (410,791) ----------- ---------- Basic and diluted loss per share.......................$ (.81) $ (.19) ----------- ---------- Weighted average shares outstanding....................$ 2,214,257 $2,220,386 =========== ========== See accompanying notes. 10 Orologic, Inc. Statements of Redeemable Preferred Stock and Shareholders' Deficit Series A Redeemable Total Convertible Additional Shareholders' Preferred Common Paid-In Deferred Accumulated Equity Stock Stock Capital Compensation Deficit (Deficit) ----------- ------ ---------- ------------ ----------- ------------- Balance at December 31, 1997........... $ -- $2,200 $ 3,725 $ $ (14,409) $ (8,484) Issuance of common stock............ -- 250 2,250 -- -- 2,500 Repurchase of common stock.......... -- (257) (740) -- -- (997) Net loss............................ -- -- -- -- (410,791) (410,791) ----------- ------ ---------- ------------ ----------- ------------ Balance at December 31, 1998........... -- 2,193 5,235 -- (425,200) (417,772) Issuance of preferred stock, net of issuance costs................... 3,749,487 -- -- -- -- -- Exercise of stock options........... -- 133 1,204 -- -- 1,337 Deferred compensation related to grant of stock options........... -- -- 239,975 (239,975) -- -- Amortization of deferred compensation -- -- -- 21,986 -- 21,986 Net loss............................ -- -- -- -- (1,796,432) (1,796,432) ----------- ------ ---------- ------------ ----------- ------------ Balance at December 31, 1999........... $ 3,749,487 $2,326 $ 246,414 $ (217,989) $(2,221,632) $ (2,190,881) =========== ====== ========= ============ ============ ============ See accompanying notes.
11 Orologic, Inc. Statements of Cash Flows Year ended December 31 ------------------------- 1999 1998 ----------- ----------- Operating activities Net loss...............................................$(1,796,432) $ (410,791) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization....................... 126,752 14,726 Non-cash interest expense........................... 6,391 29,478 Amortization of deferred compensation............... 21,986 -- Changes in operating assets and liabilities: Other current assets................................ (10,154) (11,819) Accounts payable.................................... 63,945 13,436 Amount due to software vendor....................... 62,053 74,487 Accrued license and development fee................. 240,000 -- ----------- ---------- Net cash used in operating activities.................. (1,285,459) (290,483) Investing activities Purchase of short-term investments..................... (35,600) -- Purchases of equipment and furniture................... (670,730) (114,216) Purchase of technology license......................... (300,000) -- ----------- ---------- Net cash used in investing activities.................. (1,006,330) (114,216) Financing activities Proceeds from issuance of common and preferred stock, net of issuance costs................................. 3,161,321 2,500 Repurchase of common stock............................. -- (997) Proceeds from debt..................................... 239,836 300,000 Payments on debt....................................... (20,097) -- ----------- ---------- Net cash provided by financing activities.............. 3,381,060 301,503 ----------- ---------- Net increase (decrease) in cash........................ 1,089,271 (103,196) Cash at beginning of year.............................. 88,716 191,912 Cash at end of year....................................$ 1,177,987 $ 88,716 ----------- ---------- Supplemental disclosure of cash flow information Cash paid during period for interest...................$ 3,419 $ -- =========== ========== Supplemental schedule of noncash investing and financing activities Financing - conversion of convertible debt and accrued interest to preferred stock..........................$ 589,503 $ -- =========== ========== See accompanying notes. 12 Orologic, Inc. Notes to Financial Statements December 31, 1999 1. Business Description and Summary of Significant Accounting Policies Business Description Orologic, Inc. (the "Company") was incorporated in September 1997 under the laws of the State of Delaware. Orologic Inc. is a fabless semiconductor company that plans to provide highly integrated, system-on-a-chip solutions to Internet infrastructure equipment manufacturers. The Company's products enable the high speed processing of data packets for the next generation of switches and routers. Prior to 1999, the Company was considered a development stage company. The Company is subject to the risks associated with early stage companies such as the risks of raising adequate capital, product development and introduction costs, and future profitable operations. 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 amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. Actual results could differ from those estimates. Revenue Recognition Engineering revenue is recognized as services are performed. Concentration of Credit Risk One customer accounted for approximately 86% and 100% of revenues in 1999 and 1998, respectively. Research and Development Research and development expenses are charged to operations as incurred. Research and development expenses include direct casts and allocated salaries, employee benefits and applicable indirect costs. Equipment and Furniture Equipment and furniture is stated at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the respective assets. Estimated useful lives are as follows: Equipment - 3 to 5 years Computer software - 3 years Furniture and fixtures - 5 years 13 Orologic, Inc. Notes to Financial Statements (continued) Technology License Technology license consists of purchased technology rights to be used in certain of the Company's future products. Amortization will be recorded as networking chips are produced at a rate based upon the expected number of networking chips to be produced using this technology. Accounting for Stock Options In 1997, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" ("SFAS 123"), which gives companies the option to adopt the fair value method for expense recognition of employee stock options and other stock-based awards or to continue to account for such items using the intrinsic value method as outlined under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") with pro forma disclosures of net income (loss) as if the fair value method had been applied. The Company has elected to continue to apply APB 25 for stock options and other stock based awards for employees and has disclosed pro forma net loss as if the fair value method had been applied. Income Taxes Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Net Loss Per Share The Company accounts for net loss per share in accordance with SFAS No. 128 "Earnings Per Share." In accordance with SFAS No. 128, net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Had the Company been in a net income position, diluted earnings per share would have been presented and would have included the shares issuable through the conversion of preferred stock as well as additional potential common shares related to outstanding options and warrants. The diluted earnings per share computation is not included, as the inclusion of all potential common shares is antidilutive. 2. Basis of Presentation The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred a net loss of $1,796,432 during the year ended December 31, 1999 and has an accumulated deficit of $2,221,632 through December 31, 1999. These factors indicate that the Company's continuation as a going concern is dependent upon its ability to obtain adequate financing necessary to continue development and 14 Orologic, Inc. Notes to Financial Statements (continued) growth of its services and to satisfy its obligations. In this regard, management intends to raise additional financing in the near future. However, there can be no assurances that management will be successful in executing its plans. 3. Long-Term Debt In August 1999, the Company entered into a loan agreement with a bank to provide up to $750,000 to finance equipment purchases. The commitment to provide financing of equipment purchases expires in August 2000, and advances are subject to certain requirements under the terms of the agreement. In 1999, the Company borrowed $189,836 under the loan agreement. Outstanding balances accrue interest at a rate of 7.63% per annum, and the Company is required to make monthly payments of $5,879, which includes interest. At December 31, 1999, $169,739 is outstanding under the loan agreement. The loan is secured by substantially all assets of the Company, and the Company is required to maintain a Remaining Months Liquidity, as defined in the agreement, of equal to or greater than three months. Additionally, the loan agreement provides for a warrant for the purchase of the greater of 12,766 shares of a future Series B Preferred stock or 4% warrant coverage. Warrant coverage is defined as $750,000 divided by the applicable initial exercise price multiplied by 4%. The exercise price for the warrant is the lesser of the per share price given at the Series B Preferred valuation or $2.35 per share. This warrant expires in August 2006. The aggregate principal maturities of long-term debt at December 31, 1999 are as follows: 2000 $ 59,655 2001 64,365 2002 45,719 ----------- $ 169,739 =========== At December 31, 1998, the Company had $500,000 in demand notes payable to a shareholder. These notes, along with accrued interest, were converted into Series A Preferred Stock in 1999. 4. Lease Commitments The Company leases its facilities and certain equipment under operating leases. Certain leases contain escalation clauses and renewal provisions. Future minimum lease payments under the various operating leases, which have remaining terms in excess of one year, are as follows at December 31, 1999: 2000 $ 84,798 2001 71,802 2002 29,533 =========== Total minimum lease payments $ 186,133 =========== Rent expense was approximately $55,880 and $14,400 in 1999 and 1998, respectively. 15 Orologic, Inc. Notes to Financial Statements (continued) 5. Income Taxes Because of its losses to date, the Company has not recorded any provision for income taxes. Components of the Company's deferred tax assets and liabilities are as follows at December 31: 1999 1998 ----------- ---------- Deferred tax assets: Net operating loss carryforwards $ 819,500 $ 140,900 Research tax credit carryforwards 144,500 29,400 Difference in cash versus accrual basis of accounting 12,000 18,000 ----------- ---------- Total deferred tax assets 976,000 188,300 Less valuation allowance (975,200) (187,900) ----------- ---------- Deferred tax assets, net of valuation allowance 800 400 ----------- ---------- Deferred tax liabilities: Depreciation and amortization (800) ( 400) ----------- ---------- Total deferred tax liabilities (800) (400) ----------- ---------- Net deferred taxes $ -- $ -- =========== ========== At December 31, 1999 and 1998, the Company had net operating loss carryforwards of approximately $2,080,000 and $345,000 and research and experimental credit carryforwards of $144,479 and $29,436 for income tax purposes, respectively. The tax benefits of these items are reflected in the accompanying table of deferred tax assets and liabilities. If not used, these carryforwards begin to expire in 2018 for federal tax purposes and 2003 for state tax purposes. U.S. tax rules impose limitations on the use of net operating losses following certain changes in ownership. If such a change occurs, the limitation could reduce the amount of these benefits that would be available to offset future taxable income each year, starting with the year of ownership change. 6. Shareholders' Deficit Capital Structure The Company has authorized 12,000,000 shares of common stock and 4,031,602 shares of preferred stock. Preferred Stock - Series A Dividends - Holders of the Series A preferred stock are entitled to receive dividends if declared by the board of directors on a pro rata basis. Such dividends are not cumulative. 16 Orologic, Inc. Notes to Financial Statements (continued) Liquidation - Upon any liquidation, dissolution, or winding up of the Company, holders of the Series A preferred stock shall be entitled, prior and in preference to any distribution to the holders of common stock, to be paid an amount equal to $1.25 per share, plus any or all accrued but unpaid dividends. If the assets to be distributed are insufficient to permit full payment to the preferred stockholders, then the assets of the Company shall be distributed on a pro rata basis to the preferred stockholders. Conversion - Holders of Series A preferred stock have the right, at any time, to convert into such number of shares of common stock as is obtained by multiplying the number of shares to be converted by the preferred stock's subscription price plus any declared and unpaid dividends and dividing such amount by the preferred stock's conversion price in effect at the time of conversion. The preferred stock conversion price as of December 31, 1999 was $1.25. The preferred stock conversion price will be reduced in the event of the Company's issuing any shares of its common stock (or instruments convertible into common stock) without consideration or for a consideration per share less than the conversion price of any series of preferred stock in effect immediately prior to the time of such issue or sale. Each outstanding share of preferred stock shall be automatically converted into a common share at the conversion price then in effect upon the closing of a public offering in which the aggregate net proceeds equal or exceed $15 million and price per share of at least $6.25. The Company shall at all times reserve and keep available out of its authorized common stock, such number of common shares sufficient to cover the conversion of all outstanding preferred stock. Voting - Each holder of preferred stock shall be entitled to one vote for each share of common stock which would be issuable to holder upon conversion. Each holder of common stock is entitled to one vote per share. Preferred and common stockholders shall vote together as a class. Restrictions - The Company cannot, without the consent of the preferred stockholders: (1) authorize any new classes of stock unless that class ranks junior to the preferred stock, (2) increase the authorized amount of preferred stock, or (3) authorize any obligation or security which is convertible into preferred stock. Redemption Option - Beginning in February 2004, preferred shareholders have the option to sell all or any portion of their shares to the Company at the liquidation price (currently $1.25 per share), subject to certain net income requirements, as outlined in the agreement. The Company shall redeem such shares by paying the holders of the Series A Preferred stock an amount equal to the liquidation price, plus accrued interest thereon from the Redemption Date at the rate of eight percent (8%) per annum, in equal monthly installments over the thirty-six (36) months following the Redemption Date. Common Stock Dividends - The holders of common stock shall be entitled to receive dividends as from time to time may be declared by the board of directors taking into account the rights of the preferred stockholders. 17 Orologic, Inc. Notes to Financial Statements (continued) Liquidation - After payment to the preferred stockholders, holders of common stock shall be entitled, together with the holders of preferred stock, to share ratably according to the number of shares held by them, its all remaining assets of the Company available for distribution. 7. Stock Option Plan The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options. The Company has recorded deferred compensation expense of $239,975 for the difference between the grant price and the deemed fair value of certain of the Company's common stock options granted in 1999. Of this deferred compensation amount, $21,986 was amortized during 1999. The Company's 1997 Stock Plan has authorized the grant of options to eligible employees, officers, directors and consultants for up to 1,800,000 shares of the Company's common stock. Terms of the stock option agreements, including vesting requirements are determined by the Board of Directors. The exercise price of incentive stock options, must equal at least fair market value on the date of grant and the maximum term of options granted is ten years. Pro forma information regarding net loss is required by SFAS No. 123 to be determined as if the Company has accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a minimum value option pricing model with the following weighted-average assumptions: risk-free interest rate of 6.0%, a dividend yield of 0%; and a weighted-average expected life of the option of 8 years. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows for the year ended December 31: 1999 1998 ----------- ---------- Net income as reported $(1,796,432) $ (410,791) Pro forma net income (1,828,640) (410,791) Basic and diluted loss per share: As reported $ (.81) $ (.19) Pro forma (.83) (.19) 18 Orologic, Inc. Notes to Financial Statements (continued) 7. Stock Option Plan (continued) A summary of the Company's stock option activity, and related information for the year ended December 31, 1999 follows: Option Price Number of Shares Range per Share Expiration Date ---------------- --------------- --------------- Balance at December 31, 1997, outstanding options -- Granted 298,500 $0.01 2007 - 2008 -------- Balance at December 31, 1998, outstanding options 298,500 $0.01 2007 - 2008 Granted 342,500 $0.01 - $0.15 2009 Exercised (133,716) $0.01 -------- Balance at December 31, 1999, outstanding options 507,284 $0.01 - $0.15 2007 - 2009 ======== Exercisable at end of year 17,649 Weighted-average fair value of options granted $.81 during the year Exercise prices for options outstanding under the plan as of December 31, 1999 ranged from $0.01 to $0.15. The weighted-average remaining contractual life of those options is approximately 9 years. 8. Common Stock Reserved for Future Issuance At December 31, 1999, the Company had reserved a total of 4,697,886 of its authorized 12,000,000 shares of common stock for future issuance as follows; For conversion of Series A preferred stock 3,031,602 Outstanding stock options under the plan 507,284 Possible future issuance under stock option plans 1,159,000 ========= Total shares reserved 4,697,886 =========
9. Retirement Plans The Company has a 401(k) savings plan whereby substantially all employees may elect to make contributions pursuant to a salary reduction agreement upon meeting certain age and length-of-service requirements. The Company does not provide matching contributions. The Company paid $1,280 and $0 of administrative expenses related to the plan in 1999 and 1998, respectively. 10. Year 2000 Consideration (Unaudited) The Company determined that it would not be required to modify or replace any portion of its software, hardware and equipment so that its systems and equipment would function properly with respect to dates in the year 2000 and thereafter. Since January 1, 2000, the Company has experienced no significant 19 Orologic, Inc. Notes to Financial Statements (continued) disruption in its computer systems or those of third parties, or other problems as a result of processing dates beyond 1999. -----END PRIVACY-ENHANCED MESSAGE-----