Amended Current Report
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: December 11, 2009
LOGITECH
INTERNATIONAL S.A.
(Exact
name of registrant as specified in its charter)
|
Canton
of Vaud, Switzerland
(State
or other jurisdiction
of
incorporation or organization)
|
0-29174
(Commission
File Number)
|
None
(I.R.S.
Employer
Identification
No.)
|
|
Logitech
International S.A.
Apples,
Switzerland
c/o
Logitech Inc.
6505
Kaiser Drive
Fremont,
California 94555
(Address
of principal executive offices and zip code)
|
|
(510)
795-8500
(Registrant’s
telephone number, including area
code)
|
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
|
¨
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
|
¨
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
|
¨
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
|
¨
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
|
EXPLANATORY
NOTE
On
December 12, 2009, Logitech International S.A. (“Logitech”) filed a Current
Report on Form 8-K to report the completion of its acquisition of LifeSize
Communications, Inc. (“LifeSize”), pursuant to the Agreement and Plan of Merger
dated as of November 10, 2009 (as amended, the “merger agreement”) by and among
two wholly-owned subsidiaries of Logitech, LifeSize, and other parties named
therein. Pursuant to the merger agreement, Agora Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of Logitech was merged with and
into LifeSize on December 11, 2009, with LifeSize continuing as the surviving
corporation and a wholly-owned subsidiary of Logitech. This Form 8-K/A is being
filed to provide the financial statements of LifeSize and pro forma financial
information required by Item 9.01 as set forth below, in accordance with Item
9.01 of Form 8-K.
ITEM
9.01. FINANCIAL STATEMENTS AND EXHIBITS
(a)
Financial statements of businesses acquired.
|
1)
|
Consolidated
audited financial statements of LifeSize and subsidiaries as of and for
the year ended December 31, 2008, and Report of Independent Auditors
therein are filed as Exhibit 99.1 to this Current Report on Form 8-K/A and
are incorporated by reference
herein.
|
|
2)
|
Unaudited
interim condensed consolidated financial statements of LifeSize and
subsidiaries as of September 30, 2009, and for the nine months ended
September 30, 2009 and 2008, and the notes related thereto, are filed as
Exhibit 99.2 to this Current Report on Form 8-K/A and are incorporated by
reference herein.
|
(b)
Pro forma financial information.
The
unaudited pro forma condensed combined financial information of Logitech for the
nine months ended December 31, 2009 and for the year ended March 31, 2009 giving
effect to the acquisition of LifeSize are filed as Exhibit 99.3 to this Current
Report on Form 8-K/A and are incorporated by reference herein.
(d) Exhibits.
The
following exhibits are filed with this report on Form 8-K/A:
|
Exhibit No.
|
|
Description
|
|
|
23.1
|
Consent
of Ernst & Young LLP, independent auditors for LifeSize
Communications, Inc.
|
||
|
99.1
|
Consolidated
audited financial statements of LifeSize Communications, Inc. and
subsidiaries as of and for the year ended December 31, 2008, and Report of
Independent Auditors therein.
|
||
|
99.2
|
Unaudited
interim condensed consolidated financial statements of LifeSize
Communications, Inc. and subsidiaries as of September 30, 2009 and for the
nine months ended September 30, 2009 and 2008, and the notes related
thereto.
|
||
|
99.3
|
Unaudited
pro forma condensed combined financial information of Logitech
International S.A. for the nine months ended December 31, 2009 and for the
year ended March 31, 2009 giving effect to the acquisition of LifeSize
Communications, Inc.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed by the undersigned, thereunto duly
authorized.
|
Logitech
International S.A.
|
|
|
/s/
Gerald P. Quindlen
|
|
|
Gerald
P. Quindlen
|
|
|
President
and Chief Executive Officer
|
|
/s/
Erik K. Bardman
|
|
|
Erik
K. Bardman
|
|
|
Senior
Vice President of Finance and Chief Financial
Officer
|
|
|
February
19, 2010
|
EXHIBIT
INDEX
|
Exhibit No.
|
|
Description
|
|
|
23.1
|
Consent
of Ernst & Young LLP, independent auditors for LifeSize
Communications, Inc.
|
||
|
99.1
|
Consolidated
audited financial statements of LifeSize Communications, Inc. and
subsidiaries as of and for the year ended December 31, 2008, and Report of
Independent Auditors therein.
|
||
|
99.2
|
Unaudited
interim condensed consolidated financial statements of LifeSize
Communications, Inc. and subsidiaries as of September 30, 2009 and for the
nine months ended September 30, 2009 and 2008, and the notes related
thereto.
|
||
|
99.3
|
Unaudited
pro forma condensed combined financial information of Logitech
International S.A. for the nine months ended December 31, 2009 and for the
year ended March 31, 2009 giving effect to the acquisition of LifeSize
Communications, Inc.
|
Exhibit
23.1
CONSENT
OF INDEPENDENT AUDITORS
We
consent to the incorporation by reference in the Registration Statements of
Logitech International S.A. on Form S-8 (No. 333-163933, No. 333-157038, No.
333-140429 and No. 333-100854) of our report dated April 29, 2009, with respect
to the consolidated financial statements of LifeSize Communications, Inc.
included in the Current Report of Logitech International S.A. on Form 8-K/A
dated February 19, 2010.
/s/
Ernst & Young LLP
Austin,
Texas
February
19, 2010
Exhibit
99.1
|
|
LifeSize
Communications, Inc.
Consolidated
Financial Statements
For
the Year Ended December 31, 2008
Contents
| Report of Independent Auditors | 2 |
| Audited Consolidated Financial Statements | |
| Consolidated Balance Sheet | 3 |
| Consolidated Statement of Operations | 4 |
| Consolidated Statement of Stockholders' Equity | 5 |
| Consolidated Statement of Cash Flows | 6 |
| Notes to Consolidated Financial Statements | 7 |
The Board
of Directors and Stockholders
LifeSize
Communications, Inc.
We have
audited the accompanying consolidated balance sheet of LifeSize Communications,
Inc. and subsidiaries as of December 31, 2008, and the related consolidated
statement of operations, stockholders’ equity, and cash flows for the year 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 audit.
We
conducted our audit 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. We were not engaged to perform an audit of the Company’s
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of LifeSize
Communications, Inc. and subsidiaries at December 31, 2008, and the consolidated
results of its operations and its cash flows for the year then ended in
conformity with U.S. generally accepted accounting principles.
/s/
Ernst & Young LLP
Austin,
Texas
April 29,
2009
LifeSize
Communications, Inc.
(In
thousands, except per share amounts)
See
accompanying notes
LifeSize
Communications, Inc.
(In
thousands)
|
Year
ended
|
||||
|
December
31, 2008
|
||||
|
Product
revenues
|
$ | 62,710 | ||
|
Service
and other revenues
|
4,927 | |||
|
Total
revenues
|
67,637 | |||
|
Cost
of product revenues
|
25,758 | |||
|
Cost
of service and other revenues
|
1,783 | |||
|
Total
cost of revenues
|
27,541 | |||
|
Gross
profit
|
40,096 | |||
|
Operating
expenses:
|
||||
|
Sales
and marketing
|
25,621 | |||
|
Research
and development
|
15,169 | |||
|
General
and administrative
|
4,265 | |||
|
Total
operating expenses
|
45,055 | |||
|
Loss
from operations
|
(4,959 | ) | ||
|
Other
expense:
|
||||
|
Interest
expense, net
|
(685 | ) | ||
|
Other
expense
|
(372 | ) | ||
|
Total
other expense
|
(1,057 | ) | ||
|
Net
loss before income taxes
|
(6,016 | ) | ||
|
Income
taxes
|
121 | |||
|
Net
loss
|
$ | (6,137 | ) | |
See
accompanying notes.
LifeSize
Communications, Inc.
Consolidated
Statement of Stockholders’ Equity
(In
thousands)
|
Series
A Convertible
|
Series
B Convertible
|
Series
C Convertible
|
Series
D Convertible
|
Additional
|
Total
|
|||||||||||||||||||||||||||||||
|
Preferred
Stock
|
Preferred
Stock
|
Preferred
Stock
|
Preferred
Stock
|
Common
Stock
|
paid-in
|
Accumulated
|
Stockholders'
|
|||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
capital
|
Deficit
|
Equity
|
||||||||||||||||||||||||
|
Balance
at December 31, 2007
|
18,500 | $ | 19 | 10,526 | $ | 11 | 6,140 | $ | 6 | 8,013 | $ | 8 | 8,842 | $ | 9 | $ | 82,262 | $ | (77,138 | ) | $ | 5,177 | ||||||||||||||
|
Issuance
of warrants to purchase common stock
|
- | - | - | - | - | - | - | - | - | - | 137 | 137 | ||||||||||||||||||||||||
|
Exercise
of stock options (shares subject to repurchase)
|
- | - | - | - | - | - | - | - | 974 | 1 | (1 | ) | - | - | ||||||||||||||||||||||
|
Repurchase
of shares of common stock
|
- | - | - | - | - | - | - | - | (17 | ) | - | - | - | - | ||||||||||||||||||||||
|
Vesting
of stock option (shares no longer subject to repurchase)
|
- | - | - | - | - | - | - | - | - | - | 361 | - | 361 | |||||||||||||||||||||||
|
Stock-based
compensation
|
- | - | - | - | - | - | - | - | - | - | 651 | - | 651 | |||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | - | - | - | - | - | - | (6,137 | ) | (6,137 | ) | |||||||||||||||||||||
|
Balance
at December 31, 2008
|
18,500 | $ | 19 | 10,526 | $ | 11 | 6,140 | $ | 6 | 8,013 | $ | 8 | 9,799 | $ | 10 | $ | 83,410 | $ | (83,275 | ) | $ | 189 | ||||||||||||||
See
accompanying notes
LifeSize
Communications, Inc.
Consolidated
Statement of Cash Flows
(In
thousands)
|
Year
ended
|
||||
|
December
31, 2008
|
||||
|
Operating
activities
|
||||
|
Net
loss
|
$ | (6,137 | ) | |
|
Adjustment
to reconcile net loss to net cash
|
||||
|
used
in operating activities:
|
||||
|
Depreciation
|
2,074 | |||
|
Amortization
of deferred financing costs
|
57 | |||
|
Noncash
accrued paid-in-kind interest
|
155 | |||
|
Loss
on disposal of fixed assets
|
5 | |||
|
Stock-based
compensation
|
651 | |||
|
Provision
for excess and obsolete inventories
|
860 | |||
|
Provision
for doubtful accounts
|
351 | |||
|
Changes
in operating assets and liabilities:
|
||||
|
Trade
receivables
|
(6,188 | ) | ||
|
Inventories
|
(3,328 | ) | ||
|
Prepaid
expenses
|
(268 | ) | ||
|
Other
current assets
|
(53 | ) | ||
|
Deferred
royalties
|
(5,293 | ) | ||
|
Other
long-term assets
|
(292 | ) | ||
|
Accounts
payable
|
1,589 | |||
|
Accrued
expenses
|
1,057 | |||
|
Accrued
compensation
|
500 | |||
|
Deferred
revenue
|
6,221 | |||
|
Other
current liabilities
|
(187 | ) | ||
|
Other
long-term liabilities
|
5,826 | |||
|
Net
cash used in operating activities
|
(2,400 | ) | ||
|
Investing
activities
|
||||
|
Purchase
of property and equipment
|
(3,010 | ) | ||
|
Purchase
of construction in progress
|
(46 | ) | ||
|
Purchases
of investments
|
(1,300 | ) | ||
|
Proceeds
from maturities of investments
|
4,350 | |||
|
Net
cash used in investing activities
|
(6 | ) | ||
|
Financing
activities
|
||||
|
Proceeds
from exercise of stock options
|
434 | |||
|
Proceeds
from revolving line of credit
|
3,100 | |||
|
Repayment
of revolving line of credit
|
(3,000 | ) | ||
|
Proceeds
from long-term debt, net of issuance costs
|
5,940 | |||
|
Net
cash provided by financing activities
|
6,474 | |||
|
Net
change in cash and cash equivalents
|
4,068 | |||
|
Cash
and cash equivalents, beginning of period
|
9,068 | |||
|
Cash
and cash equivalents, end of period
|
$ | 13,136 | ||
|
Supplemental
cash flow information
|
||||
|
Interest
Paid
|
$ | 700 | ||
|
Taxes
Paid
|
$ | 92 | ||
|
Noncash
investing and financing transactions
|
||||
|
Issuance
of warrants to purchase common stock
|
$ | 137 | ||
|
Vesting
of refundable stock options
|
$ | 361 | ||
See
accompanying notes.
1.
Organization and Business Description
LifeSize
Communications, Inc., (the Company) was incorporated in Delaware on
January 27, 2003. The Company manufactures, markets, and sells
high-quality, easy-to-use high definition video and audio communication products
and services on a worldwide basis.
2.
Significant Accounting Policies
Basis
of Presentation
These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany balances and transactions have been
eliminated.
Liquidity
During
the period from January 27, 2003 (inception) through December 31, 2008, the
Company reported net operating losses of approximately $83 million and an
operating cash flow deficit of approximately $72 million. Management believes
that its cash and cash equivalents on hand and the expected cash generated from
the Company’s operations in 2009 will be sufficient to fund its operations
through December 31, 2009. If the Company’s results of operations and related
cash flows from operations do not meet the current operating plan, the Company
expects to reduce certain discretionary expenditures and investments, and that
with these actions the Company believes that the existing cash and cash
equivalents will provide sufficient funds to meet the Company’s operating needs
for at least the next 12 months.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results can differ from those estimates.
Reclassification
Certain
previously reported amounts have been reclassified to conform to the current
year’s presentation.
Cash
and Cash Equivalents
Cash and
cash equivalents primarily consist of cash deposits and liquid investments with
original maturities of three months or less when purchased and are stated at
cost.
Allowance
for Doubtful Accounts
The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of the Company’s customers to make required
payments. The key factors the Company uses in assessing this allowance are the
individual judgments on specific customer balances and the overall aging of the
total receivables. Delinquent account balances are written-off after management
has determined that the likelihood of collection is not
probable.
2.
Significant Accounting Policies (continued)
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents. The Company’s cash and cash
equivalents are placed with highly rated financial institutions. As of December
31, 2008, cash deposits held in the U.S., which represents the majority of cash
and cash equivalents, were fully insured by the U.S. federal government-backed
Federal Deposit Insurance Corporation. The Company has not experienced any
losses in such accounts, and the Company does not believe it is exposed to any
significant credit risk on cash and cash equivalents.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist principally of cash, trade and other
receivables, trade and other payables, bank borrowings, and long-term debt. The
Company believes all of the financial instruments’ recorded values approximate
current market values.
Property
and Equipment
Property
and equipment are carried at cost, less accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives of
the related assets, ranging from one to five years. Depreciation of leasehold
improvements is computed using the straight-line method over the shorter of the
remaining lease term or the estimated useful life of the related assets. Gains
or losses on disposals of capital equipment are included in the results of
operations. Repairs and maintenance are charged to expense as
incurred.
Revenue
Recognition
Most of
the Company’s hardware products are integrated with software that is more than
incidental to the functionality of the equipment. The Company generally provides
software updates, upgrades and enhancements, if any, related to its products for
one year and, pursuant to separately sold maintenance contracts, for subsequent
years after the original maintenance period ends. In addition, sales of the
Company’s software-only products generally include rights to updates, upgrades
and enhancements, if any, during a maintenance period of one year.
Accordingly,
the Company accounts for revenue for these products in accordance with Statement
of Position (SOP) No. 97-2,
Software Revenue Recognition
,
and all related interpretations. The Company recognizes revenue when the
following criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, price is fixed or
determinable, and collectibility is reasonably assured. Revenue related to
software-only products is recognized upon shipment. Certain of the Company’s
sales are made under agreements allowing certain rights of return and price
protection under specified terms and conditions. The Company accrues for product
returns in accordance with Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards (SFAS) No. 48,
Revenue Recognition When Right of
Return Exists
. Additionally, the Company recognizes extended service
revenue on our hardware and software products ratably over the term of the
contract.
2.
Significant Accounting Policies (continued)
The
Company uses the residual method to recognize revenue when an agreement includes
one or more elements to be delivered at a future date. If there is an
undelivered element under the arrangement, the Company defers revenue based on
vendor-specific objective evidence of the fair value of the undelivered element,
as determined by the price charged when the element is sold separately. If
vendor-specific objective evidence of fair value does not exist for all
undelivered elements, the Company defers all revenue until sufficient evidence
exists or all elements have been delivered. As of December 31, 2008,
deferred revenue included $7,335,000 of deferred maintenance
revenue.
The
Company accrues for sales returns, sales rebates, and other allowances as a
reduction to revenues upon revenue recognition based upon our contractual
obligations and management estimates.
Inventories
Inventories
are stated at the lower of cost or realizable value, with cost computed on a
first-in, first-out basis. Shipping and handling costs are classified as a
component of cost of product revenues in the consolidated statements of
operations.
Advertising
Costs
The
Company expenses all advertising costs as incurred. Advertising expenses were
approximately $3,202,000 for the year ended December 31, 2008.
Income
Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes
(SFAS 109)
.
SFAS
109 prescribes the use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using enacted
tax rates and laws in effect when the differences are expected to
reverse.
Research
and Development Expenditures
The
Company accounts for research and development costs in accordance with SFAS No.
2,
Accounting for Research and
Development Costs
, which requires that expenditures be expensed to
operations as incurred. Software development costs incurred prior to the
establishment of technological feasibility are included in research and
development and are expensed as incurred. After technological feasibility is
established, material software development costs are capitalized. The
capitalized cost is amortized on a straight-line basis over the estimated
product life, or on the ratio of current revenues to total projected product
revenues, whichever is greater. To date, the period between achieving
technological feasibility, which the Company has defined as the establishment of
a working model, which typically occurs when beta testing commences, and the
general availability of such software has been short and software development
costs qualifying for capitalization have been insignificant. Accordingly, the
Company has not capitalized any software development costs.
Stock-Based
Compensation
The
Company accounts for its stock-based compensation plan under the recognition and
measurement provisions of SFAS No. 123 (revised 2004),
Share-Based Payment
, (SFAS
123R). Under SFAS 123R, companies are required to account for such transactions
using a fair-value method and recognize the expense in their statement of
income.
2.
Significant Accounting Policies (continued)
Recently
Issued Accounting Standards
In April
2008, the FASB issued FASB Staff Position (FSP) FAS No. 142-3,
Determination of the Useful Life of
Intangible Assets
(FSP FAS 142-3). FSP FAS 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142,
Goodwill and
Other Intangible Assets
. FSP FAS 142-3 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. Early adoption is prohibited. Based
on its current operations, the Company does not expect that the adoption of FSP
FAS 142-3 will have a material impact on its financial position or results
of operations.
In March
2008, the FASB issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133
(SFAS 161). SFAS 161 amends and expands the disclosure
requirements of SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities
. SFAS 161 requires entities to
provide greater transparency about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS 133 and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity's
financial position, results of operations and cash flows. SFAS 161 is
effective for fiscal years and interim periods beginning after November 15,
2008. Based on its current operations, the Company does not expect that the
adoption of SFAS 161 will have a material impact on its financial position
or results of operations.
In
December 2007, the FASB issued SFAS 141 (revised 2007),
Business Combinations
,
(SFAS 141R). SFAS 141R establishes principles and requirements for how
an acquirer recognizes and measures the assets acquired and the liabilities
assumed in a business combination. SFAS 141R is effective for annual
periods beginning on or after December 15, 2008 and will be applied
prospectively for business combinations entered into after the date of
adoption.
In
September 2006, the FASB issued SFAS 157,
Fair Value Measurements
(SFAS
157). This standard defines fair value, establishes a framework for measuring
fair value in accounting principles generally accepted in the United States of
America, and expands disclosure about fair value measurements. This
pronouncement applies under other accounting standards that require or permit
fair value measurements. Accordingly, this statement does not require any new
fair value measurement. This statement is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. However
SFAS 157 is amended by FSP FAS 157-1,
Application of FASB Statement 157 to
FASB Statement 13 and Other Accounting Pronouncements That Address Fair Value
Measurements for Purposes of Lease Classification or Measurement under Statement
13
, which excludes from the scope of this provision arrangements
accounted for under SFAS 13,
Accounting for Leases
. SFAS
157 is also amended by FSP FAS 157-2,
Effective Date of FASB Statement No.
157
(FSP FAS 157-2), which delays the effectve date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). This FSP partially defers the effective date of SFAS
157 to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years for items within the scope of this FSP. In October
2008, SFAS 157 was amended again by FSP 157-3,
Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active
(FSP FAS
157-3), which clarifies the application of SFAS 157 in a market that is not
active and provides an example to illustrate key considerations in determining
the fair value of a financial asset when the market for that financial asset is
not active. The FSP is effective upon issuance, including prior periods for
which financial statements have not been issued. The Company adopted
SFAS 157 on January 1, 2008, except as it applies to those nonfinancial assets
and nonfinancial liabilities as noted in FSP FAS 157-2. The partial adoption of
SFAS 157 did not have a material impact on our consolidated financial position
or results of operations. The Company also adopted FSP FAS 157-3 for the
year
ended December 31, 2008, as required, and concluded it did not have a
significant impact on consolidated financial position or results of
operations.
2.
Significant Accounting Policies (continued)
In
February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities – including an amendment of FASB Statement 115
(SFAS 159), which permits companies to choose to measure certain
financial instruments and certain other items at fair value. The statement
requires that unrealized gains and losses on items for which the fair value
option has been elected be reported in earnings. SFAS 159 is effective for
fiscal years beginning after November 15, 2007. The Company adopted SFAS 159 on
January 1, 2008 as required. The adoption of SFAS 157 did not have a significant
impact on the consolidated financial position or results of operations as the
Company did not elect the fair value option for items within the scope of this
statement.
In June
2006, the FASB issued FASB Interpretation (FIN) 48,
Accounting for Uncertainty in Income
Taxes
(FIN 48). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with SFAS
109,
Accounting for Income
Taxes
(SFAS 109). FIN 48 defines the minimum recognition threshold a tax
position is required to meet before being recognized in the financial statements
and seeks to reduce the diversity in practice associated with certain aspects of
the recognition and measurement related to accounting for income taxes. In
December 2008, the FASB issued FASB Staff Position No. FIN 48-3,
Effective Date of FASB
Interpretation No. 48 for Certain Nonpublic Enterprises
, which delays the
effective date of FIN 48 for certain nonpublic enterprises until annual
financial statements for fiscal years beginning after December 15, 2008. The
Company met the requirements for deferral and is currently evaluating the impact
of the adoption of FIN 48 on the financial statements.
3.
Cash and Cash Equivalents
Approximately
$156,000 of cash as of December 31, 2008, is restricted from the Company’s use
because it is being held as collateral to secure the Company’s credit card, as
collateral for a letter of credit issued on the Company’s behalf and as
collateral for the Company’s merchant credit card account. Such restrictions can
be released at any time if the Company cancels the credit card and pays off any
balances, as the letter of credit expires, or cancels the merchant credit card
agreement.
4.
Inventories
Inventories
consist of the following (in thousands):
|
December
31, 2008
|
||||
|
Raw
materials
|
$ | 741 | ||
|
Raw
materials consigned to others
|
1,750 | |||
|
Finished
goods
|
4,817 | |||
|
Service
inventory
|
1,299 | |||
|
Less:
Excess obsolescence and valuation reserve
|
(1,951 | ) | ||
| $ | 6,656 | |||
5.
Property and Equipment
Property
and equipment consist of the following (in thousands):
|
Expected
|
|||||
|
Useful
Life
|
December
31, 2008
|
||||
|
Computer
equipment
|
3
years
|
$ | 1,712 | ||
|
Computer
software
|
3
to 5 years
|
1,189 | |||
|
Office
equipment
|
1
to 3 years
|
2,226 | |||
|
Laboratory
equipment
|
3
years
|
1,547 | |||
|
Furniture
and fixtures
|
5
years
|
192 | |||
|
Leasehold
improvements
|
Lesser
of useful life or term of lease
|
34 | |||
|
Tooling
equipment
|
3
years
|
2,124 | |||
|
Other
manufacturing equipment
|
3
years
|
624 | |||
|
Less:
Accumulated depreciation
|
(6,556 | ) | |||
| 3,092 | |||||
|
Construction
in progress
|
47 | ||||
| $ | 3,139 | ||||
6.
Credit Arrangements
During
July 2003, the Company entered into a $2.75 million Loan and Security Agreement
(the Agreement) with a bank, with only $1 million initially available and the
remaining $1.75 million pending the Company receiving a minimum of $9 million in
additional gross equity proceeds. No borrowings were permitted after
July 31, 2004. Borrowings under the facility are secured by substantially
all of the Company’s assets and bear interest at the bank’s prime rate plus
0.25%, but not less than 4.25%. The accrued interest is due monthly. The
principal balance is due in equal monthly installments commencing
August 31, 2004 through the maturity date January 31, 2007. As of
December 31, 2006, the Company had fully drawn against this $2.75 million
bank growth capital credit facility and had begun repayments. As of December 31,
2008, there were no balances outstanding under the bank growth capital credit
facility.
During
March 2005, the Company entered into an amendment to the Agreement (the
Amendment) which added a $5 million revolving line of credit for the purpose of
financing working capital. The repayment terms are to pay interest monthly at a
rate of prime plus 0.25% with a floor of 5.50% with principal and any unpaid
interest due on March 21, 2007 (the Maturity Date). During July 2006, the
Company entered into an amendment to the Agreement (the Second Amendment) which
increased the revolving line of credit to $10 million and changed the Maturity
Date to May 31, 2008. During November 2007, the Company entered into an
amendment to the Agreement (the Third Amendment) which changed the Maturity Date
to November 29, 2009. During April 2008, the company entered into an amendment
to the Agreement (the Fourth Amendment) which changed the borrowing base to
include certain securities maintained with the lending bank. The debt is secured
by all cash, investments, accounts receivable and inventory. Based on the
Agreement, these loan advances will be determined by a borrowing base which
consists of domestic accounts receivable and foreign accounts receivable insured
through a trade credit insurance policy (eligible up to 80% of this account
balance), domestic finished goods inventory (eligible up to 40% of this account
balance and subject to a maximum amount of $1.5 million), and certain securities
maintained with the lending bank (eligible up to 70% of this account
balance).
6.
Credit Arrangements (continued)
In
consideration for the credit facility, the Company paid the bank a $2,500
facility fee, reimbursed it for its legal fees associated with documenting the
credit facility, and issued it a warrant for the Company’s preferred stock as
more fully discussed in Note 7.
As of
December 31, 2008, the Company was in compliance with all applicable
covenants and restrictions.
As of
December 31, 2008, the Company had an outstanding balance under the
revolving line of credit of $4.5 million. As of December 31, 2008, the Company
had $5.5 million available under the revolving line of credit subject to the
borrowing base mentioned above. The interest rate at December 31, 2008 was
5.5%.
During
March 2005, the Company entered into a growth capital financing agreement with a
venture debt firm for up to $6 million. The Company’s repayment terms for drawn
balances were to make monthly interest only payments at an annual fixed rate of
10.25% through April 30, 2006 followed by 30 equal monthly payments
consisting of principal and interest. The debt is secured by all assets owned by
the Company, except for intellectual property, with such lien being subordinate
to the existing credit arrangement mentioned above. In connection with this
agreement, the Company provided a warrant for 118,421 shares of Series B
Preferred Stock to the lender on the $6 million committed credit line upon
execution of the agreement and an additional warrant in August 2005 of 118,421
shares of Series B Preferred Stock upon drawdown of the line. These warrants
were valued based on a Black-Scholes pricing model and were recorded as deferred
financing costs and are amortized into interest expense on a monthly basis over
the life of the agreement as more fully discussed in Note 7.
During
June 2006, the Company entered into an amendment to the growth capital financing
agreement whereby the repayment terms for drawn balances were adjusted so that
monthly interest only payments at an annual fixed rate of 10.25% are payable
through March 31, 2007 followed by 25 equal monthly payments consisting of
principal and interest. In accordance with EITF Issue No. 96-19:
Debtor’s Accounting for a
Modification or Exchange of Debt Instruments
the amendment is not
considered a substantial modification to the debt agreement. In connection with
this amendment to the agreement, the Company provided warrants for 31,579 shares
of Series B Preferred Stock to the lender on the $6 million committed credit
line upon execution of the amendment to the agreement. These warrants were
valued based on a Black-Scholes pricing model and were recorded as deferred
financing costs and are amortized into interest expense on a monthly basis over
the life of the amended agreement as more fully discussed in Note
7.
During
November 2007, the Company entered into a term loan (the Term Loan) with a
private finance firm for up to $10 million for the purpose of refinancing the
growth capital financing agreement and for financing working capital. The Term
Loan was initially funded for $4 million with the additional $6 million
available to the Company as of December 31, 2007, and until December 31, 2008,
subject to $1 million minimum advances made no more often than every fifteen
days. During May 2008 the Company entered into an amendment to the Term Loan
(the Term Loan First Amendment) which changed the definition of security
interest to exclude certain securities defined as collateral for the Company’s
revolving line of credit. During October 2008, the Company received the
remaining $6 million advance available under the Term Loan. The Term Loan bears
interest at (1) a rate of 8% on the outstanding principal balance payable in
cash on a monthly basis in arrears from the initial funding date to May 31, 2009
and (2) a rate of 3% on the outstanding principal balance payable in-kind on a
monthly basis in arrears from the initial funding date to May 31, 2009. Interest
paid in-kind will increase the principal amount outstanding and will thereafter
accrue interest during each period. After May 31, 2009 the Term Loan bears
interest at a rate of 11.75% per annum. Principal payments are due in thirty
equal monthly installments commencing June 30, 2009, in an aggregate amount
equal to 75% of the outstanding principal balance with the remaining 25%
outstanding due at maturity on November 30, 2011.
6.
Credit Arrangements (continued)
In April
2009, pursuant to its rights under the Term Loan, the Company elected to defer
the principal payment commencement date for a six-month period upon notification
to the private finance firm. As a result of such election, (1) the principal
payments will be due in twenty-four equal monthly installments commencing
December 31, 2009 in an aggregate amount equal to 75% of the original $10
million principal balance with the remaining 25% plus payable in-kind interest
due at maturity on November 30, 2011, and (2) the Term Loan’s payable in-kind
interest will increase from 3% to 4% on the outstanding principal balance on a
monthly basis from June 1, 2009 to December 31, 2009.
In
consideration for the Term Loan, the Company paid the private finance firm a
$40,000 commitment fee, reimbursed it for its related legal fees, and provided a
warrant for 259,855 shares of common stock. 103,942 shares vested and were
immediately exercisable on the issue date of the warrant. The remaining 155,913
shares vested and became immediately exercisable in October 2008 upon the $6
million advance discussed above. These warrants were valued based on a
Black-Scholes pricing model. The value associated with the vested shares is
recorded as deferred financing costs and is amortized into interest expense on a
monthly basis over the life of the Term Loan as more fully discussed in Note
7.
The Term
Loan is secured by all assets owned by the Company, except for intellectual
property and certain short-term investments. However, the Company is prohibited
from selling its intellectual property without prior approval of the private
finance firm.
Proceeds
from the Term Loan and the revolving line of credit were used, in part, to repay
all outstanding amounts owed under the venture debt growth capital financing
agreement. As a result of the repayment, the Company recognized a loss on the
early extinguishment of debt of approximately $0.1 million related to the
write-off of the unamortized debt financing costs.
The
credit facility, revolving line of credit, and term loan are subject to
covenants concerning delivery of financial information to the bank, maintenance
of minimum levels of insurance, reporting of registered intellectual property
rights, utilizing the bank as the Company’s primary depository, and compliance
with various other related items. The credit facility and revolving line of
credit also place certain restrictions and prohibitions on the Company relative
to asset dispositions, business combinations, indebtedness, dividends,
investments, and other related items.
As of
December 31, 2008, the annual maturities of long-term debt were as follows
(in thousands):
|
Term
Loan
|
||||
|
2009
|
$ | 1,620 | ||
|
2010
|
3,048 | |||
|
2011
|
5,625 | |||
|
Total
|
$ | 10,293 | ||
7.
Stockholders’ Equity
Series
A, Series B, Series C and Series D Convertible Preferred Stock
During
2003, the Company issued 9,000,000 shares of Series A convertible preferred
stock (Series A Preferred Stock) for aggregate net proceeds of
approximately $8.92 million. The Company was obligated to issue and the
Company’s current investors were obligated to purchase an additional 9,000,000
shares of Series A Preferred Stock once the Company completes certain mutually
agreed to milestones, which were met in 2004. During 2004, the Company and
investors performed their obligations, and the Company issued 9,500,000
additional shares of Series A Preferred Stock for aggregate net proceeds of
approximately $9.49 million.
During
2004, the Company issued 10,526,316 shares of Series B convertible
preferred stock (Series B Preferred Stock) for aggregate net proceeds of
approximately $19.96 million.
During
2005, the Company issued 6,140,351 shares of Series C convertible preferred
stock (Series C Preferred Stock) for aggregate net proceeds of
approximately $17.43 million.
During
2006, the Company issued 8,012,822 shares of Series D convertible preferred
stock (Series D Preferred Stock) for aggregate net proceeds of
approximately $24.93 million.
The
significant terms of the Series A, Series B, Series C and Series D Preferred
Stock are as follows:
Voting
Rights
The
preferred stockholders have the right to one vote for each share of common stock
into which such holder’s share of Series A, Series B, Series C or Series D
Preferred Stock could then be converted. The preferred stockholders, voting as a
separate class, are also entitled to designate and elect three directors of the
Company.
Liquidation
In the
event of any liquidation, dissolution or winding up of this corporation (or
deemed occurrence of such event) (Liquidation), if the aggregate proceeds are
less than or equal to $200 million, the holders of the Series A, B, C and D
Preferred shall be entitled to receive prior and in preference to any
distributions to the holders of common stock, (i) an amount for each
outstanding share of Series A Preferred equal to $1.00 (adjusted for any
recapitalization event, the Series A Original Issue Price) plus all declared but
unpaid dividends on such share of Series A Preferred (Series A Liquidation
Amount), (ii) an amount for each outstanding share of Series B Preferred
equal to $1.90 (adjusted for any recapitalization event, the Series B Original
Issue Price) plus all declared but unpaid dividends on such share of Series B
Preferred (Series B Liquidation Amount), (iii) an amount for each
outstanding share of Series C Preferred equal to $2.85 (adjusted for any
recapitalization event, the Series C Original Issue Price) plus all
declared but unpaid dividends on such share of Series C Preferred (Series C
Liquidation Amount) and (iv) an amount for each outstanding share of
Series D Preferred equal to $3.12 (adjusted for any recapitalization event,
the Series D Original Issue Price) plus all declared but unpaid dividends
on such share of Series D Preferred (Series D Liquidation Amount), respectively.
The entire remaining assets and funds of the Company, if any, shall then be
distributed ratably among the holders of Series A, B, C and D Preferred and
common stock with each outstanding share of Series Preferred treated for this
purpose as having been converted into the maximum number of shares of common
stock into which such share of Series Preferred could then be converted and as
outstanding only until such time as the holder of such share of Series A, B, C
or D Preferred has received the maximum amount to be distributed in respect of
such share and common stock until (1) with respect to shares of Series A and B
Preferred, the amounts
distributed
to such holders shall equal $5.00 per share (adjusted for any recapitalization
event), (2) with respect to shares of Series C Preferred, the amounts
distributed to such holders shall equal $8.55 per share (adjusted for any
recapitalization event) and (3) with respect to shares of Series D Preferred,
the amounts distributed to such holders shall equal $9.36 per share (adjusted
for any recapitalization event). Thereafter, any remaining assets shall be
distributed solely to the holders of common stock in proportion to the number of
shares of common stock then held by them.
7.
Stockholders’ Equity (continued)
If the
aggregate proceeds of a Liquidation exceed $200 million, the holders of the
Series C Preferred and Series D Preferred shall be entitled to receive prior and
in preference to any distribution of any of the Company’s assets to the holders
of Series A Preferred, Series B Preferred, and common stock (1) an amount for
each outstanding share of Series C Preferred equal to the Series C
Liquidation Amount and (2) and amount for each outstanding share of
Series D Preferred equal to the Series D Liquidation Amount. The entire
remaining assets of the Company, if any, shall be distributed ratably among the
holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and common stock (on an as converted to common stock basis) until such
time as (1) the holders of Series C Preferred have received an aggregate amount
per share equal to $8.55 (adjusted for any recapitalization event) and (2) the
holders of Series D Preferred have received an aggregate amount per share equal
to $9.36 (adjusted for any recapitalization event). Thereafter, the entire
remaining assets of the Company, if any, shall be distributed among the holders
of Series A Preferred, Series B Preferred, and common stock ratably on an as
converted to common stock basis.
If upon
the occurrence of a Liquidation, the Company’s assets shall be insufficient to
permit the payment to holders of the Series A Preferred of the full Series A
Liquidation Amount, the payment to holders of the Series B Preferred of the full
Series B Liquidation Amount, the payment to holders of the Series C Preferred of
the full Series C Liquidation Amount, and the payment to holders of the Series D
Preferred of the full Series D Liquidation Amount then the Company’s assets
shall be distributed ratably among the holders of the Series A, B, C and D
Preferred in proportion to the preferential amount each such holder is otherwise
entitled to receive.
Dividends
The
holders of Series A, Series B, Series C and Series D Preferred Stock shall
be entitled to receive noncumulative annual dividends at an annual rate of
$0.08, $0.152, $0.228 and $0.2496 per share, respectively, as may be adjusted
for certain recapitalization events, when declared by the Company. Through
December 31, 2008, no dividends have been declared or paid by the Company.
The Company’s credit facility prohibits the Company from declaring or paying any
dividends during its term.
Conversion
Each
share of Series A, Series B, Series C and Series D Preferred Stock is
convertible, at the option of the holder, into one share of common stock,
subject to certain antidilution adjustments. In the event of conversion to
common stock, the holders of Series A, Series B, Series C and Series D
Preferred Stock shall receive, when applicable, consideration at conversion for
all accrued and unpaid dividends. Each outstanding share of Series A,
Series B, Series C and Series D Preferred Stock shall automatically be converted
into one share of common stock, subject to certain antidilution adjustments, on
the earlier of (a) immediately prior to the Company’s consummation of a firm
commitment underwritten public offering pursuant to a registration statement
under the Securities Act of 1933, as amended, with a public offering price of
not less than $6.24 per share (as adjusted for recapitalization events) and
which results in gross proceeds to the Company of at least $40 million, or (b)
the date specified by written consent
or
agreement of the holders of both (i) at least a majority of the Series A,
Series B, and Series C Preferred Stock and (ii) at least 66-2/3% of the Series D
Preferred Stock.
7.
Stockholders’ Equity (continued)
Preferred
Stock Warrants
On July
31, 2003, the Company issued to its bank warrants to purchase 82,500 shares of
Series A Preferred Stock in connection with the credit facility the bank
extended to the Company (see Note 6). The warrants were issued with an exercise
price of $1.00 per share, subject to adjustment for recapitalization events, and
an expiration date of July 31, 2010. The Company valued the warrants at $59,400
using the Black-Scholes method using a zero percent dividend yield, expected
volatility of 75%, a risk-free interest rate of 3.75%, and expected life of
seven years. The warrant value of $59,400 was recorded as a deferred financing
cost and has been amortized into interest expense in equal monthly amounts over
the life of the credit facility. The unamortized portion of this deferred
financing cost was $0 as of December 31, 2008.
On March
21, 2005 and August 31, 2005, the Company issued warrants to a venture debt firm
to purchase 118,421 and 118,421 shares of Series B Preferred Stock,
respectively, in connection with the growth capital financing agreement the
venture debt firm extended to the Company (see Note 6). The warrants were issued
with an exercise price of $1.90 per share, subject to adjustment for
recapitalization events, and an expiration date of ten years from the warrant
issuance date. The Company valued the warrants at $183,600 and $182,400 using
the Black-Scholes method using a zero percent dividend yield, expected
volatility of 75%, a risk-free interest rate of 4.55% and 4.2%, respectively,
and expected life of ten years. The total warrant value of $366,000 was recorded
as a deferred financing cost and has been amortized into interest expense in
equal monthly amounts over the life of the growth capital financing agreement.
As a result of the repayment of the growth capital financing loan in November
2007 (see Note 6) the Company recognized a loss on extinguishment of debt
related to the write-off of unamortized deferred financing costs.
On June
9, 2006, the Company issued warrants to a venture debt firm to purchase 31,579
shares of Series B Preferred Stock in connection with an amendment to the growth
capital financing agreement the venture debt firm extended to the Company (see
Note 6). The warrants were issued with an exercise price of $1.90 per share,
subject to adjustment for recapitalization events, and an expiration date of ten
years from the warrant issuance date. The Company valued the warrants at $77,000
using the Black-Scholes method using a zero percent dividend yield, expected
volatility of 75%, a risk-free interest rate of 4.98% and expected life of ten
years. The total warrant value of $77,000 was recorded as a deferred financing
cost and was being amortized into interest expense in equal monthly amounts over
the life of the amended growth capital financing agreement. As a result of the
repayment of the growth capital financing loan in November 2007 (see Note 6) the
Company recognized a loss on extinguishment of debt related to the write-off of
unamortized deferred financing costs.
On
November 30, 2007, the Company issued warrants to a private finance firm to
purchase 259,855 shares of common stock in connection with the Term Loan
extended to the Company (see Note 6). The warrants were issued with an exercise
price of $0.01 per share and an expiration date of seven years from the warrant
issuance date. 103,942 shares vest and are immediately exercisable on the issue
date of the warrant. The remaining 155,913 shares vested and became immediately
exercisable upon the $6 million advance in October 2008 under the Term Loan, as
more fully discussed in Note 6. The Company valued the warrants at approximately
$229,000 using the Black-Scholes method using a zero percent dividend yield,
expected volatility of 72%, a risk-free interest rate of 3.64% and expected life
of seven years. The warrant value associated with the vested options of $229,000
has been recorded as a deferred financing cost and is being amortized into
interest expense in equal monthly amounts over the life of the Term Loan. The
unamortized portion of deferred financing costs was $322,000 as of
December 31, 2008.
7.
Stockholders’ Equity (continued)
Common
Stock
In
connection with its initial capitalization in Delaware on January 27, 2003,
the Company authorized 1,000 shares of $0.001 par value common stock and issued
554 shares of common stock to its founders. In March 2003, the Company increased
the number of common stock shares authorized to 35,000,000 and effected a
10,000-to-1 common stock split, with no change in par value. As a part of the
Series A Preferred Stock issuance in March 2003, the founders modified the
founders’ stock shares so that the shares converted to unvested shares that vest
ratably by month though March 2007. In June 2004, the Company increased the
number of common stock shares authorized to 45,000,000. In December 2005, the
Company increased the number of common shares authorized to 49,000,000. In
September 2006, the Company increased the number of common shares authorized to
59,000,000. Certain employees have elected to exercise stock options prior to
the vesting of those options, as allowed by the 2003 Stock Option Plan. The
proceeds from such exercises are not reflected as stockholders’ equity but as a
refundable exercise price liability and are included in other current
liabilities pursuant to EITF Issue No. 00-23,
Issues Related to the Accounting for
Stock Compensation under APB Opinion No. 25 and FASB Interpretation No.
44
.
The
vested and unvested shares of common stock were as follows:
|
Vested
|
Unvested
|
Total
|
|||
|
Shares
|
Shares
|
Shares
|
|||
|
December
31, 2007
|
8,470,465
|
371,408
|
8,841,873
|
||
|
Exercise
of stock options
|
-
|
973,623
|
973,623
|
||
|
Repurchase
of unvested shares
|
-
|
(16,876)
|
(16,876)
|
||
|
Vesting
of stock option shares
|
1,093,830
|
(1,093,830)
|
-
|
||
|
December
31, 2008
|
9,564,295
|
234,325
|
9,798,620
|
Common
stock reserved at December 31, 2008, consisted of the following:
|
2008
|
|
|
For
issuance under the Company's 2003 stock option plan
|
5,542,422
|
|
For
conversion of convertible preferred stock
|
43,179,489
|
|
For
conversion of convertible preferred stock
|
|
|
issued
under outstanding warrants
|
350,921
|
|
For
issuance of common stock issued under
|
|
|
outstanding
warrants
|
259,855
|
|
Total
|
49,332,687
|
7.
Stockholders’ Equity (continued)
2003
Stock Option Plan
In March
2003, the Company adopted the 2003 Stock Option Plan (the Plan). The Plan
provides for (a) a discretionary option grant program under which eligible
persons may be granted options to purchase shares of common stock and (b) a
discretionary stock purchase right program under which eligible persons may be
granted rights to purchase shares of common stock. The Plan provides for the
issuance of incentive and nonstatutory stock options and stock purchase rights
to eligible employees, board members, and consultants.
As of
December 31, 2008, a maximum of 10,205,000 shares may be issued over the term of
the Plan. Under the Plan, nonqualified options shall be issued at an exercise
price not less than 85% of the fair market value of the Company’s common stock
at the grant date, and incentive stock options shall be issued at an exercise
price not less than 100% of the fair market value of the Company’s common stock
at the grant date, as determined by the Company’s Board of Directors, except for
option grants to a stockholder that owns greater than 10% of the Company’s
outstanding stock, in which case the exercise price per share is not less than
110% of the fair market value of the Company’s common stock at date of grant.
Options granted under the Plan are exercisable no later than ten years from the
date of grant, except for stock options granted to an optionee who owns more
than 10% of the voting stock at the date of grant, in which case the option term
shall be five years from the date of grant.
At the
time of the grant, the Company’s Board of Directors determines the exercise
price and vesting schedules. Generally, for new hires, 25% of each option vests
one year from the vesting commencement date, and the remaining amount vests
ratably each month over the remaining three years of the vesting period. For
subsequent grants to existing employees, each option generally vests ratably
each month over four years. As allowed by the Plan, certain options contain
acceleration provisions in the event of an acquisition of the Company and
subsequent termination of the employee. The Plan allows for options to be
immediately exercisable, subject to the Company’s right of repurchase for
unvested shares at the original exercise price upon an optionee’s voluntary or
involuntary termination of service to the Company.
The stock
purchase right program under the Plan allows eligible persons to purchase shares
of common stock at an exercise price as determined by the Company’s Board of
Directors but no less than 85% of the fair market value of the Company’s common
stock at the grant date except for option grants to a stockholder that owns
greater than 10% of the Company’s outstanding stock, in which case the exercise
price per share cannot be less than 100% of the fair market value of the
Company’s common stock at date of grant. Such purchase rights shall have an
exercise period that does not exceed thirty days. Such shares may be fully
vested when issued or may vest over time as the recipient provides services or
as specified performance objectives are attained as determined by the Company’s
Board of Directors. The Company retains the right to repurchase unvested shares
issued in conjunction with the stock purchase right program upon voluntary or
involuntary termination of service to the Company at an amount equal to the
original price paid by the purchaser.
7.
Stockholders’ Equity (continued)
Accounting
for Stock Compensation
The
following table summarizes employee stock-based compensation expense recorded
under SFAS 123R for the year ended December 31, 2008 and its allocation
within the consolidated statements of operations (in thousands):
|
December
31, 2008
|
||||
|
Stock-based
compensation expense included in:
|
||||
|
Cost
of revenues
|
$ | 64 | ||
|
Sales
and marketing
|
270 | |||
|
Research
and development
|
208 | |||
|
General
and administrative
|
104 | |||
|
Stock-based
compensation expense included in operating expenses
|
582 | |||
|
Stock-based
compensation expense included in net loss
|
$ | 646 | ||
The
Black-Scholes model requires estimates regarding risk-free rate of return,
dividend yields, expected life of the award and estimated forfeitures of awards
during the service period. The calculation of expected volatility is based on
historical volatility for public companies with comparable size and revenues
over periods of time equivalent to the expected life of each stock option grant.
The expected term is calculated based on the average of the remaining vesting
term and the remaining contractual life of each award. The Company bases the
estimate of risk-free rate on the U.S. Treasury yield curve in effect at the
time of grant or modification. The Company has never paid cash dividends and
does not currently intend to pay cash dividends, and thus has assumed a 0%
dividend yield.
The fair
value of stock compensation expense was estimated using the Black-Scholes
option-pricing model with the following weighted-average
assumptions:
|
December
31, 2008
|
|
|
Risk-free
interest rate
|
3.87%
|
|
Expected
life of the options
|
5.13
years
|
|
Dividend
rate
|
0%
|
|
Volatility
|
72.36%
|
As part
of the requirements of SFAS 123R, the Company is required to estimate potential
forfeitures of stock grants and adjust compensation cost recorded accordingly.
The estimate of forfeitures will be adjusted over the requisite service period
to the extent that actual forfeitures differ, or are expected to differ, from
such estimates.
The
weighted average grant-date fair value of options granted to employees was $0.77
per share during the year ended December 31, 2008. The total intrinsic value of
options exercised during the year ended December 31, 2008 was $0.7
million.
7.
Stockholders’ Equity (continued)
A summary
of activity of stock options granted to employees and to certain nonemployees
for the year ended December 31, 2008 is noted below:
|
Shares
|
Range
of Exercise Prices
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life (Years)
|
||||
|
Outstanding
at December 31, 2007
|
4,935,050
|
$0.10
- $0.89
|
$0.58
|
||||
|
Options
granted
|
1,508,650
|
$1.01
- $1.27
|
$1.19
|
||||
|
Options
exercised
|
(973,623)
|
$0.10
- $1.11
|
$0.45
|
||||
|
Options
cancelled or expired
|
(61,521)
|
$0.50
- $1.11
|
$0.74
|
||||
|
Outstanding,
end of period
|
5,408,556
|
$0.10
- $1.27
|
$0.77
|
||||
|
Vested
at December 31, 2008, and expected to vest
|
5,408,556
|
$0.10
- $1.27
|
$0.77
|
8.4
|
|||
|
Exercisable
at December 31, 2008
|
5,408,556
|
$0.10
- $1.27
|
$0.77
|
8.4
|
The total
unrecognized share-based compensation expense related to unvested stock options
and subject to recognition in future periods was approximately $2.1 million as
of December 31, 2008. This amount relates to approximately 3,543,770 shares
with a per share weighted average fair value of $0.58. The Company anticipates
this expense to be recognized over a weighted average period of approximately
2.8 years.
At
December 31, 2008, 5,542,422 common stock shares were reserved for future
issuance, of which 133,866 shares were available for future grants. The weighted
average remaining contractual life of options at December 31, 2008 was
approximately 8.4 years. As of December 31, 2008, 1,864,786 option shares were
vested.
8.
Income Taxes
As of
December 31, 2008, the Company had federal net operating loss carryforwards
of approximately $75,565,000 and federal research and development credit
carryforwards of approximately $2,540,000. The net operating losses and research
and development credit carryforwards will begin to expire in 2023, if not
utilized.
Utilization
of the net operating loss and tax credit carryforwards may be subject to a
substantial annual limitation due to the “change in ownership” provisions of the
Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating loss and tax credit carryfowards before
utilization.
8.
Income Taxes (continued)
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company’s deferred taxes are as follows:
|
December
31, 2008
|
||||
|
Deferred
tax liabilities:
|
||||
|
Current
deferred tax liabilities:
|
||||
|
Prepaid
expenses
|
$ | (180,577 | ) | |
|
Total
current deferred tax liabilities:
|
(180,577 | ) | ||
|
Non-current
deferred tax liabilities:
|
||||
|
Deferred
revenue
|
- | |||
|
Total
non-current deferred tax liabilities:
|
- | |||
|
Total
deferred tax liabilities:
|
(180,577 | ) | ||
|
Deferred
tax assets:
|
||||
|
Current
deferred tax assets:
|
||||
|
Accrued
expenses
|
- | |||
|
Book
reserves disallowed for tax
|
1,001,519 | |||
|
Deferred
revenue
|
988,103 | |||
|
Other
current deferred tax assets
|
181,177 | |||
|
Total
current deferred tax assets
|
2,170,799 | |||
|
Non-current
deferred tax assets:
|
||||
|
Depreciable
assets
|
658,200 | |||
|
Tax
carryforwards
|
30,590,220 | |||
|
Other
deferred tax assets
|
59,557 | |||
|
Total
non-current deferred tax assets
|
31,307,977 | |||
|
Total
deferred tax assets
|
33,478,776 | |||
|
Net
deferred tax asset
|
33,298,199 | |||
|
Valuation
allowance for net deferred tax assets
|
(33,298,199 | ) | ||
|
Total
deferred tax assets
|
$ | - | ||
The
Company has established a valuation allowance equal to the net deferred tax
asset due to uncertainties regarding the realization of the deferred tax asset
based on the Company’s lack of earnings history. The valuation allowance
increased by approximately $4,500,000 during the year ended December 31,
2008.
The
Company’s provision for income taxes differs from the expected tax benefit
amount computed by applying the statutory federal income tax rate of 34% to loss
before income taxes due primarily to the application of the valuation allowance.
The tax provision represents the tax liabilities the Company incurred in the
operations of its foreign subsidiaries.
9.
Commitments and Contingencies
The
Company leases a main office facility, multiple sales offices, a facility for
its India operations and certain software under noncancelable operating leases.
During March 2008, the Company entered into an amendment to the main office
facility lease agreement to renew the current lease and expand the rental space.
During November 2008, the Company entered into a new office lease agreement for
additional office space adjacent to its main office facility. During July 2008,
the Company entered into a new office lease agreement for its India operations.
The Company is obligated to pay escalating rental payments over the life of the
lease. In accordance with FAS 13,
Accounting for Leases
,
escalating rental payments are to be expensed on a straight-line basis over the
life of the lease. In accordance with FAS 13, the Company has reflected
approximately $76,000 in deferred lease benefit in the liability section of the
balance sheet as of December 31, 2008. Future minimum lease payments
required under these operating leases as of December 31, 2008, are as
follows (in thousands):
|
2009
|
$ | 1,325 | |
|
2010
|
1,064 | ||
|
2011
|
522 | ||
|
2012
|
350 | ||
|
2013
|
351 | ||
|
Total
|
$ | 3,612 |
The
Company’s office facility lease requires that the Company pay common area
maintenance costs. Common area maintenance payments for the year ended December
31, 2008 were approximately $543,000. The common area maintenance commitment is
estimated to be between 50% and 60% of annual lease payments for the remaining
life of the lease.
Rental
expense for these operating leases was approximately $991,000 for the year ended
December 31, 2008.
In the
normal course of business, the Company issues purchase orders for, or enters
into other contracts to acquire, the majority of goods and services it
purchases. In addition, many of the contracts contain obligations for the
Company to indemnify the other party for certain losses. Management believes
these indemnity obligations are standard and typical for the types of
contractual arrangements into which the Company has entered.
Some of
these purchase orders and contracts are cancelable by the Company with a
reasonably short notice period from zero to 60 days without cause. However, at
December 31, 2008, the Company had noncancellable obligations pursuant to
open purchase orders primarily to its contract manufacturer and other providers
of materials of approximately $6.5 million that are payable within one
year.
In the
ordinary course of business, various parties have asserted or may assert
intellectual property claims against the Company, none of which have resulted in
litigation to date. Any such claims or proceedings against the Company, whether
meritorious or not, could be time consuming, result in costly litigation,
require significant amounts of management time, result in the diversion of
significant operational resources, or require the Company to enter into royalty
or licensing agreements, which, if required may not be available on terms
favorable to the Company. Based on current information, management does not
believe they have infringed upon any party’s intellectual property. However, the
Company’s view of these matters may change in the future. If any such claims
proceeded to litigation, there exists the possibility of a material adverse
effect on the Company’s financial position, liquidity and results of operations
for the periods in which such litigation or other unfavorable outcome of a claim
occurs or becomes probable.
Several
parties have asserted that the Company must obtain a license to that party’s
patents to avoid infringing on those patents. The Company believes that there is
no basis for the claims. No litigation has commenced.
10. Subsequent Event
During
July 2008, the Company entered into an Original Equipment Manufacturing and
License Agreement (the “Licensing Agreement”) that included an initial payment
of $250,000 and that could require the Company to make future payments of up to
$6.0 million. The Licensing Agreement includes certain rights to termination.
The Licensing Agreement provides an OEM product for the Company that has
guaranteed volume commitments over a five-year period estimated to commence in
July 2009. The Licensing Agreement also provides for cross licenses of each
party’s patent portfolio to the other party, and eliminates a previously
threatened intellectual property infringement claim.
As of
March 2009, the Company accepted a contractual milestone and made an additional
payment against the Licensing Agreement of $250,000. As a result of the
acceptance the Company has recognized the remaining obligations under the
contract and in accordance with SFAS 5,
Accounting for Contingencies
,
recorded a contingent liability associated with certain intellectual property
rights of the other party, which is offset by a deferred asset which will be
amortized to cost of revenues over the life of the Licensing Agreement. As of
December 31, 2008, $250,000 has been recorded in other current liabilities,
$5.75 million has been recorded in other long-term liabilities, which is offset
by current and long-term deferred royalties of $493,000 and $4.8 million,
respectively, net of amortization, and $143,000 of deferred research and
development costs included in other current assets.
11.
401(k) Employee Benefit Plan
The
Company has a 401(k) plan that is available to all permanent employees in the
United States over the age of 21. Each eligible employee may elect to contribute
up to 60% of his or her compensation, subject to certain statutory limits, to
the 401(k) plan through payroll deductions. The Company does not offer its own
stock as an investment option. The Company may make matching contributions to
the 401(k) plan but to date it has not made any such contributions.
Exhibit
99.2
LIFESIZE
COMMUNICATIONS, INC.
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Contents
|
Condensed
Consolidated Balance Sheet as of September 30, 2009
|
2 |
|
Condensed
Consolidated Statements of Operations for the nine months ended September
30, 2009 and 2008
|
3 |
|
Condensed
Consolidated Statements of Cash Flows for the nine months ended September
30, 2009 and 2008
|
4 |
|
Notes
to Condensed Consolidated Financial Statements
|
5 |
LIFESIZE
COMMUNICATIONS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEET
(In
thousands, except share and per share amounts)
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
LIFESIZE
COMMUNICATIONS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands)
|
Nine
months ended
|
||||||||
|
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
(Unaudited)
|
||||||||
|
Product
revenues
|
$ | 55,417 | $ | 44,107 | ||||
|
Service
and other revenues
|
6,616 | 3,188 | ||||||
|
Total
revenues
|
62,033 | 47,295 | ||||||
|
Cost
of product revenues
|
21,100 | 18,715 | ||||||
|
Cost
of service and other revenues
|
2,046 | 1,190 | ||||||
|
Total
cost of revenues
|
23,146 | 19,905 | ||||||
|
Gross
profit
|
38,887 | 27,390 | ||||||
|
Operating
expenses:
|
||||||||
|
Sales
and marketing
|
23,419 | 18,057 | ||||||
|
Research
and development
|
13,313 | 11,380 | ||||||
|
General
and administrative
|
4,304 | 3,078 | ||||||
|
Total
operating expenses
|
41,036 | 32,515 | ||||||
|
Loss
from operations
|
(2,149 | ) | (5,125 | ) | ||||
|
Other
expense:
|
||||||||
|
Interest
expense, net
|
(1,098 | ) | (392 | ) | ||||
|
Other
income (expense)
|
1 | (361 | ) | |||||
|
Total
other expense
|
(1,097 | ) | (753 | ) | ||||
|
Net
loss before income taxes
|
(3,246 | ) | (5,878 | ) | ||||
|
Income
taxes
|
178 | 97 | ||||||
|
Net
loss
|
$ | (3,424 | ) | $ | (5,975 | ) | ||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
LIFESIZE
COMMUNICATIONS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
|
Nine
months ended
|
||||||||
|
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
(Unaudited)
|
||||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
loss
|
$ | (3,424 | ) | $ | (5,975 | ) | ||
|
Adjustment
to reconcile net loss to net cash
|
||||||||
|
provided
by (used in) operating activities:
|
||||||||
|
Depreciation
|
1,840 | 1,547 | ||||||
|
Amortization
of deferred financing costs
|
81 | 35 | ||||||
|
Noncash
accrued paid-in-kind interest
|
269 | 93 | ||||||
|
Loss
on disposal of fixed assets
|
1 | 4 | ||||||
|
Stock-based
compensation
|
636 | 454 | ||||||
|
Provision
for excess and obsolete inventories
|
765 | 559 | ||||||
|
Provision
for doubtful accounts
|
724 | 190 | ||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Trade
receivables
|
(7,090 | ) | (3,555 | ) | ||||
|
Inventories
|
(552 | ) | (2,553 | ) | ||||
|
Other
current assets
|
(520 | ) | (733 | ) | ||||
|
Other
long-term assets
|
(44 | ) | (195 | ) | ||||
|
Accounts
payable
|
(309 | ) | 1,277 | |||||
|
Accrued
liabilities
|
2,581 | 1,189 | ||||||
|
Deferred
revenue
|
6,447 | 4,498 | ||||||
|
Other
long-term liabilities
|
25 | 431 | ||||||
|
Net
cash provided by (used in) operating activities
|
1,430 | (2,734 | ) | |||||
|
Cash
Flows from investing activities:
|
||||||||
|
Purchase
of property and equipment
|
(2,532 | ) | (2,431 | ) | ||||
|
Purchases
of investments
|
- | (1,300 | ) | |||||
|
Proceeds
from maturities of investments
|
- | 1,375 | ||||||
|
Net
cash used in investing activities
|
(2,532 | ) | (2,356 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||
|
Proceeds
from exercise of stock options
|
465 | 466 | ||||||
|
Proceeds
from revolving line of credit
|
1,500 | 2,100 | ||||||
|
Payments
for repurchase of stock options
|
- | (8 | ) | |||||
|
Repayment
of revolving line of credit
|
(3,000 | ) | - | |||||
|
Net
cash (used in) provided by financing activities
|
(1,035 | ) | 2,558 | |||||
|
Net
change in cash and cash equivalents
|
(2,137 | ) | (2,532 | ) | ||||
|
Cash
and cash equivalents, beginning of period
|
13,136 | 9,068 | ||||||
|
Cash
and cash equivalents, end of period
|
$ | 10,999 | $ | 6,536 | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Note
1 - Organization and Business Description
LifeSize
Communications, Inc., (the Company) was incorporated in Delaware on
January 27, 2003. The Company manufactures, markets, and sells
high-quality, easy-to-use high definition video and audio communication products
and services on a worldwide basis.
Note
2 - Significant Accounting Policies
Basis
of Presentation
The
condensed consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany balances and transactions
have been eliminated. The condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) for interim financial information and
therefore do not include all the information required by U.S. GAAP for complete
financial statements. They should be read in conjunction with the Company’s
audited consolidated financial statements for the year ended December 31,
2008.
In the
opinion of management, these financial statements include all adjustments,
consisting of normal recurring adjustments, necessary for a fair statement of
the results for the periods presented. Operating results for the nine months
ended September 30, 2009 are not necessarily indicative of the results that may
be expected for the year ended December 31, 2009 or any future
periods.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results can differ from those estimates.
Reclassification
Certain
previously reported amounts have been reclassified to conform to the current
year’s presentation.
Significant
Accounting Policies
There
have been no substantial changes in the Company’s significant accounting
policies during the nine months ended September 30, 2009 compared with the
significant accounting policies described in the audited Consolidated Financial
Statements for the year ended December 31, 2008. The Company uses certain
critical accounting estimates in the preparation of its financial statements,
which require management to make judgments and estimates about matters that are
inherently uncertain. As these critical accounting estimates are important to an
understanding of the Company’s financial condition and operating results, the
related accounting policies are described in the following
paragraphs.
Allowance
for Doubtful Accounts
The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of the Company’s customers to make required
payments. The key factors the Company uses in assessing this allowance are
individual judgments on specific customer balances and the overall aging of the
total receivables. Delinquent account balances are written off after management
has determined that the likelihood of collection is not probable.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist principally of cash, trade and other
receivables, trade and other payables, bank borrowings, and long-term debt. The
Company believes all of the financial instruments’ recorded values approximate
current market values.
Revenue
Recognition
Most of
the Company’s hardware products are integrated with software that is more than
incidental to the functionality of the equipment. The Company generally provides
software updates, upgrades and enhancements, if any, related to its products for
one year and, pursuant to separately sold maintenance contracts, for subsequent
years after the original maintenance period ends. In addition, sales of the
Company’s software-only products generally include rights to updates, upgrades
and enhancements, if any, during a maintenance period of one year.
Accordingly,
the Company accounts for revenue for these products in accordance with
Accounting Standards Codification (ASC) Subtopic 985-605,
Software-Revenue Recognition
,
and all related interpretations. The Company recognizes revenue when the
following criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, price is fixed or
determinable, and collectibility is reasonably assured. Revenue related to
software-only products is recognized upon shipment. Certain of the Company’s
sales are made under agreements allowing certain rights of return and price
protection under specified terms and conditions, The Company accrues for product
returns in accordance with ASC 605-15-25,
Sales of Product when Right of
Return Exists
. Additionally, the Company recognizes extended service
revenue on our hardware and software products ratably over the term of the
contract.
The
Company uses the residual method to recognize revenue when an agreement includes
one or more elements to be delivered at a future date. If there is an
undelivered element under the arrangement, the Company defers revenue based on
vendor-specific objective evidence of the fair value of the undelivered element,
as determined by the price charged when the element is sold separately. If the
vendor-specific objective evidence of fair value does not exist for all
undelivered elements, the Company defers all revenue until sufficient evidence
exists or all elements have been delivered.
The
Company accrues for sales returns, sales rebates, and other allowances as a
reduction to revenues upon revenue recognition based upon our contractual
obligations and management estimates.
Inventories
Inventories
are stated at the lower of cost or realizable value, with cost computed on a
first-in, first-out basis. Shipping and handling costs are classified as a
component of cost of product revenues in the consolidated statements of
operations.
Recently
Issued Accounting Standards
In
October 2009, the Financial Accounting Standards Board (FASB) published
FASB Accounting Standards Update (ASU) 2009-14,
Certain Revenue Arrangements That
Include Software Elements,
to
provide guidance for
revenue arrangements that include both tangible products and software elements.
Under this guidance, tangible products containing software components and
non-software components that function together to deliver the product’s
essential functionality are excluded from the software revenue guidance in
Accounting Standards Codification (ASC) Subtopic 985-605,
Software-Revenue Recognition
.
In addition, hardware components of a tangible product containing software
components are always excluded from the software revenue guidance. ASU 2009-14
is effective for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010, with early adoption
permitted. The Company is currently evaluating the appropriate timing for the
adoption of ASU 2009-14 and its potential impact on the Company’s consolidated
financial statements.
In
October 2009, the FASB published ASU 2009-13,
Multiple Deliverable Revenue
Arrangements,
which addresses the accounting for multiple-deliverable
arrangements to enable vendors to account for products or services separately
rather than as a combined unit. This guidance amends the criteria in Subtopic
605-25,
Revenue
Recognition--Multiple-Element Arrangements,
to establish a selling price
hierarchy for determining the selling price of a deliverable, based on vendor
specific objective evidence, acceptable third party evidence, or estimates. This
guidance also eliminates the residual method of allocation and requires that
arrangement consideration be allocated at the inception of the arrangement to
all deliverables using the relative selling price method. In addition, the
disclosures required for multiple-deliverable revenue arrangements are expanded.
ASU 2009-13 is effective for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, with early
adoption permitted. The Company is currently evaluating the appropriate timing
for the adoption of ASU 2009-13 and its potential impact on the Company’s
consolidated financial statements and disclosures.
Note
3 - Cash and Cash Equivalents
Approximately
$170,000 of cash as of September 30, 2009 was restricted from the Company’s use
because it was being held as collateral to secure the Company’s credit card, as
collateral for a letter of credit issued on the Company’s behalf and as
collateral for the Company’s merchant credit card account. Such restrictions can
be released at any time if the Company cancels the credit card and pays off any
balances, as the letter of credit expires, or cancels the merchant credit card
agreement.
Note
4 - Inventories
Inventories
consisted of the following (in thousands):
|
September
30, 2009
|
||||
|
Raw
materials
|
$ | 695 | ||
|
Raw
materials consigned to others
|
1,894 | |||
|
Finished
goods
|
4,111 | |||
|
Service
inventory
|
1,909 | |||
|
Less:
Excess obsolescence and valuation reserve
|
(2,166 | ) | ||
| $ | 6,443 | |||
Note
5 - Property and Equipment
Property
and equipment consisted of the following (in thousands):
|
Expected
|
|||||
|
Useful
Life
|
September
30, 2009
|
||||
|
Computer
equipment
|
3
years
|
$ | 2,104 | ||
|
Computer
software
|
3
to 5 years
|
1,526 | |||
|
Office
equipment
|
3
years
|
899 | |||
|
Demo
equipment
|
15
months
|
2,396 | |||
|
Laboratory
equipment
|
3
years
|
1,740 | |||
|
Furniture
and fixtures
|
5
years
|
251 | |||
|
Leasehold
improvements
|
Lesser
of useful life or term of lease
|
38 | |||
|
Tooling
equipment
|
3
years
|
2,525 | |||
|
Other
manufacturing equipment
|
3
years
|
703 | |||
|
Less:
Accumulated depreciation
|
(8,352 | ) | |||
| 3,830 | |||||
|
Construction
in progress
|
- | ||||
| $ | 3,830 | ||||
Note
6 - Credit Arrangements
The
Company entered into a Loan and Security Agreement (the Agreement) with a bank
in July 2003 for the purpose of financing working capital. The Agreement was
amended in March 2005, July 2006, November 2007 and April 2008. The amended
Agreement provides for a revolving line of credit, with loan advances determined
by a borrowing base which consists of domestic accounts receivable and foreign
accounts receivable insured through a trade credit insurance policy (eligible up
to 80% of this account balance), domestic finished goods inventory (eligible up
to 40% of this account balance and subject to a maximum amount of $1.5 million),
and certain securities maintained with the lending bank (eligible up to 70% of
this account balance). The debt is secured by all cash, investments, accounts
receivable and inventory. Borrowings bear interest at the bank’s prime rate plus
0.25%, with a floor of 5.50%. Principal and any unpaid interest are due on
November 29, 2009. In consideration for the credit facility, the Company issued
the bank a warrant for the Company’s preferred stock as more fully discussed in
Note 7.
As of
September 30, 2009, the Company was in compliance with all applicable
covenants and restrictions, and had an outstanding balance under the revolving
line of credit of $3.0 million at an interest rate of 5.5%. As of September 30,
2009, the Company had $7.0 million available under the revolving line of credit
subject to the borrowing base mentioned above.
During
March 2005, the Company entered into a growth capital financing agreement with a
venture debt firm for up to $6.0 million. During June 2006, the Company entered
into an amendment to the growth capital financing agreement whereby the
repayment terms for drawn balances were adjusted so that monthly interest-only
payments at an annual fixed rate of 10.25% are payable through March 31, 2007
followed by 25 equal monthly payments consisting of principal and interest. The
debt was secured by all assets owned by the Company, except for intellectual
property, with such lien being subordinate to the existing credit arrangement
mentioned above. In connection with the original agreement, the Company provided
a warrant for 118,421 shares of Series B Preferred Stock to the lender on the
$6.0 million committed credit line upon execution of the agreement and an
additional warrant in August 2005 of 118,421 shares of Series B Preferred Stock
upon drawdown of the line. In connection with the amendment to the agreement,
the Company provided warrants for 31,579 shares of Series B Preferred Stock to
the lender. The warrants were valued based on a Black-Scholes pricing model and
were recorded as deferred financing costs and are amortized into interest
expense on a monthly basis over the life of the original agreement or the
amended agreement as more fully discussed in Note 7. The growth capital
financing agreement was paid in full in November 2007.
During
November 2007, the Company entered into a term loan (the Term Loan) with a
private finance firm for up to $10 million for the purpose of refinancing the
growth capital financing agreement and for financing working capital. The Term
Loan was initially funded for $4 million. During May 2008 the Company entered
into an amendment to the Term Loan which changed the definition of security
interest to exclude certain securities defined as collateral for the Company’s
revolving line of credit. During October 2008, the Company received the
remaining $6 million advance available under the Term Loan. The Term Loan bears
interest at (1) a rate of 8% on the outstanding principal balance payable in
cash on a monthly basis in arrears from the initial funding date to May 31, 2009
and (2) a rate of 3% on the outstanding principal balance payable in-kind on a
monthly basis in arrears from the initial funding date to May 31, 2009. Interest
paid in-kind will increase the principal amount outstanding and will thereafter
accrue interest during each period. After May 31, 2009 the Term Loan bears
interest at a rate of 11.75% per annum. Principal payments are due in thirty
equal monthly installments commencing June 30, 2009, in an aggregate amount
equal to 75% of the outstanding principal balance with the remaining 25%
outstanding due at maturity on November 30, 2011. The Term Loan is secured by
all assets owned by the Company, except for intellectual property and certain
short-term investments. However, the Company is prohibited from selling its
intellectual property without prior approval of the private finance
firm.
In April
2009, pursuant to its rights under the Term Loan, the Company elected to defer
the principal payment commencement date for a six-month period upon notification
to the private finance firm. As a result of such election, (1) the principal
payments will be due in twenty-four equal monthly installments commencing
December 31, 2009 in an aggregate amount equal to 75% of the original $10
million principal balance with the remaining 25% plus payable in-kind interest
due at maturity on November 30, 2011, and (2) the Term Loan’s payable in-kind
interest will increase from 3% to 4% on the outstanding principal balance on a
monthly basis from June 1, 2009 to December 31, 2009.
In
consideration for the Term Loan, the Company provided a warrant for 259,855
shares of common stock, which have been vested and are exercisable. The warrants
were valued based on a Black-Scholes pricing model. The value associated with
the vested shares is recorded as deferred financing costs and is amortized into
interest expense on a monthly basis over the life of the Term Loan as more fully
discussed in Note 7.
Proceeds
from the Term Loan and the revolving line of credit were used, in part, to repay
all outstanding amounts owed under the venture debt growth capital financing
agreement.
The
credit facility, revolving line of credit, and term loan are subject to
covenants concerning delivery of financial information to the bank, maintenance
of minimum levels of insurance, reporting of registered intellectual property
rights, utilizing the bank as the Company’s primary depository, and compliance
with various other related items. The credit facility and revolving line of
credit also place certain restrictions and prohibitions on the Company relative
to asset dispositions, business combinations, indebtedness, dividends,
investments, and other related items.
As of
September 30, 2009, the annual maturities of long-term debt were as follows
(in thousands):
|
Term
Loan
|
||||
|
2009
|
$ | 313 | ||
|
2010
|
3,750 | |||
|
2011
|
6,371 | |||
|
Total
|
$ | 10,434 | ||
Note 7 - Stockholders’ Deficit
Preferred
and Common Stock Warrants
In
connection with the various financing agreements described in Note 6, the
Company had the following warrants outstanding at September 30,
2009:
|
Number
|
Exercise
Price
|
Original
|
Expiration
|
|||||||
|
of
Shares
|
Per
Share
|
Value
|
Date
|
|||||||
|
Warrants
to purchase Series A Preferred Stock
|
82,500 | $ | 1.00 | $ | 59,400 |
7/31/2010
|
||||
|
Warrants
to purchase Series B Preferred Stock
|
118,421 | $ | 1.90 | $ | 183,600 |
3/21/2015
|
||||
|
Warrants
to purchase Series B Preferred Stock
|
118,421 | $ | 1.90 | $ | 182,400 |
8/31/2015
|
||||
|
Warrants
to purchase Series B Preferred Stock
|
31,579 | $ | 1.90 | $ | 77,000 |
6/9/2016
|
||||
|
Warrants
to purchase Common Stock
|
259,855 | $ | 0.01 | $ | 229,000 |
11/30/2014
|
||||
The
Company valued the warrants using the Black-Scholes method, and recorded the
values as a deferred financing cost which was amortized into interest expense in
equal monthly amounts over the life of the related financing agreement. The
unamortized portion of deferred financing costs was approximately $241,000 as of
September 30, 2009.
Note
8 - Commitments and Contingencies
During
July 2008, the Company entered into an Original Equipment Manufacturing and
License Agreement (the “Licensing Agreement”) that included an initial payment
of $250,000 and that could require the Company to make future payments of up to
$6.0 million. The Licensing Agreement includes certain rights to termination.
The Licensing Agreement provides an OEM product for the Company that has
guaranteed volume commitments over a five-year period which commenced in July
2009. The Licensing Agreement also provides for cross licenses of each party’s
patent portfolio to the other party, and eliminates a previously threatened
intellectual property infringement claim.
As of
March 2009, the Company accepted a contractual milestone and made an additional
payment against the Licensing Agreement of $250,000. As a result of the
acceptance the Company recognized the remaining obligations under the contract
in the audited Consolidated Financial Statements for the year ended December 31,
2008 and recorded a contingent liability associated with certain intellectual
property rights of the other party, which is offset by a deferred asset which
will be amortized to cost of revenues over the life of the Licensing Agreement.
As of September 30, 2009, $5.75 million has been recorded in other long-term
liabilities, which is offset by current and long-term deferred royalties of
$493,000 and $4.5 million, respectively, net of amortization.
Note
9 – Subsequent Events
The
Company has evaluated subsequent events for recognition and disclosure through
December 11, 2009, the date the Company was acquired by Logitech International
S.A. Through that date, there were no events requiring adjustment or disclosure
in these financial statements, other than the acquisition of the
Company.
Exhibit
99.3
LOGITECH
INTERNATIONAL S.A.
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
The
following unaudited pro forma condensed combined statements of operations are
based on the historical financial statements of Logitech International S.A.
(“Logitech”) and LifeSize Communications, Inc. (“LifeSize”) after giving effect
to Logitech’s acquisition of LifeSize on December 11, 2009 as described in Note
2 of these unaudited pro forma condensed combined statements of operations and
the assumptions and adjustments described in the accompanying notes to the
unaudited pro forma condensed combined financial statements.
A
consolidated balance sheet combining the financial position of Logitech and
LifeSize as of December 31, 2009 has been included in Logitech’s quarterly
report on Form 10-Q for the quarter ended December 31, 2009.
The
unaudited pro forma condensed combined statements of operations for the nine
months ended December 31, 2009 and the year ended March 31, 2009 are presented
as if the LifeSize acquisition had occurred on March 31, 2008 and was carried
forward through each of the aforementioned periods. Due to differing
fiscal year ends for Logitech and LifeSize, the unaudited pro forma condensed
combined statements of operations for the nine month period combine the
historical results of Logitech for the nine months ended December 31, 2009 and
the historical results of LifeSize for the nine months ended September 30, 2009.
For the annual period, the historical results of Logitech for the fiscal year
ended March 31, 2009 are combined with the historical results of LifeSize for
the calendar year ended December 31, 2008.
The
unaudited pro forma condensed combined statements of operations are not intended
to represent or be indicative of our consolidated results of operations that we
would have reported had the LifeSize acquisition been completed as of the dates
presented, and should not be taken as a representation of our future
consolidated results of operations.
The
unaudited pro forma condensed combined statements of operations should be read
in conjunction with the historical consolidated financial statements and
accompanying notes of Logitech International S.A. included in our annual reports
on Form 10-K and quarterly reports on Form 10-Q, and LifeSize’s historical
consolidated financial statements for the year ended December 31, 2008 and for
the nine months ended September 30, 2009, which are included as Exhibits 99.1
and 99.2 to this Current Report on Form 8-K/A.
LOGITECH
INTERNATIONAL S.A.
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
|
Historical
|
|||||||||||||||||
|
Logitech
|
LifeSize
|
||||||||||||||||
|
Nine
months ended
|
Pro
forma
|
Pro
forma
|
|||||||||||||||
|
December
31, 2009
|
September
30, 2009
|
adjustments
|
as
adjusted
|
||||||||||||||
|
(Unaudited)
|
|||||||||||||||||
|
Net
sales
|
$ | 1,441,304 | $ | 62,033 | $ | (2,341 | ) |
{a}
|
$ | 1,500,996 | |||||||
|
Cost
of goods sold
|
1,002,730 | 23,146 | 5,296 |
{b}
|
1,031,172 | ||||||||||||
|
Gross
profit
|
438,574 | 38,887 | (7,637 | ) | 469,824 | ||||||||||||
|
Operating
expenses:
|
|||||||||||||||||
|
Marketing
and selling
|
215,095 | 23,419 | 5,822 |
{c}
|
244,336 | ||||||||||||
|
Research
and development
|
96,116 | 13,313 | 2,147 |
{d}
|
111,576 | ||||||||||||
|
General
and administrative
|
75,204 | 4,304 | (4,838 | ) |
{e}
|
74,670 | |||||||||||
|
Restructuring
charges
|
1,494 | - | 1,494 | ||||||||||||||
| - | - | - | - | ||||||||||||||
|
Total
operating expenses
|
387,909 | 41,036 | 3,131 | 432,076 | |||||||||||||
|
Operating
income (loss)
|
50,665 | (2,149 | ) | (10,768 | ) | 37,748 | |||||||||||
|
Interest
income (expense), net
|
1,645 | (1,098 | ) | 1,357 |
{f}
|
1,904 | |||||||||||
|
Other
income, net
|
2,416 | 1 | (2 | ) |
{g}
|
2,415 | |||||||||||
|
Income
(loss) before income taxes
|
54,726 | (3,246 | ) | (9,413 | ) | 42,067 | |||||||||||
|
Provision
for income taxes
|
14,262 | 178 | (4,140 | ) |
{h}
|
10,300 | |||||||||||
|
Net
income (loss)
|
$ | 40,464 | $ | (3,424 | ) | $ | (5,273 | ) | $ | 31,767 | |||||||
|
Net
income per share:
|
|||||||||||||||||
|
Basic
|
$ | 0.23 | $ | 0.18 | |||||||||||||
|
Diluted
|
$ | 0.22 | $ | 0.18 | |||||||||||||
|
Shares
used to compute net income per share:
|
|||||||||||||||||
|
Basic
|
177,829 | 177,829 | |||||||||||||||
|
Diluted
|
179,866 | 661 |
{1}
|
180,527 | |||||||||||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
LOGITECH
INTERNATIONAL S.A.
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
|
Historical
|
|||||||||||||||||
|
Logitech
|
LifeSize
|
||||||||||||||||
|
Year
ended
|
Pro
forma
|
Pro
forma
|
|||||||||||||||
|
March
31, 2009
|
December
31, 2008
|
adjustments
|
as
adjusted
|
||||||||||||||
|
Net
sales
|
$ | 2,208,832 | $ | 67,637 | $ | - | $ | 2,276,469 | |||||||||
|
Cost
of goods sold
|
1,517,606 | 27,541 | 11,869 |
{i}
|
1,557,016 | ||||||||||||
|
Gross
profit
|
691,226 | 40,096 | (11,869 | ) | 719,453 | ||||||||||||
|
Operating
expenses:
|
- | ||||||||||||||||
|
Marketing
and selling
|
319,167 | 25,621 | 10,730 |
{j}
|
355,518 | ||||||||||||
|
Research
and development
|
128,755 | 15,169 | 4,023 |
{k}
|
147,947 | ||||||||||||
|
General
and administrative
|
113,103 | 4,265 | 2,056 |
{l}
|
119,424 | ||||||||||||
|
Restructuring
charges
|
20,547 | - | - | 20,547 | |||||||||||||
|
Total
operating expenses
|
581,572 | 45,055 | 16,809 | 643,436 | |||||||||||||
|
Operating
income (loss)
|
109,654 | (4,959 | ) | (28,677 | ) | 76,018 | |||||||||||
|
Interest
income (expense), net
|
8,628 | (685 | ) | 923 |
{m}
|
8,866 | |||||||||||
|
Other
income (expense), net
|
8,511 | (372 | ) | - | 8,139 | ||||||||||||
|
Income
(loss) before income taxes
|
126,793 | (6,016 | ) | (27,754 | ) | 93,023 | |||||||||||
|
Provision
for income taxes
|
19,761 | 121 | (9,085 | ) |
{n}
|
10,797 | |||||||||||
|
Net
income (loss)
|
$ | 107,032 | $ | (6,137 | ) | $ | (18,669 | ) | $ | 82,226 | |||||||
|
Net
income per share:
|
|||||||||||||||||
|
Basic
|
$ | 0.60 | $ | 0.46 | |||||||||||||
|
Diluted
|
$ | 0.59 | $ | 0.45 | |||||||||||||
|
Shares
used to compute net income per share:
|
|||||||||||||||||
|
Basic
|
178,811 | 178,811 | |||||||||||||||
|
Diluted
|
182,911 | 480 |
{2}
|
183,391 | |||||||||||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
LOGITECH
INTERNATIONAL S.A.
NOTES
TO UNAUDITED PRO FORMA CONDENSED
COMBINED
FINANCIAL STATEMENTS
(Unaudited)
Note
1 — Basis of Presentation
The
unaudited pro forma condensed combined statements of operations for the nine
months ended December 31, 2009 and for the year ended March 31, 2009 are based
on the historical financial statements of Logitech International S.A.
(“Logitech”) and LifeSize Communications, Inc. (“LifeSize”) after giving effect
to our acquisition of LifeSize and the assumptions and adjustments described in
the notes herein. LifeSize’s calendar year ended on December 31, 2008
and nine months ended on September 30, 2009 and these historical results have
been combined with Logitech’s March 31, 2009 fiscal year and nine months ended
December 31, 2009, respectively, without adjusting the accounting periods. In
addition, certain historical LifeSize balances have been reclassified to conform
to Logitech’s presentation.
The
unaudited pro forma condensed combined statements of operation of Logitech and
LifeSize for the nine months ended December 31, 2009 is presented as if the
acquisition had taken place on April 1, 2008 and, due to different fiscal year
ends, combines the historical results of Logitech for the nine months ended
December 31, 2009 and the historical results of LifeSize for the nine months
ended September 30, 2009.
The
unaudited pro forma condensed combined statements of operation of Logitech and
LifeSize for the year ended March 31, 2009 is presented as if the acquisition
had taken place on April 1, 2008 and, due to different fiscal year ends,
combines the historical results of Logitech for the year ended March 31, 2009
and the historical results of LifeSize for the year ended December 31,
2008.
The
unaudited pro forma condensed combined financial statements are not intended to
represent or be indicative of the consolidated results of operations of Logitech
that would have been reported had the acquisition been completed as of the dates
presented, and should not be taken as representative of the future consolidated
results of operations.
Note
2 — Acquisition
On
December 11, 2009 (the Closing Date), Logitech completed the acquisition of
LifeSize whereby LifeSize became a wholly-owned subsidiary of Logitech in a
transaction accounted for using the purchase method of accounting. The total
consideration paid to acquire LifeSize was $382.8 million, not including cash
acquired of $3.7 million. Logitech paid $382.3 million in cash to the holders of
all outstanding shares of LifeSize capital stock, all vested options issued by
LifeSize, and all outstanding warrants to purchase LifeSize stock. As part of
the acquisition, Logitech assumed all outstanding unvested LifeSize stock
options and unvested restricted stock held by continuing LifeSize employees at
December 11, 2009. The assumed options are exercisable for a total of
approximately 1.0 million Logitech shares and the assumed restricted stock was
exchanged for 0.1 million Logitech shares. The stock options and restricted
stock continue to have the same terms and conditions as under LifeSize’s option
plan. The fair value attributable to precombination employee services for the
stock options assumed, which is part of the consideration paid to acquire
LifeSize, was $0.5 million. The weighted average fair value of $12.07 per share
for the stock options assumed was determined using a Black-Scholes-Merton
option-pricing valuation model with the following
weighted-average assumptions: expected term of 2.0 years, expected
volatility of 57%, and risk-free interest rate of 0.7%.
The total
cash consideration paid of $382.3 million included $37.0 million deposited into
an escrow account as security for indemnification claims under the merger
agreement and $0.5 million deposited in a stockholder representative expense
fund. The escrow fund will be disbursed by the escrow trustee to the former
holders of LifeSize capital stock, vested options and warrants with 50%
disbursed in December 2010 and the remaining 50% in June 2011, subject in each
case to indemnification claims.
In
connection with the merger, Logitech also agreed to establish a cash and stock
option retention and incentive plan for certain LifeSize employees, linked to
the achievement of LifeSize performance targets. The duration of the plan’s
performance period is two years, from January 1, 2010 to December 31, 2011. The
total available cash incentive is $9.0 million over the two year performance
period. In December 2009, options to purchase 850,000 shares of Logitech stock
were issued in connection with the retention and incentive plan.
The
acquisition has been accounted for using the purchase method of accounting.
Accordingly, the total consideration was allocated to the tangible and
intangible assets acquired and liabilities assumed based on their estimated fair
values as of the acquisition date. Fair values were determined by Logitech
management based on information available at the date of acquisition. The
results of operations of LifeSize were included in Logitech’s consolidated
financial statements from the date of acquisition.
The
preliminary allocation of total consideration to the assets acquired and
liabilities assumed based on the estimated fair value of LifeSize was as follows
(in thousands):
|
December
11, 2009
|
Estimated
Life
|
||||||
|
Tangible
assets acquired
|
$ | 33,635 | |||||
|
Deferred
tax asset, net
|
13,460 | ||||||
|
Intangible
assets acquired
|
|||||||
|
Existing
technology
|
30,000 |
4
years
|
|||||
|
Patents
and core technology
|
4,500 |
3
years
|
|||||
|
Trademark/trade
name
|
7,600 |
5
years
|
|||||
|
Customer
relationships and other
|
31,500 |
5
years
|
|||||
|
Goodwill
|
302,670 | ||||||
| 423,365 | |||||||
|
Liabilities
assumed
|
(27,047 | ) | |||||
|
Debt
assumed
|
(13,504 | ) | |||||
|
Total
consideration
|
$ | 382,814 | |||||
The
deferred tax asset primarily relates to the tax benefit of a net operating loss
carryforward, net of the deferred tax liability related to intangible assets.
The existing technology of LifeSize relates to the platform technology used in
LifeSize’s high-definition video conferencing systems. The value of the
technology was determined based on the present value of estimated expected cash
flows attributable to the technology, assuming the highest and best use by a
market participant. The patents and core technology represent awarded patents,
filed patent applications and core architectures, trade secrets or processes
used in LifeSize’s current and planned future products. Trademark/trade name
relates to the LifeSize brand names. The value of the patents, core technology
and trademark/trade name was estimated by capitalizing the estimated profits
saved as a result of acquiring or licensing the asset. Customer relationships
and other relates to the ability to sell existing, in-process, and future
versions of the technology and services to LifeSize’s existing customer base,
valued based on projected discounted cash flows generated from customers in
place. The intangible assets acquired are amortized on a straight-line basis
over their estimated useful lives. The goodwill associated with the acquisition
is attributable to the significant growth opportunities which management
believes are available due to the technology and market expertise of LifeSize,
its existing product portfolio and roadmap, its established video presence in
the business channel, its competitive architectural position, its
price/performance proposition, its trained and skilled workforce, and the
potential for numerous technology synergies, including camera design, firewall
traversal, video compression and bandwidth management. This goodwill is not
subject to amortization and is not expected to be deductible for income tax
purposes. The debt that Logitech assumed as part of the acquisition was repaid
in full on December 18, 2009.
Note
3 — Unaudited Pro Forma Adjustments
Pro forma
adjustments are necessary to reflect changes in depreciation and amortization
expense resulting from the estimated fair value adjustments to net tangible and
intangible assets, share-based compensation expense related to unvested stock
options assumed, depreciation adjustments from alignment of the companies’
policies related to property, plant and equipment, interest expense related to
debt assumed, expense related to retention bonuses, pre-acquisition transaction
costs, LifeSize’s operating results from the date of acquisition to the end of
Logitech’s interim fiscal quarter, and the income tax impact of the pro forma
adjustments. The pro forma adjustments are calculated as if the acquisition had
taken place on April 1, 2008.
Logitech
has not identified any significant pre-merger contingencies where the related
asset, liability or impairment is probable and the amount of the asset,
liability or impairment can be reasonably estimated.
Pro
Forma Condensed Combined Statements of Operations for the nine months ended
December 31, 2009 for Logitech and the nine-months ended September 30, 2009 for
LifeSize
|
{a}
|
Reflects
the elimination of LifeSize’s net sales for the period from December 11,
2009, the date of acquisition, to the end of Logitech’s interim
quarter.
|
|
{b}
|
Reflects: additional
amortization expense of $6.8 million related to intangible assets as if
acquired on April 1, 2008; the elimination of $0.1 million of depreciation
expense related to property and equipment as if written down to fair value
on April 1, 2008 and the alignment of property and equipment policies;
additional share-based compensation expense of $0.3 million related to
unvested stock options as if assumed on April 1, 2008; additional
compensation expense of $0.4 million for retention bonuses; and the
elimination of LifeSize’s cost of goods sold for the period from December
11, 2009, the date of acquisition, to the end of Logitech’s interim
quarter.
|
|
{c}
|
Reflects: additional
amortization expense of $5.5 million related to intangible assets as if
acquired on April 1, 2008; additional depreciation expense of $0.1 million
related to property and equipment as if written down to fair value on
April 1, 2008 and the alignment of property and equipment policies;
additional share-based compensation expense of $1.2 million related to
unvested stock options as if assumed on April 1, 2008; additional
compensation expense of $0.6 million for retention bonuses; and the
elimination of LifeSize’s marketing and selling expenses for the period
from December 11, 2009, the date of acquisition, to the end of Logitech’s
interim quarter.
|
|
{d}
|
Reflects: additional
depreciation expense of $0.3 million related to property and equipment as
if written down to fair value on April 1, 2008 and the alignment of
property and equipment policies; additional share-based compensation
expense of $1.1 million related to unvested stock options as if assumed on
April 1, 2008; additional compensation expense of $1.4 million for
retention bonuses; and the elimination of LifeSize’s research and
development expenses for the period from December 11, 2009, the date of
acquisition, to the end of Logitech’s interim
quarter.
|
|
{e}
|
Reflects: the
elimination of $0.3 million of depreciation expense related to property
and equipment as if written down to fair value on April 1, 2008 and the
alignment of property and equipment policies; additional share-based
compensation expense of $0.5 million related to unvested stock options as
if assumed on April 1, 2008; additional compensation expense of $1.0
million for retention bonuses; the elimination of $5.8 million in
transaction costs related to the acquisition of LifeSize; and the
elimination of LifeSize’s general and administrative expenses for the
period from December 11, 2009, the date of acquisition, to the end of
Logitech’s interim quarter.
|
|
{f}
|
Reflects
the elimination of interest expense related to debt assumed as if Logitech
repaid the debt on April 1, 2008.
|
|
{g}
|
Reflects
the elimination of LifeSize’s other income, net for the period from
December 11, 2009, the date of acquisition, to the end of Logitech’s
interim quarter.
|
|
{h}
|
Reflects
the change to the provision for income taxes resulting from the pro forma
adjustments and the tax benefit resulting from LifeSize’s net operating
losses which would have been available to Logitech under the pro forma
assumptions.
|
Pro
Forma Condensed Combined Statements of Operations for the year ended March 31,
2009 for Logitech and the year ended December 31, 2008 for LifeSize
|
{i}
|
Reflects: additional
amortization expense of $11.2 million related to intangible assets as if
acquired on April 1, 2008; the elimination of $0.4 million of depreciation
expense related to property and equipment as if written down to fair value
on April 1, 2008 and the alignment of property and equipment policies;
additional share-based compensation expense of $0.6 million related to
unvested stock options as if assumed on April 1, 2008; and additional
compensation expense of $0.5 million for retention
bonuses.
|
|
{j}
|
Reflects: additional
amortization expense of $7.3 million related to intangible assets as if
acquired on April 1, 2008; additional share-based compensation expense of
$2.5 million related to unvested stock options as if assumed on April 1,
2008; and additional compensation expense of $0.8 million for retention
bonuses.
|
|
{k}
|
Reflects: additional
depreciation expense of $0.2 million related to property and equipment as
if written down to fair value on April 1, 2008 and the alignment of
property and equipment policies; additional share-based compensation
expense of $2.0 million related to unvested stock options as if assumed on
April 1, 2008; and additional compensation expense of $1.9 million for
retention bonuses.
|
|
{l}
|
Reflects: the
elimination of $0.2 million of depreciation expense related to property
and equipment as if written down to fair value on April 1, 2008 and the
alignment of property and equipment policies; additional share-based
compensation expense of $1.0 million related to unvested stock options as
if assumed on April 1, 2008; and additional compensation expense of $1.3
million for retention bonuses.
|
|
{m}
|
Reflects:
the elimination of $0.9 million of interest expense related to debt
assumed as if Logitech repaid the debt on April 1,
2008.
|
|
{n}
|
Reflects
the change to the provision for income taxes resulting from the pro forma
adjustments and the tax benefit resulting from LifeSize’s net operating
losses which would have been available to Logitech under the pro forma
assumptions.
|
Note
4 — Net Income per Share
For
purposes of the unaudited pro forma condensed combined statements of operations,
the unvested LifeSize stock options, exercisable for a total of approximately
1.0 million Logitech shares, and the unvested restricted stock held by
continuing LifeSize employees, which was exchanged for 0.1 million Logitech
shares, are considered to be assumed as of April 1, 2008. The pro forma diluted
shares outstanding includes the dilutive effect of these unvested stock options
and restricted stock which were in-the-money, calculated based on the average
share price for each period using the treasury stock method. Under the treasury
stock method, the amount that the employee must pay for exercising stock
options, the amount of compensation cost for future service that the Company has
not yet recognized, and the amount of tax impact that would be recorded in
additional paid-in capital when the award becomes deductible are assumed to be
used to repurchase shares.
Pro
Forma Condensed Combined Statements of Operations for the nine months ended
December 31, 2009 for Logitech and the nine-months ended September 30, 2009 for
LifeSize
|
{1}
|
Reflects
the change to diluted weighted average shares outstanding attributable to
stock options and restricted stock assumed as part of the
acquisition.
|
Pro
Forma Condensed Combined Statements of Operations for the year ended March 31,
2009 for Logitech and the year ended December 31, 2008 for LifeSize
|
{2}
|
Reflects
the change to diluted weighted average shares outstanding attributable to
stock options and restricted stock assumed as part of the
acquisition.
|