.
.
.
EXHIBIT 99.2
UROAM, INC. AND SUBSIDIARIES (FORMERLY FILANET CORPORATION)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<Table>
<Caption>
Page
Unaudited Consolidated Balance Sheet as of June 30, 2003 2
Unaudited Consolidated Statements of Operations for the six months ended June 30, 2003 and 2002 3
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 4
Notes to Unaudited Consolidated Financial Statements 5-12
</Table>
UROAM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
JUNE 30, 2003
(In thousands, except share amounts)
<Table>
ASSETS
Current assets:
Cash $ 25
Accounts receivable 389
Prepaid expenses and other current assets 152
------------
Total current assets 566
Property and equipment, net 4
Goodwill 1,322
Other intangible assets, net 893
Other assets 30
Total assets of discontinued operations, net 312
------------
Total assets $ 3,127
============
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term debt $ 10,736
Current portion of capital lease obligation 382
Accounts payable 354
Accrued liabilities 662
Deferred revenue 142
Total liabilities of discontinued operations 1,505
------------
Total current liabilities 13,781
Commitments and contingencies
Redeemable convertible preferred stock 15,940
Stockholders' deficit:
Common stock, no par value; 41,958,300 shares
authorized; 988,678 shares issued and outstanding 25,584
Stockholder receivables (37)
Accumulated deficit (52,141)
------------
Total stockholders' deficit (26,594)
------------
Total liabilities, redeemable convertible preferred stock and stockholders' deficit $ 3,127
============
</Table>
See accompanying notes to unaudited consolidated financial statements
2
UROAM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
JUNE 30, 2003
(In thousands)
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
2003 2002
------------ ------------
Net revenues:
Product sales $ 792 $ --
Maintenance services 77 --
------------ ------------
869 --
------------ ------------
Costs and expenses:
Cost of revenue 55 --
Selling and marketing 1,083 108
Research and development 1,433 54
General and administrative 1,375 180
------------ ------------
Total costs and expenses 3,946 342
------------ ------------
Operating loss (3,077) (342)
Interest and other (expense) income:
Interest expense (266) (143)
Other (expense) income (205) 10
------------ ------------
Total interest and other (expense) income (471) (133)
------------ ------------
Loss from continuing operations (3,548) (475)
Discontinued operations:
Gain (loss) from discontinued operations 1,106 (2,988)
------------ ------------
Net loss $ (2,442) $ (3,463)
============ ============
</Table>
See accompanying notes to unaudited consolidated financial statements
3
UROAM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
OPERATING ACTIVITIES: 2003 2002
------------ ------------
Loss from continuing operations $ (3,548) $ (475)
Adjustments to reconcile loss from continuing operations to net
cash used in continuing operations:
Depreciation and amortization 139 --
Non-cash interest expense 32 --
Non employee stock based compensation expense -- 5
Changes in operating assets and liabilities:
Accounts receivable 88 --
Prepaid expenses and other current assets (12) --
Other assets 105 --
Accounts payable 237 --
Other accrued liabilities 337 --
Deferred revenue (189) --
------------ ------------
Net cash used in continuing operations (2,811) (470)
------------ ------------
Gain (loss) from discontinued operations 1,106 (2,988)
Change in assets and liabilities of discontinued operations (1,969) (1,511)
------------ ------------
Net cash used in operating activities (3,674) (4,969)
------------ ------------
FINANCING ACTIVITIES
Proceeds from short-term debt 3,378 --
Proceeds from exercise of common stock options 3 --
Payments received on shareholder receivable 39 7
Proceeds from issuance of Series A-1 convertible preferred stock -- 5,596
Payment of debt issuance costs -- (186)
------------ ------------
Net cash provided by financing activities 3,420 5,417
------------ ------------
NET (DECREASE) INCREASE IN CASH (254) 448
CASH, beginning of period 279 74
------------ ------------
CASH, end of period $ 25 $ 522
============ ============
NONCASH FINANCING ACTIVITIES:
Conversion of Series A and Series B preferred stock into common stock $ -- $ 25,127
Conversion of 2002 bridge notes into Series A-1 preferred stock -- 9,080
Issuance of Series A-1 preferred stock for rental renegotiation,
executive separation agreement and executive search services -- 358
Conversion of accrued employee compensation into Series A-1 preferred stock -- 62
Accrued interest on stockholder notes receivable 1 1
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ -- $ --
============ ============
Cash paid during the period for income taxes $ 800 $ 800
============ ============
</Table>
See accompanying notes to unaudited consolidated financial statements
4
UROAM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and in thousands)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
uRoam, Inc. (collectively with its subsidiaries, the "Company" or "uRoam") was
incorporated in California in 1998. From December 2000 through December 2002,
the Company, originally doing business as Filanet Corporation ("Filanet"),
marketed a low-cost, broadband solid-state appliance with integrated router and
server functionality to small/remote offices. This product, known as the
InterJak Internet Service Appliance ("InterJak Product"), enabled broadband
service providers to offer a myriad of remotely managed value-added services to
telecommuters and small to medium-size businesses from a single extensible
platform. On October 1, 2002, the Company, acquired all of the outstanding stock
of uRoam, Inc. ("Predecessor uRoam"), also incorporated in California.
Subsequent to the completion of the acquisition, the Company changed its name to
uRoam, Inc. With this acquisition, the Company refocused its investment and
resources on applications and software. Since October 1, 2002, the Company's
focus has been to develop, market and sell a complete solution for secure user
access to applications and desktops, and collaborative tools for real time
information sharing.
As further described in Note 2, in December 2002, the Company decided to
discontinue the operations formerly conducted by Filanet. As such, in accordance
with accounting principles generally accepted in the United States of America,
net assets and the results of the discontinued operations have been reflected as
Discontinued Operations in the consolidated financial statements. With the
discontinuance of the operations formerly conducted by Filanet, the Company's
continuing operations are comprised of the business activities acquired from
Predecessor uRoam and the corporate activities of the merged companies. These
continuing operations are treated as a single business segment, and the
Company's continuing operations have historically been conducted primarily in
the United States of America, with some quality assurance and test activities
being performed in Russia.
On July 23, 2003, the Company sold substantially all of its assets and selected
liabilities to F5 Networks, Inc. ("F5") for $25 million in cash.
Liquidity and basis of presentation
In the opinion of management, the unaudited consolidated financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary for their fair presentation in conformity with accounting principles
generally accepted in the United States of America. The unaudited consolidated
balance sheet as of June 30, 2003 and the related unaudited consolidated
statements of operations and cash flows for the six months ended June 30, 2003
and 2002 have been derived from the Company's unaudited consolidated financial
statements, but do not include all disclosures required by accounting principles
generally accepted in the United States of America for complete financial
statements. These unaudited consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and notes for
the year ended December 31, 2002.
The accompanying consolidated interim financial statements have been prepared on
a basis that contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. The Company has
incurred losses since its inception, has an accumulated deficit of approximately
$50 million at December 31, 2002 and a deficit in working capital, and continued
to incur losses through June 30, 2003. The Company has been dependent on its
investors to provide financing and a guarantee of a bank line of credit to fund
operating activities. At December 31, 2002, the principal balance of this line
of credit was $3 million, and there were no remaining funds available to the
Company under this facility. At June 30, 2003, available financing under the
facility and related guarantees had
5
UROAM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and in thousands)
been increased to $6.453 million, and the maturity date had been extended to
July 15, 2003. Through July 23, 2003, the facility and related guarantees were
further increased to $6.75 million. However, with the sale of substantially all
of the Company's assets to F5 for $25 million in cash on July 23, 2003, all
principal and accrued interest borrowed under this facility was repaid in full.
The Company now believes that it has adequate resources to fund its operations
and repay its obligations.
Principles of Consolidation
The consolidated financial statements include the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. As more fully discussed in Note 2, in December
2002, the Company discontinued all operations attributable to its business
activities related to the InterJak Product line, including the operations of the
Company's subsidiary located in Denmark, Filanet Europe ApS ("Filanet Europe").
Accordingly, these operations have been reflected as discontinued in the
consolidated balance sheet and statements of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Such estimates include, but are not limited to,
inventory valuation, deferred revenue, the allowance for uncollectible accounts
receivable, the valuation of the acquisition of Predecessor uRoam, the valuation
allowance for deferred tax assets and accrued liabilities. Actual results could
differ from those estimates.
2. DISCONTINUED OPERATIONS
In December 2002, the Company's board of directors, who also comprised a
controlling shareholder interest, unanimously authorized and directed management
to discontinue the operations formerly conducted by Filanet prior to the
Company's acquisition of Predecessor uRoam on October 1, 2002. The decision to
discontinue these operations was based on the low margins being achieved in that
business, and a decision to concentrate management's efforts and all of the
Company's resources on the operations newly acquired from Predecessor uRoam. As
a result of the decision to discontinue the operations formerly conducted by
Filanet, management provided termination notices to substantially all employees
associated with the InterJak Product operation on or around December 31, 2002,
which resulted in a severance accrual totaling $516,000. Management also began
taking steps to limit the remaining liabilities associated with this business.
In addition, at December 31, 2002, the Company recorded impairment charges of
$2,278,000 and $434,000 to reduce the carrying value of inventories and property
and equipment, respectively, of the discontinued business to their estimated net
realizable values.
During the six months ended June 30, 2003, the Company recorded a $1,106,000
gain from discontinued operations. This was primarily attributable to the
recognition of $1.2 million of revenues relating to the discontinued InterJak
Produce line at Filanet Europe and the settlement and release from payment of
$300,000 of trade accounts payable which were recorded during the six months
ended June 30, 2003, the period that the settlement occurred. Additionally, due
to the termination of substantially all employees associated with the InterJak
Product operation and the related 2002 severance accruals, the ongoing expenses
of the discontinued operations in 2003 significantly decreased from that
previously incurred. Revenues of the discontinued operation were $2.9 million
during the six months ended June 30, 2002. There were no income tax expenses or
benefits recognized in 2003 or 2002.
6
UROAM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and in thousands)
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," assets and
liabilities of the discontinued business have been segregated from continuing
operations in the consolidated balance sheet, and the related operating results
have been segregated and reported as discontinued operations in the accompanying
consolidated statements of operations and cash flows, and related notes.
Balance sheet details of Discontinued Operations as of June 30, 2003 consisted
of the following (in thousands):
<Table>
Assets of discontinued operations:
Accounts receivable $ 2
Inventory 15
Prepaid expenses and other current assets 19
Property and equipment, net 16
Other assets 260
------------
Total assets of discontinued operations $ 312
============
Liabilities of discontinued operations:
Capital lease obligations $ 204
Accounts payable 1,263
Accrued liabilities 35
Deferred revenue 3
------------
Total liabilities of discontinued operations $ 1,505
============
</Table>
3. SHORT-TERM DEBT
Short-term debt as of June 30, 2003 consisted of the following (in thousands):
<Table>
Line of credit $ 5,854
Short-term bridge notes payable 4,887
Discount relating to bridge loan facility (5)
------------
Total $ 10,736
============
</Table>
In August, September, and December 2002, the Company obtained bridge loan
financing from its majority shareholders for an aggregate principal amount of
$4,381,000 under Secured Subordinated Convertible Notes ("2002 Bridge Loans")
and issued to the lenders warrants to purchase 2,154,992 shares of common stock
with an exercise price per share of $0.02. In January and February 2003, the
Company obtained an additional $506,000 in bridge loan financing from its
majority shareholders under the same terms as the 2002 Bridge Loans, except that
no additional warrants were issued. The 2002 Bridge Loans bear interest at the
rate of 4.5% per annum and are due on the earlier of one year from issuance or
conversion of the notes to demand notes whereby the notes will become
immediately due and payable upon consent by the noteholders representing at
least 75% of the aggregate principal amount of the notes ("Majority in
Interest"). The 2002 Bridge Loans are subordinated to the Company's obligations
under capital leases, secured by substantially all of the Company's assets
(except those assets acquired under capital leases) and convertible into
preferred stock at the per share price sold in the Company's next round of
preferred stock financing of at least $2.5 million (excluding any notes
outstanding which are convertible into preferred stock) upon consent by the
Majority in Interest. In the event that the Company undergoes a liquidation,
dissolution, winding up or Liquidation Transaction (as defined in the Company's
fifth amended and restated articles of incorporation), the Company is obligated
to repay 2.5
7
UROAM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and in thousands)
times the outstanding principal and interest due ("Investor Premium") under the
2002 Bridge Loans prior to any payments to the Company's unsecured creditors and
common or preferred stockholders. The Company has allocated the proceeds between
the respective estimated fair values of the 2002 Bridge Loans and related
warrants resulting in a $35,000 discount to the 2002 Bridge Loans to be
amortized to interest expense over a one-year period ending in August 2003 using
the effective interest method. During the six months ended June 30, 2003, the
Company recorded $18,000 in interest expense resulting from the amortization of
this discount. All principal and accrued interest outstanding on the Company's
short-term bridge notes payable was repaid in full upon the sale of
substantially all of the Company's assets to F5 on July 23, 2003, which
qualified as a Liquidation Transaction. In addition, on July 23, 2003, the
bridge notes were amended such that; 1) the conversion feature to capital stock
of the Company was eliminated, 2) the 2,154,992 warrants issued to the lenders
of the 2002 Bridge Loans were cancelled and 3) the Investor Premium would only
apply to $3.5 million of the principal balance, and that this Investor Premium
would be payable only upon the approval of the Company's board of directors and
after all debts and liabilities of the Company had been provided for in a cash
reserve account.
In October 2002, the Company entered into a revolving line of credit ("Line of
Credit") with a bank to provide financing for current operations of the Company.
At June 30, 2003, the Line of Credit provides for maximum borrowings of $6.453
million, of which $5.854 million was outstanding, at the prime interest rate
(4.25% at June 30, 2003) and was originally scheduled to mature on July 15,
2003. Through July 23, 2003, availability under the facility and related
guarantees were further increased to $6.75 million. Upon the sale of
substantially all of the Company's assets to F5 on July 23, 2003, all principal
and accrued interest borrowed under this facility was repaid in full.
In connection with a guarantee of the Line of Credit provided by the Company's
majority stockholders, the Company issued 2,067,958 warrants to purchase common
stock at $0.02 per share. In addition, the Company issued 516,988 warrants at
the same exercise price to the guarantors in both November and December 2002.
The $38,000 value of these warrants was recorded as interest expense during
2002. The Company was obligated to continue to issue 516,988 warrants per month
under the same terms to the guarantors as long as the Line of Credit was
outstanding through June 2003 and issued an aggregate of 3,101,928 during the
six months ended June 30, 2003. The warrants issued during 2003 were valued at
$32,000 using the Black-Scholes option pricing model with the following weighted
average assumptions: contractual life of 3 1/2 years; risk free interest rate of
4%, volatility of 70% and no dividends during the expected term. In July 2003,
the 6,203,862 warrants issued during 2002 and 2003 in connection with the
guarantee of the Line of Credit were cancelled immediately prior to the
acquisition of the Company's assets by F5.
4. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its office facilities under various noncancelable-operating
leases. These leases expire at various dates through February 2007 and generally
require monthly payment of the prorata share of common area operating expenses.
Future minimum lease payments under all noncancelable
8
UROAM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and in thousands)
operating leases, as of June 30, 2003, are as follows (in thousands):
<Table>
<Caption>
Amount
------------
July 1 through December 31, 2003 $ 148
2004 308
2005 323
2006 339
2007 57
------------
Total minimum lease payments $ 1,175
============
</Table>
Rent expense was approximately $249,000 and $281,000 for the six months ended
June 30, 2002 and 2001, respectively.
In August 2001, the Company entered into an amendment to one of its office
facility lease agreements whereby future monthly cash payments due under the
original lease were reduced by approximately $433,000 in aggregate. As
consideration of this amendment, the Company issued approximately $433,000 worth
of fully vested shares of Series B Preferred Stock. This amount was recorded as
an asset to be amortized to rent expense over the remaining lease term. The
Company also entered into another facility lease agreement with the same
landlord commencing in August 2001, which required monthly payments of
approximately $13,000 through November 2005. In March 2002, the Company amended
its agreements with the above landlord, which reduced monthly payments for both
facilities to approximately $13,000 each, but extended the lease term for both
facilities to February 2007. In connection with these amendments, the Company
issued 500,000 shares of Series A-1 Preferred Stock with a value of $96,000.
This amount, along with the $305,000 unamortized balance of the prepaid rent
relating to the Series B Preferred Stock issued in August 2001 existing as of
the lease modification date in March 2002, is being amortized to rent expense on
a straight line basis over the amended lease term.
On April 29, 2003, the Company entered into a memorandum of understanding with
the above landlord providing the Company the option to terminate two of its
office facility lease agreements. Under the terms of this agreement, the Company
would continue to pay rentals due under the lease agreements through the
projected lease termination date on July 31, 2003, at which time the Company had
the option to make a termination payment of approximately $313,000 and forego
the $50,000 security deposit on the leases. In July 2003, the Company terminated
these leases, and $270,000 of prepaid rents existing as of June 30, 2003
relating to the issuance of Series B and Series A-1 preferred stock, of which
$135,000 is reflected in total assets of discontinued operations and $135,000 is
reflected in prepaid expenses and other current assets, was written off
subsequent to June 30, 2003.
In connection with the Company's decision to discontinue the operations formerly
conducted by Filanet, in December 2002 the Company gave notice of termination to
the landlord of one of its office facility leases located in Denmark.
Accordingly, the Company accrued $38,000 for a lease termination liability
relating to the fair value of this leasehold and wrote off a $46,000 lease
deposit as of December 31, 2002. The Company vacated the facility in Denmark on
June 30, 2003.
Legal matters
The Company is involved in various other legal proceedings incidental to its
normal business activities. The amount of ultimate liability with respect to
these actions cannot be reasonably estimated. However, in the opinion of
management, any liability resulting from an unfavorable outcome will not
materially affect the financial position of the Company. See Note 7 for details
of a complaint filed against the Company in July 2003.
9
UROAM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and in thousands)
Guarantees
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Financial Interpretation Number ("FIN") 45 "Guarantor's Accounting and
Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others -- an interpretation of FASB Statements No. 5, 57 and 107
and rescission of FIN 34." The Company has applied the disclosure provisions of
FIN 45 as of December 31, 2002. The following is a summary of the Company's
agreements that have been determined are within the scope of FIN 45.
Under its bylaws, the Company has agreed to indemnify its officers and directors
for certain events or occurrences arising as a result of the officer or
director's serving in such capacity. The term of the indemnification period is
for the officer's or director's lifetime. The Company has a separate
indemnification agreement with one of its directors that requires it, subject to
certain exceptions, to indemnify him to the fullest extent authorized or
permitted by its bylaws and the California Corporation Code. The maximum
potential amount of future payments the Company could be required to make under
these indemnification agreements is unlimited. The Company believes the
estimated fair value of these indemnification agreements is minimal and has no
liabilities recorded for these agreements as of June 30, 2003.
As a result of the acquisition of Predecessor uRoam, the Company assumed a
potential liability for events or occurrences that took place prior to the date
of acquisition. The maximum potential amount of future payments the Company
could be required to make for such obligations is undeterminable at this time.
Therefore, the Company has no amounts recorded for these possible liabilities as
of June 30, 2003.
The Company enters into indemnification provisions under (i) its agreements with
other companies in its ordinary course of business, typically with business
partners, contractors, and customers, landlords and (ii) its agreements with
investors. Under these provisions the Company generally indemnifies and holds
harmless the indemnified party for losses suffered or incurred by the
indemnified party as a result of the Company's activities or, in some cases, as
a result of the indemnified party's activities under the agreement. These
indemnification provisions often include indemnifications relating to
representations made by the Company with regard to intellectual property rights.
These indemnification provisions generally survive termination of the underlying
agreement. The maximum potential amount of future payments the Company could be
required to make under these indemnification provisions is unlimited. The
Company has not incurred material costs to defend lawsuits or settle claims
related to these indemnification agreements. As a result, the Company believes
the estimated fair value of these agreements is minimal. Accordingly, the
Company has no liabilities recorded for these agreements as of June 30, 2003.
Settlement of Trade Payables
During the six months ended June 30, 2003, the Company entered into settlement
agreements with certain of its vendors which provided for the settlement and
release from payment of approximately $300,000 of trade accounts payable. The
effects of these settlement agreements have been recorded during the six months
ended June 30, 2003 as a credit to the gain from discontinued operations.
5. COMMON STOCK AND STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to
10
UROAM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and in thousands)
Employees" (APB 25). During 2003 and 2002, no stock options were granted at an
exercise price below the estimated fair market value of the common stock.
The Company accounts for stock-based awards to nonemployees in accordance with
the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," and
EITF Issue No. 96-18, "Accounting for Equity Instruments that Are Issued to
Other Than Employees for Acquiring or in Conjunction with Selling Goods or
Services," under the fair value method. SFAS No. 123 also requires the
disclosure of pro forma net loss as if the Company had adopted the fair value
method for stock-based awards to employees. Under SFAS No. 123, the fair value
of the stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including expected time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using the minimum value pricing model with the following assumptions:
expected life, one year from vest date; risk free interest rate of 4% in 2003
and 2002, and no dividends during the expected term. The following table
represents the effect on net loss if the Company had applied the fair value
based method and recognition provisions of SFAS No. 123 during the six months
ended June 30, 2003 and 2002 (in thousands):
<Table>
<Caption>
2003 2002
------------ ------------
Net loss, as reported $ (2,442) $ (3,463)
Add: Stock-based employee compensation expense included in reported loss -- --
Deduct: Total stock-based employee compensation expense determined under fair value
based method for all awards (5) (4)
------------ ------------
Pro forma net loss $ (2,447) $ (3,467)
============ ============
</Table>
During the six months ended June 30, 2003 options to purchase 119,752 shares of
the Company's common stock were exercised resulting in proceeds of $3,000.
During the six months ended June 30, 2003, the Company received repayments of
notes receivable from stockholders aggregating $39,000.
7. SUBSEQUENT EVENTS
On July 23, 2003, the Company entered into an asset purchase agreement with F5
whereby substantially all of the Company's assets were acquired and certain
ongoing liabilities were assumed for the aggregate cash consideration of $25
million. In addition, F5 paid $650,000 in closing costs incurred by the Company
as a result of the completion of the transaction. Under the terms of the asset
purchase agreement, 10% of the aggregate consideration, or $2.5 million, was
deposited in an escrow account to be held for a one-year period to satisfy
certain potential indemnification provisions of the asset purchase agreement.
As more fully described in Note 3, all principal and accrued interest
outstanding on the Company's short-term debt was repaid in full utilizing the
proceeds from the sale of substantially all of the Company's assets on July 23,
2003. Additionally, in connection with an amendment to the bridge note
agreements immediately prior to the sale of the Company's assets, the Company is
obligated to pay an additional Investor Premium of $5,250,000 to certain bridge
note holders, subject to the approval of the Company's board of directors and
after all debts and liabilities of the Company had been provided for in a cash
reserve account.
11
UROAM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and in thousands)
As more fully described in Note 4, the Company terminated two of its office
facility lease agreements in July 2003 by paying a $313,000 termination payment
and foregoing the $50,000 security deposit.
In July 2003, the Company received a copy of a complaint filed by a company
alleging breach of contract and other claims related to exclusivity provisions
of a March 2003 cover letter for a preliminary non-binding term sheet in
contemplation of the plaintiff's proposed acquisition of the Company. The
complaint indicates that the plaintiff incurred damages of no less than $2
million and seeks to recover all damages and require the Company's performance
with respect to the March 2003 letter agreement. The Company believes that the
complaint is without merit and has hired litigation counsel to defend itself
vigorously.
In January 2003, the Company entered into a memorandum of understanding with a
creditor providing equipment financing under capital leases whereby the creditor
agreed to forebear collecting January and February rental payments until
February 28, 2003, at which time all past due rental payments would be payable.
The Company did not make the required February 28, 2003 payment or the March,
April, May, June or July 2003 monthly payments due under the master lease
agreement. This represented an event of default under the master lease
agreement, which allowed the creditor to request an acceleration of the
remaining payments due from the Company. As of June 30, 2003, the Company owed
$735,000 to this creditor under the master lease agreement, all of which is
reflected in total liabilities of discontinued operations. On July 23, 2003, the
Company paid $727,000 in full satisfaction of all of the Company's obligations
to this creditor.
12