SECURITIES EXCHANGE AND COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 14, 2000
SBE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-8419 94-1517641
(Commission File No.) (I.R.S. Employer Identification No.)
4550 NORRIS CANYON ROAD
SAN RAMON, CA 94583-1369
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (925) 355-2000
1
ITEM 5. OTHER EVENTS.
A. LAN MEDIA CORPORATION
On July 14, 2000, the registrant, SBE, Inc. (the "Company"), acquired the
outstanding capital stock of LAN Media Corporation, a California corporation
("LMC"), pursuant to that certain Agreement and Plan of Merger (the
"Agreement"), dated as of July 14, 2000, by and among: the Company; Telecom
Acquisition Sub, Inc., a wholly-owned subsidiary of the Company; LMC; and the
shareholders of LMC (the "Acquisition"). A copy of the Agreement is attached
as Exhibit 5.1. LMC became a wholly-owned subsidiary of the Company as a
result of the merger of LMC with and into the Company's wholly-owned
subsidiary. As consideration for the Acquisition, the Company issued 316,101
shares of its common stock (the "Shares") to the shareholders of LMC in
exchange for such shareholders' shares of LMC common stock. In addition, the
Company assumed the outstanding options of LMC held by LMC's option holders.
The Company has agreed to file a registration statement under the Securities
Act of 1933 on Form S-3 with respect to the Shares and on Form S-8 with
respect to the options assumed by the Company. The transfer or resale of the
Shares will be restricted for a period of one year commencing on July 14,
2000, with 25% of the Shares being released from this restriction on a
quarterly basis.
On July 14, 2000, in connection with the Acquisition, the Company also
entered into a Registration Rights Agreement with the shareholders of LMC, an
Escrow Agreement with Ronald C. Crane as agent for the shareholders of LMC
and State Street Bank and Trust Company of California, N.A. as escrow agent,
and an Employment Agreement with Ronald C. Crane. Copies of these Agreements
are attached as Exhibits 5.2, 5.3 and 5.4, respectively.
2
ITEM 7. Financial Statements and Exhibits
The following financial statements and exhibits are filed as part of
this report
(a) Financial Statements of SBE, Inc.
Included herein are the balance sheets of LAN MEDIA CORPORATION as of
December 31, 1999 and 1998 and the related statements of operations,
of shareholders' equity and of cash flows for each of the years then
ended.
LAN MEDIA CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
LAN Media Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of LAN Media Corporation at December
31, 1999 and 1998, and the results of its operations and its cash flows for each
of the years then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1, the Company has incurred operating losses, has an
accumulated deficit through December 31, 1999 and will require additional
financing. As discussed in Note 9, effective July 14, 2000, SBE, Inc. acquired
all of the outstanding shares of the Company, from which point the Company began
operating as a wholly owned subsidiary of SBE, Inc.
/s/ PricewaterhouseCoopers LLP
San Jose, California
September 25, 2000
LAN MEDIA CORPORATION
BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31,
1999 1998
ASSETS
Current assets:
Cash and cash equivalents $ 78,588 $ 220,061
Accounts receivable 382,831 239,637
Inventories 353,903 142,223
Prepaid expenses and other current assets 11,149 17,856
---------------- ----------------
Total current assets 826,471 619,777
Property and equipment, net 69,904 62,761
Other assets 11,655 11,655
---------------- ----------------
Total assets $ 908,030 $ 694,193
---------------- ----------------
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 185,523 $ 121,631
Accrued liabilities 226,335 69,101
Notes payable to shareholders 425,000 150,000
---------------- ----------------
Total current liabilities 836,858 340,732
Commitments (Note 5)
Shareholders' equity:
Convertible Preferred Stock-Series A: no par value;
1,844,357 shares authorized; 1,844,357
shares issued and outstanding in 1999 and 1998
(Liquidation preference: $1,229,264) 1,229,264 1,229,264
Convertible Preferred Stock-Series B: no par value;
250,000 shares authorized; 200,000 shares issued
and outstanding in 1999
(Liquidation preference: $200,000) 200,000 -
Common Stock and additional paid-in capital: no par value;
10,000,000 shares authorized; 1,120,448 and 1,104,972 shares
issued and outstanding in 1999 and 1998 248,601 42,982
Accumulated deficit (1,446,443) (912,285)
Deferred stock-based compensation (160,250) (6,500)
---------------- ----------------
Total shareholders' equity 71,172 353,461
---------------- ----------------
Total liabilities and shareholders' equity $ 908,030 $ 694,193
---------------- ----------------
---------------- ----------------
The accompanying notes are an integral part of these financial statements.
LAN MEDIA CORPORATION
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1999 1998
Net sales $ 1,687,859 $ 2,192,779
Cost of sales 837,438 1,496,730
----------------- -----------------
Gross profit 850,421 696,049
----------------- -----------------
Operating expenses:
Product research and development 515,874 260,748
Sales and marketing 577,356 398,578
General and administrative 284,451 247,769
----------------- -----------------
Total operating expenses 1,377,681 907,095
----------------- -----------------
Operating loss (527,260) (211,046)
Interest and other income, net (6,098) 11,389
----------------- -----------------
Loss before income taxes (533,358) (199,657)
Provision for income taxes (800) (1,182)
----------------- -----------------
Net loss $ (534,158) $ (200,839)
----------------- -----------------
----------------- -----------------
The accompanying notes are an integral part of these financial statements.
LAN MEDIA CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
COMMON STOCK
CONVERTIBLE AND ADDITIONAL
PREFERRED STOCK PAID IN CAPITAL ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT
Balance at December 31, 1997 - $ - 1,104,972 $ 26,482 $ (711,446)
Issuance of Series A Convertible
Preferred Stock on conversion of
notes payable to preferred
stock 1,844,357 1,229,264 - - -
Deferred stock-based compensation - - - 16,500 -
Stock compensation expense - - - - -
Net loss - - - - (200,839)
---------------- ---------------- ---------------- --------------- ---------------
Balance at December 31, 1998 1,844,357 1,229,264 1,104,972 42,982 (912,285)
Issuance of Series B Convertible
Preferred Stock 200,000 200,000 - - -
Exercise of Common Stock options - - 15,476 619 -
Deferred stock-based compensation - - - 205,000 -
Stock compensation expense - - - - -
Net loss - - - - (534,158)
---------------- ---------------- ---------------- --------------- ---------------
Balance at December 31, 1999 2,044,357 $1,429,264 1,120,448 $ 248,601 $ (1,446,443)
---------------- ---------------- ---------------- --------------- ---------------
---------------- ---------------- ---------------- --------------- ---------------
DEFERRED TOTAL
STOCK-BASED SHAREHOLDERS'
COMPENSATION EQUITY
Balance at December 31, 1997 $ - $ (684,964)
Issuance of Series A Convertible
Preferred Stock on conversion of
notes payable to preferred
stock - 1,229,264
Deferred stock-based compensation (16,500) -
Stock compensation expense 10,000 10,000
Net loss - (200,839)
--------------- ------------------
Balance at December 31, 1998 (6,500) 353,461
Issuance of Series B Convertible
Preferred Stock - 200,000
Exercise of Common Stock options - 619
Deferred stock-based compensation (205,000) -
Stock compensation expense 51,250 51,250
Net loss - (534,158)
--------------- ------------------
Balance at December 31, 1999 $ (160,250) $ 71,172
--------------- ------------------
--------------- ------------------
The accompanying notes are an integral part of these financial statements.
LAN MEDIA CORPORATION
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (534,158) $ (200,839)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 41,615 40,527
Stock compensation expense 51,250 10,000
Changes in operating assets and liabilities:
Accounts receivable (143,194) 40,814
Inventories (211,680) (113,268)
Prepaid expenses and other current assets 6,706 (12,106)
Accounts payable 63,892 (71,795)
Accrued liabilities 157,236 (18,524)
------------------- ------------------
Net cash used in operating activities (568,333) (325,191)
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (48,759) (16,185)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series B Convertible
Preferred Stock 50,000 -
Proceeds from exercise of stock options 619 -
Proceeds from notes payable to shareholders 425,000 150,000
------------------- ------------------
Net cash provided by financing activities 475,619 150,000
------------------- ------------------
Net decrease in cash and cash equivalents (141,473) (191,376)
Cash and cash equivalents at beginning of year 220,061 411,437
------------------- ------------------
Cash and cash equivalents at end of year $ 78,588 $ 220,061
------------------- ------------------
------------------- ------------------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for income taxes $ 800 $ 1,182
------------------- ------------------
------------------- ------------------
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
Conversion of notes payable to preferred stock $ 150,000 $ 1,229,264
------------------- ------------------
------------------- ------------------
The accompanying notes are an integral part of these financial statements.
LAN MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
LAN Media Corporation, a California corporation (the "Company"), was
incorporated in California on March 6, 1992. The Company designs,
manufactures, and sells a broad range of high performance, PCI-based WAN
adapters to meet a variety of network connectivity requirements.
The Company has incurred net losses and negative cash flows from
operations during the years ended December 31, 1999 and 1998, and has
accumulated a net deficit of $1,446,443 at December 31, 1999. Additional
financing will be required to sustain the current level of operations.
Subsequent to December 31, 1999, the Company was acquired by SBE, Inc., a
public company, as detailed in Note 9.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Such estimates include reserves for doubtful
accounts, inventory valuation, deferred tax asset valuation and the value
of the Company's stock. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue from product sales is generally recognized at the time the
product is shipped.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Substantially all of its cash and cash equivalents are held in one large
financial institution.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents and
accounts receivable. The Company's accounts receivable are derived from
revenue earned from customers located principally in the U.S. The Company
performs ongoing credit evaluations of its customers' financial condition
and, generally, requires no collateral from its customers. The Company
maintains an allowance for doubtful accounts receivable based upon the
expected collectibility of accounts receivable.
The following table summarizes the revenues from customers in excess of
10% of the total revenues:
YEARS ENDED DECEMBER 31,
COMPANY 1999 1998
(A) Sun Microsystems - 11%
(B) Xedia Corporation (Lucent) 68% 69%
1
At December 31, 1999, Company B accounted for 68% of total accounts
receivable. At December 31, 1998, Company A and B accounted for 11% and
69% of total accounts receivable, respectively.
Substantially all of the Company's manufacturing process is subcontracted
to other companies. One company accounted for 40% of purchases for the
year ended December 31, 1999. Two companies accounted for 69% of
purchases for the year ended December 31, 1998. Three vendors accounted
for 64% of total accounts payable at December 31, 1999. At December 31,
1998, three vendors accounted for 84% of total accounts payable.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being
determined using the average cost method. The Company's products are
concentrated in an industry which is highly competitive and subject to
rapid technological changes. These factors could affect operating results
adversely. The Company's inventories include high-technology parts and
components that may be specialized in nature or subject to rapid
technological obsolescence. While the Company has programs to minimize
the required inventories on hand and considers technological obsolescence
in estimating required reserves to reduce recorded amounts to market
values, such estimates could change in the future and have a material
adverse impact on the Company's financial position and results of
operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and notes payable are carried at
cost, which approximates their fair value because of the short term
maturity of these instruments.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to seven years. Leasehold improvements are amortized over
the shorter of the term of the lease or the life of the assets.
LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires recognition of
impairment of long-lived assets in the event the net book value of such
assets exceeds the future undiscounted cash flows attributable to such
assets. No material impairments have been experienced to date.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are charged to operations as incurred.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements
in accordance with provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," ("APB 25") and complies
with the disclosure provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). Under APB 25, compensation expense is based on the difference, if
any, on the date of the grant between the fair value of the Company's
stock and the exercise price of the option.
2
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS 123 and the Emerging Issues Task
Force No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other than Employees for Acquiring, or In Conjunction with Selling, Goods
or Services" which require that such equity instruments are recorded at
their fair value on the measurement date, which is typically the date of
grant.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that all derivatives be recognized as either assets or
liabilities in the balance sheet and measure those instruments at fair
value. SFAS 133 is effective for the fiscal year beginning after June 15,
2000. Currently, the Company does not hold derivative instruments or
engage in hedging activities.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition
in financial statements. In March 2000 the SEC issued SAB No. 101A to
defer for one quarter, and in June 2000 issued SAB 101B to defer for an
additional two quarters, the effective implementation SAB 101, with
earlier application encouraged. The Company is required to adopt SAB 101
in the fourth quarter of fiscal 2000. The Company does not expect the
adoption of SAB 101 to have a material effect on its financial position
or results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions
involving Stock Compensation - an interpretation of APB Opinion No. 25,"
which clarifies the application of Accounting Principles Board Opinion
No. 25, Stock Issued to Employees, for certain stock-based compensation
issues. Among other issues, this Interpretation clarifies (a) the
definition of employee for purposes of applying Opinion No. 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory
plan, (c) the accounting consequence of various modifications to the
terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination.
FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover
specific events that occur after either December 15, 1998, or January 12,
2000. The Company does not expect the adoption of FIN 44 to have a
material effect on its financial position or results of operations.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach.
Deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and
laws. In addition, deferred tax assets are recorded for the future
benefit of utilizing net operating loss. A valuation allowance is
provided against deferred tax assets unless it is more likely than not
that they will be realized, either through the generation of future
taxable income or through carryback potential.
3
COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. Through December 31, 1999, the
Company has not had any transactions that were required to be reported in
other comprehensive income.
2. BALANCE SHEET COMPONENTS
DECEMBER 31,
1999 1998
INVENTORIES:
Finished goods $ 80,246 $ 41,260
Raw materials 273,657 100,963
---------------- ----------------
$ 353,903 $ 142,223
---------------- ----------------
---------------- ----------------
PROPERTY AND EQUIPMENT, NET:
Computer equipment $ 115,496 $ 87,232
Software 31,804 31,804
Furniture and fixtures 29,332 8,837
Leasehold improvements 33,562 33,562
---------------- ----------------
210,194 161,435
Less: Accumulated depreciation and amortization (140,290) (98,674)
---------------- ----------------
$ 69,904 $ 62,761
---------------- ----------------
---------------- ----------------
ACCRUED LIABILITIES:
Payroll and related expenses $ 182,827 $ 6,385
Other 43,508 62,716
---------------- ----------------
$ 226,335 $ 69,101
---------------- ----------------
---------------- ----------------
3. INCOME TAXES
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
1999 1998
CURRENT:
U.S. federal $ - $ -
State and local 800 1,182
---------------- ----------------
$ 800 $ 1,182
---------------- ----------------
---------------- ----------------
4
Deferred tax assets consist of the following:
DECEMBER 31,
1999 1998
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 102,524 $ 36,753
Accruals and reserves 67,740 4,150
---------------- ----------------
170,264 40,903
Valuation allowance (170,264) (40,903)
---------------- ----------------
$ - $ -
---------------- ----------------
---------------- ----------------
Management believes that, based on a number of factors, it is more likely
than not that the deferred tax assets will not be utilized, such that a
full valuation allowance has been recorded.
At December 31, 1999, the Company had approximately $256,310 of federal
and $127,355 of state net operating loss carryforwards available to
offset future taxable income, if any. These carryforward amounts expire
in varying amounts beginning in 2012. Under the Tax Reform Act of 1986,
the amounts of and benefits from net operating loss carryforwards may be
impaired or limited in certain circumstances. Events which cause
limitations in the amount of net operating losses that the Company may
utilize in any one year include, but are not limited to, a cumulative
ownership change of more than 50%, as defined, over a three year period.
4. NOTES PAYABLE
Notes payable consists of amounts payable to shareholders of the Company.
Principal and interest, at the annual rate of 5%, are payable upon demand
of the holder of each note. Interest accrued to December 31, 1999
amounted to approximately $6,200.
5
5. COMMITMENTS
The Company leases office space under noncancelable operating lease
agreements with expiration dates through June 1, 2003. Rent expense for
the years ended December 31, 1999 and 1998 was approximately $90,000 and
$77,000, respectively. The terms of the facility lease provide for rental
payments on a graduated scale. The Company recognizes rent expense on a
straight-line basis over the lease period, and has accrued for rent
expense incurred but not paid.
Future minimum lease payments under noncancelable operating leases,
including lease commitments entered into subsequent to December 31, 1999,
are as follows:
YEAR ENDED
DECEMBER 31,
2000 $ 131,111
2001 179,912
2002 188,655
2003 80,125
----------------
$ 579,803
----------------
----------------
6. CONVERTIBLE PREFERRED STOCK
Convertible Preferred Stock at December 31, 1999 consists of the
following:
SHARES
SERIES AUTHORIZED OUTSTANDING
A 1,844,357 1,844,357
B 250,000 200,000
---------------- ----------------
2,094,357 2,044,357
---------------- ----------------
---------------- ----------------
The holders of Preferred Stock have various rights and preferences as follows:
VOTING
Each share of Series A and B Convertible Preferred Stock has voting
rights equal to an equivalent number of shares of Common Stock into which
it is convertible and votes together as one class with the Common Stock.
As long as at least 500,000 shares of Convertible Preferred Stock remain
outstanding, the Company must obtain approval from a majority of the
holders of Convertible Preferred Stock in order to alter the Articles of
Incorporation as related to Convertible Preferred Stock, change the
authorized number of shares of Convertible Preferred Stock, repurchase
any shares of Common Stock other than shares subject to the right of
repurchase by the Company, change the authorized number of Directors,
authorize a dividend for any class or series other than Convertible
Preferred Stock, create a new class of stock or effect a merger,
consolidation or sale of assets where the existing shareholders retain
less than 50% of the voting stock of the surviving entity.
6
DIVIDENDS
Holders of Series A and B Convertible Preferred Stock are entitled to
receive noncumulative dividends at the per annum rate of $0.06 and $0.10
per share, respectively, when and if declared by the Board of Directors.
The holders of Series A and B Convertible Preferred Stock will also be
entitled to participate in dividends on Common Stock, when and if
declared by the Board of Directors, based on the number of shares of
Common Stock held on an as-if converted basis. No dividends on
Convertible Preferred Stock or Common Stock have been declared by the
Board from inception through December 31, 1999.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of Series A and B
Convertible Preferred Stock are entitled to receive an amount of $0.667
and $1.00 per share, respectively, plus any declared but unpaid dividends
prior to and in preference to any distribution to the holders of Common
Stock. Should the Company's legally available assets be insufficient to
satisfy the liquidation preferences, the funds shall be distributed
ratably among the holders of Series B Convertible Preferred Stock. After
payment to the holders of Series B Convertible Preferred Stock, the
holders of Series A Convertible Preferred Stock shall be entitled to
receive ratably their share of liquidation value.
CONVERSION
Each share of Series A and B Convertible Preferred Stock is convertible,
at the option of the holder, according to a conversion ratio, subject to
adjustment for dilution. Each share of Series A and B Convertible
Preferred Stock automatically converts into the number of shares of
Common Stock into which such shares are convertible at the then effective
conversion ratio upon: (1) the closing of a public offering of Common
Stock at a per share price of at least $5.00 per share with gross
proceeds of at least $20,000,000, (2) a merger, sale of substantially all
of the assets or other transactions which result in a change in control
or (3) the consent of the holders of the majority of Convertible
Preferred Stock.
At December 31, 1999 and 1998, the Company reserved 2,094,357 and
1,844,357 shares of Common Stock for the conversion of Series A and B
Convertible Preferred Stock, respectively.
7. COMMON STOCK
The Company's Articles of Incorporation, as amended, authorize the
Company to issue 10,000,000 shares of no par value Common Stock.
8. STOCK OPTION PLAN
In January 1998, the Company adopted the 1998 Stock Option Plan (the
"Plan"). The Plan provides for the granting of stock options to employees
and consultants of the Company. Options granted under the Plan may be
either incentive stock options or nonqualified stock options. Incentive
stock options ("ISO") may be granted only to Company employees (including
officers and directors who are also employees). Nonqualified stock
options ("NSO") may be granted to Company employees and consultants. The
Company has reserved 3,000,000 shares of Common Stock for issuance under
the Plan.
7
The Company has the right of repurchase, at the exercise price, for any
or all of unvested shares issued under the Plan. Such shares repurchased
shall be added back to the number of shares of Common Stock reserved for
issuance under the Plan.
Options under the Plan may be granted for periods of up to ten years and
at prices no less than 85% of the estimated fair value of the shares on
the date of grant as determined by the Board of Directors, provided,
however, that (i) the exercise price of an ISO and NSO shall not be less
than 100% and 85% of the estimated fair value of the shares on the date
of grant, respectively, and (ii) the exercise price of an ISO and NSO
granted to a 10% shareholder shall not be less than 110% of the estimated
fair value of the shares on the date of grant, respectively. The option
shares shall initially be unvested and subject to repurchase by the
Corporation at the exercise price paid for shares. Options generally vest
at 1/42 of option shares upon completion of seven months of service and
balance in 41 equal monthly installments.
The Company accounts for stock options granted to employees in accordance
with APB 25. Accordingly, the Company recorded $90,000 of deferred stock
compensation for the excess of the deemed fair market value over the
exercise price at the date of grant related to certain options granted in
1999. The compensation expense is being recognized over the option
vesting period of four years.
A summary of all option activity under the Plan is as follows:
1999 1998
SHARES PRICE SHARES PRICE
Options outstanding at January 1 2,173,671 $ 0.05 1,623,671 $ 0.05
Options granted 220,000 0.10 550,000 0.04
Options exercised (15,476) 0.04 - -
Options canceled (92,143) 0.08 - -
-------------- ---------------
Outstanding at December 31 2,286,052 $ 0.05 2,173,671 $ 0.05
-------------- ---------------
-------------- ---------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE AT
AT DECEMBER 31, 1999 DECEMBER 31, 1999
---------------------------------------------------- ----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE
$ 0.04 1,823,671 6.30 $ 0.04 1,705,457 $ 0.04
0.10 462,381 8.28 0.10 169,048 0.10
--------------- ----------------
2,286,052 6.70 $ 0.05 1,874,505 $ 0.04
--------------- ----------------
--------------- ----------------
8
FAIR VALUE DISCLOSURES
The Company calculated the fair value of each option grant on the date of
grant using the following assumptions:
DECEMBER 31,
1999 1998
Dividend yield 0% 0%
Expected volatility 92% 92%
Risk free rate of return 5.5% 5.5%
Expected life 4 2
Using these assumptions, the Company determined that the fair value of
options granted in 1999 and 1998 was $0.66 and $0.08, respectively. Had
compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards
under a method prescribed by SFAS 123, the Company's net loss would have
been increased to the pro forma amounts indicated below:
YEARS ENDED DECEMBER 31,
1999 1998
Net loss:
As reported $ (534,158) $ (200,839)
----------------- -----------------
----------------- -----------------
Pro forma $ (543,065) $ (204,414)
----------------- -----------------
----------------- -----------------
During fiscal years ended 1999 and 1998, the Company granted options to
purchase 20,000 shares and 300,000 shares of Common Stock to consultants
in conjunction with services performed. The Company calculated the fair
value of the options on date of grant and recorded deferred compensation
expense of $115,000 and $16,500, respectively, in the financial
statements.
9. SUBSEQUENT EVENTS
On July 14, 2000, SBE, Inc. ("SBE") acquired all of the outstanding
shares of the Company in exchange for 316,101 shares of SBE common stock.
SBE also assumed all outstanding options to purchase Common Stock of the
Company. All of the Company's outstanding options at the time of the
acquisition were converted to options to purchase shares of SBE and are
exercisable for up to 108,957 shares of SBE Common Stock. All of the
outstanding Convertible Preferred Stock at the time of acquisition were
converted to Common Stock on a one-to-one exchange. For financial
reporting purposes, it is intended that the SBE acquisition of the
Company be accounted for as a "pooling of interests."
9
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Introduction to Pro forma Financial Information
On July 14, 2000, SBE, Inc. ("SBE" or the "Company") acquired LAN Media
Corporation ("LMC"), a privately held wide area networking adapter company
headquartered in Sunnyvale, California. In connection with the acquisition, SBE
issued approximately 316,000 shares of its common stock for all LMC's
outstanding common stock. SBE also assumed all outstanding options to acquire
LMC common stock. The acquisition was accounted for under Accounting Principles
Board Opinion No. 16 and the following unaudited pro forma condensed combined
statements of operations have been prepared to give effect to the merger, using
the pooling of interests method of accounting.
The unaudited pro forma condensed combined statements of operations have been
presented for illustrative purposes only and are not necessarily indicative of
the results of operations that would have actually been reported had the merger
occurred at the beginning of the periods presented, nor is it necessarily
indicative of future results of operations. These unaudited pro forma condensed
combined statements of operations, including the notes thereto are qualified in
their entirety by reference to and should be read in conjunction with, the
respective historical consolidated financial statements and notes thereto of SBE
incorporated by reference in this Form 8-K and the historical financial
statements and notes thereto of LMC included herein. The unaudited pro forma
information neither includes nor assumes any benefits from cost or operational
savings resulting from the merger.
The unaudited pro forma condensed combined statements of operations for all
periods presented give effect to the merger as if it had occurred on November 1,
1996. The fiscal years of SBE and LMC are different. For the purpose of the
unaudited pro forma condensed combined statements of operations, LMC's
statements of operations for the twelve month periods ended October 31, 1999,
1998 and 1997 have been combined with SBE's consolidated statements of
operations for its fiscal years ended October 31, 1999, 1998 and 1997,
respectively.
10
SBE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
PRO FORMA
SBE LMC ADJUSTMENTS PRO FORMA
Net sales $ 18,022 $ 1,832 $ - $ 19,854
Cost of sales 6,688 934 - 7,622
--------------- --------------- ---------------- ----------------
Gross profit 11,334 898 - 12,232
Product research and development 4,634 533 - 5,167
Sales and marketing 3,950 555 - 4,505
General and administrative 2,820 217 - 3,037
--------------- --------------- ---------------- ----------------
Total operating expenses 11,404 1,305 - 12,709
--------------- --------------- ---------------- ----------------
Operating loss (70) (407) - (477)
Interest and other income, net 223 3 - 226
--------------- --------------- ---------------- ----------------
Income (loss) before income taxes 153 (404) - (251)
Provision for income taxes (2) (1) - (3)
--------------- --------------- ---------------- ----------------
Net income (loss) $ 151 $ (405) $ - $ (254)
--------------- --------------- ---------------- ----------------
--------------- --------------- ---------------- ----------------
Basic earnings (loss) per share $ 0.05 $ (0.08)
--------------- ----------------
--------------- ----------------
Diluted earnings (loss) per share $ 0.05 $ (0.08)
--------------- ----------------
--------------- ----------------
Basic - shares used in per share
computations 2,849,349 316,000 3,165,349
--------------- ---------------- ----------------
--------------- ---------------- ----------------
Diluted - shares used in per share
computations 2,908,613 316,000 3,224,613
--------------- ---------------- ----------------
--------------- ---------------- ----------------
The accompanying notes are an integral part of this unaudited pro forma
financial statement.
11
SBE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
PRO FORMA
SBE LMC ADJUSTMENTS PRO FORMA
Net sales $ 18,985 $ 2,139 $ - $ 21,124
Cost of sales 7,518 1,467 - 8,985
--------------- --------------- ---------------- ----------------
Gross profit 11,467 672 - 12,139
Product research and development 3,592 257 - 3,849
Sales and marketing 4,295 392 - 4,687
General and administrative 3,268 218 - 3,486
--------------- --------------- ---------------- ----------------
Total operating expenses 11,155 867 - 12,022
--------------- --------------- ---------------- ----------------
Operating income (loss) 312 (195) - 117
Interest and other income, net 100 14 - 114
--------------- --------------- ---------------- ----------------
Income (loss) before income taxes 412 (181) - 231
Provision for income taxes (32) - - (32)
--------------- --------------- ---------------- ----------------
Net income (loss) $ 380 $ (181) $ - $ 199
--------------- --------------- ---------------- ----------------
--------------- --------------- ---------------- ----------------
Basic earnings per share $ 0.14 $ 0.07
--------------- ----------------
--------------- ----------------
Diluted earnings per share $ 0.13 $ 0.06
--------------- ----------------
--------------- ----------------
Basic - shares used in per share
computations 2,666,707 316,000 2,982,707
--------------- ---------------- ----------------
--------------- ---------------- ----------------
Diluted - shares used in per share
computations 2,890,740 316,000 3,206,740
--------------- ---------------- ----------------
--------------- ---------------- ----------------
The accompanying notes are an integral part of this unaudited pro forma
financial statement.
12
SBE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
PRO FORMA
SBE LMC ADJUSTMENTS PRO FORMA
Net sales $ 24,970 $ 1,725 $ - $ 26,695
Cost of sales 12,152 1,445 - 13,597
--------------- --------------- ---------------- ----------------
Gross profit 12,818 280 - 13,098
Product research and development 2,808 146 - 2,954
Sales and marketing 3,834 174 - 4,008
General and administrative 3,687 80 - 3,767
--------------- --------------- ---------------- ----------------
Total operating expenses 10,329 400 - 10,729
--------------- --------------- ---------------- ----------------
Operating income (loss) 2,489 (120) - 2,369
Interest and other income, net 762 18 - 780
--------------- --------------- ---------------- ----------------
Income (loss) before income taxes 3,251 (102) - 3,149
Benefit from (provision for) income
taxes 82 (2) - 80
--------------- --------------- ---------------- ----------------
Net income (loss) $ 3,333 $ (104) $ - $ 3,229
--------------- --------------- ---------------- ----------------
--------------- --------------- ---------------- ----------------
Basic earnings per share $ 1.33 $ 1.15
--------------- ----------------
--------------- ----------------
Diluted earnings per share $ 1.23 $ 1.07
--------------- ----------------
Basic - shares used in per share
computations 2,501,786 316,000 2,817,786
--------------- ---------------- ----------------
--------------- ---------------- ----------------
Diluted - shares used in per share
computations 2,703,423 316,000 3,019,423
--------------- ---------------- ----------------
--------------- ---------------- ----------------
The accompanying notes are an integral part of this unaudited pro forma
financial statement.
13
SBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
These pro forma condensed combined statements of operations of SBE, Inc.
("SBE" or the "Company") are unaudited and include all adjustments,
consisting of normal recurring adjustments, that are, in the opinion of
management, necessary for a fair presentation of the results of
operations for the periods presented. The condensed combined statements
of operations of the Company include the results of operations of LAN
Media Corporation ("LMC"), which the Company acquired on July 14, 2000.
The merger was accounted for as a pooling of interests, and accordingly,
financial statements presented for all periods have been restated to
reflect combined operations.
The unaudited pro forma condensed combined statements of operations give
effect to the pooling as if it had been completed on November 1, 1996.
Certain information and footnote disclosures normally contained in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated statements of operations should be read in conjunction with
the financial statements and notes contained in the Company's Annual
Report on Form 10-K for the year ended October 31, 1999 and the
historical financial statements and notes thereto of LMC included herein.
2. PRO FORMA EARNINGS (LOSS) PER COMMON SHARE
The pro forma earnings (loss) per common share is based on the weighted
average number of common shares of SBE outstanding for each of the three
years in the period ended October 31, 1999 plus the 316,000 shares of
common stock issued to LMC as if such shares had been issued on November
1, 1996. The dilutive effect of common share equivalents has not been
included during the year ended October 31, 1999 since the pro forma
combined condensed statement of operations reflect net loss for that
period.
14
(c) The following exhibits are included with this report:
EXHIBIT NUMBER EXHIBIT
5.1* Agreement and Plan of Merger, dated as of July 14, 2000, by
and among SBE, Inc., Telecom Acquisition Sub, Inc., LAN
Media Corporation, and the shareholders of LAN Media
Corporation.
5.2* Registration Rights Agreement, dated as of July 14, 2000, by
and among SBE, Inc. and the shareholders of LAN Media
Corporation.
5.3* Escrow Agreement, dated as of July 14, 2000, by and among
SBE, Inc., Ronald C. Crane as agent for the shareholders of
LMC, and State Street Bank and Trust Company of California.
5.4* Employment Agreement, dated as of July 14, 2000, by and
between Ron Crane and SBE, Inc.
*Previously filed.
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SBE, INC.
Dated: September _____, 2000 By: /s/ Timothy J. Repp
-----------------------------------
Timothy J. Repp
Chief Financial Officer and
Vice President, Finance
16