EXHIBIT 99.2
MAGNIFIRE WEBSYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2004
U.S. DOLLARS IN THOUSANDS
UNAUDITED
INDEX
PAGE
----
CONSOLIDATED BALANCE SHEETS 2
CONSOLIDATED STATEMENTS OF OPERATIONS 3
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 - 8
- - - - - - - - - -
MAGNIFIRE WEBSYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
MARCH 31, DECEMBER 31,
2004 2003
--------- ------------
UNAUDITED AUDITED
--------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 901 $ 1,157
Restricted cash 76 78
Inventory 83 80
Accounts receivable and prepaid expenses 73 63
-------- --------
Total current assets 1,133 1,378
-------- --------
SEVERANCE PAY FUND 170 170
-------- --------
PROPERTY AND EQUIPMENT, NET 90 105
-------- --------
$ 1,393 $ 1,653
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Trade payables $ 232 $ 209
Employees and payroll accruals 150 123
Other accounts payable and accrued expenses 102 99
Deferred revenues 8 -
-------- --------
Total current liabilities 492 431
-------- --------
ACCRUED SEVERANCE PAY 176 174
-------- --------
CONVERTIBLE PROMISSORY NOTE 2,089 1,608
-------- --------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Share capital -
Convertible Preferred A stock of $ 0.01 par value: Authorized: 5,658,720
shares as of March 31, 2004 and 2003 and December 31, 2003; Issued and
outstanding: 5,658,720 shares as of March 31, 2004 and 2003 and December
31, 2003; Liquidation preference of $ 6,735 as of March 31, 2004 57 57
Convertible Preferred B stock of $ 0.01 par value: Authorized: 7,899,225
shares as of March 31, 2004 and 2003 and December 31, 2003; Issued and
outstanding: 7,899,225 shares as of March 31, 2004 and 2003 and December
31, 2003; Liquidation preference of $ 3,102 as of March 31, 2004 79 79
Common stock of $ 0.01 par value: Authorized: 32,442,056 shares as of March
31, 2004 and 2003 and December 31, 2003; Issued and outstanding: 2,240,500
shares as of March 31, 2004 and 2003 and as of December 31, 2003 22 22
Deferred stock compensation (245) (264)
Additional paid-in capital 9,429 9,429
Deficit accumulated during the development stage (10,706) (9,883)
-------- --------
Total shareholders' equity (deficiency) (1,364) (560)
-------- --------
$ 1,393 $ 1,653
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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MAGNIFIRE WEBSYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. DOLLARS IN THOUSANDS
PERIOD FROM
JULY 15, 2000
THREE MONTHS ENDED (DATE OF INCEPTION)
MARCH 31, THROUGH
------------------------ MARCH 31,
2004 2003 2004
-------- -------- -------------------
UNAUDITED
------------------------
Revenues $ - $ 32 $ 32
Cost of revenues - 24 125
-------- -------- --------
Gross profit (loss) - 8 (93)
Operating expenses:
Research and development 384 504 6,690
Sales and marketing 364 278 3,597
General and administrative 52 20 300
-------- -------- --------
Operating loss 800 794 10,680
Financial expenses (income), net 23 (1) 17
Other expenses - - 9
-------- -------- --------
Net loss $ 823 $ 793 $ 10,706
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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MAGNIFIRE WEBSYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
DEFICIT
CONVERTIBLE CONVERTIBLE ACCUMULATED
COMMON STOCK PREFERRED A STOCK PREFERRED B STOCK DEFERRED ADDITIONAL DURING THE
---------------- ----------------- ------------------ STOCK PAID-IN DEVELOPMENT
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT COMPENSATION CAPITAL STAGE TOTAL
--------- ------ -------- ------ --------- ------ ------------ ---------- ----------- --------
Balance at July 15, 2000
(date of inception) - $ - - $ - - $ - $ - $ - $ - $ -
Issuance of shares in BVI - - - - - - - 1 - 1
Net loss - - - - - - - - (363) (363)
--------- ---- --------- ---- --------- ----- --------- -------- --------- -------
Balance at December 31, 2000 - $ - - $ - - $ - $ - $ 1 $ (363) $ (362)
Exercise of stock options 1,300 *) - - - - - - - *) -
Issuance of convertible
Preferred A stock, net - - 4,517,672 45 - - - 5,104 - 5,149
Issuance of Common stock 110,725 1 - - - - - - - 1
Conversion of convertible
loans - - 267,827 3 - - - 772 - 775
Stock split effected as a
stock dividend 2,128,475 21 873,221 9 - - - (31) - (1)
Net loss - - - - - - - - (2,248) (2,248)
--------- ---- --------- ---- --------- ----- -------- -------- --------- -------
Balance at December 31, 2001 2,240,500 22 5,658,720 57 - - - 5,846 (2,611) 3,314
Issuance of Preferred B
stock, net - - - - 7,899,225 79 - 2,879 - 2,958
Stock-based compensation
related to options granted
to consultants - - - - - - - 30 - 30
Net loss - - - - - - - - (3,116) (3,116)
--------- ---- --------- ---- --------- ----- -------- -------- --------- -------
Balance at December 31, 2002 2,240,500 22 5,658,720 57 7,899,225 79 8,755 (5,727) 3,186
Deferred stock compensation - - - - - - (310) 310 - -
Amortization of deferred
stock compensation - - - - - - 46 - - 46
Stock-based compensation
related to options
granted to consultants - - - - - - 364 - 364
Net loss - - - - - - - (4,156) (4,156)
--------- ---- --------- ---- --------- ----- -------- -------- --------- -------
Balance at December 31, 2003 2,240,500 22 5,658,720 57 7,899,225 79 (264) 9,429 (9,883) (560)
Amortization of deferred
stock compensation - - - - - - 19 - - 19
Net loss - - - - - - - - (823) (823)
--------- ---- --------- ---- --------- ----- -------- -------- --------- -------
Balance at March 31, 2004
(unaudited) 2,240,500 $ 22 5,658,720 $ 57 7,899,225 $ 79 $ (245) $ 9,429 $ (10,706) $(1,364)
========= ==== ========= ==== ========= ===== ======== ======== ========= =======
*) Represent an amount lower than $ 1.
The accompanying notes are an integral part of the consolidated financial
statements.
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MAGNIFIRE WEBSYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. DOLLARS IN THOUSANDS
PERIOD FROM
JULY 15, 2000
THREE MONTHS ENDED (DATE OF INCEPTION)
MARCH 31, THROUGH
----------------------- MARCH 31,
2004 2003 2004
-------- -------- -------------------
UNAUDITED
-----------------------
Cash flows from operating activities:
Net loss $ (823) $ (793) $(10,706)
Adjustments required to reconcile loss to net cash used in
operating activities:
Depreciation 16 18 190
Gain on sale of property and equipment - - (5)
Increase in inventory (3) (38) (83)
Increase in accounts receivable and prepaid expenses (10) (55) (155)
Stock-based compensation in respect of warrants granted to
consultants - 1 395
Amortization of deferred stock compensation 19 - 65
Increase in trade payables 23 53 232
Increase in employees and payroll accruals 27 1 150
Increase (decrease) in other accounts payable and accrued
expenses 3 (25) 102
Increase in deferred revenues 8 - 90
Increase (decrease) in accrued severance pay, net 2 (13) 6
Accrued interest expenses on promissory note 11 - 19
-------- -------- --------
Net cash used in operating activities (727) (851) (9,700)
-------- -------- --------
Cash flows from investing activities:
Decrease (increase) in restricted cash 2 1 (76)
Purchase of property and equipment (1) (7) (318)
Proceeds from sale of property and equipment - - 43
-------- -------- --------
Net cash provided by (used in) investing activities 1 (6) (351)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of stock capital, net - - 8,107
Proceeds from convertible promissory note 470 - 2,890
Principal payment of long-term loan - - (45)
-------- -------- --------
Net cash provided by financing activities 470 - 10,952
-------- -------- --------
Increase (decrease) in cash and cash equivalents (256) (857) 901
Cash and cash equivalents at beginning of period 1,157 3,328 -
-------- -------- --------
Cash and cash equivalents at end of period $ 901 $ 2,471 $ 901
======== ======== ========
Supplemental disclosure of non-cash investing and financing
activities:
Issuance of Preferred stock upon conversion of conversion
promissory notes $ - $ - $ (775)
======== ======== ========
Issuance of shares without consideration $ - $ - $ (1)
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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MAGNIFIRE WEBSYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. DOLLARS IN THOUSANDS
NOTE 1:- GENERAL
a. Magnifire Websystems Inc. (the Company") was incorporated and
commenced its operations in the State of Delaware on January 29,
2001. The Company is engaged in the development of solutions for
Internet security applications.
b. The Company's wholly-owned subsidiary was incorporated on November
15, 2000, under the name Magnifire Networks Limited (a British
Virgin Islands corporation). Its wholly-owned subsidiary was
incorporated and commenced its operations on July 15, 2000 under
the name Magnifire Networks (Israel) Limited.
c. Magnifire Networks Limited (BVI) repurchased all of its shares from
its stockholders on January 30, 2001 and issued 100 shares par
value of $ 0.01 each to Magnifire Websystems Inc. (see Note 7c).
The Company issued 100% of its issued and outstanding share capital
to the original stockholders of Magnifire Networks Limited (BVI).
d. The Company and its subsidiaries are devoting substantially all of
their efforts toward conducting research, development and marketing
of their software. The Company's and its subsidiaries' activities
also include raising capital and recruiting personnel. In the
course of such activities, the Company and its subsidiaries have
sustained operating losses and expect such losses to continue in
the foreseeable future. The Company and its subsidiaries have not
generated sufficient revenues and have not achieved profitable
operations or positive cash flow from operations. The Company's
accumulated deficit aggregated to $ 10,706 thousand as of March 31,
2004. The Company has a shareholder's deficiency of $ 1,364
thousand. There is no assurance that profitable operations, if ever
achieved, could be sustained on a continuing basis.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States
("U.S. GAAP").
a. Use of estimates:
The preparation of the financial statements in conformity with
generally accepted accounting principles, requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
b. The significant accounting policies applied in the annual financial
statements of the Company as of December 31, 2003, are applied
consistently in these interim financial statements.
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MAGNIFIRE WEBSYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. DOLLARS IN THOUSANDS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
c. Deferred revenue includes unearned amounts received under
maintenance and support contracts, and amounts received from
customers but not recognized as revenues.
d. For further information, refer to the consolidated financial
statements as of December 31, 2003.
e. Accounting for stock-based compensation:
Under SFAS No. 123, "Accounting for Stock Based Compensation"
("SFAS No. 123"), pro forma information regarding net loss and net
loss per share is required, and has been determined as if the
Company had accounted for its employee stock options under the fair
value method of that Statement. The fair value for these options
was estimated at the date of grant using a minimal value
option-pricing model with the following weighted-average
assumptions:
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
---------------------- DECEMBER 31,
2004 2003 2003
------- -------- ------------
UNAUDITED
----------------------
Risk-free interest rates 1% 1.5% 1.5%
Dividend yields 0% 0% 0%
Expected life 4 4 4
Pro forma information under SFAS 123:
Net loss as reported $ 823 $ 793 $ 4,061
Add: stock based employee compensation -
intrinsic value 19 - 46
Deduct: stock-based employee - fair value (21) 1 (48)
------- ------- -------
Pro forma net loss $ 821 $ 794 $ 4,059
======= ======= =======
The Company adopted the disclosure provisions of Financial
Accounting Standards Board Statement No. 148, "Accounting for
Stock-Based Compensation - transition and disclosure" ("SFAS No.
148"), which amended certain provisions of SFAS 123 to provide
alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for
stock-based employee compensation, effective as of the beginning of
the fiscal year. The Company continues to apply the provisions of
APB No. 25, in accounting for stock-based compensation.
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MAGNIFIRE WEBSYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. DOLLARS IN THOUSANDS
NOTE 3:- UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31,
2004, are not necessarily indicative of the results that may be
expected for the year ended December 31, 2004.
NOTE 4:- SUBSEQUENT EVENT
On May 31, 2004, the Company was acquired by F5 Networks Inc., in
consideration of $ 29,000, in cash.
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