1
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 (Date of earliest event reported) February 16, 2001
-------------------------------------------------------------------
NETSILICON, INC.
----------------
(Exact name of registrant as specified in charter)
Massachusetts 0-26761 04-2826579
- ---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
411 Waverley Oaks Rd., Bldg. 227, Waltham, MA
02452
-----
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code 781-647-1234
---------------------------------------------------------------
NOT APPLICABLE
--------------
(Former name or former address, if changed since last report.)
2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
On March 2, 2001, NetSilicon, Inc. ("NetSilicon") filed a Form 8-K to report its
acquisition of Dimatech Corporation ("Dimatech"). NetSilicon purchased all of
the equity securities of Dimatech pursuant to a Stock Purchase Agreement, dated
as of February 16, 2001, by and among Dimatech, Hiroyuki Kataoka and NetSilicon.
Pursuant to Item 7 of Form 8-K, NetSilicon indicated that it would file certain
financial information no later than the date required by Item 7 of Form 8-K.
This Amendment No. 1 is filed to provide the required financial information.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
NetSilicon, Inc.
We have audited the accompanying balance sheets of NetSilicon Japan, Inc.
(formerly named Dimatech Corporation) as of October 31, 2000 and December 31,
1999, and the related statements of income, shareholders' equity and cash flows
for the ten month period ended October 31, 2000 and the year ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NetSilicon Japan, Inc. at
October 31, 2000 and December 31, 1999, and the results of its operations and
its cash flows for the ten month period ended October 31, 2000, and the year
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States of America.
BDO Sanyu & Co.
Tokyo, Japan
March 16, 2001
3
NETSILICON JAPAN, INC.
BALANCE SHEETS
OCTOBER 31, DECEMBER 31,
2000 1999
================================================================================
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,339,844 $ 1,428,908
Trade accounts receivable (Note 3) 2,372,720 796,765
Less allowance for doubtful receivables 21,494 9,228
- --------------------------------------------------------------------------------
Net trade accounts receivables 2,351,226 787,537
Inventories 390,284 167,507
Deferred income taxes (Note 5) 9,800 11,757
Prepaid expenses and others - 90,376
- --------------------------------------------------------------------------------
Total current assets 4,091,154 2,486,085
- --------------------------------------------------------------------------------
NONCURRENT ASSETS:
Property, plant and equipment:
Leasehold improvements 7,369 7,848
Motor vehicles - 33,978
Furniture and fixtures 29,564 23,026
- --------------------------------------------------------------------------------
36,933 64,852
Less accumulated depreciation 25,492 15,695
- --------------------------------------------------------------------------------
Net property, plant and equipment 11,441 49,157
- --------------------------------------------------------------------------------
OTHER ASSETS:
Lease deposits 51,939 54,970
Refundable insurance premiums 178 189
Long-term prepaid expenses and others 3,032 5,575
- --------------------------------------------------------------------------------
55,149 60,734
- --------------------------------------------------------------------------------
Total noncurrent assets 66,590 109,891
- --------------------------------------------------------------------------------
Total assets $ 4,157,744 $ 2,595,976
================================================================================
See accompanying notes to financial statements.
4
NETSILICON JAPAN, INC.
BALANCE SHEETS
OCTOBER 31, DECEMBER 31,
2000 1999
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4) $ - $ 136,641
Trade accounts payable (Note 3) 1,969,831 888,243
Other payables 432,773 100,322
Dividend payable (Notes 3 and 6) 550,206 -
Consumption tax payable 8,484 125,018
Income tax payable (Note 5) 329,770 489,384
- --------------------------------------------------------------------------------
Total current liabilities 3,291,064 1,739,608
NONCURRENT LIABILITIES:
Long-term debt (Note 4) - 201,934
- --------------------------------------------------------------------------------
Total liabilities 3,291,064 1,941,542
- --------------------------------------------------------------------------------
CONTINGENCIES AND COMMITMENTS (Note 7)
SHAREHOLDERS' EQUITY:
Common stock, $432 par value, 800 shares
authorized, 200 shares issued and outstanding 86,430 86,430
Retained earnings (Note 6) 754,571 502,417
Accumulated other comprehensive income 25,679 65,587
- --------------------------------------------------------------------------------
Total shareholders' equity 866,680 654,434
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 4,157,744 $ 2,595,976
================================================================================
See accompanying notes to financial statements.
5
NETSILICON JAPAN, INC.
STATEMENTS OF INCOME
FOR THE
TEN MONTH FOR THE
ENDED YEAR ENDED
OCTOBER 31, DECEMBER 31,
2000 1999
================================================================================
NET SALES AND COMMISSION INCOME $11,541,506 $9,368,061
- --------------------------------------------------------------------------------
COST OF SALES (Note 3) 8,130,276 7,505,069
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 3) 2,218,800 868,786
- --------------------------------------------------------------------------------
Total cost and expenses 10,349,076 8,373,855
- --------------------------------------------------------------------------------
OPERATING INCOME 1,192,430 994,206
- --------------------------------------------------------------------------------
OTHER INCOME (EXPENSES):
Interest income 4,485 1,430
Interest expenses (10,727) (23,711)
Exchange gain (loss), net 188,434 (67,739)
- --------------------------------------------------------------------------------
Other income (expense), net 182,192 (90,020)
- --------------------------------------------------------------------------------
NET INCOME BEFORE TAX 1,374,622 904,186
- --------------------------------------------------------------------------------
INCOME TAXES (Note 5):
Current 571,022 458,986
Deferred 1,240 (10,158)
- --------------------------------------------------------------------------------
572,262 448,828
- --------------------------------------------------------------------------------
NET INCOME $ 802,360 $ 455,358
================================================================================
NET INCOME PER SHARE $ 4,012 $ 2,277
================================================================================
See accompanying notes to financial statements.
6
NETSILICON JAPAN, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
OTHER TOTAL
COMMON RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
STOCK EARNINGS INCOME EQUITY INCOME
==================================================================================================================
BALANCE AT DECEMBER 31, 1998 $ 86,430 $ 47,059 $ - $ 133,489
Net income - 455,358 - 455,358 $455,358
Foreign currency translation adjustments - - 65,587 65,587 65,587
--------
Comprehensive income - - - - $520,945
========
- ------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 86,430 502,417 65,587 654,434 -
Net income - 802,360 - 802,360 $802,360
Dividends declared (Notes 3 and 6) - (550,206) - (550,206)
Foreign currency translation adjustments - - (39,908) (39,908) (39,908)
--------
Comprehensive income - - - - $762,452
========
- ------------------------------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 31, 2000 $ 86,430 $ 754,571 $ 25,679 $ 866,680
==================================================================================================================
See accompanying notes to financial statements.
7
NETSILICON JAPAN, INC.
STATEMENTS OF CASH FLOWS
FOR THE
TEN MONTHS FOR THE
ENDED YEAR ENDED
OCTOBER 31, DECEMBER 31,
2000 1999
===========================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 802,360 $ 455,358
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization 21,012 13,200
Allowance for doubtful accounts 12,829 3,868
Exchange gain (34,425) (4,420)
Loss on sales of property, plant and equipment 232 9,360
Deferred income tax 1,240 (10,159)
Decrease (increase) in assets:
Trade accounts receivable (1,624,542) (334,276)
Inventories (232,992) (5,577)
Prepaid expenses and other 84,865 (38,116)
Increase (decrease) in liabilities:
Trade accounts payable 1,135,754 46,044
Income taxes payable (129,771) 412,801
Consumption tax payable (108,910) 111,959
Other payable 338,568 53,728
- -------------------------------------------------------------------------------------------
Net cash provided by operating activities 266,220 713,770
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (7,943) (56,321)
Proceeds from sale of property, plant and equipment 21,416 16,777
Other non-current assets 1,882 (44,528)
- -------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 15,355 (84,072)
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase of debts - 353,200
Repayments of debts (317,928) (52,627)
- -------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (317,928) 300,573
- -------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (52,711) 148,888
NET CHANGE IN CASH AND CASH EQUIVALENTS (36,353) 930,271
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 1,428,908 349,749
- -------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 1,339,844 $1,428,908
===========================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes $ 700,793 $ 51,079
Interest paid $ 10,727 $ 26,223
See accompanying notes to financial statements.
8
NETSILICON JAPAN, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
Basis of Financial NetSilicon Japan, Inc. (the "Company") maintains
Statements its books of account in conformity with the
financial accounting standards of Japan. The
financial statements presented herein have been
prepared in a manner to reflect the adjustments
which are necessary to conform them with the
generally accepted accounting principles of the
United States.
Use of Estimates Management of the Company has made a number of
estimates and assumptions related to the reporting
of assets, liabilities, revenues and expenses, and
the disclosure of contingent assets and
liabilities to prepare these financial statements
in conformity with generally accepted accounting
principles of the United States. Actual results
could differ from those estimates.
Revenue Recognition Sales of products are recognized when products are
delivered to customers. Commission income is
mainly comprised of territory commissions, which
the Company earns if suppliers sell products
directly or indirectly to Japanese manufacturers.
Commission income is mainly recognized when
suppliers submit sales reports of the products to
the Company.
Cash and Cash and cash equivalents include cash on hand,
Cash Equivalents demand deposits with banks and all highly liquid
investments with original maturities of three
months or less.
Inventories Inventories are stated at cost, which is
substantially determined by the individual
identification method.
Foreign Currency Transactions in foreign currencies are translated
Transactions at the rates ruling on the dates of the
transactions. Monetary assets and liabilities
denominated in foreign currencies are converted at
the rates ruling on the balance sheet date. Gains
and losses arising on exchange are dealt with in
the profit and loss account (see Note 2).
9
NETSILICON JAPAN, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
(Continued)
Property, Equipment Property and equipment are stated at cost. Normal
and Depreciation maintenance and repair costs are charged to income
as incurred, and costs for improvements, which
substantially increase the useful lives of
existing assets, are capitalized. The costs of
minor additions are charged to operations when
acquired. Gains and losses on disposal of fixed
assets are included in income when incurred.
Depreciation is computed using the declining
balance method. The following lives were used in
computing annual depreciation expense:
Category Years
==================================================
Leasehold improvements 7
Furniture and fixtures 3
Machinery and equipment 2-4
Income Taxes Income taxes are accounted for under the asset and
liability method. Deferred tax assets and
liabilities are recognized for the future tax
consequences attributable to differences between
the financial statement carrying amounts of
existing assets and liabilities and their
respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates
expected to apply to taxable income in the years
in which those temporary differences are expected
to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax
rates is recognized in income in the period that
includes the enactment date.
10
NETSILICON JAPAN, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
2. BASIS OF Monetary assets and liabilities are translated into
TRANSLATING United States dollars at year-end exchange rates and
FINANCIAL non-monetary items are translated at historical rates.
STATEMENTS Revenues and expenses are translated at average
exchange rates in effect during the period. Resulting
translation adjustments are recorded as a component of
accumulated other comprehensive income in shareholders'
equity.
3. RELATED PARTY Mr. Hiroyuki Kataoka, a former Representative Director,
TRANSACTIONS established the Company in March 1991. He resigned as a
director on October 10, 2000, however at October 31,
2000, Mr. Hiroyuki Kataoka substantially wholly owned
the shares of the Company. Transactions between the
Company and Mr. Kataoka, except for his remuneration,
were summarized as follows:
OCTOBER 31, DECEMBER 31,
2000 1999
==============================================================
Sale of a motor vehicle at price
of its net book value $ 21,416 $ -
Retirement benefits approved at
the extraordinary shareholders'
meeting held on October 10, 2000 $1,063,732 $ -
Cash dividends payable $ 550,206 $ -
Mr. Noriaki Morikawa was a director of the Company and
in charge of the Company's day to day operations
through the end of 2000, although he resigned as a
director on February 16, 2001. He is engaged in another
company named Zizco Corporation. Zizco Corporation is
wholly-owned by him. The Company did not pay his
remuneration, but instead paid a commission to Zizco
Corporation, which amounted to $139,844 and $84,775 for
the ten month ended October 31, 2000 and the year ended
December 31, 1999, respectively. Zizco Corporation
shares office space with the Company, and paid rental
fees to the Company, which amounted to $19,087 and
$12,651 for the ten month ended October 31, 2000 and
the year ended December 31, 1999, respectively.
11
NETSILICON JAPAN, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
3. RELATED PARTY Mr. Scott A. Keller was a director of the Company and
TRANSACTIONS in-charge of the Company's R & D activities through the
(Continued) end of 1999. He was engaged in another company named
Imagine-It, Inc. The Company did not pay his
remuneration, but instead paid a commission to
Imagine-It, Inc. in amount of $60,070 for the year
ended December 31, 1999. Since 2000, there have no
longer been transactions between the Company and
Imagine-It, Inc. He resigned as a director on February
16, 2001.
In the course of the acquisition of the Company by
NetSilicon, Inc., on February 16, 2001, Mr. Hiroyuki
Kataoka exchanged his shares of the Company for 241,667
shares of NetSilicon, Inc. and cash amounting to US
$250,000.
4. LOANS PAYABLE Loans payable as of December 31, 1999 consisted of bank
loans with floating interest rates based on the `Prime
Rate'. These bank loans were in the form of a financing
agreement, which requires the Company to pay monthly
installments. The interest rates were 2.5% - 3.025%. In
addition, the Company paid 0.5% - 0.95% guarantee fees
to a Government financial institution. Mr. Hiroyuki
Kataoka, a former Representative Director, personally
guaranteed the bank loans.
During 2000, the Company repaid the loans before their
maturities.
5. INCOME TAXES The Company is subject to a number of different taxes
based on income, which in the aggregate resulted in a
normal tax rate of approximately 42.0% in 2000 and
47.5% in 1999.
The effective income tax rates differ from the normal
rates for the following reasons:
OCTOBER 31, DECEMBER 31,
2000 1999
===================================================================
Normal income tax rates 42.0% 47.5%
Expenses not deductible for tax
purposes 0.1 0.1
Effect on change in tax rates - 0.2
Tax on retained earnings for
private companies - 2.2
Effect on reduced tax rates applied
for small companies (0.5) (0.4)
--------------------------------------------------------------------
Effective tax rates 41.6% 49.6%
===================================================================
12
NETSILICON JAPAN, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
5. INCOME TAXES The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and
liabilities at October 31, 2000 and December 31, 1999
are presented as follows:
OCTOBER 31, DECEMBER 31,
2000 1999
================================================================
Deferred tax assets:
Accrued business tax $ 31,357 $ 42,048
Accrued salaries - 2,547
Allowance for doubtful receivables 9,028 -
Others 38 -
----------------------------------------------------------------
40,423 44,595
----------------------------------------------------------------
Deferred tax liabilities:
Prepaid office rent - 32,838
Exchange gains 30,623 -
----------------------------------------------------------------
30,623 32,838
----------------------------------------------------------------
Net deferred tax assets $ 9,800 $ 11,757
================================================================
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not
that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those
temporary differences become deductible. Management
considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based
upon the level of historical taxable income and
projections for future taxable income over the periods
which the deferred tax assets are deductible,
management believes it is more likely than not that the
Company will realize the benefit of these deductible
differences at October 31, 2000 and December 31, 1999.
13
NETSILICON JAPAN, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
6. DIVIDENDS AND LEGAL The Japanese Commercial Code provides that earnings in
RESERVES an amount equal to at least 10% of all appropriations
of retained earnings that are paid in cash, such as
cash dividends and bonuses to directors, shall be
appropriated as a legal reserve until such reserve
equals 25% of stated capital. This reserve is not
available for dividends and bonuses to directors but
may be used to reduce a deficit or may be transferred
to stated capital.
Cash dividends of $550,206 and appropriations to the
legal reserves of $22,925 are included in retained
earnings for the ten month ended October 31, 2000.
7. CONTINGENCIES AND The Company leases space for its head office and
COMMITMENTS parking. Leases of space are under the conditions of
operating lease agreements cancelable on demand by
writing 6 months prior to expiration of these
agreements, but are expected to be renewed due to the
Company's continued business operations.
Rental expenses paid and accrued under all the above
lease agreements for the ten months ended October 31,
2000 and the year ended December 31, 1999 were charged
to income in the amount of $73,418 and $46,366,
respectively.
Receivables factored, but not matured as of the end of
the fiscal period 2000 and 1999 amounted to $361,978
and $1,217,517, respectively.
14
(b) PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited pro forma combined financial statements contain
certain restated financial information. The financial information reflects
the combined pro forma financial position and results of operations of
NetSilicon, Inc. ("NetSilicon") and Dimatech Corporaton ("Dimatech"), for
all periods presented, giving effect to NetSilicon's acquisition of
Dimatech as if it had occurred on October 28, 2000 for balance sheet
purposes and at February 1, 1999 for purposes of preparing the combined
statements of operations. The accompanying Pro Forma Combined Statement of
Operations (the "Pro Forma Statement of Operations") for the year ended
January 31, 2000 reflects the results of operations of Netsilicon for the
year ended January 31, 2000 combined with the results of operations of
Dimatech for the year ended December 31, 1999. The Pro Forma Statement of
Operations for the nine month period ended October 28, 2000 reflects the
operations of NetSilicon for the nine month period ended October 28, 2000
combined with the results of operations of Dimatech for the nine month
period ended October 31, 2000. The unaudited Pro Forma Combined Balance
Sheet (the "Pro Forma Balance Sheet") at October 28, 2000 reflects the
balance sheet of NetSilicon at October 28, 2000 combined with the balance
sheet of Dimatech at October 31, 2000. The pro forma adjustments included
in the pro forma financial statements do not include adjustments to align
the fiscal periods of NETsilicon and Dimatech as these adjustments would
not have a significant impact on the pro forma financial statements.
The unaudited pro forma combined financial statements are presented for
illustrative purposes only and are not necessarily indicative of future
operating results or financial position.
15
NETSILICON, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
NETSILICON DIMATECH PRO FORMA
OCTOBER 28, OCTOBER 31, ADJUSTMENTS PRO FORMA
2000 2000 (NOTE 4) COMBINED
------------ ------------ ----------- ------------
ASSETS
CURRENT ASSETS
Cash and equivalents .................... $ 7,091,200 $ 1,339,900 $ (250,000)(a) $ 8,181,100
Short-term investments .................. 8,068,100 -- -- 8,068,100
Accounts receivable, net ................ 5,547,400 2,351,200 (1,745,300)(b) 6,153,300
Inventory, net .......................... 6,604,100 390,300 (195,150)(c) 6,799,250
Prepaid expenses and other current assets 1,710,300 9,800 -- 1,720,100
------------ ------------ ----------- ------------
TOTAL CURRENT ASSETS ................. 29,021,100 4,091,200 (2,190,450) 30,921,850
PROPERTY AND EQUIPMENT, NET ................. 2,527,600 11,400 -- 2,539,000
INTANGIBLE ASSETS, NET ...................... 2,499,400 -- 622,400 (d) 3,121,800
OTHER ASSETS ................................ 2,117,100 55,100 -- 2,172,200
------------ ------------ ----------- ------------
TOTAL ASSETS ................................ $ 36,165,200 $ 4,157,700 $(1,568,050) $ 38,754,850
============ ============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ........................ $ 4,392,100 $ 1,969,800 $(1,745,300)(b) $ 4,616,600
Due to affiliate ........................ 223,000 -- -- 223,000
Dividend payable ........................ -- 550,200 -- 550,200
Income tax payable ...................... -- 329,800 -- 329,800
Other current liabilities ............... 3,400,000 441,200 -- 3,841,200
------------ ------------ ----------- ------------
TOTAL CURRENT LIABILITIES ............ 8,015,100 3,291,000 (1,745,300) 9,560,800
------------ ------------ ----------- ------------
STOCKHOLDER'S EQUITY
Preferred stock ......................... -- -- -- --
Common stock
Issued and outstanding:
Voting ............................... 62,800 86,400 (84,000)(a,e) 65,200
Non-voting ........................... 75,000 -- -- 75,000
Additional paid-In capital .............. 28,187,400 -- 1,236,700 (a) 29,424,100
Accumulated other comprehensive income .. 8,000 25,700 (25,700)(e) 8,000
Retained earnings (accumulated deficit) . (183,100) 754,600 (949,750)(c,e) (378,250)
------------ ------------ ----------- ------------
TOTAL STOCKHOLDERS' EQUITY ........... 28,150,100 866,700 177,250 29,194,050
------------ ------------ ----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .. $ 36,165,200 $ 4,157,700 $(1,568,050) $ 38,754,850
============ ============ =========== ============
See accompanying notes to pro forma combined financial statements.
16
NETSILICON, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED
-----------------------------------
PRO FORMA
NETSILICON DIMATECH ADJUSTMENTS PRO FORMA
OCTOBER 28, 2000 OCTOBER 31, 2000 (NOTE 4) COMBINED
---------------- ---------------- ------------ ------------
NET SALES ............................................ $ 29,554,600 $ 10,998,600 $(8,765,500)(f,g) $ 31,787,700
COST OF SALES ........................................ 12,069,700 7,677,200 (7,600,000)(f) 12,146,900
------------ ------------ ----------- ------------
GROSS MARGIN ..................................... 17,484,900 3,321,400 (1,165,500) 19,640,800
------------ ------------ ----------- ------------
OPERATING EXPENSES:
Selling and marketing ............................ 8,151,300 2,176,800 (1,165,500)(g) 9,162,600
Engineering, research and development ............ 4,693,500 -- -- 4,693,500
General and administrative ....................... 3,124,800 -- -- 3,124,800
Amortization of goodwill and purchased intangibles -- -- 93,400 (h) 93,400
------------ ------------ ----------- ------------
TOTAL OPERATING EXPENSES ..................... 15,969,600 2,176,800 (1,072,100) 17,074,300
------------ ------------ ----------- ------------
OPERATING INCOME ..................................... 1,515,300 1,144,600 (93,400) 2,566,500
Other income ..................................... 683,100 181,800 -- 864,900
------------ ------------ ----------- ------------
INCOME BEFORE TAXES ON INCOME ........................ 2,198,400 1,326,400 (93,400) 3,431,400
Taxes on income .................................. -- 572,300 -- 572,300
------------ ------------ ----------- ------------
NET INCOME (LOSS) .................................... $ 2,198,400 $ 754,100 $ (93,400) $ 2,859,100
============ ============ =========== ============
NET INCOME (LOSS) PER COMMON SHARE
Basic ........................................ $ 0.16 $ 0.21
============ ============
Diluted ...................................... $ 0.14 $ 0.18
============ ============
SHARES USED IN PER SHARE CALCULATION
Basic ........................................ 13,636,354 241,667 13,878,021
============ ============ ============
Diluted ...................................... 15,911,922 241,667 16,153,589
============ ============ ============
See accompanying notes to pro forma combined financial statements.
17
NETSILICON, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED
------------------------------------
PRO FORMA
NETSILICON DIMATECH ADJUSTMENTS PRO FORMA
JANUARY 31, 2000 DECEMBER 31, 1999 (NOTE 4) COMBINED
---------------- ----------------- ------------ ------------
NET SALES ............................................ $ 31,840,900 $ 9,368,100 $ (8,708,200)(f,g) $ 32,500,800
COST OF SALES ........................................ 15,422,900 7,505,100 (7,500,000)(f) 15,428,000
------------ ------------ ------------ ------------
GROSS MARGIN ..................................... 16,418,000 1,863,000 (1,208,200) 17,072,800
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling and marketing ............................ 7,560,300 868,800 (1,208,200)(g) 7,220,900
Engineering, research and development ............ 3,083,500 -- -- 3,083,500
General and administrative ....................... 3,550,500 -- -- 3,550,500
Amortization of goodwill and purchased intangibles -- -- 124,500 (h) 124,500
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES ...................... 14,194,300 868,800 (1,083,700) 13,979,400
------------ ------------ ------------ ------------
OPERATING INCOME ..................................... 2,223,700 994,200 (124,500) 3,093,400
Other income (expense) ........................... (206,100) (90,000) -- (296,100)
------------ ------------ ------------ ------------
INCOME BEFORE TAXES ON INCOME ........................ 2,017,600 904,200 (124,500) 2,797,300
Taxes on income .................................. -- 448,800 -- 448,800
------------ ------------ ------------ ------------
NET INCOME (LOSS) .................................... $ 2,017,600 $ 455,400 $ (124,500) $ 2,348,500
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE
Basic ......................................... $ 0.18 0.20
============ ============
Diluted ....................................... $ 0.17 $ 0.19
============ ============
SHARES USED IN PER SHARE CALCULATION
Basic ......................................... 11,326,600 241,667 11,568,267
============ ============ ============
Diluted ....................................... 11,978,200 241,667 12,219,867
============ ============ ============
See accompanying notes to pro forma combined financial statements.
18
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma combined financial statements and
related notes of NetSilicon are unaudited. In the opinion of management,
the pro forma financial statements include all adjustments necessary for a
fair presentation of NetSilicon's financial position and results of
operations for the periods presented. These financial statements should be
read in conjunction with the audited financial statements and accompanying
notes included in the Company's 2000 Form 10-K as filed with the Securities
and Exchange Commission (the "SEC") on May 1, 2000.
In accordance with the rules and regulations of the Securities and Exchange
Commission, unaudited combined financial statements may omit or condense
certain information and disclosures normally required for a complete set of
financial statements prepared in accordance with generally accepted
accounting principles. However, NetSilicon believes that the notes to the
combined financial statements contain disclosures adequate to make the
information presented not misleading.
The pro forma financial statements are prepared in conformity with
generally accepted accounting principles which require management to make
estimates that affect the reported amounts of assets, liabilities, revenues
and expenses, and the disclosure of contingent assets and liabilities.
Actual results could differ from these estimates.
The unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the future financial
position or future results of operations of NetSilicon after the
acquisition of Dimatech, or of the financial position or results of
operations of NetSilicon that would have actually occurred had the
acquisition of Dimatech been effected on February 1, 1999.
19
2. PERIODS PRESENTED
NetSilicon's fiscal year ends on January 31. Prior to the acquistion,
Dimatech's fiscal year ended December 31. The accompanying Pro Forma
Statements of Operations for the year ended January 31, 2000 reflect the
results of operations of NetSilicon for the year ended January 31, 2000
combined with the results of operations of Dimatech for the year ended
December 31, 1999. The Pro Forma Statements of Operations for the nine
month period ended October 28, 2000 reflect the operations of NetSilicon
for the nine month period ended October 28, 2000 combined with the results
of operations of Dimatech for the nine month period ended October 31, 2000.
The Pro Forma Balance Sheet at October 28, 2000 reflects the balance sheet
of NetSilicon at October 28, 2000 combined with the balance sheet of
Dimatech at October 31, 2000. The pro forma adjustments included in the pro
forma financial statements do not include adjustments to align the fiscal
periods of NetSilicon and Dimatech as these adjustments would not have a
significant impact on the pro forma financial statements.
3. PURCHASE PRICE ALLOCATION AND ACQUISITION COSTS
On February 16, 2001, NetSilicon purchased all of the equity securities of
Dimatech. Prior to the acquisition, Dimatech was a major distributor of
NetSilicon's product in Japan.
The purchase price has been allocated to the tangible and intangible assets
acquired and liabilities assumed on the basis of their respective fair
values on the acquisition date. The following represents a preliminary
allocation of the purchase price and is subject to change.
Cash............................ $ 761,400
Accounts receivable, net........ 1,017,900
Other tangible assets........... 161,800
Customer list................... 351,400
Workforce....................... 148,000
----------
Total purchase price............ $2,440,500
==========
The purchase price consists of 241,667 shares of the common stock of
NetSilicon valued at $1,239,100 based on the average NetSilicon stock price
during a period of five business days before and after the acquisition
date, $250,000 of cash and assumed liabilities of approximately $834,900.
NetSilicon incurred approximately $116,500 of costs associated with the
acquisition, including fees for legal, accounting and consulting.
4. PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been made to the historical
financial statements of NetSilicon and Dimatech based upon assumptions made
by management for the purpose of preparing the unaudited Pro Forma
Statements of Operations and Pro Forma Balance sheet.
20
(a) To record the payment of $250,000 and the issuance of NetSilicon
shares.
(b) To eliminate receivable and payable accounts between NetSilicon and
Dimatech.
(c) To eliminate profit on inventory sold to Dimatech.
(d) To record the preliminary allocation of the purchase price to
purchased intangible assets.
(e) To eliminate the Dimatech common stock and retained earnings accounts.
(f) To eliminate the effect of sales made by NetSilicon to Dimatech.
(g) To eliminate the effect of commissions paid by Netsilicon to Dimatech.
(h) To record amortization expense for purchased intangible assets.
5. PRO FORMA EARNINGS PER SHARE
Basic earnings (loss) per share is computed based on the weighted average
number of shares outstanding during the historical period plus the effect
of shares issued in connection with the acquisition of Dimatech. Diluted
earnings (loss) per share is computed based on the weighted average number
of shares outstanding during the historical period plus shares issued in
connection with the acquisition of Dimatech and the effect of dilutive
potential common shares which consist of shares issuable under stock
benefit plans.
(c) EXHIBITS
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
2.1 Stock Purchase Agreement, dated as of February 16, 2001, by
and among Dimatech Corporation, Hiroyuki Kataoka and
NetSilicon, Inc. (filed as Exhibit 4.1 to our Registration
Statement on Form S-3 (File No. 333-56228)).
99.1 Press release, dated February 20, 2001 announcing the Stock
Purchase Agreement and acquisition of Dimatech Corporation
(Exhibit incorporated by reference to the exhibit previously
filed with the SEC on Form 8-K on March 2, 2001).
21
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
NETSILICON, INC.
May 1, 2001 By: /s/ Daniel J. Sullivan
- ----------- ---------------------------
Name: Daniel J. Sullivan
Title: Vice President, Finance
Chief Financial Officer
22
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
2.1 Stock Purchase Agreement, dated as of February 16, 2001, by
and among Dimatech Corporation, Hiroyuki Kataoka and
NetSilicon, Inc. (filed as Exhibit 4.1 to our Registration
Statement on Form S-3 (File No. 333-56228)).
99.1 Press release, dated February 20, 2001 announcing the Stock
Purchase Agreement and acquisition of Dimatech Corporation
(Exhibit incorporated by reference to the exhibit previously
filed with the SEC on Form 8-K on March 2, 2001).