-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VU2geZbtew3EW6fb/uD/fa308mQ9EHubZWmwXwZS6xnb4/SXBPz4ABl/16SGiFMl NJEXTrhB2DPcIZt5hp+83A== 0000936392-00-000202.txt : 20000412 0000936392-00-000202.hdr.sgml : 20000412 ACCESSION NUMBER: 0000936392-00-000202 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000301 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000411 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUALCOMM INC/DE CENTRAL INDEX KEY: 0000804328 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 953685934 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-19528 FILM NUMBER: 598888 BUSINESS ADDRESS: STREET 1: 5775 MOREHOUSE DR CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 8585871121 MAIL ADDRESS: STREET 1: 5775 MOREHOUSE DR CITY: SAN DIEGO STATE: CA ZIP: 92121 8-K/A 1 AMENDMENT TO FORM 8-K 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): March 1, 2000 QUALCOMM INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation) 0-19528 95-3685934 (Commission File No.) (IRS Employer Identification No.) 5775 MOREHOUSE DRIVE SAN DIEGO, CALIFORNIA 92121 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (858) 587-1121 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On March 1, 2000, QUALCOMM Incorporated, a Delaware corporation ("QUALCOMM"), completed the acquisition of all of the outstanding capital stock of SnapTrack, Inc., a California corporation ("SnapTrack"). The acquisition was effected pursuant to that certain Agreement and Plan of Merger and Reorganization (the "Merger Agreement"), dated January 25, 2000 by and among QUALCOMM, Falcon Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of QUALCOMM ("Merger Sub"), and SnapTrack, whereby Merger Sub was merged with and into SnapTrack (the "Merger"), with SnapTrack being the surviving corporation in the Merger and a wholly owned subsidiary of QUALCOMM. In addition, QUALCOMM assumed all of the outstanding options and warrants to purchase capital stock of SnapTrack in connection with the Merger and such options and warrants are now exercisable for shares of QUALCOMM common stock. The Merger is intended to qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and will be accounted for as a "purchase." For a detailed description of the terms and conditions of the Merger Agreement, reference is made to such agreement, which is filed as Exhibit 2.1 hereto and incorporated herein by reference. As a result of the Merger, QUALCOMM is obligated to issue up to 7,433,792 shares of its common stock to the securityholders of SnapTrack; provided however, that 10% of the total shares will be subject to an escrow for a period of one year (which one-year period could be extended in the event any claims are made) to satisfy the indemnification obligations of the SnapTrack securityholders that run in favor of QUALCOMM and its affiliates. Certain stockholders of SnapTrack who are entitled to receive an aggregate of 1,949,509 shares of QUALCOMM common stock in the Merger have executed lock-up agreements that impose certain limitations on such stockholders' ability to sell or otherwise transfer such shares. For a detailed description of the terms and conditions of the lock-up agreements, reference is made to such agreements, which are filed as Exhibits 2.2 through 2.5 hereto and incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. (1) AUDITED CONSOLIDATED FINANCIAL INFORMATION OF SNAPTRACK, INC. (b) PRO FORMA FINANCIAL INFORMATION. (1) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF QUALCOMM INCORPORATED. The following unaudited pro forma condensed consolidated financial information is being filed herewith: 3 Unaudited Pro Forma Condensed Consolidated Balance Sheet at December 26, 1999 Unaudited Pro Forma Condensed Consolidated Statement of Income for the three months ended December 26, 1999 Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended September 30, 1999 Notes to Unaudited Pro Forma Condensed Consolidated Financial Information (c) EXHIBITS. *2.1 Agreement and Plan of Merger and Reorganization dated as of January 25, 2000 among QUALCOMM Incorporated, Falcon Acquisition Corporation and SnapTrack, Inc. (Schedules to this exhibit have been omitted in reliance on Item 601 of Regulation S-K). *2.2 Lock-Up Agreement dated as of January 25, 2000 by and between QUALCOMM Incorporated and Stephen Poizner. *2.3 Lock-Up Agreement dated as of January 25, 2000 by and between QUALCOMM Incorporated and Norman Krasner. *2.4 Lock-Up Agreement dated as of January 25, 2000 by and between QUALCOMM Incorporated and Bruce Noel. *2.5 Lock-Up Agreement dated as of January 25, 2000 by and between QUALCOMM Incorporated and Walter Bell. 2.6 Audited consolidated financial information of SnapTrack, Inc. dated as of December 31, 1999. 23.1 Consent of Deloitte & Touche LLP. *99.1 Press Release dated March 2, 2000. - -------- * Previously filed on March 15, 2000 as an exhibit to this Form 8-K. 3. 4 ITEM 7.(b)(1) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF QUALCOMM INCORPORATED On March 1, 2000 (the "Closing Date"), QUALCOMM completed the acquisition of all of the outstanding capital stock of SnapTrack (see "Item 2. Acquisition or Disposition of Assets.") in a transaction accounted for as a purchase. The following unaudited pro forma condensed consolidated financial data present the effect of QUALCOMM`s acquisition of SnapTrack. The unaudited pro forma condensed consolidated balance sheet presents the consolidated financial position of QUALCOMM as of December 26, 1999, assuming that the acquisition had occurred as of that date. Such pro forma information is based upon the historical balance sheet data of QUALCOMM as of December 26, 1999 and SnapTrack as of December 31, 1999. The unaudited pro forma condensed consolidated statements of income for the year ended September 30, 1999 and for the three months ended December 26, 1999 give effect to earnings as if the acquisition had occurred on October 1, 1998. The unaudited pro forma condensed consolidated financial data are prepared using the purchase method of accounting. The unaudited pro forma condensed consolidated financial data are based on the estimates and assumptions set forth in the notes to such statements, which are preliminary and have been made solely for purposes of developing such pro forma information. The unaudited pro forma condensed consolidated financial data are not necessarily an indication of the results that would have been achieved had the transaction been consummated as of the dates indicated. The unaudited pro forma condensed consolidated financial data should be read in conjunction with the historical financial statements and notes thereto of QUALCOMM, including the Annual Report on Form 10-K for the year ended September 30, 1999 and the Quarterly Report on Form 10-Q for the quarter ended December 26, 1999, and the historical financial statements of SnapTrack for the year ended December 31, 1999, included herein. 4. 5 QUALCOMM INCORPORATED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 26, 1999 ------------------------------------------------------------------- HISTORICAL --------------------------- ASSETS QUALCOMM SNAPTRACK ADJUSTMENTS PRO FORMA ----------- ----------- ----------- ----------- Current Assets: Cash and cash equivalents $ 303,978 $ 5,931 $ (7)(a) $ 309,902 Investments 1,087,164 - - 1,087,164 Accounts receivable, net 998,200 1,175 - 999,375 Finance receivables 24,167 - - 24,167 Inventories, net 259,968 - - 259,968 Other current assets 201,825 246 487 (b) 202,558 ----------- ----------- ----------- ----------- Total current assets 2,875,302 7,352 480 2,883,134 Property, plant and equipment, net 537,482 601 - 538,083 Investments 165,338 - - 165,338 Finance receivables, net 680,090 - - 680,090 Goodwill - - 944,355 (c) 944,355 Other assets 727,223 101 41,387 (d) 768,711 ----------- ----------- ----------- ----------- Total assets $ 4,985,435 $ 8,054 $ 986,222 $ 5,979,711 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 715,546 $ 1,521 $ 1,617 (e) $ 718,684 Unearned revenue 64,625 6,935 (5,123)(f) 66,437 Bank lines of credit 124,000 - - 124,000 Current portion of long-term debt 3,109 715 - 3,824 Deferred tax liabilities - - 3,447 (b) 3,447 ----------- ----------- ----------- ----------- Total current liabilities 907,280 9,171 (59) 916,392 Long-term debt - 768 - 768 Other liabilities 64,587 - 10,441 (b) 75,028 ----------- ----------- ----------- ----------- Total liabilities 971,867 9,939 10,382 992,188 ----------- ----------- ----------- ----------- Minority interest in consolidated subsidiaries 54,910 - - 54,910 ----------- ----------- ----------- ----------- Company-obligated mandatorily redeemable Trust Convertible Preferred Securities of a subsidiary trust holding solely debt securities of the Company 269,895 - - 269,895 ----------- ----------- ----------- ----------- Stockholders' Equity: Preferred stock - 4 (4)(h) - Common stock 70 2 1 (g) (2)(h) 71 Deferred stock compensation - (30,522) 30,522 (h) - Paid-in capital 3,196,953 53,241 (53,241)(h) 1,033,984 (g) 4,230,937 Retained earnings (deficit) 377,998 (24,620) 24,620 (h) (60,030)(i) 317,968 Accumulated other comprehensive income 113,742 10 (10)(h) 113,742 ----------- ----------- ----------- ----------- Total stockholders' equity (deficit) 3,688,763 (1,885) 975,840 4,662,718 ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity $ 4,985,435 $ 8,054 $ 986,222 $ 5,979,711 =========== =========== =========== ===========
See accompanying notes to unaudited pro forma condensed consolidated financial information 5. 6 QUALCOMM INCORPORATED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED DECEMBER 26, 1999 ----------------------------------------------------------------------- HISTORICAL ----------------------------- QUALCOMM SNAPTRACK ADJUSTMENTS PRO FORMA ----------- ----------- ----------- ----------- Revenues $ 1,120,073 $ 319 $ - $ 1,120,392 ----------- ----------- ----------- ----------- Operating expenses: Cost of revenues 648,748 23 - 648,771 Research and development 83,404 2,115(j) - 85,519 Selling, general and administrative 101,848 1,944(k) - 103,792 Amortization of goodwill and intangible assets - - 61,398(l) 61,398 Other 26,152 - - 26,152 ----------- ----------- ----------- ----------- Total operating expenses 860,152 4,082 61,398 925,632 ----------- ----------- ----------- ----------- Operating income 259,921 (3,763) (61,398) 194,760 - Interest expense (2,673) (70) - (2,743) Investment income (expense), net 36,247 106 - 36,353 Distributions on Trust Convertible Preferred Securities of subsidiary trust (11,045) - - (11,045) Other - - - - ----------- ----------- ----------- ----------- Income (loss) before income taxes 282,450 (3,727) (61,398) 217,325 Income tax (expense) benefit (105,331) - 2,110(m) (103,221) ----------- ----------- ----------- ----------- Net income (loss) $ 177,119 $ (3,727) $ (59,288) $ 114,104 =========== =========== =========== =========== Net earnings per common share: Basic $ 0.27 $ 0.17(n) =========== =========== Diluted $ 0.23 $ 0.15(n) =========== =========== Shares used in per share calculations: Basic 664,586 670,378(n) =========== =========== Diluted 790,827 798,191(n) =========== ===========
See accompanying notes to unaudited pro forma condensed consolidated financial information 6. 7 QUALCOMM INCORPORATED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED SEPTEMBER 30, 1999 ----------------------------------------------------------------------- HISTORICAL ----------------------------- QUALCOMM SNAPTRACK ADJUSTMENTS PRO FORMA ----------- ----------- ----------- ----------- Revenues $ 3,937,299 $ 65 $ - $ 3,937,364 ----------- ----------- ----------- ----------- Operating expenses: Cost of revenues 2,485,072 70 - 2,485,142 Research and development 381,139 7,003 (j) - 388,142 Selling, general and administrative 425,941 6,564 (k) - 432,505 Amortization of goodwill and intangible assets - - 245,590(l) 245,590 Other 240,007 - - 240,007 ----------- ----------- ----------- ----------- Total operating expenses 3,532,159 13,637 245,590 3,791,386 ----------- ----------- ----------- ----------- Operating income (loss) 405,140 (13,572) (245,590) 145,978 Interest expense (14,698) (255) - (14,953) Investment income (expense), net 24,576 404 - 24,980 Distributions on Trust Convertible - Preferred Securities of subsidiary trust (39,297) - - (39,297) Other (69,035) - - (69,035) ----------- ----------- ----------- ----------- Income (loss) before income taxes 306,686 (13,423) (245,590) 47,673 Income tax (expense) benefit (105,807) - 7,219(m) (98,588) ----------- ----------- ----------- ----------- Net income (loss) $ 200,879 $ (13,423) $ (238,371) $ (50,915) =========== =========== =========== =========== Net earnings (loss) per common share: Basic $ 0.34 $ (0.08)(n) =========== =========== Diluted $ 0.31 $ (0.08)(n) =========== =========== Shares used in per share calculations: Basic 594,714 600,506(n) =========== =========== Diluted 649,886 600,506(n) =========== ===========
See accompanying notes to unaudited pro forma condensed consolidated financial information 7. 8 QUALCOMM INCORPORATED NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION Note 1 - Basis of Presentation On the Closing Date, QUALCOMM completed the acquisition of all of the outstanding capital stock of SnapTrack (see "Item 2. Acquisition or Disposition of Assets.") in a transaction accounted for as a purchase. The fair value of the QUALCOMM common stock issuable to effect the purchase is estimated to be approximately $139.56 per share based on the average closing price of QUALCOMM's common stock for the four-day period ending on the Closing Date. The average fair value of 1,543,876 replacement options and 86,193 warrants to purchase QUALCOMM's common stock is estimated to be approximately $138.42 per share, determined using the Black-Scholes option pricing model assuming a 6.5% risk-free interest rate, 54% volatility and an expected life of 3.5 years. The purchase price of the SnapTrack acquisition is estimated to be approximately $1 billion, including the value of the QUALCOMM shares, the value of vested and unvested options and warrants issued at the Closing Date and estimated transaction costs of $1.6 million. The preliminary allocation of the purchase price using balances at March 1, 2000 is summarized below (in thousands):
Patents $ 15,230 Completed technology 4,890 In-process technology 60,030 Assembled workforce 3,750 Customer base 10,450 Goodwill 948,040 Net liabilities assumed (6,781) ----------- Total purchase price $ 1,035,609 ===========
The preliminary purchase price allocation is based on the estimated fair values of the acquired assets and assumed liabilities and an independent appraisal of intangible assets. The Company expects to finalize the purchase price allocation within one year and does not anticipate material adjustments to the preliminary purchase price allocation presented. The amount allocated to in-process technology represents the purchased in-process technology for projects that, as of the date of the acquisition, had not yet reached technological feasibility and had no alternative future use. The value of these projects was determined by estimating the resulting net cash flows from the sale of the products from completion of the projects, reduced by the portion of revenue attributable to developed technology and the percentage completion of the project. The resulting cash flows were then discounted back to their present value at appropriate discount rates. The amounts allocated to in-process technology were charged to the statement of income in the second quarter of QUALCOMM's fiscal year 2000. Note 2 - Pro Forma Adjustments (a) Reflects cash proceeds paid by QUALCOMM to SnapTrack shareholders for fractional shares. (b) Reflects deferred tax assets and liabilities resulting from the acquisition and the preliminary purchase price allocation described in Note 1. 8. 9 (c) Reflects goodwill resulting from the acquisition based on the preliminary purchase price allocation described in Note 1 as if the acquisition had occurred on December 26, 1999. (d) Reflects $7 million in deferred tax assets and other intangible assets resulting from the acquisition based on the preliminary purchase price allocation described in Note 1 as if the acquisition had occurred on December 26, 1999. (e) Reflects accrued liabilities related to transaction costs incurred by QUALCOMM. (f) Reflects an adjustment to reduce SnapTrack's unearned revenue to fair value. (g) Reflects the estimated value of common stock issuable to effect the purchase. (h) Reflects the elimination of SnapTrack's equity. (i) Reflects amounts allocated to in-process technology based on the preliminary purchase price allocation described in Note 1. (j) SnapTrack research and development expense includes $0.2 million and $1.3 million for the first three months in fiscal 2000 and the year ended September 30, 1999, respectively, in amortization of deferred stock compensation related to SnapTrack cheap stock issuance. Such cost is duplicative, as the fair value of the stock has been included in the purchase price which results in additional goodwill amortization, and will not be recorded by QUALCOMM in periods subsequent to the purchase. (k) SnapTrack selling, general and administrative expense includes $0.2 million and $1.2 million for the first three months in fiscal 2000 and the year ended September 30, 1999, respectively, in amortization of deferred stock compensation related to SnapTrack cheap stock issuance. Such cost is duplicative, as the fair value of the stock has been included in the purchase price which results in additional goodwill amortization, and will not be recorded by QUALCOMM in periods subsequent to the purchase. (l) Reflects amortization of patents, assembled workforce, completed technology, customer base and goodwill over their estimated useful lives of four years as if the acquisition had occurred as of the beginning of the periods presented. The amount allocated to in-process technology has not been included in the unaudited pro forma condensed consolidated statements of operations as it is nonrecurring. This amount was expensed in the second quarter of QUALCOMM's fiscal 2000. (m) Reflects the estimated tax benefit related to SnapTrack's net loss and the change in deferred tax liabilities resulting from the amortization of certain of the intangible assets recorded as part of the acquisition. (n) Basic and diluted net earnings per share is computed using the weighted average number of common shares outstanding during the period. Unaudited pro forma basic and diluted net earnings per share include 5,792,120 shares of common stock to be issued in connection with the acquisition of SnapTrack. Unaudited pro forma diluted net earnings per share for the three months ended December 26, 1999 include 1,641,618 dilutive shares issuable in connection with replacement stock options and warrants; such shares have not been considered in calculating net loss per common share for the year ended September 30, 1999 because their effect would be anti-dilutive. QUALCOMM effected a four-for-one stock split in December 1999; pro forma net 9. 10 earnings per common share for the year ended September 30, 1999 are presented giving retroactive effect to the stock split. 10. 11 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. QUALCOMM INCORPORATED Dated: April 11, 2000 By: /s/ ANTHONY S. THORNLEY --------------------------------- Anthony S. Thornley Executive Vice President and Chief Financial Officer 11. EX-2.6 2 EXHIBIT 2.6 1 EXHIBIT 2.6 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of SnapTrack, Inc. and Subsidiary We have audited the accompanying consolidated balance sheets of SnapTrack, Inc. and subsidiary (a development stage company) as of December 31, 1999 and 1998, and the related consolidated statements of operations and comprehensive income, shareholders' deficit and cash flows for the years then ended and cumulative from August 31, 1995 (inception) through 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 generally accepted auditing standards. 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, such consolidated financial statements present fairly, in all material respects, the financial position of SnapTrack, Inc. and its subsidiary as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the periods stated above, in conformity with generally accepted accounting principles. Deloitte & Touche LLP San Jose, California February 25, 2000 2 SNAPTRACK, INC. AND SUBSIDIARY (A Development Stage Company)
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 - -------------------------------------------------------------------------------------------------------- ASSETS 1999 1998 CURRENT ASSETS: Cash and equivalents $ 5,931,210 $ 4,426,864 Receivables 1,175,108 2,233,339 Prepaids and other current assets 245,814 107,585 ------------ ------------ Total current assets 7,352,132 6,767,788 PROPERTY AND EQUIPMENT, Net 601,158 272,990 OTHER ASSETS 101,080 22,719 ------------ ------------ TOTAL $ 8,054,370 $ 7,063,497 ============ ============ LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable $ 272,474 $ 325,424 Accrued liabilities 1,248,754 717,029 Deferred revenue 6,935,000 4,700,000 Current portion of long-term debt 714,772 858,911 ------------ ------------ Total current liabilities 9,171,000 6,601,364 LONG-TERM DEBT 768,331 702,276 ------------ ------------ Total liabilities 9,939,331 7,303,640 ============ ============ SHAREHOLDERS' DEFICIT: Convertible preferred stock, $0.0005 par value - 8,000,000 shares authorized (aggregate liquidation preference of $9,500,019): Series A; 600,000 shares designated and outstanding 294,078 294,078 Series B; 1,280,000 shares designated and outstanding 797,466 797,466 Series C; 2,636,362 shares designated; 2,454,544 shares outstanding in 1999 and 1998 3,464,418 3,464,418 Series D; 3,200,000 shares designated; 3,133,164 and 1,043,618 shares outstanding in 1999 and 1998, respectively 15,082,314 4,984,314 Common stock - $0.0005 par value; 28,000,000 shares authorized; 4,714,219 and 3,896,132 shares outstanding in 1999 and 1998, respectively 33,608,791 34,240 Deferred stock compensation (30,521,901) - Accumulated other comprehensive income 10,124 - Deficit accumulated during the development stage (24,620,251) (9,814,659) ------------ ------------ Total shareholders' deficit (1,884,961) (240,143) ------------ ------------ TOTAL $ 8,054,370 $ 7,063,497 ============ ============
See notes to consolidated financial statements. -2- 3 SNAPTRACK, INC. AND SUBSIDIARY (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999 - --------------------------------------------------------------------------------
Cumulative from August 31, 1995 (Inception) Year Ended Through December 31, December 31, ------------------------------- 1999 1998 1999 SERVICE AND OTHER REVENUES $ 368,462 $ 228,694 $ 640,013 COSTS AND EXPENSES: Cost of service and other revenues 72,275 134,633 206,908 Research and development 6,420,245 2,979,686 11,346,093 Sales and marketing 4,112,558 1,880,882 6,924,789 General and administrative 1,815,815 1,300,459 4,152,365 Amortization of deferred stock compensation: Research and development 1,568,515 - 1,568,515 Sales and marketing 683,398 - 683,398 General and administrative 687,612 - 687,612 ------------ ------------ ------------ Total costs and expenses 15,360,418 6,295,660 25,569,680 ------------ ------------ ------------ LOSS FROM OPERATIONS (14,991,956) (6,066,966) (24,929,667) OTHER INCOME (EXPENSE), Net 186,364 (20,534) 309,416 ------------ ------------ ------------ NET LOSS (14,805,592) (6,087,500) (24,620,251) OTHER COMPREHENSIVE INCOME - Foreign currency translation adjustment 10,124 - 10,124 ------------ ------------ ------------ COMPREHENSIVE LOSS $(14,795,468) $ (6,087,500) $(24,610,127) ============ ============ ============
See notes to consolidated financial statements. -3- 4 SNAPTRACK, INC. AND SUBSIDIARY (A Development Stage Company) CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT PERIOD FROM AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999 - --------------------------------------------------------------------------------
Preferred Stock Common Stock ----------------------- -------------------------- Shares Amount Shares Amount BALANCES, August 31, 1995 (inception) - $ - - $ - September 1995 - Sale of common stock at $0.0015 per share for cash 3,000,000 5,000 November 1995 - Sale of common stock at $0.0125 per share for cash 532,500 6,656 Series A preferred stock subscription for cash 100,000 January 1996 - Sale of Series A preferred stock at $0.50 per share for cash, including issuance of subscribed stock (net of issuance costs of $5,922) 600,000 194,078 January 1996 - Sale of common stock at $0.052 per share for cash 267,000 13,350 February 1996 - Sale of common stock at $0.05 per share for cash 40,000 2,000 March 1996 - Sale of common stock at $0.05 per share for cash 20,000 1,000 May 1996 - Sale of Series B preferred stock at $.625 per share for cash (net of issuance costs of $2,534) 1,280,000 797,466 December 1996 - Sale of Series C preferred stock at $1.375 per share for cash (net of issuance costs of $4,155) 2,436,362 3,345,843 Exercise of stock options 26,632 1,384 December 1997 - Issuance of Series C preferred stock warrants 20,917 Net loss (August 31, 1995 - December 31, 1997) - - - - --------- ----------- --------- ----------- BALANCES, December 31, 1997 4,316,362 $ 4,458,304 3,886,132 $ 29,390
Deficit Deferred Accumulated Accumulated Stock During the Other Compen- Development Comprehensive sation Stage Income Total BALANCES, August 31, 1995 (inception) $ - $ - $ - $ - September 1995 - Sale of common stock at $0.0015 per share for cash 5,000 November 1995 - Sale of common stock at $0.0125 per share for cash 6,656 Series A preferred stock subscription for cash 100,000 January 1996 - Sale of Series A preferred stock at $0.50 per share for cash, including issuance of subscribed stock (net of issuance costs of $5,922) 194,078 January 1996 - Sale of common stock at $0.052 per share for cash 13,350 February 1996 - Sale of common stock at $0.05 per share for cash 2,000 March 1996 - Sale of common stock at $0.05 per share for cash 1,000 May 1996 - Sale of Series B preferred stock at $.625 per share for cash (net of issuance costs of $2,534) 797,466 December 1996 - Sale of Series C preferred stock at $1.375 per share for cash (net of issuance costs of $4,155) 3,345,843 Exercise of stock options 1,384 December 1997 - Issuance of Series C preferred stock warrants 20,917 Net loss (August 31, 1995 - December 31, 1997) - (3,727,159) - (3,727,159) --------- ------------ ----------- ----------- BALANCES, December 31, 1997 $ - $(3,727,159) $ - $ 760,535
-4- 5 SNAPTRACK, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (CONTINUED) PERIOD FROM AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999 - --------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK ------------------------------ ----------------------------- SHARES AMOUNT SHARES AMOUNT ------------ ------------ ------------ ------------ BALANCES, December 31, 1997 4,316,362 $ 4,458,304 3,886,132 $ 29,390 January - Issuance of Series C preferred stock at $1.375 per share for fair value of services received 18,182 25,000 February - Issuance of Series C preferred stock warrants 72,658 May - Sale of Series D preferred stock at $4.815 per share for cash (net of issuance costs of $40,707) 1,038,426 4,959,315 May - Issuance of Series D preferred stock at $4.815 per share for fair value of services received 5,192 24,999 Exercise of stock options 10,000 4,850 Net loss ------------ ------------ ------------ ------------ BALANCES, December 31, 1998 5,378,162 9,540,276 3,896,132 34,240 March - Sale of Series D preferred stock at $4.815 per share for cash (net of issuance costs of $33,503) 2,089,546 10,027,660 March - Issuance of Series D preferred stock warrants 70,340 Exercise of stock options 818,087 113,125 Deferred stock compensation 33,461,426 Amortization of deferred stock compensation Net loss Other comprehensive income ------------ ------------ ------------ ------------ BALANCES, December 31, 1999 7,467,708 $ 19,638,276 4,714,219 $ 33,608,791 ============ ============ ============ ============ DEFICIT DEFERRED ACCUMULATED ACCUMULATED STOCK DURING THE OTHER COMPEN- DEVELOPMENT COMPREHENSIVE SATION STAGE INCOME TOTAL ------------ ------------ ------------- ------------ BALANCES, December 31, 1997 $ -- $ (3,727,159) $ -- $ 760,535 January - Issuance of Series C preferred stock at $1.375 per share for fair value of services received 25,000 February - Issuance of Series C preferred stock warrants 72,658 May - Sale of Series D preferred stock at $4.815 per share for cash (net of issuance costs of $40,707) 4,959,315 May - Issuance of Series D preferred stock at $4.815 per share for fair value of services received 24,999 Exercise of stock options 4,850 Net loss (6,087,500) (6,087,500) ------------ ------------ ------------ ------------ BALANCES, December 31, 1998 -- (9,814,659) -- (240,143) March - Sale of Series D preferred stock at $4.815 per share for cash (net of issuance costs of $33,503) 10,027,660 March - Issuance of Series D preferred stock warrants 70,340 Exercise of stock options 113,125 Deferred stock compensation (33,461,426) -- Amortization of deferred stock compensation 2,939,525 2,939,525 Net loss (14,805,592) (14,805,592) Other comprehensive income 10,124 10,124 ------------ ------------ ------------ ------------ BALANCES, December 31, 1999 $(30,521,901) $(24,620,251) $ 10,124 $ (1,884,961) ============ ============ ============ ============ (Concluded)
See notes to consolidated financial statements. -5- 6 SNAPTRACK, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999 - --------------------------------------------------------------------------------
CUMULATIVE FROM YEAR ENDED AUGUST 31, 1995 DECEMBER 31, (INCEPTION) THROUGH ------------------------------ DECEMBER 31, 1999 1998 1999 ------------ ------------ ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(14,805,592) $ (6,087,500) $(24,620,251) Reconciliation to net cash used in operating activities: Depreciation and amortization 279,818 121,078 503,087 Amortization of deferred stock compensation 2,939,525 -- 2,939,525 Issuance of stock for services received -- 49,999 49,999 Accretion of debt 36,620 27,087 63,707 Issuance of warrants for services -- 4,850 4,850 Changes in operating assets and liabilities: Receivables 1,058,231 (2,145,839) (1,176,402) Prepaids and other current assets (138,229) 12,099 (230,985) Other assets (78,361) (13,449) (101,080) Accounts payable (52,950) 265,998 272,474 Accrued expenses 531,725 438,252 1,248,754 Deferred revenue 2,235,000 4,550,000 6,935,000 ------------ ------------ ------------ Net cash used in operating activities (7,994,213) (2,777,425) (14,111,322) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES - Purchase of property and equipment (608,020) (266,300) (1,104,279) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of preferred stock, net 10,027,660 4,959,315 19,424,362 Proceeds from sale of common stock -- -- 28,006 Proceeds from sale of warrants -- -- 7,382 Proceeds from exercise of stock options 113,125 -- 114,509 Proceeds from borrowing 663,090 2,219,428 2,991,201 Repayment of borrowing (707,454) (711,353) (1,428,807) ------------ ------------ ------------ Net cash provided by financing activities 10,096,421 6,467,390 21,136,653 ------------ ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS 10,158 -- 10,158 NET INCREASE IN CASH AND EQUIVALENTS 1,504,346 3,423,665 5,931,210 CASH AND EQUIVALENTS, Beginning of period 4,426,864 1,003,199 -- ------------ ------------ ------------ CASH AND EQUIVALENTS, End of period $ 5,931,210 $ 4,426,864 $ 5,931,210 ============ ============ ============ NONCASH INVESTING AND FINANCING ACTIVITIES - Issuance of preferred stock warrants in connection with venture loan agreement $ 70,340 $ 72,658 $ 156,533 ============ ============ ============ Deferred stock compensation $ 33,461,426 $ -- $ 33,461,426 ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid during the period for interest $ 210,806 $ -- $ 445,074 ============ ============ ============
See notes to consolidated financial statements. -6- 7 SNAPTRACK, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999 - -------------------------------------------------------------------------------- 1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - SnapTrack Inc. (the Company) was incorporated on August 31, 1995 in California, and is engaged in the development of an ultra-high performance tracking system that integrates a Global Positioning Satellite System receiver, a two-way wireless transceiver, and a Geographic Information System. The Company has developed a prototype for this device and is continuing to refine and enhance its technical capabilities. The Company is subject to the risks associated with a development stage enterprise, including the need to refine its product technology, to extend its marketing and distribution channels and to continue to raise financing. DEVELOPMENT STAGE - The Company is in the development stage as of December 31, 1999. Successful completion of the Company's developmental program and, ultimately, the attainment of profitable operations is dependent upon future events, including future financing, successfully completing product development, and achieving a sufficient level of sales and market demand to become an established operating enterprise. The activities of the Company have been accounted for as set forth in Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by Development Stage Enterprises." ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets, and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company operates in a rapidly changing environment that involves a number of risks, some of which are beyond the Company's control, and could have a material adverse effect on the Company's business, operating results, and financial condition. These risks include variability and uncertainty of revenues and operating results; product concentration, technological change, and new products; competition; intellectual property/litigation; management of growth; dependence on key personnel; limited sources of component supply; licenses from third parties; geographic concentration; acquisitions and investments; international operations; regulatory requirements; expansion of distribution channels; and year 2000 compatibility issues. CONCENTRATION OF CREDIT RISK - Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and receivables. The Company invests only in high-quality credit instruments. CASH AND EQUIVALENTS - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents at December 31, 1999 consisted of commercial paper. The carrying amount of the Company's cash equivalents approximates fair value due to the short-term maturity of those investments. -7- 8 RECEIVABLES - At December 31, 1999, receivables consists entirely of amounts billed in connection with five software licenses and related consulting. Revenue recognition on these contracts has been deferred pending completion of contractual obligations. At December 31, 1998, receivables consist entirely of amounts billed in connection with two service contracts. PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of one to three years or the lease term, if shorter. LONG-LIVED ASSETS - The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. REVENUE RECOGNITION - Service revenues related to installation, training and customer support are recognized upon completion. For contracts requiring customer acceptance, revenue recognition is deferred pending such acceptance. In 1998, the Company adopted Statement of Position ("SOP") 97-2, "Software Revenue Recognition," which requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. Revenue for software licenses is recognized upon delivery provided that collection is probable. Software support and maintenance revenue are deferred and amortized over the maintenance period on a straight-line basis. Adoption of this statement did not have a material impact on the Company's financial position, results of operations and cash flows. RESEARCH AND DEVELOPMENT - Research and development expenses are charged to operations as incurred. INCOME TAXES - Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as net operating loss and tax credit carryforwards, net of a valuation allowance to reduce deferred tax assets to amounts that are more likely than not to be realizable. STOCK-BASED COMPENSATION - The Company accounts for stock-based awards issued to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees." RECENTLY ISSUED ACCOUNTING STANDARD - In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS No. 133 will be effective for the Company's year ending December 31, 2001. The Company has not completed its assessment of the impact on this statement of the Company's financial position, results of operations or cash flows. -8- 9 2. PROPERTY AND EQUIPMENT Property and equipment at December 31 consist of:
1999 1998 ----------- ----------- Computers and software $ 644,661 $ 280,200 Office and test equipment 339,055 149,559 Leasehold improvements 120,525 66,499 ----------- ----------- 1,104,241 496,258 Accumulated depreciation and amortization (503,083) (223,268) ----------- ----------- Property and equipment, net $ 601,158 $ 272,990 =========== ===========
3. ACCRUED LIABILITIES Accrued liabilities at December 31 consist of:
1999 1998 ----------- ------------ Accrued professional expenses $ 242,000 $ 131,271 Accrued commissions 104,850 175,347 Accrued payroll and benefits 379,348 180,479 Other 522,556 229,932 ----------- ----------- Total accrued liabilities $ 1,248,754 $ 717,029 =========== ============
4. LONG-TERM DEBT Long-term obligations at December 31 consist of:
1999 1998 ----------- ----------- Venture loan, 12.87% interest $ 825,528 $ 1,284,892 Equipment term loan, 6.99% to 9.68% interest 657,575 276,295 ----------- ----------- 1,483,103 1,561,187 Current portion (714,772) (858,911) ----------- ----------- Long-term portion $ 768,331 $ 702,276 =========== ===========
Borrowings under the venture loan are collateralized by substantially all assets and are payable in 42 monthly installments. At December 31, 1999, no additional borrowings were available under this loan. Maximum borrowings under the equipment term loan agreement are $1,000,000. Current borrowings are collateralized by equipment with original cost of $872,296 (net book value of approximately $450,588 at December 31, 1999) and are payable in 42 monthly installments. At December 31, 1999, the Company had $144,751 of borrowing capacity remaining under the equipment loan. -9- 10 Outstanding borrowings are due as follows: 2000 $ 714,772 2001 554,927 2002 150,479 2003 62,925 ---------- $1,483,103 ==========
In connection with both the equipment term loan agreement and the venture loan agreement, the Company issued certain Series D preferred stock warrants (Note 5). The value of the warrants are being amortized on a straight-line basis over the term of the loans. 5. SHAREHOLDERS' EQUITY CONVERTIBLE PREFERRED STOCK Significant terms of the Series A, B, C and D preferred stock are as follows: - Each share is convertible into one share of common stock (subject to adjustments for events of dilution) at any time at the option of the holder. Conversion is automatic in the event of a firm underwritten public offering of common stock meeting certain criteria. - Each share has voting rights equal to the number of shares of common stock into which it may convert. - In the event of liquidation, merger, dissolution or winding up of the Company, preferred shareholders shall first receive $0.50 per share for Series A, $0.625 per share for Series B, $1.375 per share for Series C and $4.815 per share for Series D, plus any declared and unpaid dividends. After payment of preferential amounts, the holders of common stock shall be entitled to receive all remaining assets of the Company. - To the extent declared, annual per share dividends of $0.025 on Series A, $0.03125 on Series B, $0.07 on Series C and $0.24 on Series D must be paid prior to any common stock dividends. STOCK PURCHASE PLAN Under the 1995 Stock Purchase Plan, 859,500 shares of common stock were authorized for issuance to key personnel at fair market value. At December 31, 1999, all shares had been sold under this plan, and 2,503 shares are subject to repurchase by the Company at the original issue price if the purchaser's employment with the Company is terminated. The Company's repurchase rights lapse ratably over a four-year period. STOCK PURCHASE WARRANTS In March 1999, in connection with the venture and equipment loan agreements (Note 4), the Company issued warrants to purchase 22,700 shares of Series D preferred stock at a price of $4.815 per share. The warrants were valued at $70,340 and expire in March 2007. In February 1998, in connection with the venture loan agreement (Note 4), the Company issued warrants to purchase 105,454 shares of Series C preferred stock at a price of $1.375 per share. The warrants were valued at $72,658 and expire in March 2005. -10- 11 In April 1998, in connection with a users consortium agreement, the Company issued warrants to purchase 30,000 shares of common stock at a price of $1.375 per share. The warrants had nominal value and expire in April 2003. In December 1997, in connection with the equipment term and venture loan agreement (Note 4), the Company issued warrants to purchase 54,544 shares of Series C preferred stock at $1.375 per share. The warrants were valued at $20,917 and expire in December 2004. The value of the above warrants have been estimated using the Black-Scholes option pricing model with the following assumptions: expected life, the term of the option, risk free interest rate of 4.66% in 1999, 5.43% in 1998 and 5.73% in 1997, 75% volatility in 1999 and 50% volatility in 1998 and 1997 and no dividend during the expected term. STOCK OPTION PLAN Under the 1995 Stock Option Plan, 4,318,500 shares of common stock have been authorized for the grant of incentive or nonqualified stock options. Options must be granted at not less than fair market value (85% of fair value for nonqualified options). Such options generally vest over four years and expire in ten years. Stock option activity is as follows:
OUTSTANDING --------------------------------- WEIGHED AVERAGE NUMBER EXERCISE PRICE OF SHARES PER SHARE --------- -------------- Granted (weighted average fair value of $0.015) 1,039,212 $ 0.065 Exercised (26,632) 0.050 Canceled (158,166) 0.055 ---------- Balances, December 31, 1996 854,414 0.067 Granted (weighted average fair value of $0.0035) 676,000 0.138 ---------- Balances, December 31, 1997 1,530,414 0.098 Granted (weighted average fair value of $0.32) 1,344,000 0.440 Exercised (10,000) 0.485 Canceled (156,000) 0.485 ---------- Balances, December 31, 1998 2,708,414 0.244 Granted (weighted average fair value of $26.77) 1,423,350 0.740 Exercised (818,087) 0.138 Canceled (152,208) 0.413 ---------- Balances, December 31, 1999 3,161,469 $ 0.487 ==========
-11- 12 Additional information regarding options outstanding as of December 31, 1999 is as follows:
OPTIONS OUTSTANDING ---------------------------------------- WEIGHTED AVERAGE RANGE OF REMAINING EXERCISE NUMBER CONTRACTUAL NUMBER PRICES OUTSTANDING LIFE (YEARS) EXERCISABLE ------ ----------- ------------ ----------- $ 0.0625 397,748 5.3 242,795 0.1375 513,556 9.8 206,639 0.4850 1,118,815 8.8 232,023 0.7500 892,500 9.6 -- 1.0000 238,850 9.9 -- ----------- ----------- 3,161,469 681,457 =========== ===========
At December 31, 1999, exercisable options had a weighted average exercise price of $0.487. At December 31, 1998, options to purchase 795,694 shares were exercisable with a weighted average exercise price of $0.10. At December 31, 1999, options to purchase 302,312 shares of common stock were available for future grant. DEFERRED STOCK COMPENSATION In connection with grants of certain stock options in 1999, the Company recorded deferred stock compensation of $33,461,426 for the difference between the estimated fair value for accounting purposes and the stock price as determined by the Board of Directors on the date of grant. This amount is being amortized to expense using the straight-line approach over the vesting period of the related stock options, generally four years. Amortization of deferred stock compensation for the year ended December 31, 1999 was $2,939,525. ADDITIONAL STOCK PLAN INFORMATION As discussed in Note 1, the Company accounts for its stock-based awards using the intrinsic value method in accordance with APB No. 25, "Accounting for Stock Issued to Employees" and its related interpretations. Accordingly, no compensation expense has been recognized in the financial statements for employee stock arrangements which are granted with exercise prices equal to or less than the fair market value at grant date. SFAS No. 123, "Accounting for Stock-Based Compensation," requires the disclosure of pro forma net loss had the Company adopted the fair value method. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the minimum value option pricing model with the following weighted average assumptions: expected life, five years; risk free interest rate, ranging from approximately 4.7% to 6.1% in 1999 and approximately 5.4% in 1998, respectively; and no dividend payments during the expected term. The Company's calculations are based on a single option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the options had been amortized to expense over the vesting period of the awards, the effect on pro forma net loss would not have been material. However, the 1999 and 1998 pro forma adjustments may not be indicative of future period pro forma adjustments. -12- 13 COMMON SHARES RESERVED FOR ISSUANCE At December 31, 1999, the Company has reserved shares of common stock for issuance as follows: Conversion of Series A preferred stock 600,000 Conversion of Series B preferred stock 1,280,000 Conversion of Series C preferred stock 2,454,544 Conversion of Series D preferred stock 3,133,164 Exercise of common stock options 3,161,469 Exercise and conversion of preferred stock warrants 182,698 Exercise of common stock warrants 30,000 ---------- 10,841,875 ==========
On December 15, 1998, the Board of Directors approved a two-for-one stock split effective January 18, 1999. All references to share and per share amounts in the accompanying financial statements give retroactive effect to reflect the split. 6. INCOME TAXES Significant components of the Company's deferred income tax assets and liabilities are as follows:
1999 1998 ----------- ----------- Deferred tax assets - Net operating loss carryforwards $ 6,482,000 $ 1,439,000 Accruals not currently deductible for tax purposes 848,000 597,000 Research and development credit carryforwards 633,000 326,000 Deferred tax liabilities - Depreciation (171,000) (266,000) ----------- ----------- Net deferred tax assets 7,792,000 2,096,000 Valuation allowance (7,792,000) (2,096,000) ----------- ----------- Total $ -- $ -- =========== ===========
Due to the uncertainties surrounding the utilization of its net deferred tax assets, the Company has recorded a valuation allowance to fully provide against its otherwise recognizable net deferred tax assets at December 31, 1999 and 1998. Current federal and California tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an "ownership change" of a corporation. 7. LEASE COMMITMENTS The Company occupies facilities under leases which expire at various dates through July 2004. Rental expense for the years ended December 31, 1999, 1998 and cumulative from inception was approximately $342,265, $158,000, and $500,265, respectively. Future minimum lease payments are approximately $493,153, $395,908, $143,201, $53,509 and $31,430 in 2000, 2001, 2002, 2003 and 2004, respectively. -13- 14 8. RELATED PARTY TRANSACTIONS The Company obtains legal services from shareholders. Legal expenses with these shareholders for the years ended December 31, 1999 and 1998 and cumulative from inception were approximately $590,000, $646,000, and $1,560,000, respectively. 9. PENDING LITIGATION The Company is involved in various legal proceedings. Management, after reviewing these proceedings with legal counsel, believes the aggregate liability, if any, will not materially affect the consolidated financial condition or results of operations of the Company. However, the outcome of litigation is inherently uncertain and no assurance can be given as to the ultimate resolution. 10. SUBSEQUENT EVENTS On March 1, 2000 the Company shareholders sold 100% of the stock of the Company to Qualcomm, Inc. for approximately $1 billion in Qualcomm, Inc. stock. * * * * * -14- EX-23.1 3 EXHIBIT 23.1 1 EXHIBIT 23.1 Consent of Deloitte & Touche LLP We consent to the incorporation by reference in Registration Statement No. 333-32926 on Form S-3 and Nos. 333-32924, 33-45083, 33-78150, 33-78158, 333-2752, 333-2754, 333-2756, 333-32013, 333-69457 and 333-95291 on Form S-8 of Qualcomm Incorporated of our report with respect to SnapTrack, Inc. dated February 25, 2000 appearing in this Current Report of Form 8-K/A of Qualcomm Incorporated. Deloitte & Touche LLP San Jose, California April 10, 2000 -----END PRIVACY-ENHANCED MESSAGE-----