<PAGE> 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): June 30, 2000
NETERGY NETWORKS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 000-21783 77-0142404
---------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
</TABLE>
2445 Mission College Blvd.
Santa Clara, California 95054
(Address of principal executive offices)
(408) 727-1885
(Registrant's telephone number, including area code)
<PAGE> 2
Netergy Networks, Inc. hereby amends the following items, financial
statements, exhibits, or other portions of its Current Report on Form 8-K,
originally filed with the Securities and Exchange Commission on July 14, 2000 as
set forth below:
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibit C.
(a)Financial statements of Business Acquired.
-2-
<PAGE> 3
UFORCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999 AND
FEBRUARY 28, 1999
<TABLE>
<S> <C>
Auditors' Report 2
Financial Statements
Consolidated Earnings and Deficit 3
Consolidated Balance Sheets 4
Consolidated Cash Flows 5
Notes to Consolidated Financial Statements 6 to 16
</TABLE>
<PAGE> 4
AUDITORS' REPORT
To the Shareholders of
Uforce Company
We have audited the consolidated balance sheets of Uforce Company as at June 30,
2000 and 1999 and the consolidated statements of earnings and deficit and cash
flows for the year ended June 30, 2000, the four-month period ended June 30,
1999 and the year ended February 28, 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
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 2000 and
1999 and the results of its operations and its cash flows for the years ended
June 30, 2000 and February 28, 1999 and the period ended June 30, 1999 in
accordance with generally accepted accounting principles in Canada.
/s/ RAYMOND CHABOT GRANT THORNTON
----------------------------------
Chartered Accountants
Montreal, Canada
August 25, 2000
<PAGE> 5
3
UFORCE COMPANY
CONSOLIDATED EARNINGS AND DEFICIT
Year ended June 30, 2000, four-month period ended June 30, 1999 and year ended
February 28, 1999 (in United States dollars)
<TABLE>
<CAPTION>
===================================================================================================
2000-06-30 1999-06-30 1999-02-28
(12 months) (4 months) (12 months)
----------- --------- ---------
<S> <C> <C> <C>
REVENUE $ 1,935,514 $ 9,515 $ 42,129
Cost of sales 1,582,174 13,001 39,809
----------- --------- ---------
GROSS PROFIT (LOSS) 353,340 (3,486) 2,320
----------- --------- ---------
Research and development expenses 2,383,532 169,540 292,744
Selling expenses 1,293,380 2,420 7,764
Administrative expenses 1,620,137 90,129 67,089
Financial expenses 59,533 8,866 2,024
Investment tax credits - research expenses (828,562) (47,793) (155,615)
Other income (92,408) (253) --
----------- --------- ---------
4,435,612 222,909 214,006
----------- --------- ---------
NET LOSS (4,082,272) (226,395) (211,686)
Retained earnings (deficit), beginning of period (343,291) (116,896) 94,790
----------- --------- ---------
Deficit, end of period (4,425,563) (343,291) (116,896)
=========== ========= =========
===================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 6
4
UFORCE COMPANY
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and 1999
(in United States dollars)
<TABLE>
<CAPTION>
==============================================================================================
2000-06-30 1999-06-30
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash $ 29,690 $ 103
Term deposits, 4.15% to 4.75% (3% and 3.55% in 1999) 1,643,224 4,615,489
Accounts receivable (Note 5) 1,954,389 70,945
Work in process 110,679 --
Prepaid expenses 199,823 4,163
---------- ----------
3,937,805 4,690,700
Fixed assets (Note 6) 1,059,859 14,016
Goodwill 400,438 --
---------- ----------
5,398,102 4,704,716
========== ==========
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 1,521,260 311,458
Term loan from the new parent company, 5.5%, payable in
September 2000 1,501,318 --
Deferred revenue 664,012 --
Current portion on long-term debt 430,214 17,360
---------- ----------
4,116,804 328,818
Long-term debt (Note 8) 581,373 --
---------- ----------
4,698,177 328,818
---------- ----------
SHAREHOLDERS' EQUITY
Capital stock (Note 9) 5,069,964 4,727,510
Contributed surplus (Note 10) 70,599 --
Deficit (4,425,563) (343,291)
Cumulative translation adjustment (15,075) (8,321)
---------- ----------
699,925 4,375,898
---------- ----------
5,398,102 4,704,716
========== ==========
==============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 7
5
UFORCE COMPANY
CONSOLIDATED CASH FLOWS
Year ended June 30, 2000, four-month period ended June 30, 1999 and year ended
February 28, 1999 (in United States dollars)
<TABLE>
<CAPTION>
======================================================================================================
2000-06-30 1999-06-30 1999-02-28
(12 months) (4 months) (12 months)
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(4,082,272) $ (226,395) $(211,686)
Non-cash items
Loss on write-off of fixed assets -- -- 376
Depreciation 205,106 1,422 7,497
Amortization of goodwill 70,963 -- --
Interest on balance of purchase 8,872 -- --
Changes in working capital items (Note 11) (78,906) 212,047 (121,235)
---------- ---------- ----------
Cash flows from operating activities (3,876,237) (12,926) (325,048)
---------- ---------- ----------
INVESTING ACTIVITIES
Business acquisition (Note 4) (92,549) -- --
Advance to company under common control -- -- 50,315
Term deposits (345,929) -- --
Advances to shareholders 23,937 -- --
Fixed assets (461,969) -- (1,743)
---------- ---------- ----------
Cash flows from investing activities (876,510) -- 48,572
---------- ---------- ----------
FINANCING ACTIVITIES
Bank loan (19,274) (33,693) 33,438
Bank overdraft -- (43,284) 42,956
Due to companies under common control (17,347) (217,273) 195,234
Term loan from the new parent company 1,501,318 -- --
Long-term loans 169,709 -- --
Repayment of long-term debt (95,825) -- --
Amount received from a shareholder 70,599 -- --
Issuance of shares -- 5,121,294 --
Share issue expenses (140,994) (235,849) --
---------- ---------- ----------
Cash flows from financing activities 1,468,186 4,591,195 271,628
---------- ---------- ----------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (2,598) 37,323 (245)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,287,159) 4,615,592 (5,093)
Cash and cash equivalents, beginning of period 4,615,592 -- 5,093
---------- ---------- ----------
Cash and cash equivalents, end of period 1,328,433 4,615,592 --
========== ========== ==========
CASH AND CASH EQUIVALENTS
Cash 29,690 103 --
Term deposits 1,298,743 4,615,489 --
---------- ---------- ----------
1,328,433 4,615,592 --
========== ========== ==========
======================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 8
6
UFORCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(in United States dollars)
================================================================================
1 - GOVERNING STATUTES, NATURE OF OPERATIONS AND CORPORATE REORGANIZATION
================================================================================
Uforce Company (The "Company") was incorporated, in Canada, on June 16, 2000, as
an unlimited liability corporation, under the Companies Act (Nova Scotia). Its
principal business consists of the design and sales of telecommunication
software and related professionnal services. The Company results from the
merger, on June 16, 2000, of Uforce Inc. and 3044008 Nova Scotia Company.
Uforce Inc. resulted from a corporate reorganization completed on June 28, 1999,
whereby the majority of assets and liabilities of Uniforce Informatique Inc.
("Uniforce") were purchased by Uforce Inc. for a consideration of 11,115,000
common shares.
As the Company, Uforce Inc. and Uniforce were under common control, these
transactions were accounted for under the continuity of interest method, a
method which produces the same results of the pooling of interests method.
Consequently, there is no change in the basis of accounting.
The accompanying consolidated financial statements reflect the historical
financial information of Uniforce from March 1, 1998 until the corporate
reorganization on June 28, 1999 and reflect the financial information of Uforce
Inc. since that date.
As at June 30, 2000, the Company was acquired by a wholly-owned subsidiary of
Netergy Networks, Inc. (formely 8X8, Inc.) (a parent company), a United States
based company.
================================================================================
2 - ACCOUNTING POLICIES
================================================================================
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada and are denominated in United
States dollars. The financial statements differ in certain respects from
generally accepted accounting principles in the United States described in note
15.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Services-Conseils Von Neumann Inc.
USE OF ESTIMATES
The preparation of consolidated financial statements requires the Company's
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities shown on the balance sheet and contingencies mentioned at
the date of the consolidated financial statements, and the amounts of revenues
and expenses shown on the consolidated earnings statement during the reporting
period. Actual results could differ from those estimates.
<PAGE> 9
7
UFORCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(in United States dollars)
================================================================================
2 - ACCOUNTING POLICIES (CONTINUED)
================================================================================
REPORTING CURRENCY AND FOREIGN CURRENCY TRANSLATION
The Company's financial statements have historically been expressed in Canadian
dollars. As a result of the acquisition by a United States company, the Company
adopted the United States dollar as its reporting currency.
The Company financial statements have been translated from their functional
currency, the Canadian dollar, to the reporting currency, the United States
dollar for all reporting periods as follows: assets and liabilities have been
translated at the exchange rate in effect at the end of the period and revenues
and expenses have been translated at the average exchange rate for the period.
All cumulative gains or losses from the translation into the Company's reporting
currency have been included as a separate component of the shareholders' equity
in the balance sheets.
REVENUE RECOGNITION
Software revenue is recognized when all significant obligations have been
satisfied and collectibility has been assured.
Revenues from consulting, training and other services are recognized when the
services are performed. Contract revenue is recognized using the
percentage-of-completion method of accounting. Under this method, contract
revenue and related costs are recognized proportionally with the degree of
completion of work.
Deferred revenues is comprised of maintenance and support agreements for which
services have yet to be provided, software license revenues where significant
vendor obligations have yet to be satisfied, and any payments received from
customers in advance of revenue recognition.
DEPRECIATION AND AMORTIZATION
The fixed assets are depreciated over their estimated useful lives according to
the straight-line method and the following annual rates:
<TABLE>
<S> <C>
Office equipment 20%
Computer equipment 33 1/3%
Software 33 1/3%
Leasehold improvements 20%
</TABLE>
Goodwill is amortized on a straight-line basis over a five-year period until
2005.
GOODWILL
Goodwill represents the excess of the purchase price over the value assigned to
the net identifiable assets obtained upon acquisition of a subsidiary in 2000.
The Company evaluates goodwill annually to determine whether a permanent
impairment in value should be recorded. This requires comparing operating
results for the period and projected future earnings according to operating
budgets, to the unamortized balance of goodwill.
<PAGE> 10
8
UFORCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(in United States dollars)
================================================================================
2 - ACCOUNTING POLICIES (CONTINUED)
================================================================================
STOCK OPTION PLAN
The Company has a stock option plan, which is described in note 9. No
compensation expense is recognized for this plan when stock options are issued
to employees. Any consideration paid by employees on exercise of stock options
or purchase of stock is credited to share capital. If stock or stock options are
repurchased from employees, the excess of the consideration paid over the
carrying amount of the stock or stock option canceled is charged to deficit.
FINANCIAL INSTRUMENTS
The following methods and assumptions were used to determine the estimated fair
value of each class of financial instruments:
Short-term financial instruments
Cash, term deposits, accounts receivable, accounts payable and accrued
liabilities and term loan from the new parent company are financial instruments
whose fair value approximates their carrying amount due to their short-term
maturity.
Long-term debt
The fair value of long-term debt is equivalent to the book value given they were
contracted near the end of the period.
CASH AND CASH EQUIVALENTS
The Company's policy is to present cash and term deposits having a term of less
than three months from the acquisition date as cash and cash equivalents.
================================================================================
3 - INFORMATION INCLUDED IN STATEMENTS OF EARNINGS AND DEFICIT
================================================================================
<TABLE>
<CAPTION>
2000-06-30 1999-06-30 1999-02-28
(12 months) (4 months) (12 months)
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation $205,106 $1,422 $7,497
Amortization of goodwill 70,963 - -
Interest on long-term debt 37,715 - -
Loss on write-off of fixed assets - - 376
</TABLE>
<PAGE> 11
9
UFORCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(in United States dollars)
================================================================================
4 - BUSINESS ACQUISITION
================================================================================
On September 29, 1999, the Company acquired 100% of the voting and participating
shares of Services-Conseils Von Neumann Inc., a computer consulting firm, for a
purchase price of $586,771. The purchase price consisted of $112,923 in cash, a
note payable for $167,878 and $305,970 in capital stock. This transaction has
been accounted for according to the purchase method. The operations of
Services-Conseils Von Neumann Inc. from September 29, 1999 to June 30, 2000 are
included in the consolidated statement of earnings and deficit.
The net acquired assets are detailed as follows:
<TABLE>
<S> <C>
--------
Current assets $116,358
Fixed assets 28,016
Goodwill 473,848
--------
618,222
Current liabilities 51,825
--------
566,397
========
Consideration paid on acquisition
Issue of shares 305,970
Balance of purchase 167,878
--------
473,848
--------
Cash 112,923
Cash acquired from subsidiary (20,374)
--------
92,549
--------
566,397
========
</TABLE>
================================================================================
5 - ACCOUNTS RECEIVABLE
================================================================================
<TABLE>
<CAPTION>
2000-06-30 1999-06-30
---------- ----------
<S> <C> <C>
Trade accounts(a) $ 670,202 $16,110
Advances to shareholders, without interest 205,029 --
Advances to employees, without interest 50,132 --
Commodity taxes receivable 116,669 54,835
Investment tax credits receivable 912,357 --
---------- -------
1,954,389 70,945
========== =======
</TABLE>
(a) As at June 30, 2000, one customer owes an amount representing
approximately 63% of total trade accounts.
<PAGE> 12
10
UFORCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(in United States dollars)
================================================================================
6 - FIXED ASSETS
================================================================================
<TABLE>
<CAPTION>
2000-06-30
---------------------------------------
Accumulated
Cost depreciation Net
--------- ------------ ---------
<S> <C> <C> <C>
Office equipment $ 268,477 $ 40,832 $ 227,645
Computer equipment 221,076 60,375 160,702
Software 81,825 18,034 63,790
Leasehold improvements 1,674 1,392 282
---------- --------- ----------
573,052 120,633 452,419
Assets under capital leases
Office equipment 46,344 4,358 41,985
Computer equipment 678,545 113,091 565,455
---------- --------- ----------
1,297,941 238,082 1,059,859
========== ========= ==========
</TABLE>
Investment tax credits, in the amount of $54,986, have been offset against the
cost of certain fixed assets.
During the year, the Company acquired office and computer equipment in the
amount of $762,277 by way of capital leases.
<TABLE>
<CAPTION>
1999-06-30
------------------------------
Accumulated
Cost depreciation Net
------ ------------ ------
<S> <C> <C> <C>
Office equipment $ 4,084 $ 1,171 $ 2,913
Computer equipment 17,724 8,736 8,988
Software 2,110 1,118 992
Leasehold improvements 1,681 558 1,123
------- ------- -------
25,599 11,583 14,016
======= ======= =======
</TABLE>
================================================================================
7 - AUTHORIZED LINE OF CREDIT
================================================================================
As at June 30, 2000, the Company has an available line of credit of an
authorized amount of $676,000, which is secured by a hypothec on the assets of
the Company and bears interest at prime rate plus 1%. Under the credit
agreement, the Company is subject to certain financial ratios.
<PAGE> 13
11
UFORCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(in United States dollars)
================================================================================
8 - LONG-TERM DEBT
================================================================================
<TABLE>
<CAPTION>
Current
portion 2000-06-30 1999-06-30
--------- ---------- ----------
<S> <C> <C> <C>
Term loan, prime rate plus 3%, maturing in 2005,
payable in monthly installments of $2,817 ($4,167 in
Canadian dollars), secured by computer equipment
having a book value of $169,450 $ 33,800 $ 168,999 $ --
Obligations under capital leases, interest rates varying
between 10.44% and 11.33%, payable in monthly
installments, maturing at various dates until 2002 301,304 666,848 --
Balance of purchase due to shareholders, without
interest, discounted at 7%, payable in two blended
annual installments of $91,260 ($135,000 in Canadian
dollars) in July 2000 and 2001 95,110 175,740 --
Due to companies under common control, without
interest or repayment terms -- -- 17,360
--------- ---------- ---------
430,214 1,011,587 17,360
Installments due within one year 430,214 430,214 17,360
--------- ---------- ---------
-- 581,373 --
========= ========== =========
</TABLE>
The future annual installments on long-term debt are as follows:
<TABLE>
<CAPTION>
Obligations
under capital Other
leases loans
------------- -------
<S> <C> <C>
For the year ended June 30,
2001 $359,358 $128,910
2002 386,170 114,430
2003 -- 33,800
2004 -- 33,800
2005 -- 33,799
-------
Total minimum lease payments 745,528
Interest expense included in minimum lease payments 78,680
------- -------
666,848 344,739
======= =======
</TABLE>
<PAGE> 14
12
UFORCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(in United States dollars)
================================================================================
9 - CAPITAL STOCK
================================================================================
As at June 30, 2000, after the merger between Uforce Inc. and 3044008 Nova
Scotia Company mentioned in note 1, the new authorized capital stock is as
follows:
AUTHORIZED
Shares without par value
100,000,000 Common shares
1,604,999 Exchangeable shares, ranking prior to common shares, each
exchangeable share may be exchanged by the holder for one Netergy
Networks, Inc. (parent company) common share, each exchangeable
share entitles the holders to dividend and other rights
economically equivalent to those granted to a holder of one
Netergy Networks, Inc. common share
Before the merger mentioned above, the authorized capital stock was as follows:
AUTHORIZED
Unlimited number of shares without par value
Common shares
Class "A" non-voting shares, ranking prior to common shares for the
payment of dividends, automatically convertible into common shares on a
share-per-share basis at the time of an initial public offering
Class "C" voting and participating shares, ranking prior to class "A"
shares
<PAGE> 15
13
UFORCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(in United States dollars)
================================================================================
9 - CAPITAL STOCK (CONTINUED)
================================================================================
The changes to the Company capital stock are as follows:
<TABLE>
<CAPTION>
Common shares Class "A" shares
----------------------------- -----------------------------
Number Amount Number Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ISSUED AND FULLY PAID
Balance as of February 28, 1999 11,115,000 $ -- -- $ --
Issuance of shares for cash net of
share issue expenses 7,600,000 4,727,510 -- --
----------- ----------- ----------- -----------
Balance as at June 30, 1999 18,715,000 4,727,510 -- --
Issuance of shares in a business
acquisition (Note 4) -- -- 243,450 305,970
Reversal of an accrued liability
relating to share issue expenses -- 36,484 -- --
Conversion of stock (8,405,589) (1,895,686) (243,450) (305,970)
----------- ----------- ----------- -----------
Balance as at June 30, 2000 10,309,411 2,868,308 -- --
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Exchangeable shares
----------------------------
Number Amount Total amount
----------- ----------- ------------
<S> <C> <C> <C>
ISSUED AND FULLY PAID
Balance as of February 28, 1999 -- $ -- $ --
Issuance of shares for cash net of
share issue expenses -- -- 4,727,510
----------- ----------- -----------
Balance as at June 30, 1999 -- -- 4,727,510
Issuance of shares in a business
acquisition (Note 4) -- -- 305,970
Reversal of an accrued liability
relating to share issue expenses -- -- 36,484
Conversion of stock 1,604,999 2,201,656 --
----------- ----------- -----------
Balance as at June 30, 2000 1,604,999 2,201,656 5,069,964
=========== =========== ===========
</TABLE>
<PAGE> 16
14
UFORCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(in United States dollars)
================================================================================
9 - CAPITAL STOCK (CONTINUED)
================================================================================
In 2000, the Company granted options to its employees entitling them to
subscribe to 1,422,500 common shares of its capital stock. The options vest on
the basis of 1/4 per year and can only be exercised subject to certain criteria.
The subscription price varies between $0.676 and $1.25 per share and the option
has a maximum life of seven years. The weighted average exercise price is $0.94.
No options were vested as of June 30, 2000.
In 1999, the Company granted options to a third party entitling this third party
to subscribe to 285,000 common shares of its capital stock during the 18 months
following June 29, 1999. The subscription price of Cdn $1.00 per share could be
paid in cash or services.
All these options have been cancelled and replaced by options issued by the new
parent company (Netergy Networks, Inc.).
================================================================================
10 - CONTRIBUTED SURPLUS
================================================================================
Pursuant to an agreement entered into upon the creation of Uforce Inc. in 1999,
a shareholder was committed to provide $70,599 in cash to the Company. This
amount was received during the year ended June 30, 2000 and was accounted for as
contributed surplus.
================================================================================
11 - INFORMATION INCLUDED IN STATEMENTS OF CASH FLOWS
================================================================================
Changes in working capital items are detailed as follows:
<TABLE>
<CAPTION>
2000-06-30 1999-06-30 1999-02-28
(12 months) (4 months) (12 months)
---------- --------- -----------
<S> <C> <C> <C>
Accounts receivable $(1,802,119) $ 150,089 $ (157,957)
Work in process (111,144) -- --
Prepaid expenses (193,862) 14,381 (17,375)
Accounts payable and accrued liabilities 1,385,486 47,577 54,097
Income taxes payable (24,069) -- --
Deferred revenue 666,802 -- --
---------- --------- ---------
(78,906) 212,047 (121,235)
========== ========= =========
Cash flows relating to interest are as follows:
2000-06-30 1999-06-30 1999-02-28
(12 months) (4 months) (12 months)
---------- --------- ---------
Interest paid $ 28,844 $ 6,127 $ 1,572
</TABLE>
<PAGE> 17
15
UFORCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(in United States dollars)
================================================================================
12 - INCOME TAXES
================================================================================
The Company has future income taxes assets of $1,796,808 which are not recorded
in the financial statements. Of this amount, $121,004 expires in 2004,
$1,581,840 in 2007 and $93,964 expires at an undetermined date.
The Company's effective income tax rate differs from the combined federal and
provincial income tax rate in Canada. This difference results from the
following:
<TABLE>
<CAPTION>
2000-06-30 1999-06-30 1999-02-28
(12 months) (4 months) (12 months)
----------- ---------- -----------
<S> <C> <C> <C>
Combined federal and provincial income tax rate 38.2% 38.3% 38.3%
Tax losses not recognized (38.2) (38.3) (38.3)
------ ------- --------
-- -- --
====== ======= ========
</TABLE>
================================================================================
13 - COMMITMENTS
================================================================================
The Company has entered into long-term operating lease agreements expiring at
various dates up to 2010 which call for lease payments totalling $6,561,354 for
office space and equipment rental. The minimum lease payments for the next five
years are $562,090 in 2001, $673,547 in 2002, $678,850 in 2003, $678,707 in 2004
and $693,773 in 2005.
================================================================================
14 - CONTINGENCIES
================================================================================
As at June 30, 2000, the Company has issued two letters of credit for $37,731
and $306,753 for two of its landlords. These letters of credit mature on January
31, 2001 and October 31, 2001, respectively, and are secured by term deposits.
<PAGE> 18
16
UFORCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(in United States dollars)
================================================================================
15 - GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
================================================================================
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada (Canadian GAAP) which differ
in certain respects from generally accepted accounting principles in the United
States (U.S. GAAP). Had the Company followed U.S. GAAP, item would have
increased the net loss as follows:
<TABLE>
<CAPTION>
2000-06-30 1999-06-30 1999-02-28
(12 months) (4 months) (12 months)
---------- -------- --------
<S> <C> <C> <C>
Net loss according to Canadian GAAP $4,082,272 $226,395 $211,686
Costs relating to awards of stock options to a third
party -- 92,865 --
---------- -------- --------
Net loss according to U.S. GAAP 4,082,272 319,260 211,686
========== ======== ========
</TABLE>
In accordance with U.S. GAAP, the Company is required to account for options
awarded to a third party at their fair value and recognize this amount as an
expense.
<PAGE> 19
(b)Unaudited Pro Forma Combined Condensed Financial Information
The following unaudited pro forma combined condensed financial statements
give effect to the acquisition by Netergy Networks, Inc., formerly 8x8, Inc.,
("Netergy Networks" or "the Company") of all outstanding shares of UForce, Inc.
("UForce") in a transaction to be accounted for as a purchase.
The unaudited pro forma combined condensed balance sheet as of March 31,
2000 gives effect to this acquisition as if it had occurred on March 31, 2000.
The unaudited pro forma combined condensed statement of operations for the year
ended March 31, 2000 gives effect to the acquisition as if it had occurred on
April 1, 1999.
The unaudited pro forma combined condensed financial information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have actually occurred if
the acquisition had been consummated as of the dates indicated, nor is it
necessarily indicative of future operating results or financial position. In the
opinion of management, all adjustments necessary for a fair presentation of such
pro forma financial statements have been made. The unaudited pro forma combined
condensed financial information, including the notes thereto, is qualified in
its entirety by reference to, and should be read in conjunction with, the
historical financial statements of the Company included in its Annual Report on
Form 10-K filed June 28, 2000 with the Securities and Exchange Commission and
the historical financial statements of UForce included elsewhere in this Form
8-K/A.
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<PAGE> 20
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
NETERGY COMBINED
NETWORKS UFORCE ADJUSTMENTS BALANCES
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 48,576 $ 24 $ -- $ 48,600
Short-term investments -- 1,446 -- 1,446
Accounts receivable, net 1,394 1,507 -- 2,901
Accounts receivable from related party 1,000 -- -- 1,000
Inventory 1,367 14 -- 1,381
Prepaid expenses and other current assets 1,043 132 -- 1,175
--------- --------- --------- ---------
Total current assets 53,380 3,123 -- 56,503
Property and equipment, net 2,687 881 -- 3,568
Intangibles and other assets 3,916 439 43,551 (A) 47,467
(439)(B)
--------- --------- --------- ---------
$ 59,983 $ 4,444 $ 43,112 $ 107,539
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,887 $ 759 $ -- $ 2,646
Accrued compensation 2,154 -- -- 2,154
Accrued warranty 694 -- -- 694
Deferred revenue 731 689 -- 1,420
Other accrued liabilities 1,245 -- 877 (A) 2,122
Income taxes payable 384 -- -- 384
Current portion of long-term debt -- 288 -- 288
--------- --------- --------- ---------
Total current liabilities 7,095 1,736 877 9,708
Long-term debt -- 356 -- 356
Convertible subordinated debentures 5,498 -- -- 5,498
--------- --------- --------- ---------
Total liabilities 12,593 2,092 877 15,562
--------- --------- --------- ---------
Stockholders' equity
Common stock 23 5,129 2 (A) 25
(5,129)(B)
Additional paid-in capital 101,559 94 44,585 (A) 146,144
(94)(B)
Notes receivable from stockholders (69) -- -- (69)
Deferred compensation (376) -- -- (376)
Accumulated deficit (53,747) (2,871) 2,871 (B) (53,747)
--------- --------- --------- ---------
Total stockholder's equity 47,390 2,352 42,235 91,977
--------- --------- --------- ---------
$ 59,983 $ 4,444 $ 43,112 $ 107,539
========= ========= ========= =========
</TABLE>
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<PAGE> 21
NETERGY NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PROFORMA
NETERGY COMBINED
NETWORKS UFORCE ADJUSTMENTS BALANCES
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Product revenues $ 20,817 $ -- $ -- $ 20,817
License and other revenues 4,567 490 -- 5,057
-------- -------- -------- --------
Total revenues 25,384 490 -- 25,874
Cost of product revenues 8,448 -- -- 8,448
Cost of license and other revenues 150 410 -- 560
-------- -------- -------- --------
Gross profit 16,786 80 -- 16,866
Operating expenses:
Research and development 11,909 1,617 -- 13,526
Selling, general and administrative 21,307 1,675 -- 22,982
In-process research and development 10,100 -- -- 10,100
Amortization of intangibles 614 40 10,888 (D) 11,542
Research and development tax credits -- (583) -- (583)
-------- -------- -------- --------
Total operating expenses 43,930 2,749 10,888 57,567
-------- -------- -------- --------
Loss from operations (27,144) (2,669) (10,888) (40,701)
Other income, net 2,807 90 -- 2,897
Interest expense (391) (44) -- (435)
-------- -------- -------- --------
Loss before provision for income taxes (24,728) (2,623) (10,888) (38,239)
Provision for income taxes 120 -- -- 120
-------- -------- -------- --------
Net loss $(24,848) $ (2,623) $(10,888) $(38,359)
======== ======== ======== ========
Net loss per basic and diluted share $ (1.38) $ (1.90)
======== ========
Basic and diluted shares outstanding 18,071 2,132 20,203
======== ======== ========
</TABLE>
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<PAGE> 22
NOTE 1 - BASIS OF PRESENTATION:
Netergy Networks acquired UForce on June 30, 2000 for a total purchase
price of $45.5 million in a transaction to be accounted for as a purchase. The
Company issued or will issue 3,555,303 shares of Netergy Networks common stock,
with a fair value of approximately $38.0 million, for all of the outstanding
stock of UForce. The share total is comprised of 1,447,523 shares issued at
closing of the acquisition and 2,107,780 shares that will be issued upon the
exchange or redemption of the exchangeable shares of Canadian entities held by
former shareholders or indirect owners of UForce stock. Certain of the shares to
be issued are subject to repurchase rights. The common stock was valued using
the Company's average stock price on May 19, 2000, the date the merger agreement
was announced, including the prices of the stock four days before and four days
after the announcement. The average price was $10.70. Netergy Networks also
assumed outstanding stock options to purchase 1,023,898 shares of common stock
for which the Black-Scholes option-pricing model value of approximately $6.6
million will be included in the purchase price. Direct transaction costs related
to the merger are estimated to be approximately $877,000.
The unaudited pro forma combined condensed balance sheet as of March 31,
2000 gives effect to this acquisition as if it had occurred on March 31, 2000.
The unaudited pro forma combined condensed statement of operations for the year
ended March 31, 2000 gives effect to the acquisition as if it had occurred on
April 1, 1999. The Company's fiscal year ends on the last Thursday in March. For
purposes of these pro forma financial statements, the Company has indicated its
fiscal year ends on March 31.
NOTE 2 - PURCHASE PRICE ALLOCATION:
The Company's allocation of the aggregate purchase price is based on
management's preliminary analysis and estimates of the fair values of the
tangible assets and intangible assets. The Company anticipates that, upon
completion of an independent appraisal, there will be a charge for purchased
in-process research and development, which has not reached technological
feasibility and therefore, has no alternative future use. Such in-process
research and development will be charged to the statement of operations in the
period the acquisition is consummated. The book values of tangible assets and
liabilities acquired are assumed to approximate fair values. Intangible assets
are assumed to include current technology, workforce and goodwill and are
amortized over an estimated useful life of 4 years. Upon completion of an
independent appraisal, intangible assets will be reduced by the amount of any
in-process research and development charged to the statement of operations. The
allocation is summarized below (in thousands):
<TABLE>
<S> <C>
Net assets acquired $ 1,913
Intangible assets, including goodwill 43,551
-------
Total $45,464
=======
</TABLE>
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<PAGE> 23
NOTE 3 - UNAUDITED PRO FORMA COMBINED NET LOSS PER SHARE:
The net loss per share and shares used in computing the net loss per
share for the year ended March 31, 2000 are based upon the Company's historical
weighted average common shares outstanding together with the shares issued in
the transaction as if such shares were issued April 1, 1999. Common stock
issuable upon the exercise of stock options, warrants, convertible subordinated
debentures and unvested restricted stock has been excluded, as the effect would
be anti-dilutive for all periods presented.
NOTE 4 - PURCHASE ADJUSTMENTS:
The following adjustments were applied to the combined financial
statements:
(A) To reflect the issuance of shares and the assumption of stock
options in the acquisition and to record estimated transaction
costs and other assets and liabilities at their fair values.
(B) To reflect the writeoff of intangible assets and the elimination
of stockholders' equity accounts of UForce.
(C) To record amortization of goodwill and other intangibles. Goodwill
and other intangibles are amortized on a straight-line basis over
four years.
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<PAGE> 24
(c)Exhibits.
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
23.1 Auditors' Consent
</TABLE>
-8-
<PAGE> 25
SIGNATURES
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 hereunto duly authorized.
NETERGY NETWORKS, INC.
Dated: September 12, 2000
By: /s/ David M. Stoll
-------------------------------------
David M. Stoll
Chief Financial Officer
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<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
23.1 Auditors' Consent
</TABLE>
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