<PAGE>
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 23, 2000
--------------
VerticalNet, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant specified in Charter)
Pennsylvania 000-25269 23-2815834
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employee
jurisdiction of File Number) Identification No.)
incorporation)
700 Dresher Road
Horsham, PA 19044
- --------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone, including area code: 215-328-6100
(Former name and former address, if changed since last report)
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<PAGE>
This Form 8-K/A amends the current Report on Form 8-K filed by the Registrant on
April 6, 2000.
ITEM 2. ACQUISITION OF ASSETS
(a) On March 23, 2000 (the "Closing Date"), VerticalNet, Inc. (the
"Registrant") a Pennsylvania corporation, and Tradeum, Inc. ("Tradeum"), a
Delaware corporation, consummated a merger (the "Merger") whereby VERT
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the
Registrant, was merged with and into Tradeum pursuant to an Agreement and Plan
of Merger (the "Merger Agreement"), dated as of March 8, 2000, as amended.
Tradeum has survived the Merger as a wholly-owned subsidiary of the Registrant.
The terms of the Merger Agreement were negotiated on an arms-length basis.
Pursuant to the Merger Agreement, the Registrant issued 2,573,837 shares (after
giving effect to the Registrant's 2-for-1 stock split effected on March 31,
2000) of its common stock (the "Registrant Common Stock"). In addition, the
Registrant issued employee stock options to purchase 1,426,148 shares of
Registrant Common Stock (after giving effect to the Registrant's 2-for-1 stock
split effected on March 31, 2000) in order to convert each employee stock option
to purchase Tradeum common stock outstanding at the time of the Merger pursuant
to the terms of the Merger Agreement.
(b) Tradeum, a development-stage company, with offices in San
Francisco, California and Israel, is engaged principally in the development of
technology designed to enable the building and hosting of business to business
exchanges, auctions, and sourcing activities.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Tradeum Inc.:
Report of Independent Auditor
Consolidated Balance Sheets
Consolidated Statements of Operations
Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information:
Pro Forma Condensed Consolidated Financial
Statements (unaudited):
Basis of Presentation
Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Consolidated Statement of Operations
Notes to Pro Forma Condensed Consolidated Financial
Statements
Exhibits
2.1* Agreement and Plan of Merger, dated as of March 8,
2000, by and among VerticalNet, Inc., VERT Acquisition
Corp., Tradeum, Inc. and Zvi Schreiber
23.1 Consent of Kost Forer & Gabbay, a member of Ernst &
Young International
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<PAGE>
*Filed as part of the Registrant's Current Report on Form
8-K dated March 23, 2000, filed April 6, 2000, and
incorporated herein by reference.
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<PAGE>
Kost Forer & Gabbay Phone: 972-3-6232525
2 Kremenetski St. Fax: 972-3-5622555
Tel-Aviv 67899, Israel
REPORT OF INDEPENDENT AUDITOR
To the board of directors and shareholders of
TRADEUM INC.
We have audited the accompanying consolidated balance sheets of
Tradeum Inc. and subsidiaries (a development stage company) as of December 31,
1999 and 1998, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the year ended December 31, 1999, the
period ended December 31, 1998 and for the period from October 1, 1998
(inception) till December 31, 1999. These consolidated 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 the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Tradeum Inc. and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and cash flows for the year ended December 31, 1999, the
period ended December 31, 1998 and for the period from October 1, 1998
(inception) till December 31, 1999, in conformity with generally accepted
accounting principles in the United States.
Tel-Aviv, Israel KOST FORER & GABBAY
March 10, 2000 A Member of Ernst & Young International
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<PAGE>
TRADEUM INC.
(A company in the development stage)
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
--------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,100,200 $ 104,280
Accounts receivable and prepaid expenses (Note 4) 54,441 10,982
--------------- -------------
Total current assets 1,154,641 115,262
--------------- -------------
LONG-TERM INVESTMENTS:
Restricted cash (Note 3) 358,508 -
Severance pay fund 28,579 809
Long-term deposit 17,185 5,750
--------------- -------------
Total long-term investments 404,272 6,559
--------------- -------------
FIXED ASSETS, NET (Note 5) 135,957 14,363
--------------- -------------
Total assets $ 1,694,870 $ 136,184
=============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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<PAGE>
TRADEUM INC.
(A company in the development stage)
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998
---------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables $ 193,986 $ 9,753
Other accounts payable and accrued expenses (Note 6) 218,056 18,097
---------------- --------------
Total current liabilities 412,042 27,850
---------------- --------------
ACCRUED SEVERANCE PAY 43,974 1,717
---------------- --------------
LONG-TERM LOAN - 12,500
---------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Share capital (Note 8)
Ordinary shares of $ 0.001 par value:
Authorized 40,000,000 shares;
Issued and outstanding: 4,065,964 and
2,995,120 shares as of December 31, 1999
and 1998, respectively 4,066 295
Preferred A shares of $ 0.001 par value:
Authorized 20,000,000 shares;
Issued and outstanding: 4,002,389 and 0 shares
as of December 31, 1999 and 1998, respectively
aggregate liquidation preference of $ 3,350,000
as of December 31, 1999 4,002 -
Additional paid-in capital 7,565,255 155,058
Deferred stock compensation (2,271,734) -
Accumulated deficit during the development stage (4,062,735) (61,236)
---------------- --------------
Total shareholders' equity 1,238,854 94,117
---------------- --------------
Total liabilities and shareholders' equity $ 1,694,870 $ 136,184
================ ==============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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<PAGE>
TRADEUM INC.
(A company in the development stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
October 1, 1998
(inception)
Year ended Period ended through
December 31, December 31, December 31,
1999 1998 1999
----------------- -------------- -----------------
<S> <C> <C> <C>
Revenues from software sales $ 50,000 $ - $ 50,000
----------------- -------------- -----------------
Operating expenses:
Research and development, net 1,358,549 35,476 1,394,025
Selling and marketing 1,677,664 7,958 1,685,622
General and administrative 898,653 18,608 917,261
----------------- -------------- -----------------
Total operating expenses 3,934,866 62,042 3,996,908
----------------- -------------- -----------------
Operating loss (3,884,866) (62,042) (3,946,908)
Financial income (expenses), net (93,520) 1,108 (92,412)
Capital loss (1,162) (302) (1,464)
----------------- -------------- -----------------
Loss before taxes on income (3,979,548) (61,236) (4,040,784)
Taxes on income 21,951 - 21,951
----------------- -------------- -----------------
Net loss $ (4,001,499) $ (61,236) $ (4,062,735)
================= ============== =================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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<PAGE>
TRADEUM INC.
(A company in the development stage)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Additional
Ordinary Preferred paid-in
shares shares capital
----------- ----------- -----------
Balance as of October 1, 1998 (inception) $ - $ - $ -
Issuance of shares, net 295 - 155,058
Net loss - - -
----------- ----------- -----------
Balance as of December 31, 1998 295 - 155,058
Issuance of stock dividend 2,710 - (2,710)
Issuance of shares, net 1,061 4,002 3,275,463
Deferred stock compensation - - 4,137,444
Amortization of deferred stock - - -
compensation
Net loss - - -
----------- ----------- -----------
Balance as of December 31, 1999 $ 4,066 $ 4,002 $ 7,565,255
=========== =========== ===========
<TABLE>
<CAPTION>
Deferred Total
stock Accumulated shareholders'
compensation deficit equity
---------------- ---------------- ----------------
<S> <C> <C> <C>
Balance as of October 1, 1998 (inception) $ - $ - $ -
Issuance of shares, net - - 155,353
Net loss - (61,236) (61,236)
---------------- ---------------- ----------------
Balance as of December 31, 1998 - (61,236) 94,117
Issuance of stock dividend - - -
Issuance of shares, net - - 3,280,526
Deferred stock compensation (4,137,444) - -
Amortization of deferred stock 1,865,710 - 1,865,710
compensation
Net loss - (4,001,499) (4,001,499)
---------------- ---------------- ----------------
Balance as of December 31, 1999 $ (2,271,734) $ (4,062,735) $ 1,238,854
================ ================ ================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-8-
<PAGE>
TRADEUM INC.
(A company in the development stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
October 1, 1998
(inception)
Year ended Period ended through
December 31, December 31, December 31,
1999 1998 1999
---------------- -------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,001,499) $ (61,236) $(4,062,735)
Depreciation 8,541 579 9,120
Amortization of deferred stock compensation 1,865,710 - 1,865,710
Increase in accounts receivable and prepaid
expenses (43,459) (10,982) (54,441)
Increase in trade payables 184,233 9,753 193,986
Increase in other accounts payable and
accrued expenses 199,959 18,097 218,056
Increase in accrued severance pay, net 14,487 908 15,395
Other 1,162 302 1,464
---------------- -------------- -----------------
Net cash used in operating activities (1,770,866) (42,579) (1,813,445)
---------------- -------------- -----------------
Cash flows from investing activities:
Restricted cash (358,508) - (358,508)
Investment in long-term deposit (17,185) (5,750) (22,935)
Proceeds from long-term deposit 5,750 - 5,750
Purchase of fixed assets (140,760) (16,044) (156,804)
Proceeds from sale of fixed assets 9,463 800 10,263
---------------- -------------- -----------------
Net cash used in investing activities (501,240) (20,994) (522,234)
---------------- -------------- -----------------
Cash flows from financing activities:
Proceeds from long-term loans - 12,500 12,500
Proceeds from issuance of shares, net 3,280,526 155,353 3,435,879
Principal payment of long-term loan (12,500) - (12,500)
---------------- -------------- -----------------
Net cash provided by financing activities 3,268,026 167,853 3,435,879
---------------- -------------- -----------------
Increase in cash and cash equivalents 995,920 104,280 1,100,200
Cash and cash equivalents at the beginning
of the period 104,280 - -
---------------- -------------- -----------------
Cash and cash equivalents at the end of
the period $ 1,100,200 $ 104,280 $ 1,100,200
================ ============== =================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-9-
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1:- GENERAL
a. Tradeum Inc. ("the Company") commenced operations in October
1998 and is engaged in research, development and marketing
of innovative infrastructure for business to business
commerce on the Internet. During November 1999,Tradeum
Technologies Ltd. a Company under common control decided to
change its structure, during which a new U.S. parent company
was established, Tradeum Inc. Tradeum Inc. established a new
subsidiary in Israel, Tradeum E-commerce Ltd. During the
aforementioned change in structure, there were no changes in
the holdings of the shareholders. The 1998 financial
statements present the financial position, results of
operations, changes in shareholders' equity and cash flows
of Tradeum Technologies Ltd.
In the context of this change in structure, Tradeum Inc.
acquired intellectual property from Tradeum Technologies
Ltd. in consideration of $ 1 million. In addition, Tradeum
E-commerce Ltd. purchased the fixed assets of Tradeum
Technologies Ltd., in consideration of its depreciated cost
($ 105,650). The total consideration of $ 1,105,650 is
payable on February 25, 2000. These intercompany
transactions have been eliminated in consolidation.
The expenses involved in the change in structure in the
amount of approximately $ 217 thousand were included in the
statement of operations, $184 thousand in general and
administrative and $ 33 thousand in research and
development. These financial statements include the data of
the three companies.
These transactions, which resulted in a combination of
entities under common control, have been accounted for in a
manner similar to a pooling of interests. Accordingly, the
financial statements of the Company for all periods prior to
November 25, 1999 have been prepared using the combined
historical carrying cost of the assets and liabilities of
Tradeum Technologies Ltd., transferred to the Company and
the combined historical results of their operations.
b. The Company is devoting substantially all of its efforts
towards conducting research, development and marketing of
innovative infrastructure for business to business commerce
on the Internet, raising capital and recruiting personnel
and building infrastructure. In the course of such
activities, the Company has sustained operating losses and
expects such losses to continue in the foreseeable future.
The Company has not generated any significant revenues or
product sales and has not achieved profitable operations or
positive cash flow from operations. The Company's deficit
accumulated during the development stage aggregated to $
4,062,735 through December 31, 1999. There is no assurance
that profitable operations, if ever achieved, could be
sustained on a continuing basis.
The Company plans to continue to finance its operations with
a combination of stock issuances and private placements and,
in the longer term, by generating revenues from product
sales. There is no assurance, however, that
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<PAGE>
the Company will be successful in obtaining an adequate
level of financing needed for the long-term development and
commercialization of its planned products.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP") in the United
States:
a. Use of estimates:
The preparation of financial statements, in conformity with
generally accepted accounting principles, requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
b. Financial statements in U.S. dollars:
A substantial portion of the Company's subsidiary and the
Company under common control costs in Israel are incurred in
U.S. dollars. Accordingly, the Company has determined the
U.S. dollar as the currency of its primary economic
environment and thus its functional and reporting currency.
The Company's transactions and balances denominated in U.S.
dollars are presented at their original amounts. Non-dollar
transactions and balances have been remeasured to U.S.
dollars in accordance with Statement No. 52 of the Financial
Accounting Standards Board ("FASB"). All transaction gains
and losses from remeasurement of monetary balance sheet
items denominated in non-dollar currencies are reflected in
the statements of operations as financial income or
expenses, as appropriate.
c. Principles of consolidation:
The consolidated financial statements include the accounts
of the Company and its subsidiary Tradeum E-Commerce Ltd.
and the Company under Common Control, Tradeum Technologies
Ltd., companies incorporated under the laws of the State of
Israel. Intercompany transactions and balances, including
profits from intercompany sales not yet realized outside the
group, have been eliminated in consolidation.
d. Cash and cash equivalents:
The Company considers all highly liquid investments,
originally purchased with maturities of three months or
less, to be cash equivalents.
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<PAGE>
e. Fixed assets:
Fixed assets are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful
lives of the assets at the following annual rates:
<TABLE>
<CAPTION>
%
----------------------------
<S> <C>
Computers and peripheral equipment 33
Office furniture 7 - 15
Motor vehicles 15
Leasehold improvements Over the term of the lease
</TABLE>
f. Accounting for stock-based compensation:
The Company has elected to continue accounting for
stock-based compensation in accordance with the provisions
of Accounting Principles Board Opinion No. 25 ("APB-25"),
"Accounting for Stock Issued to Employees". Under APB-25,
when the exercise price of the Company's shares options
equals or is higher than the market price of the underlying
shares on the date of grant, no compensation expense is
recognized. The pro-forma information with respect to the
fair value of the options is provided in accordance with the
provisions of Statement No. 123 (see Note 8d).
g. Research and development:
Research and development costs, net of grants received, are
charged to expenses as incurred. Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise
Marketed", requires capitalization of certain software
development costs, subsequent to the establishment of
technological feasibility.
Based on the Company's product development process,
technological feasibility is established upon completion of
a working model. Costs incurred by the Company between
completion of the working model and the point at which the
product is ready for general release have been
insignificant.
h. Long-term deposits:
The Company classifies deposits with maturities of more than
one year as long-term deposits.
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<PAGE>
i. Income taxes:
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". This statement prescribes the
use of the liability method, whereby deferred tax asset and
liability account balances are determined based on
differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the
differences are expected to reverse. The Company provides a
valuation allowance, if necessary, to reduce deferred tax
assets to their estimated realizable value.
j. Concentration of credit risks:
SFAS No. 105, "Disclosure of Information About Financial
Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk", requires
disclosure of any significant off-balance-sheet and credit
risk concentrations. The Company has no significant
off-balance-sheet concentration of credit risk such as
foreign exchange contracts, option contracts or other
foreign hedging arrangements.
Financial instruments that potentially subject the Company
to concentrations of credit risk consist principally of cash
and cash equivalents, restricted cash and trade receivables
and long-term deposits. Cash and cash equivalents are
deposited with major banks in Israel and the United States.
Such deposits in the United States may be in excess of
insured limits and are not insured in other jurisdictions.
Management believes that the financial institutions that
hold the Company's investments are financially sound, and,
accordingly, minimal credit risk exists with respect to
these investments.
k. Fair value of financial instruments:
SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments", requires disclosures about the fair value of
financial instruments. The following disclosures of the
estimated fair value of financial instruments have been
determined by the Company using available market information
and valuation methodologies described below. However,
considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly,
the estimates presented herein may not be indicative of the
amounts that the company could realize in a current market
exchange. The use of different market assumptions or
valuation methodologies may have a material effect on the
estimated fair value amounts.
The carrying values of cash and cash equivalents,
receivables, restricted cash and trade payables approximate
fair values due to the short-term maturities of these
instruments.
l. Revenue recognition:
The Company generates revenues from licensing the rights to
use its software products directly to end-users and
indirectly through sub-license fees from resellers.
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<PAGE>
Revenues from software license agreements are recognized, in
accordance with Statement Of Position 97-2 as amended ("SOP
97-2"), "Software Revenue Recognition", upon delivery of the
software when collection is probable, the license fee is
fixed or determinable, vendor-specific evidence of fair
value exists to allocate the total fee to undelivered
elements of the arrangement and persuasive evidence of an
arrangement exists.
Revenues from software licenses that require significant
customization, integration and installation are recognized
using contract accounting on a percentage of completion
method, based on the relationship of actual costs incurred
to total estimated costs.
Revenues from maintenance and services are recognized over
the term of the maintenance agreement or at the time that
services are rendered.
m. Royalty-bearing grants:
Royalty-bearing grants from the Government of Israel for
funding certain approved research projects and for funding
marketing activity are recognized at the time in which the
Company is entitled to such grants, on the basis of the
related costs incurred.
n. Accrued severance pay:
The liability of the Company's subsidiary in Israel for
severance pay is calculated pursuant to Israeli severance
pay law based on the most recent salary of the employees
multiplied by the number of years of employment as of the
balance sheet date. The Company's liability is fully
provided by monthly deposits with severance pay funds,
insurance policies and by an accrual.
The deposited funds include profits accumulated up to the
balance sheet date. The deposited funds may be withdrawn
only upon the fulfillment of the obligation pursuant to
Israeli severance pay law or labor agreements. The value of
these policies is recorded as an asset in the Company's
balance sheet. Severance pay expenses for the year ended
December 31, 1999 and for the period ended December 31, 1998
were $ 14,487 and $ 908, respectively.
NOTE 3:- RESTRICTED CASH
Restricted cash deposits are maintained with banks as compensating
balances for certain orders and leasing obligations of $ 358,508. The
Company is restricted from withdrawing any portion of the compensating
balances at any time, until repayment of its obligation.
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<PAGE>
NOTE 4:- ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
December 31,
---------------------------
1999 1998
------------- ------------
Government authorities $ 52,562 $ 6,609
Employees 1,879 3,085
Prepaid expenses and other - 1,288
------------- ------------
$ 54,441 $ 10,982
============= ============
NOTE 5:- FIXED ASSETS
December 31,
---------------------------
1999 1998
------------- ------------
Cost:
Computers and peripheral equipment $ 49,362 $ 1,856
Office furniture and equipment 39,267 535
Leasehold improvements 54,522 -
Motor vehicles - 12,500
------------- ------------
143,151 14,891
------------- ------------
Accumulated depreciation:
Computers and peripheral equipment 2,888 55
Office furniture and equipment 1,781 4
Leasehold improvements 2,525 -
Motor vehicles - 469
------------- ------------
7,194 528
------------- ------------
Depreciated cost $ 135,957 $ 14,363
============= ============
NOTE 6:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31,
---------------------------
1999 1998
------------- ------------
Employees and payroll accruals $ 120,442 $ 11,898
Government authorities 42,591 -
Tax authorities 21,671 -
Accrued expenses and others 33,352 6,199
------------- ------------
$ 218,056 $ 18,097
============= ============
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<PAGE>
NOTE 7:- COMMITMENTS AND CONTINGENCIES
a. The Company, its subsidiary and the Company under common
control facilities are rented under operating leases for
periods ending in March 2004.
Future minimum lease commitments under non-cancelable
operating leases for the years ended December 31, are as
follows:
Year
-------------
2000 $ 353,953
2001 367,162
2002 407,792
2003 410,152
2004 344,105
---------------
$ 1,883,164
===============
The rental expenses for the year ended December 31, 1999 and
for the period since ended December 31, 1998, amounted to
$50,844 and $5,750, respectively.
b. The Company has provided the following guarantees:
- in connection with its lease commitments in the amount of
$235,000;
- in connection with its credit cards in the amount of
$25,000;*)
- in connection with its suppliers in the amount of
$45,783.
*) The Company has a line of credit of $20,000.
c. Royalty - bearing grants:
During 1998 the Company under common control received grants
from the office of chief scientist, as a part of the
restructure, the Company under common control repaid its
obligation to the chief scientist.
That payment is included in the research and development
expenses in the amount of approximately $33 thousand.
NOTE 8:- SHARE CAPITAL
a. Tradeum Technologies Ltd. ("TTL") - a company under Common
Control.
. Upon establishment, TTL issued 2,582,000 Ordinary shares of
NIS 0.01 at par value.
In October 1998, TTL issued 413,120 Ordinary shares of NIS
0.01, for a total consideration of $ 160,000.
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<PAGE>
In March and July 1999, TTL issued 10,328 Ordinary shares of
NIS 0.01 for total consideration of $4,000.
In August 1999, the Company's Board of Directors resolved to
effect a split of its Ordinary shares in a 1:100 ratio and
to distribute stock dividend in a 1:25.82 ratio. All share
amounts have been retroactively adjusted for all periods
presented.
In August 1999, the Company issued 4,002,389 Series A
convertible Preferred shares, for a total consideration of
$3,350,000.
During 1999, the Company issued 1,060,516 shares to officers
and contractors of the Company. Based on the fair value of
this stock, as of the date of the grant, compensation
expenses of $891,000 have been recorded.
b. Tradeum Inc.:
Upon incorporation the Company issued to the shareholders of
"TTL", Ordinary and preferred shares of $0.001 in
proportion to their holdings in TTL.
c. Preferred shares:
The Preferred shares have preference over the Ordinary
shares, in the event of liquidation, dissolution or winding
up, including consolidation, merger or reorganization, or a
sale of all, or substantially all of the Company's assets or
share capital. The liquidation preference is equal to the
full amount originally paid after deduction of dividends
paid in respect thereof plus interest. Aggregate liquidation
preference is $3,350,000 as of December 31, 1999. Upon the
Company's Initial Public Offering, all of the Company's
4,002,389 Preferred shares outstanding as of December 31,
1999, will be converted into 4,002,389 Ordinary shares.
d. Share option plan:
The Company has authorized through its 1999 Incentive Share
Option Plan the grant of options to officers, management and
other key employees of up to 4,800,000 shares of the
Company's Ordinary shares. The options granted have 4-year
vesting terms, become fully exercisable after four
consecutive years of employment and expire 7 years
subsequent to the date of grant.
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<PAGE>
A summary of the Company's share option activity and related
information, is as follows:
<TABLE>
<CAPTION>
Year ended December 31, Period ended December 31,
1999 1998
---------------------------- --------------------------
Weighted Weighted
average average
Number of exercise Number of exercise
options price options price
-------------- ------------ ------------- ------------
In In
thousands $ thousands $
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Outstanding at the
beginning of year - - - -
Granted 1,761 0.084 - -
--------------
Outstanding at the
end of year 1,761 0.084 - -
==============
Exercisable options 84 0.084 - -
==============
</TABLE>
The weighted average fair value on date of grant of options
granted for the year ended December 31, 1999, was $ 1.87.
All options were granted for less than the market price on the
date of the grant.
Compensation cost recognized by the Company in respect of its
share based employee compensation awards, was in the amount of
$ 4,137,444 for the year ended December 31, 1999.
Pro-forma information regarding net income and earnings per
share is required by FAS-123, and has been determined as if
the Company had accounted for its employee share options under
the fair value method prescribed by that Statement. The fair
value for these options was estimated at the date of grant,
using a Black-Scholes option pricing model, with the following
weighted-average assumptions for 1999, respectively: risk-free
interest rate of 6%; dividend yields of 0%; volatility factors
of the expected market price of the Company's common shares of
0.5 and a weighted-average expected life of the option of 7
years.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions, including the expected share price volatility.
Because the Company's employee share options have
characteristics significantly different from those of traded
options, and since changes in the subjective input assumptions
can materially affect the fair value estimate, in management's
option, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee
share options.
-18-
<PAGE>
For purposes of pro-forma disclosures, the estimated fair
value of the options is amortized to expense over the
options' vesting period.
The Company's pro-forma information is as follows:
1999 1998
------------- ----------
Net loss as reported 4,001,499 61,236
============= ==========
Pro-forma net loss 4,775,683 61,236
============= ==========
NOTE 9:- INCOME TAXES
a. Taxation of the U.S. parent Company (Tradeum Inc.)
As of December 31, 1999, Tradeum Inc. has operating loss
carryforwards for U.S. federal income tax purposes of
approximately $ 1 million, which are available to offset
future taxable income, if any, expiring in 2019.
The parent company in the U.S. provided valuation allowances
in respect of deferred tax assets resulting from tax loss
carryforwards and other temporary differences. Management
currently believes that it is more likely than not that the
deferred tax regarding the loss carryforwards and other
temporary differences will not be realized.
b. Israeli subsidiary and the Company under common control:
1. Measurement of results for tax purposes under the
Income Tax (Inflationary Adjustments) Law, 1985
("the inflationary adjustments law"):
Under this law, results for tax purposes are
measured in real terms, with certain adjustments
for changes in the Israeli consumer price index
(CPI), the financial statements are presented in
dollars. The difference between the change in the
Israeli CPI and in the Israeli currency/dollar
exchange rate, both on annual and cumulative
bases, causes a difference between loss for tax
purposes and the loss reflected in the financial
statements.
2. Tax rates applicable:
Income from all sources is taxed at the regular
rate of 36%.
3. Tax loss carryforwards:
As of December 31, 1999, the subsidiary and the
Company under common control has no operating loss
carryforwards for Israeli tax purposes.
-19-
<PAGE>
c. Deferred income taxes:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
--------------- ------------
U.S. dollars
------------------------------
<S> <C> <C>
Domestic income taxes:
Deferred tax asset $ 320,000 $ -
Less - valuation allowance (320,000) -
--------------- ------------
$ - $ -
=============== ============
Foreign income taxes:
Deferred tax asset $ 11,610 *) -
Less - valuation allowance (11,610) *) -
--------------- ------------
$ - $ -
=============== ============
*) Less than $1 thousand.
</TABLE>
NOTE 10:- SUBSEQUENT EVENTS (UNAUDITED)
Option plan
-----------
Subsequent to the balance sheet date, the Company's Board of Directors
resolved to issue 3,011,779 options to officers, management and other
key employees. Deferred compensation expenses in regard to these
options are in the amount of approximately $ 7.2 million.
Bridge loan
-----------
In February 2000, the Company received a $ 5,000,000 bridge loan for
six months that could be converted into Preferred shares of the
Company in one of the following events (1) in case that during the
next six months an investment agreement will be signed, the loan will
be converted to shares of the same Company value that was agreed in
the investment agreement. (2) in case that during the period no
investment agreement will be signed, the loan will be converted to
shares according to a Company value of $ 75 million.
Merger agreement
----------------
In March 2000, the Company signed a merger agreement, with VerticalNet
Inc. In the course of that agreement VerticalNet Inc. will issue 2
million ordinary shares to the shareholders of the Company in return
of 100% of the Company shares.
-20-
<PAGE>
VERTICALNET, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated balance sheet of
VerticalNet, Inc. (the "Company") as of December 31, 1999, and the related
unaudited pro forma consolidated statement of operations for the year ended
December 31, 1999, give effect to the purchase of all the capital stock of
Tradeum Inc., as described in Note 2 of the Notes to Pro Forma Condensed
Consolidated Financial Statements, as if the transaction had occurred as of
December 31, 1999, in the case of the unaudited pro forma condensed consolidated
balance sheet, and as of January 1, 1999, in the case of the unaudited pro forma
consolidated statement of operations.
The unaudited pro forma consolidated statement of operations for the year ended
December 31, 1999, also gives effect to the acquisitions of R.W. Electronics
Inc. ("R W Electronics"), NECX Exchange Trust, Isadra, Inc. ("Isadra"),
CertiSource, Inc. ("CertiSource"), LabX Technologies Inc. ("LabX") and Techspex,
Inc. ("Techspex"), completed on March 31, 2000, December 16, 1999, August 25,
1999, August 10, 1999, July 29, 1999 and June 14, 1999, respectively, as
described in Notes 3, 4, 5, 6, 7 and 8 of the Notes to Pro Forma Condensed
Consolidated Financial Statements, respectively, as if the transactions had
occurred as of January 1, 1999.
The unaudited pro forma condensed consolidated financial statements have been
prepared by the management of the Company and should be read in conjunction with
the Company's historical consolidated financial statements, which have been
previously filed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, the historical financial statements of Tradeum, which are
included elsewhere in this Form 8-K/A, the historical financial statements of R
W Electronics, NECX Exchange Trust, Isadra, CertiSource, LabX and Techspex,
filed on Forms 8-K dated March 31, 2000, December 16, 1999, August 25, 1999,
August 10, 1999, July 29, 1999 and June 14, 1999, respectively. Since the
unaudited pro forma financial statements which follow are based upon the
financial condition and operating results of Tradeum, R W Electronics, NECX
Exchange Trust, Isadra, CertiSource, LabX and Techspex during periods when they
were not under the control or management of VerticalNet, the information
presented may not be indicative of the results which would have actually been
obtained had the acquisitions been completed on January 1, 1999 nor are they
indicative of future financial or operating results.
The unaudited pro forma condensed consolidated balance sheet as of December 31,
1999 also gives effect to two additional recent significant events, including a
$100 million equity investment made in the Company and the conversion of a
portion of the Company's 5 1/4% convertible subordinated debentures. On April 7,
2000 Microsoft completed a $100 million equity investment in VerticalNet through
the purchase of shares of the Company's Series A 6% convertible redeemable
preferred stock, which is convertible into 1,151,080 shares of the Company's
common stock. In addition, Microsoft received warrants entitling Microsoft to
purchase 1,500,000 shares of the Company's common stock at an exercise price of
$69.50 per share. As of April 25, 2000, approximately $93 million of the
Company's 5 1/4% convertible subordinated debentures was converted into
4,664,750 shares of common stock.
-21-
<PAGE>
VERTICALNET, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
Historical (Note 1)
----------------------------------------
Pro Forma
VerticalNet R W Electronics Tradeum Adjustments
----------- --------------- ------- -----------
Dollars in Thousands
<S> <C> <C> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 14,254 $ 64 $ 1,100 $ (5,500) (a)
(10,500) (f)
(21,648) (h)
22,294 (c)
(64) (i)
Short-term investments 44,131 - (22,294) (c)
Accounts receivable, net of allowance for doubtful accounts 45,776 24,425 - -
Inventory, net of reserve 5,510 5,493 - -
Prepaid expenses and other assets 5,964 2,496 54 -
----------- --------- --------- ------------
Total current assets 115,635 32,478 1,154 (37,712)
Restricted Cash 4,789 - 359 -
Property and equipment, net 13,148 243 136 -
Goodwill and other intangibles, net of accumulated amortization 177,924 - - 441,893 (b)
75,121 (g)
Long-term investments 16,885 - - -
Deferred charges and other assets 12,523 2,434 46 -
----------- --------- --------- ------------
Total assets $ 340,904 $ 35,155 $ 1,695 $ 479,302
=========== ========= ========= ============
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,372 $ 8 $ - $ -
Lines of credit - 21,648 - (21,648) (h)
Notes payable to shareholders - 1,750 - (1,750) (i)
Accounts payable 14,515 3,667 194 -
Accrued expenses 20,102 1,854 218 (431) (i)
Dividend distributions payable - 1,347 - (1,347) (i)
Deferred revenues 9,768 - - -
----------- --------- --------- ------------
Total current liabilities 45,757 30,274 412 (25,176)
Long-term debt, net of current portion 1,750 - - -
Convertible Notes
115,000 - - -
Accrued severence pay
- - 44 -
Shareholders' equity 178,397 4,881 1,239 447,632 (a)
(10,000) (b)
(1,239) (d)
72,966 (f)
(4,881) (j)
----------- --------- --------- ------------
Total liabilities and shareholders' equity $ 340,904 $ 35,155 $ 1,695 $ 479,302
=========== ========= ========= ============
<CAPTION>
Convertible Convertible
Preferred Stock Debt
Pro Forma Adjustment Adjustment Pro Forma
--------- ---------- ---------- ---------
Dollars in Thousands
<S> <C> <C> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ - $ 100,000 (w) $ (11,207) (y) $ 88,793
Short-term investments 21,837 - - 21,837
Accounts receivable, net of allowance for doubtful accounts 70,201 - - 70,201
Inventory, net of reserve 11,003 - - 11,003
Prepaid expenses and other assets 8,514 - - 8,514
---------- ----------- ----------- --------
Total current assets 111,555 100,000 (11,207) 200,348
Restricted Cash 5,148 - - 5,148
Property and equipment, net 13,527 - - 13,527
Goodwill and other intangibles, net of accumulated amortization 694,938 - - 694,938
Long-term investments 16,885 - - 16,885
Deferred charges and other assets 15,003 7,603 (w) (3,040) (z) 19,566
---------- ----------- ---------- ---------
Total assets $ 857,056 $ 107,603 $ (14,247) $ 950,412
========== =========== ========== =========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,380 $ - $ - $ 1,380
Lines of credit - - - -
Notes payable to shareholders - - - -
Accounts payable 18,376 - - 18,376
Accrued expenses 21,743 - - 21,743
Dividend distributions payable - - - -
Deferred revenues 9,768 - - 9,768
---------- ----------- --------- ---------
Total current liabilities 51,267 - - 51,267
Long-term debt, net of current portion 1,750 - - 1,750
Convertible Notes
115,000 - (93,295) (x) 21,705
Accrued severence pay
44 - - 44
Shareholders' equity 688,995 107,603 (w) 93,295 (x) 875,646
(11,207) (y)
(3,040) (z)
---------- ----------- ---------- ---------
Total liabilities and shareholders' equity $ 857,056 $ 107,603 $ (14,247) $ 950,412
========== =========== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VERTICALNET, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Historical (Note 1)
-----------------------------------------------------------------
VerticalNet Techspex LabX CertiSource Isadra NECX
----------- -------- ---- ----------- ------ ----
Dollars in Thousands
<S> <C> <C> <C> <C> <C> <C>
Revenues
Exchange transaction sales $ 16,501 $ - $ - $ - $ - $ 350,107
Cost of exchange transaction sales 14,171 - - - - 314,257
----------- ------- ------ --------- ------- --------
Net exchange revenues 2,330 - - - - 35,850
Advertising, e-commerce and other revenues 18,428 151 155 765 - -
----------- ------- ------ --------- ------- --------
Combined revenues 20,758 151 155 765 - 35,850
Other Costs and Expenses:
Editorial and operational 8,611 33 40 215 - -
Product development 7,396 10 30 97 1,573 -
Sales and marketing 26,269 96 19 295 257 17,970
General and administrative 11,887 54 30 613 3,728 14,755
In-process research and development charge 13,600 - - - - -
Amortization of goodwill and other intangibles 7,819 - - - - -
----------- ------- ------ --------- ------- --------
Operating income (loss) (54,824) (42) 36 (455) (5,558) 3,125
----------- ------- ------ --------- ------- --------
Other income (loss) - - - 327 - -
Interest, net 1,344 (13) - - (63) (2,709)
----------- ------- ------ --------- ------- --------
Income taxes - - 8 - - 104
----------- ------- ------ --------- ------- --------
Net income (loss) $ (53,480) $ (55) $ 28 $ (128) $(5,621) $ 312
=========== ======= ====== ========= ======= ========
Basic and diluted net loss per share $ (0.86)
===========
Weighted average shares outstanding
used in basic and diluted per-share
calculation (Note 11) 62,391
===========
<CAPTION>
Historical (Note 1)
---------------------------- Pro Forma
R W Electronics Tradeum Adjustments Total
--------------- ------- ----------- -----
Dollars in Thousands
<S> <C> <C> <C> <C>
Revenues
Exchange transaction sales $ 172,519 $ - $ - $ 539,127
Cost of exchange transaction sales 152,813 - - 481,241
--------------- ---------- ---------- ----------
Net exchange revenues 19,706 - - 57,886
Advertising, e-commerce and other revenues - 50 - 19,549
--------------- ---------- ---------- ----------
Combined revenues 19,706 50 - 77,435
Other Costs and Expenses:
Editorial and operational - - - 8,899
Product development - 1,358 - 10,464
Sales and marketing 5,556 1,678 - 52,140
General and administrative 7,595 899 - 39,561
In-process research and development charge - - - 13,600
Amortization of goodwill and other intangibles - - 147,298 (e) 202,297
15,049 (k)
23,111 (n)
6,883 (p)
707 (r)
925 (s)
505 (u)
--------------- ---------- ---------- ----------
Operating income (loss) 6,555 (3,885) (194,478) (247,193)
--------------- ---------- ---------- ----------
Other income (loss) - (1) - 326
37 (l)
63 (q)
Interest, net (1,090) (93) 13 (v) (2,511)
--------------- ---------- ---------- ----------
(276) (m)
(104) (o)
Income taxes 276 22 (8) (t) 22
--------------- ---------- ---------- ----------
Net income (loss) $ 5,189 $ (4,001) $ (193,977) $ (251,733)
=============== ========== ========== ==========
Basic and diluted net loss per share $ (3.64)
==========
Weighted average shares outstanding
used in basic and diluted per-share
calculation (Note 11) 69,162
==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VERTICALNET, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: HISTORICAL FINANCIAL STATEMENTS:
The historical balances of VerticalNet, Inc. ("VerticalNet" or the "Company")
reflect the consolidated balance sheet as of December 31, 1999, and the
consolidated results of operations for the year ended December 31, 1999, as
reported in the consolidated financial statements which have been previously
filed in the Company's Annual Report on Form 10-K for the year ended December
31, 1999. The historical balances of R. W. Electronics Inc. ("RW Electronics"),
NECX Exchange Trust, Isadra, Inc. ("Isadra"), CertiSource, Inc. ("CertiSource"),
LabX Technologies Inc. ("LabX") and Techspex, Inc. ("Techspex") for the year
ended December 31, 1999 represent the results of their operations prior to their
acquisition by the Company for the year ended December 31, 1999, which were
derived from the historical financial statements filed in the Form 8-Ks dated
March 31, 2000, December 16, 1999, August 25, 1999, August 10, 1999, July 29,
1999 and June 14, 1999, respectively. The period results for the period
subsequent to the acquisition dates for RW Electronics, NECX Exchange Trust,
Isadra, CertiSource, LabX and Techspex are included in the Company's results.
The historical balances of Tradeum Inc. ("Tradeum") as of December 31, 1999 and
for the year ended December 31, 1999 were derived from the historical financial
statements included elsewhere in this Form 8-K/A.
Note 2: ACQUISITION OF TRADEUM INC.:
On March 23, 2000, VerticalNet purchased all of the capital stock of Tradeum
pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as
of March 8, 2000, as amended, by and among VerticalNet, Tradeum and VERT
Acquisition Corp. The total consideration issued was approximately $453.1
million, including transaction costs. The acquisition was accounted for under
the purchase method of accounting. Under this method, the purchase price is
allocated to the assets acquired and liabilities assumed based on the fair
values at the acquisition date. Such allocation is based on estimates that may
be revised at a later date. Therefore, actual amounts may differ from those in
the unaudited pro forma condensed consolidated financial statements. The excess
of the purchase price over the fair value of the assets acquired was
approximately $451.9 million, which has been allocated to in-process research
and development, developed technology, assembled workforce and goodwill in the
amounts of approximately $10.0 million, $7.0 million, $1.0 million and $433.9
million, respectively. The $10.0 million has been charged to expense as a non-
recurring charge upon consummation of the acquisition since the in-process
research and development has not yet reached feasibility and has no alternative
future uses. The developed technology, assembled workforce and goodwill will be
amortized on a straight-line basis over 36 months.
The following pro forma adjustments for the Tradeum acquisition are reflected in
the unaudited pro forma condensed consolidated balance sheet as of December 31,
1999, and the unaudited pro forma consolidated statement of operations for the
year ended December 31, 1999:
Unaudited Pro Forma Adjustments to Condensed Consolidated Balance Sheet
- -----------------------------------------------------------------------
-24-
<PAGE>
(a) Reflects the consideration issued by the Company to consummate the
acquisition:
(in thousands)
Transaction costs $ 5,500
Common stock 325,041
Options 122,591
-------
$453,132
========
(b) Reflects the recording of the purchase transaction.
(in thousands)
Total purchase price $453,132
Fair value of net assets acquired 1,239
--------
Excess purchase price to be to allocated $451,893
========
The excess purchase price was allocated as follows (based on an independent
appraisal):
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
In-process research and development $ 10,000
Developed technology (estimated useful life of 36 months) 7,000
Assembled workforce (estimated useful life of 36 months) 1,000
Goodwill (estimated useful life of 36 months) 433,893
---------
$ 451,893
=========
</TABLE>
The amount allocated to in-process research and development represents valuation
of projects that had not yet reached technological feasibility and for which the
technology had no alternative future use. The $10.0 million has been reflected
as a reduction to shareholders' equity and has not been included in the pro
forma consolidated statement of operations due to its non-recurring nature.
(c) Reflects the Company's reclass of a portion of the Company's short term
investments to cash.
(d) Reflects the elimination of the equity accounts of Tradeum.
Unaudited Pro Forma Adjustments to Consolidated Statement of Operations
- -----------------------------------------------------------------------
(e) Represents additional amortization expense for the year ended December
31,1999, relating to the developed technology and assembled workforce
acquired in the transaction and goodwill based upon estimated useful lives
of 36 months.
Note 3: ACQUISITION OF R. W. ELECTRONICS, INC.:
On March 31, 2000, VerticalNet acquired substantially all of the assets plus
assumed certain liabilities of RW Electronics for approximately $83.5 million,
including transaction costs. The acquisition was accounted for under the
purchase method of accounting. Under this method, the purchase price was
allocated to the assets acquired and liabilities assumed based on the fair
-25-
<PAGE>
values at the acquisition date. Such allocation was based on estimates that may
be revised at a later date. Therefore, actual amounts may differ from those in
the unaudited pro forma condensed consolidated financial statements. The excess
of the purchase price over the fair value of the assets acquired was
approximately $75.1 million, which was allocated to assembled workforce,
strategic relationships and goodwill in the amounts of approximately $0.5
million, $15.0 million and $59.6 million, respectively. The assembled work force
will be amortized on a straight-line basis over 48 months, while the strategic
relationships and goodwill will be amortized on a straight-line basis over 60
months.
The following pro forma adjustments for the RW Electronics acquisition are
reflected in the unaudited pro forma condensed consolidated balance sheet as of
December 31, 1999, and the unaudited pro forma consolidated statement of
operations for the year ended December 31, 1999:
Unaudited Pro Forma Adjustments to Condensed Consolidated Balance Sheet
- -----------------------------------------------------------------------
(f) Reflects the consideration issued by the Company to consummate the
acquisition:
(in thousands)
Cash $10,000
Transaction costs 500
Common stock 72,966
------
$83,466
=======
(g) Reflects the recording of the purchase transaction.
(in thousands)
Total purchase price $ 83,466
Fair value of net assets acquired 8,345
--------
Excess purchase price to be allocated $ 75,121
========
The excess purchase price was allocated as follows:
(in thousands)
Assembled work force (estimated useful life of 48 months) $ 500
Strategic relationships (estimated useful life of 60 months) 15,000
Goodwill (estimated useful life of 60 months) 59,621
-------
$75,121
=======
(h) Reflects the Company's payment of RW Electronics' line of credit which
occurred on the closing date.
(i) Reflects elimination of the excluded cash balance and certain excluded
liabilities including the notes payable to shareholders, distributions
payable, state tax accrual, benefit plan accruals and other miscellaneous
accruals as detailed in the purchase agreement.
-26-
<PAGE>
(j) Reflects the elimination of the equity accounts of RW Electronics.
Unaudited Pro Forma Adjustments to Consolidated Statement of Operations
- -----------------------------------------------------------------------
(k) Represents additional amortization expense for the year ended December
31,1999, relating to the assembled workforce acquired in the transaction based
upon estimated useful life of 48 months and the strategic relationships acquired
and goodwill based upon the estimated useful lives of 60 months.
(l) Represents the elimination of interest expense incurred on notes' payable
to shareholders.
(m) Represents the elimination of tax expense of RW Electronics.
Note 4: ACQUISITION OF NECX EXCHANGE TRUST:
On December 16, 1999, we acquired substantially all of the assets plus assumed
certain liabilities of NECX Exchange Trust for approximately $116.6 million,
including transaction costs. The acquisition was accounted for under the
purchase method of accounting. Under this method, the purchase price was
allocated to the assets acquired and liabilities assumed based on the fair
values at the acquisition date. Such allocation was based on estimates that may
be revised at a later date. Therefore, actual amounts may differ from those in
the unaudited pro forma condensed consolidated financial statements. The excess
of the purchase price over the fair value of the assets acquired was
approximately $120.0 million, which was allocated to assembled workforce,
strategic relationships and goodwill in the amounts of approximately $2.5
million, $13.0 million and $104.5 million, respectively. The assembled work
force is being amortized on a straight line basis over 48 months, while the
strategic relationships and goodwill are being amortized on a straight line
basis over 60 months.
The following pro forma adjustments for the NECX Exchange Trust acquisition are
reflected in the unaudited pro forma consolidated statement of operations for
the year ended December 31, 1999:
(n) Represents additional amortization expense for the year ended December
31,1999, relating to the assembled workforce acquired in the transaction based
upon estimated useful life of 48 months and the strategic relationships acquired
and goodwill based upon the estimated useful lives of 60 months for the period
from January 1, 1999 through December 16, 1999.
(o) Represents the elimination of tax expense of NECX Exchange Trust.
Note 5: ACQUISITION OF ISADRA, INC:
On August 25, 1999, we acquired all of the capital stock of Isadra for
approximately $42.3 million, including transaction costs. The consideration for
the acquisition was $3.0 million in cash, including transaction costs, 2,000,000
shares of our common stock having a fair market value of $37.8 million and
options to purchase 81,526 shares of our common stock valued at $1.5 million.
The acquisition was accounted for under the purchase method of accounting. The
purchase price plus the net liabilities assumed was approximately $43.9 million,
which was allocated to in-process research and development, existing technology,
assembled workforce and
-27-
<PAGE>
goodwill in the amounts of approximately $13.6 million, $2.1 million, $500,000
and $27.7 million, respectively. The $13.6 million of in-process research and
development was charged to expense as a non-recurring charge upon consummation
of the acquisition since the in-process research and development has not yet
reached feasibility and has no alternative future uses. The existing technology
and assembled work force will be amortized on a straight-line basis over 24
months, while goodwill will be amortized on a straight-line basis over 36
months.
The following pro forma adjustments for the Isadra acquisition are reflected in
the unaudited pro forma consolidated statement of operations for the year ended
December 31, 1999:
(p) Represents additional amortization expense relating to the existing
technology, the assembled work force acquired and goodwill for the period from
January 1, 1999 through August 25, 1999.
(q) Represents the elimination of interest expense incurred on Isadra's line of
credit from VerticalNet.
NOTE 6: ACQUISITION OF CERTISOURCE, INC:
On August 10, 1999, we acquired all of the capital stock of CertiSource for
approximately $3.3 million, including transaction costs. The consideration for
the acquisition was $601,000 in cash, including transaction costs, and 167,424
shares of our common stock having a fair market value of approximately $2.7
million. The acquisition was accounted for under the purchase method of
accounting. The purchase price plus the net liabilities assumed was
approximately $3.4 million which was allocated to a covenant not-to-compete and
goodwill of approximately $500,000 and $2.9 million, respectively. The covenant
not-to-compete and goodwill will be amortized on a straight-line basis over 36
months.
The following pro forma adjustment for the CertiSource acquisition is reflected
in the unaudited pro forma consolidated statement of operations for the year
ended December 31, 1999:
(r) Represents additional amortization expense relating to the covenant
not-to-compete and goodwill for the period from January 1, 1999 through August
10, 1999.
NOTE 7: ACQUISITION OF LABX TECHNOLOGIES, INC:
On July 29, 1999, we acquired all of the capital stock of LabX for approximately
$4.7 million, including transaction costs. The consideration for the acquisition
was $1.9 million in cash, including transaction costs, and 139,588 shares of our
common stock with a fair market value of approximately $2.8 million. The
acquisition was accounted for under the purchase method of accounting. The
purchase price less the net assets acquired was approximately $4.6 million,
which was allocated to a covenant not-to-compete, existing technology and
goodwill of approximately $350,000, $500,000 and $3.75 million, respectively.
The covenant not-to-compete will be amortized on a straight-line basis over 24
months, while the existing technology and goodwill will be amortized on a
straight-line basis over 36 months.
The following pro forma adjustments for the LabX acquisition are reflected in
the unaudited pro forma consolidated statement of operations for the year ended
December 31, 1999:
-28-
<PAGE>
(s) Represents additional amortization expense relating to goodwill, the
covenant not-to-compete and existing technology for the period from January 1,
1999 through July 29, 1999.
(t) Represents the elimination of tax expense of LabX.
NOTE 8: ACQUISITION OF TECHSPEX, INC:
On June 14, 1999, we acquired all of the capital stock of Techspex for
approximately $3.3 million, including transaction costs. The consideration for
the acquisition was $311,000 in cash (including transaction costs of
approximately $100,000) and 179,988 shares of our common stock with a fair
market value of approximately $3.0 million. The acquisition has been accounted
for under the purchase method of accounting. The purchase price plus the net
liabilities assumed was approximately $3.3 million, which was recorded as
goodwill and will be amortized on a straight-line basis over 36 months.
The following pro forma adjustments for the Techspex acquisition are reflected
in the unaudited pro forma consolidated statement of operations for the year
ended December 31, 1999:
(u) Represents additional amortization expense relating to goodwill for the
period from January 1, 1999 through June 14, 1999.
(v) Represents the elimination of interest expense associated with the notes
payable of Techspex.
NOTE 9: ISSUANCE OF CONVERTIBLE PREFERRED STOCK
On April 7, 2000 Microsoft made a $100 million equity investment in VerticalNet
through the purchase of shares of the Company's Series A 6% convertible
redeemable preferred stock, which are convertible into 1,151,080 shares of the
Company's common stock. Microsoft is entitled to registration rights and
received the right to nominate one member of VerticalNet's board of directors.
In addition, Microsoft received warrants to purchase 1,500,000 shares of the
Company's common stock at an exercise price of $69.50 per share. The unaudited
pro forma condensed consolidated balance sheet includes the following adjustment
which gives effect to this transaction as if it had occurred on
December 31, 1999.
(w) Represents the fair value of the convertible preferred stock and the
warrants, based on an independent valuation report, and the deferred cost
recorded for the difference between fair value and cash received.
(in thousands)
Fair value of convertible preferred stock $ 89,496
Fair value of warrants 18,107
--------
Total fair value 107,603
Less: cash received 100,000
-------
Deferred cost $ 7,603
========
In connection with the Microsoft investment, the Company and Microsoft also
entered into a commercial arrangement pursuant to which the Company will be
entitled to certain minimum revenues in the next several years. The $7.6 million
of deferred costs resulting from the
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transaction will be amortized to expense on a straight-line basis over the
period of the agreement. The unaudited pro forma consolidated statement of
operations does not include any adjustment to reflect any amortization of these
deferred costs since none of the anticipated revenues from the Microsoft
transaction have been included in the pro forma results. In addition, no
adjustments have been made to the pro forma results to give effect to any
investment income that might have been earned in 1999 had the Company received
the proceeds of the Microsoft investment on January 1, 1999.
NOTE 10: CONVERSION OF CONVERTIBLE DEBT
The Company issued $115 million of 5 1/4% convertible subordinated debt in
September 1999 including an over-allotment provision exercised in October 1999.
As of April 25, 2000 approximately $93 million of the Company's 5 1/4%
convertible subordinated debt was converted into 4,664,750 shares of common
stock. The unaudited pro forma condensed consolidated balance sheet includes the
following adjustments to give effect to this transaction as if it had occurred
on December 31, 1999.
(x) Represents the conversion of $93.295 million of the Company's subordinated
convertible debt into 4,664,750 shares of common stock.
(y) Represents the conversion inducement payment made to debt holders. This
charge has been excluded from the pro forma consolidated statement of
operations since it results from the conversion transaction and is non-
recurring in nature.
(z) Represents the write-off of the deferred debt offering costs attributable
to the portion of debt converted to equity.
Although not reflected in the unaudited pro forma consolidated statement of
operations, the $1.8 million in interest expense recorded by the Company in 1999
would not have been incurred had the converted debt not been outstanding in
1999.
NOTE 11: PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE
The weighted average shares outstanding used in the pro forma basic and diluted
net loss per share calculation for the year ended December 31, 1999 is 2,573,837
and 720,652 shares of our common stock issued in the acquisitions of Tradeum and
RW Electronics, respectively, the incremental shares of 1,920,684, 1,293,151,
101,830, 79,928 and 80,871 for the acquisitions of NECX Exchange Trust, Isadra,
CertiSource, LabX and Techspex respectively. No effect has been given to
additional common shares which were issued upon conversion of the convertible
debt described in Note 10 or the potentially issuable shares which could arise
from conversion of the Microsoft preferred stock described in Note 9, since the
impact of assuming conversion of these instruments would be antidilutive.
NOTE 12: STOCK SPLIT
On March 31, 2000, we effected a two-for-one split of our common stock. All
share and per share data have been restated to reflect the stock split.
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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.
Dated: May 2, 2000 VERTICALNET, INC.
By: /s/ Gene S. Godick
--------------------
Name: Gene S. Godick
Title: Senior Vice President &
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
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23.1 Consent of Kost Forer & Gabbay, a member of Ernst & Young
International
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated March 10, 2000, with respect to the
financial statements of Tradeum Inc. included in the Form 8-K of VerticalNet,
Inc. dated March 23, 2000.
Tel-Aviv, Israel KOST FORER & GABBAY
May 1, 2000 A member of Ernst & Young International
