<PAGE>
================================================================================
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported):
February 16, 2000
INTERLIANT, INC.
----------------
(Exact name of registrant as specified in its charter)
Delaware 0-26115 13-3978980
- ------------------------------ ----------- ------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
Two Manhattanville Road
Purchase, New York 10577
--------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(914) 640-9000
--------------
(Registrant's telephone number, including area code)
================================================================================
<PAGE>
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS.
On March 13, 2000, Interliant, Inc. ("Interliant") filed a Current Report on
Form 8-K to report the acquisitions of Soft Link, Inc. ("Soft Link") and
reSOURCE PARTNER, Inc. and subsidiary ("reSOURCE PARTNER") Pursuant to Item 7
of Form 8-K, Interliant indicated that it would file certain financial
information no later than the date required by Item 7 of Form 8-K. This
Amendment No. 1 is filed to provide the required financial information.
(a) Financial Statements of Business Acquired - Soft Link, Inc.
Independent Auditor's Report
Balance Sheets as of December 31, 1999 and 1998
Statements of Operations and Retained Earnings for the Years Ended December
31, 1999 and 1998
Statements of Cash Flows for the Years Ended December 31, 1999 and 1998
Notes to Financial Statements
(b) Consolidated Financial Statements of Business Acquired - reSOURCE PARTNER,
Inc. and subsidiary
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1999
Consolidated Statement of Operations for the Year Ended December 31, 1999
Consolidated Statement of Cash Flows for the Year Ended December 31, 1999
Consolidated Statement of Shareholders' Deficit for the Year Ended December
31, 1999
Notes to Consolidated Financial Statements
(c) Pro Forma Combined Financial Information of Interliant, Inc.
Unaudited pro forma combined condensed balance sheet as of December 31,
1999.
Unaudited pro forma combined condensed statement of operations for the year
ended December 31, 1999
Notes to unaudited pro forma combined condensed financial statements
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Interliant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: May 2, 2000
INTERLIANT, INC
By: /s/ William A. Wilson
-----------------------------------
William A. Wilson
Chief Financial Officer and Treasurer
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Soft Link, Inc.
Maplewood, Minnesota
We have audited the accompanying balance sheets of Soft Link, Inc. (an S
corporation) as of December 31, 1999 and 1998, and the related statements of
operations and retained earnings and cash flows for the years then ended. 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 of these statements in accordance with generally
accepted auditing standards. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Soft Link, Inc. as of December
31, 1999 and 1998, and the results of its operations and cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Smith Schafer & Associates, Ltd.
Maplewood, Minnesota
February 7, 2000
<PAGE>
SOFT LINK, INC.
BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 794,651 $ 189,318
Accounts receivable, net 6,508,922 6,157,535
Prepaid expenses 372,391 158,027
----------------------------------------------
Total Current Assets 7,675,964 6,504,880
Property and Equipment, net 362,737 533,245
----------------------------------------------
TOTAL ASSETS $ 8,038,701 $ 7,038,125
==============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 96,943 $ 174,021
Accrued wages 1,455,233 1,470,282
Accrued liabilities 74,588 59,477
----------------------------------------------
Total Current Liabilities 1,626,764 1,703,780
----------------------------------------------
Commitments and Contingencies (Note 8)
Stockholders' Equity
Common stock, no par value; 100,000 shares
authorized; 1,000 shares issued and outstanding 1,000 1,000
Retained earnings 6,410,937 5,333,345
----------------------------------------------
Total Stockholders' Equity 6,411,937 5,334,345
----------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,038,701 $ 7,038,125
==============================================
See Notes to the Financial Statements
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOFT LINK, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Services Revenue $ 32,446,788 $ 24,218,730
Cost of Services Revenue 22,426,987 16,913,234
----------------------------------------
Gross Profit 10,019,801 7,305,496
----------------------------------------
Operating Expenses
Sales and Marketing 2,215,990 1,881,432
General and Administrative 2,107,444 1,563,050
----------------------------------------
Total Operating Expenses 4,323,434 3,444,482
----------------------------------------
Income from Operations 5,696,367 3,861,014
----------------------------------------
Other Income (Expense)
Other income 138,484 -
Interest income 22,183 11,689
Interest expense
- (807)
Loss on disposal of fixed assets (16,276) -
----------------------------------------
Total Other Income 144,391 10,882
----------------------------------------
Income Before Income Taxes 5,840,758 3,871,896
Income Tax Provision 120,000 32,000
----------------------------------------
Net Income 5,720,758 3,839,896
Retained Earnings, Beginning of Year 5,333,345 3,255,023
Stockholder Distributions (4,643,166) (1,761,574)
----------------------------------------
Retained Earnings, End of Year $ 6,410,937 $ 5,333,345
========================================
See Notes to the Financial Statements
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOFT LINK, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
<S> <C> <C>
Net income $ 5,720,758 $ 3,839,896
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization expense 294,491 144,567
Loss on disposal of fixed assets 16,276 -
Changes in assets and liabilities:
Accounts receivable (351,387) (2,709,189)
Employee advances - 53,590
Prepaid expenses (214,364) (61,819)
Accounts payable (77,078) 76,462
Accrued wages and accrued liabilities 62 563,862
---------------------------------------
Net Cash Provided By Operating Activities 5,388,758 1,907,369
---------------------------------------
Cash Flows From Investing Activities
Purchase of property and equipment (140,259) (261,736)
---------------------------------------
Net Cash Used In Investing Activities (140,259) (261,736)
---------------------------------------
Cash Flows From Financing Activities
Stockholder distributions (4,643,166) (1,761,574)
---------------------------------------
Net Cash Used In Financing Activities (4,643,166) (1,761,574)
---------------------------------------
Net Increase (Decrease) In Cash And Cash Equivalents 605,333 (115,941)
Cash and Cash Equivalents, Beginning Of Year 189,318 305,259
---------------------------------------
Cash and Cash Equivalents , End Of Year $ 794,651 $ 189,318
=======================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During The Year For:
Interest $ - $ 807
Income taxes 97,983 38,977
See Notes to the Financial Statements
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOFT LINK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Description of Business
- --------------------------------------------------------------------------------
Soft Link, Inc. ("the Company") was incorporated in the state of Minnesota in
1992. The Company provides information technology services, including software
implementation consulting for major providers of human resource and financial
management software. The Company is an implementation partner with many
software companies and is a service provider to Fortune 1000 and other large and
mid-sized companies.
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
- -------------------
The Company enters into arrangements to provide services, usually billed on a
time and materials basis. Services consist of system requirements definition,
system design and analysis, customization and installation services, system
enhancements and training. Services revenue is recognized as the services are
performed, primarily on a time and materials basis.
Revenue on fixed price contracts is recognized using the percentage-of-
completion method and is comprised of the portion of expected total contract
earnings represented by actual costs incurred to date as a percentage of the
contract's total estimated costs at completion. Provisions for anticipated
contract losses are recognized at the time that they become evident. There were
no fixed price contracts in process as of December 31, 1999 and 1998.
Deferred revenue consists of the unearned portion of billings on fixed price
contracts as well as deposits paid by customers prior to the performance of
services. There was no deferred revenue balance as of December 31, 1999 and
1998.
Unbilled receivables result from revenue that has been earned but not yet
billed. The unbilled receivables can be invoiced at contractually defined
intervals as well as upon completion of the contract.
Cost of Services Revenue
- ------------------------
Cost of services revenue is comprised primarily of salaries and benefits.
<PAGE>
SOFT LINK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (Continued)
- --------------------------------------------------------------------------------
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. As of December 31,
1999 and 1998, the Company maintained a cash balance with a financial
institution that exceeded the $100,000 federally insured limit. Additionally,
the Company's cash balances exceeded the federally insured limit at various
times throughout 1999 and 1998.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
three years for computer equipment and software, five or seven years for
furniture and fixtures, and the shorter of the useful life or term of the lease
for leasehold improvements. Upon retirement or disposition of property and
equipment, the related gain or loss is reflected in the statement of operations.
Concentrations of Credit Risk
- -----------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash equivalents and accounts receivable. The
Company limits the amount of investment exposure in any one financial investment
and does not have any foreign currency investments nor does it accept payment
from customers in foreign currency. The Company sells services to various
companies without requiring collateral. However, the Company routinely assesses
the financial strength of its customers and maintains allowances for anticipated
losses.
There were two customers that represented 19% and 11%, respectively, of total
accounts receivable as of December 31, 1999 and no customers that represented
10% or more of accounts receivable as of December 31, 1998.
One customer represented approximately 20% of revenue for the year ended
December 31, 1999. The same customer represented approximately 10% of revenue
for the year ended December 31, 1998.
For the years ended December 31, 1999 and 1998, over 90% of the Company's
revenues were derived from projects in which its consultants implemented or
provided training on software developed by a major provider of Enterprise
Resource Planning (ERP) software products.
Income Taxes
- ------------
The Company, with the consent of its stockholders, has elected to be taxed under
the provisions of Subchapter S of the Internal Revenue Code. In lieu of
corporate income taxes, the stockholders of an S corporation are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes has been included in these financial
statements.
<PAGE>
SOFT LINK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (Continued)
- --------------------------------------------------------------------------------
Income Taxes (Cont'd)
- ---------------------
The majority of the states in which the Company does business recognize the
federal S election and the stockholders are liable for the state income taxes in
those states. However, certain states do not recognize the Company's status as
an S corporation and these states impose corporate level income taxes. Certain
states also impose minimum fees or other corporate level excise taxes that have
been included in the provision for income taxes. The amount of corporate state
income taxes included in the income tax provision for the year ended December
31, 1999 and 1998 was $60,000 and $32,000, respectively.
In 1999, the Company became subject to Canadian nonresident withholding taxes.
The amount of Canadian income taxes included in the income tax provision for the
year ended December 31, 1999 is $60,000.
Comprehensive Income
- --------------------
The Company does not have any components of comprehensive income other than net
income.
Recent Accounting Pronouncements
- --------------------------------
In March 1998 the American Institute of Certified Professional Accountants
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The statement is effective
for the year ended December 31, 1999 and provides guidance for the costs of
computer software developed or obtained for internal use. The Company's
adoption of this statement did not have a material impact on its financial
position or results of operations.
In 1998, the Company adopted SOP 97-2 "Software Revenue Recognition" and SOP
98-9 "Modification of SOP 97-2, Software Revenue Recognition, with Respect to
Certain Transactions," which did not significantly affect existing revenue
recognition policies.
Reclassifications
- -----------------
Certain reclassifications have been made in the 1998 financial statements to
conform to classifications used in the 1999 financial statements.
- --------------------------------------------------------------------------------
3. Change in Accounting Estimate
- --------------------------------------------------------------------------------
During 1999, the Company changed the period of depreciation and amortization
over certain asset classes within property and equipment to more accurately
represent the useful lives of the assets.
<PAGE>
SOFT LINK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
3. Change in Accounting Estimate (Continued)
- --------------------------------------------------------------------------------
Computer hardware and equipment, previously depreciated over a five year period,
have been assigned a useful life of three years. Leasehold improvements,
previously depreciated over a period ranging from ten to forty years, have been
assigned a useful life of five years. This corresponds with the term of the
related operating leases.
The change in these estimated useful lives resulted in additional depreciation
and amortization expense of $78,265 for the year ended December 31, 1999. The
effect of this change did not impact the reported results of operations for the
year ended December 31, 1998.
- --------------------------------------------------------------------------------
4. Accounts Receivable
- --------------------------------------------------------------------------------
Accounts receivable as of December 31, 1999 and 1998 consisted of the following:
1999 1998
------------ ------------
Billed receivables $ 4,019,663 $ 3,727,043
Unbilled receivables 2,515,335 2,447,333
------------ ------------
6,534,998 6,174,376
Less allowance for doubtful accounts (26,076) (16,841)
------------ ------------
Accounts receivable, net $ 6,508,922 $ 6,157,535
============ ============
- --------------------------------------------------------------------------------
5. Prepaid Expenses
- --------------------------------------------------------------------------------
Prepaid expenses as of December 31, 1999 and 1998 consisted of the following:
1999 1998
---------- ----------
Prepaid insurance $ 43,317 $ 27,513
Prepaid health insurance 74,350 39,600
Prepaid rent 10,593 10,871
Other prepaid expenses 244,131 80,043
---------- ----------
Total prepaid expenses $ 372,391 $ 158,027
========== ==========
Other prepaid expenses consists primarily of prepurchased airline tickets,
annual software license and maintenance renewals, prepurchased training and
annual membership dues and advertising expenses.
<PAGE>
SOFT LINK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
6. Property and Equipment
- --------------------------------------------------------------------------------
Property and equipment as of December 31, 1999 and 1998 consisted of the
following:
1999 1998
----------- -----------
Computer equipment and software $ 547,496 $ 499,225
Office equipment, furniture and fixtures 276,086 235,377
Leasehold improvements 42,677 26,408
----------- -----------
866,259 761,010
Less accumulated depreciation (503,522) (227,765)
----------- -----------
Property and equipment, net $ 362,737 $ 533,245
=========== ===========
Depreciation expense was $294,491 and $144,567 for the years ended December 31,
1999 and 1998, respectively.
- --------------------------------------------------------------------------------
7. Accrued Wages
- --------------------------------------------------------------------------------
Accrued wages as of December 31, 1999 and 1998 consisted of the following:
1999 1998
------------ ------------
Accrued wages and payroll taxes $ 689,993 $ 511,136
Accrued bonuses 525,579 714,851
Accrued leave 239,661 244,295
------------ ------------
Accrued wages $ 1,455,233 $ 1,470,282
============ ============
The Company offers two alternative pay plans for its consulting employees. It
is generally the consulting employee's option to determine which pay plan to
utilize. Employees under an hourly pay plan receive a higher base rate of pay
but are ineligible for an annual bonus, travel bonus, or leave pay. Salaried
employees are eligible to receive travel bonus and leave pay. Certain salaried
employees that were employed before May 1998 are also eligible for an annual
bonus as long as they remain on the salaried pay plan. The annual bonus is
determined utilizing a specific performance-based formula that is paid in the
following year. In addition, all salaried employees accrue leave pay at the
rate of one hour for every eight hours worked. The Company accrues leave pay at
the average hourly rate of the employee. A majority of the Company's
consultants opt to utilize the hourly pay plan.
<PAGE>
SOFT LINK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
8. Commitments and Contingencies
- --------------------------------------------------------------------------------
Lease Obligations
The Company leases certain office facilities, automobiles and equipment under
noncancelable operating lease arrangements with expiration dates extending
through May 2004. The total lease expense for the years ended December 31, 1999
and 1998 was $144,042 and $108,671, respectively.
The Company entered into an operating lease for the new corporate headquarters
on November 1, 1997. The lease term began February 1, 1998 and ends January 31,
2003. Required monthly rental payments include base rent of $5,209 and an
estimated monthly operating expense of $2,083. Also, the Company entered into
an operating lease agreement for additional space at the same location on July
6, 1998. The lease term began upon occupancy in May 1999 and ends April 30,
2004. Required monthly rental payments for the additional space include base
rent of $3,125 and an estimated monthly operating expense of $1,250. Both lease
agreements contain a renewal option for an additional five-year period. The
Company is responsible for the cost of real estate taxes, insurance, utilities
and other operating costs of both facilities.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1999 are:
2000 $ 168,083
2001 157,606
2002 147,931
2003 59,792
2004 17,500
----------
Total $ 550,912
==========
The future minimum lease payments shown above include the estimated monthly
operating expenses as outlined in the leases for the Company's headquarters.
Purchase Obligations
In September 1999, the Company entered into an agreement to have vendor-provided
training available for the Company's consultants. Under the terms of the
agreement, the Company is required to make annual payments of $23,552 until the
expiration of the agreement on September 28, 2002. The Company may, at its
option, cancel the agreement in whole prior to September 28, 2001 for a
cancellation fee of $2,355. An additional commitment to make annual payments of
$7,500 in 2000 and 2001 for web hosting services is cancelable at the option of
the Company after the first 12-month period.
<PAGE>
SOFT LINK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
9. Line of Credit
- --------------------------------------------------------------------------------
In December 1999, the Company obtained a $1,000,000 line of credit, maturing on
December 24, 2000. The line of credit bears interest at the financial
institution's prime rate (8.50% as of December 31, 1999). The line is
collateralized by a lien on all corporate assets. As of December 31, 1999,
there were no outstanding borrowings under this line of credit. Interest
expense was not incurred under this line of credit for the year ended December
31, 1999.
- --------------------------------------------------------------------------------
10. Retirement Plan
- --------------------------------------------------------------------------------
Effective May 1, 1995, the Company implemented a qualified profit sharing plan
("the Plan"), that includes a 401(k) elective deferral feature. During 1999,
the Company amended and restated its plan for a change in trustee and asset
custodian. All other provisions of the plan remained unchanged. Profit sharing
and salary deferral matched contributions to the Plan by the Company are
discretionary. No employer contributions were made to the Plan for the years
ended December 31, 1999 or 1998. The Plan covers substantially all of the
Company's employees.
- --------------------------------------------------------------------------------
11. Subsequent Events
- --------------------------------------------------------------------------------
Sale of Company
- ---------------
In January 2000, the Company and the Company's shareholders signed a nonbonding
letter of intent to sell all of the Company's outstanding common stock to a
wholly-owned subsidiary of Interliant, Inc.
Stockholder Distributions
- -------------------------
Distributions in the aggregate amount of $1,800,000 were made to the principal
stockholders in January 2000.
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
and Shareholders of reSOURCE PARTNER, Inc.
We have audited the accompanying consolidated balance sheet of reSOURCE PARTNER,
Inc. (a subsidiary of Borden, Inc.) and its subsidiary as of December 31, 1999,
and the related consolidated statements of operations, shareholders' deficit,
and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of reSOURCE PARTNER, Inc. and its
subsidiary at December 31, 1999, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Columbus, Ohio
February 11, 2000
<PAGE>
reSOURCE PARTNER, Inc. and subsidiary
Consolidated Statement of Operations
For the Year Ended December 31, 1999
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net revenues
<S> <C>
Affiliated $ 15,931
Trade 9,182
-----------
Total net revenues 25,113
Cost of services 27,097
-----------
Gross margin (deficit) (1,984)
Sales and marketing expense 3,005
General and administrative expense 5,807
-----------
Operating loss (10,796)
Interest expense - affiliated (669)
Interest income 167
-----------
Loss before discontinued operations (11,298)
Discontinued operations:
Loss from operations (81)
Gain on disposal 453
-----------
Net loss $ (10,926)
===========
Per Share Data
- --------------
Loss before discontinued operations $(3.02)
Discontinued operations:
Loss from operations (0.02)
Gain on disposal 0.12
-----------
Basic and diluted loss per common share $ (2.92)
===========
Average number of common shares outstanding
during the year 3,739,000
- -----------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
reSOURCE PARTNER, Inc. and subsidiary
Consolidated Balance Sheet
As of December 31, 1999
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
<S> <C> <C>
Cash and equivalents $ 457
Trade accounts receivable $ 2,024
Affiliated accounts receivable 1,100
Allowance for doubtful accounts (633)
--------------
Total accounts receivable, net 2,491
Prepaid maintenance contracts 466
Prepaid insurance and other current assets 697
---------------
4,111
Payroll and benefit funds held for customers 4,156
---------------
Total current assets 8,267
Equipment and Leasehold Improvements
Machinery and equipment 12,758
Leasehold improvements 1,227
---------------
13,985
Less accumulated depreciation (7,631)
---------------
6,354
---------------
Other Assets 64
---------------
TOTAL ASSETS $14,685
===============
- -----------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
reSOURCE PARTNER, Inc. and subsidiary
Consolidated Balance Sheet
As of December 31, 1999
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
<S> <C>
Accounts and drafts payable $ 2,575
Affiliated payables 377
Affiliated borrowings 16,350
Other current liabilities 1,439
-------------------
20,741
Payroll and benefit funds held for customers 4,156
-------------------
Total current liabilities 24,897
Other Liabilities
Postretirement benefit and other obligations 915
Pension benefit obligations 653
-------------------
1,568
-------------------
Commitments and Contingencies (Note 7)
Shareholders' Deficit
Common stock - $0.01 par value; 4,700,000 shares authorized,
3,759,000 issued and 3,735,000 outstanding 38
Paid in capital 18,759
Accumulated deficit (30,508)
Common stock in treasury at cost - 24,000 shares (69)
-------------------
Total shareholders' deficit (11,780)
-------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $14,685
===================
- -----------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
reSOURCE PARTNER, Inc. and subsidiary
Consolidated Statement of Cash Flows
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------
Cash Flows From (Used In) Operating Activities
<S> <C>
Net loss $(10,926)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss from discontinued operations 81
Gain on disposal of discontinued operations (453)
Depreciation and amortization 2,372
Net change in assets and liabilities:
Accounts receivable, net 1,923
Prepaid maintenance contracts 93
Prepaid and other current assets (566)
Other assets 29
Accounts and drafts payable (713)
Affiliated payables 59
Other current liabilities (294)
Postretirement and other liabilities 399
Pension benefit obligations (70)
----------------------
(8,066)
Net cash used by discontinued operations (3)
----------------------
(8,069)
----------------------
Cash Flows From (Used In) Investing Activities
Capital expenditures (1,374)
Proceeds from sale of discontinued operations 1,518
----------------------
144
----------------------
Cash Flows Used In Financing Activities
Affiliated borrowings - net 8,150
----------------------
Increase in cash and equivalents 225
Cash and equivalents at beginning of year 232
----------------------
Cash and equivalents at end of year $ 457
======================
- -----------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash paid - affiliated interest $ 656
========================
- -----------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
reSOURCE PARTNER, Inc. and subsidiary
Consolidated Statement of Shareholders' Deficit
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------
Common Paid in Accumulated Treasury
Stock Capital Deficit Stock Total
- --------------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ 38 $ 18,759 $ (19,582) $ (69) $ (854)
Net loss (10,926) (10,926)
------------- ----------- -------------- -------------- -------------
Balance, December 31, 1999 $ 38 $ 18,759 $ (30,508) $ (69) $ (11,780)
============= =========== ============== ============== =============
- ------------------------------------------------------------------------------------------------------------------------
See notes to Consolidated Financial Statements
</TABLE>
<PAGE>
reSOURCE PARTNER, Inc. and subsidiary
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
1. Background and Nature of Operations
reSOURCE PARTNER, Inc. ("the Company") is a subsidiary of Borden, Inc.
("Borden"). Borden beneficially owns 95% of the Company with key management
owning the remaining interest. The Company was formed to provide a broad range
of shared services primarily for affiliated businesses of Borden. The Company
owns an insurance brokerage company whose accounts are included in these
statements.
The Company owns a PeopleSoft Human Resource Management System (HRMS) license
and operates a PeopleSoft training center. The Company is a member in the
PeopleSoft Certified Outsourcing Partner Program and PeopleSoft Select Alliance
Partner Program.
The Company focuses its services in three related businesses linked together by
its applications and IT platform:
. Consulting, which includes design and integration of human resources and
financial systems, IT systems and payroll and benefit programs.
. Hosting, which includes application management of PeopleSoft HRMS and
financial systems and IT infrastructure-outsourcing management.
. Processing, which includes business process outsourcing for payroll, tax
and benefits and pension administration.
The Company's client base includes commercial clients and Borden related
entities ("affiliates") in the chemical and food manufacturing, health care,
hospitality, and information technology industries.
2. Summary of Significant Accounting Policies
Basis of Presentation
- ---------------------
The Company operates as an independent division of Borden. The consolidated
financial statements include the accounts of the Company and its insurance
brokerage subsidiary, after elimination of intercompany accounts and
transactions.
The Company has incurred a $11,298 loss before discontinued operations and used
$8,069 of cash in operations during 1999. The ability of the Company to
continue to operate as a going concern is based on its ability to continue to
fund operations. Borden has agreed to fund the operations of the Company for
a reasonable period of time as long as it remains a subsidiary of Borden. As
discussed in Note 13, the Company has entered into a letter of intent to sell
substantially all of its assets and certain liabilities.
Cash and Equivalents
- --------------------
Cash and equivalents include cash on deposit and all highly liquid investments
purchased with an original maturity of three months or less.
Trade and Affiliated Accounts Receivable
- ----------------------------------------
Accounts receivable include amounts owed to the Company, by its customers, for
services rendered and contain balances owed by both trade and affiliated
customers. Affiliated receivables are for ongoing services provided by the
Company. Unbilled trade and affiliated revenues (included in accounts
receivable) of $559 and $169, respectively, at December 31, 1999 represent
revenues earned which have not yet been billed due to the
<PAGE>
timing of invoice generation. The Company provides a reserve for uncollectible
accounts. Management believes such reserve is adequate at December 31, 1999.
Prepaid Assets
- --------------
Prepaid maintenance contracts and prepaid insurance are deferred and expensed
over the life of the agreements, which typically are for a one-year term.
Payroll and Benefit Funds Held for Customers
- --------------------------------------------
As part of its payroll and payroll tax filing services, the Company collects
funds for federal, state and local employment taxes from its customers. The
Company also collects funds for medical claims and processes payments for its
customers. The Company receives deposits from customers for payroll tax
deposits and payment of benefit claims in advance of disbursing the funds.
Offsetting liabilities are recorded for funds held. All customer funds are held
in accounts separate from the Company's general operating funds.
Equipment and Leasehold Improvements
- ------------------------------------
Equipment and leasehold improvements are stated at cost. Depreciation is
recorded on a straight-line basis over useful lives primarily ranging from 3 to
15 years. Major renewals and betterments are capitalized. Maintenance, repairs
and minor renewals are expensed as incurred. Depreciation expense for 1999 was
$2,372.
Financial Instruments
- ---------------------
The carrying amount for cash and equivalents, receivables, accounts, drafts and
affiliated payables, affiliated short-term borrowings and other liabilities
approximates fair value due to the short maturities of these instruments.
Revenue Recognition
- -------------------
Affiliated and trade revenues are recognized when services are provided. Amounts
billed in advance are recorded as deferred revenue (included in other current
liabilities) and are recognized when services are provided, generally the month
subsequent to billing.
Cost of Services
- ----------------
Cost of goods sold includes the direct costs of providing services to customers.
Types of expenses included are salaries and benefits, rent, depreciation, travel
costs, outside fees and system costs associated with the implementation and
ongoing support of a customer. All costs relative to a customer's implementation
are expensed when incurred.
Sales and Marketing Expense
- ---------------------------
Production costs of future media advertising are expensed on the first airdate
or print release date of the advertising. All other advertising and promotion
expenses are expensed as incurred. Total advertising expense was $633 in 1999.
Pension and Retirement Savings Plan
- -----------------------------------
The Company's employees are covered by a Borden pension plan. The Borden-
sponsored plan is accounted for under Statement of Financial Accounting Standard
("SFAS") No. 87.
Substantially all of the Company's employees participate in Borden's retirement
savings plan. The Company's cost of providing the retirement savings plan
represents its matching of eligible contributions made by participating
employees and is recognized as a charge to income in the year the cost is
incurred.
<PAGE>
Non-pension Post Employment Benefits
- ------------------------------------
The Company provides certain health and life insurance benefits for eligible
retirees and their dependents. The benefits are accounted for under SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
whereby the cost of postretirement benefits is accrued during the employees'
working careers. The Company provides certain other postemployment benefits to
qualified former and inactive employees. The benefits are accounted for under
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which
requires that the cost of benefits provided to former or inactive employees
after employment, but before retirement, be accrued when it is probable that a
benefit will be provided.
Income Taxes
- ------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the use of liability method of accounting for deferred income taxes. The
Company is included in the consolidated tax return of Borden. The Company
accounts for income taxes on a separate return basis under a tax sharing
agreement with Borden. The provisions of the agreement provide that the Company
will only realize the tax benefit of the net operating losses to the extent it
pays income taxes. Due to the uncertainty of future taxable income, the Company
fully reserves for the value of deferred tax assets.
General Insurance
- -----------------
The Company has insurance policies to cover potential losses and liabilities
relating to workers' compensation, health and welfare claims, physical damage to
property, business interruption and comprehensive general and product liability.
These policies generally have deductibles. Losses are accrued for the estimated
aggregate liability for claims incurred using certain actuarial assumptions and
the Company's experience.
Earnings Per Share
- ------------------
Basic and diluted loss per common share for 1999 is computed by dividing net
loss by the weighted average number of common shares outstanding during the
1999. Options issued that enable the holder to obtain additional shares of stock
were not assumed exercised because they were anti-dilutive for 1999. The
Company has no other potentially dilutive securities.
Concentrations of Credit Risk
- -----------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and accounts
receivable. The Company invests most of its excess cash with Borden, which in
turn places the funds in temporary cash investments and marketable securities
with high quality institutions and performs ongoing evaluations of the financial
condition of the institutions. Borden, by policy, limits the amount of credit
exposure to any one institution. The Company generally does not require
collateral or other security to support customer receivables. The Company
monitors its exposure to credit losses and maintains allowances for anticipated
losses. Sales to the Company's largest customers, Borden Foods Corporation and
Borden Chemical, Inc. were $6,816 and $4,853, respectively for 1999.
Impairment
- ----------
The Company periodically evaluates the recoverability of equipment and leasehold
improvements by assessing whether the carrying value can be recovered over its
remaining useful life through expected future undiscounted cash flows. In the
opinion of management, no such impairment existed at December 31, 1999.
Stock Options
- -------------
The Financial Accounting Standards Board ("FASB") issued SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the
Company will continue to apply its current accounting policy of the intrinsic
value method under Accounting Principles Board Opinion No. 25 and will include
the additional disclosures required by SFAS No. 123.
<PAGE>
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Recently Issued Accounting Statements
- -------------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard requires all derivatives be
measured at fair value and be recorded on a company's balance sheet as an asset
or liability, depending upon the company's underlying rights or obligations
associated with the derivative instrument. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." This statement defers
the effective date of SFAS No. 133 to fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company is currently considering the impact
of this pronouncement.
3. Affiliated Borrowings
The Company has a revolving loan agreement (the "Loan Agreement") to borrow
funds from Borden. The Loan Agreement, as informally amended, provides for a
revolving loan facility, at a variable interest rate equal to Borden's cost of
funds for 30 day LIBOR borrowings plus 0.50% and has no expiration date at this
time. A commitment fee of 0.10% is paid on the unused portion of the revolving
loan. The Company had $16,350 of borrowings under the revolving agreement at
December 31, 1999.
The Loan Agreement contains certain restrictions on the activities of the
Company and its subsidiary, including restrictions on liens, the incurrence of
indebtedness, mergers and consolidations, sales of assets, investments, payment
of dividends, changes in nature of business, prepayments of certain
indebtedness, transactions with affiliates, capital expenditures, changes in
control and the use of proceeds from asset sales.
4. Pension and Retirement Savings Plans
All employees of the Company are covered under a non-contributory defined
benefit pension plan provided by Borden (the "Borden Plan"). The Borden Plan
provides benefits for employees based on eligible compensation and years of
credited service. Additionally, eligible employees may contribute up to 5% of
their pay (7% for certain longer service salaried employees) in a defined
contribution retirement savings plan, which is currently matched by the Company
at 50%. Charges to operations for matching contributions for the Company's
employees under the Borden's retirement savings plan in 1999 were $224.
A net pension liability of $653, which approximates the portion of the total
pension assets and liabilities of Borden that relates to the employees of the
Company, has been reflected in the Company's consolidated balance sheet. The
gross pension obligation was allocated to the Company based upon the actuarially
determined obligation relating to the Company's employees. The pension expense
allocated to the Company for Borden's Plan was $255 during 1999.
Borden's funding of its pension plans equals or exceeds the minimum funding
requirements imposed by Federal and foreign laws and regulations. Plan assets
consist primarily of equity securities and corporate obligations.
<PAGE>
For informational purposes, the funded status of the Borden Plan is as follows:
<TABLE>
<CAPTION>
Borden Plan
1999
------------
Change in Benefit Obligation (in millions)
<S> <C>
Benefit obligation at beginning of year $351.0
Service cost 5.0
Interest cost 22.2
Actuarial losses (5.8)
Foreign currency exchange rate changes 0.2
Benefits paid (42.0)
Plan amendments 2.0
Settlements (0.3)
------------
Benefit obligation at end of year $332.3
============
Change in Plan Assets
Fair value of plan assets at beginning of year $347.7
Actual return on plan assets 75.4
Foreign currency exchange rate changes 0.2
Employer contribution 0.7
Benefits paid (42.0)
Settlements (1.0)
------------
Fair value of plan assets at end of year $381.0
============
Funded Status - plan assets in excess of benefit obligation $ 48.7
Unrecognized net actuarial loss 73.3
Unrecognized initial transition loss (0.4)
Unrecognized prior service cost 6.1
------------
Prepaid pension asset $127.7
- -----------------------------------------------------------------------------------------
</TABLE>
The weighted average rates used to determine 1999 net pension expense were as
follows:
<TABLE>
<S> <C>
Discount rate 6.8%
Rate of increase in future compensation levels 4.2%
Expected long-term rate of return on plan assets 8.0%
</TABLE>
The Company has a recorded liability of $483 at December 31, 1999 for other
pension benefits provided under non-qualified plans, which do not meet the
reporting requirements of SFAS No. 87. In 1999, the Company recorded expenses
of $115 related to these plans.
<PAGE>
5. Non-Pension Postretirement Benefit
The Company uses Borden sponsored plans to provide certain health and life
insurance benefits for eligible retirees and their dependents. The cost of
postretirement benefits is accrued during employees' service. Participants
who are not eligible for Medicare are provided with the same medical
benefits as active employees, while those who are eligible for Medicare are
provided with supplemental benefits. The postretirement medical benefits
are contributory and the postretirement life insurance benefits are
noncontributory. Benefits are funded on a pay-as-you-go basis.
For informational purposes, the change in benefit obligations of Borden is
as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Borden
1999
-------------
Change in Benefit Obligation (in millions)
<S> <C>
Benefit obligation at beginning of year $107.0
Interest cost 6.7
Contributions by plan participants 2.2
Actuarial losses 6.1
Benefits paid (12.4)
Plan Amendment (6.5)
-------------
Benefit obligation at end of year 103.1
Unrecognized net actuarial gain 32.0
Unrecognized prior service benefit 32.4
-------------
Accrued postretirement obligation at end of year $167.5
- ---------------------------------------------------------------------------------------------
</TABLE>
The weighted average discount rate used in determining the postretirement
benefit obligation at December 31, 1999 was 7.8%. For measurement purposes,
health care costs are assumed to increase 8.1% in 2000 grading down gradually to
a constant 5.8% annual increase for both pre-65 and post-65 benefits by the year
2004.
Following are the components of Borden's net postretirement benefit recognized
- ------------------------------------------------------------------------------
for 1999:
- ---------
<TABLE>
<CAPTION>
Borden
1999
-----------
(in millions)
<S> <C>
Interest cost on projected benefit obligation $ 6.7
Amortization of prior service benefit (8.7)
Immediate recognition of initial obligation 1.0
Recognized actuarial gain (2.7)
-----------
Net postretirement benefit $(3.7)
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Assumed health care cost trend rates have a significant effect on the amounts
reported for health care plans. A one-percentage-point change in the assumed
health care cost trend rates would have the following effects on the Borden
amounts:
<TABLE>
<CAPTION>
(in millions)
1% increase 1% decrease
----------------------- ----------------------
<S> <C> <C>
Effect on total service cost and interest
cost components $ 0.6 $ (0.5)
Effect on postretirement benefit obligation 7.2 (6.5)
- -------------------------------------------------------------------------------------------------------
</TABLE>
The Company has a recorded liability of $288 at December 31, 1999 for its share
of postretirement benefits provided by Borden. In 1999 the Company recorded
expenses of $23 related to these benefits.
6. Income Taxes
The Company is included in the consolidated income tax return of Borden. The
Company accounts for income taxes as if it were filing on a separate return
basis. The Company has a limited tax sharing agreement with Borden, whereby the
losses generated by the Company are utilized by Borden. The Company will not
receive benefit for such losses until and to the extent it pays income tax on
the separate return basis.
The Company did not provide any current or deferred United States federal, state
or foreign income tax provision or benefit because it experienced operating
losses since inception. The Company has provided a full valuation allowance on
the deferred tax asset, consisting of primarily net operating loss
carryforwards.
The tax effects of the Company's significant temporary differences and loss
carry forwards which comprise the deferred tax assets and liabilities at
December 31, 1999 follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Deferred tax assets:
<S> <C>
Reserve for doubtful accounts $ 242
Employee benefits and related items 417
General insurance 97
Other long term liabilities 250
Loss carryforwards (under tax sharing agreement) 10,759
--------------
11,765
Valuation allowance (9,821)
--------------
Total deferred tax assets 1,944
Deferred tax liabilities:
Prepaid and other assets 331
Equipment and leasehold improvements 1,613
--------------
Total deferred tax liabilities 1,944
--------------
Net deferred tax asset $ 0
==============
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
7. Commitments and Contingencies
The Company leases office facilities and various types of equipment under
operating leases. Lease terms generally range from 3 to 5 years. A portion of
the Company's office space is through a sublease agreement with Borden.
Future minimum annual rentals under operating leases at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Affiliated Non-Affiliated
--------------------------------------
<S> <C> <C>
2000 $1,374 $ 889
2001 1,446 687
2002 1,519 62
2003 1,591 59
2004 -- 18
--------------------------------------
Total $5,930 $1,715
- ------------------------------------------------------------------------------------------
</TABLE>
Total rental expense in 1999 was $1,597, of which $1,446 was affiliated.
8. Related Parties
In addition to the affiliated borrowings, tax and lease agreements, the Company
is engaged in various transactions with Borden and its affiliated companies in
the ordinary course of business. Management believes costs associated with
these transactions are reasonable based on the agreements, however, the amounts
are not necessarily indicative of costs that would have been incurred if the
Company operated on a stand alone basis since the business has historically been
operated as a division of Borden. Although the Company is a division of Borden,
it operates independently. Management fees of $93 have been allocated and are
included in the Company's financial statements.
The Company provides certain administrative services to Borden and its
affiliated companies at negotiated fees. These services include: processing of
payroll as well as active and retiree group insurance claims, securing insurance
coverage for catastrophic claims and IT infrastructure outsourcing.
The Company is generally self-insured for general insurance claims and post-
employment benefits other than pensions; however, they do participate in Borden
sponsored plans with other affiliated businesses. The liabilities for these
obligations are included in the Company's financial statements.
The Company also invests excess cash funds held for customers with Borden in
one-day investments that totaled $2,750 at December 31, 1999. Interest income
from Borden for these one-day investments totaled $98 for 1999.
<PAGE>
9. Common Stock and Stock Options
The Company issued stock options under its Management Stockholders' Agreement in
which the fair value is determined by a formula (as defined) and whereby the
Company has the right to repurchase the stock and options at certain
determinable dates and events.
At December 31, 1999, the Company has granted options to purchase additional
574,655 shares of common stock at an exercise price of $5 per share. During
1999, options for 21,000 shares and 56,000 were cancelled and forfeited,
respectively, and 40,250 options were granted. The options expire 10 years from
the date of grant and vest ratably over 5 years. The options are generally not
transferable and exercisability of the options will accelerate upon a change of
control as defined.
The stock options have an exercise price of $5 per share (fair value at date of
grant) and a weighted average remaining life of 1.7 years. The fair value of
options at the grant date and at December 31, 1999 was less than the exercise
price for all options outstanding. Compensation expense for the Company's stock
option plan for 1999 based on the provisions of SFAS No. 123 is $106.
10. Insurance Subsidiary
rSP Insurance Agency, Inc (a wholly owned subsidiary) handles the placement of
stop-loss, life and short-term disability insurance for selected customers of
the processing business. This subsidiary is a licensed insurance agency in the
State of Ohio. Commissions earned on the placement of policies were $694 in
1999.
11. Discontinued Operations
In the first quarter of 1999, the Company sold its printing business for cash
proceeds of $1,518 resulting in a pretax gain of $453. This business was a
separate segment of the Company's business as defined by generally accepted
accounting principles and as such has been reclassified to discontinued
operations in the statements of operations and cash flows.
12. Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires an enterprise to report financial and descriptive
information about its operating segments. In accordance with SFAS No. 131, the
Company determined its operating segments on the same basis that is used
internally to evaluate segment performance and allocate resources.
Each of the Company's operating segments offers different, but integrated,
services with different economic characteristics. The segments within the
Company include Consulting, Hosting and Processing services.
The remainder of the Company's results of operations represent general and
administrative and selling and marketing functions which are listed in the
"Administrative and other" category.
<PAGE>
The results of the discontinued operations have not been included in the segment
reporting.
- -------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------
Affiliated Revenues
Consulting $ 750
Hosting 11,443
Processing 3,536
Other 202
-----------
Total $ 15,931
===========
Trade Revenues
Consulting $2,241
Hosting 5,111
Processing 1,724
Other 106
-----------
Total $9,182
===========
Gross Margin (Deficit)
Consulting $(1,741)
Hosting 753
Processing (1,304)
Other 308
-----------
Total $(1,984)
===========
Total Assets
Consulting $1,664
Hosting 5,488
Processing 5,545
Administrative and other 1,988
-----------
Total $14,685
===========
Depreciation and Amortization
Consulting $ 708
Hosting 1,008
Processing 197
Administrative and other 459
-----------
Total $ 2,372
===========
Capital Expenditures
Consulting $ 194
Hosting 833
Processing 249
Administrative and other 98
-----------
Total $ 1,374
===========
13. Subsequent Events
Subsequent to December 31, 1999, Borden entered into a letter of intent to sell
substantially all the assets and certain liabilities of the Company. The
transaction has not yet been finalized.
<PAGE>
(c) Pro Forma Combined Financial Information of Interliant, Inc.
The following unaudited pro forma combined condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the combined financial position or results of operations for future periods
or the results of operations or financial position that actually would have been
realized had Interliant, Soft Link and reSOURCE PARTNER been a combined company
during the specified periods. The unaudited pro forma combined condensed
financial statements, including the related notes, are qualified in their
entirety by reference to, and should be read in conjunction with, the historical
consolidated financial statements and related notes thereto of Interliant,
included in its Annual Report on Form 10-K, filed on March 29, 2000, and Soft
Link and reSOURCE PARTNER, included elsewhere in this filing.
The following unaudited pro forma combined condensed financial statements
give effect to the acquisitions of Soft Link and reSOURCE PARTNER using the
purchase method of accounting. The pro forma combined condensed financial
statements are based on the respective historical audited and unaudited
consolidated financial statements of Interliant, Soft Link and reSOURCE PARTNER
and the businesses acquired in 1999. The pro forma adjustments are preliminary
and based on management's estimates of the value of the tangible and intangible
assets acquired.
The actual adjustments may differ materially from those presented in these
pro forma financial statements. A change in the pro forma adjustments would
result in a reallocation of the purchase price affecting the value assigned to
the long-term tangible and intangible assets or, in some circumstances, result
in a charge to the statement of operations. The effect of these changes on the
statement of operations will depend on the nature and amounts of the assets and
liabilities adjusted.
The unaudited pro forma combined condensed balance sheet assumes that the
acquisitions and equity and debt transactions took place on December 31, 1999,
and combines Interliant's audited December 31, 1999 consolidated balance sheet
with Soft Link's and reSOURCE PARTNER'S audited December 31, 1999 consolidated
balance sheets. The pro forma combined condensed statements of operations assume
all of the acquisitions completed through the date of this report took place as
of January 1, 1999, and combines Interliant's audited consolidated statement of
operations for the year ended December 31, 1999, with Soft Link's and reSOURCE
PARTNER'S respective audited statements of operations for the year ended
December 31, 1999 as well as the results of operations for acquisitions
completed in 1999 from January 1, 1999 through their respective acquisition
dates.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Pro Forma Balance Sheet
As of December 31, 1999
Interliant reSOURCE
Historical PARTNER Soft Link
---------- ------- ---------
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 27,608,039 $ 457,000 $ 794,651
Restricted cash 1,011,772
Short-term investments 3,612,229
Payroll and benefits funds held for customers 4,156,000
Accounts receivable, net 13,981,358 2,491,000 6,508,922
Prepaid and other current assets 3,469,763 1,163,000 372,391
------------------------------------------------
Total current assets 49,683,161 8,267,000 7,675,964
------------------------------------------------
Furniture, fixtures and equipment, net 18,199,010 6,354,000 362,737
Intangibles, net 93,636,201
Other assets 1,356,696 64,000
------------------------------------------------
Total assets $162,875,068 $ 14,685,000 $ 8,038,701
================================================
Liabilities and stockholders' equity
Current liabilities:
Notes payable and current portion
of long-term debt $ 1,211,835 $ 16,350,000
Accounts payable 8,359,040 2,952,000 96,943
Accrued expenses 7,342,551 1,529,821
Payroll and benefits funds held for customers 4,156,000
Deferred revenue 5,883,549
Other current liabilities 1,439,000
------------------------------------------------
Total current liabilities 22,796,975 24,897,000 1,626,764
------------------------------------------------
Other liabilities 1,568,000
Long-term debt, less current portion 2,503,211
7% Convertible subordinated notes
Stockholders' equity:
Common stock 446,011 38,000 1,000
Additional paid-in capital 201,922,128 18,759,000
Deferred compensation -
Other comprehensive income 28,840
Treasury stock (69,000)
Accumulated deficit (64,822,097) (30,508,000) 6,410,937
------------------------------------------------
Total stockholders' equity 137,574,882 (11,780,000) 6,411,937
------------------------------------------------
Total liabilities and stockholders' equity $162,875,068 $ 14,685,000 $ 8,038,701
================================================
<CAPTION>
Pro Forma
Adjustments Pro Forma
----------- ---------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 166,205,250 (1),(2),(4) $195,064,940
Restricted cash 1,011,772
Short-term investments 3,612,229
Payroll and benefits funds held for customers 4,156,000
Accounts receivable, net (364,000) (3) 22,617,280
Prepaid and other current assets (56,000) (3) 4,949,154
------------------ ------------------
Total current assets 165,785,250 231,411,375
------------------ ------------------
Furniture, fixtures and equipment, net (245,000) (3) 24,670,747
Intangibles, net 56,217,772 (4) 149,853,973
Other assets 5,394,750 (1) 6,815,446
------------------ ------------------
Total assets $ 227,152,772 $412,751,541
================== ==================
Liabilities and stockholders' equity
Current liabilities:
Notes payable and current portion
of long-term debt $(16,350,000) (3) $ 1,211,835
Accounts payable (605,000) (3) 10,802,983
Accrued expenses 724,775 (4) 9,597,147
Payroll and benefits funds held for customers 4,156,000
Deferred revenue 5,883,549
Other current liabilities (437,000) (3) 1,002,000
------------------ ------------------
Total current liabilities (16,667,225) 32,653,514
------------------ ------------------
Other liabilities (1,568,000) (3) -
Long-term debt, less current portion 2,503,211
7% Convertible subordinated notes 164,825,000 (1) 164,825,000
Stockholders' equity:
Common stock (18,161) (2),(4) 466,850
Additional paid-in capital 56,415,095 (2),(3), (4) 277,096,223
Deferred compensation -
Other comprehensive income 28,840
Treasury stock 69,000 (4) -
Accumulated deficit 24,097,063 (4) (64,822,097)
------------------ ------------------
Total stockholders' equity 80,562,997 212,769,816
------------------ ------------------
Total liabilities and stockholders' equity $ 227,152,772 $412,751,541
================== ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 1999
Companies Companies
Interliant Acquired in Acquired in Pro Forma
Historical 1999 (5) 2000 (6) Adjustments Pro Forma
--------------- --------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Service revenues $47,114,095 $32,960,172 $ 57,560,457 $(4,595,994) (8) $133,038,730
Costs and expenses:
Cost of service revenues 27,513,710 23,027,220 49,524,350 (13,658,623) (7), (8) 86,406,657
Sales and marketing 17,236,121 3,181,832 5,221,351 25,639,304
General and administrative 29,062,596 8,079,910 5,542,238 10,239,480 (7) 52,924,224
Depreciation 6,051,296 943,252 2,372,000 (365,704) (8) 9,000,844
Amortization of intangibles 22,068,815 24,842,127 (9) 46,910,942
--------------- --------------- ----------------- -------------- ----------------
Total costs and expenses 101,932,538 35,232,214 62,659,939 21,057,280 220,881,971
--------------- --------------- ----------------- -------------- ----------------
Operating income (loss) (54,818,443) (2,272,042) (5,099,482) (25,653,274) (87,843,241)
Interest income (expense) 886,444 (145,426) (479,710) 669,297 (8) 930,605
Other income (expense) (4,877) 493,883 (371,675) (8) 117,331
--------------- --------------- ----------------- -------------- ----------------
Income (loss) before income tax (53,931,999) (2,422,345) (5,085,309) (25,355,652) (86,795,305)
Provision for income tax 193,166 120,000 (313,166) (10) -
--------------- --------------- ----------------- -------------- ----------------
Net income (loss) $(53,931,999) $(2,615,511) $ (5,205,309) $(25,042,486) $(86,795,305)
=============== =============== ================= ============== ================
Net loss per share - basic
and diluted $ (1.50) $ (2.22)
Weighted-average shares
outstanding 35,837,523 39,108,877
</TABLE>
<PAGE>
Notes to Pro Forma Condensed Combined Financial Information
The following adjustments were applied to Interliant's Consolidated
Financial Statements and the financial data of the companies acquired by
Interliant since January 1, 1999 to arrive at the unaudited Pro Forma Combined
Financial Information.
(1) To record issuance of $154.8 million of 7% Subordinated Convertible Notes
due 2005 in an underwritten offering, including the partial exercise of the
underwriters' overallotment option, in February 2000, net of offering costs
payable directly by Interliant, and the issuance of $10.0 million of 7%
Subordinated Convertible Notes in a private placement in March 2000.
(2) To record receipt of proceeds of $27.5 million from the sale of 787,881
shares of common stock in private placements in January and February 2000
at prices ranging from $33.50 to $35.76 per share.
(3) To reflect carve-out of non-acquired assets and non-assumed liabilities of
reSOURCE PARTNER, Inc. and subsidiary as of December 31, 1999. Such assets
and liabilities are included in the audited financial statements of
reSOURCE PARTNER for the year ended December 31, 1999.
(4) To reflect purchase consideration for acquisitions of Soft Link, Inc. and
reSOURCE PARTNER, Inc. and subsidiary, both of which were completed on
February 29, 2000. The purchase price for Soft Link consisted of cash of
$18.2 million, and the issuance of 254,879 shares of common stock valued at
$36.80 per share, the elimination of the acquired company's net equity and
record intangible assets arising from the acquisition. Future contingent
consideration payments up to $10.0 million have not been recorded for pro
forma purposes since the determination will not be made until December 31,
2000. The purchase price for reSOURCE PARTNER consisted of cash of $2.5
million, and the issuance of 1,041,179 shares of common stock valued at
$36.80 per share, the elimination of the acquired company's net equity and
record intangible assets arising from the acquisition.
(5) The following table presents the statements of operations for acquisitions
completed during 1999 for
the period January 1, 1999 through the respective acquisition dates.
Acquisitions that were deemed insignificant as per Rule 3-05 of Regulation
S-X are aggregated in the Other Acquisitions column.
<TABLE>
<CAPTION>
Net Daemons Interliant Sales Other Companies
Telephonetics Digiweb Associates Texas Technology Acquisitions Acquired in 1999
------------- ------- ---------- ----- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues $ 331,182 $ 237,300 $ 836,289 $ 3,501,602 $ 1,205,887 $ 26,847,912 $ 32,960,172
Costs and expenses:
Cost of service revenues 47,387 62,003 466,929 2,149,276 515,625 19,786,000 23,027,220
Sales and marketing 69,711 - 12,122 1,508,576 - 1,591,423 3,181,832
General and administrative 201,261 82,979 285,395 1,289,018 674,679 5,546,578 8,079,910
Depreciation 6,000 25,000 16,206 532,192 50,000 313,854 943,252
Amortization of intangibles -
-------------------------------------------------------------------------------------------------
Total costs and expenses 324,359 169,982 780,652 5,479,062 1,240,304 27,237,855 35,232,214
-------------------------------------------------------------------------------------------------
Operating income (loss) 6,823 67,318 55,637 (1,977,460) (34,417) (389,943) (2,272,042)
Interest income (expense) (1,873) (148,460) (26,903) 31,810 (145,426)
Other income (expense) - (4,877) (4,877)
-------------------------------------------------------------------------------------------------
Income (loss) before income tax 6,823 67,318 53,764 (2,125,920) (61,320) (363,010) (2,422,345)
Provision for income tax 13,313 179,853 193,166
-------------------------------------------------------------------------------------------------
Net income (loss) $ 6,823 $ 67,318 $ 40,451 $(2,125,920) $ (61,320) $ (542,863) $ (2,615,511)
=================================================================================================
</TABLE>
<PAGE>
(6) The following table presents the statements of operations for acquisitions
completed during 2000 for
the period January 1, 1999 through December 31, 1999.
<TABLE>
<CAPTION>
reSOURCE Soft Companies
PARTNER Link Acquired in 2000
------- ---- ----------------
<S> <C> <C> <C>
Service revenues $ 25,113,669 $ 32,446,788 $ 57,560,457
Costs and expenses:
Cost of service revenues 27,097,363 22,426,987 49,524,350
Sales and marketing 3,005,361 2,215,990 5,221,351
General and administrative 3,434,794 2,107,444 5,542,238
Depreciation 2,372,000 2,372,000
Amortization of intangibles -
------------------------------------------------------
Total costs and expenses 35,909,518 26,750,421 62,659,939
------------------------------------------------------
Operating income (loss) (10,795,849) 5,696,367 (5,099,482)
Interest income (expense) (501,893) 22,183 (479,710)
Other income (expense) 371,675 122,208 493,883
------------------------------------------------------
Income (loss) before income tax (10,926,067) 5,840,758 (5,085,309)
Provision for income tax 120,000 120,000
------------------------------------------------------
Net income (loss) $(10,926,067) $ 5,720,758 $ (5,205,309)
======================================================
</TABLE>
(7) To reclassify Interliant Texas customer service costs and reSOURCE PARTNER
general and administrative costs to conform to Interliant, Inc.'s
presentation.
(8) To carve-out results of operations and intercompany interest charges for
reSOURCE PARTNER businesses and intercompany liabilities which were not
acquired or assumed, respectively, but were included in the reSOURCE
PARTNER audited financial statements for the year ended December 31, 1999.
(9) To record amortization of intangibles arising as a result of acquisitions
for the period from January 1, 1999 to acquisition date based on
amortization periods ranging from one to five years.
(10) To record elimination of income tax provision due to consolidated pre-tax
loss.
