<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 25, 2000
-------------------------------
AKAMAI TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-27275 04-3432319
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
500 Technology Square, Cambridge, Massachusetts 02139
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (617) 250-3000
-----------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
The undersigned Registrant hereby amends Item 7 of its Current Report on
Form 8-K filed with the Securities and Exchange Commission on February 8, 2000,
which excluded certain financial statements which were not available at the time
of filing, to read in its entirety as follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Report of Independent Accountants
Network24 Communications, Inc.
Balance Sheets at December 31, 1999 and 1998
Network24 Communications, Inc.
Statements of Operations for the years ended December 31, 1999
and 1998
Network24 Communications, Inc.
Statements of Changes in Stockholders' Equity for the years
ended December 31, 1999 and 1998
Network24 Communications, Inc.
Statements of Cash Flows for the years ended December 31, 1999
and 1998
Network24 Communications, Inc.
Notes to Financial Statements
(b) Unaudited Pro Forma Combined Condensed Financial Information
Unaudited Pro Forma Combined Condensed Balance Sheet at December
31, 1999
Unaudited Pro Forma Combined Condensed Statements of Continuing
Operations for the year ended December 31, 1999
Notes to Unaudited Pro Forma Combined Condensed Financial
Information
(c) Exhibits
<TABLE>
<CAPTION>
Item No. Description
-------- -----------
<S> <C>
*2.1 Agreement and Plan of Merger, dated as of January 14,
2000 by and among Akamai Technologies, Inc.,
Aloha Merger Corporation and Network24
Communications, Inc.
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
*Incorporated by reference from the Registrant's Current Report on Form 8-K
filed with the Securities and Exchange Commission on February 8, 2000.
-2-
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AKAMAI TECHNOLOGIES, INC.
By: /s/ Timothy Weller
-------------------------------------
Dated: March 2, 2000 Timothy Weller
Chief Financial Officer and
Treasurer
<PAGE> 4
Network24 Communications, Inc.
Financial Statements
Years ended December 31, 1999 and 1998
CONTENTS
Report of Independent Accountants.......................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Changes in Stockholders' Equity.............................. F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
F-1
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Network24 Communications, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' equity and cash flows present fairly, in
all material respects, the financial position of Network24 Communications, Inc.
at December 31, 1999 and 1998 and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
On February 10, 2000, Network24 Communications, Inc. was acquired by Akamai
Technologies, Inc. (Note 10).
PricewaterhouseCoopers LLP
February 14, 2000
Boston, Massachusetts
F-2
<PAGE> 6
NETWORK24 COMMUNICATIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,260,553 $ 13,470
Accounts receivable....................................... 222,933 59,255
Prepaid expenses and other current assets................. 40,700 --
------------ ---------
Total current assets.............................. 3,524,186 72,725
Property and equipment, net (Note 3)...................... 444,867 66,737
------------ ---------
Total assets...................................... $ 3,969,053 $ 139,462
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 301,674 $ 2,014
Accrued payroll........................................... 71,022 7,017
Current portion of obligations under capital leases....... 38,554 --
Loans payable -- stockholder.............................. -- 128,860
Deferred revenue.......................................... 44,444 --
------------ ---------
Total current liabilities......................... 455,694 137,891
Obligations under capital leases, net of current
portion................................................ 21,572 --
------------ ---------
Total liabilities................................. 477,266 137,891
------------ ---------
Commitments (Note 9)
Stockholders' equity:
Series A convertible preferred stock, $0.01 par value:
20,000,000 shares authorized; 5,793,925 shares issued
and outstanding at December 31, 1999 (liquidation
preference of $5,500,000).............................. 57,939 --
Common stock, $0.01 par value: 100,000,000 shares
authorized; 12,191,574 and 11,283,848 issued and
outstanding at December 31, 1999 and 1998,
respectively........................................... 121,916 112,838
Additional paid-in capital................................ 19,592,213 668,028
Note receivable for stock................................. (227,500) --
Deferred compensation and other equity related charges.... (12,931,053) (361,692)
Accumulated deficit....................................... (3,121,728) (417,603)
------------ ---------
Total stockholders' equity........................ 3,491,787 1,571
------------ ---------
Total liabilities and stockholders' equity........ $ 3,969,053 $ 139,462
============ =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 7
NETWORK24 COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Revenue..................................................... $ 735,333 $ 59,255
----------- ---------
Operating expenses:
Cost of service........................................... 767,650 80,093
Engineering and development............................... 462,507 87,209
Sales, general and administrative......................... 2,271,416 191,151
----------- ---------
Total operating expenses.......................... 3,501,573 358,453
----------- ---------
Operating loss.............................................. (2,766,240) (299,198)
Interest income............................................. 62,115 --
----------- ---------
Net loss.................................................... $(2,704,125) $(299,198)
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 8
NETWORK24 COMMUNICATIONS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE DEFERRED
PREFERRED STOCK COMMON STOCK ADDITIONAL COMPENSATION
--------------------- ---------------------- PAID-IN NOTE AND OTHER EQUITY
SHARES PAR VALUE SHARES PAR VALUE CAPITAL RECEIVABLE RELATED CHARGES
--------- --------- ---------- --------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997....... -- $ -- 10,800,000 $108,000 $ 125,280 $ -- $ (104,400)
Issuance of common stock......... 330,000 3,300 177,842
Issuance of common stock in
exchange of services
received....................... 153,848 1,538 25,392
Deferred compensation related to
stock options granted.......... 339,514 (339,514)
Amortization of deferred
compensation................... 82,222
Net loss.........................
--------- ------- ---------- -------- ----------- --------- ------------
Balance, December 31, 1998....... -- -- 11,283,848 112,838 668,028 -- (361,692)
Issuance of common stock......... 207,690 2,078 177,600
Issuance of common stock in
exchange of services
received....................... 20,036 200 29,272
Issuance of common stock in
exchange for note receivable... 350,000 3,500 224,000 (227,500)
Issuance of Series A convertible
preferred stock, net of
issuance costs of $81,113...... 5,793,925 57,939 5,360,948
Issuance of common stock upon
exercise of stock options...... 330,000 3,300 (1,389)
Deferred charges related to stock
options granted, issuance of
restricted stock, and issuance
of a warrant................... 13,133,754 (13,133,754)
Amortization of deferred
compensation and other deferred
equity charges................. 564,393
Net loss.........................
--------- ------- ---------- -------- ----------- --------- ------------
Balance, December 31, 1999....... 5,793,925 $57,939 12,191,574 $121,916 $19,592,213 $(227,500) $(12,931,053)
========= ======= ========== ======== =========== ========= ============
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Balance, December 31, 1997....... $ (118,405) $ 10,475
Issuance of common stock......... 181,142
Issuance of common stock in
exchange of services
received....................... 26,930
Deferred compensation related to
stock options granted.......... --
Amortization of deferred
compensation................... 82,222
Net loss......................... (299,198) (299,198)
----------- -----------
Balance, December 31, 1998....... (417,603) 1,571
Issuance of common stock......... 179,678
Issuance of common stock in
exchange of services
received....................... 29,472
Issuance of common stock in
exchange for note receivable... --
Issuance of Series A convertible
preferred stock, net of
issuance costs of $81,113...... 5,418,887
Issuance of common stock upon
exercise of stock options...... 1,911
Deferred charges related to stock
options granted, issuance of
restricted stock, and issuance
of a warrant................... --
Amortization of deferred
compensation and other deferred
equity charges................. 564,393
Net loss......................... (2,704,125) (2,704,125)
----------- -----------
Balance, December 31, 1999....... $(3,121,728) $ 3,491,787
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 9
NETWORK24 COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(2,704,125) $(299,198)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 53,369 22,713
Amortization of deferred compensation and other
deferred equity charges............................... 738,969 109,152
Changes in assets and liabilities:
Accounts receivable.................................. (163,678) (59,255)
Prepaid expenses and other current assets............ (40,700) --
Accounts payable and accrued expenses................ 299,660 (6,071)
Accrued payroll...................................... 64,005 7,017
Deferred revenue..................................... 44,444 --
----------- ---------
Net cash used in operating activities..................... (1,708,056) (225,642)
----------- ---------
Cash flows from investing activities:
Additions to property and equipment....................... (347,750) (70,890)
----------- ---------
Cash flows from financing activities:
Proceeds from loan payable -- stockholder................. -- 128,860
Repayment of loan payable -- stockholder.................. (128,860) --
Proceeds from bridge loan................................. 250,000 --
Repayments of capital lease obligations................... (23,623) --
Proceeds from the issuance of common stock................ 36,485 181,142
Proceeds from issuance of Series A convertible preferred
stock, net of issuance costs........................... 5,168,887 --
----------- ---------
Net cash provided by financing activities................. 5,302,889 310,002
----------- ---------
Increase in cash and cash equivalents....................... 3,247,083 13,470
Cash and cash equivalents at beginning of year.............. 13,470 --
----------- ---------
Cash and cash equivalents at end of year.................... $ 3,260,553 $ 13,470
=========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 2,592 $ --
Noncash investing and financing activities:
Additions to capital lease obligations for purchases of
property and equipment................................. $ 83,749 $ --
Conversion of bridge loan to Series A convertible
preferred stock........................................ 250,000 --
Issuance of common stock in exchange for note
receivable............................................. 227,500 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 10
NETWORK24 COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Network24 Communications, Inc. ("Network24") was founded in October 1997,
and is engaged in the business of hosting, on its own servers and its
proprietary EventCast broadcast management server platform, customized EventCast
websites for broadcasting live interactive and on-demand, online events.
Network24 manages its business as a single segment and has no organizational
structure dictated by product lines, geography, or customer type. All revenue
earned to date is from U.S. based customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Network24 considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Network24
invests primarily in money market funds, commercial paper and United States
government agency notes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets
ranging from three to five years. Assets held under capital leases are amortized
over the remaining lease term.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1999 and 1998, Network24's financial instruments consist of
cash and cash equivalents, accounts receivable, loans payable, accounts payable
and accrued expenses. The carrying amount of these instruments approximate their
fair values.
REVENUE RECOGNITION
Network24 derives revenue from four principal activities: broadcast and
hosting; production; maintenance and service; and consulting, design and
development.
Broadcast, hosting and production revenue is derived from the process of
delivering live programming with streaming audio and/or video to the end-users
desktop. Revenue is recognized when the event has been broadcast, all
significant contractual obligations have been satisfied and collection of the
related receivable is probable. Maintenance and service revenue consists of
amounts generated from server maintenance contracts and data backup service
contracts. Maintenance revenue is billed and recognized monthly over the
contractual periods services are provided. Consulting, design and development
revenue is derived primarily from the development of web sites used in
production and broadcast events. Revenue is recognized when the corresponding
production and broadcast revenue is recognized.
Deferred revenue consists of billings in excess of revenue recognized.
ENGINEERING AND DEVELOPMENT COSTS
Cost incurred for engineering and development of Network24's products are
expensed as incurred, except for certain software development costs. Network24
has adopted Statement of Position ("SOP") 98-1, which requires computer software
costs associated with internal use software to be charged to operations as
incurred until certain capitalization criteria are met. Costs eligible for
capitalization under SOP 98-1 have been insignificant to date.
F-7
<PAGE> 11
NETWORK24 COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED COMPENSATION
Network24 accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board Opinion ("APB") No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options issued to employees
in fixed amounts and with fixed exercise prices at least equal to the fair
market value of Network24's common stock at the date of grant. Network24 has
adopted the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation," through disclosure only
(Note 7). All stock-based awards to nonemployees are accounted for at their fair
value in accordance with SFAS No. 123.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments which potentially expose Network24 to concentration
of credit risk include trade accounts receivable. At December 31, 1999, three
customers accounted for 54%, 30% and 11% of Network24's accounts receivable. At
December 31, 1998, one customer accounted for 100% of Network24's accounts
receivable.
For the year ended December 31, 1999, sales to two customers accounted for
77% and 13% of Network24's total revenue, while for the year ended December 31,
1998 sales to one customer accounted for 100% of Network24's total revenue.
INCOME TAXES
Network24 operated as an S Corporation under Subchapter S of the Internal
Revenue Code from inception to July 15, 1999 after which time Network24 has
operated as a C Corporation under Subchapter C of the Internal Revenue Code.
During the S Corporation period, Network24 recognized no provision for income
taxes. All income, losses and credits flowed through to Network24's shareholders
and are, therefore, not available to offset future taxable income of Network24.
Had Network24 recognized a provision for income taxes during the S Corporation
period, the provision would have been nominal due to the net operating losses
incurred since inception.
Deferred tax assets and liabilities are recognized based on temporary
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
temporary differences are expected to reverse. The measurement of deferred tax
assets is reduced by a valuation allowance if, based upon the weight of
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles generally 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 these estimates.
F-8
<PAGE> 12
NETWORK24 COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Computer equipment.......................................... $438,177 $ 90,427
Equipment under capital leases.............................. 83,749 --
-------- --------
521,926 90,427
Accumulated depreciation and amortization................... (77,059) (23,690)
-------- --------
$444,867 $ 66,737
======== ========
</TABLE>
Depreciation expense relating to fixed assets was $53,369 and $22,713 for
the years ended December 31, 1999 and 1998, respectively, of which $13,369 and
$0, respectively, related to amortization of equipment held under capital
leases.
4. LOAN PAYABLE -- SHAREHOLDER
At December 31, 1998, Network24 issued a loan payable to an officer and
director of Network24. This loan was issued to meet short-term cash needs of
Network24. The note was noninterest bearing and was fully repaid in 1999.
5. BRIDGE LOAN
In July 1999, Network24 entered into a convertible subordinated promissory
note with a third party for $250,000. In August 1999, the note was converted
into 263,360 shares of Series A convertible preferred stock.
6. CAPITAL STOCK
In August 1999, Network24 issued 5,793,925 shares of Series A convertible
preferred stock at $0.95 per share to investors for total consideration of
$5,418,887, net of issuance costs of $81,113.
The holders of the Series A preferred stock are entitled to vote, together
with the holders of common stock, as a single class on all matters. Each
preferred stockholder is entitled to the number of votes equal to the number of
whole shares of common stock into which such shares convert. Each Series A
preferred share is convertible into common stock at the option of the
stockholder or automatically upon the closing of a public offering of
Network24's common stock, if a majority of Series A preferred stockholders elect
conversion, or if at any time there remains outstanding less than 10% of the
number of shares of Series A preferred stock issued on the original issue date.
The number of shares of common stock into which holders of the preferred stock
shall be entitled upon conversion shall be the product obtained by multiplying
the invested amount per share of Series A preferred stock by the number of
shares of Series A preferred stock being converted. The holders of the preferred
stock are entitled to receive dividends, when and if declared by the Board of
Directors, at a noncumulative rate of 4% per annum. No dividends may be paid on
the common stock until all dividends on the preferred stock have been fully
paid. Through December 31, 1999, no dividends have been declared or paid by
Network24. In the event of any liquidation, dissolution or winding-up of
Network24, the holders of the Series A preferred stock are entitled to receive
an amount per share equal to the invested amount per share of Series A preferred
stock, plus all declared but unpaid dividends. Any assets remaining after the
initial distribution to the preferred stockholders shall be available for
distribution ratably among the common stockholders.
F-9
<PAGE> 13
NETWORK24 COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUTHORIZED SHARES
The authorized capital stock of Network24 consists of (i) 100,000,000
shares of voting common stock authorized for issuance with a par value of $0.01
and (ii) 20,000,000 shares of preferred stock with a par value of $0.01.
STOCK SPLIT
On August 3, 1998, Network24 authorized and effected a two-for-one stock
split on the common stock. On June 7, 1999, Network24 authorized and effected a
second two-for-one stock split on the common stock. All references to common
stock amounts, including options and warrants to purchase common stock, have
been retroactively restated to reflect the stock splits.
WARRANTS
In December 1999, Network24 entered into a strategic agreement with a
customer, whereby the parties have selected each other as their preferred
service providers. Additionally, the two parties will engage in a joint
promotional plan and co-branding arrangement. In connection with this agreement,
Network24 issued a warrant to purchase 1,136,605 shares of Network24's common
stock at an exercise price of $3.47 per share. Network24 estimated the value of
the warrants to be $7.1 million using the Black-Scholes valuation model. This
value was recorded as a deferred charge in shareholders' equity and is being
recognized as an expense over the contract period. For the year ended December
31, 1999, Network24 recorded $296,322 of the expense related to these warrants.
In January 2000, Network24 issued an additional warrant to purchase 436,272
shares of outstanding common stock to this customer at an exercise price of
$3.47 per share. Network24 has estimated the value of these warrants to be
$2,997,625 using the Black-Scholes valuation model.
RESERVED SHARES
At December 31, 1999, Network24 had reserved 10,870,530 shares of common
stock for future issuance upon conversion of the Series A convertible preferred
stock, the exercise of stock options under the 1997 Stock Option Plan and the
exercise of outstanding warrants.
7. 1997 OPTION PLAN
In October 1997, Network24 adopted the 1997 Stock Option Plan (the "1997
Option Plan") which provides for the granting of incentive stock options and
nonqualified stock options to employees, including Board members, and
consultants of Network24. The Board of Directors is responsible for
administration of the plan. The Board determines the term of each option, the
option exercise price, the number of shares for which each option is exercisable
and the vesting period, generally ratably over one to four years. The exercise
price of incentive stock options shall not be less than 100% of the fair value
of the common stock at the date of grant (not less than 110% of fair value in
the case of holders of more than 10% of the Company's stock). Options granted
under the 1997 Option Plan generally expire ten years from the date of the
grant. The 1997 Option Plan allows for the issuance of options to purchase up to
3,940,000 shares of common stock. In the event of a "Corporate Transaction," as
defined by the Internal Revenue Code Section 424(a), whereby a successor
corporation, other than Network24, refuses to assume or substitute options
granted under the 1997 stock option plan, the plan allows for all options to
become fully vested and exercisable for a period of 15 days from the date of
notice.
F-10
<PAGE> 14
NETWORK24 COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of activity under Network24's 1997 Option Plan as of December 31,
1998 and 1999, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding -- December 31, 1997........................... 1,440,000 $0.0025
Granted.................................................. 1,340,000 0.0382
Exercised................................................ (120,000) 0.0025
Forfeited................................................ (1,320,000) 0.0025
----------
Outstanding -- December 31, 1998........................... 1,340,000 0.0382
Granted.................................................. 2,031,081 0.6500
Exercised................................................ (210,000) 0.0032
----------
Outstanding -- December 31, 1999........................... 3,161,081 0.4333
==========
</TABLE>
As of December 31, 1999 and 1998, 307,500 and 10,000 options were
exercisable, respectively, under the 1997 Option Plan. As of December 31, 1999,
there were 448,919 shares of common stock available for grant under the 1997
Option Plan.
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL NUMBER
PRICES OUTSTANDING LIFE EXERCISABLE
- -------- ----------- ----------- -----------
<S> <C> <C> <C>
$0.0025 700,000 9.4 137,500
$0.1111 430,000 9.6 155,000
$0.6500 2,031,081 9.9 15,000
--------- -------
3,161,081 9.8 307,500
========= =======
</TABLE>
In 1998, 1,340,000 options were granted with an exercise price less than
fair market value of the common stock. The weighted average exercise price and
weighted average fair value of options granted in 1998 were $0.04 and $0.31 per
share, respectively. In 1999, 2,011,081 and 20,000 options were granted with an
exercise price less than the fair market value and with an exercise price equal
to the fair market value, respectively. The weighted average exercise price and
weighted average fair value of options granted at an exercise price less than
fair market value were $0.65 and $3.06 per share, respectively. The weighted
average exercise price and weighted average fair value of options granted at an
exercise price equal to fair market value were $0.65 and $0.09 per share,
respectively.
As discussed in Note 2, Network24 has adopted the disclosure-only provision
of SFAS No. 123. Had compensation costs been determined based on the fair value
of the options granted to employees at the grant date consistent with the
provisions of SFAS No. 123, Network24's net loss would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998
----------- ---------
<S> <C> <C>
Net loss:
As reported............................................... $2,704,125 $299,198
Pro forma................................................. 2,722,815 301,449
</TABLE>
F-11
<PAGE> 15
NETWORK24 COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions for grants in 1999 and
1998: no dividend yield for both years; zero volatility for both years;
risk-free interest rates of 5.2% for 1999 and 4.7% to 5.5% for 1998; and
expected lives of three years for both years. Since options vest over several
years and additional option grants are expected to be made in future years, the
above pro forma results are not representative of pro forma results for future
years.
For the year ended December 31, 1999, Network24 recorded $6,022,017 in
deferred compensation for options to purchase common stock granted at exercise
prices determined to be below the fair market value of common stock. For the
year ended December 31, 1998, Network24 recorded $413,074 in deferred
compensation for options to purchase common stock granted at exercise prices
determined to be below the fair market value of the common stock. Deferred
compensation is amortized over the contractual vesting period. Amortization of
deferred compensation of $268,071 and $82,222 was recognized for the years ended
December 31, 1999 and 1998, respectively.
8. INCOME TAXES
The provision for income taxes for the year ended December 31, 1999
consists of the following:
<TABLE>
<S> <C>
Deferred tax benefit........................................ $(769,000)
Valuation allowance......................................... 769,000
---------
$ --
=========
</TABLE>
The Network24's effective tax rate varies from the statutory rate as
follows:
<TABLE>
<CAPTION>
1999
----
<S> <C>
US federal income tax rate.................................. (34)%
State taxes................................................. (4)
Equity compensation......................................... 7
S-Corp loss................................................. 3
Valuation allowance......................................... 28
---
--%
===
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets at December 31, 1999 are as follows:
<TABLE>
<S> <C>
Federal and state net operating loss carryforwards.......... $ 680,000
Accrual to cash adjustment.................................. 49,000
Other temporary differences................................. 66,000
Valuation allowance......................................... (795,000)
---------
Net deferred tax asset...................................... $ --
=========
</TABLE>
A valuation allowance is established if it is more likely than not that all
or a portion of the deferred tax asset will not be realized. Accordingly, a
valuation allowance has been recorded for the full amount of the deferred tax
asset.
As of December 31, 1999, Network24 has a net operating loss carryforward
for federal and state income tax purposes of approximately $1,700,000, which
will begin to expire in 2019. Ownership changes resulting from issuance of
capital stock may limit the amount of net operating loss carryforwards that can
be utilized annually to offset future taxable income. The amount of the annual
limitation is determined based upon Network24's value immediately prior to the
ownership change.
F-12
<PAGE> 16
NETWORK24 COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Prior to July 15, 1999, Network24 operated as an S Corporation under
Subchapter S of the Internal Revenue Code, and consequently, all income, loss,
and credits flowed directly to Network24's shareholders. Accordingly, only 1999
amounts are presented.
9. COMMITMENTS
Network24 leases its office facilities and certain equipment under various
operating and capital leases. Total rent expense under operating leases was
approximately $123,787 and $25,482 for the years ended December 31, 1999 and
1998, respectively. Future minimum lease commitments under capital leases and
operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING DECEMBER 31, LEASES LEASES
- ------------------------- ------- ---------
<S> <C> <C>
2000........................................................ $42,133 $297,600
2001........................................................ 17,453 --
2002........................................................ 6,050 --
2003........................................................ 504 --
------- --------
Total minimum lease payments................................ 66,140 $297,600
========
Less -- amount representing interest........................ (6,014)
-------
Present value of minimum lease payments..................... $60,126
=======
</TABLE>
10. SUBSEQUENT EVENT
On February 10, 2000, Network24 was acquired by Akamai Technologies, Inc.
("Akamai"), a public corporation headquartered in Cambridge, Massachusetts.
Pursuant to the merger agreement, cash of $12.5 million and approximately
599,152 shares of common stock of Akamai were exchanged for all of the issued
and outstanding capital stock of Network24 for an estimated purchase price of
$198.2 million. This transaction is being accounted for using the purchase
method of accounting.
F-13
<PAGE> 17
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information
gives effect to the acquisition by Akamai Technologies, Inc. ("Akamai") of
Network24 Communications, Inc. ("Network24") in a transaction to be accounted
for as a purchase. The unaudited pro forma combined condensed balance sheet is
based on the individual balance sheets of Akamai and Network24 and has been
prepared to reflect the acquisition by Akamai of Network24 at December 31, 1999.
The unaudited pro forma combined condensed statement of continuing operations is
based on the individual statements of continuing operations of Akamai and
Network24, and combines the results of continuing operations of Akamai and
Network24 for the year ended December 31, 1999 as if the acquisition occurred on
January 1, 1999.
The pro forma combined condensed financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or operating results that would have been achieved if the acquisition
had been consummated as of the beginning of the period presented, nor are they
necessarily indicative of the future financial position or operating results of
Akamai. The pro forma combined condensed financial information does not give
effect to any cost savings or restructuring and integration costs which may
result from the integration of Akamai's and Network24's operations. Such costs
related to restructuring and integration have not yet been determined and Akamai
expects to charge such costs to operations during the quarter incurred.
Pursant to Rule 11-02 of Regulation S-X, the unaudited pro forma combined
condensed financial information is based on continuing operations only and
excludes the results of extraordinary items.
The unaudited pro forma combined condensed financial information should be
read in conjunction with Akamai's audited consolidated financial statements and
notes thereto included in its Annual Report on Form 10-K for the year ended
December 31, 1999 on file with Securities and Exchange Commission and
Network24's audited financial statements for the year ended December 31, 1999
included elsewhere in this Form 8-K/A.
F-14
<PAGE> 18
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET AT DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AKAMAI NETWORK24 ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $269,554 $ 3,260 $(12,494)(2) $260,320
Accounts receivable, net....................... 1,588 223 -- 1,811
Prepaid expenses and other current assets...... 2,521 41 -- 2,562
-------- -------- -------- --------
Total current assets................. 273,663 3,524 (12,494) 264,693
Property and equipment......................... 23,875 445 -- 24,320
Intangible assets, net......................... 434 -- 194,516(2) 194,950
Other assets................................... 2,843 -- -- 2,843
-------- -------- -------- --------
Total assets......................... $300,815 $ 3,969 $182,022 $486,806
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.......... $ 11,070 $ 302 $ 1,600(3) $ 12,972
Accrued payroll and benefits................... 3,614 71 -- 3,685
Deferred revenue............................... 698 44 -- 742
Current portion of obligations under capital
lease and equipment loan..................... 504 39 -- 543
Current portion of long-term debt.............. 2,751 -- -- 2,751
-------- -------- -------- --------
Total current liabilities............ 18,637 456 1,600 20,693
Obligations under capital lease and equipment
loan......................................... 733 21 -- 754
-------- -------- -------- --------
Total liabilities.................... 19,370 477 1,600 21,447
-------- -------- -------- --------
Series A convertible preferred stock........... -- 58 (58)(5) --
Common stock................................... 925 122 (122)(5) 931
6(4)
Addition paid-in capital....................... 374,739 19,592 184,135(4) 558,874
(19,592)(5)
Notes receivable from officers for stock....... (5,907) (227) -- (6,134)
Deferred compensation and other equity related
charges...................................... (29,731) (12,931) 12,931(5) (29,731)
Accumulated deficit............................ (58,581) (3,122) 3,122(5) (58,581)
-------- -------- -------- --------
Total stockholders' equity........... 281,445 3,492 180,422 465,359
-------- -------- -------- --------
Total liabilities and stockholders'
equity............................. $300,815 $ 3,969 $182,022 $486,806
======== ======== ======== ========
</TABLE>
See accompanying notes to the unaudited pro forma combined condensed
financial information.
F-15
<PAGE> 19
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS
OF CONTINUING OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AKAMAI NETWORK24 ADJUSTMENTS COMBINED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue.................................. $ 3,986 $ 735 $ -- $ 4,721
----------- ------- --------- -----------
Operating expenses:
Cost of services.................... 9,002 768 -- 9,770
Engineering and development......... 11,749 463 (169)(6) 12,043
Sales, general and administrative... 29,668 2,270 (570)(6) 96,207
64,839(2)
Equity related compensation......... 10,005 -- 739(6) 10,744
----------- ------- --------- -----------
Total operating expenses....... 60,424 3,501 64,839 128,764
----------- ------- --------- -----------
Operating loss........................... (56,438) (2,766) (64,839) (124,043)
Interest income, net..................... 2,269 62 -- 2,331
----------- ------- --------- -----------
Loss from continuing operations.......... $ (54,169) $(2,704) $ (64,839) $ (121,712)
=========== ======= ========= ===========
Loss from continuing operations per
common share (1):
Basic and diluted...................... $ (1.80) $ (3.95)
=========== ===========
Weighted average number of common
shares (1):
Basic and diluted...................... 30,177,376 30,776,528
=========== ===========
</TABLE>
See accompanying notes to the unaudited pro forma combined condensed
financial information.
F-16
<PAGE> 20
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
A. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS
The following unaudited pro forma combined condensed financial information
gives effect to the acquisition by Akamai of Network24 in a transaction
accounted for as a purchase. The unaudited pro forma combined condensed balance
sheet is based on the individual balance sheets of Akamai and Network24 and has
been prepared to reflect the acquisition by Akamai of Network24 at December 31,
1999. The unaudited pro forma combined condensed statement of continuing
operations is based on the individual statements of continuing operations of
Akamai and Network24, and combines the results of continuing operations of
Akamai and Network24 for the year ended December 31, 1999 as if the acquisition
occurred on January 1, 1999.
Akamai issued 599,152 shares of Akamai common stock and $12.5 million in
cash in exchange for all outstanding shares of common and preferred stock of
Network24. Akamai also issued options exercisable for 136,877 shares of common
stock and warrants exercisable for 58,985 shares of common stock in replacement
of options and warrants for common stock of Network24.
B. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
1. The unaudited pro forma combined per share amounts are based on the pro
forma combined weighted average number of common shares which equals
Akamai's weighted average number of common shares outstanding for the period
plus the total number of Akamai common shares that were issued in the
acquisition of Network24. On February 10, 2000, Akamai issued 599,152 shares
of common stock in exchange for all outstanding common and Series A
preferred shares of Network24. All potential common stock equivalents of
Akamai and Network24 have been excluded from the calculation of pro forma
loss from continuing operations per common share as their inclusion would be
anti-dilutive.
2. Akamai estimates the purchase price to be approximately $198.2 million based
on the consideration paid to Network24 shareholders including common stock,
options, warrants and $12.5 million in cash, plus acquisition related
expenses. For purposes of measuring the value of the transaction, the value
of the common stock issued was based on the average closing price of
Akamai's common stock three days before and after the parties agreed to the
terms and the terms were announced. The value of options and warrants issued
were estimated using the Black Scholes valuation model. Akamai is currently
in the process of performing a full assessment of the fair value of the net
assets acquired. For the purposes of the preparation of the pro forma
combined condensed financial information, Akamai has allocated $3.7 million
of the purchase price to tangible assets acquired and liabilities assumed
based on the book value as of December 31, 1999. The remainder has been
allocated to intangible assets which are expected to include: completed
technology, workforce, trademarks and goodwill. Based on an estimated useful
life of three years for such intangible assets, the unaudited pro forma
combined condensed financial information includes an adjustment of $64.8
million for amortization expense. The allocation of the purchase price to
tangible and intangible assets, as well as the related amortization expense
may change materially as a result of the completion of Akamai's evaluation
of the fair value of the net assets acquired.
3. Increase in accrued expenses for estimated acquisition related expenses of
$1,600,000.
4. Increase in stockholders' equity for the issuance of 599,152 shares of
Akamai common stock.
5. Elimination of Network24 equity accounts.
6. Certain reclassification, none of which affects income from continuing
operations, have been made to the Network24 statement of operations in the
unaudited pro forma combined condensed statements of continuing operations
to classify equity related compensation on a consistent basis.
F-17
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Form 8-K/A of Akamai Technologies, Inc. of
our report dated February 14, 2000 relating to the financial statements of
Network24 Communications, Inc.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 1, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NETWORK24
COMMUNICATIONS, INC.'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,260
<SECURITIES> 0
<RECEIVABLES> 223
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,524
<PP&E> 522
<DEPRECIATION> (77)
<TOTAL-ASSETS> 3,969
<CURRENT-LIABILITIES> 456
<BONDS> 22
0
58
<COMMON> 122
<OTHER-SE> 3,311
<TOTAL-LIABILITY-AND-EQUITY> 3,969
<SALES> 0
<TOTAL-REVENUES> 735
<CGS> 0
<TOTAL-COSTS> 768
<OTHER-EXPENSES> 2,733
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,704)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,704)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,704)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NETWORK24
COMMUNICATION INC.'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 59
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 90
<DEPRECIATION> (23)
<TOTAL-ASSETS> 139
<CURRENT-LIABILITIES> 138
<BONDS> 0
0
0
<COMMON> 113
<OTHER-SE> (111)
<TOTAL-LIABILITY-AND-EQUITY> 139
<SALES> 0
<TOTAL-REVENUES> 59
<CGS> 0
<TOTAL-COSTS> 80
<OTHER-EXPENSES> 278
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (299)
<INCOME-TAX> 0
<INCOME-CONTINUING> (299)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (299)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
