1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (date of earliest event reported): June 30, 2000 NETERGY NETWORKS, INC. (Exact name of registrant as specified in its charter) Delaware 000-21783 77-0142404 - ---------------------------- ------------------------ ------------------- (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) 2445 Mission College Blvd. Santa Clara, California 95054 (Address of principal executive offices) (408) 727-1885 (Registrant's telephone number, including area code)
2 Netergy Networks, Inc. hereby amends the following items, financial statements, exhibits, or other portions of its Current Report on Form 8-K, originally filed with the Securities and Exchange Commission on July 14, 2000 as set forth below: ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibit C. (a)Financial statements of Business Acquired. -2-
3 UFORCE COMPANY CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 AND 1999 AND FEBRUARY 28, 1999 Auditors' Report 2 Financial Statements Consolidated Earnings and Deficit 3 Consolidated Balance Sheets 4 Consolidated Cash Flows 5 Notes to Consolidated Financial Statements 6 to 16
4 AUDITORS' REPORT To the Shareholders of Uforce Company We have audited the consolidated balance sheets of Uforce Company as at June 30, 2000 and 1999 and the consolidated statements of earnings and deficit and cash flows for the year ended June 30, 2000, the four-month period ended June 30, 1999 and the year ended February 28, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at June 30, 2000 and 1999 and the results of its operations and its cash flows for the years ended June 30, 2000 and February 28, 1999 and the period ended June 30, 1999 in accordance with generally accepted accounting principles in Canada. /s/ RAYMOND CHABOT GRANT THORNTON - ---------------------------------- Chartered Accountants Montreal, Canada August 25, 2000
5 3 UFORCE COMPANY CONSOLIDATED EARNINGS AND DEFICIT Year ended June 30, 2000, four-month period ended June 30, 1999 and year ended February 28, 1999 (in United States dollars) =================================================================================================== 2000-06-30 1999-06-30 1999-02-28 (12 months) (4 months) (12 months) ----------- --------- --------- REVENUE $ 1,935,514 $ 9,515 $ 42,129 Cost of sales 1,582,174 13,001 39,809 ----------- --------- --------- GROSS PROFIT (LOSS) 353,340 (3,486) 2,320 ----------- --------- --------- Research and development expenses 2,383,532 169,540 292,744 Selling expenses 1,293,380 2,420 7,764 Administrative expenses 1,620,137 90,129 67,089 Financial expenses 59,533 8,866 2,024 Investment tax credits - research expenses (828,562) (47,793) (155,615) Other income (92,408) (253) -- ----------- --------- --------- 4,435,612 222,909 214,006 ----------- --------- --------- NET LOSS (4,082,272) (226,395) (211,686) Retained earnings (deficit), beginning of period (343,291) (116,896) 94,790 ----------- --------- --------- Deficit, end of period (4,425,563) (343,291) (116,896) =========== ========= ========= =================================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
6 4 UFORCE COMPANY CONSOLIDATED BALANCE SHEETS June 30, 2000 and 1999 (in United States dollars) ============================================================================================== 2000-06-30 1999-06-30 ---------- ---------- ASSETS Current assets Cash $ 29,690 $ 103 Term deposits, 4.15% to 4.75% (3% and 3.55% in 1999) 1,643,224 4,615,489 Accounts receivable (Note 5) 1,954,389 70,945 Work in process 110,679 -- Prepaid expenses 199,823 4,163 ---------- ---------- 3,937,805 4,690,700 Fixed assets (Note 6) 1,059,859 14,016 Goodwill 400,438 -- ---------- ---------- 5,398,102 4,704,716 ========== ========== LIABILITIES Current liabilities Accounts payable and accrued liabilities 1,521,260 311,458 Term loan from the new parent company, 5.5%, payable in September 2000 1,501,318 -- Deferred revenue 664,012 -- Current portion on long-term debt 430,214 17,360 ---------- ---------- 4,116,804 328,818 Long-term debt (Note 8) 581,373 -- ---------- ---------- 4,698,177 328,818 ---------- ---------- SHAREHOLDERS' EQUITY Capital stock (Note 9) 5,069,964 4,727,510 Contributed surplus (Note 10) 70,599 -- Deficit (4,425,563) (343,291) Cumulative translation adjustment (15,075) (8,321) ---------- ---------- 699,925 4,375,898 ---------- ---------- 5,398,102 4,704,716 ========== ========== ============================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
7 5 UFORCE COMPANY CONSOLIDATED CASH FLOWS Year ended June 30, 2000, four-month period ended June 30, 1999 and year ended February 28, 1999 (in United States dollars) ====================================================================================================== 2000-06-30 1999-06-30 1999-02-28 (12 months) (4 months) (12 months) ---------- ---------- ---------- OPERATING ACTIVITIES Net loss $(4,082,272) $ (226,395) $(211,686) Non-cash items Loss on write-off of fixed assets -- -- 376 Depreciation 205,106 1,422 7,497 Amortization of goodwill 70,963 -- -- Interest on balance of purchase 8,872 -- -- Changes in working capital items (Note 11) (78,906) 212,047 (121,235) ---------- ---------- ---------- Cash flows from operating activities (3,876,237) (12,926) (325,048) ---------- ---------- ---------- INVESTING ACTIVITIES Business acquisition (Note 4) (92,549) -- -- Advance to company under common control -- -- 50,315 Term deposits (345,929) -- -- Advances to shareholders 23,937 -- -- Fixed assets (461,969) -- (1,743) ---------- ---------- ---------- Cash flows from investing activities (876,510) -- 48,572 ---------- ---------- ---------- FINANCING ACTIVITIES Bank loan (19,274) (33,693) 33,438 Bank overdraft -- (43,284) 42,956 Due to companies under common control (17,347) (217,273) 195,234 Term loan from the new parent company 1,501,318 -- -- Long-term loans 169,709 -- -- Repayment of long-term debt (95,825) -- -- Amount received from a shareholder 70,599 -- -- Issuance of shares -- 5,121,294 -- Share issue expenses (140,994) (235,849) -- ---------- ---------- ---------- Cash flows from financing activities 1,468,186 4,591,195 271,628 ---------- ---------- ---------- FOREIGN CURRENCY TRANSLATION ADJUSTMENT (2,598) 37,323 (245) ---------- ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,287,159) 4,615,592 (5,093) Cash and cash equivalents, beginning of period 4,615,592 -- 5,093 ---------- ---------- ---------- Cash and cash equivalents, end of period 1,328,433 4,615,592 -- ========== ========== ========== CASH AND CASH EQUIVALENTS Cash 29,690 103 -- Term deposits 1,298,743 4,615,489 -- ---------- ---------- ---------- 1,328,433 4,615,592 -- ========== ========== ========== ====================================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
8 6 UFORCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 (in United States dollars) ================================================================================ 1 - GOVERNING STATUTES, NATURE OF OPERATIONS AND CORPORATE REORGANIZATION ================================================================================ Uforce Company (The "Company") was incorporated, in Canada, on June 16, 2000, as an unlimited liability corporation, under the Companies Act (Nova Scotia). Its principal business consists of the design and sales of telecommunication software and related professionnal services. The Company results from the merger, on June 16, 2000, of Uforce Inc. and 3044008 Nova Scotia Company. Uforce Inc. resulted from a corporate reorganization completed on June 28, 1999, whereby the majority of assets and liabilities of Uniforce Informatique Inc. ("Uniforce") were purchased by Uforce Inc. for a consideration of 11,115,000 common shares. As the Company, Uforce Inc. and Uniforce were under common control, these transactions were accounted for under the continuity of interest method, a method which produces the same results of the pooling of interests method. Consequently, there is no change in the basis of accounting. The accompanying consolidated financial statements reflect the historical financial information of Uniforce from March 1, 1998 until the corporate reorganization on June 28, 1999 and reflect the financial information of Uforce Inc. since that date. As at June 30, 2000, the Company was acquired by a wholly-owned subsidiary of Netergy Networks, Inc. (formely 8X8, Inc.) (a parent company), a United States based company. ================================================================================ 2 - ACCOUNTING POLICIES ================================================================================ BASIS OF PRESENTATION The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada and are denominated in United States dollars. The financial statements differ in certain respects from generally accepted accounting principles in the United States described in note 15. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Services-Conseils Von Neumann Inc. USE OF ESTIMATES The preparation of consolidated financial statements requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities shown on the balance sheet and contingencies mentioned at the date of the consolidated financial statements, and the amounts of revenues and expenses shown on the consolidated earnings statement during the reporting period. Actual results could differ from those estimates.
9 7 UFORCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 (in United States dollars) ================================================================================ 2 - ACCOUNTING POLICIES (CONTINUED) ================================================================================ REPORTING CURRENCY AND FOREIGN CURRENCY TRANSLATION The Company's financial statements have historically been expressed in Canadian dollars. As a result of the acquisition by a United States company, the Company adopted the United States dollar as its reporting currency. The Company financial statements have been translated from their functional currency, the Canadian dollar, to the reporting currency, the United States dollar for all reporting periods as follows: assets and liabilities have been translated at the exchange rate in effect at the end of the period and revenues and expenses have been translated at the average exchange rate for the period. All cumulative gains or losses from the translation into the Company's reporting currency have been included as a separate component of the shareholders' equity in the balance sheets. REVENUE RECOGNITION Software revenue is recognized when all significant obligations have been satisfied and collectibility has been assured. Revenues from consulting, training and other services are recognized when the services are performed. Contract revenue is recognized using the percentage-of-completion method of accounting. Under this method, contract revenue and related costs are recognized proportionally with the degree of completion of work. Deferred revenues is comprised of maintenance and support agreements for which services have yet to be provided, software license revenues where significant vendor obligations have yet to be satisfied, and any payments received from customers in advance of revenue recognition. DEPRECIATION AND AMORTIZATION The fixed assets are depreciated over their estimated useful lives according to the straight-line method and the following annual rates: Office equipment 20% Computer equipment 33 1/3% Software 33 1/3% Leasehold improvements 20% Goodwill is amortized on a straight-line basis over a five-year period until 2005. GOODWILL Goodwill represents the excess of the purchase price over the value assigned to the net identifiable assets obtained upon acquisition of a subsidiary in 2000. The Company evaluates goodwill annually to determine whether a permanent impairment in value should be recorded. This requires comparing operating results for the period and projected future earnings according to operating budgets, to the unamortized balance of goodwill.
10 8 UFORCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 (in United States dollars) ================================================================================ 2 - ACCOUNTING POLICIES (CONTINUED) ================================================================================ STOCK OPTION PLAN The Company has a stock option plan, which is described in note 9. No compensation expense is recognized for this plan when stock options are issued to employees. Any consideration paid by employees on exercise of stock options or purchase of stock is credited to share capital. If stock or stock options are repurchased from employees, the excess of the consideration paid over the carrying amount of the stock or stock option canceled is charged to deficit. FINANCIAL INSTRUMENTS The following methods and assumptions were used to determine the estimated fair value of each class of financial instruments: Short-term financial instruments Cash, term deposits, accounts receivable, accounts payable and accrued liabilities and term loan from the new parent company are financial instruments whose fair value approximates their carrying amount due to their short-term maturity. Long-term debt The fair value of long-term debt is equivalent to the book value given they were contracted near the end of the period. CASH AND CASH EQUIVALENTS The Company's policy is to present cash and term deposits having a term of less than three months from the acquisition date as cash and cash equivalents. ================================================================================ 3 - INFORMATION INCLUDED IN STATEMENTS OF EARNINGS AND DEFICIT ================================================================================ 2000-06-30 1999-06-30 1999-02-28 (12 months) (4 months) (12 months) ---------- ---------- ---------- Depreciation $205,106 $1,422 $7,497 Amortization of goodwill 70,963 - - Interest on long-term debt 37,715 - - Loss on write-off of fixed assets - - 376
11 9 UFORCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 (in United States dollars) ================================================================================ 4 - BUSINESS ACQUISITION ================================================================================ On September 29, 1999, the Company acquired 100% of the voting and participating shares of Services-Conseils Von Neumann Inc., a computer consulting firm, for a purchase price of $586,771. The purchase price consisted of $112,923 in cash, a note payable for $167,878 and $305,970 in capital stock. This transaction has been accounted for according to the purchase method. The operations of Services-Conseils Von Neumann Inc. from September 29, 1999 to June 30, 2000 are included in the consolidated statement of earnings and deficit. The net acquired assets are detailed as follows: -------- Current assets $116,358 Fixed assets 28,016 Goodwill 473,848 -------- 618,222 Current liabilities 51,825 -------- 566,397 ======== Consideration paid on acquisition Issue of shares 305,970 Balance of purchase 167,878 -------- 473,848 -------- Cash 112,923 Cash acquired from subsidiary (20,374) -------- 92,549 -------- 566,397 ======== ================================================================================ 5 - ACCOUNTS RECEIVABLE ================================================================================ 2000-06-30 1999-06-30 ---------- ---------- Trade accounts(a) $ 670,202 $16,110 Advances to shareholders, without interest 205,029 -- Advances to employees, without interest 50,132 -- Commodity taxes receivable 116,669 54,835 Investment tax credits receivable 912,357 -- ---------- ------- 1,954,389 70,945 ========== ======= (a) As at June 30, 2000, one customer owes an amount representing approximately 63% of total trade accounts.
12 10 UFORCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 (in United States dollars) ================================================================================ 6 - FIXED ASSETS ================================================================================ 2000-06-30 --------------------------------------- Accumulated Cost depreciation Net --------- ------------ --------- Office equipment $ 268,477 $ 40,832 $ 227,645 Computer equipment 221,076 60,375 160,702 Software 81,825 18,034 63,790 Leasehold improvements 1,674 1,392 282 ---------- --------- ---------- 573,052 120,633 452,419 Assets under capital leases Office equipment 46,344 4,358 41,985 Computer equipment 678,545 113,091 565,455 ---------- --------- ---------- 1,297,941 238,082 1,059,859 ========== ========= ========== Investment tax credits, in the amount of $54,986, have been offset against the cost of certain fixed assets. During the year, the Company acquired office and computer equipment in the amount of $762,277 by way of capital leases. 1999-06-30 ------------------------------ Accumulated Cost depreciation Net ------ ------------ ------ Office equipment $ 4,084 $ 1,171 $ 2,913 Computer equipment 17,724 8,736 8,988 Software 2,110 1,118 992 Leasehold improvements 1,681 558 1,123 ------- ------- ------- 25,599 11,583 14,016 ======= ======= ======= ================================================================================ 7 - AUTHORIZED LINE OF CREDIT ================================================================================ As at June 30, 2000, the Company has an available line of credit of an authorized amount of $676,000, which is secured by a hypothec on the assets of the Company and bears interest at prime rate plus 1%. Under the credit agreement, the Company is subject to certain financial ratios.
13 11 UFORCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 (in United States dollars) ================================================================================ 8 - LONG-TERM DEBT ================================================================================ Current portion 2000-06-30 1999-06-30 --------- ---------- ---------- Term loan, prime rate plus 3%, maturing in 2005, payable in monthly installments of $2,817 ($4,167 in Canadian dollars), secured by computer equipment having a book value of $169,450 $ 33,800 $ 168,999 $ -- Obligations under capital leases, interest rates varying between 10.44% and 11.33%, payable in monthly installments, maturing at various dates until 2002 301,304 666,848 -- Balance of purchase due to shareholders, without interest, discounted at 7%, payable in two blended annual installments of $91,260 ($135,000 in Canadian dollars) in July 2000 and 2001 95,110 175,740 -- Due to companies under common control, without interest or repayment terms -- -- 17,360 --------- ---------- --------- 430,214 1,011,587 17,360 Installments due within one year 430,214 430,214 17,360 --------- ---------- --------- -- 581,373 -- ========= ========== ========= The future annual installments on long-term debt are as follows: Obligations under capital Other leases loans ------------- ------- For the year ended June 30, 2001 $359,358 $128,910 2002 386,170 114,430 2003 -- 33,800 2004 -- 33,800 2005 -- 33,799 ------- Total minimum lease payments 745,528 Interest expense included in minimum lease payments 78,680 ------- ------- 666,848 344,739 ======= =======
14 12 UFORCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 (in United States dollars) ================================================================================ 9 - CAPITAL STOCK ================================================================================ As at June 30, 2000, after the merger between Uforce Inc. and 3044008 Nova Scotia Company mentioned in note 1, the new authorized capital stock is as follows: AUTHORIZED Shares without par value 100,000,000 Common shares 1,604,999 Exchangeable shares, ranking prior to common shares, each exchangeable share may be exchanged by the holder for one Netergy Networks, Inc. (parent company) common share, each exchangeable share entitles the holders to dividend and other rights economically equivalent to those granted to a holder of one Netergy Networks, Inc. common share Before the merger mentioned above, the authorized capital stock was as follows: AUTHORIZED Unlimited number of shares without par value Common shares Class "A" non-voting shares, ranking prior to common shares for the payment of dividends, automatically convertible into common shares on a share-per-share basis at the time of an initial public offering Class "C" voting and participating shares, ranking prior to class "A" shares
15 13 UFORCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 (in United States dollars) ================================================================================ 9 - CAPITAL STOCK (CONTINUED) ================================================================================ The changes to the Company capital stock are as follows: Common shares Class "A" shares ----------------------------- ----------------------------- Number Amount Number Amount ----------- ----------- ----------- ----------- ISSUED AND FULLY PAID Balance as of February 28, 1999 11,115,000 $ -- -- $ -- Issuance of shares for cash net of share issue expenses 7,600,000 4,727,510 -- -- ----------- ----------- ----------- ----------- Balance as at June 30, 1999 18,715,000 4,727,510 -- -- Issuance of shares in a business acquisition (Note 4) -- -- 243,450 305,970 Reversal of an accrued liability relating to share issue expenses -- 36,484 -- -- Conversion of stock (8,405,589) (1,895,686) (243,450) (305,970) ----------- ----------- ----------- ----------- Balance as at June 30, 2000 10,309,411 2,868,308 -- -- =========== =========== =========== =========== Exchangeable shares ---------------------------- Number Amount Total amount ----------- ----------- ------------ ISSUED AND FULLY PAID Balance as of February 28, 1999 -- $ -- $ -- Issuance of shares for cash net of share issue expenses -- -- 4,727,510 ----------- ----------- ----------- Balance as at June 30, 1999 -- -- 4,727,510 Issuance of shares in a business acquisition (Note 4) -- -- 305,970 Reversal of an accrued liability relating to share issue expenses -- -- 36,484 Conversion of stock 1,604,999 2,201,656 -- ----------- ----------- ----------- Balance as at June 30, 2000 1,604,999 2,201,656 5,069,964 =========== =========== ===========
16 14 UFORCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 (in United States dollars) ================================================================================ 9 - CAPITAL STOCK (CONTINUED) ================================================================================ In 2000, the Company granted options to its employees entitling them to subscribe to 1,422,500 common shares of its capital stock. The options vest on the basis of 1/4 per year and can only be exercised subject to certain criteria. The subscription price varies between $0.676 and $1.25 per share and the option has a maximum life of seven years. The weighted average exercise price is $0.94. No options were vested as of June 30, 2000. In 1999, the Company granted options to a third party entitling this third party to subscribe to 285,000 common shares of its capital stock during the 18 months following June 29, 1999. The subscription price of Cdn $1.00 per share could be paid in cash or services. All these options have been cancelled and replaced by options issued by the new parent company (Netergy Networks, Inc.). ================================================================================ 10 - CONTRIBUTED SURPLUS ================================================================================ Pursuant to an agreement entered into upon the creation of Uforce Inc. in 1999, a shareholder was committed to provide $70,599 in cash to the Company. This amount was received during the year ended June 30, 2000 and was accounted for as contributed surplus. ================================================================================ 11 - INFORMATION INCLUDED IN STATEMENTS OF CASH FLOWS ================================================================================ Changes in working capital items are detailed as follows: 2000-06-30 1999-06-30 1999-02-28 (12 months) (4 months) (12 months) ---------- --------- ----------- Accounts receivable $(1,802,119) $ 150,089 $ (157,957) Work in process (111,144) -- -- Prepaid expenses (193,862) 14,381 (17,375) Accounts payable and accrued liabilities 1,385,486 47,577 54,097 Income taxes payable (24,069) -- -- Deferred revenue 666,802 -- -- ---------- --------- --------- (78,906) 212,047 (121,235) ========== ========= ========= Cash flows relating to interest are as follows: 2000-06-30 1999-06-30 1999-02-28 (12 months) (4 months) (12 months) ---------- --------- --------- Interest paid $ 28,844 $ 6,127 $ 1,572
17 15 UFORCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 (in United States dollars) ================================================================================ 12 - INCOME TAXES ================================================================================ The Company has future income taxes assets of $1,796,808 which are not recorded in the financial statements. Of this amount, $121,004 expires in 2004, $1,581,840 in 2007 and $93,964 expires at an undetermined date. The Company's effective income tax rate differs from the combined federal and provincial income tax rate in Canada. This difference results from the following: 2000-06-30 1999-06-30 1999-02-28 (12 months) (4 months) (12 months) ----------- ---------- ----------- Combined federal and provincial income tax rate 38.2% 38.3% 38.3% Tax losses not recognized (38.2) (38.3) (38.3) ------ ------- -------- -- -- -- ====== ======= ======== ================================================================================ 13 - COMMITMENTS ================================================================================ The Company has entered into long-term operating lease agreements expiring at various dates up to 2010 which call for lease payments totalling $6,561,354 for office space and equipment rental. The minimum lease payments for the next five years are $562,090 in 2001, $673,547 in 2002, $678,850 in 2003, $678,707 in 2004 and $693,773 in 2005. ================================================================================ 14 - CONTINGENCIES ================================================================================ As at June 30, 2000, the Company has issued two letters of credit for $37,731 and $306,753 for two of its landlords. These letters of credit mature on January 31, 2001 and October 31, 2001, respectively, and are secured by term deposits.
18 16 UFORCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 (in United States dollars) ================================================================================ 15 - GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES ================================================================================ The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada (Canadian GAAP) which differ in certain respects from generally accepted accounting principles in the United States (U.S. GAAP). Had the Company followed U.S. GAAP, item would have increased the net loss as follows: 2000-06-30 1999-06-30 1999-02-28 (12 months) (4 months) (12 months) ---------- -------- -------- Net loss according to Canadian GAAP $4,082,272 $226,395 $211,686 Costs relating to awards of stock options to a third party -- 92,865 -- ---------- -------- -------- Net loss according to U.S. GAAP 4,082,272 319,260 211,686 ========== ======== ======== In accordance with U.S. GAAP, the Company is required to account for options awarded to a third party at their fair value and recognize this amount as an expense.
19 (b)Unaudited Pro Forma Combined Condensed Financial Information The following unaudited pro forma combined condensed financial statements give effect to the acquisition by Netergy Networks, Inc., formerly 8x8, Inc., ("Netergy Networks" or "the Company") of all outstanding shares of UForce, Inc. ("UForce") in a transaction to be accounted for as a purchase. The unaudited pro forma combined condensed balance sheet as of March 31, 2000 gives effect to this acquisition as if it had occurred on March 31, 2000. The unaudited pro forma combined condensed statement of operations for the year ended March 31, 2000 gives effect to the acquisition as if it had occurred on April 1, 1999. The unaudited pro forma combined condensed financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have actually occurred if the acquisition had been consummated as of the dates indicated, nor is it necessarily indicative of future operating results or financial position. In the opinion of management, all adjustments necessary for a fair presentation of such pro forma financial statements have been made. The unaudited pro forma combined condensed financial information, including the notes thereto, is qualified in its entirety by reference to, and should be read in conjunction with, the historical financial statements of the Company included in its Annual Report on Form 10-K filed June 28, 2000 with the Securities and Exchange Commission and the historical financial statements of UForce included elsewhere in this Form 8-K/A. -3-
20 UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF MARCH 31, 2000 (IN THOUSANDS) PRO FORMA NETERGY COMBINED NETWORKS UFORCE ADJUSTMENTS BALANCES --------- --------- ----------- --------- ASSETS Current assets: Cash and cash equivalents $ 48,576 $ 24 $ -- $ 48,600 Short-term investments -- 1,446 -- 1,446 Accounts receivable, net 1,394 1,507 -- 2,901 Accounts receivable from related party 1,000 -- -- 1,000 Inventory 1,367 14 -- 1,381 Prepaid expenses and other current assets 1,043 132 -- 1,175 --------- --------- --------- --------- Total current assets 53,380 3,123 -- 56,503 Property and equipment, net 2,687 881 -- 3,568 Intangibles and other assets 3,916 439 43,551 (A) 47,467 (439)(B) --------- --------- --------- --------- $ 59,983 $ 4,444 $ 43,112 $ 107,539 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,887 $ 759 $ -- $ 2,646 Accrued compensation 2,154 -- -- 2,154 Accrued warranty 694 -- -- 694 Deferred revenue 731 689 -- 1,420 Other accrued liabilities 1,245 -- 877 (A) 2,122 Income taxes payable 384 -- -- 384 Current portion of long-term debt -- 288 -- 288 --------- --------- --------- --------- Total current liabilities 7,095 1,736 877 9,708 Long-term debt -- 356 -- 356 Convertible subordinated debentures 5,498 -- -- 5,498 --------- --------- --------- --------- Total liabilities 12,593 2,092 877 15,562 --------- --------- --------- --------- Stockholders' equity Common stock 23 5,129 2 (A) 25 (5,129)(B) Additional paid-in capital 101,559 94 44,585 (A) 146,144 (94)(B) Notes receivable from stockholders (69) -- -- (69) Deferred compensation (376) -- -- (376) Accumulated deficit (53,747) (2,871) 2,871 (B) (53,747) --------- --------- --------- --------- Total stockholder's equity 47,390 2,352 42,235 91,977 --------- --------- --------- --------- $ 59,983 $ 4,444 $ 43,112 $ 107,539 ========= ========= ========= ========= -4-
21 NETERGY NETWORKS, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA) PROFORMA NETERGY COMBINED NETWORKS UFORCE ADJUSTMENTS BALANCES -------- -------- ----------- -------- Product revenues $ 20,817 $ -- $ -- $ 20,817 License and other revenues 4,567 490 -- 5,057 -------- -------- -------- -------- Total revenues 25,384 490 -- 25,874 Cost of product revenues 8,448 -- -- 8,448 Cost of license and other revenues 150 410 -- 560 -------- -------- -------- -------- Gross profit 16,786 80 -- 16,866 Operating expenses: Research and development 11,909 1,617 -- 13,526 Selling, general and administrative 21,307 1,675 -- 22,982 In-process research and development 10,100 -- -- 10,100 Amortization of intangibles 614 40 10,888 (D) 11,542 Research and development tax credits -- (583) -- (583) -------- -------- -------- -------- Total operating expenses 43,930 2,749 10,888 57,567 -------- -------- -------- -------- Loss from operations (27,144) (2,669) (10,888) (40,701) Other income, net 2,807 90 -- 2,897 Interest expense (391) (44) -- (435) -------- -------- -------- -------- Loss before provision for income taxes (24,728) (2,623) (10,888) (38,239) Provision for income taxes 120 -- -- 120 -------- -------- -------- -------- Net loss $(24,848) $ (2,623) $(10,888) $(38,359) ======== ======== ======== ======== Net loss per basic and diluted share $ (1.38) $ (1.90) ======== ======== Basic and diluted shares outstanding 18,071 2,132 20,203 ======== ======== ======== -5-
22 NOTE 1 - BASIS OF PRESENTATION: Netergy Networks acquired UForce on June 30, 2000 for a total purchase price of $45.5 million in a transaction to be accounted for as a purchase. The Company issued or will issue 3,555,303 shares of Netergy Networks common stock, with a fair value of approximately $38.0 million, for all of the outstanding stock of UForce. The share total is comprised of 1,447,523 shares issued at closing of the acquisition and 2,107,780 shares that will be issued upon the exchange or redemption of the exchangeable shares of Canadian entities held by former shareholders or indirect owners of UForce stock. Certain of the shares to be issued are subject to repurchase rights. The common stock was valued using the Company's average stock price on May 19, 2000, the date the merger agreement was announced, including the prices of the stock four days before and four days after the announcement. The average price was $10.70. Netergy Networks also assumed outstanding stock options to purchase 1,023,898 shares of common stock for which the Black-Scholes option-pricing model value of approximately $6.6 million will be included in the purchase price. Direct transaction costs related to the merger are estimated to be approximately $877,000. The unaudited pro forma combined condensed balance sheet as of March 31, 2000 gives effect to this acquisition as if it had occurred on March 31, 2000. The unaudited pro forma combined condensed statement of operations for the year ended March 31, 2000 gives effect to the acquisition as if it had occurred on April 1, 1999. The Company's fiscal year ends on the last Thursday in March. For purposes of these pro forma financial statements, the Company has indicated its fiscal year ends on March 31. NOTE 2 - PURCHASE PRICE ALLOCATION: The Company's allocation of the aggregate purchase price is based on management's preliminary analysis and estimates of the fair values of the tangible assets and intangible assets. The Company anticipates that, upon completion of an independent appraisal, there will be a charge for purchased in-process research and development, which has not reached technological feasibility and therefore, has no alternative future use. Such in-process research and development will be charged to the statement of operations in the period the acquisition is consummated. The book values of tangible assets and liabilities acquired are assumed to approximate fair values. Intangible assets are assumed to include current technology, workforce and goodwill and are amortized over an estimated useful life of 4 years. Upon completion of an independent appraisal, intangible assets will be reduced by the amount of any in-process research and development charged to the statement of operations. The allocation is summarized below (in thousands): Net assets acquired $ 1,913 Intangible assets, including goodwill 43,551 ------- Total $45,464 ======= -6-
23 NOTE 3 - UNAUDITED PRO FORMA COMBINED NET LOSS PER SHARE: The net loss per share and shares used in computing the net loss per share for the year ended March 31, 2000 are based upon the Company's historical weighted average common shares outstanding together with the shares issued in the transaction as if such shares were issued April 1, 1999. Common stock issuable upon the exercise of stock options, warrants, convertible subordinated debentures and unvested restricted stock has been excluded, as the effect would be anti-dilutive for all periods presented. NOTE 4 - PURCHASE ADJUSTMENTS: The following adjustments were applied to the combined financial statements: (A) To reflect the issuance of shares and the assumption of stock options in the acquisition and to record estimated transaction costs and other assets and liabilities at their fair values. (B) To reflect the writeoff of intangible assets and the elimination of stockholders' equity accounts of UForce. (C) To record amortization of goodwill and other intangibles. Goodwill and other intangibles are amortized on a straight-line basis over four years. -7-
24 (c)Exhibits. Exhibit Number Description -------------- ----------- 23.1 Auditors' Consent -8-
25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. NETERGY NETWORKS, INC. Dated: September 12, 2000 By: /s/ David M. Stoll ------------------------------------- David M. Stoll Chief Financial Officer -9-
26 EXHIBIT INDEX Exhibit Number Description -------------- ----------- 23.1 Auditors' Consent -10-
1 EXHIBIT 23.1 AUDITORS' CONSENT We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-80379, 333-32928, 333-32930, and 333-32932) and Form S-8 (Nos. 333-30943, 333-50519 and 333-41594) of Netergy Networks, Inc. (formerly 8&8, Inc.) of our report dated August 25, 2000, relating to the financial statements of Uforce Company which appears in this Form 8-K/A. /s/ Raymond Chabot Grant Thornton General Partnership Chartered accountants Montreal, Canada September 12, 2000