THE SECURITIES ACT OF 1933
Delaware | 4813 | 52-1623052 | ||
(State or other jurisdiction of | (Primary Standard Industrial | (IRS Employer | ||
incorporation or organization) | Classification Code Number) | Identification Number) |
Suite 720
McLean, Virginia 22102
(703) 442-5500
(Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant’s Principal
Executive Offices)
President and Chief Executive Officer
8484 Westpark Drive
Suite 720
McLean, Virginia 22102
(703) 442-5500
(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service)
Mark J. Wishner, Esq.
Greenberg Traurig, LLP
1750 Tysons Boulevard
Suite 1200
McLean, VA 22102
(703) 749-1300
Proposed | Proposed | |||||||||||||||||||||
Maximum | Maximum | |||||||||||||||||||||
Amount to be | Offering Price Per | Aggregate Offering | Amount of | |||||||||||||||||||
Title of Each Class of Securities to be Registered | Registered (1) | Share (2) | Price (2) | Registration Fee | ||||||||||||||||||
Common Stock, par value $.0001 per share (3) | 5,242,717 | $ | 1.09 | $ | 5,714,562 | $ | 225 | |||||||||||||||
(1) | This registration statement shall also cover any additional shares of common stock which become issuable by reason of any stock dividend, stock split, recapitalization or any other similar transaction effected without the receipt of consideration which results in an increase in the number of the registrant’s outstanding shares of common stock. | |
(2) | Estimated in accordance with Rule 457(c) of the Securities Act of 1933, as amended, solely for the purposes of calculating the registration fee and is $1.09 per share, the average of the high and low prices per share of the Registrant’s common stock as reported on the as reported by the Over-the-Counter Bulletin Board on January 11, 2008. | |
(3) | Includes 2,672,573 shares of common stock issuable upon the conversion of 10% convertible unsecured subordinated promissory notes. |
Page | ||||
Prospectus Summary | 1 | |||
Risk Factors | 4 | |||
Cautionary Notes Regarding Forward-Looking Statements | 17 | |||
Use of Proceeds | 18 | |||
Market for Equity Securities | 18 | |||
Dividend Policy | 18 | |||
Selected Consolidated Financial Data | 19 | |||
Managements’ Discussion and Analysis of Financial Condition and Results of Operations | 19 | |||
Business | 47 | |||
Management | 58 | |||
Certain Relationships and Related Transactions | 71 | |||
Principal and Selling Stockholders | 73 | |||
Plan of Distribution | 76 | |||
Description of Securities | 77 | |||
Legal Matters | 79 | |||
Experts | 79 | |||
Where You Can Find More Information | 79 | |||
Index to Financial Statements | F-1 |
• | Data Connectivity:This category includes point-to-point connectivity services such as United States and international private lines, ethernet, dedicated internet access, wavelengths and dark fiber. In many cases, these connectivity services could be considered “managed” in that they often require the integration and management by us of multiple vendor networks within a single solution. This category also includes more value-added services, such as access aggregation and hubbing, which seek to improve cost efficiency and capacity management of individual circuit requirements. Examples include multi-hub solutions (which permit carriers and enterprises to aggregate capacity and order further circuits on an “as-needed” basis) and gateway hub solutions (which provide international-to-United States (or vice versa) standard rate conversion as well as aggregation). From time to time, we also sell equipment to assist with customer networking requirements. |
1
• | Managed Network Services:These services include engineering solutions tailored to a customer’s needs with respect to matters such as network deployment, monitoring of network systems, and management and maintenance of those networks. Examples include roaming Internet access for enterprise customers, co-location and related environmental and power support for equipment, network security solutions, outsourced management of networks or circuits, and deployment of private managed networks to replace or supplement existing point-to-point connectivity across multiple sites. | ||
• | Professional Services:These services include providing guidance and analysis to customers on network- and telecommunications-related requirements such as network design, continuity planning, facilities management and cost and traffic management and analysis. |
• | continue to improve a systems-based service activation and service assurance capability in support of our customer base; | ||
• | engage network solutions for our customers by selectively deploying network assets in support of specific customer requirements; | ||
• | continue to develop products and market branding in order to supply our sales force with a focused go-to-market suite of service offerings; | ||
• | foster greater penetration into existing customer accounts through sophisticated professional and consultative services in support of each customer’s unique network requirements, with the aim of serving as an extension of the customer’s own information technology or network planning organizations; | ||
• | continue to establish wholesale bandwidth purchasing agreements with additional facilities-based telecommunications carriers and service providers; | ||
• | expand our penetration of growing wholesale and retail customer segments, such as wireless network operators, cable television network operators, federal government agencies and medium to large multinational enterprises; | ||
• | continue to expand and populate our databases and network planning software with network location and pricing information; | ||
• | continue to stimulate demand for network services via our on-line tools; and | ||
• | leverage our network planning and optimization capabilities into emerging network technologies and value-added services such as VoIP, security solutions, satellite platforms, broadband wireless and multiprotocol label switching. |
• | Carrier- and technology-neutral approach; | ||
• | Outsourced network management expertise; | ||
• | Automation; | ||
• | Turn-key service; | ||
• | Cost efficiency; | ||
• | Network diversity; | ||
• | Customer support; and | ||
• | Network management and integration of hardware, software and telecommunications services. |
2
For the Period from | ||||||||||||||||
Inception (January | ||||||||||||||||
Year Ended December | 3, 2005) to | Nine Months Ended September 30, | ||||||||||||||
31, 2006 | December 31, 2005 | 2007 | 2006 | |||||||||||||
Revenues | $ | 10,470,502 | $ | — | $ | 42,115,072 | $ | — | ||||||||
Operating loss | (1,816,968 | ) | (358,892 | ) | (5,996,346 | ) | (578,469 | ) | ||||||||
Interest income, net of expense | 2,108,716 | 1,258,203 | (486,412 | ) | 1,955,169 | |||||||||||
Gain (loss) on derivative liabilities | (1,927,350 | ) | 776,750 | — | 2,990,400 | |||||||||||
Net (loss) income | (1,847,281 | ) | 1,369,061 | (5,751,248 | ) | 3,898,100 | ||||||||||
Net (loss) income per share, basic and diluted | $ | (0.15 | ) | $ | 0.16 | $ | (0.48 | ) | $ | 0.33 | ||||||
Cash dividends per share | $ | — | $ | — | $ | — | $ | — |
As of December 31, | As of December 31, | As of September 30, | ||||||||||||||
2006 | 2005 | 2007 | 2006 | |||||||||||||
Total assets (including US Government Securities held in Trust Fund) | $ | 98,275,028 | $ | 56,100,887 | $ | 83,773,063 | $ | 58,229,531 | ||||||||
Derivative liabilities | 8,435,050 | 6,507,700 | — | 3,517,300 | ||||||||||||
Total current liabilities | 46,059,301 | 6,711,733 | 20,547,161 | 4,936,069 | ||||||||||||
Long-term liabilities | 8,422,540 | — | 14,344,349 | — | ||||||||||||
Common stock subject to possible conversion | — | 10,926,022 | — | 11,311,658 | ||||||||||||
Stockholders’ equity | $ | 43,793,187 | $ | 38,463,132 | $ | 48,881,533 | $ | 41,981,804 |
3
• | the ability to obtain additional financing for acquisitions, working capital, investments and capital or other expenditures could be impaired or financing may not be available on acceptable terms; | ||
• | a substantial portion of our cash flow may be used to make principal and interest payments on this debt, reducing the funds that would otherwise be available for operations and future business opportunities; | ||
• | a substantial decrease in cash flows from operating activities or an increase in expenses could make it difficult to meet debt service requirements and force modifications to operations; | ||
• | if we do not have enough cash flow in the future to make interest or principal payments on this debt, we may be required to refinance all or a portion of this debt or to raise additional capital, which refinancing or additional capital we cannot assure you will be available on acceptable terms, if at all; and | ||
• | substantial debt may make us more vulnerable to a downturn in business or the economy generally. |
4
5
• | international, national, and local carriers, such as British Telecom, COLT, AT&T, Level 3, Qwest, Sprint and Verizon; | ||
• | companies that provide collocation facilities, such as Switch & Data, AT&T and Equinix; | ||
• | competitive access providers and local exchange carriers, such as XO Communications and RCN; and | ||
• | virtual network operators including Vanco Plc and Azzuri Communications Limited. |
6
• | substantially greater financial, technical, marketing and other resources, including brand or corporate name recognition; | ||
• | substantially lower cost structures, including cost structures of facility-based providers who have significantly reduced debt and other obligations through bankruptcy or other restructuring proceedings; | ||
• | larger client bases; | ||
• | longer operating histories; | ||
• | more established relationships in the industry; and | ||
• | larger geographic coverage. |
• | develop or adapt to new or emerging technologies and changes in client requirements more quickly; | ||
• | take advantage of acquisitions and other opportunities more readily; | ||
• | enter into strategic relationships to rapidly grow the reach of their networks and capacity; | ||
• | devote greater resources to the marketing and sale of their services; | ||
• | adopt more aggressive pricing and incentive policies, which could drive down margins; and | ||
• | expand their offerings more quickly. |
7
8
• | the willingness of enterprises to make additional information technology expenditures; | ||
• | the availability of security products necessary to ensure data privacy over the public networks; | ||
• | the quality, cost and functionality of these services and competing services; | ||
• | the increased adoption of wired and wireless broadband access methods; | ||
• | the continued growth of broadband-intensive applications; and | ||
• | the proliferation of electronic devices and related applications. |
9
10
• | be time-consuming and expensive; | ||
• | divert attention and resources away from our daily business; | ||
• | impede or prevent delivery of our products and services; and | ||
• | require us to pay significant royalties, licensing fees and damages. |
• | difficulty of assimilating acquired operations and personnel and information systems; | ||
• | potential disruption of our ongoing business; | ||
• | increased indebtedness to finance the acquisitions; | ||
• | possibility that we may not realize an acceptable return on our investment in these acquired companies or assets; | ||
• | diversion of resources; | ||
• | difficulty maintaining uniform standards, controls, procedures and policies; | ||
• | risks of entering markets in which we have little or no experience; and | ||
• | potential impairment of relationships with employees, suppliers or clients. |
11
12
13
14
15
• | contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; | ||
• | contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities laws; | ||
• | contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; | ||
• | contains a toll-free telephone number for inquiries on disciplinary actions; | ||
• | defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and | ||
• | contains such other information and is in such form, including language, type, size and format, as the SEC may require by rule or regulation. |
• | bid and ask quotations for the penny stock; | ||
• | the compensation of the broker-dealer and its salesperson in the transaction; | ||
• | the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and | ||
• | monthly account statements showing the market value of each penny stock held in the customer’s account. |
16
• | discuss future expectations; | ||
• | contain projections of future results of operations or financial condition; or | ||
• | state other “forward-looking” information. |
• | our ability to integrate the operations of our operating company subsidiaries; | ||
• | our ability to obtain capital; | ||
• | our ability to develop and market new products and services that meet customer demands and generate acceptable margins; | ||
• | our reliance on several large customers; | ||
• | our ability to negotiate and enter into acceptable contract terms with our suppliers; | ||
• | our ability to attract and retain qualified management and other personnel; | ||
• | competition in the industry in which we do business; | ||
• | failure of the third-party communications networks on which we depend; | ||
• | legislation or regulatory environments, requirements or changes adversely affecting the businesses in which we are engaged; | ||
• | general economic conditions; and | ||
• | our ability to maintain our databases, management systems and other intellectual property. |
17
Common Stock | Class W Warrants | Class Z Warrants | |||||||||||||||||||||||
High | Low | High | Low | High | Low | ||||||||||||||||||||
2005 | |||||||||||||||||||||||||
Second Quarter | $ | 2.75 | $ | 2.25 | $ | 0.41 | $ | 0.36 | $ | 0.45 | $ | 0.40 | |||||||||||||
Third Quarter | $ | 3.00 | $ | 2.50 | $ | 0.38 | $ | 0.35 | $ | 0.52 | $ | 0.40 | |||||||||||||
Fourth Quarter | $ | 2.50 | $ | 2.25 | $ | 0.45 | $ | 0.345 | $ | 0.52 | $ | 0.36 | |||||||||||||
2006 | |||||||||||||||||||||||||
First Quarter | $ | 3.30 | $ | 2.45 | $ | 0.54 | $ | 0.36 | $ | 0.66 | $ | 0.39 | |||||||||||||
Second Quarter | $ | 4.50 | $ | 2.50 | $ | 0.57 | $ | 0.30 | $ | 0.65 | $ | 0.33 | |||||||||||||
Third Quarter | $ | 2.90 | $ | 1.50 | $ | 0.32 | $ | 0.16 | $ | 0.35 | $ | 0.19 | |||||||||||||
Fourth Quarter | $ | 4.50 | $ | 0.66 | $ | 0.62 | $ | 0.06 | $ | 0.74 | $ | 0.10 | |||||||||||||
2007 | |||||||||||||||||||||||||
First Quarter | $ | 3.48 | $ | 1.75 | $ | 0.52 | $ | 0.26 | $ | 0.46 | $ | 0.18 | |||||||||||||
Second Quarter | $ | 2.50 | $ | 1.69 | $ | 0.37 | $ | 0.27 | $ | 0.38 | $ | 0.21 | |||||||||||||
Third Quarter | $ | 2.35 | $ | 1.20 | $ | 0.35 | $ | 0.23 | $ | 0.24 | $ | 0.07 | |||||||||||||
Fourth Quarter | $ | 1.85 | $ | 1.02 | $ | 0.12 | $ | 0.04 | $ | 0.26 | $ | 0.11 |
18
For the Period from | ||||||||||||||||
Inception (January | ||||||||||||||||
Year Ended December | 3, 2005) to | Nine Months Ended September 30, | ||||||||||||||
31, 2006 | December 31, 2005 | 2007 | 2006 | |||||||||||||
Revenues | $ | 10,470,502 | $ | — | $ | 42,115,072 | $ | — | ||||||||
Operating loss | (1,816,968 | ) | (358,892 | ) | (5,996,346 | ) | (578,469 | ) | ||||||||
Interest income, net of expense | 2,108,716 | 1,258,203 | (486,412 | ) | 1,955,169 | |||||||||||
Gain (loss) on derivative liabilities | (1,927,350 | ) | 776,750 | — | 2,990,400 | |||||||||||
Net (loss) income | (1,847,281 | ) | 1,369,061 | (5,751,248 | ) | 3,898,100 | ||||||||||
Net (loss) income per share, basic and diluted | $ | (0.15 | ) | $ | 0.16 | $ | (0.48 | ) | $ | 0.33 | ||||||
Cash dividends per share | $ | — | $ | — | $ | — | $ | — |
As of December 31, | As of December 31, | As of September 30, | ||||||||||||||
2006 | 2005 | 2007 | 2006 | |||||||||||||
Total assets (including US Government Securities held in Trust Fund) | $ | 98,275,028 | $ | 56,100,887 | $ | 83,773,063 | $ | 58,229,531 | ||||||||
Derivative liabilities | 8,435,050 | 6,507,700 | — | 3,517,300 | ||||||||||||
Total current liabilities | 46,059,301 | 6,711,733 | 20,547,161 | 4,936,069 | ||||||||||||
Long-term liabilities | 8,422,540 | — | 14,344,349 | — | ||||||||||||
Common stock subject to possible conversion | — | 10,926,022 | — | 11,311,658 | ||||||||||||
Stockholders’ equity | $ | 43,793,187 | $ | 38,463,132 | $ | 48,881,533 | $ | 41,981,804 |
Oct 1 - Oct 15, | Year Ended September 30, | |||||||||||||||||||||||
2006 | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||||||
Revenues | $ | 825,082 | $ | 17,960,062 | $ | 14,167,849 | $ | 9,263,497 | $ | 8,671,583 | $ | 8,711,085 | ||||||||||||
Income (loss) from operations | 65,633 | (371,932 | ) | (701,303 | ) | (429,188 | ) | 560,903 | 503,141 | |||||||||||||||
Net income (loss) | 35,002 | (350,981 | ) | (444,964 | ) | (223,560 | ) | 379,456 | 339,941 | |||||||||||||||
Net income (loss) per share, basic and diluted | $ | 0.01 | $ | (0.14 | ) | $ | (0.18 | ) | $ | (0.09 | ) | $ | 0.15 | $ | 0.14 |
As of September 30, | ||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
Total assets | $ | 4,214,996 | $ | 3,971,281 | $ | 3,103,690 | $ | 2,999,374 | $ | 2,512,937 | ||||||||||
Total current liabilities | 4,095,979 | 3,598,492 | 2,357,929 | 2,049,226 | 1,942,246 | |||||||||||||||
Long-term liabilities | 187,874 | 90,665 | 19,175 | — | — | |||||||||||||||
Stockholders’ (deficit) equity | $ | (68,857 | ) | $ | 282,124 | $ | 726,586 | $ | 950,148 | $ | 570,691 |
Jan 1 - Oct 15, | Year Ended December 31, | |||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
Revenues | $ | 26,122,950 | $ | 34,711,639 | $ | 35,075,501 | $ | 26,328,311 | $ | 19,698,614 | ||||||||||
Income (loss) from operations | (1,280,531 | ) | (234,805 | ) | (560,006 | ) | (2,874,761 | ) | (4,315,764 | ) | ||||||||||
Net income (loss) | (1,268,146 | ) | (231,000 | ) | (490,198 | ) | (2,858,363 | ) | (4,210,986 | ) | ||||||||||
Net income (loss) per share, basic and diluted | $ | (0.01 | ) | $ | — | $ | — | $ | (0.02 | ) | $ | (0.03 | ) |
As of December 31, | ||||||||||||||||
2005 | 2004 | 2003 | 2002 | |||||||||||||
Total assets | $ | 11,276,787 | $ | 14,294,212 | $ | 8,854,789 | $ | 11,470,064 | ||||||||
Total current liabilities | 14,006,156 | 15,872,666 | 11,074,117 | 11,098,262 | ||||||||||||
Long-term liabilities | 657,896 | 2,085,266 | 753,691 | 120,550 | ||||||||||||
Stockholders’ (deficit) equity | $ | (3,387,265 | ) | $ | (3,663,720 | ) | $ | (2,973,019 | ) | $ | 251,252 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
• | $14,000,000 in cash (less an aggregate of $1,250,000 which the shareholders agreed to defer in the form of promissory notes with an interest rate of 6%, originally due on June 30, 2007); | |
• | 1,300,000 shares of common stock valued at $6,731,400; | |
• | $4,000,000 in promissory notes with an interest rate of 6%, originally due on December 29, 2008; and | |
• | 1,450,000 Class W warrants and 1,450,000 Class Z warrants with an aggregate value of $467,287 based upon the Black-Scholes pricing model valuation. |
19
• | End-user demand for bandwidth intensive business processes, services and applications. These include high speed data storage, replication andback-up for data mining, disaster recovery and business continuity applications; continued deployment of client/server and remote computing network architectures; end-user demand for streaming video and audio; and supply-chain globalization, which requires members of an industry supply chain to share large amounts of data instantaneously over multiple global regions. | |
• | Growing awareness of the importance of network diversity. In an era where security, business continuity, and disaster recovery are of significant interest across all aspects of the economy, governments and businesses are likely increasingly aware of the inherent value of having a highly resilient and redundant telecommunications network. Consequently, governments and enterprises may recognize the value of using a facilities-neutral approach to network design, to ensure that their mission critical applications are not being routed over a single network (and therefore a single point of failure). | |
• | Fragmentation of global telecom service provider market. Despite recent mergers and acquisitions, businesses that need to operate across geographies and country borders face a complex and fragmented telecom service provider market. In the United States, notwithstanding consolidation, there are a large number of licensed telecommunications carriers, many of which specialize in limited geographic markets and regions. For businesses operating in regions such as Asia, Latin America and Europe, where cross-border supply chains are the norm, the problem is particularly acute because each country in the region has its own incumbent telecom carrier, its own set of telecom licensing requirements and its own telecom tariffs. In these environments, businesses may become increasingly receptive to a carrier-neutral telecom service provider that can source, integrate and maintain telecom services from multiple geographic regions while presenting a single point of contact to the end user customer. | |
• | Increasing complexity of network technologies. The last ten years have witnessed a technological revolution within the telecommunications industry. Traditional circuit-based, time-division-multiplexed telecom networks, which were the norm for decades, and which were well-understood by end-users, are being rapidly migrated to Internet Protocol-based networks. While this migration creates opportunities for end users to reduce costs and introduce new services, it also requires technical expertise that many end-users do not have. This skills gap could drive demand for managed network services — in which a business customer outsources network management to a third party — and for professional services, especially in the area of network security assessment and mitigation, network migration planning and IP network design. | |
• | Growing acceptance of network outsourcing to independent systems integrators. In an effort to control costs, simplify operations and maintain a focus on their core business objectives, businesses are increasingly receptive to outsourcing some or all of their IT and telecommunications networks to a third party. Furthermore, businesses are increasingly receptive to outsourcing their IT and telecommunications networks to systems integrators, rather than traditional facilities-based telecom carriers. This is because the systems integrators have the ability to create optimal solutions, using whatever combination of underlying vendors are needed to achieve a customer’s objectives. The systems integrator has the knowledge base to identify alternative vendors in the event the incumbent vendor does not perform adequately. The Company believes that the growing acceptance by leading businesses of outsourcing to systems integrators could drive growth in the use of multiple network operators. |
20
• | Data Connectivity: This category includespoint-to-point connectivity such as United States and international private lines, ethernet, dedicated internet access, wavelengths and dark fiber. In many cases, these connectivity services could be considered “managed” in that they often require the integration and management by us of multiple vendor networks within a single solution. This category also includes more value-added services, such as access aggregation and hubbing, which seek to improve cost efficiency and capacity management across individual circuit requirements. Examples include multi-hub solutions (which permit carriers and enterprises to aggregate capacity and order further circuits on an “as-needed” basis) and gateway hub solutions (which provideinternational-to-United States (or vice versa) standard rate conversion as well as aggregation). From time to time, we also sell equipment to assist with customer networking requirements. The main customers for these services are United States and international telecommunications service providers, voice over internet protocol, or VoIP, service providers, information service providers, large enterprises and government agencies. These customers buy these services either for their own internal communications networks or for resale to third parties. Approximately 68.5% of our consolidated revenues for the year ended December 31, 2006 were attributable to either single-supplier or integrated multiple-supplier data connectivity services provided to customers. | |
• | Managed Network Services: These services include engineering solutions tailored to a customer’s needs with respect to matters such as network deployment, monitoring, management and maintenance. Examples include roaming Internet access for enterprise customers, colocation and related environmental and power support for equipment, network security solutions, outsourced management of networks or circuits, and deployment of private managed networks to replace or supplement existingpoint-to-point connectivity across multiple sites. The target customers for these solutions aremedium-to-large business enterprises that have multiple business locations that need to be connected with each other. Approximately 31.5% of our consolidated revenues for the year ended December 31, 2006 were attributable to managed network services provided to customers. | |
• | Professional Services: These services entail providing guidance and analysis to customers on network- and telecommunications-related requirements such as network design, continuity planning, facilities management and cost and traffic management and analysis. Customers for these services include medium and large business enterprises as well as traditional telecommunications service providers, internet service providers, government agencies, wireless carriers and cable television system operators. Less than 1% of our consolidated revenues for the year ended December 31, 2006 were attributable to professional services provided to customers. |
21
• | Volume Purchase Commitments. Some of the service purchase contracts entered into by our Americas operating company call for certain levels of monthly payments to vendors whether or not our Americas operating company is currently utilizing the underlying capacity from those specific vendors, commonly |
22
referred to in the industry as“take-or-pay” commitments. As of December 31, 2006, the aggregate monthly obligations under all suchtake-or-pay commitments over the remaining terms of all of those contracts totaled approximately $975,000. All of the aggregate commitments existing as of December 31, 2006 expire by June 2008. If we were not able to satisfy such commitments via sales to underlying customers in a given month, our Americas operating company would be liable to the vendors for the shortfall in that month. In turn, a shortfall payment would have an adverse effect upon our gross margins, by increasing the cost of circuit access without the receipt of any corresponding revenue from customers against the shortfall. However, all monthly purchase commitments undertake-or-pay contracts had been fully utilized by our Americas operating company through December 31, 2006, and we do not anticipate material shortfalls (if any) arising under these agreements in the foreseeable future. |
• | Term Commitments. To the extent practicable, we match the quantity, duration and other terms of individual purchases of communications services with sales to individual customers on aservice-by-service basis. Our Americas operating company has, however, from time to time selectively purchased capacity under multiple-year commitments from some of its vendors in order to secure more competitive pricing. These multiple-year purchase commitments may not be, in all cases, matched with corresponding multiple-year commitments from customers. In such cases, if a customer were to disconnect its service before the multiple-year term ordered from the vendor expired, and if we were unable to find another customer for the capacity, our Americas operating company would either be subject to an early termination liability payable to the vendor or it would be forced to continue to pay for the service without any corresponding customer revenue attributable to the circuit. Such early termination liability would have an adverse effect upon our gross margins, by either accelerating our Americas operating company’s liability with respect to the circuit or increasing the cost of circuit access, in either case without the receipt of any corresponding revenue from customers against the liability. As of December 31, 2006, our Americas operating company’s total potential early termination liability, if all such services terminated as of that date, and if we could not obtain a waiver of termination liability (pursuant to contractual right or otherwise) with respect to such terminations, was approximately $382,000. |
23
• | Recurring Revenue. Recurring charges are generally billed pursuant to fixed price contracts, and are recognized ratably over the term of the contract from the date of installation. Where such charges are billed in advance, they are recorded as unearned revenue when billed. This unearned revenue is recognized monthly for as long as such service is provided and collectibility is reasonably assured. Under the service contracts, service is first considered to have been provided upon the issuance of a start of service notice. Recurring costs relating to supply contracts are recognized ratably over the term of the contract. | |
• | Non-recurring Fees. Non-recurring fees typically take the form of one-time, nonrefundable provisioning fees established pursuant to service contracts. The amount of the provisioning fee included in each contract |
24
is generally determined by marking up or passing through the corresponding charge from our supplier imposed pursuant to our purchase agreement. Non-recurring fees related to provisioning in connection with the delivery of recurring communications services do not have value to the customer on a standalone basis, and we have concluded therefore that these revenues are not a separate unit of accounting. As a result, non-recurring fees are recognized ratably over the term of service starting upon commencement of the service contract term. Installation costs related to provisioning that are incurred from independent third party suppliers, that are directly attributable and necessary to fulfill a particular service contract, and which costs would not have been incurred but for the occurrence as cost of revenues of that service contract, are capitalized as deferred contract costs and expensed proportionally over the term of service in the same manner as the deferred revenue arising from that contract. |
• | Other Revenue. From time to time, we recognize revenue in the form of fixed or determinable cancellation (pre-installation) or termination (post-installation) charges imposed pursuant to the service contract. These revenues are earned when a customer cancels or terminates a service agreement prior to the end of its committed term. These revenues are recognized when billed if collectibility is reasonably assured. In addition, we occasionally sell equipment in connection with data networking and managed service applications. We recognize revenue from the sale of equipment at the fixed contracted selling price when title to the equipment passes to the customer (generally F.O.B. origin) and when collectibility is reasonably assured. | |
• | Usage. Usage fees are recognized as the usage occurs. Unbilled revenue at the end of a period is accrued. |
25
26
27
28
29
Nine months ended | Nine months ended | |||||||
September 30, 2007 | September 30, 2006 | |||||||
Revenues | $ | 42,115,072 | $ | — | ||||
Cost of Revenue | 29,178,696 | — | ||||||
Gross Margin | 12,936,376 | — | ||||||
Operating Expenses, Depreciation and Amortization | 18,932,722 | 578,469 | ||||||
Operating Loss | $ | (5,996,346 | ) | $ | (578,469 | ) | ||
Net (Loss) Income | $ | (5,751,248 | ) | $ | 3,898,100 | |||
30
From Inception | ||||||||
(January 3, 2005) | ||||||||
Fiscal 2006 | to December 31, 2005 | |||||||
Revenues | $ | 10,470,502 | $ | — | ||||
Cost of Revenue | 7,784,193 | — | ||||||
Gross Margin | 2,686,309 | — | ||||||
Operating Expenses, Depreciation and Amortization | 4,503,277 | 358,892 | ||||||
Operating (Loss) Income | (1,816,968 | ) | (358,892 | ) | ||||
Net Income (Loss) | $ | (1,847,281 | ) | $ | 1,369,061 |
31
32
33
34
Three Months Ended (Unaudited) | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2006 | 2006 | 2006 | 2006 | |||||||||||||
Revenues | $ | — | $ | — | $ | — | $ | 10,470,502 | ||||||||
Gross margin | — | — | — | 2,686,309 | ||||||||||||
Loss from operations | (317,520 | ) | (104,156 | ) | (156,793 | ) | (1,238,499 | ) | ||||||||
Net income (loss) | (3,504,534 | ) | 4,602,244 | 2,800,391 | (5,745,382 | ) | ||||||||||
Net income (loss) per share, basic and diluted | $ | (0.30 | ) | $ | 0.39 | $ | 0.24 | $ | (0.48 | ) | ||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2005 | 2005 | 2005 | 2005 | |||||||||||||
Revenues | $ | — | $ | — | $ | — | $ | — | ||||||||
Gross margin | — | — | — | — | ||||||||||||
Loss from operations | (9,969 | ) | (109,767 | ) | (93,403 | ) | (145,753 | ) | ||||||||
Net income (loss) | (9,665 | ) | 367,705 | (590,104 | ) | 1,601,125 | ||||||||||
Net income (loss) per share, basic and diluted | $ | (96.65 | ) | $ | 0.04 | $ | (0.05 | ) | $ | 0.14 |
35
Historical | ||||||||||||||||||||||||||||||||
Predecessor | Historical | Historical | Historical | Historical | Historical | |||||||||||||||||||||||||||
GII | Predecessor | Successor | Non-GAAP | Predecessor | Predecessor | Successor | Non-GAAP | |||||||||||||||||||||||||
Twelve Months | ETT | Mercator | Combined | GII | ETT | Mercator/GTT | Combined | |||||||||||||||||||||||||
Ended | Year Ended | Year Ended | Year Ended | January 1- | January 1- | Year Ended | Year Ended | |||||||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | October 15, | October 15, | December 31, | December 31, | |||||||||||||||||||||||||
2005(1) | 2005(5) | 2005(5) | 2005(2) | 2006(3) | 2006(5) | 2006(5) | 2006(4) | |||||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||
Telecommunications revenue sold | $ | 15,279,104 | $ | 34,711,639 | $ | — | $ | 49,990,743 | $ | 14,636,595 | $ | 26,122,950 | $ | 10,470,502 | $ | 51,230,047 | ||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||||||
Cost of Revenue | 10,508,255 | 24,506,895 | — | 35,015,150 | 10,256,797 | 18,583,780 | 7,784,193 | 36,624,770 | ||||||||||||||||||||||||
Selling, General & Administrative | 5,560,857 | 10,170,036 | 358,892 | 16,089,785 | 4,229,496 | 8,625,233 | 3,981,423 | 16,836,152 | ||||||||||||||||||||||||
Depreciation and Amortization | 124,427 | 269,513 | — | 393,940 | 11,923 | 194,468 | 521,854 | 728,245 | ||||||||||||||||||||||||
Operating (loss) income | $ | (914,435 | ) | $ | (234,805 | ) | $ | (358,892 | ) | $ | (1,508,132 | ) | $ | 138,379 | $ | (1,280,531 | ) | $ | (1,816,968 | ) | $ | (2,959,120 | ) |
(1) | Represents the arithmetic combination of (a) the results of operations of GII for its fiscal year ended September 30, 2005, plus (b) the results of operations of GII for its quarter ended December 31, 2005, minus (c) the results of operations of GII for its quarter ended December 31, 2004. GII’s results of operations for the twelve months ended December 31, 2005 are being presented here solely for the purpose of computing ournon-GAAP combined financial statements for the year ended December 31, 2005 and are not indicative of what GII’s results of operations would be for its fiscal year. You should not consider GII’s results of operations for the twelve months ended December 31, 2005 in isolation. Please read GII’s historical financial information contained in this Prospectus as well as “— Results of Operations of Global Internetworking, Inc. as Predecessor.” | |
(2) | Represents, on a non-GAAP combined basis, the sum of (a) the results of operations of ETT for the year ended December 31, 2005, plus (b) the results of operations of GII for the twelve months ended December 31, 2005, plus (c) our stand-alone results of operations for the year ended December 31, 2005. | |
(3) | Represents the arithmetic combination of (a) the results of operations of GII for its fiscal year ended September 30, 2006, plus (b) the results of operations of GII for its period from October 1, 2006 to October 15, 2006, minus (c) the results of operations of GII for its quarter ended December 31, 2005. GII’s results of operations for the period from January 1, 2006 to October 15, 2006 are being presented here solely for the purpose of computing our non-GAAP combined financial information for the year ended December 31, 2006 and are not indicative of what GII’s results of operations would be for that period. You should not consider GII’s results of operations for the period from January 1, 2006 to October 15, 2006 in isolation. Please read GII’s historical financial statements contained in this Prospectus as well as “— Results of Operations of Global Internetworking, Inc. as Predecessor.” | |
(4) | Represents, on a non-GAAP combined basis, the sum of (a) the results of operations of ETT for the period from January 1, 2006 to October 15, 2006, plus (b) the results of operations of GII for the period from January 1, 2006 to October 15, 2006, plus (c) our stand-alone results of operations for the year ended December 31, 2006. |
36
(5) | The historical financial information for ETT for the year ended December 31, 2005 has been audited by BDO Stoy Hayward LLP. The historical financial information for Mercator for the year ended December 31, 2005, for ETT for the period from January 1, 2006 to October 15, 2006, and for Mercator/GTT for the year ended December 31, 2006 has been audited by J.H. Cohn LLP. |
37
Fiscal 2006 | Fiscal 2005 | |||||||
Revenues | $ | 17,960,062 | $ | 14,167,849 | ||||
Cost of Revenue | 12,821,009 | 9,424,964 | ||||||
Gross Margin | 5,139,053 | 4,742,885 | ||||||
Operating Expenses, Depreciation and Amortization | 5,510,985 | 5,444,188 | ||||||
Operating (Loss) | (371,932 | ) | (701,303 | ) | ||||
Net (Loss) | $ | (350,981 | ) | $ | (444,964 | ) |
38
Fiscal 2005 | Fiscal 2004 | |||||||
Revenues | $ | 14,167,849 | $ | 9,263,497 | ||||
Cost of Revenue | 9,424,964 | 6,062,912 | ||||||
Gross Margin | 4,742,885 | 3,200,585 | ||||||
Operating Expenses, Depreciation and Amortization | 5,444,188 | 3,629,773 | ||||||
Operating Loss | (701,303 | ) | (429,188 | ) | ||||
Net Loss | $ | (444,964 | ) | $ | (223,560 | ) |
39
40
Three Months Ended (Unaudited) | ||||||||||||||||
Dec 31, | March 31, | June 30, | Sept 30, | |||||||||||||
2005 | 2006 | 2006 | 2006 | |||||||||||||
Revenues | $ | 4,148,547 | $ | 4,378,292 | $ | 4,691,481 | $ | 4,741,742 | ||||||||
Gross margin | 1,038,687 | 1,346,315 | 1,349,702 | 1,404,349 | ||||||||||||
Income (loss) from operations | (444,323 | ) | (88,419 | ) | 4,978 | 155,832 | ||||||||||
Net income (loss) | (434,962 | ) | (81,812 | ) | 20,783 | 145,010 | ||||||||||
Net income (loss) per share, basic and diluted | $ | (0.17 | ) | $ | (0.03 | ) | $ | — | $ | 0.08 |
Dec 31, | Mar 31, | June 30, | Sept 30, | |||||||||||||
2004 | 2005 | 2005 | 2005 | |||||||||||||
Revenues | $ | 3,037,292 | $ | 3,331,241 | $ | 3,759,361 | $ | 4,039,955 | ||||||||
Gross margin | 1,010,725 | 1,055,022 | 1,302,974 | 1,374,164 | ||||||||||||
Income (loss) from operations | (197,992 | ) | (290,593 | ) | (81,462 | ) | (131,256 | ) | ||||||||
Net income (loss) | (105,550 | ) | (158,705 | ) | (56,756 | ) | (123,953 | ) | ||||||||
Net income (loss) per share, basic and diluted | $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.01 | ) | $ | (0.05 | ) |
41
January 1, 2006 — | Year Ended | |||||||
October 15, | December 31, | |||||||
2006 | 2005 | |||||||
Revenue | $ | 26,122,950 | $ | 34,711,639 | ||||
Cost of revenue | 18,583,780 | 24,506,895 | ||||||
Gross profit | 7,539,170 | 10,204,744 | ||||||
Operating expenses: | ||||||||
Selling expenses | 3,979,261 | 5,150,563 | ||||||
General and administrative | 4,840,440 | 5,288,986 | ||||||
Total operating expenses | 8,819,701 | 10,439,549 | ||||||
Operating loss | (1,280,531 | ) | (234,805 | ) | ||||
Other income (expenses): | ||||||||
Interest income | 98,515 | 181,938 | ||||||
Interest expense | (86,130 | ) | (178,133 | ) | ||||
Total other income | 12,385 | 3,805 | ||||||
Loss before income taxes | (1,268,146 | ) | (231,000 | ) | ||||
Income taxes | — | — | ||||||
Net loss | $ | (1,268,146 | ) | $ | (231,000 | ) | ||
42
43
2005 | 2004 | |||||||
Revenue | $ | 34,711,639 | $ | 35,075,501 | ||||
Cost of revenue | 24,506,895 | 25,754,951 | ||||||
Gross profit | 10,204,744 | 9,320,550 | ||||||
Operating expenses: | ||||||||
Selling expenses | 5,150,563 | 5,070,455 | ||||||
General and administrative | 5,288,986 | 4,810,101 | ||||||
Total operating expenses | 10,439,549 | 9,880,556 | ||||||
Operating loss | (234,805 | ) | (560,006 | ) | ||||
Other income (expenses): | ||||||||
Interest income | 181,938 | 117,955 | ||||||
Interest expense | (178,133 | ) | (48,147 | ) | ||||
Total other income | 3,805 | 69,808 | ||||||
Loss before income taxes | (231,000 | ) | (490,198 | ) | ||||
Income taxes | — | — | ||||||
Net (loss) | $ | (231,000 | ) | $ | (490,198 | ) | ||
44
Three Months Ended (Unaudited) | ||||||||||||||||
Dec 31, | March 31, | June 30, | Sept 30, | |||||||||||||
2005 | 2006 | 2006 | 2006 | |||||||||||||
Revenues | $ | 7,849,488 | $ | 8,045,313 | $ | 8,392,533 | $ | 8,280,571 | ||||||||
Gross profit | 2,520,384 | 2,334,059 | 2,673,197 | 2,257,611 | ||||||||||||
Income (loss) from operations | (200,861 | ) | (12,388 | ) | (6,828 | ) | (492,985 | ) | ||||||||
Net income (loss) | (196,911 | ) | (2,844 | ) | 3,379 | (497,192 | ) | |||||||||
Net income (loss) per share, basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | 0.00 | $ | (0.03 | ) |
Dec 31, | Mar 31, | June 30, | Sept 30, | |||||||||||||
2004 | 2005 | 2005 | 2005 | |||||||||||||
Revenues | $ | 8,633,250 | $ | 9,142,774 | $ | 9,042,067 | $ | 8,677,310 | ||||||||
Gross profit | 2,429,259 | 2,339,443 | 2,743,210 | 2,601,707 | ||||||||||||
Income (loss) from operations | 37,971 | 22,789 | 20,912 | (77,645 | ) | |||||||||||
Net income (loss) | 72,177 | 48,802 | 34,437 | (117,328 | ) | |||||||||||
Net income (loss) per share, basic and diluted | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | (0.00 | ) |
Less Than | 1 - 3 | 3 - 5 | More Than | |||||||||||||||||
Contractual Obligations | Total | 1 Year | Years | Years | 5 Years | |||||||||||||||
Long-Term Debt | $ | 10,519,167 | $ | 602,500 | $ | 9,916,667 | $ | — | $ | — | ||||||||||
Conversion of common shares | 11,311,658 | 11,311,658 | — | — | — | |||||||||||||||
Operating Lease Obligations | 5,201,163 | 1,099,965 | 1,988,150 | 1,632,640 | 480,408 | |||||||||||||||
Purchase Obligations | 35,343,005 | 21,786,107 | 12,742,559 | 791,220 | 23,119 | |||||||||||||||
Total | $ | 62,374,993 | $ | 34,800,230 | $ | 24,647,376 | $ | 2,423,860 | $ | 503,527 | ||||||||||
45
46
47
• | significant time and expense related to sourcing, purchasing, interconnecting and managing high capacity network services purchased from multiple network service providers to meet a particular set of requirements; | |
• | diversion of time, money and executive focus from managing the carrier’s own network to finding and managing supplemental connectivity from other suppliers; | |
• | inability to obtain required levels of technical support and service from external vendors; | |
• | technical or administrative limitations in maintaining, monitoring and restoring service over network segments provided by multiple carriers; | |
• | the fact that their business requirements may not correspond to any one service provider’s telecommunications network; | |
• | lack of experience and information with respect to competitive network service providers, alternative technologies and optimal systems; | |
• | lack of systems and processes to efficiently manage multiple network service provider vendors; | |
• | a lack of experience in obtaining and integrating international telecommunications services for overseas business operations; | |
• | diversion of time, money and energy from core business activities to non-core activities such as designing, managing and maintaining an enterprise wide-area network; and | |
• | inability to design diverse and redundant network connections for business continuity. |
• | Data Connectivity: This category includespoint-to-point connectivity services such as United States and international private lines, ethernet, dedicated internet access, wavelengths and dark fiber. In many cases, these connectivity services could be considered “managed” in that they often require the integration and management by the Company of multiple vendor networks within a single solution. This category also includes more value-added services, such as access aggregation and hubbing, which seek to improve cost efficiency and capacity management of individual circuit requirements. Examples include multi-hub solutions (which permit carriers and enterprises to aggregate capacity and order further circuits on an “as-needed” basis) and gateway hub solutions (which provideinternational-to-United States (or vice versa) standard rate conversion as well as aggregation). From time to time, we also sell equipment to assist with customer networking requirements. | |
• | Managed Network Services: These services include engineering solutions tailored to a customer’s needs with respect to matters such as network deployment, monitoring of network systems, and management and maintenance of those networks. Examples include roaming Internet access for enterprise customers, co-location and related environmental and power support for equipment, network security solutions, outsourced |
48
management of networks or circuits, and deployment of private managed networks to replace or supplement existingpoint-to-point connectivity across multiple sites. |
• | Professional Services: These services include providing guidance and analysis to customers on network- and telecommunications-related requirements such as network design, continuity planning, facilities management and cost and traffic management and analysis. |
• | continue to improve a systems-based service activation and service assurance capability in support of our customer base; | |
• | engage network solutions for our customers by selectively deploying network assets in support of specific customer requirements; | |
• | continue to develop products and market branding in order to supply our sales force with a focusedgo-to-market suite of service offerings; | |
• | foster greater penetration into existing customer accounts through sophisticated professional and consultative services in support of each customer’s unique network requirements, with the aim of serving as an extension of the customer’s own information technology or network planning organizations; | |
• | continue to establish wholesale bandwidth purchasing agreements with additional facilities-based telecommunications carriers and service providers; | |
• | expand our penetration of growing wholesale and retail customer segments, such as wireless network operators, cable television network operators, federal government agencies and medium to large multinational enterprises; | |
• | continue to expand and populate our databases and network planning software with network location and pricing information; | |
• | continue to stimulate demand for network services via our on-line tools; and | |
• | leverage our network planning and optimization capabilities into emerging network technologies and value-added services such as VoIP, security solutions, satellite platforms, broadband wireless and multiprotocol label switching. |
49
• | Consolidated Management Database, or CMDTM, is our internally developed operations support system. It supports life cycle management of services starting with design and initial quotation, through ordering, provisioning, activation, maintenance and any ultimate disconnection. It is also used as a central, searchable database of location, capacity, service type, contactand/or pricing information for numerous carriers and network locations. The CMD system has been primarily used by our Americas operating company to date, and we are integrating it into our EMEA operations as well. | |
• | POP2POP® is our web-based connectivity pricing and price quote management portal. It is used by customers and prospects to obtain and manage price quotes for their high capacity bandwidth requirements. Our associated website, POP2POP.com, allows authorized users to receive a valid price quote in seconds, rather than hours or days, for private line requirements throughout the United States and from the United States to multiple foreign locations. We believe this can present a particular benefit to customers that resell services to their end customers and need to respond quickly to sales opportunities. |
50
51
52
• | Industry trade shows and conferences. We attend industry-specific trade shows such as the European Competitive Telecommunications Association, the India IT Forum Conference, CompTel, the Global Telecom Market Forum, the Institute of Telecom Resellers in Europe and Pacific Telecommunications Council. | |
• | Press releases, speaking engagements and contributed articles. We seek to publicize our accomplishments, perspectives and expertise by getting editorial placement in trade magazines and on-line publications, and speaking engagements at industry events. | |
• | Web-based marketing. Our corporate website and the POP2POP.com pricing portal are key sources of leads. |
53
• | Incumbent Local Exchange Carriers. This category includes companies that are regulated service providers in certain geographies, such as British Telecom, Deutsche Telecom/T-Systems, Qwest, Verizon and AT&T, as well as smaller incumbent carriers in the United States such as CenturyTel, Citizens, and Valor. | |
• | Long-Haul/Long-Distance Carriers. This category consists of carriers that provide service between metropolitan markets in the United States and internationally, including Global Crossing and Level 3. In certain cases, where our services include a component that relies upon satellite technology, the competition in this category may also include major providers of data satellite services such as Intelsat or Immarsat. | |
• | Competitive Metro Access Providers and Competitive Local Exchange Carriers. This category consists of competitive, non-incumbent carriers that provide service within metropolitan markets in the United States or international locations. Companies in this category include XO Communications, PaeTec, and Time Warner Telecom. | |
• | Managed Service Providers. This category consists of companies that have their own backboneand/or access networks, but do not necessarily operate as traditional carriers with respect to the kinds of services they provide. Examples include Infonet Services (now part of BT) and Equant (part of France Telecom). In addition, our colocation, network security services and other managed service solutions may compete with major colocation and data center providers, firewall and security providers, and helpdesk and IT management service organizations. |
54
55
56
57
Name | Age | Position | ||
Richard D. Calder, Jr. | 44 | Chief Executive Officer and Director | ||
Kevin J. Welch | 43 | Chief Financial Officer and Treasurer | ||
H. Brian Thompson | 68 | Chairman of the Board and Executive Chairman | ||
S. Joseph Bruno | 59 | Director | ||
Didier Delepine | 60 | Director | ||
Rhodric C. Hackman | 60 | Director | ||
Howard Janzen | 53 | Director | ||
D. Michael Keenan | 53 | Director | ||
Morgan E. O’Brien | 63 | Director | ||
Sudhakar Shenoy | 60 | Director | ||
Theodore B. Smith, III | 44 | Director |
* | Denotes an executive officer |
58
59
60
61
• | The diversity, age, background and experience of the candidate; | ||
• | The personal qualities and characteristics, accomplishments and reputation in the business community of the candidate; | ||
• | The knowledge and contacts of the candidate in the communities in which we conduct business and in our business industry or other industries relevant to our business; | ||
• | The ability and expertise of the candidate in various activities deemed appropriate by the Board of Directors; and | ||
• | The fit of the candidate’s skills, experience and personality with those of other directors in maintaining an effective, collegial and responsive Board of Directors. |
62
63
• | Base salary; | ||
• | Annual incentives in the form of cash bonuses; | ||
• | Equity-based compensation (stock options and restricted stock grants) pursuant to our 2006 Employee, Director & Consultant Stock Plan; | ||
• | Certain modest executive perquisites and benefits; and | ||
• | Payments with respect to severance of employment and/or upon change-of-control. |
64
Stock | All Other | |||||||||||||||||||
Salary | Awards(4) | Compensation | Total | |||||||||||||||||
Name and Principal Position | Year | ($) | ($) | ($) | ($) | |||||||||||||||
D. Michael Keenan, | 2006 | $ | 52,531 | $ | 27,578 | $ | 1,905 | $ | 82,014 | |||||||||||
Chief Executive Officer(1) | ||||||||||||||||||||
H. Brian Thompson, | 2006 | $ | 31,730 | $ | 9,193 | — | $ | 40,923 | ||||||||||||
Executive Chairman(2) | ||||||||||||||||||||
David Ballarini, | 2006 | $ | 33,000 | — | — | $ | 33,000 | |||||||||||||
Chief Financial Officer and Treasurer(3) |
(1) | On February 23, 2007, Mr. Keenan entered into a Separation Agreement with the Company and no longer serves as Chief Executive Officer of the Company. Mr. Keenan continues to serve on the Company’s Board of Directors. |
65
(2) | Mr. Thompson served as Chief Executive Officer of the Company from its formation until October 15, 2006, but received no compensation from the Company prior to October 16, 2006 in connection with his service as an executive. On February 23, 2007, Mr. Thompson again assumed the role of Chief Executive Officer on an interim basis following Mr. Keenan’s departure from the Company. | |
(3) | Mr. Ballarini served as Chief Financial Officer of the Company from its formation until October 15, 2006, but received no compensation from the Company prior to October 16, 2006 in connection with his service as an executive. Mr. Ballarini continued to serve as Chief Financial Officer on an interim basis following consummation of the Acquisitions of GII and ETT in October 2006. On January 22, 2007, Mr. Ballarini resigned as interim Chief Financial Officer and Treasurer in connection with the hiring of Kevin Welch as Chief Financial Officer. | |
(4) | Amounts reported for stock awards represent the compensation cost recognized by the Company for financial statement reporting purposes in accordance with SFAS No. 123(R) utilizing the assumptions discussed in Note 10 of our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2006, without giving effect to estimated forfeitures. |
All Other | ||||||||||||||||
Stock Awards: | ||||||||||||||||
Number of | ||||||||||||||||
Shares of | ||||||||||||||||
Stock or | Grant Date Fair | |||||||||||||||
Grant | Approval | Units(1) | Value of Stock and | |||||||||||||
Name | Date | Date | (#) | Option Awards(2) | ||||||||||||
D. Michael Keenan | 10/16/2006 | 5/23/2006 | 150,000 | $ | 529,500 | |||||||||||
H. Brian Thompson | 10/16/2006 | 6/21/2006 | 50,000 | $ | 176,500 | |||||||||||
David Ballarini | — | — | — | — |
(1) | The noted awards of restricted stock vest in four equal annual installments beginning on October 16, 2007. | |
(2) | Determined by reference to the closing price of a share of our common stock on October 16, 2006 multiplied by the number of shares. |
Market | ||||||||
Value of | ||||||||
Number of | Shares or | |||||||
Shares or | Units of | |||||||
Units that | Stock that | |||||||
Have Not | Have Not | |||||||
Vested | Vested(1) | |||||||
Name | (#) | ($) | ||||||
D. Michael Keenan | 150,000 | $ | 522,000 | |||||
H. Brian Thompson | 50,000 | $ | 174,000 | |||||
David Ballarini | — | — |
(1) | Determined by reference to the closing price of a share of our common stock on December 29, 2006, multiplied by the number of shares. |
66
Fees | ||||||||||||
Earned or | ||||||||||||
Paid in | Stock | |||||||||||
Name | Cash | Awards(1) | Total | |||||||||
Didier Delepine | $ | 7,500 | $ | 13,021 | $ | 20,521 | ||||||
Rhodric C. Hackman | $ | 6,250 | $ | 13,021 | $ | 19,271 | ||||||
Howard Janzen | $ | 7,500 | $ | 13,021 | $ | 20,521 | ||||||
Alex Mandl | $ | 6,250 | $ | 13,021 | $ | 19,271 | ||||||
Morgan E. O’Brien | $ | 6,250 | $ | 13,021 | $ | 19,271 | ||||||
Sudhakar Shenoy | $ | 7,500 | $ | 13,021 | $ | 20,521 |
(1) | On December 14, 2006, each of our non-employee directors as of that date was granted 16,129 shares of the Company’s common stock, vesting in four equal annual installments beginning on the grant date. Amounts reported for stock awards represent the compensation cost recognized by the Company for financial statement reporting purposes in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004),“Share-Based Payment”(“SFAS No. 123(R)”) utilizing the assumptions discussed in Note 10 of our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2006, without giving effect to estimated forfeitures. |
67
Chief Executive Officer’s 2006 Employment Agreement
Termination by | ||||||||||||||||||||||||
Company | Termination by | Termination by | Termination by | |||||||||||||||||||||
without | Company for | Executive | Executive for | Termination | Termination for | |||||||||||||||||||
Cause(1) | Cause | without Cause | Good Reason(2) | Upon Death | Disability | |||||||||||||||||||
Continuation of Salary | $ | 250,000 | — | — | $ | 250,000 | — | — | ||||||||||||||||
Continuation of Health Benefits(3) | $ | 8,511 | — | — | $ | 8,511 | — | $ | 8,511 | |||||||||||||||
Bonus Payment(4) | $ | 166,667 | — | — | $ | 166,667 | — | — | ||||||||||||||||
Long-Term Incentives(5) | $ | 522,000 | — | — | $ | 522,000 | $ | 21,250 | $ | 21,250 |
(1) | “Cause” is defined in the Chief Executive Officer’s employment agreement as if: “(i) the Executive materially breaches any provision of this Agreement after written notice identifying the substance of the material breach; (ii) Executive fails or refuses to comply with any lawful direction or instruction of Company’s Board of Directors, which failure or refusal is not timely cured, (iii) the Executive commits an act of fraud, embezzlement, misappropriation of funds, or dishonesty, (iv) the Executive commits a breach of his fiduciary duty based on a good faith determination by the Company’s Board of Directors and after reasonably opportunity to cure if such breach is curable, (v) the Executive is grossly negligent or engages in willful misconduct in the performance of his duties hereunder, and fails to remedy such breach within ten (10) days of receiving written notice thereof from the Board, provided, however, that no act, or failure to act, by the Executive shall be considered “grossly negligent” or an act of “willful misconduct” unless committed in good faith and with a reasonable belief that the act or omission was in or not opposed to the Company’s best interest; (vi) the Executive is convicted of a felony or a crime of moral turpitude; or (vi) Executive has a drug or alcohol dependency.” | |
(2) | “Good reason” is defined in the Chief Executive Officer’s employment agreement as “a termination by the Executive within ninety (90) days following (i) the relocation of the primary office of the Executive more than ten (10) miles from McLean, Virginia, without the consent of Executive, (ii) a material change in the Executive’s duties such that he is no longer the Chief Executive Officer of the Company or (iii) removal of Executive as Chief Executive or failure to nominate him for a position on the Board of Directors; (iv) the assignment to the Executive of duties that are inconsistent with his position or that materially alter his ability to function as Chief Executive Officer; or (v) a reduction in the Executive’s total base compensation as set forth in Sections 5.1, 5.2, 5.3 and 5.4.” | |
(3) | Represents the value of twelve (12) months of continued health benefits under the Company’s standard health benefit plan. | |
(4) | Represents a bonus payment calculated as required by the Chief Executive Officer’s employment agreement based upon the average of the annual bonuses payable to him pursuant to his employment agreement “for each of the last three (3) completed fiscal years of the Company completed prior to the date of his termination (but not less than two-thirds of the maximum grantable bonus) of $250,000. | |
(5) | Represents the value derived from accelerated vesting of restricted stock as if termination had occurred on December 31, 2006. |
68
• | the determination of which employees, directors and consultants will be granted options and other awards; | ||
• | the number of shares subject to options and other awards; | ||
• | the exercise price of each option which may not be less than fair market value on the date of grant; | ||
• | the schedule upon which options become exercisable; | ||
• | the terms and conditions of other awards, including conditions for repurchase, termination or cancellation, issue price and repurchase price; and | ||
• | all other terms and conditions upon which each award may be granted in accordance with the Stock Plan. |
69
• | provide that all outstanding options shall be assumed or substituted by the successor corporation; | ||
• | upon written notice to a participant, (i) provide that the participant’s unexercised options or awards will terminate immediately prior to the consummation of such transaction unless exercised by the participant; or (ii) terminate all unexercised outstanding options immediately prior to the consummation of such transaction unless exercised by the optionee; | ||
• | in the event of a merger pursuant to which holders of our common stock will receive a cash payment for each share surrendered in the merger, make or provide for a cash payment to the optionees equal to the difference between the merger price times the number of shares of our common stock subject to such outstanding options, and the aggregate exercise price of all such outstanding options, in exchange for the termination of such options; | ||
• | provide that all or any outstanding options shall become exercisable in full immediately prior to such event; and | ||
• | provide that outstanding awards shall be assumed or substituted by the successor corporation, become realizable or deliverable, or restrictions applicable to an award will lapse, in whole or in part, prior to or upon the reorganization event. |
• | any breach of the duty of loyalty to the corporation or its stockholders; | ||
• | acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; | ||
• | unlawful payments of dividends or unlawful stock repurchases or redemptions; or | ||
• | any transaction from which the director derived an improper personal benefit. |
70
Number of | Number of | |||||||||||||
Shares of | Class W | Number of Class | ||||||||||||
Name | Common Stock | Warrants | Z Warrants | Relationship to Us | ||||||||||
H. Brian Thompson | 25 | (1) | 618,750 | (1) | 618,750 | (1) | Chairman and Chief Executive Officer | |||||||
Rhodric C. Hackman | 25 | (2) | 495,000 | (2)(3) | 495,000 | (2)(3) | President, Secretary and Director | |||||||
Lior Samuelson | 25 | 495,000 | (3) | 495,000 | (3) | Executive Vice President and Director | ||||||||
David Ballarini | 25 | 495,000 | (3) | 495,000 | (3) | Chief Financial Officer, Treasurer and Director | ||||||||
Mercator Capital L.L.C. | — | 371,250 | 371,250 | Warrant holder |
(1) | Shares and warrants were acquired and are held by Universal Telecommunications, Inc. Does not include 4,000 shares of our common stock, 4,000 shares of our Class B common stock, 12,000 Class W warrants and 12,000 Class Z warrants which were acquired by Mr. Thompson upon his purchase of 2,000 Series A Units and 2,000 Series B Units. | |
(2) | Shares and warrants were acquired and are held by the Hackman Family Trust. |
71
(3) | Does not include 371,250 Class W warrants and 371,250 Class Z warrants purchased by Mercator Capital L.L.C., an affiliate of Messrs. Hackman, Samuelson and Ballarini. |
72
• | each stockholder, or group of affiliated stockholders, that we know owns more than 5% of our outstanding common stock; | ||
• | each of our executive officers; | ||
• | each of our directors; | ||
• | all of our executive officers and directors as a group; and | ||
• | each of the other selling stockholders. |
73
02017
Prior to the Offering | After the Offering | |||||||||||||||||||
Number of | Percentage | Number of | Number of | Percentage | ||||||||||||||||
Shares | of | Shares | Shares | of | ||||||||||||||||
Beneficially | Outstanding | Offered | Beneficially | Outstanding | ||||||||||||||||
Owned | Shares | Hereby | Owned | Shares | ||||||||||||||||
Executive Officers and Directors | ||||||||||||||||||||
Richard D. Calder, Jr. | 235,000 | 1.6% | — | 235,000 | 1.6% | |||||||||||||||
Kevin J. Welch(1) | 42,250 | * | — | 42,250 | * | |||||||||||||||
H. Brian Thompson(2) | 2,667,497 | 15.9% | 881,899 | 1,785,598 | 11.3% | |||||||||||||||
S. Joseph Bruno(3) | 24,198 | * | 14,698 | 9,500 | * | |||||||||||||||
Didier Delepine | 26,629 | * | — | 26,629 | * | |||||||||||||||
Rhodric C. Hackman(4) | 1,804,854 | 11.1% | — | 1,804,854 | 11.1% | |||||||||||||||
Howard Janzen(5) | 79,222 | * | 58,793 | 20,429 | * | |||||||||||||||
D. Michael Keenan(6) | 2,099,207 | 13.2% | 170,897 | 1,928,310 | 13.2% | |||||||||||||||
Morgan E. O’Brien(7) | 66,129 | * | — | 66,129 | * | |||||||||||||||
Sudhakar Shenoy(8) | 30,827 | * | 14,698 | 16,129 | * | |||||||||||||||
Theodore B. Smith, III(9) | 22,698 | * | 14,698 | 8,000 | * | |||||||||||||||
All executive officers and directors as a group (11 persons) | 7,102,538 | 35.3% | 1,155,683 | 5,946,855 | 31.3% | |||||||||||||||
Other 5% Stockholders | ||||||||||||||||||||
David Ballarini(10) | 1,741,525 | 10.7% | — | 1,741,525 | 10.7% | |||||||||||||||
J. Carlo Cannell(11) | 8,006,597 | 47.9% | — | 8,006,597 | 47.9% | |||||||||||||||
Goldman Sachs Asset Management, L.P.(12) | 1,475,000 | 10.2% | — | 1,475,000 | 10.2% | |||||||||||||||
Millenco, L.L.C.(13) | 1,972,125 | 12.0% | — | 1,972,125 | 12.0% | |||||||||||||||
Lior Samuelson(14) | 1,778,725 | 10.9% | — | 1,778,725 | 10.9% | |||||||||||||||
Todd J. Vecchio(15) | 2,545,348 | 15.8% | 546,871 | 1,998,477 | 12.7% | |||||||||||||||
Other Selling Stockholders | ||||||||||||||||||||
KB Fund III LP(16) | 406,823 | 2.8% | 406,823 | — | * | |||||||||||||||
KB Fund III B LP(16) | 110,593 | * | 110,593 | — | * | |||||||||||||||
New Star Private Equity Investment Trust plc(16) | 516,946 | 3.6% | 516,946 | — | * | |||||||||||||||
Christopher Britton(17) | 195,308 | 1.3% | 195,308 | — | * | |||||||||||||||
James Edmund Dodd(18) | 122,394 | * | 122,394 | — | * | |||||||||||||||
Elderstreet Capital Partners Nominees Ltd.(19) | 517,362 | 3.6% | 517,362 | — | * | |||||||||||||||
Esprit Nominees Limited(20) | 894,817 | 5.9% | 894,817 | — | * | |||||||||||||||
NovaVest Fund I, LLC(21) | 639,199 | 4.3% | 639,199 | — | * | |||||||||||||||
Raymond E. Wiseman(22) | 556,718 | 3.7% | 136,718 | 420,000 | 2.8% |
* | Less than 1% of the outstanding shares of common stock. | |
(1) | Includes 13,750 shares issuable upon the exercise of options. | |
(2) | Includes 398,125 shares of common stock owned by Universal Telecommunications, Inc. Mr. Thompson is the Chief Executive Officer and majority shareholder of Universal Telecommunications, Inc. The shares of Universal Telecommunications, Inc. not held by Mr. Thompson are owned by members of his family. The beneficial ownership information includes 1,383,500 shares of common stock issuable upon the exercise of Class W warrants and Class Z warrants, 1,365,500 of which are held by Universal Telecommunications, Inc., and 881,899 shares of common stock issuable upon the conversion of a 10% convertible unsecured subordinated promissory note held by Universal Telecommunications, Inc. The beneficial owner’s address is 1950 Old Gallows Road, Vienna, Virginia 22182. |
74
(3) | Includes 14,698 shares of common stock issuable upon the conversion of a 10% convertible unsecured subordinated promissory note. | |
(4) | Includes 36,154 shares of common stock owned by the Hackman Family Trust and 18,900 shares of common stock owned by Mercator Capital L.L.C. Mr. Hackman and his spouse are the trustees of the Hackman Family Trust, the beneficiaries of which are members of the Hackman family. The Hackman Family Trust exercises joint control over Mercator Capital L.L.C. with Messrs. Ballarini and Samuelson. The beneficial ownership information includes 1,749,800 shares of common stock issuable upon the exercise of Class W warrants and Class Z warrants, 1,017,200 of which are held by the Hackman Family Trust and 732,600 of which are held by Mercator Capital L.L.C. The beneficial owner’s address is c/o Mercator Capital L.L.C., One Fountain Square, 11911 Freedom Drive, Suite 590, Reston, Virginia 20190. | |
(5) | Includes 58,793 shares of common stock issuable upon the conversion of a 10% convertible unsecured subordinated promissory note. | |
(6) | Includes 1,305,000 shares of common stock issuable upon the exercise of Class W warrants and Class Z warrants and 111,633 shares of common stock issuable upon the conversion of a 10% convertible unsecured subordinated promissory note. | |
(7) | Includes 50,000 shares of common stock issuable upon the exercise of Class W warrants and Class Z warrants. | |
(8) | Includes 14,698 shares of common stock issuable upon the conversion of a 10% convertible unsecured subordinated promissory note. | |
(9) | Includes 14,698 shares of common stock issuable upon the conversion of a 10% convertible unsecured subordinated promissory note. | |
(10) | Includes 18,900 shares of common stock owned by Mercator Capital L.L.C. Mr. Ballarini exercises joint control over Mercator Capital L.L.C. with the Hackman Family Trust and Mr. Samuelson. The beneficial ownership information includes 1,722,600 shares of common stock issuable upon the exercise of Class W warrants and Class Z warrants, 732,600 of which are held by Mercator Capital L.L.C. The beneficial owner’s address is c/o Mercator Capital L.L.C., One Fountain Square, 11911 Freedom Drive, Suite 590, Reston, Virginia 20190. | |
(11) | Based on information contained in the Form 4/A filed by J. Carlo Cannell on October 10, 2007. Includes 5,782,597 shares of common stock and 2,224,000 shares of common stock issuable upon the exercise of Class W warrants and Class Z warrants held by The Cuttyhunk Fund Limited (“Cuttyhunk”), Anegada Master Fund Limited (“Anegada”), TE Cannell Portfolio, Ltd. (“TEC”), Tonga Partners, L.P. (“Tonga”), Tristan Partners, L.P. (“Tristan”) and Kauai Partners, L.P. (“Kauai” and collectively with Cuttyhunk, Anegada, TEC, Tonga and Tristan, the “Funds”). J. Carlo Cannell possesses sole power to vote and direct the disposition of all such securities held by the Funds. The beneficial owner’s address is P.O. Box 3459, 240 East Deloney Avenue, Jackson, Wyoming 83001. | |
(12) | Based on information contained in Schedule 13G filed by Goldman Sachs Asset Management, L.P. on December 12, 2006, Goldman Sachs Asset Management, L.P. has sole power to vote or to direct the vote, and sole power to dispose or direct the disposition of, all 1,475,000 shares of our common stock. The beneficial owner’s address is 32 Old Slip New York, New York 10005. | |
(13) | Includes 1,935,025 shares of common stock issuable upon the exercise of Class W and Class Z warrants. Based on information contained in the Schedule 13D filed by Millenco, L.L.C. on October 25, 2006, Millenco, L.L.C. has sole power to vote or to direct the vote, and sole power to dispose or direct the disposition of, all 1,972,125 shares of our common stock. Pursuant to the Schedule 13D, Millennium Management, L.L.C. is the manager of Millenco, L.L.C., and consequently may be deemed to have voting control and investment discretion over securities owned by Millenco, L.L.C., and Israel A. Englander is the managing member of Millennium Management, L.L.C., and consequently may be deemed to be the beneficial owner of any shares deemed to be beneficially owned by Millennium Management, L.L.C. The beneficial owner’s address is 666 Fifth Avenue, 8th Floor, New York, New York 10103. | |
(14) | Includes 18,900 shares of common stock owned by Mercator Capital L.L.C. Mr. Samuelson exercises joint control over Mercator Capital L.L.C. with the Hackman Family Trust and Mr. Ballarini. The beneficial ownership information includes 1,749,800 shares of common stock issuable upon the exercise of Class W and Class Z warrants, 732,600 of which are held by Mercator Capital L.L.C. The beneficial owner’s address is c/o Mercator Capital L.L.C., One Fountain Square, 11911 Freedom Drive, Suite 590, Reston, Virginia 20190. | |
(15) | Includes 1,305,000 shares of common stock issuable upon the exercise of Class W and Class Z warrants and 357,225 shares of common stock issuable upon the conversion of a 10% convertible unsecured subordinated promissory note. | |
(16) | The beneficial owner’s address is 10 Bedford Street, London WC2E 9HE, United Kingdom. | |
(17) | Includes 127,578 shares of common stock issuable upon the conversion of a 10% convertible unsecured subordinated promissory note. The beneficial owner’s address is LeMoine House, 9 Church Green, Barnwell, Nr Oundle, Northamptionshire PE8 5QH, United Kingdom. | |
(18) | The beneficial owner’s address is 20 Berkeley Square, London W1J 6LJ, United Kingdom. | |
(19) | The beneficial owner’s address is 1 Knightsbridge Green, London SW1X 7NE, United Kingdom. | |
(20) | Includes 584,509 shares of common stock issuable upon the conversion of a 10% convertible unsecured subordinated promissory note by Esprit Nominees Limited as nominee for Esprit Capital I Fund No. 1 LP and Esprit Capital I Fund No. 2 LP. The beneficial owner disclaims beneficial ownership of these shares. The beneficial owner’s address is 14 Buckingham Gate, London SW1E 6LB, United Kingdom. | |
(21) | Includes 417,535 shares of common stock issuable upon the conversion of a 10% convertible unsecured subordinated promissory note. The beneficial owner’s address is c/o Anthony Bleasdale, NT General Partner (Guernsey) Limited, First Floor, Dorey Court, Admiral Park, St Peter Port, Guernsey GY1 6HJ, Channel Islands. | |
(22) | Includes 290,000 shares of common stock issuable upon the exercise of Class W warrants and Class Z warrants and 89,306 shares of common stock issuable upon the conversion of a 10% convertible unsecured subordinated promissory note. The beneficial owner’s address is 1202 East Patuxent Drive, LaPlata, Maryland 20646. |
75
• | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | ||
• | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; | ||
• | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | ||
• | an exchange distribution in accordance with the rules of the applicable exchange; | ||
• | privately negotiated transactions; | ||
• | short sales; | ||
• | broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; | ||
• | a combination of any such methods of sale; and | ||
• | any other method permitted pursuant to applicable law. |
76
77
• | in whole and not in part, | ||
• | at a price of $.05 per Class W warrant at any time after the Class W warrants become exercisable, | ||
• | upon not less than 30 days’ prior written notice of redemption to each Class W warrantholder, and | ||
• | if, and only if, the reported last sale price of our common stock equals or exceeds $7.50 per share, for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to the Class W warrantholders. |
• | in whole and not in part, | ||
• | at a price of $.05 per Class Z warrant at any time after the Class Z warrants become exercisable, | ||
• | upon not less than 30 days’ prior written notice of redemption to each Class Z warrantholder, and | ||
• | if, and only if, the reported last sale price of our common stock equals or exceeds $8.75 per share, for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to the Class Z warrantholders. |
78
• | our Board of Directors may issue, without further action by the stockholders, up to 5,000 shares of undesignated preferred stock; and | ||
• | vacancies on the Board of Directors, including newly created directorships, can be filled by a majority of the directors then in office. |
79
Global Telecom & Technology, Inc. | ||||
Report of J.H. Cohn LLP, Independent Registered Public Accounting Firm | F-2 | |||
Consolidated Balance Sheets as of December 31, 2006 and 2005 | F-3 | |||
Consolidated Statements of Operations for the year ended December 31, 2006 and for the period from Inception (January 3, 2005) to December 31, 2005 | F-4 | |||
Consolidated Statement of Stockholders’ Equity for year ended December 31, 2006 and for the period from Inception (January 3, 2005) to December 31, 2005 | F-5 | |||
Consolidated Statements of Cash Flows for the year ended December 31, 2006 and for the period from Inception (January 3, 2005) to December 31, 2005 | F-6 | |||
Notes to Consolidated Financial Statements | F-7 | |||
Unaudited Condensed Consolidated Financial Statements | F-33 | |||
Unaudited Condensed Consolidated Balance Sheets | F-34 | |||
Unaudited Condensed Consolidated Statements of Operations | F-35 | |||
Unaudited Condensed Consolidated Statement of Stockholders’ Equity | F-36 | |||
Unaduited Condensed Consolidated Statements of Cash Flows | F-37 | |||
Notes to Condensed Consolidated Financial Statements | F-38 | |||
European Telecommunications & Technology Limited | ||||
Report of J.H. Cohn LLP, Independent Registered Public Accounting Firm | F-47 | |||
Report of BDO Stoy Hayward LLP, Independent Registered Public Accounting Firm | F-48 | |||
Report of PricewaterhouseCoopers LLP, Independent Auditors | F-49 | |||
Consolidated Balance Sheet as of December 31, 2005 | F-50 | |||
Consolidated Statements of Operations for the period from January 1, 2006 to October 15, 2006 and for the years ended December 31, 2005 and 2004 | F-51 | |||
Consolidated Statements of Comprehensive Income (Loss) for the period from January 1, 2006 to October 15, 2006 and for the years ended December 31, 2005 and 2004 | F-52 | |||
Consolidated Statements of Changes in Shareholders’ Deficit for the period from January 1, 2006 to October 15, 2006 and for the years ended December 31, 2005 and 2004 | F-53 | |||
Consolidated Statements of Cash Flows for the period from January 1, 2006 to October 15, 2006 and for the years ended December 31, 2005 and 2004 | F-54 | |||
Notes to Consolidated Financial Statements | F-55 | |||
Global Internetworking, Inc. | ||||
Report of J.H. Cohn LLP, Independent Registered Public Accounting Firm | F-68 | |||
Independent Auditors’ Report of Schwartz, Weissman & Co., PC | F-69 | |||
Consolidated Balance Sheets as of September 30, 2006 and 2005 | F-70 | |||
Consolidated Statements of Operations for the period from October 1, 2006 to October 15, 2006 and for the years ended September 30, 2006, 2005 and 2004 | F-71 | |||
Consolidated Statements of Changes in Shareholders’ Equity for the period from October 1, 2006 to October 15, 2006 and for the years ended September 30, 2006, 2005 and 2004 | F-72 | |||
Consolidated Statements of Cash Flows for the period from October 1, 2006 to October 15, 2006 and for the years ended September 30, 2006, 2005 and 2004 | F-73 | |||
Notes to Consolidated Financial Statements | F-74 |
F-1
F-2
(formerly Mercator Partners Acquisition Corp.)
Consolidated Balance Sheets
December 31, | December 31, | |||||||
2006 | 2005 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents (including $533,348 in certificates of deposit in 2006) | $ | 3,779,027 | $ | 1,383,204 | ||||
Designated cash | 10,287,180 | — | ||||||
Restricted investment in trust fund | — | 54,657,439 | ||||||
Accounts receivable, net | 7,687,544 | — | ||||||
Income tax refund receivable | 417,110 | — | ||||||
Deferred contract costs | 591,700 | — | ||||||
Prepaid expenses and other current assets | 970,821 | 60,244 | ||||||
Total current assets | 23,733,382 | 56,100,887 | ||||||
Property and equipment, net | 890,263 | — | ||||||
Other assets | 1,075,063 | — | ||||||
Intangible assets, subject to amortization | 11,117,721 | — | ||||||
Goodwill | 61,458,599 | — | ||||||
Total assets | $ | 98,275,028 | $ | 56,100,887 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 13,892,664 | $ | 148,033 | ||||
Notes payable | 6,519,167 | — | ||||||
Common stock, subject to possible conversion to cash | 11,311,658 | — | ||||||
Unearned and deferred revenue | 2,930,639 | — | ||||||
Regulatory and sales tax payable | 297,251 | — | ||||||
Income taxes payable | 339,694 | 56,000 | ||||||
Derivative liabilities | 8,435,050 | 6,507,700 | ||||||
Accrued expenses and other current liabilities | 2,333,178 | — | ||||||
Total current liabilities | 46,059,301 | 6,711,733 | ||||||
Long-term obligations, less current maturities | 4,000,000 | — | ||||||
Long-term deferred revenue | 190,778 | — | ||||||
Deferred tax liability | 4,231,762 | — | ||||||
Total liabilities | 54,481,841 | 6,711,733 | ||||||
Common stock, subject to possible conversion to cash | — | 10,926,022 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, par value $.0001 per share, 5,000 shares authorized, no shares issued | — | — | ||||||
Common stock, par value $.0001 per share, 80,000,000 and 40,000,000 shares authorized, 11,011,932 and 1,150,100 shares issued and outstanding (in 2006 excluding 2,114,942 shares subject to possible to cash conversion) | 1,101 | 115 | ||||||
Common stock, Class B, par value $.0001 per share, 0 and 12,000,000 shares authorized, 0 and 8,465,058 shares issued and outstanding (in 2005 excluding 2,114,942 shares subject to possible conversion to cash) | — | 847 | ||||||
Additional paid-in capital | 44,049,553 | 37,087,542 | ||||||
Retained earnings (accumulated deficit) | (478,220 | ) | 1,369,061 | |||||
Accumulated other comprehensive income | 220,753 | 5,567 | ||||||
Total stockholders’ equity | 43,793,187 | 38,463,132 | ||||||
Total liabilities and stockholders’ equity | $ | 98,275,028 | $ | 56,100,887 | ||||
F-3
(formerly Mercator Partners Acquisition Corp.)
Consolidated Statements of Operations
For the Period from | ||||||||
Inception (January 3, | ||||||||
For the Year Ended | 2005) to | |||||||
December 31, 2006 | December 31, 2005 | |||||||
Revenue: | ||||||||
Telecommunications services sold | $ | 10,470,502 | $ | — | ||||
Operating expenses: | ||||||||
Cost of telecommunications services provided | 7,784,193 | — | ||||||
Selling, general and administrative expense | 3,981,423 | 358,892 | ||||||
Depreciation and amortization | 521,854 | — | ||||||
Total operating expenses | 12,287,470 | 358,892 | ||||||
Operating loss | (1,816,968 | ) | (358,892 | ) | ||||
Other income (expense): | ||||||||
Interest income, net of expense | 2,108,716 | 1,258,203 | ||||||
Other (expense), net of income | (17,591 | ) | — | |||||
Gain (loss) on derivative financial instruments | (1,927,350 | ) | 776,750 | |||||
Total other income (expense) | 163,775 | 2,034,953 | ||||||
Income (loss) before income taxes | (1,653,193 | ) | 1,676,061 | |||||
Provision for income taxes | 194,088 | 307,000 | ||||||
Net (loss) income | $ | (1,847,281 | ) | $ | 1,369,061 | |||
Net (loss) income per share: | ||||||||
Basic and diluted | $ | (0.15 | ) | $ | 0.16 | |||
Weighted average shares: | ||||||||
Basic and diluted | 12,008,854 | 8,434,067 | ||||||
F-4
(formerly Mercator Partners Acquisition Corp.)
Consolidated Statement of Stockholders’ Equity
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Retained | Other | ||||||||||||||||||||||||||||||
Common Stock | Common Stock, Class B | Paid-In | Earnings | Comprehensive | ||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | (Accumulated Deficit) | Income | Total | |||||||||||||||||||||||||
Balance, January 3, 2005 (inception) | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
Issuance of common stock for cash | 100 | — | — | — | 500 | — | — | 500 | ||||||||||||||||||||||||
Issuance of 4,950,000 warrants for cash | — | — | — | — | 247,500 | — | — | 247,500 | ||||||||||||||||||||||||
Sale of 575,000 Series A units and 5,290,000 Series B units through public offering, net of underwriter’s discount and offering expenses and net proceeds of $10,680,457 allocable to 2,114,942 shares of common stock, Class B subject to possible conversion to cash | 1,150,000 | 115 | 8,465,058 | 847 | 44,369,457 | — | — | 44,370,419 | ||||||||||||||||||||||||
Proceeds from sale of underwriters’ purchase option | — | — | — | — | 100 | — | — | 100 | ||||||||||||||||||||||||
Allocation of value to Class B shares subject to possible conversion to cash | — | — | — | — | (245,565 | ) | — | — | (245,565 | ) | ||||||||||||||||||||||
Reclassification to derivative liabilities for portion of proceeds from sale of units in public offering relating to warrants and for value of underwriter purchase option | — | — | — | — | (7,284,450 | ) | — | — | (7,284,450 | ) | ||||||||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 1,369,061 | — | 1,369,061 | ||||||||||||||||||||||||
Change in unrealized gain onavailable-for-sale securities | — | — | — | — | — | — | 5,567 | 5,567 | ||||||||||||||||||||||||
Comprehensive income | 1,374,628 | |||||||||||||||||||||||||||||||
Balance, December 31, 2005 | 1,150,100 | 115 | 8,465,058 | 847 | 37,087,542 | 1,369,061 | 5,567 | 38,463,132 | ||||||||||||||||||||||||
Allocation of value to Class B shares subject to possible conversion to cash | — | — | — | — | (385,636 | ) | — | — | (385,636 | ) | ||||||||||||||||||||||
Conversion of Class B common shares to common stock (excluding 2,114,942 shares subject to cash conversion) | 8,465,058 | 847 | (8,465,058 | ) | (847 | ) | — | — | — | — | ||||||||||||||||||||||
Value of common shares and warrants issued in connection with acquisition | 1,300,000 | 130 | — | — | 7,198,557 | — | — | 7,198,687 | ||||||||||||||||||||||||
Share-based compensation for options issued to employees | — | — | — | — | 7,680 | — | — | 7,680 | ||||||||||||||||||||||||
Share-based compensation for restricted stock issued | 96,774 | 9 | — | — | 66,397 | — | — | 66,406 | ||||||||||||||||||||||||
Share-based compensation for restricted stock awarded | — | — | — | — | 75,013 | — | — | 75,013 | ||||||||||||||||||||||||
Comprehensive loss | ||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (1,847,281 | ) | — | (1,847,281 | ) | ||||||||||||||||||||||
Change in unrealized gain onavailable-for-sale securities | — | — | — | — | — | — | (5,567 | ) | (5,567 | ) | ||||||||||||||||||||||
Change in accumulated foreign currency gain on translation | — | — | — | — | — | — | 220,753 | 220,753 | ||||||||||||||||||||||||
Comprehensive loss | (1,632,095 | ) | ||||||||||||||||||||||||||||||
Balance, December 31, 2006 | 11,011,932 | $ | 1,101 | — | $ | — | $ | 44,049,553 | $ | (478,220 | ) | $ | 220,753 | $ | 43,793,187 | |||||||||||||||||
F-5
(formerly Mercator Partners Acquisition Corp.)
Consolidated Statements of Cash Flows
For the Period from | ||||||||
Inception (January 3, | ||||||||
For the Year Ended | 2005) to | |||||||
December 31, 2006 | December 31, 2005 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net (loss) income | $ | (1,847,281 | ) | $ | 1,369,061 | |||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities | ||||||||
Depreciation and amortization | 521,854 | — | ||||||
Change in value of derivative liabilities | 1,927,350 | (776,750 | ) | |||||
Shared-based compensation from options issued to employees | 7,680 | — | ||||||
Shared-based compensation from restricted stock to employees | 141,419 | — | ||||||
Amortization of discount on U.S. Government Securities held in trust | (1,926,831 | ) | (1,222,872 | ) | ||||
Changes in operating assets and liabilities, excluding effects of Acquisitions: | ||||||||
Accounts receivable, net | 1,952,678 | — | ||||||
Income tax refund receivable | (89,606 | ) | — | |||||
Deferred contract cost and other assets | 540,578 | — | ||||||
Prepaid expenses and other current assets | (148,566 | ) | (60,244 | ) | ||||
Other assets | 187,887 | — | ||||||
Accounts payable | 999,138 | 148,033 | ||||||
Unearned and deferred revenue | (2,751,271 | ) | — | |||||
Regulatory and sales tax payable | (44,532 | ) | — | |||||
Income taxes payable | 338,779 | 56,000 | ||||||
Accrued expenses and other current liabilities | 394,031 | — | ||||||
Long-term deferrals | (28,062 | ) | — | |||||
Net cash provided by (used in) operating activities | 175,245 | (486,772 | ) | |||||
Cash Flows from Investing Activities | ||||||||
Acquisition of businesses, net of cash acquired | (44,370,105 | ) | — | |||||
Increase of designated cash | (10,149,180 | ) | — | |||||
Purchases of property and equipment | (50,564 | ) | — | |||||
Purchases of U.S. Government Securities held in Trust Fund | (166,038,591 | ) | (161,441,000 | ) | ||||
Maturities of U.S. Government Securities held in Trust Fund | 222,741,468 | 108,012,000 | ||||||
Net cash provided by (used in) investing activities | 2,133,028 | (53,429,000 | ) | |||||
Cash Flows from Financing Activities | ||||||||
Proceeds from sales of common stock and warrants to initial stockholders | — | 248,000 | ||||||
Portion of net proceeds from sale from Series B units through public offering allocable to shares of common stock, Class B subject to possible conversion to cash | — | 10,680,457 | ||||||
Net proceeds form sale of units through public offering | — | 44,370,419 | ||||||
Proceeds from sale of underwriters’ purchase option | — | 100 | ||||||
Net cash provided by financing activities | — | 55,298,976 | ||||||
Effect of exchange rate changes on cash | 87,550 | — | ||||||
Net increase in cash and cash equivalents | 2,395,823 | 1,383,204 | ||||||
Cash and cash equivalents at beginning of period | 1,383,204 | — | ||||||
Cash and cash equivalents at end of period | $ | 3,779,027 | $ | 1,383,204 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Cash paid for interest | $ | 12,477 | $ | — | ||||
Cash paid for income taxes | $ | — | $ | 251,000 | ||||
Noncash investing and financing activities: | ||||||||
Deferred tax liability related to Acquisitions of GII and ETT | $ | 4,231,762 | $ | — | ||||
Stock and warrants issued in connection with Acquisition of GII | $ | 7,198,687 | $ | — | ||||
Debt issued for Acquisition of ETT | $ | 4,666,667 | $ | — | ||||
Debt issued for Acquisition of GII | $ | 5,250,000 | $ | — | ||||
Other notes payable | $ | 602,500 | $ | — |
F-6
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements
F-7
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
F-8
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
F-9
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
2006 | ||||
Closing exchange rate at December 31, 2006 | 1.95913 | |||
Average exchange rate during the period | 1.92462 |
F-10
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
F-11
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
F-12
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
F-13
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
Furniture and Fixtures | 7 years | |||
Telecommunication Equipment | 5 years | |||
Leasehold Improvements | up to 10 years | |||
Computer Hardware and Software | 3-5 years | |||
Internal Use Software | 3 years |
F-14
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
F-15
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
F-16
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
F-17
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
F-18
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
ETT | GII | Total | ||||||||||
Cash | $ | 32,333,333 | $ | 12,750,000 | $ | 45,083,333 | ||||||
Debt | 4,666,667 | 5,250,000 | 9,916,667 | |||||||||
Common Stock | — | 6,731,400 | 6,731,400 | |||||||||
Warrants | — | 467,287 | 467,287 | |||||||||
Allocation of Acquisition costs | 1,670,000 | 1,136,000 | 2,806,000 | |||||||||
Totals | $ | 38,670,000 | $ | 26,334,687 | $ | 65,004,687 | ||||||
F-19
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
ETT | GII | Total | ||||||||||
Net working capital deficiency | $ | (4,961,947 | ) | $ | (503,203 | ) | $ | (5,465,150 | ) | |||
Property and equipment | 446,000 | 460,000 | 906,000 | |||||||||
Other assets | 390,000 | 396,000 | 786,000 | |||||||||
Software | — | 6,600,000 | 6,600,000 | |||||||||
Customer contracts | — | 300,000 | 300,000 | |||||||||
Carrier contracts | 7,000 | 144,000 | 151,000 | |||||||||
Noncompete agreements | 2,500,000 | 2,000,000 | 4,500,000 | |||||||||
Deferred tax liability | (752,100 | ) | (3,479,662 | ) | (4,231,762 | ) | ||||||
Goodwill | 41,041,047 | 20,417,552 | 61,458,599 | |||||||||
Totals | $ | 38,670,000 | $ | 26,334,687 | $ | 65,004,687 | ||||||
2006 | 2005 | |||||||
Revenues | $ | 51,230 | $ | 49,991 | ||||
Net loss | (4,811 | ) | (2,033 | ) | ||||
Basic and diluted loss per share | $ | (0.37 | ) | $ | (0.16 | ) | ||
Weighted average common shares outstanding | 13,035 | 13,030 |
Amortization | Gross Asset | Accumulated | Net Book | |||||||||||||
Period | Cost | Amortization | Value | |||||||||||||
Customer contracts | 5 years | $ | 300,000 | $ | 12,658 | $ | 287,342 | |||||||||
Carrier contracts | 1 year | 151,000 | 31,854 | 119,146 | ||||||||||||
Noncompete agreements | 5 years | 4,500,000 | 189,863 | 4,310,137 | ||||||||||||
Software | 7 years | 6,600,000 | 198,904 | 6,401,096 | ||||||||||||
$ | 11,551,000 | $ | 433,279 | $ | 11,117,721 | |||||||||||
F-20
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
2007 | $ | 2,022,003 | ||
2008 | 1,902,857 | |||
2009 | 1,902,857 | |||
2010 | 1,902,857 | |||
2011 | 1,700,337 | |||
Thereafter | 1,686,810 | |||
Total | $ | 11,117,721 | ||
Europe, Middle East | ||||||||||||||||
Americas | and Asia | Corporate | Total | |||||||||||||
Revenue | $ | 3,730,344 | $ | 6,740,158 | $ | — | $ | 10,470,502 | ||||||||
Operating loss | $ | (178,890 | ) | $ | (106,993 | ) | $ | (1,531,085 | ) | $ | (1,816,968 | ) | ||||
Depreciation and amortization | $ | 351,670 | $ | 170,184 | $ | — | $ | 521,854 | ||||||||
Interest income, net of expense | $ | 10,213 | $ | 6,135 | $ | 2,092,368 | $ | 2,108,716 | ||||||||
Gain on derivative financial instruments | $ | — | $ | — | $ | (1,927,350 | ) | $ | (1,927,350 | ) | ||||||
Net loss | $ | (512,591 | ) | $ | (207,814 | ) | $ | (1,126,876 | ) | $ | (1,847,281 | ) | ||||
Total assets | $ | 3,902,307 | $ | 10,606,365 | $ | 83,766,356 | $ | 98,275,028 |
2006 | ||||
Furniture and fixtures | $ | 113,580 | ||
Computer hardware and telecommunications equipment | 657,761 | |||
Computer software | 6,048 | |||
Leasehold improvements | 201,449 | |||
Property and equipment, gross | 978,838 | |||
Less accumulated depreciation and amortization | 88,575 | |||
Property and equipment, net | $ | 890,263 | ||
F-21
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
2006 | ||||
Accrued compensation and benefits | 366,705 | |||
Accrued professional fees | 122,790 | |||
Accrued interest payable | 125,520 | |||
Accrued taxes | 94,589 | |||
Accrued carrier costs | 1,600,122 | |||
Accrued other | 23,452 | |||
$ | 2,333,178 | |||
2006 | 2005 | |||||||
Current: | ||||||||
Federal | $ | 132,517 | $ | 307,000 | ||||
State | 61,571 | — | ||||||
Foreign | — | — | ||||||
Subtotal | 194,088 | 307,000 | ||||||
Deferred: | ||||||||
Federal | — | — | ||||||
State | — | — | ||||||
Foreign | — | — | ||||||
Subtotal | — | — | ||||||
Provision for income taxes | $ | 194,088 | $ | 307,000 | ||||
F-22
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
2006 | 2005 | |||||||
US federal statuatory income tax rate | 34 | % | 34 | % | ||||
Net (loss) income before federal income tax | $ | (583,020 | ) | $ | 569,861 | |||
Addback loss (gain) on derivative financial instruments | 655,299 | (264,095 | ) | |||||
Addback GTTE loss not subject to US tax | 87,063 | — | ||||||
Less provision for state income tax | (20,934 | ) | — | |||||
Other | (5,891 | ) | 1,234 | |||||
Federal tax | 132,517 | 307,000 | ||||||
State Tax | 61,571 | — | ||||||
Total Tax | $ | 194,088 | $ | 307,000 | ||||
2006 | ||||
Tax effect of operating loss carryforwards | $ | 8,699 | ||
Cumulative amortization of intangibles | 167,332 | |||
Stock-based compensation | 11,919 | |||
Depreciation and rent deferral | 663 | |||
Effect of valuation allowance | (188,613 | ) | ||
Net deferred tax asset | $ | — | ||
2006 | ||||
Investment in intangible assets on acquisition of Subsidiary — GTTA | $ | 9,010,000 | ||
Investment in intangible assets on acquisition of Subsidiary — GTTE | $ | 2,507,000 | ||
Deferred US tax at 38.62% | $ | 3,479,662 | ||
Deferred UK tax at 30% | 752,100 | |||
Deferred tax liability | $ | 4,231,762 | ||
F-23
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
2006 | ||||
Volatility | 80.5 | % | ||
Risk free rate | 4.7 | % | ||
Term | 6.25 | |||
Dividend yield | 0.0 | % |
F-24
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
Weighted | ||||||||||||||||||||
Weighted | Weighted | Average | ||||||||||||||||||
Average | Average | Remaining | Aggregate | |||||||||||||||||
Exercise | Fair | Contractual | Intrinsic | |||||||||||||||||
Options | Price | Value | Life (Years) | Value | ||||||||||||||||
Balance at December 31, 2005 | — | $ | — | $ | — | $ | — | |||||||||||||
Granted | 407,500 | 3.10 | 2.26 | 9.97 | 154,850 | |||||||||||||||
Exercised | — | — | — | — | ||||||||||||||||
Forfeited | — | — | — | — | ||||||||||||||||
Balance at December 31, 2006 | 407,500 | $ | 3.10 | $ | 2.26 | 9.97 | $ | 154,850 | ||||||||||||
Exercisable | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Year ending December, 2007 | $ | 230,407 | ||
Year ending December, 2008 | 230,407 | |||
Year ending December, 2009 | 230,407 | |||
Year ending December, 2010 | 222,049 | |||
$ | 913,270 | |||
Weighted | ||||||||
Average | ||||||||
Restricted | Fair | |||||||
Stock | Value | |||||||
Balance at October 16, 2006 | — | $ | — | |||||
Issued | 96,774 | 3.10 | ||||||
Forfeited/cancelled | — | — | ||||||
Balance at December 31, 2006 | 96,774 | $ | 3.10 | |||||
Vested | 24,192 | $ | 3.10 | |||||
F-25
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
2006 | ||||
Notes payable to former GII shareholders, due December 29, 2008, bearing interest at 6% per annum | $ | 4,000,000 | ||
Notes payable to former ETT and GII shareholders, due June 30, 2007, bearing interest at 6% per annum | 5,916,667 | |||
Other notes payable | 602,500 | |||
10,519,167 | ||||
Less current portion | 6,519,167 | |||
Long-term debt | $ | 4,000,000 | ||
Maturities of long-term obligations for the years ended December 31 are as follows: | ||||
2008 | $ | 4,000,000 | ||
F-26
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
Office Space | Other | |||||||
2007 | 1,012,846 | 87,120 | ||||||
2008 | 869,371 | 61,901 | ||||||
2009 | 743,388 | 24,497 | ||||||
2010 | 671,824 | — | ||||||
2011 | 671,824 | — | ||||||
Thereafter | 1,058,394 | — | ||||||
$ | 5,027,647 | $ | 173,518 | |||||
F-27
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
F-28
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
F-29
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
2006 | ||||||||||
Exercise | ||||||||||
Warrants | Prices | Expiration | ||||||||
Founders’ warrants: | ||||||||||
Class W | 2,475,000 | $ | 5.00 | April 10, 2010 | ||||||
Class Z | 2,475,000 | $ | 5.00 | April 10, 2012 | ||||||
Warrants issued in connection with IPO: | ||||||||||
Class W | 8,165,000 | $ | 5.00 | April 10, 2010 | ||||||
Class Z | 8,165,000 | $ | 5.00 | April 10, 2012 | ||||||
Warrants issued in connection with acquisitions: | ||||||||||
Class W | 1,450,000 | $ | 5.00 | April 10, 2010 | ||||||
Class Z | 1,450,000 | $ | 5.00 | April 10, 2012 | ||||||
24,180,000 | ||||||||||
2005 | ||||||||||
Exercise | ||||||||||
Warrants | Prices | Expiration | ||||||||
Founders’ warrants: | ||||||||||
Class W | 2,475,000 | $ | 5.00 | April 10, 2010 | ||||||
Class Z | 2,475,000 | $ | 5.00 | April 10, 2012 | ||||||
Warrants issued in connection with IPO: | ||||||||||
Class W | 8,165,000 | $ | 5.00 | April 10, 2010 | ||||||
Class Z | 8,165,000 | $ | 5.00 | April 10, 2012 | ||||||
21,280,000 | ||||||||||
F-30
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
F-31
(formerly Mercator Partners Acquisition Corp.)
Notes to Consolidated Financial Statements — (Continued)
At December 31, | At December 31, | |||||||||||
At Issuance | 2006 | 2005 | ||||||||||
Fair value of 8,165,000 Class W Warrants and 8,165,000 Class Z Warrants issued as part of Series A and Series B Units sold in the Offering | $ | 6,532,000 | $ | 7,838,400 | $ | 5,960,450 | ||||||
Fair value of Underwriter Purchase Option | 752,450 | 596,650 | 547,250 | |||||||||
Totals | $ | 7,284,450 | $ | 8,435,050 | $ | 6,507,700 | ||||||
F-32
(formerly Mercator Partners Acquisition Corp.)
F-33
(formerly Mercator Partners Acquisition Corp.)
September 30, 2007 | December 31, 2006 | |||||||
(Unaudited) | (Note 1) | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,057,010 | $ | 3,779,027 | ||||
Designated cash | — | 10,287,180 | ||||||
Accounts receivable, net | 7,168,419 | 7,687,544 | ||||||
Income tax refund | — | 417,110 | ||||||
Deferred contract costs | 1,114,132 | 591,700 | ||||||
Prepaid expenses and other current assets | 952,191 | 970,821 | ||||||
Total current assets | 11,291,752 | 23,733,382 | ||||||
Property and equipment, net | 883,701 | 890,263 | ||||||
Other assets | 758,147 | 1,075,063 | ||||||
Intangible assets, subject to amortization | 9,380,864 | 11,117,721 | ||||||
Goodwill | 61,458,599 | 61,458,599 | ||||||
Total assets | $ | 83,773,063 | $ | 98,275,028 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 12,774,494 | $ | 13,892,664 | ||||
Accrued expenses and other current liabilities | 3,719,624 | 2,672,872 | ||||||
Notes payable | 51,679 | 6,519,167 | ||||||
Common stock, subject to possible conversion to cash | — | 11,311,658 | ||||||
Unearned and deferred revenue | 3,450,120 | 2,930,639 | ||||||
Regulatory and sales tax payable | 551,244 | 297,251 | ||||||
Derivative liabilities | — | 8,435,050 | ||||||
Total current liabilities | 20,547,161 | 46,059,301 | ||||||
Long-term obligations, less current maturities | 10,346,557 | 4,000,000 | ||||||
Long-term deferred revenue | 414,858 | 190,778 | ||||||
Deferred tax liability | 3,582,934 | 4,231,762 | ||||||
Total liabilities | 34,891,510 | 54,481,841 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock, par value $.0001 per share, 80,000,000 shares authorized,11,925,084 and 11,011,932 shares (as of December 31, 2006 excluding 2,114,942 shares subject to possible conversion to cash) issued and outstanding, respectively | 1,193 | 1,101 | ||||||
Additional paid-in capital | 53,706,926 | 44,049,553 | ||||||
Accumulated deficit | (5,078,868 | ) | (478,220 | ) | ||||
Accumulated other comprehensive income | 252,302 | 220,753 | ||||||
Total stockholders’ equity | 48,881,553 | 43,793,187 | ||||||
Total liabilities and stockholders’ equity | $ | 83,773,063 | $ | 98,275,028 | ||||
F-34
(formerly Mercator Partners Acquisition Corp.)
ETT Predecessor | GII Predecessor | ||||||||||||||||||||||||||||||||
For the three | For the nine | For the three | For the nine | ||||||||||||||||||||||||||||||
For the three months ended | For the nine months ended | months ended | months ended | months ended | months ended | ||||||||||||||||||||||||||||
September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | September 30, 2006 | September 30, 2006 | September 30, 2006 | September 30, 2006 | ||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||||||
Revenue: | |||||||||||||||||||||||||||||||||
Telecommunications services provided | $ | 14,718,045 | $ | — | $ | 42,115,072 | $ | — | $ | 8,280,571 | $ | 24,718,417 | $ | 4,741,742 | $ | 13,811,515 | |||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||
Cost of telecommunications services provided | 10,141,722 | — | 29,178,696 | — | 6,022,960 | 17,453,550 | 3,337,393 | 9,711,149 | |||||||||||||||||||||||||
Selling, general and administrative | 4,490,175 | 156,793 | 13,720,533 | 578,469 | 2,672,308 | 7,586,070 | 1,312,513 | 4,020,804 | |||||||||||||||||||||||||
Employee termination and non-recurring items | — | — | 3,154,950 | — | — | — | — | — | |||||||||||||||||||||||||
Depreciation and amortization | 726,872 | — | 2,057,239 | — | 78,288 | 190,998 | (63,996 | ) | 7,171 | ||||||||||||||||||||||||
Total operating expenses | 15,358,769 | 156,793 | 48,111,418 | 578,469 | 8,773,556 | 25,230,618 | 4,585,910 | 13,739,124 | |||||||||||||||||||||||||
Operating (loss) income | (640,724 | ) | (156,793 | ) | (5,996,346 | ) | (578,469 | ) | (492,985 | ) | (512,201 | ) | 155,832 | 72,391 | |||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||||||||||||
Interest income, net of interest expense | (204,261 | ) | 715,634 | (486,412 | ) | 1,955,169 | (4,207 | ) | 15,544 | 13,211 | 29,284 | ||||||||||||||||||||||
Other income, net of expense | 3,091 | — | 13,674 | — | — | — | 19,977 | 26,316 | |||||||||||||||||||||||||
Gain on derivative financial instruments | — | 2,431,550 | — | 2,990,400 | — | — | — | — | |||||||||||||||||||||||||
Total other income (expense) | (201,170 | ) | 3,147,184 | (472,738 | ) | 4,945,569 | (4,207 | ) | 15,544 | 33,188 | 55,600 | ||||||||||||||||||||||
(Loss) income before income taxes | (841,894 | ) | 2,990,391 | (6,469,084 | ) | 4,367,100 | (497,192 | ) | (496,657 | ) | 189,020 | 127,991 | |||||||||||||||||||||
Provision for income taxes (benefit) | (323,143 | ) | 190,000 | (717,836 | ) | 469,000 | — | — | 44,010 | 44,010 | |||||||||||||||||||||||
Net (loss) income | $ | (518,751 | ) | $ | 2,800,391 | $ | (5,751,248 | ) | $ | 3,898,100 | $ | (497,192 | ) | $ | (496,657 | ) | $ | 145,010 | $ | 83,981 | |||||||||||||
Net (loss) income per share: | |||||||||||||||||||||||||||||||||
Basic and diluted | $ | (0.04 | ) | $ | 0.24 | $ | (0.48 | ) | $ | 0.33 | $ | (0.00 | ) | $ | (0.00 | ) | $ | 0.06 | $ | 0.03 | |||||||||||||
Weighted average shares: | |||||||||||||||||||||||||||||||||
Basic and diluted | 11,935,736 | 11,730,100 | 11,908,079 | 11,730,100 | 174,512,485 | 174,512,485 | 2,500,000 | 2,500,000 | |||||||||||||||||||||||||
F-35
(formerly Mercator Partners Acquisition Corp.)
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid -In | Comprehensive | ||||||||||||||||||||||
Shares | Amount | Capital | Accumulated Deficit | Income | Total | |||||||||||||||||||
Balance, December 31, 2006 | 11,011,932 | $ | 1,101 | $ | 44,049,553 | $ | (478,220 | ) | $ | 220,753 | $ | 43,793,187 | ||||||||||||
Former Class B Common shares converted to common shares | 217,749 | 22 | (22 | ) | — | — | — | |||||||||||||||||
Release of liability associated with potential conversion of former class B common shares | — | — | 1,161,476 | — | — | 1,161,476 | ||||||||||||||||||
Reclassification of amounts previously allocated to derivative liabilities upon change in accounting | — | — | 7,284,450 | — | — | 7,284,450 | ||||||||||||||||||
Adjustment to derivative liabilities, cumulative-effect change in accounting adjustment | — | — | — | 1,150,600 | 1,150,600 | |||||||||||||||||||
Share-based compensation for options issued to employees | — | — | 88,221 | — | — | 88,221 | ||||||||||||||||||
Share-based compensation for restricted stock issued | 695,403 | 70 | 1,093,243 | — | — | 1,093,313 | ||||||||||||||||||
Share-based compensation for restricted stock awarded | — | — | 30,005 | — | — | 30,005 | ||||||||||||||||||
Comprehensive loss | ||||||||||||||||||||||||
Net loss | — | — | — | (5,751,248 | ) | — | (5,751,248 | ) | ||||||||||||||||
Change in accumulated foreign currency gain on translation | — | — | — | — | 31,549 | 31,549 | ||||||||||||||||||
Comprehensive loss | (5,719,699 | ) | ||||||||||||||||||||||
Balance, September 30, 2007 | 11,925,084 | $ | 1,193 | $ | 53,706,926 | $ | (5,078,868 | ) | $ | 252,302 | $ | 48,881,553 | ||||||||||||
F-36
(formerly Mercator Partners Acquisition Corp.)
ETT Predecessor | GII Predecessor | ||||||||||||||||
For the nine months ended | For the nine months ended | ||||||||||||||||
September 30, 2007 | September 30, 2006 | September 30, 2006 | September 30, 2006 | ||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||
Cash Flows From Operating Activities: | |||||||||||||||||
Net (loss) income | $ | (5,751,248 | ) | $ | 3,898,100 | $ | 535 | $ | (67,634 | ) | |||||||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities | |||||||||||||||||
Depreciation and amortization | 2,057,239 | — | 124,597 | 71,168 | |||||||||||||
Change in value of derivative liabilities | — | (2,990,400 | ) | — | — | ||||||||||||
Shared-based compensation from options issued to employees | 88,221 | — | — | — | |||||||||||||
Shared-based compensation from restricted stock to employees | 1,123,318 | — | — | — | |||||||||||||
Amortization of discount on U.S. Government Securities held in trust | — | (1,922,935 | ) | — | — | ||||||||||||
Deferred income taxes | (648,828 | ) | |||||||||||||||
Changes in operating assets and liabilities, excluding effects of Acquisitions | |||||||||||||||||
Accounts receivable, net | 1,339,850 | — | (988,223 | ) | (40,316 | ) | |||||||||||
Income tax refund receivable | 417,110 | — | — | — | |||||||||||||
Deferred contract cost and other assets | (487,992 | ) | — | 214,609 | (8,096 | ) | |||||||||||
Prepaid expenses and other current assets | (76,604 | ) | 51,078 | — | (107,053 | ) | |||||||||||
Other assets | (22,152 | ) | — | — | 14,055 | ||||||||||||
Accounts payable | (966,978 | ) | 109,759 | 363,257 | 255,498 | ||||||||||||
Unearned and deferred revenue | 564,503 | — | (427,804 | ) | 180,174 | ||||||||||||
Regulatory and sales tax payable | 253,993 | — | — | 38,993 | |||||||||||||
Accrued expenses and other current liabilities | 1,002,601 | 469,000 | (721,082 | ) | (201,539 | ) | |||||||||||
Long-term deferred revenues | 39,234 | — | — | — | |||||||||||||
Net cash (used in) provided by operating activities | (1,067,733 | ) | (385,398 | ) | (1,434,111 | ) | 135,250 | ||||||||||
Cash Flows from Investing Activities | |||||||||||||||||
Purchases of property and equipment | (295,817 | ) | — | (94,844 | ) | (11,201 | ) | ||||||||||
Proceeds from certificates of deposit | 137,999 | — | (3,331 | ) | |||||||||||||
Payments for deferred acquisition cost | (296,024 | ) | |||||||||||||||
Purchases of U.S. Government Securities held in Trust Fund | — | (166,038,591 | ) | — | — | ||||||||||||
Maturities of U.S. Government Securities held in Trust Fund | — | 166,038,591 | — | — | |||||||||||||
Net cash used in investing activities | (157,818 | ) | (296,024 | ) | (94,844 | ) | (14,532 | ) | |||||||||
Cash Flows from Financing Activities | |||||||||||||||||
Principal payments on long-term obligations | — | — | (341,706 | ) | — | ||||||||||||
Repayment on notes payable | (550,821 | ) | — | — | — | ||||||||||||
Net cash used in financing activities | (550,821 | ) | — | (341,706 | ) | — | |||||||||||
Effect of exchange rate changes on cash | 54,355 | — | 85,801 | — | |||||||||||||
Net (decrease) increase in cash and cash equivalents | (1,722,017 | ) | (681,422 | ) | (1,784,860 | ) | 120,718 | ||||||||||
Cash and cash equivalents at beginning of period | 3,779,027 | 1,383,204 | 4,087,053 | 876,883 | |||||||||||||
Cash and cash equivalents at end of period | $ | 2,057,010 | $ | 701,782 | $ | 2,302,193 | $ | 997,601 | |||||||||
F-37
(formerly Mercator Partners Acquisition Corp.)
Notes to Condensed Consolidated Financial Statements
F-38
F-39
As Computed under | As Computed under FSP | |||||||||||
EITF 00-19 | EITF 00-19-2 | Effect of change | ||||||||||
Nine Months Ended September 30, 2007 | ||||||||||||
Loss from operations | $ | (5,996,346 | ) | $ | (5,996,346 | ) | $ | — | ||||
Gain on fair value of warrants | 4,386,600 | — | (4,386,600 | ) | ||||||||
Net loss | (1,364,648 | ) | (5,751,248 | ) | (4,386,600 | ) | ||||||
Net loss per share: | ||||||||||||
Basic and diluted | $ | (0.11 | ) | $ | (0.48 | ) | $ | (0.37 | ) |
As Computed under | As Computed under FSP | |||||||||||
EITF 00-19 | EITF 00-19-2 | Effect of change | ||||||||||
As of September 30, 2007 | ||||||||||||
Warrant liability | $ | 4,048,450 | $ | — | $ | (4,048,450 | ) | |||||
Total liabilities | 38,939,960 | 34,891,510 | (4,048,450 | ) | ||||||||
Additional paid-in capital | 60,991,376 | 53,706,926 | (7,284,450 | ) | ||||||||
Total stockholders’ equity | $ | 44,833,103 | $ | 48,881,553 | $ | 4,048,450 |
F-40
F-41
F-42
Three months ended | Nine months ended | |||||||
September 30, 2006 | September 30, 2006 | |||||||
Revenue | $ | 13,022 | $ | 38,530 | ||||
Net income (loss) | $ | 1,070 | $ | (456 | ) | |||
Basic and diluted net income (loss) per share | $ | 0.08 | $ | (0.04 | ) | |||
Weighted average common shares outstanding | 13,030 | 13,030 |
F-43
Balance at | ||||||||||||||||||||
beginning of | Charges net of | Non-cash | Balance at | |||||||||||||||||
year | Reversals | Cash Uses | Uses | September 30, 2007 | ||||||||||||||||
Severance | $ | — | $ | 2,137,706 | $ | (430,258 | ) | $ | (923,865 | ) | $ | 783,583 | ||||||||
Other | — | $ | 88,779 | $ | (4,432 | ) | $ | — | $ | 84,347 | ||||||||||
Total | $ | — | $ | 2,226,485 | $ | (434,690 | ) | $ | (923,865 | ) | $ | 867,930 | ||||||||
F-44
F-45
September 30, 2007 | ||||
Notes payable to former GII shareholders, due December 29, 2008 (subsequently amended to December 31, 2010, see Note 10 — Subsequent Events) | $ | 4,000,000 | ||
Notes payable to former ETT and GII Shareholders, due April 30, 2008 (subsequently amended to December 31, 2010, see Note 10 — Subsequent Events) | 5,916,667 | |||
Other notes payable | 51,679 | |||
9,968,346 | ||||
Less current portion | 51,679 | |||
Long-term debt | $ | 9,916,667 | ||
F-46
F-47
European Telecommunications & Technology Limited
F-48
GTT — EMEA Limited (formerly European Telecommunications & Technology Limited)
F-49
(formerly European Telecommunications & Technology Limited)
As at | ||||
December 31, | ||||
2005 | ||||
$ | ||||
ASSETS | ||||
Current assets: | ||||
Cash and cash equivalents | 4,087,053 | |||
Accounts receivable, net of allowance for doubtful accounts of $ $67,519 at December 31, 2005 | 4,393,640 | |||
Deferred contract costs | 1,080,317 | |||
Prepaid expenses and other current assets | 297,449 | |||
Total current assets | 9,858,459 | |||
Property and equipment, net | 440,572 | |||
Deferred contract costs and other assets | 977,756 | |||
Total assets | 11,276,787 | |||
LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||
Current liabilities: | ||||
Current maturities of long-term obligations | 899,244 | |||
Accounts payable | 8,963,031 | |||
Accrued expenses and other current liabilities | 2,104,549 | |||
Deferred revenue | 2,039,332 | |||
Total current liabilities | 14,006,156 | |||
Long-term obligations, less current maturities | 499,029 | |||
Deferred revenue | 158,867 | |||
Total non current liabilities | 657,896 | |||
Commitments and contingencies (Note 10) | — | |||
Shareholders’ deficit | ||||
Preferred ordinary shares; par value $0.000186 (£0.0001); 100,000,000 shares authorized; 72,366,941 shares issued and outstanding at December 31, 2005 | 10,597 | |||
Ordinary shares; par value $0.000186 (£0.0001); 100,000,000 shares authorized; 64,445,538 shares issued and outstanding at December 31, 2005 | 10,170 | |||
A Ordinary shares; par value $0.000186 (£0.0001); 100,000,000 shares authorized; 37,700,006 shares issued and outstanding at December 31, 2005 | 5,967 | |||
Additional paid-in capital | 19,293,471 | |||
Accumulated deficit | (24,739,313 | ) | ||
Accumulated other comprehensive income | 2,653,843 | |||
Treasury shares, at cost | (622,000 | ) | ||
Total shareholders’ deficit | (3,387,265 | ) | ||
Total liabilities and shareholders’ deficit | 11,276,787 | |||
F-50
(formerly European Telecommunications & Technology Limited)
December 31, 2005 and 2004
January 1, 2006 to | Year Ended | Year Ended | ||||||||||
October 15, 2006 | December 31, 2005 | December 31, 2004 | ||||||||||
$ | $ | $ | ||||||||||
Revenue | 26,122,950 | 34,711,639 | 35,075,501 | |||||||||
Cost of revenue | 18,583,780 | 24,506,895 | 25,754,951 | |||||||||
Gross profit | 7,539,170 | 10,204,744 | 9,320,550 | |||||||||
Operating expenses: | ||||||||||||
Selling expenses | 3,979,261 | 5,150,563 | 5,070,455 | |||||||||
General and administrative | 4,840,440 | 5,288,986 | 4,810,101 | |||||||||
Total operating expenses | 8,819,701 | 10,439,549 | 9,880,556 | |||||||||
Operating loss | (1,280,531 | ) | (234,805 | ) | (560,006 | ) | ||||||
Other income (expense): | ||||||||||||
Interest income | 98,515 | 181,938 | 117,955 | |||||||||
Interest expense | (86,130 | ) | (178,133 | ) | (48,147 | ) | ||||||
Total other income (expense) | 12,385 | 3,805 | 69,808 | |||||||||
Loss before income taxes | (1,268,146 | ) | (231,000 | ) | (490,198 | ) | ||||||
Income taxes | — | — | — | |||||||||
Net loss | (1,268,146 | ) | (231,000 | ) | (490,198 | ) | ||||||
Net loss per share: | ||||||||||||
Basic and diluted | (0.01 | ) | — | — | ||||||||
Weighted average shares: | ||||||||||||
Basic and diluted | 174,512,485 | 174,512,485 | 174,512,485 | |||||||||
F-51
(formerly European Telecommunications & Technology Limited)
December 31, 2005 and 2004
January 1, 2006 to | ||||||||||||
October 15, 2006 | December 31, 2005 | December 31, 2004 | ||||||||||
$ | $ | $ | ||||||||||
Net loss | (1,268,146 | ) | (231,000 | ) | (490,198 | ) | ||||||
Foreign currency gain (loss) on translation | (635,811 | ) | 507,455 | (200,503 | ) | |||||||
Total comprehensive income (loss) | (1,903,957 | ) | 276,455 | (690,701 | ) | |||||||
F-52
(formerly European Telecommunications & Technology Limited)
December 31, 2005 and 2004
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||
Ordinary Shares | A Ordinary Shares | Preferred Ordinary Shares | Deferred Shares | Paid-in | Treasury | Comprehensive | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Income | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2004 | 64,445,538 | 10,170 | 37,700,006 | 5,967 | 72,366,941 | 10,597 | — | — | 19,293,471 | (622,000 | ) | 2,346,891 | (24,018,115 | ) | (2,973,019 | ) | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | — | (490,198 | ) | (490,198 | ) | |||||||||||||||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | — | — | — | — | — | (200,503 | ) | — | (200,503 | ) | |||||||||||||||||||||||||||||||||||||
Balance, December 31, 2004 | 64,445,538 | 10,170 | 37,700,006 | 5,967 | 72,366,941 | 10,597 | — | — | 19,293,471 | (622,000 | ) | 2,146,388 | (24,508,313 | ) | (3,663,720 | ) | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | — | (231,000 | ) | (231,000 | ) | |||||||||||||||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | — | — | — | — | — | 507,455 | — | 507,455 | |||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2005 | 64,445,538 | 10,170 | 37,700,006 | 5,967 | 72,366,941 | 10,597 | — | — | 19,293,471 | (622,000 | ) | 2,653,843 | (24,739,313 | ) | (3,387,265 | ) | ||||||||||||||||||||||||||||||||||||
Net loss, October 15. 2006 | — | — | — | — | — | — | — | — | — | — | — | (1,268,146 | ) | (1,268,146 | ) | |||||||||||||||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | — | — | — | — | — | (635,811 | ) | — | (635,811 | ) | |||||||||||||||||||||||||||||||||||||
Conversion to Deferred Ordinary Stock | (49,365,866 | ) | (7,790 | ) | (28,980,103 | ) | (4,587 | ) | — | — | 78,345,969 | 12,377 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Share-based compensation expense | — | — | — | — | — | — | — | — | 375,754 | — | — | — | 375,754 | |||||||||||||||||||||||||||||||||||||||
Sale of treasury shares | — | — | — | — | — | — | — | — | 82,053 | 622,000 | — | — | 704,053 | |||||||||||||||||||||||||||||||||||||||
Balance, October 15, 2006 | 15,079,672 | 2,380 | 8,719,903 | 1,380 | 72,366,941 | 10,597 | 78,345,969 | 12,377 | 19,751,278 | — | 2,018,032 | (26,007,459 | ) | (4,211,415 | ) | |||||||||||||||||||||||||||||||||||||
F-53
(formerly European Telecommunications & Technology Limited)
December 31, 2005 and 2004
January 1, 2006 to | ||||||||||||
October 15, 2006 | December 31, 2005 | December 31, 2004 | ||||||||||
$ | $ | $ | ||||||||||
Cash Flows From Operating Activities: | ||||||||||||
Net loss | (1,268,146 | ) | (231,000 | ) | (490,198 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation | 194,468 | 269,513 | 298,764 | |||||||||
Share-based compensation expense | 375,754 | — | — | |||||||||
Other | — | 21,027 | — | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (2,795,355 | ) | (118,562 | ) | (984,392 | ) | ||||||
Deferred contract costs, prepaid expenses and other assets | 833,811 | 1,051,281 | (667,933 | ) | ||||||||
Accounts payable | 488,498 | (192,227 | ) | 1,988,044 | ||||||||
Accrued expenses and other current liabilities | (518,076 | ) | (35,006 | ) | 554,279 | |||||||
Deferred revenue | 1,200,295 | (522,955 | ) | 536,190 | ||||||||
Net cash provided by (used in) operating activities | (1,488,751 | ) | 242,071 | 1,234,754 | ||||||||
Cash Flows From Investing Activities: | ||||||||||||
Property and equipment purchases | (166,119 | ) | (291,167 | ) | (98,704 | ) | ||||||
Net cash used in investing activities | (166,119 | ) | (291,167 | ) | (98,704 | ) | ||||||
Cash Flows From Financing Activities: | ||||||||||||
Principal payments on long-term obligations | (529,877 | ) | (637,760 | ) | (396,938 | ) | ||||||
Cash proceeds from long-term obligations | — | — | 1,832,770 | |||||||||
Net cash provided by (used in) financing activities | (529,877 | ) | (637,760 | ) | 1,435,832 | |||||||
Effect of exchange rate changes on cash | 239,155 | (491,954 | ) | 302,114 | ||||||||
Net increase (decrease) in cash and cash equivalents | (1,945,592 | ) | (1,178,810 | ) | 2,873,996 | |||||||
Cash and cash equivalents at beginning of period | 4,087,053 | 5,265,863 | 2,391,867 | |||||||||
Cash and cash equivalents at end of period | 2,141,461 | 4,087,053 | 5,265,863 | |||||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid for interest during the period | 86,130 | 178,133 | 48,147 | |||||||||
F-54
(formerly European Telecommunications & Technology Limited)
F-55
(formerly European Telecommunications & Technology Limited)
October 15, | December 31, | December 31, | ||||||||||
2006 | 2005 | 2004 | ||||||||||
Closing exchange rate | 1.85650 | 1.72079 | 1.92620 | |||||||||
Average exchange rate during the period | 1.82112 | 1.82069 | 1.83277 |
F-56
(formerly European Telecommunications & Technology Limited)
October 15, | December 31, | December 31, | ||||||||||
2006 | 2005 | 2004 | ||||||||||
$ | $ | $ | ||||||||||
Beginning balance | 67,519 | 75,578 | 130,521 | |||||||||
Bad debt expense | — | 9,255 | 49 | |||||||||
Reversals | — | — | (52,175 | ) | ||||||||
Write-offs | — | (9,255 | ) | (10,465 | ) | |||||||
Foreign currency exchange | 5,324 | (8,059 | ) | 7,648 | ||||||||
Ending balance | 72,843 | 67,519 | 75,578 | |||||||||
F-57
(formerly European Telecommunications & Technology Limited)
F-58
(formerly European Telecommunications & Technology Limited)
F-59
(formerly European Telecommunications & Technology Limited)
As at | ||||
December 31, 2005 | ||||
$ | ||||
Cost | ||||
Computer equipment | 1,303,466 | |||
Furniture | 266,950 | |||
Leasehold improvements | 321,611 | |||
1,892,027 | ||||
Accumulated depreciation | ||||
Computer equipment | 1,032,696 | |||
Furniture | 221,035 | |||
Leasehold improvements | 197,724 | |||
1,451,455 | ||||
Net book value | 440,572 | |||
January 1, 2006 to | Year Ended | Year Ended | ||||||||||
October 15, | December 31, | December 31, | ||||||||||
2006 | 2005 | 2004 | ||||||||||
$ | $ | $ | ||||||||||
Selling expenses | 58,340 | 101,292 | 110,924 | |||||||||
General and administrative | 136,128 | 168,221 | 187,840 | |||||||||
194,468 | 269,513 | 298,764 | ||||||||||
F-60
(formerly European Telecommunications & Technology Limited)
As at | ||||
December 31, | ||||
2005 | ||||
$ | ||||
Finance leases with the Bank of Scotland to purchase equipment for use in the provision of services to customers. Repayments are due in monthly installments of $11,690 and the lease bears implicit interest at 8.5% and is collateralized by the equipment leased. There are no covenants with this agreement | 107,680 | |||
A term loan with the Bank of Scotland was fully paid by September 2006 and bore interest at 2.5% over the bank’s base rate (effective rate of 7.00% at December 31, 2005).(* *) | 240,911 | |||
$1,438,050 term loan with the Bank of Scotland for the purpose of capital expenditure originated in December 2004. The loan is due in monthly instalments commencing in June 2005 through November 2007 and bears interest at 2.5% over the bank’s base rate (effective rate of 7.00% at December 31, 2005) (* *) | 1,049,682 | |||
1,398,273 | ||||
Less current maturities of long-term obligations | 899,244 | |||
Long-term obligations | 499,029 | |||
Maturities of long-term obligations for the years ended December 31 are as follows: | ||||
2006 | 899,244 | |||
2007 | 499,029 | |||
1,398,273 | ||||
(* *) | Both term loans are collateralized against all of the Company’s assets (including future assets) through a debenture originally put in place on February 7, 2002, and granted by the Company in favour of the Bank of Scotland. The term loans are both subject to a series of affirmative covenants as well as the following specific financial covenants: |
a) | The ratio of EBITDA to senior interest shall not be less than 1:1 prior to 31 March 2006. On 31 March 2006 and thereafter, the ratio of EBITDA to senior interest shall not be less than 2:1 unless other wise agreed. | |
b) | The ratio of trade debtors to net borrowings due to the Bank of Scotland shall not at any time be less than 2:1. |
F-61
(formerly European Telecommunications & Technology Limited)
F-62
(formerly European Telecommunications & Technology Limited)
Weighted Average | Weighted Average | |||||||||||
Number of Shares | Exercise Price | Exercise Price | ||||||||||
($’s) | (£’s) | |||||||||||
Outstanding at January 1 2004 | 13,615,000 | $ | 0.226 | £ | 0.127 | |||||||
Granted | 5,415,000 | $ | 0.288 | £ | 0.159 | |||||||
Exercised | — | — | — | |||||||||
Forfeited | (4,360,000 | ) | $ | (0.276 | ) | £ | (0.148 | ) | ||||
Outstanding at December 31 2004 | 14,670,000 | $ | 0.260 | £ | 0.135 | |||||||
Granted | 19,556,000 | $ | 0.053 | £ | 0.030 | |||||||
Exercised | — | — | — | |||||||||
Cancelled | (18,756,000 | ) | $ | (0.194 | ) | £ | (0.109 | ) | ||||
Forfeited | (1,295,000 | ) | $ | (0.134 | ) | £ | (0.073 | ) | ||||
Outstanding at December 31 2005 | 14,175,000 | $ | 0.052 | £ | 0.030 | |||||||
Granted | — | — | — | |||||||||
Exercised | (12,365,000 | ) | $ | (0.056 | ) | £ | (0.030 | ) | ||||
Cancelled | — | — | — | |||||||||
Forfeited | (1,810,000 | ) | $ | (0.055 | ) | £ | (0.030 | ) | ||||
Outstanding at October 15 2006 | — | — | — | |||||||||
F-63
(formerly European Telecommunications & Technology Limited)
Year Ended | Year Ended | |||||||||||
January 1, 2006 to | December 31, | December 31, | ||||||||||
October 15, 2006 | 2005 | 2004 | ||||||||||
$ | $ | $ | ||||||||||
Statutory rate | (380,444 | ) | (69,301 | ) | (147,060 | ) | ||||||
Non-deductible differences | 55,985 | 105,808 | 99,113 | |||||||||
Foreign and other tax affects | (92,840 | ) | (38,082 | ) | 189,674 | |||||||
Change in valuation allowance | 417,299 | 1,575 | (141,727 | ) | ||||||||
— | — | — | ||||||||||
As at December 31, | As at December 31, | |||||||
2005 | 2004 | |||||||
$ | $ | |||||||
Beginning balance | 7,762,494 | 7,304,800 | ||||||
Increase (decrease) in valuation allowance | 1,575 | (141,727 | ) | |||||
Foreign currency exchange | (827,879 | ) | 599,421 | |||||
Ending balance | 6,936,190 | 7,762,494 | ||||||
F-64
(formerly European Telecommunications & Technology Limited)
January 1, 2006 to | Year Ended | Year Ended | ||||||||||
October 15, 2006 | December 31, 2005 | December 31, 2004 | ||||||||||
$ | $ | $ | ||||||||||
Revenue | ||||||||||||
UK | 17,205,816 | 23,271,310 | 26,009,250 | |||||||||
Germany | 5,603,184 | 6,431,810 | 5,991,873 | |||||||||
Other | 3,313,950 | 5,008,519 | 3,074,378 | |||||||||
26,122,950 | 34,711,639 | 35,075,501 | ||||||||||
Land and | ||||||||
Buildings | Other | |||||||
$ | $ | |||||||
2007 | 707,783 | 68,440 | ||||||
2008 | 594,453 | 42,328 | ||||||
2009 | 448,653 | 19,347 | ||||||
2010 | 366,470 | — | ||||||
2011 | 362,776 | — | ||||||
Thereafter | 257,454 | — | ||||||
2,737,589 | 130,115 | |||||||
F-65
(formerly European Telecommunications & Technology Limited)
January 1, 2006 to | Year Ended | Year Ended | ||||||||||
October 15, 2006 | December 31, 2005 | December 31, 2004 | ||||||||||
Revenue | ||||||||||||
Customer A | 26.14 | % | 24.62 | % | 34.05 | % | ||||||
Customer B | 15.98 | % | 20.94 | % | 21.11 | % | ||||||
Customer C | 15.33 | % | * | * | ||||||||
Customer D | 10.93 | % | * | * | ||||||||
Costs of revenue | ||||||||||||
Vendor A | 13.62 | % | 14.62 | % | 12.32 | % | ||||||
Vendor B | * | * | 10.35 | % | ||||||||
Accounts receivable | ||||||||||||
As at | As at | |||||||||||
December 31, | December 31, | |||||||||||
2005 | 2004 | |||||||||||
Customer A | 27.07 | % | 53.13 | % |
* | Amount less than 10%. |
F-66
(formerly European Telecommunications & Technology Limited)
F-67
F-68
F-69
September 30, | September 30, | |||||||
2006 | 2005 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 616,828 | $ | 141,900 | ||||
Certificates of deposit, unrestricted | 409,745 | 479,120 | ||||||
Certificates of deposit, restricted | 138,000 | — | ||||||
Accounts receivable, net | 1,012,485 | 1,353,966 | ||||||
Income tax refunds receivable | 327,504 | 371,515 | ||||||
Deferred contract costs | 209,095 | 200,063 | ||||||
Prepaid expenses and other current assets | 646,127 | 455,924 | ||||||
Total current assets | 3,359,784 | 3,002,488 | ||||||
Property and equipment, net | 459,183 | 422,045 | ||||||
Other assets | 396,029 | 546,748 | ||||||
Total assets | $ | 4,214,996 | $ | 3,971,281 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 865,357 | $ | 476,743 | ||||
Unearned and deferred revenue | 1,910,432 | 1,631,468 | ||||||
Regulatory and sales taxes payable | 283,673 | 317,425 | ||||||
Other accrued expenses | 1,036,517 | 1,172,856 | ||||||
Total current liabilities | 4,095,979 | 3,598,492 | ||||||
Deferrals and other accrued liabilities | 187,874 | 90,665 | ||||||
Total liabilities | 4,283,853 | 3,689,157 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity (deficit): | ||||||||
Common stock: | ||||||||
Class A, $.01 par value; 9,000,000 shares authorized, 2,500,000 shares issued and outstanding | 25,000 | 25,000 | ||||||
Class B, $.01 par value; 1,000,000 shares authorized, no shares issued or outstanding | — | — | ||||||
Additional paid-in capital | 279,461 | 279,461 | ||||||
Accumulated deficit | (373,318 | ) | (22,337 | ) | ||||
Total shareholders’ equity (deficit) | (68,857 | ) | 282,124 | |||||
Total liabilities and shareholders’ equity (deficit) | $ | 4,214,996 | $ | 3,971,281 | ||||
F-70
Consolidated Statements of Operations
For the Period From October 1, 2006 to October 15, 2006
and For the Years Ended September 30, 2006, 2005 and 2004
For the Period from | Year Ended September 30, | |||||||||||||||
October 1 - 15, 2006 | 2006 | 2005 | 2004 | |||||||||||||
Revenues: | ||||||||||||||||
Telecommunications services sold | $ | 825,082 | $ | 17,960,062 | $ | 14,167,849 | $ | 9,263,497 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of telecommunications services provided | 545,648 | 12,821,008 | 9,424,964 | 6,062,912 | ||||||||||||
Selling, general and administrative expenses | 209,050 | 5,463,521 | 5,335,053 | 3,571,549 | ||||||||||||
Depreciation and amortization | 4,751 | 47,464 | 109,135 | 58,224 | ||||||||||||
Operating income (loss) | 65,633 | (371,931 | ) | (701,303 | ) | (429,188 | ) | |||||||||
Other income: | ||||||||||||||||
Interest income, net of expense | 1,113 | 36,542 | 32,008 | 23,273 | ||||||||||||
Other income, net of expense | (31,744 | ) | 28,419 | 19,142 | 16,029 | |||||||||||
Total other income (expense) | (30,631 | ) | 64,961 | 51,150 | 39,302 | |||||||||||
Income (loss) before provision (benefit) for income taxes | 35,002 | (306,970 | ) | (650,153 | ) | (389,886 | ) | |||||||||
Provision (benefit) for income taxes | — | 44,011 | (205,189 | ) | (166,326 | ) | ||||||||||
Net (loss) income | $ | 35,002 | $ | (350,981 | ) | $ | (444,964 | ) | $ | (223,560 | ) | |||||
Earnings (loss) per share calculation: | ||||||||||||||||
Net (loss) income per share | ||||||||||||||||
Basic | $ | 0.01 | $ | (0.14 | ) | $ | (0.18 | ) | $ | (0.09 | ) | |||||
Diluted | $ | 0.01 | $ | (0.14 | ) | $ | (0.18 | ) | $ | (0.09 | ) | |||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 2,500,000 | 2,500,000 | 2,500,000 | 2,500,000 | ||||||||||||
Diluted | 2,500,000 | 2,500,000 | 2,500,000 | 2,500,000 | ||||||||||||
F-71
Consolidated Statements of Changes in Shareholders’ Equity
For the Period From October 1, 2006 to October 15, 2006 and Years Ended
September 30, 2006, 2005 and 2004
Retained | ||||||||||||||||||||||||||||||||
Common Stock | Common Stock | Additional | Stock | Earnings | ||||||||||||||||||||||||||||
Class A | Class B | Paid-In | Subscription | (Accumulated | ||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Receivable | Deficit) | Total | |||||||||||||||||||||||||
Balance, October 1, 2003 | 2,500,000 | $ | 25,000 | 1,000,000 | $ | — | $ | 279,461 | $ | (500 | ) | $ | 646,187 | $ | 950,148 | |||||||||||||||||
Net loss | — | — | — | — | — | — | (223,560 | ) | (223,560 | ) | ||||||||||||||||||||||
Balance, September 30, 2004 | 2,500,000 | 25,000 | 1,000,000 | — | 279,461 | (500 | ) | 422,627 | 726,588 | |||||||||||||||||||||||
Stock subscription paid | — | — | — | — | — | 500 | — | 500 | ||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (444,964 | ) | (444,964 | ) | ||||||||||||||||||||||
Balance, September 30, 2005 | 2,500,000 | 25,000 | 1,000,000 | — | 279,461 | — | (22,337 | ) | 282,124 | |||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (350,981 | ) | (350,981 | ) | ||||||||||||||||||||||
Balance, September 30, 2006 | 2,500,000 | 25,000 | 1,000,000 | — | 279,461 | — | (373,318 | ) | (68,857 | ) | ||||||||||||||||||||||
Net income | — | — | — | — | — | — | 35,002 | 35,002 | ||||||||||||||||||||||||
Balance, October 15, 2006 | 2,500,000 | $ | 25,000 | 1,000,000 | $ | — | $ | 279,461 | $ | — | $ | (338,316 | ) | $ | (33,855 | ) | ||||||||||||||||
F-72
Consolidated Statements of Cash Flows
For the Period From October 1, 2006 to October 15, 2006
and For the Years Ended September 30, 2006, 2005 and 2004
For the Period From | Year Ended September 30, | |||||||||||||||
October 1 - 15, 2006 | 2006 | 2005 | 2004 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income (loss) | $ | 35,002 | $ | (350,981 | ) | $ | (444,964 | ) | $ | (223,560 | ) | |||||
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 4,751 | 47,464 | 109,135 | 58,224 | ||||||||||||
Provision for bad debt | — | — | — | 34,482 | ||||||||||||
Gain on sale of property and equipment | — | — | 3,692 | — | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable, net | (1,109,689 | ) | 341,482 | (696,221 | ) | (266,491 | ) | |||||||||
Income tax refunds receivable | — | 44,011 | (205,189 | ) | (166,326 | ) | ||||||||||
Deferred contract cost | — | (9,032 | ) | (54,753 | ) | (145,310 | ) | |||||||||
Prepaid expenses and other current assets | 234,358 | (190,203 | ) | (94,718 | ) | (148,375 | ) | |||||||||
Deferred contract costs and other assets | — | (1,063 | ) | — | — | |||||||||||
Other assets | — | — | (161,880 | ) | (384,869 | ) | ||||||||||
Accounts payable | 392,046 | 388,614 | 264,765 | 106,225 | ||||||||||||
Accrued carrier expenses | — | — | 469,580 | (165,616 | ) | |||||||||||
Accrued compensation | — | — | (55,510 | ) | 155,802 | |||||||||||
Unearned and deferred revenue | 755,500 | 278,964 | 478,354 | (12,017 | ) | |||||||||||
Regulatory and sales taxes payable | 58,111 | (33,752 | ) | 176,441 | (24,001 | ) | ||||||||||
Long-term deferrals | 580 | 97,209 | — | 210,827 | ||||||||||||
Other accrued expenses | (479,510 | ) | (136,339 | ) | (61,082 | ) | 75,258 | |||||||||
Income taxes payable | — | — | — | (18,602 | ) | |||||||||||
Net cash (used in) provided by operating activities | (108,851 | ) | 476,374 | (272,350 | ) | (914,349 | ) | |||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of property and equipment | (5,132 | ) | (84,605 | ) | (413,348 | ) | (81,105 | ) | ||||||||
Loans repaid — Shareholder | — | — | 39,508 | — | ||||||||||||
(Purchases) redemptions of certificates of deposit | (114,904 | ) | 83,159 | (11,043 | ) | 815,204 | ||||||||||
Purchase of certificate of deposit backing letter of credit | — | — | — | (268,000 | ) | |||||||||||
Net cash (used in) provided by investing activities | (120,036 | ) | (1,446 | ) | (384,883 | ) | 466,099 | |||||||||
Cash flows from financing activities: | ||||||||||||||||
Payment received for stock subscription | — | — | 500 | — | ||||||||||||
Net cash provided by financing activities | — | — | 500 | — | ||||||||||||
Net increase (decrease) in cash and cash equivalents | (228,887 | ) | 474,928 | (656,733 | ) | (448,250 | ) | |||||||||
Cash and cash equivalents, beginning of period | 616,828 | 141,900 | 798,633 | 1,246,883 | ||||||||||||
Cash and cash equivalents, end of period | $ | 387,941 | $ | 616,828 | $ | 141,900 | $ | 798,633 | ||||||||
Supplementary cash flow information: | ||||||||||||||||
Interest paid | — | — | — | $ | 1,748 | |||||||||||
Income taxes paid | — | — | — | — | ||||||||||||
F-73
• | Global Internetworking, LLC | |
• | Global Internetworking Government Services, LLC | |
• | Global Internetworking of Virginia, Inc. |
• | Recurring Revenue: Recurring charges for data connectivity are generally billed pursuant to fixed price contracts one month in advance and are recorded as unearned revenue when billed. This unearned revenue is recognized monthly for as long as such service is provided and collectibility is reasonably assured, in accordance with SEC Staff Accounting Bulletin No. 104. Pursuant to the service contracts, service is first considered provided upon the issuance of a start of service notice. | |
• | Non-recurring Fees. Non-recurring fees for data connectivity typically take the form of one-time, non-refundable provisioning fees established pursuant to service contracts. The amount of the provisioning fee included in each contract is generally determined by marking up or passing through the corresponding charge from GII’s supplier imposed pursuant to GII’s purchase agreement. Starting with the fiscal year |
F-74
ended September 30, 2004, non-recurring revenues related to provisioning in connection with the delivery of recurring communications services are recognized ratably over the term of service starting upon commencement of the service contract term. Installation costs related to provisioning that are incurred by GII from independent third party suppliers, that are directly attributable and necessary to fulfill a particular service contract, and which costs would not have been incurred but for the occurrence of that service contract, are capitalized as deferred contract costs and expensed proportionally over the term of service in the same manner as the deferred revenue arising from that contract. |
• | Other Revenue: From time to time, GII recognizes revenue in the form of fixed or determinable cancellation (pre-installation) or termination (post-installation) charges imposed pursuant to the service contract. These revenues are earned when a customer cancels or terminates a service agreement prior to the end of its committed term. These revenues are recognized when billed if collectibility is reasonably assured. In addition, GII occasionally sells equipment in connection with data networking applications. GII recognizes revenue from the sale of equipment at the contracted selling price when title to the equipment passes to the customer (generally F.O.B. origin) and when collectibility is reasonably assured. |
F-75
2006 | 2005 | |||||||
Allowance for Uncollectible Accounts-Beginning | $ | (23,034 | ) | $ | (73,074 | ) | ||
Provision for bad debt | (77,990 | ) | (78,635 | ) | ||||
Reversals | — | — | ||||||
Specific charges against allowance | 45,425 | 128,675 | ||||||
Allowance for Uncollectible Accounts-Ending | $ | (55,599 | ) | $ | (23,034 | ) | ||
F-76
Furniture and Fixtures | 7 years | |||
Leasehold Improvements | 10 years | |||
Computer Software | 3 years | |||
Computer Hardware, Office and telephone equipment | 3-7 years |
F-77
Beginning | Charges | Reserves for | Ending | Unresolved Vendor | ||||||||||||||||
Reserve | Against | New Vendor | Reserve | Billing Errors at | ||||||||||||||||
Fiscal Year | Balance | Reserve | Billing Errors | Balance | End of Period | |||||||||||||||
2005 | $ | 95,823 | $ | (51,691 | ) | $ | 94,235 | $ | 138,367 | $ | 1,006,460 | |||||||||
2006 | 138,367 | (144,677 | ) | 82,050 | 75,740 | 344,949 |
F-78
Fiscal Year Ended September 30 | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Net loss as reported | $ | (350,981 | ) | $ | (444,964 | ) | $ | (223,560 | ) | |||
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects | (37,944 | ) | (60,679 | ) | (36,352 | ) | ||||||
Proforma net (loss) | $ | (388,925 | ) | $ | (505,643 | ) | $ | (259,912 | ) | |||
(Loss) per share: basic and diluted as reported | $ | (0.14 | ) | $ | (0.18 | ) | $ | (0.09 | ) | |||
(Loss) per share: basic and diluted, proforma | $ | (0.16 | ) | $ | (0.20 | ) | $ | (0.10 | ) | |||
Volatility | — | % | .01 | % | .01 | % | ||||||
Dividend yield | — | % | 0 | % | 0 | % | ||||||
Risk-free interest rate | — | % | 4.85 | % | 4.88 | % | ||||||
Expected life in years | — | 10 | 10 |
F-79
Fiscal 2006 | Fiscal 2005 | |||||||
Furniture and fixtures | $ | 139,461 | $ | 134,048 | ||||
Computer hardware and software | 248,878 | 218,611 | ||||||
Telecommunications equipment | 268,350 | 223,270 | ||||||
Leasehold improvements | 113,703 | 109,958 | ||||||
Property and equipment, gross | 770,392 | 685,887 | ||||||
Less Accumulated depreciation | (311,209 | ) | (263,842 | ) | ||||
Property and equipment, net | $ | 459,183 | $ | 422,045 | ||||
F-80
Fiscal 2006 | Fiscal 2005 | |||||||
Restricted certificates of deposit securing facilities lease (see Notes 2 and 9) | $ | 130,000 | $ | 281,784 | ||||
Security deposits placed with vendors | 73,616 | 73,616 | ||||||
Receivable from vendor net of allowance | — | 120,396 | ||||||
Long-term deferred contract costs | 17,551 | 70,952 | ||||||
Organization costs | 174,862 | — | ||||||
Total Other Assets | $ | 396,029 | $ | 546,748 | ||||
F-81
September 30, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Deferred Tax Asset-Beginning of Year | $ | — | $ | — | $ | — | ||||||
Income tax expense from current year operations | — | — | — | |||||||||
Income tax expense from recalculating prior year refunds | 44,011 | — | — | |||||||||
Deferred Income Tax Benefit Arising from: | ||||||||||||
Net operating loss carryback to 2002 | — | — | 17,504 | |||||||||
Net operating loss carryforward to 2020 | 15,601 | 72,167 | — | |||||||||
Net operating loss carryforward to 2021 | 122,769 | |||||||||||
Net book tax differences for accruals and deferrals | 17,260 | |||||||||||
Deferred Income Tax Liability Arising from: | ||||||||||||
Depreciation-book/tax differences of, $62,496, $23,408, and $41,032, respectively | (26,661 | ) | (9,985 | ) | (17,504 | ) | ||||||
Deferred tax asset valuation allowance | (128,969 | ) | (62,182 | ) | — | |||||||
Deferred Tax Asset-End of Year | $ | — | $ | — | $ | — | ||||||
Income Tax Refunds Due | ||||||||||||
Carryback to 2002 | $ | — | $ | — | $ | 131,528 | ||||||
Carryback to 2003 | 205,189 | 34,798 | ||||||||||
Current Year Income Tax Benefit (Provision) | (44,011 | ) | 205,189 | 166,326 |
F-82
September 30, | ||||||||
2006 | 2005 | |||||||
Accrued compensation and benefits | $ | 146,111 | $ | 267,457 | ||||
Accrued professional fees | 15,556 | — | ||||||
Accrued taxes | 26,352 | 9,997 | ||||||
Accrued carrier costs | 832,996 | 895,402 | ||||||
Accrued other | 15,502 | — | ||||||
$ | 1,036,517 | $ | 1,172,856 | |||||
F-83
Fiscal Year Ending September 30, | ||||
2007 | $ | 280,229 | ||
2008 | 287,234 | |||
2009 | 294,415 | |||
2010 | 301,776 | |||
2011 | 309,320 | |||
2012 and thereafter | 1,058,923 | |||
Total | $ | 2,531,897 | ||
Fiscal Year Ending September 30, 2007 | $ | 10,668 | ||
2008 | 5,334 | |||
Total | $ | 16,002 | ||
F-84
Number of Class B | Weighted Average | |||||||
Option Shares | Exercise Price | |||||||
Balance at September 30, 2003 | 149,100 | $ | 3.97 | |||||
Granted | 75,000 | $ | 5.50 | |||||
Exercised | — | |||||||
Forfeited | — | |||||||
Balance at September 30, 2004 | 224,100 | $ | 4.48 | |||||
Granted | 58,500 | $ | 5.67 | |||||
Exercised | — | |||||||
Forfeited | — | |||||||
Balance at September 30, 2005 | 282,600 | $ | 4.73 | |||||
Granted | — | |||||||
Exercised | — | |||||||
Forfeited | — | |||||||
Balance at September 30, 2006 | 282,600 | $ | 4.73 | |||||
Weighted Average | ||||||||||||
Outstanding at | Remaining | Weighted Average | ||||||||||
Exercise Price | Fiscal Year End | Contractual Life | Exercise Price | |||||||||
$2.50 | 76,000 | 4.67 years | $ | 2.50 | ||||||||
$5.50 | 186,600 | 6.80 years | $ | 5.50 | ||||||||
$6.00 | 20,000 | 9.40 years | $ | 6.00 |
F-85
FYE 2007 | FYE 2008 | FYE 2009 | FYE 2010 | FYE 2011 | Total | |||||||||||||||
$10,510,049 | $ | 4,448,192 | $ | 2,941,689 | $ | 1,402,866 | $ | 787,398 | $ | 20,090,194 |
FYE 2006 | FYE 2007 | FYE 2008 | FYE 2009 | FYE 2010 | Total | |||||||||||||||
$11,209,018 | $ | 4,529,418 | $ | 3,197,061 | $ | 1,669,826 | $ | 357,992 | $ | 20,963,315 |
F-86
PROSPECTUS
Securities and Exchange Commission Registration Fee | $ | 225 | ||
Printing Expenses | * | |||
Accounting Fees and Expenses | * | |||
Legal Fees and Expenses | * | |||
Transfer Agent and Registrar | * | |||
Total | $ | * |
* | To be filed by amendment |
II-1
II-2
Number of | Number of | Number of | ||||||||||
Name | Shares of Common Stock | Class W Warrants | Class Z Warrants | |||||||||
Universal Telecommunications, Inc. | 25 | 618,750 | 618,750 | |||||||||
The Hackman Family Trust | 25 | 495,000 | 495,000 | |||||||||
Lior Samuelson | 25 | 495,000 | 495,000 | |||||||||
David Ballarini | 25 | 495,000 | 495,000 | |||||||||
Mercator Capital L.L.C. | — | 371,250 | 371,250 |
II-3
II-4
II-5
GLOBAL TELECOM & TECHNOLOGY, INC. | ||||
By: | /s/ RICHARD D. CALDER, JR. | |||
Richard D. Calder, Jr. | ||||
President and Chief Executive Officer | ||||
Signature | Title | Date | ||
/s/ RICHARD D. CALDER, JR. | President, Chief Executive Officer and Director (Principal Executive Officer) | January 14, 2008 | ||
/s/ KEVIN J. WELCH | Chief Financial Officer and Treasurer (Principal Financial Officer) | January 14, 2008 | ||
/s/ H. BRIAN THOMPSON | Chairman of the Board and Executive Chairman | January 14, 2008 | ||
/s/ S. JOSEPH BRUNO | Director | January 14, 2008 | ||
/s/ DIDIER DELEPINE | Director | January 14, 2008 | ||
/s/ RHODRIC C. HACKMAN | Director | January 14, 2008 | ||
/s/ HOWARD JANZEN | Director | January 14, 2008 | ||
/s/ D. MICHAEL KEENAN | Director | January 14, 2008 | ||
/s/ MORGAN E. O’BRIEN | Director | January 14, 2008 | ||
/s/ SUDHAKAR SHENOY | Director | January 14, 2008 | ||
/s/ THEODORE B. SMITH, III | Director | January 14, 2008 |
II-6
Exhibit | ||||
Number | Description of Document | |||
2.1 | (1) | Stock Purchase Agreement dated May 23, 2006, among the Registrant, Global Internetworking, Inc. and the shareholders of Global Internetworking, Inc. | ||
3.1 | (2) | Second Amended and Restated Certificate of Incorporation dated October 16, 2006. | ||
3.2 | (2) | Amended and Restated Bylaws dated October 15, 2006. | ||
4.1 | (3) | Specimen of Series A Unit Certificate of the Company. | ||
4.2 | (3) | Specimen of Series B Unit Certificate of the Company. | ||
4.3 | (8) | Specimen of Common Stock Certificate of the Company. | ||
4.4 | (8) | Specimen of Class W Warrant Certificate of the Company. | ||
4.5 | (8) | Specimen of Class Z Warrant Certificate of the Company. | ||
4.6 | (5) | Unit Purchase Option granted to HCFP/Brenner Securities LLC. | ||
4.7 | (5) | Warrant Agreement between American Stock Transfer & Trust Company and the Registrant. | ||
5.1 | ** | Legal Opinion of Greenberg Traurig, LLP. | ||
10.1 | (3) | Letter Agreement among the Registrant, HCFP/Brenner Securities LLC and Rhodric C. Hackman. | ||
10.2 | (3) | Letter Agreement among the Registrant, HCFP/Brenner Securities LLC and H. Brian Thompson. | ||
10.3 | (4) | Letter Agreement among the Registrant, HCFP/Brenner Securities LLC and Morgan E. O’Brien. | ||
10.4 | (4) | Letter Agreement among the Registrant, HCFP/Brenner Securities LLC and Alex Mandl. | ||
10.5 | (5) | Investment Management Trust Agreement between American Stock Transfer & Trust Company and the Registrant. | ||
10.6 | (2) | Employment Agreement for H. Brian Thompson, dated October 15, 2006. | ||
10.7 | (2) | Employment Agreement for Todd Vecchio, dated October 15, 2006. | ||
10.8 | (2) | Form of Lock-up letter agreement entered into by the Registrant and the stockholders of Global Internetworking, Inc., dated October 15, 2006. | ||
10.9 | (7) | 2006 Employee, Director and Consultant Stock Plan, as amended. On November 30, 2006, the Plan was amended to (i) change the termination date to May 21, 2016 and (ii) reflect the Company’s new corporate name. | ||
10.10 | (4) | Form of Registration Rights Agreement. | ||
10.11 | (2) | Form of Promissory Note issued to the stockholders of Global Internetworking, Inc., dated October 15, 2006. | ||
10.12 | (8) | Note Amendment Agreement entered into by the Registrant and the former stockholders of Global Internetworking, Inc., dated November 13, 2007. | ||
10.13 | (9) | Form of Stock Option Agreement. |
II-7
Exhibit | ||||
Number | Description of Document | |||
10.14 | (9) | Form of Restricted Stock Agreement | ||
10.15 | (10) | Employment Agreement for Kevin J. Welch, dated January 22, 2007. | ||
10.16 | (11) | Separation Agreement for D. Michael Keenan, dated February 23, 2007. | ||
10.17 | (12) | Employment Agreement for Richard D. Calder, Jr., dated May 7, 2007. | ||
10.18 | (8) | Form of Exchange Agreement entered into by the registrant and certain holders of promissory notes. | ||
10.19 | (8) | Form of 10% Convertible Unsecured Subordinated Promissory Note. | ||
21.1* | Subsidiaries of the Registrant. | |||
23.1* | Consent of J.H. Cohn LLP. | |||
23.2* | Consent of Pricewaterhouse Coopers LLP. | |||
23.3* | Consent of BDO Stoy Hayward LLP. | |||
23.4* | Consent of Schwartz Weissman & Co. P.C. | |||
23.5* | * | Consent of Greenberg Traurig, LLP (included in the opinion filed as Exhibit 5.1). | ||
24.1* | Power of Attorney (included on the signature page to this Registration Statement). |
* | Filed herewith | |
** | to be filed by amendment. |
(1) | Previously filed as an Exhibit to the Registrant’s Form 10-Q filed August 21, 2006, and incorporated herein by reference. | |
(2) | Previously filed as an Exhibit to the Registrant’s Form 8-K filed October 19, 2006, and incorporated herein by reference. | |
(3) | Previously filed as an Exhibit to the Registrant’s Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 333-122303) and incorporated herein by reference. | |
(4) | Previously filed as an Exhibit to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-122303) and incorporated herein by reference. | |
(5) | Previously filed as an Exhibit to the Registrant’s Annual Report on Form 10-K filed March 30, 2006, and incorporated herein by reference. | |
(6) | Previously filed as Annex E to the Registrant’s proxy statement/prospectus and incorporated herein by reference. | |
(7) | Previously filed as an Exhibit to the Registrant’s Form 10-Q filed November 14, 2006 and incorporated herein by reference. | |
(8) | Previously filed as an Exhibit to the Registrant’s Form 8-K filed March 29, 2007, and incorporated herein by reference. | |
(9) | Previously filed as an Exhibit to the Registrant’s Annual Report on Form 10-K filed April 17, 2007, and incorporated herein by reference. | |
(10) | Previously filed as an Exhibit to the Registrant’s Form 8-K filed January 24, 2007, and incorporated herein by reference. | |
(11) | Previously filed as an Exhibit to the Registrant’s Form 8-K filed February 23, 2007, and incorporated herein by reference. | |
(12) | Previously filed as an Exhibit to the Registrant’s Form 8-K filed May 10, 2007, and incorporated herein by reference. |
II-8