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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 23, 2000
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NET2PHONE, INC.
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(Exact name of registrant as specified in its charter)
000-26763
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(Commission File Number)
Delaware 22-3559037
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 Broad Street
Newark, New Jersey 07102
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(Address of principal executive offices, with zip code)
(973) 412-2800
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(Registrant's telephone number, including area code)
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(Former name or former address,
if changed since last report)
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This Amendment No. 4 currently represented on Form 8-K/A amends the current
report on Form 8-K filed by Net2Phone, Inc. on July 23, 2000, Amendment No. 1 to
the Form 8-K filed on September 22, 2000, Amendment No. 2 to the Form 8-K filed
on October 16, 2000, and Amendment No. 3 to the Form 8-K filed on July 13, 2001.
Item 2. Acquisition or Disposition of Assets
On July 7, 2000, Net2Phone, Inc. a Delaware corporation acquired through
the acquisition of Allia B.V., a company organized under the laws of
Netherlands, all of the issued and outstanding stock of Aplio S.A. Aplio S.A. a
societe anonyme organized under the laws of France is a developer of software
for internet telephony products based in Sarcelles, France with marketing
subsidiaries in Israel and California.
Consideration consisted of $2.9 million in cash at closing and 582,749
shares of the Company's common stock which were valued at $35.50 per share,
promissory notes aggregating $6.5 million, $1.0 million in acquisition related
costs and $4.8 million in cash to be paid within eighteen months of the closing
of the transaction. In addition, the Company is required to pay three contingent
cash payments of $2,778,230 on July 7, 2001, July 7, 2002 and a third payment of
$2,500,000 on July 7, 2003.
Under certain circumstances, Net2Phone has the obligation to repurchase
certain stock of Net2Phone, Inc.'s common stock issued in the acquisition on the
terms set forth in the Stock Purchase Agreement (Exhibit 7 (c) (i)).
Item 7. Financial Statements
On July 23, 2000, Net2Phone, Inc. ("Net2Phone") filed a Current Report on
Form 8-K to report its acquisition of Aplio, S.A. ("Aplio"). On September 22,
2000 and October 16, 2000, Net2Phone, pursuant to Item 7 of Form 8-K, filed
certain financial information pertaining to said acquisition of Aplio.
The financial statements filed with our Current Report on Form 8-K on
September 22, 2000, October 16, 2000, and July 13, 2000 are amended and restated
in their entirety with this filing.
Item 7(c). Exhibits.
The following exhibits are filed herewith:
Exhibit No. Description
----------- -----------
23.1. Consent of Independent Auditors
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 16, 2001
NET2PHONE, INC.
/s/ Ilan S. Slasky
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By: Ilan Slasky
Its: Chief Financial Officer
APLIO S.A. AND SUBSIDIARIES
Years Ended December 31, 1999 and 1998
Consolidated Financial Statements
with Independent Auditor's Report
To The Board of Directors and Stockholders:
We have been appointed auditors for the purpose of specific filing requirements
with the Securities and Exchange Commission of the group's consolidated
financial statements for the years ended December 31, 1999 and 1998.
We have audited the accompanying consolidated balance sheets of Aplio S.A. and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aplio S.A. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
May 18,2001
Paris, France
The Statutory Auditors
/s/ Olivier Breillot
Ernst & Young Audit
Paris, France
APLIO S.A. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands of French Francs)
Assets 1999 1998
-------- --------
Current assets: FRF '000 FRF '000
Cash and cash equivalents (note 3) 2,130 3,165
Trade accounts receivable (note 5) 1,764 6,663
Inventories
Finished goods 1,765 2,034
Raw materials 664 1,073
------ ------
Total inventories (note 4) 2,429 3,107
Prepaid expenses 112 661
Other receivables (note 6) 9,185 6,596
Fixed assets:
Intangible assets (note 7) 376 419
Plant and equipment 2,336 1,901
Less accumulated depreciation and amortization (875) (346)
------ ------
Net plant and equipment (note 7) 1,461 1,555
Long term deposits 291 239
------ ------
17,748 22,405
====== ======
Aplio, S.A. and Subsidiaries
APLIO S.A. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands of French Francs)
Liabilities and Stockholders' Equity 1999 1998
-------- --------
FRF `000 FRF `000
Current liabilities:
Bank overdraft 433 --
Trade accounts payable 7,743 10,199
Unearned income 494 --
Other creditors 898 2,381
------- -------
Total current liabilities 9,568 12,580
Long-term debt:
Stockholders' accounts (note 8) 17,449 93
Governmental loan (note 9) 5,000 --
Other loan 61 --
Provisions for risks and contingencies (note 10) 893 36
------- -------
Total liabilities 32,971 12,709
Stockholders' equity:
Common stock, FRF 1 par value.
Issued and outstanding 13,746,966 shares in 1999
and 1,194,667 shares in 1998. 13,747 1,195
Additional paid-in capital 28,195 34,497
Retained earnings (57,505) (26,711)
Exchange Differences 340 715
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Total stockholders' equity (15,223) 9,696
------- -------
17,748 22,405
======= =======
Aplio, S.A. and Subsidiaries
APLIO S.A. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands of French Francs)
1999 1998
-------- --------
FRF '000 FRF '000
Net sales 24,697 28,334
Cost of goods sold (17,261) (21,069)
------- -------
Gross profit 7,436 7,265
Operating expenses (42,065) (32,805)
Other income 88 --
------- -------
Operating loss (34,541) (25,540)
Other income (expense):
Financial income 441 378
Financial expense (828) (1,166)
Exceptional items (note 12) 21 (1,631)
------- -------
(366) (2,419)
------- -------
Loss before income taxes (34,907) (27,959)
Income taxes (note 13) 4,113 3,429
------- -------
Net loss (30,794) (24,530)
======= =======
The above results derive from continuing activities.
Aplio, S.A. and Subsidiaries
APLIO S.A. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Years ended December 31, 1999 and 1998
(In thousands of French Francs, except share data)
Additional Total
Common Paid-in Retained stockholders'
Stock Capital Earnings equity
FRF '000 FRF '000 FRF '000 FRF '000
-------- ---------- -------- -------------
960 8,794 (2,181) 7,573
------- ------ ------- -------
Balance at January 1, 1998
Net loss -- -- (24,530) (24,530)
Exchange differences -- -- 715 715
Shares issued in connection with
issuance of common stock, shares
net of FRF 680 issue costs 235 25,703 -- 25,938
------- ------ ------- -------
Balances at December 31, 1998 1,195 34,497 (25,996) 9,696
======= ====== ======= =======
-- -- (30,794) (30,794)
Net loss
Shares issued in connection with issuance
of common stock 112,007,299 shares with no
issue costs 12,552 (6,302)* -- 6,250
Exchange difference -- -- (375) (375)
------- ------ ------- -------
Balances at December 31, 1999 13,747 28,195 (57,165) (15,223)
------- ------ ------- -------
*Inclusive of FRF 11,947 transferred to increase in share capital.
Aplio, S.A. and Subsidiaries
APLIO S.A. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
December 31, 1999 and 1998
(In thousands of French Francs)
1999 1998
------- -------
FRF '000 FRF '000
Cash flows from operating activities:
Cash received from customer 30,926 21,671
Cash paid to suppliers and employees (59,442) (47,169)
Exchange differences (375) 715
Interest received 441 378
Interest paid (828) (1,166)
------- -------
Net cash used in operating activities (29,278) (25,571)
Cash flows from investing activities:
Purchases of investment securities held-to-maturity -- (230)
Capital expenditures (incl. change in deposits) (857) (1,833)
------- -------
Net cash used in investing activities (857) (2,063)
------- -------
Cash flows from financing activities:
Proceeds from issuance on short-term debt 17,356 57
Principal from issuance of long term debt 5,061 --
Proceeds from issuance of common stock 6,250 25,938
------- -------
Net cash provided by financing activities 28,667 25,995
------- -------
Decrease in cash and cash equivalents (1,468) (1,639)
Cash and cash equivalents at beginning of year (net of overdraft) 3,165 4,804
------- -------
Cash and cash equivalents at the end of year (net of overdraft) 1,697 3,165
======= =======
Aplio, S.A. and Subsidiaries
APLIO S.A. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
December 31, 1999 and 1998
(In thousands of French Francs)
Reconciliation of Net Income to Net Cash Provided by Operating Activities.
The reconciliation of the net loss to net cash used in operating activities for
the years ended December 31, 1999 and 1998 follows.
1999 1998
-------- --------
FRF '000 FRF '000
Net loss (30,794) (24,530)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of plant and equipment 935 680
Fixed assets written off 7 1,625
Decrease / (Increase) in net trade accounts receivable 4,899 (6,663)
Decrease / (Increase) in inventories 678 (2,738)
Increase in other receivables (2,040) (5,902)
(Decrease) / increase in trade accounts payable (2,456) 9,232
(Decrease) / increase in other liabilities (132) 2,010
Exchange differences (375) 715
------- -------
Net cash used in operating activities (29,278) (25,571)
======= =======
The Company paid FRF 828 and FRF 1,166 for interest in 1999 and 1998,
respectively.
Aplio, S.A. and Subsidiaries
APLIO S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(All amounts in thousands of French Francs, except share data)
(1) Description of Business
The group designs and develops software for internet telephony products.
The manufacturing of these products is subcontracted to external sources
and subsequently sold by Aplio through its worldwide distribution network.
(2) Summary of Significant Accounting Policies and Practices
a) Basis of preparation
The consolidated financial statements of Aplio SA have been prepared
in accordance with French generally accepted accounting principles
(French GAAP) and under the historical cost convention, except for the
classification of certain items of the balance sheet and the income
statement. Management considers that such principles adopted do not
lead to a material difference of stockholders' equity or net loss as
compared to consolidated financial statements prepared in accordance
with US GAAP.
b) Principles of Consolidation
The consolidated financial statements include the financial statements
of Aplio S.A., the holding company, incorporated in France, and its
two wholly owned subsidiaries, that are fully consolidated:
- Aplio Inc., incorporated in the United States of America
- Aplio Ltd, incorporated in Israel
All significant intercompany balances and transactions, including
sales and expenses have been eliminated upon consolidation. Unrealized
profits resulting from intra-group transactions that are included in
the carrying amount of inventories are eliminated.
The financial statements of the individual subsidiaries have been
prepared at the same balance sheet date (31 December) as the
consolidated financial statements of Aplio Group.
There has been no change in scope in during the period.
c) Foreign currency translation
In translating the financial statement of a foreign entity for
incorporation in its consolidated financial statements, the following
procedures were used: the assets and liabilities, both monetary and
non-monetary, of the foreign entity are translated at the closing
rate. Income and expense items of the foreign entity are translated at
annual average exchange rates. All resulting exchange differences are
offset against equity without affecting the result.
In the single entities, foreign currency monetary items in the balance
sheet are reported using the closing rate. Exchange differences are
recognized as financial income or as financial expenses in the period
in which they arise.
Aplio, S.A. and Subsidiaries
APLIO S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(All amounts in thousands of French Francs, except share data)
d) Inventories
Inventories are stated at the lower of cost or market value after
making due allowance for obsolete and slow moving items. Cost is based
upon the weighted average valuation method except for the US
subsidiary, which uses the FIFO valuation method. No adjustment was
made in the accounts to bring valuation methods consistent throughout
the group as such adjustment was deemed to be immaterial.
e) Fixed assets
Fixed assets are stated at cost, less accumulated depreciation.
Depreciation on plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets, using the
following rates:
Machinery and tools 20%
Leasehold improvement 10%
Vehicles 20%
Furniture 20%
Computer equipment is depreciated on the reducing balance method over
an estimated useful life of three years. Software are amortized within
the year.
Plant and equipment held under capital leases and leasehold
improvements are not capitalized. The adjustment to reflect such items
as fixed assets under US GAAP is deemed to have an immaterial effect
on the financial statements.
Aplio, S.A. and Subsidiaries
APLIO S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(All amounts in thousands of French Francs, except share data)
f) Net sales
Net sales include the amounts receivable for goods sold and services
provided after deducting volume discounts and sales taxes and after
eliminating sales within the group. In relation to the sale of goods,
revenue is recognized when the significant risks and rewards of
ownership have been transferred to the buyer.
g) Cost of sales
Cost of sales comprises costs of purchase, cost of conversion and
freight.
h) Research and Development and Advertising
Research and development and advertising costs are expensed as
incurred.
In 1998, the group changed its accounting policy by expensing
development costs as incurred. This change led to the write-off of
amounts capitalized as at December 31, 1997. The impact on the 1998
income statement amounts to FRF 1,625, which was recognized as an
exceptional item.
i) Deferred Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carry-forwards. Deferred tax assets are recognized in the balance
sheet to the extent that there is a reasonable expectation of tax
profits arising in a foreseeable future. As at December 31, 1999 and
1998, no deferred tax was recognized in the balance sheet as the group
was in a net deferred tax asset position. Accounting of deferred tax
under US GAAP would have given rise to a fully reserved asset and
hence a nil impact on the current year profits and retained earnings.
j) Retirement indemnities
Commitments related to retirement indemnities are not reflected in the
financial statements as they are deemed to be immaterial due to the
limited headcount, high turnover and young age of the employees.
k) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare the
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Aplio, S.A. and Subsidiaries
APLIO S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(All amounts in thousands of French Francs, except share data)
(3) Cash and cash equivalents
Included within cash and cash equivalents are marketable securities of FRF
1,546 in 1999 and FRF 2 in 1998, which have a maturity date of less than 3
months.
(4) Inventories
Net inventories are stated after deduction of a reserve of FRF 1,628 in
1999 and FRF 86 in 1998.
(5) Trade accounts receivable
Net trade accounts receivable are stated after deduction of an allowance
for doubtful accounts as follows:
1999 1998
-------- --------
FRF '000 FRF '000
Allowance for doubtful accounts at beginning of year 112 --
Addition charged to bad debt expense 543 112
------- ------
Allowance for doubtful accounts at end of year 655 112
======= ======
(6) Other Accounts receivable
Other trade accounts receivable break down as follows for the years ended
December 31, 1999 and 1998:
1999 1998
-------- --------
FRF '000 FRF '000
Income tax credit 8,394 4,276
VAT receivable 660 2,212
Others 131 108
------- ------
9,185 6,596
======= ======
The income tax credit refers to a tax allowance scheme for the promotion of
constant efforts in the field of research and development.
Aplio, S.A. and Subsidiaries
APLIO S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(All amounts in thousands of French Francs, except share data)
(7) Fixed assets
Fixed assets comprise the following:
Gross value (in FRF '000) Software Computers Fixture Total
and and
Equipments fittings
Balance as at 31/12/98 870 403 1,498 2,771
Additions 358 32 415 805
Disposals 0 0 12 12
----- --- ----- -----
Balance as at 12/31/99 1,228 435 1,901 3,564
===== === ===== =====
Depreciation (in FRF '000)
Balance as at 31/12/98 452 40 305 797
Charge for the year 400 83 452 935
Disposals 0 0 5 5
----- --- ----- -----
Balance as at 12/31/99 852 123 752 1,727
===== === ===== =====
Net book value (in FRF '000)
----- --- ----- -----
Balance as at 12/31/98 418 363 1,193 1,974
===== === ===== =====
----- --- ----- -----
Balance as at 12/31/99 376 312 1,149 1,837
===== === ===== =====
(8) Stockholders' account
Stakeholders' accounts bear a 5% interest and are due to be converted into
equity by a fixed term falling on March 15 and July 31, 1999.
(9) Governmental loan
Governmental loans consist of an interest free FRF 5 million loan from Anvar
(French National Research Agency), redeemable over a 4-year period with an
initial repayment of FRF 1 Million on March 31, 2001.
Aplio, S.A. and Subsidiaries
APLIO S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(All amounts in thousands of French Francs, except share data)
(10) Provisions for risks and contingencies
Provisions for risks and contingencies consist of Management's best estimate, at
the date of the preparation of the consolidated statements, of certain potential
liabilities principally in relation to a court case related to a dismissal of
FRF 229 and to the termination of contract with a supplier, amounting to FRF 653
as at December 31, 1999.
(11) Research and Development and Advertising
Research and development costs recognized as an expense amounted to FRF 11,516
and FRF 1,625 in 1999 and in 1998, respectively. Advertising costs amounted to
FRF 4,230 and FRF 8,792 in 1999 and 1998, respectively.
(12) Exceptional items
Exceptional items in 1998 mainly relate to the write-off of Research and
Development Expenditure capitalized in 1997 for a total FRF 1,625.
(13) Income tax
Income tax in 1998 and 1999 consist of a tax allowance scheme in relation to
constant efforts by the company in the field of Research and Development. The
credit is recognized as an asset, which can be either offset against future tax
profits or redeemed from the Tax authorities after a 3-year period from the year
subsequent to the year of inception.
(14) Commitments
The group has non-cancelable operating leases, for office premises that expire
at various dates until 2002. These leases require the group to pay all executory
costs such as maintenance and insurance. Rental expenses for these operating
leases during 1999 and 1998 consisted of a rental expense of approximately FRF
200 and FRF 170 respectively.
During 1999, the group entered into an agreement with a custom call center, for
the provision of customer technical support in the USA. The agreement requires
monthly payments of approximately US$7,000 and expires in November 2000. Amounts
paid under this agreement for the year ended December 31, 1999 was approximately
US$84,000.
The group has also two other service contracts with unrelated parties. These
services include the use of a host server, and an inventory fulfillment house.
Rent expense paid under these service contracts for the years ended December 31,
1999 and 1998 was approximately US$15,000 and US$2,100 respectively.
Future minimum annual lease payments under these agreements are as follows:
Aplio, S.A. and Subsidiaries
APLIO S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(All amounts in thousands of French Francs, except share data)
Term falling in
FRF '000
2000 818
2001 281
2002 266
-------
547
-------
(15) Stock Option Plan and equity warrants
On April 20, 1998, the Company adopted a stock option plan (the "Plan") pursuant
to which the Company's Board of Directors may grant stock options to officers
and key employees under certain conditions. The Plan authorizes grants of
options to purchase up to 96,000 shares of unissued common stock. Stock options
are granted with an exercise price determined with reference to the latest
operation on equity, i.e. FRF 25 per share for the initial grant. All stock
options have 5-year terms and become fully exercisable at various dates.
In addition to this, certain executives had been granted on January 20, 1998
options to purchase up to 720 shares at an exercise price of FRF 950 per share.
Such options are exercisable from January 1, 2000 with no definite term.
At December 31, 1999, there were 204,500 additional shares available for grant
under the Plan out of which 20,250 options were granted on January 14, 1999 with
an exercise price of FRF 113.43 per share and 184,250 options were granted on
July 8, 1999 with an exercise price of FRF 10.32 per share.
Stock option activity during the periods indicated is as follows:
Option Scheme
Number of Shares
----------------
Balance at January 31, 1998 -
Granted 96,720
Exercised -
Forfeited -
Expired -
---------
Balance at December 31, 1998 96,720
Granted 204,500
Exercised -
Forfeited -
Expired -
---------
Balance at December 31, 1999 301,220
=========
Stock options were neither recognized in the income statement, nor in the
balance sheet.
Aplio, S.A. and Subsidiaries
APLIO S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(All amounts in thousands of French Francs, except share data)
The company has also granted equity warrants in both 1998 and 1999 to certain
shareholders.
(16) Going concern
As the end of 1999, the group is in a negative stockholders' equity position of
FRF 15,223. The ability of the group to continue as a going concern is dependent
on continued financial support from its parent company to meet its obligations
as and when they fall due.
Up to the date of this report the parent company has been able to provide such
support.
Aplio, S.A. and Subsidiaries
Net2Phone, Inc.
Unaudited Pro Forma Financial Data
On July 7, 2000, Net2Phone acquired all of the issued and outstanding common
stock of Aplio, S.A. in exchange for cash, common stock and promissory notes. In
addition, Net2Phone is required to make payments of $2,778,230, $2,778,230 and
$2,499,999 (the "Anniversary Payments") on July 7, 2001, July 7, 2002 and July
6, 2003, respectively to three of the shareholders of Aplio. The Anniversary
Payments have not been included in the purchase price of the acquisition, as the
payments are contingent upon continuous employment by the three shareholders. In
addition the shares of Net2Phone stock issued to the shareholders are puttable
at $36.947, therefore the common stock has been classified as redeemable common
stock.
The unaudited pro forma financial data of Net2Phone presented below gives effect
to the acquisition of Aplio S.A. Certain amounts in the Aplio financial
statements have been reclassified to conform to Net2Phone's presentation.
The statements of operations data reflect the translation of all French franc
denominated amounts at the average rate for the nine months ended June 30, 2000
of $0.14645 = FF 1.00 and the average rate for the year ended September 30, 1999
of $0.1580 = FF 1.00. The balance sheet data reflects the translation of all
French franc denominated amounts at the June 30, 2000 rate of $0.1461 = FF 1.00.
The acquisition has been accounted for using the purchase method of accounting.
Accordingly, assets acquired and liabilities assumed have been recorded at their
estimated fair value, which are subject to further adjustment based upon
appraisals and other analysis. We are unaware of events other than those
disclosed in the notes to the unaudited pro forma financial data that would
require a material change to the preliminary purchase price allocation. However,
a final determination of necessary purchase accounting adjustments will be made
upon the completion of a study to be undertaken to determine the fair value of
certain assets and liabilities, including intangible assets.
The unaudited pro forma condensed combined statements of operations for the nine
months ended April 30, 2000 and the year ended July 31, 1999 give effect to the
acquisition if it had been consummated on August 1, 1998. The unaudited pro
forma combined balance sheets at April 30, 2000 give the effect to the merger as
if it had been consummated on April 30, 2000.
The unaudited pro forma condensed combined financial statements do not purport
to present the financial position or results of operations of Net2Phone had the
acquisition occurred on the dates specified, nor are they necessarily indicative
of the financial position or results of operations that may be achieved in the
future. The unaudited pro forma condensed combined statements of operations do
not reflect any adjustments for synergies that management expects to realize
commencing upon consummation of the proposed acquisitions. No assurances can be
made as to the amount of cost savings or revenue enhancements, if any, that may
be realized.
The unaudited pro forma financial statements should be read in conjunction with
the financial statements and notes thereto of Net2Phone incorporated by
reference and the financial statements and notes thereto of Aplio appearing
elsewhere in this Form 8-K.
Pro Forma Condensed Combined Balance Sheets
(Unaudited)
April 30, 2000
Net2Phone Aplio (1)
(Historical) (Historical) Adjustments Proforma
-----------------------------------------------------------
ASSETS:
Current assets:
Cash and cash equivalents $ 65,265,829 $ 316,236 $(3,953,543) A $ 61,628,522
Marketable secrities - current 59,097,223 -- -- 59,097,223
Trade accounts receivable 5,403,433 108,286 -- 5,511,719
Prepaid contract deposits and other current assets 33,827,904 1,666,716 -- 35,494,620
Investments in Yahoo! Inc. Common stock 105,040,301 -- -- 105,040,301
-----------------------------------------------------------
Total current assets 268,634,690 2,091,238 (3,953,543) 266,772,385
Property and equipment, net 43,208,027 234,693 164,840 A 43,607,560
Intangibles, net 4,481,884 -- 38,714,914 A 43,196,798
Investments 20,663,546 -- -- 20,663,546
Marketable securities - long term 52,960,381 -- -- 52,960,381
Other assets 1,097,918 -- -- 1,097,918
-----------------------------------------------------------
Total assets $391,046,446 $ 2,325,931 $34,926,211 $428,298,588
===========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 6,133,417 $ 977,204 $ -- $ 7,110,621
Accrued expenses 4,187,674 435,336 500,000 A 5,123,010
Deferred revenue 2,686,353 -- -- 2,686,353
Promissory notes - current portion -- -- 1,961,235 A 1,961,235
Due to IDT Corporation 4,725,820 -- -- 4,725,820
-----------------------------------------------------------
Total current liabilities 17,733,264 1,412,540 2,461,235 21,607,039
Long term liabilities -- 3,814,562 8,876,215 12,690,777
-----------------------------------------------------------
Total liabilities 17,733,264 5,227,102 11,337,450 34,297,816
Commitments and contingencies
Redeemable common stock issued in conjunction with
the purchase of Aplio -- -- 20,687,590 A 20,687,590
Stockholders' equity (deficit) 373,313,182 (2,901,171) 2,901,171 A 373,313,182
-----------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $391,046,446 $ 2,325,931 $34,926,211 $428,298,588
===========================================================
(1) As of June 30, 2000.
Net2Phone, Inc.
Pro Forma Condensed Combined Statement of Operations
(Unaudited)
For the Nine Months Ended April 30, 2000
Net2Phone Aplio
(Historical) (Historical)(1) Adjustments Proforma
--------------------------------------------------------------
Revenue: $ 47,478,530 $ 1,043,621 $ -- $ 48,522,151
Direct cost of revenue 26,169,278 291,015 -- 26,460,293
Selling and marketing 26,628,894 264,165 -- 26,893,059
General and administrative 23,497,976 3,262,792 -- 26,760,768
Depreciation and amortization 3,536,361 (77,414) 8,041,725 B 11,500,672
Compensation charge from the issuance of
stock options 11,710,318 -- -- 11,710,318
--------------------------------------------------------------
Total costs and expenses 91,542,827 3,740,559 8,041,725 103,325,111
Loss from operations (44,064,297) (2,696,938) (8,041,725) (54,802,960)
Other income (expense) 6,970,539 (39,126) (320,172) C 6,611,241
--------------------------------------------------------------
Net income (loss) before taxes (37,093,758) (2,736,065) (8,361,897) (48,191,720)
Income tax expense -- -- -- --
--------------------------------------------------------------
Net income (loss) $(37,093,758) $(2,736,065) $(8,361,897) $(48,191,720)
==============================================================
Basic and diluted net loss per common share $ (0.73) $ (0.95)
============ ============
Weighted average number of common shares used
in the calculation of basic and diluted net
loss per common share 50,488,539 50,488,539
============ ============
(1) For the nine months ended June 30, 2000.
Net2Phone, Inc.
Pro Forma Condensed Combined Statement of Operations
(Unaudited)
For the Year Ended July 31, 1999
Net2Phone Aplio
(Historical) (Historical)(1) Adjustments Proforma
--------------------------------------------------------------
Revenue: $ 33,256,457 $ 5,460,478 $ -- $ 38,716,935
Direct cost of revenue 17,818,010 2,934,618 -- 20,752,628
Selling and marketing 8,828,167 1,216,675 -- 10,044,842
General and administrative 10,836,072 6,276,739 -- 17,112,811
Depreciation and amortization 2,316,545 (247,157) 10,722,300 B 12,791,688
Compensation charge from the issuance of stock options 17,919,541 -- -- 17,919,541
--------------------------------------------------------------
Total costs and expenses 57,718,335 10,180,875 10,722,300 78,621,510
--------------------------------------------------------------
Loss from operations (24,461,878) (4,720,397) (10,722,300) (39,904,575)
Other income (expense) (243,314) (43,940) (426,895) C (714,149)
--------------------------------------------------------------
Net income (loss) before taxes (24,705,192) (4,764,337) (11,149,195) (40,618,724)
Income tax expense -- 633,051 -- 633,051
--------------------------------------------------------------
Net income (loss) (24,705,192) (4,131,286) (11,149,195) (39,985,673)
Redeemable preferred stock dividends (29,219,362) -- -- (29,219,362)
--------------------------------------------------------------
Net loss available to common stockholders' $(53,924,554) $(4,131,286) $(11,149,195) $(69,205,035)
==============================================================
Net loss per common share - basic and diluted $ (1.73) $ (2.22)
============ ============
Weighted average number of common shares used in
calculation of basic and diluted net loss per
common share 31,236,415 31,236,415
============ ============
(1) For the twelve months ended September 30, 1999.
Net2Phone, Inc.
Notes to the Unaudited Pro Forma Financial Data
A PURCHASE PRICE AND ALLOCATION OF PURCHASE PRICE
Shares of Net2Phone, Inc. issued 582,749
Net2Phone, Inc. common stock price (1) $ 35.50
------------
20,687,590
Promissory notes issued 6,537,450
Cash consideration (2) 7,785,610
Acquisition related costs 967,933
------------
Purchase Price 35,978,583
Net liabilities at June 30, 2000 (2,901,171)
----------
Excess of purchase price over net assets acquired $38,879,754
===========
Allocation of excess purchase price over net liabilities acquired:
Goodwill $17,679,754
Technology 13,900,000
Trademark 2,300,000
Patent 4,500,000
Workforce 500,000
-----------
$38,879,754
-----------
(1) To determine the value associated with the stock portion of the
consideration paid to Aplio shareholders, we have used the average of
the high, low and closing prices of Net2Phone, Inc.'s common stock for
the three days before and after the close and announcement of the
transaction, in accordance with Emerging Issues Task Force 95-19
"DETERMINATION OF THE MEASUREMENT DATE FOR THE MARKET PRICE OF ACQUIRER
SECURITIES ISSUED IN A PURCHASE BUSINESS COMBINATION". The average of
these closing prices was $35.50.
(2) Represents cash paid at the closing of $2,985,610 and $4,800,000 to be
paid (i) after the expiration of certain time periods and (ii) to the
extent (a) the selling shareholders do not have any indemnification
payment obligations and (b) Aplio has met certain minimum net worth
tests.
Nine Months Ended Year Ended
April 30, 2000 July 31, 1999
----------------- --------------
B AMORTIZATION OF INTANGIBLES
Goodwill (over 60 months) $2,651,963 $ 3,535,951
Technology (over 35 months) 3,574,286 4,765,714
Trademark (over 36 months) 575,000 766,667
Patent (over 35 months) 1,157,143 1,542,857
Workforce (over 54 months) 83,333 111,111
---------- -----------
$8,041,725 $10,722,300
---------- -----------
C INTEREST EXPENSE
Interest on promissory notes at 6.53% $ 320,172 $ 426,895
========== ===========