UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) May 20, 2005
NetFabric Holdings, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-21419 76-0307819
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(State or other jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
Three Stewart Court, Denville, NJ 07834
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code - (973) 887-2785
67 Federal Road, Building A Suite 300 Brookfield, CT 06804
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(Former Name or Former Address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 9.01 Financial Statements And Exhibits
The following financial statements and pro forma financial information
omitted from the Company's Report on Form 8-K for the event dated May 20, 2005
filed with the Commission on May 26 in reliance upon instructions 9.01(a) (4)
and 9.01(b) (2) of Form 8-K, are filed herewith.
(a) Financial statements of Business Acquired.
(i) Financial Statements of UCA Services, Inc., as of December 31,
2004 and 2003 and for the years ended December 31, 2004 and
2003.
(ii) Unaudited Financial Statements of UCA Services, Inc as of
March 31, 2005 and for the three months ended March 31, 2005
and 2004.
(b) Pro Forma Financial Information. Unaudited Pro forma Condensed
Combined Financial Information for NetFabric Holdings, Inc. and UCA
Services, Inc.
(c) Exhibits
Reference is made to exhibits previously filed with the Securities
and Exchange Commission, as Exhibits to the Company's Reports on 8-K
filed with the Commission on May 26, 2005.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NETFABRIC HOLDINGS, INC.
Date: August 2, 2005 By: /s/Jeff Robinson
-------------------------------------
Name: Jeff Robinson
Title: Chairman and CEO
3
UCA Services, Inc.
Financial Statements as of December 31, 2004 and 2003 and for the year ended
December 31, 2004, the period from June 1, 2003 (Inception Date) to December 31,
2003 and for the period from January 1, 2003 to May 31, 2003 and Report of
Independent Registered Public Accounting Firm
UCA Services, Inc.
INDEX
Report of Independent Registered Public Accounting Firm F-2
Financial statements:
Balance Sheets, December 31, 2004 and 2003 F-3
Statements of Operations, for the year ended December 31, 2004, for
the period from inception (June 1, 2003) to December 31, 2003 and for
the period from January 1, 2003 to May 31, 2003 F-4
Statements of Stockholders' (Deficit) Equity for the period from
January 1, 2003 to May 31, 2003, for the period from inception
(June 1, 2003) to December 31, 2003 and for the year ended
December 31, 2004 F-5
Statements of Cash Flows, for the year ended December 31, 2004, for the
period from inception (June 1, 2003) to December 31, 2003 and for
the period from January 1, 2003 to May 31, 2003 F-6
Notes to financial statements F-7 - F-17
F-1
Report of Independent Registered Public Accounting Firm
The Stockholder of UCA Services, Inc.
We have audited the accompanying balance sheets of UCA Services, Inc. as of
December 31, 2004 and 2003, and the related statements of operations,
stockholder's equity (deficit), and cash flows for the year ended December 31,
2004 and for the period from inception (June 1, 2003) to December 31, 2003, and
for the period from January 1, 2003 to May 31, 2003. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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 financial statements referred to above present fairly, in
all material respects, the financial position of UCA Services, Inc. as of
December 31, 2004 and 2003, and its results of operations and cash flows for the
year ended December 31, 2004 and for the period from inception (June 1, 2003) to
December 31, 2003, and for the period from January 1, 2003 to May 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ J.H. Cohn LLP
Jericho, New York
July 29, 2005
F-2
UCA Services, Inc.
Balance Sheets
As of December 31, 2004 and 2003
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December 31, December 31,
2004 2003
-------------- --------------
ASSETS
Current Assets:
Cash $ 154,242 $ 301,017
Accounts receivable, net 1,842,954 1,205,584
Due from affiliate, net -- 512,205
Prepaid expenses and other current assets 15,456 11,644
-------------- --------------
Total current assets 2,012,652 2,030,450
Property and equipment, net 107,082 21,536
Other assets 7,324 --
-------------- --------------
Totals $ 2,127,058 $ 2,051,986
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 1,661,578 $ 1,617,134
Accrued compensation 181,585 87,069
Accrued expenses 202,550 29,479
Income taxes payable 3,558 4,108
Loans payable to shareholders 175,000 129,703
Deferred revenues and advances from customers 227,923 --
-------------- --------------
Total current liabilities 2,452,194 1,867,493
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Commitments and contingencies
Stockholders' Equity (Deficit):
Common Stock, No par value, 5,000,000 shares authorized,
3,000,000 shares issued and outstanding 652,326 627,623
Accumulated deficit (977,462) (443,130)
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Total stockholders' equity (deficit) (325,136) 184,493
-------------- --------------
Totals $ 2,127,058 $ 2,051,986
============== ==============
See Notes to Financial Statments
F-3
UCA Services, Inc.
Statements of Operations for the year ended December 31, 2004, for the period
from inception (June 1, 2003) to December 31, 2003 and for the period from
January 1, 2003 to May 31, 2003
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For the period For the Period
from inception from January 1,
(June 1, 2003) 2003
December 31, to December 31, to May 31,
2004 2003 2003
--------------- --------------- ---------------
Revenues $ 14,007,729 $ 5,439,288 $ 3,427,242
Expenses:
Direct employee compensation and consultant expenses 10,955,449 4,190,908 2,564,716
Selling, general and administrative expenses (including
$0 and $407,327 and $0, respectively, of stock-
based compensation) 3,473,894 1,620,457 378,797
Research and development 57,278 36,516 --
Depreciation and amortization 42,641 27,231 19,108
--------------- --------------- ---------------
Total expenses 14,529,262 5,875,112 2,962,621
Operating (loss) income (521,533) (435,824) 464,621
Interest expense 12,799 3,198 --
--------------- --------------- ---------------
Income (loss) before provision for income taxes (534,332) (439,022) 464,621
Provision for income taxes -- 4,108 176,556
--------------- --------------- ---------------
Net (Loss) Income $ (534,332) $ (443,130) $ 288,065
=============== =============== ===============
See Notes to Financial Statments
F-4
UCA Services, Inc.
Statements of Stockholders' Equity (Deficit) for the period from January 1, 2003
to May 31, 2003, for the period from inception (June 1, 2003) to December 31,
2003 and for the year ended December 31, 2004
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Common Stock
---------------------------------------- Total
Investment Stockholders'
from Accumulated Equity
UCA Systems Shares Amount Deficit (Deficit)
----------- ---------- ------------ ------------ ----------
Balances at January 1, 2003 $ 72,228 -- $ -- $ -- $ 72,228
Contributions from UCA Systems, net 410,410 -- -- -- 410,410
Amount retained by UCA Systems (696,935) (696,935)
Net income 288,065 -- -- -- 288,065
----------- ---------- ------------ ------------ ----------
Balance at May 31, 2003 73,768 -- -- -- 73,768
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Balances at Inception (June 1, 2003) -- -- -- -- --
Contribution of assets and liabilities from shareholders -- 3,000,000 73,768 -- 73,768
Contribution from shareholders -- -- 146,528 -- 146,528
Issuance of option to purchase common stock to employee -- -- 407,327 -- 407,327
Net loss -- -- -- (443,130) (443,130)
----------- ---------- ------------ ------------ ----------
Balances at December 31, 2003 -- 3,000,000 627,623 (443,130) 184,493
Contribution of cash from shareholders -- -- 24,703 -- 24,703
Net loss -- -- -- (534,332) (534,332)
----------- ----------- ------------ ------------ ----------
Balances at December 31, 2004 $ -- 3,000,000 $ 652,326 $ (977,462) $ (325,136)
=========== ========== ============ ============ ==========
See Notes to Financial Statments
F-5
UCA Services, Inc.
Statements of Cash Flows for the year ended December 31, 2004, for the period
from inception (June 1, 2003) to December 31, 2003 and for the period from
January 1, 2003 to May 31, 2003
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For the period
from inception For the period
(June 1, 2003) from January 1,
December 31, to December 31, 2003 to May 31,
2004 2003 2003
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OPERATING ACTIVITIES
Net (loss) income $ (534,332) $ (443,130) $ 288,065
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Provision for bad debts 69,213 11,616 --
Reserve for due from affiliate 255,451 -- --
Stock-based compensation -- 407,327 --
Depreciation and amortization 42,641 27,231 19,108
Changes in operating assets and liabilities:
Accounts receivable (706,583) (1,093,861) (428,538)
Due from affiliate 256,754 (512,205) --
Prepaid expenses and other current assets (3,812) (6,644) --
Other assets (7,324) -- --
Accounts payable 44,444 1,513,497 147,328
Accrued compensation 94,516 87,069 (29,762)
Accrued expenses 173,071 29,479 --
Income taxes payable (550) 4,108 --
Deferred revenues and advances from customers 227,923 -- 3,799
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Net cash (used in) provided by operating activities (88,588) 24,487 --
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INVESTING ACTIVITIES
Purchases of property and equipment (128,187) -- --
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Net cash used in investing activities (128,187) -- --
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FINANCING ACTIVITIES
Contributions from UCA Systems, net -- -- --
Contribution of cash from shareholders 24,703 151,827 --
Loans from shareholders 45,297 124,703 --
------------- ------------- -------------
Net cash provided by financing activities 70,000 276,530 --
------------- ------------- -------------
Net change in cash (146,775) 301,017 --
Cash at beginning of period 301,017 -- --
------------- ------------- -------------
Cash at end of period $ 154,242 $ 301,017 $ --
============= ============= =============
Supplemental cash flow information:
Cash paid for interest expense $ 12,799 $ 3,198 $ --
============= ============= =============
Cash paid for income taxes $ -- $ 550 $ --
============= ============= =============
Supplemental disclosure of non-cash
activities:
Contribution of assets and liabilities from shareholders, net $ -- $ 68,469 $ --
============= ============= =============
Contributions from UCA Systems, net $ -- $ -- $ 410,410
============= ============= =============
See Notes to Financial Statments
F-6
UCA Services, Inc.
Notes to Financial Statements
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1. Nature of Business
UCA Services, Inc. ("UCA Services" or the "Company"), a New Jersey
company, is an information technology ("IT") solutions company that serves
the information and communications needs of a wide range of Fortune 500
and small to mid-size business clients in the financial markets industry
as well as the pharmaceutical, health care and hospitality sectors. The
Company delivers a broad range of IT consulting and, infrastructure
development services, including multi-year managed services contracts, via
an integrated network of branch offices and alliance partners in the
United States, Canada, Europe and India. The Company's services include
solutions in the practice areas of infrastructure builds and maintenance,
application development and maintenance, business process managed services
and professional IT services.
In May 2005, the Company was acquired by NetFabric Holdings, Inc.
("NetFabric") (See Note 11). NetFabric develops and markets a family of
Internet Protocol ("IP") appliances that simplifies the integration of
standard telephone systems with an IP infrastructure.
Management's Plans
The Company incurred operating losses of $(521,533) and $(435,824) during
the year ended December 31, 2004 and the period from inception (June 1,
2003) to December 31, 2003 and as of December 31, 2004 the Company has an
accumulated deficit of $977,462 and a working capital deficit of $439,542.
Management believes that cash flows generated from revenues in 2005 will
be sufficient to fund the Company's operations through the first quarter
of 2006. Additional funding from shareholders and/or third parties may be
required to obtain profitable operations. However there can be no
assurance that the Company will generate sufficient revenues to provide
positive cash flows from operations, or that sufficient capital will be
available, when required, or at terms deemed reasonable to the Company, to
permit the Company to realize its plans.
NetFabric has agreed to support the operations of the Company by providing
the necessary working capital. Since December 31, 2004, NetFabric has
provided $350,000 of cash and will provide an additional $300,000 upon the
filing of its registration statement with the Securities Exchange
Commission. These proceeds, along with cash generated from operations in
the opinion of management will be sufficient to fund the Company's
operations through the first quarter of 2006.
2. Basis of Presentation
The financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP").
UCA Services was incorporated on April 2, 2003 but did not have any
operations until June 1, 2003 ("Inception") (See Note 7). Prior to June 1,
2003 UCA Services was a business unit of UCA Computer Systems, Inc.
("Systems") and therefore the results of operations of UCA Services prior
to June 1, 2003 were included in the results of operations of Systems. The
Company and Systems were owned by the same shareholders through May 2005
(See Note 11).
Carve out
Prior to June 1, 2003, the Company was under the control of Systems and an
integral part of Systems' operations. As a department within Systems, the
Company did not historically prepare separate financial statements. The
accompanying Statement of Operations for the period from January 1, 2003
to May 31, 2003 has been prepared from Systems' historical accounting
records and is presented on a carve-out basis to include the historical
operations applicable to UCA Services as operated under Systems, in
accordance with U.S. GAAP, as if the Company had been a separate
stand-alone entity. However, the results of operations for the period from
January 1, 2003 to May 31, 2003 may not be indicative of UCA Services
future development.
F-7
UCA Services, Inc.
Notes to Financial Statements
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The Statement of Operations for the period from January 1, 2003 to May 31,
2003 includes all revenues and certain costs identified as 100% directly
attributable to UCA Services as operated under Systems, including
compensation for certain employees of UCA Services and costs for
consultants and other services providers utilized by UCA Services. In
addition, the Statement of Operations for the period from January 1, 2003
to May 31, 2003 includes costs incurred by Systems on behalf of itself and
UCA Services of which a portion has been allocated to UCA Services based
on certain assumptions and estimates related to the integration of UCA
Services within Systems during the period. Management believes the
assumptions underlying the Statement of Operations, including the methods
used to allocate expenses incurred on UCA Services' behalf by Systems are
reasonable and that the amount of expenses reflected in the statement of
operations for the period from January 1, 2003 to May 31, 2003
approximates the estimated expenses UCA Services would have incurred had
it not been affiliated with Systems.
The expenses incurred by Systems and allocated to UCA Services includes
compensation paid to certain shared employees during the period as well as
selling, general and administrative expenses. The full cost of
compensation for shared employees was borne by Systems and based on an
estimate of the proportion of hours worked by the employees, these costs
have been allocated to UCA Services and are reflected in direct employee
compensation and consultant expenses and selling general and
administrative expenses on the accompanying Statement of Operations for
the period from January 1, 2003 to May 31, 2003 .
Selling, general and administrative expenses, including costs for
facilities, supplies and services used by UCA Services at Systems'
offices, insurance and depreciation and amortization have been allocated
to UCA Services from Systems. Such costs have been allocated to UCA
Services primarily based on an estimate of the proportion of employees of
UCA Services versus the total employees of Systems, considering, among
other factors square footage occupied and sales by each company during the
period.
Prior to June 1, 2003, UCA Services was not directly subject to taxation,
rather its operations were included in the combined tax return of Systems
for both Federal income tax and local taxes. For purposes of the Statement
of Operations for the period from January 1, 2003 to May 31, 2003, income
taxes were recognized by the UCA Services based on federal and state
statutory income tax rates as if the Company had been a separate taxable
entity.
The excess of assets over liabilities is reflected as Systems' investment
in the Company as of May 31, 2003.
3. Summary of Significant Accounting Policies and Practices
Use of Estimates
The preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Significant estimates and assumptions are
used for, but not limited to, the period from January 1, 2003 to May 31,
2003 carve-out, accounting for efforts expected to be incurred to complete
performance under revenue contracts, allowance for uncollectible accounts
receivable, the useful lives of property, plant, equipment, the fair value
of the Company's common stock, the fair value of stock-based compensation.
Actual results could differ from those estimates. Appropriate changes in
estimates are made as management become aware of changes in circumstances
surrounding the estimates. Changes in estimates are reflected in the
financial statements in the period in which changes are made and, if
material, their effects are disclosed in the notes to the financial
statements.
F-8
UCA Services, Inc.
Notes to Financial Statements
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Revenue Recognition
The Company derives revenues primarily from professional services, managed
IT services, application development services and from business process
management services. Arrangements with customers for services are
generally on a time and material basis or fixed-price, fixed-timeframe.
Revenue on time-and-material contracts is recognized as the related
services are performed. Revenue from fixed-price, fixed-timeframe service
contracts are recognized ratably over the term of the contract, as per the
proportional performance method. When the Company receives cash advances
from customers in advance of the service period, amounts are reported as
advances from customers until the commencement of the service period.
Billings and collections in excess of revenue recognized are classified as
deferred revenue.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required
payments. These estimated losses are based upon historical bad debts,
specific customer creditworthiness and current economic trends. If the
financial condition of a customer deteriorates, resulting in the
customer's inability to make payments within approved credit terms,
additional allowances may be required. The Company performs credit
evaluations of its customers' financial condition on a regular basis. The
Company recognized allowances for bad debts of $69,213, $11,616 and $0
during the year ended December 31, 2004, the period from inception (June
1, 2003) to December 31, 2003 and the for the period from January 1, 2003
to May 31, 2003, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a remaining
maturity at the date of purchase / investment of three months or less and
that are readily convertible to known amounts of cash to be cash
equivalents. Cash is comprised of cash on deposit with banks. As of
December 31, 2004 and 2003 the Company did not hold any cash equivalents.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Property and equipment, consisting principally of
computer equipment and capitalized purchased software programs. The
Company depreciates and amortizes property and equipment over their
estimated useful lives using the straight-line method. The estimated
useful lives of assets are as follows:
Office equipment, including computers 2-5 years
Furniture and fixtures 5 years
Leasehold improvements are amortized over the lesser of the remaining life
of the lease or their estimated useful lives.
F-9
UCA Services, Inc.
Notes to Financial Statements
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Long-Lived Assets
Long-lived assets, including property and equipment and intangible assets,
are monitored and reviewed for impairment in value whenever events or
changes in circumstances indicate that the carrying amount of any such
asset may not be recoverable. The determination of recoverability is based
on an estimate of undiscounted cash flows expected to result from the use
of an asset and its eventual disposition. The estimated cash flows are
based upon, among other things, certain assumptions about expected future
operating performance, growth rates and other factors. Estimates of
undiscounted cash flows may differ from actual cash flows due to factors
such as technological changes, economic conditions, and changes in the
Company's business model or operating performance. If the sum of the
undiscounted cash flows (excluding interest) is below the carrying value,
an impairment loss is recognized, measured as the amount by which the
carrying value exceeds the fair value of the asset. Through December 31,
2004, no write-downs of long-lived assets have been recognized.
Business Concentrations and Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable. The Company reduces credit risk by placing its cash with major
financial institutions with high credit ratings. At times, such amounts
may exceed Federally insured limits. The Company reduces credit risk
related to accounts receivable by routinely assessing the financial
strength of its customers and maintaining an appropriate allowance for
doubtful accounts.
The Company's services have been provided primarily to a limited number of
clients located worldwide in a variety of industries. The Company had
revenues from the clients representing 27%, 21% and 11% of revenues during
the year ended December 31, 2004. The Company had revenues from three
clients representing 26%, 16% and 14% of revenues for the period from
inception (June 1, 2003) to December 31, 2003. The Company had revenues
from four clients representing 48%, 21%, 16% and 10% of revenues for the
period from January 1, 2003 to May 31, 2003.
The Company generally does not require its clients to provide collateral.
Additionally, the Company is subject to a concentration of credit risk
with respect to its accounts receivable. The Company had three clients
accounting for 53% (26%, 17% and 10%) of total gross accounts receivable
as of December 31, 2004. The Company had 3 clients accounting for 64%
(36%, 17% and 11%) of total gross accounts receivable as of December 31,
2003.
Fair Value of Financial Instruments
The fair values of the Company's assets and liabilities that qualify as
financial instruments under Statement of Financial Accounting Standards
("SFAS") No. 107 approximate their carrying amounts presented in the
balance sheets at December 31, 2004 and 2003.
Research and Development
Research and development ("R&D") costs are expensed as incurred. These
expenses include the cost of the Company's proprietary R&D efforts. R&D
expenses were $57,278, $36,516 and $0 during the year ended December 31,
2004, for the period from inception (June 1, 2003) to December 31, 2003
and for the period from January 1, 2003 to May 31, 2003, respectively.
F-10
UCA Services, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Stock-Based Compensation
The Company accounts for stock options granted to employees using the
intrinsic value method in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25"), and related interpretations. As such,
compensation expense to be recognized over the related vesting period is
generally determined on the date of grant only if the current market price
of the underlying stock exceeds the exercise price. SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), encourages
entities to recognize as expense over the vesting period the fair value of
all stock-based awards on the date of grant. Alternatively, SFAS No. 123
allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income (loss) disclosures for employee stock
option grants as if the fair-value-based method defined in SFAS No. 123
had been applied.
On June 1, 2003, in connection with an employment agreement (See Note 11)
the Company caused its shareholders to grant an option to a certain
executive of the Company to purchase up to 20% of the Company's
outstanding common stock from such shareholders at an exercise price of
$3,942 or $6.57 per share. The option was fully vested at the date of
grant and is exercisable at any time during the term of the executives'
employment as provided in an employment agreement. As a result of this
option the Company recognized compensation expense of $407,327 during the
period from inception (June 1, 2003) to December 31, 2003, which is
included in selling, general and administrative expense on the
accompanying Statements of Operations, as a result of the difference
between the estimated market value of the Company's common stock on the
date of grant and the exercise price for the option issued to the
executive. The option was exercised by the executive in March 2005.
If compensation expense for this stock option had been determined in
accordance with SFAS No. 123, the Company's pro forma net loss would have
been:
For the period
For the from inception For the period
year ended (June 1, 2003) from January 1,
December 31, to December 31, 2003 to May 31,
2004 2003 2003
--------------- --------------- ---------------
Net income (loss), as reported $ (534,332) $ (443,130) $ 288,065
Stock-based employee compensation recorded
-- (407,327) --
--------------- --------------- ---------------
Sub-total (534,332) (35,803) 288,065
Stock-based employee compensation expense
determined under fair value method -- 407,657 --
--------------- --------------- ---------------
Pro forma net income (loss), as adjusted $ (534,332) $ (443,460) $ 288,065
=============== =============== ===============
F-11
UCA Services, Inc.
Notes to Financial Statements
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Income Taxes
Deferred income 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 carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets
are reduced by a valuation allowance if it is more likely than not that
the tax benefits will not be realized. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which
the temporary differences become deductible. Management considers the
scheduled reversals of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment.
Recent Accounting Pronouncements Issued, Not Adopted
In February 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity" ("SFAS No. 150"). The
provisions of SFAS No. 150 are effective for financial instruments entered
into or modified after May 31, 2003, and otherwise are effective at the
beginning of the first interim period beginning after June 15, 2003,
except for mandatorily redeemable financial instruments of nonpublic
entities. The Company has not issued any financial instruments with such
characteristics.
In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003), "Consolidation of Variable Interest Entities" ("FIN No.
46R"), which addresses how a business enterprise should evaluate whether
it has a controlling financial interest in an entity through means other
than voting rights and accordingly should consolidate the entity. FIN No.
46R replaces FASB Interpretation No. 46, "Consolidation of Variable
Interest Entities", which was issued in January 2003. Companies are
required to apply FIN No. 46R to variable interests in variable interest
entities ("VIEs") created after December 31, 2003. For variable interests
in VIEs created before January 1, 2004, the Interpretation is applied
beginning on January 1, 2005. For any VIEs that must be consolidated under
FIN No. 46R that were created before January 1, 2004, the assets,
liabilities and noncontrolling interests of the VIE initially are measured
at their carrying amounts with any difference between the net amount added
to the balance sheet and any previously recognized interest being
recognized as the cumulative effect of an accounting change. If
determining the carrying amounts is not practicable, fair value at the
date FIN No. 46R first applies may be used to measure the assets,
liabilities and noncontrolling interest of the VIE. The Company does not
have any interest in any VIE.
In December 2004, the FASB issued SFAS No. 123(R) (revised 2004),
"Share-Based Payment", which requires companies to change their accounting
policies to record the fair value of stock options issued to employees as
an expense. Currently, the company does not deduct the expense of employee
stock option grants from its income based on the fair value method as it
has adopted the pro forma disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. The revised Statement eliminates
the alternative to use APB Opinion 25's intrinsic value method of
accounting that was provided in Statement 123 as originally issued.
Pursuant to the Securities and Exchange Commission Release No. 33-8568,
the Company is required to adopt SFAS 123R from January 1, 2006. The
Company is evaluating how it will adopt the standard and evaluating the
effect that the adoption of SFAS 123(R) will have on financial position
and results of operations.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29. The guidance in APB Opinion
No. 29, Accounting for Nonmonetary Transactions, is based on the principle
that exchanges of nonmonetary assets should be measured based on the fair
value of assets exchanged. The guidance in that Opinion, however, included
certain exceptions to that principle. This Statement amends Opinion 29 to
eliminate the exception for nonmonetary exchanges of similar productive
assets that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. SFAS No. 153 is
effective for nonmonetary exchanges occurring in fiscal periods beginning
after June 15, 2005. The adoption of SFAS No. 153 is not expected to have
a material impact on the Company's financial position and results of
operations.
F-12
UCA Services, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
4. Trade accounts receivable
Trade accounts receivable, net, consists of the following:
December 31, 2004 December 31, 2003
----------------- -----------------
Accounts receivable from customers $ 1,923,783 $ 1,217,200
Allowance for doubtful accounts (80,829) (11,616)
----------------- -----------------
$ 1,842,954 $ 1,205,584
================= =================
5. Property and Equipment, net
Property and equipment, net, consists of the following:
December 31, 2004 December 31, 2003
----------------- -----------------
Office equipment $ 267,064 $ 178,548
Furniture & fixtures 54,889 48,914
Leasehold improvements 54,631 20,936
----------------- -----------------
376,584 248,398
Less: Accumulated depreciation and amortization (269,502) (226,862)
----------------- -----------------
$ 107,082 21,536
================= =================
Depreciation and amortization expense were $42,641, $27,231 and $19,108
for the year ended December 31, 2004, for the period from inception (June
1, 2003) to December 31, 2003 and for the period from January 1, 2003 to
May 31, 2003, respectively.
6. Income Taxes
A reconciliation of the statutory U.S. Federal income tax rate to the
Company's effective tax was as follows:
For the period
For the from inception For the period
year ended (June 1, 2003) from January 1,
December 31, to December 31, 2003 to May 31,
2004 2003 2003
--------------- --------------- ---------------
Statutory U.S. rate 34.0% 34.0% 34.0%
State income taxes, net of Federal benefit 4.0% 4.0% 4.0%
Effect of valuation allowance (38.0%) (38.0%) (0%)
--------------- ---------------- --------------
Total income tax expense (benefit) 0.0% 0.0% 38.0%
--------------- ---------------- --------------
F-13
UCA Services, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
The provision for income taxes comprises:
For the period
For the from inception For the period
year ended (June 1, 2003) from January 1,
December 31, to December 31, 2003 to May 31,
2004 2003 2003
---------------- --------------- ---------------
---------------- ---------------- ----------------
Current provision (benefit):
Federal $ -- $ 1,940 $ 148,679
State -- 2,168 27,877
---------------- ---------------- ----------------
-- 4,108 176,556
---------------- ---------------- ----------------
Deferred provision (benefit):
Federal -- -- --
State -- -- --
---------------- ---------------- ----------------
Total provision for income taxes $ -- $ 4,108 $ 176,556
================ ================ ================
Significant components of the Company's future tax assets at December 31, 2004
and 2003 are as follows:
December 31, 2004 December 31, 2003
----------------- -----------------
Deferred tax assets:
Net operating loss carry forward $ 188,538 $ 4,608
Allowance for bad debts 32,331 4,500
----------------- -----------------
220,869 9,108
----------------- -----------------
(220,869) (9,108)
----------------- -----------------
Less: Valuation allowance
Net deferred tax assets $ -- $ --
================= =================
At December 31, 2004, the Company had net operating loss ("NOL")
carry-forwards of approximately $471,000 which expire through 2024,
subject to certain limitations. A full valuation allowance has been
established because of the uncertainty regarding the Company's ability to
generate income sufficient to utilize the tax losses during the
carry-forward period.
Prior to June 1, 2003, UCA Services was not directly subject to taxation,
rather its operations were included in the combined tax return of Systems
for both Federal income tax and local taxes. For purposes of the Statement
of Operations for the period from January 1, 2003 to May 31, 2003, income
taxes were recognized by the UCA Services based on Federal and state
statutory income tax rates as if the Company had been a separate taxable
entity. In connection with its formation on June 1, 2003, the Company did
not assume any liability relating to the provision for income taxes for
the period January 1, 2003 through May 31, 2003.
7. Stockholders' Equity
In June 2003 (Inception), the Company's shareholders contributed certain
assets and liabilities, which were from previously those of the
Predecessor company under Systems, to the Company, consisting of cash,
accounts receivable, property, plant and equipment and accounts payable,
with a net value of $73,768 in exchange for 3,000,000 shares of the
Company's common stock. The Company's shareholders contributed $146,528 to
fund certain expenses on behalf of the Company.
The assets and liabilities contributed by shareholders were recorded at
historical cost and consisted of the following:
F-14
UCA Services, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Cash $ 5,297
Trade accounts receivable and other current assets 128,341
Property, plant and equipment, net 48,767
Trade accounts payable and accrued expenses (108,637)
------------
$ 73,768
============
During the year ended December 31, 2004, current shareholders contributed
approximately $25,000 to the Company for working capital purposes.
On February 10, 2005, the Board of Directors approved and the Company
effected a 1,000-for-1 stock split of its outstanding common stock. All
historical share amounts have been restated to reflect the stock split.
8. Employee Benefit Plan
401(k) Benefit Plan
In June 2003, the Company established a 401(k) Plan (the "401(k) Plan")
which is available to its eligible employees, as defined. Participants may
make voluntary contributions of up to 50% of their compensation, subject
to certain internal revenue code limitations. The Company may make annual
matching contributions to the 401(k) Plan at its discretion. Included in
accrued compensation at December 31, 2004 and 2003 are $24,751 and $9,831,
respectively, in matching 401(k) Plan contributions to be made by the
Company.
9. Related Party Transactions
Shareholders
Loans payable to shareholders on the accompanying Balance Sheets at
December 31, 2004 and 2003 represent amounts owed to shareholders of the
Company for advances of cash provided to the Company.
Systems
Through May 2005 (See Note 11), the Company and Systems were owned by the
same shareholders. During the year ended December 31, 2004 and the period
from inception (June 1, 2003) to December 31, 2003, the Company and
Systems engaged in certain transactions between the companies.
The Company subleases certain office space and incurs occupancy related
costs under an agreement with Systems, whereby the Company pays rent and
other occupancy costs based on the proportion of square footage occupied
by the Company in the Systems office facility. Rent and occupancy expenses
incurred by the Company under this agreement were $40,535 and $30,000 and
are included in selling, general and administrative expenses during the
year ended December 31, 2004 and the period from inception (June 1, 2003)
to December 31, 2003, respectively.
In connection with delivering hardware and software to certain of its
customers, Systems has engaged the Company to assist with certain elements
of its customer contracts, including but not limited to hardware and
software configuration and implementation. Such services are provided to
Systems pursuant to arrangement between the companies. Approximately
$266,000 and $430,000 have been recognized in revenue during the year
ended December 31, 2004 and the period from inception (June 1, 2003) to
December 31, 2003, respectively, for services provided to Systems.
F-15
UCA Services, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
During the year ended December 31, 2004 and the period from inception
(June 1, 2003) to December 31, 2003, the Company purchased $44,472 and $0
of fixed assets, consisting of computer equipment and software from
Systems.
From time to time during the year ended December 31, 2004 and the period
from inception (June 1, 2003) to December 31, 2003 the Company provided
short-term borrowings to Systems and received short-term borrowings from
Systems to meet working capital needs.
At December 31, 2004 the net amount due from Systems of $255,451,
consisting of $669,000 in trade accounts receivable related to services
provided by the Company offset by $413,549 of amounts due to Systems for
advances of cash and accounts payable, is included in due from affiliate
on the accompanying balance sheet. At December 31, 2003, the net amount
due from Systems of $512,205, consisting of $535,092 in trade accounts
receivable related to services provided by the Company offset by $22,887
of amounts due to Systems for advances of cash and accounts payable, is
included in due from affiliate on the accompanying balance sheet.
As of March 31, 2005 the net amount due from Systems to the Company was
approximately $762,000. On May 17, 2005 the Company and Systems entered
into an unsecured Non-Negotiable Promissory Note (the "Systems Note")
whereby the net amount due to the Company from Systems of $779,870 was
aggregated into the Systems Note. The Systems Note provides for interest
at a rate equal to the minimum applicable federal rate of interest per
annum and for equal monthly payments from Systems to the Company over a
period of thirty-six months commencing on June 1, 2005. Due to
uncertainties related to the realizability of the amounts due from
Systems, the Company has reserved for the entire balance due from
affiliate as of December 31, 2004 and March 31, 2005.
Other Relationship
During the year ended December 31, 2004, the Company recognized
approximately $135,000 in revenue from Flagship HealthCare Management,
Inc., a company related to the Company through common ownership as a
result of the NetFabric acquisition in 2005 (See Note 11).
10. Commitments and Contingencies
Leases
Commencing in March 2004, the Company leases certain office space under an
operating lease. The future minimum cash commitments as of December 31,
2004 under such operating leases are as follows:
2005 $ 87,885
2006 18,309
Rent expense for the year ended December 31, 2004 under the operating
lease totaled $96,308.
As discussed above, the Company subleases certain office space under an
agreement with Systems, whereby the Company pays rent based on the
proportion of square footage occupied by the Company in the Systems office
facility. The agreement provides that the sublease term is a
month-to-month until such time as the Company or Systems terminate the
sublease. Rent expense incurred with Systems during the year ended
December 31, 2004 and the period from inception (June 1, 2003) to December
31, 2003 was $40,535 and $30,000, respectively, and is included in
selling, general and administrative expense on the accompanying statements
of operations.
F-16
UCA Services, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Employment Agreements
On June 1, 2003 the Company entered into employment agreements with two of
its executives. The employment agreements provide for initial terms of
five years each and will extended automatically for an additional year at
each anniversary date unless notice is provided by the Company or the
respective executive. The agreements provided for annual base salaries for
each executive and each of the executives are eligible to receive bonuses,
at the sole discretion of the board of directors. Additionally, if an
executive is terminated without cause by the Company or for good reason by
the executive, the employment agreements provide each executive with
termination benefits equal to the remaining annual base salary remaining
during the initial term of each agreement plus one hundred twenty percent
of pre-termination bonuses. The executives also have agreed to certain
confidentiality, non-competition and non-solicitation provisions. As of
December 31, 2004 the aggregate future minimum cash commitments for base
salary under the employment agreements with the two executives are
approximately $1.8 million.
Additionally, one of the employment agreements provided one of the
executives provided for an option to purchase shares of the Company's
common stock (See Note 3).
Litigation
The Company is not aware of any matters pending that could have a material
adverse effect on the Company's financial condition or results of
operations.
11. Subsequent Events
Acquisition
On May 20, 2005, UCA Services entered into and closed on a share exchange
agreement ("Exchange Agreement"), whereby NetFabric acquired all of the
issued and outstanding shares of UCA Services, from the Company's
shareholders in exchange for the issuance of 24,096,154 shares of common
stock of NetFabric. The share issuance to UCA Services shareholders
represents approximately (35%) of NetFabric shares on a fully-diluted
basis.
F-17
UCA Services, Inc.
INDEX
Financial statements:
Balance Sheets, March 31, 2005(Unaudited) and December 31, 2004 F-19
Statements of Operations, for the three months ended March 31,
2005 and 2004 (Unaudited) F-20
Statement of Stockholders' Deficit for the period from January 1, 2005
to March 31, 2005 (Unaudited) F-21
Statements of Cash Flows, for the three months ended March 31, 2005 and
2004 (Unaudited) F-22
Note to financial statements F-23
F-18
UCA Services, Inc.
Balance Sheets
As of March 31, 2005 (Unaudited) and December 31, 2004
- --------------------------------------------------------------------------------
March 31, 2005 December 31, 2004
----------------- -----------------
ASSETS
Current Assets
Cash $ 321,063 $ 154,242
Accounts receivable, net 2,142,904 1,842,954
Prepaid expenses and other current assets 90,922 15,456
----------------- -----------------
Total current assets 2,554,889 2,012,652
Property and equipment, net 99,786 107,082
Other assets 7,324 7,324
----------------- -----------------
Totals $ 2,661,999 $ 2,127,058
================= =================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 1,584,008 $ 1,661,578
Accrued compensation 351,146 181,585
Accrued expenses 127,009 202,550
Income taxes payable 3,558 3,558
Loans payable to shareholders 175,000 175,000
Deferred revenues and advances from customers 1,396,665 227,923
----------------- -----------------
Total current liabilities 3,637,386 2,452,194
----------------- -----------------
Commitments and contingencies
Stockholders' Deficit:
Common Stock, No par value, 5,000,000 shares
authorized, 3,000,000 shares issued and outstanding 652,326 652,326
Accumulated deficit (1,627,713) (977,462)
----------------- -----------------
Total stockholders' deficit (975,387) (325,136)
----------------- -----------------
Totals $ 2,661,999 $ 2,127,058
================= =================
See Note to Financial Statements
F-19
UCA Services, Inc.
Statements of Operations for the three months ended March 31, 2005 and 2004
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, March 31,
2005 (Unaudited) 2004 (Unaudited)
----------------- -----------------
Revenues $ 4,173,834 $ 2,755,909
Expenses:
Direct employee compensation and consultant expenses 3,376,992 2,174,141
Selling, general and administrative expenses 1,429,048 490,124
Research and development -- 24,055
Depreciation and amortization 15,045 8,611
----------------- -----------------
Total expenses 4,821,085 2,696,931
Operating (loss) income (647,251) 58,978
Interest expense 3,000 3,750
----------------- -----------------
Income (loss) before provision for income taxes (650,251) 55,228
Provision for income taxes -- --
----------------- -----------------
Net (Loss) Income $ (650,251) $ 55,228
================= =================
See Note to Financial Statements
F-20
UCA Services, Inc.
Statement of Stockholders' Deficit for the three months ended March 31, 2005
(Unaudited)
- --------------------------------------------------------------------------------
Common Stock Total
------------------------- Accumulated Stockholders'
Shares Amount Deficit Deficit
----------- ----------- --------------- ---------------
Balances at December 31, 2004 3,000,000 $ 652,326 $ (977,462) $ (325,136)
Net loss -- -- (650,251) (650,251)
----------- ----------- --------------- ---------------
Balances at March 31, 2005 (Unaudited) 3,000,000 $ 652,326 $ (1,627,713) $ (975,387)
=========== =========== =============== ===============
See Note to Financial Statements
F-21
UCA Services, Inc.
Statements of Cash Flows for the three months ended March 31, 2005 and 2004
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, March 31,
2005 (Unaudited) 2004 (Unaudited)
---------------- ----------------
OPERATING ACTIVITIES
Net (loss) income $ (650,251) $ 55,228
Adjustments to reconcile net loss income to net cash
provided by (used in) operating activities:
Reserve for due from affiliate 507,020 --
Depreciation and amortization 15,045 8,611
Changes in operating assets and liabilities:
Accounts receivable (299,950) (482,666)
Due from affiliate (507,020) 20,995
Prepaid expenses and other current assets (75,466) (8,050)
Other assets -- (7,324)
Accounts payable (77,570) 28,647
Accrued compensation 169,561 41,529
Accrued expenses (75,541) 77,048
Income taxes payable -- (550)
Deferred revenues and advances from customers 1,168,742 34,200
---------------- ----------------
Net cash provided by (used in) operating activities 174,570 (232,332)
---------------- ----------------
INVESTING ACTIVITIES
Purchases of property and equipment (7,749) (45,382)
---------------- ----------------
Net cash used in investing activities (7,749) (45,382)
---------------- ----------------
Net change in cash 166,821 (277,714)
Cash at beginning of period 154,242 301,017
---------------- ----------------
Cash at end of period $ 321,063 $ 23,303
================ ================
See Note to Financial Statements
F-22
UCA Services, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Basis of Presentation
The interim financial statements presented are unaudited, but in the
opinion of management, have been prepared in conformity with accounting
principles generally accepted in the United States of America applied on a
basis consistent with those of the annual financial statements. Such
interim financial statements reflect all adjustments (consisting
principally of normal recurring accruals) necessary for a fair
presentation of the financial position and the results of operations for
the interim periods presented. The results of operations for the interim
periods presented are not necessarily indicative of the results to be
expected for any other interim period or for the year ending December 31,
2005. The interim financial statements should be read in connection with
the audited annual financials as of December 31, 2004 and accompanying
notes contained elsewhere in this Form 8-K. Certain prior year balances
have been reclassified in order to conform to the current year
presentation.
Management's Plans
The Company incurred operating losses of $(647,251) during the three
months ended March 31, 2005 and as of March 31, 2005 the Company has an
accumulated deficit of $1,627,713 and a working capital deficit of
$1,082,497. Management believes that cash flows generated from revenues
during the remainder of 2005 will be sufficient to fund the Company's
operations through the first quarter of 2006. Additional funding from
shareholders and/or third parties may be required to obtain profitable
operations. However there can be no assurance that the Company will
generate sufficient revenues to provide positive cash flows from
operations, or that sufficient capital will be available, when required,
or at terms deemed reasonable to the Company, to permit the Company to
realize its plans.
NetFabric has agreed to support the operations of the Company by providing
the necessary working capital. Since March 31, 2005, NetFabric has
provided $350,000 cash and will provide an additional $300,000 upon filing
of its registration statement with the Securities Exchange Commission.
These proceeds, along with cash generated from operations in the opinion
of management will be sufficient to fund the Company's operations through
the first quarter of 2006.
F-23
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On May 20, 2005, NetFabric Holdings, Inc. ("NetFabric Holdings") and UCA
Services ("UCA Services") entered into and closed on a share exchange agreement
("Exchange Agreement"), whereby NetFabric Holdings acquired all of the issued
and outstanding shares of UCA Services from the UCA Services' shareholders in
exchange for the issuance of shares of common stock of NetFabric Holdings.
The following unaudited pro forma condensed consolidated balance sheet combines
the historical financial position of NetFabric Holdings and UCA Services as of
March 31, 2005, assuming the acquisition of UCA Services by NetFabric Holdings
had been completed on March 31, 2005. The following unaudited pro forma
condensed consolidated statements of operations combine the historical
consolidated statements of operations of NetFabric Holdings and the historical
statements of operations of UCA Services for the year ended December 31, 2004
and for the three months ended March 31, 2005 giving effect to the acquisition
as if it had occurred on the first day of the periods presented. The historical
financial information has been adjusted to give pro forma effect to events that
are directly attributable to the acquisition, factually supportable, and
expected to have a continuing impact on the consolidated results.
We are providing the following information to aid you in your analysis of the
financial aspects of the acquisition. We derived the information for the year
ended December 31, 2004, from the audited consolidated financial statements of
NetFabric Holdings and audited financial statements of UCA Services. We derived
the information for the period ended March 31, 2005, from the unaudited
consolidated financial statements of NetFabric Holdings and unaudited financial
statements of UCA Services. This information should be read together with the
UCA Services audited and unaudited financial statements and related notes
included elsewhere in this Form 8-K and the NetFabric Holdings audited
consolidated financial statements and related notes, unaudited consolidated
financial statements and related notes, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included in NetFabric Holdings' form 10-KSB for the year ended December 31, 2004
and Form 10-QSB for the three months ended March 31, 2005.
The unaudited pro forma consolidated information is for illustrative purposes
only. The financial results may have been different had the companies always
been consolidated. You should not rely on the pro forma consolidated financial
information as being indicative of the historical results that would have been
achieved had the companies always been consolidated or the future results that
the consolidated company will experience.
Pursuant to the terms of the Exchange Agreement, NetFabric Holdings acquired all
of the issued and outstanding shares of UCA Services from the UCA Services'
shareholders in exchange for the issuance of 24,096,154 shares of common stock
of NetFabric Holdings. The acquisition was accounted for as a business
combination with NetFabric Holdings as the acquirer. Under the purchase method
of accounting, the assets and liabilities of UCA Services acquired by NetFabric
Holdings will be recorded as of the acquisition date at their respective fair
values, and added to those of NetFabric Holdings.
The purchase price for the acquisition was determined using the value of
NetFabric Holdings' common stock issued in exchange for all of the issued and
outstanding shares of UCA Services based on the average closing market price of
NetFabric Holdings' common stock for a period of five days prior and five days
subsequent to the share exchange.
The allocation of the purchase price reflected in the unaudited pro forma
condensed consolidated financial statements is preliminary and subject to change
based on finalization of the Company's valuation. The actual purchase price
allocation, to reflect the fair values of assets acquired and liabilities
assumed will be based upon management's ongoing evaluation. Accordingly, the
final allocation of the purchase price may differ significantly from the
preliminary allocation provided in the pro forma financial information.
NETFABRIC HOLDINGS, INC.
UCA SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2005
Pro Forma Pro Forma
NetFabric UCA Services Adjustments Consolidated
------------ ------------ -------------- ------------
ASSETS
Current Assets:
Cash $ 295,701 $ 321,063 $ 616,764
Trade accounts receivable, net -- 2,142,904 2,142,904
Inventory 97,303 -- 97,303
Prepaid expenses 123,076 90,922 213,998
----------- ----------- -----------
Total current assets 516,080 2,554,889 3,070,969
Property and equipment, net 173,766 99,786 273,552
Other assets 37,897 7,324 45,221
Goodwill and other unidentifiable intangibles -- -- 34,076,156(b) 34,076,156
----------- ----------- -----------
Totals $ 727,743 $ 2,661,999 $ 37,465,898
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Bridge loans, net of unamortized discount $ 471,532 $ -- $ 471,532
Loans payable to stockholders 32,639 175,000 207,639
Accounts payable and accrued liabilities 325,561 1,714,575 330,000(a),(b) 2,370,136
Accrued compensation -- 351,146 351,146
Deferred revenue and advances from customers 25,966 1,396,665 1,422,631
----------- ----------- -----------
Total current liabilities 855,698 3,637,386 4,823,084
----------- ----------- -----------
Commitments and Contingencies
Stockholders' Equity (Deficit):
Common stock 37,652 652,326 (652,326)(c)
24,096 (a) 61,748
Additional paid-in capital 2,412,340 -- 32,746,673 (a) 35,159,013
Deferred employee compensation (49,192) -- -- (49,192)
Accumulated deficit (2,528,755) (1,627,713) 1,627,713 (c) (2,528,755)
----------- ----------- -----------
Total stockholders' equity (deficit) (127,955) (975,387) 32,642,814
----------- ----------- -----------
Totals $ 727,743 $ 2,661,999 $ 37,465,898
=========== =========== ============
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
NETFABRIC HOLDINGS, INC.
UCA SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2005
The pro forma balance sheet combines the consolidated balance sheet of NetFabric
Holdings as of March 31, 2005 and the balance sheet of UCA Services as of March
31, 2005, assuming that the acquisition had been completed on March 31, 2005.
The historical balance sheets used in the preparation of the pro forma financial
statements have been derived from NetFabric Holdings' and UCA Services'
respective unaudited financial statements as of March 31, 2005.
Pro forma adjustments are necessary to record the accounting for the
acquisition, including a preliminary estimate of their fair values. No pro forma
adjustments were required to conform UCA Services accounting policies to
NetFabric Holdings' accounting policies. Certain reclassifications have been
made to conform UCA Services historical amounts to NetFabric Holdings'
presentation. The pro forma consolidated provision (benefit) for income taxes
does not reflect the amounts that would have resulted had NetFabric Holdings and
UCA Services filed consolidated income tax returns during the periods presented.
Descriptions of the adjustments included in the unaudited pro forma consolidated
balance sheet are as follows:
(a) Estimated total purchase price: Gives effect to the issuance of
24,096,154 shares of NetFabric Holdings common stock in exchange for
100% of the equity of UCA Services. Based on the average closing
market price of NetFabric Holdings' common stock for a period of
five days prior and five days subsequent to the share exchange, the
purchase price is estimated at $33,100,769. The purchase price
represents the sum of (i) the $32,770,769 fair value (or $1.36 per
common share based on the average price of NetFabric Holding's
common stock for a ten day period) of the 24,096,154 shares of
common stock, $.001 par value, to be issued by the former common
stockholders of UCA Services, and (ii) estimated merger costs of
approximately $330,000.
Under the purchase method of accounting, the total estimated
purchase price is allocated to UCA Services net tangible and
intangible assets based on their estimated fair values as of the
date of the completion of the purchase. The estimated purchase price
is based on the preliminary valuation, and subject to material
changes upon receipt of the final valuation and other factors as
described in the introduction to these unaudited pro forma condensed
consolidated financial statements.
(b) In accordance with Statement of Financial Accounting Standards
("SFAS") No. 141, NetFabric Holdings has estimated the fair value of
tangible and intangible assets acquired in connection with the
purchase of UCA Services, as the book value of such assets and
liabilities as of March 31, 2005. Of the total estimated purchase
price, approximately $33.1 million has been allocated to goodwill
and other unidentifiable intangibles, representing the excess of the
purchase price of an acquired business over the fair value of the
underlying net tangible and intangible assets. In accordance with
Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," goodwill and intangible assets with
indefinite lives resulting from business combinations completed
subsequent to June 30, 2001 will not be amortized but instead will
be tested for impairment at least annually (more frequently if
certain indicators are present). In the event that the management of
NetFabric Holdings determines that the value of goodwill or
intangible assets with indefinite lives has become impaired,
NetFabric Holdings will incur an accounting charge for the amount of
impairment during the fiscal quarter in which the determination is
made. The preliminary estimate of goodwill and other unidentifiable
intangibles, is as follows:
Net tangible liabilities assumed $ (975,387)
Total purchase price 33,100,769
---------------
Goodwill and other unidentifiable intangibles $ 34,076,156
===============
(c) To eliminate UCA Services historical common stock and accumulated
deficit.
NETFABRIC HOLDINGS, INC.
UCA SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
Pro Forma
NetFabric UCA Services Consolidated
------------ ------------ ------------
Revenues $ 612 $ 14,007,729 $ 14,008,341
Expenses:
Direct employee compensation and consultant expenses 3,126 10,955,449 10,958,575
Selling, general and administrative expenses 920,718 3,473,894 4,394,612
Research and development 395,452 57,278 452,730
Interest and bank charges 175,365 12,799 188,164
Depreciation and amortization 8,211 42,641 50,852
------------ ------------ ------------
Total expenses 1,502,872 14,542,061 16,044,933
------------ ------------ ------------
Loss before provision for income taxes (1,502,260) (534,332) (2,036,592)
Provision for income taxes -- -- --
------------ ------------ ------------
Net loss $ (1,502,260) $ (534,332) $ (2,036,592)
============ ============ ============
Net loss per common share, basic and diluted $ (0.05) $ (0.04)
============ ============
Weighted average number of shares
outstanding, basic and diluted 31,362,838 55,458,992
============ ============
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
NETFABRIC HOLDINGS, INC.
UCA SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
Pro Forma
NetFabric UCA Services Consolidated
------------ ------------ ------------
Revenues $ -- $ 4,173,834 $ 4,173,834
Expenses:
Direct employee compensation and consultant expenses 2,733 3,376,992 3,379,725
Selling, general and administrative expenses 622,608 1,429,048 2,051,656
Research and development 134,475 -- 134,475
Interest and bank charges 232,824 3,000 235,824
Depreciation and amortization 15,290 15,045 30,335
------------ ------------ ------------
Total expenses 1,007,930 4,824,085 5,832,015
------------ ------------ ------------
Loss before provision for income taxes (1,007,930) (650,251) (1,658,181)
Provision for income taxes -- -- --
------------ ------------ ------------
Net loss $ (1,007,930) $ (650,251) $ (1,658,181)
============ ============ ============
Net loss per common share, basic and diluted $ (0.03) $ (0.03)
============ ============
Weighted average number of shares
outstanding, basic and diluted 36,429,982 60,526,136
============ ============
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
UCA SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2005
The pro forma statements of operations combine the consolidated statement
of operations of NetFabric Holdings for the year ended December 31, 2004 with
the statement of operations of UCA Services for the year ended December 31,
2004, assuming that the merger occurred at January 1, 2004. The historical
statements of operations of NetFabric Holdings and UCA Services for the years
ended December 31, 2004, respectively, have been derived from the companies'
audited historical statements of operations.
The pro forma statements of operations combine the consolidated statement
of operations of NetFabric Holdings for the three months ended March 31, 2005
with the statement of operations of UCA Services for the three months ended
March 31, 2005, assuming that the merger occurred at January 1, 2004. The
historical statements of operations of NetFabric Holdings and UCA Services for
the three months ended March 31, 2005, respectively, have been derived from the
companies' unaudited statements of operations.
