Delaware
(State or Other Jurisdiction
of Incorporation)
|
001-31989
(Commission File Number)
|
91-2145721
(IRS Employer
Identification
Number)
|
One Ravinia Drive, Suite 1300, Atlanta, Georgia
(Address of Principal Executive Offices)
|
30346
(Zip Code)
|
Exhibit No. | Description | |
23.1
|
Consent
of Raymond Chabot Grant Thornton LLP, independent registered public accounting firm of iWeb Group Inc.
|
|
99.1
|
Audited consolidated financial statements as of September 30, 2013 and 2012 and for the fiscal years ended September 30, 2013 and 2012.
|
|
99.2
|
Unaudited pro forma condensed combined financial statements and notes related thereto as of September 30, 2013 and for the nine months ended September 30, 2013 and for the year ended December 31, 2012.
|
INTERNAP NETWORK SERVICES CORPORATION | |||
Date: February 7, 2014
|
By:
|
/s/ J. Eric Cooney | |
J. Eric Cooney
|
|||
Chief Executive Officer
|
Exhibit No. | Description | |
23.1
|
Consent
of Raymond Chabot Grant Thornton LLP, independent registered public accounting firm of iWeb Group Inc.
|
|
99.1
|
Audited consolidated financial statements as of September 30, 2013 and 2012 and for the fiscal years ended September 30, 2013 and 2012.
|
|
99.2
|
Unaudited pro forma condensed combined financial statements and notes related thereto as of September 30, 2013 and for the nine months ended September 30, 2013 and for the year ended December 31, 2012.
|
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated November 26, 2013 with respect to the consolidated financial statements of iWeb Group Inc. included in this Current Report of Internap Network Services Corporation on Form 8-K/A. We hereby consent to the incorporation by reference of said report in the Registration Statements of Internap Network Services Corporation on Forms S-3 (Nos. 333-70870, 333-47288, 333-108573, 333-111878, 333-111880 and 333-118234) and on Forms S-8 (Nos. 333-89369, 333-37400, 333-40430, 333-42974, 333-43996, 333-111543, 333-117068, 333-127989, 333-137314, 333-141245, 333-153766 and 333-175885).
/s/ RAYMOND CHABOT GRANT THORNTON LLP
Montréal, Quebec, Canada
February 7, 2014
Report of independent certified public accountants
|
2 - 3
|
|
Financial Statements
|
||
Consolidated Statements of Comprehensive Income
|
4
|
|
Consolidated Statements of Changes in Equity
|
5
|
|
Consolidated Statements of Financial Position
|
6
|
|
Consolidated Statements of Cash Flows
|
7
|
|
Notes to Consolidated Financial Statements
|
8 - 49
|
![]() |
||
Report of independent certified
public accountants
To the Shareholders of
iWeb Group Inc.
|
Raymond Chabot Grant Thornton llp
Suite 2000
National Bank Tower
600 De La Gauchetière Street West
Montréal, Quebec H3B 4L8
Telephone: 514-878-2691
Fax: 514-878-2127
www.rcgt.com
|
|
/s/ Raymond Chabot Grant Thornton llp
|
|
Montréal, Quebec, Canada
|
|
November 26, 2013
|
3 |
2013
|
2012
|
|||||||
$
|
$
|
|||||||
Revenues
|
44,417,372
|
42,043,365
|
||||||
Cost of services
|
23,224,517
|
21,572,909
|
||||||
Gross profit
|
21,192,855
|
20,470,456
|
||||||
Selling expenses
|
7,325,440
|
6,675,608
|
||||||
Administrative expenses
|
12,164,351
|
7,086,986
|
||||||
Software development expenses
|
1,282,463
|
1,705,106
|
||||||
20,772,254
|
15,467,700
|
|||||||
Operating profit
|
420,601
|
5,002,756
|
||||||
Other losses (gains) (Note 5)
|
(1,241,387
|
)
|
1,666,371
|
|||||
Financial expenses (Note 6)
|
14,399,493
|
6,612,728
|
||||||
13,158,106
|
8,279,099
|
|||||||
Loss before deferred income taxes
|
(12,737,505
|
)
|
(3,276,343
|
)
|
||||
Deferred income taxes (Note 19)
|
(105,671
|
)
|
613,867
|
|||||
Net loss
|
(12,631,834
|
)
|
(3,890,210
|
)
|
||||
Other comprehensive income
|
||||||||
Items that will be reclassified subsequently to profit or loss
|
||||||||
Net change in cash flow hedges
|
||||||||
Net gain (loss) on derivative financial instruments designated as cash flow hedges (net of deferred income taxes of $10,130; $29,779 for the year ended September 30, 2012)
|
(27,800
|
)
|
80,924
|
|||||
Net gain (loss) on derivative financial instruments designated as hedges transferred to loss in the year (net of deferred income taxes of $10,922; $17,180 for the year ended September 30, 2012)
|
29,680
|
(46,686
|
)
|
|||||
Other comprehensive income, net of tax
|
1,880
|
34,238
|
||||||
Total comprehensive loss
|
(12,629,954
|
)
|
(3,855,972
|
)
|
||||
4 |
iWeb Group Inc.
|
Consolidated Statements of Changes in Equity
|
For the years ended September 30, 2013 and 2012
|
(In U.S. dollars)
|
2013 | ||||||||||||||||||||
Share capital
|
Contributed
surplus
|
Accumulated
other
comprehensive
loss
|
Retained
earnings
(deficit)
|
Total
|
||||||||||||||||
$
|
$
|
$
|
$
|
$
|
||||||||||||||||
Balance as at September 30, 2012
|
34,034,815
|
–
|
(88,811
|
)
|
(3,446,618
|
)
|
30,499,386
|
|||||||||||||
Employee share-based payment options (Note 8)
|
–
|
1,128,055
|
–
|
–
|
1,128,055
|
|||||||||||||||
Net loss
|
(12,631,834
|
)
|
(12,631,834
|
)
|
||||||||||||||||
Other comprehensive income
|
1,880
|
1,880
|
||||||||||||||||||
Total comprehensive loss
|
–
|
–
|
1,880
|
(12,631,834
|
)
|
(12,629,954
|
)
|
|||||||||||||
Balance as at September 30, 2013
|
34,034,815
|
1,128,055
|
(86,931
|
)
|
(16,078,452
|
)
|
18,997,487
|
2012 | ||||||||||||||||||||
Share capital
|
Contributed
surplus
|
Accumulated
other
comprehensive
loss
|
Retained
earnings
(deficit)
|
Total
|
||||||||||||||||
$
|
$
|
$
|
$
|
$
|
||||||||||||||||
Balance as at September 30, 2011
|
34,034,815
|
–
|
(123,049
|
)
|
443,592
|
34,355,358
|
||||||||||||||
Net loss
|
(3,890,210
|
)
|
(3,890,210
|
)
|
||||||||||||||||
Other comprehensive income
|
34,238
|
34,238
|
||||||||||||||||||
Total comprehensive loss
|
–
|
–
|
34,238
|
(3,890,210
|
)
|
(3,855,972
|
)
|
|||||||||||||
Balance as at September 30, 2012
|
34,034,815
|
–
|
(88,811
|
)
|
(3,446,618
|
)
|
30,499,386
|
|||||||||||||
5 |
iWeb Group Inc.
|
Consolidated Statements of Financial Position
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
2013
|
2012
|
|||||||
$
|
$
|
|||||||
ASSETS
|
||||||||
Current
|
||||||||
Cash
|
445,495
|
1,162,059
|
||||||
Trade and other accounts receivable (Note 7)
|
4,212,617
|
3,262,479
|
||||||
Prepaid expenses
|
742,707
|
1,106,736
|
||||||
5,400,819
|
5,531,274
|
|||||||
Non-current
|
||||||||
Property and equipment (Note 10)
|
60,792,215
|
56,147,344
|
||||||
Intangible assets (Note 11)
|
15,422,494
|
14,164,868
|
||||||
Goodwill
|
34,475,903
|
34,475,903
|
||||||
Deferred tax assets (Note 19)
|
328,697
|
419,468
|
||||||
Other assets
|
1,749,496
|
1,241,226
|
||||||
118,169,624
|
111,980,083
|
|||||||
LIABILITIES
|
||||||||
Current
|
||||||||
Trade and other accounts payable
|
8,700,496
|
8,332,866
|
||||||
Commodity taxes payable
|
109,945
|
|||||||
Derivative financial instruments
|
118,921
|
121,494
|
||||||
Deferred revenues
|
6,497,822
|
6,142,289
|
||||||
Redeemable shares (Notes 15 and 16)
|
27,516,510
|
|||||||
Installments on long-term debt
|
43,001,925
|
3,633,523
|
||||||
85,835,674
|
18,340,117
|
|||||||
Non-current
|
||||||||
Deferred revenues
|
1,072,095
|
1,139,513
|
||||||
Long-term debt (Note 14)
|
9,528,538
|
41,905,925
|
||||||
Redeemable shares (Notes 15 and 16)
|
17,163,562
|
|||||||
Deferred tax liabilities (Note 19)
|
2,735,830
|
2,931,580
|
||||||
99,172,137
|
81,480,697
|
|||||||
EQUITY
|
||||||||
Share capital (Note 16)
|
34,034,815
|
34,034,815
|
||||||
Contributed surplus (Note 8)
|
1,128,055
|
|||||||
Accumulated other comprehensive loss
|
(86,931
|
)
|
(88,811
|
)
|
||||
Deficit
|
(16,078,452
|
)
|
(3,446,618
|
)
|
||||
18,997,487
|
30,499,386
|
|||||||
118,169,624
|
111,980,083
|
|||||||
Director
|
Director
|
6 |
2013
|
2012
|
|||||||
$
|
$
|
|||||||
OPERATING ACTIVITIES
|
||||||||
Net loss
|
(12,631,834
|
)
|
(3,890,210
|
)
|
||||
Non-cash items
|
||||||||
Unrealized exchange gains (losses) on long-term debt and
|
||||||||
redeemable shares
|
(1,265,365
|
)
|
1,538,650
|
|||||
Income tax expense (benefit)
|
(105,671
|
)
|
613,867
|
|||||
Financial expenses
|
3,261,858
|
3,180,016
|
||||||
Depreciation and amortization
|
7,413,804
|
6,150,958
|
||||||
Changes in fair value of the redeemable shares
|
11,137,635
|
3,432,712
|
||||||
Share-based compensation
|
1,128,055
|
|||||||
8,938,482
|
11,025,993
|
|||||||
Net change in working capital items (Note 18)
|
3,193,347
|
732,125
|
||||||
Interest paid
|
(2,668,308
|
)
|
(2,468,457
|
)
|
||||
Cash flows from operating activities
|
9,463,521
|
9,289,661
|
||||||
INVESTING ACTIVITIES
|
||||||||
Other assets
|
(508,270
|
)
|
(666,858
|
)
|
||||
Acquisition of property and equipment
|
(13,610,463
|
)
|
(8,505,560
|
)
|
||||
Acquisition of intangible assets
|
(2,611,865
|
)
|
(991,895
|
)
|
||||
Cash flows used in investing activities
|
(16,730,598
|
)
|
(10,164,313
|
)
|
||||
FINANCING ACTIVITIES
|
||||||||
Proceeds on issuance of long-term debt
|
11,297,552
|
2,927,977
|
||||||
Repayment of long-term debt
|
(4,519,406
|
)
|
(2,807,681
|
)
|
||||
Cash flows from financing activities
|
6,778,146
|
120,296
|
||||||
Impact of exchange rate fluctuations on cash
|
(227,633
|
)
|
204,710
|
|||||
Decrease in cash
|
(716,564
|
)
|
(549,646
|
)
|
||||
Cash, beginning of years
|
1,162,059
|
1,711,705
|
||||||
Cash, end of years
|
445,495
|
1,162,059
|
||||||
7 |
Name of the subsidiary
|
Country of incorporation and principal place of business
|
|
iWeb Technologies Inc.
|
Canada
|
|
iWeb Propriété intellectuelle Inc.
|
Canada
|
|
iWeb Hosting UK
|
United Kingdom
|
|
iWeb US
|
United States of America
|
|
iWeb Peering Corporation
|
United States of America
|
–
|
IFRS 9 Financial Instruments
|
8 |
–
|
IFRS 10 Consolidated Financial Statements
|
–
|
IFRS 12 Disclosure of Interests in Other Entities
|
–
|
IFRS 13 Fair Value Measurement
|
9 |
–
|
Research and development tax credits:
|
–
|
Lease agreement classification:
|
–
|
Capitalization of internally developed software and systems:
|
10 |
–
|
Recognition of deferred tax assets:
|
–
|
Allowance for doubtful accounts:
|
–
|
Property and equipment:
|
–
|
Employee retention bonus:
|
–
|
Financial instruments, derivatives and hedging:
|
11 |
–
|
Impairment of assets:
|
12 |
13 |
14 |
15 |
Rates and
periods
|
||
Buildings
|
3.5% to 6.1%
|
|
Leasehold improvements
|
Term of lease
|
|
Computer equipment
|
10% and 20%
|
|
Furniture, equipment and office improvements
|
15%
|
|
Equipment and improvements to data centers
|
5% to 20%
|
|
Collocation spaces
|
Lease term
|
16 |
Rates
|
||||
Internally developed software and systems
|
15 | % | ||
Software programs
|
15 | % | ||
Client lists
|
10 | % |
17 |
18 |
19 |
20 |
21 |
(a)
|
Temporary differences upon the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting or taxable income; and
|
(b)
|
Taxable temporary differences resulting from the initial recognition of goodwill.
|
22 |
23 |
2013
|
2012
|
|||||||
$ | $ | |||||||
Total employee benefit expenses (a)
|
16,969,152 | 14,575,592 | ||||||
Employee benefit expenses capitalized in property and equipment and intangible assets
|
(1,177,499 | ) | (1,035,109 | ) | ||||
Employee benefit expenses recognized in net loss
|
15,791,653 | 13,540,483 |
(a)
|
The Group’s contribution to state plans included in the employee benefit expenses was $483,890 for the year ended September 30, 2013 and $449,219 for the year ended September 30, 2012.
|
2013
|
2012
|
|||||||
$ | $ | |||||||
Depreciation of property and equipment
|
6,356,608 | 5,205,003 | ||||||
Amortization of intangible assets
|
1,057,196 | 945,955 | ||||||
7,413,804 | 6,150,958 | |||||||
2013 | 2012 | |||||||
$ | $ | |||||||
Research and development tax credits accounted for as a reduction of software development expenses
|
123,156 | 168,086 | ||||||
Exchange losses recognized in net loss
|
23,978 | 127,721 | ||||||
Unrealized exchange losses (gains) on long-term debt and redeemable shares recognized in net loss
|
(1,265,365 | ) | 1,538,650 | |||||
Other losses (gains)
|
(1,241,387 | ) | 1,666,371 | |||||
6 - FINANCIAL EXPENSES
|
||||||||
2013 | 2012 | |||||||
$ | $ | |||||||
Interest on long-term debt
|
2,033,984 | 1,935,953 | ||||||
Non-cash interest on long-term debt and amortization of the transaction costs
|
693,545 | 668,548 | ||||||
Interest on obligations under finance leases
|
534,329 | 575,515 | ||||||
Changes in fair value of the redeemable shares
|
11,137,635 | 3,432,712 | ||||||
14,399,493 | 6,612,728 |
24 |
2013
|
2012
|
|||||||
$ | $ | |||||||
Loans and receivables
|
||||||||
Trade accounts receivable
|
3,244,461 | 2,734,059 | ||||||
Other accounts receivable
|
9,432 | 11,178 | ||||||
Commodity taxes receivable
|
556,282 | |||||||
Research and development tax credits
|
402,442 | 517,242 | ||||||
4,212,617 | 3,262,479 |
Number of
shares
|
Weighted
average
exercise price
|
|||||||
$ | ||||||||
Outstanding as at September 30, 2012
|
– | – | ||||||
Granted
|
2,319,000 | 1.45 | ||||||
Outstanding as at September 30, 2013
|
2,319,000 | 1.45 | ||||||
Exercisable as at September 30, 2013
|
– | – |
25 |
Grant date
|
May 15, 2013
|
May 15, 2013
|
||||||
Vesting period end
|
May 15, 2016
|
May 15, 2018
|
||||||
Share price at date of grant ($)
|
1.45 | 1.45 | ||||||
Volatility
|
70% | 70% | ||||||
Option life
|
10 years
|
10 years
|
||||||
Risk-free interest rate
|
1.92% | 1.92% | ||||||
Dividend rate
|
0.00% | 0.00% | ||||||
Fair value at grant date ($)
|
0.69 | 0.45 | ||||||
Exercise price at date of grant ($)
|
1.45 | 1.45 | ||||||
Exercisable from/to
|
May 16, 2016
|
May 16, 2018
|
||||||
May 15, 2023
|
May 15, 2023
|
|||||||
Weighted average remaining contractual life
|
9.6 years
|
9.6 years
|
26 |
2013
|
|||||||||||||||||||||||||
Land
|
Buildings
|
Leasehold
improvements
|
Computer
equipment(a)
|
Furniture,
equipment
and office
improvements
|
Equipment and
improvements
to data centers
and collocation
spaces
|
Improvements
to data centers
in progress
|
Total
|
||||||||||||||||||
$
|
$
|
$
|
$
|
$
|
$
|
$
|
$
|
||||||||||||||||||
Cost
|
|||||||||||||||||||||||||
Balance as at
|
|||||||||||||||||||||||||
September 30, 2012
|
4,216,045
|
8,358,620
|
2,429,896
|
21,797,447
|
620,316
|
21,497,502
|
3,710,925
|
62,630,751
|
|||||||||||||||||
Additions
|
48,147
|
6,864,511
|
66,858
|
1,515,684
|
2,546,076
|
11,041,276
|
|||||||||||||||||||
Disposals
|
(39,797
|
)
|
|
(39,797
|
)
|
||||||||||||||||||||
Other, net
|
6,257,001
|
(6,257,001
|
)
|
|
|||||||||||||||||||||
4,216,045
|
8,358,620
|
2,478,043
|
28,622,161
|
687,174
|
29,270,187
|
–
|
73,632,230
|
||||||||||||||||||
Accumulated depreciation
|
|||||||||||||||||||||||||
Balance as at
|
|||||||||||||||||||||||||
September 30, 2012
|
460,731
|
187,037
|
3,800,128
|
115,499
|
1,920,012
|
6,483,407
|
|||||||||||||||||||
Current year depreciation
|
334,344
|
146,432
|
4,089,585
|
100,396
|
1,685,851
|
6,356,608
|
|||||||||||||||||||
–
|
795,075
|
333,469
|
7,889,713
|
215,895
|
3,605,863
|
–
|
12,840,015
|
||||||||||||||||||
Net carrying amount as at September 30, 2013
|
4,216,045
|
7,563,545
|
2,144,574
|
20,732,448
|
471,279
|
25,664,324
|
–
|
60,792,215
|
27 |
2012
|
|||||||||||||||||||||||||
Land
|
Buildings
|
Leasehold
improvements
|
Computer
equipment(a)
|
Furniture,
equipment
and office
improvements
|
Equipment and
improvements
to data centers
and collocation
spaces
|
Improvements
to data centers
in progress
|
Total
|
||||||||||||||||||
$
|
$
|
$
|
$
|
$
|
$
|
$
|
$
|
||||||||||||||||||
Cost
|
|||||||||||||||||||||||||
Balance as at
|
|||||||||||||||||||||||||
September 30, 2011
|
4,216,045
|
8,358,620
|
2,429,896
|
15,990,021
|
572,207
|
19,902,713
|
351,136
|
51,820,638
|
|||||||||||||||||
Additions
|
5,807,426
|
48,109
|
903,105
|
4,051,473
|
10,810,113
|
||||||||||||||||||||
Other, net
|
691,684
|
(691,684
|
)
|
||||||||||||||||||||||
4,216,045
|
8,358,620
|
2,429,896
|
21,797,447
|
620,316
|
21,497,502
|
3,710,925
|
62,630,751
|
||||||||||||||||||
Accumulated depreciation
|
|||||||||||||||||||||||||
Balance as at
|
|||||||||||||||||||||||||
September 30, 2011
|
126,387
|
42,233
|
708,765
|
25,369
|
375,650
|
1,278,404
|
|||||||||||||||||||
Current year depreciation
|
334,344
|
144,804
|
3,091,363
|
90,130
|
1,544,362
|
5,205,003
|
|||||||||||||||||||
–
|
460,731
|
187,037
|
3,800,128
|
115,499
|
1,920,012
|
–
|
6,483,407
|
||||||||||||||||||
Net carrying amount as at September 30, 2012
|
4,216,045
|
7,897,889
|
2,242,859
|
17,997,319
|
504,817
|
19,577,490
|
3,710,925
|
56,147,344
|
(a)
|
Computer equipment includes computer equipment parts that are used in assembling servers for Web hosting and to maintain the service potential of existing servers. The computer equipment parts are not depreciated until they are put into service as computer equipment and in the condition necessary to be operated in the manner intended by management. The computer equipment comprised $915,607 as at September 30, 2013 and $1,103,586 as at September 30, 2012 of computer equipment parts for which the Group has not yet start to depreciate.
|
28 |
2013
|
|||||||||||||||||||
Land
|
Buildings
|
Computer
equipment
|
Furniture,
equipment
and office
improvements
|
Equipment and
improvements
to data centers
and collocation
spaces
|
Total
|
||||||||||||||
$
|
$
|
$
|
$
|
$
|
$
|
||||||||||||||
As at September 30, 2013
|
|||||||||||||||||||
Cost
|
3,671,746
|
6,032,504
|
279,911
|
268,517
|
228,910
|
10,481,588
|
|||||||||||||
Accumulated depreciation
|
581,844
|
128,291
|
92,315
|
27,487
|
829,937
|
||||||||||||||
Net carrying amount
|
3,671,746
|
5,450,660
|
151,620
|
176,202
|
201,423
|
9,651,651
|
|||||||||||||
2012
|
|||||||||||||||||||
Land
|
Buildings
|
Computer
equipment
|
Furniture,
equipment
and office
improvements
|
Equipment and
improvements
to data centers
and collocation
spaces
|
Total
|
||||||||||||||
$
|
$
|
$
|
$
|
$
|
$
|
||||||||||||||
As at September 30, 2012
|
|||||||||||||||||||
Cost
|
3,671,746
|
6,032,504
|
343,079
|
268,517
|
530,133
|
10,845,979
|
|||||||||||||
Accumulated depreciation
|
340,548
|
88,629
|
52,031
|
34,238
|
515,446
|
||||||||||||||
Net carrying amount
|
3,671,746
|
5,691,956
|
254,450
|
216,486
|
495,895
|
10,330,533
|
29 |
2013
|
||||||||||||||||
Internally
developed
software and
systems(a)
|
Software
programs
|
Trademarks
|
Client lists
|
Total
|
||||||||||||
$
|
$
|
$
|
$
|
$
|
||||||||||||
Cost
|
||||||||||||||||
Balance as at September 30, 2012
|
1,905,061
|
159,209
|
6,627,600
|
6,676,800
|
15,368,670
|
|||||||||||
Additions
|
2,245,881
|
68,941
|
2,314,822
|
|||||||||||||
4,150,942
|
228,150
|
6,627,600
|
6,676,800
|
17,683,492
|
||||||||||||
Accumulated amortization
|
||||||||||||||||
Balance as at September 30, 2012
|
314,298
|
27,085
|
862,419
|
1,203,802
|
||||||||||||
Current period amortization
|
361,094
|
28,422
|
667,680
|
1,057,196
|
||||||||||||
675,392
|
55,507
|
–
|
1,530,099
|
2,260,998
|
||||||||||||
Carrying amounts as at September 30, 2013
|
3,475,550
|
172,643
|
6,627,600
|
5,146,701
|
15,422,494
|
|||||||||||
Average remaining life (years)
|
5.58
|
5.04
|
–
|
7.71
|
3.88
|
30 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
11 - INTANGIBLE ASSETS (Continued)
|
||||||||||||||||||||
2012
|
||||||||||||||||||||
Internally
developed
software and
systems(a)
|
Software
programs
|
Trademarks
|
Client lists
|
Total
|
||||||||||||||||
$
|
$
|
$
|
$
|
$
|
||||||||||||||||
Cost
|
||||||||||||||||||||
Balance as at September 30, 2011
|
1,367,487
|
153,494
|
6,627,600
|
6,676,800
|
14,825,381
|
|||||||||||||||
Additions
|
537,574
|
5,715
|
543,289
|
|||||||||||||||||
1,905,061
|
159,209
|
6,627,600
|
6,676,800
|
15,368,670
|
||||||||||||||||
Accumulated amortization
|
||||||||||||||||||||
Balance as at September 30, 2011
|
59,339
|
3,769
|
194,739
|
257,847
|
||||||||||||||||
Current period amortization
|
254,959
|
23,316
|
667,680
|
945,955
|
||||||||||||||||
314,298
|
27,085
|
–
|
862,419
|
1,203,802
|
||||||||||||||||
Carrying amounts as at September 30, 2012
|
1,590,763
|
132,124
|
6,627,600
|
5,814,381
|
14,164,868
|
|||||||||||||||
Average remaining life (years)
|
5.57
|
5.53
|
–
|
8.71
|
4.25
|
(a)
|
Research and development tax credits for an amount of $434,089 for the year ended September 30, 2013 and $485,245 for the year ended September 30, 2012 were accounted for as a reduction of internally developed software and systems. Of this reduction, an amount of $374,926 as at September 30, 2013 and $382,091 as at September 30, 2012 is included in trade and other accounts receivable.
|
31 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
–
|
Growth rate
|
|
The Group bases its growth and profitability assumptions on the business plan approved by management. The Group believes that the growth rate above is reasonable considering the projected inflation rate and growth rate of consumer goods. The business plan covers a five-year period. At the end of this term, the Group evaluates the CGU’s terminal value.
|
–
|
Discount rate
|
|
The discount rate is based on observable market data such as the risk-free rate, risk premium observed in the market, the beta of companies operating in the same sector, the premium associated with the size of the Group, specific risks associated with the CGU and the statutory tax rate.
|
32 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
–
|
Cash flow assumptions
|
|
Management’s key assumptions include stable profit margins, based on past experience in its market. The Group’s management believes that this is the best available input for forecasting its market. Cash flow projections reflect stable profit margins achieved immediately before the budget period. No expected efficiency improvements have been taken into account and prices and wages reflect publicly available forecast of inflation for the industry.
|
–
|
A credit facility as demand loans of up to $2,500,000 to finance the working capital of the Group. No amount was drawn down on this facility as at September 30, 2013 and 2012;
|
–
|
A credit facility as a revolving term loan of $17,692,383 as at September 30, 2013 and $20,812,500 as at September 30, 2012. An amount of $17,692,383 as at September 30, 2013 and $20,812,500 as at September 30, 2012 was used (see Note 14);
|
–
|
A credit facility as term loans of $15,000,000 to finance up to 75% of the future acquisition cost of computer equipment, equipment and improvements to data centers. An amount of $11,000,000 was drawn down on this facility as at September 30, 2013 (nil as at September 30, 2012) (see Note 14);
|
–
|
A $500,000 facility to issue letters of guarantee. An amount of $388,240 (C$400,000) as at September 30, 2013 and $355,985 (C$350,000) as at September 30, 2012 is used;
|
–
|
A $3,000,000 hedging facility that makes it possible to issue foreign exchange contracts and interest rate swaps. The fair value of derivative financial instruments was $(118,921) as at September 30, 2013 and $(121,494) as at September 30, 2012.
|
33 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
14 - LONG-TERM DEBT
|
||||||||
2013
|
2012
|
|||||||
$
|
$
|
|||||||
Revolving term loan with an authorized amount of $17,692,383 as at September 30, 2013 and $20,812,500 as at September 30, 2012 and a nominal amount of $17,692,383 as at September 30, 2013 and $20,812,500 as at September 30, 2012 (book value includes unamortized transaction cost of $167,453 as at September 30, 2013 and $228,036 as at September 30, 2012), secured by a movable hypothec on the universality of all present and future, movable and immovable, tangible and intangible properties, LIBOR plus 2.75% (2.98%; 3.01% as at September 30, 2012) payable monthly (effective rate 3.38%; 3.44% as at September 30, 2012)), principal payable by quarterly decreasing of the authorized amount of $618,750 starting in December 2013, $675,000 starting September 2014, $731,250 starting in September 2015 and in a lump-sum amount of $10,942,383 in July 2016 (a) (b) (c)
|
17,524,930
|
20,584,464
|
||||||
Term loan, nominal amount of $9,000,000 (nil as at September 30, 2012), secured by a movable hypothec on the universality of all present and future, movable and immovable, tangible and intangible properties, LIBOR plus 2.75% (2.98%), payable monthly, principal payable by quarterly instalments of $450,000 starting March 2014, maturing in December 2018 (a) (c)
|
9,000,000
|
|||||||
Term loan, nominal amount of $2,000,000 (nil as at September 30, 2012), secured by a movable hypothec on the universality of all present and future, movable and immovable, tangible and intangible properties, LIBOR plus 2.75% (2.98%), payable monthly, principal payable by quarterly instalments of $100,000 starting March 2015, maturing in December 2019 (a) (c) (f)
|
2,000,000
|
|||||||
Term loan, with an authorized amount of $12,500,000 as at September 30, 2013 and $12,500,000 as at September 30, 2012 and a nominal amount of $12,500,000 (book value includes unamortized transaction cost of $84,700 as at September 30, 2013 and $110,646 as at September 30, 2012), 8% payable monthly, plus an annual performance premium of 4.5%, payable in a lump-sum payment on January 2017, including the principal amount (effective rate of 11.91%) (the principal amount and capitalized interest due were $12,500,000 and $1,320,376 as at September 30, 2013 and $12,500,000 and $713,357 as at September 30, 2012 respectively) (c) (d) (h)
|
13,735,675
|
13,102,712
|
||||||
Term loan, 8.59%, payable in monthly instalments of $25,965, principal and interest, maturing in June 2014
|
225,534
|
225,534
|
34 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
14 - LONG-TERM DEBT (Continued)
|
||||||||
2013
|
2012
|
|||||||
$
|
$
|
|||||||
Term loan, 7%, payable in monthly instalments of $59,957, principal and interest, matured in June 2013
|
524,201
|
|||||||
Obligation under a finance lease, nominal amount of C$7,484,076 as at September 30, 2013 and C$7,753,990 as at September 30, 2012, 5%, payable in monthly instalments of C$54,685, principal and interest, until November 2017 followed by monthly instalments of C$61,976 until November 2022 and C$69,268 until November 2027 (e)
|
7,264,044
|
7,886,583
|
||||||
Obligation under a finance lease, nominal amount of C$2,649,599 as at September 30, 2013 and C$2,752,235 as at September 30, 2012, 5%, payable in monthly instalments of C$19,744, principal and interest, until maturing in March 2015 and in a lump-sum amount of C$2,475,000, in April 2015 (f) (g)
|
2,571,701
|
2,799,298
|
||||||
Obligation under a finance lease, nominal amount of C$106,696 as at September 30, 2013 and C$151,801 as at September 30, 2012, 8.2%, payable in monthly instalments of C$4,657, principal and interest, maturing in October 2015
|
103,559
|
154,397
|
||||||
Obligation under a finance lease, nominal amount of C$47,929 as at September 30, 2013 and C$90,875 as at September 30, 2012, 10.5%, payable in monthly instalments of C$4,205, principal and interest, maturing in September 2014
|
46,520
|
92,429
|
||||||
Obligation under a finance lease, nominal amount of C$9,895 as at September 30, 2013 and C$66,485 as at September 30, 2012, 8.3%, payable in monthly instalments of C$4,999, principal and interest, maturing in November 2013
|
9,604
|
67,622
|
||||||
Obligation under a finance lease, nominal amount of C$38,976 as at September 30, 2013 and C$51,708 as at September 30, 2012, 9.38%, payable in monthly instalments of C$1,420, principal and interest, maturing in April 2016
|
37,830
|
52,592
|
||||||
Obligation under a finance lease, 6.78%, payable in monthly instalments of $1,881, principal and interest, maturing in March 2014
|
11,066
|
32,107
|
||||||
Obligation under a finance lease, nominal amount of C$12,119, 7.3%, payable in monthly instalments of C$6,114, principal and interest, matured in November 2012
|
12,326
|
35 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
(In U.S. dollars)
|
2013
|
2012
|
|||||||
$
|
$
|
|||||||
Obligations under finance leases, nominal amount of C$5,096, 9.87%, payable in monthly instalments of C$2,580, principal and interest, matured in November 2012
|
5,183
|
|||||||
52,530,463
|
45,539,448
|
|||||||
Instalments due within one year
|
43,001,925
|
3,633,523
|
||||||
9,528,538
|
41,905,925
|
|||||||
The instalments on long-term debt are as follows:
|
||||||||
Obligations
under
finance leases
|
Other loans
|
|||||||
$
|
$
|
|||||||
Less than one year
|
1,007,882
|
42,738,293
|
||||||
More than one year, but less than five years
|
4,533,045
|
|||||||
More than five years
|
7,749,280
|
|||||||
Total minimum lease payments
|
13,290,207
|
42,738,293
|
||||||
Interest included in minimum lease payments
|
3,245,883
|
|||||||
10,044,324
|
42,738,293
|
(a)
|
Under the terms of these credit agreements, the Group is subject to certain covenants. As at September 30, 2013 and 2012, the Group was in compliance with these covenants.
|
(b)
|
On September 23, 2011, the Group entered into an interest swap contract in which it converted the variable rate of the loan by a fixed rate of 1.07% on $10,000,000 of debt for a period of four years. This interest rate swap is a derivative instrument and is recorded as a hedge. The fair value is $(135,690) as at September 30, 2013 and $(204,051) as at September 30, 2012, and is presented in the consolidated statements of financial position under Derivative financial instruments.
|
(c)
|
Under these term loan agreements, call options of the debts in favour of the creditors exist in the occurrence of a change of control. In addition, as management intends to review its funding structure following the change of control, these debts are classified as short-term liabilities as they will be repaid during the year ending September 30, 2014.
|
(d)
|
Using a discount rate of 12.33% as at September 30, 2013 and 11.75% as at September 30, 2012, the fair value of the term loan is $13,652,134 and $13,346,405 respectively.
|
(e)
|
Using a discount rate of 4.56% as at September 30, 2013 and 3.8% as at September 30, 2012, the fair value of the obligation under a finance lease is $7,495,869 (C$7,722,923) and $8,599,638 (C$8,455,057) respectively.
|
36 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
(In U.S. dollars)
|
(f)
|
The lease agreement includes fixed lease payments and options to extend the base rent period by an additional five-year term or purchase the lease asset at a pre-determined purchase price. Using this option, the Group could extend the original five-year base rent period by a maximum of an additional 25 years. The agreement is non-cancellable but the Group is required to either purchase the leased asset at the end of the lease term or extend the rent for an additional five-year term.
|
(g)
|
Using a discount rate of 4.56% as at September 30, 2013 and 3.8% as at September 30, 2012, the fair value of the obligation under a finance lease is $2,590,478 (C$2,668,945) and $2,879,743 (C$2,831,328) respectively.
|
(h)
|
This debt will be repaid before maturity, therefore penalties for early repayment of $187,000 are expected to be paid.
|
2013
|
2012
|
||||||||||||||
Number of
shares |
Amount
|
Number of
shares |
Amount
|
||||||||||||
$
|
$
|
||||||||||||||
Issued and fully paid
|
|||||||||||||||
Balance, beginning of years
|
33,000,000
|
34,034,815
|
33,000,000
|
34,034,815
|
|||||||||||
Balance, end of years
|
33,000,000
|
34,034,815
|
33,000,000
|
34,034,815
|
37 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
(In U.S. dollars)
|
2013
|
2012
|
|||||||
$
|
$
|
|||||||
Trade and other accounts receivable
|
(655,848
|
)
|
(210,918
|
)
|
||||
Prepaid expenses
|
364,029
|
(94,057
|
)
|
|||||
Trade and other accounts payable
|
3,251,631
|
774,994
|
||||||
Commodity taxes payable
|
(109,945
|
)
|
109,945
|
|||||
Deferred revenues
|
343,480
|
152,161
|
||||||
3,193,347
|
732,125
|
2013
|
2012
|
|||||||
$
|
$
|
|||||||
Loss before income taxes
|
(12,737,505
|
)
|
(3,276,343
|
)
|
||||
Domestic effective tax rate
|
26.9%
|
27.3%
|
||||||
Expected tax expense
|
(3,426,389
|
)
|
(893,786
|
)
|
||||
Change in tax rates
|
9,419
|
|||||||
Impact of functional currency change for income tax filing
|
549,826
|
|||||||
Adjustment for tax-exempt income: Quebec investment tax credits
|
(27,166
|
)
|
||||||
Adjustment for non-deductible expenses
|
||||||||
Loss (gain) on long-term debt
|
(172,540
|
)
|
19,225
|
|||||
Changes in fair value of the redeemable shares
|
2,996,024
|
936,443
|
||||||
Other non-deductible expenses
|
497,234
|
19,906
|
||||||
Actual tax expense (income)
|
(105,671
|
)
|
613,867
|
38 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
(In U.S. dollars)
|
2013
|
2012
|
|||||||
$
|
$
|
|||||||
Deferred income tax assets
|
||||||||
Intangible assets
|
192,749
|
205,639
|
||||||
Unused tax losses
|
133,377
|
140,731
|
||||||
Foreign exchange on financial assets
|
3,623
|
69,377
|
||||||
Share issue costs
|
7,086
|
9,825
|
||||||
Property and equipment
|
(8,138
|
)
|
(6,104
|
)
|
||||
328,697
|
419,468
|
|||||||
2013
|
2012
|
|||||||
$
|
$
|
|||||||
Deferred income tax liabilities
|
||||||||
Unused tax losses
|
3,157,267
|
4,482,697
|
||||||
Research and development
|
939,014
|
657,427
|
||||||
Foreign exchange on financial assets
|
313,983
|
457,176
|
||||||
Reserves
|
143,601
|
109,440
|
||||||
Long-term debt financing costs
|
32,013
|
59,395
|
||||||
Other
|
53,960
|
45,713
|
||||||
Property and equipment
|
(3,402,355
|
)
|
(4,794,755
|
)
|
||||
Intangible assets
|
(3,671,862
|
)
|
(3,747,743
|
)
|
||||
Research and development tax credits
|
(301,451
|
)
|
(200,930
|
)
|
||||
(2,735,830
|
)
|
(2,931,580
|
)
|
39 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
(In U.S. dollars)
|
2013
|
||||||||||||||||
Loans and
receivables
carried at
amortized cost
|
Assets carried
at fair value
|
Total
carrying value
|
Fair value
|
|||||||||||||
$
|
$
|
$
|
$
|
|||||||||||||
Financial assets
|
||||||||||||||||
Cash
|
445,495
|
445,495
|
445,945
|
|||||||||||||
Trade and certain other accounts receivable
|
3,253,893
|
3,253,893
|
3,253,893
|
|||||||||||||
3,699,388
|
–
|
3,699,388
|
3,699,838
|
|||||||||||||
2012 | ||||||||||||||||
Loans and
receivables
carried at
amortized cost
|
Assets carried
at fair value
|
Total
carrying value
|
Fair value
|
|||||||||||||
$
|
$
|
$
|
$
|
|||||||||||||
Financial assets
|
||||||||||||||||
Cash
|
1,162,059
|
1,162,059
|
1,162,059
|
|||||||||||||
Trade and certain other accounts receivable
|
2,745,237
|
2,745,237
|
2,745,237
|
|||||||||||||
3,907,296
|
–
|
3,907,296
|
3,907,296
|
|||||||||||||
2013 | ||||||||||||||||
Liabilities
carried at
amortized cost
|
Liabilities
carried at
fair value
|
Total
carrying value
|
Fair value
|
|||||||||||||
$
|
$
|
$
|
$
|
|||||||||||||
Financial liabilities
|
||||||||||||||||
Trade and certain other accounts payable
|
7,804,837
|
7,804,837
|
7,804,837
|
|||||||||||||
Derivative financial instruments
|
118,921
|
118,921
|
118,921
|
|||||||||||||
Total long-term debt
|
52,530,463
|
52,530,463
|
52,697,524
|
|||||||||||||
Redeemable shares
|
27,516,510
|
27,516,510
|
27,516,510
|
|||||||||||||
60,335,300
|
27,635,431
|
87,970,731
|
88,137,792
|
40 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
(In U.S. dollars)
|
2012 | ||||||||||||||||
Liabilities
carried at
amortized cost
|
Liabilities
carried at
fair value
|
Total
carrying value
|
Fair value
|
|||||||||||||
$
|
$
|
$
|
$
|
|||||||||||||
Financial liabilities
|
||||||||||||||||
Trade and other accounts payable
|
8,332,866
|
8,332,866
|
8,332,866
|
|||||||||||||
Derivative financial instruments
|
121,494
|
121,494
|
121,494
|
|||||||||||||
Total long-term debt
|
45,539,448
|
45,539,448
|
46,576,641
|
|||||||||||||
Redeemable shares
|
17,163,562
|
17,163,562
|
17,163,562
|
|||||||||||||
53,872,314
|
17,285,056
|
71,157,370
|
72,194,563
|
(i)
|
Cash, trade and certain other accounts receivable (less research and development tax credits receivable and commodity taxes receivable) and trade and certain other accounts payable are valued at their carrying amounts on the consolidated statements of financial position, which represent an appropriate estimate of their fair value due to their short-term maturities;
|
(ii)
|
Finance leases are valued using the discounted cash flow method using current interest rates for debt with similar terms and remaining maturities;
|
(iii)
|
The fair value of long-term debt is estimated based on the discounted cash flow method using current interest rates for debt with similar terms and remaining maturities;
|
(iv)
|
The fair value of the Group’s derivative instruments is determined using valuation techniques and is calculated as the present value of the estimated future cash flows using an appropriate interest rate yield curve, adjusted for counterparty credit risk. Assumptions are based on market conditions prevailing at each consolidated statements of financial position date. Derivative instruments are represented by the estimated amounts that the Group would receive or pay to settle the contracts at the consolidated statements of financial position date.
|
(v)
|
The fair value of the redeemable shares was determined by applying valuation techniques of the business segment of the Group. More specifically, the fair value of the redeemable shares was estimated based on the adjusted EBITDA (earnings before income taxes, depreciation and amortization and other adjustments) and by applying multiplication factors (based on market conditions and conditions specific to the Group) at the date of the consolidated financial statements.
|
41 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
2013
|
2012
|
|||||||
%
|
%
|
|||||||
Finance leases
|
4.56
|
3.80
|
||||||
Long-term debt
|
12.33
|
11.75
|
Level 1:
|
quoted prices (unadjusted) in active markets for identical financial instruments;
|
Level 2:
|
inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly;
|
Level 3:
|
one or more material inputs used in the measurement technique that are unobservable for purposes of calculating the fair value of the instruments.
|
2013
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
$
|
$
|
$
|
$
|
|||||||||||||
Financial assets and liabilities
|
||||||||||||||||
Foreign exchange contracts
|
16,769
|
16,769
|
||||||||||||||
Interest rate swaps
|
(135,690
|
)
|
(135,690
|
)
|
||||||||||||
Redeemable shares
|
(27,516,510
|
)
|
(27,516,510
|
)
|
||||||||||||
–
|
(118,921
|
)
|
(27,516,510
|
)
|
(27,635,431
|
)
|
42 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
2012
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
$
|
$
|
$
|
$
|
|||||||||||||
Financial assets and liabilities
|
||||||||||||||||
Foreign exchange contracts
|
82,557
|
82,557
|
||||||||||||||
Interest rate swaps
|
(204,051
|
)
|
(204,051
|
)
|
||||||||||||
Redeemable shares
|
(17,163,562
|
)
|
(17,163,562
|
)
|
||||||||||||
–
|
(121,494
|
)
|
(17,163,562
|
)
|
(17,285,056
|
)
|
2013
|
2012
|
|||||||
$
|
$
|
|||||||
Balance, beginning of years
|
(17,163,562
|
)
|
(12,879,000
|
)
|
||||
Exchange gains (losses) recognized in consolidated comprehensive income
|
784,687
|
(851,850
|
)
|
|||||
Gain from changes in fair value of the redeemable shares
|
(11,137,635
|
)
|
(3,432,712
|
)
|
||||
Balance, end of years
|
(27,516,510
|
)
|
(17,163,562
|
)
|
43 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
–
|
Foreign exchange risk:
|
44 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
–
|
Interest rate risk:
|
2013
|
2012
|
|||||||||||||||
$
|
%
|
$
|
%
|
|||||||||||||
Due between 30 days and
|
||||||||||||||||
60 days
|
767,562
|
90
|
550,582
|
92
|
||||||||||||
Due over 60 days
|
79,864
|
10
|
48,399
|
8
|
||||||||||||
Trade accounts receivable
|
847,426
|
100
|
598,981
|
100
|
45 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
2013
|
2012
|
|||||||
$
|
$
|
|||||||
Balance, beginning of years
|
179,815
|
91,643
|
||||||
Increase
|
831,158
|
603,542
|
||||||
Write-off
|
(711,967
|
)
|
(515,370
|
)
|
||||
Balance, end of years
|
299,006
|
179,815
|
2013
|
||||||||||||||||||||
Less than
12 months
|
1 year
to 2 years
|
2 to 5 years
|
More than
5 years
|
Total
|
||||||||||||||||
$
|
$
|
$
|
$
|
$
|
||||||||||||||||
Trade and certain other accounts payable
|
7,804,837
|
7,804,837
|
||||||||||||||||||
Redeemable shares
|
27,516,510
|
27,516,510
|
||||||||||||||||||
Long-term debt
|
||||||||||||||||||||
Principal
|
43,254,078
|
2,830,186
|
1,071,489
|
5,626,340
|
52,782,093
|
|||||||||||||||
Interest
|
829,879
|
412,711
|
920,729
|
1,409,848
|
3,573,167
|
|||||||||||||||
79,405,304
|
3,242,897
|
1,992,218
|
7,036,188
|
91,676,607
|
||||||||||||||||
Derivative instruments
|
||||||||||||||||||||
Inflows
|
(5,016,769
|
)
|
(5,016,769
|
)
|
||||||||||||||||
Outflows
|
5,068,619
|
67,071
|
5,135,690
|
|||||||||||||||||
79,457,154
|
3,309,968
|
1,992,218
|
7,036,188
|
91,795,528
|
46 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
2012
|
||||||||||||||||||||
Less than
12 months
|
1 year
to 2 years
|
2 to 5 years
|
More than
5 years
|
Total
|
||||||||||||||||
$
|
$
|
$
|
$
|
$
|
||||||||||||||||
Trade and other accounts payable
|
8,332,866
|
8,332,866
|
||||||||||||||||||
Redeemable shares
|
17,163,562
|
17,163,562
|
||||||||||||||||||
Long-term debt
|
||||||||||||||||||||
Principal
|
3,633,522
|
3,071,216
|
35,636,249
|
6,333,537
|
48,674,524
|
|||||||||||||||
Interest
|
2,225,533
|
2,089,534
|
4,168,862
|
1,795,960
|
10,279,889
|
|||||||||||||||
14,191,921
|
5,160,750
|
39,805,111
|
25,293,059
|
84,450,841
|
||||||||||||||||
Derivative instruments
|
||||||||||||||||||||
Inflows
|
(2,332,557
|
)
|
(2,332,557
|
)
|
||||||||||||||||
Outflows
|
2,333,384
|
75,242
|
45,425
|
2,454,051
|
||||||||||||||||
14,192,748
|
5,235,992
|
39,850,536
|
25,293,059
|
84,572,335
|
47 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
2013 | ||||||||||||
Shareholders
|
Key
management
personnel
|
Total
|
||||||||||
$
|
$
|
$
|
||||||||||
Management fees (a)
|
217,320
|
–
|
217,320
|
|||||||||
Professional fees (b)
|
180,703
|
60,000
|
240,703
|
|||||||||
Shared-based remuneration
|
–
|
957,813
|
957,813
|
|||||||||
Employee benefit expenses
|
–
|
3,100,972
|
3,100,972
|
2012
|
||||||||||||
Shareholders
|
Key
management
personnel
|
Total
|
||||||||||
$
|
$
|
$
|
||||||||||
Management fees (a)
|
212,211
|
–
|
212,211
|
|||||||||
Professional fees (b)
|
104,103
|
167,715
|
271,818
|
|||||||||
Employee benefit expenses
|
–
|
1,979,096
|
1,979,096
|
2013
|
||||||||||||
Shareholders
|
Key
management
personnel
|
Total
|
||||||||||
$
|
$
|
$
|
||||||||||
Trade and other accounts payable (c)
|
190,784
|
1,685,892
|
1,876,676
|
2012
|
||||||||||||
Shareholders
|
Key
management
personnel
|
Total
|
||||||||||
$
|
$
|
$
|
||||||||||
Trade and other accounts payable (c)
|
53,792
|
724,753
|
778,545
|
(a)
|
The Group entered in a management agreement with Novacap Technologies, whereby the Group pays management fees for supervision and general oversight.
|
(b)
|
The Group pays professional fees to two of its other shareholders.
|
48 |
iWeb Group Inc.
|
Notes to Consolidated Financial Statements
|
September 30, 2013 and 2012
|
(In U.S. dollars)
|
2013
|
2012
|
|||||||
$
|
$
|
|||||||
Short-term employee benefits
|
3,011,171
|
1,979,096
|
||||||
Shared-based compensation
|
957,813
|
|||||||
3,968,984
|
1,979,096
|
49 |
PRO FORMA FINANCIAL INFORMATION
|
||
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2013
|
2 | |
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2012
|
3 | |
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2013
|
4 | |
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
|
5 |
INTERNAP NETWORK SERVICES CORPORATION
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2013
(In thousands)
Historical | Pro Forma Adjustments | ||||||||||||||||||||
ASSETS | Internap | iWeb (Note 1) |
Acquisition (Note 2) |
Financing (Note 3) |
Pro Forma Consolidated | ||||||||||||||||
Current assets | $ | 78,715 | $ | 5,544 | $ | (144 | ) | (d) | $ | 28,353 | (1) | $ | |||||||||
(145,787 | ) | (h) | 145,787 | (1) | 112,468 | ||||||||||||||||
Property and equipment, net | 272,101 | 54,257 | (158 | ) | (a) | — | 326,200 | ||||||||||||||
Intangible assets, net | 18,124 | 15,422 | 25,503 | (b) | — | 59,049 | |||||||||||||||
Goodwill | 59,605 | 34,606 | 38,471 | (c) | — | 132,682 | |||||||||||||||
Other long-term assets | 9,944 | 900 | 2,172 | (1) | 13,016 | ||||||||||||||||
Total assets | $ | 438,489 | $ | 110,729 | $ | (82,115 | ) | $ | 176,312 | $ | 643,415 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||||
Current liabilities | $ | 67,160 | $ | 87,026 | 197 | (d) | (1,960 | ) | (1) | $ | |||||||||||
(1,931 | ) | (e) | — | ||||||||||||||||||
(70,236 | ) | (f) | — | ||||||||||||||||||
(4,210 | ) | (i) | — | ||||||||||||||||||
1,159 | (l) | — | 77,205 | ||||||||||||||||||
Long-term debt | 159,266 | 2,799 | — | 179,153 | (1) | 341,218 | |||||||||||||||
Other long-term liabilities | 20,568 | 2,330 | 7,064 | (d) | — | ||||||||||||||||
(320 | ) | (e) | — | 30,168 | |||||||||||||||||
526 | (l) | — | |||||||||||||||||||
Stockholders’ equity | 191,495 | 18,574 | (18,574 | ) | (g) | (881 | ) | (1) | |||||||||||||
4,210 | (i) | — | 194,824 | ||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 438,489 | $ | 110,729 | $ | (82,115 | ) | $ | 176,312 | $ | 643,415 |
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.
2 |
Historical
|
Pro Forma Adjustments
|
|||||||||||||||||||
Internap
12 Months Ended December 31, 2012 |
iWeb 12 Months Ended September 30, 2012 (Note 1) |
Acquisition
(Note 2) |
Financing
(Note 3) |
Pro Forma
Consolidated |
||||||||||||||||
Revenues
|
$ | 273,592 | $ | 42,043 | $ | (1,931 | )(e) | $ | — | $ | 313,704 | |||||||||
Operating expenses
|
269,828 | 37,772 | — | |||||||||||||||||
466 | (a) | — | ||||||||||||||||||
869 | (b) | — | 308,935 | |||||||||||||||||
Income from operations
|
3,764 | 4,271 | (3,266 | ) | — | 4,769 | ||||||||||||||
Interest expense
|
7,566 | 2,791 | — | 15,348 | (2) | 25,705 | ||||||||||||||
Other non-operating expenses
|
283 | 4,601 | (4,474 | )(f) | — | 410 | ||||||||||||||
Income tax provision (benefit)
|
453 | 570 | 459 | (j) | (5,832 | )(3) | (4,350 | ) | ||||||||||||
Equity in earnings of equity-method investment
|
(220 | ) | — | — | — | (220 | ) | |||||||||||||
Net loss
|
$ | (4,318 | ) | $ | (3,691 | ) | $ | 749 | $ | (9,516 | ) | $ | (16,776 | ) | ||||||
Basic and diluted net loss per share
|
$ | (0.09 | ) | $ | (0.33 | ) | ||||||||||||||
Weighted average shares outstanding used in computing net loss per share
|
50,761 | 50,761 |
3 |
Historical
|
Pro Forma Adjustments
|
|||||||||||||||||||
Internap
|
iWeb
|
Acquisition (Note 2) |
Financing (Note 3) |
Pro Forma Consolidated |
||||||||||||||||
Revenues
|
$ | 209,255 | $ | 33,455 | $ | (320 | )(e) | $ | — | $ | 241,614 | |||||||||
(776 | )(k) | |||||||||||||||||||
Operating expenses
|
210,887 | 33,813 | 349 | (a) | — | |||||||||||||||
652 | (b) | — | 245,701 | |||||||||||||||||
Loss from operations
|
(1,632 | ) | (358 | ) | (2,097 | ) | — | (4,087 | ) | |||||||||||
Interest expense
|
7,324 | 2,176 | — | 10,275 | (2) | 19,775 | ||||||||||||||
Other non-operating expenses
|
679 | 10,468 | (10,459 | )(f) | — | 688 | ||||||||||||||
Income tax (benefit) provision
|
(98 | ) | (511 | ) | 3,178 | (j) | (3,905 | )(3) | (1,336 | ) | ||||||||||
Equity in earnings of equity-method investment
|
(157 | ) | — | — | — | (157 | ) | |||||||||||||
Net loss
|
$ | (9,380 | ) | $ | (12,491 | ) | $ | 5,184 | $ | (6,370 | ) | $ | (23,057 | ) | ||||||
Basic and diluted net loss per share
|
$ | (0.18 | ) | $ | (0.45 | ) | ||||||||||||||
Weighted average shares outstanding used in computing net loss per share
|
51,070 | 51,070 |
4 |
|
●
|
iWeb’s historical statements included a capital lease obligation and related asset, which under U.S. GAAP would be classified as an operating lease. The details of the reclassification are as follows:
|
|
o
|
property and equipment, net: removal of the capitalized asset of $6.5 million
|
|
o
|
long-term debt: removal of the capital lease obligation of $7.3 million
|
|
o
|
current liabilities: addition of deferred rent expense of $1.5 million
|
|
o
|
retained deficit: addition of $0.6 million for the net effect of this entry
|
|
o
|
operating expenses: net addition of rental expenses and removal of depreciation expense of $0.5 million
|
|
o
|
interest expense: removal of capital lease interest expense of $0.4 million
|
|
o
|
other non-operating expenses: removal of unrealized foreign currency exchange loss on the capital lease obligation of $0.5 million
|
5 |
|
●
|
iWeb’s historical statements included certain research and development (“R&D”) tax credits included in other assets, which classified under U.S. GAAP would be netted against deferred tax liabilities. The details of the reclassification are as follows:
|
|
o
|
other long-term assets: removal of the R&D tax credits of $0.9 million
|
|
o
|
deferred tax liabilities: addition of the R&D tax credits of $0.9 million
|
Current assets, including cash acquired of $1.3 million
|
$
|
5,400
|
||
Property and equipment
|
54,099
|
|||
Goodwill
|
73,077
|
|||
Intangible assets
|
40,925
|
|||
Other assets
|
900
|
|||
Current liabilities, including current portion of deferred taxes and revenue
|
(16,215
|
)
|
||
Capital lease obligations
|
(2,799
|
)
|
||
Other long-term liabilities, including long-term portion of deferred taxes and revenue
|
(9,600
|
)
|
||
$
|
145,787
|
Amortization Expense
|
|||||||||||||
Fair Value
|
Estimated
Economic Life |
Year Ended
December 31, 2012 |
Nine Months Ended
September 30, 2013 |
||||||||||
Fair value:
|
|||||||||||||
Customer relationships
|
$ | 22,200 |
21 years
|
$ | 1,057 | $ | 793 | ||||||
Trade name
|
15,100 |
30 years
|
503 | 378 | |||||||||
Beneficial leasehold interest
|
858 |
14 years
|
61 | 46 | |||||||||
Internally developed software
|
2,767 |
5 years
|
554 | 415 | |||||||||
Total intangible assets
|
$ | 40,925 | 2,175 | 1,632 | |||||||||
Less historical amortization expense
|
(1,306 | ) | (980 | ) | |||||||||
Incremental amortization expense
|
$ | 869 | $ | 652 |
6 |
Purchase price allocation of iWeb goodwill
|
$ | 73,077 | ||
Less historical goodwill of iWeb
|
(34,606 | ) | ||
Pro forma adjustment
|
$ | 38,471 |
iWeb Balance at
September 30, 2013 |
Fair Value Adjustment
|
Adjusted iWeb
Balance at September 30, 2013 |
||||||||||
Deferred Tax Assets
|
||||||||||||
Current
|
$ | 144 | $ | (144) | $ | - | ||||||
Deferred Tax Liability
|
||||||||||||
Current
|
- | 197 | 197 | |||||||||
Non-current
|
1,321 | 7,064 | 8,385 |
iWeb Balance at
September 30, 2013 |
Adjustment to
Reflect Future Services |
Adjusted iWeb Balance at
September 30, 2013 |
||||||||||
Current
|
$ | 6,498 | $ | (1,931 | ) | $ | 4,567 | |||||
Non-current
|
1,072 | (320 | ) | 752 | ||||||||
Total deferred revenue
|
$ | 7,570 | $ | (2,251 | ) | $ | 5,319 |
7 |
|
(1)
|
Incremental impact to the unaudited pro forma condensed consolidated balance sheet for the issuance of new debt and the extinguishment of previous debt, completed in conjunction with the acquisition, including the related costs of borrowing (in thousands):
|
Net cash received from financing
|
$ | 21,597 | ||
Addition of prepaid financing costs on new debt, current
|
532 | |||
Removal of prepaid financing costs on previous debt, current
|
(248 | ) | ||
Payment of collateral deposit on new debt
|
6,472 | |||
Increase to current assets
|
28,353 | |||
Addition of prepaid financing costs on new debt, long-term
|
2,358 | |||
Removal of prepaid financing costs on previous debt, long-term
|
(186 | ) | ||
Increase to other long-term assets
|
2,172 | |||
Payment of accrued interest
|
314 | |||
Addition of debt discount on new debt, current
|
1,380 | |||
Removal of debt discount on previous debt, current
|
(234 | ) | ||
Addition of current portion of new debt
|
(3,000 | ) | ||
Removal of current portion of previous debt
|
3,500 | |||
Decrease to current liabilities
|
1,960 | |||
Addition of debt discount on new debt, long-term
|
8,145 | |||
Removal of debt discount on previous debt, long-term
|
(173 | ) | ||
Addition of long-term portion of new debt
|
(297,000 | ) | ||
Removal of long-term portion of previous debt
|
59,375 | |||
Removal of previous revolving credit facility
|
50,500 | |||
Increase to long-term debt
|
(179,153 | ) | ||
Loss on extinguishment of debt
|
881 | |||
Purchase price of iWeb
|
$ | (145,787 | ) |
8 |
|
(2)
|
Incremental impact of interest expense to the unaudited pro forma condensed consolidated statements of operations to reflect the issuance of new debt and the extinguishment of previous debt, as if it had occurred on January 1, 2012, calculated as follows (in thousands):
|
Amount
|
Year Ended
December 31, 2012 |
Nine Months Ended
September 30, 2013 |
||||||||||
Term loan:
|
||||||||||||
Interest, assumes the current rate of 6.0%
|
$ | 300,000 | $ | 18,193 | $ | 13,540 | ||||||
Amortization of debt discount(x)
|
9,525 | 1,380 | 1,086 | |||||||||
Unused revolving credit facility fee, 0.5% of unused balance
|
50,000 | 250 | 187 | |||||||||
Amortization of prepaid financing costs, term loan(y)
|
1,390 | 232 | 174 | |||||||||
Amortization of prepaid financing costs, revolving credit facility(y)
|
1,500 | 300 | 225 | |||||||||
Interest rate swap(z)
|
808 | 598 | ||||||||||
Annual administrative fee
|
100 | 100 | 75 | |||||||||
Pro forma interest expense
|
21,263 | 15,885 | ||||||||||
Less historical interest expense:
|
||||||||||||
Internap
|
(3,123 | ) | (3,550 | ) | ||||||||
iWeb
|
(2,792 | ) | (2,060 | ) | ||||||||
Pro forma interest adjustment
|
$ | 15,348 | $ | 10,275 |
|
(x)
|
Amortization of debt discount, using the effective interest method, is based on a 72 month life.
|
|
(y)
|
Amortization of prepaid financing costs, using the straight-line method, is based on a 72 month life for the term loan and a 60 month life for the revolving credit facility.
|
|
(z)
|
Internap has an interest rate swap, expiring December 2016, which requires Internap to pay the counterparty 1.5% interest on an amortizing notional amount of $150.0 million and receive one-month LIBOR with a 1% floor. The pro forma adjustment assumes the one-month LIBOR is at the 1% floor for the balance of the swap period.
|
9 |
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