Phonetime announces a restatement of purchase price allocation on 2007 business acquisition
MISSISSAUGA, ON, Feb. 9 /CNW/ — Phonetime Inc. (TSX: PHD) today announced its intention to restate and re-file its previously filed consolidated financial statements due to an understatement of intangible assets and future income tax liabilities and an overstatement of goodwill in connection with its acquisition of Symphony Holdings, Inc. in 2007. The Company intends to restate and re-file its consolidated financial statements for the years ended December 31, 2008 and 2007 (the “Prior Annual Statements”), its interim financial statements for the three, six and nine month periods ended March 31, June 30, and September 30 of each of the 2009 and 2008 fiscal years (the “Prior Interim Statements”), respectively, and its related management’s discussion and analysis for these periods.
Effective November 4, 2007, the Company acquired all of the issued and outstanding shares of Symphony Holdings, Inc. (“Symphony”) for cash, stock, and convertible debentures. The acquisition represents a business combination for accounting purposes and has been accounted for using the purchase method of accounting.
In December 2009, the Company engaged an independent accountant to review the purchase price allocation related to the 2007 acquisition and identified an understatement of intangible assets and future income taxes and an overstatement of goodwill related to the acquisition. Consequently, the Company will restate and re-file the Prior Annual Statements and the Prior Interim Statements to reflect the increase in intangible assets and future income tax liability and reduce goodwill, net income and earnings per share for the affected periods. Below is the expected adjustment to the purchase price equation:
The change in the purchase price allocation relates to the establishment of identifiable intangibles that were not previously recorded by management together with the tax effect.
The recognition of intangible assets creates the need for the Company to establish an estimated useful life. The Company has determined that the following amortization periods for identified intangibles:
While this re-statement has no impact on the cash flow of the Company, the amortization of the above intangibles reduces the previously reporting net income, income tax expense and earnings per share of the company for all reporting periods from the fourth quarter of 2007 to the third quarter of 2009. The modification to the purchase price equation also adjusts the reported assets, liabilities and equity of the Company; the effect of each reporting period is shown below:
About Phonetime Inc.
Established in 1994, Phonetime is a leading supplier of international wholesale and retail long distance telecommunications services with network facilities in Canada, the U.S., Europe, Africa and Asia. Through its Wholesale Division, Phonetime buys and resells long-distance services to major telephone carriers around the world using its proprietary call trading platform. Through its Consumer Division, Phonetime provides subscription-based long distance services to targeted ethnic consumers across Canada and competitively markets a range of long distance phone cards. Phonetime’s common shares trade on the Toronto Stock Exchange under the symbol PHD. More information can be found at the Company’s website, www.phonetime.com.
Caution Regarding Forward Looking Information:
This press release contains forward-looking statements, which may be identified by words like “expects”, “anticipates”, “plans”, “intends”, “indicates” or similar expressions. These statements are not a guarantee of future performance and are inherently subject to risks and uncertainties. Phonetime’s actual results could differ materially from those currently anticipated due to a number of factors set forth in reports and other documents filed by the Company with Canadian securities regulatory authorities from time to time.