EXHIBIT 99.2
NOVO NETWORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements are based on the historical financial statements of Novo Networks, Inc. (“Novo,” “we,” “us,” or “our”) and Berliner Communications, Inc. (“Berliner Communications”) after giving effect to our Purchase Agreement and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements. We acquired the operations, substantially all of the assets and liabilities of Berliner Communications on February 18, 2005.
Since Novo was a shell company prior to its acquisition of the assets and assumption of liabilities of Berliner Communications, purchase accounting has not been applied and the transaction is being accounted for as a recapitalization of Berliner Communications. The accompanying unaudited pro forma condensed combined balance sheet is presented as if the recapitalization of Berliner Communications occurred on December 31, 2004. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2004, are presented as if the recapitalization of Berliner Communications had occurred on January 1, 2004. All material adjustments to reflect the recapitalization are set forth in the column “Pro Forma Adjustments.”
The pro forma data is for informational purposes only and may not necessarily reflect future results of operations or financial position or what the results of operations or financial position would have been had Novo and Berliner Communications been operating as combined entities for the periods presented. The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements, including the notes thereto, of Novo included in our Form 10-K for the year ended June 30, 2004, and in our Form 10-Q’s for the quarters ended September 30, 2004, and December 31, 2004, and the historical financial statements included elsewhere in this Form 8-K/A.
NOVO NETWORKS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
December 31, 2004
| Historical | Pro Forma | |||||||||||||||
| Berliner | Novo | Adjustments | Combined | |||||||||||||
| ASSETS | ||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||
| Cash and cash equivalents | $ | 453,818 | $ | 1,980,714 | $ | (100,000 | ) (1) | $ | 2,334,532 | |||||||
| Accounts receivable, net of allowance for doubtful accounts of $106,061 on 2004 and $147,724 in 2003 | 3,384,904 | — | 3,384,904 | |||||||||||||
| Inventories | 515,565 | — | 515,565 | |||||||||||||
| Prepaid expenses and other current assets | 212,943 | 261,536 | 474,479 | |||||||||||||
| 4,567,230 | 2,242,250 | 6,709,480 | ||||||||||||||
| LONG-TERM ASSETS | ||||||||||||||||
| Prepaid expenses | — | 213,042 | 213,042 | |||||||||||||
| Fixed assets, net | 557,317 | 256,395 | 813,712 | |||||||||||||
| Other assets | 68,032 | 5,745 | 73,777 | |||||||||||||
| $ | 5,192,579 | 2,717,432 | $ | (100,000 | ) | $ | 7,810,011 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||
| Line of credit | $ | 344,588 | — | $ | — | $ | 344,588 | |||||||||
| Current portion of long-term debt | 434,372 | — | 434,372 | |||||||||||||
| Current portion of capital lease obligations | 56,573 | — | 56,573 | |||||||||||||
| Loan from shareholder | 101,640 | — | 101,640 | |||||||||||||
| Accounts payable | 1,704,187 | — | 1,704,187 | |||||||||||||
| Accrued liabilities | 1,223,965 | 217,114 | 1,441,079 | |||||||||||||
| Deferred revenue | 9,435 | — | 9,435 | |||||||||||||
| Income tax payable | 12,581 | — | 12,581 | |||||||||||||
| 3,887,341 | 217,114 | 4,104,455 | ||||||||||||||
| LONG-TERM LIABILITIES | ||||||||||||||||
| Long-term debt, net of current portion | 404,484 | — | 404,484 | |||||||||||||
| Long-term capital lease obligations, net of current portion | 26,977 | — | 26,977 | |||||||||||||
| 431,461 | — | 431,461 | ||||||||||||||
| COMMITMENTS | — | — | — | |||||||||||||
| STOCKHOLDERS’ EQUITY | 873,777 | 2,500,318 | (100,000 | ) (1) | 3,274,095 | |||||||||||
| $ | 5,192,579 | $ | 2,717,432 | $ | — | $ | 7,810,011 | |||||||||
The accompanying notes are an integral part of this statement.
NOVO NETWORKS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 2004
| Historical | Pro Forma | |||||||||||||||
| Berliner | Novo | Adjustments | Combined | |||||||||||||
| Revenues | $ | 15,285,904 | $ | — | $ | — | $ | 15,285,904 | ||||||||
| Costs of revenues | 9,604,839 | — | 9,604,839 | |||||||||||||
| Gross margin | 5,681,065 | — | 5,681,065 | |||||||||||||
| Selling, general and administrative expenses | 6,123,328 | 2,073,109 | (535,000 | )(2) | 7,510,437 | |||||||||||
| (151,000 | )(3) | |||||||||||||||
| Depreciation and amortization | 342,934 | 312,492 | 655,426 | |||||||||||||
| Impairment loss | — | 825,000 | 825,000 | |||||||||||||
| Loss from operations | (785,197 | ) | (3,210,601 | ) | 686,000 | (3,309,798 | ) | |||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (46,813 | ) | — | (46,813 | ) | |||||||||||
| Interest income | 1,639 | 19,290 | 20,929 | |||||||||||||
| Loss on equity investments | — | (168,605 | ) | (168,605 | ) | |||||||||||
| Gain on extinguishment of debt | — | 313,500 | (313,500 | )(4) | — | |||||||||||
| Gain (loss) on sale of fixed assets | 9,699 | — | 9,699 | |||||||||||||
| Other income (expense) | — | 1,213,225 | (1,150,000 | ) (2) | 63,225 | |||||||||||
| Income (loss) before income taxes | (820,672 | ) | (1,833,191 | ) | (777,500 | ) | (3,431,363 | ) | ||||||||
| Income tax expense | 16,160 | — | 16,160 | |||||||||||||
| Net income (loss) | (836,832 | ) | (1,833,191 | ) | (777,500 | ) | (3,447,523 | ) | ||||||||
| Preferred stock dividends and accretion | — | (737,893 | ) | (737,893 | ) | |||||||||||
| Net income (loss) applicable to common | ||||||||||||||||
| shareholders | $ | (836,832 | ) | $ | (2,571,084 | ) | $ | (777,500 | ) | $ | (4,185,416 | ) | ||||
| Net income (loss) per share - basic and diluted | $ | (0.02 | ) | |||||||||||||
| Weighted average number of shares outstanding - basic and diluted | 200,000,000 | |||||||||||||||
The accompanying notes are an integral part of this statement.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The following unaudited pro forma condensed combined balance sheet is derived from the balance sheets of Berliner Communications and us at December 31, 2004. The unaudited pro forma condensed combined balance sheet reflects our purchase of the operations and substantially all the assets and liabilities of Berliner Communications by our wholly owned subsidiary, BCI Communications, Inc. The transaction is being accounted for as a recapitalization of Berliner Communications since Novo was a shell company. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2004, gives effect to the recapitalization of Berliner Communications as if it occurred on January 1, 2004.
In accordance with the rules and regulations of the SEC, unaudited financial statements may omit or condense information and disclosures normally required for a complete set of financial statements prepared in accordance with generally accepted accounting principles. However, management believes that the notes to the financial statements as presented contain disclosures adequate to make the information presented not misleading.
The adjustments necessary to fairly present the unaudited pro forma condensed combined financial statements have been made based on available information and in the opinion of management are reasonable. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with these unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial data is for comparative purposes only and does not purport to represent what our financial position or results of operations would actually have been had the events noted above in fact occurred on the assumed dates or to project the financial position or results of operations for any future date or future period. The unaudited pro forma condensed combined financial data should be read in conjunction with the notes hereto.
2. Berliner Acquisition
Pursuant to our asset purchase agreement (the “Purchase Agreement”) with Berliner Communications, a privately held Delaware corporation, we acquired the operations and substantially all of the assets and liabilities. Under the terms of the Purchase Agreement, we issued 147,676,299 shares of our common stock and 3,913,699 shares of our Series E Convertible Preferred Stock. The estimated value of our common and preferred stock issued was $3,032 based upon the par value of the securities issued by us.
Since we have had no operations since December of 2001 and have been classified as a shell company, the acquisition of Berliner Communications has been accounted for as a recapitalization of Berliner Communications. The assets acquired and liabilities assumed were recorded at their historical book value as if the transaction occurred on December 31, 2004, with the difference charged to additional paid in capital.
3. Accounting Acquirer Stockholders’s Equity
The stockholders’ equity section reflects the recapitalization of Berliner Communications. Our common shares and our Series E Preferred shares issued to Berliner Communications were recorded as a deemed retroactive stock split, which resulted in the issuance of 147,676,299 shares of our common stock and 3,913,669 shares of our Series E Preferred Stock as discussed in Footnote above.
We will record a deemed dividend to our Series B Preferred Stock in the amount of $6.4 million and our Series D Preferred Stock in the amount of $13.5 million at the time of the filing of the Certificate of Amendment and the adoption of the Charter Amendments with the Delaware Secretary of State. The deemed dividend was computed based upon the additional common shares each class of preferred stock will receive due to the reduced conversion price in the Voting Agreement at the market price on the measurement date, which was February 18, 2005. Our Series B and D Preferred Stock shareholders will receive approximately 996.8 million shares in the aggregate of our common stock before the proposed reverse stock split of one share for each 300 shares as part of the Voting Agreement. The deemed dividend is expected to occur prior to August 31, 2005.
4. Pro Forma Adjustments
The following pro forma adjustments are included in the unaudited pro forma condensed combined balance sheet:
| (1) | Reflects the recapitalization of Berliner Communications as of December 31, 2004 | |||||
| Elimination of cash that was not acquired in the transaction | $ | (100,000 | ) | |||
| Elimination of the Berliner Communications equity | $ | (873,777 | ) | |||
| Recording of Novo securities issued to Berliner Communications at par value | 3,032 | |||||
| Net assets acquired charged to additional paid in capital (see footnote 2) | 870,745 | |||||
| $ | (100,000 | ) | ||||
| (2) | Reflects the elimination of other income and associated costs related to the settlement of litigation pertaining to the business of Novo | |||||
| Settlement amount | $ | 1,150,000 | ||||
| Associated costs in 2004 | $ | 535,000 | ||||
| (3) | Reflects the elimination of certain general and administrative expenses not expected to continue with the new business | $ | 151,000 | |||
| (4) | Reflects the elimination of the gain on extinguishment of debt related to the Novo Liquidating Trust for Novo’s subsidiaries that were liquidated as part of a bankruptcy process | $ | 313,500 | |||
| (5) | The number of shares utilized in the calculation of loss per share represents the total number of common shares outstanding in 2004 assuming the recapitization of Berliner Communications occurred on January 1, 2004. | |||||