1
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following pro forma condensed statements of operations are set
forth herein to give effect to the acquisition of CAI by NEON as if such
acquisition had occurred as of the beginning of the earliest period presented
(January 1, 1997) by combining the statements of operations data of (i) the
Company and CAI for the year ended December 31, 1997 and (ii) the Company and
CAI for the nine months ended September 30, 1998. The acquisition was accounted
for under the purchase method of accounting. The pro forma financial information
does not reflect any potential cost savings which may be obtained following the
acquisition. The pro forma adjustments and assumptions are based on estimates,
evaluations and other data currently available. The pro forma condensed
statements of operations are provided for illustrative purposes only and are not
necessarily indicative of the combined results of operations that would have
been reported had the acquisition occurred on January 1, 1997, nor does it
represent a forecast of the combined future results of operations for any future
period. All information contained herein should be read in conjunction with the
Consolidated Financial Statements and the notes thereto of the Company and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's Form 10-K for the year ended December 31,
1997, the financial statements and notes thereto of CAI included in the attached
Exhibits to this Form 8-K/A, and the notes to the Unaudited Pro Forma Statements
of Operations.
2
NEW ERA OF NETWORKS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
Pro Forma
Neon Historical CAI Historical Combined Combined
Nine Months Ended Eight Months Ended Nine Months Ended Nine Months Ended
September 30, August 31, September 30, Pro Forma September 30,
1998 1998(1) 1998 Adjustments 1998
---------------- ----------------- ----------------- ----------- -----------------
Revenues:
Software licenses $ 24,553,964 $ 1,006,438 $ 25,560,402 $ $ 25,560,402
Services and maintenance 13,951,368 6,276,907 20,228,275 20,228,275
------------- ------------ ------------- ------------ ------------
Total revenues 38,505,332 7,283,345 45,788,677 45,788,677
------------- ------------ ------------- ------------ ------------
Cost of revenues:
Cost of software licenses 1,115,947 347,709 1,463,656 1,463,656
Cost of services and maintenance 7,179,483 4,039,615 11,219,098 11,219,098
------------- ------------ ------------- ------------ ------------
Total cost of revenues 8,295,430 4,387,324 12,682,754 12,682,754
------------- ------------ ------------- ------------ ------------
Gross Profit 30,209,902 2,896,021 33,105,923 33,105,923
Operating Expenses:
Sales and marketing 13,165,903 3,494,333 16,660,236 16,660,236
Research and development 9,775,708 2,108,204 11,883,912 11,883,912
General and administrative 3,963,301 1,873,163 5,836,464 5,836,464
Charge for acquired in-process
research and development 17,597,000(3) -- 17,597,000 (13,857,000) (4a) 3,740,000
Amortization of intangibles 612,885 -- 612,885 2,731,715 (4b) 3,344,600
------------- ------------ ------------- ------------ ------------
Total operating expenses 45,114,797 7,475,700 52,590,497 11,125,285 41,465,212
------------- ------------ ------------- ------------ ------------
Loss from operations (14,904,895) (4,579,679) (19,484,574) 11,125,285 (8,359,289)
Other income (expense), net 1,682,979 (298,124) 1,384,855 (874,000) (5) 510,853
------------- ------------ ------------- ------------ ------------
Loss before provision for income taxes (13,221,916) (4,877,803) (18,099,719) 10,251,285 (7,848,434)
Provision for income taxes -- -- -- -- --
------------- ------------ ------------- ------------ ------------
Net loss $ (13,221,916) $ (4,877,803) $ (18,099,719) $ 10,251,285 $ (7,848,434)
============= ============ ============= ============ ============
Historical and pro forma net loss per
common share, basic and diluted $ (1.26) $ (.72)(2)
============= ============
Historical and pro forma weighted
average shares of Common Stock
outstanding, basic and diluted 10,490,740 10,930,771
============= ============
See accompanying notes to unaudited pro forma statements of operations.
3
NEW ERA OF NETWORKS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited)
Pro Forma
Neon Historical CAI Historical Combined Combined
Year ended Year ended Year ended Year ended
December 31, December 31, December 31, Pro Forma December 31,
1997 1997 1997 Adjustments 1997
------------ ------------ ------------ ------------ ------------
Revenues:
Software licenses $ 15,969,840 $ 8,729,103 $ 24,698,943 $ -- $ 24,698,943
Services and maintenance 6,675,602 8,876,284 15,551,886 -- 15,551,886
------------ ------------ ------------ ------------ ------------
Total revenues 22,645,442 17,605,387 40,250,829 -- 40,250,829
------------ ------------ ------------ ------------ ------------
Cost of revenues:
Costs of software licenses 899,710 1,362,243 2,261,953 -- 2,261,953
Cost of services and maintenance 4,442,908 4,595,349 9,038,257 -- 9,038,257
------------ ------------ ------------ ------------ ------------
Total costs and expenses 5,342,618 5,957,592 11,300,210 -- 11,300,210
------------ ------------ ------------ ------------ ------------
Gross Profit 17,302,824 11,647,795 28,950,619 -- 28,950,619
Operating Expenses:
Sales and marketing 8,823,830 7,220,768 16,044,598 -- 16,044,598
Research and development 7,730,411 2,363,279 10,093,690 -- 10,093,690
General and administrative 2,334,185 2,386,054 4,720,239 -- 4,720,239
Charge for acquired in-process research
and development 2,600,000 -- 2,600,000 2,600,000
Amortization of intangibles 65,836 -- 65,836 4,097,573(4b) 4,163,409
------------ ------------ ------------ ------------ ------------
Total operating expenses 21,554,262 11,970,101 33,524,363 4,097,573 37,621,936
------------ ------------ ------------ ------------ ------------
Loss from operations (4,251,438) (322,306) (4,573,744) (4,097,573) (8,671,317)
Other income (expense), net 744,805 (622,509) 122,296 (656,000)(5) (533,704)
------------ ------------ ------------ ------------ ------------
Loss before provision for income taxes (3,506,633) (944,815) (4,451,448) (4,753,573) (9,205,021)
Provision for income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss $ (3,506,633) $ (944,815) $ (4,451,448) $ (4,753,573) $ (9,205,021)
============ ============ ============ ============ ============
Historical pro forma net loss per common share,
basic and diluted $ (0.64) $ (1.34)(2)
============ ============
Historical pro forma weighted average shares of
common stock outstanding, basic and diluted 5,479,151 6,877,515 (5)
============ ============
See accompanying notes to unaudited pro forma statements of operations.
4
NEW ERA OF NETWORKS, INC.
NOTES TO UNAUDITED PRO FORMA
STATEMENTS OF OPERATIONS
Effective as of September 1, 1998, NEON acquired all of the outstanding
capital stock of CAI by means of a Share Acquisition Agreement by and among CAI,
the shareholders of CAI and NEON.
The aggregate consideration paid by the Company was $41,000,000, payable as
follows: approximately $23,000,000 in cash and approximately $18,000,000 through
the issuance of 440,031 unregistered shares of the Company's common stock. The
Company also issued stock options exercisable for shares of the Company's common
stock to assume all outstanding CAI stock options valued at approximately
$1,000,000. An additional 195,569 unregistered shares of the Company's common
stock are issuable contingent upon the achievement of certain performance
criteria by CAI. The Company expects that the fees and expenses related to the
acquisition will be approximately $1,500,000. The acquisition was accounted for
under the purchase method of accounting and, accordingly, the assets,
liabilities and operating results of CAI were included in NEON's consolidated
financial statements from the effective date of the acquisition.
An independent valuation of CAI's net assets was performed to assist in the
allocation of the purchase price. Approximately $13,857,000 of the purchase
price represented the intangible value of in-process research and development
projects that had not yet reached technical feasibility. The related technology
has no alternative future use and will require substantial additional
development by the Company. This amount was charged to operations in the quarter
ended September 30, 1998. A portion of the purchase price was also assigned to
marketable software products ($5,814,000) and goodwill ($29,348,000), which are
being amortized on a straight-line basis over five- and ten-year periods,
respectively. CAI's other assets were valued at approximately $6,800,000 and its
liabilities assumed totaled approximately $12,500,000.
The NEON and CAI statements of operations have been combined for the year
ended December 31, 1997 and the nine month period ended September 30, 1998 for
the presentation of unaudited pro forma statements of operations only. For pro
forma purposes, the historical statements of operations of NEON and CAI have
been combined as if the acquisition had occurred as of the beginning of the
earliest period presented (January 1, 1997). These unaudited pro forma
statements of operations, including the notes thereto, should be read in
conjunction with the historical consolidated financial statements of NEON and
CAI for the indicated periods. Certain reclassifications to the CAI historical
financial statements have been made to conform to the NEON presentation.
NOTE 1. The CAI acquisition was effective as of September 1, 1998 and,
accordingly, CAI's September 1998 results of operations have been consolidated
in NEON's historical statement of operations for the nine months ended September
30, 1998.
NOTE 2. The unaudited pro forma net loss per share is based on the actual
weighted average number of shares of NEON common stock outstanding during the
period, adjusted to give effect to 440,031 shares of the Company's common stock
issued pursuant to this acquisition. For the year ended December 31, 1997,
weighted average shares outstanding are further adjusted as described in Note 5
below.
NOTE 3. The statement of operations for the nine months ended September 30,
1998 includes the $13.9 million charge for acquired in-process research and
development arising from the Acquisition.
NOTE 4. Pro forma adjustments related to the CAI purchase price allocation
are as follows:
(a) Reflects the add-back of the charge for in-process research and
development related to the CAI acquisition and included in the historical
statement of operations of NEON for the nine months ended September 30, 1998.
The pro forma combined statement of operations excludes such write-off of
purchased research and development due to its non-recurring nature.
(b) Reflects the amortization of intangibles associated with the purchase
of CAI as if the acquisition was completed as of January 1, 1997.
NOTE 5. For pro forma purposes, the cash portion of the purchase price, $23
million, was assumed to have been funded from proceeds of NEON's initial public
offering ("IPO") in June 1997. Consequently, the pro forma weighted average
shares outstanding for 1997 assume the issuance of common shares for $23,000,000
on January 1, 1997, at the IPO price of $12.00 per share. Interest income of
approximately $656,000 earned on IPO proceeds of $23,000,000, at an assumed
average rate of 5.7% (which approximates NEON's rate of return on its short-term
investments), was eliminated for the period of 1997 subsequent to the IPO.
For the nine months ended September 30, 1998, the pro forma adjustment to
interest income of $874,000 is based on an assumed average rate of 5.7% applied
to the cash portion of the purchase price, $23,000,000, for the period of 1998
prior to the effective date of the acquisition.