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EXHIBIT 99.2
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INDEX TO FINANCIAL STATEMENTS
ACQUION, INC. PAGE
----
Audited:
Independent Auditors' Report........................................................ F-2
Balance Sheet as of October 31, 1996................................................ F-3
Statement of Operations for the year ended October 31, 1996......................... F-4
Statement of Shareholder's Deficit for the year ended October 31, 1996.............. F-5
Statement of Cash Flows for the year ended October 31, 1996......................... F-6
Notes to Financial Statements for the year ended October 31, 1996................... F-7
Unaudited:
Balance Sheet as of August 22, 1997................................................. F-12
Statements of Operations for the periods from November 1 through August 22,
1996 and 1997.................................................................. F-13
Statements of Cash Flows for the periods from November 1 through August 22,
1996 and 1997.................................................................. F-14
Notes to Unaudited Financial Statements............................................. F-15
HARBINGER CORPORATION AND SUBSIDIARIES PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1996, reflecting the pro forma adjustments for all acquisitions
prior to Acquion............................................................... F-17
Notes to Unaudited Pro Forma Consolidated Statements of Operations.................. F-19
Unaudited Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1996 and the nine months ended September 30, 1997, reflecting
the acquisition of Acquion..................................................... F-24
Notes to Unaudited Pro Forma Consolidated Statements of Operations.................. F-27
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
Acquion, Inc.:
We have audited the accompanying balance sheet of Acquion, Inc. (a wholly owned
subsidiary of FD Engineers & Constructors, Inc.) as of October 31, 1996 and the
related statements of operations, shareholder's deficit, and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides 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 Acquion, Inc. as of October 31,
1996 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
October 1, 1997
F-2
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ACQUION, INC.
(A WHOLLY OWNED SUBSIDIARY OF FD ENGINEERS & CONSTRUCTORS, INC.)
BALANCE SHEET
OCTOBER 31, 1996
ASSETS
Accounts receivable, net of allowance for doubtful
accounts of $36,000 $ 123,000
Prepaid expense 129,000
Other current assets 11,000
----------
Total current assets 263,000
Property and equipment, less accumulated
depreciation and amortization 354,000
----------
$ 617,000
==========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Accounts payable $ 315,000
Accrued expenses 196,000
Deferred revenue 48,000
Accrued contract costs and losses 1,093,000
----------
Total current liabilities 1,652,000
Shareholder's deficit:
Common stock, no par value; 10,000 shares
authorized, 1,000 shares issued and outstanding -
Additional paid-in capital 8,124,000
Accumulated deficit (9,159,000)
----------
Total shareholder's deficit (1,035,000)
Commitments and contingencies
----------
$ 617,000
==========
See accompanying notes to financial statements.
F-3
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ACQUION, INC.
(A WHOLLY OWNED SUBSIDIARY OF FD ENGINEERS & CONSTRUCTORS, INC.)
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
Revenues:
Services $ 41,000
Software 82,000
------------
Total revenues 123,000
------------
Cost of revenues:
Services 1,074,000
Software 10,000
------------
Total cost of revenues 1,084,000
------------
Gross margin (961,000)
------------
Operating expenses:
Selling and marketing 1,467,000
General and administrative 1,297,000
Depreciation and amortization 98,000
Product development 1,251,000
------------
Total operating expenses 4,113,000
------------
Operating loss (5,074,000)
Income taxes -
------------
Net loss $ (5,074,000)
============
See accompanying notes to financial statements.
F-4
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ACQUION, INC.
(A WHOLLY OWNED SUBSIDIARY OF FD ENGINEERS & CONSTRUCTORS, INC.)
STATEMENT OF SHAREHOLDER'S DEFICIT
YEAR ENDED OCTOBER 31, 1996
Common stock Total
------------------- Additional Accumulated shareholder's
Shares Amount paid-in capital deficit deficit
------ ------ --------------- ------- -------
Balance at October 31, 1995 1,000 $ - 3,268,000 (4,085,000) (817,000)
Capital contribution by Parent - - 4,856,000 - 4,856,000
Net loss - - - (5,074,000) (5,074,000)
----- ------ ---------- --------- ---------
Balance at October 31, 1996 1,000 $ - 8,124,000 (9,159,000) (1,035,000)
===== ====== ========== ========= =========
See accompanying notes to financial statements.
F-5
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ACQUION, INC.
(A WHOLLY OWNED SUBSIDIARY OF FD ENGINEERS & CONSTRUCTORS, INC.)
STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1996
Cash flows from operating activities:
Net loss $(5,074,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 98,000
Provision for doubtful accounts 47,000
(Increase) decrease in:
Accounts receivable (170,000)
Prepaid expense 71,000
Other current assets 4,000
Increase (decrease) in:
Accounts payable 270,000
Accrued expenses 94,000
Deferred revenue 48,000
Accrued contract costs and losses (79,000)
-----------
Net cash used in operating activities (4,691,000)
-----------
Cash flows from investing activities - purchases of property
and equipment (165,000)
-----------
Cash flows from financing activities - capital contribution by Parent 4,856,000
-----------
Net increase in cash -
Cash at beginning of year -
-----------
Cash at end of year $ -
===========
See accompanying notes to financial statements.
F-6
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ACQUION, INC.
(A WHOLLY OWNED SUBSIDIARY OF FD ENGINEERS & CONSTRUCTORS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED OCTOBER 31, 1996
(1) Description of Business and Summary of Significant Accounting Policies
(a) Business and Basis of Presentation
Acquion, Inc. (the "Company") was organized as a wholly owned
subsidiary of FD Engineers & Constructors, Inc. (the "Parent") in
August 1994 and began operations in November 1994. The Company
develops, markets, and supports software products to enable
businesses to engage in electronic commerce using the Internet and
value-added networks (VAN).
The Company's operations have historically been funded by the Parent.
The funding of Company expenses by the Parent are recorded in an
intercompany payable account to the Parent. Cash receipts of the
Company are transferred to the Parent and are recorded as a reduction
of the intercompany payable account. At the end of each reporting
period, the net intercompany payable balance is treated as a capital
contribution by the Parent and recorded as additional paid-in
capital. Because of operating losses incurred since inception and
expected to continue, the Company's ability to continue operations is
dependent upon continued funding by the Parent.
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities as of the date of
the financial statements and revenues and expenses for the reporting
period to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
(b) Revenue and Cost Recognition
The Company's revenues are derived primarily from fixed-price
customer contracts which generally include licensing computer
software to customers and providing consulting services which provide
customers with a tailored software solution. Revenues from
fixed-price contracts are recognized on the percentage-of-completion
method, measured by the percentage of contract costs incurred to date
to estimated total contract costs for each contract. Contract costs
include all direct and indirect costs. Provisions for estimated
losses on uncompleted contracts are made in the period in which such
losses are determined. Revenues derived from contracts to provide
services on a time-and-materials basis are recognized as the related
services are performed.
F-7
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ACQUION, INC.
(A WHOLLY OWNED SUBSIDIARY OF FD ENGINEERS & CONSTRUCTORS, INC.)
NOTES TO FINANCIAL STATEMENTS
(c) Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are
provided using the straight-line method over the estimated useful
lives of the assets as follows:
Furniture and fixtures 10 years
Purchased computer software 7 years
Computer and office equipment 3-7 years
(d) Product and Software Development Costs
Product development costs consist principally of compensation and
benefits paid to the Company's employees or contractors. All product
development costs not qualifying for capitalization as software
development costs are expensed as incurred.
The Company's policy is to expense all software development costs
associated with establishing technological feasibility. Historically,
development costs incurred after establishing technological
feasibility but before customer release have been insignificant.
(e) Income Taxes
The Company accounts for income taxes using the asset and liability
method of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS No. 109). Under SFAS No. 109,
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. Deferred income 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. The effect on
deferred income tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
(f) Fair Value of Financial Instruments
The Company uses financial instruments in the normal course of its
business. The carrying values of accounts receivable, prepaid
expense, other current assets, accounts payable, accrued expenses,
deferred revenues, and accrued contract losses approximate fair value
due to the short-term maturities of these assets and liabilities.
F-8
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ACQUION, INC.
(A WHOLLY OWNED SUBSIDIARY OF FD ENGINEERS & CONSTRUCTORS, INC.)
NOTES TO FINANCIAL STATEMENTS
(2) Property and Equipment
Property and equipment as of October 31, 1996 consist of the following:
Computer and office equipment $365,000
Purchased computer software 140,000
Furniture and fixtures 22,000
--------
527,000
Less accumulated depreciation and amortization 173,000
--------
$354,000
========
(3) Accrued Expenses
Accrued expenses as of October 31, 1996 consist of the following:
Accrued vacation costs $128,000
Accrued travel costs 68,000
--------
$196,000
========
(4) Shareholder's Deficit
The Company's initial capitalization was provided by FD Engineers &
Constructors, Inc. in August 1994 through the issuance of 1,000 shares of
the Company's common stock in exchange for $1,000.
The Company received $4,856,000 in capital contributions from the Parent
to fund operations for the fiscal year ended October 31, 1996.
(5) Income Taxes
The Company is included in the consolidated federal income tax return
filed by the Parent; however, the Company has provided for income taxes
as if it were filing a separate income tax return.
The Company has not recorded any income tax expense (benefit) during the
year ended October 31, 1996 because of operating losses incurred since
inception. As a result, the effective income tax rate is different from
amounts computed by applying the statutory U.S. Federal income tax rate
of 34% to loss before income taxes because of the Company's provision for
a valuation allowance on all deferred income tax assets.
F-9
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ACQUION, INC.
(A WHOLLY OWNED SUBSIDIARY OF FD ENGINEERS & CONSTRUCTORS, INC.)
NOTES TO FINANCIAL STATEMENTS
The income tax effects of the temporary differences that give rise to the
Company's deferred income tax assets and liabilities as of October 31,
1996 are as follows:
Deferred income tax assets:
Net operating loss carryforwards $ 2,873,000
Accrued contract costs and losses 475,000
Accrued expenses 75,000
Other 32,000
-----------
Gross deferred income tax assets 3,455,000
Valuation allowance 3,455,000
-----------
Deferred income tax assets, net of
valuation allowance $ -
===========
The increase in the valuation allowance for the year ended October 31,
1996 was $1,916,000. Under SFAS No. 109, deferred income tax assets and
liabilities are recognized for differences between the financial
statement carrying amounts and the tax bases of assets and liabilities
which will result in future deductible or taxable amounts and for net
operating loss and tax credit carryforwards. A valuation allowance is
then established to reduce the deferred income tax assets to the level at
which it is "more likely than not" that the tax benefits will be
realized. Realization of tax benefits of deductible temporary differences
and operating loss and tax credit carryforwards depends on having
sufficient taxable income within the carryback and carryforward periods.
Sources of taxable income that may allow for the realization of tax
benefits include (1) taxable income in the current year or prior years
that is available through carryback, (2) future taxable income that will
result from the reversal of existing taxable temporary differences, and
(3) future taxable income generated by future operations. Because of
operating losses incurred since inception, the Company has provided a
valuation allowance against all deferred income tax assets.
At October 31, 1996, the Company has net operating loss carryforwards of
approximately $7,560,000. The net operating loss carryforwards will
expire at various times through 2011.
(6) Provision for Contract Losses
The Company entered into a software development contract with a customer
in August 1995 for which estimated costs to complete are greater than
total contract revenues. The Company has accrued an estimated loss of
$1,093,000 relating to this contract at October 31, 1996.
F-10
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ACQUION, INC.
(A WHOLLY OWNED SUBSIDIARY OF FD ENGINEERS & CONSTRUCTORS, INC.)
NOTES TO FINANCIAL STATEMENTS
(7) Related Party Transactions
The Company is allocated charges from the Parent for the Company's
estimated share of rent, computer leasing, marketing, and other shared
services. These charges were approximately $317,000 for the year ended
October 31, 1996 and are included in selling and marketing, general and
administrative, and product development costs in the accompanying
statement of operations. The Company believes that the charges for these
items are comparable to those that could have been obtained in
transactions with unaffiliated parties.
(8) Segment Information and Major Customer
The Company operates in a single industry segment: the development,
marketing, and supporting of software products and the providing of
consulting services to enable businesses to engage in Electronic
Commerce.
Revenues from one customer represented approximately 18% of the Company's
revenues for the year ended October 31, 1996. No other single customer
comprised 10% or greater of the Company's revenues in 1996.
(9) Commitments and Contingencies
(a) Contractual Commitments
In the normal course of its business, the Company has entered into
service contracts with its customers. These contracts contain
commitments, including, but not limited to, minimum standards and
time frames against which the Company's performance is measured. In
the event the Company does not meet its contractual commitments with
its customers, the Company may incur penalties and/or certain
customers may have the right to terminate their contracts with the
Company. The Company does not believe it will fail to meet its
contractual commitments to an extent that will result in a material
adverse effect on its financial condition or results of operations.
(b) Contingencies
The Company is subject to lawsuits, claims, and other complaints
arising out of the ordinary conduct of its business. In the opinion
of management, based in part upon the advice of legal counsel, all
matters are adequately covered by insurance or, if not covered, are
without merit or are of such kind or involve such amounts as would
not have a material effect on the financial condition or results of
operations of the Company if disposed of unfavorably.
(10) Subsequent Event (Unaudited)
On August 22, 1997, Harbinger Corporation (Harbinger) acquired all of the
common stock of the Company for $12.0 million in cash and the assumption
of $1.6 million in liabilities including transaction costs.
F-11
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ACQUION, INC.
(A WHOLLY OWNED SUBSIDIARY OF FD ENGINEERS & CONSTRUCTORS, INC.)
UNAUDITED BALANCE SHEET
AUGUST 22, 1997
ASSETS
AUGUST 22, 1997
---------------
Accounts receivable, net of allowance for doubtful accounts of
$0 $ 503,000
Property and equipment, less accumulated depreciation and
amortization 342,000
------------
$ 845,000
============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Accounts payable $ 111,000
Accrued expenses 335,000
Deferred revenue 323,000
Accrued contract costs and losses 305,000
------------
Total current liabilities 1,074,000
------------
Shareholder's deficit:
Common stock, no par value; 10,000 shares authorized, 1,000
shares issued and outstanding -
Additional paid-in capital 14,395,000
Accumulated deficit (14,625,000)
------------
Total shareholder's deficit (229,000)
------------
Commitments and contingencies
$ 845,000
============
See accompanying notes to unaudited financial statements.
F-12
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ACQUION, INC.
(A WHOLLY OWNED SUBSIDIARY OF FD ENGINEERS & CONSTRUCTORS, INC.)
UNAUDITED STATEMENTS OF OPERATIONS
PERIODS FROM NOVEMBER 1 THROUGH AUGUST 22, 1996 AND 1997
1996 1997
----------- -----------
Revenues:
Services .............................. $ 34,000 $ 575,000
Software - 30,000
----------- -----------
Total revenues.................... 34,000 605,000
----------- -----------
Cost of revenues:
Services .............................. 895,000 1,810,000
Software - -
----------- -----------
Total cost of revenues............ 895,000 1,810,000
----------- -----------
Gross margin.................. (861,000) (1,205,000)
----------- -----------
Operating expenses:
Selling and marketing.................. 1,262,000 1,921,000
General and administrative............. 1,042,000 811,000
Depreciation and amortization.......... 82,000 98,000
Product development.................... 1,043,000 1,431,000
----------- -----------
Total operating expenses.......... 3,428,000 4,261,000
----------- -----------
Operating loss................ (4,288,000) (5,466,000)
Income taxes .............................. - -
----------- -----------
Net loss...................... $(4,288,000) $(5,466,000)
=========== ===========
See accompanying notes to unaudited financial statements.
F-13
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ACQUION, INC.
(A WHOLLY OWNED SUBSIDIARY OF FD ENGINEERS & CONSTRUCTORS, INC.)
UNAUDITED STATEMENTS OF CASH FLOWS
PERIODS FROM NOVEMBER 1 THROUGH AUGUST 22, 1996 AND 1997
1996 1997
------------ -----------
Cash flows from operating activities:
Net loss $(4,288,000) $(5,466,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 82,000 98,000
(Increase) decrease in:
Accounts receivable............................. (82,000) (380,000)
Prepaid expense................................. 47,000 129,000
Other current assets............................ 3,000 11,000
Increase (decrease) in:
Accounts payable................................ 180,000 (204,000)
Accrued expenses................................ 63,000 139,000
Deferred revenue................................ 32,000 275,000
Accrued contract costs and losses............... (53,000) (788,000)
----------- -----------
Net cash used in operating activities........ (4,016,000) (6,186,000)
----------- -----------
Cash flows from investing activities--purchases of property
and equipment (127,000) (85,000)
----------- -----------
Cash flows from financing activities--capital contribution
by Parent ................................................ 4,143,000 6,271,000
----------- -----------
Net increase in cash................................ - -
Cash at beginning of period................................... - -
----------- -----------
Cash at end of period......................................... $ - $ -
=========== ===========
See accompanying notes to unaudited financial statements.
F-14
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ACQUION, INC.
(A WHOLLY OWNED SUBSIDIARY OF FD ENGINEERS & CONSTRUCTORS, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1) Basis of Presentation
These unaudited financial statements include the financial position as
of August 22, 1997 and results of operations of Acquion, Inc. for the
periods from November 1 through August 22, 1996 and 1997. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for the fair presentation of the
unaudited financial statements of Acquion, Inc. as of August 22, 1997
and for the periods from November 1 through August 22, 1996 and 1997
have been included.
F-15
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