<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Current Report Filed Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report
(Date of Earliest Event Reported): September 29,1997
THE FOREFRONT GROUP, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-27438 76-0365256
- ------------------------------- ------------------- -------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
1360 Post Oak Boulevard, Suite 2050, Houston, Texas 77056
------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 961-1101
-------------------------------------------------------
(Registrant's telephone number, including Area Code)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On September 29, 1997, The ForeFront Group, Inc. (the "Company") entered
into an Acquisition Agreement (the "Agreement") with LanProfessional Inc., a
Canadian corporation located in Ottawa, Canada ("LanTec") and each of its
shareholders (the "Shareholders") whereby the Company acquired all of the
outstanding shares of capital stock of LanTec, other than certain Exchangeable
Shares of LanTec which are exchangeable into the shares of the Company
referenced below. The purchase price of the acquisition consisted of (i) 557,413
Exchangeable Shares of LanTec retained by the Shareholders, which are
exchangeable for an equivalent number of shares of the Company's Common Stock,
of which 81,687 shares are subject to cancellation in the event of certain
breaches of representations and covenants by the Shareholders in the Agreement
under and pursuant to the terms of an Escrow Agreement between the Company, the
Shareholders and Texas Commerce Bank, as Escrow Agent and (ii) cash in the
amount of U.S. $1,800,000, of which $50,000 is held in escrow pursuant to the
Escrow Agreement for post closing liabilities, and of which an additional
$326,726 was held in escrow by McCarthy Tetrault, counsel to the Company, as
security for certain post closing obligations of the Shareholders. The purchase
price was determined through negotiations between the Company and the
Shareholders. In connection with this acquisition, the Company entered into
customary employment and non-competition agreements with the two principal
shareholders and founders of LanTec.
LanTec is a developer of computer based training ("CBT")software for
information technology professionals, and has developed the ForeFront MCSE
Self-Study Course TM, and the ForeFront CNE Self-Study Course TM, programs which
provide training for certification to manage MicroSoft Windows NT and Novell
Netware, and the ForeFront A+ Certification Self-Study Course TM, a program that
provides training for the most recognized certification for personal computer
technicians. Prior to the acquisition, each of these products has been published
and marketed by the Company on an exclusive basis in the United States pursuant
to the Licensing and Distribution Agreement between LanTec and ForeFront Direct,
Inc.(the Company's wholly owned direct marketing subsidiary, formerly known as
AllMicro, Inc.) dated August 21, 1995. A number of additional CBT products are
currently under development and scheduled for release over the next 18 months.
The shares of ForeFront Common Stock issuable upon exchange of the
Exchangeable Shares of LanTec are reserved for issuance by ForeFront and its
transfer agent, and will be issued pursuant to available exemptions from
registration. Each of the Shareholders has agreed that the Exchangeable Shares
of LanTec and the shares of ForeFront which may be acquired in exchange therefor
may not be transferred, sold or otherwise distributed for a one year period
following the acquisition.
The Company is not aware of any pre-existing material relationships between
(i) LanTec or its shareholders, on the one hand, and (ii) the Company, any of
the Company's affiliates, directors and officers or any associate of such
directors and officers on the other hand, other than the above-mentioned
Distribution Agreement.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
The required financial statements of LanTec are attached hereto
on pages 5 through 12.
<PAGE>
(b) Pro Forma Financial Information
Set forth on pages 13 through 16 are the unaudited pro forma
financial statements which give effect to the acquisition of LanTec.
(c) Exhibits
Exhibit
Number Description
------- -----------
10.1* Acquisition Agreement, dated as of September 29, 1997, between
the Company, LanProfessional Inc. and Sunil K. Sethi, Naveen
Seth, Sukhdev Walia, Sunita Uppal and Jang Bhadhur Sethi.
10.2* Escrow Agreement, dated as of September 29, 1997, between
the Company, Texas Commerce Bank, N.A. and Sunil K. Sethi,
Naveen Seth, Sukhdev Walia, Sunita Uppal and Jang Bhadhur
Sethi.
10.3* Lockup Agreement, dated as of September 29, 1997, between
the Company, and Sunil K. Sethi, Naveen Seth, Sukhdev Walia,
Sunita Uppal and Jang Bhadhur Sethi.
10.4* Support Agreement, dated as of September 29, 1997, between
the Company and LanProfessional Inc.
10.5* Exchange Rights Agreement, dated as of September 29, 1997,
between the Company, LanProfessional Inc. and Sunil K.
Sethi, Naveen Seth, Sukhdev Walia, Sunita Uppal and Jang
Bhadhur Sethi.
10.6* Employment Agreement, dated as of September 29, 1997, between
LanProfessional Inc. and Sunil K. Sethi.
10.7* Additional Escrow Agreement, dated as of September 29, 1997,
between the Company, McCarthy Tetrault, Sunil K.
Sethi, Naveen Seth, Sukhdev Walia, Sunita Uppal and Jang
Bhadhur Sethi.
10.8* Form of Registration Rights Agreement, attached as Exhibit J
to the Acquisition Agreement, between the Company and Sunil K.
Sethi, Naveen Seth, Sukhdev Walia, Sunita Uppal and Jang
Bhadhur Sethi.
* Previously filed with Form 8-K dated October 14, 1997
<PAGE>
Item 9. Sales of Equity Securities Pursuant to Regulation S.
On Septmeber 29, 1997, the Company entered into an Acquisition Agreement
with LanProfessional, Inc. ("LanTec") a Canadian corporation, and its five
shareholders (the "Shareholders"), none of whom is a resident or citizen of the
United States, whereby the Company acquired all of the outstanding shares of
capital stock of LanTec, other than certain Exchangeable Shares (described
herein), and granted the Shareholders certain rights to exchange the
Exchangeable Shares of LanTec for an aggregate of 557,413 shares of Common Stock
of the Company. The rights to exchange the Exchangeable Shares of LanTec were
granted, and the shares of Common Stock of the Company, when issued and
delivered upon exchange of the Exchangeable Shares, will be issued, pursuant to
the exemptions from registration provided by Section 4(2) of, and/or Regulation
D and/or Regulation S promulgated under, the Securities Act of 1933, as amended.
No underwriter was involved in the placement of the securities.
The Exchangeable Shares of LanTec held by the Shareholders are
exchangeable by the Shareholders for shares of Common Stock of the Company at
any time prior to September 29, 2002, in their discretion, on a one for one
basis. In addition, in the event any dividend is declared by the Company, the
holders of the Exchangeable Shares are entitled to receive from LanTec an amount
they would have received had they held the shares of ForeFront Common Stock. In
addition, the Shareholders are entitled to notice from the Company upon certain
corporate events such as a change of control, liquidation, or other
reorganization, in order to provide them with an opportunity to exercise their
exchange rights and acquire the Common Stock of the Company. Any Exchangeable
Shares remaining outstanding on September 29, 2002 will automatically be
exchanged into shares of Common Stock of the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE FOREFRONT GROUP, INC.
/s/ Ernest D. Rapp
---------------------------
Ernest D. Rapp
Principal Financial and
Accounting Officer
<PAGE>
- --------------------------------------------------------------------------------
AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholders of
Lanprofessional Inc.:
We have audited the balance sheet of LANPROFESSIONAL INC. (A CANADA CORPORATION)
as at June 30, 1997 and the statements of operations, retained earnings and cash
flows for the years ended June 30, 1997 and 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at June 30, 1997 and the
results of its operations and the cash flows for the years ended June 30, 1997
and 1996 in accordance with United States generally accepted accounting
principles.
ARTHUR ANDERSEN & CO
November 17, 1997
Ottawa, Canada
<PAGE>
LANPROFESSIONAL INC.
BALANCE SHEETS
(ALL AMOUNTS IN US DOLLARS)
ASSETS
June 30, September 29,
1997 1997
-------- --------
(unaudited)
CURRENT ASSETS
Cash $133,159 $169,966
Accounts receivable 149,090 42,776
Advances to 1213360 Ontario Ltd. (Note 3) 62,900 -
-------- --------
345,149 212,742
PROPERTY AND EQUIPMENT (Note 4) 157,695 208,846
-------- --------
$502,844 $421,588
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $153,398 $ 61,570
Due to shareholders (Note 3) 1,061 -
Income taxes payable 116,215 139,729
-------- --------
270,674 201,299
-------- --------
SHAREHOLDERS' EQUITY
Capital stock (Note 5) 174 174
Retained earnings 231,996 220,115
-------- --------
232,170 220,289
-------- --------
$502,844 $421,588
-------- --------
-------- --------
The accompanying notes are an integral part of these balance sheets.
<PAGE>
LANPROFESSIONAL INC.
STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN US DOLLARS)
<TABLE>
Year Ended Three Months Ended
----------------------- --------------------
June 30, June 30, Sept. 29, Sept. 29,
1996 1997 1996 1997
-------- ----------- -------- --------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES $407,679 $1,136,943 $207,542 $488,996
COST OF SALES 95,433 46,500 9,489 9,439
-------- ----------- -------- --------
GROSS PROFIT 312,246 1,090,443 198,053 479,557
-------- ----------- -------- --------
EXPENSES
Research and development 105,983 515,276 80,404 255,142
Sales and marketing 53,286 185,828 30,826 71,063
General and administration (Note 3) 14,295 58,598 1,906 4,131
Depreciation 12,468 34,678 3,108 12,717
-------- ----------- -------- --------
186,032 794,380 116,244 343,053
-------- ----------- -------- --------
OPERATING INCOME 126,214 296,063 81,809 136,504
OTHER INCOME 3,140 317 - -
-------- ----------- -------- --------
INCOME BEFORE INCOME TAXES 129,354 296,380 81,809 136,504
PROVISION FOR INCOME TAXES (Note 6) 24,940 105,535 18,500 52,836
-------- ----------- -------- --------
NET INCOME 104,414 190,845 63,309 83,668
RETAINED EARNINGS (DEFICIT),
beginning of year (21,473) 82,941 82,941 231,996
DIVIDENDS - (41,790) - (95,549)
-------- ----------- -------- --------
RETAINED EARNINGS, end of year $ 82,941 $ 231,996 $146,250 $220,115
-------- ----------- -------- --------
-------- ----------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
LANPROFESSIONAL INC.
STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN US DOLLARS)
<TABLE>
Year Ended Three Months Ended
---------------------- --------------------
June 30, June 30, Sept. 29, Sept. 29,
1996 1997 1996 1997
-------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $104,414 $ 190,845 $ 63,309 $ 83,668
Add items not requiring an outlay
of cash:
Depreciation 12,468 34,678 3,108 12,717
Loss on disposal of property
and equipment 807 - - -
-------- -------- -------- --------
117,689 225,523 66,417 96,385
Changes in assets and liabilities:
Accounts receivable (46,541) (92,514) (93,307) 106,314
Advances to 1213360 Ontario Ltd. - (62,900) - 62,900
Inventories 72,352 - - -
Prepaid expenses 7,970 1,122 (5,844) -
Accounts payable and accrued
liabilities (16,877) 108,211 21,732 (91,828)
Due to shareholders (31,563) (39,614) (37,615) (1,061)
Income taxes payable 23,414 91,275 18,500 23,514
-------- -------- -------- --------
NET CASH PROVIDED BY
(USED IN) OPERATIONS 126,444 231,103 (30,117) 196,224
-------- -------- -------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and equipment (37,024) (146,776) (35,337) (63,868)
-------- -------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (37,024) (146,776) (35,337) (63,868)
-------- -------- -------- --------
CASH FLOWS FROM (USED IN)
FINANCING ACTIVITIES
Dividends paid - (41,790) - (95,549)
Issue of capital stock 19 - - -
-------- -------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 19 (41,790) - (95,549)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH
DURING THE PERIOD 89,439 42,537 (65,454) 36,807
CASH, beginning of period 1,183 90,622 90,622 133,159
-------- -------- -------- --------
CASH, end of period $ 90,622 $133,159 $ 25,168 $169,966
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
LANPROFESSIONAL INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(ALL AMOUNTS IN US DOLLARS)
1. NATURE OF BUSINESS
Lanprofessional Inc. (the "Company") was incorporated under the Ontario
Business Corporations Act on October 13, 1992. On July 22, 1996, the Company
was granted a continuance to operate under the Canada Business Corporations
Act.
The Company is a developer of computer based training software and related
instructional guides for information technology professionals.
On September 29, 1997, the Company entered into an acquisition agreement with
The ForeFront Group, Inc. ("FFG"), a US based publicly traded corporation,
whereby FFG acquired all of the outstanding shares of the Company in exchange
for 557,413 shares of FFG common stock. Of the shares exchanged, 81,687
shares are subject to cancellation in the event of certain breaches of
representations and covenants by the Company's shareholders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of the
following significant accounting policies, in accordance with United States
generally accepted accounting principles and as described below and elsewhere
in the notes to the financial statements.
INTERIM FINANCIAL INFORMATION
The interim financial statements as at September 29, 1997 and for the
three-months ended September 29, 1996 and 1997 are unaudited and certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. In the opinion of management, all adjustments
consisting only of normal recurring adjustments, necessary to fairly present
the financial position, results of operations and cash flows with respect to
the interim financial statements have been included.
REVENUE RECOGNITION
The Company recognizes software license revenue when a non-cancelable,
non-refundable license agreement has been signed, the product has been
shipped, the fees are fixed or determinable and collection is considered
probable by management. The majority of the Company's revenue is generated
from a licensing and distribution agreement with ForeFront Direct Inc.
("FDI"), a wholly-owned subsidiary of FFG. Sales to FDI accounted for
approximately 69% (1996 - 48%) of the Company's 1997 revenues.
<PAGE>
- 2 -
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation, used to allocate
the cost of property and equipment over their estimated useful lives, is
provided using the following annual rates and methods:
Computer hardware 30% declining balance
Leasehold improvements 20% straight line
Furniture and equipment 20% declining balance
Computer software 100% declining balance
Acquisitions during a year are depreciated at half the above annual rates.
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities which are denominated in foreign currencies
are translated at the rates of exchange in effect at the balance sheet
date.
Exchange gains and losses on day-to-day business transactions and
unrealized exchange gains and losses on translation of non-US dollar
denominated balances are charged to income in the period. Exchange gains
and losses are included in general and administration.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the amounts reported
in these financial statements and accompanying notes. Actual results could
differ from those estimates.
<PAGE>
- 3 -
3. RELATED PARTY TRANSACTIONS
During the year ended June 30, 1997, the Company made advances to 1213360
Ontario Ltd. to help finance the acquisition of the Company's operating
premises. The Company and 1213360 Ontario Ltd. are companies under common
control. These advances are non-interest bearing and were fully repaid by
1213360 Ontario Ltd. prior to the closing of the acquisition agreement with
FFG. The Company has guaranteed the mortgage held by the Royal Bank of
Canada on the Company's operating premises owned by 1213360 Ontario Ltd.
At June 30, 1997, this mortgage amounted to $120,250. The Company was
released from the guarantee concurrent with the closing of the acquisition.
The amount due to shareholders at June 30, 1997, bears interest at a rate
of 16% and has no specified terms of repayment. As part of the acquisition
agreement with FFG, this amount was fully repaid prior to closing. During
the year ended June 30, 1997, interest was accrued and paid on shareholder
advances since March 1993 at an interest rate of 16%. This resulted in
interest payments to the shareholders in the amount of $35,745 (June 30,
1996 - $nil) and is included in general and administration on the statement
of operations.
4. PROPERTY AND EQUIPMENT
June 30, Sept. 29,
1997 1997
-------- -----------
(unaudited)
Computer hardware $184,665 $185,976
Leasehold improvements 28,538 28,538
Furniture and equipment 6,612 69,169
Computer software 3,618 3,618
-------- --------
223,433 287,301
Less: accumulated depreciation 65,738 78,455
-------- --------
$157,695 $208,846
-------- --------
-------- --------
<PAGE>
- 4 -
5. CAPITAL STOCK
The Company is authorized to issue an unlimited number of Class A, B and C
common shares.
Holders of all classes of shares are entitled to receive dividends in the
amounts that the directors in their discretion declare. Class A common
shares are voting, while the remaining classes are non-voting.
The issued and fully paid capital stock is as follows:
June 30, Sept. 29,
1997 1997
-------- -----------
(unaudited)
Class A common shares - 235.3 shares $174 $174
---- ----
---- ----
6. INCOME TAXES
The provision for income taxes for the year ended June 30, 1996 has been
reduced by $5,000 to reflect the benefit of income tax losses carried
forward from prior years.
7. COMMITMENTS
The Company leases its operating premises from 1213360 Ontario Ltd. under
an operating lease that expires in September 2000. Future minimum rental
payments under this lease for the next five years and in aggregate are as
follows:
1998 $ 64,000
1999 64,000
2000 64,000
2001 16,000
2002 -
--------
$208,000
--------
--------
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS
The following tables set forth the unaudited pro forma statements of
operations for The ForeFront Group, Inc. (the Company) for the year ended
December 31, 1996, and the nine months ended September 30, 1997, after giving
effect to the Company's acquisition on September 29, 1997, of LanTec. The
unaudited pro forma financial information assumes that the acquisition
occurred as of January 1, 1996.
The following unaudited pro forma statements of operations should be read in
conjunction with the Financial Statements of the Company and the related
notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1996, and the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1997, as well as the audited
financial statements of LanTec for the year ended June 30, 1997, and related
notes thereto included elsewhere herein. The unaudited pro forma financial
statements are presented for illustrative purposes only and are not
necessarily indicative of the operating results that would have occurred had
the LanTec acquisition taken place at the beginning of the period specified
and are not intended to be a projection of future operating results.
<PAGE>
UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
ForeFront LanTec Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
NET REVENUES:
Licenses $13,725,921 $720,974 $ (469,022)(e) $ 13,977,873
Maintenance and other services 72,545 115,082 - 187,627
----------- -------- ----------- ------------
Total revenues 13,798,466 836,056 (469,022) 14,165,500
COST OF PRODUCT LICENSES 2,675,434 122,115 (469,022)(e) 2,328,527
----------- -------- ----------- ------------
Gross profit 11,123,032 713,941 - 11,836,973
OPERATING EXPENSES:
Research and development 3,021,318 342,287 160,480 (d) 3,524,085
Selling and marketing 8,906,307 127,483 - 9,033,790
General and administrative 4,254,646 50,834 - 4,305,480
Acquired research and development costs 2,798,604 - 3,650,000 (a) 6,448,604
----------- -------- ----------- ------------
Total expenses 18,980,875 520,604 3,810,480 23,311,959
----------- -------- ----------- ------------
Operating income (loss) (7,857,843) 193,337 (3,810,480) (11,474,986)
OTHER:
Interest income 525,255 - - 525,255
Gain on sale of assets - - - -
----------- -------- ----------- ------------
Total other income (loss) 525,255 - - 525,255
----------- -------- ----------- ------------
Net income (loss) before taxes (7,332,588) 193,337 (3,810,480) (10,949,731)
PROVISION FOR INCOME TAXES - 17,924 (17,924)(c) -
----------- -------- ----------- ------------
NET INCOME (LOSS) $(7,332,588) $175,413 $(3,792,556) $(10,949,731)
----------- -------- ----------- ------------
----------- -------- ----------- ------------
NET LOSS PER SHARE $(1.67)
------------
------------
SHARES USED IN COMPUTING LOSS PER SHARE 6,002,427 557,413 6,559,840
----------- -------- ------------
----------- -------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
ForeFront LanTec Pro Forma Pro Forma
Historical Historical Adjustments Combined
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
NET REVENUES:
Licenses $12,998,533 $1,198,311 $ (846,100)(e) $13,350,744
Maintenance and other services 43,532 - - 43,532
----------- ---------- ----------- -----------
Total revenues 13,042,065 1,198,311 (846,100) 13,394,276
COST OF PRODUCT LICENSES 2,502,318 38,166 (846,100)(e) 1,694,384
----------- ---------- ----------- -----------
Gross profit 10,539,747 1,160,145 - 11,699,892
OPERATING EXPENSES:
Research and development 1,355,977 629,403 120,360 (d) 2,105,740
Selling and marketing 9,057,841 172,330 - 9,230,171
General and administrative 3,039,098 15,389 - 3,054,487
Acquired research and development costs 4,097,251 - (3,650,000)(b) 447,251
----------- ---------- ----------- -----------
Total expenses 17,550,167 817,122 (3,529,640) 14,837,649
----------- ---------- ----------- -----------
Operating income (loss) (7,010,420) 343,023 3,529,640 (3,137,757)
OTHER:
Interest income 176,127 - - 176,127
Gain on sale of assets 1,868,500 - - 1,868,500
----------- ---------- ----------- -----------
Total other income (loss) 2,044,627 - - 2,044,627
----------- ---------- ----------- -----------
Net income (loss) before taxes (4,965,793) 343,023 3,529,640 (1,093,130)
PROVISION FOR INCOME TAXES - 177,077 (177,077)(c) -
----------- ---------- ----------- -----------
NET INCOME (LOSS) $(4,965,793) $ 165,946 $3,706,717 $(1,093,130)
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
NET LOSS PER SHARE $(0.16)
------
SHARES USED IN COMPUTING LOSS PER SHARE 6,337,113 557,413 6,894,526
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
GENERAL
The following notes set forth the assumptions used in preparing the unaudited
pro forma statements of operations. The pro forma adjustments are based on
estimates made by the Company's management using information currently
available. For purposes of preparing these unaudited pro forma statements
of operations, certain assumptions have been made in allocating the purchase
price to the net assets of LanTec acquired.
PRO FORMA ADJUSTMENTS
The adjustments to the accompanying unaudited pro forma statements of
operations are described below:
(a) To record the initial purchase price allocation including cash proceeds
paid, purchased software, goodwill and acquired research and development.
(b) To eliminate the effects of the purchase price allocation since the
transaction is assumed to take place on January 1, 1996, although it
occurred on September 29, 1997.
(c) To eliminate provision for income taxes recorded on LanTec's financial
statements as the combined results of operations are in an overall loss
position.
(d) To record amortization expense relating to the purchased software and
goodwill recorded in connection with the LanTec acquisition.
(e) To eliminate related revenues and cost of goods sold between the two
entities.
