<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
March 1, 1999
-------------
Date of Report (Date of earliest event reported)
ROGUE WAVE SOFTWARE, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-28900 93-1064214
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
5500 Flatiron Parkway
Boulder, CO 80301
-----------------
(Address of principal executive offices)
(303) 473-9118
--------------
(Registrant's telephone number, including area code)
<PAGE>
The undersigned registrant hereby amends its Form 8-K dated March 1, 1999 and
filed on March 9, 1999 by adding Items 7(a) and 7(b). Form 8-K originally
stated the
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) AUDITED FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Pages 2 to 17 contain the audited balance sheets of NobleNet, Inc. at September
30, 1998 and 1997 and the statements of operations and cash flows for each of
the three years in the period ended September 30, 1998.
(B) UNAUDITED INTERIM FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Pages 18 to 22 contain the unaudited balance sheet of NobleNet, Inc. at December
31, 1998 and the statements of operations and cash flows for the three months
ended December 31, 1998 and 1997.
(C) PRO FORMA FINANCIAL INFORMATION
Pages 22 to 26 contain Unaudited Pro Forma Condensed Consolidated Financial
Information of Rogue Wave Software, Inc. and its subsidiaries which reflect the
acquisition of NobleNet, Inc.
(D) EXHIBITS
Page 27
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.
ROGUE WAVE SOFTWARE, INC.
Dated: May 13, 1999 By: /s/ Michael Scally
------------ ----------------------
Michael Scally
President and Chief Executive Officer
1
<PAGE>
(A) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED
To the Board of Directors and Stockholders of
NobleNet, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity (deficit), and of cash flows present fairly,
in all material respects, the financial position of NobleNet, Inc. at September
30, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1998, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 31, 1999
2
<PAGE>
NOBLENET, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30
---------------------------------------
ASSETS 1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash................................................................................. $ 1,932,679 $ 784,437
Accounts receivable, net of allowance for doubtful accounts of $30,000
and $16,000 at September 30, 1998 and 1997, respectively............................ 272,467 423,948
Prepaid expenses and other current assets............................................ 42,633 4,450
Income taxes receivable.............................................................. 1,560 73,099
--------------- ------------------
Total current assets................................................................ 2,249,339 1,285,934
--------------- ------------------
Property and equipment, net (Note D).................................................. 490,413 334,371
Other assets.......................................................................... 6,388 9,538
--------------- ------------------
Total assets........................................................................ $ 2,746,140 $ 1,629,843
=============== ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable..................................................................... 248,652 369,030
Accrued expenses (Note E)............................................................ 281,136 326,986
Deferred revenue..................................................................... 389,902 492,089
Loans payable (Note G)............................................................... 3,652 1,505,022
Current portion of capital lease obligations......................................... 1,113 8,507
--------------- ------------------
Total current liabilities........................................................... 924,455 2,701,634
Loans payable, net of current portion................................................. -- 3,652
Capital lease obligations, net of current portion (Note K)............................ -- 1,657
Commitments (Note K)
Series A redeemable, convertible preferred stock, $.01 par value; 6,120,000
shares authorized; 5,795,000 shares issued and outstanding (liquidation
value of $7,620,291) (Note H)......................................................... 7,143,517 --
Stockholders' deficit:
Common stock, $.01 par value; 13,000,000 and 10,000,000 shares
authorized; 4,267,185 and 4,175,185 shares issued and outstanding
at September 30, 1998 and 1997, respectively (Note I)............................... 42,672 41,752
Additional paid-in capital........................................................... -- 75,775
Accumulated deficit.................................................................. (5,364,504) (1,194,627)
--------------- ------------------
Total stockholders' deficit......................................................... (5,321,832) (1,077,100)
--------------- ------------------
Total liabilities and stockholders' deficit......................................... $ 2,746,140 $ 1,629,843
=============== ==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOBLENET, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Product................................................... $ 1,183,555 $ 2,582,329 $2,439,102
Services.................................................. 1,030,706 1,264,297 741,341
--------------- ----------------- ----------------
Total revenue............................................ 2,214,261 3,846,626 3,180,443
--------------- ----------------- ----------------
Cost of Revenue:
Product................................................... 231,407 622,806 310,944
Services.................................................. 291,050 156,515 98,824
--------------- ----------------- ----------------
Total cost of revenue.................................... 522,457 799,321 409,768
--------------- ----------------- ----------------
Gross profit............................................. 1,691,804 3,067,305 2,770,675
Operating expenses:
Research and development.................................. 2,535,207 1,471,692 691,766
Selling and marketing..................................... 2,308,528 2,074,728 1,904,320
General and administrative................................ 709,181 608,231 520,183
--------------- ----------------- ----------------
Total operating expenses................................. 5,552,916 4,154,651 3,116,269
--------------- ----------------- ----------------
Loss from operations....................................... (3,861,112) (1,087,346) (345,594)
Interest income (expense), net............................ 43,923 (58,939) (19,623)
--------------- ----------------- ----------------
Loss from operations before income taxes................. (3,817,189) (1,146,285) (365,217)
--------------- ----------------- ----------------
Provision for (benefit from) income taxes.................. 456 48,851 (113,319)
--------------- ----------------- ----------------
Net loss................................................. $(3,817,645) $(1,195,136) $ (251,898)
=============== ================= ================
Accretion of preferred stock to redemption value........... (436,910) -- --
--------------- ----------------- ----------------
Net loss to applicable common shareholders............... $(4,254,555) $(1,195,136) $ (251,898)
=============== ================= ================
Net loss per common share-basic and diluted................ $(1.01) $(0.29) $(0.07)
=============== ================= ================
Weighted average common shares used in computing net
loss per share............................................ 4,218,339 4,105,813 3,775,070
=============== ================= ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
NOBLENET, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Common
Stock Total
---------- Additional Retained Stockholders'
Shares Par Value Paid-In Earnings Equity
Issued Amount Capital (Deficit) (Deficit)
---------- --------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995............................ 3,451,140 $34,511 $ 27,821 $ 252,407 $ 314,739
Issuance of common stock under stock option plan...... 504,735 5,048 22,658 -- 27,706
Issuance of common stock to officer................... 55,000 550 13,200 -- 13,750
Net loss.............................................. -- -- -- (251,898) (251,898)
------------ --------- ----------- ------------ -------------
Balance, September 30, 1996............................ 4,010,875 40,109 63,679 509 104,297
Issuance of common stock under stock option plan...... 164,310 1,643 12,096 -- 13,739
Net loss.............................................. -- -- -- (1,195,136) (1,195,136)
------------ --------- ----------- ------------ -------------
Balance, September 30, 1997............................ 4,175,185 41,752 75,775 (1,194,627) (1,077,100)
Issuance of common stock under stock option plan...... 92,000 920 8,903 -- 9,823
Net loss.............................................. -- -- -- (3,817,645) (3,817,645)
Accretion of preferred stock to redemption value...... -- -- (84,678) (352,232) (436,910)
------------ --------- ----------- ------------ -------------
Balance, September 30, 1998............................ 4,267,185 $42,672 $ -- $(5,364,504) $(5,321,832)
============ ========= =========== ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
NOBLENET, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
September 30,
--------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................ $(3,817,645) $(1,195,136) $(251,898)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................................... 161,180 82,093 55,786
Provision for bad debts................................................ 14,000 5,000 8,000
Stock compensation expense............................................. -- -- 13,750
Deferred tax provision................................................. -- -- 5,580
Changes in operating assets and liabilities:
Accounts receivable................................................... 137,481 434,730 (127,234)
Prepaid expenses and other assets..................................... (35,033) 42,599 (14,223)
Accounts payable and accrued expenses................................. (122,228) 121,652 316,829
Deferred revenue...................................................... (102,187) (32,551) 215,482
Income taxes receivable/payable....................................... 71,539 (8,402) (168,158)
------------ ------------ -------------
Net cash provided by (used in) operating activities................. (3,692,893) (550,015) 53,914
------------ ------------ -------------
Cash flows from investing activities:
Purchase of equipment................................................... (317,222) (226,715) (93,339)
------------ ------------ -------------
Net cash used in investing activities.................................. (317,222) (226,715) (93,339)
------------ ------------ -------------
Cash flow from financing activities:
Proceeds from preferred stock issued.................................... 6,662,607 -- --
Proceeds from common stock issued under stock option plan............... 9,823 13,739 27,716
Proceeds from loan payable.............................................. -- 1,500,000 --
Payments on loan payable................................................ (1,505,022) (4,524) (4,076)
------------ ------------ -------------
Payments of capital lease obligations................................... (9,051) (16,857) (22,039)
------------ ------------ -------------
Net cash provided by financing activities.............................. 5,158,357 1,492,358 1,601
------------ ------------ -------------
Net increase (decrease) in cash....................................... 1,148,242 715,628 (37,824)
Cash at beginning of year................................................ 784,437 68,809 106,633
------------ ------------ -------------
Cash at end of year...................................................... $ 1,932,679 $ 784,437 $ 68,809
============ ============ =============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest............................................................... $ 66,367 $ 58,939 $ 9,019
Income taxes........................................................... -- 58,360 15,000
Non-cash investing and financing activities:
Equipment acquired under capital lease.................................. -- -- 15,703
Preferred stock issued for professional services rendered................ 44,000 -- --
Accretion of preferred stock to redemption value......................... 436,910 -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
NOBLENET, INC.
NOTES TO FINANCIAL STATEMENTS
A. Nature of Business:
------------------
NobleNet, Inc. ("NobleNet") was founded in 1991 and is incorporated in the
State of Delaware. The Company develops and markets software products that
allow existing information technology (IT) systems to communicate and
interoperate across corporate networks and the Internet. NobleNet's products
are patented, and are installed at corporate end-users and independent software
vendors worldwide. NobleNet's products are used to build sophisticated,
enterprise-wide, distributed applications that run on more than forty platforms.
B. Significant Accounting Policies:
-------------------------------
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Presentation
Certain amounts reported in prior years have been reclassified to conform with
the current year presentation.
Revenue Recognition
Revenue is recognized from the license of software upon shipment and receipt
of the customer's written order provided that no significant vendor obligations
remain and collection of the resulting receivable is deemed probable. Service
revenue includes revenue from support, training, and consulting. Payments
received in advance for support contracts are initially recorded as deferred
revenue and are recognized ratably over the term of the contract, typically one
year. Revenue from training and consulting is recognized as the services are
performed. License revenue includes revenues under a distributor agreement
which are recorded upon notification of shipment.
Cash Equivalents
The Company considers all short-term investments, which consists of money
market investments, with original maturities of less than 90 days to be cash
equivalents.
7
<PAGE>
NOBLENET, INC.
NOTES TO FINANCIAL STATEMENTS
Property and Equipment
Property and equipment are stated at cost and are depreciated on a straight-
line basis over the estimated useful lives of the related assets, which range
from three to five years. Leasehold improvements are depreciated over their
estimated useful lives or the term of the lease, whichever is shorter. Upon
sale or retirement, the asset cost and related accumulated depreciation are
removed from the respective accounts, and any related gain or loss is reflected
in results of operations. Repair and maintenance costs are expensed as
incurred.
Research and Development and Software Development Costs
Costs related to research, design, and development of computer software are
charged to expense as incurred. Software development costs incurred subsequent
to the establishment of technological feasibility through the point at which the
product is ready for general release are capitalized and amortized to cost of
sales against the related revenue. Based on the Company's product development
process, technological feasibility is established upon completion of a working
model. Costs incurred by the Company between completion of the working model
and the point at which the product is ready for general release have been
immaterial.
Income Taxes
Deferred taxes are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. Valuation
allowances are provided if, based upon the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets will not be
realized.
Risks and Uncertainties
The Company is subject to risks common to companies in the high technology
industry including, but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel, and
protection of proprietary technology.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of trade receivables. Concentrations of credit
risk with respect to trade receivables are limited due to the varied customer
base dispersed across various industries and geographic locations. The Company
generally does not require collateral; however, the Company provides for
estimates of losses on trade receivables. The Company has not incurred
significant losses on its trade receivables.
8
<PAGE>
NOBLENET, INC.
NOTES TO FINANCIAL STATEMENTS
Advertising
NobleNet expenses advertising costs as incurred. Advertising expense for the
years ended 1998, 1997, and 1996 was $197,144, $162,116, and $122,265,
respectively.
New Accounting Pronouncements
In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which
establishes standards for the reporting and the display of comprehensive income
and its components (revenue, expenses, gains, and losses). During 1997, the
FASB also issued SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," which changes the way companies report information about
operating segments. SFAS No. 131, which is based on the management approach to
segment reporting, establishes requirements to report selected segment
information quarterly and to report entity-wide disclosures about products and
services, major customers, and the material countries in which the entity holds
assets and reports revenue. The Company will adopt SFAS No. 130 and SFAS No.
131 in fiscal 1999 and does not expect that the adoptions will have a material
impact on the financial statements.
C. Net Loss Per Share:
------------------
<TABLE>
<CAPTION>
For Year Ended September 30,
---------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Basic and diluted:
Net loss applicable to common stockholders $(4,254,555) $(1,195,136) $ (251,898)
Weighted average common shares 4,218,339 4,105,813 3,775,070
Net loss per common share - basic and diluted $ (1.01) $ (0.29) $ (0.07)
</TABLE>
Options to purchase shares of NobleNet's common stock totaling 1,619,292,
930,010 and 1,192,990 at September 30, 1998, 1997, and 1996, respectively,
preferred stock purchase warrants totaling 80,000 and common stock warrants
totaling 60,000, at September 30, 1998 were outstanding but were not included in
the computations of diluted earnings per share as the inclusion of these shares
would have been anti-dilutive.
9
<PAGE>
NOBLENET, INC.
NOTES TO FINANCIAL STATEMENTS
D. Property and Equipment:
----------------------
Property and equipment consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Computer equipment $ 496,238 $ 307,136
Computer software 172,395 103,795
Furniture and equipment 56,987 55,511
Leasehold improvements 75,168 52,119
--------- ---------
800,788 518,561
Less: accumulated depreciation (310,375) (184,190)
--------- ---------
Property and equipment, net $ 490,413 $ 334,371
========= =========
</TABLE>
During fiscal year 1998, the Company retired $34,995 in fixed assets which
consisted primarily of fully depreciated obsolete items. Computer equipment and
furniture and equipment under capital leases included in property and equipment
amounted to $15,703 and $70,082 at September 30, 1998 and 1997, respectively.
Accumulated amortization related to assets under capital leases was $11,181 and
$49,832 at September 30, 1998 and 1997, respectively.
E. Accrued Expenses:
----------------
Accrued expenses consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Accrued payroll and payroll taxes $ 22,294
Accrued commissions $ 14,958 48,143
Accrued vacation 88,054 66,571
Accrued penalties and interest -- 40,772
Accrued professional services 94,185 100,237
Accrued other 83,939 48,969
-------- --------
$281,136 $326,986
======== ========
</TABLE>
10
<PAGE>
NOBLENET, INC.
NOTES TO FINANCIAL STATEMENTS
F. Income Taxes:
------------
The components of income tax provision (benefit) for the years ended
September 30, 1998, 1997, and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Current provision (benefit):
Federal $ -- $48,395 $(113,775)
State 456 456 456
----- ------- ---------
456 48,851 (113,319)
Deferred provision (benefit) -- -- --
----- ------- ---------
$ 456 $48,851 $(113,319)
===== ======= =========
</TABLE>
At September 30, 1998, the Company has federal and state net operating loss
carryforwards for income tax purposes of approximately $1,465,000 which begin to
expire in 2018 and 2003, respectively. The Company also has available research
and development credits for federal and state income tax purposes of
approximately $186,000 and $154,000, respectively, which begin to expire in
2011. The net operating loss carryforwards and research and development credits
represent the net deferred tax assets of the Company at September 30, 1998. A
full valuation allowance has been provided due to the uncertainty of the
realizability of these assets.
Under Section 382 of the Internal Revenue Code, changes in the Company's
ownership could limit the amount of the net operating loss and tax credit
carryforwards which can be utilized by the Company.
G. Loans Payable:
-------------
In May 1995, the Company entered into a loan agreement for the purchase of
an automobile with an original principal balance of $18,541. Principal and
interest, at an annual rate of 10.5%, are due monthly and the loan matures on
May 22, 1999. Interest expense on the loan amounted to $580, $1,171, and
$1,620 in the years ending September 30, 1998, 1997 and 1996, respectively. The
loan is collateralized by the automobile. Future principal payments under the
loan total $3,652, and are payable in 1999.
11
<PAGE>
NOBLENET, INC.
NOTES TO FINANCIAL STATEMENTS
In May 1997, the Company entered into a promissory note agreement with a
bank (the "Bank Note") to borrow $1,500,000, with a maturity date of August 31,
1997. The Bank Note was collateralized by substantially all of the assets of
the Company. Interest was initially charged at the bank's prime rate plus one
percent, which was 9.5% at September 30, 1997.
On February 5, 1998 the promissory note was paid in full.
H. Redeemable Convertible Preferred Stock:
--------------------------------------
Series A Convertible Preferred Stock
In February 1998, NobleNet authorized 6,120,000 shares of Series A
Redeemable Convertible Preferred Stock, $.01 par value, and issued an aggregate
of 5,795,200 shares of Series A convertible preferred stock at $1.25 per share,
for $7,200,000 in cash and $44,000 in professional services. Net proceeds to
NobleNet, after deducting issuance costs, were $6,706,607.
The relative rights and preferences of the preferred stock are as follows:
The holders of preferred stock are entitled to receive dividends of $0.10
per share per annum, when and if declared by the Board of Directors.
Dividends shall accrue whether or not they are declared, and shall be
cumulative. The holders of preferred stock have liquidation preference to
the holders of common stock, including any dividends declared or accrued
but unpaid, subject to certain restrictions. Each holder of a share of
preferred stock shall be entitled to the number of votes equal to the
number of shares of common stock into which such shares can be converted.
Each share of preferred stock shall be convertible, at the option of the
holder, into the number of shares of common stock obtained by multiplying
the number of preferred shares to be converted by $1.25 and dividing by the
conversion price ($1.25 per share at September 30, 1998). Upon the
issuance of shares of common stock at a price of at least $7.50 per share
or in a public offering in which the gross proceeds are at least
$15,000,000 each share of preferred stock shall be automatically converted
into shares of common stock at the then effective conversion rate.
12
<PAGE>
NOBLENET, INC.
NOTES TO FINANCIAL STATEMENTS
Beginning on February 5, 2003 and on each of the first and second
anniversary, the Company, upon the written request of a majority of the
preferred stockholders, shall redeem the respective portion of the
outstanding shares of preferred stock until all shares have been redeemed.
The Company shall not be required on any redemption date to pay more than
one half of its net income from the prior year. The portion of outstanding
shares of preferred stock to be redeemed on the redemption or anniversary
dates is one third in 2003, one half in 2004 and all in 2005. The
redemption price shall be the preferred stock price ($1.25 per share) plus
all accrued dividends, whether or not declared.
Warrants to Purchase Stock
On February 5, 1998 warrants for the purchase of 80,000 shares of Series A
preferred stock were issued to certain investors. These warrants have an
exercise price of $1.25, are immediately exercisable and expire in February
2005. The warrants were determined to have an immaterial fair value.
Additionally on February 5, 1998 warrants for the purchase of 60,000 shares
of common stock were issued for certain professional services and transaction
expenses. These warrants have exercise prices ranging from $1.00 to $1.25, are
immediately exercisable, and have expiration dates in February 2003 and 2005.
The warrants were determined to have an immaterial fair value.
I. Stockholders' Equity (Deficit):
-------------------------------
Common and Preferred Stock
In February 1993, the Company was incorporated in Delaware and, under the
terms of the original articles of incorporation, the initial capital stock of
the Company represented 6,500,000 shares of common stock, $.01 par value, and
1,000,000 shares of preferred stock, $.01 par value. In September 1996, the
stockholders of the Company approved an increase in the number of authorized
shares of common and preferred stock to 10,000,000 and 1,000,000 shares,
respectively. In February 1998, the stockholders of the Company approved a
further increase in the number of authorized shares of common and preferred
stock to 13,000,000 and 6,120,000 shares, respectively.
In November 1995, the stockholders of the Company approved an amendment to
the corporate bylaws to provide the Company with a right of first refusal to any
proposed sale or transfer of the Company's outstanding capital stock for the
price offered by the transferee or at a price agreed upon between the
stockholder and the Company.
13
<PAGE>
NOBLENET, INC.
NOTES TO FINANCIAL STATEMENTS
In June 1996, the Board of Directors authorized the Company to repurchase
common stock from former employees. No shares have been repurchased.
J. Stock Option Plan:
-----------------
In February 1993, the Board of Directors approved the 1993 Stock Option
Plan. 1,500,000 shares of common stock were initially approved for grant under
the stock option plan. In January 1995, the number of shares approved for grant
was increased to 2,500,000 and in September 1996, the number of shares was
increased to 5,000,000. In March 1997, the number of shares approved for grant
was decreased to 3,000,000. In August 1998, the number of shares approved for
grant was further reduced to 1,715,185.
On August 21, 1998, NobleNet adopted the 1998 Stock Incentive Plan for
directors, officers, employees and consultants of NobleNet. A total of
1,284,815 shares of common stock were reserved for issuance under the 1998 plan.
The Board of Directors increased shares reserved to 1,484,815 on September 2,
1998. These options vest over a five-year period, and expire over a period not
to exceed ten years.
After assessing the fair value of the Company's common stock, the Board of
Directors, on August 21, 1998, determined that certain stock options held by
employees of the Company had an exercise price significantly higher than the
estimated fair value. As a result, such stock options were not providing the
desired incentive to the employees. Such employees had their existing options
canceled, to be replaced with new options, on a one for one basis, at an
exercise price of $0.25 per share. This stock option repricing resulted in new
options to purchase 1,134,000 shares of common stock. At the execution of the
stock option repricing, the fair value of the Company's common stock was $0.25
per share and therefore no compensation charge was recorded.
Under the terms of the stock option agreement, the Company may grant
incentive or nonqualified stock options. Incentive stock options are granted at
no less than 100% of the fair value of the common stock, as determined by the
Board or Directors, at the time of the grant. Nonqualified options are granted
at no less than the lesser of the book value per share of the common stock as of
the end of the fiscal year immediately preceding the date or the grant, or 30%
of the fair market value per share of common stock, at the date of the grant.
14
<PAGE>
NOBLENET, INC.
NOTES TO FINANCIAL STATEMENTS
Transactions during 1996, 1997 and 1998 related to stock options granted by
NobleNet are as follows:
<TABLE>
<CAPTION>
Number Option
of Shares Price
----------- ----------
<S> <C> <C>
Outstanding at September 30, 1995 1,228,370 $ 0.05
Granted 460,000 0.05-0.25
Exercised (504,735) 0.05-0.00
Canceled (253,625) 0.05-0.25
---------- ----------
Outstanding at September 30, 1996 930,010 $0.05-0.25
Granted 570,990 1.00
Exercised (164,310) 0.05-1.00
Canceled (143,700) 0.05-1.00
---------- ----------
Outstanding at September 30, 1997 1,192,990 $0.05-1.00
Granted 2,026,000 0.25-1.25
Exercised (92,000) 0.05-0.25
Canceled (1,507,698) 0.05-1.25
---------- ----------
Outstanding at September 30, 1998 1,619,292 $0.05-0.25
</TABLE>
Stock options vest over various periods not exceeding five years. At
September 30, 1998, 1997 and 1996, 500,420, 195,500 and 154,310 options were
exercisable and 228,523, 1,807,010 and 3,139,115 were available for grant.
In October 1995, the Financial Accounting Standards Board Issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 is effective for the Company's financial
statements for fiscal year 1997. SFAS 123 requires that companies either
recognize compensation expense for grants of stock, stock options, and other
equity instruments based on fair value, or provide pro forma disclosure of net
income (loss) in the notes to the financial statements. The Company adopted the
disclosure provisions of SFAS 123 in 1997 and has applied Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its plans.
The application of SFAS 123 would not result in a significant difference from
the reported net loss.
15
<PAGE>
NOBLENET, INC.
NOTES TO FINANCIAL STATEMENTS
The weighted average fair value of options granted during 1998, 1997 and
1996 was $0.07, $0.27 and $0.09 per share, respectively. In calculating these
pro forma disclosures, the fair value of each option grant in 1998, 1997 and
1996 has been estimated on the date of grant using the minimum value method with
the following assumptions: risk free interest rate used in the calculation
ranged from 5.10%, 5.97% to 6.68%, and 5.35% to 6.73% in 1998, 1997 and 1996,
respectively. Expected lives of options were assumed to be 7 years in 1998, and
5 years in 1997 and 1996 with no dividends assumed in any year.
Information related to options outstanding and exercisable at September 30,
1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------- --------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (years) Price Exercisable Price
- --------------- ----------- ------------ -------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
$0.05 66,000 1.06 0.05 37,000 $0.05
$0.25 1,556,292 5.65 0.25 463,420 $0.25
</TABLE>
K. Commitments:
-----------
The Company leases an office facility in Southboro, MA under a
noncancelable operating lease which expires on July 31, 2001. In addition, the
Company leases equipment under various capital leases, which are collateralized
by the equipment. Principal and interest are payable monthly. Interest expense
on capital leases amounted to $1,723, $3,867 and $7,399 in the years ended
September 30, 1998, 1997 and 1996, respectively.
Future minimum lease payments under noncancelable leases are as follows at
September 30, 1998:
<TABLE>
<CAPTION>
Operating Capital
Fiscal Year Leases Leases
----------- --------- --------
<S> <C> <C>
1999 $ 65,369 $1,163
2000 69,544 --
2001 60,853 --
2002 -- --
-------- ------
Total minimum lease payments $195,766 1,163
========
Less: amounts representing interest (50)
------
Present value of future minimum lease payments $1,113
======
</TABLE>
16
<PAGE>
NOBLENET, INC.
NOTES TO FINANCIAL STATEMENTS
Rent expense amounted to $102,199, $82,500 and $26,000 in the years ended
September 30, 1998, 1997 and 1996, respectively.
The Company generates license revenue under a distributor agreement for
which it pays a royalty. During the years ended September 30, 1998, 1997 and
1996, a significant portion of cost of revenue principally relates to such
royalties.
L. Savings Plan:
------------
During 1996 the Company adopted a 401(k) savings plan (the "Savings Plan")
for all its employees. Under the provisions of the Savings Plan, employees may
voluntarily contribute a percentage of their compensation subject to statutory
limitations. In addition, the Company can make a matching contribution at its
discretion. The Company made no contributions to the Savings Plan in 1998 and
1997.
M. Subsequent Event:
----------------
On March 1, 1999, Rogue Wave Software Inc. acquired the Company for
approximately $11,791,000. Redeemable preferred shareholders received $1.35 per
share, equal to the stated liquidation preference plus accrued dividends.
Common shareholders received approximately $0.81 per share owned. The
transaction was accounted for as a purchase.
17
<PAGE>
(B) UNAUDITED INTERIM FINANCIAL INFORMATION OF BUSINESS ACQUIRED
NOBLENET, INC.
UNAUDITED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
ASSETS December 31, 1998
------ ------------------
Current assets:
<S> <C>
Cash and cash equivalents........................................ $ 491
Accounts receivable, net......................................... 318
Prepaid expenses and other current assets........................ 26
-------
Total current assets............................................. 835
Equipment, net.................................................... 486
Other noncurrent assets, net...................................... 6
-------
Total assets..................................................... $ 1,327
=======
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable................................................. 110
Accrued expenses................................................. 251
Deferred revenue................................................. 344
Loans payable.................................................... 2
-------
Total current liabilities........................................ 707
Commitments and contingencies
Redeemable convertible preferred stock............................ 7,313
Stockholders' deficit:
Common stock..................................................... 43
Accumulated deficit.............................................. (6,736)
-------
Total stockholders' deficit...................................... (6,693)
-------
Total liabilities and stockholders' deficit...................... $ 1,327
=======
</TABLE>
See accompanying notes to unaudited interim financial statements.
18
<PAGE>
NOBLENET, INC.
UNAUDITED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
------------------
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Revenue:
Product............................. $ 235 $ 183
Services............................ 236 255
------- ------
Total revenue....................... 471 438
------- ------
Cost of revenue:
Product............................. 26 102
Services............................ 161 37
------- ------
Total cost of revenue............... 187 139
------- ------
Gross profit........................ 284 299
------- ------
Operating expenses:
Research and development............ 605 464
Selling and marketing............... 725 280
General and administrative.......... 172 162
------- ------
Total operating expenses............ 1,502 906
------- ------
Loss from operations................ (1,218) (607)
Interest income (expense), net...... 16 (41)
------- ------
Loss from operations before
income taxes...................... (1,202) (648)
Provision for income taxes.......... -- --
------- ------
Net loss............................ $(1,202) $ (648)
======= ======
Accretion of preferred
stock to redemption value......... (169) --
------- ------
Net loss applicable to common
shareholders...................... $(1,371) $ (648)
======= ======
Basic loss per share................ $(0.32) $(0.15)
======= ======
Diluted loss per share.............. $(0.32) $(0.15)
======= ======
Shares used in basic per
share calculation................. 4,268 4,185
Shares used in diluted
per share calculation....... 4,268 4,185
</TABLE>
See accompanying notes to unaudited interim financial statements.
19
<PAGE>
NOBLENET, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three months ended
--------------------
December 31,
--------------------
1998 1997
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................................. $(1,202) $(648)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................................................... 56 28
Changes in operating assets and liabilities:
Accounts receivable.................................................................... (46) 240
Prepaid expenses and other assets...................................................... 18 (16)
Accounts payable and accrued expenses.................................................. (169) (60)
Deferred revenue....................................................................... (46) (37)
------- -----
Net cash used in operating activities................................................ (1,389) (493)
------- -----
Cash flows from investing activities:
Purchase of equipment.................................................................... (50) (14)
------- -----
Net cash used in investing activities................................................... (50) (14)
------- -----
Cash flows from financing activities:
Proceeds from common stock issued under stock option plan................................ -- 1
Payments on loan payable................................................................. (2) (125)
Payments of capital lease obligations.................................................... (1) (5)
------- -----
Net cash used in financing activities................................................... (3) (129)
------- -----
Net decrease in cash and cash equivalents.............................................. (1,442) (636)
Cash and cash equivalents at beginning of period.......................................... 1,933 784
------- -----
Cash and cash equivalents at end of period................................................ $ 491 $ 148
======= =====
</TABLE>
See accompanying notes to unaudited interim financial statements.
20
<PAGE>
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS.
1. Basis of Presentation
The accompanying unaudited interim financial statements of NobleNet, Inc.
have been prepared in conformity with generally accepted accounting principles.
However, certain information or footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed, or omitted, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the statements include all adjustments necessary (which are of a
normal and recurring nature) for the fair presentation of the results of the
interim periods presented. These financial statements should be read in
conjunction with the NobleNet's audited financial statements for the year ended
September 30, 1998, as included herein.
21
<PAGE>
(C) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
assume a purchase business combination between Rogue Wave Software, Inc. (the
Company) and NobleNet, Inc. as of the beginning of the periods presented. The
unaudited pro forma condensed combined financial statements are based upon the
respective historical financial statements of Rogue Wave and NobleNet and should
be read in conjunction with such historical financial statements and the notes
thereto. The Company's audited consolidated financial statements for the year
ended September 30, 1998, are included in the Company's annual report on Form
10-K. NobleNet's audited financial statements are included in this Form 8-K/A.
The pro forma information is presented for illustrative purposes only, and
is not necessarily indicative of the operating results or financial position
that would have occurred if the purchase business combination had been
consummated as presented in the accompanying unaudited pro forma condensed
combined financial information, nor is it necessarily indicative of future
operating results or financial position.
22
<PAGE>
ROGUE WAVE SOFTWARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------
Pro forma
----------
ASSETS Rogue Wave NobleNet Adjustments Combined
------ ---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................................... $14,785 $ 491 $ (11,791)(a)$ 3,485
Short-term investments....................................... 21,535 -- -- 21,535
Accounts receivable, net..................................... 7,888 318 -- 8,206
Prepaid expenses and other current assets.................... 3,018 26 -- 3,044
------- ------- ------------ -------
Total current assets......................................... 47,226 835 (11,791) 36,270
Equipment, net................................................ 4,389 486 150 (b) 5,025
Other noncurrent assets, net.................................. 4,419 6 11,021 (b) 4,425
------- ------- ------------ -------
Total assets................................................. 56,034 1,327 (620) 56,741
======= ======= ============ =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. 632 110 -- 742
Accrued expenses............................................. 3,629 251 -- 3,880
Deferred revenue............................................. 8,454 344 -- 8,798
Loans payable................................................ -- 2 -- 2
Current portion of long-term obligations..................... 85 -- -- 85
------- ------- ------------ -------
Total current liabilities.................................... 12,800 707 -- 13,507
Long-term obligations, less current portion................... -- -- -- --
------- ------- ------------ -------
Total liabilities............................................ 12,800 707 -- 13,507
Commitments and contingencies
Redeemable convertible preferred stock........................ -- 7,313 (7,313)(b) --
Stockholders' equity:
Common stock................................................. 9 43 (43)(b) 9
Additional paid-in capital............................... 37,195 -- -- 37,195
Retained earnings............................................ 5,962 (6,736) 6,736 (b) 5,962
Other comprehensive income................................... 68 -- -- 68
------- ------- ------------ -------
Total stockholders' equity................................... 43,234 (6,693) 6,693 43,234
------- ------- ------------ -------
Total liabilities and stockholders' equity................... $56,034 $ 1,327 $ (620) $56,741
======= ======= ============ =======
</TABLE>
(a) - Reflects impact of the uses of funds related to Rogue Wave's cash
acquisition of NobleNet.
(b) - Reflects the estimated allocation of the purchase price for the
acquisition of NobleNet's identifiable assets and liabilities based upon
estimates of their fair value, with the remainder allocated to goodwill.
See accompanying notes to unaudited pro forma condensed combined financial
statements.
23
<PAGE>
ROGUE WAVE SOFTWARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended
----------
September 30, 1998
------------------ Pro forma
---------
Rogue Wave NobleNet Adjustments Combined
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenue:
License revenue ................. $ 28,663 $ 1,183 $ -- $ 29,846
Service and maintenance
revenue ....................... 15,776 1,031 -- 16,807
-------- -------- -------- --------
Total revenue ................... 44,439 2,214 -- 46,653
-------- -------- -------- --------
Cost of revenue:
Cost of license revenue ......... 2,377 231 -- 2,608
Cost of service and
maintenance revenue ........... 4,920 291 -- 5,211
-------- -------- -------- --------
Total cost of revenue ........... 7,297 522 -- 7,819
-------- -------- -------- --------
Gross profit .................... 37,142 1,692 -- 38,834
-------- -------- -------- --------
Operating expenses:
Product development ........... 9,532 2,535 -- 12,067
Sales and marketing ........... 19,313 2,309 -- 21,622
General and administrative .... 4,164 709 50 (a) 4,923
Acquisition and relocation
costs ....................... 1,789 -- 1,102 (b) 2,891
-------- -------- -------- --------
Total operating expenses ...... 34,798 5,553 1,152 41,503
-------- -------- -------- --------
Income (loss) from operations . 2,344 (3,861) (1,152) (2,669)
Other expense, net .............. 794 44 (531)(c) 307
-------- -------- -------- --------
Income (loss) before income
taxes ....................... 3,138 (3,817) (1,683) (2,362)
Income tax expense .............. 961 -- (203)(d) 758
-------- -------- -------- --------
Net income (loss) ............. $ 2,177 $ (3,817) $ (1,480) $ (1,604)
======== ======== ======== ========
Basic earnings (loss) per share . $ 0.21 $ (0.90) $ (0.16)
======== ======== ========
Diluted earnings (loss) per share $ 0.20 $ (0.90) $ (0.15)
======== ======== ========
Shares used in basic per share
calculation ................... 10,209 4,218 10,209
Shares used in diluted per
share calculation ............. 10,670 4,218 10,670
</TABLE>
(a) - Adjusts for pro forma depreciation based on the fair value adjustment to
assets acquired.
(b) - Records pro forma goodwill amortization expense.
(c) - Records pro forma reduction in interest income based on $11.8 million
decrease in cash at 4.5%.
(d) - Reflects pro forma income taxes assuming an effective rate of 12%.
See accompanying notes to unaudited pro forma condensed combined financial
statements.
24
<PAGE>
ROGUE WAVE SOFTWARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
------------------
December 31, 1998
------------------
Pro forma
-------------
Rogue Wave NobleNet Adjustments Combined
-------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
Revenue:
License revenue. $ 7,809 $ 235 -- $ 8,044
Service and
maintenance
revenue........ 4,376 236 -- 4,612
------- ------- --------- -------
Total revenue... 12,185 471 -- 12,656
------- ------- --------- -------
Cost of revenue:
Cost of license
revenue........ 496 26 -- 522
Cost of service
and
maintenance
revenue........ 1,574 161 -- 1,735
------- ------- --------- -------
Total cost of 2,070 187 -- 2,257
revenue........ ------- ------- --------- -------
Gross profit.... 10,115 284 -- 10,399
------- ------- --------- -------
Operating
expenses:
Product
development.... 2,241 605 -- 2,846
Sales and
marketing...... 5,408 725 -- 6,133
General and
administrative. 1,213 172 13 (a) 1,398
Acquisition and
relocation
costs.......... -- -- 276 (b) 276
------- ------- --------- -------
Total operating 8,862 1,502 289 10,653
expenses....... ------- ------- --------- -------
Income (loss) 1,253 (1,218) (289) (254)
from operations
Other income
(expense), net.. 115 16 (133) (c) (2)
------- ------- --------- -------
Income (loss)
before income
taxes.......... 1,368 (1,202) (422) (256)
Income tax
expense
(benefit)....... 479 -- (51) (d) 428
------- ------- --------- -------
Net income $ 889 (1,202) $(371) $ (684)
(loss)......... ======= ======= ========= =======
Basic earnings
(loss) per share $0.09 $(0.28) $(0.07)
Diluted earnings ===== ======= =======
(loss) per share $0.08 $(0.28) $(0.06)
Shares used in ===== ======= =======
basic per share
calculation..... 10,444 4,268 10,444
Shares used in
diluted per
share
calculation..... 10,970 4,268 10,970
</TABLE>
(a) - Adjusts for pro forma depreciation based on the fair value adjustment to
assets acquired.
(b) - Records pro forma goodwill amortization expense.
(c) - Records pro forma reduction in interest income based on $11.8 million
decrease in cash at 4.5%.
(d) - Reflects pro forma income taxes assuming an effective rate of 13%.
See accompanying notes to unaudited pro forma condensed combined financial
statements.
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. On March 1, 1999, Rogue Wave Software, Inc. (the Company) acquired all of
the outstanding stock of NobleNet, Inc. (NobleNet) in a business
combination accounted for as a purchase. The accompanying Unaudited Pro
Forma Condensed Combined Balance Sheet and Statements of Operations include
the accounts of Rogue Wave and NobleNet as if the business combination had
occurred on October 1, 1998.
2. The accompanying Unaudited Pro Forma Condensed Combined Balance Sheet
include the accounts of Rogue Wave and NobleNet as of December 31, 1998.
The accompanying Unaudited Pro Forma Condensed Combined Statements of
Operations include the accounts of Rogue Wave and NobleNet for the year
ended September 30, 1998 and the three months ended December 31, 1998.
3. There were no material transactions between Rogue Wave and NobleNet during
any period presented. In addition, it is currently expected that the impact
of any conforming accounting policies will not be material. Certain
reclassifications have been made to the NobleNet historical financial
statements to conform to the Company's financial statement presentation.
26
<PAGE>
(D) EXHIBITS
2.1* Agreement and Plan of Merger and Reorganization among Rogue Wave
Software, Inc., a Delaware corporation, NN Acquisition Corp., a Delaware
corporation, NobleNet, Inc., a Delaware corporation and Steve Lemmo, as agent
for the stockholders of NobleNet, dated as of February 11, 1999.
2.2* Certificate of Merger and Plan of Merger dated March 1, 1998, filed
with the Secretary of State of the State of Delaware on March 1, 1999.
23.1 Consent of PricewaterhouseCoopers LLP
_______________
* Incorporated herein by reference to the exhibit of the same number to the
Registrant's Form 8-K dated March 1, 1999 and filed on March 9, 1999
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statements on Form S-3 (File No. 333-53527) and Forms S-8 (File Nos. 333-16749,
333-48485 and 333-48525) of Rogue Wave Software, Inc. of our report dated March
31, 1999 on our audits of the financial statements of NobleNet, Inc. as of
September 30, 1998 and 1997, and for each of the years in the three year period
ended September 30, 1998, which report is included in the Current Report on Form
8-K/A of Rogue Wave Software, Inc. dated May 17, 1999
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 17, 1999
