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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD
ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM TO
Commission File Number 000-22043
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NEW ERA OF NETWORKS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<C> <C>
DELAWARE 84-1234845
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
7400 EAST ORCHARD ROAD, SUITE 230
ENGLEWOOD, COLORADO 80111
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 694-3933
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past (90) days.
YES [ ] NO [X]
The number of shares of the issuer's Common Stock outstanding as of June
30, 1997 was 8,602,444.
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INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets...............................
Consolidated Statements of Operations.....................
Consolidated Statements of Cash Flows.....................
Notes to the Consolidated Financial Statements............
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................
Item 3. Quantitative and Qualitative Disclosures about
Market Risk...............................................
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................
Item 2. Changes in Securities...............................
Item 3. Defaults Upon Senior Securities.....................
Item 4. Submission of Matters to a Vote of Security
Holders...................................................
Item 5. Other Information...................................
Item 6. Exhibits and Reports on Form 8-K....................
Signatures..................................................
</TABLE>
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NEW ERA OF NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $29,118,750 $ 3,387,466
Accounts receivable, net of an allowance for uncollectible
accounts of $200,000 and $150,000, respectively........ 4,787,640 2,229,417
Prepaid expenses and other................................ 643,058 83,984
----------- -----------
Total current assets.............................. 34,549,448 5,700,867
----------- -----------
Property and Equipment:
Computer equipment and software........................... 1,487,318 1,132,049
Furniture, fixtures and equipment......................... 395,457 363,720
Leasehold improvements.................................... 46,863 33,050
----------- -----------
1,929,638 1,528,819
Less Accumulated depreciation............................. (657,351) (401,364)
----------- -----------
Property and equipment, net............................... 1,272,287 1,127,455
----------- -----------
Other Assets................................................ 240,685 244,416
----------- -----------
Total assets...................................... $36,062,420 $ 7,072,738
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 1,259,146 $ 469,640
Accrued liabilities....................................... 2,470,631 1,369,634
Notes payable to banks.................................... -- 1,100,553
Deferred revenue.......................................... 322,504 175,300
----------- -----------
Total current liabilities......................... 4,052,281 3,115,127
Notes payable to banks...................................... -- 442,277
----------- -----------
Total Liabilities................................. 4,052,281 3,557,404
----------- -----------
Stockholders' Equity:
Preferred stock-
Series A, $.01 par value, convertible preferred stock,
9,169,028 shares authorized, issued and outstanding at
December 31, 1996, converted to Common Stock in June
1997.................................................. -- 2,000,000
Series B, $.01 par value, convertible preferred stock,
6,183,339 shares authorized, issued and outstanding at
December 31, 1996, converted to Common Stock in June
1997.................................................. 1,875,000
Series C, $.01 par value, convertible preferred stock,
4,664,596 shares authorized, issued and outstanding at
December 31, 1996, converted to Common Stock in June
1997.................................................. -- 7,510,000
Preferred stock, $.0001 par value, 2,000,000 and 0 shares
authorized; 0 shares issued and outstanding............ -- --
----------- -----------
Total preferred stock............................. -- 11,385,000
Common Stock, $.0001 par value, 45,000,000 shares
authorized; 8,602,438 and 1,359,091 shares issued and
outstanding, respectively.............................. 860 136
Additional paid-in capital................................ 41,334,159 141,543
Accumulated deficit....................................... (9,324,880) (8,011,345)
----------- -----------
Total stockholders' equity........................ 32,010,139 3,515,334
----------- -----------
Total liabilities and stockholders' equity........ $36,062,420 $ 7,072,738
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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NEW ERA OF NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Software licenses.................... $3,212,770 $ 410,694 $ 5,660,180 $ 521,694
Services and maintenance............. 1,566,124 1,186,257 2,792,562 2,131,085
---------- ----------- ----------- -----------
Total revenues............... 4,778,894 1,596,951 8,452,742 2,652,779
---------- ----------- ----------- -----------
Cost of revenues:
Cost of software licenses............ 165,659 123,208 415,465 156,508
Cost of services and maintenance..... 1,240,470 712,711 2,040,627 1,389,444
---------- ----------- ----------- -----------
Total cost of revenues....... 1,406,129 835,919 2,456,092 1,545,952
---------- ----------- ----------- -----------
Gross Profit........................... 3,372,765 761,032 5,996,650 1,106,827
Operating Expenses:
Sales and marketing.................. 1,987,996 1,010,101 3,678,078 1,329,792
Research and development............. 1,560,078 736,183 2,782,542 1,344,410
General and administrative........... 370,944 379,862 865,580 554,483
---------- ----------- ----------- -----------
Total operating expenses..... 3,919,018 2,126,146 7,326,200 3,228,685
---------- ----------- ----------- -----------
Loss from operations................... (546,253) (1,365,114) (1,329,550) (2,121,858)
Other income (expense), net............ 17,118 7,504 16,015 9,131
---------- ----------- ----------- -----------
Loss before provision for income
taxes................................ (529,135) (1,357,610) (1,313,535) (2,112,727)
Provision for income taxes............. -- -- -- --
---------- ----------- ----------- -----------
Net loss............................... $ (529,135) $(1,357,610) $(1,313,535) $(2,112,727)
========== =========== =========== ===========
Net loss per common share.............. $ (0.08) $ (0.24) $ (0.21) $ (0.38)
========== =========== =========== ===========
Weighted average shares of common stock
outstanding.......................... 6,467,603 5,618,209 6,281,009 5,503,512
========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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NEW ERA OF NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (1,313,535) $(2,112,761)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization.......................... 261,031 113,458
Issuance of common stock and common stock options for
services............................................. -- 65,500
Changes in assets and liabilities --
Accounts receivable.................................. (2,558,223) (944,826)
Prepaid expenses and other........................... (560,387) (243,181)
Accounts payable..................................... 649,506 271,699
Accrued liabilities.................................. 580,997 257,878
Deferred revenue..................................... 147,204 4,500
------------ -----------
Net cash used in operating activities............. (2,793,407) (2,587,733)
------------ -----------
Cash flows from investing activities:
Purchase of short-term investments........................ -- --
Proceeds from sale of short-term investments.............. -- 102,532
Purchase of property and equipment........................ (400,819) (673,481)
------------ -----------
Net cash used in investing activities............. (400,819) (570,949)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 33,226,290 --
Common stock issuance costs............................... (2,757,950) --
Proceeds from issuance of preferred stock................. -- 7,510,000
Preferred stock issuance costs............................ -- (33,803)
Proceeds from note payable to stockholder................. -- 104,709
Payments on note payable to stockholder................... -- (104,709)
Proceeds from notes payable to banks...................... 600,000 67,095
Principal payments on notes payable to banks.............. (2,142,830) (3,060)
------------ -----------
Net cash provided by financing activities......... 28,925,510 7,540,232
------------ -----------
Net increase (decrease) in cash and cash equivalents........ 25,731,284 4,381,550
Cash and cash equivalents, beginning of period.............. 3,387,466 1,135,027
------------ -----------
Cash and cash equivalents, end of period.................... $ 29,118,750 $ 5,516,577
============ ===========
Supplemental disclosures of non-cash transactions:
Conversion of preferred stock to common................... $ 11,385,000 $ --
============ ===========
Accrued common stock offering costs....................... $ 660,000 $ --
============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
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NEW ERA OF NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated interim financial statements have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "Commission"). Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. These financial statements should be
read in conjunction with the Company's audited consolidated financial statements
as included in the Company's Registration Statement on Form S-1 (No. 333-20189)
and related Prospectus dated June 18, 1997. The consolidated results of
operations for the three and six months ended June 30, 1997, are not necessarily
indicative of the results to be expected for any subsequent period or for the
entire fiscal year ending December 31, 1997. The December 31, 1996, balance
sheet was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
The accompanying unaudited consolidated interim financial statements
reflect, in the opinion of management, all adjustments, which are of a normal
and recurring nature, necessary for a fair presentation of the financial
position and results of operations for the periods presented. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make 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 reporting period. Actual results could differ
from those estimates.
2. INITIAL PUBLIC OFFERING
In June 1997, the Company completed its initial public offering and issued
2,760,000 shares of its Common Stock to the public at a price of $12.00 per
share, with proceeds to the Company of approximately $29.8 million, net of
underwriting discounts and other offering costs. Upon completion of the
offering, all outstanding shares of Series A, Series B, and Series C Preferred
Stock (a total of 20,016,963 shares) were converted into 4,448,209 shares of
Common Stock. In July 1997, the underwriters exercised their over-allotment
option and purchased an additional 414,000 shares of Common Stock at $12.00 per
share from the Company with net proceeds to the Company of approximately $4.6
million.
3. NET LOSS PER COMMON SHARE
Net loss per common share is computed using the weighted average number of
outstanding shares of Common Stock (assuming conversion of the Preferred Stock
occurred on the date of its issuance) and Common Stock equivalent shares from
Common Stock options and warrants. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, Common Stock and Common Stock
equivalent shares issued by the Company at prices significantly below the
assumed public offering price during the twelve month period prior to the
proposed offering date (using the treasury stock method) have been included in
the calculation as if they were outstanding since January 1, 1996 regardless of
whether they are antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share". The
purpose of SFAS No. 128 is to simplify the computation of earnings per share
("EPS") and to make the U.S. standard for computing EPS more compatible with the
EPS standards of other countries and with that of the International Accounting
Standards Committee. The effective date for the application of SFAS No. 128 for
both interim and annual periods is after December 15, 1997. Earlier application
is not permitted. The Company has not determined the impact that the application
of SFAS No. 128 will have on the Company's EPS calculation.
6
<PAGE> 7
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains certain trend analysis and other
forward-looking statements. Words such as "anticipate," "believe," "plan,"
"estimate," " expect," "seek," and "intend" and words of similar import are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and are subject to business and economic risks
and uncertainties which are difficult to predict. Therefore, the Company's
actual results of operations may differ materially from those expressed or
forecasted in the forward-looking statements as a result of a number of factors,
including those set forth in this discussion under "Certain Factors That May
Affect Future Results" and other risks detailed from time to time in reports
filed with the Securities and Exchange Commission. In addition, the discussion
of the Company's results of operations should be read in conjunction with
matters described in detail in the Company's Prospectus dated June 18, 1997,
including the "Risk Factors" set forth therein.
OVERVIEW
The Company began operations in January 1994 to develop, market and support
enterprise software for application integration. In 1994 and 1995, the Company
was in the development stage and was principally focused on product development
and the assembling of its management team and infrastructure. The Company
completed and commercially introduced its initial version of NEONet in January
1996. In November 1996, the Company commenced shipment to customers of Release
3.0 of NEONet, which provided additional capabilities for effective
enterprise-wide application integration. Software license revenues were not
significant until the initial introduction of the NEONet software in January
1996 and, more significantly, the release of NEONet version 2.2 in June 1996. In
March 1997, the Company announced the availability of Release 3.1 of NEONet
which contained, among other enhancements, an improved graphical user interface.
Since the initial release of NEONet in January 1996, a substantial portion of
the Company's revenues have been attributable to licenses of NEONet and related
services. The Company currently expects that revenues attributable to NEONet and
related services will continue to account for a substantial majority of the
Company's revenues at least through 1997. Accordingly, the Company's future
operating results will be dependent upon the level of market acceptance of, and
demand for, NEONet.
In view of the Company's limited operating history, recent growth and other
factors enumerated under "Certain Factors That May Affect Future Results," the
Company believes that quarter-to-quarter comparisons of its financial results
should not be relied upon as an indication of future performance, and operating
results may fluctuate from quarter to quarter in the future.
REVENUES
Total revenues for the quarter ended June 30, 1997 were $4.8 million as
compared with $1.6 million for the quarter ended June 30, 1996, an increase of
199%. Total revenues for the six months ended June 30, 1997 were $8.5 million as
compared with $2.7 million for the six months ended June 30, 1996. This growth
was primarily attributable to the substantial increase in software licenses
revenues following the introduction of NEONet version 2.2 in June 1996.
Software licenses revenues for the quarter ended June 30, 1997 were $3.2
million as compared with $411,000 for the quarter ended June 30, 1996, and
represented 67% of total revenues for the quarter ended June 30, 1997, as
compared with 26% of total revenues for the quarter ended June 30, 1996.
Software license revenues were $5.7 million for the six months ended June 30,
1997, as compared with $522,000 for the six months ended June 30, 1996, and
represented 67% of total revenues for the six months ended June 30, 1997, as
compared with 20% of total revenues for the six months ended June 30, 1996. The
increase in software licenses revenues, both in absolute dollars and as a
percentage of total revenues, reflects a growing market awareness of the
Company's products, the continuing development of an installed base of customers
to serve as references for additional customers, the additional functionality of
NEONet, and growing market acceptance of the Company's software products,
particularly in the financial services industry. Additionally,
7
<PAGE> 8
the increase in software licenses revenues in 1997 was attributable to sales to
new customers, expansion of the direct sales force and indirect channels.
Services and maintenance revenues for the quarter ended June 30, 1997 were
$1.6 million as compared with $1.2 million for the quarter ended June 30, 1996,
an increase of 32%. Services and maintenance revenues were $2.8 million for the
six months ended June 30, 1997, as compared with $2.1 for the six months ended
June 30, 1996, an increase of 31%. This growth was primarily due to a larger
installed base of customers purchasing maintenance services for new and existing
software licenses. The growth in services and maintenance revenues was affected
by the completion of the Merrill Lynch service engagement in the quarter ended
June 30, 1996, which accounted for approximately 65% of the services and
maintenance revenue in the six month period ended June 30, 1996.
During the three and six month periods ended June 30, 1997, the Company's
largest customer during these periods accounted for 41% and 26%, respectively,
of total revenues.
COST OF REVENUES
Cost of revenues consists of costs of software licenses and costs of
services and maintenance. Cost of software licenses consists primarily of
royalty payments under an agreement to pay certain royalties to Merrill Lynch
until such royalties reach $1.9 million. The Company accrued royalties at 30% of
NEONet license fees in 1996 and at 10% during the six months ended June 30,
1997. Royalty expenses are accounted for as cost of software licenses. As of
June 30, 1997, total accrued royalties due to Merrill Lynch were approximately
$1.45 million, of which $313,000 has been paid. The Company expects that the
remaining royalty obligation will be satisfied by the end of fiscal 1997.
Total cost of revenues were $1.4 million and $2.5 million, respectively, in
the three and six months ended June 30, 1997, as compared with $836,000 and $1.5
million, respectively, in the three and six months ended June 30, 1996. Total
cost of revenues as a percentage of total revenues was 29% in both the three and
six months ended June 30, 1997, as compared with 52% and 58%, respectively, in
the three and six months ended June 30, 1996. The decrease in total cost of
revenues as a percentage of total revenues was primarily attributable to the
significant growth in software licenses revenues which carries a substantially
lower cost than services and maintenance revenues.
Cost of software licenses were $166,000 and $415,000, respectively, in the
three months and six months ended June 30, 1997, as compared with $123,000 and
$157,000, respectively, in the three and six months ended June 30, 1996. Cost of
software licenses as a percentage of software licenses revenue was 5% and 7%,
respectively, in the three and six months ended June 30, 1997, respectively, as
compared with 30% in both the three and six months ended June 30, 1996. This
percentage decrease was due principally to a decrease in the royalty rate
applicable to software license sales of NEONet from 30% in the 1996 periods to
10% in the three and six month periods ended June 30, 1997. Additionally, the
increase in sales of non royalty-bearing software licenses contributed to the
decline in cost of software licenses as a percentage of software licenses
revenue.
Cost of services and maintenance consists primarily of personnel, facility
and system costs incurred in providing consulting services, customer care
(maintenance and support) and training. Cost of services and maintenance was
$1.2 million and $2.0 million, respectively, for the three and six months ended
June 30, 1997, as compared with $713,000 and $1.4 million, respectively, in the
three and six months ended June 30, 1996. Cost of services and maintenance, as a
percentage of services and maintenance revenues, was 79% and 73%, respectively,
in the three month and six month periods ended June 30, 1997, as compared with
60% and 65%, respectively, for the three and six month periods ended June 30,
1996. This increase was due largely to the increased use of contract labor, at a
higher cost, to fulfill customer requirements. The Company plans to replace some
subcontractors with internal resources, but expects that contract labor will
continue to be used in some engagements to meet specialized requirements.
8
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OPERATING EXPENSES
Research and Development
Research and development expenses were $1.6 million and $2.8 million,
respectively, in the three and six months ended June 30, 1997, as compared with
$736,000 and $1.3 million in the corresponding three and six month periods ended
June 30, 1996, representing an increase of 112% and 107% over the three and six
month comparative periods of 1996. The increase in research and development
expenses is primarily attributable to hiring of additional technical personnel
engaged in software development activities. As a percentage of total revenues,
research and development expenses decreased to 34% and 33%, respectively, for
the three and six month periods ended June 30, 1997, from 46% and 51%,
respectively, for the three and six month periods ended June 30, 1996, due to
the significant growth in software licenses revenues. Research and development
expenses have been expensed as incurred. No software development costs have been
capitalized to date in accordance with Statement of Financial Accounting
Standards No. 86.
Sales and Marketing
Sales and Marketing expenses consist primarily of salaries for sales and
marketing personnel, commissions, and promotional expenses. Sales and marketing
expenses were $2.0 million and $3.7 million, respectively, for the three and six
months ended June 30, 1997, as compared with $1.0 and $1.3 million,
respectively, for the three and six months ended June 30, 1996, representing an
increase of 97% and 177%, respectively, for the 1997 periods over the 1996
comparative periods. These increases were due primarily to the Company's
expansion of its overall sales and marketing resources and business
infrastructure. As a percentage of total revenues, sales and marketing expenses
decreased to 42% and 44%, respectively, for the three and six month periods
ended June 30, 1997, from 63% and 50%, respectively, for the three and six month
periods ended June 30, 1996, due to the significant increase in revenues from
software licenses. The Company expects to continue to expand its direct sales
force and, in particular, increase its international presence, as well as
continue to develop its indirect distribution channels and increase promotional
activity. Accordingly, the Company expects sales and marketing expenses to
continue to grow in absolute dollars, although such expenditures may vary as a
percentage of total revenues depending upon the rate of growth of the Company's
revenue, if any.
General and Administrative
General and administrative expenses consist primarily of salaries and
related costs, and outside professional fees associated with the finance, legal,
human resources, and administrative functions of the Company. General and
administrative expenses were $371,000 and $866,000, respectively, for the three
and six month periods ended June 30, 1997, as compared with $380,000 and
$554,000, respectively, for the three and six month periods ended June 30, 1996.
As a percentage of total revenues, general and administrative expenses decreased
substantially in the comparative three and six month periods from 1996 to 1997
due principally to economies of scale associated with increased revenues. The
Company expects general and administrative expenses to grow in absolute dollars
as the Company implements additional management information systems associated
with business growth, as well as incurring costs incident to being a publicly-
held company.
OTHER INCOME, NET
The Company did not report material amounts in any period. However, the
Company anticipates that other income will increase substantially due to
interest income received from proceeds from the public offering and interest
expense will decline due to the repayment of bank debt.
PROVISION FOR TAXES
The Company has reported no income tax expense or benefit in any period. As
of June 30, 1997, the net deferred tax asset of approximately $3.5 million was
offset by a valuation allowance of a like amount. The comparable figure for
December 31, 1996 was $2.7 million.
9
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NET LOSS
The Net Loss for the second quarter of 1997 was $530,000, or $0.08 per
share on an average of 6.47 million shares outstanding, compared to a loss of
$1.4 million, or $0.24 per share on an average of 5.62 million shares
outstanding, for the second quarter of 1996. For the first half of 1997, the net
loss was $1.3 million, or $0.21 per share on an average of 6.28 million shares
outstanding, compared to a loss of $2.1 million, or $0.38 per share, on an
average of 5.5 million shares outstanding for the first half of 1996. The number
of shares outstanding and per share amounts have been restated to reflect a
2-for-9 reverse stock split and conversion of preferred shares in effect as of
June 30, 1997. The reduction in net loss results primarily from the growth in
the Company's total revenues, in particular the growth of software licenses
revenues, exceeding the growth in costs and expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position strengthened with the receipt of $29.8
million in proceeds (net of underwriting discounts and other offering costs)
from the public offering in June 1997. Cash and cash equivalents increased to
$29.1 million at June 30, 1997, compared to $3.4 million at December 31, 1996.
An additional $4.6 million in net proceeds was received by the Company pursuant
to the exercise of the underwriters' over-allotment option in July 1997.
Although the Company has a revolving credit line in place, Notes Payable to
banks declined to zero as of June 30, 1997, compared to $1.5 million as of
December 31, 1996.
Cash usage from operating activities was $2.8 million in the six months
ended June 30, 1997, compared to usage of $2.6 million in the comparable period
of 1996, reflecting a reduction in net loss of $800,000, which was partially
offset by an increase in working capital, primarily accounts receivable, of $1.0
million.
Capital expenditures were $401,000 in the six months ended June 30, 1997,
compared to $673,000 in the comparable 1996 period. The higher capital
expenditures in the six months ended June 30, 1996 were largely due to basic
infrastructure expenses in the 1996 period.
The Company believes that its existing balance of cash and cash equivalents
will be sufficient to meet the Company's working capital and capital expenditure
needs for at least the next twelve months. Thereafter, the Company may require
additional sources of funds in order to continue to support its business. There
can be no assurance that such capital, if needed, will be available or will be
available on terms acceptable to the Company.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Limited Operating History; History of Operating Losses; Accumulated
Deficit. The Company was formed in 1993, and installed NEONet at its first
customer site in January 1996. The Company commercially introduced its initial
version of NEONet in January 1996. Accordingly, the Company has only a limited
operating history upon which an evaluation of the Company and its prospects can
be based. Prior to 1996, the Company recorded only nominal product revenue, and
the Company has never been profitable on a quarterly or annual basis. The
Company may not be profitable for several quarters, and may never achieve
profitability unless revenues increase substantially. At June 30, 1997, the
Company had an accumulated deficit of approximately $9.3 million. The Company's
limited operating history makes the prediction of future operating results
difficult or impossible. The Company's prospects must be evaluated in light of
the risks, uncertainties, expenses and difficulties frequently encountered by
companies in the early stage of their development. The new and rapidly evolving
markets in which the Company operates makes these risks, uncertainties, expenses
and difficulties particularly pronounced. In order to address these risks and
uncertainties the Company must, among other things, successfully implement its
sales and marketing strategy, expand its direct sales channels, develop its
indirect distribution channels, respond to competitive and other developments in
the application integration software market, attract and retain qualified
personnel, continue to develop and upgrade its products and technology more
rapidly than competitors, and commercialize its products and services that
incorporate existing and future technologies. There can be no assurance that the
Company will be able to successfully implement any of its strategies or
successfully address these risks and uncertainties, or that the Company will
achieve or sustain profitability on a quarterly or annual basis in the future.
10
<PAGE> 11
Uncertainty of Future Operating Results; Lengthy Sales Cycle; Fluctuations
in Quarterly Results. Although the Company has experienced significant revenue
growth in recent periods, such growth rates may not be sustainable and are not
necessarily indicative of future operating results and operating margins. The
Company's quarterly operating results have fluctuated significantly in the past
and may vary significantly in the future. Future operating results will depend
on many factors, including, among others, the growth of the application
integration software market, the size and timing of software licenses, the delay
or deferral of customer implementations, the ability of the Company to maintain
or increase market demand for the Company's products, the timing of new product
announcements and releases by the Company, competition by existing and emerging
competitors in the application integration software market, the ability of the
Company to expand its direct sales force and develop indirect distribution
channels, the Company's success in developing and marketing new products and
controlling costs, budgeting cycles of customers, product life cycles, software
defects and other product quality problems, the mix of products and services
sold, international expansion, and general domestic and international economic
and political conditions. A significant portion of the Company's revenues has
been, and the Company believes will continue to be, derived from a small number
of relatively large customer contracts or arrangements, and the timing of
revenue recognition from such contracts and arrangements has caused and may
continue to cause material fluctuations in the Company's operating results,
particularly on a quarterly basis. Quarterly revenues and operating results
typically depend upon the volume and timing of customer contracts received
during a given quarter, and the percentage of each such contract which the
Company is able to recognize as revenue during each quarter, each of which is
difficult to forecast. In addition, as is common in the software industry, a
substantial portion of the Company's revenues in a given quarter historically
have been recorded in the third month of that quarter, with a concentration of
such revenues in the last two weeks of the third month. To the extent this trend
continues, any failure or delay in the closing of orders during the last part of
any given quarter will have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition, the timing of license revenue is difficult to predict because
of the length and variability of the Company's sales cycle. The purchase of the
Company's products by its customers typically involves a significant technical
evaluation and commitment of capital and other resources, with the attendant
delays frequently associated with customers' internal procedures to approve
large capital expenditures and to test, implement and accept new technologies
that affect key operations. This evaluation process frequently results in a
lengthy sales process of several months and subjects the sales cycle associated
with the purchase of the Company's products to a number of significant risks,
including customers' budgetary constraints and internal acceptance reviews. The
length of the Company's sales cycle may vary substantially from customer to
customer, particularly for customers within different vertical market segments.
The Company's operating expense levels are relatively fixed and are based in
part on expectations of future revenues. Consequently, any delay in the
recognition of revenue from quarter to quarter could result in operating losses.
To the extent that such operating expenses precede, or are not subsequently
followed by, increased revenues, the Company's operating results would be
materially adversely affected.
As a result of these and other factors, the Company believes that
period-to-period comparisons of its historical results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. It is possible that the Company's future quarterly operating
results from time to time may not meet the expectations of stock market analysts
or investors, which would likely have an adverse effect on the market price of
the Company's Common Stock.
Dependence Upon Emerging Market for Application Integration Software.
Substantially all of the Company's revenues to date have been attributable to
sales of application integration software products and services, and the Company
expects that substantially all revenues in the foreseeable future will be
derived from such products. The market for application integration software is
relatively new and emerging. The Company's future financial performance will
depend, to a large extent, on continued growth in the number of organizations
demanding software and services for application integration and seeking outside
vendors to develop, manage and maintain the integration software used for their
mission-critical applications. Many potential customers for third-party
application integration software have made significant investments in internally
developed integration systems, and are highly dependent upon the continued use
of such internally
11
<PAGE> 12
developed systems. The dependence of organizations on such internally developed
systems coupled with the significant costs required to shift to third-party
products may substantially inhibit future demand for third-party application
integration software products, such as those offered by the Company. There can
be no assurance that the market for application integration software products
and services will continue to grow. If the application integration market fails
to grow or grows more slowly than the Company currently anticipates, the
Company's business, operating results, and financial condition would be
materially adversely affected.
The Company intends to continue to devote considerable resources educating
potential customers about application integration software. Even if a sizable
market for third-party application integration continues to develop, there can
be no assurance that such expenditures or any other marketing efforts will
enable the Company's products to achieve or sustain any significant degree of
market acceptance. If the Company is unsuccessful in establishing broad market
acceptance for its current and future products, the Company's future growth,
financial condition and results of operations will be materially adversely
affected.
Product Concentration. A substantial portion of the Company's revenues have
been attributable to licenses of NEONet and related services. The Company
currently expects that revenues attributable to NEONet and related services will
continue to account for a substantial majority of the Company's revenues at
least through 1997. Accordingly, the Company's future operating results will be
dependent upon the level of market acceptance of, and demand for, NEONet. The
Company's future performance will, to a large extent, depend upon the successful
development, introduction and customer acceptance of new and enhanced releases
of NEONet and other products. There can be no assurance that the Company's
products will achieve continued market acceptance or that the Company will be
successful in marketing any new or enhanced products. In the event that the
Company's current or future competitors release new products that have more
advanced features, offer better performance or are more price competitive than
NEONet, demand for the Company's products may decline. A decline in demand for
NEONet as a result of competition, technological change or other factors would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Customer Concentration; Dependence Upon Financial Institutions Industry;
Risks of New Targeted Market Segments. A relatively small number of customers
account for a significant percentage of the Company's revenues. For the year
ended December 31, 1996, sales to Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), ADP Financial Information Services, JP Morgan &
Co. and SunGard Financial Systems accounted for 22%, 16%, 14% and 13% of total
revenues, respectively. For the three and six months ended June 30, 1997, the
Company's largest customer contract accounted for 41% and 26%, respectively, of
the Company's total revenues. There can be no assurance that these customers or
other customers of the Company will continue to purchase the Company's products
in the future. The Company's failure to add new customers that make significant
purchases of the Company's products and services would have a material adverse
effect on the Company's business, financial condition and result of operations.
To date, the Company's revenues have been derived primarily from sales to
large banks and financial institutions. During the year ended December 31, 1996
and the six-month period ended June 30, 1997, sales to banks and financial
institutions accounted for 80% and 76%, respectively, of the Company's total
revenues. The Company's marketing strategy calls for the Company to increase its
penetration of the financial institutions market segment and to focus other
sales efforts on additional vertical market segments, principally health care,
telecommunications and manufacturing. Accordingly, the Company expects that
revenues attributable to the financial institutions market segment will continue
to account for a substantial portion of the Company's revenues in the near
future. Any factors affecting the health of the financial services industry, or
other targeted vertical market segments that contain a significant portion of
the Company's customer base, could affect the purchasing patterns of the
Company's customers within these industries, which would have a material adverse
effect on the Company's business, operating results and financial condition.
The Company has only limited experience in marketing its products to
customers outside of the financial institutions industry. The additional market
segments currently targeted by the Company are likely to have significantly
different market characteristics than the financial institutions segment, and
licensing NEONet products in such other segments may require pricing structures,
sales methods, sales personnel, consulting
12
<PAGE> 13
services and customer support that differ from those previously used by the
Company. There can be no assurance that the Company will be successful in
achieving significant market acceptance or penetration in the additional
segments targeted by the Company. If the Company is unsuccessful in penetrating
additional vertical market segments, its future growth, financial condition and
results of operations will be materially adversely affected.
Management of Growth. The Company is currently experiencing a period of
rapid growth that has placed and is expected to continue to place a strain on
the Company's administrative, financial and operational resources. From January
1, 1996 through June 30, 1997, the size of the Company's staff increased from 35
to 170 full time equivalent employees. Except for George F. (Rick) Adam, Jr.,
the Company's Chief Executive Officer, and Harold A. Piskiel, the Company's
Senior Vice President, Chief Technical Officer, almost all of the Company's
senior management joined the Company in 1996. Most of the Company's senior
managers have worked together at the Company for only a brief period. In
addition, the Company expanded geographically by adding sales personnel in New
York City, Chicago, Houston, San Francisco, Philadelphia, Atlanta and London,
England. The Company may further expand into these regions or into others
through internal growth or through acquisitions of related companies and
technologies, although no such acquisitions are currently being negotiated. Such
expansion may strain management's ability to successfully integrate its
operations throughout these regions. Any additional growth within a short time
period may divert management attention from day-to-day operations, which could
have a material adverse effect on the Company's business, financial condition,
and operating results.
The Company's ability to manage its staff and facilities growth effectively
will require it to continue to improve its operational, financial and management
controls, reporting systems and procedures, to install new management
information and control systems and to expand, train, motivate and manage its
work force. There can be no assurance that the Company will install such
management information and control systems in an efficient and timely manner or
that the new systems will be adequate to support the Company's level of
operations. If the Company's management is unable to manage growth effectively
and new employees are unable to achieve targeted performance levels, the
Company's business, operating results and financial condition would be
materially adversely affected.
Integration of Potential Acquisitions and Joint Ventures. The Company may
from time to time engage in acquisitions of companies with complementary
products and services in the application integration or other related software
markets. Although no such acquisitions are currently being negotiated, any
future acquisitions would expose the Company to increased risks, including those
associated with the assimilation of new operations and personnel, the diversion
of financial and management resources from existing operations, and the
inability of management to integrate successfully acquired businesses, personnel
and technologies. Furthermore, there can be no assurance that the Company will
be able to generate sufficient revenues from any such acquisition to offset
associated acquisition costs, or that the Company will be able to maintain
uniform standards of quality and service, controls, procedures and policies,
which may result in the impairment of relationships with customers, employees,
and new management personnel. Certain acquisitions may also result in additional
stock issuances which could be dilutive to the Company's stockholders. The
Company may also evaluate, on a case-by-case basis, joint venture relationships
with certain complementary businesses. Any such joint venture investment would
involve many of the same risks posed by acquisitions, particularly those risks
associated with the diversion of resources, the inability to generate sufficient
revenues, the management of relationships with third parties, and potential
additional expenses, any of which could have a material adverse effect on the
Company's business, financial condition or operating results.
Competition. The market for the Company's products is intensely competitive
and is expected to become increasingly competitive as current competitors expand
their product offerings and new competitors enter the market. In this regard,
the Company believes that the application integration market is relatively new,
such that there is great likelihood that additional, significant competitors
will enter the market. The Company's current competitors include a large number
of companies offering one or more solutions to the application integration
problem, some of which are directly competitive with NEONet.
13
<PAGE> 14
To date, the Company has faced competition and sales resistance from the
internal information technology departments of potential customers that have
developed or may develop in-house systems that may substitute for those offered
by the Company. The Company expects that internally developed application
integration systems will continue to be a principal source of competition for
the foreseeable future. In particular, the Company has had difficulties making
sales to organizations whose internal development groups have already progressed
significantly toward completion of systems that the Company's products might
replace, or where the underlying technologies used by such groups differ
fundamentally from the Company's.
The Company's competitors also include software vendors targeting the
enterprise-wide application integration market through various technological
solutions. For example, IBM, Microsoft, BEA and others provide messaging and
queuing solutions that compete with the NEONet Messaging and Queuing module. In
the future these vendors could elect to provide a more complete integration
solution that would also compete with NEONet's dynamic formatting and
rules-based engine modules. In addition, a large number of other companies
provide alternative solutions to application integration utilizing other
technologies such as data synchronization and transaction monitoring, and a
limited number of companies such as TIBCO, Inc. offer subject-based
publish/subscribe messaging systems designed to operate similarly to NEONet. The
Company also faces competition from relational database vendors such as IBM,
Oracle, Informix, Sybase and Microsoft, whose products currently compete with
NEONet to some extent and are likely to compete more directly in the future.
The Company also may face competition from systems integrators and
professional service organizations, such as Andersen Consulting, Ernst & Young
and KPMG Peat Marwick, which design and develop custom systems and perform
custom integration. Certain of these firms may possess industry specific
expertise or reputations among potential customers for offering enterprise
solutions to application integration needs. These systems integration and
consulting firms can be resellers of the Company's products and may engage in
joint marketing and sales efforts with the Company. The Company relies upon such
firms for recommendations of NEONet products during the evaluation stage of the
purchase process, as well as for implementation and customer support services.
These systems integration and consulting firms may have similar, and often more
established, relationships with the Company's competitors, and there can be no
assurance that these firms will not market or recommend software products
competitive with the Company's products in the future.
Most of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
significantly greater name recognition, and a larger installed base of customers
than the Company. In addition, many of the Company's competitors have
well-established relationships with current and potential customers of the
Company, have extensive knowledge of the application integration industry, and
are capable of offering a single-vendor solution. As a result, the Company's
competitors may be more able than the Company to devote significant resources
toward the development, promotion and sale of their products and to respond more
quickly to new or emerging technologies and changes in customer requirements. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products to address customer needs. Accordingly, it is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share. The Company also expects that the competition
will increase as a result of software industry consolidations. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any of which could materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors, or that competitive pressure faced by the Company will
not materially adversely affect its business, operating results, and financial
condition.
Rapid Technological Change; Limited Platform Coverage; Dependence on New
Products. The market in which the Company competes is characterized by rapid
technological change, frequent new product introductions and enhancements,
changes in customer demands and evolving industry standards. The introduction of
products incorporating new technologies and the emergence of shifting customer
requirements, or changing industry standards, could render certain of the
Company's existing products obsolete. The technological life cycles of the
Company's products are difficult to estimate, and may vary across vertical
14
<PAGE> 15
market segments. The Company's future success will depend upon its ability to
continue to enhance its current product line and to continue to develop and
introduce new products that keep pace with competitive and technological
developments. Such developments will require the Company to continue to make
substantial product development investments.
The Company currently serves, and intends to continue to serve, a customer
base with a wide variety of hardware, software, database, and networking
platforms. To gain broad market acceptance, the Company believes that in the
future it must support NEONet on a variety of platforms. The Company's product
currently does not support all major platforms, and there can be no assurance
that the Company will adequately expand its database and platform coverage to
service potential customers, or that such expansion will be sufficiently rapid
to meet or exceed platform and database coverage of competitors.
The success of the Company's products will depend on various factors,
including the ability to integrate the Company's products with customer
platforms as compared to competitive offerings, the portability of the Company's
products, particularly the number of hardware platforms, operating systems and
databases that the Company's products can source or target, the integration of
additional software modules under development with existing products, and the
Company's management of software development being performed by third party
developers. There can be no assurance that the Company will be successful in
developing and marketing product enhancements or new products that respond to
these technological changes, shifting customer tastes, or evolving industry
standards, or that the Company will not experience difficulties that could delay
or prevent the successful development, introduction and marketing of these
products. If the Company is unable to develop and introduce new products or
enhancements of existing products in a timely manner or if the Company
experiences delays in the commencement of commercial shipments of new products
and enhancements, the Company's business, operating results and financial
condition would be materially adversely affected.
Risks Associated with Expanding Distribution; Indirect Distribution Channel
Risks. To date, the Company has sold its products primarily through direct sales
and has supported its customers with its technical and customer support staff.
The Company's ability to achieve significant revenue growth in the future will
depend in large part on its ability to recruit and train sufficient direct
sales, technical and customer personnel, particularly additional sales personnel
focusing on the new vertical market segments targeted by the Company's marketing
strategy. The Company has at times experienced and continues to experience
difficulty in recruiting qualified sales, technical and support personnel. Any
failure by the Company to rapidly and effectively expand its direct sales force
and its technical and support staff could materially adversely affect the
Company's business, financial condition and operating results.
The Company believes that future growth will depend upon its success in
developing and maintaining strategic relationships with distributors, resellers,
and systems integrators. While the Company's current strategy is to increase the
proportion of customers served through these indirect channels, indirect channel
sales have not accounted for significant revenue to date. The Company is
currently investing, and plans to continue to invest, significant resources to
develop the indirect channel, which could adversely affect the Company's
operating results if the Company's efforts do not generate license revenues
necessary to offset such investment. The Company's inability to recruit and
retain qualified third-party distributors, VARs and systems integrators could
adversely affect the Company's results of operations. The Company's success in
selling into this indirect distribution channel could also adversely affect the
Company's average selling prices and result in lower gross margins, since lower
unit prices are typically charged on sales through indirect channels.
Dependence on Key Personnel; Ability to Attract and Retain Personnel. The
Company's future success will depend in large part upon the continued service of
its key technical, sales and senior management personnel, none of whom is bound
by an employment agreement. The loss of any of the Company's senior management
or other key research, development, sales and marketing personnel, particularly
if lost to competitors, could have a material adverse effect on the Company's
business, financial condition and operating results. The Company's future
success will depend in large part upon its ability to attract, retain and
motivate highly skilled employees. There is significant competition for
employees with the skills required to perform the services offered by the
Company and there can be no assurance that the Company will be able to continue
to
15
<PAGE> 16
attract and retain sufficient numbers of highly skilled employees. Because of
the complexity of the application integration software market, the Company has
in the past experienced, and expects in the future to experience, a significant
time lag between the date on which technical and sales personnel are hired and
the time at which persons become fully productive. If the Company is unable to
manage the post-sales process effectively, its ability to attract repeat sales
or establish strong account references could be adversely affected, which may
materially affect the Company's business, operating results and financial
condition.
Protection of Intellectual Property; Risks of Infringement. The Company's
success and ability to compete is dependent in part upon its proprietary
technology. The Company relies on a combination of copyright, trademark and
trade secret laws, as well as confidentiality agreements and licensing
arrangements, to establish and protect its proprietary rights. The Company
presently has no patents, but has three patent applications pending. Despite the
Company's efforts to protect its proprietary rights, existing copyright,
trademark and trade secret laws afford only limited protection. Moreover, the
laws of certain countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. In addition, attempts may be
made to copy or reverse engineer aspects of the Company's products or to obtain
and use information that the Company regards as proprietary. Accordingly, there
can be no assurance that the Company will be able to protect its proprietary
rights against unauthorized third-party copying or use, which could materially
adversely affect the Company's business, operating results or financial
condition. Moreover, there can be no assurance that others will not develop
products that infringe the Company's proprietary rights, or that are similar or
superior to those developed by the Company. Policing the unauthorized use of the
Company's products is difficult and litigation may be necessary in the future to
enforce the Company's intellectual property rights, to protect the Company's
trade secrets or to determine the validity and scope of the proprietary rights
of others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
operating results or financial condition.
As is common in the software industry, the Company from time to time
receives notices from third parties claiming infringement by the Company's
products of third-party proprietary rights. On July 1, 1996, the Company was
notified that the Company's products may infringe proprietary rights of New
Paradigm Software Corp. ("New Paradigm"), an application integration software
company. New Paradigm alleged that NEONet's formatter will infringe certain
claims set forth in a patent application filed in the United States and Europe.
The Company does not believe such allegations have merit and, if pursued by New
Paradigm, the Company intends to vigorously defend such claim. There can be no
assurance, however, that other third parties will not claim infringement by the
Company with respect to current or future products. The Company expects that
application integration software developers will increasingly be subject to
infringement claims as the number of products in different industry segments
overlap. In this regard, the Company is aware that one of its competitors has a
U.S. patent covering certain aspects of publish/subscribe messaging systems.
This competitor has invited the Company to consider discussing a license under
its patent. The Company believes its NEONet product does not infringe any valid
claim of the patent. However, any claims, including the specific claim by New
Paradigm or any other infringement claims, with or without merit, could be time-
consuming, result in costly litigation, cause product shipment delays, or
require the Company to enter into royalty or licensing agreements, any of which
could have a material adverse effect upon the Company's business, financial
condition and operating results. There can be no assurance that such royalty or
licensing agreements, if required, would be available on terms acceptable to the
Company, or at all. Moreover, the cost of defending patent litigation could be
substantial, regardless of the outcome. There can be no assurance that legal
action claiming patent infringement will not be commenced against the Company,
or that the Company would necessarily prevail in such litigation given the
complex technical issues and inherent uncertainties in patent litigation. In the
event a patent claim against the Company was successful and the Company could
not obtain a license on acceptable terms or license a substitute technology or
redesign to avoid infringement, the Company's business, financial condition and
operating results would be materially adversely affected.
The Company is also aware that a number of organizations are utilizing the
names Neon, New Era and NEONet as either a trademark or tradename or both. In
particular, the Company has received notices from NEON Systems, Inc. and Neon
Software, Inc. alleging the Company's use of NEON as a tradename and/or
trademark violates such respective companies' proprietary rights. Such claims or
any additional claims against
16
<PAGE> 17
the Company alleging trademark or tradename infringement could be time-consuming
and result in costly litigation. A successful claim regarding the infringement
of a trademark and/or tradename could result in substantial monetary damages
against the Company or an injunction prohibiting the use by the Company of the
particular trademark or tradename. Any such injunction could materially
adversely affect the Company's corporate or product name recognition and
marketing efforts. Accordingly, any monetary damages or injunction could have a
material adverse effect upon the Company's business, financial condition and
operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Effective June 17, 1997, the following proposals were approved by the
written consent of the Company's stockholders:
<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE
VOTES VOTES
----------- --------
<C> <S> <C> <C>
1. Proposal to elect George F. Adam, Jr., Harold A. Piskiel, 5,106,634 0
Steve Lazarus, Mark L. Gordon, and James Reep to the
Company's Board of Directors.
2. Proposal to amend and restate the Company's Certificate of 5,106,634 0
Incorporation to increase the authorized Common Stock to
45,000,000 shares, to authorize 2,000,000 shares of
undesignated Preferred Stock and to effect certain other
amendments.
3. Proposal to approve Indemnification Agreements between the 5,106,634 0
Company and its officers and directors.
4. Proposal to amend and restate the Company's 1995 Stock 5,106,634 0
Option Plan, as well as adopt a Director Stock Plan and an
Employee Stock Purchase Plan.
5. Proposal to ratify the appointment of Arthur Andersen LLP 5,106,634 0
as independent auditors for the fiscal year ending
December 31, 1997.
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON 8-K
(a) No reports on Form 8-K were filed during the quarter ended June 30,
1997.
(b) Exhibit 27.1: Financial Data Schedule
18
<PAGE> 19
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 thereunto duly authorized.
New Era of Networks, Inc.
(Registrant)
By: /s/ STEPHEN WEBB
----------------------------------
Stephen Webb, Senior Vice
President,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: August 13, 1997
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <C> <S>
27.1 -- Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S JUNE 30, 1997 UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,118,750
<SECURITIES> 0
<RECEIVABLES> 4,787,640
<ALLOWANCES> 200,000
<INVENTORY> 0
<CURRENT-ASSETS> 34,549,448
<PP&E> 1,929,638
<DEPRECIATION> 657,351
<TOTAL-ASSETS> 36,062,420
<CURRENT-LIABILITIES> 4,052,281
<BONDS> 0
0
0
<COMMON> 860
<OTHER-SE> 32,009,279
<TOTAL-LIABILITY-AND-EQUITY> 36,062,420
<SALES> 8,452,742
<TOTAL-REVENUES> 8,452,742
<CGS> 2,456,092
<TOTAL-COSTS> 2,456,092
<OTHER-EXPENSES> 7,326,200
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,313,535)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,313,535)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,313,535)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
