NEW ERA OF NETWORKS INC
424B4, 1997-06-18
COMPUTER PROGRAMMING SERVICES
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<PAGE>   1
                                            Filed Pursuant to Rule 424(b)(4)  
                                                  Registration No. 333-20189
   
PROSPECTUS
    
 
   
                                2,760,000 Shares
    
 
                                  [NEON LOGO]
 
                                  Common Stock
 
                            -----------------------
 
   
        All of the 2,760,000 shares of Common Stock offered hereby are being
sold by New Era of Networks, Inc. ("NEON" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The shares of Common Stock have
been approved for quotation on the Nasdaq National Market under the symbol
"NEON."
    
 
   
          The Common Stock offered hereby involves a high degree of risk. See
"Risk Factors," beginning on page 6.
    
 
   
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
   AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
                               CRIMINAL OFFENSE.
    
 
   
<TABLE>
<CAPTION>
==============================================================================================================
                                            Price to          Underwriting Discounts        Proceeds to
                                             Public             and Commissions(1)           Company(2)
- --------------------------------------------------------------------------------------------------------------
<S>                                 <C>                      <C>                      <C>
Per Share..........................          $12.00                   $0.84                    $11.16
- ----------------------------------------------------------------------------------------------------------
Total (3)..........................       $33,120,000               $2,318,400              $30,801,600
==========================================================================================================
</TABLE>
    
 
1.   For information regarding indemnification of the Underwriters, see
     "Underwriting."
2.   Before deducting expenses of the offering payable by the Company, estimated
     at $850,000.
   
3.   The Company has granted the Underwriters an option, exercisable within 30
     days from the date hereof, to purchase up to 414,000 additional shares of
     Common Stock on the same terms and conditions set forth above, solely to
     cover over-allotments, if any. If such option is exercised in full, the
     total Price to Public will be $38,088,000, the Underwriters' Discounts and
     Commissions will be $2,666,160 and the Proceeds to Company will be
     $35,421,840. See "Underwriting."
    
 
                            -----------------------
 
   
     The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and are subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York, on or about
June 23, 1997.
    
 
                            -----------------------
 
UBS Securities                                                   Cowen & Company
 
   
June 18, 1997
    
<PAGE>   2
DESCRIPTION OF ARTWORK

Inside Front cover 

        Application Integration - The NEONet Solution: explains Intergrating
applications for Business; Easy Integration Within Networks; Guaranteed
Transaction Delivery; Intelligent, Realtime Transaction Routing and; Data
Transformation.


<PAGE>   3
 
     CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE>   4
Left Gatefold - Top
    
    A chart titled "Unintegrated Applications" demonstrating three distinct
    application systems: legacy data-base, internet, and Client/Server
    application.

Right Gatefold - Top

    A chart titled "Interapplication Spaghetti" demonstrating a host of
    different application systems with many arrows in between each one.


Gatefold - Middle Bottom

    A chart titled "The NEONet Solution" showing a graphical depiction of the
    NEONet rules engine between disparate application systems.
<PAGE>   5
 
                               PROSPECTUS SUMMARY
 
     The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information, including "Risk Factors" and
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. The discussion in this Prospectus contains forward-looking
statements which include risks and uncertainties. The Company's actual results
could differ materially from those discussed in this Prospectus. Factors that
could cause or contribute to such differences include those discussed in the
sections entitled "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operation" and "Business," as well as those
discussed elsewhere in this Prospectus.
 
                                  THE COMPANY
 
     New Era of Networks, Inc. ("NEON" or the "Company") develops, markets and
supports application integration software and provides application integration
services. The Company's flagship software suite, NEONet, provides organizations
with a structured software platform for the integration of disparate systems and
applications across the enterprise, a process known as application integration.
NEONet facilitates the rapid and efficient deployment and ongoing maintenance of
application integration across the enterprise. NEONet supports a heterogeneous
environment of hardware, operating system, network and database platforms,
permits organizations to leverage existing legacy systems, and accommodates the
extension of the corporate information systems environment to new enterprise
applications and to new computing paradigms such as the Internet/Intranet.
 
     Organizations are increasingly seeking to incorporate powerful new software
applications that operate across the enterprise and also serve as interfaces to
customers and suppliers. At the same time, organizations are seeking to better
leverage their existing information systems and take advantage of their prior
technology investments by integrating previously independent application systems
and databases. Effective application integration strategies are critical to an
organization's ability to respond to changing market demands, seize new market
opportunities, improve customer service, and realize planned improvements in
business processes. Organizations have historically addressed the need to
integrate applications through a number of narrow integration techniques,
typically implemented in an ad hoc manner, addressing specific integration
requirements as they arise over time. Accordingly, traditional techniques
generally require extensive manual custom software coding, provide limited
functionality, flexibility and scaleability, and require a costly and burdensome
ongoing maintenance process. According to Gartner Group, Inc., an information
technology industry research firm, 35% to 40% of all programming effort in a
typical organization is devoted to developing and maintaining the extract and
update programs whose only purpose is to transfer information between different
databases. The Gartner Group refers to the complex morass of individual
unstructured integration among disparate applications as "interapplication
spaghetti."
 
     In January 1996, the Company introduced NEONet, an integrated solution that
addresses the interapplication spaghetti problem and provides a scaleable
infrastructure that supports rapid and efficient updates to integration
implementations. NEONet consists of three principal modules: (i) Messaging and
Queuing; (ii) Formatter; and (iii) Rules Engine, together with a suite of
libraries and tools. The Messaging and Queuing module provides guaranteed
real-time delivery of data transactions across heterogeneous applications. The
Formatter module provides dynamic formatting of data messages to meet the native
format requirements of different applications. The Rules Engine enables an
organization to define and fulfill the data requirements of different
applications through a sophisticated set of readily modifiable business rules.
Since the initial release of NEONet, the Company has introduced several products
that increase the functionality of the three core NEONet modules. These products
include NEONreplication, NEOCAS and NEONweb.
 
     NEON's objective is to establish NEONet as the leading standard for
application integration across the enterprise. Key elements of the Company's
strategy include expanding vertical markets, maintaining the technological
leadership of NEONet, expanding global sales capabilities, and developing
cross-industry applications which have significant importance across different
vertical markets.
 
     Through March 31, 1997, the Company has shipped NEONet to a total of 26
customers in the financial services, health care, information technology and
systems consulting and other industries. Representative customers of the Company
include Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Morgan
                                        3
<PAGE>   6
 
Grenfell, Inc., Chase Manhattan Bank, Credit Suisse, ADP Financial Information
Services, Ernst & Young, Jackson Memorial Hospital, KN Energy and Pacific
Investment Mortgage Company. The Company markets its software and related
services primarily through a direct sales organization, complemented by indirect
sales channels including VARs, OEMs and international distributors. As part of
this strategy, the Company has established reseller and joint marketing
relationships with firms such as Hewlett-Packard, Sun Microsystems, SunGard
Financial Services, Andersen Consulting, Ernst & Young, Scopus, Open Market,
Oracle and SWIFT.
 
     The Company was incorporated in Illinois in June 1993, commenced operations
in January 1994, and was reincorporated in Delaware in December 1995. Unless the
context otherwise requires, references in this Prospectus to "NEON" or the
"Company" refer to New Era of Networks, Inc., a Delaware corporation and its
subsidiary. The Company's principal executive offices are located at 7400 East
Orchard Road, Suite 230, Englewood, Colorado 80111. Its telephone number is
(303) 694-3933.
 
                                  THE OFFERING
 
   
<TABLE>
<S>                                                  <C>
Common Stock Offered by the Company................  2,760,000 shares.
Common Stock Outstanding after the Offering........  8,600,461 shares(1)(2)
Use of proceeds....................................  Repayment of certain indebtedness and for
                                                       general corporate purposes, including
                                                       working capital.
Nasdaq National Market Symbol......................  NEON
Risk Factors.......................................  The Common Stock offered hereby involves a
                                                       high degree of risk. See "Risk Factors."
</TABLE>
    
 
- ---------------
 
(1) Based upon shares outstanding as of March 31, 1997. Excludes (i) an
    aggregate of 1,353,712 shares of Common Stock issuable upon exercise of
    options outstanding under the Company's Amended and Restated 1995 Stock
    Option Plan as of March 31, 1997, at a weighted average exercise price of
    $5.37 per share, as well as an additional 941,925 shares reserved at such
    date for future grant under such plan (giving effect to an increase in the
    number of shares authorized for issuance under such plan in January 1997),
    (ii) 216,666 shares of Common Stock reserved for issuance under the
    Company's 1997 Employee Stock Purchase Plan, and (iii) 100,000 shares of
    Common Stock reserved for issuance under the Company's 1997 Director Stock
    Option Plan.
 
(2) Includes 15,000 shares offered hereby reserved for sale to Peter Hoversten,
    the Company's Senior Vice President, Application Development and Field
    Operations.
                             ---------------------
 
     This Prospectus includes trademarks of the Company and other companies.
                                        4
<PAGE>   7
 
                      SUMMARY CONSOLIDATED FINANCIAL DATA
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
     The summary consolidated financial data presented below have been derived
from the Company's Consolidated Financial Statements and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
 
<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED
                                YEAR ENDED DEC. 31,       ---------------------------------------------------------
                            ---------------------------   MARCH 31,   JUNE 30,    SEPT. 30,   DEC. 31,    MARCH 31,
                            1994     1995       1996        1996        1996        1996        1996        1997
                            -----   -------   ---------   ---------   ---------   ---------   ---------   ---------
<S>                         <C>     <C>       <C>         <C>         <C>         <C>         <C>         <C>
CONSOLIDATED STATEMENT OF
  OPERATIONS DATA:
Revenues:
  Software licenses.......  $  --   $    --   $   3,383   $     111   $     411   $     832   $   2,029   $   2,447
  Services and
    maintenance...........    149     1,271       3,762         945       1,186         841         790       1,227
                            -----   -------   ---------   ---------   ---------   ---------   ---------   ---------
Total revenues............    149     1,271       7,145       1,056       1,597       1,673       2,819       3,674
Cost of revenues..........     85       751       3,328         710         836         707       1,075       1,050
                            -----   -------   ---------   ---------   ---------   ---------   ---------   ---------
Gross profit..............     64       520       3,817         346         761         966       1,744       2,624
Loss from operations......   (690)   (1,490)     (5,733)       (757)     (1,365)     (2,120)     (1,491)       (783)
Net loss..................  $(719)  $(1,503)  $  (5,672)  $    (755)  $  (1,358)  $  (2,071)  $  (1,488)  $    (784)
                            =====   =======   =========   =========   =========   =========   =========   =========
Pro forma net loss per
  common share(1).........                    $   (0.98)  $   (0.14)  $   (0.24)  $   (0.34)  $   (0.25)  $   (0.13)
                                              =========   =========   =========   =========   =========   =========
Pro forma weighted average
  shares of Common Stock
  outstanding(1)..........                    5,789,382   5,388,815   5,618,209   6,073,360   6,077,145   6,094,414
</TABLE>
 
   
<TABLE>
<CAPTION>
                                                                   MARCH 31, 1997
                                                              ------------------------
                                                              ACTUAL    AS ADJUSTED(2)
                                                              ------    --------------
<S>                                                           <C>       <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................  $1,641       $29,751
Working capital.............................................   1,294        30,859
Total assets................................................   7,373        35,484
Stockholders' equity........................................   2,833        32,784
</TABLE>
    
 
- ---------------
 
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
    of the pro forma weighted average common shares outstanding used to compute
    pro forma net loss per share.
 
   
(2) Reflects the sale of 2,760,000 shares of Common Stock offered by the Company
    hereby at an initial public offering price of $12.00 per share, after
    deducting estimated underwriting discounts and commissions and estimated
    offering costs payable by the Company, and the application of the net
    proceeds therefrom. See "Capitalization" and "Use of Proceeds."
    
                          ---------------------------
 
     Unless otherwise indicated, the information in this Prospectus: (i) gives
effect to an amendment to the Company's Certificate of Incorporation to be
effected prior to the effectiveness of this Offering, which amendment shall
increase the authorized capital stock of the Company and effect a two-for-nine
reverse split of the Company's Common Stock, (ii) gives effect to the conversion
of all outstanding shares of Preferred Stock into Common Stock at a two-for-nine
conversion rate upon the completion of the Offering, and (iii) assumes no
exercise of the Underwriters' over-allotment option.
                                        5
<PAGE>   8
 
                                  RISK FACTORS
 
     In addition to the other information contained in this Prospectus,
investors should carefully consider the following risk factors before making an
investment decision concerning the Common Stock. All statements, trend analysis
and other information contained in this Prospectus relative to markets for the
Company's products and trends in revenues, gross margin and anticipated expense
levels, as well as other statements including words such as "anticipate,"
"believe," "plan," "estimate," "expect" and "intend" and other similar
expressions, constitute forward-looking statements. These forward-looking
statements are subject to business and economic risks and uncertainties, and the
Company's actual results of operations may differ materially from those
contained in the forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those discussed below and in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
 
     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 commenced shipment of its principal
product, NEONet, in July 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 does not expect to be profitable for several quarters, and may never
achieve profitability unless revenues increase substantially. At March 31, 1997,
the Company had an accumulated deficit of approximately $8.8 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
 
     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 will 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. For example, in the fourth quarter of 1996
the Company's largest customer contract accounted for over 32% of the Company's
total quarterly revenues, and in the first quarter of 1997 its largest customer
contract accounted for over 25% of the Company's total quarterly revenues. See
"-- Customer Concentration; Dependence Upon Financial Institutions Industry;
Risks of New Targeted Market Segments." Quarterly revenues and operating results
typically
 
                                        6
<PAGE>   9
 
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.
See "Business -- Sales and Marketing." 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
 
     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 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Research and Development."
 
                                        7
<PAGE>   10
 
     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. See "Business -- Products and Services" and
"Business -- Product Development."
 
     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 quarters ended December 31, 1996 and March 31,
1997, the Company's largest customer contract accounted for 32% and 25% of the
Company's total revenues, respectively. 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 three-month period ended March 31, 1997, sales to banks and financial
institutions accounted for 86% and 80%, 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 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Customers."
 
     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 March 31, 1997, the size of the Company's staff increased from
35 to 133 full time equivalent employees. Further significant increases in the
number of employees are anticipated during 1997. 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, all of the Company's
senior
 
                                        8
<PAGE>   11
 
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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
 
     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.
 
     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
 
                                        9
<PAGE>   12
 
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 faces 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. See "Business -- Competition."
 
     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
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.
 
                                       10
<PAGE>   13
 
     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. See "Business -- Product
Development."
 
     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 commissioned sales force has increased from one person in January
1996 to 18 people as of March 31, 1997. 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. See
"Business -- Sales and Marketing."
 
     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. In particular, the services
of George F. (Rick) Adam, Jr., the Company's Chief Executive Officer, Harold A.
Piskiel, the Company's Senior Vice President, Chief Technical Officer, or Robert
I. Theis, the Company's Senior Vice President of Marketing, would be difficult
to replace. The Company currently maintains a $1.0 million "key person" life
insurance policy on George F. (Rick) Adam, Jr., of which the Company is the sole
beneficiary. 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 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
 
                                       11
<PAGE>   14
 
references could be adversely affected, which may materially affect the
Company's business, operating results and financial condition. See "Management."
 
     Risks Associated with International Operations. Although sales of the
Company's products outside of North America to date have represented less than
10% of total revenues, the Company intends to expand its operations
internationally. These efforts will require significant management attention and
financial resources, as well as the development of international versions of the
Company's products. The Company has committed resources to the opening of
international sales offices and the expansion of international sales and support
channels. There can be no assurance that the Company's efforts to develop
international sales and support channels will be successful. International sales
are subject to a number of risks, including longer payment cycles, unexpected
changes in regulatory requirements, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, the burden of
complying with a variety of foreign laws, greater difficulty in accounts
receivable collection, potentially adverse tax consequences, currency
fluctuations, the imposition of currency exchange or price controls, and
political and economic instability abroad. Additionally, intellectual property
may be more difficult to protect outside of the United States. If the Company
increases its international sales, its total revenues may also be affected to a
greater extent by seasonal fluctuations resulting from lower sales that
typically occur during the summer months in Europe and other parts of the world.
In addition, the market for application integration software outside of North
America is not as developed and there can be no assurance that it will grow at
the same rate as in North America or that, if it does develop rapidly, the
Company will be successful in such international markets.
 
     Dependence on Relationships with Complementary Vendors. The Company
believes that, in order to provide competitive solutions for heterogeneous, open
computing environments, it will be necessary to develop, maintain and enhance
close relationships with database, data access, hardware and operating system
vendors. There can be no assurance that the Company will be able to maintain its
existing relationships or develop additional relationships with such vendors.
The Company's failure to do so could adversely affect the portability of the
Company's products to existing and new platforms and databases and the timing of
the release of new and enhanced products for the marketplace by the Company.
 
     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
 
                                       12
<PAGE>   15
 
expects that application integration software developers will increasingly be
subject to infringement claims as the number of products in different industry
segments overlap, and the Company has recently become aware that a competitor
may be contemplating asserting a patent infringement claim against the Company.
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 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. See
"Business -- Intellectual Property, Proprietary Rights and Licenses."
 
     Risk of Software Defects. Software products as complex as those offered by
the Company frequently contain undetected errors or defects, especially when
first introduced or when new versions or enhancements are released. Testing of
the Company's products is particularly challenging because it is difficult to
simulate the wide variety of computer environments into which the Company's
application integration software is deployed. Despite product testing by the
Company and its customers, the Company has in the past shipped product releases
of NEONet with some defects and has discovered other software errors in its
products after their commercial shipment. There can be no assurance that,
despite testing by the Company and by current and potential customers, defects
and errors will not be found in new products or in new versions or enhancements
of existing products after commencement of commercial shipments. Although
defects have not materially and adversely affected the Company's operating
results to date, any defects discovered in the future could result in adverse
customer reaction, negative publicity regarding the Company, its products or
delay in or failure to achieve market acceptance, any of which could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Business -- Research and Development."
 
     Product Liability. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in the Company's license agreements may not be
effective as a result of federal, state or local laws or ordinances or
unfavorable judicial decisions. Although the Company has not experienced any
product liability claims to date, the license and support of the Company's
software by the Company may entail the risk of such claims. A successful product
liability claim brought against the Company would have a material adverse effect
on the Company's business, operating results and financial condition.
 
     No Prior Public Market; Possible Volatility of Stock Price. Prior to this
Offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that an active public market for the Company's Common
Stock will develop or be sustained after the Offering. The initial public
offering price will be determined through negotiations between the Company and
the Underwriters and may not be indicative of the market price of the Common
Stock after the Offering. The trading price of the Company's Common Stock could
be subject to wide fluctuations in response to quarterly variations in operating
results,
 
                                       13
<PAGE>   16
 
announcements of technological innovations or new products by the Company or its
competitors, developments with respect to patents or proprietary rights, changes
in financial estimates by securities analysts and other events or factors. In
addition, the stock market has experienced volatility that has particularly
affected the market prices of equity securities of many high technology
companies and that often has been unrelated or disproportionate to the operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock.
 
   
     Control by Existing Stockholders. Upon completion of this offering, the
directors, executive officers and principal stockholders of the Company and
their affiliates will, in the aggregate, beneficially own 64.7% of the Company's
outstanding Common Stock. As a result, these stockholders, acting together, will
possess voting control over the Company, giving them the ability, among other
things, to elect at least a majority of the Company's Board of Directors and to
control the vote on significant corporate transactions. Such control could
delay, defer or prevent a change in control of the Company, impede a merger,
consolidation, takeover or other business combination involving the Company, or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of the Company. See "Management" and "Principal
Stockholders."
    
 
     Effect of Certain Charter Provisions; Anti-Takeover Effects of Delaware
Law. Upon completion of this Offering, the Company's Board of Directors will
have the authority to issue up to 2,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of Preferred Stock. In
addition, the Company's Bylaws and indemnity agreements provide that the Company
will indemnify officers and directors against losses they may incur in legal
proceedings resulting from their service to the Company. Further, certain
provisions of the Company's charter documents and of Delaware law could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. These provisions are designed to reduce the
vulnerability of the Company to an unsolicited acquisition proposal. These
provisions are also intended to discourage certain tactics that may be used in
proxy fights. However, such provisions could have the effect of discouraging
others from making tender offers for the Company's shares and, as a consequence,
they also may adversely affect the market price of the Company's Common Stock.
Such provisions also may have the effect of preventing changes in the management
of the Company. In addition, Section 203 of the Delaware General Corporation Law
restricts certain business combinations with any "interested stockholder" as
defined by such statute. The statute may have the effect of delaying, deferring
or preventing a change in control of the Company. See "Description of Capital
Stock."
 
   
     Benefits of the Offering to Current Stockholders. This Offering will
provide substantial benefits to current equity stockholders of the Company.
Consummation of this Offering is expected to create a public market for the
Common Stock held by the Company's current stockholders, including directors and
executive officers of the Company. Current stockholders paid an aggregate of
approximately $11.7 million for an aggregate of approximately 5,840,461 shares
of Common Stock (assuming the conversion of all shares of Preferred Stock into
Common Stock upon the effectiveness of this Offering). This Offering will result
in gross unrealized gain to such stockholders in the aggregate of approximately
$58.4 million at a public offering price of $12.00 per share. See "-- No Prior
Public Market, Possible Volatility of Stock Price" and "-- Dilution."
    
 
   
     Shares Eligible for Future Sale. Sales of a substantial number of shares of
Common Stock in the public market following this Offering could adversely affect
the market price for the Company's Common Stock. The 2,760,000 shares of Common
Stock offered hereby will be freely tradeable without restriction in the public
market. The number of additional shares of Common Stock available for sale is
limited by restrictions under the Securities Act, as amended, as well as by
certain 180-day lock-up agreements entered into by stockholders and
optionholders of the Company. On the date of the Offering, all outstanding
shares of Common Stock are subject to these lock-up agreements and may not be
sold into the public market without the consent of UBS
    
 
                                       14
<PAGE>   17
 
Securities LLC. The 15,000 shares reserved for sale to Peter Hoversten will be
freely tradeable subject to the manner of sale limitations of Rule 144 of the
Securities Act. Upon expiration of the lock-up agreements 180 days following the
date of this Prospectus (or earlier, to the extent UBS Securities LLC may
consent), a total of 5,840,461 shares of Common Stock will be eligible for sale
into the public market under Rule 144, subject to certain volume and other
limitations of Rule 144. In addition, the Company intends to register on a
registration statement on Form S-8, on the effective date of this Offering, a
total of 2,333,333 shares of Common Stock reserved for issuance under the
Company's Amended and Restated 1995 Stock Option Plan, of which options to
purchase 1,353,712 shares were outstanding at March 31, 1997 (of these option
shares, only 145,752 option shares were vested and exercisable as of March 31,
1997), a total of 216,666 shares of Common Stock reserved for issuance under the
Company's 1997 Employee Stock Purchase Plan, and a total of 100,000 shares of
Common Stock reserved for issuance under the Company's 1997 Director Stock
Option Plan. See "Shares Eligible for Future Sale."
 
     No Specific Plan for Significant Portion of Proceeds; Proceeds May Not Be
Invested to Yield Significant Returns. The Company currently has no specific
plans for a significant portion of the net proceeds of the Offering. As a
consequence, the Company's management will have the discretion to allocate this
portion of the net proceeds of this offering to uses that the stockholders may
not deem desirable, and there can be no assurance that these proceeds can or
will be invested to yield a significant return. Substantially all of the
proceeds of the Offering will be invested in short-term, interest-bearing,
investment grade securities for an indefinite period of time. See "Use of
Proceeds."
 
     Dilution. Investors participating in the Offering will incur immediate,
substantial dilution in the net tangible book value of the Common Stock from the
initial public offering price. To the extent that options or warrants to
purchase the Company's Common Stock are exercised, there will be further
dilution. See "Dilution."
 
                                USE OF PROCEEDS
 
   
     The net proceeds to the Company from the sale of the 2,760,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$29,951,600 (approximately $34,571,840 if the Underwriters' over-allotment
option is exercised in full), net of estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company. The
principal purposes of the Offering are to obtain additional working capital,
establish a public market for the Company's Common Stock, and facilitate future
access to public markets.
    
 
     A portion of the net proceeds will be used to repay outstanding bank debt.
As of March 31, 1997, the Company had outstanding borrowings of approximately
$1.0 million under a $2.0 million revolving credit facility used for working
capital purposes, approximately $477,000 outstanding under a $1.0 million
equipment financing facility and $57,875 under a promissory note. The Company's
revolving credit facility and its equipment financing facility bear interest at
the bank's prime lending rate (8.5% at March 31, 1997) plus  1/2% and 1%,
respectively, and the promissory note bears interest at 8.75%. The Company's
revolving credit facility expires on September 5, 1997, while amounts borrowed
under the equipment financing facility are due in monthly installments beginning
July 5, 1997 and continuing through June 5, 2000, the maturity date.
 
     The Company expects to use the remainder of the net proceeds of the
Offering for general corporate purposes, including working capital. Up to
approximately $1.7 million of the net proceeds may be used to pay certain
royalty obligations payable by the Company to Merrill Lynch. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 3 of Notes to Consolidated Financial Statements. A portion of the net
proceeds may also be used to acquire or invest in complementary businesses or
products or to obtain the right to use complementary technologies. Although from
time to time the Company evaluates potential acquisitions of such businesses,
products or technologies, and anticipates continuing to make such evaluations,
the Company has no present understandings, commitments or agreements with
respect to any acquisition of other businesses, products or technologies.
Pending such uses, the proceeds will be invested in interest-bearing securities.
 
                                       15
<PAGE>   18
 
                                DIVIDEND POLICY
 
     The Company has never paid or declared any cash dividends. It is the
present policy of the Company to retain earnings to finance the growth and
development of the businesses and, therefore, the Company does not anticipate
paying cash dividends on its Common Stock in the foreseeable future. In
addition, the Company's bank credit facilities contain certain covenants that
prohibit the Company from paying dividends without prior bank consent.
 
                                       16
<PAGE>   19
 
                                 CAPITALIZATION
 
   
     The following table sets forth the consolidated capitalization of the
Company as of March 31, 1997 (after giving effect to the two-for-nine reverse
stock split of Common Stock to be effective prior to the effectiveness of this
offering) (i) on an actual basis, (ii) on a pro forma basis to give effect to
the conversion of all outstanding Preferred Stock into Common Stock upon the
closing of the Offering and (iii) pro forma as adjusted to give effect to the
sale by the Company of 2,760,000 shares of Common Stock offered by the Company
hereby (after deducting underwriting discounts and commissions and estimated
offering expenses). This table should be read in conjunction with the
consolidated financial statements and related notes thereto included elsewhere
in this Prospectus.
    
 
   
<TABLE>
<CAPTION>
                                                                       MARCH 31, 1997
                                                              ---------------------------------
                                                                                     PRO FORMA
                                                              ACTUAL    PRO FORMA   AS ADJUSTED
                                                              -------   ---------   -----------
                                                                       (IN THOUSANDS)
<S>                                                           <C>       <C>         <C>
Long-term debt..............................................  $   387    $   387      $    --
Stockholders' equity(1)(2):
  Convertible preferred stock, $.01 par value; authorized,
     20,016,963 shares actual, issued and outstanding,
     20,016,963 actual, none pro forma or pro forma as
     adjusted...............................................   11,385         --           --
  Preferred stock, undesignated, $.0001 par value;
     authorized, 2,000,000 shares pro forma; issued and
     outstanding, none, pro forma and pro forma as
     adjusted...............................................      N/A         --           --
  Common stock, $.0001 par value; authorized, 45,000,000
     shares; issued and outstanding, 1,392,247 shares
     actual, 5,840,461 pro forma and 8,600,461 pro forma as
     adjusted...............................................        1          1            1
  Additional paid-in-capital................................      243     11,628       41,579
  Accumulated deficit.......................................   (8,796)    (8,796)      (8,796)
                                                              -------    -------      -------
          Total stockholders' equity........................    2,833      2,833       32,784
                                                              -------    -------      -------
          Total capitalization..............................  $ 3,220    $ 3,220      $32,784
                                                              =======    =======      =======
</TABLE>
    
 
- ---------------
 
   
(1) Excludes (i) 1,353,712 shares of Common Stock issuable upon the exercise of
    options outstanding under the Company's Amended and Restated 1995 Stock
    Option Plan as of March 31, 1997 at a weighted average exercise price of
    $5.37 per share, of which options to purchase 145,752 shares were
    exercisable at March 31, 1997, as well as an additional 941,925 shares of
    Common Stock reserved for future grant under such plan (after giving effect
    to an increase in the number of shares reserved for issuance under such plan
    in January 1997), (ii) 216,666 shares of Common Stock reserved for future
    issuance under the Company's 1997 Employee Stock Purchase Plan adopted in
    January 1997 and (iii) 100,000 shares of Common Stock reserved for future
    issuance under the Company's 1997 Director Option Plan adopted in January
    1997. See Notes 5 of Notes to Consolidated Financial Statements.
    
 
(2) Gives effect to the conversion of all outstanding shares of Preferred Stock
    into shares of Common Stock at a two-for-nine conversion rate.
 
                                       17
<PAGE>   20
 
                                    DILUTION
 
   
     The net tangible book value of the Company as of March 31, 1997 was $2.3
million or $0.39 per share of Common Stock. Net tangible book value per share is
determined by dividing the net tangible book value of the Company (total
tangible assets less total liabilities) by the number of shares of Common Stock
outstanding, after the assumed conversion of all outstanding Convertible
Preferred Stock upon closing of this Offering. After giving effect to the sale
by the Company of the 2,760,000 shares of Common Stock offered hereby at an
initial public offering price of $12.00 per share (and after deduction of
estimated underwriting discounts and commissions and estimated offering
expenses), the Company's net tangible book value at March 31, 1997 would have
been $32.3 million or $3.75 per share. This represents an immediate increase in
net tangible book value to existing stockholders of $3.36 per share and an
immediate dilution to new investors of $8.25 per share.
    
 
     The following table illustrates the per share dilution:
 
   
<TABLE>
<S>                                                           <C>      <C>
Initial public offering price per share.....................           $12.00
  Net tangible book value per share as of March 31, 1997....  $0.39
  Increase in net tangible book value per share attributable
     to new investors.......................................   3.36
                                                              -----
Net tangible book value per share after offering............             3.75
                                                                       ------
Dilution per share to new investors.........................           $ 8.25
                                                                       ======
</TABLE>
    
 
   
     The following table sets forth on a pro forma basis as of March 31, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid, and the average price per share paid by
the existing stockholders and by the new investors (based upon an initial public
offering price of $12.00 per share before deduction of estimated underwriting
discounts and commissions and estimated offering expenses).
    
 
   
<TABLE>
<CAPTION>
                                       SHARES PURCHASED       TOTAL CONSIDERATION     AVERAGE
                                      -------------------    ---------------------     PRICE
                                       NUMBER     PERCENT      AMOUNT      PERCENT   PER SHARE
                                      ---------   -------    -----------   -------   ---------
<S>                                   <C>         <C>        <C>           <C>       <C>
Existing stockholders...............  5,840,461     67.9%    $11,746,058     26.2%    $ 2.01
New investors.......................  2,760,000     32.1      33,120,000     73.8      12.00
                                      ---------    -----     -----------    -----
  Total.............................  8,600,461    100.0%    $44,866,058    100.0%
                                      =========    =====     ===========    =====
</TABLE>
    
 
     The foregoing table assumes no exercise of the Underwriters' over-allotment
option and no exercise of stock options or warrants outstanding at March 31,
1997. As of March 31, 1997, there were options outstanding under the Company's
Amended and Restated 1995 Stock Option Plan to purchase a total of 1,353,712
shares of Common Stock at a weighted average exercise price of $5.37 per share,
and (after giving effect to an increase in the number of shares reserved for
issuance under such plan in January 1997) an aggregate of 941,925 additional
shares remained available for future grant. As of such date there were also
warrants outstanding to purchase 31,056 shares of Series C Preferred Stock at an
exercise price of $1.61 per share, which following the automatic conversion of
Series C Preferred Stock into Common Stock upon completion of the Offering will
be exercisable for 6,901 shares of Common Stock at an exercise price of $7.25
per share. In addition, in January 1997 the Board of Directors adopted a 1997
Employee Stock Purchase Plan and 1997 Director Option Plan and reserved an
aggregate of 216,666 and 100,000 shares, respectively, for issuance thereunder.
To the extent that any of these options or warrants are exercised, there will be
further dilution to new investors. See "Capitalization," "Management -- Employee
Benefit Plans" and Notes 5 and 9 of Notes to Consolidated Financial Statements.
 
                                       18
<PAGE>   21
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
 
     The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes thereto, and with Management's Discussion and Analysis of Financial
Conditions and Results of Operations included elsewhere in this Prospectus. The
consolidated financial statement data for the years ended December 31, 1994,
1995 and 1996 and the three months ended March 31, 1996 and 1997 are derived
from the Company's audited and unaudited Consolidated Financial Statements
included elsewhere in this Prospectus. Historical results are not necessarily
indicative of results of operations to be expected in the future.
 
<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED
                                             YEAR ENDED DECEMBER 31,                 MARCH 31,
                                      -------------------------------------   -----------------------
                                         1994         1995         1996          1996         1997
                                      ----------   ----------   -----------   ----------   ----------
                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)         (UNAUDITED)
<S>                                   <C>          <C>          <C>           <C>          <C>
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA:
  Revenues:
     Software licenses..............     $  --      $      --    $    3,383   $      111   $    2,447
     Services and maintenance.......       149          1,271         3,762          945        1,227
                                         -----      ---------    ----------   ----------   ----------
          Total revenues............       149          1,271         7,145        1,056        3,674
  Cost of revenues:
     Cost of software licenses......        --             --         1,022           33          250
     Cost of services and
       maintenance..................        85            751         2,306          677          800
                                         -----      ---------    ----------   ----------   ----------
          Total cost of revenues....        85            751         3,328          710        1,050
                                         -----      ---------    ----------   ----------   ----------
     Gross profit...................        64            520         3,817          346        2,624
  Operating expenses:
     Sales and marketing............       178            549         4,425          320        1,690
     Research and development.......       423          1,116         3,658          608        1,222
     General and administrative.....       153            345         1,467          175          495
                                         -----      ---------    ----------   ----------   ----------
          Total operating
            expenses................       754          2,010         9,550        1,103        3,407
                                         -----      ---------    ----------   ----------   ----------
  Loss from operations..............      (690)        (1,490)       (5,733)        (757)        (783)
  Interest income (expense), net....       (29)           (13)           61            2           (1)
                                         -----      ---------    ----------   ----------   ----------
  Net loss..........................     $(719)     $  (1,503)   $   (5,672)  $     (755)  $     (784)
                                         =====      =========    ==========   ==========   ==========
  Pro forma net loss per common
     share..........................                             $    (0.98)  $    (0.14)  $    (0.13)
                                                                 ==========   ==========   ==========
  Pro forma weighted average shares
     of Common Stock
     outstanding(1).................                              5,789,382    5,388,815    6,094,414
</TABLE>
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                        ------------------------     MARCH 31,
                                                        1994     1995      1996        1997
                                                        ----    ------    ------    -----------
                                                                                    (UNAUDITED)
<S>                                                     <C>     <C>       <C>       <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash and cash equivalents...........................  $127    $1,135    $3,387      $1,641
  Working capital (deficit)...........................   (55)    1,557     2,586       1,294
  Total assets........................................   333     2,209     7,073       7,373
  Long-term debt......................................   780       318       442         387
  Stockholders' equity (deficit)......................  (718)    1,591     3,515       2,833
</TABLE>
 
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
    of the weighted average shares of Common Stock outstanding used to compute
    net loss per common share.
 
                                       19
<PAGE>   22
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     All statements, trend analysis and other information contained in the
following discussion and elsewhere in this Prospectus relative to markets for
the Company's products and trends in revenues, gross margin and anticipated
expense levels, as well as other statements including words such as
"anticipate," "believe," "plan," "estimate," "expect" and "intend" and other
similar expressions, constitute forward-looking statements. These
forward-looking statements are subject to business and economic risks and
uncertainties, and the Company's actual results of operations may differ
materially from those contained in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors" as well as other risks and uncertainties
referenced in this Prospectus.
 
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. During these
years, the Company's strategy was to develop its application integration
software, demonstrate the Company's expertise, and finance a portion of product
development expenses through customer-funded services projects, principally one
large-scale application integration consulting and development project for
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and its
wholly-owned subsidiary Merrill Lynch Group, Inc. As a result of the Merrill
Lynch contract the Company recognized substantial revenues from professional
services in 1995 in connection with the development of NEONet and its
installation at Merrill Lynch. The Company completed and commercially introduced
its initial version of NEONet in January 1996 and completed the Merrill Lynch
professional services agreement in June 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.
In March 1997, the Company announced the availability of Release 3.1 of NEONet
which contained, among other enhancements, an improved graphical user interface.
 
     As a result of the Company's focus on professional services activities in
its development stage, services and maintenance revenues increased from $149,000
in 1994 to $1.3 million in 1995 and to $3.8 million in 1996 and $1.2 million in
the first quarter of 1997. As the Company has transitioned to a focus on
software licenses, software license revenues have increased from no license
revenues in 1994 and 1995 to $3.4 million in 1996 and $2.4 million in the first
quarter of 1997. The Company anticipates that professional services will
continue to be utilized to help gain penetration into new vertical markets and
will also continue to be an important adjunct to software license sales.
However, as the Company's business continues and the Company increasingly
focuses on software licenses, the Company believes that both license revenues
and associated maintenance revenues will increase, and professional services
revenues will continue to decline as a percentage of total net revenues.
Accordingly, the Company expects that future revenues will depend to a
significant degree on the successful market acceptance of the NEONet product.
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. Any failure to continue to achieve market acceptance of
NEONet would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Product Concentration
and -- Uncertainty of Future Operating Results; Lengthy Sales Cycle;
Fluctuations in Quarterly Results."
 
     The Company generates revenues from both professional service arrangements
and software license arrangements. Revenue from professional service
arrangements is recognized on either a time and materials or
progress-to-completion basis as the services are performed and amounts due from
customers are deemed collectible and contractually nonrefundable. The Company
recognizes license fee revenue when the licensed software has been delivered,
customer acceptance has occurred, all significant Company obligations have been
 
                                       20
<PAGE>   23
 
satisfied, payment is due within twelve months and the fee is fixed and
determinable and deemed collectible. Maintenance and support revenues related to
software licenses are recognized ratably over the term of each maintenance
arrangement. See Note 2 of Notes to Consolidated Financial Statements.
 
     In connection with the software development and license arrangement the
Company entered into with Merrill Lynch, the Company is obligated to pay
royalties to Merrill Lynch on net revenues from licenses of NEONet, up to a
total of $1.9 million in royalties. The royalty rate was 30% through 1996 and
was revised to 10% in January 1997. Such royalty payments are accounted for as
cost of software licenses. Through March 31, 1997, a total of approximately $1.3
million in such royalties have been accrued, of which $200,000 has been paid to
Merrill Lynch.
 
     The Company's operating expenses have increased steadily since inception as
the Company has sought to develop the infrastructure necessary to support a
growing business. Research and development expenses, relating principally to the
development of NEONet, increased from $423,000 in 1994 to $1.1 million in 1995
and $3.7 million in 1996. Sales and marketing expenses have also increased,
particularly in 1996, as the Company has expanded its commissioned sales force
from one person at December 31, 1995 to 18 as of March 31, 1997, increasing from
$179,000 in 1994 to $549,000 in 1995 and $4.4 million in 1996. Similarly, the
Company's general and administrative expenses, which have increased as the
Company has expanded its organization to support a growing business, increased
from $153,000 in 1994 to $345,000 in 1995 and $1.5 million in 1996. The Company
believes that continued expansion of its operations is essential to achieving
its strategy and therefore intends to continue to increase expenditures in all
operational areas. Although the rate of these increases will depend upon a
number of factors, including the continued growth of the Company's revenues,
success in hiring personnel to expand its business and market acceptance of the
Company's products, the planned expenditures could result in the Company
remaining unprofitable for at least several quarters. The Company has not been
profitable in any period to date, and as of March 31, 1997 had an accumulated
deficit of approximately $8.8 million. As a result of anticipated expenditure
increases in the future, the Company does not expect to be profitable for
several quarters and may never achieve profitability unless revenues increase
substantially. There can be no assurance that the Company will achieve or
sustain profitability on a quarterly or annual basis in the future.
 
     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 effected. See "Risk Factors -- Management of Growth."
 
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
 
     The Company's revenues increased from $149,000 for the year ended December
31, 1994 to $1.3 million in the year ended December 31, 1995, as the Company
grew customer-funded development and related services projects. Revenues for the
fiscal year ended December 31, 1996 increased to $7.1 million due to the
significant increase in software license revenues during 1996. As noted above,
the Company's operating expenses have increased steadily over these periods as
the Company has sought to develop the infrastructure necessary to support a
growing business. Research and development expenses, relating principally to the
development of NEONet, increased from $423,000 in 1994 to $1.1 million in 1995
and $3.7 million in 1996. Sales and marketing expenses have also increased,
particularly in 1996, as the Company has expanded its commissioned sales force
from one person at December 31, 1995 to 14 as of December 31, 1996, increasing
from $179,000 in 1994 to $549,000 in 1995 and $4.4 million in 1996. Similarly,
the Company's general and administrative expenses, which have increased as the
Company has expanded its organization to support a growing business, increased
from $153,000 in 1994 to $345,000 in 1995 and $1.5 million in 1996.
 
                                       21
<PAGE>   24
 
QUARTERLY RESULTS OF OPERATIONS
 
     Because of the significant increases in the level of operations of the
Company from year to year during its short operating history, the Company does
not believe year to year comparisons are particularly meaningful. Accordingly
the following discussion focuses on the Company's quarterly results for the six
quarters in the period ended March 31, 1997. However, even with respect to
quarterly results, in view of the Company's limited operating history, recent
growth and other factors enumerated under "Risk Factors" and elsewhere herein,
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. 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.
See "Risk Factors -- Uncertainty of Future Operating Results; Lengthy Sales
Cycle; Fluctuations in Quarterly Results."
 
     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 revenue 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 revenue and operating results typically depend upon the volume
and timing of customer contracts received during a given quarter, and the amount
of revenues associated with each such contract which the Company is entitled to
recognize during such 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.
See "Business -- Sales and Marketing." The Company's operating expense levels
are relatively fixed and are based in part on expectations as to 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.
 
     The following tables present unaudited quarterly consolidated statement of
operations data for the last six quarters in the 18-month period ended March 31,
1997, as well as such data expressed as a percentage of the Company's revenues
for the periods indicated. This data has been derived from unaudited
consolidated financial statements that have been prepared on the same basis as
the audited consolidated financial statements and include all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of such information.
 
                                       22
<PAGE>   25
 
<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED
                                           ------------------------------------------------------------------
                                           DEC. 31,   MARCH 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MARCH 31,
                                             1995       1996        1996       1996        1996       1997
                                           --------   ---------   --------   ---------   --------   ---------
                                                                     (IN THOUSANDS)
<S>                                        <C>        <C>         <C>        <C>         <C>        <C>
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA:
Revenues:
  Software licenses......................   $   --     $  111     $   411     $   832    $ 2,029     $ 2,447
  Services and maintenance...............      629        945       1,186         841        790       1,227
                                            ------     ------     -------     -------    -------     -------
          Total revenues.................      629      1,056       1,597       1,673      2,819       3,674
                                            ------     ------     -------     -------    -------     -------
Cost of revenues:
  Cost of software licenses..............       --         33         123         252        614         250
  Cost of services and maintenance.......      397        677         713         455        461         800
                                            ------     ------     -------     -------    -------     -------
          Total cost of revenues.........      397        710         836         707      1,075       1,050
                                            ------     ------     -------     -------    -------     -------
  Gross profit...........................      232        346         761         966      1,744       2,624
Operating expenses:
  Sales and marketing....................      142        320       1,010       1,469      1,626       1,690
  Research and development...............      416        608         736       1,142      1,172       1,222
  General and administrative.............      126        175         380         475        437         495
                                            ------     ------     -------     -------    -------     -------
          Total operating expenses.......      684      1,103       2,126       3,086      3,235       3,407
                                            ------     ------     -------     -------    -------     -------
  Loss from operations...................     (452)      (757)     (1,365)     (2,120)    (1,491)       (783)
  Other income, net......................       15          2           7          49          3          (1)
                                            ------     ------     -------     -------    -------     -------
          Net loss.......................   $ (437)    $ (755)    $(1,358)    $(2,071)   $(1,488)    $  (784)
                                            ======     ======     =======     =======    =======     =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED
                                           ------------------------------------------------------------------
                                           DEC. 31,   MARCH 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MARCH 31,
                                             1995       1996        1996       1996        1996       1997
                                           --------   ---------   --------   ---------   --------   ---------
<S>                                        <C>        <C>         <C>        <C>         <C>        <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
  Software licenses......................     --%         11%        26%         50%        72%         67%
  Services and maintenance...............    100          89         74          50         28          33
                                             ---         ---        ---        ----        ---         ---
          Total revenues.................    100         100        100         100        100         100
                                             ---         ---        ---        ----        ---         ---
Cost of revenues:
  Cost of software licenses(1)...........     --          30         30          30         30          10
  Cost of services and maintenance(2)....     63          72         60          54         58          65
                                             ---         ---        ---        ----        ---         ---
          Total cost of revenues.........     63          67         52          42         38          29
                                             ---         ---        ---        ----        ---         ---
  Gross profit...........................     37          33         48          58         62          71
Operating expenses:
  Sales and marketing....................     23          30         63          88         58          46
  Research and development...............     66          58         46          68         42          33
  General and administrative.............     20          17         24          29         15          13
                                             ---         ---        ---        ----        ---         ---
          Total operating expenses.......    109         105        133         185        115          92
                                             ---         ---        ---        ----        ---         ---
  Loss from operations...................    (72)        (72)       (85)       (127)       (53)        (21)
  Other income, net......................      2          --         --           3         --          --
                                             ---         ---        ---        ----        ---         ---
          Net loss.......................    (70)%       (72)%      (85)%      (124)%      (53)%       (21)%
                                             ===         ===        ===        ====        ===         ===
</TABLE>
 
- ---------------
 
(1) As a percentage of software license revenue.
 
(2) As a percentage of services and maintenance revenue.
 
                                       23
<PAGE>   26
 
REVENUES
 
     The Company's total revenues increased in each of the six quarters in the
period ended March 31, 1997. Software license revenues were not significant
until the initial introduction of the Company's NEONet software in January 1996
and, more significantly, the release of NEONet version 3.0 in November 1996.
From the quarter ended March 31, 1996 through the quarter ended March 31, 1997,
software license revenues have increased each quarter, reflecting 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
introduction of NEONet version 2.2 in June 1996, and emerging market acceptance
of the Company's software products, particularly in the financial services
industry. Services and maintenance revenues declined in the last half of 1996,
primarily due to the completion of the professional services contract with
Merrill Lynch in the quarter ended June 30, 1996. Services and maintenance
revenues grew substantially in the first quarter of 1997, increasing by
approximately 55% from the prior quarter, reflecting primarily an increase in
the number of pilot programs and service engagements. The Company expects that
revenues derived from services will decline as a percentage of total revenues.
However, the Company expects that maintenance revenue will increase as the
Company's installed base of software licenses increases.
 
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. The Company has an agreement to pay royalties on NEONet
revenue license fees collected to Merrill Lynch until such royalties reach a
cumulative total $1.9 million. The Company accrued royalties at 30% of software
license fees in 1996 and is accruing royalties at 10% of software license fees
in 1997, reflecting the Company's revised agreement with Merrill Lynch. Royalty
expenses are accounted for as cost of software licenses. As a result, cost of
software licenses was approximately 30% in 1996 and 10% in the first quarter of
1997. At March 31, 1997, total accrued royalties due to Merrill Lynch were
approximately $1.3 million, of which $200,000 has been paid.
 
     Cost of services and maintenance consists primarily of personnel, facility
and system costs incurred in providing customer care (maintenance and support),
which include customer support, training, and consulting services. The reduction
in cost of services and maintenance in the quarters ended September 30, 1996 and
December 31, 1996 was a result of reassigning staff from service efforts to
research and development. Cost of services and maintenance increased both in
absolute dollars and as a percentage of related revenue in the first quarter of
1997, principally due to an increase in professional service engagements and the
use, at higher cost, of subcontract labor on certain engagements. The Company
expects to continue to use subcontractors at least through the second quarter of
1997.
 
OPERATING EXPENSES
 
     Research and Development
 
     Research and development expenses have increased quarter to quarter in the
periods indicated, from $416,000 in the quarter ended December 31, 1995 to $1.2
million in the quarter ended March 31, 1997, as the Company has continued to
develop its software products and to hire engineering personnel. The Company
anticipates that research and development expenses will continue to increase as
the Company continues to develop new and enhanced software products. Such
expenses may fluctuate from quarter to quarter, both in total expenditures and
as a percentage of total revenues, depending upon the status of various
development projects, the ability to hire engineering personnel who are in great
demand and the rate of growth, if any, of the Company's revenues.
 
     Research and development expenses have been expensed as incurred. Under the
criteria set forth in Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," capitalization of software development costs begins upon the
establishment of technological feasibility of the product and ends when the
product is ready for general release. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs
require considerable judgment by management with respect to certain external
factors, including,
 
                                       24
<PAGE>   27
 
but not limited to, anticipated future gross product revenues, estimated
economic life and changes in software and hardware technology. The Company
believes that costs incurred through March 31, 1997, which satisfy the above
criteria were immaterial and, therefore, no software development costs have been
capitalized by the Company to date.
 
     Sales and Marketing
 
     Sales and marketing expenses consist primarily of salaries, commissions and
promotional expenses and other related expenses of sales and marketing
personnel, and increased from $142,000 in the quarter ended December 31, 1995 to
$1.7 million in the quarter ended March 31, 1997. Sales and marketing expenses
increased quarter to quarter through 1996 as the Company continued to expand its
overall sales and marketing resources and business infrastructure. Such expenses
increased in particular in the quarters ended June 30, 1996 and September 30,
1996 as the Company placed sales personnel in Massachusetts, California,
Colorado, Illinois, Texas, Pennsylvania and the United Kingdom. The Company has
increased its sales force from five persons at March 31, 1996 to 18 at March 31,
1997. The Company expects to continue to expand its sales and marketing
resources, both by expansion of the Company's direct sales force and the
continued development of indirect distribution channels and promotional
activity. Accordingly, the Company anticipates that sales and marketing expenses
will continue to increase in absolute dollars, although such expenditures may
vary as a percentage of total revenues depending upon the rate of growth in the
Company's revenue, if any.
 
     General and Administrative
 
     General and administrative expenses consist primarily of salaries and other
related expenses of administrative, executive and financial personnel and other
outside professional fees, and increased from $126,000 in the quarter ended
December 31, 1995 to $495,000 in the quarter ended March 31, 1997. General and
administrative expenses have increased as the Company has continued to build the
infrastructure to support its business, including the implementation of
financial and human resource systems and the establishment of a legal
department. These expenses are expected to increase in absolute dollars in the
future as the Company expands its administrative staff, including in particular
its finance organization, implements additional management information systems,
and undertakes various accounting and legal activities required in connection
with becoming a public company.
 
OPERATING LOSSES
 
     The Company incurred an operating loss in each of the six quarters in the
period ended March 31, 1997. These losses resulted from the Company's continued
investment in infrastructure to support expanding operations, as discussed
above. As a result, the Company had an accumulated deficit of $8.8 million as of
March 31, 1997.
 
OTHER INCOME, NET
 
     Other income, net, consists of interest earned on cash and short-term
investments, offset by interest expense on short-term borrowings. See Note 3 of
Notes to Consolidated Financial Statements.
 
PROVISION FOR INCOME TAXES
 
     From inception through May 9, 1995, the Company was an S corporation for
income tax purposes and its taxable loss and tax credits were included in the
personal tax return of its stockholders. For the remainder of 1995 and
prospectively, items of taxable income and expense are reported in the corporate
income tax returns of the Company. The Company had a net loss for the period May
10, 1995 through December 31, 1996 which resulted in a net operating loss for
federal and state income tax purposes of approximately $6.4 million, which
expires beginning in 2010. The Company's utilization of its net operating losses
may be limited in the event of any future ownership change within the meaning of
the Tax Reform Act of 1986 and similar state provisions.
 
     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." See Note
4 of Notes to Consolidated Financial Statements.
 
                                       25
<PAGE>   28
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Since inception, the Company has financed its operations, research and
development and capital expenditures primarily through private placements of a
total of $11.4 million of convertible preferred stock as well as debt financing.
During 1995 and 1996, operating activities utilized $1.6 million and $5.4
million in cash, respectively. In the quarter ended March 31, 1997, the Company
utilized approximately $1.7 million in cash. This cash utilization was primarily
a result of net operating losses, as well as increased working capital
associated with growing operations, particularly increases in accounts
receivable. Cash generated by financing activities was $3.0 million in 1995 and
$8.7 million in 1996, respectively, primarily due to issuances of preferred
stock. Capital expenditures totaled $301,000 in 1995 and $1.1 million in 1996,
primarily for computer equipment, software and telecommunications equipment. The
Company expects that its capital expenditures and office space requirements will
increase as the Company's employee base grows. The Company's principal current
commitments consist primarily of leases on its office facilities. See Note 7 of
Notes to Consolidated Financial Statements.
 
     At March 31, 1997, the Company had $1.6 million in cash and cash
equivalents and $1.3 million in working capital. The Company has a $2.0 million
revolving credit facility and $1.0 million equipment financing facility with a
bank, which expire on September 5, 1997 and June 5, 2000, respectively. These
credit facilities are secured by all assets of the Company with the exception of
certain intangibles. Borrowings on the revolving credit facility are limited to
75% of the Company's eligible accounts receivable. Eligible accounts receivable
include accounts receivable that have been outstanding less than 90 days from
the date of the invoice (excluding accounts in which more than 50% of the
account is outstanding more than 90 days from the invoice date and certain other
accounts). At March 31, 1997, borrowings on the line of credit totaled $1.0
million, and borrowings on the equipment financing facility totalled
approximately $477,000. The Company's credit facilities contain certain
financial covenants and restrictions as to various matters including the
Company's ability to pay cash dividends and effect mergers or acquisitions
without the bank's prior approval. The Company is currently in compliance with
such financial covenants and restrictions. See Note 3 of Notes to Consolidated
Financial Statements.
 
     The Company anticipates that the net proceeds of this Offering, together
with the Company's existing balances of cash and cash equivalents and borrowings
available under the Company's credit facilities, will be sufficient to meet the
Company's working capital and capital expenditure needs for at least the next 12
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. If the expected closing of the initial public offering is
significantly delayed or suspended, the Company believes that funding sufficient
to continue operations at least for the remainder of 1997 can be obtained
through other sources.
 
                                       26
<PAGE>   29
 
                                    BUSINESS
 
     NEON develops, markets and supports application integration software and
provides application integration services. The Company's flagship software
suite, NEONet, provides organizations with a structured software platform for
the integration of disparate systems and applications across the enterprise, a
process known as application integration. NEONet facilitates the rapid and
efficient deployment and ongoing maintenance of application integration across
the enterprise. NEONet supports a heterogeneous environment of hardware,
operating system, network and database platforms, permits organizations to
leverage existing legacy systems, and accommodates the extension of the
corporate information systems environment to new enterprise applications and to
new computing paradigms such as the Internet/Intranet.
 
     Through March 31, 1997, the Company has shipped NEONet to a total of 26
customers in the financial services, health care, information technology and
systems consulting, and other industries. Representative customers of the
Company include Merrill Lynch, Deutsche Morgan Grenfell, Inc., Chase Manhattan
Bank, Credit Suisse, ADP Financial Information Services, Ernst & Young, Jackson
Memorial Hospital, KN Energy and Pacific Investment Mortgage Company. The
Company markets its software and related services primarily through a direct
sales organization, complemented by indirect sales channels including VARs, OEMs
and international distributors. As part of this strategy, the Company has
established reseller and joint marketing relationships with firms such as
Hewlett-Packard, Sun Microsystems, SunGard Financial Systems, Andersen
Consulting, Ernst & Young, Scopus, Open Market, Oracle and SWIFT.
 
INDUSTRY BACKGROUND
 
     Organizations today are under increasing pressure to respond to a number of
powerful market forces to remain competitive. Forces such as globalization and
deregulation have led to industry consolidation and a focus on cost, quality,
and customer service. In response to the increasingly competitive environment,
companies have acquired other businesses, diversified operations geographically,
engaged in business process reengineering, and sought to tighten relationships
with key suppliers, distributors, and customers. The implementation of IT based
solutions, increasingly seen as strategic competitive assets, has been and will
continue to be a critical part of these efforts. Information systems are used to
disseminate critical corporate information across the enterprise, to streamline
operations, and to improve organizational flexibility and responsiveness.
 
  The Complexity of Today's Enterprise Application Environment
 
     The range of computing environments and software applications utilized
across the typical business organization is vast and growing, involving both
mainframe and minicomputer-based legacy systems and more recently introduced
client/server environments. Organizations are incorporating powerful, new
software applications that operate on an enterprise-wide basis and also serve as
interfaces to customers and suppliers. At the same time, organizations are
seeking to better exploit their existing information systems and take advantage
of their prior technology investments by integrating previously independent
legacy and other applications and databases.
 
     Critical software applications historically were developed for large
mainframe-based computing environments and, later, minicomputer-based systems.
Many organizations still rely on these legacy systems for high-volume
transaction processing and maintenance of critical data. These legacy
applications were typically designed for the specific business functions of a
single department, such as inventory control or payroll, and did not interface
with other applications across the enterprise. Moreover, legacy systems operated
on one central computer with one operating system and one database system. As
the need to automate additional critical business functions throughout the
enterprise increased, additional specialized applications were written, again
typically without regard for interoperation with other applications.
Additionally, the recent growth of the Internet and the use of Intranets have
led to the emergence of another class of enterprise applications, adding another
dimension of complexity to the problem of integrating business applications
across the enterprise.
 
                                       27
<PAGE>   30
 
  Business Drivers of Application Integration
 
     Organizations are increasingly demanding greater information sharing among
their application systems in order to help the organization accomplish key
strategic objectives. These organizational objectives include the following:
 
          Enhancement of Customer Service and Customer Care. As organizations
     attempt to better understand and meet the needs of their customers, they
     are recognizing that much of the information necessary to obtain a unified
     view of the customer is widely dispersed across numerous incompatible
     application systems. For example, an organization that wants to better
     understand a customer's purchasing history may need to integrate data
     stored in separate systems in marketing, sales and other departments.
     Similarly, a company seeking to improve customer service through a call
     center application must be able to share information with order-tracking
     software, which in turn must be accessible by salespeople in the field.
 
          Efficient Management of Internal Resources and the Supply Chain. Many
     companies are seeking to achieve greater productivity and efficiency across
     functional areas, such as integration of sales forecasts and manufacturing
     planning in order to improve inventory management. In addition, many
     companies are tightening their relationships with key suppliers and
     distributors to improve responsiveness to new market conditions. For
     example, more companies are using "just-in-time" manufacturing techniques
     that require better sharing of information between a company and its
     suppliers.
 
          Improved Risk Management. Rapidly changing markets and economic
     conditions have driven businesses to seek a more integrated view of their
     risk profile. For example, organizations need to manage cash, accounts
     receivable, and aggregate customer exposure in more timely and
     comprehensive ways. As another example, financial institutions need to
     analyze and manage their financial exposure on a real-time basis across
     different securities, trading markets and currencies. Providing a
     consolidated, enterprise-wide view of risk requires the timely integration
     of data residing on different systems and in different departments.
 
          Pursuit of New Growth Opportunities. Many organizations have in recent
     years extended their operations overseas as globalization and deregulation
     have opened new markets. In addition, organizations have sought to pursue
     additional market opportunities through mergers and acquisitions. As
     organizations have extended operations overseas, they have adopted
     applications that address the specific needs of each local market. As they
     have acquired new businesses, they have inherited additional systems and
     applications. All of these systems must be integrated with a company's
     existing applications in order to manage and expand the enterprise
     efficiently.
 
          Implementation of Tactical Initiatives. Application integration is
     essential to many tactical corporate initiatives, including business
     process reengineering, implementation of best of breed enterprise
     applications, data warehousing and database replication, electronic
     commerce, and the incorporation of Internet/Intranet technologies.
 
     Effective application integration strategies are critical to an
organization's ability to respond to changing market demands, seize new market
opportunities, improve customer service, and realize planned business process
improvements. However, organizations today face major challenges in attempting
to integrate their disparate and distributed application systems.
 
  Challenges in Achieving Application Integration
 
     Organizations have historically addressed the need to integrate
applications by means of a number of narrow integration techniques, including
data extract programs, screen scraping, file transfers and update programs as
well as data sharing and data synchronization. These techniques have typically
been implemented in an ad hoc manner to address specific integration
requirements as they have arisen over time. Accordingly, they have generally
required extensive manual custom software coding and provided limited
functionality, flexibility and scaleability, and require a costly and burdensome
ongoing maintenance process. As a result of
 
                                       28
<PAGE>   31
 
the limitations of these techniques, additions of new applications and changes
in the business processes addressed by different applications have required
continual and extensive rewrites of existing applications with attendant costs,
delays and errors. According to Gartner Group, Inc., in a typical computing
environment, 35% to 40% of all programming effort is devoted to developing and
maintaining the extract and update programs whose only purpose is to transfer
information between different databases.
 
     Gartner Group refers to the complex market of individual, unstructured
integration among disparate applications as "interapplication spaghetti."
 
                                    [CHART]
 
  The Application Integration Market Opportunity
 
     The need to utilize information and information technology as strategic
assets, together with the proliferation of disparate applications across
enterprises and the limitations inherent in historical application integration
methodologies, have created a need for packaged application integration software
solutions. Organizations require an integrated solution that can untangle the
existing interapplication spaghetti and provide a scaleable infrastructure that
supports rapid and efficient updates to integration implementations as
additional applications are added and business rules change. This solution must
support a heterogeneous environment of hardware, operating system, networking
and RDBMS platforms, permit an organization to leverage its existing legacy
systems and accommodate the extension of the corporate information systems
environment to new enterprise applications and to new computing paradigms such
as the Internet/Intranet.
 
SOLUTION
 
     NEON has become a leading provider of application integration software
through its unique integrated approach to addressing the challenges of
application integration. The Company's flagship software suite, NEONet, provides
organizations with a structured software platform for application integration,
facilitating the rapid and efficient deployment and ongoing management of
application integration among disparate applications across the enterprise.
NEONet addresses the limitations of earlier application integration paradigms by
providing in a packaged integrated software solution the various elements
required to address the application integration challenge in a scaleable and
flexible manner. NEONet consists of three interoperable modules, which may be
purchased as a unit or separately, Messaging and Queuing, Formatter and Rules
Engine, together with a suite of libraries and tools. The Messaging and Queuing
module provides guaranteed real-time delivery of data transactions across
heterogeneous applications. The Formatter module provides dynamic formatting of
data messages to meet the native format requirements of different applications.
The
 
                                       29
<PAGE>   32
 
Rules Engine module enables an organization to define and fulfill the data
requirements of different applications through sophisticated and easily
modifiable business rules.
 
     This packaged application solution offers the following key benefits:
 
          Enhances IT Productivity. NEONet enhances IT productivity by freeing
     programmers from the complex, time-consuming and error-prone process of
     manually writing custom integration code in a piecemeal manner each time an
     application is added or modified or a business process changes. By
     providing a structured platform for managing application integration,
     NEONet reduces application development time and the ongoing burden and
     expense of maintenance associated with writing custom code. This enables
     organizations to manage application integration more easily as business
     needs evolve. Accordingly, NEONet enables organizations to address the
     growing backlog of integration requirements.
 
          Provides Flexible, Long-Term Platform for Application Integration. As
     a structured platform for application integration, NEONet accommodates
     changes ranging from the addition of new applications to the incorporation
     of new technologies. NEONet's architecture also enables IT organizations to
     quickly disseminate these changes throughout the entire enterprise.
 
          Preserves Existing IT Investment. By permitting the integration of new
     computing platforms and applications with legacy systems, NEONet helps to
     preserve the investment that organizations have made in existing mainframe
     and minicomputer-based systems, while serving as a bridge to client/server
     and Internet/Intranet based applications. NEONet is also particularly
     useful in data warehousing and data mining efforts, in which valuable
     corporate data residing in legacy systems is retrieved and reformatted for
     new applications.
 
          Improves Efficiency of Enterprise IT Environment. While historical
     approaches to application integration have typically permitted only batch
     processing, NEONet's high throughput capability enables organizations to
     provide real-time data delivery of information across a broad variety of
     systems. NEONet also improves the reliability of the IT environment by
     guaranteeing delivery of the data messages sent and received by
     applications exactly once and in the precise order in which they were sent.
     By removing the bottlenecks to data integration, NEONet enables a broad
     variety of critical, emerging business applications such as data
     replication, data warehousing, and transaction-oriented applications.
 
STRATEGY
 
     The Company's objective is to establish NEONet as the leading standard for
application integration across the enterprise. Key elements of the Company's
strategy include:
 
          Expand Vertical Markets. The Company plans to increase the number of
     vertical market segments it serves using a strategy established by the
     Company in the technically demanding financial services market for which
     the Company initially developed NEONet. The Company penetrated the
     financial services market by leveraging the industry experience of the
     Company's founders and other key personnel and by collaborating with a
     number of strategic customers. The Company's strategy is to penetrate
     additional vertical markets, including health care, telecommunications and
     manufacturing, by establishing development relationships with strategic
     customers and by leveraging an understanding of customer needs in these
     specific markets.
 
          Maintain Technological Leadership. The Company is an early entrant in
     the emerging application integration market, and seeks to maintain a
     leadership position by continuing to provide innovative application
     integration solutions. NEON was the first company to offer a single
     integrated solution combining messaging and queuing, dynamic formatting and
     rules-based processing. NEON was also the first to offer a scaleable rules
     engine that can process high volumes of messages in real-time using large
     numbers of complex processing rules. The Company continues to focus on the
     support of additional current and emerging computing platforms. The Company
     released NEONweb in December 1996, extending the NEONet solution to
     Internet/Intranet applications, providing assured communications from HTML,
     Java and CGI applications to web-based servers, and legacy and
     client/server based information systems.
 
                                       30
<PAGE>   33
 
          Expand Sales Capability Worldwide. The Company's strategy is to expand
     its sales and marketing capabilities in order to address the worldwide
     market for its products. In 1996, the Company increased its direct sales
     capabilities from one commissioned sales person at January 31, 1996 to 18
     at March 31, 1997. The Company intends to continue to expand its global
     sales coverage through additional international direct sales offices and
     the expansion of indirect channels. In this regard, the Company has
     established reseller and joint marketing relationships with OEMs,
     independent software vendors, VARs and systems integration firms such
     Hewlett-Packard, Sun Microsystems, SunGard Financial Systems, Andersen
     Consulting, Ernst & Young, Scopus, Open Market, Oracle and SWIFT.
 
          Develop Cross-Industry Applications. In addition to its focus on
     strategic vertical markets, the Company has targeted the development and
     marketing of NEONet to specific applications which have significant
     importance across different vertical segments. The Company has focused on
     data replication and warehousing applications, in which NEONet permits an
     organization to extract data from multiple historical databases and
     reformat that data for ready access via data warehouses. The Company has
     also targeted electronic commerce, including electronic data interchange
     (EDI) and Internet/Intranet integration, as well as customer service call
     centers, in which organizations are seeking to connect to legacy
     applications in order to enhance customer service.
 
PRODUCTS AND SERVICES
 
  NEONet Software
 
     The Company's NEONet software provides organizations with a structured
software platform for the rapid and efficient development and ongoing management
of application integration among disparate applications across the enterprise.
The principal modules of NEONet are as follows:
 
<TABLE>
<CAPTION>
                                FIRST
        PRODUCT NAME           RELEASE                 FUNCTION                               BENEFIT
        ------------           -------                 --------                               -------
<S>                            <C>       <C>                                    <C>
NEONet......................   Jan. 96   Processes high volumes of data         Provides application integration
                                         transactions between heterogenous      across heterogeneous enterprise
                                         systems.                               environments.
  Messaging and Queuing.....             High performance, asynchronous data    Provides guaranteed delivery of
                                         messaging and queuing transport        transactions once and only once and
                                         mechanisms.                            maintains transaction integrity.
  Formatter.................             Dynamic real-time translator of data   Enables heterogeneous applications
                                         to multiple required formats.          to communicate seamlessly.
  Rules Engine..............             Content publish/subscribe,             Allows real-time routing of data
                                         propagation and synchronization tool   transactions across the enterprise,
                                         with intelligent routing.              based on readily modifiable business
                                                                                rules and the data content of each
                                                                                message.
NEONweb.....................   Dec. 96   Guaranteed delivery of data            Provides transaction integrity for
                                         transactions from web clients to web   electronic commerce applications.
                                         servers and to legacy systems.
NEOCAS......................   Oct. 96   Interface module to Society for        Reduces the time and effort required
                                         Worldwide Interbank Financial          to accept and reformat messages to a
                                         Telecommunication (SWIFT) protocol     customer's own applications.
                                         used by financial institutions
                                         worldwide.
NEONreplication.............   Jun. 96   Data replication module to update      Allows timely updates of dispersed
                                         and synchronize multiple               critical databases without the need
                                         heterogeneous databases.               for extensive custom coding.
</TABLE>
 
     Messaging and Queuing. The foundation of the NEONet architecture is the
NEONet Messaging and Queuing module, which provides the Company's basic
asynchronous transport vehicle. The Messaging and Queuing module sends
transactions from one application to another, consisting of instructions or data
between applications and databases, and provides for guaranteed delivery of each
message once and only once and in the same order the messages are sent. The
system uses a message queue for the sending system to ensure that the sending
system can distribute a high volume of messages in real time without the need to
wait for confirmation of receipt, as well as a message queue for the recipient
system to ensure that the recipient system
 
                                       31
<PAGE>   34
 
can download messages when available. The NEONet Messaging and Queuing module is
offered at list prices ranging from $18,000 to $85,000 per server, depending
upon the class of server on which the product is operated.
 
     Formatter. The NEONet Formatter module can be added to the Messaging and
Queuing module to provide for dynamic reformatting of data messages in real time
so they may be accepted and read by multiple receiving applications in
heterogeneous environments. The NEONet Formatter parses and reformats messages
by translating messages among different protocols, programming languages,
applications, and hardware platforms. The sending application can issue a
message in a single format, and the dynamic formatter reformats the message into
the new format required by each receiving application, a function that is
critical to supporting database replication and application integration. The
Formatter module is sold at list prices ranging from $25,000 to $150,000 per
server, depending upon the class of server on which the product is operated.
 
     Rules Engine. The NEONet Rules Engine module provides for the publishing of
a sending application's single message to multiple recipient applications and
databases, in each case in the proper format for the designated recipient, based
upon a set of user-defined business rules. Each receiving application registers
or subscribes to the data generated by multiple applications which, by
specifying the values of data in the transactions that are of interest, enables
each subscribing application to receive only the data it requires. The Rules
Engine module is based on a proprietary, high-speed, scaleable architecture that
can support high numbers of business rules while continuing to provide real-time
data access and distribution. This enables an organization to prescribe
sophisticated rules that determine which data needs delivery to specific
applications and databases and under which circumstances. These rules can be
readily modified or updated as business requirements change. The Rules Engine
module is offered at list prices ranging from $25,000 to $150,000 per server,
depending upon the class of server on which the product is operated.
 
     NEONweb. NEONweb is a complementary module to the NEONet platform that
facilitates the integration of Internet/Intranet environments with legacy and
client/server-based systems. NEONweb extends to the Internet/Intranet the
security of NEONet's guaranteed message delivery and receipt. This functionality
is essential for electronic commerce on the Internet, including both electronic
data interchange and consumer commerce. NEONweb is offered at a list price of
$25,000 per server and requires a license of the NEONet Messaging and Queuing
module.
 
     NEOCAS. The Company's NEOCAS module facilitates application integration
using the SWIFT interface standard commonly used for financial processing among
financial institutions worldwide. This module requires a license of the NEONet
Messaging and Queuing and Formatting modules and is offered at a list price of
$35,000 per server.
 
     NEONreplication. The NEONreplication module is a set of libraries that
facilitates the automatic update and synchronization of multiple databases for
the purpose of database replication. Database replication is essential for
sophisticated, real-time applications in the financial services and other
industries, as it permits the maintenance in real time of multiple databases.
The NEONreplication module is offered at list prices ranging from $15,000 to
$75,000 per server, depending upon the class of server on which it is operated.
 
  Customer Services
 
     As part of its commitment to provide a total solution to customer needs,
the Company offers the following customer services:
 
          Customer Care. In conjunction with its software license products, NEON
     offers an array of professional and support services that focus on
     providing product education to both external and internal customers, as
     well as specialized work request reporting and tracking services. The
     Company's customer care service offerings include both a basic five day a
     week, twelve hour a day customer hotline and an extended seven day a week,
     twenty-four hours a day support hotline. The Company's standard term for
     customer care agreements is twelve months.
 
                                       32
<PAGE>   35
 
          Professional Services. The Company provides for NEONet software
     installation and consulting services as well as generalized consulting on
     the design and development of enterprise-wide application integration
     utilizing the Company's expertise in client/server, Internet/Intranet and
     database management technologies. The Company's initial relationships with
     customers historically have involved a one-time limited engagement
     involving professional services, particularly as the Company has sought to
     address a new vertical market segment. This has often expanded into
     licenses of the Company's application integration software products. NEON
     offers professional services in conjunction with other professional service
     organizations and system integrations.
 
          Fee-based Training Services. The Company offers its customers, for an
     additional fee, comprehensive training in NEON software products. These
     courses are conducted at both NEON's corporate facilities in Denver and New
     York City as well as at several customer locations.
 
CUSTOMERS AND CUSTOMER APPLICATIONS
 
  Customers
 
     The Company has sold products and services to a total of 48 customers, of
which 26 have purchased NEONet. Five customers of the Company together accounted
for more than 72% of the Company's total revenues in 1996. One customer, Merrill
Lynch, accounted for 69% of net revenues in 1995 and 22% in 1996, respectively.
Representative customers of the Company who have purchased products or services,
categorized by vertical industry, include the following:
 
<TABLE>
<S>                                        <C>
FINANCIAL SERVICES                         HEALTH CARE
ADP Financial Information Services         Froedert Hospital
Alliance Capital                           Huron
BZW Services, Ltd. (London)                Ingalls Health Systems
Cedel Bank (LU)                            Jackson Memorial Hospital
Chase Manhattan Bank                       Muhlenberg Hospital
Chicago Mercantile Exchange                PCN
Cigna                                      Rose/Swedish
Citibank
Credit Suisse                              INFORMATION TECHNOLOGY AND SYSTEMS
Deutsche Morgan Grenfell, Inc.             CONSULTING
FMR Corp. (Fidelity)                       Broadway Seymour
Fiduciary Trust International              Computer Systems Resources
JP Morgan & Co.                            DMW
Long Term Credit Bank                      Ernst & Young
Merrill Lynch, Pierce, Fenner & Smith      Informatics
  Incorporated                             Integrated Resources Group
NIKKO Securities                           Silicon Graphics, Inc.
NSCC                                       Sun Microsystems
Pacific Investment Mortgage Company        SunGard Financial Systems
Pioneer                                    Synquest
Prudential Securities                      Texas Instruments
State Street Bank                          Transolutions
Swiss Bank Corporation                     Xerox Corporation
Thomson Financial Services
Western Asset Management Company           OTHER
                                           Kelly Services
                                           Pinkerton
                                           KN Energy
                                           Total Petroleum
</TABLE>
 
                                       33
<PAGE>   36
 
  Customer Applications
 
     The following customer case studies illustrate the application integration
challenges facing typical customers of the Company and the means by which NEONet
has facilitated achievement of the customers' goals.
 
     Extending Database Access to Customers.  A leading provider of data
processing services stores and processes three million customer transactions a
day on its mainframe-based system. The service provider's end user customers
increasingly demanded that the service provider enable end users to access their
individual data through a client/server architecture and server-based relational
database. Accordingly, NEON's customer needed to establish real-time database
replication between the customer's mainframe-based system and a client/server
environment accessible by customers. Data replication requires coordinating,
updating and reconciling constantly changing databases.
 
     The service provider sought to acquire an integrated package solution that
would be sufficiently flexible to implement data replication across the various
databases and to integrate the required data flows. The packaged solution had to
support a threshold of functionality superior to point-to-point communication
and had to be both fast enough to manage very large numbers of network
transactions and scaleable to support a fast-growing network computing
environment. The customer selected NEONet, including the NEONreplication module,
to provide the requisite platform for data replication and data flow management.
 
     NEONet Messaging and Queuing delivers data from the mainframe database to a
Sybase database on the Sun SPARC Server in real time, and guarantees delivery of
the data, once and only once. NEONet's flexibility simplifies data flows across
the heterogeneous environments, and permits completion and tracking of a high
volume of messages. The Company's proprietary content publish/subscribe
architecture greatly simplifies network transaction management by enabling each
subscriber to receive only the information he wants. Users now access timely
client/server databases (e.g., Sybase running on Sun servers) even though core
processing is still done on the mainframe.
 
     Integrating Acquired Businesses.  A NEON customer achieved significant
growth in recent years through acquisitions. The acquired businesses were of
varying size and geographic location and used a broad range of applications
running on a variety of hardware, operating systems, and databases. Routing data
among the disparate systems was becoming increasingly costly and time-consuming.
The company was devoting significant in-house resources to continually write and
update extract programs in C programming language and to transport the data via
File Transport Programs (FTP), a batch mechanism which did not guarantee
delivery. The company was forced to add staff just to monitor the FTP process.
In addition, because continued acquisitions added different platforms and
applications to the enterprise network, additional employees were hired to write
and maintain that code. The customer chose to implement NEONet across this
environment, integrating applications, hardware, operating systems and
databases, and allowing systems to exchange data with minimal effort. With
NEONet guaranteed delivery, fewer personnel were required to monitor the data
transfer and routing. As the company continues to acquire other companies, those
applications can be integrated seamlessly into the network. Using NEONet, the
company has saved time and money, required fewer staff and less maintenance
programming, allowing the Company's programmers to concentrate on new
development.
 
     Enabling Global Database Replication.  Another NEONet customer is a
multinational bank with worldwide operations. In a typical 24-hour period, the
customer handles thousands of trading transactions. Prior to implementing a
NEONet-enabled solution, the customer processed these transactions through one
central database, resulting in slow response times and frequent interruptions
due to network outages. The customer addressed these bottlenecks by implementing
global data replication, in which multiple, identical databases are maintained
across the globe. This provides remote sites with fast and efficient access to
essential information while limiting the impact on network performance. A
critical requirement of such a system is real-time distribution of data updates
across the system, with guaranteed delivery of data and no duplication.
 
     This customer implemented global data replication across North America,
Europe and Asia using NEONet to ensure reliable communications between the
servers and the central database providing continual
 
                                       34
<PAGE>   37
 
access to current data at remote sites even during network outages. NEONet's
Messaging and Queuing module, together with the Rules Engine module evaluates
the content of each data message according to rules defined by the customer so
that only appropriately selected transactions are to be replicated. The
replicated transactions are converted by the Formatter into SQL update
statements, distributed to each remote database, and executed at the local
databases by NEONet's SQL Apply functionality through the NEONreplication
product. The customer benefited through timely, consistent databases available
on three continents.
 
SALES AND MARKETING
 
     The Company currently markets its software and services primarily through a
direct sales organization, complemented by other sales channels including VARs,
OEMs, and international distributors. As of March 31, 1997, the Company's direct
sales force included 18 commissioned sales representatives located in eight U.S.
cities and London. In addition, the Company has initiated the implementation of
a multi-tiered channel program to recruit, support, and jointly market
comprehensive product solutions. As part of this strategy, the Company has
established distribution relationships with certain strategic hardware vendors,
database providers, software and toolset developers, systems integrators and
implementation consultants, including companies designing software, database
packages, and hardware integration and consulting services. The Company has also
sought to develop alliances with key solutions producers to targeted vertical
industry sectors, including financial services, health care, telecommunications,
and manufacturing. The Company plans to further identify and develop
relationships with additional partners who can complement existing NEON products
and supplement existing NEON product solutions. The Company also utilizes
advertising, direct mail and public relations programs, participates in industry
trade shows and organizes customer information seminars to promote the adoption
and implementation of its application integration technologies.
 
     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 accounted for no revenue to date. The Company is currently investing,
and plans to continue to invest, significant resources for developing the
indirect channels, 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.
 
TECHNOLOGY
 
     NEONet and its extension products and services are primarily targeted at
enabling and facilitating the cooperation and interoperation of multiple
applications of widely differing design and developmental generations. NEONet
operates on a heterogeneous mix of hardware and underlying software platforms,
utilizing existing transaction management capabilities found in the underlying
operating environments.
 
     NEONet's core technologies have been integrated into an enterprise level
information broker architecture that leverages the benefits of individual
modules to deliver the following additional benefits:
 
     - Employs fully anonymous content-based publish-subscribe capabilities,
       with dynamic formatting and exactly once guaranteed delivery to abstract
       the translation and delivery of information across applications.
 
     - Simplifies the intrusion into new or legacy programs needed for such
       programs to interoperate.
 
     - Uses a non-programmatic and declarative rather than procedural definition
       toolset, allowing configuration and maintenance workloads to scale
       comfortably by describing formats for input and output as the number of
       interfaces increases.
 
     - Maintains transaction level reliability and state matching for the
       transmission of critical data.
 
                                       35
<PAGE>   38
 
     - Provides independent scaleability across all modules to service
       information-intensive enterprises.
 
     - Combines implicitly asynchronous architecture and high reliability to
       permit all nodes of a network to operate at enhanced efficiency.
 
     - Operates transparently over the wide range of computing hardware,
       network, and operating software often found in today's information
       technology environments.
 
  Proprietary Technologies
 
     Rules Engine. The Rules Engine combines the ability to support the high
degree of expressiveness and flexibility of a Boolean logic model with
predictable performance, previously available only in significantly less
functional single field evaluation models. In addition, the Rules Engine is
capable of supporting a high number of rules without suffering performance
degradation. The Rules Engine examines the value of any field, or group of
fields found in or derivable from the message using Boolean operators to
determine subsequent actions. Using either the NEON GUI panels, or APIs provided
by the Rules Engine for programmatic rules updates, subscribers can assert rules
that will cause the Rules Engine to select only those instances of messages that
meet their particular needs and specify their format and delivery instructions.
 
     Formatter. Applications exchanging data rarely use the same format even
though the data may have consistent semantic meaning. Existing commercial
reformatter tools, whether script or GUI-based, are typically procedural in
nature, requiring that each conversion from one format to another be
individually coded into the tool. This is particularly true when such
applications are a mix of legacy, purchased, and newly developed applications.
Accomplishing reformatting in the delivery layer frees programmers from having
to manually code all of the transformations. The Formatter uses a declarative
architecture, meaning that format structures and rules themselves are described
during configuration and stored in a format repository. Conversion of one format
to another is derived at execution time by the Formatter. The Formatter can
interpret and build a wide range of fixed, variable, and recursive formats
including proprietary and standard, and can derive as well as transform data
using calculations, tables and exits.
 
     Messaging and Queuing. The Messaging and Queuing module provides a fast,
simple and portable cross-platform guaranteed delivery messaging and queuing
mechanism without the need to poll queues. A program sends a message to another
by simply naming the target and sending it to NEONet. The sending program no
longer needs to be concerned about the recipient's characteristics or even if it
is currently available. The message is queued locally and is a recoverable
component of the sender's transaction, which is then able to continue
processing. A receiving program obtains one or more messages from NEONet as the
messages become available or when the receiving program becomes available. The
receipt of the message then becomes a recoverable component of the receiver's
transaction, and the delivery of messages is guaranteed as to uniqueness and
order.
 
RESEARCH AND DEVELOPMENT
 
     The Company has made substantial investments since inception in research
and development. The Company first introduced NEONet in January 1996, and
introduced next version releases in June, August and December 1996 and March
1997. Each new version of NEONet consisted of substantially rewritten code
providing greater scaleability, higher performance, and greater integration
capabilities.
 
     The Company's research and development efforts are focused primarily on the
extension of NEONet's capabilities, additional hardware, operating system and
network platform support, the development of additional functionality and
libraries for targeted vertical markets, and quality assurance and testing. The
Company's research and development staff is also engaged in advanced development
efforts to exploit the Company's core technology and expand the markets for the
Company's products. These areas include, for example, development of rules-based
programming tools to replace conventional application logic, dynamic generation
of interfaces between existing technology layers, and event-driven workflow
dispatching and routing. The Company has adopted a policy of new product
releases every three months. This provides a means to disseminate additional
functionalities requested by customers as the Company continues to address
 
                                       36
<PAGE>   39
 
specific targeted markets. In addition, the Company believes that this
discipline spurs continual innovation and quality control throughout the
development and quality assurance organizations. As of March 31, 1997, the
Company's research and development staff consisted of 41 persons. The Company's
research and development expenditures in 1995 and 1996 were $1.1 million and
$3.7 million, respectively, and represented 88% and 51% of total revenues,
respectively, during such periods. The Company's research and development
expenses during the first quarter of 1997 were $1.2 million, representing 33% of
total revenues for such period.
 
     Extension Products
 
     Foreign Transport Interface. Building interfaces to other Transport and
Messaging systems (such as IBM's MQSeries), NEON is extending the power of the
anonymous publish-subscribe architecture to users of those systems, and to
additional systems for NEONet users.
 
     NEOCAS Interface and SWIFT Libraries. NEON is developing an interactive
interface to the SWIFT banking and brokerage network using the SWIFT ALLIANCE
gateway, proprietary NEON queuing and message management algorithms and a
library of SWIFT formats pre-packaged in the Company's Formatter. This
significantly reduces implementation time for NEON customers initially
implementing or maintaining SWIFT applications.
 
     NEONworkflow. Using its high performance, scaleable Rules Engine, the
Company is building a complex, event-driven workflow dispatching and routing
system.
 
     NEONremote. Implements NEONet queuing and delivery and Internet transport
(HTTP) capability for Microsoft Windows 95 and Windows for Workgroups.
Additionally, NEONremote facilitates mobile/ disconnected computing applications
and supports resynchronization of data to enterprise databases over local and
wide-area networks and the Internet.
 
     The markets for the Company's products are characterized by rapidly
changing technologies, evolving industry standards, frequent new product
introductions and short product life cycles. As its product families mature, the
Company expects that their gross margins may decline. The Company's future
success will depend to a substantial degree upon its ability to enhance its
existing products and to develop and introduce, on a timely and cost-effective
basis, new products and features that meet changing customer requirements and
emerging and evolving industry standards. The Company budgets for research and
development based on planned product introductions and enhancements; however,
actual expenditures may significantly differ from budgeted expenditures.
Inherent in the product development process are a number of risks. The
development of new, technologically advanced software products is a complex and
uncertain process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends. The introduction of new or
enhanced products also requires the Company to manage the transition from older
products in order to minimize disruption in customer ordering patterns, avoid
excessive levels of older product inventories and ensure that adequate supplies
of new products can be delivered to meet customer demand. There can be no
assurance that the Company will successfully develop, introduce or manage the
transition to new products. The Company has in the past, and may in the future,
experienced delays in the introduction of its products, due to factors internal
and external to the Company. Any future delays in the introduction or shipment
of new or enhanced products, the inability of such products to gain market
acceptance or problems associated with new product transitions could adversely
affect the Company's operating results, particularly on a quarterly basis. See
"Risk Factors -- Rapid Technological Change; Limited Platform Coverage;
Dependence on New Products."
 
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.
 
                                       37
<PAGE>   40
 
     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 sychronization and transaction monitoring, and a
limited number of companies such as TIBCO 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 and may in the future
compete with NEONet.
 
     The Company also faces 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.
 
     The Company believes that the principal competitive factors affecting its
market include product features such as heterogeneous computing platforms,
responsiveness to customer needs, scaleability, adaptability, support of a broad
range of functionality, performance, ease of use, quality, price, and
availability of professional services for product implementation, customer
service and support, effectiveness of sales and marketing efforts, and company
and product reputation. Although the Company believes that it currently competes
favorably with respect to such factors, there can be no assurance that the
Company can maintain its
 
                                       38
<PAGE>   41
 
competitive position against current and potential competitors, especially those
with greater financial, marketing, service, support, technical, and other
resources than the Company.
 
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES
 
     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. 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.
 
     The Company also relies on certain technology which it licenses from third
parties, including software which is integrated with internally developed
software and used in the Company's products to perform key functions. There can
be no assurance that these third party technology licenses will continue to be
available to the Company on commercially reasonable terms. The loss of or
inability of the Company to maintain any of these technology licenses could
result in delays or reductions in product shipments until equivalent technology
could be identified, licensed and integrated. Any such delays or reductions in
product shipments would materially adversely affect the company's business,
operating results and 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 such third parties' proprietary rights. On July 1, 1996, the Company
was notified that the Company's products may infringe the proprietary rights of
New Paradigm, an application integration software company. New Paradigm alleged
that NeoNet's Formatter module 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, and the Company has
recently become aware that a competitor may be contemplating asserting a patent
infringement claim against the Company. 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.
 
                                       39
<PAGE>   42
 
     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 that 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 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 results of operations.
 
EMPLOYEES
 
     As of March 31, 1997, the Company employed 133 persons, including 66 in
sales, marketing and field operations, 41 in research and development, 15 in
finance and administration and 11 in client services. Of these, one is located
in the United Kingdom, and the remainder are located in the United States. None
of the Company's employees are represented by a labor union. The Company has
experienced no work stoppages and believes its relationship with its employees
is good. Competition for qualified personnel in the Company's industry is
intense.
 
     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, operating results and financial condition. In
particular, the services of George F. (Rick) Adam, Jr., Chief Executive Officer,
Harold Piskiel, Senior Vice President, Chief Technical Officer, or Robert I.
Theis, Senior Vice President of Marketing, would be difficult to replace. 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 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. See "Management."
 
FACILITIES
 
     The Company's principal administrative, engineering, manufacturing,
marketing and sales facilities total approximately 21,259 square feet, and are
located in two buildings in Englewood, Colorado under subleases which begin to
expire in December 1999. In addition, the Company leases offices in the
metropolitan area of New York. Management believes that its current facilities
are adequate to meet its needs through the next twelve months, and that, if
required, suitable additional space will be available to accommodate expansion
of the Company's operations on commercially reasonable terms.
 
LEGAL PROCEEDINGS
 
     As of the date hereof, there is no material litigation against the Company.
From time to time, the Company is a party to litigation and claims incident to
the ordinary course of business. While the results of litigation and claims
cannot be predicted with certainty, the Company believes that the final outcome
of such matters will not have a material adverse effect on the Company's
business, financial condition and operating results.
 
                                       40
<PAGE>   43
 
                                   MANAGEMENT
 
     The executive officers and directors of the Company and certain information
about them are as follows:
 
<TABLE>
<CAPTION>
                   NAME                     AGE                    POSITION
                   ----                     ---                    --------
<S>                                         <C>   <C>
George F. (Rick) Adam, Jr.(1).............  50    Chairman of the Board, Chief Executive
                                                  Officer, President and Director
Harold A. Piskiel(2)......................  50    Senior Vice President, Chief Technical
                                                  Officer and Director
Stephen E. Webb...........................  48    Senior Vice President and Chief Financial
                                                  Officer
Robert I. Theis...........................  35    Senior Vice President of Marketing
Frederick T. Horn.........................  43    Senior Vice President of Product
                                                  Development and Client Services
Leonard M. Goldstein......................  50    Senior Vice President, Senior Counsel and
                                                  Secretary
Kevin Scully..............................  43    Senior Vice President of Sales and Field
                                                  Operations, Financial Services
Frank A. Russo, Jr........................  52    Senior Vice President of Sales and Field
                                                  Operations, Eastern Region
Evan G. Westenskow........................  49    Senior Vice President of Sales and Field
                                                  Operations, Western Region
Peter Hoversten...........................  42    Senior Vice President, Application
                                                  Development and Field Operations
Michael E. Jaroch.........................  52    Senior Vice President of Human Resources
James C. Parks............................  53    Vice President of Finance and Controller
Steve Lazarus(a)(b)(1)....................  65    Director
Mark L. Gordon(a)(3)......................  45    Director
James Reep(b)(2)..........................  45    Director
</TABLE>
 
- ---------------
 
(a) Member of Compensation Committee.
 
(b) Member of Audit Committee.
 
(1) Mr. Adam and Mr. Lazarus are Class I Directors and will stand for
    re-election at the third annual meeting of the stockholders held after the
    Offering.
 
(2) Mr. Piskiel and Mr. Reep are Class II Directors and will stand for
    re-election at the second annual meeting of the stockholders held after the
    Offering.
 
(3) Mr. Gordon is a Class III Director and will stand for re-election at the
    first annual meeting of the stockholders held after the Offering.
 
     Mr. Adam has served as Chairman of the Board, Chief Executive Officer,
President and a Director of the Company since founding the Company in June 1993.
From 1987 to 1993, Mr. Adam was General Partner of Goldman, Sachs & Co. and
served as the Chief Information Technology Officer. From 1980 to 1987, Mr. Adam
was Chief Information Officer and Vice President of Personnel for Baxter Health
Care Corporation. Mr. Adam received a B.S. degree from the U.S. Military
Academy, West Point, New York and an M.B.A. from Florida State University.
 
     Mr. Piskiel has served as Senior Vice President, Chief Technical Officer
and a Director of the Company since joining the Company in March 1995. From 1993
to 1995, Mr. Piskiel served as the Chief Architect and Project Manager for the
Information Technology Division of Merrill Lynch & Co. From 1984 to 1993, Mr.
Piskiel served as Vice President of Data Administration and Distribution
Architecture at Goldman, Sachs & Co. Mr. Piskiel holds a B.A. degree from Long
Island University.
 
                                       41
<PAGE>   44
 
     Mr. Webb has served as Senior Vice President and Chief Financial Officer of
the Company since joining the Company in December 1996. Prior to December 1996,
Mr. Webb served as the Executive Vice President and Chief Financial Officer of
Telectronics Pacing Systems, Inc., an international manufacturer and distributor
of implantable electronic cardiac devices, from April 1994 to December 1996.
Prior to working at Telectronics Pacing Systems, Inc., Mr. Webb spent seventeen
years with Hewlett-Packard Company, most recently as controller of the HP
Software Business Unit. Mr. Webb holds a B.A. from Stanford University and an
M.B.A. degree from the Harvard Graduate School of Business.
 
     Mr. Theis has served as Senior Vice President of Marketing since joining
the Company in October 1996. Prior to joining the Company, Mr. Theis served as
Managing Director of the Worldwide Financial Services Industry Group of Sun
Microsystems, Inc. from April 1986 to October 1996. Prior to joining Sun
Microsystems, Mr. Theis served as the workstation program manager for Silicon
Graphics. Mr. Theis received a B.S. degree from the University of Pittsburgh,
Pennsylvania.
 
     Mr. Horn has served as Senior Vice President of Product Development and
Client Services since joining the Company in July 1996. From January 1994 to
July 1996, Mr. Horn was a partner with Ernst & Young, LLP in the Management
Consulting Group, where he specialized in financial industry consulting. From
February 1992 through December 1993, Mr. Horn was a Managing Director of SHL
Systemhouse, a software services firm. Prior to joining SHL Systemhouse, Mr.
Horn served as a Vice President of Goldman, Sachs & Co. Mr. Horn received his
B.A. degree from Northwestern University.
 
     Mr. Goldstein has served as Senior Vice President, Senior Counsel and
Secretary since joining the Company in July 1996. From 1976 to July 1996, Mr.
Goldstein practiced law privately with the firm of Feder, Morris, Tamblyn and
Goldstein, for which firm he served as Managing Partner and President. Mr.
Goldstein holds a B.A. degree from American University and a J.D. degree from
the State University of New York at Buffalo School of Law.
 
     Mr. Scully joined the Company in January 1996 as Senior Vice President of
Sales and Field Operations, Financial Services. From February 1994 to January
1996, Mr. Scully served as a Vice President in charge of Global Information
Technology, for all of the trading groups of J.P. Morgan & Co. From January 1992
to December 1994, Mr. Scully served as a Director of the Fixed Income Trading
Department at CS First Boston. Prior to CS First Boston, Mr. Scully was the
global Chief Information Officer and Senior Vice President for Sumitomo Bank
Capital Markets division of Sumitomo Bank. Mr. Scully holds a B.S. degree from
Marietta College.
 
     Mr. Russo has served as Senior Vice President of Sales and Field
Operations, Eastern Region since joining the Company in March 1996. Prior to
March 1996, Mr. Russo served as the President and Chief Executive Officer of
Strategic Marketing Information, Inc. From 1989 to 1991, Mr. Russo served as
President of Spectrum Healthcare Solutions. From 1987 through 1989, Mr. Russo
served as President of Baxter-Travenol's Systems Division. Mr. Russo holds
B.B.A. and M.B.A. degrees from Adelphi University.
 
     Mr. Westenskow has served as Senior Vice President of Sales and Field
Operations, Western Region since joining the Company in March 1996. From
September 1994 to March 1996, Mr. Westenskow served as Vice President of Sales
for MIACO, a consulting and training company specializing in relational
databases. From May 1991 to May 1994, Mr. Westenskow served as the Vice
President of Field Operations at ASK Group, a database and manufacturing
software company. Prior to joining ASK Group, Mr. Westenskow held a variety of
sales management positions at Hewlett-Packard Company, most recently as area
sales manager. Mr. Westenskow holds a B.S. degree from University of Utah.
 
     Mr. Hoversten has served as Senior Vice President, Application Development
and Field Operations since May 1, 1997. From January 1989 to March 1997, Mr.
Hoversten served as a Vice President of Technology at Goldman Sachs & Co. Mr.
Hoversten holds a B.S. degree from the University of Pennsylvania.
 
     Mr. Jaroch has served as Senior Vice President of Human Resources since he
joined the Company in April 1996. From 1995 to 1996, Mr. Jaroch served as Senior
Consultant to Intersource Executive Search, an executive recruiting firm. From
1990 to 1995, Mr. Jaroch served as the Senior Human Resources Administra-
 
                                       42
<PAGE>   45
 
tor for Lockheed Aeronautical Systems Company. Mr. Jaroch received a B.S. degree
from Northern Illinois University and an M.B.A. degree from the Lake Forest
Graduate School of Business.
 
     Mr. Parks has served as Vice President of Finance and Controller of the
Company since joining the Company in January 1996. From 1984 through January
1996, Mr. Parks consulted for various start-up technology companies in the roles
of Chief Financial Officer and Controller. Prior to 1984, Mr. Parks served as a
Manager of Arthur Andersen in Denver, Colorado. Mr. Parks holds a B.A. degree
from University of Northern Colorado and an M.B.A. degree from the University of
Denver, Colorado.
 
     Mr. Lazarus has served as a Director of the Company since April 1995. Since
1986, Mr. Lazarus has served as a senior principal of various venture capital
funds associated with ARCH Venture, including President and Chief Executive
Officer of ARCH Development Corporation and Managing Director of ARCH Venture
Partners. From 1986 to 1994, Mr. Lazarus served as the Associate Dean of the
Graduate School of Business of the University of Chicago. He currently serves as
a director of Amgen, Primark and Illinois Superconductor. Mr. Lazarus holds a
B.A. degree from Dartmouth College and an M.B.A. degree from the Harvard
Graduate School of Business.
 
     Mr. Gordon has served as a Director of the Company since the Company's
inception. Since 1980, Mr. Gordon has been a partner in the law firm of Gordon &
Glickson PC, directing the firm's information communications and computer
technology practice. Mr. Gordon holds a B.A. degree from the University of
Michigan and a J.D. degree from the Northwestern University School of Law.
 
     Mr. Reep has served as a Director of the Company since March 1996. Since
1980, Mr. Reep has served as Chairman and Director of First Consulting Group, an
information consulting firm specializing in health care systems that he
co-founded. Mr. Reep holds a B.S. degree from California State University at
Long Beach and an M.B.A. degree from the University of Chicago.
 
     The Company's Amended and Restated Bylaws (the "Bylaws"), as amended,
effective upon the completion of the Offering, provide for five directors
divided into three classes. The initial term of Class III directors is through
the first annual meeting of stockholders following the Offering, the initial
term of Class II directors is through the second annual meeting of stockholders
following the Offering, and the initial term of Class I directors is through the
third annual meeting of stockholders following the Offering, and the subsequent
terms for directors of each class is three years, in each case until their
successors have been elected and qualified. Officers serve at the discretion of
the Board. There are no familial relationships among any of the directors or
officers of the Company.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
     The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee makes recommendations to the Board concerning
salaries and incentive compensation for the Company's officers and employees and
administers the Company's incentive plans. The Audit Committee reviews the
results and scope of the audit and other accounting related services and reviews
and evaluates the Company's internal audit and control functions.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     The Compensation Committee of the Board of Directors currently consists of
Messrs. Lazarus and Gordon, neither of whom is an officer or employee of the
Company. No member of the Compensation Committee or executive officer of the
Company has a relationship that would constitute an interlocking relationship
with executive officers or directors of another entity.
 
DIRECTOR COMPENSATION
 
     With the exception of Mr. Gordon, directors receive no cash remuneration
for serving on the Board. Non-employee directors are entitled to participate in
the Company's 1997 Director Option Plan. See "Management -- Employee Benefit
Plans -- 1997 Director Stock Option Plan." Mr. Gordon is currently paid a yearly
stipend of $10,000 for serving as a director.
 
                                       43
<PAGE>   46
 
EXECUTIVE COMPENSATION
 
     The following table sets forth the compensation paid by the Company during
the fiscal year ended December 31, 1996 to the Company's Chief Executive Officer
and each of the Company's four other most highly compensated executive officers
who were serving as executive officers at the end of the 1996 fiscal year
(collectively, the "Named Executive Officers").
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                              LONG-TERM
                                                        ANNUAL           COMPENSATION AWARDS
                                                    COMPENSATION(1)     ---------------------
                                        FISCAL    -------------------   SECURITIES UNDERLYING
     NAME AND PRINCIPAL POSITION         YEAR      SALARY    BONUS(2)          OPTIONS
     ---------------------------        ------    --------   --------   ---------------------
<S>                                     <C>       <C>        <C>        <C>
George F. (Rick) Adam, Jr.............   1996     $140,000   $40,000                 --
  Chairman of the Board, Chief
  Executive Officer, President and
  Director
Harold A. Piskiel.....................   1996      140,000        --             26,666
  Senior Vice President, Chief
  Technical Officer and Director
Kevin Scully..........................   1996      182,290        --             57,064
  Senior Vice President of Sales and
  Field Operations, Financial Services
Frank A. Russo, Jr....................   1996      118,921        --             46,932
  Senior Vice President of Sales and
  Field Operations, Eastern Region
Evan G. Westenskow....................   1996      105,912        --             48,531
  Senior Vice President of Sales and
  Field Operations, Western Region
</TABLE>
 
- ---------------
 
(1) These amounts reflect salary and bonus paid for the full fiscal year 1996.
    Excludes certain perquisites and other personal benefits, such as life
    insurance premiums paid by the Company. In the case of Kevin Scully, Frank
    A. Russo, Jr., and Evan G. Westenskow, salary includes commissions earned in
    1996.
 
(2) Includes bonus amounts earned in the first fiscal year indicated even though
    such bonus amounts may be paid in a subsequent fiscal year.
 
                                       44
<PAGE>   47
 
  Option Grants and Exercises in Last Fiscal Year
 
     The following tables set forth information regarding stock options granted
to and exercised by the Named Executive Officers during the last fiscal year, as
well as options held by such officers as of December 31, 1996.
 
                       OPTION GRANTS IN LAST FISCAL YEAR
 
<TABLE>
<CAPTION>
                                                                                                  POTENTIAL
                                                   INDIVIDUAL GRANTS(1)                       REALIZABLE VALUE
                               ------------------------------------------------------------      AT ASSUMED
                                                    PERCENT OF                                 ANNUAL RATES OF
                                                      TOTAL                                      STOCK PRICE
                                   NUMBER OF         OPTIONS                                  APPRECIATION FOR
                                  SECURITIES        GRANTED TO      EXERCISE                   OPTION TERM(2)
                                  UNDERLYING       EMPLOYEES IN      PRICE       EXPIRATION   -----------------
            NAME               OPTION GRANTED(#)   FISCAL YEAR    ($/SECURITY)      DATE        5%        10%
            ----               -----------------   ------------   ------------   ----------   -------   -------
<S>                            <C>                 <C>            <C>            <C>          <C>       <C>
George F. (Rick) Adam, Jr....            --              --             --          --             --        --
Harold A. Piskiel............        20,000            2.4%          $2.25         3/15/01     12,434    27,473
                                      6,666              --           9.00        12/20/01     16,576    36,626
Kevin Scully(3)..............        46,666             5.1           2.25         1/08/01     29,011    64,102
                                      2,086              --           2.25         5/31/01      1,297     2,865
                                        967              --           7.25         7/31/01      1,937     4,280
                                      1,242              --           7.25         8/31/01      2,488     5,497
                                      1,570              --           7.25         9/30/01      3,145     6,949
                                      1,600              --           7.25        10/31/01      3,205     7,082
                                        533              --           7.25        11/30/01      1,068     2,359
                                      2,400              --           9.00        12/31/01      5,968    13,187
Frank A. Russo, Jr.(3).......        46,666             4.2           2.25         3/01/01     29,011    64,102
                                        266              --           7.25         9/30/01        533     1,177
Evan G. Westenskow(3)........        46,666             4.3           2.25         3/25/01     29,011    64,102
                                        455              --           7.25         8/31/01        911     2,014
                                         77              --           7.25         9/30/01        154       341
                                        533              --           7.25        11/30/01      1,068     2,359
                                        800              --           9.00        12/31/01      1,989     4,396
</TABLE>
 
- ---------------
 
(1) Each of these options was granted pursuant to the Company's 1995 Stock
    Option Plan and is subject to the terms of such plan as described herein.
 
(2) In accordance with the rules of the Securities and Exchange Commission (the
    "Commission"), shown are the hypothetical gains or "options spreads" that
    would exist for the respective options. These gains are based on assumed
    rates of annual compounded stock price appreciation of 5% and 10% from the
    date the option was granted over the full option term. The 5% and 10%
    assumed rates of appreciation are mandated by the rules of the Commission
    and do not represent the Company's estimate or projection of future
    increases in the price of its Common Stock.
 
                                       45
<PAGE>   48
 
                 AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES
 
<TABLE>
<CAPTION>
                                                            NUMBER OF UNEXERCISED         VALUE OF UNEXERCISED
                                                           OPTIONS AT FISCAL YEAR-        IN-THE-MONEY OPTIONS
                                  SHARES                            END:                 AT FISCAL YEAR-END(1):
                                 ACQUIRED      VALUE     ---------------------------   ---------------------------
             NAME               ON EXERCISE   REALIZED   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
             ----               -----------   --------   -----------   -------------   -----------   -------------
<S>                             <C>           <C>        <C>           <C>             <C>           <C>
George F. (Rick) Adam, Jr.....         --          --          --             --              --              --
Harold A. Piskiel.............         --          --       7,777         65,555         $52,495      $  397,500
Kevin Scully(2)...............         --          --      10,398         46,666          24,459         315,000
Frank A. Russo, Jr.(2)........         --          --         266         46,666             468         315,000
Evan G. Westenskow(2).........         --          --       1,865         46,666           1,871         315,000
</TABLE>
 
- ---------------
 
(1) Based upon the estimated fair market value of Common Stock as of December
    31, 1996 ($9.00), minus the per share exercise price, multiplied by the
    number of shares underlying the option. Except as referred below, options
    granted pursuant to the Company's 1995 Stock Option Plan vest according to
    the following schedule: one-sixth upon the expiration of one year from the
    date of grant; one-third upon the expiration of the second year from the
    date of grant; one-half upon the expiration of the third year from the date
    of grant. Certain options granted upon the attainment of certain sales
    targets are fully vested upon the date of grant.
 
(2) Includes 10,398 options for Kevin Scully, 266 options for Frank A. Russo,
    Jr., and 1,865 options for Evan G. Westenskow, all of which options were
    fully vested upon the date of grant. The Company grants fully vested options
    to members of the sales force upon the achievement of certain revenue
    targets.
 
EMPLOYEE BENEFIT PLANS
 
1995 Stock Option Plan.
 
     The Company's Amended and Restated 1995 Stock Option Plan (the "1995 Stock
Option Plan") was adopted in 1995, amended in 1996 and amended and restated in
January 1997. The 1995 Stock Option Plan provides for the grant to employees of
the Company (including officers and employee directors) of incentive stock
options and stock purchase rights ("SPRs") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and for the grant of
nonstatutory stock options to employees and consultants of the Company. The 1995
Stock Option Plan is administered by the Board of Directors or a committee
designated by the Board of Directors (the "Administrator"), which selects the
optionees, determines the number of shares to be subject to each option and
determines the exercise price of each option. An aggregate of 2,333,333 shares
of Common Stock are reserved for issuance under the 1995 Stock Option Plan, of
which, as of March 31, 1997, options to purchase an aggregate of 1,353,712
shares were outstanding and an aggregate of 941,925 shares remained available
for future grants. The exercise price of all incentive stock options granted
under the 1995 Stock Option Plan must be at least equal to the fair market value
of the Common Stock on the date of grant. The exercise price of all nonstatutory
stock options granted under the 1995 Stock Option Plan shall be determined by
the Administrator. With respect to any participant who owns stock possessing
more than 10% of the voting power of all classes of stock of the Company, the
exercise price of any incentive stock option granted must equal at least 110% of
the fair market value on the grant date and the maximum term of the option must
not exceed five years. The term of all other options granted under the 1995
Stock Option Plan may not exceed ten years.
 
     In the event of a Change in Control of the Company, as defined in the 1995
Stock Option Plan, all outstanding options granted under the plan prior to
December 31, 1996 shall become vested and exercisable in full and shall be
assumed or an equivalent option substituted by the successor corporation; if the
successor corporation refuses to assume or substitute for such options, then
such options shall be exercisable in full for a period of fifteen days after
notice from the Administrator, and shall thereafter terminate. With respect to
options granted on or after January 1, 1997, upon any Change in Control each
such option shall be assumed or an equivalent option substituted by the
successor corporation or, if the successor corporation refuses to assume or
substitute for the outstanding options, such options will become fully vested
and exercisable for a period of fifteen days after notice from the
Administrator, and shall thereafter terminate; in addition, each holder of an
option granted under the plan on or after January 1, 1997 and assumed or
substituted upon a change in control
 
                                       46
<PAGE>   49
 
shall be entitled to an additional twelve months of vesting following any
involuntary termination of the optionee's employment with the successor
corporation within twelve months following the Change in Control. Unless
terminated sooner, the 1995 Stock Option Plan will terminate ten years from its
effective date. The Board has authority to amend or terminate the 1995 Stock
Option Plan, provided that no such action may impair the rights of the holder of
any outstanding options without the written consent of such holder.
 
     Options and SPRs granted under the 1995 Plan are not generally transferable
by the optionee except by will or by the laws of descent and distribution, and
are exercisable during the lifetime of the optionee only by such optionee.
Generally, options granted under the 1995 Plan must be exercised within thirty
days of the end of an optionee's status as an employee or consultant of the
Company, or within twelve months after such optionee's termination by death or
disability, but in no event later than the expiration of the option term. In the
case of SPRs, unless the Administrator determines otherwise, the Company will
have a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment with the Company for any reason
(including death or disability). Such repurchase option lapses at a rate
determined by the Administrator. The purchase price for shares repurchased by
the Company will be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company.
 
1997 Employee Stock Purchase Plan.
 
     The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted in January 1997 and will become effective upon the closing of the
Offering. A total of 216,666 shares of Common Stock has been reserved for
issuance under the Purchase Plan. The Purchase Plan is intended to qualify under
Section 423 of the Code. Offering periods may be up to 24 months in duration and
may include several purchase periods as determined by the Board. The initial
offering period will commence on the date of the Offering and end on the last
business day on or prior to August 15, 1997, and subsequent offering periods are
initially expected to end on February 15 and August 15 of each year. Employees
are eligible to participate if they are regularly employed by the Company for at
least twenty hours per week and more than five months in any calendar year.
 
     The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 10% of an employee's eligible
compensation (20% in the first offering period), including base salary,
commissions, bonuses, overtime and other cash compensation, at a price equal to
85% of the fair market value of the Common Stock at the beginning of each
offering period or the purchase date, whichever is lower. In the event of
certain changes in control of the Company, the Purchase Plan provides that the
Board of Directors will shorten the offering period by setting a new purchase
date to occur before the change in control event. Unless terminated sooner, the
Purchase Plan will terminate ten years after its effective date. The Board of
Directors has the authority to amend or terminate the Purchase Plan provided
that no such action adversely affects the rights of any participant.
 
1997 Director Option Plan
 
     The Board of Directors adopted the 1997 Director Option Plan (the "Director
Plan") in January 1997 to provide for the automatic grant to non-employee
directors of the Company of options to purchase shares of Common Stock. The
Director Plan is administered by the Board, unless the Board delegates
administration to a committee. An aggregate of 100,000 shares of Common Stock
has been reserved for issuance under the Director Plan, subject to adjustment in
the event of certain capital changes. Each non-employee director who first
becomes a director after the effective date of the Offering shall automatically
be granted an option to purchase 16,666 shares on the date on which such person
first becomes a non-employee director. In addition, each non-employee director
shall be automatically granted an option to purchase 5,000 shares each year
commencing on the day after the annual stockholder meeting. Options granted
under the Director Plan expire ten years after the date of grant and have an
exercise price equal to 100% of the fair market value of the Common Stock on the
date of grant. Initial options granted under the Director Plan shall become
exercisable cumulatively after three years as to one-third of the shares subject
to the option on each anniversary of the grant date, provided the optionee
continues to serve as a director. Each annual grant under the Director Plan
shall become exercisable in full on the third anniversary of the grant date,
provided the optionee continues to
 
                                       47
<PAGE>   50
 
serve as a director. In the event of any Change in Control of the Company, as
defined in the Director Plan, outstanding options under the Director Plan must
be assumed (or an equivalent option substituted) by the successor corporation,
or the options shall become exercisable in full for at least 15 days after
notice by the Company. In addition, if within one year following such a Change
in Control a director shall involuntarily cease to be a director, the director
shall be entitled to option vesting through the date of termination as a
director plus one additional year thereafter.
 
     Prior to the adoption of the Director Plan, the directors of the Company
received the following grants under the 1995 Stock Option Plan; Mark Gordon was
granted options to purchase an aggregate of 13,333 shares of Common Stock at an
exercise price of $2.25 per share, of which 2,222 shares were vested at March
31, 1997; and James Reep was granted options to purchase an aggregate of 13,333
shares of Common Stock of at an exercise price of $2.25 per share, of which
2,222 shares were vested at March 31, 1997.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
 
     The Company's Bylaws provide that the Company shall indemnify its officers
and directors, and may indemnify its employees and other agents to the fullest
extent provided by Delaware law. The Company has obtained director and officer
liability insurance with respect to certain matters, including matters arising
under the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers, and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. At present,
there is no pending litigation or proceeding involving any director or officer,
employee or agent of the Company in which indemnification will be required or
permitted. The Company is not aware of any threatened litigation or proceeding
which may result in a claim for such indemnification.
 
                                       48
<PAGE>   51
 
                              CERTAIN TRANSACTIONS
 
     Since the Company's inception in June 1993, the Company has issued, in
private placement transactions, shares of its Preferred Stock as follows: an
aggregate of 9,169,028 shares of Series A Preferred Stock (2,037,562 shares of
Common Stock issuable upon conversion thereof) for aggregate consideration of
$2.0 million in May 1995; 6,183,339 shares of Series B Preferred Stock
(1,374,075 shares of Common Stock issuable upon conversion thereof) for
aggregate consideration of approximately $1.9 million in September 1995; and
4,664,596 shares of Series C Preferred Stock (1,036,577 shares of Common Stock
issuable upon conversion thereof) for aggregate consideration of approximately
$7.5 million in June 1996. All such Preferred Stock will convert into an
aggregate of 4,448,214 shares of Common Stock upon the completion of this
Offering. The following table summarizes the shares of Preferred Stock purchased
by executive officers, directors and five percent stockholders of the Company
and persons associated with them:
 
<TABLE>
<CAPTION>
                                     SERIES A          SERIES B          SERIES C        TOTAL SHARES
            INVESTOR              PREFERRED STOCK   PREFERRED STOCK   PREFERRED STOCK   AS CONVERTED(1)
            --------              ---------------   ---------------   ---------------   ---------------
<S>                               <C>               <C>               <C>               <C>
ARCH Venture Fund II, L.P.(2)...     2,292,257         1,236,668           745,342           949,836
George F. (Rick) Adam, Jr.......     6,876,771                --                --         1,528,171
Venrock Associates(3)...........            --         4,478,386         1,204,969         1,262,966
Terence J. Garnett..............            --           468,285            37,267           112,345
Merrill Lynch Group, Inc........            --                --         1,863,354           414,079
The Hamilton Companies,
  LLC(5)........................            --                --           813,664           180,814
</TABLE>
 
- ---------------
 
(1) Upon the closing of the Offering, each share of the Company's Series A
     Preferred, Series B Preferred, and Series C Preferred Stock will be
     converted into shares of Common Stock at a two-for-nine conversion ratio.
 
(2) ARCH Venture Fund II, L.P. is a limited partnership managed by ARCH
     Management Partners II, L.P. ARCH Venture Partners, L.P. is the general
     partner of Arch Management Partners II, L.P. Steve Lazarus, a director of
     the Company, is a general partner of ARCH Venture Partners, L.P. and
     exercises voting control over the shares beneficially owned by ARCH Venture
     Fund II, L.P.
 
(3) Includes 3,080,714 shares of Series B Preferred Stock and 747,081 of Series
     C Preferred Stock held by Venrock Associates, are 1,397,672 shares of
     Series B Preferred Stock and 457,888 shares of Series C Preferred Stock
     held by Venrock Associates II, L.P.
 
     The shares of Common Stock issuable upon conversion of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are
entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights."
 
     In March 1995, the Company issued 133,333 shares of Common Stock to Mr.
Piskiel in exchange for an aggregate consideration of $18,000.
 
     Mr. Adam is the owner of Air America LLC, a private air charter company
that has provided service to the Company. Total expenses for services rendered
by Air America LLC to the Company were $84,506 in 1995. No services in excess of
$60,000 were provided by Air America LLC to the Company in 1996.
 
     In January 1994, the Company entered into a revolving credit line with Mr.
Adam providing for borrowings by the Company of up to $1.0 million. The
outstanding indebtedness of $1.0 million under this credit line was repaid in
May 1995 in connection with the Company's Series A Preferred Stock financing;
Mr. Adam purchased a total of 6,876,771 shares of Series A Preferred Stock in
exchange for cancellation of the $1.0 million of indebtedness, payment by Mr.
Adam of $500,000 in cash and surrender by Mr. Adam of a total of 1,018,781
shares of Common Stock.
 
     The Company is party to a royalty agreement with Merrill Lynch under which
the Company is obligated to pay royalties to Merrill Lynch on net revenues from
licenses of NEONet, up to a total of $1.9 million. the royalty rate was 30%
through 1996 and was revised to 10% in January 1997. Merrill Lynch is a
stockholder of the Company. In addition, Merrill Lynch is a licensee of the
Company's NEONet products.
 
                                       49
<PAGE>   52
 
     The Company has granted options to certain of its directors and executive
officers. See "Management -- Option Grants in Last Fiscal Year," "-- Employee
Benefit Plans -- 1997 Director Option Plan" and "Principal Stockholders."
 
     The Company intends to enter into indemnification agreements with each of
its officers and directors upon the effectiveness of this Offering. See
"Management -- Limitation of Liability and Indemnification Matters."
 
     Mark L. Gordon, a director of the Company, is a partner at Gordon &
Glickson, a law firm that has provided legal services for the Company. During
1995 and 1996, the total amounts paid to Gordon & Glickson by the Company for
services performed was $78,766 and $198,932, respectively.
 
     The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
affiliated third parties. All future transactions, including loans, between the
Company and its officers, directors, principal stockholders and their affiliates
will be approved by a majority of the Board of Directors, including a majority
of the independent and disinterested directors, and will continue to be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties.
 
                                       50
<PAGE>   53
 
                             PRINCIPAL STOCKHOLDERS
 
     The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 31, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person (or group of affiliated persons) who is known by the Company to
own beneficially 5% or more of the Company's Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers, and (iv) all
directors and officers as a group. Except as indicated in the footnotes to the
table, the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable.
 
   
<TABLE>
<CAPTION>
                                                                                     PERCENTAGE OF
                                                                                      TOTAL (1)(2)
                                                                                 ----------------------
        DIRECTORS, NAMED EXECUTIVE OFFICERS             NUMBER OF SHARES          BEFORE        AFTER
                AND 5% STOCKHOLDERS                  BENEFICIALLY OWNED (1)      OFFERING      OFFERING
        -----------------------------------          ----------------------      --------      --------
<S>                                                  <C>                         <C>           <C>
George F. (Rick) Adam, Jr. (2).....................         2,749,389             47.1 %        32.0 %
  c/o NEON, Inc.
  7400 East Orchard Road, Suite 230
  Englewood, CO 80111
Harold A. Piskiel (3)..............................           144,443             2.5           1.7
Venrock Associates(4)..............................           850,621             14.6          9.9
Venrock Associates II, LP (4)......................           412,345             7.1           4.8
  c/o 30 Rockefeller Plaza
  Room 5508
  New York, NY 10112
ARCH Venture Fund II, L.P. (5).....................           949,836             16.3          11.0
  c/o 135 S. LaSalle Street, Suite 3702
  Chicago, IL 60603
Merrill Lynch Group, Inc. (6)......................           414,078             7.1           4.8
  c/o Merrill Lynch Group, Inc.
  World Financial Center, North Tower
  New York, NY 10281
Kevin Scully (7)...................................            29,107              *             *
Frank A. Russo, Jr. (8)............................             9,109              *             *
Evan G. Westenskow (9).............................            11,508              *             *
Steve Lazarus (10).................................           949,836             16.3          11.0
Mark L. Gordon (11)................................             2,222              *             *
James Reep (11)....................................             2,222              *             *
All directors and executive officers
  as a group (14 people) (12)......................         3,933,389             66.2 %        45.2 %
</TABLE>
    
 
- ---------------
 
  *  Less than 1%.
 
   
 (1) Assumes no exercise of the Underwriters' over-allotment option. Beneficial
     ownership is determined in accordance with the rules of the Securities and
     Exchange Commission. In computing the number of shares beneficially owned
     by a person and the percentage ownership of that person, shares of Common
     Stock subject to options held by that person that are currently exercisable
     or exercisable within 60 days of March 31, 1997 are deemed outstanding.
     Such shares, however, are not deemed outstanding for the purposes of
     computing the percentage ownership of each other person. Except as
     indicated in the footnotes to this table and pursuant to applicable
     community property laws, each stockholder named in the table has sole
     voting and investment power with respect to the shares set forth opposite
     such stockholder's name. Percentage of ownership is based on 5,840,461
     shares of Common Stock outstanding on March 31, 1997 and 8,600,461 shares
     of Common Stock outstanding after completion of the Offering. Share
     ownership gives effect to the automatic conversion of all outstanding
     shares of Preferred Stock into Common Stock upon completion of the
     Offering.
    
 
                                       51
<PAGE>   54
 
   
 (2) Includes 40,991 shares of Common Stock held in the name of Adam's
     Investments I, LLLP, George F. Adam, III; 40,991 shares of Common Stock
     held in the name of Adam's Investments II, LLLP, John C. Adam; 15,302
     shares held in the name of Adam's Investments III, LLLP, George F. Adam,
     Jr., Trustee for Gregory S. Adam; and 15,302 shares of Common Stock held in
     the name of Adam's Investments IV, LLLP, George F. Adam, Jr., Trustee for
     Rebecca Adam.
    
 
 (3) Includes 11,110 shares of Common Stock issuable upon exercise of stock
     options that are exercisable within 60 days of the Offering.
 
 (4) Includes 850,621 shares of Common Stock issuable upon conversion of
     3,827,795 shares of Preferred Stock held by Venrock Associates, L.P. and
     412,345 shares of Common Stock issuable upon conversion of 1,855,560 shares
     of Preferred Stock held by Venrock Associates II, L.P.
 
 (5) Includes 949,836 shares of Common Stock issuable upon conversion of
     4,274,267 shares of Preferred Stock held by ARCH Venture Fund II, L.P., of
     which Steven Lazarus exercises voting control.
 
 (6) Includes 414,078 shares of Common Stock issuable upon conversion of
     1,863,354 shares of Preferred Stock held by Merrill Lynch Group, Inc., a
     wholly owned subsidiary of Merrill Lynch.
 
 (7) Consists of 29,107 shares of Common Stock issuable upon the exercise of
     stock options exercisable within 60 days of the Offering.
 
 (8) Consists of 9,109 shares issuable upon the exercise of stock options
     exercisable within 60 days of the Offering.
 
 (9) Consists of 11,508 shares of Common Stock issuable upon the exercise of
     stock options exercisable within 60 days of the Offering.
 
(10) Consists of 949,836 shares held by ARCH Venture Fund II, L.P., as to which
     Mr. Lazarus disclaims beneficial ownership, except to the extent of his
     pecuniary interest therein.
 
(11) Consists of 2,222 shares of Common Stock issuable upon the exercise of
     stock options exercisable within 60 days of the Offering.
 
(12) Includes an aggregate of 97,498 shares of Common Stock issuable upon
     exercise of stock options exercisable within 60 days of the Offering.
 
                                       52
<PAGE>   55
 
                          DESCRIPTION OF CAPITAL STOCK
 
     Effective upon completion of the Offering, the authorized capital stock of
the Company shall consist of 45,000,000 shares of Common Stock, $0.0001 par
value per share, and 2,000,000 shares of Preferred Stock, $0.0001 par value per
share.
 
COMMON STOCK
 
     As of March 31, 1997, there were 5,840,461 shares of Common Stock
outstanding held of record by 21 stockholders (assuming the conversion of all
outstanding shares of Preferred Stock into Common Stock upon the closing of this
Offering). The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior liquidation rights of
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and non-assessable, and the shares of Common
Stock to be outstanding upon completion of this Offering will be fully paid and
non-assessable.
 
PREFERRED STOCK
 
     The Company is authorized to issue 2,000,000 shares of undesignated
Preferred Stock. The Board of Directors has the authority to issue the
undesignated Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of undesignated preferred stock and to fix the number of shares
constituting any series and the designations of such series, without any further
vote or action by the stockholders. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company.
 
WARRANT
 
     In connection with the loan and security agreement entered into in April
1996 with Silicon Valley Bank, the Company issued a warrant (the "Warrant") to
purchase 31,056 shares of Series C Preferred Stock at an exercise price of $1.61
per share, which, following the automatic conversion of Series C Preferred Stock
into Common Stock upon completion of this Offering, will be exercisable for
6,901 shares of Common Stock at an exercise price of $7.25 per share. Upon
exercise, the holder of such warrant is entitled to the registration rights set
forth in the Rights Agreement. See "Description of Capital Stock -- Registration
Rights.
 
REGISTRATION RIGHTS
 
     Pursuant to a Registration Rights Agreement dated as of May 9, 1995, as
amended September 20, 1995 and June 3, 1996, among the Company and certain
holders of its securities (the "Rights Agreement"), the holders of approximately
4,466,666 shares of Common Stock (the "Registrable Securities") after this
Offering will be entitled to certain rights with respect to the registration of
the Registrable Securities under the Securities Act. Under the Rights Agreement,
if the Company proposes to register any of its securities under the Securities
Act, either for its own account or the account of other stockholders, the
holders of Registrable Securities are entitled to notice of such registration
and are entitled to include their Registrable Securities therein. Further,
holders of Registrable Securities may require the Company to register all or a
portion of their Registrable Securities on Form S-3, when such form becomes
available for use by the Company, subject to certain conditions and limitations.
The holders' rights with respect to all such registrations are subject to
certain conditions, including the right of the underwriters to limit the number
of shares included in any such
 
                                       53
<PAGE>   56
 
registration. With respect to all registrations, other than those on Form S-3,
the Company has agreed to pay all expenses related thereto, except for
underwriting discounts and commissions and stock transfer taxes.
 
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
 
     The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or at any time during the prior three years has
owned) 15% or more of the corporation's voting stock.
 
     The Company's Bylaws require that special meetings of the stockholders of
the Company may be called only by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or by holders of at least 20% of the voting
power of all then-outstanding shares of voting stock. The Company's Certificate
of Incorporation provides that the authorized number of directors may be changed
only by resolution of the Board of Directors. In addition, the Board of
Directors is divided into three classes. The initial term of Class III directors
is through the first annual meeting of stockholders following the Offering, the
initial term of the Class II directors is through the second annual meeting of
stockholders following the Offering, and the initial term of the Class I
directors is through the third annual meeting of stockholders following the
Offering, and the subsequent terms for directors of each class is three years,
in each case until their successors have been elected and qualified. These
provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of the Company.
 
TRANSFER AGENT AND REGISTRAR
 
     The Transfer Agent and Registrar for the Common Stock is First National
Bank of Boston.
 
LISTING
 
   
     The Company has been approved for listing on the Nasdaq National Market
under the symbol "NEON."
    
 
                                       54
<PAGE>   57
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
   
     Upon the consummation of this Offering, the Company will have outstanding
an aggregate of 8,600,461 shares of Common Stock (9,014,461 if the Underwriters'
over-allotment option is exercised in full). Of the total outstanding shares of
Common Stock, the 2,760,000 shares of Common Stock sold in this Offering will be
freely tradable without restriction or further registration under the Securities
Act, unless purchased by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act (in which case resales by the affiliates would
be subject to certain volume limitations and other restrictions described
below).
    
 
   
     The remaining 5,840,461 shares of Common Stock held by existing
stockholders upon consummation of this Offering are "restricted securities" as
that term is defined in Rule 144 under the Securities Act (the "Restricted
Stock"). In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least two years (including, if the shares are transferred, the
holding period of any prior owner except an affiliate) is entitled to sell in
"broker's transactions" or to "market makers", within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of such
class of the Common Stock (approximately 86,005 shares immediately after this
Offering) or (ii) generally, the average weekly trading volume in such class of
the Common Stock during the four calendar weeks preceding the filing of Form 144
with respect to such sale, and subject to certain other limitations and
restrictions. In addition, a person who is not deemed to have been an affiliate
of the Company at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, would
be entitled to sell such shares under Rule 144(k) without regard to the volume
and other requirements described above. Shares of Common Stock that would
otherwise be deemed "restricted securities" could be sold at any time through an
effective registration statement relating to such shares of Common Stock.
    
 
     The Company and each of its stockholders and optionholders have agreed,
subject to certain exceptions, not to offer, sell, contract to sell or otherwise
dispose of any Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of UBS Securities LLC (the "Lock Up
Agreements").
 
     Due to the resale restrictions under Rule 144 and the Lock Up Agreements,
no shares of Restricted Stock will be eligible for resale into the public market
on the date of this Offering, except as UBS Securities LLC may consent.
Beginning 180 days following the date of this Prospectus (or such earlier date
on which UBS Securities LLC may elect to release the Lock Up Agreements), an
aggregate of 5,840,461 shares of Restricted Stock will first become eligible for
sale in the public market pursuant to Rule 144 and the expiration of the Lock Up
Agreements, subject to certain volume limitations and other resale restrictions
pursuant to Rule 144. In addition, the Company intends to file a Registration
Statement on Form S-8 after the effective date of this Offering to register an
aggregate of 2,333,333 shares of Common Stock issuable pursuant to the Company's
Amended and Restated 1995 Stock Option Plan (of which options to purchase an
aggregate of 1,353,712 shares were outstanding as of March 31, 1997, including
an aggregate of 145,752 option shares which were vested and exercisable as of
such date), an aggregate of 216,666 shares issuable pursuant to the Company's
1997 Employee Stock Purchase Plan and an aggregate of 100,000 shares of Common
Stock issuable pursuant to the Company's 1997 Director Option Plan; due to the
Lock Up Agreements, shares issuable pursuant to such plans will not be eligible
for resale into the public market until 180 days following the date of this
Prospectus (or such earlier date on which UBS Securities LLC may elect to
release the Lock Up Agreements). See "Management -- Employee Benefit Plans."
 
     Holders of an aggregate of approximately 4,466,666 shares of Common Stock
have the right to require the Company to register their shares of Common Stock
under certain circumstances.
 
     Prior to this Offering, there has not been any public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Sales of substantial additional amounts of Common
Stock in the public market, or the perception that such sales may occur, could
materially adversely affect the prevailing market price of the Common Stock.
 
                                       55
<PAGE>   58
 
                                  UNDERWRITING
 
     Subject to the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below (the
"Underwriters"), for whom UBS Securities LLC and Cowen & Company are serving as
Representatives (the "Representatives"), have agreed to purchase, from the
Company the following respective number of shares of Common Stock.
 
   
<TABLE>
<CAPTION>
                                                                 TOTAL
                                                               NUMBER OF
                        UNDERWRITERS                            SHARES
                        ------------                           ---------
<S>                                                            <C>
UBS Securities LLC..........................................   1,125,000
Cowen & Company.............................................   1,125,000
Bear, Stearns & Co. Inc.....................................      50,000
Deutsche Morgan Grenfell Inc................................      50,000
Donaldson, Lufkin & Jenrette Securities Corporation.........      50,000
Hambrecht & Quist LLC.......................................      50,000
Lehman Brothers Inc.........................................      50,000
Oppenheimer & Co., Inc......................................      50,000
Robertson, Stephens & Company LLC...........................      50,000
Hanifen, Imhoff Inc.........................................      40,000
SoundView Financial Group, Inc..............................      40,000
Unterberg Harris............................................      40,000
Wessels, Arnold & Henderson, L.L.C..........................      40,000
                                                               ---------
          Total.............................................   2,760,000
                                                               =========
</TABLE>
    
 
     The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel,
and to certain other conditions. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any are taken.
 
   
     The Underwriters propose to offer part of the shares of Common Stock
offered hereby directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $.50 per share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $.10 per share to other Underwriters or to certain other dealers.
    
 
   
     The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 414,000 additional
shares of Common Stock at the public offering price set forth on the cover page
hereof, less underwriting discounts and commissions. The Underwriters may
exercise such option to purchase solely for the purpose of covering
over-allotments, if any, incurred in the sale of the shares of Common Stock
offered hereby. To the extent such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock offered hereby.
    
 
   
     The Underwriters have agreed, at the request of the Company, to reserve for
sale to Peter Hoversten, Senior Vice President Application Development and Field
Operations, 15,000 shares of Common Stock offered hereby.
    
 
     The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
 
     All officers, directors, stockholders and option holders of the Company
have agreed not to offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of
 
                                       56
<PAGE>   59
 
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the Common Stock, for a
period of 180 days after the date of this Prospectus, without the prior written
consent of UBS Securities LLC, subject to certain limited exceptions. See
"Shares Eligible for Future Sale."
 
     Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock. If the Underwriters create a short position in
the Common Stock in connection with the offering, i.e., if they sell more shares
of Common Stock than are set forth on the cover page of this Prospectus, the
Representatives may reduce that short position by purchasing Common Stock in the
open market. The Representative may also elect to reduce any short position by
exercising all or part of the over-allotment option described above. The
Representatives may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Representatives purchase shares of
Common Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares as part of the offering. In general, purchases of a security for
the purpose of stabilization or to reduce a short position could cause the price
of the security to be higher than it might be in the absence of such purchases.
The imposition of a penalty bid might also have an effect on the price of a
security to the extent that it were to discourage resales of any security.
Neither the Company nor any of the Underwriters makes any representation or
predictions as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discounted without notice.
 
                                 LEGAL MATTERS
 
     The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters in connection with the offering will be
passed upon for the Underwriters by Cooley Godward LLP, Boulder, Colorado.
 
                                    EXPERTS
 
     The financial statements of New Era of Networks, Inc. as of December 31,
1995 and 1996 and for each of the three years in the period ended December 31,
1996 included in this prospectus and elsewhere in the registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
 
                                       57
<PAGE>   60
 
                             ADDITIONAL INFORMATION
 
     The Company intends to furnish to its stockholders annual reports
containing audited financial statements with an opinion thereon expressed by an
independent certified public accounting firm, and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year.
 
     The Company has filed with the Securities and Exchange Commission a
Registration Statement (including any amendments thereto) on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, omits certain of the
information contained in the Registration Statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities Act and
the rules and regulations of the Commission thereunder. The Registration
Statement, including exhibits and schedules thereto, may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549 and the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago Illinois 60661. Copies of all or any part thereof may be
obtained from the Commission upon the payment of certain fees prescribed by the
Commission. Such reports and other information may also be inspected without
charge at a Web site maintained by the Commission. The address of this site is
http://www.sec.gov.
 
                                       58
<PAGE>   61
 
                           NEW ERA OF NETWORKS, INC.
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Public Accountants....................  F-2
Consolidated Balance Sheets.................................  F-3
Consolidated Statements of Operations.......................  F-4
Consolidated Statements of Stockholders' Equity.............  F-5
Consolidated Statements of Cash Flows.......................  F-6
Notes to Consolidated Financial Statements..................  F-8
</TABLE>
 
                                       F-1
<PAGE>   62
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To New Era of Networks, Inc.:
 
     We have audited the accompanying consolidated balance sheets of NEW ERA OF
NETWORKS, INC. (a Delaware corporation) as of December 31, 1995 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
New Era of Networks, Inc., as of December 31, 1995 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
 
                                          ARTHUR ANDERSEN LLP
Denver, Colorado,
  January 17, 1997.
 
                                       F-2
<PAGE>   63
 
                           NEW ERA OF NETWORKS, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              --------------------------     MARCH 31,
                                                                 1995           1996           1997
                                                              -----------    -----------    -----------
                                                                                            (UNAUDITED)
<S>                                                           <C>            <C>            <C>
Current Assets:
  Cash and cash equivalents.................................  $ 1,135,027    $ 3,387,466    $ 1,640,766
  Short-term investments....................................      102,532             --             --
  Accounts receivable, net of an allowance for uncollectible
    accounts of $30,000, $150,000 and $200,000,
    respectively............................................      590,332      2,229,417      3,656,536
  Prepaid expenses and other................................       29,465         83,984        150,531
                                                              -----------    -----------    -----------
         Total current assets...............................    1,857,356      5,700,867      5,447,833
                                                              -----------    -----------    -----------
Property and Equipment:
  Computer equipment and software...........................      337,993      1,132,049      1,319,708
  Furniture, fixtures and equipment.........................       90,568        363,720        368,177
  Leasehold improvements....................................        3,151         33,050         43,563
                                                              -----------    -----------    -----------
                                                                  431,712      1,528,819      1,731,448
  Less -- accumulated depreciation..........................      (98,445)      (401,364)      (521,507)
                                                              -----------    -----------    -----------
  Property and equipment, net...............................      333,267      1,127,455      1,209,941
                                                              -----------    -----------    -----------
Other Assets................................................       18,590        244,416        715,459
                                                              -----------    -----------    -----------
         Total assets.......................................  $ 2,209,213    $ 7,072,738    $ 7,373,233
                                                              ===========    ===========    ===========
 
                          LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current Liabilities:
  Accounts payable..........................................  $   159,770    $   469,640    $   936,912
  Accrued liabilities.......................................      116,814      1,369,634      1,797,394
  Notes payable to banks (Note 3)...........................           --      1,100,553      1,154,055
  Deferred revenue..........................................       23,500        175,300        265,300
                                                              -----------    -----------    -----------
         Total current liabilities..........................      300,084      3,115,127      4,153,661
Notes payable to banks (Note 3).............................           --        442,277        386,840
Note payable to stockholder (Note 3)........................      318,158             --             --
                                                              -----------    -----------    -----------
         Total liabilities..................................      618,242      3,557,404      4,540,501
                                                              -----------    -----------    -----------
Commitments and Contingencies (Note 7)
Stockholders' Equity (Note 5):
  Preferred stock --
    Series A, $.01 par value, convertible preferred stock,
      9,169,028 shares authorized, issued and outstanding,
      entitled to a preference in liquidation of
      $2,000,000............................................    2,000,000      2,000,000      2,000,000
    Series B, $.01 par value, convertible preferred stock,
      6,183,339 shares authorized, issued and outstanding,
      entitled to a preference in liquidation of
      $1,875,000............................................    1,875,000      1,875,000      1,875,000
    Series C, $.01 par value, convertible preferred stock,
      4,664,596 shares authorized, issued and outstanding,
      entitled to a preference in liquidation of
      $7,510,000............................................           --      7,510,000      7,510,000
                                                              -----------    -----------    -----------
         Total preferred stock..............................    3,875,000     11,385,000     11,385,000
  Common stock, $.0001 par value, 45,000,000 shares
    authorized, 1,336,774, 1,359,091 and 1,392,247 shares
    issued and outstanding, respectively....................          133            136            139
  Additional paid-in capital................................       18,409        141,543        243,338
  Accumulated deficit.......................................   (2,302,571)    (8,011,345)    (8,795,745)
                                                              -----------    -----------    -----------
         Total stockholders' equity.........................    1,590,971      3,515,334      2,832,732
                                                              -----------    -----------    -----------
         Total liabilities and stockholders' equity.........  $ 2,209,213    $ 7,072,738    $ 7,373,233
                                                              ===========    ===========    ===========
</TABLE>
 
          The accompanying notes to consolidated financial statements
                 are an integral part of these balance sheets.
 
                                       F-3
<PAGE>   64
 
                           NEW ERA OF NETWORKS, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED
                                         YEAR ENDED DECEMBER 31,                 MARCH 31,
                                  -------------------------------------   -----------------------
                                    1994         1995          1996          1996         1997
                                  ---------   -----------   -----------   ----------   ----------
                                                                                (UNAUDITED)
<S>                               <C>         <C>           <C>           <C>          <C>
Revenues (Notes 2 and 8):
  Software licenses.............  $      --   $        --   $ 3,382,464   $  111,000   $2,447,410
  Services and maintenance......    149,400     1,270,600     3,762,223      944,828    1,226,438
                                  ---------   -----------   -----------   ----------   ----------
          Total revenues........    149,400     1,270,600     7,144,687    1,055,828    3,673,848
                                  ---------   -----------   -----------   ----------   ----------
Cost of revenues:
  Cost of software licenses
     (Note 7)...................         --            --     1,021,849       33,300      249,806
  Cost of services and
     maintenance................     84,982       750,718     2,306,370      676,733      800,157
                                  ---------   -----------   -----------   ----------   ----------
          Total cost of
            revenues............     84,982       750,718     3,328,219      710,033    1,049,963
                                  ---------   -----------   -----------   ----------   ----------
Gross profit....................     64,418       519,882     3,816,468      345,795    2,623,885
Operating expenses:
  Sales and marketing...........    178,505       548,912     4,424,554      319,691    1,690,082
  Research and development......    422,678     1,115,742     3,658,493      608,227    1,222,464
  General and administrative....    153,127       345,389     1,466,594      174,621      494,636
                                  ---------   -----------   -----------   ----------   ----------
          Total operating
            expenses............    754,310     2,010,043     9,549,641    1,102,539    3,407,182
                                  ---------   -----------   -----------   ----------   ----------
Loss from operations............   (689,892)   (1,490,161)   (5,733,173)    (756,744)    (783,297)
Other income (expense), net.....    (29,302)      (12,549)       60,855        1,627       (1,103)
                                  ---------   -----------   -----------   ----------   ----------
Loss before provision for
  income taxes..................   (719,194)   (1,502,710)   (5,672,318)    (755,117)    (784,400)
Provision for income taxes......         --            --            --           --           --
                                  ---------   -----------   -----------   ----------   ----------
Net loss........................  $(719,194)  $(1,502,710)  $(5,672,318)  $ (755,117)  $ (784,400)
                                  =========   ===========   ===========   ==========   ==========
Pro forma net loss per common
  share.........................                            $     (0.98)  $    (0.14)  $    (0.13)
                                                            ===========   ==========   ==========
Pro forma weighted average
  shares of Common Stock
  outstanding (Note 2)..........                              5,789,382    5,388,815    6,094,414
                                                            ===========   ==========   ==========
</TABLE>
 
          The accompanying notes to consolidated financial statements
                   are an integral part of these statements.
 
                                       F-4
<PAGE>   65
 
                           NEW ERA OF NETWORKS, INC.
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
                   AND THE THREE MONTHS ENDED MARCH 31, 1997
 
<TABLE>
<CAPTION>
                                            SERIES A, SERIES B AND
                                             SERIES C CONVERTIBLE
                                               PREFERRED STOCK           COMMON STOCK      ADDITIONAL
                                           ------------------------   ------------------    PAID-IN     ACCUMULATED
                                             SHARES       AMOUNT       SHARES     AMOUNT    CAPITAL       DEFICIT        TOTAL
                                           ----------   -----------   ---------   ------   ----------   -----------   -----------
<S>                                        <C>          <C>           <C>         <C>      <C>          <C>           <C>
Balances, June 30, 1993 (inception)......          --   $        --          --   $  --     $     --    $       --    $        --
  Common stock issued upon formation.....          --            --   2,222,222     222          778            --          1,000
                                           ----------   -----------   ---------   -----     --------    -----------   -----------
Balances, December 31, 1993..............          --            --   2,222,222     222          778            --          1,000
  Net loss...............................          --            --          --      --           --      (719,194)      (719,194)
                                           ----------   -----------   ---------   -----     --------    -----------   -----------
Balances, December 31, 1994..............          --            --   2,222,222     222          778      (719,194)      (718,194)
  Issuance of common stock to an employee
    in exchange for services.............          --            --     133,333      13       17,987            --         18,000
  Issuance of Series A convertible
    preferred stock ($0.218 per share) in
    May for cash of $1,000,000,
    cancellation of liabilities of
    $1,000,000 and the surrender of
    1,018,781 shares of common stock, net
    of issuance costs of $41,952.........   9,169,028     2,000,000   (1,018,781)  (102)        (356)      (41,494)     1,958,048
  Issuance of Series B convertible
    preferred stock ($0.303 per share) in
    September for cash of $1,875,000, net
    of issuance costs of $39,173.........   6,183,339     1,875,000          --      --           --       (39,173)     1,835,827
  Net loss...............................          --            --          --      --           --    (1,502,710)    (1,502,710)
                                           ----------   -----------   ---------   -----     --------    -----------   -----------
Balances, December 31, 1995..............  15,352,367     3,875,000   1,336,774     133       18,409    (2,302,571)     1,590,971
  Issuance of Series C convertible
    preferred stock ($1.61 per share) in
    June for cash of $7,510,000, net of
    issuance cost of $36,456.............   4,664,596     7,510,000          --      --           --       (36,456)     7,473,544
  Issuance of common stock to an employee
    in exchange for services.............          --            --      17,777       2       39,998            --         40,000
  Issuance of common stock upon exercise
    of stock options.....................          --            --       4,540       1       10,219            --         10,220
  Issuance of common stock options and
    warrants in exchange for services....          --            --          --      --       72,917            --         72,917
  Net loss...............................          --            --          --      --           --    (5,672,318)    (5,672,318)
                                           ----------   -----------   ---------   -----     --------    -----------   -----------
Balances, December 31, 1996..............  20,016,963    11,385,000   1,359,091     136      141,543    (8,011,345)     3,515,334
                                           ----------   -----------   ---------   -----     --------    -----------   -----------
  Issuance of common stock upon exercise
    of stock options.....................          --            --      33,156       3      101,795            --        101,798
  Net loss...............................          --            --          --      --           --      (784,400)      (784,400)
                                           ----------   -----------   ---------   -----     --------    -----------   -----------
Balances, March 31, 1997 (unaudited).....  20,016,963   $11,385,000   1,392,247   $ 139     $243,338    $8,795,745    $ 2,832,732
                                           ==========   ===========   =========   =====     ========    ===========   ===========
</TABLE>
 
The accompanying notes to consolidated financial statements are an integral part
                               of this statement.
 
                                       F-5
<PAGE>   66
 
                           NEW ERA OF NETWORKS, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                                     THREE MONTHS ENDED
                                                                  YEAR ENDED DECEMBER 31,                 MARCH 31,
                                                           -------------------------------------   -----------------------
                                                             1994         1995          1996         1996         1997
                                                           ---------   -----------   -----------   ---------   -----------
                                                                                                         (UNAUDITED)
<S>                                                        <C>         <C>           <C>           <C>         <C>
Cash flows from operating activities:
  Net loss...............................................  $(719,194)  $(1,502,710)  $(5,672,318)  $(755,117)  $  (784,400)
  Adjustments to reconcile net loss to net cash used in
    operating activities --
    Depreciation and amortization........................     19,377        80,344       324,182      40,784       121,893
    Issuance of common stock and common stock options for
      services...........................................         --         4,500       126,417      47,000            --
    Loss on sale of property and equipment...............         --            --        16,943          --            --
    Changes in assets and liabilities --
      Accounts receivable................................    (43,291)     (547,041)   (1,639,085)   (627,115)   (1,427,119)
      Prepaid expenses and other.........................    (50,202)       15,647      (303,759)    (79,725)      (30,411)
      Accounts payable...................................     61,811        97,959       309,870     329,216       365,272
      Accrued liabilities................................    209,468       206,530     1,252,820      58,602       127,760
      Deferred revenue...................................         --        23,500       151,800       1,650        90,000
                                                           ---------   -----------   -----------   ---------   -----------
        Net cash used in operating activities............   (522,031)   (1,621,271)   (5,433,130)   (984,705)   (1,537,005)
                                                           ---------   -----------   -----------   ---------   -----------
Cash flows from investing activities:
  Purchase of short-term investments.....................         --      (102,532)           --          --            --
  Proceeds from sale of short-term investments...........         --            --       102,532     102,532            --
  Proceeds from sale of property and equipment...........         --            --         5,654          --            --
  Purchases of property and equipment....................   (131,576)     (301,412)   (1,131,053)   (258,959)     (202,629)
                                                           ---------   -----------   -----------   ---------   -----------
        Net cash used in investing activities............   (131,576)     (403,944)   (1,022,867)   (156,427)     (202,629)
                                                           ---------   -----------   -----------   ---------   -----------
Cash flows from financing activities:
  Proceeds from issuance of common stock.................      1,000            --        10,220          --       101,798
  Proceeds from issuance of preferred stock..............         --     2,875,000     7,510,000          --            --
  Preferred stock issuance costs.........................         --       (81,125)      (36,456)         --            --
  Proceeds from note payable to stockholder..............    791,413       250,200       104,709     104,709            --
  Payments on note payable to stockholder................    (11,760)      (10,879)     (422,867)         --            --
  Proceeds from notes payable to banks...................         --       415,000     2,545,116      50,000            --
  Principal payments on notes payable to banks...........         --      (415,000)   (1,002,286)         --        (1,935)
  Payment of deferred offering costs.....................         --            --            --          --      (106,929)
                                                           ---------   -----------   -----------   ---------   -----------
        Net cash provided by financing activities........    780,653     3,033,196     8,708,436     154,709        (7,066)
                                                           ---------   -----------   -----------   ---------   -----------
</TABLE>
 
          The accompanying notes to consolidated financial statements
                   are an integral part of these statements.
 
                                       F-6
<PAGE>   67
 
                           NEW ERA OF NETWORKS, INC.
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                        YEAR ENDED DECEMBER 31,                MARCH 31,
                                   ----------------------------------   ------------------------
                                     1994        1995         1996         1996         1997
                                   --------   ----------   ----------   ----------   -----------
                                                                              (UNAUDITED)
<S>                                <C>        <C>          <C>          <C>          <C>
Net increase (decrease) in cash
  and cash equivalents...........  $127,046   $1,007,981   $2,252,439   $ (986,423)  $(1,746,700)
Cash and cash equivalents,
  beginning of period............        --      127,046    1,135,027    1,135,027     3,387,466
                                   --------   ----------   ----------   ----------   -----------
Cash and cash equivalents, end of
  period.........................  $127,046   $1,135,027   $3,387,466   $  148,604   $ 1,640,766
                                   ========   ==========   ==========   ==========   ===========
Supplemental disclosures of cash
  flow information:
  Issuance of common stock to
     employees in exchange for
     services....................  $     --   $   18,000   $   40,000   $   40,000   $        --
                                   ========   ==========   ==========   ==========   ===========
  Issuance of common stock
     options and warrants in
     exchange for services.......  $     --   $       --   $   72,917   $    7,000   $        --
                                   ========   ==========   ==========   ==========   ===========
  Issuance of preferred stock in
     exchange for common stock
     and cancellation of
     liabilities to
     stockholder.................  $     --   $1,000,458   $       --   $       --   $        --
                                   ========   ==========   ==========   ==========   ===========
  Conversion of accrued
     liabilities to debt.........  $     --   $  299,184   $       --   $       --   $        --
                                   ========   ==========   ==========   ==========   ===========
  Deferred offering costs........  $     --   $       --   $       --   $       --   $   402,000
                                   ========   ==========   ==========   ==========   ===========
</TABLE>
 
                 The accompanying notes to financial statements
                   are an integral part of these statements.
 
                                       F-7
<PAGE>   68
 
                           NEW ERA OF NETWORKS, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1994, 1995 AND 1996
       AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
 
(1) DESCRIPTION OF BUSINESS
 
     New Era of Networks, Inc. (the "Company") develops, markets and supports
application integration software and provides application integration services.
The Company's flagship software suite, NEONet, provides organizations with a
structured software platform for the integration of disparate systems and
applications across the enterprise, a process known as application integration.
NEONet facilitates the rapid and efficient deployment and ongoing maintenance of
application integration across the enterprise. NEONet supports a heterogeneous
environment of hardware, operating system, network and database platforms,
permits organizations to leverage existing legacy systems, and accommodates the
extension of the corporate information systems environment to new enterprise
applications and to new computing paradigms such as the Internet/Intranet. The
Company markets its software and related services primarily through a direct
sales organization, complemented by other indirect sales channels including
VARs, OEM's and international distributors.
 
     Effective June 4, 1996, the Company formed a wholly owned foreign
subsidiary, New Era of Networks Limited ("Limited"), incorporated in the United
Kingdom.
 
  Liquidity and Capital Resources
 
     Since inception, the Company's capital requirements have been funded
primarily through stockholder loans, private placements of convertible preferred
stock and bank loans. Cumulative operating losses from inception through
December 31, 1996, have been approximately $7.9 million, including approximately
$5.7 million for the year ended December 31, 1996. The Company's existing
balances of cash and cash equivalents and borrowings available under existing
debt facilities are not expected to be sufficient to meet the Company's working
capital and capital expenditure needs during 1997 and additional funding will be
required. The Company expects to file in May 1997 an amendment to the
registration statement filed in January 1997, prepared in connection with the
Company's initial public offering of its Common Stock at an assumed price to
public of $11.00 per share and covering an estimated 2,645,000 shares (the
"Offering"). If the expected closing of the initial public offering is
significantly delayed or suspended, the Company believes that funding sufficient
to continue operations at least for the remainder of 1997 can be obtained from
other sources. However, the Company currently has no written commitments for
such additional financing and has no assurance that it will be available, or if
available, on terms acceptable to the Company.
 
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Principles of Consolidation
 
     The accompanying consolidated financial statements include the accounts of
the Company and Limited. All significant intercompany accounts and transactions
have been eliminated in consolidation.
 
  1994 Financial Statements
 
     The Company was incorporated June 30, 1993, but operations did not commence
until January 1994. Accordingly, the statement of operations and statement of
cash flows for 1994 represent results from inception to December 31, 1994.
 
  Interim Financial Statements
 
     The consolidated financial statements of the Company as of March 31, 1997
and for the three months ended March 31, 1996 and 1997 presented herein have
been prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial statements
reflect all adjustments (consisting of only normal recurring accruals) which, in
the opinion of management, are
 
                                       F-8
<PAGE>   69
 
                           NEW ERA OF NETWORKS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
necessary to present fairly the financial position, results of operations and
cash flows of the Company as of March 31, 1997 and for the three months ended
March 31, 1996 and 1997.
 
  Foreign Currency Translation
 
     The functional currency of the Company's foreign subsidiary is the local
currency. Translation of the December 31, 1996 and March 31, 1997 balance sheet
amounts to U.S. dollars is based on the applicable exchange rate as of those
dates. Statement of operations and statement of cash flows amounts are
translated at the average exchange rates for the period. The cumulative currency
translation adjustment at December 31, 1996 and March 31, 1997 was
insignificant. In future periods, the cumulative translation adjustment will be
presented as a separate component of stockholders' equity, if significant.
 
     Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses which are
reflected in income as unrealized (based on period end translation) or realized
(upon settlement of the transactions). Unrealized translation gains and losses
applicable to long-term intercompany investments by the Company in its foreign
subsidiary are included in the cumulative currency translation adjustments, and
unrealized translation gains or losses applicable to short-term intercompany
receivable from or payable to the Company and its foreign subsidiary are
included in income.
 
  Revenue Recognition
 
     The Company generates revenues from both professional service arrangements
and software license arrangements. Revenue from professional service
arrangements is recognized on either a time and materials or
progress-to-completion basis as the services are performed and amounts due from
customers are deemed collectible and contractually nonrefundable. The Company
recognizes license fee revenue when the licensed software has been delivered,
customer acceptance has occurred, all significant Company obligations have been
satisfied, payment is due within twelve months and the fee is fixed and
determinable and deemed collectible. Maintenance and support revenues related to
software licenses are recognized ratably over the term of each maintenance
arrangement.
 
     Amounts collected or billed prior to satisfying the above revenue
recognition criteria are reflected as deferred revenue in the accompanying
balance sheets. As of December 31, 1995 and 1996, and March 31, 1997 deferred
revenue was $23,500, $175,300 and $265,300 (unaudited), respectively.
 
  Cost of Services and Maintenance
 
     Cost of services related to professional service arrangements and
maintenance include the direct labor costs incurred plus a related overhead
allocation.
 
  Research and Development
 
     Research and development costs are expensed as incurred and include
salaries, supplies and other direct costs.
 
  Cash and Cash Equivalents
 
     For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
 
  Property and Equipment
 
     Depreciation of property and equipment is computed on a straight-line basis
over the following estimated useful lives:
 
<TABLE>
<S>                                                           <C>
Computer equipment and software.............................    3 years
Furniture, fixtures and equipment...........................  5-7 years
Leasehold improvements......................................  2-4 years
</TABLE>
 
                                       F-9
<PAGE>   70
 
                           NEW ERA OF NETWORKS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Maintenance and repairs are expensed as incurred, and improvements are
capitalized.
 
  Deferred Offering Costs (unaudited)
 
     As of March 31, 1997, the Company has deferred costs of $508,929 related to
its initial public offering. Such costs are included in other assets in the
accompanying March 31, 1997 Balance Sheet. The Company will offset the deferred
offering costs against the proceeds upon completion of its initial public
offering, otherwise such costs will be expensed.
 
  Software Development Costs
 
     Under the criteria set forth in Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," capitalization of software development costs begins upon
the establishment of technological feasibility of the product and ends when the
product is ready for general release. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs
require considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future gross product
revenues, estimated economic life and changes in software and hardware
technology. The Company believes that costs incurred through March 31, 1997
which satisfy the above criteria were immaterial, and therefore no software
development costs have been capitalized by the Company to date.
 
  Income Taxes
 
     The current provision for income taxes represents actual or estimated
amounts payable or refundable on tax returns filed or to be filed for each year.
Deferred tax assets and liabilities are recorded for the estimated future tax
effects of temporary differences between the basis of assets and liabilities and
amounts reported in the combined balance sheets. Deferred tax assets are also
recognized for net operating loss and tax credit carryovers. The overall change
in deferred tax assets and liabilities for the period measures the deferred tax
expense for the period. Effects of changes in enacted tax laws on deferred tax
assets and liabilities are reflected as adjustments to tax expense in the period
of enactment. The measurement of deferred tax assets may be reduced by a
valuation allowance based on judgmental assessment of available evidence if
deemed more likely than not that some or all of the deferred tax assets will not
be realized.
 
  Pro Forma Net Loss Per Common Share
 
     Historical net loss per common share is not considered relevant as it would
differ materially from pro forma net loss per common share given the
contemplated changes in the capital structure of the Company. Pro forma net loss
per common share is computed using the sum of 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 and an assumed offering
price of $11.00 per share) have been included in the calculation as if they were
outstanding since January 1, 1996 regardless of whether they are antidilutive.
 
  Fair Value of Financial Instruments
 
     The recorded amounts for cash and cash equivalents, receivables, other
current assets, and accounts payable and accrued expenses approximate fair value
due to the short-term nature of these financial instruments.
 
                                      F-10
<PAGE>   71
 
                           NEW ERA OF NETWORKS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Concentration of Credit Risk
 
     The Company's accounts receivable as of December 31, 1996 and March 31,
1997 are concentrated with certain customers in the financial services industry.
During the years ended December 31, 1995 and 1996 and during the three months
ended March 31, 1996 and 1997, the Company recognized approximately 69%, 81%,
92% (unaudited) and 80% (unaudited), respectively, of its revenue from financial
services industry clients (see Note 8).
 
     Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable and cash
equivalents. The Company performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral from its customers. The
Company has a cash investment policy which restricts investments to ensure
preservation of principal and maintenance of liquidity.
 
  Use of Estimates in the Preparation of Financial Statements
 
     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.
 
(3) NOTES PAYABLE
 
  Note Payable to Stockholder
 
     From January 1994 to May 1995, the Company's operations were funded by
revolving credit borrowings from its majority stockholder. During this period,
the note payable allowed for maximum borrowing of $1,000,000 at a 9% interest
rate per annum. In May 1995, the Company completed its first preferred stock
financing which included the issuance of Series A preferred stock to the
Company's principal stockholder in satisfaction of $1,000,000 of borrowings
outstanding at that time (see Note 5). The note agreement was then amended to
provide for maximum available borrowings of $500,000 from the stockholder. All
principal and interest is due on or before December 31, 1997. The amount of
borrowings outstanding at December 31, 1995, December 31, 1996 and March 31,
1997 were $318,158, $0 and $0 (unaudited), respectively.
 
  Notes Payable to Banks
 
     From inception to September 1995, the Company has had two revolving bank
credit agreements. The first agreement commenced in November 1994 and matured in
November 1995. Borrowings under this agreement had a maximum of $100,000,
accrued interest at the bank's base floating rate and were unsecured. The second
agreement commenced in June 1995 and matured in September 1995. This agreement
had maximum borrowings of $50,000, accrued interest at the bank's floating rate
and was secured by the Company's certificate of deposit maintained at the bank.
 
     On March 15, 1996, the Company signed a promissory note payable to a bank.
The note bears interest at a fixed rate of 8.75%, matures on March 15, 1999 and
is payable in monthly installments. As of December 31, 1996 and March 31, 1997,
$59,810 and $57,875 (unaudited), respectively, was outstanding under this note
payable of which $24,005 and $27,663 (unaudited), respectively, was a current
liability. The note is secured by certain equipment owned by the Company.
 
     In April 1996, the Company entered into a loan and security agreement with
a bank. The agreement, as amended and restated in September 1996, consists of
two separate borrowing facilities: (i) a revolving facility and (ii) an
equipment facility. Borrowings on the revolving facility are restricted to the
lesser of an amount
 
                                      F-11
<PAGE>   72
 
                           NEW ERA OF NETWORKS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
based on certain asset levels (approximately $1,125,000 and $2,393,000
(unaudited) as of December 31, 1996 and March 31, 1997, respectively) or the
committed borrowing limit of $2,000,000. The revolving facility bears interest
at the bank's prime borrowing rate plus  1/2% (8.75% at December 31, 1996 and 9%
at March 31, 1997) and matures on September 5, 1997. In addition to the
revolving facility, the Company may borrow up to $1,000,000 under the equipment
facility for the purchase or refinancing of qualified equipment. Any borrowings
on the equipment facility must be made by June 6, 1997. The equipment facility
bears interest at the bank's prime borrowing rate plus 1% (9.25% at December 31,
1996 and 9.5% at March 31, 1997) and matures on June 5, 2000. Amounts
outstanding under the equipment facility at June 6, 1997 are payable in equal
monthly installments beginning July 5, 1997 through the maturity date. The debt
under both facilities is secured by all assets of the Company with the exception
of certain intangibles. The agreement requires that the Company maintain
compliance with certain covenants related to tangible net worth, debt service
coverage and current ratios. As of December 31, 1996 and March 31, 1997
(unaudited) there were borrowings of $1,006,438 outstanding under the revolving
facility and $476,582 outstanding under the equipment facility.
 
     Aggregate Maturities for notes payable outstanding as of December 31, 1996
are as follows:
 
<TABLE>
<CAPTION>
FOR THE YEAR
   ENDING
DECEMBER 31,                                                                 AMOUNT
- ------------                                                               ----------
<S>          <C>                                                           <C>
   1997..................................................................  $1,100,553
   1998..................................................................     176,589
   1999..................................................................     176,314
   2000..................................................................      89,374
                                                                           ----------
                                                                           $1,542,830
                                                                           ==========
</TABLE>
 
     In connection with the loan and security agreement discussed above, the
Company issued to the bank warrants to purchase 31,056 shares of the Company's
Series C Preferred Stock at an exercise price of $1.61 per share (convertible on
a nine-for-two basis into common stock). The warrants are exercisable through
April 11, 2001.
 
(4) INCOME TAXES
 
     The Company was an S corporation for income tax purposes from inception
through May 1995, and its taxable income or loss and tax credits for such period
were included in the personal tax return of its stockholder. Items of taxable
income and expense for subsequent periods are being reported in the corporate
income tax returns of the Company. On a pro forma basis for the periods the
Company was an S corporation, the Company had no income taxes payable due to net
losses incurred. At the date of termination of subchapter S status, the Company
provided an allowance for the full amount of its net deferred tax assets.
Therefore, the change in tax status had no effect on the financial statements of
the Company at that date.
 
                                      F-12
<PAGE>   73
 
                           NEW ERA OF NETWORKS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The components of the Company's deferred tax assets and liabilities are as
follows:
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                             ------------------------
                                                               1995          1996
                                                             ---------    -----------
<S>                                                          <C>          <C>
Deferred tax assets:
  Allowance for bad debts..................................  $  11,400    $    57,800
  Nonstatutory stock options...............................         --         27,700
  Organization costs.......................................      4,500          1,800
  Accrued interest.........................................      7,200             --
  Accrued compensation.....................................    115,000             --
  Trademark costs..........................................         --         11,100
  Accrued vacation.........................................         --         31,600
  Capital loss carryforward................................         --          4,700
  Tax credits carryforward.................................         --        148,600
  Net operating loss carryforward..........................    353,000      2,458,000
                                                             ---------    -----------
          Total deferred tax assets........................    491,100      2,741,300
                                                             ---------    -----------
Deferred tax liabilities:
  Deferred compensation....................................     (5,200)            --
  Depreciation.............................................     (8,000)        (9,400)
                                                             ---------    -----------
          Total deferred tax liabilities...................    (13,200)        (9,400)
                                                             ---------    -----------
          Total net deferred tax assets....................    477,900      2,731,900
                                                             ---------    -----------
  Valuation allowance......................................   (477,900)    (2,731,900)
                                                             ---------    -----------
  Net deferred taxes.......................................  $      --    $        --
                                                             =========    ===========
</TABLE>
 
     The criteria for realization of net deferred tax assets are not currently
satisfied because of the losses incurred by the Company from inception. Further,
the Internal Revenue Code contains provisions which may limit the net operating
loss carryforwards available for use in any given year upon the occurrence of
certain events, including significant changes in ownership. Therefore, a
valuation allowance for the entire net deferred tax asset has been established.
 
     As of December 31, 1996, the Company had net operating loss carryforwards
available totaling approximately $6,384,000. These carryforwards expire
beginning in 2010. The Company also has research and development tax credit
carryforwards of approximately $148,600 expiring beginning in 2010.
 
     The income tax provision (benefit) calculated using the federal statutory
rate is different than the income tax provision (benefit) for financial
reporting purposes as follows:
 
<TABLE>
<CAPTION>
                                                               1995          1996
                                                             ---------    -----------
<S>                                                          <C>          <C>
Income tax provision (benefit) at the federal statutory
  rate.....................................................  $(510,900)   $(1,928,600)
Tax effect of loss for the period from January 1, 1995
  through May 1995 reported by the S Corporation...........    186,100             --
Net deferred tax assets recognized upon termination of S
  Corporation status.......................................   (117,700)            --
Deferred state income tax assets, net of federal tax
  effect...................................................    (42,100)      (246,400)
Nondeductible expenses.....................................      6,700         69,600
Increase in tax credit carryforwards.......................         --       (148,600)
Change in valuation allowance..............................    477,900      2,254,000
                                                             ---------    -----------
Net provision (benefit) for income taxes...................  $      --    $        --
                                                             =========    ===========
</TABLE>
 
                                      F-13
<PAGE>   74
 
                           NEW ERA OF NETWORKS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(5) STOCKHOLDERS' EQUITY
 
  Reverse Stock Split and Change in Authorized Shares
 
     On May 16, the Company's Board of Directors approved the amendment and
restatement of the Company's certificate of incorporation to effect (i) a
two-for-nine reverse split of the Company's common stock, (ii) an increase in
the number of authorized shares of common stock to 45,000,000, (iii) the
authorization of 2,000,000 shares of preferred stock undesignated as to series,
and (iv) the establishment of a classified board of directors, effective upon
the Company's initial public offering, pursuant to which the Board of Directors
shall be divided into three classes having initial terms of one, two and three
years, respectively, and subsequent terms of three years. The accompanying
consolidated financial statements have been retroactively adjusted with respect
to common stock to reflect the reverse stock split. Following approval of the
stockholders of certain amendments to the Company's certificate of
incorporation, the Series A, Series B, and Series C convertible preferred stock
described below will convert into shares of common stock on the basis of nine
preferred shares for two common shares upon the closing of the Offering.
 
  Stock Options
 
     The Company's 1995 Stock Option Plan (the "1995 Plan"), as amended,
provides for the grant of options to purchase up to an aggregate of 2,333,333
shares of common stock to employees and nonemployees; 133,333 shares are
available for grants to nonemployees and consultants. Incentive stock options
granted to employees have an exercise price equal to the fair market value of
the underlying shares at the date of grant. The exercise price of nonstatutory
options granted to employees and consultants is determined by the Board of
Directors. The term of all options granted may not exceed 10 years; options
granted through 1996 have a term of five years. Options vest as determined by
the Board, but generally vesting occurs as to one-sixth of the shares after one
year, an additional one-third after two years and the remainder after three
years from date of grant. If employment is terminated for any reason, vested
options must be exercised within 30 days of termination or they are
automatically cancelled.
 
  Statement of Financial Accounting Standards No. 123 ("SFAS 123")
 
     SFAS 123, "Accounting for Stock-Based Compensation," defines a fair value
based method of accounting for employee stock options or similar equity
instruments. However, SFAS 123 allows the continued measurement of compensation
cost for such plans using the intrinsic value based method prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), provided
that pro forma disclosures are made of net income or loss and net income or loss
per share, assuming the fair value based method of SFAS 123 had been applied.
The Company has elected to account for its stock-based compensation plans under
APB 25; accordingly, for purposes of the pro forma disclosures presented below,
the Company has computed the fair values of all options granted during 1995 and
1996, using the Black-Scholes pricing model and the following weighted average
assumptions:
 
<TABLE>
<CAPTION>
                                                         1995          1996
                                                      ----------    ----------
<S>                                                   <C>           <C>
Risk-free interest rate.............................  6.3%          6.0%
Expected lives......................................  3.0 years     3.0 years
Expected volatility.................................  84.0%         84.0%
Expected dividend yield.............................  0%            0%
</TABLE>
 
     To estimate expected lives of options for this valuation, it was assumed
options will be exercised upon becoming fully vested at the end of three years.
All options are initially assumed to vest. Cumulative compensation cost
recognized in pro forma net income or loss with respect to options that are
forfeited prior to vesting is adjusted as a reduction of pro forma compensation
expense in the period of forfeiture. Because the Company's common stock is not
yet publicly traded, the expected market volatility was based on an average of
 
                                      F-14
<PAGE>   75
 
                           NEW ERA OF NETWORKS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
five other companies deemed to have characteristics similar to the Company for
periods subsequent to their IPO's. Actual volatility of the Company's common
stock may vary. Fair value computations are highly sensitive to the volatility
factor assumed; the greater the volatility, the higher the computed fair value
of options granted.
 
     The total fair value of options granted was computed to be approximately
$125,500 and $3,193,000 for the years ended December 31, 1995 and 1996,
respectively. These amounts are amortized ratably over the vesting periods of
the options. Pro forma stock-based compensation, net of the effect of
forfeitures, was $10,986 and $446,528 for 1995 and 1996, respectively.
 
     If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net loss and pro forma net loss per
common share would have been reported as follows:
 
<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                                  ----------------------------
                                                     1995             1996
                                                  -----------      -----------
<S>                                               <C>              <C>
Net Loss --
  As reported...................................  $(1,502,710)     $(5,672,318)
  Pro forma.....................................  $(1,513,696)     $(6,118,846)
Pro Forma Net Loss Per Common Share --
  As reported...................................                   $     (0.98)
  Pro forma.....................................                   $     (1.10)
</TABLE>
 
     Weighted average shares used to calculate pro forma net loss per share were
determined as described in Note 2, except in applying the treasury stock method
to outstanding options, net proceeds assumed received upon exercise were
increased by the amount of compensation cost attributable to future service
periods and not yet recognized as pro forma expense.
 
     A summary of the 1995 Plan for the years ended December 31, 1995 and 1996
is as follows:
 
EMPLOYEE OPTIONS
 
<TABLE>
<CAPTION>
                                                                 1995                  1996
                                                          ------------------   --------------------
                                                                    WEIGHTED               WEIGHTED
                                                                    AVERAGE                AVERAGE
                                                                    EXERCISE               EXERCISE
                                                          OPTIONS    PRICE      OPTIONS     PRICE
                                                          -------   --------   ---------   --------
<S>                                                       <C>       <C>        <C>         <C>
Outstanding at beginning of year........................       --    $  --       248,229    $2.05
Granted.................................................  261,295     2.05     1,238,038     5.34
Canceled................................................  (13,066)    2.25      (107,953)    3.11
Exercised...............................................       --       --        (1,208)    2.25
                                                          -------              ---------
Outstanding at end of year..............................  248,229     2.05     1,377,106     4.92
                                                          =======              =========
Exercisable at end of year..............................    1,067                 73,126
                                                          =======              =========
</TABLE>
 
     The weighted average exercise prices and weighted average fair values of
options granted during 1995 and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                          1995                           1996
                                              ----------------------------   ----------------------------
                                              NUMBER OF   FAIR    EXERCISE   NUMBER OF   FAIR    EXERCISE
                                               OPTIONS    VALUE    PRICE      OPTIONS    VALUE    PRICE
                                              ---------   -----   --------   ---------   -----   --------
<S>                                           <C>         <C>     <C>        <C>         <C>     <C>
Exercise price equal to market price........    54,963    $0.78    $1.35       466,605   $4.17    $7.25
Exercise price greater than market price....   206,333     0.44     2.25       771,433    1.52     4.17
                                               -------                       ---------
                                               261,296                       1,238,038
                                               =======                       =========
</TABLE>
 
                                      F-15
<PAGE>   76
 
                           NEW ERA OF NETWORKS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following table summarizes information about employee stock options
outstanding and exercisable at December 31, 1996:
 
<TABLE>
<CAPTION>
                      OPTIONS OUTSTANDING                 OPTIONS EXERCISABLE
           -----------------------------------------   -------------------------
             NUMBER OF        WEIGHTED
              OPTIONS          AVERAGE      WEIGHTED       NUMBER       WEIGHTED
RANGE OF   OUTSTANDING AT     REMAINING     AVERAGE    EXERCISABLE AT   AVERAGE
EXERCISE    DECEMBER 31,     CONTRACTUAL    EXERCISE    DECEMBER 31,    EXERCISE
 PRICES         1996        LIFE IN YEARS    PRICE          1996         PRICE
- --------   --------------   -------------   --------   --------------   --------
<C>        <C>              <C>             <C>        <C>              <C>
 $1.35          54,963          3.72         $1.35         18,321        $1.35
  2.25         653,917          4.05          2.25         33,442         2.25
  7.25         448,005          4.63          7.25         17,363         7.25
  9.00         220,221          4.98          9.00          4,000         9.00
             ---------                                     ------
             1,337,106                                     73,126
             =========                                     ======
</TABLE>
 
     During the three months ended March 31, 1997, employees exercised 31,823
stock options resulting in $86,798 of proceeds to the Company. As of March 31,
1997, the Company had 1,340,800 stock options outstanding of which 132,840 are
exercisable.
 
NONEMPLOYEE OPTIONS
 
     The Company has granted stock options to nonemployees for 17,579 shares at
a weighted average exercise price of $4.35 per share (range of $2.25 to $14.63)
and has recognized cost of $72,917 related to these options based on the value
of the services received. During 1996, 3,333 options to purchase Common Stock
were exercised at $2.25 per share. At December 31, 1996, 14,246 options remained
outstanding and exercisable at a weighted average exercise price of $6.92 per
share. The accounting for these options is the same under APB 25 and SFAS 123.
 
     During the three months ended March 31, 1997, nonemployees exercised 1,333
stock options resulting in proceeds to the Company of $15,000. As of March 31,
1997, the Company had 12,912 nonemployee stock options outstanding and
exercisable.
 
  Subsequent Events
 
     On January 3, 1997, the Company's Board of Directors adopted, effective as
of the Company's initial underwritten public offering, the 1997 Director Option
Plan ("Director Plan") and the 1997 Employee Stock Purchase Plan ("Purchase
Plan"). Each of these actions require stockholder approval.
 
     The Director Plan provides for the automatic grant to each non-employee
director, on September 1 of each year, of an option to purchase 5,000 shares of
the Company's common stock at an exercise price equal to the fair market value
of the common stock on the date of grant. In addition, each new non-employee
director joining the Board of Directors after the Company's initial public
offering will automatically be granted an option to purchase 16,666 shares of
the Company's common stock at an exercise price equal to the fair market value
at date of grant. The Board of Directors has reserved an aggregate of 100,000
shares for issuance under the Director Plan.
 
     The Purchase Plan will permit eligible employees to purchase common stock
through payroll deductions, which may not exceed 10% of an employee's eligible
compensation (or, for the initial plan period, 20% of eligible compensation) at
a price equal to 85% of the lower of the fair market value of the common stock
on the first or last day of the plan period. The Purchase Plan will terminate in
ten years. The Board of Directors has reserved an aggregate of 216,666 shares of
common stock for issuance under the Purchase Plan.
 
                                      F-16
<PAGE>   77
 
                           NEW ERA OF NETWORKS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Preferred Stock
 
     In May 1995, the Company issued 9,169,028 shares of $.01 par value Series A
Convertible Preferred Stock ("Series A"). One of the purchasers, the Company's
previous sole stockholder and the holder of the Company's $1,000,000 note
payable, paid $500,000 cash, canceled the $1,000,000 outstanding as of May 9,
1995 under the note payable (Note 3), and surrendered 1,018,781 shares of
Company common stock in exchange for 6,876,771 shares of Series A. The remaining
2,292,257 shares of Series A were purchased for $500,000 cash by an unrelated
entity.
 
     In September 1995, the Company issued 6,183,339 shares of $.01 par value
Series B Convertible Preferred Stock ("Series B") for $1,875,000 cash in a
private placement transaction.
 
     In June 1996, the Company issued 4,664,596 shares of $.01 par value Series
C Convertible Preferred Stock ("Series C") for $7,510,000 cash in another
private placement transaction.
 
     The holders of the Series A, Series B and Series C are entitled to a number
of votes per share equal to the number of shares into which each share of
preferred stock is then convertible.
 
     The holders of the Series A, Series B and Series C are entitled to receive
dividends at the same rate dividends are paid to holders of common stock.
Dividends to be paid will be determined based on the number of common shares
into which each preferred share is convertible at the time the dividend is
declared.
 
     Under the terms of the Series A, Series B and Series C agreements, each
stockholder, in certain circumstances, has the preemptive right to retain the
same percentage ownership in the Company upon the sale of additional stock.
 
     Holders of Series A, in the event of liquidation, have preference over the
distributions of funds made to holders of common stock. The liquidation
preference will be determined as the greater of (1) $0.218 per share plus any
dividends declared but unpaid, or (2) an amount per share as would have been
payable had each Series A share been converted to common stock (see above)
immediately prior to such liquidation.
 
     Holders of Series B and Series C, in the event of liquidation, or
consolidation or merger involving an exchange of stock whereon the current
stockholders retain less than 50% of the surviving entity's voting shares, have
preference over distributions of funds made to holders of Series A and common
stock. The liquidation preference will be determined as the greater of (1) $.303
per share in the case of Series B and $1.61 in the case of Series C plus any
dividends declared but unpaid or (2) an amount per share as would have been
payable had each share been converted to common stock (see above) immediately
prior to liquidation.
 
(6) RELATED PARTY TRANSACTIONS
 
     A company related by common ownership provides air transportation service
for the Company. Total expenses incurred during the years ended December 31,
1994, 1995 and 1996 and during the three months ended March 31, 1996 and 1997
for services rendered by this related party was $39,020, $84,506, $0, $0
(unaudited) and $0 (unaudited), respectively.
 
     Accrued liabilities at December 31, 1994 included $180,000 (representing
his entire annual salary) payable to the Company's president/majority
stockholder. This amount, along with an additional $60,000 for 1995 activity and
accrued interest of $59,184, was converted to preferred stock in May 1995.
 
  Note Receivable from Employee
 
     On August 1, 1996, the Company entered into an employment agreement whereby
the Company issued a revolving line of credit to an employee. Under this
agreement, the employee may borrow up to $170,000, interest accrues at the prime
interest rate, and borrowings are secured by the employee's stock options in the
Company. The agreement matures on January 1, 2008, and interest is payable on a
quarterly basis. Amounts
 
                                      F-17
<PAGE>   78
 
                           NEW ERA OF NETWORKS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
outstanding under this agreement at January 1, 1998 will be payable in equal
monthly installments through the maturity date. The amount outstanding under
this agreement was $50,000 at December 31, 1996 and $75,000 at March 31, 1997.
 
(7) COMMITMENTS AND CONTINGENCIES
 
  Cost of Software Licenses
 
     Cost of software licenses represents royalties payable to a customer under
the terms of a software development agreement. The customer is also a holder of
the Company's Series C preferred stock. The agreement grants the commercial
rights to the developed software to the Company. The Company is to pay the
customer a royalty of 30% of all license, maintenance, support and upgrade fees
derived from the software on a quarterly basis, subject to a cumulative maximum
of $1,900,000. In 1997, the agreement was amended to adjust the royalty
percentage to 10%. Effective January 1, 1997, the Company began accruing the
royalty at 10% and will continue at this rate until the cumulative maximum is
reached. Royalties for the year ended December 31, 1996 and the three months
ended March 31, 1996 and 1997 were approximately $1,022,000, $33,000 (unaudited)
and $250,000 (unaudited), respectively, including approximately $1,011,000 and
$1,076,000 (unaudited) reflected in accrued liabilities at December 31, 1996 and
March 31, 1997, respectively.
 
  Operating Leases
 
     The Company leases its administrative offices, research facilities and
certain equipment under noncancelable operating lease agreements. Rent expense
under these leases for the years ended December 31, 1994, 1995 and 1996 and the
three months ended March 31, 1996 and 1997 was $15,680, $81,680, $357,401,
$41,767 and $138,486, respectively. The following is a schedule of future
minimum lease payments for the years ending December 31:
 
<TABLE>
<S>                                                 <C>
1997..............................................  $  404,614
1998..............................................     385,734
1999..............................................     228,585
2000..............................................      82,411
                                                    ----------
                                                    $1,101,344
                                                    ==========
</TABLE>
 
     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 the proprietary rights of New
Paradigm, an application integration software company. New Paradigm alleged that
the Company's NEONet Formatter module will infringe certain patent claims set
forth in an application filed in both the United States and Europe.
 
     The Company does not believe that such allegations have merit and, if
pursued by New Paradigm, the Company intends to vigorously defend such claims.
The Company is also aware that a number of other organizations are currently
using 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 that the Company's use of NEON as a tradename
and/or trademark violates such respective companies' proprietary rights. As of
January 17, 1997, the Company has received no actual claims and currently does
not believe that the notices it has received will give rise to valid claims. It
is impossible for the Company to currently estimate the magnitude of the
financial impact, if any, these existing allegations might have on the Company's
business, financial condition, or results of operations.
 
                                      F-18
<PAGE>   79
 
                           NEW ERA OF NETWORKS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(8) MAJOR CUSTOMERS
 
     Various customers accounted for more than 10% of total revenue for the
following periods:
 
<TABLE>
<CAPTION>
                                                                            THREE MONTHS
                                               YEAR ENDED DECEMBER 31,    ENDED MARCH 31,
                                               -----------------------    ----------------
                  CUSTOMER                     1994     1995     1996      1996      1997
                  --------                     -----    -----    -----    ------    ------
                                                                            (UNAUDITED)
<S>                                            <C>      <C>      <C>      <C>       <C>
Merrill Lynch, Pierce, Fenner & Smith
  Incorporated...............................   N/A      69%      22%       67%       N/A
ADP Financial Information Services...........   N/A      N/A      16%       N/A       N/A
JP Morgan & Co...............................   N/A      N/A      14%       N/A       N/A
SunGard Financial Systems....................   N/A      N/A      13%       N/A       N/A
Ingalls Health System........................   20%      13%      N/A       N/A       N/A
United Western Medical Center................   70%      N/A      N/A       N/A       N/A
BZW Services, Ltd............................   N/A      N/A      N/A       N/A       25%
Chase Manhattan Bank.........................   N/A      N/A      N/A       N/A       13%
</TABLE>
 
                                      F-19
<PAGE>   80

Inside Back Cover  - NEON's logo


<PAGE>   81
 
     No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained herein and, if given
or made, such information or representation must not be relied upon as having
been authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the Common Stock offered hereby, nor does it constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
to any person in any jurisdiction in which it is unlawful to make such an offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any date subsequent to the date
hereof.
                          ---------------------------
 
                               Table of Contents
 
<TABLE>
<CAPTION>
                                             Page
                                             ----
<S>                                          <C>
Prospectus Summary.........................    3
Risk Factors...............................    6
Use of Proceeds............................   15
Dividend Policy............................   16
Capitalization.............................   17
Dilution...................................   18
Selected Financial Data....................   19
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations...............................   20
Business...................................   27
Management.................................   41
Certain Transactions.......................   49
Principal Stockholders.....................   51
Description of Capital Stock...............   53
Shares Eligible for Future Sale............   55
Underwriting...............................   56
Legal Matters..............................   57
Experts....................................   57
Additional Information.....................   58
Index to Consolidated Financial
  Statements...............................  F-1
</TABLE>
 
                             ---------------------
 
   
    Until July 13, 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
    
 
   
                                2,760,000 Shares
    
 
                                  [NEON LOGO]
 
                                  Common Stock
 
                         -----------------------------
                                   PROSPECTUS
   
                                 June 18, 1997
    
                         -----------------------------
                                 UBS Securities
 
                                Cowen & Company


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