<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: November 18, 1998
------------------
NEW ERA OF NETWORKS, INC.
-------------------------
(Exact name of registrant as specified in its charter)
State of Delaware
-----------------
(State or other jurisdiction of incorporation)
000-22043 84-1234845
--------- ----------
(Commission File Number) I.R.S. Employer Identification No.
7400 East Orchard Rd., Englewood, CO 80111
------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 694-3933
(Former name or former address, if changed since last report): N/A
---------------------
<PAGE> 2
ITEM 2. ACQUISITIONS OR DISPOSITION OF ASSETS
As previously disclosed in a Current Report on Form 8-K, filed on
October 14, 1998, New Era of Networks, Inc., a Delaware corporation (the
"Company"), acquired all the outstanding capital stock of Century Analysis
Incorporated, a California corporation ("CAI") by means of a Share Acquisition
Agreement (the "Agreement") by and among CAI, the shareholders of CAI, and the
Company that was effective September 1, 1998. The total purchase price was $23.0
million cash and 440,031 shares of the Company's common stock. An additional
195,569 shares of the Company's common stock are issuable contingent on CAI
meeting certain post-acquisition performance criteria. The description contained
in this Item 2 is qualified in its entirety by reference to the full text of the
Agreement, a copy of which is attached as Exhibit 2 to the Form 8-K.
Of the 440,031 shares of the Company's common stock used as
consideration in the acquisition, 119,786 shares were placed into escrow, to be
held as security for any losses incurred by the Company in the event of certain
breaches of the representations and warranties covered in the Agreement.
Pursuant to the Agreement, the Company also agreed to assume all options
outstanding under CAI's option plan. The Company used existing cash and cash
equivalent balances to fund the cash portion of the purchase price.
The consideration paid by the Company for the outstanding capital stock
of CAI was determined pursuant to arms' length negotiations and took into
account various factors concerning the valuation of the business of CAI,
including valuations of comparable companies and the operating results of CAI.
The financial statements of CAI and the pro forma financial information
relating to the acquisition, required to be filed in connection with the
acquisition pursuant to Items 7(a) and (b) of Form 8-K, are included herewith.
The unaudited pro forma statements of operations for the nine months ended
September 30, 1998 and the year ended December 31, 1997 give effect to the CAI
acquisition as if it had been consummated at the beginning of the earliest
period presented (January 1, 1997). Such unaudited pro forma financial data
should be read in conjunction with the notes thereto. The unaudited pro forma
statements of operations do not purport to represent what the Company's results
of operations or financial position actually would have been had such
transactions and events occurred on the dates specified, or to project the
Company's results of operations or financial position for any future period or
date. The pro forma adjustments are based upon available information and
represent, in the Company's opinion, all adjustments necessary to present fairly
the following unaudited pro forma financial data.
A pro forma balance sheet has not been included as the assets and
liabilities of CAI were consolidated in the September 30, 1998 balance sheet of
the Company reported on the Registrant's quarterly report on Form 10-Q filed on
November 16, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) The financial statements of the business acquired.
Century Analysis Incorporated:
Financial Statements for the years ended December 31, 1997
and 1996 and Independent Auditors' Report
Financial Statement for the eight months ended
August 31, 1998 (unaudited).
<PAGE> 3
(b) Pro forma financial information.
New Era of Networks, Inc.:
Pro Forma Statement of Operations,
Nine months ended September 30, 1998 (unaudited)
Pro Forma Statement of Operations,
Year ended December 31, 1997 (unaudited)
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NEW ERA OF NETWORKS, INC.
/s/ STEPHEN E. WEBB
----------------------------------
Stephen E. Webb, Senior Vice
President and Chief Financial Officer
Date: November 18, 1998
<PAGE> 5
EXHIBIT INDEX
<TABLE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
99(a) Financial Statements of the Business Acquired
99(b) Pro Forma Financial Information
</TABLE>
<PAGE> 1
CENTURY ANALYSIS INCORPORATED
FINANCIAL STATEMENTS FOR THE YEARS
ENDED DECEMBER 31, 1997 AND 1996
AND INDEPENDENT AUDITORS' REPORT
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Century Analysis Incorporated:
We have audited the accompanying balance sheets of Century Analysis Incorporated
as of December 31, 1997 and 1996, and the related statements of operations,
shareholders' equity (deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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, such financial statements present fairly, in all material
respects, the financial position of Century Analysis Incorporated at December
31, 1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, effective January 1, 1996
the Company changed its method of accounting for depreciation of property and
equipment.
/s/ Deloitte & Touche LLP
San Francisco, California
September 30, 1998
<PAGE> 3
CENTURY ANALYSIS INCORPORATED
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 169 $ 405
Accounts receivable, less allowance for doubtful
accounts of $456 in 1997 and $109 in 1996 6,748 5,382
Prepaid expenses and other current assets 313 315
---------- ----------
Total current assets 7,230 6,102
PROPERTY AND EQUIPMENT, NET 2,586 1,500
OTHER ASSETS 154 64
---------- ----------
TOTAL ASSETS $ 9,970 $ 7,666
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 1,203 $ 285
Accrued payroll 774 685
Accrued liabilities 1,008 601
Bank line of credit 2,850 1,575
Notes payable to shareholders and others 233 181
Deferred revenue 3,922 3,903
---------- ----------
Total current liabilities 9,990 7,230
LONG TERM LIABILITIES:
Notes payable to shareholders and others 381 102
Deferred revenue 390 181
---------- ----------
Total liabilities 10,761 7,513
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, par value $0.0001 per share: authorized,
15,000,000 shares; issued and outstanding, 10,000,000 shares 1 1
Retained earnings (accumulated deficit) (792) 152
---------- ----------
Total shareholders' equity (deficit) (791) 153
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 9,970 $ 7,666
========== ==========
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE> 4
CENTURY ANALYSIS INCORPORATED
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
REVENUES:
License fees $ 8,721 $ 6,967
Maintenance 4,195 3,265
Consulting services 4,652 4,619
Other 37 33
---------- ----------
Total revenues 17,605 14,884
OPERATING EXPENSES:
Costs of licenses, consulting services, and maintenance 6,211 4,456
Research and development 2,363 2,466
Sales and marketing 4,418 3,839
General and administrative 4,874 3,617
Depreciation 427 272
---------- ----------
Total operating expenses 18,293 14,650
INCOME (LOSS) FROM OPERATIONS (688) 234
INTEREST EXPENSE 255 116
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT (943) 118
INCOME TAX EXPENSE 1 1
---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT (944) 117
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 146
---------- ----------
NET INCOME (LOSS) $ (944) $ 263
========== ==========
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE> 5
CENTURY ANALYSIS INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK EARNINGS SHAREHOLDERS'
-------------------------- (ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT) (DEFICIT)
<S> <C> <C> <C> <C>
BALANCES AT
JANUARY 1, 1996 10,000,000 $ 1 $ 443 $ 444
NET INCOME 263 263
DISTRIBUTIONS TO
SHAREHOLDERS (554) (554)
------------ ---- ------- -------
BALANCES AT
DECEMBER 31, 1996 10,000,000 1 152 153
NET LOSS (944) (944)
------------ ---- ------- -------
BALANCES AT
DECEMBER 31, 1997 10,000,000 $ 1 $ (792) $ (791)
============ ==== ======= =======
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE> 6
CENTURY ANALYSIS INCORPORATED
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (944) $ 263
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Cumulative effect of accounting change (146)
Depreciation 427 272
Changes in assets and liabilities:
Accounts receivable (1,364) (1,470)
Other assets (89) (294)
Accounts payable 918 (75)
Accrued payroll 88 115
Accrued liabilities 406 245
Deferred revenue 230 1,847
------- -------
Net cash provided by (used in) operating activities (328) 757
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment (1,513) (773)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on bank line of credit, net 1,275 950
Proceeds from notes payable to shareholders and others 330 6
Distributions to shareholders (554)
------- -------
Net cash provided by financing activities 1,605 402
------- -------
NET INCREASE (DECREASE) IN CASH (236) 386
CASH AT BEGINNING OF YEAR 405 19
------- -------
CASH AT END OF YEAR $ 169 $ 405
======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid $ 249 $ 101
Income taxes paid
-- 5
</TABLE>
See accompanying notes to financial statements
-5-
<PAGE> 7
CENTURY ANALYSIS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GENERAL - Century Analysis Incorporated (the "Company"), a California S
Corporation, designs, develops, markets and supports software tool
products that provide productivity, connectivity and information
management to larger enterprises, and also provides implementation,
consulting and development services to its customers. The Company's
principal markets for its products and related services cross all
industries with a focus on the health care, telecommunications and
manufacturing industries.
USE OF ESTIMATES - 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.
Significant estimates used in the financial statements include the
estimates of doubtful accounts and sales tax liabilities. The amounts the
Company will ultimately incur or recover could differ materially from the
Company's current estimates. The underlying assumptions and facts
supporting these estimates could change in 1998 or thereafter.
REVENUE RECOGNITION - The Company's revenues are derived from three
principal sources: (i) fees for the perpetual license of the Company's
proprietary software products, (ii) revenue from consulting services, and
(iii) revenue from maintenance agreements for maintaining, supporting and
providing periodic upgrades of the Company's software products. The
Company's revenue recognition policies follow Statement of Position
("SOP") 91-1 Software Revenue Recognition. The Company recognizes license
fee revenue upon delivery of the software product to the customer. The
portion of revenues from new license agreements which relate to the
Company's obligation to provide customer support is deferred and
recognized ratably over the contract support period, which is generally
one year. Software maintenance contracts are generally renewable on an
annual basis, although the Company also negotiates longer-term maintenance
contracts from time to time. Revenues from separately priced maintenance
agreements are recognized ratably over the term of the agreements.
Consulting service revenues are recognized as the services are performed.
Revenues from contracts that contain both licenses and consulting services
components are recognized on the percentage of completion method based
upon total hours incurred to date as a percentage of estimated total hours
to be incurred.
CONCENTRATION OF CREDIT RISK - The Company sells principally on a direct
customer basis and also through a network of distributors. The Company
performs ongoing credit evaluations of its customers and distributors
financial condition and maintains reserves for potential credit losses.
PROPERTY AND EQUIPMENT is stated at cost. Depreciation on computer
equipment and furniture and equipment is computed on the straight line
method based on useful lives of 5 to 7 years. Depreciation on leasehold
improvements is calculated on the straight-line method over the shorter of
the estimated useful lives of the assets or the lease term.
-6-
<PAGE> 8
DEFERRED REVENUE results from cash collections and billed receivables for
which revenue has not been recognized on software license and maintenance
agreements.
RESEARCH AND DEVELOPMENT EXPENSES - Software development costs incurred
prior to achieving technological feasibility are considered research and
development expenses and are expensed as incurred. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized software costs requires considerable judgment by management
with respect to certain factors affecting the Company's products,
including anticipated future gross revenues, estimated economic useful
life and changes in hardware and software technologies. Generally, the
establishment of technological feasibility of the Company's products and
general release coincide. As a result, the Company has not capitalized any
software development costs to date.
INCOME TAXES - The Company has elected S Corporation status for income tax
purposes. The Company is not subject to federal income taxes, as these are
the responsibility of the individual shareholders. However, California
requires the annual payment of a minimum tax of $1 or 1.5% of corporate
taxable earnings.
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees.
STOCK SPLIT - In November 1996, the Company amended its articles of
incorporation to increase the number of authorized common shares to
15,000,000 and effected a ten thousand-for-one stock split of its
outstanding shares of common stock. All share amounts in the accompanying
financial statements have been restated to give effect to such stock
split.
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF - The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on January 1, 1996. The statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Adoption of this statement did not
have an impact on the Company's financial position, results of operations
or liquidity.
RECENTLY ISSUED ACCOUNTING STANDARDS - In September 1997, the Financial
Accounting Standards Board issued Statements of Financial Standards
("SFAS") No. 130, Reporting of Comprehensive Income, which requires that
an enterprise report, by major components and as a single total, the
change in net assets during the period from nonowner sources. Adoption of
this statement will not impact the Company's financial position, results
of operations or cash flows and any effect will be limited to the form and
content of its disclosures. This statement is effective for fiscal years
beginning after December 15, 1997.
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued SOP 97-2
Software Revenue Recognition. This statement provides guidance on applying
generally accepted accounting principles in recognizing revenues on
software transactions. SOP 97-2 supersedes SOP 91-1, under which the
Company's revenues are recognized. This Statement is effective for
transactions entered into in fiscal years beginning after December 15,
1997. The
-7-
<PAGE> 9
Company is currently evaluating SOP 97-2 to determine what effect, if any,
SOP 97-2 may have on its revenue recognition policies.
RECLASSIFICATION - Certain 1996 amounts have been reclassified to conform
with 1997 presentations.
2. ACCOUNTING CHANGE
Effective January 1, 1996, the Company changed its method of accounting
for depreciation of property and equipment from an accelerated method to
the straight line method. The Company believes that this change in
accounting method is preferable because it conforms to the predominant
industry practice. The cumulative effect at January 1, 1996 of adopting
this accounting change was an increase in the Company's net income of
$146. The effect of this accounting change in 1996, in addition to the
cumulative effect noted above, was an increase in the Company's net income
of $83.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Computer equipment $ 2,452 $ 1,650
Furniture and equipment 667 562
Leasehold improvements and other 1,015 416
--------- ---------
Total 4,134 2,628
Less accumulated depreciation (1,548) (1,128)
--------- ---------
Property and equipment, net $ 2,586 $ 1,500
========= =========
</TABLE>
4. BANK LINE OF CREDIT
At December 31, 1997, the Company had a $3,000 working capital bank line
of credit, which was due to expire March 2, 1998. Borrowings bore interest
at a variable rate of 0.9% above the bank's reference rate (9.4% at
December 31, 1997). The credit agreement provided that the line of credit
be collateralized by the personal assets of the two primary shareholders
and officers of the Company and the Company's trade receivables, and
contained restrictions related to various matters, including the Company's
ability to effect mergers or acquisitions without the lender's approval.
The agreement also required the Company to maintain a minimum level of
tangible net worth, limit capital expenditures and maintain certain
defined ratios of cash flow liquidity and leverage and submit audited
financial statements to the bank within 120 days of year-end. As of
December 31, 1997 and 1996, $2,850 and $1,575, respectively, were
outstanding under the bank line of credit.
In 1998, the Company extended the maturity date of the bank line of credit
until September 2, 1998. As of December 31, 1997 and thereafter, the
Company was not in compliance with certain financial covenants and the
requirement to submit audited financial statements to the bank. On
September 30, 1998, the bank was repaid the then outstanding borrowings of
$2,980 in connection with the sale of the Company (see Note 9).
-8-
<PAGE> 10
5. NOTES PAYABLE TO SHAREHOLDERS AND OTHERS
Long-term debt consisted of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Note payable to shareholders (1% above prime; 9.5% at December 31,
1997) principal due annually through 1998 $ 48 $ 48
Notes payable to bank (variable interest rate, 9.9% at December 31,
1997) principal and interest due through 2002 547 207
Note payable (7.3% at December 31, 1997), principal due
monthly through 1999 19 28
-------- --------
Total 614 283
Less current portion (233) (181)
-------- --------
Long-term portion $ 381 $ 102
======== ========
</TABLE>
Principal repayments on long-term debt are scheduled as follows at
December 31, 1997:
<TABLE>
<S> <C>
1998 $ 233
1999 182
2000 105
2001 49
2002 45
Total $ 614
======
</TABLE>
6. LEASE COMMITMENTS WITH RELATED PARTIES AND OTHERS
The Company leases, under operating leases, office space and computer
equipment with varying expiration dates through 2017. The leases generally
provide for minimum annual rentals and payment of taxes, insurance and
maintenance costs. Rental expense for operating leases was $568 for 1997
and $443 for 1996.
The Company has a lease agreement which expires in 2017 with the Company's
two primary shareholders for the rental of corporate offices. The building
is owned by the two shareholders. Annual rent under this agreement was
$210 in 1997 and 1996.
In 1997, the Company entered into another lease agreement which expires in
2016 with the Company's two primary shareholders for the rental of the new
corporate headquarters which is owned by the two shareholders. Annual rent
under this agreement is $361 (with CPI escalations) and rental expense was
$150 in 1997.
-9-
<PAGE> 11
Future minimum lease payments under noncancelable operating leases at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 812
1999 768
2000 740
2001 736
2002 664
Thereafter 8,640
---------
Total $ 12,360
=========
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) tax-deferred savings plan covering all of its
employees. The Company also has a discretionary noncontributory
profit-sharing plan covering all employees. Company matching contributions
are optional under the plan. The Company's contribution expense was $285
in 1997 and 1996.
8. STOCK OPTION PLAN
Under the 1996 Equity Incentive Plan (the "Option Plan") the Company may
grant options to purchase up to 1,000,000 shares of common stock to
employees, directors and consultants at prices not less than the fair
market value at date of grant for incentive stock options. These options
generally expire 10 years from the date of grant and vest ratably over a
four-year period. At December 31, 1997, the Company had reserved 570,000
shares of common stock for future options grants.
Option activity in 1997 under the plan was as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE
PRICE
<S> <C> <C>
Granted (weighted average fair value of $0.26) 430,000 $ 1.25
Exercised -- --
Canceled -- --
---------- --------
Outstanding, December 31, 1997 430,000 $ 1.25
</TABLE>
Additional information regarding options outstanding as of December 31,
1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AS OF 12/31/97 CONTRACTUAL LIFE PRICE AS OF 12/31/97 PRICE
<S> <C> <C> <C> <C> <C>
$0.75 - $2.78 430,000 9.27 $ 1.25 -- --
</TABLE>
ADDITIONAL STOCK PLAN INFORMATION - As discussed in Note 1, the Company
continues to account for its stock-based awards using the intrinsic value
method in accordance with Accounting Principles Board No. 25, Accounting
for Stock Issued to Employees and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock arrangements.
-10-
<PAGE> 12
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, ("SFAS 123") requires the disclosure of pro
forma net income had the Company adopted the fair value method as of the
beginning of fiscal 1997. Under SFAS 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value
of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect
the calculated values. The Company's calculations were made using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected life, 5.5 years; zero volatility; risk free interest
rate, 6.5% in 1997; and no dividends during the expected term. The
Company's calculations are based on a multiple option valuation approach
and forfeitures are recognized as they occur. If the computed fair values
of the 1997 awards had been amortized to expense over the vesting period
of the awards, pro forma net loss would have been $968 in 1997.
9. SALE OF THE COMPANY
On September 30, 1998, 100% of the Company's common stock was sold to New
Era of Networks, Inc. ("NEON") for approximately $41 million. The sale
price consisted of approximately $23 million in cash, and 440,031 shares
of NEON common stock valued at $18 million. NEON also paid $2.98 million
to the bank (see Note 4) in connection with the closing. An additional
195,569 shares of NEON common stock are issuable upon meeting certain
performance criteria.
******
-11-
<PAGE> 13
CENTURY ANALYSIS INCORPORATED
BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE><CAPTION>
AUGUST 31,
1998
------------
<S> <C>
Current assets:
Cash ..................................................... $ 95,680
Accounts receivable, net of allowance for uncollectible
accounts of $500,000 .................................. 3,408,266
Unbilled revenue.......................................... 539,925
Prepaid expenses and other................................ 123,641
------------
Total current assets.............................. 4,167,512
------------
Property and equipment:
Computer equipment and software........................... 2,604,179
Furniture, fixtures and equipment......................... 724,151
Leasehold improvements.................................... 1,020,463
------------
4,348,793
Less -- accumulated depreciation.......................... (1,863,596)
------------
Property and equipment, net............................... 2,485,197
Other assets, net........................................... 151,649
------------
Total assets...................................... $ 6,804,358
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,004,540
Accrued liabilities....................................... 1,392,481
Notes payable -- banks.................................... 3,205,531
Current portion of deferred revenue....................... 3,644,390
------------
Total current liabilities......................... 10,246,942
Notes payable -- banks...................................... 540,042
Deferred revenue............................................ 1,663,098
------------
Total liabilities................................. 12,450,082
Stockholders' equity:
Common stock, $.0001 par value, 15,000,000 shares
authorized; 10,000,000 shares issued and
outstanding............................................ 1,000
Accumulated deficit....................................... (5,646,724)
------------
Total stockholders' equity........................ (5,645,724)
------------
Total liabilities and stockholders' equity........ $ 6,804,358
============
</TABLE>
See notes to unaudited financial statements.
<PAGE> 14
CENTURY ANALYSIS INCORPORATED
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
AUGUST 31, 1998
------------------
<S> <C>
Revenues:
Software licenses.................... $ 1,006,438
Services and maintenance............. 6,276,907
-----------
Total revenues............... 7,283,345
Cost of revenues:
Cost of software licenses............ 347,709
Cost of services and maintenance..... 4,039,615
-----------
Total cost of revenues....... 4,387,324
-----------
Gross profit........................... 2,896,021
Operating expenses:
Sales and marketing.................. 3,494,333
Research and development............. 2,108,204
General and administrative........... 1,873,163
-----------
Total operating expenses..... 7,475,700
-----------
Loss from operations................... (4,579,679)
Other expense, net..................... (298,124)
-----------
Loss before provision for income
taxes................................ (4,877,803)
Provision for income taxes............. --
-----------
Net loss............................... $(4,877,803)
===========
</TABLE>
See notes to unaudited financial statements.
4
<PAGE> 15
CENTURY ANALYSIS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION.
The accompanying interim financial statements have been prepared by Century
Analysis Incorporated, without audit. In the opinion of management, all
adjustments are of a normal and recurring nature and are necessary for a fair
presentation of the financial position and results of operations for the periods
presented. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
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.
<PAGE> 1
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following pro forma condensed statements of operations are set
forth herein to give effect to the acquisition of CAI by NEON as if such
acquisition had occurred as of the beginning of the earliest period presented
(January 1, 1997) by combining the statements of operations data of (i) the
Company and CAI for the year ended December 31, 1997 and (ii) the Company and
CAI for the nine months ended September 30, 1998. The pro forma financial
information does not reflect any potential cost savings which may be obtained
following the acquisition. The pro forma adjustments and assumptions are based
on estimates, evaluations and other data currently available. The pro forma
condensed statements of operations are provided for illustrative purposes only
and are not necessarily indicative of the combined results of operations that
would have been reported had the acquisition occurred on January 1, 1997, nor
does it represent a forecast of the combined future results of operations for
any future period. All information contained herein should be read in
conjunction with the Consolidated Financial Statements and the notes thereto of
the Company and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in the Company's Form 10-K for the year ended
December 31, 1997, the financial statements and notes thereto of CAI included in
the attached Exhibits to this Form 8-K/A, and the notes to the Unaudited Pro
Forma Statements of Operations.
<PAGE> 2
NEW ERA OF NETWORKS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Neon Historical CAI Historical Combined Combined
Nine Months Ended Eight Months Ended Nine Months Ended Nine Months Ended
September 30, August 31, September 30, Pro Forma September 30,
1998 1998(1) 1998 Adjustments 1998
---------------- ----------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses $ 24,553,964 $ 1,006,438 $ 25,560,402 $ $ 25,560,402
Services and maintenance 13,951,368 6,276,907 20,228,275 20,228,275
------------- ------------ ------------- ------------ ------------
Total revenues 38,505,332 7,283,345 45,788,677 45,788,677
------------- ------------ ------------- ------------ ------------
Cost of revenues:
Cost of software licenses 1,115,947 347,709 1,463,656 1,463,656
Cost of services and maintenance 7,179,483 4,039,615 11,219,098 11,219,098
------------- ------------ ------------- ------------ ------------
Total cost of revenues 8,295,430 4,387,324 12,682,754 12,682,754
------------- ------------ ------------- ------------ ------------
Gross Profit 30,209,902 2,896,021 33,105,923 33,105,923
Operating Expenses:
Sales and marketing 13,165,903 3,494,333 16,660,236 16,660,236
Research and development 9,775,708 2,108,204 11,883,912 11,883,912
General and administrative 3,963,301 1,873,163 5,836,464 5,836,464
Charge for acquired in-process
research and development 17,597,000(3) -- 17,597,000 (13,857,000) (4a) 3,740,000
Amortization of intangibles 612,885 -- 612,885 2,731,715 (4b) 3,344,600
------------- ------------ ------------- ------------ ------------
Total operating expenses 45,114,797 7,475,700 52,590,497 11,125,285 41,465,212
------------- ------------ ------------- ------------ ------------
Loss from operations (14,904,895) (4,579,679) (19,484,574) 11,125,285 (8,359,289)
Other income (expense), net 1,682,979 (298,124) 1,384,855 (874,000) (5) 510,853
------------- ------------ ------------- ------------ ------------
Loss before provision for income taxes (13,221,916) (4,877,803) (18,099,719) 10,251,285 (7,848,434)
Provision for income taxes -- -- -- -- --
------------- ------------ ------------- ------------ ------------
Net loss $ (13,221,916) $ (4,877,803) $ (18,099,719) $ 10,251,285 $ (7,848,434)
============= ============ ============= ============ ============
Historical and pro forma net loss per
common share $ (1.26) $ (.72)(2)
============= ============
Historical and pro forma weighted
average shares of Common Stock
outstanding 10,490,740 10,930,771
============= ============
</TABLE>
See accompanying notes to unaudited pro forma statements of operations.
<PAGE> 3
NEW ERA OF NETWORKS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Neon Historical CAI Historical Combined Combined
Year ended Year ended Year ended Year ended
December 31, December 31, December 31, Pro Forma December 31,
1997 1997 1997 Adjustments 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses $ 15,969,840 $ 8,729,103 $ 24,698,943 $ -- $ 24,698,943
Services and maintenance 6,675,602 8,876,284 15,551,886 -- 15,551,886
------------ ------------ ------------ ------------ ------------
Total revenues 22,645,442 17,605,387 40,250,829 -- 40,250,829
------------ ------------ ------------ ------------ ------------
Cost of revenues:
Costs of software licenses 899,710 1,362,243 2,261,953 -- 2,261,953
Cost of services and maintenance 4,442,908 4,595,349 9,038,257 -- 9,038,257
------------ ------------ ------------ ------------ ------------
Total costs and expenses 5,342,618 5,957,592 11,300,210 -- 11,300,210
------------ ------------ ------------ ------------ ------------
Gross Profit 17,302,824 11,647,795 28,950,619 -- 28,950,619
Operating Expenses:
Sales and marketing 8,823,830 7,220,768 16,044,598 -- 16,044,598
Research and development 7,730,411 2,363,279 10,093,690 -- 10,093,690
General and administrative 2,334,185 2,386,054 4,720,239 -- 4,720,239
Charge for acquired in-process research
and development 2,600,000 -- 2,600,000 2,600,000
Amortization of intangibles 65,836 -- 65,836 4,097,573(4b) 4,163,409
------------ ------------ ------------ ------------ ------------
Total operating expenses 21,554,262 11,970,101 33,524,363 4,097,573 37,621,936
------------ ------------ ------------ ------------ ------------
Loss from operations (4,251,438) (322,306) (4,573,744) (4,097,573) (8,671,317)
Other income (expense), net 744,805 (622,509) 122,296 (656,000)(5) (533,704)
------------ ------------ ------------ ------------ ------------
Loss before provision for income taxes (3,506,633) (944,815) (4,451,448) (4,753,573) (9,205,021)
Provision for income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss $ (3,506,633) $ (944,815) $ (4,451,448) $ (4,753,573) $ (9,205,021)
============ ============ ============ ============ ============
Historical pro forma net loss per common share $ (0.64) $ (1.34)(2)
============ ============
Historical pro forma weighted average shares of
common stock outstanding 5,479,151 6,877,515 (5)
============ ============
</TABLE>
See accompanying notes to unaudited pro forma statements of operations.
<PAGE> 4
NEW ERA OF NETWORKS, INC.
NOTES TO UNAUDITED PRO FORMA
STATEMENTS OF OPERATIONS
Effective as of September 1, 1998, NEON acquired all of the outstanding
capital stock of CAI by means of a Share Acquisition Agreement by and among CAI,
the shareholders of CAI and NEON.
The aggregate consideration paid by the Company was $41,000,000, payable as
follows: approximately $23,000,000 in cash and approximately $18,000,000 through
the issuance of 440,031 unregistered shares of the Company's common stock. The
Company also issued stock options exercisable for shares of the Company's common
stock to assume all outstanding CAI stock options valued at approximately
$1,000,000. An additional 195,569 unregistered shares of the Company's common
stock are issuable contingent upon the achievement of certain performance
criteria by CAI. The Company expects that the fees and expenses related to the
acquisition will be approximately $1,500,000. The acquisition was accounted for
under the purchase method of accounting and, accordingly, the assets,
liabilities and operating results of CAI were included in NEON's consolidated
financial statements from the effective date of the acquisition.
An independent valuation of CAI's net assets was performed to assist in the
allocation of the purchase price. Approximately $13,857,000 of the purchase
price represented the intangible value of in-process research and development
projects that had not yet reached technical feasibility. The related technology
has no alternative future use and will require substantial additional
development by the Company. This amount was charged to operations in the quarter
ended September 30, 1998. A portion of the purchase price was also assigned to
marketable software products ($5,814,000) and goodwill ($29,348,000), which are
being amortized on a straight-line basis over five- and ten-year periods,
respectively. CAI's other assets were valued at approximately $6,800,000 and its
liabilities assumed totaled approximately $12,500,000.
The NEON and CAI statements of operations have been combined for the year
ended December 31, 1997 and the nine month period ended September 30, 1998 for
the presentation of unaudited pro forma statements of operations only. For pro
forma purposes, the historical statements of operations of NEON and CAI have
been combined as if the acquisition had occurred as of the beginning of the
earliest period presented (January 1, 1997). These unaudited pro forma
statements of operations, including the notes thereto, should be read in
conjunction with the historical consolidated financial statements of NEON and
CAI for the indicated periods. Certain reclassifications to the CAI historical
financial statements have been made to conform to the NEON presentation.
NOTE 1. The CAI acquisition was effective as of September 1, 1998 and,
accordingly, CAI's September 1998 results of operations have been consolidated
in NEON's historical statement of operations for the nine months ended September
30, 1998.
NOTE 2. The unaudited pro forma net loss per share is based on the actual
weighted average number of shares of NEON common stock outstanding during the
period, adjusted to give effect to 440,031 shares of the Company's common stock
issued pursuant to this acquisition. For the year ended December 31, 1997,
weighted average shares outstanding are further adjusted as described in Note 5
below.
NOTE 3. The statement of operations for the nine months ended September 30,
1998 includes the $13.9 million charge for acquired in-process research and
development arising from the Acquisition.
NOTE 4. Pro forma adjustments related to the CAI purchase price allocation
are as follows:
(a) Reflects the add-back of the charge for in-process research and
development related to the CAI acquisition and included in the historical
statement of operations of NEON for the nine months ended September 30, 1998.
The pro forma combined statement of operations excludes such write-off of
purchased research and development due to its non-recurring nature.
(b) Reflects the amortization of intangibles associated with the purchase
of CAI as if the acquisition was completed as of January 1, 1997.
NOTE 5. For pro forma purposes, the cash portion of the purchase price, $23
million, was assumed to have been funded from proceeds of NEON's initial public
offering ("IPO") in June 1997. Consequently, the pro forma weighted average
shares outstanding for 1997 assume the issuance of common shares for $23,000,000
on January 1, 1997, at the IPO price of $12.00 per share. Interest income of
approximately $656,000 earned on IPO proceeds of $23,000,000, at an assumed
average rate of 5.7% (which approximates NEON's rate of return on its short-term
investments), was eliminated for the period of 1997 subsequent to the IPO.
For the nine months ended September 30, 1998, the pro forma adjustment to
interest income of $874,000 is based on an assumed average rate of 5.7% applied
to the cash portion of the purchase price, $23,000,000, for the period of 1998
prior to the effective date of the acquisition.
