<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K/A
[X] CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: JUNE 9, 1999
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Commission File Number: 000-22043
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NEW ERA OF NETWORKS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1234845
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7400 EAST ORCHARD ROAD
ENGLEWOOD, COLORADO 80111
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 694-3933
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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<PAGE> 2
ITEM 2. ACQUISITIONS OR DISPOSITION OF ASSETS
On June 9, 1999, New Era of Networks, Inc., a Delaware corporation (the
"Registrant"), acquired Convoy Corporation, a Delaware corporation ("Convoy")
pursuant to an Agreement and Plan of Reorganization (the "Agreement") by and
among Convoy, the Registrant and Cobra Acquisition Corporation ("Merger Sub"), a
Delaware corporation and a wholly owned subsidiary of the Registrant. Pursuant
to the Agreement, Merger Sub was merged with and into Convoy (the "Merger") and
the Convoy equityholders received, or will receive, a total of approximately
912,000 shares of the Registrant's common stock in exchange for their Convoy
equity. The description contained in this Item 2 of the Merger and the Agreement
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 approximately 912,000 shares of the Registrant's common stock issued
in the Merger, approximately 88,000 shares were placed into escrow, to be held
as security for any losses incurred by the Registrant in the event of certain
breaches of the representations and warranties covered in the Agreement.
Pursuant to the Agreement, the Registrant also assumed all options outstanding
under Convoy's stock option plan.
The consideration paid by the Registrant was determined pursuant to arms'
length negotiations and took into account various factors concerning the
valuation of the business of Convoy, including valuations of comparable
companies and the business and operating results of Convoy.
The financial statements of Convoy 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 six months ended June
30, 1999 and the year ended December 31, 1998 give effect to the Convoy
acquisition as if it had been consummated at the beginning of the earliest
period presented (January 1, 1998). 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 unaudited pro forma financial data.
A pro forma balance sheet has not been included as the assets and
liabilities of Convoy were consolidated in the June 30, 1999 balance sheet of
the Company reported on the Registrant's quarterly report on Form 10-Q filed on
August 16, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) The financial statements of the business acquired.
Convoy Corporation:
Financial Statements for the years ended March 31, 1999 and 1998
together with Independent Auditors' Report
(b) Pro forma financial information.
New Era of Networks, Inc.:
Pro Forma Statement of Operations, six months ended June 30, 1999
(unaudited)
Pro Forma Statement of Operations, year ended December 31, 1998
(unaudited)
2
<PAGE> 3
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, thereunto duly authorized.
NEW ERA OF NETWORKS, INC.
Dated August 23, 1999 By: /s/ STEPHEN E. WEBB
-------------------------------------
Stephen E. Webb
Senior Vice President and Chief
Financial Officer
3
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
99.A Financial Statements of Convoy Corporation
99.B Pro Forma Statements of Operations
<PAGE> 1
EXHIBIT 99.A
Consolidated Financial Statements
Convoy Corporation
Years ended March 31, 1999 and 1998
with Report of Independent Auditors
<PAGE> 2
Convoy Corporation
Consolidated Financial Statements
Years ended March 31, 1999 and 1998
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors....................................1
Consolidated Financial Statements
Consolidated Balance Sheets.......................................2
Consolidated Statements of Operations.............................3
Consolidated Statements of Stockholders' Equity (Deficit).........4
Consolidated Statements of Cash Flows.............................5
Notes to Consolidated Financial Statements........................6
</TABLE>
<PAGE> 3
Report of Independent Auditors
The Board of Directors and Stockholders
Convoy Corporation
We have audited the accompanying consolidated balance sheets of Convoy
Corporation as of March 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Convoy
Corporation at March 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Convoy Corporation will continue as a going concern. As further described
in Note 1 to the consolidated financial statements, the Company has incurred
operating losses since inception. This condition raises substantial doubt about
its ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
Walnut Creek, California
May 21, 1999
1
<PAGE> 4
Convoy Corporation
Consolidated Balance Sheets
(In thousands except share data)
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 240 $ 230
Accounts receivable, less allowances (1999-$479; 1998-$87) 2,399 1,648
Prepaid expenses and other current assets 239 14
------- -------
Total current assets 2,878 1,892
Equipment and improvements, net 628 153
Other assets 78 58
------- -------
Total assets $ 3,584 $ 2,103
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities:
Line of credit 650 125
Accounts payable $ 1,171 $ 189
Accrued compensation and related liabilities 1,457 536
Deferred revenue 1,545 590
Borrowings under
Advances from stockholders 156 --
Current portion of capital lease obligations 56 --
------- -------
Total current liabilities 5,035 1,440
Capital lease obligations, less current portion 20 --
Deferred rent 35 31
Convertible promissory notes 1,537 --
Stockholders' equity (deficit):
Convertible preferred stock, no par value:
Authorized shares - 15,000,000
Issued and outstanding shares - 9,334,945 in 1999 and 1998 4,069 4,069
Common stock, no par value;
Authorized shares - 20,000,000
Issued and outstanding shares - 3,387,397 in 1999 and
2,693,958 in 1998 872 31
Notes receivable from stockholders (83) (19)
Deferred compensation (349) --
Accumulated deficit (7,552) (3,449)
------- -------
Total stockholders' equity (deficit) (3,043) 632
------- -------
Total liabilities and stockholders' equity $ 3,584 $ 2,103
======= =======
</TABLE>
See accompanying notes.
2
<PAGE> 5
Convoy Corporation
Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998
-------- --------
<S> <C> <C>
Revenues:
License $ 7,172 $ 3,639
Services 3,061 574
-------- --------
Total revenues 10,233 4,213
Cost of revenues 1,559 513
-------- --------
8,674 3,700
Operating expenses:
Selling and marketing 7,775 2,419
Research and development 1,813 880
General and administrative 2,870 1,197
-------- --------
Total operating expenses 12,458 4,496
-------- --------
Loss from operations (3,784) (796)
Interest expense and other, net 319 (15)
-------- --------
Net loss $ (4,103) $ (781)
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 6
Convoy Corporation
Consolidated Statements of Stockholders' Equity (Deficit)
For the years ended March 31, 1999 and 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
-------------------------------------------------
SERIES A SERIES B COMMON STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1997 2,235,439 $ 886 3,910,000 $ 1,931 3,075,625 $ 51
Issuance of common stock in exchange
for notes receivable -- -- -- -- 285,000 12
Retirement and cancellation of
common stock and cancellation of
related notes receivable -- -- -- -- (666,667) (32)
Forgiveness of notes receivable to
stockholders -- -- -- -- -- --
Issuance of Series A convertible
preferred stock, net of issuance 3,189,506 1,252 -- -- -- --
costs
Net loss -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balances at March 31, 1998 5,424,945 2,138 3,910,000 1,931 2,693,958 31
Issuance of common stock in exchange
for notes receivable -- -- -- -- 655,000 76
Retirement and cancellation of
common stock and related notes
receivable -- -- -- -- (69,167) (5)
Common stock issued under stock
option plan -- -- -- -- 107,606 4
Forgiveness of notes receivable to
stockholders -- -- -- -- -- --
Issuance of warrants in connection
with convertible promissory notes -- -- -- -- -- 260
Deferred compensation related to
grant of stock options and -- -- -- -- -- 506
restricted stock
Amortization of deferred compensation -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balances at March 31, 1999 5,424,945 $ 2,138 3,910,000 $ 1,931 3,387,397 $ 872
========== ========== ========== ========== ========== ==========
<CAPTION>
NOTES
RECEIVABLE
FROM DEFERRED ACCUMULATED
STOCKHOLDERS COMPENSATION DEFICIT TOTAL
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Balances at March 31, 1997 $ (46) $ -- $ (2,668) $ 154
Issuance of common stock in exchange
for notes receivable (12) -- -- --
Retirement and cancellation of
common stock and cancellation of
related notes receivable 32 -- -- --
Forgiveness of notes receivable to
stockholders 7 -- -- 7
Issuance of Series A convertible
preferred stock, net of issuance -- -- -- 1,252
costs
Net loss -- -- (781) (781)
---------- ---------- ---------- ----------
Balances at March 31, 1998 (19) -- (3,449) 632
Issuance of common stock in exchange
for notes receivable (76) -- -- --
Retirement and cancellation of
common stock and related notes
receivable 9 -- -- 4
Common stock issued under stock
option plan -- -- -- 4
Forgiveness of notes receivable to
stockholders 3 -- -- 3
Issuance of warrants in connection
with convertible promissory notes -- -- -- 260
Deferred compensation related to
grant of stock options and -- (506) -- --
restricted stock
Amortization of deferred compensation -- 157 -- 157
Net loss -- (4,103) (4,103)
---------- ---------- ---------- ----------
Balances at March 31, 1999 $ (83) $ (349) $ (7,552) $ (3,043)
========== ========== ========== ==========
</TABLE>
See accompanying notes.
4
<PAGE> 7
Convoy Corporation
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(4,103) $ (781)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 182 51
Allowance for doubtful accounts 392 87
Amortization of deferred compensation 157 --
Forgiveness of stockholder notes receivable 3 7
Interest expense from issuance of warrants and convertible notes payable 267 --
Changes in assets and liabilities:
Accounts receivable (1,143) (1,721)
Other assets (210) (67)
Accounts payable 1,052 50
Accrued compensation and related liabilities 921 498
Deferred revenue and other liabilities 959 586
------- -------
Net cash used in operating activities (1,523) (1,290)
INVESTING ACTIVITIES
Purchases of equipment and improvements (525) (95)
------- -------
Net cash used in investing activities (525) (95)
FINANCING ACTIVITIES
Net proceeds from issuance of preferred stock -- 1,252
Borrowings under line of credit 525 125
Advances from stockholders 156 --
Proceeds from issuance of common stock 4 --
Retirement and cancellation of note receivable from stockholders 4 --
Proceeds from convertible promissory notes 1,425 --
Payments under capital lease obligations (56) --
------- -------
Net cash provided by financing activities 2,058 1,377
------- -------
Net increase (decrease) in cash and cash equivalents 10 (8)
Cash and cash equivalents at beginning of year 230 238
------- -------
Cash and cash equivalents at end of year $ 240 $ 230
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 41 $ --
======= =======
Common stock issued in exchange for notes receivable $ 76 $ 12
======= =======
Issuance of convertible promissory notes for accounts payable $ 70 $ --
======= =======
Equipment acquired under capital leases $ 132 $ --
======= =======
Deferred compensation resulting from grant of stock options
and restricted stock $ 506 $ --
======= =======
</TABLE>
See accompanying notes.
5
<PAGE> 8
Convoy Corporation
Notes to Consolidated Financial Statements
March 31, 1999
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Convoy Corporation, formerly Claremont Systems Group, (the "Company") was
incorporated on April 7, 1994 in California for the purpose of developing
software tools to manage business application implementations. The Company's
software products and services automate the migration of data between legacy
systems and PeopleSoft applications.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions and balances have
been eliminated in consolidation.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. In the course of its research and
development and marketing activities, the Company has incurred substantial
losses. The Company plans to finance its near term operations with a combination
of additional capital financing and revenues from license fees and services.
However, there can be no assurance that the Company will be able to obtain
additional funding on acceptable terms, if at all, or to increase its revenues
or attain profitable operations. If the Company is unable to obtain additional
financing or achieve profitable operations, management has the intent and
ability to delay or reduce expenditures so as not to require additional
financial resources if such resources are not available. Should the Company be
required to delay or reduce expenditures, it may not be able to fund its
expansion, fund certain development projects or respond to competitive
pressures.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with insignificant interest
rate risk and with maturities of three months or less when purchased to be cash
equivalents. Cash equivalents are stated at cost, which approximates fair value.
6
<PAGE> 9
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK AND CREDIT EVALUATIONS
The Company conducts business primarily with companies in the United States. The
Company generally does not conduct credit evaluations of these customers and
does not require collateral, as the majority of its business is with large
companies.
REVENUE RECOGNITION
The Company licenses software under noncancelable license agreements. License
fee revenue is recognized when a noncancelable license agreement has been
executed, the product has been shipped, the license fee is fixed or
determinable, and collectibility is reasonably assured. Services revenue
consists of consulting and maintenance revenue. Revenue from consulting services
is recognized as the services are performed. Maintenance revenue is recognized
ratably over the term of the related agreement, which is generally one year.
Amounts collected or billed prior to satisfying the above recognition criteria
are recorded as deferred revenue in the accompanying consolidated balance
sheets.
The Company adopted Statement of Position 97-2, "Software Revenue Recognition,"
("SOP 97-2") and Statement of Position 98-4, "Deferral of the Effective Date of
a Provision of SOP 97-2, Software Revenue Recognition," ("SOP 98-4") as of April
1, 1998. SOP 97-2 and 98-4 provide guidance for recognizing revenue on software
transactions and supersede Statement of Position 91-1, "Software Revenue
Recognition" ("SOP 91-1"). The adoption of SOP 97-2 and SOP 98-4 did not have a
material impact on the Company's financial results. However, full implementation
guidelines for these standards have not been issued. Once available, the current
revenue recognition accounting practices may need to change and such changes
could affect the Company's future revenues and results of operations.
In December 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9 amends
SOP 98-4 to extend the deferral of the application of certain passages of SOP
97-2 provided by SOP 98-4 through fiscal years beginning on or before March 15,
1999. All other provisions of SOP 98-9 are effective for transactions entered
into in fiscal years beginning after March 15, 1999. The Company does not expect
that the implementation of SOP 98-9 will have a material impact on its future
revenues or results of operations.
7
<PAGE> 10
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are stated at cost. Depreciation and amortization are
computed using the straight-line method over the shorter of the estimated useful
life of the asset, which ranges from three to seven years, or the term of the
underlying lease.
SOFTWARE DEVELOPMENT COSTS
Software development costs have been accounted for in accordance with Financial
Accounting Standards Board Statement No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed" ("Statement No.
86"). Under Statement No. 86, capitalization of software development costs
begins upon the establishment of technological feasibility, subject to net
realizable value considerations. The Company begins capitalization upon
completion of a working model. To date, such capitalizable costs have not been
material. Accordingly, the Company has charged all such costs to research and
development expense. Future capitalized costs, if any, will be amortized based
on the greater of the expense as determined on a straight-line basis over the
estimated life of the products or the ratio of current revenue to the total of
current and anticipated future revenue.
STOCK BASED COMPENSATION
The Company accounts for employee stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and has adopted the disclosure-only alternative described in
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123").
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes," which
requires the use of the liability method in accounting for income taxes. Under
this method, deferred income tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using enacted tax rules and laws that are expected to be in
effect when the differences are expected to reverse.
8
<PAGE> 11
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
As of April 1, 1998, the Company adopted Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income" ("FAS 130") which
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. The adoption
of FAS 130 had no impact on the Company's financial position, stockholders'
equity, results of operations or cash flows.
2. EQUIPMENT AND IMPROVEMENTS
The components of equipment and improvements are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
----- -----
<S> <C> <C>
Computer equipment and software $ 701 $ 183
Furniture, equipment and leasehold improvements 176 45
----- -----
877 228
Less accumulated depreciation and amortization (249) (75)
----- -----
$ 628 $ 153
===== =====
</TABLE>
3. CONVERTIBLE PROMISSORY NOTES
In March and April 1996, the Company issued convertible promissory notes to
Series A convertible preferred stockholders for $200,000 and $100,000 in cash,
respectively. The notes bore interest at 8% per annum and all principal and
accrued interest was due on demand if not converted. In June 1997, the notes
were converted into Series B convertible preferred stock and the accrued
interest was forgiven in accordance with the terms of the related promissory
notes.
In March and April 1996, in connection with the issuance of the convertible
promissory notes, the Company granted to the Series A convertible preferred
stockholders warrants to purchase up to 120,000 shares, as adjusted, of the
Company's Series B convertible preferred stock at an exercise price of $0.50 per
share. The warrants are exercisable through March 31, 2001. No warrants had been
exercised as of March 31, 1999.
9
<PAGE> 12
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
3. CONVERTIBLE PROMISSORY NOTES (CONTINUED)
In September 1998, the Company entered into convertible promissory notes and
warrant purchase agreements with stockholders for $500,000 in cash. The
convertible promissory notes accrue interest at a rate of 9% per annum and
principal and accrued interest is due in May 1999 if not converted upon
qualified financing. In connection with the agreements, the Company also issued
warrants, exercisable through September 8, 2003, to purchase an aggregate of
100,000 shares of the Company's common stock at $1.00 per share.
In February 1999, the Company entered into convertible promissory notes and
warrant purchase agreements with stockholders for approximately $925,000 in cash
and conversion of $70,000 of accounts payable. The convertible promissory notes
accrue interest at a rate of 8% per annum. Principal and accrued interest is due
in May 1999 and may be extended through July 31, 1999, if not converted upon
qualified financing. In connection with the agreements, the Company also issued
warrants, exercisable through February 8, 2004, to purchase an aggregate of
1,000,000 shares of the Company's common stock at $0.10 per share. The deemed
fair value of the warrants totals approximately $260,000, which is being
amortized to interest expense over the terms of the agreements.
4. BORROWINGS UNDER REVOLVING LINE OF CREDIT AGREEMENT
In March 1998, the Company entered into a $750,000 revolving line of credit with
a bank which was increased $1,500,000 in September 1998. Under the renegotiated
terms, available borrowings were limited and could not exceed the lesser of
$1,500,000 or 80% of eligible accounts receivable. Line of credit advances bore
interest at the lender's prime rate plus 0.25%, which was 8% at March 31, 1999.
As of March 31, 1999, the Company had $650,000 outstanding under this line of
credit, which were secured by substantially all of the Company's assets.
The credit agreement contained financial covenants including, but not limited
to, financial covenants related to borrowings, capital expenditures and net
worth. At March 31, 1999, the Company was in violation of two of the financial
covenants. In April 1999, the Company repaid all outstanding principal and
interest.
10
<PAGE> 13
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
5. COMMITMENTS
The Company leases its principal facilities and certain equipment under
operating leases which expire at various dates through December 2002. The
facility leases contain renewal options.
Capital lease obligations represent the present value of future rental payments
under capital lease agreements for furniture and equipment. The original cost
and accumulated depreciation on the furniture and equipment under capital leases
is $132,000 and $31,000 at March 31, 1999.
Future minimum payments under capital and operating leases are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Years ending March 31,
2000 $ 62 $275
2001 21 190
2002 -- 138
---- ----
Total minimum lease payments 83 $603
---- ====
Less amounts representing interest 7
Present value of minimum lease payments 76
Less current portion of capital lease obligations (56)
----
$ 20
====
</TABLE>
Rent expense for the years ended March 31, 1999 and 1998 was approximately
$468,000 and $174,000, respectively.
11
<PAGE> 14
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
6. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Authorized and outstanding convertible preferred stock and its principal terms
are as follows at March 31, 1999:
<TABLE>
<CAPTION>
SHARES
----------------------
ISSUED AND LIQUIDATION
SERIES AUTHORIZED OUTSTANDING PREFERENCE
- ------ ---------- ----------- ---------------
<S> <C> <C> <C>
A 6,000,000 5,424,945 $0.40 per share
B 5,000,000 3,910,000 $0.50 per share
Undesignated 4,000,000 -- --
</TABLE>
The holders of the Series A and Series B convertible preferred stock are
entitled to receive noncumulative dividends equal to 8% of the original issue
price, when and if declared by the Board of Directors. These dividends are in
preference to any declaration or payment of any dividends on the outstanding
common stock of the Company. As of March 31, 1999, no dividends had been
declared.
Each share of the Series A and Series B convertible preferred stock is
convertible at the holder's option into the number of shares as determined by
the applicable conversion rate, currently set at one share of the Company's
common stock for each outstanding share of convertible preferred stock. The
Series A and Series B convertible preferred stock will be automatically
converted into common stock based on the then applicable conversion rate in the
event of an affirmative election of the holders of at least a majority of the
outstanding shares of convertible preferred stock, voting as separate classes,
or a public offering, with gross proceeds of at least $10,000,000 and a per
share offering price not less than $3.00 (subject to appropriate adjustment for
stock splits, stock dividends, combinations and recapitalizations). The holders
of convertible preferred stock are entitled to the number of votes equal to the
number of shares of common stock into which the convertible preferred stock is
convertible.
In the event of any liquidation, the holders of the Series A and Series B
convertible preferred stock have a liquidation preference over holders of common
stock, which is an amount per share, plus any declared and unpaid dividends. The
remaining assets will be distributed to the common and preferred stockholders on
an as-if-converted-to-common-stock basis after the common stockholders receive
$1.60 per share, subject to certain anti-dilution provisions.
12
<PAGE> 15
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK
During the years ended March 31, 1997, 1998 and 1999, the Company issued
1,005,000, 285,000 and 655,000 shares of its common stock to certain officers
under restricted stock agreements for promissory notes totaling $46,000, $11,000
and $76,000, respectively. The promissory notes have stated interest rates which
range from 5.88% to 6.49% per annum, are collateralized by the common stock and
convertible preferred stock held by the officers and with continued employment,
are forgiven over a term of four years. The Company's right to repurchase the
shares diminishes ratably over four years, subject to certain acceleration
provisions. At March 31, 1999, 616,211 shares were subject to repurchase. During
the years ended March 31, 1998 and 1999, the Company repurchased 666,667 and
69,167 shares of the aforementioned issued common stock, respectively.
STOCK OPTION PLAN
In January 1997, the Company adopted the 1997 Stock Option Plan (the "Plan").
Under the Plan, eligible employees, directors and consultants ("service
providers") who own less than 10% of all voting classes of stock can receive
options to purchase shares of the Company's common stock at an exercise price
not less than 100% and 85% of the fair value on the date of grant for incentive
stock options and nonqualified stock options, respectively. Service providers
owning greater than 10% of all voting classes of stock can receive options to
purchase shares of the Company's common stock at an exercise price not less than
110% of the fair market value for both incentive and nonqualified stock options.
The options granted under the Plan expire no more than 10 years from the date of
grant and must vest at a rate of at least 20% per year over 5 years from the
date of grant.
13
<PAGE> 16
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
Under the Plan, the Company may also grant stock purchase rights to employees
alone or in tandem with other awards granted under the Plan or outside of the
Plan. Shares purchased pursuant to the grant of a stock purchase right will also
be subject to a repurchase option by the Company in the event of an employee's
termination.
The Company has reserved 1,500,000 shares of common stock for issuance under the
Plan, of which 602,053 options are available for future grant at March 31, 1999.
A summary of option activity under the Company's Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Outstanding at March 31, 1997 139,000 $0.04
Granted 130,290 0.04
Canceled (49,998) 0.05
Exercised -- --
-------- -----
Outstanding at March 31, 1998 219,292 0.04
Granted 718,550 0.26
Canceled (105,520) 0.09
Exercised (111,823) 0.04
-------- -----
Outstanding at March 31, 1999 720,499 $0.25
======== =====
</TABLE>
Exercise prices for stock options outstanding at March 31, 1999 range from $0.04
to $0.35 per share. At March 31, 1999, options to acquire 112,832 shares of
common stock were vested. The weighted-average remaining life of outstanding
options under the Plan at March 31, 1999 is 8.7 years.
14
<PAGE> 17
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
The following table summarizes information about options outstanding and
exercisable at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ---------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE SHARES LIFE (IN YEARS) PRICE OF SHARES PRICE
- ------------- --------- --------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.04 - $0.10 261,997 8.1 $0.09 110,832 $0.04
$0.25 - $0.35 458,502 9.7 0.34 2,000 $0.35
------- -------
720,499 8.7 112,832
======= =======
</TABLE>
DEFERRED COMPENSATION
The Company has recorded deferred compensation charges of $506,000 during the
period ending March 31, 1999, for the difference between the exercise price and
the deemed fair value for financial accounting purposes of certain common stock
issued in connection with stock option and restricted stock purchase agreements.
These amounts are being amortized by charges to operations, using the
straight-line method, over the vesting periods of the individual stock options
or as the Company's repurchase right lapses. Accumulated amortization was
$157,000 at March 31, 1999.
15
<PAGE> 18
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK-BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires the use of
option valuation models that were not developed for use in valuing employee
stock options. Pro forma information regarding net income (loss) is required by
FAS 123. This information is required to be determined as if the Company has
accounted for its employee stock options under fair value method of FAS 123.
Under this method, the estimated fair value of the options is amortized to
expense over the options' vesting period. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998
------- -------
<S> <C> <C>
Expected dividend yield 0% 0%
Risk-free interest rate 6.00% 6.00%
Expected life of the option 5 YEARS 5 years
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimates, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The weighted-average fair value of options granted to employees during the years
ended March 31, 1999 and 1998 were $0.07 and $0.01, respectively.
16
<PAGE> 19
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK-BASED COMPENSATION
The effect of applying the FAS 123 fair value method to the Company's
stock-based awards results in net loss that was not materially different from
the net loss as reported.
7. NOTES RECEIVABLE FROM STOCKHOLDERS
The Company has outstanding notes receivable from certain officers who are also
stockholders of the Company arising from the issuance of common stock. These
notes bear interest at rates which range from 5.88% to 6.49% per annum and have
terms of four years. These notes will be forgiven over the terms of the related
notes and are collateralized by common stock and convertible preferred stock
held by the Company's officers.
8. INCOME TAXES
There has been no provision or benefit recorded for federal or state income
taxes for any period as the Company has incurred operating losses, and there can
be no assurance that the Company will realize the benefit of the net operating
loss carryforwards.
17
<PAGE> 20
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's current and non-current deferred tax assets and liabilities for
federal and state income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,032 $ 1,003
Deferred revenue 252 71
Capitalized research and development 118 23
Other 280 117
------- -------
Total deferred tax assets 2,682 1,214
Valuation allowance (2,682) (1,214)
------- -------
Total net deferred tax assets $ -- $ --
======= =======
</TABLE>
During the year ended March 31, 1999, the valuation allowance on the deferred
tax assets increased by $1,468,000. As of March 31, 1999, the Company had net
operating loss carryforwards for federal income tax purposes of approximately
$5,400,000, which will expire in the years 2010 through 2019. Due to the "change
in ownership" provisions of the Internal Revenue Code, the availability of the
Company's net operating loss credit carryforwards could be subject to an annual
limitation against taxable income in future periods which could substantially
limit the eventual utilization of these carryforwards.
9. RETIREMENT PLAN
In February 1998, the Company adopted a savings plan under Section 401(k) of the
Internal Revenue Code (the "401(k) Plan"). Under the 401(k) Plan, participating
employees may defer a portion of their pretax earnings up to the Internal
Revenue Service annual contribution limit. The Company's contributions to the
401(k) Plan are discretionary. The Company has not contributed any amounts to
the 401(k) Plan to date.
18
<PAGE> 21
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
10. SUBSEQUENT EVENTS
SERIES C CONVERTIBLE PREFERRED STOCK
On April 8, 1999, the Company amended its articles of incorporation to designate
its Series C class of convertible preferred stock and entered into a Series C
Preferred Stock Purchase Agreement which allows investors to purchase up to
3,600,000 shares of Series C convertible preferred stock at $1.00 per share.
Pursuant to this agreement, the Company sold approximately 1,792,000 shares of
its designated Series C at $1.00 per share for net cash proceeds of
approximately $1,725,000. In addition, the Company converted the outstanding
convertible promissory notes into approximately 1,542,000 shares of the
Company's Series C convertible preferred stock.
REVOLVING LINE OF CREDIT AGREEMENT
On April 19, 1999, the Company entered into a Loan and Security Agreement (the
"Agreement") with a financial institution, which replaced its line of credit
agreement. Available borrowings are limited to the lesser of $1,500,000 or 75%
of prime accounts, as provided under the credit facility. Advances under the
credit facility bear interest at 4% above the prime rate as defined by Comerica
Bank-California and are subject to certain financial and non-financial
covenants. The Agreement has an original term of twelve months, with interest
due monthly and principal due and payable at the end of the original term.
ACQUISITION AGREEMENT
On May 12, 1999, the Company signed a Letter of Intent pursuant to which the
Company will receive an amount common stock based on the average closing price
for a period of time of the acquirerIs common stock for all of its net assets.
The financial statements do not include any adjustments to the recorded amounts
of assets and liabilities which may result from this transaction.
19
<PAGE> 22
Convoy Corporation
Notes to Consolidated Financial Statements (continued)
YEAR 2000 (UNAUDITED)
The Year 2000 issue relates to the use by many existing computer programs of
only two digits to identify a year in the date field. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. The Company recognizes the need to ensure that the potential Year 2000
software failures will not adversely impact its operations. The Company believes
that Year 2000 problems will not have a material adverse effect on its results
of operations or financial position.
The Company is in the process of determining if the current versions of the
Company's internally developed and purchased software are Year 2000 compliant.
Additionally, the Company is in the process of completing a Year 2000 assessment
of internal systems and applications. The Company is also in the process of
determining if all of its hardware systems and production equipment are Year
2000 compliant. The Company expects some changes to its systems will be
necessary to reach compliance and plans to complete the Year 2000 conversion of
such systems. To date, Year 2000 costs have been minimal and the Company
believes that future costs will be immaterial. However, there can be no
assurances that the Company will not experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal systems.
The Company has also initiated communication with third parties, including
suppliers, on which it is dependent for essential software to determine how they
are addressing Year 2000 issues and to evaluate any impact on the Company's
operations. Although the Company intends to work with these third parties to
resolve Year 2000 compliance issues, the lack of resolution of Year 2000 issues
by these parties could have a material adverse effect on the Company's future
business operations, financial condition and results of operations. At this
time, the Company cannot quantify the potential impact of third-party Year 2000
issues, nor has it developed contingency plans for the possibility that one or
more of such third parties may experience a significant disruption due to Year
2000 issues.
The Company does not have any contingency plans related to the Year 2000
problem.
20
<PAGE> 1
EXHIBIT 99(B)--PRO FORMA FINANCIAL INFORMATIOn
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following pro forma condensed statements of operations as set forth
herein give effect to the acquisition of Convoy by NEON as if such acquisition
had occurred as of the beginning of the earliest period presented (January 1,
1998) by combining the statements of operations data of (i) the Company and
Convoy for the six months ended June 30, 1999 and (ii) the Company and Convoy
for the year ended December 31, 1998. The acquisition was accounted for under
the purchase method of accounting. 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, 1998, 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,
1998, the financial statements and notes thereto of Convoy included in the
attached Exhibit to this Form 8-K/A, and the Notes to Unaudited Pro Forma
Statements of Operations.
<PAGE> 2
NEW ERA OF NETWORKS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
CONVOY PRO FORMA
NEON HISTORICAL HISTORICAL COMBINED COMBINED
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1998 1999 1998 ADJUSTMENTS 1998
--------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses $40,975,703 $ 7,171,891 $ 48,147,594 $ $ 48,147,594
Services and maintenance 24,838,370 3,061,203 27,899,573 27,899,573
----------- ----------- ------------ ----------- ------------
Total revenues 65,814,073 10,233,094 76,047,167 76,047,167
----------- ----------- ------------ ----------- ------------
Cost of revenues:
Costs of software licenses 1,701,458 446,408 2,147,866 2,147,866
Cost of services and maintenance 12,906,012 1,112,809 14,018,821 14,018,821
----------- ----------- ------------ ----------- ------------
Total costs of revenues 14,607,470 1,559,217 16,166,687 16,166,687
----------- ----------- ------------ ----------- ------------
Gross Profit 51,206,603 8,673,877 59,880,480 59,880,480
Operating Expenses:
Sales and marketing 21,941,568 7,774,628 29,716,196 29,716,196
Research and development 15,839,483 1,813,425 17,652,908 17,652,908
General and administrative 6,571,100 2,870,050 9,441,150 9,441,150
Charge for acquired in-process
research and development 17,597,000 -- 17,597,000 17,597,000
Amortization of intangibles 1,778,410 -- 1,778,410 7,962,324(4) 9,740,734
----------- ----------- ------------ ----------- ------------
Total operating expenses 63,727,561 12,458,103 76,185,664 7,962,324 84,147,988
----------- ----------- ------------ ----------- ------------
Loss from operations (12,520,958) (3,784,226) (16,305,184) (7,962,324) (24,267,508)
Other income (expense), net 2,743,746 (319,113) 2,424,633 2,424,633
----------- ----------- ------------ ----------- ------------
Loss before benefit from income taxes (9,777,212) (4,103,339) (13,880,551) (7,962,324) (21,842,875)
Income tax benefit 1,278,400 -- 1,278,400 1,278,400
----------- ----------- ------------ ----------- ------------
Net loss $(8,498,812) $(4,103,339) $(12,602,151) $ (7,962,324) $(20,564,475)
=========== =========== ============ ============ ============
Historical pro forma net loss per
common share, basic and diluted $ (0.38) $ (0.89)
=========== ============
Historical pro forma weighted
average shares of common stock
outstanding, basic and diluted 22,277,472 23,084,587 (2)
============ ============
</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 six MONTHS ENDED JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
CONVOY PRO FORMA
NEON HISTORICAL HISTORICAL COMBINED COMBINED
SIX MONTHS FIVE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, MAY 31, JUNE 30, PRO FORMA JUNE 30,
1999 1999(1) 1999 ADJUSTMENTS 1999
--------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses $26,232,421 $ 2,291,862 $ 28,524,283 $ $ 28,524,283
Services and maintenance 29,519,530 1,615,498 31,135,028 31,135,028
----------- ----------- ------------ ----------- ------------
Total revenues 55,751,951 3,907,360 59,659,311 59,659,311
----------- ----------- ------------ ----------- ------------
Cost of revenues:
Cost of software licenses 407,114 117,169 524,283 524,283
Cost of services and maintenance 16,518,028 613,660 17,131,688 17,131,688
----------- ----------- ------------ ----------- ------------
Total cost of revenues 16,925,142 730,829 17,655,971 17,655,971
----------- ----------- ------------ ----------- ------------
Gross Profit 38,826,809 3,176,531 42,003,340 42,003,340
Operating Expenses:
Sales and marketing 23,245,915 5,190,758 28,436,673 28,436,673
Research and development 16,210,437 570,201 16,780,638 16,780,638
General and administrative 6,955,579 2,089,181 9,044,760 9,044,760
Amortization of intangibles 5,052,297 -- 5,052,297 3,981,162 (4) 9,033,459
----------- ----------- ------------ ----------- ------------
Total operating expenses 51,464,228 7,850,140 59,314,368 3,981,162 63,295,530
----------- ----------- ------------ ----------- ------------
Loss from operations (12,637,419) (4,673,609) (17,311,028) (3,981,162) (21,292,190)
Other income (expense), net 3,943,212 (368,558) 3,574,654 3,574,654
----------- ----------- ------------ ----------- ------------
Loss before benefit from income taxes (8,694,207) (5,042,167) (13,736,374) (3,981,162) (17,717,536)
Income tax benefit 2,453,650 -- 2,453,650 2,453,650
----------- ----------- ------------ ----------- ------------
Net loss $(6,240,557) $(5,042,167) $(11,282,724) $(3,981,162) $(15,263,886)
=========== =========== ============ =========== ============
Historical and pro forma net loss
per common share, basic and
diluted $ (0.20) $ (0.48)
=========== ============
Historical and pro forma weighted
average shares of Common Stock
outstanding, basic and diluted 31,060,294 31,734,369 (2)
=========== ============
</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
On June 9, 1999, the Company acquired all of the outstanding capital stock
of Convoy Corporation, a Delaware corporation ("Convoy"), by means of the
statutory merger of a wholly owned subsidiary with and into Convoy. Convoy is a
worldwide provider of application integration software for PeopleSoft
applications.
The aggregate consideration paid by the Company was $42,809,000. At closing,
the Company issued 807,115 unregistered shares of its common stock valued at
$36,267,000. The Company also issued 105,333 stock options exercisable for
shares of the Company's common stock to assume all outstanding Convoy stock
options and warrants valued at approximately $4,733,000. Fees and expenses
related to the acquisition were approximately $1,809,000. The acquisition was
accounted for under the purchase method of accounting and, accordingly, the
assets, liabilities and operating results of Convoy have been included in the
accompanying consolidated financial statements from June 1, 1999.
An independent valuation of Convoy's net assets was performed to assist in
the allocation of the purchase price. A portion of the purchase price was
assigned to marketable software products ($8,500,000) and goodwill
($35,903,000), which are being amortized on a straight-line basis over three and
seven-year periods, respectively. Convoy's other assets were valued at
approximately $2,129,000 and its liabilities assumed totaled approximately
$3,723,000.
In August 1999, the Company agreed with the former stockholders of Convoy to
provide additional consideration to more closely reflect the value agreed upon
in the original purchase negotiations. Accordingly, 618,225 shares of the
Company's common stock will be issued to the prior Convoy stockholders subject
to final documentation and approval by the parties. As of the date of this
report, the Company has received approval of the agreement from a number of the
former Convoy stockholders. This adjustment to the purchase consideration will
be reflected in the Company's financial statements for the third quarter of 1999
as a one-time charge to net income of approximately $8,500,000 and has not been
reflected in the accompanying pro forma statements.
The NEON and Convoy statements of operations have been combined for the year
ended December 31, 1998 and the six-month period ended June 30, 1999 for the
presentation of unaudited pro forma statements of operations only. For pro forma
purposes, the historical statements of operations of NEON and Convoy have been
combined as if the acquisition had occurred as of the beginning of the earliest
period presented (January 1, 1998). 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 Convoy for the
indicated periods. Certain reclassifications to the Convoy historical financial
statements have been made to conform to the NEON presentation.
NOTE 1. The Convoy acquisition was effective for accounting purposes as of
June 1, 1999, and, accordingly, Convoy's June 1999 results of operations have
been consolidated in NEON's historical Statement of Operations for the six
months ended June 30, 1999.
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 807,115 shares of the Company's common stock
issued pursuant to this acquisition as if they were outstanding from January 1,
1998.
NOTE 3. Reflects the agreement to provide additional consideration to the
former stockholders of Convoy valued at $8,500,000 as discussed above.
NOTE 4. Pro forma adjustments related to the Convoy purchase price
allocation reflects the amortization of intangibles associated with the purchase
of Convoy as if the acquisition was completed as of January 1, 1998.
