NetOps Corporation
Balance Sheet (unaudited)
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<TABLE>
<CAPTION>
June 30,
2000 1999
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 200,300 $ 3,102,200
Accounts receivable 5,300 52,400
Prepaid expenses and other current assets 109,700 121,000
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Total current assets 315,300 3,275,600
Property and equipment, net 326,900 343,200
Long-term deposits 29,200 13,600
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$ 671,400 $ 3,632,400
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Liabilities, Mandatorily Redeemable Preferred Stock
and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses $ 361,000 $ 241,600
Deferred revenue l38,900 49,400
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Total current liabilities 499,900 291,000
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Series A mandatorily redeemable convertible preferred stock,
1,500,000 shares authorized, issued and outstanding at June
30, 2000 and 1999, liquidation preference of $2,014,500
at June 30, 2000 1,801,500 1,603,800
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Series B mandatorily redeemable convertible preferred stock,
7,044,872 shares authorized; 3,365,384 shares issued and
outstanding at June 30, 2000 and 1999, liquidation preference
of $6,512,200 at June 30, 2000 6,219,300 5,537,500
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Stockholders' deficit:
Common stock, $0.01 par value, 20,000,000 shares authorized;
4,679,585 and 4,484,329 shares issued and outstanding at
June 30, 2000 and 1999, respectively 46,800 44,800
Additional paid-in capital 1,263,800 776,500
Deferred compensation (64,900) (84,800)
Accumulated deficit (9,095,000) (4,536,400)
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Total stockholders' deficit (7,849,300) (3,799,900)
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Total liabilities, mandatorily redeemable preferred stock
and stockholders' deficit $ 671,400 $ 3,632,400
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</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NetOps Corporation
Statement of Operations (unaudited)
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<TABLE>
<CAPTION>
Six months ended
June 30,
2000 1999
<S> <C> <C>
Revenues:
Software $ 200,000 $ --
Consulting and maintenance 541,200 401,800
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741,200 401,800
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Costs and expenses:
Cost of software revenues 200 --
Cost of consulting and maintenance revenues 232,300 360,600
Sales and marketing 414,900 567,200
General and administrative 1,421,100 901,500
Research and development 1,290,100 539,600
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3,358,600 2,368,900
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Loss from operations (2,617,400) (1,967,100)
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Other income (expense), net 18,200 37,900
Interest income 23,100 71,700
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Net loss (2,576,100) (1,857,500)
Accretion on Series A and B mandatorily redeemable
convertible preferred stock (439,800) (439,800)
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Net loss applicable to common stock $(3,015,900) $(2,297,300)
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</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NetOps Corporation
Statement of Changes in Stockholders' Deficit
For the six months ended June 30, 2000 (unaudited)
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<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Deferred Accumulated
Shares Par Value Capital Compensation Deficit Total
--------------------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 3l, 1999 4,519,329 $45,200 $1,015,400 $(86,800) $(6,079,100) $(5,105,300)
Issuance of common stock to employees 160,256 1,600 248,400 -- -- 250,000
Amortization of restricted stock compensation -- -- -- 21,900 -- 21,900
Accretion of Series A mandatorily redeemable
convertible preferred stock to redemption value -- -- -- -- (98,900) (98,900)
Accretion of Series B mandatorily redeemable
convertible preferred stock to redemption value -- -- -- -- (340,900) (340,900)
Net loss -- -- -- -- (2,576,100) (2,576,100)
--------- ------- ---------- -------- ----------- -----------
Balance at June 30, 2000 4,679,585 $46,800 $1,263,800 $(64,900) $(9,095,000) $(7,849,300)
========= ======= ========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NetOps Corporation
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents (unaudited)
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<TABLE>
<CAPTION>
Six months ended
June 30,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,576,100) $(1,857,500)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 76,100 56,100
Issuance of warrants as consideration for services -- 277,000
Amortization of deferred compensation 21,900 15,900
Changes in operating assets and liabilities;
Accounts receivable 1,495,200 24,300
Loan receivable from employees -- 1,300
Prepaid expenses and other assets (10,800) (70,000)
Long-term deposits (15,600) --
Accounts payable and accrued expenses (49,400) 131,100
Deferred revenue (53,100) (35,300)
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Net cash provided by (used in) operating activities (1,111,800) (1,457,100)
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Cash flows from investing activities:
Purchase of property and equipment (63,100) (174,000)
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Cash flows from financing activities:
Proceeds from issuance of common stock 250,000 --
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Net increase (decrease) in cash and cash equivalents (924,900) (1,631,100)
Cash and cash equivalents, beginning of period 1,125,200 4,733,300
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Cash and cash equivalents, end of period $ 200,300 $ 3,102,200
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</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NetOps Corporation
Notes to Unaudited Financial Statements
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1. Basis of Presentation
The accompanying unaudited interim financial statements of NetOps
Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial
information. Accordingly, such statements do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the six-month period ended June 30, 2000 are not necessarily
indicative of the results that may be expected for any future periods.
The accompanying unaudited interim financial statements have been prepared
with the assumption that users of the interim financial statements have
read the Company's audited financial statements for the year ended
December 31, 1999.
The unaudited financial statements have been prepared on a going-concern
basis, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. The Company will require
additional funds to meet planned obligations over the next twelve months
and is seeking to raise such amounts through the sale of its equity
securities (Notes 5 and 7). There can be no assurance that such additional
financing, if at all available, can be obtained on terms acceptable to the
Company.
Continuance of the Company as a going concern is dependent upon, among
other things, the Company's ability to obtain adequate long-term
financing, the acceptance of the Company's software products in the
marketplace, and its attainment of profitable operations. These unaudited
financial statements do not include any adjustments relating to the
recoverability of the carrying amount of recorded assets or the amounts of
liabilities that might result from the outcome of this uncertainty.
The preparation of the Company's unaudited financial statements in
conformity with generally accepted accounting principles requires
management to make certain estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses at the end
of and during the reporting periods of the financial statements. Actual
results could differ from these estimates.
2. Preferred Stock
During the six-month periods ended June 30, 2000 and 1999, the Company
accreted $98,900 and $340,900 to the redemption value of the Series A and
Series B preferred stock, respectively.
<PAGE>
NetOps Corporation
Notes to Unaudited Financial Statements 2
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3. Stockholders' Deficit
On February 14, 2000, the Company terminated its relationship with its
sales channel partner. The partner accepted that it had failed to fulfill
certain of its obligations under the terms of the contract. All warrants
granted to the partner were canceled. All warrants were returned to the
Company unexercised.
On February 25, 2000, an officer of the Company purchased 160,256 shares
of the Company's common stock for $250,000. Such purchase is in accordance
with the officers' employment agreement with the Company.
4. Long-Term Incentive Plan
For the six months ended June 30, 2000, 737,512 options were granted at an
exercise price equal to the grant date fair value of $1.56 under the
Company's Long-Term Incentive Plan.
For the six months ended June 30, 2000, 540,357 of options were forfeited
due to termination of the respective option holder's employment with the
Company. These options had not vested at the date of forfeiture.
5. Merger with MicroMuse, Inc.
On June 21, 2000, the Company entered into an agreement to merge with
Micromuse, Inc. ("Micromuse") a publicly held company that develops fault
and service level network management software. Under the terms of the
merger agreement, Micromuse will issue approximately $19 million worth of
its common stock, based on the June 20, 2000 closing stock price of
$131.75 per Micromuse share, and will, assume liabilities in the amount of
approximately $1.3 million to acquire all of the outstanding common and
preferred shares of NetOps. In addition, Micromuse will pay approximately
$1.0 million of expenses related to the merger. The merger will be
accounted for under the purchase method of accounting and will be treated
as a tax-free reorganization for federal income tax purposes.
6. Bridge Note
On July 10, 2000, the Company received a $200,000 bridge note from
Micromuse. The note accrues interest at the prime rate plus 2% per annum,
Principal and accrued interest is payable on written demand of the
noteholder.
<PAGE>
NetOps Corporation
Notes to Unaudited Financial Statements 3
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7. Subsequent Event
On July 18, 2000, the Company was acquired by Micromuse, Inc.
("Micromuse") by the merger of a wholly owned subsidiary of Micromuse,
Salamander Acquisition Corp. ("Merger Sub") with the Company. The merger
was accomplished pursuant to the Agreement and Plan of Reorganization,
dated June 21, 2000. As a result of the merger, Micromuse became the owner
of 100% of the issued and outstanding shares of NetOps common and
preferred stock. Each outstanding share of NetOps common stock was
converted into 0.006705 shares of Micromuse's Common Stock. Each
outstanding share of NetOps Series A and B Preferred Stock was converted
into 0.023016 and 0.022930 shares of Micromuse's Common Stock,
respectively. A total of approximately 143,000 shares of Micromuse's
Common Stock was issued to former NetOps stockholders in exchange for the
acquisition of all outstanding NetOps capital stock. The terms of the
Merger Agreement were the result of arm's length negotiations among the
parties. The merger was accounted for under the purchase method of
accounting and was treated as a tax-free reorganization for federal income
tax purposes.
