<PAGE> 1
EXHIBIT 99.1
HOME FINANCIAL NETWORK, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Home Financial Network, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Home Financial Network, Inc. (the
"Company") at December 31, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As described in Note 2 to the financial statements, on January 20, 2000 the
Company was acquired by Sybase, Inc. Accordingly, the operations of the Company
after January 20, 2000 will be combined with those of Sybase, Inc.
/s/ PricewaterhouseCoopers LLP
Stamford, Connecticut
March 16, 2000
<PAGE> 3
HOME FINANCIAL NETWORK, INC.
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS: 1999 1998
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,589,466 $ 5,090,204
Short-term investments 880,662 8,272,010
Accounts receivable (less allowance for doubtful
accounts of $200,000 at December 31, 1999) 2,622,335 198,634
Unbilled amounts under contracts in progress 814,000 --
Other current assets 238,717 165,938
------------ ------------
Total current assets 6,145,180 13,726,786
Property and equipment, net 1,592,958 776,703
Other 85,508 83,503
------------ ------------
Total assets $ 7,823,646 $ 14,586,992
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued liabilities $ 3,271,595 $ 647,309
Deferred revenue 613,297 248,034
------------ ------------
Total current liabilities 3,884,892 895,343
Long-term liabilities:
Deferred rent 31,407 44,442
------------ ------------
Total liabilities 3,916,299 939,785
------------ ------------
Commitments and contingencies (Note 8)
Stockholders' equity:
Series A convertible preferred stock, $.001 par value;
5,000,000 shares
authorized, issued and outstanding
(liquidation value, $5,000,000) 5,000 5,000
Series B convertible preferred stock, $.001 par value;
7,515,807 shares authorized; 4,816,667 shares issued
and outstanding (liquidation value $14,450,001) 4,817 4,817
Series C convertible preferred stock, $.001 par value;
2,500,000 shares authorized, issued and outstanding
(liquidation value, $7,500,000) 2,500 2,500
Common stock, $.001 par value; 27,000,000 shares
authorized; 8,086,526 shares issued and outstanding 8,087 8,087
Additional paid-in capital 28,929,542 26,924,941
Unearned compensation (1,656,354) --
Accumulated deficit (23,386,245) (13,298,138)
------------ ------------
Total stockholders' equity 3,907,347 13,647,207
------------ ------------
Total liabilities and stockholders' equity $ 7,823,646 $ 14,586,992
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
HOME FINANCIAL NETWORK, INC.
Statements of Operations
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenue $ 5,335,765 $ 1,346,036
Cost of revenue 2,714,187 877,327
------------ ------------
2,621,578 468,709
Operating expenses:
Research and development
4,963,545 3,629,732
General and administrative 9,282,452 3,324,765
------------ ------------
Loss from operations (11,624,419) (6,485,788)
------------ ------------
Other income:
Interest income 536,312 846,186
Contract termination fees (Note 7) 1,000,000 2,500,000
------------ ------------
1,536,312 3,346,186
------------ ------------
Net loss $(10,088,107) $ (3,139,602)
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
HOME FINANCIAL NETWORK, INC.
Statements of Stockholders' Equity
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Series A Series B Series C
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
---------------------- ---------------------- -----------------------
Shares Amount Shares Amount Shares Amount
------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 5,000,000 $ 5,000 4,816,667 $ 4,817 2,500,000 $ 2,500
Compensation expense incurred in connection
with stock options
Net loss for the year ended December 31, 1998
------------ -------- ------------ -------- ------------ --------
Balance, December 31, 1998 5,000,000 5,000 4,816,667 4,817 2,500,000 2,500
Unearned compensation incurred in connection
with stock options
Amortization of unearned compensation
Compensation expense incurred in connection
with warrants
Net loss for the year ended December 31, 1999
------------ -------- ------------ -------- ------------ --------
Balance, December 31, 1999 5,000,000 $ 5,000 4,816,667 $ 4,817 2,500,000 $ 2,500
============ ======== ============ ======== ============ ========
</TABLE>
<TABLE>
<CAPTION>
Common Stock Additional Total
---------------------- Paid-In Unearned Accumulated Stockholders'
Shares Amount Capital Compensation Deficit Equity
------------ -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 8,086,526 $ 8,087 $ 26,799,941 -- $(10,158,536) $ 16,661,809
Compensation expense incurred in connection
with stock options 125,000 125,000
Net loss for the year ended December 31, 1998 (3,139,602) (3,139,602)
------------ -------- ------------ ------------ ------------ ------------
Balance, December 31, 1998 8,086,526 8,087 26,924,941 -- (13,298,138) 13,647,207
Unearned compensation incurred in connection
with stock options 1,804,000 (1,804,000)
Amortization of unearned compensation 147,646 147,646
Compensation expense incurred in connection
with warrants 200,601 200,601
Net loss for the year ended December 31, 1999 (10,088,107) (10,088,107)
------------ -------- ------------ ------------ ------------ ------------
Balance, December 31, 1999 8,086,526 $ 8,087 $ 28,929,542 $ (1,656,354) $(23,386,245) $ 3,907,347
============ ======== ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
HOME FINANCIAL NETWORK, INC.
Statements of Cash Flows
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flow from operating activities:
Net loss $(10,088,107) $ (3,139,602)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 507,244 293,361
Provision for doubtful accounts 200,000 --
Loss on disposal of property and equipment 1,458 25,631
Stock option and warrant compensation expense 348,247 125,000
Changes in operating assets and liabilities:
Increase in accounts receivable (2,623,701) (68,410)
Increase in unbilled amounts under contracts in progress (814,000) --
Increase in other current and other assets (74,784) (128,980)
Increase (decrease) in accounts payable and accrued
liabilities 2,624,286 (135,696)
Decrease in deferred rent (13,035) (3,294)
Increase in deferred revenue 365,263 94,809
------------ ------------
Net cash used in operating activities (9,567,129) (2,937,181)
------------ ------------
Cash flow from investing activities:
Purchase of property and equipment (1,326,876) (344,677)
Purchases of short-term investments (8,844,714) (19,655,073)
Maturities of short-term investments 10,145,994 16,135,112
Proceeds from sale of investments 6,090,068 6,488,213
Proceeds from sale of property and equipment 1,919 1,000
------------ ------------
Net cash provided by investing activities 6,066,391 2,624,575
------------ ------------
Net decrease in cash and cash equivalents (3,500,738) (312,606)
Cash and cash equivalents at beginning of year 5,090,204 5,402,810
------------ ------------
Cash and cash equivalents at end of year $ 1,589,466 $ 5,090,204
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
HOME FINANCIAL NETWORK, INC
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS
Home Financial Network, Inc. (the "Company") was incorporated on August
31, 1995. The Company develops, markets and implements online banking
technology and services that allow banks and other financial
institutions to offer banking and other financial services to consumers
over the Internet. Since inception, the Company's activities have
consisted primarily of developing proprietary software products,
establishing the sales and marketing of those products and raising
equity financing. For the year ended December 31, 1999 five customers
accounted for 68 percent of revenues. The Company operates in an
environment of rapid change in technology and is dependent upon the
continued services of its employees.
2. ACQUISITION
On January 20, 2000 the Company was acquired by Sybase, Inc.
("Sybase"). No adjustment to reflect the acquisition is included in the
accompanying financial statements as of December 31, 1999. Accordingly,
the operations of the Company after January 20, 2000 will be combined
with Sybase.
During 1999, the Company subcontracted services to Sybase in the amount
of $525,107. At December 31, 1999, $201,727 relating to this amount was
included in accounts payable and accrued liabilities.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of cash in banks and temporary cash
investments. Temporary investments consist principally of U.S. Treasury
Notes with original maturities of less than 90 days. Temporary
investments are recorded at cost plus accrued interest, which
approximates fair value.
SHORT-TERM INVESTMENTS:
The Company considers its short-term investments to be
"available-for-sale", as defined by Statement of Financial Accounting
Standard No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". At December 31, 1999 and 1998, the unrealized
holding gains and losses were not material, and short-term investments
consist primarily of U.S. Government Obligations with maturities
between 90 and 180 days.
For the years ended December 31, 1999 and 1998, gross realized gains
and losses were not significant. In computing realized gains and
losses, the Company computes the cost of its investments on a specific
identification basis. Cost includes the direct costs to acquire the
securities, adjusted for the amortization of any discount or premium.
The fair value of short-term investments has been estimated based upon
quoted market prices.
<PAGE> 8
REVENUE RECOGNITION:
The Company's operating revenue is derived principally from software
licensing fees, including monthly user fees, and consulting services.
In situations where the Company is engaged to combine its software and
know-how to develop turnkey Internet banking solutions for financial
institutions, revenues are recognized as income on a
percentage-of-completion basis based on time incurred. When delivered
separately, software licensing fees are recognized as income when a
non-cancelable license agreement has been executed by the customer, the
Company has delivered the product, the product is accepted by the
customer and the collection of the resulting receivable is assured.
Monthly user fees are recognized as income in the period earned.
Revenue from consulting services is recognized as income as the
services are performed. All unearned revenue is recorded as deferred
revenue.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost and depreciated using the
straight-line method over the following useful lives: computer
equipment and software, 3 years; office furniture, 7 years; and
leasehold improvements, initial term of lease or their estimated useful
life, if shorter. Gains and losses on disposals are recorded as income
or expense.
ACCOUNTING FOR STOCK-BASED COMPENSATION:
Stock issued to employees has been accounted for under the provisions
of APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
No. 25"). Under APB No. 25, no compensation expense is recognized in
the accompanying financial statements in connection with the awarding
of stock option grants to employees provided that, as of the grant
date, all terms associated with the award are fixed and the fair market
price of the Company's stock, as of the grant date, is equal to or less
than the amount an employee must pay to acquire the stock as defined;
however, if the fair market price of the Company's stock as estimated
by the Board of Directors as of grant date is greater than the amount
the employee must pay or if the terms of the grant are variable, then
the Company will recognize compensation expense.
Stock options or warrants issued to non-employees are fair valued at
the time of vesting and would be included in the Company's operating
results.
Disclosures required by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
including pro forma operating results had the Company prepared its
financial statements in accordance with the fair value based method of
accounting for stock-based compensation, have been included in Note 6.
INCOME TAXES:
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred
tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax
return. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and
tax bases of
<PAGE> 9
assets and liabilities ("temporary differences") and net operating loss
carryforwards using enacted tax rates in effect for the year in which
the differences are expected to reverse. Valuation allowances are
established when it is questionable whether deferred tax assets will be
recovered.
SOFTWARE DEVELOPMENT COSTS:
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Marketed" ("SFAS 86").
SFAS 86 requires that certain software product development costs
("Capitalized Costs"), incurred after technological feasibility has
been established, be capitalized and amortized, commencing upon the
general release of the software product to the Company's customers,
over the economic life of the software product. The Company determines
technological feasibility based upon the successful completion of
certain product development milestones. Annual amortization of
capitalized costs will be computed using the greater of: (i) the ratio
of current gross revenues for the software product over the total of
current and anticipated future gross revenues for the software product;
or (ii) the straight-line basis. Software product development costs
incurred prior to the product reaching technological feasibility are
expensed as incurred and included in research and development costs.
Capitalized Costs incurred to date have been immaterial and,
accordingly, SFAS 86 has not had any significant impact on the
financial position or results of operations of the Company.
USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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. The most
significant estimates relate to accounts receivable, accrued income,
fixed asset lives and contingent liabilities. Actual results could
differ from those estimates and such differences could be material.
4. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Computer equipment and software $ 2,004,633 $ 775,505
Office furniture 480,651 402,562
Leasehold improvements 130,113 123,790
----------- -----------
Total cost 2,615,397 1,301,857
Less, accumulated depreciation (1,022,439) (525,154)
----------- -----------
Property and equipment, net $ 1,592,958 $ 776,703
=========== ===========
</TABLE>
<PAGE> 10
5. INCOME TAXES
As of December 31, 1999 and 1998, net deferred tax assets are as
follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforward $ 9,284,000 $ 5,225,000
Fixed assets (8,000) (7,000)
Deferred charges 15,000 24,000
Allowance for doubtful accounts 80,000 --
Unearned compensation expense 59,000 --
Research and development tax credit 199,000 148,000
----------- -----------
9,629,000 5,390,000
Less, valuation allowance (9,629,000) (5,390,000)
----------- -----------
Total $ -- $ --
=========== ===========
</TABLE>
As a result of the uncertainty regarding the Company's ability to
generate sufficient taxable income to utilize deferred tax assets, the
Company has provided a full valuation allowance.
As of December 31, 1999, net operating losses available for federal and
state income tax purposes totaled approximately $23 million, which
expire at various dates through 2014 for federal income tax purposes
and through 2004 for state income tax purposes. The research and
development tax credit expires at various dates through 2014. Future
ownership changes may limit the Company's ability to utilize net
operating loss and tax credit carryforwards as defined by tax rules and
regulations.
6. STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK:
The Company's amended and restated certificate of incorporation
provides for the issuance of up to 42,015,807 shares of stock. The
Company has designated 27,000,000 shares as common stock and 5,000,000,
7,515,807 and 2,500,000 shares as Series A, B and C convertible
preferred stock, respectively, (collectively referred to herein as
"preferred stock", individually referred to herein as "Series A",
"Series B" or "Series C")
The Series A, B and C stock have a preference over common stockholders
in liquidation of $1.00, $3.00 and $3.00 per share, respectively. Each
share of preferred stock is convertible into one share of common stock
at the option of the holder. Conversion is automatic in the event the
Company completes an initial public offering of its equity securities,
as defined. The conversion rate is subject to certain anti-dilution
provisions, as defined. The preferred stockholders vote with common
stockholders on an as-if converted basis and have certain defined
voting rights regarding redemption, purchase or other acquisitions of
any of the Company's capital stock and the creation, authorization,
designation of capital stock ranking senior to or on parity with the
respective series of preferred stock.
<PAGE> 11
STOCK OPTION PLAN:
The terms of the Company's 1995 Stock Plan, as amended, (the "Plan")
provide for the Company's Board of Directors (the "Board") to grant
options to officers, directors and employees. The fair market value of
the Company's common stock on the date of grant is estimated by the
Board of Directors. Options generally vest on a pro rata basis over a
four-year period and have a term of seven years. The Plan provides
that, upon initial election to the Board of Directors, each
non-employee director receives an option to purchase up to 50,000
shares of the Company's common stock, and an additional option to
purchase up to 10,000 shares annually thereafter. At December 31, 1999,
the Company has reserved a total of 3,500,000 shares of common stock
for the Plan.
During 1999, the Company granted options to its employees with an
exercise price below the fair market value of the Company's common
stock on the date of grant. In connection therewith, the Company is
recognizing compensation expense, for the aggregate difference between
the estimated fair value of the common stock on the date of grant and
the option exercise price ($1,804,000), on a pro rata basis over the
respective options' vesting period. The unamortized balance at December
31, 1999 ($1,656,354), has been included as a component of
stockholders' equity.
The following table summarizes stock option activity for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
----------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 2,119,500 $2.38 1,839,500 $2.17
Granted 993,000 $3.00 687,000 $3.00
Granted 237,000 $7.00 -- --
Cancelled (86,500) $3.00 (407,000) $2.45
----------- -------------- --------- --------------
Outstanding at December 31 3,263,000 $2.89 2,119,500 $2.38
=========== ============== ========= ==============
Options exercisable at December 31 1,216,750 $2.02 718,750 $1.75
=========== ============== ========= ==============
</TABLE>
<PAGE> 12
The following table summarizes stock option information as of December
31, 1999:
<TABLE>
<CAPTION>
Weighted-
Average
Number Remaining Number
Exercise Price Outstanding Contract Life Exercisable
-------------- ----------- ------------- ------------
<S> <C> <C> <C>
$ 1.00 425,000 2.8 years 417,500
2.00 460,000 3.5 years 356,250
3.00 2,141,000 5.7 years 443,000
7.00 237,000 6.9 years --
--------- ---------
3,263,000 1,216,750
========= =========
</TABLE>
As of December 31, 1999, 237,000 shares were available for future grant
under the Plan.
The following table summarizes the pro forma operating results of the
Company had compensation costs for the Plan been determined in
accordance with the fair value based method of accounting for stock
based compensation as prescribed by SFAS No. 123:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Net loss, as reported $(10,088,107) $ (3,139,602)
Pro forma net loss (11,285,295) (3,703,690)
</TABLE>
For the purposes of the above pro forma information, the fair value of
each option granted from the Plan was estimated on the date of grant
using the Black-Scholes option-pricing model. The following
weighted-average assumptions were used in computing the fair value of
option grants during 1999 and 1998: expected volatility of 70%;
risk-free interest rate range of 4.8% - 6.3% and 5.6% - 5.8%,
respectively; expected lives of six years and zero dividend yield for
all periods. Using the Black-Scholes option-pricing model, the weighted
average fair value of options granted with an exercise price equal to
the fair market value of the Company's common stock on the date of
grant during 1999 and 1998 was $3.32 and $2.01, respectively. Using the
Black-Scholes option pricing model, the weighted average fair value of
options granted with an exercise price below the fair market value of
the Company's common stock on the date of grant during 1999 was $4.27.
STOCK PURCHASE WARRANT:
A warrant to acquire 100,000 shares of the Company's common stock at an
exercise price of $2.50 per share that was outstanding at December 31,
1998, was cancelled at December 28, 1999.
<PAGE> 13
During 1997, in connection with the sale of Series B and C preferred
stock, the Company issued warrants to acquire 73,133 shares of the
Company's Series B preferred stock (the "B Warrant"), exercise price of
$3.00 per share, and 640,000 shares of the Company's common stock (the
"Common Warrant"), exercise price of $2.60 per share. The B Warrant was
issued to an underwriter of the Series B and C preferred stock as
partial consideration for their services. The Common Warrant was issued
to the Series A preferred stockholder in consideration for certain
modifications to a stock purchase agreement thereby allowing the
Company to complete the sale of Series B and C preferred stock. The B
Warrant and the Common Warrant were exercisable on the date of issuance
and expire on March 31, 2002. The fair value of the B Warrant and the
Common Warrant was estimated by the Board of Directors and deemed to be
part of the cost of raising additional capital.
On April 1, 1999, the Company issued a warrant to acquire 100,000
shares of the Company's common stock, with an exercise price of $3.00
per share, to a strategic partner in consideration for consulting
services. The warrant was exercisable on the date of issuance and
accordingly, the Company recorded compensation expense for the fair
value of the warrant of $200,601. The warrant was still outstanding at
December 31, 1999 and expires on April 1, 2003.
7. CONTRACT TERMINATION FEES
During 1999 and 1998, the Company received $1 million and $2.5 million,
respectively, in cash as contract termination fees from customers who
unilaterally cancelled contracts.
8. COMMITMENTS AND CONTINGENCIES
LEASES:
The Company leases office space under operating leases that expire in
April 2001, May, 2001 and July, 2002. These leases contain certain
future rent escalations. The difference between rental expense recorded
on a straight-line basis and rent per the lease agreements has been
accounted for as deferred rent in the accompanying financial
statements. Rental expense recorded for the years ended 1999 and 1998
amounted to approximately $403,228 and $315,925, respectively.
Future minimum lease payments under the leases total approximately
$1,071,000 and are payable as follows:
<TABLE>
<S> <C>
2000 635,000
2001 322,000
2002 114,000
</TABLE>
CONTINGENCY:
The Company has received notification from the Business Software
Alliance on behalf of certain software licensors claiming the Company
used unlicensed copies of computer software during a period from 1998
to 1999. The Company is negotiating a settlement and at this time the
Company is unable to determine what effect, if any, the resolution of
this matter will have on the financial statements.
