<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 23, 1997
(amending Current
Report dated
April 9, 1997).
CYBERGUARD CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 0-24544 65-0510339
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
2101 WEST CYPRESS CREEK ROAD, FORT LAUDERDALE, FLORIDA 33309
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (954) 973-5478
Page 1 of 20
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<S> <C>
(a) The following financial statements, pro forma financial
information and exhibits are filed as part of this Form 8-K:
(b) FINANCIAL STATEMENTS.
PAGE NUMBER
Independent Auditors' Report F-1
Balance Sheets of TradeWave Corporation as of (i) December 31, 1996 F-2
and (ii) March 31, 1997 (unaudited)
TradeWave Corporation Statement of Operations for (i) the
year F-3 ended December 31, 1996 and (ii) the three
months ended March 31, 1996 and 1997 (unaudited).
Statements of Stockholder's Deficit F-4
Statements of Cash Flows for (i) the year ended December 31, 1996 F-5
and (ii) the three months ended March 31, 1996 and 1997
(unaudited).
Notes to Financial Statements F-6
(c) Pro Forma Financial Information.
PAGE NUMBERS
Explanatory Note to Unaudited Pro Forma Financial Statements PF-1
CyberGuard Corporation Pro Forma Condensed Consolidated Balance PF-2
Sheet (unaudited) as of June 30, 1996.
CyberGuard Corporation Pro Form Condensed Consolidated
Statement of PF-3 Operations (unaudited) for the nine
months ended June 30, 1996.
(d) EXHIBITS.
EXHIBIT NO. DESCRIPTION
10.1 Asset Purchase Agreement (incorporated by reference to the
Registrant's Current Report on Form 8-K dated April 9, 1997)
10.2 Agreement (regarding noncompetition,
nonsolicitation and confidentiality)
(incorporated by reference to the
Registrant's Current Report on Form
8-K dated April 9, 1997)
23.1 Consent of KPMG Peat Marwick.
</TABLE>
2
<PAGE> 3
SIGNATURES
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.
CYBERGUARD CORPORATION
By: /s/ Patrick O. Wheeler
--------------------------
Patrick O. Wheeler
Vice President Finance and
Chief Financial Officer
Dated: June 23, 1997
3
<PAGE> 4
TradeWave Corporation
(A Wholly Owned Subsidiary of SunRiver Corporation)
Financial Statements
December 31, 1996
(With Independent Auditors' Report Thereon)
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
The Board of Directors
TradeWave Corporation:
We have audited the accompanying balance sheet of TradeWave Corporation (a
wholly owned subsidiary of SunRiver Corporation) as of December 31, 1996, and
the related statement of operations, stockholder's deficit and cash flows for
the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TradeWave Corporation as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, in April 1997 the Company and SunRiver Corporation
completed the sale of substantially all of the Company's assets to CyberGuard
Corporation for $400,000. As a result, the Company recorded a write-down of
approximately $682,000 for the year ended December 31, 1996, to reflect the
impairment of its assets. In addition as discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations and has a
net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Austin, Texas
June 13, 1997
F-1
<PAGE> 6
TRADEWAVE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF SUNRIVER CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1996 1997
------------ ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash $ 33,903 $ 64,862
Accounts receivable, net of allowance for
doubtful accounts of $140,688 92,279 111,198
Prepaid expenses 35,788 23,062
------------ ------------
Total current assets 161,970 199,122
Property and equipment, net 153,932 19,795
Deposits 32,180 32,180
Other assets 15,000 --
------------ ------------
Total assets $ 363,082 $ 251,097
============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 1,051,139 $ 589,798
Accrued expenses 1,152,793 507,857
Deferred revenue 33,182 160,264
Current portion of long-term debt 478,815 15,601
Current portion of obligations under capital leases 161,799 155,189
Due to CyberGuard Corporation -- 170,000
Due to parent and affiliates 7,684,605 9,810,738
------------ ------------
Total current liabilities 10,562,333 11,409,447
Obligations under capital leases 206,788 169,656
------------ ------------
Total liabilities 10,769,121 11,579,103
Commitments and contingencies
Stockholder's deficit:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, none issued
Common stock, $0.01 par value; 10,000,000 shares authorized,
3,500,000 shares issued and outstanding 35,000 35,000
Additional paid in capital 777,761 733,911
Deferred compensation (584,677) (540,827)
Accumulated deficit (10,634,123) (11,556,090)
------------ ------------
Total stockholder's deficit (10,406,039) (11,328,006)
------------ ------------
Total liabilities and stockholder's deficit $ 363,082 $ 251,097
============ ============
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE> 7
TRADEWAVE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF SUNRIVER CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Three Months
Year Ended Ended Ended
December 31, March 31, March 31,
1996 1996 1997
----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenue:
License $ 176,734 $ 60,008 $ --
Service 1,909,611 675,759 99,525
----------- ----------- -----------
Total revenue 2,086,345 735,767 99,525
Cost of revenue
Service 524,401 3,366 21,299
----------- ----------- -----------
Gross margin 1,561,944 732,401 78,226
Operating expenses:
Research and development 2,985,485 564,105 431,546
Sales and marketing 1,852,605 347,492 31,925
General and administrative 3,913,479 555,441 399,419
Restructuring charge 851,995 -- 251,719
----------- ----------- -----------
Total operating expenses 9,603,564 1,467,038 1,114,609
----------- ----------- -----------
Loss from operations (8,041,620) (734,637) (1,036,383)
Interest expense, net (499,351) (27,508) (93,939)
----------- ----------- -----------
Loss before extraordinary item (8,540,971) (762,145) (1,130,322)
Extraordinary gain on extinguishment of debt -- -- 208,355
----------- ----------- -----------
Net loss $(8,540,971) $ (762,145) $ (921,967)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 8
TRADEWAVE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF SUNRIVER CORPORATION)
STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
------ ------ ---------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 10,500,000 $ 35,000 $ -- $ -- $ (2,093,152) $ (2,058,152)
Issuance of warrants for services 76,161 76,161
Deferred compensation related to
grant of stock options 701,600 (701,600) --
Amortization of deferred
compensation 116,923 116,923
Net loss (8,540,971 (8,540,971)
------------ ------------ --------- ---------- ------------ ------------
Balance at December 31, 1996 10,500,000 35,000 777,761 (584,677) (10,634,123) (10,406,039)
Deferred compensation related to
grant of stock options (unaudited) (43,850) 43,850 --
Net loss (unaudited) (921,967) (921,967)
------------ ------------ --------- ---------- ------------ ------------
Balance at March 31, 1997 (unaudited) 10,500,000 $ 35,000 $ 733,911 $ (540,827) (11,556,090) $(11,328,006)
============ ============ ========= ========== ============ ============
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 9
TRADEWAVE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF SUNRIVER CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Three Months
Year Ended Ended Ended
December 31, March 31, March 31,
1996 1996 1997
------------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(8,540,971) (762,145) (921,967)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 197,037 37,873 81,310
Amortization of deferred compensation 116,923 -- --
Warrants issued for services 76,161 -- --
Write-off acquisition costs paid with common
stock of parent 74,556 -- --
Asset writedowns 682,380 -- --
Changes in assets and liabilities:
Accounts receivable (1,512) (594,468) (18,919)
Prepaid assets (35,788) (38,848) 12,726
Accounts payable 884,494 88,352 (461,341)
Other current liabilities 919,635 81,664 (517,854)
----------- ----------- -----------
Net cash used in operating activities (5,627,085) (1,187,572) (1,826,045)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (416,062) (47,405) --
Proceeds from sale of fixed assets -- -- 12,094
----------- ----------- -----------
Net cash provided by (used in) investing activities (416,062) (47,405) 12,094
----------- ----------- -----------
Cash flows from financing activities:
Payments on long-term debt (324,177) -- (463,214)
Payments on capital leases (118,826) (27,622) (43,742)
Advances from CyberGuard Corporation -- -- 170,000
Borrowed from related parties 6,441,227 1,211,221 2,181,866
----------- ----------- -----------
Net cash provided by financing activities 5,998,224 1,183,599 1,844,910
----------- ----------- -----------
Net increase (decrease) in cash (44,923) (51,378) 30,959
Cash at beginning of period 78,826 78,826 33,903
----------- ----------- -----------
Cash at end of period $ 33,903 27,448 64,862
=========== =========== ===========
Non-cash transactions:
Equipment acquisitions funded through
capital leases $ 224,822 -- --
Cash paid for:
Interest $ 41,468 9,347 20,377
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 10
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
DESCRIPTION OF BUSINESS
TradeWave Corporation ("TradeWave" or the "Company") was incorporated
in December 1994 as EiNet Acquisition Corporation and changed its name
to TradeWave Corporation after acquiring the Enterprise Integration
Network technology ("EINet") on March 31, 1995 from Microelectronics
and Computer Technology Corporation ("MCC"). TradeWave is a
wholly-owned subsidiary of SunRiver Corporation ("SunRiver").
TradeWave develops, markets, licenses and supports a suite of software
products and provides related services which enable businesses to
design, build and deploy comprehensive public-key security solutions
for the conduct of enterprise-wide and business-to-business
communications and transactions over TCP/IP-based networks, including
the Internet, LANs and WANs.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Plant and equipment under
capital leases are stated at the present value of minimum lease
payments. Depreciation on plant and equipment is calculated on the
straight-line method over the estimated useful lives of the assets.
Equipment held under capital leases and leasehold improvements are
amortized straight line over the shorter of the lease term or estimated
useful life of the asset.
ACCRUED EXPENSES
At December 31, 1996, accrued expenses consist of the following:
Restructuring charges $ 688,817
Research and development 250,000
Professional fees 57,060
Employee vacation 41,097
Royalties 30,609
Other 85,210
-----------
$ 1,152,793
===========
INCOME TAXES
Income taxes are provided in accordance with the asset and liability
method pursuant to Statement of Financial Accounting Standards ("SFAS")
No. 109. Accordingly, deferred tax assets and liabilities are recorded
to reflect the future tax consequences attributable to the differences
between the financial statement carrying amounts and tax bases of
assets and liabilities as measured by applying enacted tax laws, and
rates. Valuation Allowances are established to reduce deferred tax
assets by the amount of any tax benefits that, based on available
evidence, are not expected to be realized.
At December 31, 1996 for federal income tax purposes, TradeWave's
results are included in the consolidated federal tax return of its
parent, SunRiver. For financial statement purposes, federal income
taxes were determined as if TradeWave had filed a separate income tax
return. The Company has not recorded any income tax liability or
expense in the current year.
F-6
<PAGE> 11
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES, CONTINUED
RESEARCH AND DEVELOPMENT
Research and development expenses are charged to operations as
incurred. SFAS No. 86 "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed," requires capitalization of
certain software development costs subsequent to the establishment of
technological feasibility. Based on TradeWave's product development
process, technological feasibility is established upon completion of a
working model. Costs incurred by TradeWave between completion of the
working model and the point at which the product is ready for general
release are capitalized, but to date have been insignificant. All
research and development costs, including both research and development
performed for others and independent research and development have been
expensed.
REVENUE RECOGNITION
Revenue from licenses and services are recorded as products are shipped
or services are rendered, so long as no significant vendor obligations
remain and collection of the resulting receivable is deemed probable.
SERVICE REVENUE. TradeWave's service revenue consists primarily of
consulting and advertising. Service revenue is recognized under
cost-plus-fee contracts when it is billed. Revenue is billed based on
the number of labor hours incurred. Allowable labor costs include
direct research and development costs and applicable overhead.
LICENSE REVENUE. License revenue relates primarily to licensing fees of
TradeWave's browser products. Development costs associated with these
products were incurred by EINet and, therefore, no significant costs
were associated with the license revenue.
STOCK OPTION PLAN
Prior to January 1, 1996 the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB No. 25 and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has adopted the
disclosure provisions of SFAS No. 123, however, continues to apply the
provisions of APB No. 25 for the preparation of its basic financial
statements.
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
F-7
<PAGE> 12
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES, CONTINUED
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," on January 1, 1996. This statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
The Company's property and equipment has been written down to its
estimated fair market value at December 31, 1996. These assets were
written down pursuant to SFAS No. 121 as a direct result of the sale of
certain property and equipment to CyberGuard Corporation ("CyberGuard")
in April 1997. Such write-downs were required as the carrying amount of
assets currently held for use exceeded their expected future
undiscounted cash flow from disposition. As a result, TradeWave
recorded charges of approximately $607,000 which are included in
depreciation expense. These assets include computer software and
computer equipment.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of accounts receivable, accounts payable and notes
payable approximates fair value because of the short maturity of these
instruments.
GOING CONCERN
TradeWave's financial statements have been presented assuming that the
Company will continue as a going concern, which contemplates the
realization of assets and liabilities in the normal course of business.
Since commencing business in April 1995, TradeWave has incurred
cumulative net losses of approximately $10.6 million through December
1996 and has a net capital deficiency. TradeWave has not yet realized
significant revenue from its software products and services and the
Company's operations have been funded through advances from SunRiver.
However, SunRiver's ability to fund future operations is uncertain and
depends upon a variety of factors, some of which may be beyond the
Company's control.
UNAUDITED FINANCIAL INFORMATION
In the opinion of management, the unaudited financial information of
the Company contains all adjustments, consisting only those of a normal
recurring nature, necessary to present fairly the Company's financial
position as of March 31, 1997 and 1996, and the results of its
operations and cash flows for the three month periods then ended.
F-8
<PAGE> 13
(2) PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT CONSISTS OF THE FOLLOWING:
<TABLE>
<CAPTION>
Useful Life 1996
----------- ----
<S> <C> <C>
Furniture and fixtures 5 Years $ 70,965
Computer equipment 3 Years 886,061
Leasehold improvements Lease Term 59,568
----------
1,016,594
Less accumulated depreciation, amortization
and asset write-downs (862,662)
----------
$ 153,932
==========
</TABLE>
Property and equipment includes $513,825 of property and equipment
acquired under capital leases at December 31, 1996. Accumulated
depreciation on property and equipment acquired under capital leases
was approximately $435,600 at December 31, 1996.
(3) INDEBTEDNESS
Debt consists of an installment obligation payable to MCC in
connection with the acquisition of EINet. The obligation is unsecured,
bears interest at 9% and is due in quarterly installments of principal
and interest of $125,000 through December 1997.
(4) COMMITMENTS AND CONTINGENCIES
MCC TECHNOLOGY AGREEMENT.
In conjunction with the purchase of EINet, TradeWave entered into a
research and development agreement with MCC whereby TradeWave will pay
MCC $2,000,000 in installments through December 31, 1997 to
participate in and support specific research conducted by MCC.
Payments under this agreement are guaranteed by SunRiver Group, Inc.,
the majority shareholder of SunRiver. This obligation does not bear
interest and is expensed as it is paid in accordance with the specific
terms of the agreement. Pursuant to this agreement, TradeWave Paid
$850,000 in research and development costs to MCC during 1996. An
additional payment of $250,000 due on December 31, 1996, is included
in accrued liabilities.
In March 1996, pursuant to a restructuring of past due and future
payments under the EINet acquisition agreement, TradeWave was given the
option of paying $100,000 (originally due in December 1995), $250,000
And $50,000 In April, May and June 1996, respectively, by delivering to
MCC such a number of shares of freely tradable common stock of SunRiver
equal in value to 120% of such payments. In July 1996, 60,000 shares of
common stock of SunRiver Valued at $300,000 were delivered to MCC in
satisfaction of a portion of the obligation. TradeWave paid $150,000 of
the remaining past due obligation in cash. MCC disputed the adequacy of
these shares to satisfy the $250,000 payment due in 1996.
F-9
<PAGE> 14
(4) COMMITMENTS AND CONTINGENCIES, CONTINUED
In March 1997, TradeWave, MCC and SunRiver entered into a settlement
agreement whereby all obligations of the parties were discharged and
TradeWave's membership in MCC was terminated. TradeWave paid MCC
$500,000 and TradeWave granted MCC a non-exclusive license to use
TradeVPI and assigned to a designee of MCC TradeWave's rights in the
Infosleuth Project. As a result of the settlement, TradeWave recognized
an extraordinary gain on the extinguishment of debt of approximately
$208,000 in 1997
OBLIGATIONS UNDER CAPITAL LEASES
TradeWave has assumed or entered into various capital lease agreements
with interest rates ranging from 6% to 17%, for the acquisition of
certain computer equipment. At December 31, 1996, future minimum lease
payments under existing capital lease agreements are as follows:
1997 $ 210,866
1998 165,603
1999 57,197
---------
433,666
Less amounts representing interest 65,079
---------
Present value of minimum lease payments 368,587
Less current portion 161,799
---------
$ 206,788
=========
In connection with the purchase of certain assets of TradeWave,
CyberGuard has assumed the obligation for future payments under capital
leases of approximately $217,000.
TradeWave leases its facilities and certain other equipment under
operating lease agreements expiring through June 30, 2000. Rent expense
for the year ended December 31, 1996 was approximately $215,000. Future
minimum payments as of December 31, 1996 under these leases are as
follows:
1997 $ 359,198
1998 341,058
1999 249,790
2000 128,106
(5) CAPITAL STOCK
TradeWave has the authority to issue 1,000,000 shares of $0.01 par
value preferred stock from time to time in one or more series as
determined by the Board of Directors. No preferred shares have been
issued. Any series of preferred stock issued may have such voting
powers, full or limited, or not voting power, and such designations,
preferences, and relative, participating, optional or other special
rights and qualifications, limitations or restrictions, as determined
by the Board of Directors when the series is issued.
TradeWave adopted the 1995 Stock Option Plan (the "Plan") in 1995. As a
result of the sale of assets of the Company to Cyberguard in April
1997, and the related termination of all TradeWave employees, options
granted and outstanding under the plan have been canceled and are
without value.
F-10
<PAGE> 15
(5) CAPITAL STOCK, CONTINUED
During 1996, the Company has recorded unearned compensation for the
difference between the fair market value of its Common Stock and the
exercise price of the stock options at the date of grant. The unearned
compensation is amortized based on the vesting schedule of the
respective stock options. The unamortized unearned compensation value
is shown as a reduction of shareholder's deficit in the accompanying
balance sheets. The Company has recognized approximately $117,000
compensation expense in connection with these stock options during
1996.
(6) RETIREMENT PLANS
The Company's parent maintains a 401(K) retirement savings plan (the
"Retirement Plan") for its full-time employees, which includes the
full-time employees of TradeWave. Each participant in the Retirement
Plan may elect to contribute up to 15% of his or her annual
compensation. The Company, at its discretion, may make contributions to
the Plan, however none have been made through December 31, 1996.
(7) SEGMENT INFORMATION
The Company conducts its business within one industry segment. One
customer, the U.S. Government, accounted for 55% of total revenues in
the year ended December 31, 1996.
(8) RELATED PARTY TRANSACTIONS
SunRiver and an affiliate have advanced approximately $6.5 million to
TradeWave during the year ended December 31, 1996. The balance due at
December 31, 1996 is approximately $7.7 million, including interest.
Interest expense has been recorded at rates ranging from 9.25% To
10.00%.
(9) RESTRUCTURING ACTIVITIES
In December 1996, SunRiver adopted a formal plan to discontinue the
operations of TradeWave by March 31, 1997. The plan contemplated the
sale of the business or its assets if possible, or a dissolution
through a Voluntary Petition for Bankruptcy under Chapter 7 of the
Bankruptcy Code. All TradeWave employees were terminated on March 5,
1997 and a small group of consultants were retained to effect an
orderly cessation of its customer obligations.
Subsequently in April 1997, SunRiver completed the sale of certain
assets of TradeWave to CyberGuard for a combination of cash, a royalty
on certain future revenues and the assumption of certain liabilities.
In addition, a portion of TradeWave's terminated employees were
transitioned to CyberGuard.
The restructuring charge of $853,000 primarily includes costs
associated with employee terminations announced in December 1996. Work
force reductions of approximately 25 employees resulted in total
employee-related termination charges of approximately $784,000. The
balance of the restructuring charge relates to exit costs resulting
from the abandonment of leased facilities.
F-11
<PAGE> 16
(10) SUBSEQUENT EVENT
In April 1997, the Company and SunRiver completed the sale of
substantially all of the Company's assets to CyberGuard for a
combination of cash of $400,000, a royalty on certain future revenues
and the assumption of certain liabilities. As a result, the Company
recorded a write-down of approximately $682,000 for the year ended
December 31, 1996 to reflect the impairment of its assets.
F-12
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma condensed consolidated financial statements of the
Company are based on the Company's consolidated historical financial statements,
as adjusted to give effect to the acquisition of substantially all of the assets
of TradeWave Corporation for $400,000 and the assumption of certain liabilities.
The pro forma condensed consolidated statement of operations for the nine months
ended June 30, 1996, gives effect to the Acquisition as if it had occurred on
October 1, 1995. The pro forma condensed consolidated balance sheet gives effect
to the Acquisition as if it had occurred on June 30, 1996. The pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable. The pro forma financial statements do not
purport to represent what the Company's results of operations or financial
position would actually have been had the Acquisition in fact occurred at or on
such dates, or to project the Company's results of operations for any future
period or financial position at any future date.
For purposes of presenting pro forma results, no changes in revenues or expenses
have been made to reflect the result of any modification to operations
attributable to the Acquisition. The pro forma adjustments for expenses directly
attributable to the Acquisition include changes in depreciation and amortization
expense resulting from the allocation of the purchase cost.
The pro forma information with respect to the Acquisition is based on the
historical financial statements of TradeWave Corporation. The Acquisition has
been accounted for under the purchase method of accounting. The total purchase
price for the Acquisition has been allocated to the tangible and identifiable
intangible assets and liabilities based on the Company's preliminary estimates
of their fair value with the remainder allocated to goodwill. The allocation of
the purchase price for the Acquisition is subject to revision when additional
information concerning asset and liability valuations is obtained, and the
Company's internal analysis of in process research and development is concluded.
Based upon the results of this analysis, the Company will allocate excess
purchase price between in process research and development and goodwill. Amounts
allocated to in process research and development will result in a charge to
earnings. In the opinion of Company's management, the asset and liability
valuations for the Acquisition will not be materially different from the pro
forma financial data presented.
PF-1
<PAGE> 18
CYBERGUARD CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, 1996
(in thousands except per share data)
<TABLE>
<CAPTION>
Pro Forma
Adjustments Pro Forma
for the for the
Historical Acquisition Acquisition
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,617 $ (400)(b) $ 3,217
Accounts and notes receivable, net 3,668 83(a) 3,751
Inventories 134 -- 134
Prepaid expenses 565 -- 565
Securities available for sale 13,600 -- 13,600
-------- -------- --------
Total current assets 21,584 (317) 21,267
Machinery and equipment, net 1,152 155(a) 1,307
Investment in Concurrent preferred stock 3,853 3,853
Non-compete agreement 1,120 1,120
In-Process Reseach & Development / Goodwill -- 624(a) 624
Other assets 3 19(a) 22
-------- -------- --------
Total assets $ 27,712 $ 481 $ 28,193
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred revenue $ 44 $ 160(a) 204
Accrued expenses 6,223 152(a) 6,375
Current portion obligations under capital leases -- 153(a) 153
Loan payable 3,200 16(a) 3,216
-------- -------- --------
Total current liabilities 9,467 481 9,948
Stockholders' equity:
Common stock $ 67 $ -- $ 67
Additional paid in capital 56,152 -- 56,152
Accumulated deficit (37,210) -- (37,210)
Cumulative translation adjustment (764) -- (764)
-------- -------- --------
Total stockholders' equity 18,245 0 18,245
-------- -------- --------
Total liabilities and stockholders' equity $ 27,712 $ 481 $ 28,193
======== ======== ========
</TABLE>
(a) Represents the allocation of the purchase price for the Acquisition to
tangible and intangible assets, in-process research & development/goodwill,
and assumed liabilities. The purchase price allocation is based on
management's preliminary estimates, which are subject to adjustment. The
Company intends to charge to earnings the portion of acquisition costs
allocable to in-process research & development following the conclusion of
its internal analysis. The Company will use the purchase method to account
for the Acquisition.
(b) Represents the purchase price of the Acquisition.
PF-2
<PAGE> 19
CYBERGUARD CORPORATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (UNAUDITED)
Nine Months Ended June 30, 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
Historical
------------------------------
Pro Forma
Adjustments Pro Forma
CyberGuard TradeWave for the for the
Corporation Corporation Acquisition Acquisition
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales:
Equipment $ 24,958 $ -- $ -- $ 24,958
Services 12,453 1,643 -- 14,096
----------- ----------- ----------- -----------
37,411 1,643 -- 39,054
----------- ----------- ----------- -----------
Cost of sales:
Equipment 13,360 -- -- 13,360
Services 7,662 377 -- 8,039
----------- ----------- ----------- -----------
21,022 377 -- 21,399
----------- ----------- ----------- -----------
Gross income 16,389 1,266 -- 17,655
----------- ----------- ----------- -----------
Operating expenses:
Research and development 5,360 2,071 -- 7,431
Selling, general and administrative 18,021 1,994 (36)(a) 19,979
Write-off of capitalized computer software
development costs 3,244 -- -- 3,244
Costs relating to canceled secondary offering 1,009 -- -- 1,009
----------- ----------- ----------- -----------
Total other operating expenses 27,634 4,065 (36) 31,663
----------- ----------- ----------- -----------
Operating loss (11,245) (2,799) 36 (14,008)
Interest income (expense), net 180 (292) -- (112)
Other income, net 103 -- -- 103
Loss on sale of Real-Time Business (15,160) -- -- (15,160)
----------- ----------- ----------- -----------
(14,877) (292) -- (15,169)
Net loss $ (26,122) $ (3,091) $ 36 (29,177)
=========== =========== =========== ===========
Loss per common share $ (4.32) $ (4.83)
=========== ===========
Weighted average shares outstanding 6,046,182 6,046,182
=========== ===========
</TABLE>
(a) Reflects the reduction of depreciation expense due to the write-down of
purchased assets to net realizable value, net of amortization expense on
goodwill. Calculation assumes a useful life of five years.
PF-3
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
CyberGuard Corporation
We consent to the incorporation by reference in the registration statement (No.
333-28693) on Form S-3 of CyberGuard Corporation of our report dated June 13,
1997, with respect to the balance sheet of TradeWave Corporation as of December
31, 1996 and the related statement of operations, stockholder's deficit, and
cash flows for the year ended December 31, 1996, which report appears in the
Form 8-K of CyberGuard Corporation dated June 23, 1997.
Our report dated June 13, 1997, contains an explanatory paragraph that states
that substantially all of TradeWave Corporation's assets were sold to CyberGuard
Corporation for $400,000 subsequent to December 31, 1996 and, as a result,
TradeWave Corporation recorded a write-down of approximately $682,000 for the
year ended December 31, 1996 to reflect the impairment of its assets. In
addition, the Company has suffered recurring losses from operations and has a
net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
/s/ KPMG Peat Marwick LLP
Austin, Texas
June 23, 1997
