<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------
FORM 8-K
---------------
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report April 28, 1997
(Date of earliest event reported): April 28, 1997
HARBINGER CORPORATION
(Exact name of Company specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 0-26298 58-1817306
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation or organization)
</TABLE>
1055 LENOX PARK BOULEVARD, ATLANTA, GEORGIA 30319
(Address of principal executive offices) (Zip Code)
(404) 467-3000
(Company's telephone number, including area code)
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Page 1 of 60
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<PAGE> 2
ITEM 5. OTHER EVENTS
On January 3, 1997, Harbinger Corporation (the "Company") completed the
acquisition of SupplyTech, Inc., a Michigan Corporation, and its affiliate,
SupplyTech International, LLC, a Michigan limited liability company
(collectively, "STI") for 2,400,000 unregistered shares of the Company's common
stock in transactions accounted for using the pooling-of-interests method of
accounting. The Company is providing supplemental selected financial data,
supplemental quarterly financial information, supplemental management's
discussion and analysis of financial condition and results of operations, and
supplemental consolidated financial statements which give retroactive effect to
the acquisition of STI and are filed herein as Exhibits 99.1, 99.2, 99.3 and
99.4, respectively. Generally accepted accounting principles proscribe giving
effect to a consummated business combination accounted for by the
pooling-of-interests method in financial statements that do not include the
date of consummation. These supplemental consolidated financial statements do
not extend through the date of consummation of the STI Acquisition. However,
they will become the historical consolidated financial statements of Harbinger
Corporation and subsidiaries after financial statements covering the date of
the consummation of the business combination are issued.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
<TABLE>
<CAPTION>
(c) Exhibits
<S> <C>
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Ciulla, Smith & Dale, LLP
99.1 Supplemental Selected Financial Data
99.2 Supplemental Quarterly Results of Operations
99.3 Supplemental Management's Discussion and Analysis of Financial Condition
and Results of Operations
99.4 Supplemental Consolidated Financial Statements including Supplemental
Financial Statement Schedule and Supplemental Computation of Primary and
Fully Diluted Per Share Earnings
</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 hereunto duly authorized.
HARBINGER CORPORATION
/s/ Joel G. Katz
---------------------------------
JOEL G. KATZ
Chief Financial Officer
(Principal Financial Officer;
Principal Accounting Officer)
Date: April 28, 1997
-3-
<PAGE> 4
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -------------------------------------------------------------
<S> <C>
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Ciulla, Smith & Dale, LLP
99.1 Supplemental Selected Financial Data
99.2 Supplemental Quarterly Results of Operations
99.3 Supplemental Management's Discussion and Analysis of
Financial Condition and Results of Operations
99.4 Supplemental Consolidated Financial Statements including
Supplemental Financial Statement Schedule and Supplemental
Computation of Primary and Fully Diluted Per Share Earnings
</TABLE>
-4-
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Harbinger Corporation:
We consent to incorporation by reference in the Registration Statements (No.
33-96774) and (No. 333-03247) on Form S-8 and Registration Statement (No.
333-10893) on Form S-3 of Harbinger Corporation of our reports dated March 17,
1997, relating to the supplemental consolidated balance sheets of Harbinger
Corporation as of December 31, 1996 and 1995, and the related supplemental
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1996, and the
related supplemental financial statement schedule, which reports appear in this
Current Report on Form 8-K filed on or about April 28, 1997.
Our reports dated March 17, 1997, included a reference to other auditors with
respect to 1995, as those reports, as they relate to the 1995 combined
financial statements for SupplyTech, Inc. and SupplyTech International, LLC
which are included in the supplemental consolidated financial statements of
Harbinger Corporation, are based solely on the report of the other auditors as
it relates to the amounts included for SupplyTech, Inc. and SupplyTech
International, LLC. Our reports dated March 17, 1997 also indicated that the
financial statements of Harbinger Corporation and SupplyTech, Inc. and
SupplyTech International, LLC for 1994 were audited by other auditors, although
the reports also indicated that we audited the combination of the accompanying
supplemental financial statements and supplemental financial statement schedule
for 1994.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
April 28, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Harbinger Corporation:
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 8-K into Harbinger Corporation's previously
filed Registration Statements (No. 33-96774) and (No. 333-03247) on Form S-8
and Registration Statement (No. 333-10893) on Form S-3.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 28, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Harbinger Corporation:
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 8-K into Harbinger Corporation's previously
filed Registration Statements (No. 33-96774) and (No. 333-03247) on Form S-8
and Registration Statement (No. 333-10893) on Form S-3.
CIULLA, SMITH & DALE, LLP
Southfield, Michigan
April 28, 1997
<PAGE> 1
EXHIBIT 99.1
SUPPLEMENTAL SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
(in thousands, except per share data) Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues .......................................... $ 59,263 $ 37,830 $ 27,893 $22,600 $ 16,782
Direct costs ...................................... 16,537 10,285 7,418 6,016 4,442
-------- -------- -------- ------- --------
Gross margin ...................................... $ 42,726 $ 27,545 $ 20,475 $16,584 $ 12,340
======== ======== ======== ======= ========
Operating income (loss) ........................... $ (5,736) $ 659 $ (2,667) $ 812 $ 365
======== ======== ======== ======= ========
Net income (loss) applicable to common shareholders $(13,095) $ (1,941) $ (2,088) $ 3,071 $ (222)
======== ======== ======== ======= ========
Net income (loss) per common share ................ $ (0.71) $ (0.13) $ (0.16) $ 0.25 $ (0.02)
======== ======== ======== ======= ========
Weighted average common and common equivalent
shares outstanding ............................... 18,465 15,007 12,693 12,515 10,867
======== ======== ======== ======= ========
Pro forma net loss data(1):
Pro forma net loss applicable to common
shareholders ..................................... $(13,095) $ (1,425)
======== ========
Pro forma net loss per common share .............. $ (0.71) $ (0.10)
======== ========
Weighted average common and common
equivalent shares outstanding ................... 18,465 15,007
======== ========
Operating income(2) ............................... $ 3,039 $ 1,819 $ 1,650 $ 812 $ 365
======== ======== ======== ======= ========
Net income (loss) applicable to common
shareholders(3) .................................. $ 1,715 $ 762 $ 652 $ 3,071 $ (222)
======== ======== ======== ======= ========
Net income (loss) per common share(3) ............. $ 0.09 $ 0.05 $ 0.05 $ 0.25 $ (0.02)
======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
(in thousands) At December 31,
- -------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Working capital ................................... 3,190 11,564 2,838 3,964 590
Total assets ...................................... 48,793 46,404 21,347 16,923 9,038
Long-term obligations, redeemable preferred stock
and puttable common stock ........................ 1,449 6,347 3,016 5,146 7,331
Shareholders' equity .............................. 24,842 27,509 6,734 5,649 (2,973)
</TABLE>
(1) The pro forma net loss data reflects the income tax expense that would
have been reported if SupplyTech, Inc. (a S corporation for income tax
reporting purposes) and SupplyTech International, LLC (a limited
liability corporation for income tax reporting purposes) had been C
corporations during these periods.
(2) Excludes $8.8 million, $1.2 million and $4.3 million in charges for
1996, 1995 and 1994, respectively, for purchased in-process product
development, write-off of software development costs and acquisition
related charges.
(3) Excludes equity in loss of HNS, expected to recur, of $7 million and
$954,000 for 1996 and 1995, respectively, and $8.8 million, $1.2
million and $4.3 million in charges for 1996, 1995 and 1994,
respectively, for purchased in-process product development, write-off
of software development costs and acquisition related charges. All
amounts are net of related income taxes.
Note: All share, per share and shareholders' equity amounts have been
retroactively restated to reflect a three-for-two stock split effected
in the form of a 150% stock dividend paid on January 31, 1997.
<PAGE> 1
EXHIBIT 99.2
SUPPLEMENTAL QUARTERLY RESULTS OF OPERATIONS - 1995
<TABLE>
<CAPTION>
(in thousands, except for per share data) THREE MONTHS ENDED
- ------------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995(1)
---- ---- ---- -------
<S> <C> <C> <C> <C>
Revenues ............................................. $ 8,283 $ 8,808 $ 9,823 $ 10,916
======== ======== ======== ========
Gross margin ......................................... $ 5,913 $ 6,322 $ 7,004 $ 8,306
======== ======== ======== ========
Operating income (loss) .............................. $ 302 $ 336 $ 478 $ (457)
======== ======== ======== ========
Net loss applicable to common shareholders ........... $ (509) $ (67) $ (114) $ (1,251)
======== ======== ======== ========
Net loss per common share ............................ $ (0.04) $ (0.00) $ (0.01) $ (0.07)
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding ....................... 13,504 13,508 15,525 17,605
======== ======== ======== ========
Pro forma net income (loss) data(2):
Pro forma net income (loss) applicable to
common shareholders ................................ $ 7 $ (67) $ (114) $ (1,251)
======== ======== ======== ========
Pro forma net income (loss) per common
share .............................................. $ 0.00 $ (0.01) $ (0.01) $ (0.07)
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding ...................... 13,504 13,508 15,525 17,605
======== ======== ======== ========
Net income applicable to common shareholders
(excluding equity in loss of HNS, expected to
recur, and charge for in-process product development,
net of related income taxes) ........................ $ 97 $ 105 $ 176 $ 384
======== ======== ======== ========
Net income per common share (excluding equity
in loss of HNS, expected to recur, and charge for
in-process product development, net of related
income taxes) ....................................... $ 0.01 $ 0.01 $ 0.01 $ 0.02
======== ======== ======== ========
</TABLE>
(1) Includes charge of $1.2 million for the quarter ended December 31,
1995 for purchased in-process product development.
(2) Pro forma net income (loss) data reflects the income tax expense that
would have been reported if SupplyTech, Inc. (a S corporation for
income tax reporting purposes) and SupplyTech International, LLC (a
limited liability corporation for income tax reporting purposes) had
been C corporations during 1995.
Note: All share, per share and shareholders' equity amounts have been
retroactively restated to reflect a three-for-two stock split effected
in the form of a 150% stock dividend paid on January 31, 1997.
<PAGE> 2
SUPPLEMENTAL QUARTERLY RESULTS OF OPERATIONS - 1996
<TABLE>
<CAPTION>
(in thousands, except for per share data) THREE MONTHS ENDED
- ------------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996(1) 1996 1996 1996(1)
------- ---- ---- -------
<S> <C> <C> <C> <C>
Revenues ............................................. $ 11,504 $ 14,753 $ 15,730 $ 17,276
======== ======== ======== ========
Gross margin ......................................... $ 8,410 $ 10,559 $ 11,571 $ 12,186
======== ======== ======== ========
Operating income (loss) .............................. $ (7,876) $ 252 $ 849 $ 1,039
======== ======== ======== ========
Net loss applicable to common shareholders ........... $ (9,042) $ (1,476) $ (1,233) $ (1,344)
======== ======== ======== ========
Net loss per common share ............................ $ (0.51) $ (0.08) $ (0.07) $ (0.07)
======== ======== ======== ========
Weighted average common and common equivalent
shares outstanding .................................. 17,903 18,511 18,597 18,669
======== ======== ======== ========
Net income applicable to common shareholders
(excluding equity in loss of HNS, expected to
recur, and charges for in-process product
development, write-off of software development
costs and acquisition related charges, net of related
income taxes) ....................................... $ 274 $ 157 $ 498 $ 786
======== ======== ======== ========
Net income per common share (excluding equity in
loss of HNS, expected to recur, and charges for
in-process product development, write-off of software
development costs and acquisition related charges,
net of related income taxes) ........................ $ 0.01 $ 0.01 $ 0.03 $ 0.04
======== ======== ======== ========
</TABLE>
(1) Includes charge of $8.35 million for the quarter ended March 31, 1996
and a charge of $425,000 for the quarter ended December 31, 1996 for
purchased in-process product development, write-off of software
development costs and acquisition related charges.
(2) Pro forma net income (loss) data has been omitted since there is no
income tax effect if SupplyTech, Inc. (a S corporation for income tax
reporting purposes) and SupplyTech International, LLC (a limited
liability corporation for income tax reporting purposes) had been C
corporations during 1996.
Note: All share, per share and shareholders' equity amounts have been
retroactively restated to reflect a three-for-two stock split effected
in the form of a 150% stock dividend paid on January 31, 1997.
<PAGE> 1
EXHIBIT 99.3
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Harbinger Corporation (the "Company") generates revenues from various
sources, including revenues for services and license fees for software.
Revenues for services principally includes subscription fees for transactions
on the Company's Value Add Network ("VAN"), software maintenance and
implementation charges and charges for consulting and training services.
Subscription fees are based on a combination of monthly access charges and
transaction-based usage charges. Software maintenance and implementation
revenues represent recurring charges to customers and are deferred and
recognized ratably over the service period. Revenues for consulting and
training services are based on actual services rendered and are recognized as
services are performed. License fees for software are recognized upon
shipment, net of estimated returns. Software revenues include royalty
revenues under the Company's distribution agreement with System Software
Associates, Inc. ("SSA") which are recognized based upon sales to end users by
SSA. Software revenues also include royalty revenues from Harbinger NET
Services, LLC ("HNS"), an affiliated company, based upon sales to end users by
HNS.
STI ACQUISITION
On January 3, 1997, the Company acquired SupplyTech, Inc. a Michigan
corporation, and its affiliate, SupplyTech International, LLC, a Michigan
limited liability company (collectively, "STI") for 2,400,000 unregistered
shares of the Company's common stock in transactions accounted for using the
pooling-of-interests method of accounting. SupplyTech, Inc. was acquired in a
merger transaction pursuant to the terms of a merger agreement, dated January
3, 1997, by and among the Company, SupplyTech, Inc. and Harbinger Acquisition
Corporation II, a Georgia corporation and a wholly owned subsidiary of the
Company. SupplyTech, Inc. survived the merger as a wholly owned subsidiary of
the Company. SupplyTech International, LLC was acquired by the Company in a
series of related share purchases, which included the exchange of the Company's
common stock for all the outstanding shares of SupplyTech International, LLC.
In connection with the STI Acquisition, the Company expects to take a
charge of $7.0 million in January 1997 for acquisition related expenses and
asset write downs and expects to incur integration costs of $2.5 million to
$3.5 million during the first quarter of 1997.
The financial position and results of operations of the Company have been
restated for all periods prior to the merger to give retroactive effect to the
STI Acquisition. Generally accepted accounting principles proscribe giving
effect to a consummated business combination accounted for by the
pooling-of-interests method in the financial statements that do not include the
date of consummation. These supplemental consolidated financial statements do
not extend through the date of consummation of the STI Acquisition. However,
they will become the historical consolidated financial statements of the
Company, after financial statements covering the date of consummation of the
business combination are issued.
1994 ACQUISITION AND SSA ALLIANCE
Effective December 31, 1994, the Company completed the acquisition (the
"TI Acquisition") of certain assets from Texas Instruments, Incorporated
relating to its EDI business unit for $3.9 million. Effective July 21, 1995,
the Company purchased technology and entered into a distribution agreement
with SSA for $4.8 million (the "SSA Alliance") pursuant to which the Company
acquired from SSA computer software that performs EDI functions on IBM AS/400
midrange computers and licensed to SSA the Company's AS/400, Unix and PC-based
EDI software and related tools and utilities, under agreements whereby SSA may
remarket this software to licensees of SSA's Business Planning and Control
System. Through the TI Acquisition and the SSA Alliance, the Company acquired
software products and technologies that complement the Company's existing
software product line.
<PAGE> 2
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HARBINGER NET SERVICES, LLC
In December 1994, the Company founded Harbinger NET Services, LLC ("HNS")
to develop products and services to facilitate electronic commerce using the
Internet. HNS was capitalized in March 1995 with an initial investment of
approximately $360,000 from the Company and approximately $340,000 from
certain other investors, including shareholders, executive officers and
directors of the Company. In June 1995, the Company purchased additional HNS
common shares for $2.0 million in cash and a note for $6.0 million, which was
paid in full from the proceeds of the Company's initial public offering.
Also, in June 1995, BellSouth Telecommunications, Inc. ("BellSouth") invested
$3.0 million in HNS in exchange for a five-year subordinated convertible
debenture (the "Debenture") bearing interest at the rate of 6% per annum. In
1995 and 1996, the Company realized significant losses on its investment in
HNS, which has been accounted for under the equity method through December 31,
1996. On January 1, 1997, because of the expiration of restrictions on the
Company's ability to appoint a majority of the HNS Board of Managers, the
Company exercised its rights as majority shareholder of HNS by appointing a
majority of the members of the HNS Board of Managers. As a result, effective
January 1, 1997, the Company will account for its investment in HNS by
consolidating the statements of financial position and results of operations
of HNS with those of the Company.
Also on January 1, 1997, the Company entered into a debenture purchase
agreement with the holder of the Debenture whereby the Company acquired the
Debenture in exchange for $1.5 million in cash and 242,288 shares of the
Company's common stock valued at $4.2 million. The Company expects to record
an extraordinary loss on debt extinguishment of $2.4 million on January 1,
1997 related to this transaction which represents the amount paid of $5.7
million in excess of the face amount of the Debenture of $3.0 million plus
accrued interest of $280,000.
Immediately after this transaction, the Company acquired the minority
interest in HNS, consisting of 585,335 shares of HNS common stock and stock
options to acquire 564,727 shares of HNS common stock at exercise prices
ranging from $0.70 per share to $1.65 per share, by exchanging cash of $1.6
million and stock options to acquire 355,317 shares of the Company's common
stock at exercise prices ranging from $15.22 per share to $16.53 per share
which were valued by the Company at $2.2 million. Including transaction and
other costs of $350,000, the Company paid $4.1 million for the acquisition of
the HNS minority interest which will be accounted for using the purchase
method of accounting with $2.7 million of the purchase price allocated to
in-process product development and charged to the consolidated statement of
operations on January 1, 1997, and $1.4 million allocated to goodwill and
purchased technology.
The Company anticipates that it will incur integration costs related to
these transactions of $1.5 million to $2.5 million during the first quarter of
1997.
<PAGE> 3
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1996 ACQUISITIONS
Effective March 31, 1996, the Company completed the acquisition of NTEX
Holding B.V. ("NTEX") for $8.0 million and the acquisition of INOVIS GmbH
("INOVIS") for $6.1 million. NTEX is a Rotterdam, The Netherlands-based
supplier of EC products and services with about 40 employees at the time of
the acquisition. It develops software for EDI, wide area communications, and
web site development, and it operates an electronic clearing center in The
Netherlands. NTEX builds value-added applications that utilize EDI and
manages trading communities for such markets as healthcare, agriculture,
shipping and education. INOVIS is a Karlsruhe, Germany-based supplier of EC
products and services with about 30 employees at the time of the acquisition.
INOVIS develops software for electronic catalogs and ordering systems that use
both CD-ROM and the Internet. It also manages an electronic clearing center
serving the German-speaking market. INOVIS builds value-added applications
that utilize EDI and manages trading communities for the music, book
publishing, sporting goods, and other markets. The Company's acquisitions of
NTEX and INOVIS are expected to accelerate the Company's realization of
opportunities for its products in international markets.
The Company also completed two other acquisitions during 1996, the
acquisition of the remaining outstanding common stock of Harbinger N.V.
("HNV") and the acquisition of Comtech Management Systems, Inc., which are
more fully described in the Company's accompanying supplemental consolidated
financial statements and which are not expected to have a significant impact
on the Company's financial position or results of operations.
<PAGE> 4
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage
relationship of certain statement of operations data items to total revenues.
<TABLE>
<CAPTION>
Percentage of Total Revenues
----------------------------------
Years Ended December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Services................................... 63.8% 64.7% 62.7%
Software................................... 36.2 35.3 37.3
-------- -------- --------
Total revenues............................. 100.0 100.0 100.0
-------- -------- --------
Direct costs:
Services................................... 23.0 22.0 22.7
Software................................... 4.9 5.2 3.9
-------- -------- --------
Total direct costs......................... 27.9 27.2 26.6
-------- -------- --------
Gross Margin................................ 72.1 72.8 73.4
-------- -------- --------
Operating costs:
Selling and marketing...................... 25.4 25.9 28.7
General and administrative................. 21.4 22.8 21.1
Depreciation and amortization.............. 5.0 3.6 3.8
Product development........................ 15.2 15.7 14.0
Charge for purchased in-process product
development, write-off of software
development costs and acquisition-related
charges................................... 14.8 3.1 15.4
-------- -------- --------
Total operating costs...................... 81.8 71.1 83.0
-------- -------- --------
Operating income (loss)..................... (9.7) 1.7 (9.6)
-------- -------- --------
Interest expense (income), net.............. -- (0.2) 0.1
Equity in losses of joint ventures.......... 12.1 3.3 0.8
-------- -------- --------
Loss before income tax expense (benefit).... (21.8) (1.4) (10.5)
Income tax expense (benefit)................ 0.3 3.2 (3.7)
-------- -------- --------
Net loss.................................... (22.1)% (4.6)% (6.8)%
======== ======== ========
Pro forma net loss data:
Loss before taxes as reported.............. (21.8)% (1.4)%
Pro forma income tax expense............... 0.2 1.8
-------- --------
Pro forma net loss........................ (22.0)% (3.2)%
======== ========
</TABLE>
<PAGE> 5
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues. Total revenues increased from $27.9 million in 1994 to $37.8
million in 1995 and to $59.3 million in 1996. Revenues for services increased
from $17.5 million in 1994 to $24.5 million in 1995 and to $37.8 million in
1996. These increases reflect an increase in the number of subscribers
utilizing the Company's VAN, increases in the average volume of transmissions
by subscribers, and increases in professional services revenues. In addition,
increases in revenues for services in 1996 reflect revenues generated from
the Company's European subsidiaries which were acquired in March 1996.
Revenues from software maintenance and implementation also increased in each
year, reflecting an overall increase in the number of customers. Revenue from
software license fees increased from $10.4 million in 1994 to $13.3 million in
1995 and to $21.4 million in 1996. The increase in 1995 as compared to 1994
was primarily the result of $2.0 million in software license fees attributable
to the licensing of enterprise-wide software products obtained in the TI
Acquisition, $1.5 million in royalties from SSA, and software licensed in
connection with several new hub programs offset by a $400,000 decrease in PC
software sales between years, principally at SupplyTech, Inc. ("STI"). The
increase in 1996 as compared to 1995 was primarily the result of the increase
in royalties from SSA to $5.7 million, $1.2 million in royalties for software
licensed through HNS, increases in software license fees attributable to the
licensing of enterprise-wide software products, increases in PC software
licensed principally at STI and software revenues generated from the Company's
European subsidiaries which were acquired in March 1996. The Company expects
that royalty revenues from SSA may substantially decline in 1997 from 1996.
See discussion under Liquidity and Capital Resources for revenue expectations
for 1997 from SSA. Revenues reported by the Company for the European
subsidiaries may be impacted by the effect of exchange rates in converting
their currency into the Company's reporting currency.
Direct Costs. Direct costs for services increased from $6.3 million in
1994 to $8.3 million in 1995 and to $13.6 million in 1996. As a percentage of
services revenues, these costs were 36.2% in 1994, 34.0% in 1995 and 36.0% in
1996. The decrease as a percentage of services revenues from 1994 to 1995
reflect higher margins achieved from increased services revenues. The
increase as a percentage of services revenues from 1995 to 1996 primarily
reflects the effect of a higher mix of lower margin professional services
revenues from the Company's European subsidiaries acquired in March 1996.
Direct software costs increased from $1.1 million in 1994 to $2.0 million in
1995 and to $2.9 million in 1996. Direct software costs, as a percentage of
software revenues, were 10.5% in 1994, 14.6% in 1995, and 13.6% in 1996. The
increase in direct software costs as a percentage of software revenues from
1994 to 1995 primarily reflects the effect of third party royalty payments
paid by STI. The decrease in direct software costs, as a percentage of
software revenues, from 1995 to 1996 primarily reflects the effect of higher
margin royalty revenues from HNS and SSA and the licensing of higher margin
enterprise-wide software products.
Selling and Marketing. Selling and marketing expenses increased from
$8.0 million in 1994 to $9.8 million in 1995 and to $15.1 million in 1996. As
a percentage of revenues, these expenses were 28.7% in 1994, 25.9% in 1995 and
25.4% in 1996. The decreases as a percentage of revenues between years
principally reflect the effect of increased services revenues and efficiencies
associated with other costs to support increased sales activity. The decrease
as a percentage of revenues from 1995 to 1996 reflects these efficiencies
offset by an increase in selling and marketing costs as a percentage of
revenue at STI. The Company anticipates that it will spend a higher
percentage of revenues on selling and marketing in 1997 than in 1996.
General and Administrative. General and administrative expenses
increased from $5.9 million in 1994 to $8.6 million in 1995 and to $12.7
million in 1996. As a percentage of revenues, these expenses increased from
21.1% in 1994 to 22.8% in 1995, and decreased to 21.4% in 1996. The increase,
as a percentage of revenues, between 1994 and 1995 primarily reflect increases
associated with the provision for various tax exposures at STI. The decrease,
as a percentage of revenues, between 1995 and 1996
<PAGE> 6
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
reflect efficiencies associated with expanding the Company's operations and the
effect of increases in software and services revenues.
Depreciation and Amortization. Depreciation and amortization increased
from $1.0 million in 1994 to $1.4 million in 1995 and to $3.0 million in 1996.
As a percentage of revenues, these expenses decreased from 3.8% in 1994 to
3.6% in 1995, and increased to 5.0% in 1996. The increase in 1996 as a
percentage of revenues is primarily the result of the amortization of the
intangible assets related to the acquisitions completed in late 1995 and early
1996.
Product Development. Total expenditures for product development,
including capitalized software development costs, increased from $4.3 million
in 1994 to $6.9 million in 1995 and to $11.1 million in 1996. The Company
capitalized software development costs of $394,000, $962,000 and $2.1 million
in 1994, 1995 and 1996, respectively, which represented 9.2%, 14.0% and 18.8%
of total expenditures for product development in these respective periods.
The increase in the amounts capitalized, as a percentage of total expenditures
for product development, from 1994 to 1996 reflects the fact that the Company
incurred greater product development costs in 1995 and 1996 on products that
had reached technological feasibility. As a percentage of revenues, total
product development expenditures increased from 15.4% in 1994, to 18.2% in
1995 and to 18.7% in 1996. The increase in such expenditures from 1994 to
1995 principally reflects costs related to the continuing development of
technologies acquired in connection with the TI Acquisition and the SSA
Alliance. The increase in such expenditures from 1995 to 1996 principally
reflects development related to the Company's new Windows-based PC product
line, continued enhancements to the enterprise-wide product line obtained in
the TI Acquisition, and new products being developed by STI and the Company's
European subsidiaries. Amortization of capitalized software development costs
included in direct costs of software totaled $387,000, $910,000 and $2.0
million in 1994, 1995 and 1996, respectively. Additionally, the Company,
through its investment in HNS, expended approximately $1.1 million in 1995 and
$4.3 million in 1996 to develop products and services to facilitate electronic
commerce on the Internet.
Charge for Purchased In-Process Product Development, Write-off of
Software Development Costs and Acquisition Related Charges. The Company
incurred expenses of $4.3 million in 1994, $1.2 million in 1995 and $8.8
million in 1996 primarily for purchased in-process product development. In
connection with the 1994 TI Acquisition, the Company acquired in-process
product development for several software products. Since the Company
determined that certain of the acquired technologies had not reached
technological feasibility, the Company expensed the portion of the purchase
price allocable to such in-process product development. Also, the Company
wrote-off software development costs related to the Company's then existing
Windows-based PC product which, as a result of the TI Acquisition, has been
integrated with technologies acquired from TI to create a new Windows-based
product offering. In connection with the acquisition of certain assets in
December 1995, STI acquired in-process product development associated with
certain AS400 technology. Since the Company determined that some of this
product development had not reached technological feasibility, the Company
expensed the purchase price allocable to such in-process product development.
In connection with the acquisition of three European companies in March 1996,
the Company acquired in-process product development for several software
products. Since the Company determined that certain of the acquired
technologies had not reached technological feasibility, the Company expensed
the portion of the purchase price allocable to such in-process product
development.
Equity in Losses of Joint Ventures. The Company recognized, as its
equity in the losses of HNV, $227,000 in 1994, $313,000 in 1995 and $69,000 in
1996. These losses reflect the impact of the operations of HNV for the full
year in 1994 and 1995 as compared to three months in 1996, prior to the
Company's acquisition of the remaining 80% of equity of HNV effected on March
31, 1996. In addition, the Company recognized, as its equity in the losses of
HNS, $954,000 in 1995 and $7.0 million in 1996 reflecting the Company's losses
associated with its Internet joint venture with BellSouth. The Company
<PAGE> 7
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
acquired the BellSouth convertible debenture and the remaining equity
interests of this joint venture on January 1, 1997 from BellSouth and the
other HNS minority shareholders and option holders. In 1996, the Company
recognized, as its 50% equity in the losses of SupplyTech Australia, Pty.,
$119,000 associated with the startup of operations in Australia.
Income Taxes. The Company recorded income tax expense of $146,000 and
$1.2 million and an income tax benefit of $1.0 million in 1996, 1995 and 1994,
respectively. Domestic taxable income of $7.4 million will be required in
future years to realize the Company's recorded net deferred income tax assets
of $2.8. During 1996, the Company provided a $4.8 million valuation allowance
for the acquired foreign net operating loss carryforwards and the deductible
temporary differences associated with certain acquired foreign intangible
assets. Future decreases in $3.3 million of the total valuation allowance of
$4.8 million related to the foreign net operating loss carryforwards will
reduce the intangibles associated with those acquisitions as those net
operating loss carryforwards are realized.
The pro forma net loss data for 1996 and 1995 reflects the income tax
expense that would have been reported if SupplyTech, Inc. (a S corporation for
income tax reporting purposes) and SupplyTech International, LLC (a limited
liability corporation for income tax reporting purposes) had been C
corporations during these periods. The Company would have recorded income tax
expense of $146,000 and $687,000 in 1996 and 1995, respectively, had
SupplyTech, Inc. and SupplyTech International, LLC been C corporations during
these periods.
Net Loss. The Company realized net losses after preferred stock
dividends of $13.1 million in 1996, $1.9 million in 1995 and $2.1 million in
1994. The net loss in 1994 reflects principally the effect of the charges for
purchased in-process product development and write-off of software development
costs of $4.3 million in connection with the TI Acquisition. Without this
charge, and net of related income tax effects, the Company's net income for
1994 would have been approximately $652,000. The net loss in 1995 reflects
the effect of charges for purchased in-process product development of $1.2
million and the effect of the equity in loss of HNS of $954,000. Excluding
the equity in loss of HNS, expected to recur, and the charge for in-process
product development, net of related income tax effects, the Company's net
income in 1995 would have been approximately $762,000. The net loss in 1996
reflects the effect of charges for purchased in-process product development,
write-off of software development costs and acquisition related charges of
$8.8 million in connection with three European acquisitions effected in March
1996 and the equity in loss of HNS of $7.0 million. Excluding these charges
and the equity in loss of HNS, expected to recur, net of related income tax
effects, the Company's net income in 1996 would have been approximately $1.7
million.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations through a
combination of private and public equity and debt financings, bank lines of
credit and cash flows from operations. In 1996, 1995, and 1994, the Company
generated cash from operating activities of $8.0 million, $3.1 million and
$4.7 million, respectively. The Company used net cash for investing
activities of $11.5 million in 1996 as compared to $12.9 million in 1995 and
$1.0 million in 1994. Cash used for investing activities in 1996 included
principally acquisitions and purchases of property and equipment. The Company
used cash in financing activities of $517,000 in 1996 primarily to pay off
debt assumed in the 1996 acquisitions. The Company generated net cash from
financing activities of $16.6 million in 1995, representing principally
proceeds from its initial public offering in August 1995, and $881,000 in
1994, representing principally the proceeds from the exercise of stock
options.
The Company's primary bank credit facility consists of a revolving line
of credit which bears interest at prime plus 0.625% and permits the Company to
borrow a maximum of $10.0 million, limited to a maximum amount available based
upon the Company's qualified receivables. This facility, which also
<PAGE> 8
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
provides the Company with a 24-month term-out feature for up to $2.0 million,
contains certain restrictive covenants and is secured by substantially all of
the Company's assets. The covenants include restrictions on the Company's
capital expenditures and net losses, and require the Company to maintain
certain financial ratios. The Company pays a commitment fee on the unused
portion of this revolving credit facility. As of December 31, 1996, the Company
had no outstanding balance on this facility. In addition, the Company
maintained a revolving credit facility payable to a bank through STI which is
effective through June 1997 and which provides a line of credit to the Company
up to $2.0 million, subject to the terms of the facility, bearing an interest
rate equal to the bank's prime rate. The credit facility is secured by all of
the STI's accounts receivable and inventory and prevents STI from incurring
additional indebtedness, as defined by the terms of the facility. The amount
outstanding was $1,550,000 as of December 31, 1996. The Company has invested in
a new telephone system which commits the Company to a final payment of
approximately $775,000 during the first quarter of 1997. The Company currently
has no other material commitments for capital expenditures.
Revenues for 1996 include minimum royalties from SSA of $5.7 million
which were paid in October 1996 and represented 9.7% of the Company's
consolidated revenues for the year ended December 31, 1996. The terms of the
SSA distribution agreement provide for SSA to pay the Company royalties
through December 2000 based upon sales of the Company's products to end users
by SSA and provide for SSA to vest in 4 million shares of the Company's Zero
Coupon Redeemable Preferred Stock as more fully described in the Company's
accompanying supplemental consolidated financial statements. There is no
minimum royalty obligation after 1996. Based upon discussions with SSA and
considering the payment terms under the SSA distribution agreement, the
Company expects that royalty revenues from SSA may substantially decline in
1997 as compared to 1996 and that the average collection period related to
cash flows derived from royalty revenues earned from SSA in the future will
substantially increase.
Management expects that the Company will continue to be able to fund its
operations, investment needs and capital expenditures through cash flows
generated from operations, cash on hand, borrowing under the Company's credit
facilities and additional equity and debt capital. Management believes that
outside sources for debt and additional equity capital, if needed, will be
available to finance expansion projects and any potential future acquisitions.
The form of any financing will vary depending upon prevailing market and
other conditions and may include short or long term borrowings from financial
institutions, or the issuance of additional equity or debt securities.
However, there can be no assurances that funds will be available on terms
acceptable to the Company. The Company does not believe that inflation has had
a material impact on its business. However, there can be no assurance that
Harbinger's business will not be affected by inflation in the future.
FORWARD LOOKING STATEMENTS
This report includes "forward looking" statements within the meaning of
the Securities Act of 1933 and the Securities Exchange Act of 1934 related to
the Company that involve risks and uncertainties including, but not limited
to, quarterly fluctuations in results, the management of growth, market
acceptance of certain products and other risks. For further information about
these and other factors that could affect the Company's future results, please
see the Company's most recent Form 10-K filed with the Securities and Exchange
Commission. Investors are cautioned that any forward looking statements are
not guarantees of future performance and involve risks and uncertainties and
that actual results may differ materially from those contemplated by such
forward looking statements.
<PAGE> 9
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUBSEQUENT EVENT
Stock Split
On January 10, 1997, the Board of Directors declared a three-for-two stock
split in the form of a 150% stock dividend on the Company's common stock
payable on January 31, 1997 to shareholders of record on January 17, 1997. All
share, per share and shareholders' equity amounts included in the Company's
consolidated financial statements have been retroactively restated to reflect
the split for all periods presented.
<PAGE> 1
EXHIBIT 99.4
HARBINGER CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
ASSETS 1996 1995
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................... $ 9,059,000 $ 12,763,000
Accounts receivable, less allowances for returns and
doubtful accounts of $2,077,000 and $537,000
in 1996 and 1995, respectively ............................. 11,890,000 7,680,000
Royalty receivable from SSA ................................. -- 1,382,000
Deferred income taxes ....................................... 1,517,000 999,000
Due from joint ventures ..................................... 1,827,000 566,000
Other current assets ........................................ 1,399,000 722,000
------------ ------------
Total current assets ....................................... 25,692,000 24,112,000
------------ ------------
Property and equipment, less accumulated depreciation
and amortization ............................................ 8,226,000 5,069,000
Investments in joint ventures ................................. 407,000 7,517,000
Intangible assets, less accumulated amortization .............. 13,147,000 7,755,000
Deferred income taxes ......................................... 1,284,000 1,938,000
Other assets .................................................. 37,000 13,000
------------ ------------
$ 48,793,000 $ 46,404,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 3,053,000 $ 1,841,000
Accrued expenses ............................................ 9,799,000 4,662,000
Deferred revenues ........................................... 7,193,000 5,005,000
Current portion of long-term debt ........................... 907,000 600,000
Note payable to bank ........................................ 1,550,000 --
Note payable to related parties ............................. -- 440,000
------------ ------------
Total current liabilities ................................. 22,502,000 12,548,000
------------ ------------
Commitments and contingencies
Long-term debt, excluding current portion ..................... 1,368,000 1,672,000
Equity in loss in joint venture in excess of investment in
joint venture ................................................ 81,000 --
Zero Coupon redeemable preferred stock, no par value; 4,000,000
shares issued and outstanding at December 31, 1996 and 1995 .. -- --
Puttable common stock, $0.0001 par value; 825,000 shares
issued and outstanding as of December 31, 1995 ............... -- 4,675,000
Shareholders' equity:
Preferred stock, 20,000,000 shares authorized, Series C,
$10.00 par value; 250,000 shares issued and
outstanding as of December 31, 1995 ....................... -- 2,485,000
Common stock, $0.0001 par value; 100,000,000 shares
authorized; 18,690,265 and 16,936,026 shares issued and
outstanding as of December 31, 1996 and 1995, respectively 2,000 2,000
Additional paid-in capital .................................. 45,291,000 32,232,000
Accumulated deficit ......................................... (20,451,000) (7,210,000)
------------ ------------
Total shareholders' equity ................................ 24,842,000 27,509,000
------------ ------------
$ 48,793,000 $ 46,404,000
============ ============
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE> 2
HARBINGER CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Services .................................... $ 37,822,000 $ 24,494,000 $ 17,481,000
Software (including royalties from HNS and
SSA of $6.9 million and $1.5 million for the
years ending December 31, 1996 and 1995,
respectively) .............................. 21,441,000 13,336,000 10,412,000
------------ ------------ ------------
Total revenues ........................... 59,263,000 37,830,000 27,893,000
------------ ------------ ------------
Direct costs:
Services .................................... 13,625,000 8,334,000 6,321,000
Software .................................... 2,912,000 1,951,000 1,097,000
------------ ------------ ------------
Total direct costs ....................... 16,537,000 10,285,000 7,418,000
------------ ------------ ------------
Gross margin ............................ 42,726,000 27,545,000 20,475,000
------------ ------------ ------------
Operating costs:
Selling and marketing ....................... 15,057,000 9,791,000 7,995,000
General and administrative .................. 12,664,000 8,647,000 5,884,000
Depreciation and amortization ............... 2,966,000 1,361,000 1,046,000
Product development ......................... 9,000,000 5,927,000 3,900,000
Charge for purchased in-process product
development, write-off of software develop-
ment costs and acquisition related charges . 8,775,000 1,160,000 4,317,000
------------ ------------ ------------
Total operating costs .................... 48,462,000 26,886,000 23,142,000
------------ ------------ ------------
Operating income (loss) ................. (5,736,000) 659,000 (2,667,000)
Interest expense (income), net ............... (7,000) (68,000) 27,000
Equity in losses of joint ventures ........... 7,192,000 1,266,000 227,000
------------ ------------ ------------
Loss before income tax
expense (benefit) ....................... (12,921,000) (539,000) (2,921,000)
Income tax expense (benefit) ................. 146,000 1,203,000 (1,033,000)
------------ ------------ ------------
Net loss ................................ (13,067,000) (1,742,000) (1,888,000)
Preferred stock dividends .................... (28,000) (199,000) (200,000)
------------ ------------ ------------
Net loss applicable to
common shareholders ......................... $(13,095,000) $ (1,941,000) $ (2,088,000)
============ ============ ============
Net loss per common share .................... $ (0.71) $ (0.13) $ (0.16)
============ ============ ============
Weighted average common and common
equivalent shares outstanding ............... 18,465,000 15,007,000 12,693,000
============ ============ ============
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE> 3
HARBINGER CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995
------------ -------------
<S> <C> <C>
Pro forma net loss data:
Loss before income tax expense (benefit)
as reported ................................................. $(12,921,000) $ (539,000)
Pro forma income tax expense ................................. 146,000 687,000
------------ ------------
Pro forma net loss ........................................... (13,067,000) (1,226,000)
Preferred stock dividends .................................... (28,000) (199,000)
------------ ------------
Pro forma net loss applicable to common
shareholders ................................................ $(13,095,000) $ (1,425,000)
============ ============
Pro forma net loss per common share .......................... $ (0.71) $ (0.10)
============ ============
Weighted average common and common
equivalent shares outstanding ............................... 18,465,000 15,007,000
============ ============
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE> 4
HARBINGER CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Preferred stock, Series C Common stock Additional
----------------------------- ----------------------- paid-In
Shares Amount Shares Amount capital
------------- -------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 ............... -- $ -- 12,521,577 $1,000 $ 8,785,000
Exercise of stock options and warrants .. -- -- 504,354 -- 1,193,000
Issuance of common stock in redemption
of Series B preferred stock ............ -- -- -- -- 5,000
Amortization of discount on Series
C preferred stock ...................... -- -- -- -- --
Conversion of debt to common stock ...... -- -- 470,220 -- 1,996,000
Net loss ................................ -- -- -- -- --
Preferred stock dividends ............... -- -- -- -- --
-------- ----------- ----------- ------ ------------
BALANCE, DECEMBER 31, 1994 ............... -- -- 13,496,151 1,000 11,979,000
Exercise of stock options and warrants .. -- -- 916,071 -- 1,945,000
Purchase and retirement of treasury stock -- -- (1,500) -- (5,000)
Sale of common stock .................... -- -- 2,525,304 1,000 18,283,000
Reclassification of Series C preferred
stock to shareholders' equity ......... 250,000 2,485,000 -- -- --
Amortization of discount on Series
C preferred stock ...................... -- -- -- -- --
Capital contribution by the members
upon formation of SupplyTech
International, LLC ..................... -- -- -- -- 30,000
Net income .............................. -- -- -- -- --
Preferred stock dividends ............... -- -- -- -- --
BALANCE, DECEMBER 31, 1995 ............... 250,000 2,485,000 16,936,026 2,000 32,232,000
Exercise of stock options and warrants
and issuance of stock under employee
stock purchase plan .................... -- -- 312,166 -- 894,000
Amortization of discount on Series C
preferred stock ........................ -- 4,000 -- -- --
Preferred stock dividends ............... -- -- -- -- --
Conversion of preferred stock, Series C
to common stock ........................ (250,000) (2,489,000) 211,038 -- 2,489,000
Issuance of common stock and options
and warrants to acquire common stock
in connection with acquisitions ........ -- -- 406,035 -- 5,001,000
Reclassification of puttable common stock
to common stock as a result of
forfeiture of put right ................ -- -- 825,000 -- 4,675,000
Net loss ................................ -- -- -- -- --
Increase in cumulative currency
translation adjustment ................. -- -- -- -- --
-------- ----------- ----------- ------ ------------
BALANCE, DECEMBER 31, 1996 ............... -- $ -- 18,690,265 $2,000 $ 45,291,000
======== =========== =========== ====== ============
</TABLE>
<TABLE>
<CAPTION>
Total
Accumulated shareholders'
deficit equity
-------------- -------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1993 ............... $ (3,137,000) $ 5,649,000
Exercise of stock options and warrants .. -- 1,193,000
Issuance of common stock in redemption
of Series B preferred stock ............ -- 5,000
Amortization of discount on Series
C preferred stock ...................... (21,000) (21,000)
Conversion of debt to common stock ...... -- 1,996,000
Net loss ................................ (1,888,000) (1,888,000)
Preferred stock dividends ............... (200,000) (200,000)
------------ ------------
BALANCE, DECEMBER 31, 1994 ............... (5,246,000) 6,734,000
Exercise of stock options and warrants .. -- 1,945,000
Purchase and retirement of treasury stock -- (5,000)
Sale of common stock .................... -- 18,284,000
Reclassification of Series C preferred
stock to shareholders' equity .......... -- 2,485,000
Amortization of discount on Series
C preferred stock ...................... (23,000) (23,000)
Capital contribution by the members
upon formation of SupplyTech
International, LLC ..................... -- 30,000
Net income .............................. (1,742,000) (1,742,000)
Preferred stock dividends ............... (199,000) (199,000)
------------ ------------
BALANCE, DECEMBER 31, 1995 ............... (7,210,000) 27,509,000
Exercise of stock options and warrants
and issuance of stock under employee stock
purchase plan .......................... -- 894,000
Amortization of discount on Series C
preferred stock ........................ (4,000) --
Preferred stock dividends ............... (28,000) (28,000)
Conversion of preferred stock, Series C
to common stock ........................ -- --
Issuance of common stock and options
and warrants to acquire common stock
in connection with acquisitions ........ -- 5,001,000
Reclassification of puttable common stock
to common stock as a result of
forfeiture of put right ................ -- 4,675,000
Net loss ................................ (13,067,000) (13,067,000)
Increase in cumulative currency
translation adjustment ................. (142,000) (142,000)
------------ ------------
BALANCE, DECEMBER 31, 1996 ............... $(20,451,000) $ 24,842,000
============ ============
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE> 5
HARBINGER CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
--------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ..................................... $(13,067,000) $ (1,742,000) $ (1,888,000)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Charge for purchased in-process product
development, write-off of software
development costs and acquisition
related charges ........................... 8,350,000 1,160,000 4,317,000
Depreciation and amortization .............. 4,922,000 2,271,000 1,433,000
Loss on sale of property and equipment ..... 54,000 65,000 11,000
Discount amortization on subordinated
debt ...................................... -- -- 19,000
Equity in losses of joint ventures ......... 7,192,000 1,266,000 227,000
Deferred income tax expense (benefit) ...... 136,000 1,203,000 (1,001,000)
(Increase) decrease in:
Accounts receivable ....................... (2,983,000) (2,193,000) (550,000)
Royalty receivable from SSA ............... 1,382,000 (1,382,000) --
Due from joint ventures ................... (1,294,000) (516,000) 195,000
Other current assets ...................... (483,000) (189,000) 341,000
Increase (decrease) in:
Accounts payable and accrued expenses ..... 2,172,000 2,306,000 739,000
Deferred revenues ......................... 1,644,000 887,000 890,000
---------- ----------- ---------
Net cash provided by operating
activities .............................. 8,025,000 3,136,000 4,733,000
---------- ----------- ---------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE> 6
HARBINGER CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from investing activities:
Short-term investment ............................... -- -- 1,000,000
Purchases of property and equipment ................. (4,770,000) (2,946,000) (1,438,000)
Additions to software development costs ............. (2,086,000) (962,000) (394,000)
Organizational expenditures ......................... -- (11,000) --
Purchased technology ................................ -- (150,000) (218,000)
Investment in acquisitions .......................... (4,738,000) (300,000) --
Investment in joint ventures ........................ -- (8,551,000) --
Proceeds from disposal of property and equipment .... 57,000 21,000 5,000
------------ ------------ -----------
Net cash used in investing activities ............ (11,537,000) (12,899,000) (1,045,000)
------------ ------------ -----------
Cash flows from financing activities:
Dividends paid on preferred stock ................... (28,000) (199,000) (167,000)
Exercise of stock options and warrants and
issuance of stock under employee stock
purchase plan ...................................... 894,000 1,945,000 1,149,000
Principal payments under capital lease
obligations ........................................ (28,000) (49,000) (47,000)
Repayment of notes payable .......................... (2,905,000) (2,855,000) (54,000)
Proceeds from issuance of common stock .............. -- 18,284,000 --
Purchase of treasury stock .......................... -- (5,000) --
Redemption of Series B preferred stock .............. -- (480,000) --
Increase in note payable to bank, net ............... 1,550,000 -- --
------------ ------------ -----------
Net cash provided by (used in)
financing activities ............................. (517,000) 16,641,000 881,000
------------ ------------ -----------
Net increase (decrease) in cash and
cash equivalents .................................... (4,029,000) 6,878,000 4,569,000
Cash and cash equivalents at beginning of year ....... 12,763,000 5,885,000 1,316,000
Effect of exchange rates on cash held in
foreign currencies .................................. (49,000) -- --
Cash received from acquisitions ...................... 374,000 -- --
------------ ------------ -----------
Cash and cash equivalents at end of year ............. $ 9,059,000 $ 12,763,000 $ 5,885,000
============ ============ ===========
Supplemental disclosure of cash paid for
interest ............................................ $ 260,000 $ 128,000 $ 156,000
============ ============ ===========
Supplemental disclosures of noncash
investing activities:
Acquisition of technology and distribution agreement
in exchange for common stock ....................... $ -- $ 4,675,000 $ --
============ ============ ===========
Long-term debt assumed in acquisition of a business $ 670,000 $ -- $ --
============ ============ ===========
Long-term debt assumed in acquisition of product
line .............................................. $ -- $ 2,200,000 $ --
============ ============ ===========
Acquisition of businesses in exchange for
assumption of liabilities and issuance
of common stock and options and
warrants to acquire common stock .................. $ 11,294,000 $ -- $ 3,826,000
============ ============ ===========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE> 7
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND PRESENTATION
Harbinger Corporation and subsidiaries (the "Company") develops, markets,
and supports software products and provides computer communications network and
consulting services to enable businesses to engage in electronic commerce. The
Company's products and services are used by more than 34,000 customers in
targeted industries, including the petroleum, automotive, retail, chemicals,
utilities, financial services, electronics, distribution, aerospace,
textile/apparel, governmental and healthcare industries both in the United
States and certain international markets including Europe, Mexico and South
America.
The accompanying supplemental consolidated financial statements of
Harbinger Corporation include the accounts of the Company and its wholly owned
subsidiaries, SupplyTech, Inc. and SupplyTech International, LLC (collectively,
"STI"), NTEX Holding B.V. ("NTEX"), INOVIS GmbH & Co. ("INOVIS"), Comtech
Management Systems, Inc. ("Comtech") and Harbinger NV ("HNV"). Significant
intercompany accounts and transactions have been eliminated in consolidation.
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 supplemental consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
REVENUE RECOGNITION
Software
Revenues derived from software license fees are recognized upon
shipment, net of estimated returns. Royalty revenues from System
Software Associates, Inc. ("SSA") and Harbinger Net Services, LLC ("HNS")
are recognized based upon sales to end users by SSA (see Note 3) and HNS
(see Note 5).
Services
Revenues derived from services includes subscription fees,
maintenance and implementation fees, and consulting and training fees.
Subscription fees include both fixed and usage based fees for use of the
Company's value added network and are recognized over the service period
and as transactions are processed. Maintenance and implementation fees
are generally billed annually in advance, include fixed fees for customer
support and product updates, and are recognized ratably over the service
period. Consulting and training fees are billed under both time and
materials and fixed fee arrangements and are recognized as services are
performed.
Deferred Revenue
Deferred revenues represent payments received from customers or
billings invoiced to customers for software and services billed in
advance.
<PAGE> 8
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DIRECT COSTS
Direct costs for services include telecommunications charges, the costs of
personnel to conduct network operations and customer support, consulting and
other personnel-related expenses. Direct costs for software include
duplication, packaging and amortization of purchased technology and software
development costs.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the assets as follows:
Computer and communications equipment 3 - 5 years
Furniture, fixture and leasehold
improvements 5 - 10 years
Transportation equipment 3 years
Building 10 years
INVESTMENTS IN JOINT VENTURES
The Company's 91% investment in HNS, its 20% investment in HNV through
March 31, 1996 (see Note 2) and its 50% investment in SupplyTech Australia,
Pty. (collectively, the "Joint Ventures") are accounted for using the equity
method of accounting. The Company applies the equity method of accounting for
its investment in HNS because of a shareholders agreement among all HNS
shareholders which provides for all significant operating and management
decisions for HNS to be vested in the HNS Board of Managers through December
31, 1996. The HNS' Board of Managers is not controlled by the Company (see
Note 5 and Note 14).
INTANGIBLE ASSETS
Purchased Technology, Goodwill, and Other Intangible Assets
Purchased technology, goodwill and other intangible assets are being
amortized over periods of three to ten years. The Company evaluates the
recoverability of these intangible assets at each period end using the
undiscounted estimated future net operating cash flows expected to be derived
from such assets. If such evaluation indicates a potential impairment, the
Company uses fair value in determining the amount of these intangible assets
that should be written off.
Software Development Costs
The Company capitalizes certain 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 Otherwise Marketed." Costs
incurred internally to create a computer software product or to develop an
enhancement to an existing product are charged to expense when incurred as
research and development until technological feasibility has been established
for the product or enhancement.
<PAGE> 9
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Thereafter, all software production costs are capitalized and reported at the
lower of unamortized cost or net realizable value. Capitalization ceases when
the product or enhancement is available for general release to customers.
Software development costs are amortized on a product-by-product basis at the
greater of the amounts computed using (a) the ratio of current gross revenues
for a product or enhancement to the total current and anticipated future gross
revenues for that product or enhancement or (b) the straight-line method over
the remaining estimated economic life of the product or enhancement, not to
exceed five years. The Company evaluates the net realizable value of its
software development costs at each period end using undiscounted estimated
future net operating cash flows expected to be derived from the respective
software product or enhancement. If such evaluation indicates that the
unamortized software development costs exceed the net realizable value, the
Company writes off the amount by which the unamortized software development
costs exceed net realizable value.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes ("SFAS No. 109")". Under SFAS No. 109, deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
Effective January 1, 1995, SupplyTech, Inc. elected to be taxed as an S
Corporation under the Internal Revenue Code. SupplyTech International, LLC was
incorporated under the laws of the state of Michigan as a Limited Liability
Corporation ("LLC"). As a LLC, SupplyTech International, LLC is taxed in a
manner similar to a partnership under the Internal Revenue Code. As a result
of these elections, STI has been taxed in a manner similar to a partnership for
1995 and 1996 and has not provided for any Federal or state income taxes as the
results of operations were passed through to, and the related income taxes
became the individual responsibility of the Company's shareholders.
The pro forma income tax expense for 1996 and 1995 reflects the income tax
expense that would have been reported if SupplyTech, Inc. (a S corporation for
income tax reporting purposes) and SupplyTech International, LLC (a limited
liability corporation for income tax reporting purposes) had been C
corporations during these periods.
EARNINGS PER SHARE
Net loss per common share has been computed based upon net loss applicable
to common shareholders. The dilutive effect of outstanding stock options and
warrants are excluded from the weighted average common and common equivalent
shares outstanding because their inclusion would be antidilutive.
RECLASSIFICATIONS
Certain amounts in the accompanying 1995 and 1994 financial statements
have been reclassified to conform to the presentation adopted in the 1996
consolidated financial statements.
<PAGE> 10
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses financial instruments in the normal course of its
business. The carrying values of cash equivalents, accounts and royalty
receivable, accounts payable, accrued expenses, and deferred revenues
approximate fair value due to the short-term maturities of these assets and
liabilities. The Company's investments in joint ventures are accounted for
using the equity method and pertain to privately held companies for which fair
values are not readily available. The Company believes the fair values of its
joint venture investments exceed the carrying values. The Company believes the
fair values of its notes payable and long-term debt exceed their respective
carrying values.
FOREIGN CURRENCY TRANSLATION
Foreign currency financial statements of the Company's international
operations and joint ventures are translated into U.S. dollars at current
exchange rates, except for revenues, costs and expenses, and net income (loss)
which are translated at average exchange rates during each reporting period.
Net exchange gains or losses resulting from the translation of assets and
liabilities are accumulated as cumulative foreign currency translation
adjustments and reported as a separate component of shareholders' equity
included in the Company's accumulated deficit. The cumulative foreign currency
translation adjustment at December 31, 1996 was insignificant.
STOCK COMPENSATION PLANS
Prior to January 1, 1996, the Company accounted for its stock option plans
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 Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
No. 123"), 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 Opinion No. 25 and provide pro forma 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 elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosures under the provisions of SFAS No. 123 (see Note 10).
2. ACQUISITIONS
STI ACQUISITION
On January 3, 1997, the Company acquired SupplyTech, Inc. a Michigan
corporation, and its affiliate, SupplyTech International, LLC, a Michigan
limited liability company, for 2,400,000 unregistered shares of the Company's
common stock in transactions accounted for using the pooling-of-interests
method of accounting. SupplyTech, Inc. was acquired in a merger transaction
pursuant to the terms of a merger agreement, dated January 3, 1997, by and
among the Company, SupplyTech, Inc. and Harbinger Acquisition Corporation II, a
Georgia corporation and a wholly owned subsidiary of the Company. SupplyTech,
Inc. survived the merger as a wholly owned subsidiary of the Company.
SupplyTech International, LLC was acquired by the Company in a series of
related share purchases, which included the exchange of the Company's common
stock for all the outstanding shares of SupplyTech International, LLC.
<PAGE> 11
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
In connection with the STI Acquisition, the Company expects to take a
charge of $7.0 million in January 1997 for acquisition related expenses and
asset write downs and expects to incur integration costs of $2.5 million to
$3.5 million during the first quarter of 1997. The Company expects to record a
net deferred income tax asset during the first quarter of 1997 of approximately
$1.8 million relating to the STI Acquisition and intends to provide a valuation
allowance against such net deferred income tax asset to reduce it to zero.
The financial position and results of operations of the Company have been
restated for all periods prior to the merger to give retroactive effect to the
STI Acquisition. Generally accepted accounting principles proscribe giving
effect to a consummated business combination accounted for by the
pooling-of-interests method in the financial statements that do not include the
date of consummation. These supplemental consolidated financial statements do
not extend through the date of consummation of the STI Acquisition. However,
they will become the historical consolidated financial statements of the
Company, after financial statements covering the date of consummation of the
business combination are issued.
Total revenues and net income (loss) for the individual companies as
previously reported are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Total revenues
Harbinger Corporation $ 41,725,000 $ 23,117,000 $ 13,652,000
STI ................. 17,538,000 14,713,000 14,241,000
------------ ------------ ------------
$ 59,263,000 $ 37,830,000 $ 27,893,000
============ ============ ============
Net income (loss)
Harbinger Corporation $ (8,277,000) $ 1,048,000 $ (2,111,000)
STI ................. (4,818,000) (2,989,000) 23,000
------------ ------------ ------------
$(13,095,000) $ (1,941,000) $ (2,088,000)
============ ============ ============
</TABLE>
1994 ACQUISITION
Effective December 31, 1994, the Company acquired certain assets and
assumed certain liabilities of the EDI business unit of Texas Instruments,
Incorporated in exchange for a $3.325 million note ("TI Note"), the assumption
of liabilities of $526,000, and an agreement to pay royalties through 1998
based upon future software license fee revenues derived from certain of the
software products acquired if such revenues exceed certain specified levels.
The Company has accounted for the transaction using the purchase method of
accounting and the results of operations of the business acquired have been
included in the Company's accompanying statement of operations since the
acquisition date. The Company paid the TI Note in January 1995 and has not
become obligated to pay any additional royalties under the terms of the
agreement through December 31, 1996. Of the total purchase price of $3.851
million, $2.66 million was allocated to in-process product development and
charged to the statement of operations at the acquisition date, $441,000 was
allocated to purchased technology, $317,000 was allocated to tangible assets
(primarily working capital and equipment), and $433,000 was allocated to
goodwill.
<PAGE> 12
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma results of operations of the Company for 1994 as
if the acquisition described above had been effected on January 1, 1994 are
summarized below:
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
-----------------
<S> <C>
Revenues ................................. $ 29,979,000
============
Net loss applicable to common shareholders $ (2,871,000)
============
Net loss per common share ................ $ (0.23)
============
Weighted average common and common
equivalent shares outstanding ........ 12,693,000
============
</TABLE>
The unaudited pro forma results do not necessarily represent results which
would have occurred if the acquisition had taken place on the date indicated
nor are they necessarily indicative of the results of future operations.
1996 ACQUISITIONS
Effective March 31, 1996, the Company acquired all of the common stock of
NTEX Holding, B.V. ("NTEX"), a Dutch corporation based in Rotterdam, The
Netherlands, for $8.0 million, consisting of $3,195,000 in cash, 107,778 shares
of the Company's common stock valued at $1.2 million, warrants to acquire
18,750 shares of the Company's stock at $11.33 per share valued at $100,500 and
the assumption of $3.5 million in liabilities including transaction costs. The
Company recorded the acquisition using the purchase method of accounting with
$4,449,000 of the purchase price allocated to in-process product development
and charged to the consolidated statement of operations on March 31, 1996,
$204,000 allocated to purchased technology, $621,000 allocated to tangible
assets and $2.8 million allocated to goodwill.
Effective March 31, 1996, the Company acquired all of the common stock of
INOVIS GmbH & Co. ("INOVIS"), a German corporation based in Karlsruhe, Germany
for $6.1 million, consisting of $1,409,000 in cash, 210,276 shares of the
Company's common stock valued at $2.4 million, warrants to acquire 30,000
shares of the Company's stock at $10.17 per share valued at $104,000, a note
payable of $557,000 and the assumption of $1.7 million in liabilities including
transaction costs. The Company recorded the acquisition using the purchase
method of accounting with $3.4 million of the purchase price allocated to
in-process product development and charged to the consolidated statement of
operations on March 31, 1996, $600,000 allocated to purchased technology,
$1,077,000 allocated to tangible assets and $1.1 million allocated to goodwill.
Effective March 31, 1996, the Company acquired the remaining outstanding
common stock of Harbinger N.V. ("HNV"), a Dutch corporation based in Hoofddorp,
the Netherlands for $1.2 million, consisting of 58,065 shares of the Company's
common stock valued at $668,000 and the assumption of $554,000 in liabilities.
The Company recorded the acquisition using the purchase method of accounting
with $300,000 of the purchase price allocated to in-process product development
and charged to the consolidated statement of operations on March 31, 1996,
$518,000 allocated to tangible assets and $447,000 allocated to goodwill and
other intangibles (see Note 5).
<PAGE> 13
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Effective August 1, 1996, the Company acquired all of the common stock of
Comtech Management Systems, Inc. ("Comtech"), a Texas corporation based in
Amarillo, Texas, for $500,000, consisting of 24,561 shares of the Company's
common stock valued at $422,000 and the assumption of $75,000 in liabilities.
The Company recorded the acquisition using the purchase method of accounting
with $114,000 of the purchase price allocated to tangible assets, $100,000
allocated to purchased technology, and $283,000 allocated to goodwill.
Effective October 15, 1996, the Company acquired all of the common stock
of EDI Integration Services Limited ("EISL"), a company based in Hampshire,
United Kingdom for $804,000 consisting of $134,000 in cash and the assumption
of a $670,000 note payable. The Company recorded the acquisition using the
purchase method of accounting with $250,000 allocated to purchased technology,
$548,000 allocated to goodwill, and $6,000 allocated to tangible assets.
The balance sheets of the above companies have been included in the
Company's supplemental consolidated balance sheet as of December 31, 1996 and
the results of operations of the acquired companies have been included in the
Company's supplemental consolidated statements of operations beginning on March
31, 1996, except for Comtech and EISL, which have been included beginning on
August 1, 1996 and October 15, 1996, respectively.
The unaudited pro forma results of operations of the Company for 1996 and
1995 as if the acquisitions described above had been effected on January 1,
1996 and 1995, respectively, are summarized as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues ..................................................... $ 61,043,000 $ 43,955,000
============ ============
Net loss applicable to
common shareholders ......................................... $(13,774,000) $ (4,810,000)
============ ============
Net loss per common share .................................... $ (0.74) $ (0.30)
============ ============
Weighted average common and common
equivalent shares outstanding ............................... 18,567,000 16,203,000
============ ============
</TABLE>
The unaudited pro forma results do not necessarily represent results which
would have occurred if the acquisitions had taken place on the dates indicated
nor are they necessarily indicative of the results of future operations.
The terms of the Company's acquisitions of NTEX and INOVIS included
earnout agreements with certain employees/shareholders which provide for the
Company to pay these individuals additional consideration based upon the
attainment of certain performance goals for their respective former companies
for the year ended March 31, 1997. The Company has provided an accrual of
$425,000 for the year ended December 31, 1996 which is included in acquisition
related charges in the accompanying 1996 supplemental statement of operations
to reflect the Company's estimate of the employee compensation earned with
respect to these agreements.
<PAGE> 14
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
3. PURCHASED TECHNOLOGY AND RELATED AGREEMENTS
SSA
On July 21, 1995, the Company entered into a distribution agreement and
purchased certain software products from SSA in exchange for the issuance of
825,000 shares of the Company's common stock valued at $4,675,000 at the date
of issuance and the issuance of 4 million shares of the Company's Zero Coupon
Redeemable Preferred Stock. The Company also provided SSA with an option to
put the 825,000 shares of common stock issued back to the Company for cash on
January 31, 1997 exercisable only if the market value of the common stock on
that date is less than $6.00 per share. In September 1996, the Company
registered the 825,000 shares of puttable common stock. SSA sold all of the
shares during 1996. The Zero Coupon Redeemable Preferred Stock issued has no
voting or dividend rights, vests at a rate of one million shares per year only
if SSA attains certain royalty targets for the years 1997 through 2000, and
contains mandatory redemption provisions of $.67 per share payable in cash or
the Company's common stock at the option of the holder thirty days after the
end of each year. The Company will accrete the Zero Coupon Redeemable
Preferred Stock to its redemption price as it becomes probable that it will be
earned through a charge to direct costs of software in the period earned.
The terms of the distribution agreement provide for SSA to pay the Company
royalties through December 2000 based upon future software and service revenues
that SSA derives from the sale of the Company's products including certain
minimum royalties of $1.4 million for 1995 and $5.7 million in 1996. Payments
by SSA to the Company under these minimum royalty provisions in excess of
royalties on actual software and service revenues will be creditable against
future SSA royalty obligations. Royalty revenues are recognized as reported
based upon sales to end users by SSA.
The Company has allocated the consideration associated with these
transactions of $4,797,000 (including transaction costs of $122,000) as
follows: $2.331 million of the fair value to purchased technology and $2.466
million to the distribution agreement based upon the estimated fair values of
the purchased technology and distribution agreement at the date of the
exchange.
GEIS
On December 31, 1995, the Company entered into an agreement to purchase
certain software products and entered into an alliance agreement with General
Electric Information Services, Inc. ("GEIS"). The total purchase price was
$2.5 million, consisting of $300,000 in cash and the assumption of a note
payable to GEIS in the amount of $2.2 million. The Company recorded the
purchase of the technology and the alliance agreement based upon fair value
with $1,160,000 of the purchase price allocated to in-process product
development and charged to the consolidated statement of operations on December
31, 1995, $375,000 allocated to purchased technology, $950,000 allocated to the
alliance agreement and $15,000 allocated to tangible assets.
Certain terms of the alliance agreement include the referral of customers
to the Company by GEIS, the performance of certain software maintenance
services by GEIS, and a $1.2 million guaranteed payment by GEIS to the Company
for the two year period ending December 31, 1997 relating to software
maintenance revenues to be paid by GEIS to the Company.
<PAGE> 15
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Computer and communications
equipment........................ $10,988,000 $ 6,349,000
Furniture, fixtures and leasehold
improvements..................... 3,062,000 2,555,000
Transportation equipment............ 134,000 143,000
Building............................ 59,000 59,000
----------- -----------
14,243,000 9,106,000
Less accumulated depreciation
and amortization.............. (6,017,000) (4,037,000)
----------- -----------
$ 8,226,000 $ 5,069,000
=========== ===========
</TABLE>
5. INVESTMENT IN JOINT VENTURES
INVESTMENT IN HNS
The Company founded HNS to develop products and services to facilitate
electronic commerce using the Internet. In March 1995, HNS was capitalized with
an investment of approximately $360,000 from the Company and approximately
$340,000 from certain other investors, including certain shareholders,
executives, officers, and directors of the Company. In June 1995, the Company
and BellSouth Corporation ("BellSouth") contributed cash of $8.0 million for
HNS common stock and $3.0 million for a HNS convertible debt, respectively. As
of December 31, 1996, the Company owned an equity interest in HNS of
approximately 91.4% or 66.1%, assuming the conversion of the BellSouth
Debenture and the exercise of outstanding HNS options. The Company recognized
equity in losses of its HNS joint venture of $7,004,000 and $954,000 for the
years ended December 31, 1996 and 1995, respectively.
The Company has several agreements with HNS governing certain transactions
between them, including the use of personnel, the management and operation of
HNS, the use by HNS of the Company's products and services, the Company's right
to license and distribute HNS products, if any, derived from the Company's
products and the payment by HNS and the Company of royalties and other amounts.
Amounts charged to HNS by the Company for services provided were $1,785,000 and
$324,000 for the years ended December 31, 1996 and 1995, respectively. These
amounts primarily consist of employee salaries and related benefits and
included $729,000 and $94,000 in general and administrative expenses, $105,000
and $36,000 in selling and marketing expenses, and $951,000 and $194,000 in
product development costs for the years ended December 31, 1996 and 1995,
respectively. These amounts have been included in the Company's statements of
operations as a reduction of expense in the categories indicated.
Additionally, the Company paid expenses on behalf of HNS in 1996 and 1995 of
$505,000 and $413,000 that have been reimbursed to the Company by HNS.
The Company recognized royalty revenues from HNS of $1,199,000 for the
year ended December 31, 1996 related to HNS's licensing of products which
include the Company's technology and for referral fees. These royalty revenues
and referral fees from HNS were determined based upon a royalty agreement
between the Company and HNS. At December 31, 1996, the Company had an amount
due from HNS of $1,760,000 for these services and expenses incurred by the
Company on behalf of HNS and for the royalty revenues earned from HNS.
Likewise, amounts charged to the Company by HNS for services provided during
the period ended December 31, 1996 were $214,000. This amount includes
$191,000 in general
<PAGE> 16
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
and administrative expenses and $23,000 in selling and marketing expenses which
are included in the Company's accompanying 1996 statement of operations.
Additionally, HNS paid expenses of $50,000 on behalf of the Company that have
been reimbursed to HNS by the Company.
Effective January 1, 1997, the Company purchased the HNS Debenture and
acquired the remaining minority interest in HNS (see Note 14).
The following table sets forth the condensed financial statements of HNS
as of December 31, 1996 and 1995 and for the periods then ended:
Balance sheets:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents ........... $ 3,322,000 $10,645,000
Accounts receivable ................. 1,866,000 --
Property and equipment, net ......... 1,039,000 219,000
Other assets ........................ 277,000 42,000
----------- -----------
$ 6,504,000 $10,906,000
=========== ===========
Accounts payable and accrued expenses $ 990,000 $ 173,000
Due to affiliates, net .............. 2,040,000 180,000
Deferred revenues ................... 196,000 --
Long-term debt ...................... 3,000,000 3,000,000
Shareholders' equity ................ 278,000 7,553,000
----------- -----------
$ 6,504,000 $10,906,000
=========== ===========
Statements of operations:
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Services ........................... $ 117,000 $ --
Software ........................... 2,036,000 --
----------- -----------
Total revenues .................... 2,153,000 --
----------- -----------
Direct costs:
Services ........................... 644,000 --
Software ........................... 1,617,000 --
----------- -----------
Total direct costs ................ 2,261,000 --
----------- -----------
Gross margin ................... (108,000) --
----------- -----------
Operating costs:
Selling and marketing .............. 926,000 84,000
General and administrative ......... 1,614,000 133,000
Depreciation and amortization ...... 621,000 21,000
Product development ................ 4,303,000 1,077,000
----------- -----------
Total operating costs ............. 7,464,000 1,315,000
----------- -----------
-----------
Operating loss .................... (7,572,000) (1,315,000)
Interest expense (income), net ...... (130,000) (165,000)
----------- -----------
Net loss ............................ $(7,442,000) $(1,150,000)
=========== ===========
</TABLE>
<PAGE> 17
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENT IN HNV
On November 5, 1993, the Company acquired a 20% interest in HNV, a Dutch
corporation headquartered in Hoofddorp, The Netherlands, which was formed to
offer electronic commerce services in the European marketplace. The initial
capitalization of HNV consisted of an investment of $500,000 from the Company
and $2,000,000 from certain other investors, including shareholders of the
Company. In December 1995, the Company and other HNV investors, including
shareholders of the Company, contributed to HNV additional capital of $150,000
and $600,000, respectively. The Company has a license arrangement with HNV
which allows HNV to use the Company's network and PC technology and provides
for the payment of royalty fees to the Company based on a percentage of
software and network revenues, as defined. The Company did not recognize any
royalty revenue from HNV during 1994, 1995 or 1996. Under a management
agreement, the Company provides certain consulting and management services to
HNV. At December 31, 1995, the Company had an amount due from HNV of
approximately $472,000 for such services and expenses incurred by the Company
on behalf of HNV, which was paid in January 1996. Effective March 31, 1996,
the Company acquired the remaining outstanding common stock of HNV (see Note
2).
The Company recognized equity in losses of its HNV joint venture of
$69,000, $313,000 and $227,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
Amounts charged to HNV by the Company for services provided during the
years ended December 31, 1996, 1995 and 1994 were:
<TABLE>
<CAPTION>
1996 1995 1994
------- --------- ---------
<S> <C> <C> <C>
Services - direct costs ...................... -- $ 63,000 $ 47,000
General and administrative ................... $ 54,000 182,000 187,000
Selling & marketing .......................... -- -- 6,000
Product development .......................... -- 27,000 40,000
Depreciation and amortization ................ -- 4,000 5,000
--------- --------- ---------
$ 54,000 $ 276,000 $ 285,000
========= ========= =========
</TABLE>
These amounts have been included in the statement of operations for the
Company as a reduction of expenses in the categories indicated. Additionally,
the Company paid expenses on behalf of HNV of $18,000, $95,000 and $95,000 for
the years ended December 31, 1996, 1995 and 1994, respectively, that were
reimbursed by HNV.
INVESTMENT IN SUPPLYTECH AUSTRALIA, PTY.
The financial position and results of operations of the Company's
Australia joint venture were not significant. The Company recognized equity in
losses of its Australia joint venture of $119,000 during the year ended
December 31, 1996 and had an amount due from the Australia joint venture of
$67,000 at December 31, 1996.
<PAGE> 18
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
6. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Purchased technology .......................................... $ 4,451,000 $ 3,297,000
Goodwill ...................................................... 5,371,000 433,000
GEIS alliance agreement ....................................... 950,000 950,000
Organization costs ............................................ 30,000 30,000
SSA distribution agreement .................................... 2,466,000 2,466,000
Software development costs .................................... 4,461,000 2,435,000
------------ ------------
17,729,000 9,611,000
Less accumulated amortization ................................. (4,582,000) (1,856,000)
------------ ------------
$ 13,147,000 $ 7,755,000
============ ============
</TABLE>
During 1994, the Company wrote off $1,659,000 in capitalized software
development costs related to products which the Company ceased marketing.
Approximately $1,419,000 of such amount related to a product development effort
that was discontinued as a result of certain technology acquired in connection
with an acquisition described in Note 2.
7. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Accrued salaries and wages .................................... $ 3,546,000 $ 1,808,000
Accrued rent .................................................. 465,000 607,000
Accrued royalty ............................................... 308,000 279,000
State income, property, sales and other taxes ................. 1,803,000 1,000,000
Accrued litigation ............................................ 600,000 --
Other accrued expenses ........................................ 3,077,000 968,000
------------ ------------
$ 9,799,000 $ 4,662,000
============ ============
</TABLE>
8. INCOME TAXES
The provision for income tax expense (benefit) includes income taxes
currently payable and those deferred because of temporary differences between
the financial statement and tax bases of assets and liabilities and any
increase or decrease in the valuation allowance for deferred income tax assets.
<PAGE> 19
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Income (loss) before income tax expense (benefit) for the years ended
December 31, 1996, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
U.S. operations .................. $ (4,467,000) $ 614,000 $(2,921,000)
Foreign operations ............... (8,454,000) (1,153,000) --
------------ ----------- -----------
Total income (loss) before income
tax expense (benefit) .......... $(12,921,000) $ (539,000) $(2,921,000)
============ =========== ===========
</TABLE>
Effective January 1, 1995, SupplyTech, Inc. elected to be taxed as an S
corporation under the Internal Revenue Code. SupplyTech International, LLC was
incorporated under the laws of the state of Michigan as a Limited Liability
Corporation ("LLC"). As a LLC, SupplyTech International, LLC has elected to be
taxed as a limited liability corporation under the Internal Revenue Code. As a
result of these elections, the Company has been taxed in a manner similar to a
partnership for 1995 and 1996 and has not provided for any Federal or state
income taxes as the results of operations are passed through to, and the
related income taxes become the individual responsibility of the Company's
shareholders.
In accordance with SFAS No. 109, the STI net deferred income tax asset in
the amount of $516,000 recorded as of December 31, 1994 was charged to income
tax expense in 1995 at the time of its change in tax status.
The pro forma provision for income taxes for 1996 and 1995 reflects the
tax expense that would have been reported if SupplyTech, Inc. (a S corporation
for income tax reporting purposes) and SupplyTech International, LLC (a
partnership for income tax reporting purposes) had been C corporations during
these periods.
Income tax expense (benefit) for the years ended December 31, 1996, 1995
and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal ......................... $ -- $ -- $ (35,000)
Foreign ......................... 10,000 -- 7,000
State ........................... -- -- (4,000)
--------- ----------- -----------
Total current .................. $ 10,000 $ -- $ (32,000)
--------- ----------- -----------
Deferred:
Federal ......................... $ (28,000) $ 1,077,000 $ (895,000)
Foreign ......................... 167,000 -- --
State ........................... (3,000) 126,000 (106,000)
--------- ----------- -----------
Total deferred ................. $ 136,000 $ 1,203,000 $(1,001,000)
--------- ----------- -----------
Total income tax expense (benefit) $ 146,000 $ 1,203,000 $(1,033,000)
========= =========== ===========
</TABLE>
<PAGE> 20
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Pro forma income tax expense (benefit) for the years ended December 31,
1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current:
Federal ............................ $ -- $ --
Foreign ............................ 10,000 --
State .............................. -- --
--------- ---------
Total current ..................... $ 10,000 $ --
--------- ---------
Deferred:
Federal ............................ $ (28,000) $ 615,000
Foreign ............................ 167,000 --
State .............................. (3,000) 72,000
--------- ---------
Total deferred .................... $ 136,000 $ 687,000
--------- ---------
Total income tax expense (benefit) .. $ 146,000 $ 687,000
========= =========
</TABLE>
Income tax expense (benefit) differs from the amounts computed by applying
the federal statutory income tax rate of 34% to income (loss) before income
taxes as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit) .... $ (4,393,000) $ (183,000) $ (993,000)
Increase (decrease) in income tax expense (benefit)
resulting from:
State income taxes, net of federal income tax
benefit ........................................... (2,000) (84,000) (76,000)
Tax-exempt income .................................. (130,000) (49,000) --
Nondeductible charge for purchased in-process
product development ............................... 1,615,000 -- --
S corporation and LLC expense ...................... 1,492,000 1,490,000 --
Increase in the valuation allowance for deferred
income tax assets ................................. 1,494,000 -- --
Other .............................................. (70,000) 29,000 36,000
------------ ------------ -----------
$ 146,000 $ 1,203,000 $(1,033,000)
============ ============ ===========
</TABLE>
<PAGE> 21
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Pro forma income tax expense (benefit) differs from the amounts computed
by applying the federal statutory income tax rate of 34% to income (loss)
before income taxes as a result of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Computed "expected" income tax expense (benefit) ............. $(4,393,000) $ (183,000)
Increase (decrease) in income tax expense (benefit)
resulting from:
State income taxes, net of federal income tax
benefit .................................................... (2,000) 48,000
Tax-exempt income ........................................... (130,000) (49,000)
Nondeductible charge for purchased in-process
product development ........................................ 1,845,000 --
Increase in the valuation allowance for deferred
income tax assets .......................................... 2,819,000 805,000
Other ....................................................... 7,000 66,000
----------- -----------
$ 146,000 $ 687,000
=========== ===========
</TABLE>
The significant components of deferred income tax expense (benefit) for
the years ended December 31, 1996, 1995, and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Deferred income tax expense (benefit) ............... $(1,338,000) $ 1,203,000 $(1,001,000)
Increase in the valuation allowance for
deferred income tax assets ......................... 1,494,000 -- --
----------- ----------- -----------
$ 136,000 $ 1,203,000 $(1,001,000)
=========== =========== ===========
</TABLE>
Pro forma significant components of deferred income tax expense (benefit)
for the years ended December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred income tax expense (benefit) . $(2,683,000) $ (118,000)
Increase in the valuation allowance for
deferred income tax assets ........... 2,819,000 805,000
----------- -----------
$ 136,000 $ 687,000
=========== ===========
</TABLE>
<PAGE> 22
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The income tax effects of the temporary differences that give rise to the
Company's deferred income tax assets and liabilities as of December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards ............................ $ 3,755,000 $ 894,000
Deferred revenue ............................................ 814,000 542,000
Intangible assets ........................................... 2,474,000 943,000
Other ....................................................... 992,000 825,000
----------- -----------
Gross deferred income tax assets ........................... 8,035,000 3,204,000
Valuation allowance .......................................... (4,798,000) --
----------- -----------
Deferred income tax assets, net of the valuation
allowance ................................................... 3,237,000 3,204,000
Deferred income tax liabilities - principally due to
depreciation ................................................ (436,000) (267,000)
----------- -----------
Net deferred income tax assets ............................. 2,801,000 2,937,000
Less current deferred income tax assets ...................... 1,517,000 999,000
----------- -----------
Noncurrent deferred income tax assets ........................ $ 1,284,000 $ 1,938,000
=========== ===========
</TABLE>
The increase (decrease) in net deferred income tax assets for the years
ended December 31, 1996, 1995, and 1994, was $(136,000), $(1,203,000), and
$1,033,000, respectively. A valuation allowance of $4,798,000 at December 31,
1996 offsets the full amount of the foreign deferred income tax assets related
to foreign net operating loss carryforwards and the deductible temporary
differences related to foreign intangible assets. Under SFAS No. 109, deferred
income tax assets and liabilities are recognized for differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities which will result in future deductible or taxable amounts and for
net operating loss and tax credit carryforwards. A valuation allowance is then
established to reduce the deferred income tax assets to the level at which it
is "more likely than not" that the tax benefits will be realized. Realization
of tax benefits of deductible temporary differences and operating loss and tax
credit carryforwards depends on having sufficient taxable income within the
carryback and carryforward periods. Sources of taxable income that may allow
for the realization of tax benefits include (1) taxable income in the current
year or prior years that is available through carryback, (2) future taxable
income that will result from the reversal of existing taxable temporary
differences, and (3) future taxable income generated by future operations. The
Company believes that realization of the net deferred income tax assets
recorded at December 31, 1996 is more likely than not.
During 1996, the Company acquired foreign net operating loss carryforwards
in the NTEX and HNV acquisitions (see Note 2) of approximately $6,528,000 and
$3,114,000, respectively. The Company established a valuation allowance
relating to the carryforwards of $2,350,000 and $1,121,000, respectively, which
is included in the valuation allowance at December 31, 1996. If the benefit
from these net operating loss carryforwards are realized, the Company will
reduce the related valuation allowance and will reduce goodwill recorded in
connection with these transactions. For the year ended December 31, 1996, the
Company realized a portion of these foreign net operating loss carryforwards
and recognized deferred foreign income tax expense of $93,000 and $74,000
relating to the reduction in the valuation allowance for these carryforwards
and reduced goodwill associated with these acquisitions by a like amount.
During 1996, the Company also acquired certain intangible assets in the INOVIS
acquisition (see Note 2). The Company's acquisition of these intangible assets
for income tax reporting purposes created a deferred income tax asset of
approximately $1,494,000 for which the Company provided a valuation allowance.
<PAGE> 23
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1996, the Company has domestic and foreign net operating
loss carryforwards and research and experimentation income tax credit
carryforwards of approximately $7,152,000, $9,177,000 and $301,000,
respectively. The domestic net operating loss carryforwards expire at various
dates through the year 2009 unless utilized, the foreign net operating loss
carryforwards do not expire, and the research and experimentation income tax
credit carryforwards expire beginning in 2007 through 2010. The Company's
domestic net operating loss carryforward at December 31, 1996 includes $6.0
million in income tax deductions related to stock options excluded from the
table of deferred income tax assets above, which will be reflected as a credit
to additional paid-in capital when realized. The Company expects to record a
net deferred income tax asset of approximately $1.8 million relating to the STI
Acquisition and intends to provide a valuation allowance against such net
deferred income tax asset to reduce it to zero.
9. NOTES PAYABLE AND LONG-TERM DEBT
CREDIT FACILITIES
The Company maintains two revolving credit facilities payable to banks
which provide lines of credit to the Company up to $12.0 million in borrowing
availability, subject to the terms of the credit agreements, bearing interest
rates ranging from the bank's prime rate to prime plus 0.625%. The credit
facilities are secured by all of the Company's assets and impose certain
restrictions on the Company such as maintaining certain minimum financial
ratios, making certain investments, incurring additional indebtedness, and
making capital expenditures in excess of certain levels, as defined by the
terms of the facilities. Amounts outstanding under these agreements were
$1,550,000 as of December 31, 1996.
LONG-TERM DEBT
Long-term debt as of December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
6% promissory note payable to GEIS, due in equal
quarterly principal installments of $137,500
plus accrued interest through September 1999
(see Note 3) ................................ $ 1,650,000 $ 2,200,000
Non interest bearing note payable to the former
shareholders of EISL, due in equal quarterly
principal installments through September 1998
(see Note 2) ................................ 625,000 --
Capital lease obligations ..................... -- 72,000
----------- -----------
Total long-term debt ...................... 2,275,000 2,272,000
Less current portion of long-term debt ........ (907,000) (600,000)
----------- -----------
Long-term debt, excluding current
portion ................................. $ 1,368,000 $ 1,672,000
=========== ===========
</TABLE>
Future minimum annual payments under long-term debt for the next three
years are as follows:
<TABLE>
<S> <C>
1997....................................... $ 907,000
1998....................................... 818,000
1999....................................... 550,000
----------
$2,275,000
==========
</TABLE>
<PAGE> 24
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
10. SHAREHOLDERS' EQUITY
AMENDMENT TO THE ARTICLES OF INCORPORATION
Effective June 1995, the Company increased its authorized shares of common
stock and preferred stock to 100,000,000 and 20,000,000, respectively, and
established a par value of $.0001 per share for the Company's authorized but
unissued common stock.
INITIAL PUBLIC OFFERING
In August 1995, the Company completed an initial public offering of its
common stock. The Company sold 2,525,304 shares at $8.00 per share resulting
in net proceeds to the Company, after underwriters commissions and offering
expenses, of $18.3 million.
PREFERRED STOCK, SERIES C
In 1993, the Company sold Series C redeemable preferred stock and warrants
in a private placement resulting in proceeds of $2.5 million. The terms of
the Series C redeemable preferred stock included a 7% cash dividend payable
quarterly and a mandatory redemption on March 1, 1996. The proceeds of the
placement were allocated between the preferred stock and warrants based on
their estimated relative fair values. This resulted in a discount from the face
amount of the stock of approximately $66,000 which was allocated to the
warrants. The warrants were exercised during fiscal 1995.
In June 1995, the Company entered into agreements with holders of its
Series C redeemable preferred stock to provide for the conversion on March 1,
1996 of all Series C redeemable preferred stock to the Company's Common Stock.
The number of shares of common stock issuable upon conversion was determined by
dividing (i) the issue price of $10.00 times the number of shares of the Series
C redeemable preferred stock outstanding by (ii) 95% of the average trading
price of the common stock, as defined. As a result of the June 1995 agreement,
the Company reclassed the preferred stock from redeemable preferred stock to
shareholders' equity. On March 1, 1996, the Company issued 211,038 shares of
its common stock in exchange for all outstanding shares of the Company's Series
C preferred stock.
COMMON STOCK
In April 1996 the Company issued 381,474 shares of the Company's common
stock as partial consideration related to the Company's acquisition of (i)
NTEX, (ii) INOVIS and (iii) HNV. In August 1996 the Company issued 24,561
shares of the Company's common stock as consideration related to the Company's
acquisition of Comtech.
In September 1996, the Company registered 825,000 shares of puttable
common stock held by SSA. As of December 31, 1996, SSA had sold the shares and
forfeited their rights to put the shares of common stock back to the Company.
Therefore, approximately $4.7 million of puttable common stock has been
reclassified to shareholders' equity during 1996.
WARRANTS
The Company issued warrants in April 1996 related to the acquisition of
NTEX and INVOIS. The warrants enable the holders to acquire 48,750 shares of
the Company's common stock at a range of $11.34 to $11.43 per share,
representing the fair value of the common stock at the date of issuance.
<PAGE> 25
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The Company issued warrants in July 1996 to two investors in HNV who are
also shareholders of the Company because certain events did not occur with
respect to the performance of HNV. The warrants enable the holders to acquire
75,000 shares of the Company's common stock at $18.50 per share, representing
the fair value of the common stock at the date of issuance.
STOCK COMPENSATION PLANS
Stock options
The Company's 1989 Stock Option Plan (the "1989 Plan") and 1996 Stock
Option Plan (the "1996 Plan") and with the 1989 Plan (the "Plans") provide for
the grant of options to officers, directors, consultants and key employees. The
maximum number of shares of stock that may be issued under the 1996 Plan shall
not exceed in the aggregate the sum of 2,625,000 options plus an amount equal
to the number of all shares that are either not subject to options granted
under the 1989 Plan or were subject to options granted thereunder that expire
without exercise to officers, directors, consultants and key employees. Options
granted under the terms of the 1996 Plan generally vest ratably over four years
and are granted with an exercise price no less than the fair market value of
common stock on the grant date. Options granted prior to July 1994 vest
ratably over three years and options granted since July 1994 vest ratably over
four years. All options granted expire seven years from the date of grant. At
December 31, 1996, there were options outstanding to purchase 2,453,234 shares
of the Company's common stock, of which options to purchase 826,444 shares were
exercisable. There were 1,719,756 options available for grant at December 31,
1996.
In 1993, the Board of Directors authorized the creation of a stock
option plan for nonemployee members of the Company's Board of Directors (the
"Nonemployee Directors Plan"). A total of 225,000 shares of common stock
have been reserved for issuance under the Nonemployee Directors Plan at an
option price no less than the fair market value of the common stock on the
option grant date. Options expire seven years from the date of grant. The
options granted under the Nonemployee Directors Plan vest ratably in the year
of grant based on attendance at regularly scheduled board meetings. Options
which have not vested in the year of grant expire and become available for
grant under the Nonemployee Directors Plan. Options granted under the
Nonemployee Directors Plan for 119,000 shares of common stock were outstanding
and exercisable as of December 31, 1996. There were 89,625 options available
for grant under the Nonemployee Directors Plan at December 31, 1996.
In addition to outstanding options granted under the Company's existing
stock option plans, the Company has granted options to acquire 105,000 shares
of common stock to certain existing and former nonemployee directors for past
services. As of December 31, 1996, all of these options were outstanding and
exercisable.
<PAGE> 26
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity in outstanding stock options
for the year ended December 31, 1994:
<TABLE>
<CAPTION>
Stock Options
-----------------------------------
Number Price
--------- --------------------
<S> <C> <C> <C>
December 31, 1993 1,397,565 $ 0.78 - $3.25
Granted .......... 364,500 4.25
Exercised ........ (204,354) 0.78 - 4.25
Forfeited/canceled (93,200) 2.33 - 4.25
--------- --------------------
December 31, 1994 1,464,511 0.78 - 4.25
========= ====================
</TABLE>
At December 31, 1996 the Company has five stock-based compensation plans
which are described herein. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plans and its stock purchase
plan. Had compensation cost for the Company's five stock-based compensation
plans been determined consistent with FASB Statement No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C> <C>
Net loss applicable to As reported $ (13,095,000) $ (1,941,000)
common shareholders Pro forma $ (14,879,000) $ (2,443,000)
Net loss per As reported $ (0.71) $ (0.13)
common share Pro forma $ (0.81) $ (0.16)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1995 and 1996: dividend yield
of 0.5%; expected volatility of 57.8%; risk-free interest rate of 5.9%; and
expected lives of 8 months after vesting for all of the Plan options.
<PAGE> 27
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's fixed stock option plans as of
December 31, 1996 and 1995, and changes during the years ended on those dates
is presented below:
<TABLE>
<CAPTION>
1996 1995
----------------------- ----------------------
Weighted- Weighted-
Average Average
Shares Exercise Shares Exercise
Fixed Options (000) Price (000) Price
- -------------------------------------- ------ -------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,711 $ 3.80 1,465 $ 4.03
Granted 1,160 13.07 733 5.24
Exercised (306) 2.72 (322) 2.16
Forfeited/canceled (112) 5.86 (165) 3.60
----- -------
Outstanding at end of year 2,453 8.22 1,711 3.80
===== =======
Options exercisable at year-end 826 604
Weighted-average fair value of options
granted during the year $8.68 $ 3.38
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Life Price at 12/31/96 Price
- ----------------------- ------------- ----------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
$ 1.17 - $ 1.67 59,176 1.09 $ 1.54 57,375 $ 1.54
$ 2.33 - $ 2.33 360,075 2.36 $ 2.33 360,075 $ 2.33
$ 2.67 - $ 3.25 84,675 3.25 $ 2.88 84,675 $ 2.88
$ 4.25 - $ 4.67 705,268 4.90 $ 4.27 243,976 $ 4.26
$ 9.17 - $11.41 277,890 5.29 $10.24 59,343 $ 9.76
$11.67 - $11.67 579,375 6.21 $11.67 - -
$14.50 - $17.83 386,775 6.62 $16.47 21,000 $14.50
--------- -------
$1.17 - $17.83 2,453,234 5.01 $ 8.22 826,444 $ 3.75
========= =======
</TABLE>
Employee Stock Purchase Plan
Effective January 1, 1996, the Company began offering employees the right
to purchase shares of the Company's common stock at 85% of the lower of the
beginning of period or end of period market price pursuant to the Employee
Stock Purchase Plan (the "Purchase Plan"). Under the Purchase Plan, full-time
employees, except persons owning 5% or more of the Company's common stock, are
eligible to participate after six months of employment. Employees may
contribute up to 15% of their annual salary, toward the Purchase Plan up to a
maximum of $15,000 per year. A maximum of 225,000 shares of common stock are
reserved for issuance under the Purchase Plan. As of December 31, 1996, 6,639
shares have been issued under the Purchase Plan.
<PAGE> 28
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Under FASB Statement 123, compensation cost is recognized for the fair
value of the employees' purchase rights, which was estimated using the
Black-Scholes model with the following assumptions for 1996: dividend yield of
0.05%; an expected life of 8 months after vesting for all years; expected
volatility of 57.8%; and risk-free interest rates of 5.9%. The
weighted-average fair value of those purchase rights granted in 1996 was $8.43.
11. RELATED PARTY TRANSACTIONS
The Company has entered into related party transactions in the normal
course of business, including transactions with HNS and HNV as described in
Note 5 and the transaction with SSA as described in Note 3 as well as the
transactions described below. The Company believes that the terms of all
related party transactions are comparable to those that could have been
obtained in transactions with unaffiliated parties.
The Company paid fees which are included in the Company's financial
statements as direct costs of services to Westinghouse Communications, Inc.
("Westinghouse") of approximately $1,387,000, $930,000, and $520,000 in 1996,
1995 and 1994, respectively, under telecommunications agreements with
Westinghouse. Westinghouse owned more than 5% of the Company until the sale of
their investment in the Company's common stock in August 1995. During 1996,
the Company received $600,000 in revenue from an affiliated company that is
partially owned by an employee of one of the Company's foreign subsidiaries.
This same affiliated company also billed the Company $350,000 for services that
the affiliated company provided to the Company.
Two officers of the Company made advances to the Company totaling $440,000
during 1995 payable on demand with interest at 8.5%, payable annually. These
loans were paid in full by the Company during 1996. The Company paid these
officers interest of $4,065 which is included in interest expense during the
year ended December 31, 1996.
12. SEGMENT INFORMATION, INTERNATIONAL OPERATIONS AND MAJOR CUSTOMERS
SEGMENT INFORMATION
The Company operates in a single industry segment: the development,
marketing and supporting of software products and the providing of network and
consulting services to enable businesses to engage in electronic commerce.
INTERNATIONAL OPERATIONS
As a result of the 1996 Acquisitions described in Note 2, the Company
established operations in Europe. A summary of the Company's operations by
geographic area as of and for the year ended December 31, 1996 is presented
below:
<TABLE>
<CAPTION>
United
States Europe Mexico Eliminations Total
------------ ------------- ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $51,744,000 $ 7,857,000 $358,000 $ (696,000) $59,263,000
Operating income (loss) $ 2,495,000 $(8,193,000) $ 5,000 $ (43,000) $(5,736,000)
Identifiable assets $50,460,000 $12,138,000 $112,000 $(13,917,000) $48,793,000
</TABLE>
<PAGE> 29
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Revenues and operating income (loss) for the Company's European operations
shown above reflects the results of operations of NTEX, INOVIS, and HNV
beginning on March 31, 1996 and includes a charge for purchased in-process
product development and a related acquisition charge of $8.6 million. Revenues
from foreign operations and identifiable assets of foreign operations were less
than 10% of consolidated revenue and assets in 1995 and 1994.
Revenues generated from export sales included in United States revenues
were less than 10% of consolidated revenues in 1996, 1995, and 1994.
MAJOR CUSTOMERS
No single customer comprised 10% or greater of the Company's consolidated
revenues in 1996, 1995, and 1994.
13. COMMITMENTS
401(K) PROFIT SHARING PLANS
The Company maintains a 401(k) Profit Sharing Plan (the "401(k) Plan") for
the benefit of its domestic employees, which is intended to be a tax-qualified
defined contribution plan under Section 401(k) of the Internal Revenue Code.
Under the 401(k) Plan, employees who have completed one year of service and at
least 1,000 hours of service during that period are eligible to participate.
Subject to certain limitations, the Company may make a discretionary matching
contribution of up to $300 of the salary deferral contributions of participants
at a rate determined by the Board of Directors of the Company each year. The
Board of Directors approved contributions by the Company to the 401(k) Plan of
$35,000, $27,000 and $19,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
STI maintains a 401(k) Profit Sharing Plan (the "STI 401(k) Plan") for the
benefit of all eligible employees, which is intended to be a tax-qualified
defined contribution plan under Section 401(k) of the Internal Revenue Code.
Under the STI 401(k) Plan, employees who have completed six months of service
and are at least 21 years of age are eligible to participate. Subject to
certain Internal Revenue Code limitations, STI has elected to make a matching
contribution of 25% of the first 6% of employee contributions. The
contribution made by STI to the STI 401(k) Plan was $68,000, $51,000 and
$53,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
LEASES
The Company leases office facilities, communications equipment and
automobiles under operating leases which extend through 2001. Rent expense
under all operating leases was approximately $2,139,000, $1,408,000 and
$1,243,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Future minimum lease payments under operating leases with noncancelable lease
terms in excess of one year for the next five years and in the aggregate are as
follows:
<TABLE>
<S> <C>
1997......................... $ 3,067,000
1998......................... 3,209,000
1999......................... 3,195,000
2000......................... 1,938,000
2001......................... 778,000
-----------
$12,187,000
===========
</TABLE>
<PAGE> 30
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CONTINGENCIES
The Company is subject to lawsuits, claims and other complaints arising
out of the ordinary conduct of business. While the ultimate results and
outcome cannot be determined, management does not expect that they will have a
material adverse effect on the Company's results of operations or financial
position.
14. SUBSEQUENT EVENTS (UNAUDITED)
STOCK SPLIT
On January 10, 1997, the Board of Directors declared a three-for-two stock
split in the form of a 150% stock dividend on the Company's common stock
payable on January 31, 1997 to shareholders of record on January 17, 1997. All
share, per share and shareholders' equity amounts included in the Company's
consolidated financial statements have been retroactively restated to reflect
the split for all periods presented.
ACQUISITION OF HNS
On January 1, 1997, because of the expiration of restrictions on the
Company's ability to appoint a majority of the HNS Board of Managers, the
Company exercised its rights as majority shareholder of HNS by appointing a
majority of the members of the HNS Board of Managers. As a result, effective
January 1, 1997, the Company will account for its investment in HNS by
consolidating the statements of financial position and results of operations
of HNS with those of the Company.
Also on January 1, 1997, the Company entered into a debenture purchase
agreement with the holder of the Debenture whereby the Company acquired the
Debenture in exchange for $1.5 million in cash and 242,288 shares of the
Company's common stock valued at $4.2 million. The Company expects to record
an extraordinary loss on debt extinguishment of $2.4 million in the first
quarter of 1997 related to this transaction which represents the amount paid
of $5.7 million in excess of the face amount of the Debenture of $3.0 million
plus accrued interest of $280,000.
Immediately after this transaction, the Company acquired the minority
interest in HNS, consisting of 585,335 shares of HNS common stock and stock
options to acquire 564,727 shares of HNS common stock at exercise prices
ranging from $0.70 per share to $1.65 per share, by exchanging cash of $1.6
million and stock options to acquire 355,317 shares of the Company's common
stock at exercise prices ranging from $15.22 per share to $16.53 per share
which were valued by the Company at $2.2 million. Including transaction and
other costs of $350,000, the Company paid $4.1 million for the acquisition of
the HNS minority interest which will be accounted for using the purchase
method of accounting with $2.7 million of the purchase price allocated to
in-process product development and charged to the supplemental consolidated
statement of operations on January 1, 1997, and $1.4 million allocated to
goodwill and purchased technology.
The Company anticipates that it will incur integration costs related to
these transactions of $1.5 million to $2.5 million during the first quarter of
1997.
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Harbinger Corporation:
We have audited the accompanying supplemental consolidated balance sheets
of Harbinger Corporation and subsidiaries as of December 31, 1996 and 1995 and
the related supplemental consolidated statements of operations, shareholders'
equity, and cash flows for each of the years in the two-year period ended
December 31, 1996. These supplemental consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these supplemental consolidated financial statements
based on our audits. We did not audit the 1995 combined financial statements of
SupplyTech, Inc. and SupplyTech International, LLC, which statements reflect
total assets constituting 13% and total revenues constituting 39% of the
related consolidated totals. The 1995 combined financial statements of
SupplyTech, Inc. and SupplyTech International, LLC, not presented separately
herein, were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to the amounts included for SupplyTech,
Inc. and SupplyTech International, LLC for 1995, is based solely on the report
of the other auditors. The financial statements of Harbinger Corporation and
subsidiaries for the year ended December 31, 1994, prior to their restatement
for the 1997 pooling of interests transaction described in Note 2 to the
supplemental consolidated financial statements and not presented separately
herein, were audited by other auditors whose report dated March 14, 1995
expressed an unqualified opinion on those statements. Separate combined
financial statements of SupplyTech, Inc. and SupplyTech International, LLC also
included in the 1994 restated supplemental consolidated financial statements
and not presented separately herein were audited by other auditors whose report
dated February 19, 1997 expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 and the report of the other
auditors provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect
to the merger of Harbinger Corporation and SupplyTech, Inc. and SupplyTech
International, LLC on January 3, 1997, which has been accounted for as a
pooling-of-interests as described in Note 2 to the supplemental consolidated
financial statements. Generally accepted accounting principles proscribe
giving effect to a consummated business combination accounted for by the
pooling-of-interests method in financial statements that do not include the
date of consummation. These financial statements do not extend through the
date of consummation. However, they will become the historical consolidated
financial statements of Harbinger Corporation and subsidiaries after financial
statements covering the date of consummation of the business combination are
issued.
In our opinion, based on our audits and the report of the other auditors
with respect to 1995, the 1996 and 1995 supplemental consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Harbinger Corporation and subsidiaries as of December 31,
1996 and 1995, and the results of their operations and their cash flows for
each of the years in the two-year period ended December 31, 1996, in conformity
with generally accepted accounting principles applicable after financial
statements are issued for a period which includes the date of consummation of
the business combination.
<PAGE> 32
We also audited the combination of the accompanying supplemental
consolidated financial statements for the year ended December 31, 1994, after
restatement for the 1997 pooling of interests; in our opinion, such
supplemental consolidated statements have been properly combined on the basis
described in Note 2 of the notes to the supplemental consolidated financial
statements.
KPMG PEAT MARWICK LLP
March 17, 1997
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
SupplyTech, Inc. and SupplyTech International, LLC:
We have audited the combined balance sheet of SupplyTech, Inc. and
SupplyTech International, LLC as of December 31, 1995 and the related combined
statements of operations, shareholders' equity (deficit), and cash flows for
each of the years in the two-year period ended December 31, 1995. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
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 combined financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of SupplyTech,
Inc. and SupplyTech International, LLC, as of December 31, 1995, and the
results of their operations and their cash flows for each of the years in the
two-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
CIULLA, SMITH & DALE, LLP
Southfield, Michigan
February 19, 1997
<PAGE> 34
HARBINGER CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Amount Charged to
Balance at Charged to Recorded Other Balance at
Beginning of Costs and Due to Accounts-- Deductions-- End of
Description Period Expenses Acquisitions Describe(B) Describe(A) Period
- ----------------------------------- ------------ ---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994
Allowance for returns and doubtful
accounts......................... $282,000 86,000 - 964,000 (1,062,000) $ 270,000
December 31, 1995
Allowance for returns and doubtful
accounts......................... $270,000 99,000 - 1,309,000 (1,141,000) $ 537,000
December 31, 1996
Allowance for returns and doubtful
accounts......................... $537,000 98,000 325,000 2,392,000 (1,275,000) $2,077,000
</TABLE>
- -----------
(A) Deductions represent write-offs of doubtful accounts and sales returns
charged against the allowance.
(B) Deductions from revenues for sales returns and allowances.
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Harbinger Corporation:
Under date of March 17, 1997, we reported on the supplemental consolidated
balance sheets of Harbinger Corporation and subsidiaries as of December 31,
1996 and 1995 and the related supplemental consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 1996, as contained in this Current Report on
Form 8-K filed on or about April 28, 1997. We did not audit the 1995 combined
financial statements of SupplyTech, Inc. and SupplyTech International, LLC,
which statements reflect total assets constituting 13% and total revenues
constituting 39% of the related consolidated totals. The 1995 combined
financial statements of SupplyTech, Inc. and SupplyTech International, LLC, not
presented separately herein, were audited by other auditors whose report has
been furnished to us and our opinion, insofar as it relates to the amounts
included for SupplyTech, Inc. and SupplyTech International, LLC for 1995, is
based solely on the report of the other auditors. The financial statements and
the financial statement schedule of Harbinger Corporation and subsidiaries for
the year ended December 31, 1994, prior to their restatement for the 1997
pooling of interests transaction described in Note 2 to the supplemental
consolidated financial statements and not presented separately herein, were
audited by other auditors whose report dated March 14, 1995 expressed an
unqualified opinion on those statements and that schedule. Separate combined
financial statements of SupplyTech, Inc. and SupplyTech International, LLC also
included in the 1994 restated supplemental consolidated financial statements
and supplemental financial statement schedule and not presented separately
herein, were audited by other auditors whose report dated February 19, 1997
expressed an unqualified opinion on those statements. In connection with our
audits of the aforementioned supplemental consolidated financial statements, we
also audited the related supplemental financial statement schedule for each of
the years in the two-year period ended December 31, 1996 included herein. This
supplemental financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
supplemental financial statement schedule based on our audits.
The supplemental consolidated financial statements and supplemental financial
statement schedule give retroactive effect to the merger of Harbinger
Corporation and SupplyTech, Inc. and SupplyTech International, LLC on January
3, 1997, which has been accounted for as a pooling of interests as described in
Note 2 to the supplemental consolidated financial statements. Generally
accepted accounting principles proscribe giving effect to a consummated
business combination accounted for by the pooling of interests method in
financial statements and the financial statement schedule that do not include
the date of consummation. These financial statements and the financial
statement schedule do not extend through the date of consummation. However,
they will become the historical consolidated financial statements and the
financial statement schedule of Harbinger Corporation and subsidiaries after
financial statements covering the date of consummation of the business
combination are issued.
In our opinion, based on our audits and the report of the other auditors with
respect to 1995, such supplemental financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein
for each of the years in the two-year period ended December 31, 1996.
We also audited the combination of the accompanying supplemental financial
statement schedule for the year ended December 31, 1994, after restatement for
the 1997 pooling of interests; in our opinion, such supplemental financial
statement schedule has been properly combined on the basis described in Note 2
of the notes to the supplemental consolidated financial statements.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 17, 1997
<PAGE> 36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Harbinger Corporation:
We have audited the statements of operations, shareholders'
equity and cash flows of HARBINGER CORPORATION, a Georgia
corporation (formerly known as Harbinger EDI Services, Inc.) for
the year ended December 31, 1994. These financial statements and
the schedule included in Harbinger Corporation's Form 10-K for the
year ended December 31, 1996 are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements and schedule 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 results of
operations and cash flows of Harbinger Corporation for the year
ended December 31, 1994 in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule
included in Harbinger Corporation's Form 10-K for the year ended
December 31, 1996 is the responsibility of the Company's
management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 14, 1995
<PAGE> 37
HARBINGER CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL COMPUTATION OF PRIMARY AND
FULLY DILUTED PER SHARE EARNINGS
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------- -------------
<S> <C> <C> <C>
PRIMARY
Net loss applicable to common
shareholders.............................. $(13,095,000) $ (1,941,000) $ (2,088,000)
============ ============ ============
Weighted average common shares
outstanding............................... 18,465,000 15,007,000 12,693,000
Net effect of dilutive stock options and
warrants--using the treasury stock method
computed on a primary basis............... -- -- --
------------ ------------ ------------
Total weighted average common
and common equivalent shares
outstanding............................. 18,465,000 15,007,000 12,693,000
============ ============ ============
Net loss per common share.................. $ (0.71) $ (0.13) $ (0.16)
============ ============ ============
FULLY DILUTED
Net loss applicable to common
shareholders.............................. $(13,095,000) $ (1,941,000) $ (2,088,000)
============ ============ ============
Weighted average common shares
outstanding............................... 18,465,000 15,007,000 12,693,000
Net effect of dilutive stock options and
warrants--using the treasury stock method
computed on a fully diluted basis......... -- -- --
------------ ------------ ------------
Total weighted average common and
common equivalent shares
outstanding............................. 18,465,000 15,007,000 12,693,000
============ ============ ============
Net loss per common share.................. $ (0.71) $ (0.13) $ (0.16)
============ ============ ============
</TABLE>
